As filed with the Securities and Exchange Commission on March 3, 2021.
Registration No. 333-253184
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Hayward Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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5091
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82-2060643
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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400 Connell Drive
Suite 6100
Berkeley Heights, NJ 07922
(908) 351-5400
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Eifion Jones
Senior Vice President and Chief Financial Officer
400 Connell Drive
Suite 6100
Berkeley Heights, NJ 07922
(908) 351-5400
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
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Craig Marcus, Esq.
Rachel Phillips, Esq.
Ropes & Gray LLP
1211 Avenue of the Americas
New York, NY 10036
(617) 951-7000
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Michael Kaplan, Esq.
Roshni Banker Cariello, Esq.
Jeffrey S. Ramsay, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ☐
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Accelerated filer ☐
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Non-accelerated filer ☒
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Smaller reporting company ☐
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Emerging growth company ☒
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Amount to be
Registered(1)
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Proposed
Maximum
Offering Price Per
Share(2)
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Proposed Maximum
Aggregate Offering
Price(1)(2)
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Amount of
Registration
Fee(3)
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Common stock, par value $0.001 per share
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46,319,444
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$
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19.00
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$
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880,069,436
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$
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96,015.58
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(1)
Includes 6,041,666 shares of common stock that may be sold if the underwriters exercise their option to purchase additional shares of common stock.
(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(a) of the Securities Act of 1933, as amended.
(3)
A portion of this amount totaling $10,910.00 was previously paid in connection with the previous filing of this Registration Statement on February 16, 2021. The remaining portion of $85,105.58 has been paid herewith.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion, dated March 3, 2021.
40,277,778 Shares
Hayward Holdings, Inc.
Common Stock
This is an initial public offering of 40,277,778 shares of our common stock. We are offering 22,200,000 shares of our common stock. The selling stockholders identified in this prospectus are offering 18,077,778 shares of our common stock. We will not receive any proceeds from the sale of the shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for our common stock. We estimate that the initial public offering price per share will be between $17.00 and $19.00. See “Underwriting” for a discussion of the factors to be considered in determining the initial offering price. We have applied to list our common stock on the New York Stock Exchange under the symbol “HAYW.”
After the completion of this offering, certain affiliates of CCMP, MSD Partners and AIMCo (each as defined herein) will be parties to a stockholders agreement and will beneficially own approximately 78.7% of the combined voting power of our common stock (or 76.0% if the underwriters exercise in full their option to purchase additional shares of common stock). As a result, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards. See “Management — Controlled Company Exemption” and “Principal and Selling Stockholders.”
We are an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and will be subject to reduced public company reporting requirements for this prospectus and future filings. See “Prospectus Summary — Implications of Being an Emerging Growth Company.”
Investing in shares of our common stock involves significant risks. See “Risk Factors” beginning on page 24.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds before expenses, to us
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$
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$
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Proceeds before expenses, to the selling stockholders
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$
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$
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(1)
We have agreed to reimburse the underwriters for certain expenses. See “Underwriting.”
The selling stockholders have granted the underwriters the option to purchase up to an additional 6,041,666 shares of common stock at the initial public offering price, less the underwriting discounts and commissions.
The underwriters expect to deliver the shares of common stock to purchasers on or about , 2021.
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BofA Securities
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Goldman Sachs & Co. LLC
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Nomura
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Credit Suisse
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Morgan Stanley
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Baird
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Guggenheim Securities
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Jefferies
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BMO Capital Markets
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KeyBanc Capital Markets
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William Blair
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Houlihan Lokey
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Moelis & Company
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The date of this prospectus is , 2021.
TABLE OF CONTENTS
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Page
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ii
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ii
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ii
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ii
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iii
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iv
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1
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24
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53
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55
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56
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57
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60
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62
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63
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64
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87
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110
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118
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134
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137
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140
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146
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151
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153
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157
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166
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166
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166
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F-1
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Through and including , 2021 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
ABOUT THIS PROSPECTUS
We, the selling stockholders and the underwriters (and any of our or their affiliates) have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses filed with the Securities and Exchange Commission (the “SEC”). We, the selling stockholders and the underwriters (and any of our or their affiliates) take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
We, the selling stockholders and the underwriters (and any of our or their affiliates) have not done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who obtain this prospectus must inform themselves about, and observe any restrictions relating to, this offering and the distribution of this prospectus outside of the United States.
MARKET AND INDUSTRY DATA
This prospectus includes market and industry data and forecasts that we have derived from independent consultants, publicly available information, various industry publications, other published industry sources and our internal data and estimates. Independent consultant reports, industry publications and other published industry sources generally indicate that the information contained therein was obtained from sources believed to be reliable.
Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. Although we believe that such information is reliable, we have not had this information verified by any independent sources. Similarly, our internal research is based upon our understanding of industry conditions, and such information has not been verified by any independent sources. Any estimates underlying such market-derived information and other factors could cause actual results to differ materially from those expressed in the independent parties’ estimates and in our estimates.
Certain monetary amounts, percentages and other figures included in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables and charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.
TRADEMARKS, TRADENAMES AND SERVICE MARKS
We own or have rights to trademarks or trade names that we use in conjunction with the operation of our business and that appear in this prospectus. This prospectus also contains trademarks, service marks, trade names and copyrights of other companies which, to our knowledge, are the property of their respective owners. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but the absence of such symbols does not indicate the registration status of the trademarks and is not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the applicable licensor to such trademarks and trade names.
NON-GAAP FINANCIAL MEASURES
This prospectus contains “non-GAAP financial measures,” including EBITDA, adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin. These are
financial measures that are not calculated and presented in accordance with generally accepted accounting principles in the United States (“GAAP”). For more information about how we use these non- GAAP financial measures in our business, the limitations of these measures, and a reconciliation of these measures to the most directly comparable GAAP measures, please see the sections titled “Prospectus Summary—Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
THE RECLASSIFICATION
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional number of shares determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion.
References to the “Reclassification” throughout this prospectus refer to (i) the reclassification of our Class B common stock into our common stock on March 2, 2021, (ii) the 195-for-1 stock split of our common stock on March 2, 2021, (iii) the conversion of our Class A stock into common stock, (iv) the redemption of our Class C stock and (v) the filing and effectiveness of our second restated certificate of incorporation and the adoption of our amended and restated bylaws. Unless otherwise indicated, all share data gives effect to the Reclassification. See “The Reclassification.”
A MESSAGE FROM HAYWARD PRESIDENT AND CEO KEVIN HOLLERAN
With roots that go back nearly a century, Hayward has grown from a small, family-run company to a leading manufacturer of pool equipment and provider of enjoyable outdoor experiences. For all the growth and progress, the people of Hayward have retained the founder’s family values, working as a closely-knit team to develop and deliver superior products, provide exceptional service and build lasting relationships with distributors, builders, buying groups, retailers, servicers and pool owners. As a result, Hayward has one of the largest global installed bases and is the industry’s most recognized and trusted brand in the United States with a loyal customer base. We place a high priority on sustainability, community involvement and a fair living wage and are committed to improving the quality of life of our employees, our neighbors, our trade customers and pool owners.
I joined Hayward in mid-2019 after nearly 30 years of working with great recreational and industrial brands at Textron, Ingersoll-Rand and Terex. I was excited to join such a strong company with a great presence and growth potential in the outdoor living space. I was also delighted to find a deeply rooted and mutually supportive company culture that reaches beyond Hayward employees to a vast network of trade partners, retailers, and dealers, many of whom have had long-lasting relationships with Hayward. That cooperative spirit was never more needed or more evident than when the COVID-19 pandemic struck. I am proud of how the Hayward team rose to the challenges of servicing our trade customers, given our essential business status, while always keeping safety paramount. We worked remotely where we could and implemented appropriate safety measures where we could not. Our factories and distribution centers remained open, enabling our channel partners to satisfy soaring demand as pool owners realized the advantages of recreation in their own backyards. This experience has only reinforced appreciation for outdoor living and home wellness. The recent increase in new pool construction will play to the core strength of our business model for years to come, a model which focuses on the resilient aftermarket demand for repair, replacement and remodeling of existing pool equipment.
At the heart of Hayward’s strength is our position as a full-line supplier of industry-leading products to suit pools of all types—in-ground, above ground and commercial. Our high-quality components are engineered to work together to keep every pool at its best. The energy efficient products we develop and the natural processes we harness for pool sanitization reduce dependency on harsh chemicals. Our innovative spirit has brought breakthrough salt chlorine generators to the mainstream pool market with AquaRite. We continue our leadership today with Omni integrated “smart” home automation to cater to pool owners who increasingly expect to control all pool functions from the palm of their hand. Our reputation for reliability, quality and innovation draws trade customers and pool owners to the Hayward brand.
We engage a large addressable market with a revenue mix diversified by region, channel and product. Hayward’s strong revenue growth and margins have contributed to our financial strength. In 2020, we achieved net sales growth of 19.4%, improved our operating income margin, net income margin and adjusted EBITDA margin from 13.5% to 14.2%, 1.2% to 4.9% and 23.5% to 26.5%, respectively. Our market share has continued to grow as we introduce more energy efficient and more environmentally sustainable relevant products. We expect future growth to come from continued leadership in new and innovative products and further expansion in the United States and Canada as well as international markets where we are under-represented. We expect to achieve growth organically, and through targeted strategic acquisitions, where a disciplined process of integration has helped us in the past to expand markets, add new products and improve our technology.
We invite you to learn more about Hayward, the industry we serve, the strengths of our offerings and our future plans for growth and expansion.
Sincerely,
Kevin Holleran
President and Chief Executive Officer
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this prospectus, but it does not contain all of the information that you should consider before deciding to invest in our common stock. You should carefully read the entire prospectus, including the information presented under the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and the financial statements and the notes thereto, included elsewhere in this prospectus, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties. Unless otherwise indicated or the context otherwise requires, references in this prospectus to (i) “Hayward Holdings” refers to Hayward Holdings, Inc., (ii) “Hayward Industries” refers to Hayward Industries, Inc., our primary operating subsidiary, and (iii) “we,” “us,” “our,” “Hayward” or the “Company” refer to Hayward Holdings, Inc. and its consolidated subsidiaries, including Hayward Industries.
We define the year ended December 31, 2020 as Fiscal Year 2020 and the year ended December 31, 2019 as Fiscal Year 2019. Our fiscal quarters usually include 13 weeks except the fourth quarter which ends on December 31 of each fiscal year.
Company Overview
We are an industry-leading global designer, manufacturer and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value Internet-of-Things-enabled (“IoT”) and energy efficient models are a primary growth driver for our business as we estimate that aftermarket sales represented approximately 75% of net sales in Fiscal Year 2020. We estimate aftermarket sales based upon feedback from certain representative customers and management’s interpretation of available industry and government data, and not upon our GAAP net sales results.
We have an attractive financial profile driven by our market position, product offerings and focus on operational excellence. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our long history of lean manufacturing and supply chain initiatives produced operating income margins of 14.2% and 13.5%, net income margins of 4.9% and 1.2% and adjusted EBITDA margins of 26.5% and 23.5% in Fiscal Years 2020 and 2019, respectively. As a result of our strong financial profile, we believe we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through our operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “— Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
![[MISSING IMAGE: TM2037032D9-PC_NETSALE4C.JPG]](https://content.edgar-online.com/edgar_conv_img/2021/03/03/0001104659-21-031512_TM2037032D9-PC_NETSALE4C.JPG)
The demand for outdoor living products has increased over the past decade as retiring baby boomers are investing in their homes and millennials are showing increased interest in outdoor spaces. Consumer spending has been redirected towards outdoor home improvements as consumers continue migrating to the suburbs and increase time spent at home and in the backyard. Outdoor living repair, replacement and remodeling has grown faster than traditional home repair, replacement and remodeling projects as homeowners choose to make larger outdoor investments. The trend toward healthy outdoor living has helped underpin continued pool industry growth. Homeowners’ response to COVID-19 also helped to reinforce this trend of new pool builds as a safe environment for enjoyment at home, further increasing the installed base of pools globally, which we estimate is over 25 million as of 2020. Our business is primarily driven by reliable aftermarket spending associated with a number of key drivers: a growing installed base, an increasing range of new pool products, a shift to more highly valued energy efficient and more environmentally sustainable products and the development of “smart home” technology to increase connectivity and automation.
We have a leading brand with a reputation for quality, energy efficiency and innovation among both global pool professionals (e.g., retailers, builders, servicers and e-commerce resellers) and pool owners. We are a leading global manufacturer, supported by a large installed base and an estimated North American residential pool market share of approximately 30% that we believe is well-positioned for future growth. We estimate our North American market share based on our extensive knowledge of the markets in which we operate and observations of our direct competitors, which we use to inform analyses of a survey of North American pool construction and aftermarket spending trends prepared by P.K. Data as well as unit share data prepared by a third party market research company. On average, we have 20+ year relationships with our top 20 trade customers. Many of our products are critical to the ongoing operation of pools given requirements for water quality and sanitization. As a result, we believe that many pool owners consider our products essential.
![[MISSING IMAGE: TM2037032D1-PH_ENERGY4CLR.JPG]](https://content.edgar-online.com/edgar_conv_img/2021/03/03/0001104659-21-031512_TM2037032D1-PH_ENERGY4CLR.JPG)
Our products include a broad line of advanced IoT-enabled controls, alternate natural sanitizers to lower chemical usage, energy efficient pumps, LED lights, heaters, automatic cleaners and filters. We remain focused on being at the forefront of product innovation, as we continually expand our product offerings and have proactively brought new products to the market with 59 new products launched in the last three years. As of December 31, 2020, we had approximately 350 issued patents and 135 patent applications pending, including many for current and for future products under development. Consistent with our commitment to providing more environmentally sustainable solutions, over the past three years our products have helped to generate approximately 1.1 billion kWh of energy savings, reduce chlorine usage by approximately 81 million pounds and save approximately 2 billion gallons of chemically treated, heated water. Approximately 89% of our products are designed to be energy efficient, conserve water and/or avoid harsh chemical usage.
As the shift towards connected outdoor living continues, we remain focused on building an industry-leading integrated digital platform for our pool products. Given the strong aftermarket mix of our business, existing product upgrades (e.g., enhanced functions and IoT compatibility) drive our growth. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage essential pool functions from the scheduling of sanitization, filtration and automatic cleaners to enabling landscape light shows with water features to create the ultimate backyard experience. Our branded technology enables pool owners to manage their pools without the need to use broader technology integrators. In addition, the app helps to connect pool owners to the Hayward brand and increase awareness. We believe our focus on developing innovative connected products further enhances pool owner loyalty and enables us to increase our market share.
Our Competitive Strengths
We believe that the following competitive strengths have been key drivers of our success to date, and strategically position us for continued success.
Market Pioneer and Leader in Connected Pool Products Catering to Healthy Outdoor Living
We develop highly engineered outdoor living products. Our market leading brand has helped establish industry standards for generations, pioneering the shift to plastic flow control products and energy efficient heaters. Today we continue that innovation through healthy, more energy efficient and connected pool products. Swimming is one of the most popular recreational activities in the world and water-based exercise is known to improve physical and mental health. Our water care products are composed of salt chlorine
generators that eliminate the need to handle and store corrosive chlorine chemicals. This natural process generates all the chlorine needed for sanitization while maintaining soft water for healthy, irritation free swimming. Our line of UV/Ozone and Advanced Oxidization Process (“AOP”) alternate sanitizers are among the most effective technologies in destroying waterborne bacteria and viruses while reducing the amount of chlorine required by at least 50%. Our pump products now consume only a third of the energy relative to a decade ago. The U.S. Environmental Protection Agency (“USEPA”) and U.S. Department of Energy (“DOE”) awarded us Energy Star Partner of the Year for the last two years as a result of our energy efficient products.
![[MISSING IMAGE: TM2037032D3-FC_GROUND4C.JPG]](https://content.edgar-online.com/edgar_conv_img/2021/03/03/0001104659-21-031512_TM2037032D3-FC_GROUND4C.JPG)
As the world becomes more digitally focused, pool owners are increasingly demanding “smart” outdoor living solutions. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage every essential pool function. The mobile app manages everything from the scheduling of sanitization, filtration and running of automatic cleaners, to pool light shows with water features that create the ultimate backyard experience. Omni® gives the pool owner the power to access and adjust pool settings from anywhere. Omni easily connects to Amazon Alexa or Google Home for voice command of pool functions or integrates as part of a home automation system (e.g., Crestron and Savant). The emergence of IoT and smart home systems is a growing trend that is led by the U.S. smart home market, which is expected to grow approximately 15% per year, according to a recent report by Statista. Apps or voice controls are the most widely used systems for operating these home systems which complements Omni’s capability to operate pool and spa functions along with other backyard functions such as irrigation and landscape lighting. Omni is the highest rated pool app in both the Apple and Google online stores, with a 93% attach rate, which refers to the percentage of installed Omni-compatible products connected to the app. Our growing app user traffic allows us to better understand how pool owners are using our products and provides invaluable feedback on a real-time basis. Pool owners can also share their app data with their pool servicers and notify them of potential equipment issues to enable proactive service and maintenance. In the future, we expect to execute “in-app” marketing to push relevant offers and promotions to app users.
Large Installed Base with Growing Content and Replacement Needs Creates Recurring Sales Model
Our products are generally non-discretionary and recurring (after initial pool construction and remodels) due to the need to repair and replace equipment for the ongoing operation of pools. Given our estimate of an installed base of approximately 25 million above ground and in-ground pools globally as of 2020 and our leadership position in the market, we estimate that approximately 75% of our net sales in Fiscal Year 2020 was driven by aftermarket repair, replacement, remodel and pool owner-desired upgrades. We estimate aftermarket sales based upon feedback from certain representative customers and management’s interpretation of available industry and government data, and not upon our GAAP net sales results. Our product replacement cycle is approximately 9 to 12 years, driving multiple replacement opportunities over the typical life of a pool. Pool equipment features are of significant importance to the pool owner, and therefore we believe pool owners tend to be less price sensitive to our equipment relative to the pool’s total cost. At the time of replacement, pool owners typically prefer a like-for-like Hayward product or an upgrade to a newer product from our catalog. The replacement cycle drives an ongoing relationship that continues as homeowners upgrade their pools for many years after installation.
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Demand for pool products is also supported by an increasing sales value per pool equipment order. The average wholesale price for equipment per pool typically ranges from $1,500 for entry level pools to well above $10,000 for premium pools, but equipment is only a fraction of the total pool cost. The average amount spent on equipment per pool has more than doubled in the last 10 years as owners increasingly
spend more to incorporate the latest technology. A recent study shows that pool professionals are increasingly recommending and installing upgraded products. In 2020, pool professionals reported they installed premium or upgraded versions of pool products 47% of the time, rather than making a like for like replacement of the broken product. In a similar survey conducted in 2016, pool professionals reported installing upgrades 37% of the time. Examples of recent themes in more advanced products include increased use of controls, apps, home automation systems, variable speed pumps, alternate sanitizers that reduce chemical usage, energy efficient water heaters, automatic cleaners and exciting new technology to increase ambiance and comfort. U.S. and Canadian government regulations, along with the European Ecodesign Directive, also support the transition to the use of energy efficient pumps. These innovative pool products enhance the pool ownership experience and in return drive greater pool satisfaction and pool demand.
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Premium Brand with Highly Engineered Products across Pool Types
We are an industry-leading brand among both global pool professionals (e.g., retailers, builders and servicers) and pool owners. We offer a comprehensive product assortment, consisting of more than 4,000 product SKUs. Our ability to offer a full bundle of products is a critical competitive advantage. We have invested heavily in our brand. Through new product development, rebranding of integrated acquisitions, customer service and operations, we have positioned Hayward as the go-to brand of choice, synonymous with pool product excellence. In the United States, we are the industry’s most recognized and trusted brand among pool owners. We believe that pool professionals consider us the highest quality, most dependable brand and they believe that Hayward is worth paying a premium for.
Our broad suite of connected products caters to entry, mid-range and premium in-ground residential pools, above ground pools and commercial pools. As pool owners upgrade their pools over time, we believe we can remain a provider of choice at every step along their outdoor living progression. We leverage pool owners’ brand loyalty and our breadth of product offerings to grow across all pool categories.
Highly Flexible, Global Manufacturing and Distribution Platform with Differentiated Capabilities
We have six primary global manufacturing facilities and five primary distribution centers with a network of small locations for final assembly serving over 25 countries. Our production facilities are located in the United States, Spain and China, and leverage cost-efficient automation processes. Products manufactured in the United States have typically accounted for approximately 70% of our net sales. We have a strong commitment to safety, quality and environmental protection. In 2018, we implemented a behavioral safety initiative that has helped reduce recorded incidents by approximately 62% over the last three years. We use approximately 3 million pounds of recycled resin per year — up to 10% of all resin used in our pump and filter manufacturing consists of recycled material. In addition, we operate over 130 molding machines, of which approximately 70% are fully electric or hybrids and can save 20–40% in energy consumption compared to traditional hydraulic machines.
Our lean, vertically-integrated manufacturing and distribution processes allow for low-cost production that results in attractive margins and a high degree of quality control. We have consistently invested in these facilities to ensure that we have a strong and reliable supply chain designed to handle surges in demand and unforeseen logistical disruptions. We have ample manufacturing and distribution capacity, which provides versatility for growth and operating leverage within our existing footprint. We are able to produce customized, customer-differentiated products through our “Centers of Excellence” which are vertically-integrated facilities with flexible manufacturing capabilities. In addition, we have an agile production footprint with variable capacity available to support our anticipated growth over the next decade. The high level of automation in our facilities allows us to extend our work week and increase production velocity with limited additional capacity investments.
Multi-Channel Strategy Provides Multiple Points to Influence Pool Owners
Our go-to-market strategy leverages the professional trade, retail and e-commerce channels. Our trade customers are primarily distributors, major pool builders, buying groups, servicers and specialty on-line resellers, all of which subsequently sell our products to the pool owner. Sales to distributors make up the majority of our net sales, comprising 76% of net sales in Fiscal Year 2020, with remaining revenue from direct major builders, retailers and buying groups. Given our market position, trade customers are very familiar with our products and help to advocate their merits to pool owners. On average, we have 20+ year relationships with our top 20 trade customers and actively invest in these relationships through targeted sales efforts, loyalty programs and other initiatives.
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We deploy a “push-pull” strategy through the Hayward Sales Model. Our sales organization “pushes” distributors to stock and market our products, while simultaneously creating a “pull” from end-user demand by marketing these products to builders, retailers, servicers and pool owners. This combination of forces helps to increase the barrier for competitors to enter the channel.
We manage this coordinated effort with a highly trained sales organization supported by our Salesforce.com customer relationship management (“CRM”) platform. The sales organization is divided into specialized teams: new accounts acquisition, builder, servicer and distribution channel management, commercial pool, e-commerce management and inside sales. These sales teams ensure that we reach our trade customers effectively and deliver our value proposition to the trade channel. Our sales organization compensation strategy is aligned to growing our business as compensation incentives are tied to year-on-year sales growth and are based on a combination of sales into the channel (i.e., sales to distributors) and sales out of the channel (i.e., distributor sales to trade partners). We generate “push” through programs such as volume rebates with key distributors and offer higher growth rebates to partners who achieve agreed upon growth milestones. Given the role of builders, retailers and servicers in the distribution channel, our sales team helps with training, marketing, advertising, promotional events and other tasks.
We create “pull” demand not only through our products’ quality and innovative features but also through loyalty programs. As product satisfaction is usually high, pool owners typically prefer the Hayward brand when looking for a replacement or upgrade of their current Hayward equipment. Pool owners may also choose a like-for-like Hayward product when replacing other manufacturers’ products, at the suggestion of retailers or servicers. This consumer dynamic helps to provide confidence for our trade customers to maintain ample inventory of our products. To further support demand, we motivate and incentivize our builders, retailers and servicers. These programs reward trade customers based on both volume and range of products ordered. Those who support the “Hayward bundle” as part of a one-stop-shop commitment save more on their purchases from the company over time.
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Our ongoing trade partner care intiatives further support our “push-pull” strategy and drive trade customer retention and growth. We have approximately 1,700 Hayward Authorized Service Centers in the United States to assist our trade customers and pool owners. In addition, we provide field-based technical service coordinated by three regional managers and 28 district technical managers covering all regions of the United States. We also operate two centralized call centers. The first provides product technical support to trade partners in the field. The second assists trade partners with order management and other commercial matters or issues.
In recent years, we have taken a market leading e-commerce position. We have implemented a range of policies and special SKUs for the online channel designed to maximize the opportunity for online sales without compromising our growth strategy with our “brick and mortar” customers. Approximately 15% of our products sold in the United States are ultimately purchased online. Our products reach the online sales channel through a combination of direct sales to online resellers and sales to our distributors who in turn sell to online resellers.
Resilient, Strong Financial Performance
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Regardless of the economic conditions, it has been our experience that pool owners will maintain their pools and continue to pursue their pool wellness and recreation activities. Pool owners also are conscious that maintaining a pool typically costs less than repairing pool products that are damaged due to the lack of maintenance. We have delivered net sales growth, expanded margins and executed a disciplined capital expenditure program. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our revenue and profitability metrics all grew over this time period with the exception of net income, which witnessed negative growth as a result of the transition in 2017 from a family-owned business to a sponsor-backed business, which resulted in higher interest expense following the Acquisition (as defined below). In addition, our net sales and adjusted EBITDA grew in every year since 2012 except for Fiscal Year 2019, which was negatively affected by elevated inventory levels in some of our key distribution channels entering the pool season (largely due to significant tariff-driven price increases impacting the industry in 2018), as well as sales volume declines due to cold, wet weather during the first half of 2019 in key markets. Our strong margin profile is supported by our aftermarket mix, continuous improvement initiatives and price inflation of 2–3% per year. In Fiscal Year 2020, we improved our operating income margin, net income margin and adjusted EBITDA margin from 13.5% to 14.2%, 1.2% to 4.9% and 23.5% to 26.5%, respectively. We have steadily reinvested in our business over time, mitigating the need for large capital expenditures on our installed manufacturing base. As a result of our attractive financial profile, we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through various operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “— Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
Proven Management Team Focused on Growth
Our strategic vision and culture are directed by our executive management team under the leadership of our President and Chief Executive Officer, Kevin Holleran and Senior Vice President and Chief Financial Officer, Eifion Jones. Mr. Holleran joined us in 2019 and has nearly 30 years of experience in commercial and leadership positions across a number of industrial focused end markets. Most recently, Mr. Holleran served as President and Chief Executive Officer of the $4 billion Industrial Segment within Textron (NYSE: TXT). Mr. Jones joined us in 2020 with over 30 years of experience as a world-class business leader with a strong track record of building and leading global financial organizations. Mr. Holleran and Mr. Jones joined an experienced management team with a track record of innovation and operational excellence at Hayward. Our management team is uniquely capable of executing upon our strategic vision and successfully continuing to create long-term shareholder value.
Our Growth Strategy
We believe our multi-faceted growth strategy positions us to drive profitable, above-market growth in the markets we serve.
Continue to Introduce Thoughtful Innovation That Expands Our Markets
We have a proven track record of developing new products, offering advanced technology, energy-saving efficiency and a high-quality pool owner experience that have expanded our markets. Our strong manufacturing capabilities, detailed consumer research and extensive engineering expertise allow us to rapidly introduce differentiated products. In Fiscal Year 2020, new products launched in the last three years contributed approximately 11% of net sales. Recent product innovation includes: MaxFlo and TriStar VS—advanced energy efficient variable speed pumps for standalone operation or Omni control; HydraPure—an advanced oxidation process combining UV and ozone for water sanitization; OmniPL™ Smart Pool and Control—mobile app-based smart control for all connected pool and spa systems as well as other connected backyard components; AquaRite® 940 Omni—North America’s #1 salt chlorine generator bundled with Omni for smart control; AquaVac® 6 Series—a line of robotic pool cleaners with the technologically advanced, patented SpinTech™ debris separation technology for constant suction power; TriVac® 700—the only pressure cleaner capable of skimming debris from the surface of the water in addition to vacuuming the pool floor, walls and coves; and CAT 6000—a commercial, IoT-enabled water chemistry controller that allows precise sanitization control.
Our smart device apps have been available for our control products since 2010. In 2019, we significantly redesigned our premium Omni control app which first launched in 2015. This highly rated new app is compatible with all past and present Omni-compatible products, affording all users the same enhanced functionality and user experience. Data gathered from the app will help us further tailor our product development, distribution and sales strategies. This year, we plan to launch another exciting round of new products focused on the key categories of sanitization, heating, lighting and IoT-enabled controls. We also expect to introduce a new line of products timed to capitalize on the DOE's 2021 regulatory changes that require replacing many single speed pumps with variable speed pumps in new installations and replacements going forward. We expect these regulatory changes to accelerate the sales growth of variable speed pumps in 2021 and beyond. We believe this regulatory change will be a win-win for both the Company and the pool owner. Due to added product features, variable speed pumps have prices that are up to 2.4 times higher than single speed pumps and present significant revenue and gross margin upside to the Company. Similarly, the efficiency gains afforded by the products provide pool owners a rapid product purchase payback — as quickly as one to two years due to energy savings. We estimate that approximately 70% of North American pools have either no controls or just a simple on/off timeclock, providing us with an opportunity to upgrade these pools with Omni control and automation systems as part of the pump upgrade.
Focus on Key Strategic Sales Initiatives to Strengthen Trade Customer Relationships
We recently embarked on a sales initiative aimed at “Getting Closer to the Customer” in an effort to drive greater market share. We are evolving our sales organization from a generalist unit to a number of focused, channel-specific teams. We are creating national positions for managing e-commerce, large accounts and the commercial segment. Salesforce.com forms the backbone of this new strategy to ensure cross communication between teams in the field along with marketing and customer service. To further enhance our customer capabilities, we utilize a combination of in-person and virtual training programs. We have mobile training vehicles that provide hands-on product training and education in the field. Hayward University, an online portal of training videos and a library of product information available for our trade customers, further supports our training initiative and enables us to operate virtually. We also offer our Totally Hayward loyalty program, an incentive-based program that allows us to better connect with our trade partners.
Grow Additional Share in the International and Commercial Markets
We are a leading global manufacturer with a large installed base and an estimated North American residential pool market share of approximately 30% in Fiscal Year 2020. Based on management’s estimates, we believe that we also have a strong international presence with an estimated #3 share in Europe and #4 in Australia. We continue to focus on expansion as we implement Totally Hayward and leverage our complete product bundle across our international markets. The international market, particularly in Europe, is fragmented and we see significant room to grow our presence via our existing footprint and the introduction of new products that meet local market demands.
We are currently a niche player in the commercial market where we see an opportunity for growth following the expansion of our commercial pool sales team. We believe our significant new product pipeline portfolio, which is a mix of in-house new product development complemented by strategic partnerships with third parties under the Hayward brand, will allow us to continue to drive deeper penetration in these markets. Moreover, we expect the broader adoption of ancillary products, such as sanitization systems, in the commercial market. This trend is expected to provide further growth opportunities in this end market.
Expand Margins and Returns Through Continuous Improvement Initiatives
Our global manufacturing and distribution footprint has enabled us to maintain strong margins and returns. We believe that we can continue to improve our margins through implementing cost improvement programs, including clear cost takeout programs currently in place. We believe our well-invested and predominantly owned manufacturing footprint supports our continuous improvement initiatives. Lean methodologies and Kaizen principles are central to everything we do. Our one-piece flow process, which enables us to assemble, test and package a product in a single work cell, maximizes our efficiency and lowers our manufacturing costs. Our strategic initiatives help us manage the costs of our materials through negotiations and various hedging programs. We believe these and other recent initiatives will enable us to strengthen our penetration in our key markets, expand market share and improve margins.
Execute Strategic Acquisitions That Broaden Our Platform
We generate a significant amount of cash flow and continue to re-invest in the business through organic and inorganic means. Acquisitions add new product technology and national market positions throughout our portfolio. We have completed and integrated more than 10 bolt-on acquisitions in the last 20 years. For example, the 2018 acquisition of Paramount opened a new category of in-floor cleaning, strengthened our position in alternate sanitizers and energy efficient goods. Our 2016 acquisition of Sugar Valley in Spain has both fueled market share growth in the European market and provided new technological product capabilities in sanitization and automatic controls.
We intend to utilize our disciplined process to identify, evaluate, acquire and integrate businesses across the healthy and connected outdoor living space. We actively monitor a pipeline of attractive acquisition opportunities across multiple product categories and geographies. We target opportunities that enhance our technological capabilities, strengthen our global market positions and increase our geographical diversity in our end markets. We also look to identify adjacencies in the outdoor living category that can be integrated into our Omni platform and can benefit from our scale.
Our Industry
Outdoor Living Market
The demand for outdoor living products has increased over the past decade as homeowners seek to create attractive areas in their backyards as an extension of their home space. A recent survey that gauged popularity of certain repair and remodeling categories showed that the top three responses were all related to outdoor living. In addition, outdoor living repair and remodeling spending has outpaced traditional repair and remodeling spending in recent years.
Key contributors to this growth are retiring baby boomers and discerning millennials. Baby boomers are investing in improvements to their residences as they decide to retire in place. Millennials have shown a greater appreciation for the outdoors than prior generations and want attractive and functional outdoor spaces. Studies show that 70% of U.S. households have outdoor living spaces and those spaces are used at least once per week. Homeowners’ response to the COVID-19 pandemic have also helped reinforce this trend.
The outdoor living market covers several product areas:
The pool typically serves as the centerpiece of the outdoor living space for homeowners and is one of the most expensive investments in the backyard. Buyer satisfaction with pool ownership is very high and the pool often brings people together outside. New pool products have also greatly increased the ease of maintaining a pool as well as the entertainment and enjoyment of this key backyard centerpiece.
U.S. Pool Market
History & Product Development
Americans have been enamored with swimming pools for many decades. In the 1930s, high-end hotels and local municipalities began using pools as marketing tools. The U.S. residential pool industry started to flourish after World War II as Americans were aided by the GI Bill, which fueled strong growth in new housing and a significant population relocation to Sun Belt and Western states. The pool industry continued to grow over the ensuing decades, including the introduction of new pool types such as the above ground pool. These industry developments helped to expand pool ownership and created a large installed base of pools. The quality and enjoyment of the pool experience has increased significantly over the past two decades as the result of innovative pool product companies such as ourselves.
Today’s pool owners typically demand healthy experiences, ‘green’ products, energy efficiency and a digital experience. Swimming is one of the best forms of exercise available according to the Centers for Disease Control and Prevention, while also being considered essential to wellness. As a result, we have introduced innovative products to satisfy this demand.
We believe the pool equipment market is large, growing and predictable. The industry is characterized by attractive long-term growth dynamics that have driven market growth of approximately 6-8% over the
last five years. This market growth is supported by a growing aftermarket installed base, new construction of pools, product upgrades and industry pricing increases.
U.S. Residential Aftermarket
The installed base of residential pools is large with approximately nine million pools in the United States as of 2020. As a result, pool equipment market expenditures are driven primarily by aftermarket spend versus new pool construction. Aftermarket equipment sales are driven primarily by the ongoing repair, replacement, remodeling and upgrading of equipment for existing pools. The non-discretionary nature of ongoing pool water treatment to maintain safe, sanitized water has been a key attribute of the industry. The Centers for Disease Control and Prevention (the “CDC”) recommends that swimming pool water chemistry be tested at least twice per day, or more often when the pool is in heavy use, and that water be treated as necessary to protect from germs that cause recreational water illnesses. A pool quickly becomes unusable if not regularly maintained and routine maintenance is less expensive than the cost of failing to maintain a pool, which can range from around $2,000 for chemical treatments to over $10,000 for entire pool decommissioning, according to management estimates. A pool provides a stream of revenue for manufacturers as pool owners require equipment, parts, components and services through the repair, replacement and remodeling cycle of their pools.
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The U.S. installed base of in-ground pools has grown every year since 1970. While the installed based is increasing, so is the average age of these pools, which has risen from an average age of 19 years in
2012 to 22 years in 2019. Management estimates that pumps and filters are replaced in over half of all pool remodel projects and residential in-ground pools are remodeled approximately every 9-12 years, roughly the service life of most pool components. The rising age of pools brings about an increased need for repair, replacement and remodeling work. This continual replacement spend creates a resilient market with a very steady flow of demand for aftermarket sales of our products and services. The average spend per remodel on U.S. in-ground pools has increased by 44% between 2012 and 2019, which we believe was largely driven by this product upgrade dynamic. Aftermarket replacements often utilize newer product technology such as salt chlorine generators, IoT controls and variable speed pumps, which are more expensive than prior generation products but can help reduce chemical and energy spend for pool owners. We believe that these ongoing chemical and energy cost reductions can create a payback for pool owners of less than two years in many cases, providing an incentive for them to install the latest technology.
New U.S. Residential Pool Construction
Beginning in 2012, the U.S. pool market saw steady growth in new residential in-ground pool construction based on annual pool installments. Since 2012, U.S. new pool construction has grown at over a 7% CAGR through 2020E while the total value of new residential in-ground pool construction has increased twofold, a growth rate that is significantly faster than the volume of new pool construction due to the increasing value of pool equipment. Also during this time, outdoor living expenditures have increased as American homeowners continue to invest in healthy outdoor living experiences. Pool construction weakened slightly in 2019 due to abnormally high rainfall as 2019 was the second wettest year on record for the United States.
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We believe the pool industry is poised for continued growth as industry tailwinds remain in place. The estimated 94,000 pools constructed in 2020 remains well below the long term annual pool construction median of 113,000 pools. While the post-Great Recession recovery of the new pool build market is still ongoing, current demand exceeds the pool construction industry’s ability to supply new pools, leading to a robust backlog and positive outlook for 2021 and beyond. Continued growth in new pool construction is expected to be aided by a strong new housing market, rising home equity levels, migration trends to the Sun Belt and continued growth in outdoor living investment.
International Pool Market
We believe the international pool market outside North America was composed of approximately 15 million pools in 2020. Europe represents the largest portion of this market with approximately 7 million pools in the region and is projected to grow at a CAGR of over 9% between 2020 and 2026 based on expected continued growth in new pool construction and upgrades to new pool equipment technology. The European market remains highly fragmented, partially because various regional product certifications make it easier for market participants to operate locally. The European market is slightly more weighted to the direct channel than the United States as approximately 70% of sales are through distribution and approximately 30% are direct to trade customers. The majority of the European market is concentrated in warmer climates. France and Spain, combined, represent most of the market. Germany, Austria and Switzerland are also sizeable markets. Growth drivers for international pool markets include continued growth in residential and commercial pool construction and upgrades of equipment on existing pools to automated, energy efficient technology.
Recent Developments
On October 28, 2020, we entered into a second incremental amendment to the First Lien Term Facility (as defined herein), which provided for additional first lien term loans in an aggregate principal amount of $150.0 million (the “First Lien Incremental Term Facility”) to bring the aggregate outstanding loan amount under the First Lien Term Facility to approximately $1,108.0 million. The proceeds from the First Lien Incremental Term Facility were used to fund a portion of a special dividend of approximately $275.0 million on the outstanding shares of our Class A stock. For additional information, see “Description of Certain Indebtedness.”
The Reclassification
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional 40.2022 shares (assuming an offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus), which amount will be determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion. See “The Reclassification.”
Our Corporate Structure
The following chart illustrates our ownership structure as of January 31, 2021 after giving effect to this offering assuming an initial public offering price of $18.00 per share, the midpoint of the estimated price range set forth on the cover, and the application of the net proceeds therefrom:
Summary of Material Risks Related to Our Business, Our Industry and This Offering
Investing in our common stock involves substantial risk, and our ability to successfully operate our business is subject to numerous risks. Some of the more significant challenges and risks related to our business include the following:
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Our business depends on the performance of distributors, builders, buying groups, retailers and servicers;
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The demand for our swimming pool equipment products may be adversely affected by unfavorable economic and business conditions;
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We compete in markets with high levels of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products;
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Our future success depends on developing, manufacturing and attaining market adoption of new products, and even if we are able to attain significant market acceptance of our planned or future products, the commercial success of these products is not guaranteed;
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A loss of, or material cancellation, reduction, or delay in purchases by, one or more of our largest customers could harm our business;
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If we do not manage product inventory in an effective and efficient manner, it could adversely affect profitability;
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We depend on suppliers, including single-source suppliers and, in a few cases, sole-source suppliers, to consistently supply us with components for our products, and any failure to procure such components could have a material adverse effect on our business, product inventories, sales and profit margins;
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Product manufacturing disruptions, including as a result of catastrophic and other events beyond our control, could cause us to be unable to meet customer demands or increase our costs;
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If we are unable to adequately obtain and maintain our intellectual property rights or if we, our vendors and/or our customers are accused of infringing on, misappropriating or otherwise violating the intellectual property of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights;
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If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and third parties could assert trademark infringement claims against us;
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Our substantial indebtedness could adversely affect our financial condition;
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Servicing our debt requires a significant amount of cash and our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations;
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The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to change or to take certain actions;
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Our Sponsors will continue to have significant influence over us after this offering; and
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Upon the listing of our common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange.
Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our common stock.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in total annual gross revenues during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
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reduced disclosure about our executive compensation arrangements;
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no non-binding shareholder advisory votes on executive compensation;
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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and
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reduced disclosure of financial information in this prospectus, including only two years of audited financial information and two years of selected financial information.
We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in total annual gross revenues as of the end of any fiscal year, if we are deemed to be a large accelerated filer under the rules of the SEC or if we issue more than $1 billion of non-convertible debt during a three-year period.
The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing not to “opt out” of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time private companies adopt the new or revised standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company. Therefore, the reported results of operations contained in our financial statements may not be directly comparable to those of other public companies.
Our Principal Stockholders
We were acquired by entities affiliated with CCMP Capital Advisors, LP (“CCMP”), MSD Partners, L.P. (“MSD Partners”) and Alberta Investment Management Corporation (“AIMCo” and, together with CCMP and MSD Partners, the “Sponsors”) and members of management and our board of directors (the “Board of Directors”) in June 2017 (the “Acquisition”). As of January 31, 2021, and after giving effect to the Reclassification but not this offering, entities affiliated with CCMP, MSD Partners, AIMCo, and current and former members of management and our Board of Directors and other investors owned equity securities representing approximately 38.1%, 38.1%, 19.6% and 4.2% respectively, of our voting power. Our Sponsors will continue to have significant influence over us and decisions made by our stockholders upon completion of this offering and may have interests that differ from yours. See “Risk Factors—Risks Related to this Offering and to our Common Stock.”
CCMP is a leading global private equity firm specializing in buyouts and growth equity investments in companies ranging from $250 million to more than $2 billion in size. CCMP has invested over $18 billion since 1984, which includes its founders’ activities at J.P. Morgan Partners, LLC (a private equity division of JPMorgan Chase & Co.) and its predecessor firms. CCMP was formed in August 2006 when the buyout and growth equity investment professionals of J.P. Morgan Partners, LLC separated from JPMorgan Chase & Co. to commence operations as an independent firm. The foundation of CCMP’s investment approach is to leverage the combined strengths of its deep industry expertise and proprietary operating resources to create value by investing in three targeted industries—Consumer, Industrial and Healthcare.
MSD Partners, an SEC-registered investment adviser located in New York, was formed in 2009 by the principals of MSD Capital, L.P. to enable a select group of investors to invest in strategies that were developed by MSD Capital. MSD Capital was established in 1998 to exclusively manage the capital of Michael Dell and his family. MSD Partners utilizes a multi-disciplinary investment strategy focused on maximizing long-term capital appreciation by making investments across the globe in the equities of public and private companies, credit, real estate and other asset classes and securities.
AIMCo is one of Canada’s largest and most diversified institutional investment managers with more than $115 billion of assets under management. AIMCo was established on January 1, 2008 with a mandate to provide superior long-term investment results for its clients. AIMCo operates at arms-length from the Government of Alberta and invests globally on behalf of public pension, public endowment and government funds in the Province of Alberta.
Corporate History and Information
Hayward Holdings, Inc. was incorporated in Delaware in June 2017. Our principal executive offices are located at 400 Connell Drive, Suite 6100, Berkeley Heights, NJ 07922 and our telephone number is (908) 351-5400. Our website is www.hayward-pool.com. Information contained on our website or that can be accessed through our website is not a part of, and is not incorporated by reference in, this prospectus.
The Offering
Common stock offered by us
22,200,000 shares.
Common stock offered by the selling stockholders
18,077,778 shares.
Underwriters’ option to purchase additional shares of common stock
The selling stockholders have granted the underwriters an option for a period of 30 days from the date of this prospectus to purchase up to an aggregate of 6,041,666 additional shares of common stock, less underwriting discounts and commissions.
Common stock outstanding after this offering
229,557,132 shares. For additional information regarding the impact of a change in the initial public offering price on the number of shares outstanding after completion of this offering related to the conversion of our Class A stock, see “The Reclassification.”
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us, will be approximately $368.9 million, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). We will not receive any proceeds from the sale of shares of common stock by the selling stockholders named in this prospectus. See “Use of Proceeds.”
We intend to use the net proceeds from the sale of our common stock in this offering to repay approximately $368.9 million in aggregate principal amount of outstanding borrowings under our Credit Facilities (as defined herein). We intend to use the remaining net proceeds from this offering, if any, to repay additional outstanding borrowings under our Credit Facilities. See “Use of Proceeds” for additional information.
Our Board of Directors does not currently plan to pay dividends on our common stock. The declaration, amount, and payment of any future dividends will be at the sole discretion of our Board of Directors. Our Board of Directors may take into account general economic and business conditions, our financial condition and operating results, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax, and regulatory restrictions, and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our Credit Facilities and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. See “Dividend Policy.”
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees and related persons through a reserved share program. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
Pursuant to a Stockholders Agreement, certain of our existing stockholders will have registration rights with respect to shares of our
common stock following this offering. See “Certain Relationships and Related Party Transactions — Amended and Restated Stockholders Agreement.”
See “Risk Factors” for a discussion of risks you should carefully consider before deciding to invest in our common stock.
After the completion of this offering, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards.
Proposed New York Stock Exchange ticker symbol
“HAYW.”
Except as otherwise indicated, the number of shares of common stock outstanding after this offering is based on 207,357,132 shares outstanding as of December 31, 2020 after giving effect to the Reclassification, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. See “The Reclassification.” Except as otherwise indicated, the number of shares of our common stock to be outstanding after this offering excludes:
•
shares of common stock issuable upon the exercise of stock options outstanding as of December 31, 2020 under our 2017 Plan (as defined herein) consisting of (i) 2,387,190 vested options with a weighted average exercise price of $0.88, (ii) 6,770,400 options subject to vesting upon achievement of performance conditions with a weighted average exercise price of $1.07 and (iii) 4,379,425 options that will remain subject to time vesting conditions following this offering with a weighted average exercise price of $1.20;
•
2,812,875 shares of common stock available for future issuance as of December 31, 2020 under our 2017 Plan. No further awards will be made under the 2017 Plan;
•
13,737,500 shares of common stock that will become available for issuance under our 2021 Plan, which includes 1,151,306 shares of our common stock issuable upon the exercise of options with an exercise price per share equal to the initial public offering price in this offering and 100,836 restricted common stock units, in each case to be granted in connection with this offering under our 2021 Plan and, in each case, determined based on the midpoint of the price range set forth on the cover page of this prospectus. In addition, up to 16,592,727 shares that are subject to awards under our 2017 Plan can be reissued under our 2021 Plan to the extent that they are forfeited, repurchased, settled in cash or otherwise become available for grant under the terms of our 2017 Plan; and
•
2,700,000 shares of common stock that will become available for issuance under our ESPP.
Except as otherwise noted or the context otherwise requires, all information in this prospectus assumes or gives effect to:
•
the Reclassification (assuming an initial public offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus);
•
no exercise of the outstanding stock options described above after December 31, 2020;
•
no exercise by the underwriters of their option to purchase additional shares;
•
no purchase of shares of common stock in this offering by directors, officers or existing stockholders.
Summary Consolidated Financial and Other Data
You should read the following summary consolidated financial and other data together with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and our audited consolidated financial statements and the related notes thereto and our unaudited consolidated financial statements and the related notes thereto, each included elsewhere in this prospectus. The summary consolidated statement of operations data, cash flows data and other data for the years ended December 31, 2019 and December 31, 2020 and the summary consolidated balance sheet data as of December 31, 2019 and December 31, 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
|
|
|
|
Years Ended December 31,
|
|
|
(dollars in millions, except per share data)
|
|
|
2020
|
|
|
2019
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
733.4
|
|
|
|
Cost of sales
|
|
|
|
|
478.4
|
|
|
|
|
|
409.9
|
|
|
|
Gross profit
|
|
|
|
|
397.0
|
|
|
|
|
|
323.5
|
|
|
|
Selling, general, and administrative expenses
|
|
|
|
|
195.2
|
|
|
|
|
|
179.4
|
|
|
|
Research, development, and engineering
|
|
|
|
|
20.0
|
|
|
|
|
|
19.9
|
|
|
|
Acquisition and restructuring related expense (income)
|
|
|
|
|
19.3
|
|
|
|
|
|
(16.3)
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
37.9
|
|
|
|
|
|
41.8
|
|
|
|
Operating income
|
|
|
|
|
124.6
|
|
|
|
|
|
98.7
|
|
|
|
Interest expense, net
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
Other (income) expense, net
|
|
|
|
|
(6.8)
|
|
|
|
|
|
2.1
|
|
|
|
Total other expense
|
|
|
|
|
66.8
|
|
|
|
|
|
86.6
|
|
|
|
Income from operations before income taxes
|
|
|
|
|
57.8
|
|
|
|
|
|
12.1
|
|
|
|
Provision for income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
3.6
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Net income margin
|
|
|
|
|
4.9%
|
|
|
|
|
|
1.2%
|
|
|
|
Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
213.8
|
|
|
|
|
$
|
94.0
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
(13.0)
|
|
|
|
|
|
4.0
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
(135.1)
|
|
|
|
|
|
(65.1)
|
|
|
|
Balance Sheet Data (as of period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
114.9
|
|
|
|
|
$
|
47.2
|
|
|
|
Property, plant, and equipment, net
|
|
|
|
|
142.3
|
|
|
|
|
|
139.9
|
|
|
|
Goodwill and intangibles
|
|
|
|
|
2,034.5
|
|
|
|
|
|
2,068.7
|
|
|
|
Total assets
|
|
|
|
|
2,607.1
|
|
|
|
|
|
2,603.1
|
|
|
|
Long term debt
|
|
|
|
|
1,300.3
|
|
|
|
|
|
1,147.8
|
|
|
|
Total liabilities
|
|
|
|
|
1,803.4
|
|
|
|
|
|
1,569.6
|
|
|
|
Redeemable stock
|
|
|
|
|
594.5
|
|
|
|
|
|
869.5
|
|
|
|
Stockholders’ equity
|
|
|
|
|
209.2
|
|
|
|
|
|
164.0
|
|
|
|
Total liabilities, redeemable stock and stockholders’ equity
|
|
|
|
$
|
2,607.1
|
|
|
|
|
$
|
2,603.1
|
|
|
|
Non-GAAP Data(1)
|
|
|
|
|
Adjusted EBITDA(2)
|
|
|
|
|
231.6
|
|
|
|
|
|
172.4
|
|
|
|
Adjusted EBITDA margin(2)
|
|
|
|
|
26.5%
|
|
|
|
|
|
23.5%
|
|
|
|
|
|
|
Years Ended
December 31,
|
|
|
|
(dollars in millions, except per share data)
|
|
|
2020
|
|
|
|
Pro forma:
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma earnings per common share(3)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
$
|
0.17
|
|
|
|
|
|
|
Diluted
|
|
|
|
$
|
0.16
|
|
|
|
|
|
|
Pro forma weighted average common share(3)
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
206,787,935
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
208,628,439
|
|
|
|
|
|
(1)
We use adjusted EBITDA and adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. Adjusted EBITDA and adjusted EBITDA margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assist these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance. Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short-and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms EBITDA, adjusted EBITDA and adjusted EBITDA margin may differ from similar measures reported by other companies. Adjusted EBITDA and adjusted EBITDA margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance in isolation from, or as a substitute for, net income (loss), which is prepared in accordance with GAAP. We have presented adjusted EBITDA and adjusted EBITDA margin solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. In the future we may incur expenses such as those added back to calculate adjusted EBITDA. Our presentation of adjusted EBITDA and adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by these items.
(2)
Adjusted EBITDA is defined as earnings before interest (including amortization of debt costs), income taxes, depreciation, and amortization further adjusted for the impact of restructuring related income, stock-based compensation, currency exchange items, Sponsor management fees and certain non-cash, nonrecurring or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales.
Following is a reconciliation from net income to adjusted EBITDA for Fiscal Years 2020 and 2019.
|
|
|
|
Fiscal Years
|
|
|
(dollars in millions)
|
|
|
2020
|
|
|
2019
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Depreciation
|
|
|
|
|
18.8
|
|
|
|
|
|
17.2
|
|
|
|
Amortization
|
|
|
|
|
44.0
|
|
|
|
|
|
46.8
|
|
|
|
Interest expense
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
Income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
Fiscal Years
|
|
|
(dollars in millions)
|
|
|
2020
|
|
|
2019
|
|
|
EBITDA
|
|
|
|
|
194.2
|
|
|
|
|
|
160.6
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
1.9
|
|
|
|
|
|
1.6
|
|
|
|
Sponsor management fees(b)
|
|
|
|
|
0.8
|
|
|
|
|
|
0.8
|
|
|
|
Currency exchange items(c)
|
|
|
|
|
(4.7)
|
|
|
|
|
|
4.2
|
|
|
|
Acquisition and restructuring related expenses, net(d)
|
|
|
|
|
32.1
|
|
|
|
|
|
1.4
|
|
|
|
Other(e)
|
|
|
|
|
7.3
|
|
|
|
|
|
3.8
|
|
|
|
Total Adjustments
|
|
|
|
$
|
37.4
|
|
|
|
|
$
|
11.8
|
|
|
|
Adjusted EBITDA
|
|
|
|
$
|
231.6
|
|
|
|
|
$
|
172.4
|
|
|
|
Adjusted EBITDA margin
|
|
|
|
|
26.5%
|
|
|
|
|
|
23.5%
|
|
|
(a)
Represents non-cash stock-based compensation expense related to equity awards issued.
(b)
Represents discretionary fees paid to our Sponsors for management services rendered pursuant to a management agreement with the Company. These payments will cease as of the effective date of our initial public offering.
(c)
Represents non-cash mark to market gains (losses) on foreign currency contracts.
(d)
Adjustments in 2019 include net one-time costs associated with reorganizations of $20.4 million, net of a gain on the sale of real estate of $16.9 million, and remeasurement of a contingent consideration of $6.0 million, as well as operating losses of $5.3 million related to an early stage product business acquired in 2018 that is being phased out in 2021. Adjustments in 2020 primarily include $19.3 million of business restructuring related costs, $4.2 million of severance and retention costs, and $5.1 million of operating losses related to an early stage product business acquired in 2018 that is being phased out in 2021.
(e)
Includes professional fees, financial fees, $2.0 million for expenses incurred in preparation for our initial public offering, additional health and safety expenses related to COVID-19, and other miscellaneous costs that we believe are not representative of our ongoing business operations.
(3)
Pro forma earnings per share gives effect to: (i) the conversion of Class A stock into common stock based on a price of $18.00, the midpoint of the range set forth on the cover of this prospectus, (ii) $1.0 million of stock compensation expense for the Class A restricted stock awards for which the performance condition will be satisfied upon the completion of this offering, (iii) $0.6 million of stock compensation expense for performance-based restricted stock as all vesting conditions are deemed probable upon completion of this offering, and (iv) $10.3 million of stock compensation expense for performance-based common stock options as all vesting conditions are deemed probable upon completion of this offering.
RISK FACTORS
An investment in our common stock involves risks. You should carefully consider the following information about these risks, together with the other information contained in this prospectus, before investing in shares of our common stock. The risks described below are those that we believe are the material risks that we face. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial also may materially and adversely affect our business, prospects, operating results or financial condition. See “Special Note Regarding Forward-Looking Statements” elsewhere in this prospectus.
Risks Related to Our Business
Our business depends on the performance of distributors, builders, buying groups, retailers and servicers.
We distribute our products through our customers who are distributors, builders, buying groups, retailers and servicers, many of whom sell products of competing manufacturers. We rely on our customers to stock, market and recommend our products to pool owners and our business depends on retaining good relationships with our customers. However, the financial condition of these resellers could weaken, they could stop distributing our products or reduce sales of our products and prefer others, or uncertainty regarding demand for some or all of our products could cause them to reduce their ordering and marketing of our products, and as a result our business, financial condition, results of operations and cash flows could be materially impacted.
We have invested and intend to continue to invest in programs designed to enhance sales to distributors, builders, buying groups, retailers and servicers, including through volume rebates with key distributors. However, these programs may not be successful in retaining or increasing product purchases by these customers.
The demand for our swimming pool equipment products may be adversely affected by unfavorable economic and business conditions.
We compete in various geographic regions and product markets around the world. Among these, the most significant are residential markets in the United States, Canada, Europe and Australia as well as commercial markets in the United States and Europe. We have experienced, and expect to continue to experience, fluctuations in sales and results of operations due to economic and business cycles. While our products (other than for initial pool construction and remodels) are generally non-discretionary and purchased on a recurring basis due to the need for ongoing operation of pools, consumer spending affects sales of our products for initial pool installation and, more broadly, to our customers, such as distributors, builders, buying groups, retailers and servicers, who sell our products to pool owners and who must account for anticipated changes in consumer demand when they purchase our products from us. Consumer spending is impacted by factors outside of our control, including general economic conditions, the residential housing market, unemployment rates and wage levels, interest rate fluctuations, inflation, disposable income levels, consumer confidence, and access to credit. In economic downturns, the demand for swimming pool equipment products and the growth rate of pool-eligible households and swimming pool construction may decline. A weak economy may also cause pool owners to defer replacement and refurbishment activity or upgrades to new pool equipment, including newer technologies, or to purchase less expensive brands, and historically our aftermarket product sales have comprised a majority of our net sales. Even in generally favorable economic conditions, severe and/or prolonged downturns in the housing market could have a material adverse impact on our financial performance. In addition, we believe that homeowners’ access to consumer credit is a critical factor enabling the purchase of new pools and related products. Unfavorable economic conditions or a downturn in the housing market can result in significant tightening of credit markets, which limits the ability of pool owners to access financing for new swimming pools and related supplies, and consequently, replacement, repair and operation of equipment, which could negatively impact our product sales.
Any of the above factors, individually or in the aggregate, or a significant or sustained downturn in a specific end market or geographic region could reduce demand for our products, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We compete in markets with high levels of competition, which may result in pressure on our profit margins and limit our ability to maintain or increase the market share of our products.
The markets for our products are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local niche OEM’s and lower cost manufacturers. Competition may also result from new entrants into the markets we serve, offering products that compete with us. Our competitors offer pool equipment of varied quality and across a wide range of retail price points. We compete based on brand recognition with pool owners, strong relationships with our distributors and resellers, and the loyalty of our builders and servicers with whom we have built a large installed base. In addition, we compete based on our technical innovation, intellectual property, reputation for providing quality and reliable products, competitive pricing and contractual terms. Some of our competitors, in particular smaller companies, compete based primarily on price and local relationships, especially with respect to products that do not require significant engineering or technical expertise. In addition, during economic downturns average selling prices tend to decrease as market participants compete more aggressively on price. Moreover, demand for our products, which impacts profit margins, is affected by changes in customer order and consumer purchasing patterns, such as changes in the levels of inventory maintained by customers and the timing of customer and consumer purchases, and changes in customers’ and consumers’ preferences for our products, including the success of products offered by our competitors. Consumer purchasing behavior may also shift by product mix in the market or result in a shift to new distribution channels, including e-commerce, which is a rapidly developing area. If we are unable to continue to differentiate our products or adapt to changes in consumer purchasing behavior or shifts in distribution channels, or if we are forced to cut prices or to incur additional costs to remain competitive, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our future success depends on developing, manufacturing and attaining market adoption of new products. Even if we are able to attain significant market acceptance of our planned or future products, the commercial success of these products is not guaranteed.
Our future financial success will depend substantially on our ability to develop, manufacture and effectively and profitably market and sell our planned and future new products. Pool owners are increasingly demanding “smart home” technology, automation and other features to enhance their pools and staying at the forefront of product innovation and consumer demand is important to our future success. We must continue to develop and bring to market innovative products, which requires hiring and retaining technical staff, maintaining and upgrading manufacturing facilities and equipment and expanding our intellectual property rights. We must also identify emerging technological and other trends in our target end markets as well as understand and react to potential regulatory changes. The failure to effectively launch competitive products, services, solutions, organization, workforce and sales strategies could have a material adverse effect on our business, financial condition, results of operations and cash flows. Even if we are able to achieve or maintain significant market acceptance, the commercial success of our planned or future products or services is dependent on a number of additional factors. Successful growth of our sales and marketing efforts will depend on the strength of our marketing infrastructure and the effectiveness of our sales and marketing strategies as well as the continued quality, reliability and innovation of our products. Our ability to satisfy product demand driven by our sales and marketing efforts will be largely dependent on the ability to maintain a commercially viable manufacturing process that is compliant with regulatory standards. Failure to manufacture, market and sell our planned or future products could have a material adverse effect on our business, financial condition, and results of operations.
In several geographic markets, such as Europe, many potential consumers prefer local suppliers, in some cases because of existing relationships and in other cases because of local legal restrictions or incentives that favor local businesses. Our success in these markets depends on obtaining and maintaining relationships with channel partners who can effectively sell our products to pool owners in the applicable market. Accordingly, our future success depends upon a number of factors, including our ability to develop or acquire innovative, competitive products and bring them to market quickly and cost effectively as well as develop customer service, solutions, organization, workforce and sales strategies to fit localities throughout the world particularly in high growth emerging markets.
Past growth may not be indicative of future growth.
Historically, we have experienced substantial sales growth through organic market share gains, geographic expansion, technological innovation, new product offerings, increased demand for outdoor living products and acquisitions that have increased our size, scope, and geographic footprint. Our various business strategies and initiatives, including our growth initiatives, are subject to business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In the future, we may not be able to:
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acquire new customers, retain existing customers or grow or maintain our share of the market;
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penetrate new markets;
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identify and develop new products that meet the demand of rapidly evolving pool owner expectations;
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generate sufficient cash flows to support expansion plans and general operating activities;
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obtain financing for our growth initiatives, including acquisitions;
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identify suitable acquisition candidates and successfully integrate acquired businesses;
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maintain favorable supplier and customer arrangements and relationships;
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maintain consumer satisfaction and retention; and
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identify and divest assets that do not meet our objectives.
If we are not able to continue to compete in our markets and grow our business, our business, financial condition, results of operations and cash flows could be adversely affected.
Our results of operations and cash flows may fluctuate from quarter to quarter for many reasons, including seasonality and weather conditions.
We experience seasonal demand with customers and pool owners and as a result we experience fluctuations in quarterly results. During the second quarter of a fiscal year, sales are higher in anticipation of the start of the summer pool season. In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “early buy” program which offers a price discount and extended payment terms. Under the early buy program we ship products from October through March and receive payments for these shipments from April through July. As a result, our accounts receivable balance increases from October to June before the early buy payment is received. In addition, cash flow is higher in the second quarter as the seasonality of our business peaks and payments are received.
As a result, management believes that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year. In addition, seasonal effects in our business may vary from year to year and be impacted by weather patterns, particularly by temperature, heavy flooding and droughts. Additionally, while the majority of our sales are driven by aftermarket repair, replacement and remodeling products, adverse weather conditions, such as cold or wet weather, may negatively impact demand for, and sales of, pool equipment as a result of diminished use and reduced construction speed.
A loss of, or material cancellation, reduction, or delay in purchases by, one or more of our largest customers could harm our business.
A majority of our net sales is generated from sales to distributors, including our largest customer, Pool Corporation, who represented approximately 30% of our net sales in Fiscal Year 2020 and 35% of our accounts receivable on December 31, 2020. While we do not have any other customers that accounted for 10% or more of our net sales in Fiscal Year 2020, we have other customers that are key to the success of our business. Our top five customers accounted for approximately 43% of our net sales in Fiscal Year 2020. Our concentration of sales to a relatively small number of larger customers makes our relationship with each of these customers important to our business. Our success is dependent on retaining these customers, which requires us to successfully manage relationships and anticipate the needs of our customers in the
channels in which we sell our products. We cannot provide assurance that we will be able to retain our largest customers. In addition, some of our customers may shift their purchases to our competitors in the future. The loss of one or more of our largest customers, any material cancellation, reduction, or delay in purchases by these customers, or our inability to successfully develop relationships with additional customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We are exposed to credit risk on our accounts receivable and this risk is heightened during periods when economic conditions worsen.
We distribute our products through distributors, large pool builders, buying groups, services and specialty online resellers. A substantial majority of our outstanding accounts receivables are not covered by collateral, third-party bank support or financing arrangements, or credit insurance, and a significant portion of our accounts receivables are typically concentrated within a relatively small number of distributors, builders, buying groups, retailers and servicers. As of December 31, 2020, our largest customer represented approximately 35% of our accounts receivable and our top five customers represented approximately 54% of our accounts receivable. Furthermore, our exposure to credit and collectability risk on our accounts receivable is higher in certain international markets and our ability to mitigate such risks may be limited. While we have procedures to monitor and limit exposure to credit risk on our accounts receivable there can be no assurance such procedures will effectively limit our credit risk and avoid losses.
We are exposed to political, regulatory, economic, trade, and other risks that arise from our international business operations.
Sales outside of the United States for Fiscal Year 2020 accounted for approximately 29% of our net sales. Furthermore, we obtain some components and raw materials from non-U.S. suppliers and have manufacturing facilities in Europe and China. Accordingly, our business is subject to the political, regulatory, economic, trade, and other risks that are inherent in operating in numerous countries. These risks include:
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changes in general economic and political conditions in countries where we operate, particularly in emerging markets;
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relatively more severe economic conditions in some international markets than in the United States;
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the imposition of tariffs, duties, exchange controls or other trade restrictions, including recently enacted tariffs on manufactured goods imported from China;
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changes in tax treaties, laws or rulings that could have a material adverse impact on our effective tax rate;
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the difficulty of enforcing agreements and collecting receivables through non-U.S. legal systems;
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the difficulty of communicating and monitoring evolving standards and directives across our product lines, services, and global facilities;
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trade protection measures and import or export licensing requirements and restrictions;
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the possibility of terrorist action affecting us or our operations;
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the threat of nationalization and expropriation;
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difficulty in staffing and managing widespread operations in non-U.S. labor markets;
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limitations on repatriation of earnings or other regionally-imposed capital requirements;
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the difficulty of protecting intellectual property and other proprietary rights in non-U.S. countries; and
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changes in and required compliance with a variety of non-U.S. laws and regulations.
Our success depends in part on our ability to anticipate and effectively manage these and other risks. We cannot assure that these and other factors will not have a material adverse effect on our international operations or on our business as a whole.
Changes in U.S. or foreign government administrative policy, including changes to existing trade agreements, could have a material adverse effect on us.
As a result of changes to U.S. or foreign government administrative policy, there may be changes to existing trade agreements, such as the U.S.-Mexico-Canada Agreement (“USMCA”), which recently replaced the North American Free Trade Agreement. The full impact of the USMCA on manufacturing operations in North America, as well as on economic conditions and markets generally, is currently unknown. Further, during the negotiations leading up to the USMCA, the political and trade relationship between the United States and Mexico was strained, and such relationship may deteriorate. If our ability, the ability of our partners or our contract manufacturer’s ability, to manufacture our products is interrupted as a result, or if our ability to import products or raw materials into the United States is impacted, our business, financial condition, results of operations or cash flows could be adversely affected.
In addition, recently enacted tariffs and potential future increases in tariffs on manufactured goods imported from China could adversely affect our business. Since July 2018, the United States has imposed a series of tariffs, ranging from 5% to 25%, on a variety of imports from China and subsequently implemented tariffs on additional goods imported from China. As trade negotiations between the United States and China continue, it is unclear as to whether or not the U.S. government will take further tariff action or perhaps grant relief to actions already put in place. Inability to reduce acquisition costs or pass through price increases could have an adverse effect on our results of operations and cash flows. Similarly, increases in pricing may have an adverse impact on the competitiveness of the Company’s products relative to other manufacturers with less exposure to the tariff and could also lead to adverse impacts on our results of operations and cash flows.
It remains unclear what the U.S. government or other foreign governments will or will not do with respect to tariffs, USMCA or other international trade agreements and policies. Other governmental action related to tariffs or international trade agreements, including USMCA, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently manufacture and sell products, and any resulting negative sentiments towards the United States as a result of such changes, could also have a material adverse effect on our business, financial condition, results of operations and cash flows.
We may not be able to identify, finance and complete suitable acquisitions, and any completed acquisitions may be unsuccessful or consume significant resources.
Our business strategy includes acquiring businesses that complement our existing businesses. To date, we have experienced significant growth through acquisitions, completing multiple acquisitions over the past two decades, but we may not be able to successfully integrate an acquired business or technology or to effectively manage the company following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our business, financial condition, results of operations or cash flows may be negatively affected. We continue to analyze and evaluate the acquisition of strategic businesses or product lines with the potential to strengthen our industry position or enhance our existing set of product offerings. We may not be able to identify suitable acquisition candidates, obtain financing or have sufficient cash necessary for acquisitions or successfully complete acquisitions in the future. Any acquisitions that we complete may not be successful. Acquisitions may involve significant cash expenditures, debt incurrences, equity issuances, operating losses and expenses. Acquisitions involve numerous other risks, including:
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diversion of management time and attention from daily operations;
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difficulties integrating acquired businesses, technologies and personnel into our business;
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difficulties in obtaining and verifying the financial statements and other business information of acquired businesses;
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inability to obtain required regulatory approvals;
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potential loss of key employees, key contractual relationships or key customers of acquired companies or of ours;
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assumption of the liabilities and exposure to unforeseen liabilities of acquired companies, including risks relating to anti-corruption laws such as the U.S. Foreign Corrupt Practices Act (the “FCPA”) and privacy laws, including the General Data Protection Regulation (“GDPR”); and
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dilution of interests of holders of our shares through the issuance of equity securities or equity-linked securities.
It may be difficult for us to integrate acquired businesses, products or technology efficiently into our business operations. Any acquisitions or investments may not be successful and may ultimately result in impairment charges and have a material adverse effect on our business, financial condition, results of operations and cash flows.
The COVID-19 pandemic and associated responses could adversely impact our business, operations, financial condition, results of operations or cash flows.
While we believe that the COVID-19 pandemic has only reinforced existing pool industry growth trends and has not had a significant impact to our cost structure, our business, operations, financial condition, results of operations or cash flows could be negatively impacted by the COVID-19 pandemic and associated responses.
Early in the pandemic, certain of our suppliers faced challenges and were not able to timely deliver the quantities of raw materials or components we required. This negatively affected our production capabilities in the second quarter. During the third quarter we secured secondary sources of supply and were able to return production to full capabilities. Continued restrictions and disruption of transportation, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays, both for obtaining raw materials and components and shipping finished goods to customers, which has had a limited impact on our profitability. However, if the COVID-19 pandemic is prolonged or worsens, we could experience further supply chain disruptions or delays that could have a material impact on our business.
Our North American operations are and have been continuously open since the start of the COVID-19 pandemic as water sanitization has been designated as an essential business in almost all of our markets. As such we have implemented the necessary steps to protect our manufacturing and distribution facilities to ensure we have continuity of production and supply to our customers. While we did experience in the early months of the pandemic partial or full facility closure for cleaning and sanitization, all of our manufacturing and distribution facilities are currently operational. However, a future shutdown or reduction of our manufacturing or distribution facilities as a result of the pandemic could have a negative impact on our operations, inventory, results of operations or cash flows.
The COVID-19 pandemic has caused a global economic slowdown that may last for a potentially extended duration, and it is possible that it could cause a global recession. Deteriorating economic and political conditions caused by the COVID-19 pandemic, such as increased unemployment, decreased capital spending, declines in consumer confidence, or economic slowdowns or recessions, could cause a decrease in demand for our products. In addition, a prolonged or worsened COVID-19 pandemic could lead to the shutdown or material reduction of pool construction and repair, replacement and remodeling activity, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. While we have experienced higher demand in our pool business as pool owners sheltered-in-place and have spent more time at home as a result of the COVID-19 pandemic, such growth may not be sustainable and may not be repeated in future periods. Furthermore, even if growth in demand continues, we may not be able to meet that demand due to production and capacity challenges.
The severity, magnitude and duration of the current COVID-19 pandemic is uncertain, rapidly changing and hard to predict. We may not be able respond to the impacts of the COVID-19 pandemic on a timely basis to prevent near- or long-term adverse impacts to our results of operations. Any negative impact on our business, financial condition, results of operations and cash flows cannot be reasonably estimated at this time, but the COVID-19 pandemic could lead to extended disruption of economic activity and the impact on our business, financial condition, results of operations and cash flows could be material.
Sales of counterfeit versions of our products, as well as unauthorized sales of our products, may adversely affect our reputation, business, financial condition, results of operations and cash flows.
Our products have and may continue to become subject to competition from counterfeit products, which are products sold under the same or very similar brand names and/or having a similar appearance to genuine products, but which are sold without proper licenses or approvals. Such products divert sales from genuine products, often are of lower cost and quality, and have the potential to damage the reputation for quality and effectiveness of the genuine product. Illegal sales of counterfeit products could have an adverse impact on our business, financial condition, results of operations and cash flows. In addition, if illegal sales of counterfeits result in adverse product liability or negative customer experience, we may be associated with any negative publicity resulting from such incidents. Although we seek to monitor the existence of counterfeit products and initiate actions to remove them from sale, we may not be able to prevent third parties from manufacturing, selling or purporting to sell counterfeit products competing with our products. Such sales may also be occurring without our knowledge. The existence and any increase in production or sales of counterfeit products or unauthorized sales could negatively impact our sales, brand reputation, business, financial condition, results of operations and cash flows.
We may be negatively impacted by litigation and other claims, including intellectual property, product liability or warranty claims, and health and safety concerns, including product recalls, could negatively impact our sales and expose us to litigation.
We have been, and in the future may be, made a party to litigation arising in the ordinary course of our business, including those relating to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, and environmental, health and safety matters, including claims based on alleged exposure to asbestos-containing product components. For example, we are a defendant in a set of consolidated patent infringement actions brought by Pentair Water Pool and Spa, Inc. and Danfoss Drives A/S (the “Pentair Litigation”). The plaintiffs in the Pentair Litigation have claimed certain of our variable speed pump and controller products infringe seven U.S. patents, and may in the future claim that other Hayward products infringe and/or that we, our vendors and/or our customers infringe other Pentair patents. We have challenged six of the asserted patents at the U.S. Patent and Trademark Office (“USPTO”) in inter partes proceedings and have raised non-infringement and invalidity defenses to each of the seven patents currently asserted against us in the infringement actions, which are currently stayed. See “Business—Legal Proceedings.” The outcome of such legal proceedings cannot be predicted with certainty and some may be disposed of unfavorably to us. Regardless of outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. In addition, we have agreed to provide indemnification in connection with prior acquisitions or dispositions for certain of these matters, and we cannot assure you that material indemnification claims will not be brought against us in the future.
Product quality issues could negatively impact consumer confidence in our brands and our business. If our products do not meet applicable safety standards or pool owners’ expectations regarding safety or quality, we could experience lost sales and increased costs and be exposed to legal, financial, and reputational risks, as well as governmental enforcement actions. Actual, potential or perceived product safety concerns could expose us to litigation, as well as government enforcement actions, and result in costly product recalls and other liabilities.
We have in the past and may in the future implement a voluntarily recall or market withdrawal or may be required to do so by a regulatory authority. A recall or market withdrawal of one of our products would be costly and would divert management resources. A recall or withdrawal of one of our products, or
a similar product processed by another entity, also could impair sales of our products because of confusion concerning the scope of the recall or withdrawal, or because of the damage to our reputation for quality and safety.
In addition, if our products are, or are alleged to be, defectively designed, manufactured or labeled, contain, or are alleged to contain, defective components or components containing hazardous materials, such as asbestos, or are misused, we may become subject to costly litigation initiated by pool owners. Product liability claims could harm our reputation, divert management’s attention from our core business, be expensive to defend, and may result in sizable damage awards against us. Although we maintain product liability insurance, we may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation, significantly increase our expenses, and reduce product sales. Product liability claims could cause us to incur significant legal fees and deductibles and claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and operating results. In addition, successful product liability claims made against one of our competitors could cause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Claims against us, regardless of their merit or potential outcome, may also hurt our ability to obtain acceptance of our products or to expand our business.
We have significant goodwill and intangible assets and future impairment of our goodwill and intangible assets could have a material adverse effect on our results of operations.
We test goodwill and other indefinite-lived intangible assets for impairment on at least an annual basis, and more frequently if circumstances warrant. As of December 31, 2020, our goodwill and intangible assets were $2,034.5 million and represented approximately 78% of our total assets. Declines in value could result in future goodwill and intangible asset impairment charges.
Exchange rate fluctuations could adversely affect our financial condition, results of operations and cash flows.
We incur currency transaction risk whenever we enter into either a purchase or sale transaction using a currency other than the local currency of the transacting entity. We conduct business in various locations throughout the world and are subject to market risk due to changes in value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our foreign operating locations are generally the local currency in the country. We manage these operating activities at the local level and net sales, costs, assets and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates between such local currencies and the U.S. dollar.
The Company’s financial instruments that can be affected by foreign currency fluctuations and exchange risks consist primarily of cash and cash equivalents, trade receivables, trade payables, and net sales denominated in currencies other than the U.S. dollar. For the Fiscal Year 2020, approximately 25% of our net sales were denominated in a currency other than our functional U.S. dollar currency. These sales were primarily transacted in Euros as well as Canadian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies. To hedge against this risk, we enter into foreign currency forward exchange contracts to protect our trade receivable positions and forward options to protect highly probable net Euro sales receipts expected from our outstanding contractual price and sales volume commitments.
We expect that the amount of our sales denominated in non-dollar currencies may increase in future periods. Given the volatility of exchange rates, there can be no assurance that we will be able to effectively manage our currency transaction risks or that any volatility in currency exchange rates will not have a material adverse effect on our financial condition or results of operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures about Market Risk.”
Additionally, because our consolidated financial results are reported in U.S dollars, the translation of sales or earnings generated in other currencies into U.S. dollars can result in a significant increase or decrease in the amount of those sales or earnings in our financial statements, which also affects the comparability of our results of operations and cash flows between financial periods. Further, currency fluctuations may negatively impact our debt service requirements, which are primarily in U.S. dollars.
Changes in our effective tax rate or exposure to additional income tax liabilities could adversely affect our financial results.
Taxation and tax policy changes, tax rate changes, new tax laws, revised tax law interpretations, and changes in accounting standards and guidance related to tax matters may cause fluctuations in our effective tax rate. Our effective tax rate may also be impacted by changes in the geographic mix of our earnings.
We may experience cost and other inflation.
In the past, we have experienced material cost and other inflation in a number of our businesses. We strive for productivity improvements and seek to implement increases in selling prices to help mitigate cost increases in raw materials (especially metals and resins), energy and other costs including wages, pension, health care and insurance. We continue to implement operational initiatives designed to mitigate the impacts of this inflation and reduce our costs. However, these actions may not be successful in managing our costs or increasing our productivity. Continued cost inflation or failure of our initiatives to generate cost savings or improve productivity could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We depend on our ability to attract, develop, and retain highly qualified personnel, including key members of management.
Our future success depends on the continued efforts of the members of our executive management team. If one or more of our executives or other key personnel are unable or unwilling to continue in their present positions, or if we are unable to attract and retain high-quality executives or key personnel in the future, our business may be adversely affected.
In addition, we consider our employees to be the foundation for our growth and success. As such, our future success depends in large part on our ability to attract, train, retain, and motivate qualified personnel. For example, during periods of unexpected demand for our products, we may need to hire additional personnel to maintain sufficient inventory levels. If we are unable to attract, hire and retain qualified personnel, our operating results could be adversely affected.
We may encounter difficulties in operating or implementing a new enterprise resource planning (“ERP”) system, which may adversely affect our operations and financial reporting.
Over the next 2-3 years, we intend to select and implement a new ERP system for a majority of our business as part of our ongoing efforts to improve and strengthen our operational and financial processes and our reporting systems. The ERP system may not provide the benefits anticipated, could add costs and complications to ongoing operations, and may impact our ability to process transactions efficiently, all of which may have a material adverse effect on our business and results of operations.
Disruptions in the financial markets could adversely affect us, our customers and our suppliers by increasing funding costs or reducing availability of credit.
In the normal course of our business, we may access credit markets for general corporate purposes, which may include refinancing or repayment of indebtedness, acquisitions, additions to working capital, repurchase of shares, capital expenditures and investments in our subsidiaries. Our access to and the cost of capital could be negatively impacted by disruptions in the credit markets, which have occurred in the past and made financing terms for borrowers unattractive or unavailable. These factors may make it more difficult or expensive for us to access credit markets if the need arises. In addition, these factors may make it more difficult for our suppliers to meet demand for their products or for prospective customers to commence new projects, as customers and suppliers may experience increased costs of debt financing or difficulties in
obtaining debt financing. Disruptions in the financial markets have had adverse effects on other areas of the economy and have led to a slowdown in general economic activity that may continue to adversely affect our businesses. One or more of these factors could adversely affect our business, financial condition, results of operations or cash flows.
Our operating results will be harmed if we are unable to effectively manage and sustain growth or scale our operations.
We may not be able to manage our future growth, if any, efficiently or profitably. Our sales and operating margins, or sales and margin growth, may be less than expected. If we are unable to scale our operations efficiently or maintain pricing without significant discounting, we may fail to achieve expected operating margins, which would have a material and adverse effect on our operating results. Growth may also stress our ability to adequately manage our operations, quality of products, safety, and regulatory compliance. If growth significantly decreases, it will negatively impact our cash flows, and it may be necessary to refinance our existing indebtedness or obtain additional financing, which may increase indebtedness or result in dilution to shareholders. Further, we may not be able to obtain additional financing on acceptable terms, if at all.
We rely on information technology systems to support our business operations. A significant disturbance or breach of our technological infrastructure, or those of our vendors or others with which we do business, could adversely affect our financial condition and results of operations. Additionally, failure to maintain the security of confidential information could damage our reputation and expose us to litigation.
Information technology supports several aspects of our business, including, among others, supply sourcing, pricing, customer service, transaction processing, financial reporting, collections and cost management. In addition, we expect our reliance on information technology systems to increase as we continue to develop IoT-enabled products, such as our Omni mobile app. As a result, our ability to operate effectively on a day-to-day basis and accurately report our results depends on a solid technological infrastructure, which is inherently susceptible to internal and external threats. We are vulnerable to interruption and breakdown by fire, natural disaster, power loss, telecommunication failures, internet failures, security breaches, and other catastrophic events. Exposure to various types of cyberattacks such as malware, computer viruses, worms, or other malicious acts, as well as human error or malfeasance, could also potentially disrupt our operations or result in a significant interruption in the delivery of our products. Such information technology security threats are increasing in frequency and sophistication and pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain.
Advances in computer and software capabilities, encryption technology, and other discoveries increase the complexity of our technological environment, including how each interact with our various software platforms. Such advances could delay or hinder our ability to process transactions or could compromise the integrity of our data, resulting in a material adverse impact on our financial condition and results of operations. The risk of system disruption is increased when significant system changes are undertaken. If we fail to timely integrate and update our information systems and processes, we may fail to realize the cost savings or operational benefits anticipated to be derived from these initiatives. We also may experience occasional system interruptions and delays that make our information systems unavailable or slow to respond, including the interaction of our information systems with those of third parties. A lack of sophistication or reliability of our information systems could adversely impact our operations and consumer service and could require major repairs, replacements or remodelings, resulting in significant costs and foregone sales.
Cybersecurity threats, which include computer viruses, spyware, ransomware and malware, attempts to access information, denial of service attacks, and other electronic security breaches, are persistent and evolve quickly, and we have in the past and may in the future experience such cybersecurity threats. Such threats have increased in frequency, scope, and potential impact in recent years. Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until after they are launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. The accidental or willful security breaches or other
unauthorized access by third parties to our information technology systems or facilities, or those of our vendors and/or others with which we do business, or the existence of computer viruses in our or their data or software, and/or any other failure of our or their information technology systems could expose us to a risk of information loss, the misappropriation of proprietary and confidential information, work stoppages, disruptions, and/or the defective manufacture or defective design of our products, which could expose us to liability. Any theft, misuse, unauthorized or inadvertent disclosure, manipulation or destruction of this information could result in, among other things, unfavorable publicity, damage to our reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, regulatory fines or penalties, litigation by affected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have an adverse effect on our business, financial condition, results of operations, reputation, and relationships with our customers and suppliers. Further, we could be forced to expend significant financial and operational resources in response to a security breach, including repairing system damage, increasing security protection costs by deploying additional personnel and modifying or enhancing our protection technologies, investigating and remediating any information security vulnerabilities and defending against and resolving legal and regulatory claims, all of which could divert resources and the attention of our management and key personnel away from our business operations and adversely affect our business, financial condition and results of operations.
Risks Related to the Manufacturing, Supply and Distribution of Our Products
We depend on suppliers, including single-source suppliers and, in a few cases, sole-source suppliers, to consistently supply us with components for our products, and any failure to procure such components could have a material adverse effect on our business, product inventories, sales and profit margins.
Our suppliers (and those they depend upon for materials and services) are subject to risks, including labor disputes or constraints, union organizing activities, financial liquidity, inclement weather, natural disasters, significant public health and safety events, supply constraints, and general economic and political conditions that could limit their ability to provide us with materials. While we have manufacturing and supply agreements with the most strategic and critical of our suppliers, for most of our suppliers we place purchase orders on an as-needed basis. Our suppliers could discontinue the manufacturing or supply of these components at any time. We carry safety stocks within our inventory, but do not carry a significant inventory of these components that could cover every potential supply constraint. Our suppliers may not be able to meet our demand for their products, either because of acts of nature, the nature of our agreements with those manufacturers or our relative importance to them as a customer, and our manufacturers may decide in the future to discontinue or reduce the level of business they conduct with us. We might not be able to identify and obtain additional or replacement suppliers for any of these components quickly or at all or without incurring significant additional costs. We cannot guarantee that we will be able to establish alternative relationships on similar terms, without delay or at all. In addition, we rely on single-source suppliers for certain types of parts in our products, and, in a few cases, on sole-source suppliers. A single-source supplier is a supplier from which we make all purchases of a particular component used in our products even though other suppliers of the component exist. A sole-source supplier is a supplier from which we make all purchases of a particular component used in our product, and the supplier is the only source of that particular component in the market. Establishing additional or replacement suppliers for any of these materials or components, if required, or any supply interruption from our suppliers, could limit our ability to manufacture our products, result in production delays and increased costs and adversely affect our ability to deliver products to our customers on a timely basis or at all. If we are not able to identify alternate sources of supply for the components, we might need to modify our product to use substitute components, which could cause delays in shipments, increase design and manufacturing costs and increase prices for our products. Any such modified product might not be as effective as the predecessor product or might not gain market acceptance. This could lead to customer or consumer dissatisfaction and damage to our reputation and could materially and adversely affect our business, product inventories, sales and profit margins.
Product manufacturing disruptions, including as a result of catastrophic and other events beyond our control, could cause us to be unable to meet customer demands or increase our costs.
If operations at any of our manufacturing facilities were to be disrupted as a result of significant equipment failures, natural or man-made disasters, earthquakes, power outages, fires, explosions, terrorism,
adverse weather conditions, labor disputes, public health epidemics or other catastrophic events or events outside of our control, we may be unable to fill customer orders and otherwise meet customer demand for our products. In addition, these types of events may negatively impact residential, commercial and industrial spending in impacted regions or, depending on the severity, globally. As a result, any of such events could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Interruptions in production, in particular at our manufacturing facilities, could increase our costs and reduce our sales. Any interruption in production capability could require us to make substantial capital expenditures to fill customer orders. While we maintain property damage insurance, as well as business interruption insurance to mitigate losses resulting from any production interruption or shutdown caused by an insured loss, any recovery under our insurance policies may not offset the lost sales or increased costs that may be experienced during the disruption of operations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
The cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer.
Our principal raw materials are resins (ABS, PP, HDPE, PVC), metals (copper, steel, aluminum, titanium, ruthenium) and liner board (packaging), which are commodity materials. The prices of these commodity materials are a function of, among other things, manufacturing capacity and demand. While we have generally passed through raw material price increases to our consumers, we may not always be able to do so. We purchase most of our key parts and components primarily from large suppliers in the United States, Mexico and China. We believe that reliable alternate sources of supply are available for all of our raw materials and finished goods. We may not continue to have access to reliable sources of supply. Additionally, significant price fluctuations or shortages in raw materials needed for our products may increase our cost of goods sold and cause our results of operations and financial condition to suffer.
If we do not manage product inventory in an effective and efficient manner, it could adversely affect profitability.
Many factors affect the efficient use and planning of product inventory, such as effectiveness of predicting demand, preparing manufacturing to meet demand, meeting product mix and product demand requirements, and managing product expiration. We build-up product inventory during the third quarter in anticipation of shipments of products purchased through our early buy program in the fourth quarter. However, we may not accurately anticipate the level of customer participation in the early buy program or the amount of products that they may purchase. We may be unable to manage our inventory efficiently, keep inventory within expected budget goals, keep our work-in-process inventory on hand or manage it efficiently, control expired product, or keep sufficient product on hand to meet demand. We may not be able to keep inventory costs within our target levels. Failure to do so may harm our long-term growth prospects.
Risks Related to Government Regulation
The nature of our business subjects us to compliance with, and liabilities under, employment, environmental, health, transportation, safety, and other governmental regulations.
We are subject to foreign, federal, state, and local laws and regulations relating to matters such as product labeling, weights and measures, zoning, land use, environmental protection, local fire codes, and health and safety, including workplace safety, including regulation by the USEPA, the Federal Communications Commission, the Consumer Product Safety Commission, the Occupational Safety and Health Administration (“OSHA”), the National Fire Protection Agency, and the Federal Trade Commission,. Most of these requirements govern the packaging, labeling, handling, transportation, storage, sale and use of our products. We and certain of our affiliates store certain types of hazardous materials and chemicals at various locations and the storage of these items is strictly regulated by local fire codes. In addition, we sell UV, Ozone, and Salt Chlorinator and related products that are regulated under the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”), which primarily relate to testing, use, reporting, sale, distribution, licensing and market verification of these products. We are also subject to regulation passed by the DOE relating to the labeling, testing, reporting and certification of new and replacement pumps sold for swimming pools.
Failure to comply with these laws and regulations, or others that we may be subject to in the future, may result in investigations, the assessment of administrative, civil and criminal fines, damages, seizures, disgorgements, penalties, cessation of operations, or the imposition of injunctive relief. Moreover, compliance with such laws and regulations in the future could prove to be costly and affect various aspects of the business. Although we presently do not expect to incur any capital or other expenditures relating to regulatory matters in amounts that may be material to us, we may be required to make such expenditures in the future. These laws and regulations have changed substantially and rapidly in recent years, and we anticipate that there will be continuing changes.
The clear trend in environmental, health, transportation, and safety regulations is to place more restrictions and limitations on activities that impact the environment, such as the use and handling of hazardous materials and chemicals. Under certain environmental laws and regulations, we could be held strictly, jointly and severally liable for costs related to contamination at our currently or formerly owned, leased or operated properties or at third-party sites where we have sent wastes. We could also be liable to third parties for related damages, including property damage or personal injuries. Certain of our properties have had a history of industrial and other uses that have resulted in contamination. In addition, from time to time, we have been involved in investigation and remediation activities, and there can be no assurance that any future costs or liabilities relating to such activities will not be material.
Increasingly, strict restrictions and limitations have resulted in higher costs for us and it is possible that the costs of compliance with such laws and regulations will continue to increase. Our attempts to anticipate future regulatory requirements that might be imposed and our plans to remain in compliance with changing regulations and to minimize the costs of such compliance may not be as effective as we anticipate. We cannot assure you that we will not incur material costs to comply with such laws and regulations in the future.
Increased information technology security threats and computer crime pose a risk to our systems, networks and products, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data.
We rely upon information technology systems and networks in connection with a variety of business activities, some of which are managed by third parties. The secure operation of our information technology systems and networks is critical to our business operations and strategy. Information technology security threats—from user error to attacks designed to gain unauthorized access to our systems, networks and data—are increasing in frequency and sophistication, posing a risk to the security of our systems and networks and the confidentiality, availability and integrity of the data we process and maintain. As our business increasingly interfaces with employees, customers, trade customers and suppliers using information technology systems and networks, we are subject to an increased risk to the secure operation of these systems and networks. We may in the future and have in the past experienced cybersecurity attacks and other unauthorized or inadvertent disclosure of certain confidential information, including personal information. We periodically evaluate and test the adequacy of our systems, measures, controls and procedures and perform third-party risk assessments. In addition, our evolution into offering smart products that can connect to the IoT subjects us to increased cyber and technology risks, including reputational harm if any of our connected products experience data or cybersecurity breaches. Establishing and maintaining systems and processes to address these threats may increase our costs. Additionally, certain laws and regulations may require us to implement security measures to protect our systems and IoT connected devices. For example, the California Internet of Things Security Law, effective January 1, 2020, requires us to implement reasonable security measures for IoT devices, and failure to do so could expose us to investigation by the California Attorney General. The failure of such security measures or of our security systems and processes could expose us, our employees, customers, trade customers and suppliers to the theft of assets, misuse of information or systems, compromise of confidential information, manipulation and destruction of data, defective products, production downtimes and operations disruptions. The occurrence of any of these events could have a material adverse effect on our reputation, business, financial condition, results of operations and cash flows. In addition, such breaches in security could result in litigation, regulatory action and potential liability and the costs and operational consequences of implementing further data protection measures.
Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.
We collect, use, store, transmit and otherwise process data that is sensitive to the Company and its employees, customers, dealers and suppliers. A variety of state, federal, and foreign laws, regulations and industry standards apply to the collection, use, retention, protection, disclosure, transfer and other processing of certain types of data, including the California Consumer Privacy Act (the “CCPA”), the European Union General Data Protection Regulation (“GDPR”), Canada’s Personal Information Protection and Electronic Documents Act, and Australia’s Privacy Act. Some jurisdictions also are considering or have passed legislation requiring local storage and processing of data, or similar requirements, which could increase the cost and complexity of delivering our products and services. As we seek to expand our business, we are, and may increasingly become subject to various laws, regulations and standards, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. In many cases, these laws and regulations may apply not only to third-party transactions, but also to transfers of information between or among us, our affiliates and other parties with whom we conduct business. These laws, regulations and standards are continuously evolving and may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our reputation, business, financial condition and results of operations.
Many foreign data privacy regulations, including the GDPR, which became effective in the European Union in 2018 and has extraterritorial scope, are more stringent than laws and regulations in the United States. The GDPR has resulted and will continue to result in significantly greater compliance burdens and costs for companies with customers, users, or operations in the European Union. The GDPR’s requirements for using and sharing personal information may be operationally costly, and fines of up to 20 million Euros or up to 4% of the annual global revenues of the infringer, whichever is greater, can be imposed for violations. The GDPR imposes several stringent requirements for controllers and processors of personal information and could make it more difficult or more costly for us to use and share personal information. In addition to the GDPR, the European Union also is considering another draft data protection regulation. The proposed regulation, known as the Regulation on Privacy and Electronic Communications, or ePrivacy Regulation, would replace the current ePrivacy Directive and addresses topics such as unsolicited marketing and cookies. Originally planned to be adopted and implemented at the same time as the GDPR, the ePrivacy Regulation has been delayed. Recent discussions were cancelled due to the COVID-19 pandemic, further delaying enactment of this regulation, the details of which remain in flux. Additional time and effort may need to be spent addressing the new requirements in the potential ePrivacy Regulation as compared to the GDPR. Further, the Court of Justice of the European Union’s July decision in the Schrems II matter may impact our or our service providers ability to transfer personal data from Europe to the United States or other jurisdictions.
Within the United States, many states are considering adopting, or have already adopted, privacy regulations, including the CCPA, which became operational in January 2020 and became enforceable by the California Attorney General in July 2020. The CCPA increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations enforceable by the California Attorney General, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. Additionally, in November 2020, California passed the California Privacy Rights Act (the “CPRA”), which expands the CCPA significantly, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts, potentially resulting in further uncertainty and requiring us to incur additional costs and expenses in an effort to comply. Many of the CPRA’s provisions will become effective on January 1, 2023. The costs of compliance with, and the other burdens imposed by, these and other laws or regulatory actions may increase our operational costs, and/or result in interruptions or delays in the availability of systems.
Our communications with our customers and email and social media marketing are subject to certain laws and regulations, including the Controlling the Assault of Non-Solicited Pornography and Marketing (“CAN-SPAM”) Act of 2003, the Telephone Consumer Protection Act of 1991 (the “TCPA”), and the Telemarketing Sales Rule and analogous state laws, that could expose us to significant damages awards, fines and other penalties that could materially impact our business. For example, the TCPA imposes various consumer consent requirements and other restrictions in connection with telemarketing activity and other communication with consumers by phone, fax or text message. The CAN-SPAM Act and the Telemarketing Sales Rule and analogous state laws also impose various restrictions on marketing conducted use of email, telephone, fax or text message. As laws and regulations, including FTC enforcement, rapidly evolve to govern the use of these communications and marketing platforms, the failure by us, our employees or third parties acting at our direction to abide by applicable laws and regulations could adversely impact our business, financial condition and results of operations or subject us to fines or other penalties.
In addition, some of these laws may require us to notify governmental authorities and/or affected individuals of data breaches involving certain personal information or other unauthorized or inadvertent access to or disclosure of such information. We have in the past and may in the future notify governmental authorities and affected individuals with respect to such incidents. For example, laws in all 50 U.S. states may require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach may be difficult and costly. We also may be contractually required to notify consumers or other counterparties of a security breach. Regardless of our contractual protections, any actual or perceived security breach or breach of our contractual obligations could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach.
In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business.
We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices.
Our employees, commercial partners, and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, commercial partners, and vendors may engage in fraudulent or illegal activity. Misconduct by these parties could include intentional, reckless, and/or negligent conduct or disclosure of unauthorized activities to us that violate: (i) the rules of the applicable regulatory bodies; (ii) manufacturing standards; (iii) data privacy laws or other similar non-United States laws; or (iv) laws that require the true, complete and accurate reporting of financial information or data. These laws may impact, among other things, future sales, marketing, and education programs.
It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, including the imposition of civil, criminal, and administrative penalties, additional integrity reporting and oversight obligations. Whether or not we are successful in defending against any such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending
ourselves against any of these claims or investigations, which could have a material adverse effect on our business, financial condition, and results of operations.
Violations of the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act, and other anti-corruption laws outside the United States could have a material adverse effect on us.
The FCPA, U.K. Bribery Act, and other anti-corruption laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government officials or other persons for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity, with more frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with these anti-bribery laws. We operate in many parts of the world that are recognized as having governmental and commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Because many of our customers and consumers are involved in infrastructure construction and energy production, they are often subject to increased scrutiny by regulators. We cannot assure you that our internal control policies and procedures will always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. In the event that we believe or have reason to believe that our employees or agents have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have outside counsel investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Violations of these laws may require self-disclosure to government agencies and result in criminal or civil sanctions, which could disrupt our business and result in a material adverse effect on our reputation, business, financial condition, results of operations and cash flows.
Our failure to satisfy international trade compliance regulations, and changes in U.S. government sanctions, could have a material adverse effect on us.
Our global operations require importing and exporting goods and technology across international borders on a regular basis. Certain of the products we manufacture are “dual use” products, which are products that may have both civil and military applications, or may otherwise be involved in weapons proliferation, and may be subject to more stringent export controls. From time to time, we obtain or receive information alleging improper activity in connection with imports or exports. Our policy mandates strict compliance with U.S. and non-U.S. trade laws applicable to our products. However, even when we are in strict compliance with law and our policies, we may suffer reputational damage if certain of our products are sold through various intermediaries to entities operating in sanctioned countries. When we receive information alleging improper activity, our policy is to investigate that information and respond appropriately, including, if warranted, reporting our findings to relevant governmental authorities. Nonetheless, our policies and procedures may not always protect us from actions that would violate U.S. and/or non-U.S. laws. Any improper actions could subject us to civil or criminal penalties, including material monetary fines, or other adverse actions including denial of import or export privileges, and could damage our reputation and business prospects.
Risks Related to Intellectual Property Matters
If we are unable to adequately obtain and maintain our intellectual property and proprietary rights or if we are accused of infringing on, misappropriating or otherwise violating the intellectual property of others, our competitive position could be harmed or we could be required to incur significant expenses to enforce or defend our rights.
Patents, trademarks and other intellectual property rights are important to our business, and our success depends in part on our ability to obtain and maintain patent and trademark protection in the United States and other countries. As of December 31, 2020, we held approximately 177 issued U.S. patents and 173 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 119 U.S. trademark registrations
and 656 foreign trademark registrations covering our marks, brands and products. As of December 31, 2020, we also held approximately 45 pending U.S. patent applications, 90 pending foreign patent applications, 19 pending U.S. trademark applications and 33 pending foreign trademark applications. See “Business—Intellectual Property.” In addition, we have in-licensed patents and patent applications to certain technologies incorporated in our products.
Pending and future patent applications may not result in patents being issued which protect our products or which effectively prevent others from commercializing competitive technologies and products. Moreover, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Even once issued, the issuance, scope, validity, enforceability, and commercial value of patent rights are uncertain. Any patents that we hold or in-license may be challenged, narrowed, circumvented, or invalidated by third parties, and this could allow such third parties to commercialize our technology or products and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products without infringing third-party rights. We cannot predict whether the patent or trademark applications we own or in-license will issue at all or in any particular jurisdiction. Even if we obtain intellectual property protection for our products and technology, it may not preclude competitors from developing products similar to ours or from challenging our names, brands or products or provide us a significant competitive advantage.
In addition, if we do not adequately maintain our intellectual property, we may lose our rights. For example, we are required to pay various periodic and renewal fees on registered intellectual property, and our failure to do so could result in the affected intellectual property being partially or completely invalidated. If this were to occur, our competitors may be able to use our technologies, names, brands or the goodwill we have acquired in the marketplace and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve profitability.
Competitors may infringe our intellectual property, or we may be required to defend against claims of infringement or inventorship or priority disputes. To counter or defend against such claims can be expensive and time-consuming, and an adverse result in any proceeding could put our intellectual property rights at risk of being invalidated or narrowed. In addition, our ability to enforce our intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. We may not prevail in any disputes that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of dispute.
Participants in our markets may use challenges to intellectual property as a means to compete. Patent and trademark challenges increase our costs to develop, engineer and market our products. We may need to spend significant resources monitoring, enforcing and defending our intellectual property rights, and we may or may not be able to detect infringement by third parties. If we fail to successfully enforce our intellectual property rights or register new patents, our competitive position could suffer, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest, and third parties could assert trademark infringement claims against us.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our target markets and our business may be adversely affected. If we are unable to successfully register our trademarks and trade names and establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. In addition, competitors or other third parties have in the past, and may in the future, adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity, possibly leading to market confusion and potentially requiring us to pursue legal action. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our unregistered trademarks or trade names. Our efforts to enforce or protect our proprietary rights related to trademarks, domain names or other similar intellectual property
may be ineffective and could result in substantial costs, diversion of resources and potentially the payment by us of money damages or injunctive relief preventing us from using certain of such intellectual property, each of which could adversely impact our financial condition or results of operations.
We rely on access to intellectual property owned by third parties, so our rights to develop and commercialize certain products are subject to the terms and conditions of licenses granted to us by others.
Some of our products incorporate intellectual property owned by third parties and as a result, we are reliant on licenses from such third parties. For example, we license patents to certain technologies used in our pool cleaner and lighting products. These licenses may not provide us rights (whether exclusive or non-exclusive) to use such intellectual property for all purposes or in all territories that we may wish to commercialize our products, now and in the future. As a result, others may also include such intellectual property in their products, and which may weaken any competitive advantage that our licensed intellectual property may provide us. In addition, if our licensors fail to prosecute, maintain, enforce, and defend such intellectual property or otherwise lose their rights therein, the rights we have licensed may be reduced or eliminated, and our right to develop and commercialize any of our products that are subject of such licensed rights could be adversely affected. Furthermore, we could have disagreements with our licensors, including regarding the scope of our licensed rights or the amount of royalty payments owed to them. For example, we are currently undergoing a routine audit pursuant to our license agreement with one of our licensors, and we cannot rule out the possibility that we may owe more royalties than we anticipate. If our licensors conclude that we have materially breached our license agreements, they might therefore terminate the license agreements, thereby removing our ability to develop and commercialize products covered by these license agreements. In addition, we may need to obtain additional licenses from our licensors and, in connection with obtaining such licenses, we may agree to amend our existing licenses in a manner that may be more favorable to the licensors, including by agreeing to terms that could enable third parties (potentially including our competitors) to receive licenses to a portion of the intellectual property that is subject to our existing licenses.
From time to time, we have been notified that we may be infringing certain patents or other intellectual property rights of third parties. There is no assurance that the necessary licenses can be obtained on commercially reasonable terms or at all. Failure to obtain the right to use third-party intellectual property, or to use such intellectual property on commercially reasonable terms, could force us to develop alternative approaches that do not infringe, misappropriate or otherwise violate such intellectual property rights, preclude us, our vendors, and/or our customers from making, using, selling, offering for sale and/or importing certain products or offering certain features or functionality in those products, or otherwise have a material adverse impact on our financial condition and operating results.
We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed alleged trade secrets of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. For example, although we try to ensure that our employees, consultants and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. In addition, we may face claims by third parties that our agreements with employees obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regarding intellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property. Litigation may be necessary to resolve an ownership dispute, and if we are not successful, we may be precluded from using certain intellectual property or may lose our exclusive rights in such intellectual property. Either outcome could harm our business and competitive position.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating, or otherwise violating their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our success in part depends on our ability to develop, manufacture, market and sell products using our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual
property rights of others. Although we believe we do not infringe, misappropriate, or otherwise violate any valid third-party intellectual property, third parties have and may sue or otherwise take action against us for infringing, misappropriating or otherwise violating their patents or other intellectual property rights, and we cannot be certain that third-party intellectual property does not exist or will not be issued that would prevent us from commercializing our products. Because of technological changes in our industry, current extensive patent coverage and the rapid rate of issuance of new patents, our current or future products may unknowingly infringe existing or future patents or intellectual property rights of others.
For example, the plaintiffs in the Pentair Litigation have claimed certain of our variable speed pump and controller products infringe seven U.S. patents, and may in the future claim that other Hayward products infringe and/or that we, our vendors and/or our customers infringe other Pentair patents. We have challenged six of these patents at the USPTO in inter partes proceedings and have raised non-infringement and invalidity defenses to each of the seven patents currently asserted against us in the infringement actions, which are currently stayed. See “Business—Legal Proceedings.” If we do not prevail in any dispute regarding intellectual property, in addition to any damages we might have to pay, we could be required to cease the infringing activity or obtain a license requiring us to make royalty payments. It is possible that a required license may not be available to us on commercially acceptable terms, if at all. In addition, a required license may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around any third party’s intellectual property, we may be unable to make use of some of the affected products, which would reduce our sales and revenues.
In addition, intellectual property litigation is costly and time-consuming. The defense costs and settlements for patent infringement lawsuits are not covered by insurance. Patent infringement lawsuits can take years to settle. If we are not successful in our defenses or are not successful in obtaining dismissals of any such lawsuit, legal fees or settlement costs could have a material adverse effect on our results of operations and financial position. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities.
We may not be able to effectively enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not afford intellectual property protection to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. For example, the requirements for patentability may differ in certain countries, particularly in developing countries. Moreover, our ability to protect and enforce our intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property rights. This could make it difficult for us to stop the infringement of our patents or the misappropriation or other violation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States. In addition, competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, if our ability to enforce our patents to stop infringing activities is inadequate. These products may compete with our products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial costs and divert our efforts and resources from other aspects of our business. Furthermore, while we intend to protect our intellectual property rights in the major markets for our products, we cannot ensure that we will be able to initiate or maintain similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Recent changes in U.S. patent laws may limit our ability to obtain, defend, and/or enforce our patents.
The United States has recently enacted and implemented wide ranging patent reform legislation. The U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of
patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the U.S. federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that could weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions, changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future.
Risks Related to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition.
We have a substantial amount of indebtedness, which, as of December 31, 2020, totaled approximately $1,322.7 million, including $958.0 million outstanding under our First Lien Term Loan Facility, $150.0 million outstanding under our First Lien Incremental Term Facility, $205.0 million outstanding under our Second Lien Term Loan Facility and $9.7 million of capital lease obligations. In October 2020, we entered into the First Lien Incremental Term Facility which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million on the outstanding shares of our Class A stock. We intend to use the net proceeds from this offering primarily to repay a portion of our indebtedness. See “Use of Proceeds.”
Our substantial indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences, including:
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requiring us to dedicate a substantial portion of our cash flows from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, product development and other purposes;
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increasing our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness;
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limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate;
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increasing our exposure to rising interest rates because certain of our borrowings are at variable interest rates;
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restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; and
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limiting our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, product development and other corporate purposes.
Although the terms of the agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, such restrictions are subject to a number of important exceptions and indebtedness incurred in compliance with such restrictions could be substantial. If we and our restricted subsidiaries incur significant additional indebtedness, the related risks that we face could increase.
Servicing our debt requires a significant amount of cash. Our ability to generate sufficient cash depends on numerous factors beyond our control, and we may be unable to generate sufficient cash flow to service our debt obligations.
Our business may not generate sufficient cash flow from operating activities to service our debt obligations. Our ability to make payments on and to refinance our debt and to fund planned capital
expenditures depends on our ability to generate cash in the future. To some extent, this is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.
If we are unable to generate sufficient cash flow from operations to service our debt and meet our other commitments, we may need to refinance all or a portion of our debt, sell material assets or operations, delay capital expenditures, or raise additional debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms or at all, and these actions may not be sufficient to meet our capital requirements. In addition, the terms of our existing or future debt agreements may restrict us from pursuing any of these alternatives.
The terms of our indebtedness restrict our current and future operations, particularly our ability to respond to change or to take certain actions.
The agreements governing our outstanding indebtedness contain a number of restrictive covenants that impose significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including, among other things, restrictions on our ability to:
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incur additional indebtedness;
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create liens on assets;
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declare or pay certain dividends and other distributions;
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make certain investments, loans, guarantees or advances;
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consolidate, amalgamate, merge, sell or otherwise dispose of all or substantially all of our assets; and
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enter into certain transactions with our affiliates;
In addition, the ABL Facility contains a financial covenant requiring us to maintain specified fixed charge coverage ratio during the specified periods described therein. These restrictions could impede our ability to operate our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities. See “Description of Certain Indebtedness—Certain Covenants and Events of Default.”
Various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants and maintain these financial tests and ratios. A breach of such covenants could result in an event of default unless we obtain a waiver to avoid such default. If we are unable to obtain a waiver, such a default may allow our creditors to accelerate the related debt and may result in the acceleration of, or default under, any other debt to which a cross-acceleration or cross-default provision applies. In the event our lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.
Because our operations are conducted through our subsidiaries, we are dependent on the receipt of distributions and dividends or other payments from our subsidiaries for cash to fund our operations and expenses, including to make future dividend payments, if any.
Our operations are conducted through our subsidiaries. As a result, our ability to make future dividend payments, if any, is dependent on the earnings of our subsidiaries and the payment of those earnings to us in the form of dividends, loans or advances and through repayment of loans or advances from us. Payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings and other business considerations and may be subject to statutory or contractual restrictions. We do not currently expect to declare or pay dividends on our common stock for the foreseeable future. However, to the extent that we determine in the future to pay dividends on our common stock, the ability of Hayward Holdings, Inc.’s operating subsidiaries to pay dividends is restricted by the credit agreements governing Hayward Industries, Inc.’s credit facilities. Under the credit agreements, dividends may only be paid to Hayward Holdings, Inc. for corporate overhead expenses and otherwise pursuant to customary dollar baskets, a “builder” basket in the term loan credit agreements based on 50% of cumulative adjusted “Consolidated Net Income” (as defined in the credit agreements) from July 1, 2017 to the applicable date of determination (taken as one accounting period, which was $160.3 million as of December 31, 2020) and equity proceeds among other things, an
unlimited amount under the asset-based revolving credit agreement subject to satisfying minimum availability requirements for borrowings under the credit agreement and the absence of certain defaults, and an unlimited amount under the term loan credit agreements subject to Hayward Industries, Inc.’s total leverage not exceeding certain thresholds on a pro forma basis.
Despite our substantial debt, we may still be able to incur significantly more debt, which would increase the risks described herein. We may also require additional capital, which may not be available on acceptable terms, if at all.
Despite our current indebtedness levels, we may increase our levels of debt in the future to finance our operations or in connection with acquisitions. The agreements relating to our indebtedness limit but do not prohibit our ability to incur additional debt. If we increase our total indebtedness, our debt service obligations will increase. We will become more exposed to the risks arising from our substantial level of indebtedness as described above as we become more leveraged. As of December 31, 2020, we had approximately $87.0 million of undrawn lines of credit available under our ABL Facility, subject to certain conditions, including compliance with certain financial covenants. We regularly consider market conditions and our ability to incur indebtedness to either refinance existing indebtedness or for working capital. If additional debt is added to our current debt levels, the related risks we face could increase.
If our cash flow from operations is less than we anticipate, if our cash requirements are more than we expect, or if we intend to finance acquisitions, we may require more financing. However, debt or equity financing may not be available to us on acceptable terms, if at all. If we incur additional debt or raise equity through the issuance of additional capital shares, the terms of the debt or capital shares issued may give the holders rights, preferences and privileges senior to those of holders of our ordinary shares, particularly in the event of liquidation. The terms of the debt may also impose additional and more stringent restrictions on our operations than we currently have. If we raise funds through the issuance of additional equity, the percentage ownership of existing shareholders in our company would decline. If we are unable to raise additional capital when needed, our financial condition could be adversely affected. Unfavorable changes in the ratings that rating agencies assign to our debt may ultimately negatively impact our access to the debt capital markets and increase the costs we incur to borrow funds. If ratings for our debt fall below investment grade, our access to the debt capital markets may become restricted. Additionally, our credit agreements generally include an increase in interest rates if the ratings for our debt are downgraded.
Uncertainty relating to the London interbank offered rate (“LIBOR”) and the potential discontinuation of LIBOR in the future may adversely affect our interest expense.
Borrowings under our Credit Facilities bear interest at a rate equal to an adjusted base rate or LIBOR, plus, in each case, an applicable margin. On July 27, 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. While the ICE Benchmark Administration recently announced its intention to extend the publication of certain LIBOR settings to the end of 2023, there can be no assurance such extension will occur. As a result, it is unclear if LIBOR will cease to exist after 2021 or if new methods of calculating LIBOR will be established such that it continues to exist after that time. The United States Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee composed of large U.S. financial institutions, is considering replacing LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities. The future of LIBOR at this time is uncertain and any changes in the methods by which LIBOR is determined or regulatory activity related to LIBOR’s phaseout could cause LIBOR to perform differently than in the past or cease to exist. If LIBOR ceases to exist, we may need to renegotiate our credit agreements and related agreements, which may result in interest rates and/or payments that do not correlate over time with the interest rates and/or payments that would have been made on our obligations if LIBOR was available in its current form. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flow and liquidity.
Risks Related to this Offering and Ownership of Our Common Stock
Our Sponsors will continue to have significant influence over us after this offering.
Following completion of this offering, entities affiliated with (i) CCMP will beneficially own approximately 31.3% of our outstanding common stock (approximately 30.2% if the underwriters exercise
their option to purchase additional shares in full) (ii) MSD Partners will beneficially own approximately 31.3% of our outstanding common stock (approximately 30.2% if the underwriters exercise their option to purchase additional shares in full) and (iii) AIMCo will beneficially own approximately 16.1% of our outstanding common stock (approximately 15.6% if the underwriters exercise their option to purchase additional shares in full), based on shares outstanding as of January 31, 2021 and the shares sold in this offering. For as long as affiliates of our Sponsors continue to beneficially own a substantial percentage of the voting power of our outstanding common stock, they will continue to have significant influence over us. For example, they will be able to strongly influence or effectively control the election of all of the members of our Board of Directors and our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of additional indebtedness, the issuance of any additional shares of common stock or other equity securities, the repurchase or redemption of shares of our common stock and the payment of dividends. This concentration of ownership may have the effect of deterring, delaying, or preventing a change of control of the Company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might ultimately affect the market price of our common stock.
Each of our Sponsors may also have interests that differ from yours. For example, our Sponsors, and the members of our Board of Directors who are affiliated with each respective Sponsor, by the terms of our certificate of incorporation, will not be required to offer us any corporate opportunity of which they become aware and can take any such corporate opportunity for themselves or offer it to other companies in which they have an investment. We, by the terms of our certificate of incorporation, will expressly renounce any interest or expectancy in any such corporate opportunity to the extent permitted under applicable law, even if the opportunity is one that we or our subsidiaries might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. Our Sponsors are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.
If you purchase shares in this offering, you will suffer immediate and substantial dilution.
If you purchase shares of our common stock in this offering, you will incur immediate and substantial dilution in the pro forma net tangible book value (deficit) of your stock of $21.75 per share as of December 31, 2020 based on an assumed initial public offering price of $18.00 per share, which is the midpoint of the price range set forth on the cover of this prospectus, because the price that you pay will be substantially greater than the net tangible book value deficiency per share of the shares you acquire. You will experience additional dilution upon the exercise of options to purchase shares of our common stock, including those options currently outstanding and those granted in the future, and the issuance of restricted stock or other equity awards under our stock incentive plans. As of December 31, 2020, options to purchase an aggregate of 2,387,190 shares of our common stock were vested and exercisable and options to purchase an aggregate of 6,770,400 shares of our common stock will vest in the event our stock trades above a certain threshold following the consummation of this offering. To the extent we raise additional capital by issuing equity securities, our stockholders will experience substantial additional dilution. See “Dilution.”
Further, we may need to raise additional funds in the future to finance our operations and/or acquire complementary businesses. If we obtain capital in future offerings on a per-share basis that is less than the initial public offering price per share, the value of the price per share of your common stock will likely be reduced. In addition, if we issue additional equity securities in a future offering and you do not participate in such offering, there will effectively be dilution in your percentage ownership interest in the Company.
We will in the future grant stock options and other awards to our certain current or future officers, directors, employees, and consultants under additional plans or individual agreements. The grant, exercise, vesting, and/or settlement of these awards, as applicable, will have the effect of diluting your ownership interests in the Company. We may also issue additional equity securities in connection with other types of transactions, including shares issued as part of the purchase price for acquisitions of assets or other companies from time to time or in connection with strategic partnerships or joint ventures, or as incentives to management or other providers of resources to us. Such additional issuances are likely to have the same dilutive effect.
Our stock price could be extremely volatile and, as a result, you may not be able to resell your shares at or above the price you paid for them.
Since our inception, there has not been a public market for our common stock, and an active public market for our common stock may not develop or be sustained following completion of this offering. In addition, the stock market in general has been highly volatile. As a result, the market price of our common stock is likely to be similarly volatile, and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and could lose part or all of their investment. The price of our common stock could be subject to wide fluctuations in response to a number of factors, including those described elsewhere in this prospectus and others such as:
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variations in our operating performance and the performance of our competitors;
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actual or anticipated fluctuations in our quarterly or annual operating results;
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publication of research reports by securities analysts about us, our competitors or our industry;
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our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
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additions or departures of key personnel;
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strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
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the passage of legislation or other regulatory developments affecting us or our industry;
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changes in legislation, regulation and government policy as a result of the U.S. presidential and congressional elections;
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speculation in the press or investment community;
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changes in accounting principles;
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terrorist acts, acts of war or periods of widespread civil unrest;
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natural disasters and other calamities;
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changes in general market and economic conditions; and
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the other factors described in this “Risk Factors” section and the section titled “Special Note Regarding Forward-Looking Statements.”
In addition, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance, and factors beyond our control may cause our stock price to decline rapidly and unexpectedly. We are exposed to the impact of any global or domestic economic disruption. Additionally, in the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.
We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2020 and December 31, 2019, our management has identified the following material weaknesses:
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We did not document the design or operation of an effective control environment commensurate with the financial reporting requirements of an SEC registrant. Specifically, we did not design and maintain adequate formal documentation of certain policies and procedures, controls over the segregation of duties within our financial reporting function and the preparation and review of journal entries.
In addition, this material weakness contributed to the following additional material weaknesses:
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We did not design and maintain control activities to adequately address identified risks or evidence of performance, or to operate at a sufficient level of precision that would identify material misstatements to our financial statements.
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We did not design and maintain effective controls over certain information technology (“IT”) general controls for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
(i) program change management controls to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
(ii) user access controls to ensure appropriate segregation of duties and that adequately restrict user and privileged access to financial applications, programs, and data to appropriate Company personnel.
(iii) computer operations controls to ensure that critical batch jobs are monitored and data backups are authorized and monitored.
(iv) testing and approval controls for program development to ensure that new software development is aligned with business and IT requirements.
These IT deficiencies did not result in a material misstatement to the financial statements, however, when aggregated, could impact maintaining effective segregation of duties, as well as the effectiveness of IT-dependent controls (such as automated controls that address the risk of material misstatement to one or more assertions, along with the IT controls and underlying data that support the effectiveness of system-generated data and reports) that could result in misstatements potentially impacting all financial statement accounts and disclosures that would not be prevented or detected. Accordingly, management has determined these deficiencies in the aggregate constitute a material weakness.
None of the above material weaknesses resulted in material misstatements. If we are unable to timely address the weaknesses in our control environment, however, they could result in misstatements of our account balances or disclosures that would result in material misstatements of our annual or interim financial statements that would not be prevented or detected.
Upon identifying the material weaknesses, we began taking steps intended to address the underlying causes of the control deficiencies in order to remediate the material weaknesses. Our efforts to date have focused on: (i) development of a remediation plan to fully address the control deficiencies; (ii) establishment of an internal audit group; (iii) implementation of processes and controls to better identify and manage segregation of duties and (iv) engagement of a third party provider to support in evaluating and documenting the design of our internal controls, assist with the remediation of the deficiencies, and test the operating effectiveness of our internal controls.
While we believe these efforts will improve our internal controls and address the underlying causes of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded that our controls are operating effectively for a sufficient period of time. We cannot be certain that the steps we are taking will be sufficient to remediate the control deficiencies that led to our material weaknesses in our internal control over financial reporting or prevent future material weaknesses or control deficiencies from occurring. While we are working to remediate the material weaknesses as timely and efficiently as possible, at this time we cannot provide an estimate of costs expected to be incurred in connection with the implementation of this remediation plan, nor can we
provide an estimate of the time it will take to complete this remediation plan. We do, however, intend to remediate the identified material weaknesses prior to becoming subject to the reporting requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) at the end of 2022. In addition, we cannot be certain that we have identified all material weaknesses in our internal control over financial reporting, or that in the future we will not have additional material weaknesses in our internal control over financial reporting.
Neither our management nor an independent registered public accounting firm has performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act because no such evaluation has been required. Had we or our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses may have been identified. If we fail to effectively remediate the material weaknesses in our internal control over financial reporting, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls when required to do so in the future, we may be unable to accurately or timely report our financial condition or results of operations. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting, when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets, and our stock price could be adversely affected.
Upon becoming a public company, we will be required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. Although we will be required to disclose changes that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting on a quarterly basis, we will not be required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until at least our second annual report required to be filed with the SEC.
To comply with the requirements of being a public company, we may need to undertake various actions, to develop, implement and test additional processes and other controls. Testing and maintaining internal controls can divert our management’s attention from other matters related to the operation of our business.
There may be sales of a substantial amount of our common stock after this offering by our current stockholders, and these sales could cause the price of our common stock to fall.
Following completion of this offering, there will be 229,634,661 shares of our common stock outstanding, based on shares outstanding as of January 31, 2021 and the shares sold in this offering. Of our issued and outstanding shares, all of the common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. Following completion of this offering, approximately 31.3%, 31.3% and 16.1% of our outstanding common stock (or approximately 30.2%, 30.2% and 15.6% if the underwriters exercise their option to purchase additional shares in full) will be held by affiliates of our Sponsors, respectively.
Each of our executive officers and directors, the selling stockholders and substantially all holders of our common stock have entered into a lock-up agreement with BofA Securities, Inc. and Goldman Sachs & Co. LLC, as representatives of the underwriters, which regulates their sales of our common stock for a period of 180 days after the date of this prospectus, subject to certain exceptions. BofA Securities and Goldman Sachs & Co. LLC may, in their sole discretion, release all or some portion of the shares subject to lock-up agreements at any time and for any reason. See “Shares Eligible for Future Sale—Lock-Up Agreements.”
Sales of substantial amounts of our common stock in the public market after this offering, the perception that such sales will occur, or early release of these lock-up agreements could adversely affect the market price of our common stock and make it difficult for us to raise funds through securities offerings in the future. Of the shares of our common stock to be outstanding following completion of this offering, the
shares offered by this prospectus will be eligible for immediate sale in the public market without restriction by persons other than our affiliates. Our remaining outstanding shares will become available for resale in the public market as shown in the chart below, subject to the provisions of Rule 144 and Rule 701.
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Number of Shares
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Date Available for Resale
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5,185,629
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On the date of this offering ( , 2021)
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184,093,725
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180 days after this offering ( , 2021) subject to certain exceptions
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Beginning 180 days after this offering, subject to certain exceptions, our Sponsors may require us to register shares of our common stock held by them for resale under the federal securities laws, subject to reduction upon the request of the underwriter of the offering, if any. See “Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement.” Registration of those shares would allow the Sponsors to immediately resell their shares in the public market. Any such sales or anticipation thereof could cause the market price of our common stock to decline.
In addition, following completion of this offering, we intend to register (i) shares of common stock issuable upon the exercise of stock options outstanding under our 2017 Plan, (ii) shares of our common stock that we expect to issue pursuant to our 2021 Plan and (iii) shares of our common stock that will become available for issuance under our ESPP. For more information, see “Shares Eligible for Future Sale—Registration Statements on Form S-8.”
Provisions in our charter documents after this offering and Delaware law may deter takeover efforts that you feel would be beneficial to stockholder value.
In addition to our Sponsors’ beneficial ownership of a substantial percentage of our common stock, provisions in our certificate of incorporation and bylaws after this offering and Delaware law could make it harder for a third party to acquire us, even if doing so might be beneficial to our stockholders, and could also make it difficult for stockholders to elect directors that are not nominated by the current members of our Board of Directors or take other corporate actions, including effecting changes in our management. These provisions include a classified board of directors and the ability of our Board of Directors to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror. Our certificate of incorporation will also impose some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock other than our Sponsors. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the company may be unsuccessful. See “Description of Capital Stock—Anti-Takeover Effects of Our Certificate of Incorporation and Bylaws and Certain Provisions of Delaware Law.”
Our second restated certificate of incorporation will designate specific courts as the sole and exclusive forum for certain claims or causes of action that may be brought by our stockholders, which could discourage lawsuits against us and our directors and officers.
Our second restated certificate of incorporation will provide that, subject to limited exceptions, the Court of Chancery of the State of Delaware (or, if, and only if, the Court of Chancery of the State of Delaware dismisses a Covered Claim (as defined below) for lack of subject matter jurisdiction, any other state or federal court in the State of Delaware that does have subject matter jurisdiction) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for the following types of claims: (i) any derivative claim brought in the right of the Company, (ii) any claim asserting a breach of a fiduciary duty to the Company or the Company’s stockholders owed by any current or former director, officer or other employee or stockholder of the Company, (iii) any claim against the Company arising pursuant to any provision of the DGCL, our second restated certificate of incorporation or amended and restated bylaws, (iv) any claim to interpret, apply, enforce or determine the validity of our second restated certificate of incorporation or our amended and restated bylaws, (v) any claim against the Company governed by the internal affairs doctrine, and (vi) any other claim, not subject to exclusive federal jurisdiction and not asserting a cause of action arising under the Securities Act, as amended, brought in any action asserting
one or more of the claims specified in clauses (a)(i) through (v) herein above (each a “Covered Claim”). This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act.
Our second restated certificate of incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, our second restated certificate of incorporation will provide that any person or entity purchasing or otherwise acquiring any interest in the shares of capital stock of the Company will be deemed to have notice of and consented to these choice-of-forum provisions and waived any argument relating to the inconvenience of the forums in connection with any Covered Claim.
The choice of forum provisions to be contained in our second restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. While the Delaware courts have determined that such choice of forum provisions are facially valid, it is possible that a court of law in another jurisdiction could rule that the choice of forum provisions to be contained in our second restated certificate of incorporation are inapplicable or unenforceable if they are challenged in a proceeding or otherwise, which could cause us to incur additional costs associated with resolving such action in other jurisdictions.
Upon the listing of our common stock on the New York Stock Exchange, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. As a result, we will qualify for, and intend to rely on, exemptions from certain corporate governance standards. You will not have the same protections afforded to stockholders of companies that are subject to such requirements.
After the completion of this offering, the Sponsors will collectively control a majority of the voting power of shares eligible to vote in the election of our directors. Because more than 50% of the voting power in the election of our directors will be held by an individual, group, or another company, we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. As a controlled company, we may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:
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a majority of our Board of Directors consists of “independent directors,” as defined under the rules of such exchange;
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our Board of Directors has a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
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our Board of Directors has a nominating and corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.
Following this offering, we intend to utilize these exemptions. As a result, immediately following this offering we do not expect that the majority of our directors will be independent or that any committees of our Board of Directors, other than our audit committee, will be composed of independent directors. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the New York Stock Exchange.
We are an emerging growth company and cannot be certain if the reduced disclosure requirements applicable to us will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we expect to take advantage of certain exemptions and relief from various reporting requirements that are applicable to other public companies that are not emerging growth companies. In particular, while we are an emerging growth company, we will not be required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; we will be exempt from any rules that could be adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financial statements; we will be subject to reduced disclosure obligations regarding executive compensation
in our periodic reports and proxy statements; and we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments not previously approved.
In addition, while we are an emerging growth company, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of this extended transition period and, as a result, our operating results and financial statements may not be comparable to the operating results and financial statements of companies that have adopted the new or revised accounting standards.
We may remain an emerging growth company until the last day of the fiscal year following the fifth anniversary of the completion of this offering, though we may cease to be an emerging growth company earlier under certain circumstances, including if (i) we have $1.07 billion or more in annual gross revenue in any fiscal year, (ii) we become a “large accelerated filer,” as defined in Rule 12b-2 under the Exchange Act; or (iii) we issue more than $1.0 billion of non-convertible debt over a three-year period.
We cannot predict whether investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, us. These statements include, but are not limited to, statements about our strategies, plans, objectives, expectations, intentions, expenditures and assumptions and other statements contained in or incorporated by reference in this prospectus that are not historical facts. When used in this document, words such as “may,” “will,” “should,” “could,” “intend,” “potential,” “continue,” “anticipate,” “believe,” “estimate,” “expect,” “plan,” “target,” “predict,” “project,” “seek” and similar expressions as they relate to us are intended to identify forward-looking statements. These statements reflect our current views with respect to future events, are not guarantees of future performance and involve risks and uncertainties that are difficult to predict. Further, certain forward-looking statements are based upon assumptions as to future events that may not prove to be accurate.
Examples of forward-looking statements include, among others, statements we make regarding: our financial position; business plans and objectives; general economic and industry trends; business prospects; future product development and acquisition strategies; growth and expansion opportunities; operating results; and working capital and liquidity. We may not achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place significant reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.
The forward-looking statements in this prospectus are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements, including such statements taken from third-party industry and market reports. See “Market and Industry Data.” In addition to those discussed herein under the caption “Risk Factors,” important factors that could affect our future results and could cause those results or other outcomes to differ materially from those indicated in our forward-looking statements include the following:
•
our ability to execute on our growth strategies and expansion opportunities;
•
our ability to maintain favorable relationships with suppliers;
•
our relationships with and the performance of distributors, builders, buying groups, retailers and servicers who sell our products to pool owners;
•
competition from national and global companies, as well as lower cost manufacturers;
•
impacts on our business from the sensitivity of our business to seasonality and unfavorable economic and business conditions;
•
our ability to identify emerging technological and other trends in our target end markets;
•
our ability to develop, manufacture and effectively and profitably market and sell our new planned and future products;
•
failure of markets to accept new product introductions and enhancements;
•
the ability to successfully identify, finance, complete and integrate acquisitions;
•
our ability to attract and retain senior management and other qualified personnel;
•
regulatory changes and developments affecting our current and future products;
•
volatility in currency exchange rates;
•
our ability to service our existing indebtedness and obtain additional capital to finance operations and our growth opportunities;
•
impacts on our business from political, regulatory, economic, trade, and other risks associated with operating foreign businesses;
•
our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights of others;
•
the impact of material cost and other inflation;
•
the impact of changes in laws, regulations and administrative policy, including those that limit U.S. tax benefits or impact trade agreements and tariffs;
•
the outcome of litigation and governmental proceedings;
•
impacts on our business from the COVID-19 pandemic; and
•
other risks and uncertainties, including those listed in the section titled “Risk Factors.”
These forward-looking statements involve known and unknown risks, inherent uncertainties and other factors, which may cause our actual results, performance, time frames or achievements to be materially different from any future results, performance, time frames or achievements expressed or implied by the forward-looking statements. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. Actual results and the timing of certain events may differ materially from those contained in these forward-looking statements.
Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this prospectus as anticipated, believed, estimated, expected, intended, planned or projected. We discuss many of these risks in greater detail under the heading “Risk Factors.” The forward-looking statements included in this prospectus are made only as of the date hereof. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.
USE OF PROCEEDS
We estimate that the net proceeds to us from this offering, after deducting estimated underwriting discounts and commissions and estimated offering expenses paid or payable by us, will be approximately $368.9 million, assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus).
We will not receive any of the proceeds from the selling stockholders named in this prospectus. The selling stockholders will receive approximately $307.5 million of proceeds from this offering (or approximately $410.3 million if the underwriters exercise in full their option to purchase additional shares of common stock).
We intend to use the net proceeds from the sale of our common stock in this offering to repay approximately $368.9 million in aggregate principal amount of outstanding borrowings under our Credit Facilities, out of which approximately (i) $141.7 million will be used to repay borrowings under the First Lien Term Facility, (ii) $22.2 million will be used to repay borrowings under the First Lien Incremental Term Facility and (iii) $205.0 million will be used to repay borrowings under the Second Lien Term Facility. We intend to use the remaining net proceeds from this offering, if any, to repay additional outstanding borrowings under our Credit Facilities.
As of December 31, 2020, there was approximately $1,313.0 million in aggregate principal amount of debt outstanding under our Credit Facilities, consisting of approximately (i) $958.0 million outstanding under the First Lien Term Facility, bearing interest at a rate of 3.65% and maturing on August 4, 2024, (ii) $150.0 million outstanding under the First Lien Incremental Term Facility, bearing interest at a rate of 4.50% and maturing on August 4, 2026, and (iii) $205.0 million outstanding under the Second Lien Term Facility, bearing interest at a rate of 8.40%, and maturing on August 4, 2025. On October 28, 2020, Hayward Industries entered into the First Lien Incremental Term Facility, which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million on the outstanding shares of our Class A stock. For additional information regarding the Credit Facilities, see “Description of Certain Indebtedness.”
A $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $21.0 million, assuming the number of shares offered by us, shown on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us for this offering. An increase (decrease) of 1,000,000 shares from the expected number of shares to be sold by us in this offering, assuming no change in the assumed initial public offering price of $18.00 per share, the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) our net proceeds from this offering by approximately $17.0 million.
DIVIDEND POLICY
On October 28, 2020, we paid a cash distribution of approximately $275.0 million on the outstanding shares of our Class A stock. Our Board of Directors does not currently plan to pay dividends on our common stock following this offering and currently expects to retain all future earnings for use in the operation and expansion of our business. Following this offering, we may reevaluate our dividend policy. The declaration, amount and payment of any future dividends on our common stock will be at the sole discretion of our Board of Directors, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions and implications on the payment of dividends by us to our stockholders or by our subsidiaries to us, including restrictions under our Credit Facilities and other indebtedness we may incur, and such other factors as our Board of Directors may deem relevant. If we elect to pay such dividends in the future, we may reduce or discontinue entirely the payment of such dividends at any time.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization as of December 31, 2020:
•
on an actual basis;
•
on a pro forma basis to give effect to (i) the Reclassification as described under “The Reclassification,” as if it had occurred on December 31, 2020 and based on an assumed public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), (ii) $1.0 million of stock compensation expense for the Class A restricted stock awards for which the performance condition will be satisfied upon the completion of this offering, (iii) $0.6 million of stock compensation expense for performance-based restricted stock as all vesting conditions are deemed probable upon completion of this offering, and (iv) $10.3 million of stock compensation expense for performance-based common stock options as all vesting conditions are deemed probable upon completion of this offering; and
•
on a pro forma as adjusted basis to reflect (i) the issuance and the sale by us of 22,200,000 shares of common stock in this offering at an assumed public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), after deducting underwriting discounts, commissions and estimated offering expenses, and (ii) the application of the net proceeds therefrom as described in “Use of Proceeds.”
You should read the information in this table in conjunction with our financial statements and the related notes thereto appearing elsewhere in this prospectus, as well as the information under the headings “The Reclassification,” “Use of Proceeds,” “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
|
(dollars in millions, except per share data)
|
|
|
Actual
|
|
|
As of December 31,
2020 pro forma
|
|
|
Pro forma
as adjusted
|
|
|
Cash and cash equivalents(1)
|
|
|
|
$
|
114.9
|
|
|
|
|
$
|
114.9
|
|
|
|
|
$
|
116.8
|
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Lien Term Facility, due August 4, 2024
|
|
|
|
|
958.0
|
|
|
|
|
|
958.0
|
|
|
|
|
|
816.3
|
|
|
|
First Lien Incremental Term Facility, due August 4, 2026
|
|
|
|
|
150.0
|
|
|
|
|
|
150.0
|
|
|
|
|
|
127.8
|
|
|
|
Second Lien Term Facility, due August 4, 2025
|
|
|
|
|
205.0
|
|
|
|
|
|
205.0
|
|
|
|
|
|
—
|
|
|
|
ABL Facility
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Capital lease obligations
|
|
|
|
|
9.7
|
|
|
|
|
|
9.7
|
|
|
|
|
|
9.7
|
|
|
|
Total debt(2)(3)
|
|
|
|
|
1,322.7
|
|
|
|
|
|
1,322.7
|
|
|
|
|
|
953.8
|
|
|
|
Redeemable stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A stock, $0.001 par value per share, 1,500,000 shares
authorized, 872,598 shares issued and 869,823 shares
outstanding on an actual basis; no shares authorized,
issued or outstanding on a pro forma and pro forma as
adjusted basis
|
|
|
|
|
594.5
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Class C stock, $0.001 par value per share; 100 shares
authorized, 100 shares issued and outstanding on an
actual basis; no shares authorized, issued or outstanding
on a pro forma and pro forma as adjusted basis
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value per share; 150,000 shares
authorized, 19,728 shares issued and 14,220 shares
outstanding on an actual basis; 300,000,000 shares
authorized and 207,357,132 shares issued and
outstanding on a pro forma basis; 750,000,000 shares
authorized and 229,557,132 shares issued and
outstanding on a pro forma as adjusted basis(4)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
0.2
|
|
|
|
Preferred stock, $0.001 par value per share, no shares authorized, issued or outstanding on an actual and pro forma basis; 100,000,000 shares authorized, no shares issued or outstanding on a pro forma as adjusted basis
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additional paid-in capital(2)
|
|
|
|
|
10.3
|
|
|
|
|
|
616.7
|
|
|
|
|
|
987.3
|
|
|
|
Treasury stock
|
|
|
|
|
(3.7)
|
|
|
|
|
|
(3.7)
|
|
|
|
|
|
(3.7)
|
|
|
|
Retained earnings
|
|
|
|
|
203.0
|
|
|
|
|
|
191.2
|
|
|
|
|
|
191.2
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
(0.4)
|
|
|
|
|
|
(0.4)
|
|
|
|
|
|
(0.4)
|
|
|
|
Total stockholders’ equity(2)
|
|
|
|
|
209.2
|
|
|
|
|
|
803.8
|
|
|
|
|
|
1,174.6
|
|
|
|
Total capitalization(2)
|
|
|
|
$
|
2,126.5
|
|
|
|
|
|
2,126.5
|
|
|
|
|
|
2,128.4
|
|
|
(1)
Pro forma as adjusted increase in cash and cash equivalents reflects the reimbursement from the use of proceeds to the Company of $1.9 million of IPO-related expenses paid in Fiscal Year 2020.
(2)
Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would decrease (increase) total debt by $21.0 million and increase (decrease) common stock, including paid-in capital, and total stockholders’ equity by $21.0 million, assuming the number of shares offered by us, shown on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us. We may also increase or decrease the number of shares we are offering in this offering. An increase (decrease) of 1,000,000 shares offered by us from the expected number of shares to be
sold by us in this offering, assuming no change in the assumed initial public offering price of $18.00 per share, the midpoint of the estimated offering price range shown on the cover page of this prospectus, would increase (decrease) total debt by $17.0 million and increase (decrease) common stock, including paid-in capital, and total stockholders’ equity by $17.0 million, after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us for this offering. Because we intend to use any additional proceeds to repay outstanding indebtedness, an increase (decrease) in the assumed initial public offering price of shares offered by us in this offering would not increase (decrease) total capitalization.
(3)
Reflects principal amount before reduction of $19.6 million for unamortized debt issuance costs.
(4)
Because the number of shares of common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. See “The Reclassification.”
DILUTION
If you invest in our common stock in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the as adjusted net tangible book value (deficit) per share of our common stock after this offering. Dilution results from the fact that the per share offering price of the common stock is substantially in excess of the book value (deficit) per share attributable to the shares of common stock held by our pre-IPO owners.
Our pro forma net tangible book value (deficit) as of December 31, 2020 would have been $(1,230.9) million, or $(5.94) per share of our common stock after giving effect to the Reclassification, assuming the Reclassification had taken place on December 31, 2020 and assuming an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus). Pro forma net tangible book value (deficit) represents the amount of our total tangible assets less our total liabilities, after giving effect to the pro forma adjustments described above. Pro forma net tangible book value (deficit) per share represents pro forma net tangible book value (deficit) divided by the number of shares outstanding as of December 31, 2020, after giving effect to the pro forma adjustments described above.
After giving further effect to (i) the issuance and sale by us of 22,200,000 shares of common stock and the sale by the selling stockholders of 18,077,778 shares of common stock in this offering at an initial public offering price of $18.00 per share (which is the midpoint of the estimated offering price range shown on the cover page of this prospectus), after deducting underwriting discounts, commissions and estimated offering expenses paid or payable by us, and (ii) the application of the net proceeds as set forth under “Use of Proceeds,” our as pro forma adjusted net tangible book value (deficit) as of December 31, 2020 would have been $(860.0) million, or $(3.75) per share of our common stock. This represents an immediate decrease in net tangible book value (deficit) of $2.19 per share to existing stockholders and immediate and substantial dilution in net tangible book value (deficit) of $21.75 per share to investors purchasing shares in this offering at the initial public offering price.
The following table illustrates this dilution on a per share basis:
|
|
Assumed initial public offering price per share
|
|
|
|
$
|
18.00
|
|
|
|
|
Pro forma net tangible book value (deficit) per share as of December 31, 2020
|
|
|
|
$
|
(5.94)
|
|
|
|
|
Increase in pro forma as adjusted net tangible book value (deficit) per share attributable to new investors purchasing common stock in this offering
|
|
|
|
$
|
2.19
|
|
|
|
|
Pro forma as adjusted net tangible book value (deficit) per share after this offering
|
|
|
|
$
|
(3.75)
|
|
|
|
|
Dilution per share to new investors purchasing common stock in this offering
|
|
|
|
$
|
21.75
|
|
|
Dilution is determined by subtracting as adjusted net tangible book value (deficit) per share of common stock after this offering from the initial public offering price per share of common stock.
Each $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share, based on the midpoint of the estimated offering price range shown on the cover page of this prospectus, would decrease (increase) our pro forma as adjusted net tangible book value (deficit) by approximately $21.0 million or by approximately $0.06 per share, assuming the number of shares offered by us, shown on the cover page of this prospectus remains the same and after deducting estimated underwriting discounts, commissions and estimated offering expenses paid or payable by us. Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would also have a corresponding impact on our pro forma net tangible book value deficiency per share of our common stock. Our pro forma as adjusted net tangible book value (deficit) per share of our common stock would have been the following at December 31, 2020, assuming the initial public offering prices for our common stock shown below:
|
|
Initial public offering price
|
|
|
|
$
|
16.00
|
|
|
|
|
$
|
17.00
|
|
|
|
|
$
|
18.00
|
|
|
|
|
$
|
19.00
|
|
|
|
|
$
|
20.00
|
|
|
|
|
$
|
21.00
|
|
|
|
|
Pro Forma as adjusted net tangible book value per
share
|
|
|
|
$
|
(3.86)
|
|
|
|
|
$
|
(3.80)
|
|
|
|
|
$
|
(3.75)
|
|
|
|
|
$
|
(3.68)
|
|
|
|
|
$
|
(3.62)
|
|
|
|
|
$
|
(3.55)
|
|
|
The following table summarizes, as of December 31, 2020, the differences between the number of shares of common stock purchased from us, the total consideration paid to us, and the average price per share paid by existing stockholders and by new investors. As the table shows, new investors purchasing shares in this offering will pay an average price per share substantially higher than our existing stockholders paid. The table below is based on an initial public offering price of $18.00 per share for shares of common stock purchased in this offering and excludes underwriting discounts, commissions and estimated offering expenses paid or payable by us:
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Avg/Share
|
|
|
(dollars in thousands, except per share amounts)
|
|
|
Number
|
|
|
%
|
|
|
Amount
|
|
|
%
|
|
|
Existing stockholders
|
|
|
|
|
207,357,132
|
|
|
|
|
|
90.3%
|
|
|
|
|
$
|
870,319,260
|
|
|
|
|
|
68.5%
|
|
|
|
|
$
|
4.20
|
|
|
|
New investors
|
|
|
|
|
22,200,000
|
|
|
|
|
|
9.7%
|
|
|
|
|
$
|
399,600,000
|
|
|
|
|
|
31.5%
|
|
|
|
|
$
|
18.00
|
|
|
|
Total
|
|
|
|
|
229,557,132
|
|
|
|
|
|
100%
|
|
|
|
|
$
|
1,269,919,260
|
|
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
(1)
The number of shares purchased by existing stockholders is determined as follows:
|
|
Class B common shares issued as of December 31, 2020
|
|
|
|
|
3,846,960
|
|
|
|
|
Less: Class B treasury shares as of December 31, 2020
|
|
|
|
|
(1,074,031)
|
|
|
|
|
Net Class B common shares outstanding as of December 31, 2020
|
|
|
|
|
2,772,929
|
|
|
|
|
Converted net Class A shares as of December 31, 2020(a)
|
|
|
|
|
205,236,823
|
|
|
|
|
Less: converted Class A treasury shares outstanding as of December 31, 2020
|
|
|
|
|
(652,620)
|
|
|
|
|
Common shares issued as of December 31, 2020
|
|
|
|
|
207,357,132
|
|
|
(a)
See “The Reclassification” for a computation of the number of Class B common shares issuable upon conversion of the Class A shares issued and outstanding as of December 31, 2020.
Because the number of shares of our common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of shares purchased by existing stockholders. The number of shares purchased by existing stockholders would have been the following as of December 31, 2020, assuming the initial public offering prices for our common stock shown below:
|
|
|
|
$16.00
|
|
|
$17.00
|
|
|
$18.00
|
|
|
$19.00
|
|
|
$20.00
|
|
|
$21.00
|
|
|
Shares purchased by existing stockholders
|
|
|
|
|
211,728,235
|
|
|
|
|
|
209,414,158
|
|
|
|
|
|
207,357,132
|
|
|
|
|
|
205,516,654
|
|
|
|
|
|
203,860,259
|
|
|
|
|
|
202,361,620
|
|
|
|
Percent of total shares purchased by existing stockholders
|
|
|
|
|
90.5%
|
|
|
|
|
|
90.4%
|
|
|
|
|
|
90.3%
|
|
|
|
|
|
90.3%
|
|
|
|
|
|
90.2%
|
|
|
|
|
|
90.1%
|
|
|
To the extent that outstanding options are exercised or outstanding restricted stock awards settle or we grant options, restricted stock, restricted stock units or other equity-based awards to our employees, executive officers and directors in the future, or other issuances of common stock are made, there will be further dilution to new investors.
The dilution information above is for illustrative purposes only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our shares of common stock and other terms of this offering determined at pricing.
THE RECLASSIFICATION
Prior to this offering, we had three classes of common stock outstanding, Class A stock, Class B common stock and Class C stock. The Class A stock was identical to the Class B common stock, except that the Class A stock was convertible into shares of our Class B common stock as described below, and each share of Class A stock was entitled to a preferential payment upon any liquidating distribution by us to holders of our capital stock, whether by dividend, distribution or otherwise, equal to the Class A Preference Amount for such share. Class C stock had no voting rights or conversion rights, but each share of Class C stock was entitled to receive a special dividend equal to $1.0 million multiplied by the quotient of the (i) number of Class A stock held by such holder divided by (ii) the number of shares of Class A stock owned collectively by the Sponsors, on the terms and conditions set forth in the Special Dividend Side Letter (as defined herein).
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional 40.2022 shares (assuming an offering price equal to the midpoint of the estimated offering price range shown on the cover page of this prospectus), which amount will be determined by dividing (a) the Class A preference amount of such share of Class A stock, or $683.84 per share (the “Class A Preference Amount”), by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. In connection with the conversion of the Class A stock, holders of our Class A stock will receive a cash payment from us in lieu of fractional shares based on the initial public offering price per share of our common stock in this offering, but will not receive any other cash payments in connection with the conversion.
References to the “Reclassification” throughout this prospectus refer to (i) the reclassification of our Class B common stock into our common stock on March 2, 2021, (ii) the 195-for-1 stock split of our common stock on March 2, 2021, (iii) the conversion of our Class A stock into common stock, (iv) the redemption of our Class C stock and (v) the filing and effectiveness of our second restated certificate of incorporation and the adoption of our amended and restated bylaws.
Assuming an initial public offering price of $18.00 per share, which is the midpoint of the estimated offering price range shown on the cover page of this prospectus, 207,357,132 shares of common stock will be outstanding immediately after the Reclassification but before this offering. The actual number of shares of our common stock that will be issued as a result of the Reclassification is subject to change based on the actual initial public offering price.
Because the number of shares of common stock into which a share of our Class A stock is convertible will be determined by reference to the initial public offering price in this offering, a change in the initial public offering price would have a corresponding impact on the number of outstanding shares of our common stock presented in this prospectus after giving effect to this offering. The following presents the number of shares of our common stock into which each share of Class A stock will be converted and the number of shares of our common stock that would be outstanding immediately after the Reclassification but before this offering, assuming the initial public offering prices for our common stock shown below.
|
|
|
|
Assumed Initial Public Offering Price
|
|
|
|
$16.00
|
|
|
$17.00
|
|
|
$18.00
|
|
|
$19.00
|
|
|
$20.00
|
|
|
$21.00
|
|
|
Shares of common stock per share of Class A stock
|
|
|
|
|
240.2275
|
|
|
|
|
|
237.5671
|
|
|
|
|
|
235.2022
|
|
|
|
|
|
233.0863
|
|
|
|
|
|
231.1820
|
|
|
|
|
|
229.4591
|
|
|
|
Shares outstanding
|
|
|
|
|
211,728,235
|
|
|
|
|
|
209,414,158
|
|
|
|
|
|
207,357,132
|
|
|
|
|
|
205,516,654
|
|
|
|
|
|
203,860,259
|
|
|
|
|
|
202,361,620
|
|
|
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of this prospectus and our audited consolidated financial statements and the related notes thereto included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2019 and December 31, 2020 and the selected consolidated balance sheet data as of December 31, 2019 and December 31, 2020 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected in any future period.
|
|
|
|
Years Ended December 31,
|
|
|
(dollars in millions, except per share data)
|
|
|
2020
|
|
|
2019
|
|
|
Statement of Operations Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
733.4
|
|
|
|
Cost of sales
|
|
|
|
|
478.4
|
|
|
|
|
|
409.9
|
|
|
|
Gross profit
|
|
|
|
|
397.0
|
|
|
|
|
|
323.5
|
|
|
|
Selling, general, and administrative expenses
|
|
|
|
|
195.2
|
|
|
|
|
|
179.4
|
|
|
|
Research, development, and engineering
|
|
|
|
|
20.0
|
|
|
|
|
|
19.9
|
|
|
|
Acquisition and restructuring related expense (income)
|
|
|
|
|
19.3
|
|
|
|
|
|
(16.3)
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
37.9
|
|
|
|
|
|
41.8
|
|
|
|
Operating income
|
|
|
|
|
124.6
|
|
|
|
|
|
98.7
|
|
|
|
Interest expense, net
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
Other (income) expense, net
|
|
|
|
|
(6.8)
|
|
|
|
|
|
2.1
|
|
|
|
Total other expense
|
|
|
|
|
66.8
|
|
|
|
|
|
86.6
|
|
|
|
Income from operations before income taxes
|
|
|
|
|
57.8
|
|
|
|
|
|
12.1
|
|
|
|
Provision for income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
3.6
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Cash Flow Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
213.8
|
|
|
|
|
$
|
94.0
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
(13.0)
|
|
|
|
|
|
4.0
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
(135.1)
|
|
|
|
|
|
(65.1)
|
|
|
|
Balance Sheet Data (as of period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
114.9
|
|
|
|
|
$
|
47.2
|
|
|
|
Property, plant, and equipment, net
|
|
|
|
|
142.3
|
|
|
|
|
|
139.9
|
|
|
|
Goodwill and intangibles
|
|
|
|
|
2,034.5
|
|
|
|
|
|
2,068.7
|
|
|
|
Total assets
|
|
|
|
|
2,607.1
|
|
|
|
|
|
2,603.1
|
|
|
|
Long term debt
|
|
|
|
|
1,300.3
|
|
|
|
|
|
1,147.8
|
|
|
|
Total liabilities
|
|
|
|
|
1,803.4
|
|
|
|
|
|
1,569.6
|
|
|
|
Redeemable stock
|
|
|
|
|
594.5
|
|
|
|
|
|
869.5
|
|
|
|
Stockholders’ equity
|
|
|
|
|
209.2
|
|
|
|
|
|
164.0
|
|
|
|
Total liabilities, redeemable stock and stockholders’ equity
|
|
|
|
$
|
2,607.1
|
|
|
|
|
$
|
2,603.1
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition together with “Prospectus Summary—Summary Consolidated and Other Financial Data,” “Risk Factors,” “Special Note Regarding Forward-Looking Statements,” “Selected Consolidated Financial Data” and our audited consolidated financial statements and notes thereto, each included elsewhere in this prospectus. In addition to historical financial information, this discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
We define the year ended December 31, 2020 as Fiscal Year 2020 and the year ended December 31, 2019 as Fiscal Year 2019. Our fiscal quarters are 13 weeks except the fourth quarter which ends on December 31 of each fiscal year.
Our Company
We are an industry-leading global designer, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities, and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value IoT and energy efficient models are a primary growth driver for our business.
We have an estimated North American residential pool market share of approximately 30%. We believe that we are well-positioned for future growth. On average, we have 20+ year relationships with our top 20 customers. Based upon feedback from certain representative customers and our interpretation of available industry and government data in the United States, we estimate that aftermarket sales represented approximately 75% of net sales. Aftermarket sales are not based upon our GAAP net sales results. We believe aftermarket sales are generally recurring in nature since these products are critical to the ongoing operation of pools given requirements for water quality and sanitization. Our product replacement cycle of approximately 9 to 12 years drives multiple replacement opportunities over the typical life of a pool, creating opportunities to generate aftermarket product sales as pool owners repair and replace equipment and remodel and upgrade their pools.
We manufacture our products at six primary facilities worldwide, which are located in North Carolina, Tennessee, Rhode Island, Spain (two) and China.
Segments
Our business is organized into two reportable segments: North America (“NAM”) and Europe & Rest of World (“E&RW”). The Company determined its operating segments based on how the Chief Operating Decision Maker (“CODM”) reviews the Company’s operating results in assessing performance and allocating resources. NAM and E&RW accounted for approximately 81% and 19% and 79% and 21% of total net sales for Fiscal Year 2020 and Fiscal Year 2019, respectively.
The NAM segment manufactures and sells a complete line of residential and commercial swimming pool equipment and supplies in the United States and Canada and manufactures and sells flow control products globally.
The E&RW segment manufactures and sells residential and commercial swimming pool equipment and supplies in Europe, Central and South America, the Middle East, Australia and other Asia Pacific countries.
Key Trends and Uncertainties Regarding Our Existing Business
The following trends and uncertainties may affect our financial performance in the future:
•
Demand related to the aging base of pools and the COVID-19 pandemic. Irrespective of broader macroeconomic trends, the primary driver for the industry continues to be aftermarket spending on the base of installed pools. In the United States, our primary market, the record construction of pools from 1999 to 2005 is manifesting itself in the aftermarket repair, replace, and remodel cycle given that the average age of this pool cohort is over 20 years. Residential pool equipment sales have increased during the COVID-19 pandemic. This increase in demand has broadly been across all of our product lines as “stay at home” mandates have refocused attention on improving the quality of the homeowner’s outdoor living experience especially for products such as heaters to extend the pool season. Urban flight along with desire for second homes is also driving residential pool construction as homeowners remodel or upgrade their existing outdoor living spaces. Despite the increase in new pool construction during 2020, it still remains below the pre-2008 construction levels, leading us to expect an increase in the installed base in coming seasons. Demand for commercial pool and industrial flow control products was negatively impacted due to customer project delays, lower commercial activities and reduced use of public pools as a result of “shelter in place” orders and commercial closures during the second and third quarters of 2020.
•
Seasonality. Our business is seasonal with sales typically higher in the second and fourth quarters. During the second quarter, sales are higher in anticipation of the start of the summer pool season and in the fourth quarter, we incent trade customers to buy and stock in readiness for next year’s pool season under an “early buy” program which offers a price discount and extended payment terms. Under the early buy program, we ship products during October through March and receive payments for these shipments during May through July. Revenue is recognized upon shipment of products, which cannot be returned unless damaged. For more information, see “—Key Factors and Measures We Use to Evaluate Our Business—Net Sales.’’ We aim to keep our manufacturing plants running at a constant level throughout the year and consequently we build inventory in the first and third quarters and inventory is sold-down in the second and fourth quarters. Our accounts receivable balance increases from October to May as a result of the early buy extended terms and higher sales in the second quarter. However, during the Fiscal Year 2020, we saw a change in historical seasonality as sales in the first and second quarters were lower than the third and fourth quarter, due to the “shelter in place” impact at the onset of the pandemic. Shipments accelerated in the second half of the year as we caught up with pent up demand. See “—Selected Quarterly Results of Operations” below to see how seasonality has affected our quarterly results of operations.
•
Targeted expansion efforts. We continue to pursue attractive product and global geographic market opportunities to grow our presence in new markets or markets in which we have less penetration. We believe that our business can effectively address these opportunities through new product development and scalable sales, marketing, and administration. We also have and may in the future pursue acquisitions to opportunistically add product offerings or increase our geographic footprint. If we do not execute this strategic objective, our core net sales growth will likely be limited or may decline.
•
New product offerings. Our business is primarily driven by aftermarket spending. Pool owners are increasingly demanding new technologies, such as IoT-enabled and more energy efficient products, as they replace or upgrade their existing pool equipment. In Fiscal Year 2020, new products launched in the last three years contributed approximately 11% of net sales. These new products, for example, a new generation of variable speed pumps, enhanced Omni controls, and advanced robotic cleaners, offer higher energy efficiency, automation capabilities and enhanced water care solutions, and will become primary drivers of our sales growth. Staying at the forefront of technological innovation and introducing new product offerings with new features will continue to be critical in growing our market share and revenue.
•
Materials and other cost increases. We have experienced increases in the cost of raw materials and commodities. We strive for productivity improvements, and implement price increases to help mitigate this impact. We expect to see continuing price volatility (metals, resins, and electronic sub-assemblies) and import duty charges (motors, electronics, valves and cleaner products) for some of our raw materials. We are uncertain as to the timing and impact of these market changes, but have mitigation activities in place to minimize the impact on costs.
•
Impact of our initial public offering. Following our initial public offering, we will incur incremental selling, general, and administrative expenses (“SG&A”) that we did not incur as a private company. Those costs include additional director and officer liability insurance, as well as third-party and internal resources related to accounting, auditing, Sarbanes-Oxley Act compliance, legal, directors fees, and investor and public relations expenses. We expect such expenses to further increase after we are no longer an emerging growth company. These costs will generally be expensed as SG&A in the consolidated statement of operations.
Factors Affecting the Comparability of our Results of Operations
Our past two years results have been affected by the following, among other events, which must be understood to assess the comparability of our period-to-period financial performance and condition.
Impact of COVID-19
The COVID-19 pandemic has resulted in governments around the world implementing increasingly stringent measures to help control the spread of the virus, including quarantines, “shelter in place” and “stay at home” mandates, travel restrictions, certain business curtailments, limits on gatherings, and other measures. In addition, governments and central banks in several parts of the world have enacted fiscal and monetary stimulus measures to counteract pandemic economic impacts. We believe that the pandemic has only reinforced existing pool industry growth trends and has not had a significant impact to our cost structure through the date of this filing. Hayward is classified as an essential business and as such we have implemented the necessary steps to protect our manufacturing and distribution facilities to ensure we have continuity of production and supply to our customers. While in the early months of the pandemic we did experience partial or full facility closure for cleaning and sanitization, all of our manufacturing and distribution facilities are currently operational.
We have taken proactive actions to protect the health and safety of our employees, customers, and suppliers. We have enacted rigorous safety measures, including social distancing protocols, work from home arrangements, suspending business travel, disinfecting workspaces, temperature monitoring at our facilities, and facial coverings where required. We will continue to take all precautions recommended by governmental health departments to protect the health and safety of our employees, customers, and suppliers.
Early in the pandemic, certain suppliers faced challenges and were not able to timely deliver the quantities of raw materials or components we required. This negatively affected our production capabilities in the second quarter. During the third quarter we secured secondary sources of supply and were able to return production to full capabilities.
At the onset of the pandemic the Company immediately reduced discretionary and capital spending and implemented a number of austerity measures in anticipation of a prolonged sales slowdown. Though we continue to monitor the situation, we have reversed most of the austerity measures and capital spending has returned to normal levels. We also benefited from the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), obtaining deferral of our employer U.S. Social Security contributions and a permanent reduction of certain cash tax payments in federal, state and international jurisdictions.
Continued restrictions and disruption of transportation, including reduced availability of air transport, port closures and increased border controls or closures, have resulted in higher costs and delays in both obtaining raw materials and components and in shipping finished goods.
Key Factors and Measures We Use to Evaluate Our Business
We consider a variety of financial and operating measures in assessing the performance of our business. The key GAAP measures we use are net sales, gross profit and gross profit margin, SG&A expenses, research, development and engineering (“RD&E”), operating income and operating income margin. The key non-GAAP measures we use are adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin.
Net sales
We offer a broad range of pool equipment including pumps, filters, heaters, automatic cleaners, sanitizers, controls, LED lights, as well as industrial thermoplastic valves and process liquid control products. Sales are impacted by product and geographic segment mix, as well as promotional and competitive activities. Growth of our sales is primarily driven by market demand, expansion of our trade customers and product offering.
Revenue is recognized upon shipment and recorded inclusive of outbound shipping and handling charges billed to customers and net of related discounts, allowances, returns, and sales tax. Customers are offered volume discounts and other promotional benefits. We estimate these volume discounts, promotional allowance benefits, and returns based upon the terms of the customer contracts and historical experience and record such amounts as a reduction of gross sales with an offsetting adjustment to account receivable. We regularly monitor the adequacy of these allowances.
Gross profit and Gross profit margin
Gross profit is equal to net sales less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, as well as inbound and outbound freight and import duties.
Gross profit margin is gross profit as a percentage of net sales. Gross profit margin is impacted by costs of raw material, product mix, salary and wage inflation, production costs, shipping and handling costs, and import duties, all of which can vary.
Selling, general and administrative expenses
Our SG&A includes expenses arising from activities in selling, marketing, technical and customer services, warranty, warehousing, and administrative expenses. Other than warranty and variable compensation, SG&A is generally not directly proportional to net sales, but is expected to increase over time to support the needs of a public company.
Research, development and engineering expenses
The Company conducts RD&E activities in its own facilities. These expenses consist primarily of salaries, supplies and overhead costs related to the active development of new products, enhanced product applications and improved manufacturing and value engineering of existing products.
Generally, RD&E costs are expensed as incurred. Certain RD&E costs applicable to the development of software are capitalized and amortized over the expected life of the product.
Amortization of intangible assets
Customer relationships, patents and other intangible assets arising from business combinations are amortized over their expected useful lives of 10-20 years.
Acquisition and restructuring related costs (or income)
The Company records costs or expenses incurred related to business combinations, organizational restructuring, or gains or losses attributable to any sales or dispositions of assets to acquisition and related income, net.
Operating income
Operating income is gross profit less SG&A, RD&E, acquisition and restructuring related expense or income and amortization intangible assets. Operating income excludes interest expense, income tax expense, and other expenses, net. We use operating income as well as other indicators as a measure of our profitability of our business.
Interest expense
The Company incurs interest expense on its Credit Facilities, as defined herein. The amortization of debt issuance costs and impact of our interest rate hedging instruments are also included in interest expense.
Net income
Net income is operating income less interest expense, other non-operating items, and provision for income taxes.
Adjusted EBITDA, Adjusted EBITDA margin, Adjusted segment income, Adjusted segment income margin
Adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are key metrics used by management and our Board of Directors to assess our financial performance. For information about our use of Non-GAAP measures and a reconciliation of these metrics to the nearest GAAP metric see “—Non-GAAP Reconciliation.”
Results of Operations
The following tables summarize key components of our results of operations for the periods indicated, both in dollars and as a percentage of our net sales. We derived the consolidated statements of operations for the Fiscal Years 2020 and 2019 from our audited consolidated financial statements. Our historical results are not necessarily indicative of the results that may be expected in the future. The following table summarizes our results of operations and a comparison of the change between the periods (in millions):
|
|
|
|
Fiscal Years
|
|
|
|
|
|
|
|
2020
|
|
|
% of Net
Sales
|
|
|
2019
|
|
|
% of Net
Sales
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Change
|
|
|
Net sales
|
|
|
|
$
|
875.4
|
|
|
|
|
|
|
|
|
|
|
$
|
733.4
|
|
|
|
|
|
|
|
|
|
|
$
|
142.0
|
|
|
|
|
|
19.4%
|
|
|
|
Cost of sales
|
|
|
|
|
478.4
|
|
|
|
|
|
54.6%
|
|
|
|
|
|
409.9
|
|
|
|
|
|
55.9%
|
|
|
|
|
|
68.5
|
|
|
|
|
|
16.7%
|
|
|
|
Gross profit
|
|
|
|
|
397.0
|
|
|
|
|
|
45.4%
|
|
|
|
|
|
323.5
|
|
|
|
|
|
44.1%
|
|
|
|
|
|
73.5
|
|
|
|
|
|
22.7%
|
|
|
|
Selling, general, and administrative
expenses
|
|
|
|
|
195.2
|
|
|
|
|
|
22.3%
|
|
|
|
|
|
179.4
|
|
|
|
|
|
24.5%
|
|
|
|
|
|
15.8
|
|
|
|
|
|
8.8%
|
|
|
|
Research, development, and engineering
|
|
|
|
|
20.0
|
|
|
|
|
|
2.3%
|
|
|
|
|
|
19.9
|
|
|
|
|
|
2.7%
|
|
|
|
|
|
0.1
|
|
|
|
|
|
0.5%
|
|
|
|
Acquisition and restructuring related expense
(income)
|
|
|
|
|
19.3
|
|
|
|
|
|
2.2%
|
|
|
|
|
|
(16.3)
|
|
|
|
|
|
(2.2)%
|
|
|
|
|
|
35.6
|
|
|
|
|
|
(218.4)%
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
37.9
|
|
|
|
|
|
4.3%
|
|
|
|
|
|
41.8
|
|
|
|
|
|
5.7%
|
|
|
|
|
|
(3.9)
|
|
|
|
|
|
(9.3)%
|
|
|
|
Operating income
|
|
|
|
|
124.6
|
|
|
|
|
|
14.2%
|
|
|
|
|
|
98.7
|
|
|
|
|
|
13.5%
|
|
|
|
|
|
25.9
|
|
|
|
|
|
26.2%
|
|
|
|
Interest expense, net
|
|
|
|
|
73.6
|
|
|
|
|
|
8.4%
|
|
|
|
|
|
84.5
|
|
|
|
|
|
11.5%
|
|
|
|
|
|
(10.9)
|
|
|
|
|
|
(12.9)%
|
|
|
|
Other (income) expense, net
|
|
|
|
|
(6.8)
|
|
|
|
|
|
(0.8)%
|
|
|
|
|
|
2.1
|
|
|
|
|
|
0.3%
|
|
|
|
|
|
(8.9)
|
|
|
|
|
|
(423.8)%
|
|
|
|
Total other expense
|
|
|
|
|
66.8
|
|
|
|
|
|
7.6%
|
|
|
|
|
|
86.6
|
|
|
|
|
|
11.8%
|
|
|
|
|
|
(19.8)
|
|
|
|
|
|
(22.9)%
|
|
|
|
Income from operations before income taxes
|
|
|
|
|
57.8
|
|
|
|
|
|
6.6%
|
|
|
|
|
|
12.1
|
|
|
|
|
|
1.6%
|
|
|
|
|
|
45.7
|
|
|
|
|
|
377.7%
|
|
|
|
Provision for income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
1.7%
|
|
|
|
|
|
3.6
|
|
|
|
|
|
0.5%
|
|
|
|
|
|
10.9
|
|
|
|
|
|
302.8%
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
|
4.9%
|
|
|
|
|
$
|
8.5
|
|
|
|
|
|
1.2%
|
|
|
|
|
$
|
34.8
|
|
|
|
|
|
409.4%
|
|
|
|
Adjusted EBITDA(a)
|
|
|
|
$
|
231.6
|
|
|
|
|
|
26.5%
|
|
|
|
|
$
|
172.4
|
|
|
|
|
|
23.5%
|
|
|
|
|
$
|
59.2
|
|
|
|
|
|
34.3%
|
|
|
(a)
See “— Non-GAAP Reconciliation.”
Fiscal Year 2020 Compared to Fiscal Year 2019
Net sales
Increased to $875.4 million in Fiscal Year 2020 from $733.4 million in Fiscal Year 2019, an increase of $142.0 million or 19.4%. See segment discussion below for further information.
Year-over-year net sales increases were driven by the following:
|
|
|
|
2020
|
|
|
Volume
|
|
|
|
|
18.5%
|
|
|
|
Price, net of discounts and allowances
|
|
|
|
|
0.7%
|
|
|
|
Currency and other
|
|
|
|
|
0.2%
|
|
|
|
Total
|
|
|
|
|
19.4%
|
|
|
The Fiscal Year 2020 increase in net sales was primarily the result of higher volumes, mainly in residential pool equipment sales, a return to normal weather conditions, improved channel inventory buying patterns, an acceleration of outdoor living trends as homeowners “shelter in place”, and a 2% gross price increase which was reduced by higher volume related discounts and allowances resulting in a net 0.7% price impact. While the duration of the COVID-19 pandemic is uncertain, we believe that the pandemic has only reinforced existing pool industry growth trends.
Gross profit and Gross profit margin
Gross profit increased to $397.0 million in Fiscal Year 2020 from $323.5 million in Fiscal Year 2019, an increase of $73.5 million or 22.7%.
Gross profit margin increased to 45.4% in Fiscal Year 2020 compared to 44.1% in Fiscal Year 2019, an increase of 124 basis points primarily resulting from the net price increase discussed above, manufacturing leverage, net cost savings, a favorable mix of higher margin NAM sales partially offset by $6.8 million of additional reserves for obsolete and nonsalable inventory.
Selling, general, and administrative expenses
Increased to $195.2 million in Fiscal Year 2020 from $179.4 million in Fiscal Year 2019, an increase of $15.8 million or 8.8% primarily driven by increased compensation expense of $21.1 million, $2.0 million for expenses incurred in preparation for our initial public offering, and volume related warranty expense of $2.3 million, partially offset by a $2.5 million decrease in advertising expenses and $5.1 million of cost savings related to decreased travel, marketing and other expenses as a result of the pandemic. As a percentage of net sales, SG&A decreased to 22.3% in Fiscal Year 2020 as compared to 24.5% in Fiscal Year 2019, a decrease of 216 basis points.
Research, development, and engineering
Increased to $20.0 million in Fiscal Year 2020 from $19.9 million in Fiscal Year 2019, effectively flat. As a percentage of net sales, RD&E dropped to 2.3% in Fiscal Year 2020 compared to 2.7% in Fiscal Year 2019, a decrease of 43 basis points.
Acquisition and restructuring related expense (income)
In Fiscal Year 2020 we incurred an expense of $19.3 million as compared to income of $16.3 million in Fiscal Year 2019. This is an increased expense of $35.6 million.
The $19.3 million expense in Fiscal Year 2020 was primarily driven by additional costs consequential to the below mentioned cessation of certain manufacturing and distribution operations and the start-up of a new distribution center in the Southwest United States.
In Fiscal Year 2019, we announced the cessation of certain manufacturing and distribution operations and sold the associated real estate with a one year leaseback arrangement to allow for the orderly restructuring of these operations. Net consideration received was $28.4 million, resulting in a gain of $16.9 million. We also incurred certain business restructuring costs of $5.0 million and executive retention accruals of $1.2 million consequential to a 2018 business combination. Additionally, in Fiscal Year 2019 we recognized income of $6.0 million on the reversal of a contingent consideration liability arising from a 2018 acquisition.
See Note 18. Acquisition and Restructuring Related Expense (Income)
Amortization of intangible assets
Decreased to $37.9 million in Fiscal Year 2020 from $41.8 million in Fiscal Year 2019, a decrease of $3.9 million or 9.3%, due to the amortization pattern of certain intangibles based on the declining balance method.
Operating income
Increased to $124.6 million in Fiscal Year 2020 from $98.7 million in Fiscal Year 2019, an increase of $25.9 million or 26.2% due to the accumulated effect of the items described above.
Interest expense, net
Decreased to $73.6 million in Fiscal Year 2020 from $84.5 million in Fiscal Year 2019, a decrease of $10.9 million or 12.9% primarily due to reduced interest rates on our floating rate debt and a reduction in the use of our ABL Facility.
Interest expense for the year ended December 31, 2020 consisted of $68.5 million of interest on the outstanding debt, $5.4 million of amortization of deferred financing fees net of $0.3 million of interest income. The effective interest rate on our borrowings, net of the impact of our interest rate hedge was 5.95% for Fiscal Year 2020.
Interest expense for the year ended December 31, 2019 consisted of $79.3 million on the outstanding debt, $5.3 million of amortization of deferred financing fees net of $0.1 million of interest income. The effective interest rate on our borrowings, net of the impact of the interest rate hedge, was 6.75% for Fiscal Year 2019.
Provision for income taxes
We incurred income tax expense of $14.5 million for Fiscal Year 2020 and $3.6 million for Fiscal Year 2019, an increase of $10.9 million or 302.8%. This was primarily due to increased income from operations.
Our effective income tax rate declined to 25.1% for Fiscal Year 2020 from 29.7% for Fiscal Year 2019 primarily due to a valuation allowance recorded in Fiscal Year 2019 against certain international net operating losses, the absence of a reversal of a distinct contingent consideration that was incurred in Fiscal Year 2019, and an increase in income from operations combined with increased deductible interest expense due to the passage of the CARES Act.
Net income
As a result of the foregoing, net income increased to $43.3 million in Fiscal Year 2020 compared to net income of $8.5 million in Fiscal Year 2019, an increase of $34.8 million or 409.4%.
Adjusted EBITDA and Adjusted EBITDA margin
Adjusted EBITDA increased to $231.6 million in Fiscal Year 2020 from $172.4 million in Fiscal Year 2019, an increase of $59.2 million or 34.3% driven primarily by higher net sales and operating leverage resulting in an increase in gross profit of $73.5 million, partially offset by an increase in SG&A expenses of $15.8 million.
Adjusted EBITDA margin increased to 26.5% in Fiscal Year 2020 compared to 23.5% in Fiscal Year 2019, an increase of 295 basis points.
See Non-GAAP reconciliation section for detailed explanations.
Segment Results of Operations
The Company manages its business primarily on a geographic basis. The Company’s reportable segments consist of NAM and E&RW.
We evaluate performance based on net sales, gross profit, segment income and adjusted segment income, and use gross profit margin, segment income margin and adjusted segment income margin as comparable performance measures for our reporting segments.
Segment income represents net sales less cost of sales, less segment SG&A and RD&E. A reconciliation of segment income to our operating income is detailed below (in millions). Adjusted segment income represents segment income adjusted for the impact of depreciation, amortization of certain intangible assets, stock-based compensation and certain non-cash, nonrecurring or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance. See “— Non-GAAP Reconciliation” for a reconciliation of these metrics to the most directly comparable GAAP metric (in millions):
|
|
|
|
Fiscal Year 2020
|
|
|
Fiscal Year 2019
|
|
|
|
|
|
Total
Hayward
|
|
|
NAM
|
|
|
E&RW
|
|
|
Total
Hayward
|
|
|
NAM
|
|
|
E&RW
|
|
|
Net sales
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
706.5
|
|
|
|
|
$
|
168.9
|
|
|
|
|
$
|
733.4
|
|
|
|
|
$
|
575.9
|
|
|
|
|
$
|
157.5
|
|
|
|
Gross profit
|
|
|
|
$
|
397.0
|
|
|
|
|
$
|
334.6
|
|
|
|
|
$
|
62.4
|
|
|
|
|
$
|
323.5
|
|
|
|
|
$
|
267.0
|
|
|
|
|
$
|
56.5
|
|
|
|
Gross profit margin %
|
|
|
|
|
45.4%
|
|
|
|
|
|
47.4%
|
|
|
|
|
|
36.9%
|
|
|
|
|
|
44.1%
|
|
|
|
|
|
46.4%
|
|
|
|
|
|
35.9%
|
|
|
|
Segment income
|
|
|
|
$
|
202.6
|
|
|
|
|
$
|
171.8
|
|
|
|
|
$
|
30.8
|
|
|
|
|
$
|
132.3
|
|
|
|
|
$
|
105.9
|
|
|
|
|
$
|
26.4
|
|
|
|
Segment income margin %
|
|
|
|
|
23.1%
|
|
|
|
|
|
24.3%
|
|
|
|
|
|
18.2%
|
|
|
|
|
|
18.0%
|
|
|
|
|
|
18.4%
|
|
|
|
|
|
16.8%
|
|
|
|
Adjusted segment income(a)
|
|
|
|
$
|
241.1
|
|
|
|
|
$
|
206.9
|
|
|
|
|
$
|
34.2
|
|
|
|
|
$
|
176.9
|
|
|
|
|
$
|
146.8
|
|
|
|
|
$
|
30.1
|
|
|
|
Adjusted segment income margin %(a)
|
|
|
|
|
27.5%
|
|
|
|
|
|
29.3%
|
|
|
|
|
|
20.2%
|
|
|
|
|
|
24.1%
|
|
|
|
|
|
25.5%
|
|
|
|
|
|
19.1%
|
|
|
|
Expenses not allocated to segments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate expense, net
|
|
|
|
$
|
20.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition and restructuring related expense (income)
|
|
|
|
$
|
19.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
|
$
|
37.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
41.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
$
|
124.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
98.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
See “—Non-GAAP Reconciliation.”
North America (“NAM’’)
|
|
|
|
Fiscal Years
|
|
|
Increase
(Decrease)
|
|
|
Percentage /
bps Change
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net sales
|
|
|
|
$
|
706.5
|
|
|
|
|
$
|
575.9
|
|
|
|
|
$
|
130.6
|
|
|
|
|
|
22.7%
|
|
|
|
Gross profit
|
|
|
|
$
|
334.6
|
|
|
|
|
$
|
267.0
|
|
|
|
|
$
|
67.6
|
|
|
|
|
|
25.3%
|
|
|
|
Gross profit margin %
|
|
|
|
|
47.4%
|
|
|
|
|
|
46.4%
|
|
|
|
|
|
1.0%
|
|
|
|
|
|
100
|
|
|
|
Segment income
|
|
|
|
$
|
171.8
|
|
|
|
|
$
|
105.9
|
|
|
|
|
$
|
65.9
|
|
|
|
|
|
62.2%
|
|
|
|
Segment income margin %
|
|
|
|
|
24.3%
|
|
|
|
|
|
18.4%
|
|
|
|
|
|
5.9%
|
|
|
|
|
|
593
|
|
|
|
Adjusted segment income(a)
|
|
|
|
$
|
206.9
|
|
|
|
|
$
|
146.8
|
|
|
|
|
$
|
60.1
|
|
|
|
|
|
40.9%
|
|
|
|
Adjusted segment income margin %(a)
|
|
|
|
|
29.3%
|
|
|
|
|
|
25.5%
|
|
|
|
|
|
3.8%
|
|
|
|
|
|
379
|
|
|
(a)
See “—Non-GAAP Reconciliation.”
Year-over-year net sales increases were driven by the following:
|
|
|
|
2020
|
|
|
Volume
|
|
|
|
|
22.3%
|
|
|
|
Price, net of allowances and discounts
|
|
|
|
|
0.6%
|
|
|
|
Currency and other
|
|
|
|
|
(0.2)%
|
|
|
|
Total
|
|
|
|
|
22.7%
|
|
|
Net sales
Increased to $706.5 million in Fiscal Year 2020 from $575.9 million in Fiscal Year 2019, an increase of $130.6 million or 22.7%.
This was primarily the result of a 22.3% increase in volume mostly due to higher sales of residential pool equipment, a return to normal weather conditions, improved channel inventory buying patterns, an acceleration of outdoor living trends as homeowners “shelter in place”, and a 2.3% gross price increase which was reduced by higher volume related discounts and allowances resulting in a net 0.6% positive price impact.
Gross profit and Gross profit margin
Gross profit increased to $334.6 million in Fiscal Year 2020 from $267.0 million in Fiscal Year 2019, an increase of $67.6 million or 25.3%.
Gross profit margin rose to 47.4% in Fiscal Year 2020 from 46.4% in Fiscal Year 2019, an increase of 100 basis points, primarily driven by the net price increase discussed above, manufacturing leverage, and cost savings, partially offset by a $5.7 million increase in reserves for obsolete and nonsalable inventory.
Segment income and Segment income margin
Segment income increased to $171.8 million in Fiscal Year 2020 from $105.9 million in Fiscal Year 2019, an increase of $65.9 million or 62.2%. This was primarily driven by an increase in gross profit as discussed above offset in part by higher SG&A and RD&E expenses of $1.7 million or 1%, despite sales growth of 22.7%, mainly from increased variable compensation expense and volume-related warranty costs. In Fiscal Year 2020 a 460 basis point operating leverage was achieved in RD&E and SG&A costs.
Segment income margin increased to 24.3% in Fiscal Year 2020 from 18.4% in Fiscal Year 2019, an increase of 593 basis points achieved via increased gross profit margin and operating expense leverage as discussed above.
Adjusted segment income and Adjusted segment income margin
Adjusted segment income increased to $206.9 million in Fiscal Year 2020 from $146.8 million in Fiscal Year 2019, an increase of $60.1 million or 40.9%. This was driven by the higher segment income as discussed above offset in part by reduced non-cash or non-recurring charges.
Adjusted segment income margin increased to 29.3% in Fiscal Year 2020 from 25.5% in Fiscal Year 2019, an increase of 379 basis points.
Europe & Rest of World (“E&RW”)
|
|
|
|
Fiscal Years
|
|
|
Increase
(Decrease)
|
|
|
Percentage /
bps Change
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net sales
|
|
|
|
$
|
168.9
|
|
|
|
|
$
|
157.5
|
|
|
|
|
$
|
11.4
|
|
|
|
|
|
7.2%
|
|
|
|
Gross profit
|
|
|
|
$
|
62.4
|
|
|
|
|
$
|
56.5
|
|
|
|
|
$
|
5.9
|
|
|
|
|
|
10.4%
|
|
|
|
Gross profit margin %
|
|
|
|
|
36.9%
|
|
|
|
|
|
35.9%
|
|
|
|
|
|
1.1%
|
|
|
|
|
|
107
|
|
|
|
Segment income
|
|
|
|
$
|
30.8
|
|
|
|
|
$
|
26.4
|
|
|
|
|
$
|
4.4
|
|
|
|
|
|
16.7%
|
|
|
|
Segment income margin %
|
|
|
|
|
18.2%
|
|
|
|
|
|
16.8%
|
|
|
|
|
|
1.5%
|
|
|
|
|
|
147
|
|
|
|
Adjusted segment income(a)
|
|
|
|
$
|
34.2
|
|
|
|
|
$
|
30.1
|
|
|
|
|
$
|
4.1
|
|
|
|
|
|
13.6%
|
|
|
|
Adjusted segment income margin %(a)
|
|
|
|
|
20.2%
|
|
|
|
|
|
19.1%
|
|
|
|
|
|
1.1%
|
|
|
|
|
|
114
|
|
|
(a)
See “—Non-GAAP Reconciliation.”
Year-over-year net sales increases were driven by the following:
|
|
|
|
2020
|
|
|
Volume
|
|
|
|
|
4.8%
|
|
|
|
Price, net of allowances and discounts
|
|
|
|
|
1.0%
|
|
|
|
Currency and other
|
|
|
|
|
1.4%
|
|
|
|
Total
|
|
|
|
|
7.2%
|
|
|
Net sales
Increased to $168.9 million in Fiscal Year 2020 from $157.5 million in Fiscal Year 2019, an increase of $11.4 million or 7.2%.
This was primarily due to 4.8% volume growth driven by a recovery in demand in the second half of Fiscal Year 2020 after an extended business “lock-down” mandated by the local governments.
Gross profit and Gross profit margin
Gross profit increased to $62.4 million in Fiscal Year 2020 from $56.5 million in Fiscal Year 2019, an increase of $5.9 million or 10.4%.
Gross profit margin increased to 36.9% in Fiscal Year 2020 from 35.9% in Fiscal Year 2019, an increase of 107 basis points, primarily driven by price increases and cost savings from quality improvements partially offset by $0.8 million of additional reserves for obsolete and nonsalable inventory.
Segment income and Segment income margin
Segment income increased to $30.8 million in Fiscal Year 2020 from $26.4 million in Fiscal Year 2019, an increase of $4.4 million or 16.7%. This was driven by an increase in gross profit as discussed above partially offset by higher SG&A expenses.
Segment income margin increased to 18.2% in Fiscal Year 2020 from 16.8% in Fiscal Year 2019, an increase of 147 basis points. The improvement was from higher gross profit margin and a 40 basis points improvement in operating expense leverage.
Adjusted segment income and Adjusted segment income margin
Adjusted segment income increased to $34.2 million in Fiscal Year 2020 from $30.1 million in Fiscal Year 2019, an increase of $4.1 million or 13.6%. This was primarily driven by the increase in segment income.
Adjusted segment income margin increased to 20.2% in Fiscal Year 2020 from 19.1% in Fiscal Year 2019, an increase of 114 basis points.
Selected Quarterly Results of Operations
The following table sets forth certain financial and operating information for each of our last eight fiscal quarters. The quarterly information has been prepared based on the consolidated financial statements and includes all adjustments (consisting of normal recurring adjustments) that in the opinion of management are necessary for a fair presentation of the information. Due to the seasonal nature of our industry, the results of any one or more quarters are not necessarily a good indication of results for an entire fiscal year (in millions):
|
|
|
|
Q1 2020
|
|
|
Q2 2020
|
|
|
Q3 2020
|
|
|
Q4 2020
|
|
|
Net sales
|
|
|
|
$
|
170.2
|
|
|
|
|
$
|
220.0
|
|
|
|
|
$
|
224.5
|
|
|
|
|
$
|
260.7
|
|
|
|
Gross profit
|
|
|
|
$
|
75.6
|
|
|
|
|
$
|
97.9
|
|
|
|
|
$
|
106.2
|
|
|
|
|
$
|
117.3
|
|
|
|
Gross profit margin %
|
|
|
|
|
44.4%
|
|
|
|
|
|
44.5%
|
|
|
|
|
|
47.3%
|
|
|
|
|
|
45.0%
|
|
|
|
Segment income
|
|
|
|
$
|
28.2
|
|
|
|
|
$
|
53.8
|
|
|
|
|
$
|
56.1
|
|
|
|
|
$
|
64.5
|
|
|
|
|
|
|
Q1 2020
|
|
|
Q2 2020
|
|
|
Q3 2020
|
|
|
Q4 2020
|
|
|
Segment income margin %
|
|
|
|
|
16.6%
|
|
|
|
|
|
24.5%
|
|
|
|
|
|
25.0%
|
|
|
|
|
|
24.7%
|
|
|
|
Adjusted segment income(a)
|
|
|
|
$
|
36.3
|
|
|
|
|
$
|
61.1
|
|
|
|
|
$
|
64.4
|
|
|
|
|
$
|
79.3
|
|
|
|
Adjusted segment income margin %(a)
|
|
|
|
|
21.3%
|
|
|
|
|
|
27.8%
|
|
|
|
|
|
28.7%
|
|
|
|
|
|
30.4%
|
|
|
|
|
|
|
Q1 2019
|
|
|
Q2 2019
|
|
|
Q3 2019
|
|
|
Q4 2019
|
|
|
Net sales
|
|
|
|
$
|
146.7
|
|
|
|
|
$
|
192.1
|
|
|
|
|
$
|
162.3
|
|
|
|
|
$
|
232.3
|
|
|
|
Gross profit
|
|
|
|
$
|
64.8
|
|
|
|
|
$
|
87.0
|
|
|
|
|
$
|
68.8
|
|
|
|
|
$
|
102.9
|
|
|
|
Gross profit margin %
|
|
|
|
|
44.2%
|
|
|
|
|
|
45.3%
|
|
|
|
|
|
42.4%
|
|
|
|
|
|
44.3%
|
|
|
|
Segment income
|
|
|
|
$
|
17.8
|
|
|
|
|
$
|
37.9
|
|
|
|
|
$
|
20.0
|
|
|
|
|
$
|
56.6
|
|
|
|
Segment income margin %
|
|
|
|
|
12.1%
|
|
|
|
|
|
19.7%
|
|
|
|
|
|
12.3%
|
|
|
|
|
|
24.4%
|
|
|
|
Adjusted segment income(a)
|
|
|
|
$
|
25.9
|
|
|
|
|
$
|
47.0
|
|
|
|
|
$
|
32.9
|
|
|
|
|
$
|
71.1
|
|
|
|
Adjusted segment income margin %(a)
|
|
|
|
|
17.7%
|
|
|
|
|
|
24.5%
|
|
|
|
|
|
20.3%
|
|
|
|
|
|
30.6%
|
|
|
(a)
See “—Non-GAAP Reconciliation.”
Non-GAAP Reconciliation
The Company uses adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.
Adjusted EBITDA is defined as earnings before interest (including amortization of debt costs), income taxes, depreciation, and amortization further adjusted for the impact of restructuring related income or expenses, stock-based compensation, currency exchange items, sponsor management fees and certain non-cash, nonrecurring, or other items that are included in net income that we do not consider indicative of our ongoing operating performance. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net sales. Adjusted segment income is defined as segment income adjusted for the impact of depreciation and amortization, stock-based compensation, sponsor management fees, currency exchange items, and certain non-cash, nonrecurring, or other items that are included in segment income that we do not consider indicative of the ongoing segment operating performance. Adjusted segment income margin is defined as adjusted segment income divided by segment net sales.
Adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assist these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance. Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin may differ from similar measures reported by other companies. Adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA and adjusted segment income should not be construed as indicators of a company’s operating performance in isolation from, or as a substitute for, net income (loss) and segment income, which are prepared in accordance with GAAP. We have presented adjusted EBITDA, adjusted EBITDA margin, adjusted segment income and adjusted segment income margin solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. In the future
we may incur expenses such as those added back to calculate adjusted EBITDA. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.
Following is a reconciliation from net income to adjusted EBITDA (in millions):
|
|
|
|
Fiscal Years
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Change
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
|
$
|
34.8
|
|
|
|
|
|
409.4%
|
|
|
|
Depreciation
|
|
|
|
|
18.8
|
|
|
|
|
|
17.2
|
|
|
|
|
|
1.6
|
|
|
|
|
|
9.3%
|
|
|
|
Amortization
|
|
|
|
|
44.0
|
|
|
|
|
|
46.8
|
|
|
|
|
|
(2.8)
|
|
|
|
|
|
(6.0)%
|
|
|
|
Interest expense
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
|
|
(10.9)
|
|
|
|
|
|
(12.9)%
|
|
|
|
Income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
3.6
|
|
|
|
|
|
10.9
|
|
|
|
|
|
302.8%
|
|
|
|
EBITDA
|
|
|
|
|
194.2
|
|
|
|
|
|
160.6
|
|
|
|
|
|
33.6
|
|
|
|
|
|
20.9%
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
1.9
|
|
|
|
|
|
1.6
|
|
|
|
|
|
0.3
|
|
|
|
|
|
18.8%
|
|
|
|
Sponsor management fees(b)
|
|
|
|
|
0.8
|
|
|
|
|
|
0.8
|
|
|
|
|
|
—
|
|
|
|
|
|
—%
|
|
|
|
Currency exchange items(c)
|
|
|
|
|
(4.7)
|
|
|
|
|
|
4.2
|
|
|
|
|
|
(8.9)
|
|
|
|
|
|
(211.9)%
|
|
|
|
Acquisition and restructuring related expense, net(d)
|
|
|
|
|
32.1
|
|
|
|
|
|
1.4
|
|
|
|
|
|
30.7
|
|
|
|
|
|
n/m
|
|
|
|
Other(e)
|
|
|
|
|
7.3
|
|
|
|
|
|
3.8
|
|
|
|
|
|
3.5
|
|
|
|
|
|
92.1%
|
|
|
|
Total Adjustments
|
|
|
|
$
|
37.4
|
|
|
|
|
$
|
11.8
|
|
|
|
|
$
|
25.6
|
|
|
|
|
|
216.9%
|
|
|
|
Adjusted EBITDA
|
|
|
|
$
|
231.6
|
|
|
|
|
$
|
172.4
|
|
|
|
|
$
|
59.2
|
|
|
|
|
|
34.3%
|
|
|
|
Adjusted EBITDA margin
|
|
|
|
|
26.5%
|
|
|
|
|
|
23.5%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
Represents non-cash stock-based compensation expense related to equity awards issued.
(b)
Represents discretionary fees paid to our Sponsors for management services rendered pursuant to a management agreement with the Company. These payments will cease as of the effective date of our initial public offering.
(c)
Represents non-cash mark to market gains (losses) on foreign currency contracts.
(d)
Adjustments in 2019 include net one-time costs associated with reorganizations of $20.4 million, net of a gain on the sale of real estate of $16.9 million, and remeasurement of a contingent consideration of $6.0 million, as well as operating losses of $5.3 million related to an early stage product business acquired in 2018 that is being phased out in 2021. Adjustments in 2020 primarily include $19.3 million of business restructuring related costs, $4.2 million of severance and retention costs, and $5.1 million of operating losses related to an early stage product business acquired in 2018 that is being phased out in 2021.
(e)
Includes professional fees, financing fees, $2.0 million for expenses incurred in preparation for our initial public offering, additional health and safety expenses related to COVID-19, and other miscellaneous costs that we believe are not representative of our ongoing business operations.
Following is a quarterly reconciliation from segment income to adjusted segment income (in millions):
|
|
|
|
Q1 2020
|
|
|
Q2 2020
|
|
|
Q3 2020
|
|
|
Q4 2020
|
|
|
Segment income
|
|
|
|
$
|
28.2
|
|
|
|
|
$
|
53.8
|
|
|
|
|
$
|
56.1
|
|
|
|
|
$
|
64.5
|
|
|
|
Depreciation
|
|
|
|
|
4.4
|
|
|
|
|
|
4.5
|
|
|
|
|
|
4.9
|
|
|
|
|
|
4.3
|
|
|
|
Amortization
|
|
|
|
|
1.3
|
|
|
|
|
|
1.3
|
|
|
|
|
|
1.7
|
|
|
|
|
|
1.9
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
|
0.5
|
|
|
|
|
|
—
|
|
|
|
Currency exchange items(b)
|
|
|
|
|
0.4
|
|
|
|
|
|
0.2
|
|
|
|
|
|
0.1
|
|
|
|
|
|
0.6
|
|
|
|
Acquisition and restructuring related expense, net(c)
|
|
|
|
|
1.9
|
|
|
|
|
|
1.5
|
|
|
|
|
|
1.3
|
|
|
|
|
|
2.8
|
|
|
|
Other(d)
|
|
|
|
|
(0.4)
|
|
|
|
|
|
(0.7)
|
|
|
|
|
|
(0.2)
|
|
|
|
|
|
5.2
|
|
|
|
Total Adjustments
|
|
|
|
|
8.1
|
|
|
|
|
|
7.3
|
|
|
|
|
|
8.3
|
|
|
|
|
|
14.8
|
|
|
|
Adjusted segment income
|
|
|
|
$
|
36.3
|
|
|
|
|
$
|
61.1
|
|
|
|
|
$
|
64.4
|
|
|
|
|
$
|
79.3
|
|
|
|
Adjusted segment income margin
|
|
|
|
|
21.3%
|
|
|
|
|
|
27.8%
|
|
|
|
|
|
28.7%
|
|
|
|
|
|
30.4%
|
|
|
|
|
|
|
Q1 2019
|
|
|
Q2 2019
|
|
|
Q3 2019
|
|
|
Q4 2019
|
|
|
Segment income
|
|
|
|
|
17.8
|
|
|
|
|
|
37.9
|
|
|
|
|
|
20.0
|
|
|
|
|
|
56.6
|
|
|
|
Depreciation
|
|
|
|
|
4.2
|
|
|
|
|
|
4.2
|
|
|
|
|
|
4.1
|
|
|
|
|
|
4.7
|
|
|
|
Amortization
|
|
|
|
|
1.2
|
|
|
|
|
|
1.2
|
|
|
|
|
|
1.2
|
|
|
|
|
|
1.3
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
0.7
|
|
|
|
|
|
0.3
|
|
|
|
|
|
0.5
|
|
|
|
|
|
(0.2)
|
|
|
|
Currency exchange items(b)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.4
|
|
|
|
|
|
0.8
|
|
|
|
Acquisition and restructuring related expense, net(c)
|
|
|
|
|
1.6
|
|
|
|
|
|
2.7
|
|
|
|
|
|
3.7
|
|
|
|
|
|
4.2
|
|
|
|
Other(d)
|
|
|
|
|
0.4
|
|
|
|
|
|
0.7
|
|
|
|
|
|
2.0
|
|
|
|
|
|
3.7
|
|
|
|
Total Adjustments
|
|
|
|
|
8.1
|
|
|
|
|
|
9.1
|
|
|
|
|
|
12.9
|
|
|
|
|
|
14.5
|
|
|
|
Adjusted segment income
|
|
|
|
|
25.9
|
|
|
|
|
|
47.0
|
|
|
|
|
|
32.9
|
|
|
|
|
|
71.1
|
|
|
|
Adjusted segment income margin
|
|
|
|
|
17.7%
|
|
|
|
|
|
24.5%
|
|
|
|
|
|
20.3%
|
|
|
|
|
|
30.6%
|
|
|
(a)
Represents non-cash stock-based compensation expense related to equity awards issued.
(b)
Represents currency exchange impact.
(c)
Includes non-recurring severance expenses, retention bonuses, legal fees, and the operating losses of approximately $5.1 million and $5.3 million generated in Fiscal Year 2020 and Fiscal Year 2019, respectively, related to an early stage product business acquired in 2018 that is being phased out in 2021.
(d)
Includes professional fees, additional health and safety expenses related to COVID-19, additional reserves for obsolete and nonsalable inventories and other miscellaneous costs we believe are not representative of our ongoing business operations.
Following is a reconciliation from segment income to adjusted segment income for NAM (in millions):
|
|
|
|
Fiscal Years
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Segment income
|
|
|
|
$
|
171.8
|
|
|
|
|
$
|
105.9
|
|
|
|
Depreciation
|
|
|
|
|
16.6
|
|
|
|
|
|
16.0
|
|
|
|
Amortization
|
|
|
|
|
6.2
|
|
|
|
|
|
4.9
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
1.2
|
|
|
|
|
|
1.0
|
|
|
|
Acquisition and restructuring related expense, net(b)
|
|
|
|
|
7.5
|
|
|
|
|
|
12.2
|
|
|
|
Other(c)
|
|
|
|
|
3.6
|
|
|
|
|
|
6.8
|
|
|
|
Total Adjustments
|
|
|
|
|
35.1
|
|
|
|
|
|
40.9
|
|
|
|
Adjusted segment income
|
|
|
|
$
|
206.9
|
|
|
|
|
$
|
146.8
|
|
|
|
Adjusted segment income margin
|
|
|
|
|
29.3%
|
|
|
|
|
|
25.5%
|
|
|
(a)
Represents non-cash stock-based compensation expense related to equity awards issued .
(b)
Includes non cash non-recurring severance expenses, retention bonuses, legal fees, and the operating losses of approximately $5.1 million and $5.3 million generated in Fiscal Year 2020 and Fiscal Year 2019, respectively, related to an early stage product business acquired in 2018 that is being phased out in 2021.
(c)
Includes professional fees, additional health and safety expenses related to COVID-19, additional reserves for obsolete and nonsalable inventories and other miscellaneous costs we believe are not representative of our ongoing business operations.
Following is a reconciliation from segment income to adjusted segment income for E&RW (in millions):
|
|
|
|
Fiscal Years
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Segment income
|
|
|
|
$
|
30.8
|
|
|
|
|
|
26.4
|
|
|
|
Depreciation
|
|
|
|
|
1.5
|
|
|
|
|
|
1.2
|
|
|
|
Stock-based compensation(a)
|
|
|
|
|
0.3
|
|
|
|
|
|
0.3
|
|
|
|
Currency exchange items(b)
|
|
|
|
|
1.3
|
|
|
|
|
|
2.2
|
|
|
|
Other(c)
|
|
|
|
|
0.3
|
|
|
|
|
|
2.2
|
|
|
|
Total Adjustments
|
|
|
|
|
3.4
|
|
|
|
|
|
3.7
|
|
|
|
Adjusted segment income
|
|
|
|
$
|
34.2
|
|
|
|
|
|
30.1
|
|
|
|
Adjusted segment income margin
|
|
|
|
|
20.2%
|
|
|
|
|
|
19.1%
|
|
|
(a)
Represents non-cash stock-based compensation expense related to equity awards issued.
(b)
Represents currency exchange impact.
(c)
Includes additional reserves for obsolete and nonsalable inventories, and COVID-19 related health and safety expenses.
Liquidity and Capital Resources
Primary sources of liquidity are net cash provided by operating activities and availability under the ABL Facility.
Cash and cash equivalents consist primarily of cash on deposit with banks which totaled $114.9 million and $47.2 million for the years ended December 31, 2020 and 2019, respectively.
Primary working capital requirements are for capital expenditures, raw materials, component and certain finished goods inventories and supplies, payroll, manufacturing, freight and distribution, facility, and other operating expenses. Cash flow and working capital requirements fluctuate during the year, driven primarily by the seasonal demand for our products, an early buy program, the timing of inventory purchases and receipt of customer payments and as such, the utilization of the ABL Revolving Credit Facility (“ABL Facility”) fluctuates during the year.
We focus on increasing cash flow, solidifying the liquidity position through working capital initiatives, and repaying debt, while continuing to fund business growth initiatives. We believe that net cash provided by operating activities and availability under the ABL Facility will be adequate to finance our working capital requirements, inclusive of capital expenditures, and debt service over the next 12 months. In the future, we may also allocate capital toward additional strategic acquisitions. If cash provided by operating activities and borrowings under the ABL Facility are not sufficient or available to meet the capital requirements, we will be required to obtain additional equity or debt financing in the future. There can be no assurance equity or debt financing will be available to us if we need it or, if available, the terms will be satisfactory to us.
Credit Facilities
The First Lien Term Facility, Second Lien Term Facility (“Term Loan Facilities”) and ABL Facility (collectively “Credit Facilities”) contain various restrictions, covenants and collateral requirements. For further information on the terms of these Credit Facilities, please see Note 9. Long-Term Debt to the Consolidated Financial Statements. As of December 31, 2020, we were in compliance with all material covenants under the Credit Facilities. Long-term debt consisted of the following (in millions):
|
|
|
|
2020
|
|
|
2019
|
|
|
First Lien Term Facility, due August 4, 2024
|
|
|
|
$
|
958.0
|
|
|
|
|
$
|
961.5
|
|
|
|
Incremental First Lien Term Facility, due August 4, 2026
|
|
|
|
|
150.0
|
|
|
|
|
|
—
|
|
|
|
Second Lien Term Facility, due August 4, 2025
|
|
|
|
|
205.0
|
|
|
|
|
|
205.0
|
|
|
|
ABL Revolving Credit Facility
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Capital lease obligations
|
|
|
|
|
9.7
|
|
|
|
|
|
2.2
|
|
|
|
Total
|
|
|
|
$
|
1,322.7
|
|
|
|
|
$
|
1,168.7
|
|
|
ABL Facility
The ABL Credit Agreement provides for an ABL Facility in an aggregate amount of borrowings of up to $250.0 million, including letters of credit, subject to a borrowing base calculation, as defined therein.
For Fiscal Year 2020, the average borrowing base under the ABL Credit Agreement was $149.5 million, the average loan balance outstanding was $51.7 million, the loan balance was zero with a borrowing availability of $87.0 million as of December 31, 2020. During Fiscal Year 2020, the interest rate in effect was 4.82%.
For Fiscal Year 2019, the average borrowing base under the ABL Credit Agreement was $164.9 million, the average balance outstanding was $60.9 million, the loan balance was zero with a borrowing availability of $100.9 million on December 31, 2019. During Fiscal Year 2019, the interest rate in effect was 6.32%.
First Lien Term Facility
On October 28, 2020, the Company entered into a second amendment of the First Lien Credit Agreement which increased borrowings by an aggregate principal amount equal to $150.0 million with a maturity date of August 4, 2026. The Company may voluntarily prepay any borrowings outstanding under the First Lien Term Facility without a premium and penalty. In addition, the First Lien Credit Agreement requires mandatory principal payments to be made based on certain events, including annual excess cash flow, as defined therein.
As of December 31, 2020, the balance outstanding under the First Lien Term Facility was $958.0 million and the interest rate in effect, net of the interest rate hedge, was 5.16%. The balance outstanding under the Incremental First Lien Term Facility was $150.0 million and the interest rate in effect was 4.93%.
As of December 31, 2019, the balance outstanding under the First Lien Term Facility was $961.5 million and the interest rate in effect, net of the interest rate hedge, was 5.94%.
Second Lien Term Facility
The Second Lien Credit Agreement matures on August 4, 2025, and requires mandatory prepayments substantially similar to the First Lien Credit Agreement, however mandatory prepayments under the Second Lien Credit Agreement are not permitted until all amounts under the First Lien Credit Agreement have been paid in full. For Fiscal Year 2020, the balance outstanding under the Second Lien Term Facility was $205.0 million and the interest rate in effect, net of the interest rate hedge, was 9.98%. For Fiscal Year 2019, the balance outstanding under the Second Lien Term Facility was $205.0 million and the interest rate in effect, net of the interest rate hedge, was 10.76%.
Summary of Cash Flows
Following is a summary of our cash flows from operating, investing, and financing activities (in millions):
|
|
|
|
Fiscal Years
|
|
|
Increase
(Decrease)
|
|
|
Percentage
Change
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net cash provided by operating activities
|
|
|
|
$
|
213.8
|
|
|
|
|
$
|
94.0
|
|
|
|
|
$
|
119.8
|
|
|
|
|
|
127.4%
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
(13.0)
|
|
|
|
|
|
4.0
|
|
|
|
|
|
(17.0)
|
|
|
|
|
|
(425.0)%
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
(135.1)
|
|
|
|
|
|
(65.1)
|
|
|
|
|
|
(70.0)
|
|
|
|
|
|
107.5%
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
|
|
2.4
|
|
|
|
|
|
—
|
|
|
|
|
|
2.4
|
|
|
|
|
|
—%
|
|
|
|
Change in cash and cash equivalents
|
|
|
|
$
|
68.1
|
|
|
|
|
$
|
32.9
|
|
|
|
|
$
|
35.2
|
|
|
|
|
|
107.0%
|
|
|
Net cash provided by operating activities
Net cash provided by operating activities increased to $213.8 million for Fiscal Year 2020 from $94.0 million for Fiscal Year 2019, an increase of $119.8 million or 127.4% which primarily reflects higher net income of $34.8 million, a cash source of $51.3 million from a reduction in net working capital partially attributable to improvements in working capital management, and an increase of non-cash adjustments of $33.7 million.
Net cash (used in) provided by investing activities
Net cash (used in) provided by investing activities decreased to a use of cash of $13.0 million for Fiscal Year 2020 compared to a $4.0 million cash source for Fiscal Year 2019, a decrease of $17.0 million, primarily driven by a $28.0 million decrease in the proceeds from the sale of a manufacturing and distribution facility of $28.5 million in Fiscal Year 2019. This was partially offset by a decrease of $10.8 million in capital expenditures, however the company acquired an additional $8.1 million of capital assets through capital leases in Fiscal Year 2020. Capital expenditures in Fiscal Year 2019 included approximately $7.9 million on a manufacturing and distribution consolidation and expansion project.
Net cash used in financing activities
Net cash used in financing activities increased to $135.1 million for Fiscal Year 2020 from $65.1 million for Fiscal Year 2019, an increase of $70.0 million. This increase is primarily due to a distribution to the Class A stockholders of $275.0 million partially funded by $150.0 million of proceeds from an incremental First Lien Term Facility during Fiscal Year 2020, compared to a net debt repayment of $64.7 million in Fiscal Year 2019.
Contractual Obligations and Other Commitments
The following table summarizes our contractual cash obligations as of Fiscal Year 2020 (in millions):
|
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
|
2024
|
|
|
2025
|
|
|
Thereafter
|
|
|
Total
|
|
|
Long-term debt(a)
|
|
|
|
$
|
0.8
|
|
|
|
|
$
|
11.3
|
|
|
|
|
$
|
11.5
|
|
|
|
|
$
|
939.0
|
|
|
|
|
$
|
206.5
|
|
|
|
|
$
|
143.9
|
|
|
|
|
$
|
1,313.0
|
|
|
|
Letters of Credit
|
|
|
|
|
4.4
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
4.4
|
|
|
|
Operating Lease Commitments(b)
|
|
|
|
|
3.7
|
|
|
|
|
|
4.4
|
|
|
|
|
|
4.0
|
|
|
|
|
|
3.2
|
|
|
|
|
|
3.3
|
|
|
|
|
|
23.9
|
|
|
|
|
|
42.5
|
|
|
|
Capital Lease Commitments
|
|
|
|
|
2.0
|
|
|
|
|
|
2.0
|
|
|
|
|
|
2.1
|
|
|
|
|
|
2.0
|
|
|
|
|
|
1.5
|
|
|
|
|
|
0.1
|
|
|
|
|
|
9.7
|
|
|
|
Total
|
|
|
|
$
|
10.9
|
|
|
|
|
$
|
17.7
|
|
|
|
|
$
|
17.6
|
|
|
|
|
$
|
944.2
|
|
|
|
|
$
|
211.3
|
|
|
|
|
$
|
167.9
|
|
|
|
|
$
|
1,369.6
|
|
|
(a)
For further information on the terms of the Credit Facilities please see Note 9. to the Consolidated Financial Statements and the comments under Liquidity and Capital Resources above. The Long-term debt and the ABL Facility are subject to variable interest rates. The weighted average interest rate on this debt in Fiscal Year 2020 was 5.95%. We are required to pay a commitment fee of 0.375% to 0.25% respectively based on whether the unused portion of the ABL Facility is less than or greater than 50% of the borrowing base.
(b)
Operating lease commitments relate to our office, distribution, and manufacturing facilities. All of these obligations require cash payments to be made by us over varying periods of time. Certain leases are renewable at our option for periods of one to ten years and certain of these arrangements are cancellable on short notice while others require payment upon early termination.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements during Fiscal Years 2020 or 2019.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in accordance with GAAP. The preparation of our consolidated financial statements and notes to consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosures of contingent assets and liabilities. We base these estimates on historical results and various other assumptions believed to be reasonable, all of which form the basis for making estimates concerning the carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these estimates.
Our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this prospectus. We believe that the following critical accounting policies affect the most significant estimates and management judgments used in preparing the consolidated financial statements.
Customer Rebates
Many of our major customer agreements provide for rebates upon achievement of various performance targets. We account for customer rebates as a reduction of gross sales with a corresponding offset to accounts receivable. We estimate the rebates based on our latest projection of customer performance. We update the estimates regularly to reflect any changes to the projection of customer performance for the applicable period.
Goodwill and Indefinite Lived Intangibles
We review goodwill and indefinite lived intangible assets for impairment annually or on an interim basis whenever events or changes in circumstances indicate the fair value of such assets may be below their carrying amount.
For goodwill, we may first make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value. The qualitative impairment assessment includes considering various factors including macroeconomic conditions, industry and market conditions, cost factors, and any reporting unit specific events. If it is determined through the qualitative assessment that the reporting unit’s fair value is more likely than not greater than its carrying value, the quantitative impairment assessment is not required. If the qualitative assessment indicates it is more likely than not that the reporting unit’s fair value is no greater than its carrying value, we must perform a quantitative impairment assessment. If it is determined a quantitative assessment is necessary, we would compare the fair value of the reporting unit to the respective carrying value, which includes goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered impaired. If the carrying value is higher than the fair value, the difference would be recognized as an impairment loss. Fair value of the reportable unit is estimated using a discounted six-year projected cash flow analyses and a terminal value calculation at the end of the six-year period.
Similar to the test for impairment of goodwill, we may first make a qualitative assessment of whether it is more likely than not that an indefinite lived intangible assets’ fair value is less than its carrying value to determine whether it is necessary to perform a quantitative impairment assessment. If it is determined a quantitative assessment is necessary, we would compare their estimated fair values to their carrying values. Fair value is generally estimated using discounted cash flows or relief from royalty approaches. We would recognize an impairment charge when the estimated fair value of the indefinite lived intangible asset is less than its carrying value. We annually evaluate whether the trade names continue to have an indefinite life.
Income Taxes
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts and tax bases of existing assets and liabilities. Deferred tax assets, including the benefit of net operating loss and tax credit carryforwards, are evaluated based on the guidelines for realization and are reduced by a valuation allowance if it is deemed more likely than not that such assets will not be realized. We consider several factors in evaluating the realizability of our deferred tax assets, including the nature, frequency and severity of recent losses, the remaining years available for carryforwards, changes in tax laws, the future profitability of the operations in the jurisdiction, and tax planning strategies.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the associated temporary differences become deductible. On a quarterly basis, we evaluate whether it is more likely than not that our deferred tax assets will be realized in the future and conclude whether a valuation allowance must be established.
Stock-Based Compensation
We recognize stock-based compensation expense for awards of equity instruments based on the grant-date fair value of those awards. The grant-date fair value of the award is recognized as compensation expense ratably over the requisite service period, which generally equals the vesting period of the award. We also grant performance-based stock options. The grant-date fair value of the performance-based stock options is recognized as compensation expense once it is probable that the performance condition will be achieved. We record actual forfeitures in the period in which the forfeiture occurs. We use the Black-Scholes option pricing model to estimate the fair value of option awards.
Determination of Fair Value of Common Stock
As there has been no public market for our common stock to date, the estimated fair value of our common stock has been determined by our Board of Directors as of the date of each equity grant, with input from management, considering our most recently available third-party equity valuations. These factors include, but are not limited to: our results of operations, financial position and capital resources; current business conditions and projections; the lack of marketability of our common stock; the hiring of key personnel and the experience of management; the risk inherent in the development, manufacturing and distribution of our products; the fact that the option grants involve illiquid securities in a private company; and the likelihood of achieving a liquidity event, such as an initial public offering or sale, in light of prevailing market conditions.
We have periodically determined the estimated fair value of our common stock at various dates using contemporaneous, independent valuations performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the Practice Aid. The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, our Board of Directors considered the following methods:
•
Current Value Method. Under the Current Value Method (“CVM”), our value is determined based on our balance sheet. This value is then first allocated based on the liquidation preference associated with preferred stock issued as of the valuation date, and then any residual value is assigned to the common stock.
•
Option-Pricing Method. Under the option-pricing method (“OPM”), shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the preferred and common stock are inferred by analyzing these options.
•
Probability-Weighted Expected Return Method. The probability-weighted expected return method (“PWERM”), is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class.
Based on the aforementioned relevant factors, we determined that the Option Pricing Method was the most appropriate method for allocating the enterprise value to determine the estimated fair value of our common stock. We then applied a discount for lack of marketability to reflect the increased risk arising from the inability to readily sell the underlying shares. Our common stock and option valuations are completed once each calendar year by an independent valuation firm.
Our Board of Directors and management develop best estimates based on the application of these approaches and the assumptions underlying these valuations, giving careful consideration to the advice from the third-party valuation expert. Such estimates involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, equity-based compensation could be materially different.
In January 2021, our Board of Directors granted options to purchase an aggregate of 1,048,125 shares of common stock evenly split between time-based and performance-based options, with an exercise price of $3.61 after giving effect to the Reclassification. These stock options have terms generally consistent with previously granted time-based and performance-based stock options described in Note 16 to our audited consolidated financial statements included elsewhere in this prospectus.
Given the proximity of the grant date of these stock options to the anticipated date of our IPO, we will use the mid-point of the estimated offering price range set forth on the cover page of this prospectus as the fair market value of our common stock for purposes of determining the grant date fair value of such stock option awards and the measured but unrecognized stock-based compensation expense associated with such grants. The stock-based compensation expense will be recognized when the performance conditions
are met and over the requisite service period for the performance-based and time-based stock options, respectively. The compensation cost is estimated to be $7.4 million and $7.3 million for time-based and performance-based stock options, respectively. The final fair value of these options will take into consideration the final pricing of our common stock in this offering, and thus such estimate is subject to change.
As of December 31, 2020, after giving effect to the Reclassification, we had outstanding 223,322 shares of restricted common stock that will vest upon the consummation of this offering and 857,803 shares of restricted common stock and options to purchase an aggregate of 6,479,640 shares of common stock that will vest in the event that the average closing trading price of our common stock over a ten-day trading period following the completion of this offering equals or exceeds $5.00, which is below the preliminary price range set forth in this prospectus. If the vesting condition is met, we would incur $11.9 million in related compensation expense.
Following the closing of this offering, our Board of Directors will determine the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.
Warranties
We provide base warranties on the products we sell for specific periods of time, which vary depending upon the type of product and the geographic location of its sale. Pursuant to these warranties, we will repair, replace or remodel all parts that are defective in factory-supplied materials or workmanship. We accrue the estimated cost of warranty coverages at the time of sale using historical information regarding the nature, frequency, and average cost of claims for each product. We then compare the resulting accruals with present spending rates to assess whether the balances are adequate to meet expected future obligations.
Based on this data, we update the estimates as necessary.
Due to the uncertainty and potential volatility of the factors used in establishing estimates, changes in assumptions could materially affect our financial condition and results of operations.
Inventory Valuation
Inventories consist of merchandise held for sale and are stated at the lower of cost or net realizable value. When evidence exists that the net realizable value of inventory is lower than its cost, the difference is recorded in cost of sales in our consolidated statement of operations as a loss in the period in which it occurs. We provide provisions for losses related to inventories based on historical purchase cost, selling price, margin, and current business trends. The estimates have calculations that require us to make assumptions based on the current rate of sales, age, salability of inventory, and profitability of inventory, all of which may be affected by changes in merchandising mix and consumer preferences. We do not believe there is a reasonable likelihood that there will be a material change in the assumptions we use to calculate inventory provisions. However, if actual results are not consistent with our estimates and assumptions, we may be exposed to losses that could be material. We review and update these reserves on a quarterly basis.
Recently Issued and Adopted Accounting Standards
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
See Note 2. Significant Accounting Policies to our Consolidated Financial Statements included elsewhere in this prospectus for additional information.
Quantitative and Qualitative Disclosures About Market Risks
Market risk is the potential economic loss that may result from adverse changes in the fair value of financial instruments. We are exposed to various market risks, including changes in interest rates and foreign currency rates. Periodically, we use derivative financial instruments to manage or reduce the impact of changes in interest rates and foreign currency rates. Counterparties to all derivative contracts are major financial institutions. All instruments are entered into for other than trading purposes.
Internal Control Over Financial Reporting
We evaluated and documented the design of our internal controls over financial reporting and identified material weaknesses as described in “Risk Factors—We have identified material weaknesses in our internal control over financial reporting. If our remediation of these material weaknesses is not effective, or if we identify additional material weaknesses in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.” We do not know the specific time frame needed to fully remediate the material weaknesses identified.
Currency Fluctuation Risk
We conduct business in various locations throughout the world and are subject to market risk due to changes in value of foreign currencies in relation to our reporting currency, the U.S. dollar. Periodically, we use derivative financial instruments to manage these risks. The functional currencies of our international operating locations are generally the in-country local currency. We manage these operating activities at the local level and net sales, costs, assets, and liabilities are generally denominated in local currencies, thereby mitigating the risk associated with changes in foreign exchange. However, our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in exchange rates.
The Company’s financial instruments that can be affected by foreign currency fluctuations and exchange risks consist primarily of cash and cash equivalents, trade receivables, trade payables, and net sales denominated in currencies other than the U.S. dollar. For the Fiscal Year 2020, approximately 25% of our net sales were denominated in a currency other than our functional U.S. dollar currency. These sales were primarily transacted in Euros and Canadian dollars. Consequently, we are exposed to the impact of exchange rate volatility between the U.S. dollar and these currencies. To hedge against this risk, we enter into foreign currency forward exchange contracts to protect our trade receivable positions and forward options to protect highly probable net Canadian dollar, Euro, and Australian dollar inter-company sales receipts expected from outstanding contractual prices and sales volume commitments.
Based on the Fiscal Year 2020, an increase or decrease of 1.0% in the currency exchange rate would cause an increase or decrease in net sales of approximately $2.1 million over the next 12 months. In the future we may enter into additional foreign exchange forward and option contracts as a result of our international growth strategy.
Interest Rate Risk
Our results are subject to risk from interest rate fluctuations on borrowings under the Credit Facilities. Our borrowings bear interest at a variable rate, therefore, we are exposed to market risks relating to changes in interest rates. As of December 31, 2020, we had $958.0 million, $150.0 million and $205.0 million of outstanding variable rate loans under the First Lien Term Facility, First Lien Incremental Term Facility and the Second Lien Term Facility, respectively. Based on our December 31, 2020 variable rate loan balances, an increase or decrease of 1% in the effective interest rate would cause an increase or decrease in interest cost of approximately $13.1 million over the next 12 months.
On August 4, 2017, the Company entered into interest rate swap agreements to manage interest rate risk related to its variable rate debt obligations. Such agreements cap the borrowing rate on variable rate debt to provide a hedge against the risk of rising rates. At December 31, 2020, we had interest rate cap agreements per year with total initial notional amount of $550 million (the “Cap Agreements”) to mitigate
the impact of fluctuations in the one-month LIBOR and effectively cap the LIBOR applicable to our variable rate debt at an average rate of 1.79% and 1.63% respectively for the twelve months ending August 31, 2020 and August 31, 2021. The four-year Cap Agreements reset and settle monthly through August 31, 2021. Fluctuations in the market value of the Cap Agreements are recorded in “Other income and expenses” on our consolidated statements of operations.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. We actively manage the impact of inflation, including import duties, through strong relationships with our diverse supplier base, vendor terms negotiations, and price and promotion management. Historically, we have been able to realize price increases to partially or fully offset cost inflation. We were granted certain import duty exemptions in 2019 for products sourced from China and received refunds in 2019 and 2020. Such exemptions expired in 2020. We strategically invest through inventory purchases to obtain favorable pricing ahead of vendor price increases. As a result, we believe we have the ability to mitigate negative impacts of inflation.
BUSINESS
Company Overview
We are an industry-leading global designer, manufacturer and marketer of a broad portfolio of pool equipment and associated automation systems. With the pool as the centerpiece of the growing outdoor living space, the pool industry has attractive market characteristics, including significant aftermarket requirements, innovation-led growth opportunities and a favorable industry structure. We are a leader in this market with a highly-recognized brand, one of the largest installed bases of pool equipment in the world, decades-long relationships with our key channel partners and trade customers and a history of technological innovation. Our engineered products, which include various energy efficient and more environmentally sustainable offerings, enhance the pool owner’s outdoor living lifestyle while also delivering high quality water, pleasant ambiance and ease of use for the ultimate backyard experience. Aftermarket replacements and upgrades to higher value IoT and energy efficient models are a primary growth driver for our business as we estimate that aftermarket sales represented approximately 75% of net sales in Fiscal Year 2020. We estimate aftermarket sales based upon feedback from certain representative customers and management’s interpretation of available industry and government data, and not upon our GAAP net sales results.
We have an attractive financial profile driven by our market position, product offerings and focus on operational excellence. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our long history of lean manufacturing and supply chain initiatives produced operating income margins of 14.2% and 13.5%, net income margins of 4.9% and 1.2% and adjusted EBITDA margins of 26.5% and 23.5% in Fiscal Years 2020 and 2019, respectively. As a result of our strong financial profile, we believe we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through our operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “Prospectus Summary—Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
The demand for outdoor living products has increased over the past decade as retiring baby boomers are investing in their homes and millennials are showing increased interest in outdoor spaces. Consumer spending has been redirected towards outdoor home improvements as consumers continue migrating to the suburbs and increase time spent at home and in the backyard. Outdoor living repair, replacement and remodeling has grown faster than traditional home repair, replacement and remodeling projects as homeowners choose to make larger outdoor investments. The trend toward healthy outdoor living has helped underpin continued pool industry growth. Homeowners’ response to COVID-19 also helped to reinforce this trend of new pool builds as a safe environment for enjoyment at home, further increasing the
installed base of pools globally, which we estimate is over 25 million as of 2020. Our business is primarily driven by reliable aftermarket spending associated with a number of key drivers: a growing installed base, an increasing range of new pool products, a shift to more highly valued energy efficient and more environmentally sustainable products and the development of “smart home” technology to increase connectivity and automation.
We have a leading brand with a reputation for quality, energy efficiency and innovation among both global pool professionals (e.g., retailers, builders, servicers and e-commerce resellers) and pool owners. We are a leading global manufacturer, supported by a large installed base and an estimated North American residential pool market share of approximately 30% that we believe is well-positioned for future growth. On average, we have 20+ year relationships with our top 20 trade customers. Many of our products are critical to the ongoing operation of pools given requirements for water quality and sanitization. As a result, we believe that many pool owners consider our products essential.
Our products include a broad line of advanced IoT-enabled controls, alternate natural sanitizers to lower chemical usage, energy efficient pumps, LED lights, heaters, automatic cleaners and filters. We remain focused on being at the forefront of product innovation, as we continually expand our product offerings and have proactively brought new products to the market with 59 new products launched in the last three years. As of December 31, 2020, we had approximately 350 issued patents and 135 patent applications pending, including many for current and for future products under development. Consistent with our commitment to providing more environmentally sustainable solutions, over the past three years our products have helped to generate approximately 1.1 billion kWh of energy savings, reduce chlorine usage by approximately 81 million pounds and save approximately 2 billion gallons of chemically treated, heated water. Approximately 89% of our products are designed to be energy efficient, conserve water and/or avoid harsh chemical usage.
As the shift towards connected outdoor living continues, we remain focused on building an industry-leading integrated digital platform for our pool products. Given the strong aftermarket mix of our business, existing product upgrades (e.g., enhanced functions and IoT compatibility) drive our growth. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage essential pool functions from the scheduling of sanitization, filtration and automatic cleaners to enabling landscape light shows with water features to create the ultimate backyard experience. Our branded technology enables pool owners to manage their pools without the need to use broader technology integrators. In
addition, the app helps to connect pool owners to the Hayward brand and increase awareness. We believe our focus on developing innovative connected products further enhances pool owner loyalty and enables us to increase our market share.
Competitive Strengths
We believe that the following competitive strengths have been key drivers of our success to date, and strategically position us for continued success.
Market Pioneer and Leader in Connected Pool Products Catering to Healthy Outdoor Living
We develop highly engineered outdoor living products. Our market leading brand has helped establish industry standards for generations, pioneering the shift to plastic flow control products and energy efficient heaters. Today we continue that innovation through healthy, more energy efficient and connected pool products. Swimming is one of the most popular recreational activities in the world and water-based exercise is known to improve physical and mental health. Our water care products are composed of salt chlorine generators that eliminate the need to handle and store corrosive chlorine chemicals. This natural process generates all the chlorine needed for sanitization while maintaining soft water for healthy, irritation free swimming. Our line of UV/Ozone and AOP alternate sanitizers are among the most effective technologies in destroying waterborne bacteria and viruses while reducing the amount of chlorine required by at least 50%. Our pump products now consume only a third of the energy relative to a decade ago. The USEPA and DOE awarded us Energy Star Partner of the Year for the last two years as a result of our energy efficient products.
As the world becomes more digitally focused, pool owners are increasingly demanding “smart” outdoor living solutions. Our proprietary Hayward Omni mobile app and automation platform provides numerous ways to manage every essential pool function. The mobile app manages everything from the scheduling of sanitization, filtration and running of automatic cleaners, to landscape light shows with water features that create the ultimate backyard experience. Omni gives the pool owner the power to access and adjust pool settings from anywhere. Omni easily connects to Amazon Alexa or Google Home for voice command of pool functions or integrates as part of a home automation system (e.g., Crestron and Savant). The emergence of IoT and smart home systems is a growing trend that is led by the U.S. smart home market, which is expected to grow approximately 15% per year, according to a recent report by Statista. Apps or voice controls are the most widely used systems for operating these home systems which complements Omni’s capability to operate pool and spa functions along with other backyard functions such as irrigation and landscape lighting. Omni is the highest rated pool app in both the Apple and Google online stores, with a 93% attach rate, which refers to the percentage of installed Omni-compatible products connected to the app. Our growing app user traffic allows us to better understand how pool owners are using our products and provides invaluable feedback on a real-time basis. Pool owners can also share their app data with their pool servicers and notify them of potential equipment issues to enable proactive service and maintenance. In the future, we expect to execute “in-app” marketing to push relevant offers and promotions to app users.
Large Installed Base with Growing Content and Replacement Needs Creates Recurring Sales Model
Our products are generally non-discretionary and recurring (after initial pool construction and remodels) due to the need to repair and replace equipment for the ongoing operation of pools. Given our estimate of an installed base of approximately 25 million above ground and in-ground pools globally as of 2020 and our leadership position in the market, we estimate that approximately 75% of our net sales in Fiscal Year 2020 was driven by aftermarket repair, replacement, remodel and pool owner-desired upgrades. We estimate aftermarket sales based upon feedback from certain representative customers and management’s interpretation of available industry and government data, and not upon our GAAP net sales results. Our product replacement cycle is approximately 9 to 12 years, driving multiple replacement opportunities over the typical life of a pool. Pool equipment features are of significant importance to the pool owner, and therefore we believe pool owners tend to be less price sensitive to our equipment relative to the pool’s total cost. At the time of replacement, pool owners typically prefer a like-for-like Hayward product or an upgrade to a newer product from our catalog. The replacement cycle drives an ongoing relationship that continues as homeowners upgrade their pools for many years after installation.
Demand for pool products is also supported by an increasing sales value per pool equipment order. The average wholesale price for equipment per pool typically ranges from $1,500 for entry level pools to well above $10,000 for premium pools, but equipment is only a fraction of the total pool cost. The average amount spent on equipment per pool has more than doubled in the last 10 years as owners increasingly spend more to incorporate the latest technology. A recent study shows that pool professionals are increasingly recommending and installing upgraded products. In 2020, pool professionals reported they installed
premium or upgraded versions of pool products 47% of the time, rather than making a like for like replacement of the broken product. In a similar survey conducted in 2016, pool professionals reported installing upgrades 37% of the time. Examples of recent themes in more advanced products include increased use of controls, apps, home automation systems, variable speed pumps, alternate sanitizers that reduce chemical usage, energy efficient water heaters, automatic cleaners and other exciting new technology to increase ambiance and comfort. U.S. and Canadian government regulations, along with the European Ecodesign Directive, also support the transition to the use of energy efficient pumps. These innovative pool products enhance the pool ownership experience and in return drive greater pool satisfaction and pool demand.
Premium Brand with Highly Engineered Products across Pool Types
We are an industry-leading brand among both global pool professionals (e.g., retailers, builders and servicers) and pool owners. We offer a comprehensive product assortment, consisting of more than 4,000 product SKUs. Our ability to offer a full bundle of products is a critical competitive advantage. We have invested heavily in our brand. Through new product development, rebranding of integrated acquisitions, customer service and operations, we have positioned Hayward as the go-to brand of choice, synonymous with pool product excellence. In the United States, we are the industry's most recognized and trusted brand among pool owners. We believe that pool professionals consider us the highest quality, most dependable brand and they believe that Hayward is worth paying a premium for.
Our broad suite of connected products caters to entry, mid-range and premium in-ground residential pools, above ground pools and commercial pools. As pool owners upgrade their pools over time, we believe we can remain a provider of choice at every step along their outdoor living progression. We leverage pool owners’ brand loyalty and our breadth of product offerings to grow across all pool categories.
Highly Flexible, Global Manufacturing and Distribution Platform with Differentiated Capabilities
We have six primary global manufacturing facilities and five primary distribution centers with a network of small locations for final assembly serving over 25 countries. Our production facilities are located in the United States, Spain and China, and leverage cost-efficient automation processes. Products manufactured in the United States have typically accounted for approximately 70% of our net sales. We have a strong commitment to safety, quality and environmental protection. In 2018, we implemented a behavioral safety initiative that has helped reduce recorded incidents by approximately 62% over the last three years. We use approximately 3 million pounds of recycled resin per year—up to 10% of all resin used in our pump and filter manufacturing consists of recycled material. In addition, we operate over 130 molding machines, of which approximately 70% are fully electric or hybrids and can save 20-40% in energy consumption compared to traditional hydraulic machines.
Our lean, vertically-integrated manufacturing and distribution processes allow for low-cost production that results in attractive margins and a high degree of quality control. We have ample manufacturing and distribution capacity, which provides versatility for growth and operating leverage within our existing footprint. We have consistently invested in these facilities to ensure that we have a strong and reliable supply chain designed to handle surges in demand and unforeseen logistical disruptions. We are able to produce customized, customer-differentiated products through our “Centers of Excellence” which are vertically-integrated facilities with flexible manufacturing capabilities. In addition, we have an agile production footprint with variable capacity available to support our anticipated growth over the next decade.The high level of automation in our facilities allows us to extend our work week and increase production velocity with limited additional capacity investments.
Multi-Channel Strategy Provides Multiple Points to Influence Pool Owners
Our go-to-market strategy leverages the professional trade, retail and e-commerce channels. Our trade customers are primarily distributors, major pool builders, buying groups, servicers and specialty on-line resellers. These trade customers subsequently sell our products to the pool owner. Sales to distributors make up the majority of our net sales, comprising 76% of net sales in Fiscal Year 2020, with remaining revenue from direct major builders, retailers and buying groups. Given our market position, trade customers are very familiar with our products and help to advocate their merits to pool owners. On average, we have 20+ year relationships with our top 20 trade customers and actively invest in these relationships through targeted sales efforts, loyalty programs and other initiatives.
We deploy a “push-pull” strategy through the Hayward Sales Model. Our sales organization “pushes” distributors to stock and market our products, while simultaneously creating a “pull” from end-user demand by marketing these products to builders, retailers, servicers and pool owners. This combination of forces helps to increase the barrier for competitors to enter the channel.
We manage this coordinated effort with a highly trained sales organization supported by our Salesforce.com CRM platform. The sales organization is divided into specialized teams: new accounts acquisition, builder, servicer and distribution channel management, commercial pool, e-commerce management and inside sales. These sales teams ensure that we reach our trade customers effectively and deliver our value proposition to the trade channel. Our sales organization compensation strategy is aligned to growing our business as compensation incentives are tied to year-on-year sales growth and are based on a combination of sales into the channel (i.e., sales to distributors) and sales out of the channel (i.e., distributor sales to trade partners). We generate “push” through programs such as volume rebates with key distributors and offer higher growth rebates to partners who achieve agreed upon growth milestones. Given the role of builders, retailers and servicers in the distribution channel, our sales team helps with training, marketing, advertising, promotional events and other tasks.
We create “pull” demand not only through our products’ quality and innovative features but also through loyalty programs. As product satisfaction is usually high, pool owners typically prefer the Hayward brand when looking for a replacement or upgrade of their current Hayward equipment. Pool owners may also choose a like-for-like Hayward brand when replacing other manufacturers’ products, at the suggestion of retailers or servicers. This consumer dynamic helps to provide confidence for our trade customers to maintain ample inventory of our products. To further support demand, we motivate and incentivize our builders, retailers and servicers. These programs reward trade customers based on both volume and range of products ordered. Those who support the “Hayward bundle” as part of a one-stop-shop commitment save more on their purchases from the company over time.
Our ongoing trade partner care intiatives further support our “push-pull” strategy and drive trade customer retention and growth. We have approximately 1,700 Hayward Authorized Service Centers in the United States to assist our trade customers and pool owners. In addition, we provide field-based technical service coordinated by three regional managers and 28 district technical managers covering all regions of the United States. We also operate two centralized call centers. The first provides product technical support to trade partners in the field. The second assists trade partners with order management and other commercial matters or issues.
In recent years, we have taken a market leading e-commerce position. We have implemented a range of policies and special SKUs for the online channel designed to maximize the opportunity for online sales without compromising our growth strategy with our “brick and mortar” customers. Approximately 15% of our products sold in the United States are ultimately purchased online. Our products reach the online sales channel through a combination of direct sales to online resellers and sales to our distributors who in turn sell to online resellers.
Resilient, Strong Financial Performance
Regardless of the economic conditions, it has been our experience that pool owners will maintain their pools and continue to pursue their pool wellness and recreation activities. Pool owners also are conscious that maintaining a pool typically costs less than repairing pool products that are damaged due to the lack of maintenance. We have delivered net sales growth, expanded margins and executed a disciplined capital expenditure program. From 2012 to 2020, our net sales grew at a 6.7% CAGR, our operating income grew at a 4.6% CAGR, our net income declined at a 3.4% CAGR and our adjusted EBITDA grew at a 9.6% CAGR. Our revenue and profitability metrics all grew over this time period with the exception of net income, which witnessed negative growth as a result of the transition in 2017 from a family-owned business to a sponsor-backed business, which resulted in higher interest expense following the Acquisition. In addition, our net sales and adjusted EBITDA grew in every year since 2012 except for Fiscal Year 2019, which was negatively affected by elevated inventory levels in some of our key distribution channels entering the pool season (largely due to significant tariff-driven price increases impacting the industry in 2018), as well as sales volume declines due to cold, wet weather during the first half of 2019 in key markets.
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We have steadily reinvested in our business over time, mitigating the need for large capital expenditures on our installed manufacturing base. As a result of our attractive financial profile, we have significant flexibility with respect to capital allocation, giving us the ability to drive long-term shareholder value through various operating and financial strategies. Additional information regarding our financial performance and non-GAAP measures, including adjusted EBITDA and adjusted EBITDA margin, together with a reconciliation of non-GAAP measures to their most directly comparable GAAP measures, is included in “Prospectus Summary—Summary Consolidated Financial and Other Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Reconciliation.”
Proven Management Team Focused on Growth
Our strategic vision and culture are directed by our executive management team under the leadership of our President and Chief Executive Officer, Kevin Holleran and Senior Vice President and Chief Financial Officer, Eifion Jones. Mr. Holleran joined us in 2019 and has nearly 30 years of experience in commercial and leadership positions across a number of industrial focused end markets. Most recently, Mr. Holleran served as President and Chief Executive Officer of the $4 billion Industrial Segment within Textron (NYSE: TXT). Mr. Jones joined us in 2020 with over 30 years of experience as a world-class business leader with a strong track record of building and leading global financial organizations. Mr. Holleran and Mr. Jones joined an experienced management team with a track record of innovation and operational excellence at Hayward. Our management team is uniquely capable of executing upon our strategic vision and successfully continuing to create long-term shareholder value.
Growth Strategy
We believe our multi-faceted growth strategy positions us to drive profitable, above-market growth in the markets we serve.
Continue to Introduce Thoughtful Innovation That Expands Our Markets
We have a proven track record of developing new products, offering advanced technology, energy-saving efficiency and a high-quality pool owner experience that have expanded our markets. Our strong manufacturing capabilities, detailed consumer research and extensive engineering expertise allow us to rapidly introduce differentiated products. We have launched 59 new products in the last three years, which contributed approximately 11% of net sales in Fiscal Year 2020. Recent product innovation includes: MaxFlo and TriStar VS—advanced energy efficient variable speed pumps for standalone operation or Omni control; HydraPure—an advanced oxidation process combining UV and ozone for water sanitization; OmniPL™ Smart Pool and Control—mobile app-based smart control for all connected pool and spa systems as well as other connected backyard components; AquaRite® 940 Omni—North America’s #1 salt chlorine generator bundled with Omni for smart control; AquaVac® 6 Series—a line of robotic pool cleaners with the technologically advanced, patented SpinTech™ debris separation technology for constant suction power; TriVac® 700—the only pressure cleaner capable of skimming debris from the surface of the water in addition to vacuuming the pool floor, walls and coves; and CAT 6000—a commercial, IoT-enabled water chemistry controller that allows precise sanitization control.
Our smart device apps have been available for our control products since 2010. In 2019, we significantly redesigned our premium Omni control app which first launched in 2015. This highly rated new app is compatible with all past and present Omni-compatible products, affording all users the same enhanced functionality and user experience. Data gathered from the app will help us further tailor our product development, distribution and sales strategies. This year, we plan to launch another exciting round of new products focused on the key categories of sanitization, heating, lighting and IoT-enabled controls. We also expect to introduce a new line of products timed to capitalize on the DOE's 2021 regulatory changes that require replacing many single speed pumps with variable speed pumps in new installations and replacements going forward. We expect these regulatory changes to accelerate the sales growth of variable speed pumps in 2021 and beyond. We believe this regulatory change will be a win-win for both the Company and the pool owner. Due to added product features, variable speed pumps have prices that are up to 2.4 times higher than single speed pumps and present significant revenue and gross margin upside to the Company. Similarly, the efficiency gains afforded by the products provide pool owners a rapid product purchase payback—as quickly as one to two years due to energy savings. We estimate that approximately 70% of North American pools have either no controls or just a simple on/off timeclock, providing us with an opportunity to upgrade these pools with Omni control and automation systems as part of the pump upgrade.
Focus on Key Strategic Sales Initiatives to Strengthen Trade Customer Relationships
We recently embarked on a sales initiative aimed at “Getting Closer to the Customer” in an effort to drive greater market share. We are evolving our sales organization from a generalist unit to a number of focused, channel-specific teams. We are creating national positions for managing e-commerce, large accounts and the commercial segment. Salesforce.com forms the backbone of this new strategy to ensure cross
communication between teams in the field along with marketing and customer service. To further enhance our customer capabilities, we utilize a combination of in-person and virtual training programs. We have mobile training vehicles that provide hands-on product training and education in the field. Hayward University, an online portal of training videos and a library of product information available for our trade customers, further supports our training initiative and enables us to operate virtually. We also offer our Totally Hayward loyalty program, an incentive-based program that allows us to better connect with our trade partners.
Grow Additional Share in the International and Commercial Markets
We are a leading global manufacturer with a large installed base and an estimated North American residential pool market share of approximately 30% in Fiscal Year 2020. Based on management’s estimates, we believe that we also have a strong international presence with an estimated #3 share in Europe and #4 in Australia. We continue to focus on expansion as we implement Totally Hayward and leverage our complete product bundle across our international markets. The international market, particularly in Europe, is fragmented and we see significant room to grow our presence via our existing footprint and the introduction of new products that meet local market demands.
We are currently a niche player in the commercial market where we see an opportunity for growth following the expansion of our commercial pool sales team. We believe our significant new product pipeline portfolio, which is a mix of in-house new product development complemented by strategic partnerships with third parties under the Hayward brand, will allow us to continue to drive deeper penetration in these markets. Moreover, we expect the broader adoption of ancillary products, such as sanitization systems, in the commercial market. This trend is expected to provide further growth opportunities in this end market.
Expand Margins and Returns Through Continuous Improvement Initiatives
Our global manufacturing and distribution footprint has enabled us to maintain strong margins and returns. We believe that we can continue to improve our margins through implementing cost improvement programs, including clear cost takeout programs currently in place. We believe our well-invested and predominantly owned manufacturing footprint supports our continuous improvement initiatives. Lean methodologies and Kaizen principles are central to everything we do. Our one-piece flow process, which enables us to assemble, test and package a product in a single work cell, maximizes our efficiency and lowers our manufacturing costs. Our strategic initiatives help us manage the costs of our materials through negotiations and various hedging programs. We believe these and other recent initiatives will enable us to strengthen our penetration in our key markets, expand market share and improve margins.
Execute Strategic Acquisitions That Broaden Our Platform
We generate a significant amount of cash flow and continue to re-invest in the business through organic and inorganic means. Acquisitions add new product technology and national market positions throughout our portfolio. We have completed and integrated more than 10 bolt-on acquisitions in the last 20 years. For example, the 2018 acquisition of Paramount opened a new category of in-floor cleaning, strengthened our position in alternative sanitizers and energy efficient goods. Our 2016 acquisition of Sugar Valley in Spain has both fueled market share growth in the European market and provided new technological product capabilities in sanitization and automatic controls.
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White Goods refer to key components of the pool recirculation system such as drains, skimmers, returns and fittings.
We intend to utilize our disciplined process to identify, evaluate, acquire and integrate businesses across the healthy and connected outdoor living space. We actively monitor a pipeline of attractive acquisition opportunities across multiple product categories and geographies. We target opportunities that enhance our technological capabilities, strengthen our global market positions and increase our geographical diversity in our end markets. We also look to identify adjacencies in the outdoor living category that can be integrated into our Omni platform and can benefit from our scale.
Industry
Outdoor Living Market
The demand for outdoor living products has increased over the past decade as homeowners seek to create attractive areas in their backyards as an extension of their home space. A recent survey that gauged popularity of certain repair and remodeling categories showed that the top three responses were all related to outdoor living. In addition, outdoor living repair and remodeling spending has outpaced traditional repair and remodeling spending in recent years.
Key contributors to this growth are retiring baby boomers and discerning millennials. Baby boomers are investing in improvements to their residences as they decide to retire in place. Millennials have shown a greater appreciation for the outdoors than prior generations and want attractive and functional outdoor spaces. Studies show that 70% of U.S. households have outdoor living spaces and those spaces are used at least once per week. Homeowners’ response to the COVID-19 pandemic have also helped reinforce this trend.
Today’s pool owners typically demand healthy experiences, ‘green’ products, energy efficiency and a digital experience. These discerning consumers are socially conscious and actively seek out products that
reduce the use of energy and chemicals. In line with this objective, these pool owners are more willing to invest in pool equipment with enhanced functions and capabilities that satisfy these criteria. In addition, swimming is one of the best forms of exercise available according to the Centers for Disease Control and Prevention, while also being considered essential to wellness. As a result, we have introduced innovative products to satisfy this demand.
The outdoor living market covers several product areas:
The pool typically serves as the centerpiece of the outdoor living space for homeowners and is one of the most expensive investments in the backyard. Buyer satisfaction with pool ownership is very high and the pool often brings people together outside. New pool products have also greatly increased the ease of maintaining a pool as well as the entertainment and enjoyment of this key backyard centerpiece.
U.S. Pool Market
History
Americans have been enamored with swimming pools for many decades. In the 1930s, high-end hotels and local municipalities began using pools as marketing tools. The U.S. residential pool industry started to flourish after World War II as Americans were aided by the GI Bill, which fueled strong growth in new housing and a significant population relocation to Sun Belt and Western states. The pool industry continued to grow over the ensuing decades, including the introduction of new pool types such as the above ground pool. These industry developments helped to expand pool ownership and created a large installed base of pools. The quality and enjoyment of the pool experience has increased significantly over the past two decades as the result of innovative pool product companies such as ourselves.
We believe the pool equipment market is large, growing and predictable. The industry is characterized by attractive long-term growth dynamics that have driven market growth of approximately 6 – 8% over the last five years. This market growth is supported by a growing aftermarket installed base, new construction of pools, product upgrades and industry pricing increases.
U.S. Residential Aftermarket
The installed base of residential pools is large with approximately 9 million pools in the United States as of 2020. As a result, pool equipment market expenditures are driven primarily by aftermarket spend versus new pool construction. Aftermarket equipment sales are driven primarily by the ongoing repair, replacement, remodeling and upgrading of equipment for existing pools. The non-discretionary nature of ongoing pool water treatment to maintain safe, sanitized water has been a key attribute of the industry. The CDC recommends that swimming pool water chemistry be tested at least twice per day, or more often when the pool is in heavy use, and that water be treated as necessary to protect from germs that cause recreational water illnesses. A pool quickly becomes unusable if not regularly maintained and routine maintenance is less expensive than the cost of failing to maintain a pool, which can range from around $2,000 for chemical treatments to over $10,000 for entire pool decommissioning, according to management estimates. A pool provides a stream of revenue for manufacturers as pool owners require equipment, parts, components and services through the repair, replacement and remodeling cycle of their pools.
The U.S. installed base of in-ground pools has grown every year since 1970. While the installed based is increasing, so is the average age of these pools, which has risen from an average age of 19 years in 2012 to 22 years in 2019. Management estimates that pumps and filters are replaced in over half of all pool remodel projects and residential in-ground pools are remodeled approximately every 9-12 years, roughly the service life of most pool components. The rising age of pools brings about an increased need for repair, replacement and remodeling work. This continual replacement spend creates a resilient market with a very steady flow of demand for aftermarket sales of our products and services. The average spend per remodel on U.S. in-ground pools has increased by 44% between 2012 and 2019, which we believe was largely driven by this product upgrade dynamic. Aftermarket replacements often utilize newer product technology such as salt chlorine generators, IoT controls and variable speed pumps, which are more expensive than prior generation products but can help reduce chemical and energy spend for pool owners. We believe that these ongoing chemical and energy cost reductions can create a payback for pool owners of less than two years in many cases, providing an incentive for them to install the latest technology.
New U.S. Residential Pool Construction
Beginning in 2012, the U.S. pool market saw steady growth in new residential in-ground pool construction based on annual pool installments. Since 2012, U.S. new pool construction has grown at over a 7% CAGR through 2020E while the total value of new residential in-ground pool construction has increased twofold, a growth rate that is significantly faster than the volume of new pool construction due to the increasing value of pool equipment. Also during this time, outdoor living expenditures have increased as American homeowners continue to invest in healthy outdoor living experiences. Pool construction weakened slightly in 2019 due to abnormally high rainfall as 2019 was the second wettest year on record for the United States.
We believe the pool industry is poised for continued growth as industry tailwinds remain in place. The estimated 94,000 pools constructed in 2020 remains well below long term the annual pool construction median of 113,000 pools. While the post-Great Recession recovery of the new pool build market is still ongoing, current demand exceeds the pool construction industry’s ability to supply new pools, leading to a robust backlog and positive outlook for 2021 and beyond. Continued growth in new pool construction is expected to be aided by a strong new housing market, rising home equity levels, migration trends to the Sun Belt and continued growth in outdoor living investment.
International Pool Market
We believe the international pool market outside North America was composed of approximately 15 million pools in 2020. Europe represents the largest portion of this market with approximately 7 million pools in the region and is projected to grow at a CAGR of over 9% between 2020 and 2026 based on expected continued growth in new pool construction and upgrades to new pool equipment technology. The European market remains highly fragmented, partially because various regional product certifications make it easier for market participants to operate locally. The European market is slightly more weighted to the direct channel than the United States as approximately 70% of sales are through distribution and approximately 30% are direct to trade customers. The majority of the European market is concentrated in warmer climates. France and Spain, combined, make up most of the market. Germany, Austria and Switzerland are also sizeable markets. Growth drivers for international pool markets include continued growth in residential and commercial pool construction and upgrades of equipment on existing pools to automated, energy efficient technology.
Commercial Market
We are currently a niche player in the commercial market where we have an opportunity to grow given our leadership in the residential pool market. We are uniquely positioned to further penetrate the market given our size, technological capabilities and distribution network.
The commercial market is composed of pools and recreational water features (e.g., wading pools, plunge pools, lazy rivers and various interactive water fixtures). We are focused on small to medium-sized pools (up to 150,000 gallons) which represent approximately 75% of the total commercial market. Target customers include hotels, motels, apartments and condominiums (“HMAC”) and health clubs.
Flow Control Market
Our flow control business, which accounted for less than 5% of our net sales in Fiscal Year 2020, addresses a market for industrial thermoplastic valves and process control products for various industrial end markets, including aquatics, oil and gas, data centers, municipal water and waste water management, power generation and chemical processing. Our key product offerings are typically lightweight and easy to install. Installation and maintenance costs are relatively low. In addition, our products have the ability to resist damage from temperature and corrosion while also avoiding contamination of transported fluids or gases. Our key customers include Ryan Herco, Indelco Plastics, Grainger and Harrington Plastics.
Business Segments
We operate in a global pool equipment market with an installed base that we estimate to be approximately 25 million pools globally. We estimate the global market size at $4.6 billion in 2020. North America and Europe are the two largest pool markets, accounting for an estimated 68% of the total global installed base and 84% of total equipment sales.
North America
Our North American business segment consists of the United States and Canada. We have residential and commercial field based teams selling directly to specialized pool distributors, large retailers,
major builders and specialized online resellers. U.S. trade customer shipments are fulfilled from either our East Coast or West Coast distribution centers depending on the customer’s location. Canadian trade customers are served through our distribution center in Oakville, Ontario.
Europe and Rest of World
Our Europe and Rest of World business segment consists of all countries outside of the United States and Canada. Europe and Australia make up a sizeable portion of this business segment. Europe and Australia have similar sales structures to the United States. Customer shipments in Europe are fulfilled through our France or Spain distribution centers and Australia has its own smaller regional distribution hubs. The other 20+ countries in this segment are predominantly served through U.S. based regional managers who in turn deal through established distribution in each of the markets. Products are consolidated into containers and shipped to global locations from the United States.
Products and Services
Since our founding in 1925, we have been delivering a growing portfolio of pool equipment that is differentiated by innovative features and high-quality. Our products are connected through built-in IoT capabilities and our mobile app, and perform various core and auxiliary functions to deliver the holistic pool experience for pool owners.
Full Spectrum of Pool Equipment
Our new product development capabilities have been a core component of our growth story. Recent product development has targeted key pool industry trends such as energy efficiency, advanced sanitization, reduced chemical usage, water conservation and enhanced IoT-driven pool experiences.
Recent product innovation includes:
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MaxFlo and TriStar VS: advanced energy efficient variable speed pumps for standalone operation or Omni control
•
HydraPure: advanced oxidation process combining UV and ozone for water sanitization that kills 99.9% of chlorine resistant microorganisms and reduces chlorine demand by approximately 50%
•
OmniPL™ Smart Pool and Control: mobile app-based smart control for all connected pool and spa systems as well as other connected backyard components
•
AquaRite 940® Omni: North America’s #1 salt chlorine generator bundled with Omni for smart control
•
AquaVac 6® Series: line of robotic pool cleaners with the technologically advanced, patented SpinTech™ debris separation technology for constant suction power
•
TriVac® 700: the only pressure cleaner capable of skimming debris from the surface of the water in addition to vacuuming the pool floor, walls and coves
•
CAT 6000: commercial, IoT-enabled water chemistry controller that allows precise sanitization control
Our more environmentally sustainable products provide increased value for pool owners through various advanced functions that help drive energy savings, minimize chemical usage and reduce water consumption. Given these advanced functions, we are able to charge a higher price on key products such as variable speed pumps, energy efficient heaters, efficient filters and LED lights—these products are priced approximately 1.3 to 2.4 times higher than basic product variants. The addition of IoT based controls and alternative sanitizers, including salt chlorination systems and UV/Ozone systems, also increases the potential equipment spend on a pool pad while providing greater ease of use for pool owners and potential energy savings and chemical reduction. Based on management’s estimates, the long term aftermarket upgrade opportunity from these currently available products is over $21 billion in total, with the current penetration rate of these upgraded technologies ranging from less than 5% to approximately 50% depending on the category. Pool owners are typically willing to pay higher prices upfront in order to enjoy functional product benefits and ultimate cost savings. Pool owners appreciate the more environmentally sustainable features and understand that they can expect a payback over several years. For example, the average payback period on a variable speed pump is approximately one to two years.
Leader in Game Changing New Product Development
Our products cater to all types of pools including both in-ground and above ground pools. Our wide range of offerings can be found in entry, mid-range and premium pools. The average wholesale price per pool typically ranges from $1,500 for entry level pools to well above $10,000 for premium pools, but equipment is only a fraction of the total pool cost. Approximately 50% of our net sales is derived from non-discretionary products that are essential to operating a residential or commercial pool. We believe pool owners tend to be less price sensitive to our products given the importance of pool equipment features to the pool owner experience and the relatively low cost of equipment compared with the total cost of a pool.
Catering to Different Pool Types
The growing product bundle and technology content of pools support both the company’s new pool construction and aftermarket businesses. Increased product content drives greater sales volume and higher cost technologies drive increased sale prices and margins. As an innovator in the industry, we play a leading role in driving growth and development of more advanced pool equipment and functionality to grow the market.
We take pride in the innovation, technology and quality of our products and we continue to build our brand with our trade customers and pool owners. We are aligned to our “We Build Better” branding strategy, which means:
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Better product performance: superior efficiency, power and speed
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Better product reliability: more durable and longer lasting
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Better design: easy installation and set-up
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Better living: brings comfort, safety and peace of mind
Customers
We sell our products through a variety of channels to a diverse global trade customer base. We have deep, long-standing relationships with large, blue chip customers. The majority of our sales are through specialty distributors, who in turn sell to thousands of pool builders and servicers. The remaining sales are directly to large retailers, pool builders and buying groups. Our largest customer, Pool Corporation, represented approximately 30% of our net sales in Fiscal Year 2020, but no other customer represented more than 10% of our net sales in Fiscal Year 2020.
On average, we have 20+ year relationships with our top 20 customers and we actively invest and develop these relationships through targeted sales efforts, loyalty programs and other initiatives. In addition to our strong distributor relationships, we estimate that we are currently the largest equipment supplier to each of the top four retailers in the United States.
Suppliers
We maintain longstanding relationships with approximately 900 suppliers. We mainly purchase assembled components such as motors, metal parts, cables and extrusions from our suppliers. We also purchase raw materials, such as resins (ABS, PP, HDPE, PVC), metals (copper, steel, aluminum, titanium, ruthenium) and liner board (packaging), which expose us to changes in commodity pricing. We seek to mitigate the effects of fluctuations in commodity prices through our agreements with our suppliers, that typically provide for fixed pricing over a three to 12 month period to manage raw material inflation. We complete full audits on all new suppliers, and periodically evaluate our existing supplier base to ensure maximum service and quality. Our supplier base is “sticky” as suppliers must invest to receive certain approvals, creating an economic incentive to maintaining a long and productive relationship.
We have dedicated supply chain employees who manage global sourcing, strategic consolidation and supplier relationships. We have reduced our supplier base by over 19% since 2015, helping improve purchasing power and reducing input costs. We expect continued strategic sourcing, as well as increased volumes from both organic growth and recent acquisitions, to drive further economies of scale. Our agreements with our suppliers typically provide for fixed pricing over a three to 12 month period to manage raw material inflation.
We have had an average relationship of over 15 years across our top 30 suppliers. We have had a 40+ year relationship with our top vendor and 10+ year relationships with 9 out of our top 10 suppliers, with an average of 19 years of supply continuity. These top 10 suppliers represent approximately 35% of our total material purchases.
Sales Channels
The pool equipment market is served through several sales channels. This complexity favors scaled manufacturers like us that have the ability to service multiple channels and act as a “one-stop shop” with a complete product offering.
Distributors: The majority of our net sales comes from an authorized network of regional and national distributors who service the pool trade (i.e., builders, retailers and servicers). We have long standing relationships with these trade customers and we have clear contractual agreements to support our continued net sales of our products through this channel. Distributors are responsible for ordering, stocking, training, delivering and taking on credit responsibility from their trade customers. Many distributors also sell our products to online retailers.
Builders, Retailers and Servicers (Direct Sales): We sell to several major buying groups composed of members who are independent businesses. Buying groups receive competitive pricing and special incentives. Members can place orders with the group’s corporate headquarters, purchase products through our distributors or receive shipments directly from us.
Buying Groups: We sell to several major buying groups which are composed of members who are independent businesses. Buying groups receive competitive pricing and special incentives. Members can place orders with the group’s corporate headquarters or order from us directly. We ship directly to member locations.
In the United States, approximately 78% of residential pool equipment is sold through specialty distributors such as Pool Corporation, Bel-Aqua, and Baystate. Another 12% is sold directly to retailers, and the remaining 10% is sold to builders. In Europe, the sales channel is more direct than in the United States as approximately 75% of sales are through distributors and 25% are through direct sales.
Across regions, the market is based on a “prescriber model.” The purchasing decisions of the end consumer (i.e., pool owners) are strongly influenced by pool builders and pool servicers.
Seasonality
Our business is seasonal with sales typically higher in the second and fourth quarters. During the second quarter of a fiscal year, sales are higher in anticipation of the start of the summer pool season. In the fourth quarter, we incentivize trade customers to buy and stock up in preparation for next year’s pool season under an “early buy” program which offers a price discount and extended payment terms. Under the early buy program we ship products from October through March and receive payments for these shipments from April through July.
Our aim is to keep our manufacturing plants running at a consistent level throughout the year. Consequently, we build inventory in the first and third quarters and inventory is sold-down in the second and fourth quarters. Our accounts receivable balance increases from October to June as a result of the early buy extended terms and higher sales in the second quarter. We typically utilize our ABL Facility in the first quarter to finance our operating expenses, and reduce our credit utilization in the second quarter as the seasonality of our business peaks and payments are received.
Weather can affect our sales, however we primarily serve the aftermarket, which is less affected than new pool construction equipment sales. Unseasonably cool weather or significant amounts of rainfall can suspend new pool construction and reduce the sale of pool equipment to the new pool builders.
For discussion regarding the effects seasonality had on our results of operations in Fiscal Year 2020, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Trends and Uncertainties Regarding Our Existing Business.”
Our Competition
The markets for our products are geographically diverse and highly competitive. We compete against large and well-established national and global companies, as well as regional and local niche OEMs and lower cost manufacturers. Competition may also result from new entrants into the markets we serve, offering products that compete with us. Our competitors offer pool equipment of varied quality and across a wide range of retail price points.
We compete based on brand recognition with distributors, retailers, pool builders and pool owners, strong relationships with our distributors and resellers, and the loyalty of our builders and servicers with
whom we have built a large installed base. In addition, we compete based on our technical innovation, intellectual property, reputation for providing quality and reliable products, competitive pricing and contractual terms. We believe our extensive inventory of products enables us to meet both residential and commercial needs, which creates a one-stop-shop for many of our trade partners. Some of our competitors, in particular smaller companies, compete based primarily on price and local relationships, especially with respect to products that do not require significant engineering or technical expertise.
Some geographic markets we serve, particularly the four largest and higher pool density U.S. markets of California, Texas, Florida and Arizona, have a greater concentration of competition than other U.S. markets. The European pool equipment market is generally more fragmented.
Intellectual Property
Patents and trademarks are important to our business. As of December 31, 2020, we held approximately 177 issued U.S. patents and 173 issued foreign patents relating to our technologies, such as pumps, filters, heaters, drains and white goods, robotic cleaners, in-floor cleaning systems, lights, automation and controls, sanitization, valves and flow control, and IoT and other technologies, as well as approximately 119 U.S. trademark registrations and 656 foreign trademark registrations covering our marks, brands and products. As of December 31, 2020, we also held approximately 45 pending U.S. patent applications, 90 pending foreign patent applications, 19 pending U.S. trademark applications and 33 pending foreign trademark applications. We also license patents to certain technologies used in our products, such as our pool cleaner and lighting products.
We also have a brand enforcement program under which we monitor and pursue action against unauthorized online resales and infringements of our intellectual property, such as our trademark rights. When needed, we send cease and desist letters, which frequently result in the desired compliance without the need for litigation. From time to time, we initiate litigation on these matters as a means to enforce our rights.
We do not regard our business as being materially dependent upon any single patent or proprietary technology. Patents, patent applications and license agreements will expire or terminate over time by operation of law, in accordance with their terms or otherwise.
Properties
Our corporate headquarters is located on leased premises in Berkeley Heights, New Jersey. We own four of our seven global manufacturing facilities and two of our eleven global distribution facilities. We lease all of our other properties including seven warehouse sites and the majority of our leases have two to eight year terms. As of December 31, 2020, leases with remaining terms longer than one year expire between 2021 and 2030.
Most of our leases contain renewal options, some of which involve rent increases. In addition to minimum rental payments, which are set at competitive rates, certain leases require reimbursement for taxes, maintenance and insurance. We do not believe that any single lease is material to our operations.
Our global manufacturing facilities range in size from approximately 17,857 square feet to 347,241 square feet and generally consist of warehouse, counter, display and office space. Our global distribution facilities range in size from approximately 5,371 square feet to 273,000 square feet.
The following is a summary of our principal properties as of December 31, 2020, including manufacturing, distribution, warehouse, and corporate offices:
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No. of Facilities
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Location
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Manufacturing
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Distribution
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Warehouse
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Corporate Headquarters
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North America
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Arizona
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—
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2
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—
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—
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California
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—
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—
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—
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—
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No. of Facilities
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Location
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Manufacturing
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Distribution
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Warehouse
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Corporate Headquarters
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New Jersey
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—
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—
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—
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1
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North Carolina
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1
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1
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4
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—
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Rhode Island
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1
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—
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1
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Tennessee
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1
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1
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2
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—
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Canada
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—
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1
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—
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—
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Europe and Rest of World
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Australia
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—
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4
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—
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—
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China
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1
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—
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—
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—
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France
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—
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1
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—
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—
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Spain
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3
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1
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—
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—
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We believe that our facilities as well as the related machinery and equipment, are well maintained and suitable for their purpose and are adequate to support our businesses.
Employees and Human Capital Resources
As of December 31, 2020, we had approximately 2,555 total full-time equivalent employees of whom approximately 18% are temporary or contract workers. Our total number of temporary and contract workers fluctuates due to business cycles during the year. We believe our ability to maintain a flexible, modular workforce enhances our manufacturing capabilities. Our employees are primarily located in the United States, with about 28% employed at our international locations in Canada, Spain, France, Australia and China. As of December 31, 2020, none of our employees were represented by a union. However, we do have relationships with works councils in Spain and France.
As part of our human capital resource objectives, we seek to attract, retain, develop and reward our employees through a variety of mechanisms. We build upon Hayward’s objectives by seeking to attract, retain, develop and reward behaviors to ensure our long term sustainability as a company. We continue to advance our efforts to develop a performance culture by strengthening performance management processes through management training and the development and implementation of consistent documentation and methodologies designed to ensure a robust process for all employees. We schedule performance discussions for all employees each year, and establish clearly defined goals and incentive programs to drive employee performance. In addition, we have implemented a coordinated approach in managing our overall compensation structure and regularly conduct full evaluations of our compensation and incentive programs to ensure we are competitive in these areas. We monitor our performance by measuring numerous elements relating to our human capital management efforts, including, but not limited to, employee turnover, time to fill open roles and general diversity statistics.
Information Systems
We believe that our website and information technology systems are equipped to support the operation of our business. In addition, we use commercially reasonable efforts to ensure that all such systems remain free and clear of all material bugs, errors, defects, malware or other corruptants.
Data Privacy and Security
We are subject to numerous U.S. state and federal and foreign laws and regulations that address privacy, data protection and the collection, storing, sharing, use, transfer, disclosure and protection of certain types of data. Such regulations include state data breach notification laws, the CCPA, the GDPR, Canada’s Personal Information Protection and Electronic Documents Act, and Australia’s Privacy Act, amongst others. Additionally, our evolution into offering smart products that can connect to the IoT may subject us to other IoT-specific laws and regulations, including the California Internet of Things Security Law. Because of our marketing activities, we may also be subject to applicable marketing privacy laws, including the CAN-SPAM Act of 2003 and the TCPA, amongst others.
These laws and regulations are increasing in number and complexity, and are subject to varying interpretations by regulators and the courts, resulting in higher risk of enforcement, fines, and other penalties. For example, California recently passed the CPRA, which expands the CCPA and will require us to incur costs to modify our data privacy and security practices. More details about these risks can be found in “Risk Factors—Risks Related to Government Regulation—Increased information technology security threats and computer crime pose a risk to our systems, networks and products, and we are exposed to potential regulatory, financial and reputational risks relating to the protection of our data” and “Risk Factors—Risks Related to Government Regulation—Our collection, use, storage, disclosure, transfer and other processing of personal information could give rise to significant costs and liabilities, including as a result of governmental regulation, uncertain or inconsistent interpretation and enforcement of legal requirements or differing views of personal privacy rights, which may have a material adverse effect on our reputation, business, financial condition and results of operations.”
We understand the importance of these laws and regulations and have taken steps to monitor and comply with changing requirements. For example, we maintain an updated website privacy policy that explains our online information collection and use practices and applicable rights of EU and California residents under the GDPR and CCPA, respectively. We also take reasonable efforts to implement and maintain security controls to align with industry standards.
Environmental, Health and Safety Matters
Our operations are subject to various laws and governmental regulations concerning environmental, health and safety matters, including employee health and safety, in the United States and other countries. U.S. federal environmental, health and safety regulations that apply to operations at one or more of our United States facilities include, without limitation, regulations promulgated under the Resource Conservation and Recovery Act, the Environmental Planning and Community Right-To-Know Act, the National Pollutant Discharge Elimination System Act, the Spill Prevention, Control and Countermeasures requirements and the Comprehensive Environmental Response, Compensation and Liability Act. We are also subject to regulation by OSHA concerning employee health and safety matters. In addition, we and certain of our affiliates store certain types of hazardous materials and chemicals at various locations and the storage of these items is strictly regulated by local fire codes. We also sell UV, Ozone, and Salt Chlorinator and related products that are regulated under FIFRA, which primarily relates to testing, use, reporting, sale, distribution, licensing and market verification of these products. Moreover, the USEPA, OSHA, and other federal and foreign, state and/or local agencies have the authority to promulgate laws and regulations in the future that may impact our operations going forward. In addition to the federal environmental laws identified above that apply to our operations, various states have been delegated certain authority under the aforementioned federal statutes (and others), and under state corollaries to the federal laws, to regulate environmental, health and safety matters at our U.S. facilities. Compliance with, or liabilities under, such laws and regulations in the future could prove to be costly and could affect various aspects of the business.
Regulatory Matters
We are also subject to foreign, federal, state, and local laws and regulations relating to matters such as product labeling, weights and measures, zoning, land use, and fire codes, including regulation by the Federal Communications Commission, the Consumer Product Safety Commission, the National Fire Protection Agency, and the Federal Trade Commission. Most of these requirements govern the packaging, labeling, handling, transportation, storage, sale and use of our products. In addition, we are subject to regulation passed by the DOE relating to the labeling, testing, reporting and certification of new and replacement pumps sold for swimming pools. Compliance with such laws and regulations in the future could prove to be costly and could affect various aspects of the business.
Legal Proceedings
We have been, and in the future may be, made a party to litigation arising in the ordinary course of our business, including those relating to commercial or contractual disputes with suppliers, customers or parties to acquisitions and divestitures, intellectual property matters, product liability, the use or installation of our products, consumer matters, employment and labor matters, and environmental, safety and health
matters, including claims based on alleged exposure to asbestos-containing product components. We believe that we are not currently party to any legal proceeding that would be expected, either individually or in the aggregate, to have a material adverse effect on our business or financial condition.
We periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims described in the notes to our consolidated financial statements could change in the future. Regardless of outcome, legal proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Pentair Litigation
Hayward is presently a defendant in a set of consolidated patent infringement actions brought by Pentair Water Pool and Spa, Inc. and Danfoss Drives A/S(Civil Nos. 5:11-cv-459-D and 5:12-cv-251-D), pending in the United States District Court for the Eastern District of North Carolina. Collectively, the plaintiffs in these actions have asserted that certain of our variable speed pump and controller products infringe claims in seven United States patents: U.S. Patent Nos. 7,854,597; 7,815,420; 7,857,600; 7,686,587; 7,704,051; 8,019,479; and 8,043,070. Hayward initiated related USPTO proceedings against certain of the asserted patents, including inter partes reexamination nos. 95/002005, 95/002006, 95/002007, and 95/002008 and inter partes review nos. IPR2013-00285 and IPR2013-00287. Hayward has also raised non-infringement and invalidity defenses against each of the patents asserted against us in the district court actions, which are currently stayed. Additionally, Hayward is aware of patents related to the asserted patents, including continuing, foreign and/or other related issued patents and pending patent applications, that could be asserted against us in the future. If defenses raised by Hayward are not upheld, or if Pentair and/or Danfoss were to prevail in these proceedings and/or otherwise, then we may owe money damages and/or be subject to an injunction for any unexpired patent that would require the cessation of any infringing activity, which could have a negative impact on our supply chain or other business, including the ability of us, our vendor(s), and/or our customer(s) to make, use, sell, offer for sale and/or import variable speed drives or pumps, and/or the automation controllers therefor, any of which including the component(s), feature(s) and/or functionalit(ies) accused of infringement.
Insurance
We maintain commercial insurance policies with third parties in the areas of executive risk, commercial property, and casualty (including product liability), cyber, business interruption, and ocean cargo. We also self-insure for workers’ compensation, vehicle, property, general liability, product liability, and employee medical benefit costs. We have stop-loss coverage to limit exposure arising from certain of these claims. There are various levels of deductibles depending on the coverage. Self-insurance claims filed and claims incurred but not recorded are accrued based upon our estimates of the ultimate costs to be incurred using historical experience. Our ultimate exposure may be mitigated by amounts we expect to recover from third parties associated with such claims.
MANAGEMENT
Directors and Executive Officers
Below is a list of the names, ages as of February 28, 2021, and positions, and a brief account of the business experience, of the individuals who serve as our executive officers and directors as of the date of this prospectus.
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Name
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Age
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Position
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Executive Officers
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Kevin Holleran
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52
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President, Chief Executive Officer and Director
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Eifion Jones
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53
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Senior Vice President and Chief Financial Officer
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Donald Smith
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54
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Senior Vice President, Chief Supply Chain Officer
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Michael Colicchio
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59
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Vice President and Corporate Controller
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Rick Roetken
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55
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President, North America
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Fernando Blasco
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46
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Vice President, General Manager, Europe & Rest of World
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Non-Employee Directors
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Mark McFadden
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43
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Director
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Timothy Walsh
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57
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Director
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Greg Brenneman
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59
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Director
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Kevin Brown
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46
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Director
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Jason Peters
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44
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Director
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Larry Silber
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64
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Director
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Arthur Soucy
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58
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Director
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Ali Afraz
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37
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Director
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Stephen Felice
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63
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Director
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Christopher Bertrand
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36
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Director
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Christopher Stevenson(1)
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33
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Director
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Director Nominees
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Lori Walker*
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63
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Director Nominee
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Diane Dayhoff*
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65
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Director Nominee
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|
(1)
Mr. Stevenson has resigned from our Board of Directors effective as of immediately prior to the effectiveness of the registration statement of which this prospectus forms a part.
*
Immediately upon the effectiveness of the registration statement of which this prospectus forms a part, Ms. Walker and Ms. Dayhoff will join our Board of Directors.
Kevin Holleran has served as President, Chief Executive Officer and Director of the Company since August 2019. Prior to joining the Company, Mr. Holleran served as President and Chief Executive Officer of the Industrial Segment within Textron beginning in 2017. Textron’s Industrial Segment is composed of Textron Specialized Vehicles, a leading global manufacturer of purpose-built vehicles and equipment for a variety of commercial and recreational applications across a number of brands; as well as, Kautex a tier one automotive supplier of fuel systems, selective catalytic reduction systems and cleaning solutions. Prior to 2017, Mr. Holleran was the President and Chief Executive Officer of Textron Specialized Vehicles for ten years, during which time he grew revenue and profitability substantially through both organic growth and acquisitions. Prior to his time at Textron, Mr. Holleran held a number of management positions at Ingersoll Rand and Terex Corporation across the sales, marketing, and product management functions. He holds an MBA from Wake Forest University and an undergraduate degree from Cornell University.
Eifion Jones has served as Senior Vice President and Chief Financial Officer of the Company since April 2020. Prior to joining the Company, Mr. Jones served as the Chief Financial Officer of Cornerstone Holdings Inc. (“Cornerstone”) since 2011, a portfolio company of private equity firms HIG Capital and, later, Littlejohn & Co. LLC. In this role he oversaw the governance, performance, and financial management of Cornerstone’s U.S. and European companies, including leading all acquisition evaluation, diligence and integration efforts. Prior to Cornerstone, Mr. Jones spent 21 years with Akzo Nobel, where he held financial and managerial leadership roles in the Americas and Europe, including SVP and General Manger for their Americas O&G protective coatings business and prior to that, SVP and CFO for their Americas industrial coatings business. He began his financial career with Courtaulds Plc in their European fibers businesses prior to its sale to Akzo Nobel.
Donald Smith has served as Senior Vice President, Chief Supply Chain Officer for the Company since January 2007. Mr. Smith has served as an officer of the Company, and as the executive lead for numerous functions in his tenure, including Global Operations, Global Supply Chain, Engineering and Technology, Customer Care, and Acquisition integration. Mr. Smith is a member of twelve boards of directors for certain of the Company’s subsidiaries. Prior to joining the Company, Mr. Smith was an executive and company officer for Omega Polymer Technologies, Inc. from 2001 to 2006, prior to its strategic sale. During his five year, Mr. Smith served as Vice President and General Manager of Carsonite International (2001-2003) and Corporate Executive Vice President of Operations (2003-2005), before being named President in 2006. Mr. Smith held numerous leadership positions with Robert Bosch Corporation from 1996-2001, including an international assignment in Stuttgart, Germany (1997-1998). Mr. Smith began his career with General Motors’ Powertrain Division (1989-1996.) Assuming roles of increasing levels responsibility, Mr. Smith ultimately served as the lead manufacturing resource for new engine development and launches, as Manufacturing Engineering Administrator. Among Mr. Smith qualifications is a track record of operational excellence and performance. Mr. Smith brings expertise in general management, lean manufacturing, new product development, and strategic planning for operating performance. Mr. Smith has significant experience as a senior executive of global companies composed of multiples entities and complex value streams. He provides strategic direction toward improved operational and financial performance, organizational development, and product line optimization.
Michael Colicchio has served as Vice President and Corporate Controller of the Company since October 2017. Prior to joining the Company, Mr. Colicchio was an Operating Partner with Arsenal Capital Partners from July 2014 to September 2017. From June 2011 to June 2014, Mr. Colicchio served as special advisor to the Chief Financial Officer of Bunge Corporation, where he led the build of a Sao Paulo Shared Services Center for their South American business. Mr. Colicchio also served as a Finance Director for Celanese Corporation from May 2004 to May 2011, including a four year stint as Managing Director of Celanese Hungary, Kft., and Vice President — Finance for Degussa Corporation from September 1996 to April 2004. Mr. Colicchio, a Certified Public Accountant since 1986, was employed as a Senior Manager with KPMG LLP from May 1986 to January 1995. Mr. Colicchio brings significant expertise in accounting and taxation with a specialization in the design, build, and operation of global Shared Service Centers of Excellence, Controllership, Tax, and SEC reporting departments.
Rick Roetken has served as President, North America since August 2018. Prior to joining the Company, Mr. Roetken worked as an independent consultant from 2015 to 2018, with a focus on M&A, commercial strategies and operational efficiency for building products. Prior to that, Mr. Roetken served as President of multiple divisions of Masco Corporation (“Masco”), including Masco Cabinetry and Liberty Hardware, from 2010 to 2015. Mr. Roetken also served as Vice President of Marketing for Masco’s Delta Faucet business from 2007 and 2010. Prior to joining Masco, he was employed with United Technologies for 19 years serving in various operations and marketing roles. Mr. Roetken brings expertise in general management, business strategy, commercial markets, and manufacturing systems, as well as significant experience as a senior executive of major complex global companies.
Fernando Blasco has served as Vice President, General Manager, Europe & Rest of World since May 2019 and as General Manager for Hayward Australia since January 2020. From April 2012 to May 2019, Mr. Blasco was Chief Executive Officer of Adequa, Piping Systems Business of Uralita Group. Also within Uralita Group, Mr. Blasco held positions such as Managing Director of the Injection Business Unit from 2010 to 2012 and Corporate Sales Development Manager from 2008 to 2010. Prior to that, he was at GE
Consumer & Industrial from 2004 to 2008, assuming the role of EMEA Prescription Manager. Mr. Blasco brings expertise in international market development, B2B go to market strategies, and manufacturing processes, as well as significant experience as a senior manager of major industrial companies.
Mark McFadden became a director in June 2017. Mr. McFadden is a Managing Director of CCMP and a member of the Firm’s Investment Committee. Mr. McFadden joined CCMP in 2002 and was named Managing Director in 2014 and a member of the Firm's Investment Committee in 2019. While at CCMP, Mr. McFadden has focused on investments in the industrial sector, including prior CCMP investments in Generac Power Systems, Milacron, and Eco Services. Prior to joining CCMP, Mr. McFadden worked in investment banking at CSFB and Bowles Hollowell Conner. Mr. McFadden serves on the board of directors of Hayward, PQ Corporation and BGIS. Mr. McFadden holds a B.B.A. and a B.A. from the College of William and Mary. Mr. McFadden brings expertise in corporate finance and strategic development, as well as significant experience as a board member of global industrial businesses.
Timothy Walsh became a director in June 2017. Mr. Walsh is President and CEO of CCMP and a member of the Firm’s Investment Committee. Mr. Walsh focuses on making investments in the industrial sector and has been responsible for CCMP’s investments in the chemicals, basic manufacturing, consumer products and packaging sectors. Mr. Walsh joined CCMP in 1992 and was named Partner and head of its industrial practice in 1999. Mr. Walsh became COO in 2015 and President and CEO in 2016. Prior to joining CCMP in 1992, Mr. Walsh worked on various industry-focused client teams within The Chase Manhattan Corporation. He serves on the board of directors of Hayward and PQ Corporation. Mr. Walsh holds a B.S. from Trinity College and an M.B.A. from the University of Chicago. Mr. Walsh brings expertise in corporate finance and strategic development, as well as significant experience as a board member of global industrial businesses.
Greg Brenneman became a director in June 2017. Mr. Brenneman is Executive Chairman of CCMP and a member of the Firm’s Investment Committee. Mr. Brenneman plays an active leadership role in executing the Firm’s overall strategy while remaining actively engaged in completing transactions, developing strategies and coaching the senior management of CCMP’s portfolio companies. Prior to joining CCMP in October 2008, Mr. Brenneman served as Chairman, CEO, President and/or COO of Quiznos Sub, Burger King, PwC Consulting and Continental Airlines. In 1994 Mr. Brenneman founded Turnworks, Inc. (“Turnworks”), his personal investment firm that focuses on corporate turnarounds. Prior to founding Turnworks, Mr. Brenneman was a Vice President for Bain & Company. Mr. Brenneman currently serves on the board of directors of Eating Recovery Center, Hayward, PQ Corporation, BGIS, Baker Hughes, Baylor College of Medicine and The Home Depot, Inc. Mr. Brenneman holds a B.B.A. in Accounting/Finance, summa cum laude, from Washburn University of Topeka, Kansas and an M.B.A. with distinction from Harvard Business School. He was awarded an honorary Doctor of Commerce degree from Washburn University. Mr. Brenneman brings expertise in leadership and strategic matters, as well as significant experience as a senior executive and board member of complex global businesses.
Kevin Brown became a director in June 2017. Mr. Brown is Co-Head of MSD Partners’ Private Capital Group. Mr. Brown joined MSD in 2016 and currently serves on the boards of directors for Endries International, Hayward Industries and Ring Container Technologies. Prior to joining MSD, Mr. Brown was a Partner with Court Square Capital where he worked primarily in the Industrials sector for ten years. Prior to Court Square, Mr. Brown was a Vice President with Apax Partners focusing on investments in the Media, Late-Stage Software, and Tech-Enabled Business Services sectors. He has served on numerous Boards of Directors, including ERICO Global, MacDermid, Pike Corporation and Wyle. Mr. Brown received his B.S. from the McIntire School of Commerce at The University of Virginia and his M.B.A. from the Wharton School of the University of Pennsylvania where he graduated as a Palmer Scholar. Mr. Brown brings expertise in finance and capital markets, strategic matters, as well as significant experience as a board member of complex global businesses.
Jason Peters became a director in June 2017. Mr. Peters is Director, Private Equity, for AIMCo since January 2011. Currently, Mr. Peters is responsible for direct private equity efforts in the technology and consumer products sectors. Prior to his tenure at AIMCo, Mr. Peters has worked for 10 years at various firms either in an investment banking or private equity capacity, including Bank of America as a Vice President in the Mergers and Acquisitions group, and with JPMorgan where he worked in the Middle Market and the Consumer Products Investment Banking groups. Mr. Peters also worked with EG Capital Group,
a private equity firm based in New York where he focused on investments in the consumer products space. Mr. Peters currently serves on the board of directors of Vue International Bidco plc (since 2017). Mr. Peters brings expertise in private equity investing, asset management and strategic matters, corporate finance, mergers and acquisitions, and capital markets.
Larry Silber became a director in November 2019. Mr. Silber has served President and Chief Executive of Herc Rentals Inc. (“Herc Rentals”) since May 2015. Prior to joining Herc Rentals, Mr. Silber served as an executive advisor at Court Square Capital Partners, LLP, a private equity firm primarily investing in the business services, healthcare, general industrial and technology and telecommunications sectors, from April 2014 to May 2015. Mr. Silber also served as Chief Operating Officer for Hayward Industries from 2008 to 2012, during which time he oversaw a successful transition through the recession and return to solid profitability. From 1978 to 2008, Mr. Silber worked for Ingersoll-Rand plc (“Ingersoll”), a publicly traded manufacturer of industrial products and components, in a number of roles of increasing responsibility. Mr. Silber previously served on the board of directors of SMTC Corporation from 2012 to 2015. Mr. Silber brings expertise in executive management, strategy formation and leadership skills, gained as the Chief Operating Officer of Hayward Industries as well as in his current role as President and Chief Executive Officer of Herc Rentals. Mr. Silber also has extensive knowledge and experience in manufacturing, sales and marketing, and specific industry experience in our business, including our operations, business development matters and financial performance. Further, his experience as a director of another public company provides him with a broad understanding of the responsibilities of public company boards and issues applicable to public companies.
Arthur Soucy became a director in December 2017. Mr. Soucy is a retired executive with broad international experience running complex operations and large P&L’s in both the Oil & Gas and Aviation industries. Mr. Soucy has over 30 years of business leadership experience in multi-national environments holding executive positions with P&L responsibilities spanning some 80 countries. Mr. Soucy retired as President, Products & Technology for Baker Hughes, an Oil & Gas Services company, in July 2017. In that role he was responsible for the company’s multi-billion-dollar chemical business as well as enterprise New Product & Technology development. He also was responsible for the company’s global marketing and supply chain functions. Prior to that, Mr. Soucy was headquartered in London, UK for nearly four years where he served as President of Europe, Africa, Russia, Caspian, and had P&L responsibilities for the Region. Prior to joining Baer Hughes, Mr. Soucy spent 29 year at Pratt & Whitney, where held a variety of executive level P&L, technology and supply chain positions.
Ali Afraz became a director in February 2018. Mr. Afraz is a Director within the Private Equity team of Mubadala Capital, the financial investment arm of Mubadala Investment Company, a sovereign wealth fund wholly owned by the Abu Dhabi Government with an AUM in excess of $230.0 billion. Mr. Afraz joined Mubadala over 11 years ago in 2009. Prior to joining Mubadala, Mr. Afraz spent over 6 years within the investment banking division of Citigroup and Barclays Capital in their New York and Toronto offices. Mr. Afraz specialized in cross-border M&A and worked on a number of marquee transactions with a combined enterprise value in excess of $25.0 billion. Mr. Afraz has served as a director for Fermaca de Mexico since 2015, is an observer on the board of REEF Technology and was previously an IC member with Mubadala Infrastructure Partners from 2017 to 2019. Mr. Afraz brings expertise in private equity investing, asset management, corporate finance, mergers and acquisitions, and capital markets.
Stephen Felice became a director in May 2018. Mr. Felice has been Chairman and Chief Executive Officer of Felice Partners, LLC (advisory and private investment) since January 2017. Prior to that, Mr. Felice was President and Chief Executive Officer of Filtration Group Corporation (“FGC”), a global industrial manufacturer, from January 2014 through January 2017. Prior to joining FGC, Mr. Felice was President and Chief Commercial Officer of Dell, Inc (“Dell”) from December 2011 through December 2013 after previously serving in a variety of executive roles at Dell from February 1999 through November 2011. Prior to joining Dell, Mr. Felice was President and Chief Executive Officer of DecisionOne Corporation, a provider of computer technology services (“DOC”) from 1997 through 1999 after previously serving as President of DOC from 1995 through 1997. Prior to joining DOC, Mr. Felice worked at Bell Atlantic Corp in various roles from 1984 through 1995 and Shell Oil Corp from 1979 through 1984. Mr. Felice has served on the board of directors of Southwire Corporation since 2015 (currently Chairman of Human Resources Committee) and the Mark Felice Foundation since 2003. Mr. Felice was also Vice Chairman at St. Michael’s
Catholic Academy from 2010 to 2014, and served on the Board of Trustees for The Franklin Institute from 2013 to 2015 and the Singapore Economic Development Board 2010 to 2012. Mr. Felice brings significant expertise in managing large global enterprises, information technology and industrial manufacturing verticals, strategic planning, global sales, and manufacturing.
Christopher Bertrand became a director in October 2020. Mr. Bertrand is Managing Director in MSD Partners’ Private Capital Group. Mr. Bertrand joined MSD in 2019 and currently sits on the Board of Hayward Industries. Prior to joining MSD Partners, Mr. Bertrand was a Principal at Court Square Capital Partners. Previously, Mr. Bertrand was with Kohlberg, Kravis, & Roberts (KKR), where he focused on private equity investments, and Goldman, Sachs & Co. He received an M.B.A. with Distinction from Harvard Business School and a B.A. from Dartmouth College. He has served on numerous Boards of Directors. Mr. Bertrand brings expertise in finance and capital markets, strategic matters, as well as significant experience as a board member of several companies.
Christopher Stevenson became a director in October 2020. Mr. Stevenson is a Principal in the New York office of CCMP Capital. Prior to joining CCMP in 2020, Mr. Stevenson was a Vice President at Fenway Partners from September 2011 to March 2020. Mr. Stevenson serves on the board of directors of Hayward. Mr. Stevenson holds a B.S. in Accounting and Business Administration from Washington and Lee University. Mr. Stevenson brings expertise in corporate finance and strategic development, as well as significant experience in the industrial sector.
Lori Walker will serve on our Board of Directors immediately upon the effectiveness of the registration statement of which this prospectus forms a part. Ms. Walker served as Chief Financial Officer and Senior Vice President of The Valspar Corporation, a global coatings manufacturer, from 2008 to 2013, where she led the Finance, IT and Communications teams. Before this position, Ms. Walker served as Valspar’s Vice President, Controller and Treasurer from 2004 to 2008 and as Vice President and Controller from 2001 to 2004. Prior to joining Valspar, Ms. Walker worked at Honeywell, Inc., a global conglomerate of commercial and consumer products, for 20 years in progressively increasing roles of responsibility, including as Director of Global Financial Risk Management. Ms. Walker currently serves on the board of directors of Southwire Company, LLC, a private industrial manufacturer of wire and cable, Constellium N.V., a publicly traded aluminum fabricator for the automotive, aerospace and packaging industries, and Compass Minerals International, Inc., a producer of salt for highway deicing, commercial and industrial markets. Ms. Walker brings extensive financial leadership experience in global, publicly traded companies, knowledge of financial controls and systems and risk management and understanding of IT infrastructure.
Diane Dayhoff will serve on our Board of Directors immediately upon the effectiveness of the registration statement of which this prospectus forms a part. Ms. Dayhoff served as Vice President Investor Relations at The Home Depot, Inc., from May 2003 to April 2018. Prior to joining The Home Depot, Ms. Dayhoff worked at Continential Airlines for 14 years in progressively increasing roles of responsibility, including as Staff Vice President of Finance. Ms. Dayhoff brings expertise in communication and investor relations, as well as signficiant experience in financial planning.
Controlled Company Exemption
After the completion of this offering, we will be a “controlled company” within the meaning of the New York Stock Exchange’s corporate governance standards. Under these corporate governance standards, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or other company is a “controlled company” and may elect not to comply with certain corporate governance standards, including the requirements (1) that a majority of our Board of Directors consist of independent directors, (2) that our Board of Directors have a compensation committee that consists entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities, and (3) that our director nominations be made, or recommended to our full Board of Directors, by our independent directors or by a nominations committee that consists entirely of independent directors and that we adopt a written charter or board resolution addressing the nominations process. Accordingly, you will not have the same protections afforded to stockholders of companies that are subject to these corporate governance requirements. In the event that we cease to be a “controlled company” and our shares continue to be listed on the New York Stock Exchange, we will be required to comply with these provisions within the applicable transition periods.
Board Structure and Committee Composition
Upon consummation of this offering, our second restated certificate of incorporation will provide that our Board of Directors shall consist of at least three but not more than fifteen directors and that the number of directors may be fixed from time to time by resolution of our Board of Directors. Our Board of Directors will initially consist of thirteen members. Our second restated certificate of incorporation will provide that our Board of Directors will be divided into three classes of directors, as nearly equal in number as possible. The initial division of the three classes is as follows:
•
Class I, which will initially consist of Christopher Bertrand, Ali Afraz, Greg Brenneman and Jason Peters, whose terms will expire at our annual meeting of stockholders to be held in 2022;
•
Class II, which will initially consist of Kevin Brown, Timothy Walsh, Mark McFadden and Arthur Soucy, whose terms will expire at our annual meeting of stockholders to be held in 2023; and
•
Class III, which will initially consist of Kevin Holleran, Lori Walker, Diane Dayhoff, Stephen Felice and Larry Silber, whose terms will expire at our annual meeting of stockholders to be held in 2024.
Upon the expiration of the initial term of office for each class of directors, each director in such class shall be elected for a term of three years and serve until a successor is duly elected and qualified and until his or her earlier death, resignation or removal.
In addition, upon consummation of this offering, we will have an audit committee, a compensation committee and a nominating and corporate governance committee with the composition and responsibilities described below. Each committee will operate under a charter that will be approved by our Board of Directors. The composition of each committee will be effective upon the consummation of this offering. The members of each committee are appointed by the Board of Directors and serve until their successor is elected and qualified, unless they are earlier removed or resign. In addition, from time to time, special committees may be established under the direction of the Board of Directors when necessary to address specific issues.
Because we will be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Market, we will not have a majority of independent directors and our compensation committee and nominating and corporate governance committee will not be composed entirely of independent directors as defined under such standards. The controlled company exception does not modify the independence requirements for the audit committee and we intend to comply with the audit committee requirements of the Sarbanes-Oxley Act and the corporate governance standards of the New York Stock Market. Pursuant to such requirements, the audit committee must be composed of at least three members, one of whom must be independent at the time of this offering, a majority of whom must be independent within 90 days of the date of this prospectus, and all of whom must be independent within one year of the date of this prospectus.
Audit Committee
The purpose of the audit committee will be set forth in the audit committee charter. The audit committee’s primary duties and responsibilities will be to:
•
appoint or replace, compensate and oversee the outside auditors, who will report directly to the audit committee, for the purpose of preparing or issuing an audit report or related work or performing other audit, review or attest services for us;
•
pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our outside auditors, subject to de minimis exceptions that are approved by the audit committee prior to the completion of the audit;
•
review and discuss with management and the outside auditors the annual audited and quarterly unaudited financial statements, our disclosures under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the selection, application and disclosure of critical accounting policies and practices used in such financial statements; and
•
discuss with management and the outside auditors any significant financial reporting issues and judgments made in connection with the preparation of our financial statements, including any significant changes in our selection or application of accounting principles, any major issues as to the adequacy of our internal controls and any special steps adopted in light of material control deficiencies.
Upon completion of this offering, the audit committee will consist of Lori Walker, Diane Dayhoff and Christopher Bertrand, with Lori Walker serving as the chairperson of the committee. Our Board of Directors has determined that all members of our audit committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and the New York Stock Exchange. Our Board of Directors has determined that Lori Walker and Diane Dayhoff each meet the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the governance and listing standards of the New York Stock Exchange. We intend to comply with the audit committee requirements of the Sarbanes-Oxley Act and the governance and listing standards of the New York Stock Exchange. Pursuant to such requirements, the audit committee must be composed of at least three members, a majority of whom must be independent within 90 days of the date of this prospectus, and all of whom must be independent within one year of the date of this prospectus. Our Board of Directors has determined that each of Lori Walker, Diane Dayhoff and Christopher Bertrand is an “audit committee financial expert” within the meaning of the SEC regulations. Prior to the consummation of this offering, our Board of Directors will adopt a written charter under which the audit committee will operate. A copy of the charter, which will satisfy the applicable standards of the SEC and the New York Stock Exchange, will be available on our website.
Compensation Committee
The purpose of the compensation committee is to assist the Board of Directors in fulfilling its responsibilities relating to oversight of the compensation of our directors, executive officers and other employees and the administration of our benefits and equity-based compensation programs. The compensation committee reviews and recommends to our Board of Directors compensation plans, policies and programs and approves specific compensation levels for all executive officers. Upon completion of this offering, the compensation committee will consist of Mark McFadden, Larry Silber and Kevin Brown, with Mark McFadden serving as the chairperson of the committee. Prior to the consummation of this offering, our Board of Directors will adopt a written charter under which the compensation committee will operate. A copy of the charter, which will satisfy the applicable standards of the SEC and the New York Stock Exchange, will be available on our website.
Nominating and Corporate Governance Committee
The purpose of the nominating and corporate governance committee is to identify individuals qualified to become members of the Board of Directors, recommend to the Board of Directors director nominees for the next annual meeting of shareholders, develop and recommend to the Board of Directors a set of corporate governance principles applicable to the company, oversee the evaluation of the Board of Directors and its dealings with management as well as appropriate committees of the Board of Directors and review and approve all related party transactions. Upon completion of this offering, the nominating and corporate governance committee will consist of Timothy Walsh, Stephen Felice and Arthur Soucy, with Timothy Walsh serving as the chairperson of the committee. Prior to the consummation of this offering, our Board of Directors will adopt a written charter under which the nominating and corporate governance committee will operate. A copy of the charter, which will satisfy the applicable standards of the SEC and the New York Stock Exchange, will be available on our website.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves as a member of the Board of Directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of
its executive officers serving as a member of our Board of Directors or compensation committee. Upon the completion of this offering, our compensation committee will consist of Mark McFadden, Larry Silber and Kevin Brown.
Code of Ethics
We have adopted a Code of Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer and principal accounting officer or controller, or persons performing similar functions. Following this offering, a current copy of the code will be available on our website.
EXECUTIVE COMPENSATION
The following discussion and analysis of compensation arrangements should be read with the compensation tables and related disclosures set forth below. This discussion contains forward looking statements that are based on our current plans and expectations regarding future compensation programs. The actual compensation programs that we adopt may differ materially from the programs summarized in this discussion.
Introduction
This section provides an overview of the compensation awarded to, earned by or paid to our principal executive officer and our next two most highly compensated executive officers for Fiscal Year 2020. We also include disclosure with respect to one of our former executive officers, as required by SEC rules. We refer to these individuals as our named executive officers. Our named executive officers are:
•
Kevin Holleran, President, Chief Executive Officer and Director;
•
Eifion Jones, Senior Vice President and Chief Financial Officer;
•
Rick Roetken, President, North America; and
•
Anthony Colucci, Former Senior Vice President and Chief Financial Officer.
Prior to this offering, our Board of Directors was responsible for determining the compensation of our executive officers and following this offering, the compensation committee of our Board of Directors will be responsible for making such determinations. Our Chief Executive Officer made recommendations to our Board of Directors about the compensation of his direct reports, including Messrs. Jones, Roetken, and Colucci, in respect of Fiscal Year 2020, and is expected to make such recommendations to the compensation committee following this offering.
Summary Compensation Table
The following table sets forth the compensation awarded to, earned by or paid to our named executive officers in respect of their service to us for Fiscal Year 2020:
|
Name and principal position
|
|
|
Year
|
|
|
Salary
($)(1)
|
|
|
Option
awards
($)(2)
|
|
|
Nonequity
incentive plan
compensation
($)(3)
|
|
|
All other
compensation
($)(4)
|
|
|
Total
($)
|
|
|
Kevin Holleran
|
|
|
|
|
2020
|
|
|
|
|
|
710,000
|
|
|
|
|
|
—
|
|
|
|
|
|
1,233,270
|
|
|
|
|
|
129,645
|
|
|
|
|
|
2,072,915
|
|
|
|
President, Chief Executive Officer and
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eifion Jones
|
|
|
|
|
2020
|
|
|
|
|
|
311,538
|
|
|
|
|
|
1,044,195
|
|
|
|
|
|
455,000
|
|
|
|
|
|
43,036
|
|
|
|
|
|
1,853,769
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rick Roetken
|
|
|
|
|
2020
|
|
|
|
|
|
444,000
|
|
|
|
|
|
—
|
|
|
|
|
|
550,000
|
|
|
|
|
|
79,582
|
|
|
|
|
|
1,073,582
|
|
|
|
President, North America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthony Colucci
|
|
|
|
|
2020
|
|
|
|
|
|
130,952
|
|
|
|
|
|
—
|
|
|
|
|
|
100,000
|
|
|
|
|
|
1,040,743
|
|
|
|
|
|
1,271,695
|
|
|
|
Former Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The amounts shown for Messrs. Holleran, Jones, Roetken and Colucci include contributions made by them to the Hayward Industries, Inc. Retirement Plan, described below under "Employee and Retirement Benefits."
(2)
The amounts shown in this column represents the grant date fair value of options to purchase our common stock granted to Mr. Jones in Fiscal Year 2020 computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used to value the options for this purpose are set forth in Note 16 to our consolidated financial statements included elsewhere in this prospectus. No amount is included in this column with respect to the portion of the option
granted to Mr. Jones in Fiscal Year 2020 that is subject to performance-based vesting conditions because the achievement of such conditions was not deemed probable at the time of grant. Assuming satisfaction of the underlying performance conditions associated with this portion of the option, the grant date fair value of such portion of the option is $812,100.
(3)
The amounts shown in this column are annual bonus amounts payable in respect of Fiscal Year 2020. Our annual bonus program is described below under “Annual Bonuses.”
(4)
The amounts shown in the “All Other Compensation” column reflect the following items, as applicable to each named executive officer for the Fiscal Year 2020:
|
Name
|
|
|
Company
401(k)
matching
contributions
($)(a)
|
|
|
Company
cars
($)(b)
|
|
|
Supplemental
medical plan
($)(c)
|
|
|
Nonqualified
deferred
compensation
plan
($)(d)
|
|
|
Severance
($)(e)
|
|
|
Total
($)
|
|
|
Kevin Holleran
|
|
|
|
|
16,783
|
|
|
|
|
|
13,011
|
|
|
|
|
|
11,652
|
|
|
|
|
|
88,199
|
|
|
|
|
|
—
|
|
|
|
|
|
129,645
|
|
|
|
Eifion Jones
|
|
|
|
|
8,307
|
|
|
|
|
|
9,308
|
|
|
|
|
|
7,768
|
|
|
|
|
|
17,653
|
|
|
|
|
|
—
|
|
|
|
|
|
43,036
|
|
|
|
Rick Roetken
|
|
|
|
|
17,100
|
|
|
|
|
|
12,411
|
|
|
|
|
|
10,112
|
|
|
|
|
|
39,959
|
|
|
|
|
|
—
|
|
|
|
|
|
79,582
|
|
|
|
Anthony Colucci
|
|
|
|
|
7,479
|
|
|
|
|
|
3,102
|
|
|
|
|
|
3,884
|
|
|
|
|
|
12,240
|
|
|
|
|
|
1,014,038
|
|
|
|
|
|
1,040,743
|
|
|
(a)
The amounts shown for Messrs. Holleran, Jones, Roetken and Colucci reflect Company matching contributions to the Hayward Industries, Inc. Retirement Plan, described below under “Employee and Retirement Benefits.”
(b)
The amounts shown reflect car lease payments and car expense reimbursements we provide to each of the named executive officers.
(c)
The amounts shown reflect premiums for a supplemental executive medical plan that we make available to certain of our senior employees, including our named executive officers.
(d)
The amounts shown reflect Company matching contributions to the Hayward Industries, Inc. Supplementary Retirement Plan, described below under “Employee and Retirement Benefits.”
(e)
The amount shown reflects the severance amounts Mr. Colucci received pursuant to the release agreement we entered into with him in connection with his termination of employment. The release agreement is described below under “Severance upon Termination of Employment; Change of Control.”
Narrative Disclosure to Summary Compensation Table
Annual Base Salary
The initial annual base salary for each named executive officer was determined at the time that the named executive officer commenced employment with us. During 2020, Mr. Holleran’s annual base salary was increased to $710,000 and Mr. Roetken’s annual base salary was increased to $435,000 and then to $444,000. In 2021, Mr. Holleran’s annual base salary was increased to $775,000, Mr. Jones’s annual base salary was increased to $464,000 and Mr. Roetken’s annual base salary was increased to $456,000.
Annual Bonuses
With respect to Fiscal Year 2020, each of Messrs. Holleran, Jones, Roetken and Colucci was eligible to receive an annual bonus, pro-rated for Mr. Colucci for the period he was employed by us in Fiscal Year 2020. For Fiscal Year 2020, the target bonus amounts, expressed as a percentage of annual base salary, for each of Messrs. Holleran, Jones, Roetken and Colucci were as follows: 100%, 75%, 70% and 70%, respectively, and the annual bonus payouts, determined based on the achievement of EBITDA-related goals, were $1,233,270, $455,000, $550,000 and $100,000, respectively.
Agreements with our Named Executive Officers
Messrs. Holleran, Jones and Roetken are each party to an amended and restated employment agreement with us that sets forth the terms and conditions of his respective employment. The material
terms of the agreements are described below. The terms “cause,” “good reason” and “change of control” referred to below are defined in the respective named executive officer’s amended and restated agreement.
Mr. Holleran. We entered into an amended and restated employment agreement with Mr. Holleran on March 2, 2021 that provides for an annual base salary of $775,000 per year, and a target annual bonus equal to 100% of his annual base salary, as of the beginning of the applicable plan year, with the actual amount of the bonus payable based upon the achievement of performance criteria as determined by our Board of Directors or our compensation committee. Mr. Holleran’s employment agreement also provides that, for so long as Mr. Holleran serves as our Chief Executive Officer, we will nominate him to serve as a member of our Board of Directors, and, if so elected, he will continue to serve as a member of our Board of Directors. Under Mr. Holleran’s employment agreement he is also entitled to certain personal benefits, including a car and reimbursement of related operating expenses through the expiration of the current car lease, and payment or reimbursement for dues for a specified organization and costs incurred in attending the organization’s meetings. In addition, Mr. Holleran’s employment agreement provides for relocation benefits of reasonable temporary housing, reimbursement for travel to and from Mr. Holleran’s home to our principal executive offices, relocation costs up to $200,000, and a gross-up for taxes incurred in respect of the relocation benefits, until the earlier of September 30, 2023 and the date Mr. Holleran relocates his primary residence to our principal executive offices.
Under his amended and restated employment agreement, Mr. Holleran has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment. In addition, Mr. Holleran has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a perpetual mutual non-disparagement covenant.
Mr. Jones. We entered into an amended and restated employment agreement with Mr. Jones on March 2, 2021 that provides for an annual base salary of $464,000 per year, and a target annual bonus equal to 75% of his annual base salary, with the actual amount of the bonus payable based upon the achievement of performance criteria as determined by our Board of Directors or our compensation committee. In addition, Mr. Jones’s employment agreement provides for relocation benefits of temporary housing of $3,500 per month, reimbursement for travel to and from Mr. Jones’s home to our principal executive offices, reimbursement for relocation costs up to $175,000, and a gross-up for taxes incurred in respect of the relocation benefits, until the earlier of December 31, 2021 and the date Mr. Jones relocates his primary residence to our principal executive offices. Under Mr. Jones’s employment agreement he is also entitled to certain personal benefits generally provided to other senior executives (other than the chief executive officer), including a car and reimbursement of related operating expenses through the expiration of the current car lease.
Under his amended and restated employment agreement, Mr. Jones has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment. Mr. Jones is also party to Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreements he entered into in connection with the grant to him of options to purchase our common stock under which he has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment. Mr. Jones has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a non-disparagement covenant.
Mr. Roetken. We entered into an amended and restated employment agreement with Mr. Roetken on March 2, 2021 that provides for an annual base salary of $456,000 per year and a target annual bonus equal to 70% of his annual base salary, with the actual amount of the bonus payable based upon the achievement of performance criteria as determined by our Board of Directors or our compensation committee. Under Mr. Roetken’s employment agreement he is also entitled to certain personal benefits generally provided to other senior executives (other than the chief executive officer), including a car and reimbursement of related operating expenses through the expiration of the current car lease.
Under his amended and restated employment agreement, Mr. Roetken has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment. In addition, Mr. Roetken has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a mutual non-disparagement covenant. Mr. Roetken is also party to a Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement he entered into in connection with the grant to him of options to purchase our common stock under which he has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment, and Mr. Roetken has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a mutual non-disparagement covenant during his employment and for two years following his termination of employment.
Mr. Colucci. Prior to his termination of employment, we had been party to an employment agreement with Mr. Colucci. Under his employment agreement, Mr. Colucci has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment. In addition, Mr. Colucci has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a mutual non-disparagement covenant during his employment and for two years following his termination of employment. Mr. Colucci is also party to a Non-Competition, Non-Solicitation, Confidentiality and Assignment Agreement he entered into in connection with the grant to him of options to purchase our common stock under which he has agreed not to compete with us during his employment and for one year following his termination of employment or solicit our officers, employees, customers or vendors during his employment and for two years following his termination of employment, and Mr. Colucci has agreed to a perpetual confidentiality covenant, an assignment of intellectual property covenant and a mutual non-disparagement covenant during his employment and for two years following his termination of employment.
On April 16, 2020, Mr. Colucci’s employment was terminated, as described below.
Severance upon Termination of Employment; Change of Control.
Employment Agreements. Each of Mr. Holleran, Mr. Jones and Mr. Roetken is entitled to severance payments and benefits in connection with certain qualifying terminations of employment under their respective amended and restated employment agreements. If Mr. Holleran, Mr. Jones or Mr. Roetken’s employment is terminated by us without cause or by him for good reason, he will be entitled to receive (i) any earned, but unpaid, base salary and any earned and payable, but unpaid, annual bonus, (ii) a pro-rata portion of his annual bonus for the year in which his termination occurs, to the extent earned, (iii) an amount equal to the sum of his annual base salary and target bonus paid in twelve monthly equal installments (two times the sum of his annual base salary and target bonus paid in twenty-four monthly equal installments in the case of Mr. Holleran), (iv) either a payment equal to the cost of any personal benefits, welfare benefits and retirement plan contributions he would have been eligible to receive in the 12 months following the date of termination or the provision, for 12 months following the date of termination, of such benefits (the “Welfare Benefits”), (v) payment of a portion of his COBRA premiums for 12 months following his termination (or, if earlier, until the date on which the executive receives equivalent health care benefit coverage under a subsequent employer’s plans) at the rate we pay for active employees for the executive and his dependents, subject to his eligibility for, and timely election of, COBRA coverage and his continued payment of the portion of the cost required to be paid by him (the “COBRA Benefit”), and (vi) outplacement counseling services for six (6) months following termination. If the executive’s employment is terminated as a result of his death, his estate or other legal representative will be entitled to receive (i) any earned, but unpaid, base salary and any earned and payable, but unpaid, annual bonus and (ii) a pro-rata portion of his annual bonus for the year in which his termination occurs, to the extent earned. If the executive’s employment is terminated as a result of his disability, he will be entitled to receive (i) any earned, but unpaid, base salary and any earned and payable, but unpaid, annual bonus, (ii) a pro-rata portion of his annual bonus for the year in which his termination occurs, to the extent earned, (iii) the Welfare Benefits, and (iv) the COBRA Benefit. Our obligation to provide Mr. Holleran, Mr. Jones or Mr. Roetken with severance payments and other benefits under his respective employment agreement, other than any earned and
payable, but unpaid, annual bonus or severance benefits as a result of his death, is conditioned on his signing a release of claims in favor of us.
Equity Awards. If Mr. Holleran’s employment is terminated as a result of his death or disability, in addition to the severance benefits described above, his then-unvested Class A restricted stock will vest in full. If Mr. Holleran’s employment is terminated by us without cause or by him for good reason, his then-unvested Class A restricted stock will remain outstanding and eligible to vest for six months, and if Mr. Holleran’s employment is terminated by us without cause or by him for good reason, in either case within 12 months following a transaction that is not an initial public offering or a change of control and certain investors cease to own certain investor shares following the transaction, in addition to the severance benefits described above, Mr. Holleran’s then-unvested Class A restricted stock will vest in full. In the event of an initial public offering or change of control, Mr. Holleran’s then-unvested Class A restricted stock will vest in full, subject to continued employment with us through the applicable event.
In the event of a change of control, Mr. Holleran’s then-unvested time-vesting options with respect to shares of our common stock will vest in full as of the date of the change of control, subject to continued employment with us, and any then-unvested performance-vesting options that do not vest upon the change of control will be canceled. If Mr. Holleran’s employment is terminated as a result of his death or disability, in addition to the severance benefits described above, his then-unvested time-vesting options that would have vested within the following year will immediately vest and any then-unvested performance-vesting options will remain outstanding and eligible to vest for one year. If Mr. Holleran’s employment is terminated by us without cause or by him for good reason, his then-unvested performance-vesting options will remain outstanding and eligible to vest for six months, and if Mr. Holleran’s employment is terminated by us without cause or by him for good reason, in either case within 12 months following a transaction that is not an initial public offering or a change of control and certain investors cease to own certain investor shares following the transaction, in addition to the severance benefits described above, Mr. Holleran’s then-unvested time-vesting options will vest in full.
In the event of a change of control, Mr. Jones’s then-unvested time-vesting options with respect to shares of our common stock will vest in full as of the date of the change of control, subject to continued employment with us, and any then-unvested performance-vesting options that do not vest upon the change of control will be canceled. If Mr. Jones’s employment is terminated as a result of his death or disability, in addition to the severance benefits described above, his then-unvested time-vesting options that would have vested within the following year will immediately vest and any then-unvested performance-vesting options will remain outstanding and eligible to vest for one year.
In the event of a change of control, Mr. Roetken’s then-unvested time-vesting options with respect to shares of our common stock will vest in full of the date of the change of control, subject to continued employment with us, and any then-unvested performance-vesting options that do not vest upon the change of control will be canceled. If Mr. Roetken’s employment is terminated as a result of his death or disability, in addition to the severance benefits described above, his then-unvested time-vesting options that would have vested within the following year will immediately vest and any then-unvested performance-vesting options will remain outstanding and eligible to vest for one year.
Release Agreement with Mr. Colucci. In connection with the termination of Mr. Colucci’s employment, we entered into a release agreement with him under which he is entitled to receive (i) an amount equal to the sum of his annual base salary and target bonus, which will be paid in twelve monthly equal installments, (ii) a pro-rata portion of his annual bonus for the 2020 plan year, (iii) a payment equal to the cost of any personal benefits, welfare benefits and retirement plan contributions he would have been eligible to receive in the 12 months following the date of termination, (iv) a lump-sum payment of the employer portion of his COBRA premiums for 12 months at the rate we pay for active employees for Mr. Colucci and his dependents, and (v) outplacement counseling services for 12 months.
Equity Compensation
Mr. Jones received incentive equity grants in Fiscal Year 2020 under the Second Amended and Restated Hayward Holdings, Inc. 2017 Equity Incentive Plan.
On April 14, 2020, Mr. Jones was granted an option to purchase 292,500 shares of our common stock (after giving effect to the Reclassification), which were fully-vested as of the date of grant and expire 18 months from the date of grant.
On April 14, 2020, Mr. Jones was granted an option to purchase 1,560,000 shares of our common stock (after giving effect to the Reclassification), which vests 50% in five equal installments on each of April 20, 2021, April 20, 2022, April 20, 2023, April 20, 2024 and April 20, 2025 and vests 50% upon the receipt by certain of our investors of investment returns in excess of a specified target prior to an initial public offering, or following an initial public offering, if the average closing trading price of our common stock over a ten-day trading period equals or exceeds a specified price, in each case, generally subject to Mr. Jones’s continued employment with us through the applicable vesting date.
Employee and Retirement Benefits
We currently provide broad-based health and welfare benefits that are available to all of our employees, including our named executive officers, including health, life and AD&D, disability, vision, and dental insurance. We also make available a supplemental executive medical plan to certain of our senior employees, including our named executive officers. In addition, we maintain the Hayward Industries, Inc. Retirement Plan, a 401(k) retirement plan for our full-time employees. We make a non-discretionary safe harbor contribution to the 401(k) plan of 3% of an employee’s compensation and an additional employer contribution match to the 401(k) plan equal to 50% of the first 6% of compensation contributed to the plan. Our named executive officers are eligible to participate in these plans on the same basis as our other full-time employees.
In addition, we maintain the Hayward Industries, Inc. Supplementary Retirement Plan, a nonqualified deferred compensation plan in which participants, including our named executive officers, receive employer contributions equal to a 9% match of cash compensation deferred under the plan.
Outstanding Awards at Fiscal Year End Table
The following table sets forth information concerning outstanding equity awards held by each of our named executive officers as of December 31, 2020 after giving effect to the Reclassification:
|
|
|
|
Option awards
|
|
|
Stock awards
|
|
|
Name
|
|
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
|
|
|
Option
exercise price
($/share)
|
|
|
Option
expiration
date
|
|
|
Equity
incentive
plan
awards:
Number of
unearned
shares, units
or other
rights that
have not
vested
(#)
|
|
|
Equity
incentive
plan
awards:
Market or
payout value
of unearned
shares, units
or other
rights that
have not
vested
($)
|
|
|
Kevin Holleran
|
|
|
|
|
390,000(1)
|
|
|
|
|
|
1,560,000(1)
|
|
|
|
|
|
1,950,000(1)
|
|
|
|
|
|
1.40
|
|
|
|
|
|
12/24/29
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
223,322(5)
|
|
|
|
|
|
1,534,537(6)
|
|
|
|
Eifion Jones
|
|
|
|
|
292,500(2)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.40
|
|
|
|
|
|
10/14/21
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
780,000(3)
|
|
|
|
|
|
780,000(3)
|
|
|
|
|
|
1.40
|
|
|
|
|
|
04/14/30
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Rick Roetken
|
|
|
|
|
234,000(4)
|
|
|
|
|
|
351,000(4)
|
|
|
|
|
|
585,000(4)
|
|
|
|
|
|
0.51
|
|
|
|
|
|
08/27/28
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Anthony Colucci
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(1)
Represents an option to purchase 3,900,000 shares of our common stock granted on December 24, 2019, which vests as to 50% of the underlying shares in five equal installments on each of August 12, 2020, August 12, 2021, August 12, 2022, August 12, 2023 and August 12, 2024 and vests as to the remaining 50% of the underlying shares upon the receipt by certain of our investors of investment
returns in excess of a specified target prior to an initial public offering, or following an initial public offering, if the average closing trading price of our common stock over a ten-day trading period equals or exceeds a specified price, in each case generally subject to Mr. Holleran’s continued employment with us through the applicable vesting date.
(2)
Represents an option to purchase 292,500 shares of our common stock granted on April 14, 2020, which was fully-vested as of the date of grant.
(3)
Represents an option to purchase 1,560,000 shares of our common stock granted on April 14, 2020, which vests as to 50% of the underlying shares in five equal installments on each of April 20, 2021, April 20, 2022, April 20, 2023, April 20, 2024 and April 20, 2025 and vests as to the remaining 50% of the underlying shares upon the receipt by certain of our investors of investment returns in excess of a specified target prior to an initial public offering, or following an initial public offering, if the average closing trading price of our common stock over a ten-day trading period equals or exceeds a specified price, in each case generally subject to Mr. Jones’s continued employment with us through the applicable vesting date.
(4)
Represents an option to purchase 1,170,000 shares of our common stock granted on August 27, 2018, which vests as to 50% of the underlying shares in five equal installments on each of August 27, 2019, August 27, 2020, August 27, 2021, August 27, 2022 and August 27, 2023 and vests as to the remaining 50% of the underlying shares upon the receipt by certain of our investors of investment returns in excess of a specified target prior to an initial public offering, or following an initial public offering, if the average closing trading price of our common stock over a ten-day trading period equals or exceeds a specified price, in each case generally subject to Mr. Roetken’s continued employment with us through the applicable vesting date.
(5)
Represents a restricted stock award of 223,322 shares of our Class A stock granted on December 24, 2019, which vests upon a change of control or an initial public offering, in each case generally subject to Mr. Holleran’s continued employment with us through the applicable vesting date.
(6)
Amount determined based on the value of a share of our Class A stock on December 31, 2020, as determined by our Board of Directors.
Director Compensation
The following table sets forth the compensation awarded to, earned by or paid to our non-employee directors during Fiscal Year 2020. Mr. Holleran’s compensation for 2020 is included with that of our other named executive officers in the Summary Compensation Table above.
|
Name
|
|
|
Fees earned
or paid in cash
($)(2)
|
|
|
Option
awards
($)(3)
|
|
|
Total
($)
|
|
|
Ali Afraz(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Christopher Bertrand(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Greg Brenneman(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Kevin D. Brown(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Stephen Felice
|
|
|
|
|
60,000
|
|
|
|
|
|
—
|
|
|
|
|
|
60,000
|
|
|
|
Douglas Londal(1)(4)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Mark McFadden(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Jason Peters(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Larry Silber
|
|
|
|
|
60,000
|
|
|
|
|
|
—
|
|
|
|
|
|
60,000
|
|
|
|
Arthur Soucy
|
|
|
|
|
60,000
|
|
|
|
|
|
—
|
|
|
|
|
|
60,000
|
|
|
|
Christopher Stevenson(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Timothy Walsh(1)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
(1)
Directors who are affiliated with our Sponsors do not receive compensation in respect of their service as members of our Board of Directors.
(2)
The amounts reported in this column represent cash fees earned in Fiscal Year 2020.
(3)
As of December 31, 2020, Messrs. Felice, Silber (through LHS Global Advisors, LLC) and Soucy held options to purchase 126,750, 156,000 and 126,750 shares of our common stock, respectively after giving effect to the Reclassification.
(4)
Mr. Londal resigned from our Board of Directors effective March 1, 2021.
Director Compensation
Mr. Felice. On July 25, 2018, we entered into a letter agreement with Mr. Felice under which he agreed to serve on our Board of Directors. Pursuant to his letter agreement, Mr. Felice is entitled to receive an annual fee equal to $60,000, payable in equal quarterly installments, and reimbursement for reasonable out-of-pocket expenses incurred in connection with serving as a director. In addition, Mr. Felice was entitled to receive a one-time grant of an option to purchase 126,750 shares of our common stock, vesting 50% subject to time-based vesting criteria and 50% subject to performance-based vesting criteria.
Mr. Silber. On November 22, 2019, we entered into a letter agreement with Mr. Silber under which he agreed to serve on our Board of Directors. Pursuant to his letter agreement, Mr. Silber is entitled to receive an annual fee equal to $60,000, payable in equal quarterly installments, and reimbursement for reasonable out-of-pocket expenses incurred in connection with serving as a director. In addition, Mr. Silber was entitled to receive a one-time grant of an option to purchase 156,000 shares of our common stock, vesting 100% subject to time-based vesting criteria.
Mr. Soucy. In July 2018, we entered into a letter agreement with Mr. Soucy under which he agreed to serve on our Board of Directors. Pursuant to his letter agreement, Mr. Soucy is entitled to receive an annual fee equal to $60,000, payable in equal quarterly installments, and reimbursement for reasonable out-of-pocket expenses incurred in connection with serving as a director. In addition, Mr. Soucy was entitled to receive a one-time grant of an option to purchase 126,750 shares of our common stock, vesting 50% subject to time-based vesting criteria and 50% subject to performance-based vesting criteria.
Director Compensation Policy
In connection with this offering, our Board of Directors intends to adopt a non-employee director compensation policy, which will become effective upon the completion of this offering and will cover non-employee directors who are not affiliated with our Sponsors. The following summary describes what we anticipate to be the material terms of our non-employee director compensation policy:
Each covered non-employee director will receive an annual cash retainer for service to our Board of Directors and an additional annual cash retainer for service on any committee of our Board of Directors or for serving as the chairman of our Board of Directors or any of its committees, in each case, prorated for partial years of service, as follows:
|
|
|
|
Board or
Committee Member
|
|
|
Chairman of the Board or
Committee Chairman
|
|
|
Annual cash retainer
|
|
|
|
$
|
75,000
|
|
|
|
|
$
|
100,000
|
|
|
|
Additional annual cash retainer for compensation committee
|
|
|
|
$
|
5,000
|
|
|
|
|
$
|
10,000
|
|
|
|
Additional annual cash retainer for nominating and corporate governance committee
|
|
|
|
$
|
5,000
|
|
|
|
|
$
|
10,000
|
|
|
|
Additional annual cash retainer for audit committee
|
|
|
|
$
|
5,000
|
|
|
|
|
$
|
20,000
|
|
|
Prior to January 1st of any year, a covered non-employee director may elect to receive his or her annual cash retainer in the form of restricted stock units or deferred stock units, as applicable.
Commencing in 2022, each covered non-employee director will be granted restricted stock units having a grant date fair value, determined in accordance with FASB ASC Topic 718 (or any successor provision), of $125,000 (or $200,000 in the case of the chairman of the our Board of Directors), such restricted stock units to vest on the earlier of the first anniversary of the grant date and the date of the immediately following annual meeting of our stockholders, generally subject to the non-employee director’s
continued service, through the applicable vesting date. Each covered non-employee director will receive a grant of restricted stock units in connection with this offering as described below under “2021 Equity Plan”.
Each non-employee director is also entitled to reimbursement for reasonable travel and other expenses incurred in connection with attending meetings of our Board of Directors and any committee on which he or she serves.
Equity and Cash Plans
2017 Equity Incentive Plan
In November 2019, our Board of Directors adopted and our stockholders approved the Second Amended and Restated Hayward Holdings, Inc. 2017 Equity Incentive Plan, or our 2017 Plan. Our 2017 Plan permits the grant of non-qualified stock options, restricted stock awards, unrestricted stock awards, restricted stock units and any combination of the foregoing. As of March 3, 2021 after giving effect to the Reclassification, options to purchase 14,268,735 shares of our common stock and 2,323,992 shares of restricted common stock were outstanding under our 2017 Plan. It is anticipated that no further awards will be made under our 2017 Plan following the completion of this offering. In connection with this offering, we adopted a new omnibus equity plan under which we will grant equity-based awards in connection with or following this offering. This summary is not a complete description of all provisions of our 2017 Plan and is qualified in its entirety by reference to our 2017 Plan, which is filed as an exhibit to the registration statement of which this prospectus is part.
Plan Administration
The compensation committee of our Board of Directors administers our 2017 Plan. As used in this summary, the term “Committee” refers to our Board of Directors and its authorized delegates, as applicable. The Committee has the power and authority to, among other things, select the individuals to whom awards may from time to time be granted; to determine the time or times of grant and the type of awards granted to any participants; to determine the class and the number of shares of our common stock to be covered by any award and the price, exercise price or other price relating thereto; to determine and modify from time to time the terms and conditions of any award, and to approve the form of written instruments evidencing the awards; to accelerate at any time the exercisability or vesting of all or any portion of any award; to adopt such rules, guidelines and practices for administration of our 2017 Plan as it shall deem necessary or advisable; to interpret the terms and provisions of our 2017 Plan and any award; and to make all determinations it deems advisable for the administration of our 2017 Plan.
Eligibility
Our or any of our subsidiaries’ full- or part-time officers and other employees, directors, consultants, and key persons are eligible to participate in our 2017 Plan. Eligibility for stock options is limited to individuals who are providing direct services to us or a subsidiary on the date of grant of the award.
Types of Awards
Our 2017 Plan provides for the grant of non-qualified stock options, restricted stock awards, unrestricted stock awards, restricted stock units and any combination of the foregoing (for a description of the types of award, see below under “2021 Equity Incentive Plan”). No stock option will be exercisable more than ten years from the date of grant.
Vesting; Terms of Awards
The Committee determines the terms and conditions of all awards granted under our 2017 Plan, including the time or times an award vests or becomes exercisable, the terms on which an award remains exercisable, and the effect of termination of a participant’s employment or service on an award. The Committee may at any time accelerate the exercisability or vesting of all or any portion of an award.
Transferability of Awards
Except as the Committee may otherwise determine, awards may not be transferred other than by will or by the laws of descent and distribution.
Effect of Certain Transactions
In the event of certain covered transactions (including any transaction in which (i) one or more classes of securities issued by us are converted into, or exchanged for, securities in another form issued by us, any of our direct or indirect subsidiaries, a newly formed parent or affiliated persons or (ii) we merge or otherwise combine with one or more of our affiliates with the Company surviving any such merger or combination), outstanding awards will be subject to the agreement or arrangement governing the terms of the covered transaction, which may provide, without limitation, for:
•
The assumption or substitution of awards on substantially equivalent terms by an acquiring or surviving entity (which may include requiring participants to exchange or convert unvested awards for equity securities or other assets or rights that may include, but are not limited to, awards to acquire the same consideration paid to or received by the stockholders or the Company, as the case may be, pursuant to the covered transaction); or
•
A cash-out of awards, based on the value ascribed to the Company’s equity securities in the covered transaction.
Adjustment Provisions
In the event of certain corporate transactions, including a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in our capital stock, or a merger or consolidation, or sale of all or substantially all of the assets of the Company, in which the outstanding shares of stock of the Company are converted into or exchanged for securities of the Company or any successor entity, the Committee will make appropriate adjustments in the maximum number of shares reserved for issuance under our 2017 Plan, the number and kind of shares or other securities subject to any then outstanding awards, the repurchase price, if any, per share subject to each outstanding restricted stock award, and the exercise price for each share subject to any then outstanding stock options, without changing the aggregate exercise price as to which such stock options remain exercisable.
Amendments and Termination
Our Board of Directors may at any time amend or discontinue our 2017 Plan and the Committee may at any time amend or cancel any outstanding award. However, no such action shall adversely affect rights under an outstanding award without the participant’s consent. To the extent determined by the Committee to be required by applicable law, any amendments to our 2017 Plan will be subject to shareholder approval.
2021 Equity Incentive Plan
In connection with this offering, our Board of Directors adopted the Hayward Holdings, Inc. 2021 Equity Incentive Plan, or our 2021 Plan, and, in connection with and following this offering, all equity-based awards will be granted under our 2021 Plan. The following summary describes the material terms of our 2021 Plan. This summary is not a complete description of all provisions of our 2021 Plan and is qualified in its entirety by reference to our 2021 Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
In connection with this offering, our Board of Directors approved the grant of restricted stock units with a value of $125,000 to each of Mr. Silber, Mr. Soucy, Ms. Walker and Ms. Dayhoff and restricted stock units with a value of $200,000 to Mr. Felice. The number of restricted stock units subject to each grant will be determined by dividing $125,000 (or $200,000, in the case of Mr. Felice) by the initial public offering price (rounded down to the nearest whole share). These restricted stock units will vest on the earlier of the first anniversary of the grant date and the date of our first annual meeting of stockholders that follows the initial public offering, generally subject to the director's continued service on our Board of
Directors through the applicable vesting date. In addition, our Board of Directors approved the grant of an option to purchase shares of our common stock with a value of $3,100,000 to Mr. Holleran, $877,500 to Mr. Jones, and $621,600 to Mr. Roetken, and with an aggregate value of approximately $1,624,208 to other employees (other than our named executive officers). The number of shares of our common stock subject to each such option will be determined by (a) dividing the applicable dollar value by the initial public offering price and (b) multiplying the result by 3.33 (rounded down to the nearest whole share). Our Board of Directors also approved the grant of restricted stock units with an aggregate value of approximately $1,115,422 to employees (other than our named executive officers), with the number of restricted stock units subject to each grant determined by dividing the grant date value for the individual employee by the initial public offering price (rounded down to the nearest whole share), and approved the additional grant of up to 50,000 restricted stock units to non-executive employees to be made at the discretion of Mr. Holleran. These options and restricted stock units will generally vest as to one-third of the shares on each of the first three anniversaries of the vesting commencement date, generally subject to the individual's continued employment with us through the applicable vesting date. The options granted in connection with this offering are expected to have a per share exercise price equal to the initial public offering price.
Administration
Our 2021 Plan will be administered by our compensation committee, except with respect to matters that are not delegated to our compensation committee by our Board of Directors. Our compensation committee (or our Board of Directors, as applicable) will have the discretionary authority to interpret our 2021 Plan and any awards granted under it, determine eligibility for and grant awards, determine the exercise price, base value from which appreciation is measured or purchase price, if any, applicable to any award, determine, modify, accelerate and waive the terms and conditions of any award, determine the form of settlement of awards, prescribe forms, rules and procedures relating to our 2021 Plan and awards and otherwise do all things necessary or desirable to carry out the purposes of our 2021 Plan or any award. Our compensation committee may delegate such of its duties, powers and responsibilities as it may determine to one or more of its members, members of our Board of Directors and, to the extent permitted by law, our officers, and may delegate to employees and other persons such ministerial tasks as it deems appropriate. As used in this summary, the term “Administrator” refers to our compensation committee and its authorized delegates, as applicable.
Eligibility
Our employees, directors and consultants are eligible to participate in our 2021 Plan. Eligibility for stock options intended to be incentive stock options, or ISOs, is limited to our employees or employees of certain affiliates. Eligibility for stock options, other than ISOs, and stock appreciation rights, or SARs, is limited to individuals who are providing direct services to us or certain affiliates on the date of grant of the award.
Authorized Shares
Subject to adjustment as described below, the maximum number of shares of our common stock that may be delivered in satisfaction of awards under our 2021 Plan is 13,737,500 shares, plus the number of shares underlying awards under our 2017 Plan that expire or become unexercisable without delivery of shares, are forfeited to, or repurchased for cash by, us, are settled in cash, or otherwise become available again for grant under our 2017 Plan, in each case, in accordance with its terms (which shall not exceed 16,592,727 shares). Up to 13,737,500 shares may be delivered in satisfaction of ISOs. The number of shares of our common stock delivered in satisfaction of awards under our 2021 Plan is determined (i) by excluding shares withheld by us in payment of the exercise price or purchase price of the award or in satisfaction of tax withholding requirements with respect to the award, (ii) by including only the number of shares delivered in settlement of a SAR any portion of which is settled in shares of our common stock and (iii) by excluding any shares underlying awards settled in cash or that expire, become unexercisable, terminate or are forfeited to or repurchased by us without the delivery of shares of our common stock. The number of shares available for delivery under our 2021 Plan will not be increased by any shares that have been delivered under our 2021 Plan and are subsequently repurchased using proceeds directly attributable to stock option exercises.
Shares that may be delivered under our 2021 Plan may be authorized but unissued shares, treasury shares or previously issued shares acquired by us.
Director Limits
Our 2021 Plan provides that the aggregate value of all compensation granted or paid to any non-employee director, with respect to any calendar year for his or her services as a director during such calendar year, may not exceed $750,000 in the aggregate ($900,000 in the aggregate with respect to a director’s first year of service on our Board of Directors). This limitation does not apply to any compensation granted or paid for services other than as a director, including as a consultant to us or one of our subsidiaries.
Types of Awards
Our 2021 Plan provides for the grant of stock options, SARs, restricted and unrestricted stock and stock units, performance awards and other awards that are convertible into or otherwise based on our common stock. Dividend equivalents may also be provided in connection with awards under our 2021 Plan.
•
Stock options and SARs. The Administrator may grant stock options, including ISOs, and SARs. A stock option is a right entitling the holder to acquire shares of our common stock upon payment of the applicable exercise price. A SAR is a right entitling the holder upon exercise to receive an amount (payable in cash or shares of equivalent value) equal to the excess of the fair market value of the shares subject to the right over the base value from which appreciation is measured. The exercise price per share of each stock option, and the base value of each SAR, granted under our 2021 Plan shall be no less than 100% of the fair market value of a share on the date of grant (110% in the case of certain ISOs). Other than in connection with certain corporate transactions or changes to our capital structure, stock options and SARs granted under our 2021 Plan may not be repriced, amended or substituted for with new stock options or SARs having a lower exercise price or base value, nor may any consideration be paid upon the cancellation of any stock options or SARs that have a per share exercise or base price greater than the fair market value of a share on the date of such cancellation, in each case, without shareholder approval. Each stock option and SAR will have a maximum term of not more than ten years from the date of grant (or five years, in the case of certain ISOs).
•
Restricted and unrestricted stock and stock units. The Administrator may grant awards of stock, stock units, restricted stock and restricted stock units. A stock unit is an unfunded and unsecured promise, denominated in shares, to deliver shares or cash measured by the value of shares in the future, and a restricted stock unit is a stock unit that is subject to the satisfaction of specified performance or other vesting conditions. Restricted stock are shares subject to restrictions requiring that they be forfeited, redelivered or offered for sale to us if specified performance or other vesting conditions are not satisfied.
•
Performance awards. The Administrator may grant performance awards, which are awards subject to the achievement of performance criteria.
•
Other share-based awards. The Administrator may grant other awards that are convertible into or otherwise based on shares of our common stock, subject to such terms and conditions as it determines.
•
Substitute awards. The Administrator may grant substitute awards in connection with certain corporate transactions, which may have terms and conditions that are inconsistent with the terms and conditions of our 2021 Plan.
Vesting; Terms of Awards
The Administrator determines the terms and conditions of all awards granted under our 2021 Plan, including the time or times an award vests or becomes exercisable, the terms and conditions on which an award remains exercisable and the effect of termination of a participant’s employment or service on an award. The Administrator may at any time accelerate the vesting or exercisability of an award.
Transferability of Awards
Except as the Administrator may otherwise determine, awards may not be transferred other than by will or by the laws of descent and distribution.
Effect of Certain Transactions
In the event of certain covered transactions (including the consummation of a consolidation, merger or similar transaction, the sale of all or substantially all of our assets or shares of our common stock or our dissolution or liquidation), the Administrator may, with respect to outstanding awards, provide for (in each case, on such terms and subject to such conditions as it deems appropriate):
•
The assumption, substitution or continuation of some or all awards (or any portion thereof) by the acquiror or surviving entity;
•
The acceleration of exercisability or delivery of shares in respect of any award, in full or in part; and/or
•
A cash payment in respect of some or all awards (or any portion thereof) equal to the difference between the fair market value of the shares subject to the award and its exercise or base price, if any.
Except as the Administrator may otherwise determine, each award will automatically terminate or be forfeited immediately upon the consummation of the covered transaction, other than awards that are substituted for, assumed or that continue following the covered transaction.
Adjustment Provisions
In the event of certain corporate transactions, including a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in our capital structure, the Administrator shall make appropriate adjustments to the maximum number of shares that may be delivered under our 2021 Plan, the individual award limits and the number and kind of securities subject to, and, if applicable, the exercise or purchase prices (or base values) of, outstanding awards and any other provisions affected by such event.
Clawback
The Administrator may provide that any outstanding award, the proceeds of any award or shares acquired under any award and any other amounts received in respect of any award or shares acquired under any award will be subject to forfeiture and disgorgement to us, with interest and other related earnings, if the participant to whom the award was granted is not in compliance with any provision of our 2021 Plan or any award, any non-competition, non-solicitation, no-hire, non-disparagement, confidentiality, invention assignment or other restrictive covenant, or any company policy that relates to trading on non-public information and permitted transactions with respect to shares of our common stock or that provides for forfeiture, disgorgement or clawback, or as otherwise required by law or applicable stock exchange listing standards.
Amendments and Termination
The Administrator may at any time amend our 2021 Plan or any outstanding award and may at any time terminate our 2021 Plan as to future grants. However, except as expressly provided in our 2021 Plan, the Administrator may not alter the terms of an award so as to materially and adversely affect a participant’s rights without the participant’s consent (unless the Administrator expressly reserved the right to do so in our 2021 Plan or at the time the award was granted). Any amendments to our 2021 Plan will be conditioned on shareholder approval to the extent required by applicable law or stock exchange requirements.
2021 Employee Stock Purchase Plan
In connection with this offering, our Board of Directors adopted the Hayward Holdings, Inc. 2021 Employee Stock Purchase Plan, or our ESPP. Our ESPP is intended to qualify as an “employee stock
purchase plan” under Section 423 of the Code. The following summary describes the material terms of our ESPP. This summary is not a complete description of all provisions of our ESPP and is qualified in its entirety by reference to our ESPP, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Administration
Our ESPP will be administered by our compensation committee, which will have the discretionary authority to interpret our ESPP, determine eligibility under our ESPP, prescribe forms, rules and procedures relating to our ESPP and otherwise do all things necessary or desirable to carry out the purposes of our ESPP. Our compensation committee may delegate such of its duties, powers and responsibilities as it may determine to one or more of its members, members of our Board of Directors and our officers and employees, in each case, to the extent permitted by law. As used in this summary, the term “Administrator” refers to our compensation committee and its authorized delegates, as applicable.
Shares Subject to our ESPP
Subject to adjustment as described below, the aggregate number of shares of our common stock available for purchase pursuant to the exercise of options under our ESPP is 2,700,000 shares. Shares to be delivered upon exercise of options under our ESPP may be authorized but unissued shares, treasury shares or previously issued shares acquired by us. If any option granted under our ESPP expires or terminates for any reason without having been exercised in full or ceases for any reason to be exercisable in whole or in part, the unpurchased shares subject to such option will again be available for purchase under our ESPP.
Eligibility
Participation in our ESPP will generally be limited to our employees and employees of our subsidiaries (i) who have been continuously employed by us or one of our subsidiaries, as applicable, for a period of at least 90 calendar days as of the first day of an applicable offering period, (ii) whose customary employment with us or one of our subsidiaries, as applicable, is for more than five months per calendar year, (iii) who customarily work 20 hours or more per week and (iv) who satisfy the requirements set forth in our ESPP. The Administrator may establish additional or other eligibility requirements, or change the requirements described in this paragraph, to the extent consistent with Section 423 of the Code. Any employee who owns (or is deemed under statutory attribution rules to own) shares possessing five percent or more of the total combined voting power or value of all classes of shares of us or our parent or subsidiaries, if any, will not be eligible to participate in our ESPP.
General Terms of Participation
Our ESPP allows eligible employees to purchase shares of our common stock during specified offering periods. Unless otherwise determined by the Administrator, offering periods under our ESPP will be six months in duration and commence on the first business day of January and July of each year. During each offering period, eligible employees will be granted an option to purchase shares of our common stock on the last business day of the offering period. A participant may purchase a maximum of 5,000 shares with respect to any offering period (or such other number as the Administrator may prescribe). No participant will be granted an option under our ESPP that permits the participant’s right to purchase shares of our common stock under our ESPP and under all other employee stock purchase plans of us or our parent or subsidiaries, if any, to accrue at a rate that exceeds $25,000 in fair market value (or such other maximum as may be prescribed by the Code) for each calendar year during which any option granted to the participant is outstanding at any time, determined in accordance with Section 423 of the Code.
The purchase price of each share issued pursuant to the exercise of an option under our ESPP on an exercise date will be 85% (or such greater percentage as specified by the Administrator) of the lesser of: (a) the fair market value of a share of our common stock on the date the option is granted, which will be the first day of the offering period, and (b) the fair market value of a share of our common stock on the exercise date, which will be the last business day of the offering period.
The Administrator may change the commencement and exercise dates of offering periods, the purchase price, the maximum number of shares that may be purchased with respect to any offering period, the duration of any offering periods and other terms of our ESPP, in each case, without shareholder approval, except as required by law.
Participants in our ESPP will pay for shares purchased under our ESPP through payroll deductions. Participants may elect to authorize payroll deductions between one and ten percent of the participant’s eligible compensation each payroll period.
Transfer Restrictions
For participants who have purchased shares under our ESPP, the Administrator may impose restrictions prohibiting the transfer, sale, pledge or alienation of such shares, other than by will or by the laws of descent and distribution, for such period as may be determined by the Administrator.
Adjustments
In the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other change in our capital structure that constitutes an equity restructuring, the Administrator will make appropriate adjustments to the aggregate number and type of shares available for purchase under our ESPP, the number and type of shares granted under any outstanding options, the maximum number and type of shares purchasable under any outstanding option and/or the purchase price per share under any outstanding option.
Corporate Transactions
In the event of a (i) sale of all or substantially all of our then-outstanding common stock or a sale of all or substantially all of our assets, or (ii) merger or similar transaction in which we are not the surviving corporation or which results in the acquisition of us by another person, the Administrator may provide that each outstanding option will be assumed or substituted for or will be cancelled and the balances of participants’ accounts returned, or that the option period will end before the date of the proposed corporate transaction.
Amendments and Termination
The Administrator has discretion to amend our ESPP to any extent and in any manner it may deem advisable, provided that any amendment that would be treated as the adoption of a new plan for purposes of Section 423 of the Code will require shareholder approval. The Administrator may suspend or terminate our ESPP at any time.
2021 Cash Incentive Plan
In connection with this offering, our Board of Directors adopted the Hayward Holdings, Inc. 2021 Cash Incentive Plan, or our Cash Incentive Plan. Following its adoption, our Cash Incentive Plan will provide for the grant of cash-based incentive awards to our executive officers and employees. The following summary describes the material terms of our Cash Incentive Plan. This summary is not a complete description of all provisions of our Cash Incentive Plan and is qualified in its entirety by reference to our Cash Incentive Plan, which is filed as an exhibit to the registration statement of which this prospectus is a part.
Administration
Our Cash Incentive Plan will be administered by our compensation committee and its delegates. As used in this summary, the term “Administrator” refers to our compensation committee and its authorized delegates, as applicable.
The Administrator will have the discretionary authority to interpret our Cash Incentive Plan and any awards, determine eligibility for and grant awards, adjust the performance criterion or criteria applicable to awards, determine, modify or waive the terms and conditions of any award, prescribe forms, rules and
procedures relating to our Cash Incentive Plan and awards and otherwise do all things necessary or desirable to carry out the purposes of our Cash Incentive Plan.
Eligibility and Participation
Executive officers and key employees of us and our subsidiaries will be eligible to participate in our Cash Incentive Plan and will be selected from time to time by the Administrator to participate in our Cash Incentive Plan.
Awards; Performance Criteria
Awards under our Cash Incentive Plan will be made based on, and subject to achieving, specified criteria established by the Administrator. For each award granted under our Cash Incentive Plan, the Administrator will establish the performance criteria applicable to the award, the amount or amounts payable if the performance criteria are achieved and such other terms and conditions as the Administrator deems appropriate.
Payments Under an Award
A participant will be entitled to payment under an award only if all conditions to payment have been satisfied in accordance with our Cash Incentive Plan and the terms of the award. Following the end of a performance period, the Administrator will determine whether and to what extent the applicable performance criteria have been satisfied and will determine the amount payable under each award. The Administrator has the discretionary authority to increase or decrease the amount actually paid under any award.
Recovery of Compensation
Payments in respect of an award will be subject to forfeiture and disgorgement to us if the participant violates a non-competition, non-solicitation, confidentiality or any other restrictive covenant or to the extent provided in any applicable company policy that provides for forfeiture or disgorgement, or as otherwise required by law or applicable stock exchange listing standards.
Amendment and Termination
The Administrator may amend our Cash Incentive Plan or any outstanding award for any purpose, and may at any time terminate our Cash Incentive Plan as to any future grant of awards.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table and accompanying footnotes set forth information with respect to the beneficial ownership of shares of our common stock as of January 31, 2021 by:
•
each individual or entity known by us to beneficially own more than 5% of our outstanding common stock;
•
each selling stockholder in this offering;
•
each member of our Board of Directors and each of our named executive officers; and
•
all members of our Board of Directors and our executive officers as a group.
Beneficial ownership has been determined in accordance with the applicable rules and regulations promulgated under the Exchange Act. The information is not necessarily indicative of beneficial ownership for any other purpose. Under these rules, beneficial ownership includes any shares as to which the individual or entity has sole or shared voting or investment power and any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days after January 31, 2021 through the exercise of any option, warrant or other right. For purposes of calculating each person’s or group’s percentage ownership, shares of common stock issuable pursuant to options exercisable within 60 days after January 31, 2021 are included as outstanding and beneficially owned for that person or group but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group. The inclusion in the following table of those shares, however, does not constitute an admission that the named stockholder is a direct or indirect beneficial owner. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares shown as beneficially owned. For more information regarding the terms of our common stock, see “Description of Capital Stock.” For more information regarding our relationship with certain of the persons named below, see “Certain Relationships and Related Party Transactions.”
Except as otherwise indicated in the footnotes below, the address of each beneficial owner is c/o Hayward Holdings, Inc., 400 Connell Drive, Suite 6100, Berkeley Heights, NJ 07922.
The numbers listed below are based on 207,434,661 shares of our common stock outstanding as of January 31, 2021 after giving effect to the Reclassification as if it had occurred on that date. In addition, the following table does not reflect any shares of common stock that may be purchased in this offering or pursuant to our reserved share program. The actual number of shares of common stock to be issued to each holder of Class A stock in the Reclassification is subject to change based on any changes to the initial public offering price. See “The Reclassification.”
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Shares Owned
Before this Offering
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Shares
Offered
Hereby
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Shares Owned
After this Offering
(no option exercise)
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Shares Owned
After this Offering
(full option exercise)
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Beneficial owners of more than 5% of our common stock:
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|
|
CCMP Capital Investors III, L.P. and related
investment funds(1)
|
|
|
|
|
79,053,860
|
|
|
|
|
|
38.1%
|
|
|
|
|
|
7,190,598
|
|
|
|
|
|
71,863,262
|
|
|
|
|
|
31.3%
|
|
|
|
|
|
69,460,135
|
|
|
|
|
|
30.2%
|
|
|
|
MSD Partners, L.P. and related investment fund(2)
|
|
|
|
|
79,053,860
|
|
|
|
|
|
38.1%
|
|
|
|
|
|
7,190,598
|
|
|
|
|
|
71,863,262
|
|
|
|
|
|
31.3%
|
|
|
|
|
|
69,460,135
|
|
|
|
|
|
30.2%
|
|
|
|
Alberta Investment Management Corporation(3)
|
|
|
|
|
40,640,446
|
|
|
|
|
|
19.6%
|
|
|
|
|
|
3,696,582
|
|
|
|
|
|
36,943,864
|
|
|
|
|
|
16.1%
|
|
|
|
|
|
35,708,452
|
|
|
|
|
|
15.6%
|
|
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin Holleran(4)
|
|
|
|
|
836,643
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
836,643
|
|
|
|
|
|
*
|
|
|
|
|
|
836,643
|
|
|
|
|
|
*
|
|
|
|
Eifion Jones(5)
|
|
|
|
|
292,500
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
292,500
|
|
|
|
|
|
*
|
|
|
|
|
|
292,500
|
|
|
|
|
|
*
|
|
|
|
Anthony Colucci
|
|
|
|
|
58,800
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
58,800
|
|
|
|
|
|
*
|
|
|
|
|
|
58,800
|
|
|
|
|
|
*
|
|
|
|
Rick Roetken(6)
|
|
|
|
|
281,040
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
281,040
|
|
|
|
|
|
*
|
|
|
|
|
|
281,040
|
|
|
|
|
|
*
|
|
|
|
Mark McFadden(7)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Timothy Walsh(7)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Greg Brenneman(7)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Christopher Stevenson(7)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Kevin Brown(8)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Douglas Londal(8)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Christopher Bertrand(8)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Jason Peters(9)
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Larry Silber(10)
|
|
|
|
|
15,600
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
15,600
|
|
|
|
|
|
*
|
|
|
|
|
|
15,600
|
|
|
|
|
|
*
|
|
|
|
Arthur Soucy(11)
|
|
|
|
|
96,825
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
96,825
|
|
|
|
|
|
*
|
|
|
|
|
|
96,825
|
|
|
|
|
|
*
|
|
|
|
Ali Afraz
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Stephen Felice(12)
|
|
|
|
|
273,227
|
|
|
|
|
|
*
|
|
|
|
|
|
—
|
|
|
|
|
|
273,227
|
|
|
|
|
|
*
|
|
|
|
|
|
273,227
|
|
|
|
|
|
*
|
|
|
|
Lori Walker
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Diane Dayhoff
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
All executive officers and directors as a group
(21 persons)(13)
|
|
|
|
|
3,227,112
|
|
|
|
|
|
1.5%
|
|
|
|
|
|
—
|
|
|
|
|
|
3,227,112
|
|
|
|
|
|
1.4%
|
|
|
|
|
|
3,227,112
|
|
|
|
|
|
1.4%
|
|
|
*
Indicates less than one percent.
(1)
Includes 74,457,765 shares of our common stock held by CCMP Capital Investors III, L.P. (“CCMP Capital Investors”) and 4,596,095 shares of our common stock held by CCMP Capital Investors III (Employee), L.P. (“CCMP Employee” and, together with CCMP Capital Investors, the“CCMP Investors”). The general partner of CCMP Capital Investors and CCMP Employee is CCMP Capital Associates III, L.P. (“CCMP Capital Associates”). The general partner of CCMP Capital Associates is CCMP Capital Associates III GP, LLC (“CCMP Capital Associates GP”).
CCMP Capital Associates GP is wholly owned by CCMP Capital, LP. The general partner of CCMP Capital, LP is CCMP Capital GP, LLC (“CCMP Capital GP”). CCMP Capital GP ultimately exercises voting and investment power over the shares of our common stock held by the CCMP Investors. As a result, CCMP Capital GP may be deemed to share beneficial ownership with respect to the shares of our common stock held by the CCMP Investors. The investment committee of CCMP Capital GP with respect to the shares of our common stock includes Messrs. Brenneman and Walsh, each of whom serves as a director of the Company. Each of the CCMP entities has an address of c/o CCMP Capital Advisors, LP, 277 Park Avenue, New York, New York 10172.
(2)
MSD Aqua Partners, LLC is the direct beneficial owner of the shares. MSD Partners, L.P. (“MSD Partners”) is the manager of, and may be deemed to have or share voting and/or dispositive power over, and beneficially own securities beneficially owned by MSD Aqua Partners, LLC. MSD Partners (GP), LLC (“MSD GP”) is the general partner of, and may be deemed to have or share voting and/or dispositive power over, and beneficially own securities beneficially owned by, MSD Partners. Each of John Phelan, Marc R. Lisker and Brendan Rogers is a manager of, and may be deemed to have or share voting and/or dispositive power over, and beneficially own securities beneficially owned by, MSD GP. The address of MSD GP is 645 Fifth Avenue, 21st Floor, New York, NY 10022.
(3)
Alberta Investment Management Corporation is a body corporate established as an agent of Her Majesty the Queen in Right of Alberta, the legal personification of the Province of Alberta. AIMCo manages funds on behalf of the Province of Alberta’s public pensions, public endowments and government funds for which it serves as investment manager. The address of AIMCo is 1600, 10250 101 Street NW, Edmonton, Alberta T5J 3P4 Canada.
(4)
Includes 390,000 shares of our common stock that can be acquired upon the exercise of outstanding options and 223,322 shares of our restricted common stock that are outstanding and will vest upon consummation of this offering.
(5)
Includes 292,500 shares of our common stock that can be acquired upon the exercise of outstanding options.
(6)
Includes 234,000 shares of our common stock that can be acquired upon the exercise of outstanding options.
(7)
Does not include shares of our common stock held by the CCMP Investors. Mark McFadden, a member of our Board of Directors, is a Managing Director of CCMP, Timothy Walsh, a member of our Board of Directors, is President and CEO of CCMP, Greg Brenneman, a member of our Board of Directors, is Executive Chairman of CCMP, and Christopher Stevenson, a member of our Board of Directors, is a Principal of CCMP Capital.
(8)
Does not include shares of our common stock held by MSD Partners. Kevin Brown, a member of our Board of Directors, is Co-Head of MSD Partners’ Private Capital Group, Douglas Londal, a member of our Board of Directors as of January 31, 2021, is a Partner of MSD Capital, and Christopher Bertrand, a member of our Board of Directors, is Managing Director of MSD Partners’ Private Capital Group. Mr. Londal resigned from our Board of Directors effective March 1, 2021.
(9)
Does not include shares of our common stock held by AIMCo. Jason Peters, a member of our Board of Directors, is Director, Private Equity, for AIMCo.
(10)
Includes 15,600 shares of our common stock that can be acquired upon the exercise of outstanding options.
(11)
Includes 38,025 shares of our common stock that can be acquired upon the exercise of outstanding options.
(12)
Includes 38,025 shares of our common stock that can be acquired upon the exercise of outstanding options.
(13)
Includes 1,358,799 shares of our common stock that can be acquired upon the exercise of outstanding options.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The agreements described in this section, or forms of such agreements as they will be in effect at the time of this offering, are filed as exhibits to the registration statement of which this prospectus forms a part, and the following descriptions are qualified by reference thereto.
Amended and Restated Stockholders Agreement
In connection with the closing of the Acquisition, we entered into a stockholders agreement (as amended, the “Stockholders Agreement”) with certain stockholders, including investments funds affiliated with the Sponsors, our directors and officers who hold shares of our common stock and certain other investors relating to rights and obligations with respect to ownership of our common stock, including the designation of certain director nominees, certain corporate governance rights, drag along rights, tag along rights, preemptive rights, information rights, demand and piggyback registration rights and related lockup obligations.
In connection with the consummation of this offering, we intend to amend and restate the Stockholders Agreement. The Stockholders Agreement, as so amended and restated, will provide affiliates of the Sponsors with certain registration rights described below. In addition, until the earlier of (i) the third anniversary of the consummation of this offering, (ii) such time as either CCMP or MSD own less than 5% of our outstanding shares of common stock or (iii) CCMP and MSD otherwise agree, the affiliates of the Sponsors will agree to coordinate with respect to the timing and manner of disposition of shares of our common stock by the stockholders party to the agreement. AIMCo has also agreed to certain restrictions on the transfer of its shares of our common stock (other than certain permitted transfers) until after CCMP has consummated a secondary sale of shares following this offering. The Stockholders Agreement also will provide the Company with certain rights to repurchase shares of our common stock from certain existing management stockholders in the event that such individual’s employment with the Company is terminated for any reason.
Demand registration rights
At any time after the completion of this offering, each of CCMP and MSD will have the right to demand that we file registration statements. These registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances. Upon such a request, we will be required to use best efforts to promptly effect the registration.
Piggyback registration rights
At any time after the completion of this offering, if we propose to register any shares of our equity securities under the Securities Act either for our own account or for the account of any other person, then the parties to the Stockholders Agreement will be entitled to notice of the registration and will be entitled to include their shares of common stock in the registration statement. These piggyback registration rights are subject to specified conditions and limitations, including the right of the underwriters, if any, to limit the number of shares included in any such registration under specified circumstances.
Shelf registration rights
At any time after we become eligible to file a registration statement on Form S-3, each of CCMP and MSD will be entitled to have their shares of common stock registered by us on a Form S-3 registration statement at our expense. These shelf registration rights are subject to specified conditions and limitations.
Expenses and indemnification
We will be required to bear the registration expenses, other than underwriting discounts and commissions and transfer taxes, associated with any registration of shares described above and to indemnify such stockholders and certain other persons against certain liabilities that may arise under the Securities Act in connection with any such offering and sale of our shares.
Advisory Services Agreement
In connection with the closing of the Acquisition, Hayward Holdings, Hayward Intermediate, Inc. and Hayward Industries (collectively, the “Hayward Entities”) entered into an advisory services and monitoring agreement (the “Advisory Services Agreement”) with CCMP and MSD Partners. Certain of our directors are affiliated with CCMP and MSD Partners.
Pursuant to the terms of the Advisory Services Agreement, CCMP and MSD Partners agreed to provide the Hayward Entities with certain financial advisory services in exchange for an aggregate annual fee equal to $1.0 million multiplied by the quotient of (i) the number of shares of Class A stock owned by CCMP or MSD Partners, as applicable, divided by (ii) the number of shares of Class A stock owned collectively by the Sponsors.
In addition, the Hayward Entities agreed to reimburse CCMP and MSD Partners for their reasonable out-of-pocket expenses incurred in connection with the performance of these services. The Advisory Services Agreement provides for customary exculpation and indemnification provisions in favor of CCMP, MSD Partners and each of their respective affiliates. The Advisory Services Agreement will terminate pursuant to its terms upon consummation of this offering. Upon termination of the Advisory Services Agreement, CCMP and MSD Partners will be entitled to payment of all accrued and unpaid fees through the date of the consummation of this offering and certain expense reimbursements. The indemnification and exculpation provisions in favor of CCMP, MSD Partners and each of their respective affiliates will survive such termination.
CCMP received consulting fees and expense reimbursement totaling $ 0.4 million, $0.4 million and $0.4 million during the years ended December 31, 2020, 2019 and 2018, respectively. MSD Partners received consulting fees and expense reimbursement totaling $0.4 million, $0.4 million and $0.4 million during the years ended December 31, 2020, 2019 and 2018, respectively.
Special Dividend Side Letter
In connection with the closing of the Acquisition, we entered into a letter agreement with certain investments funds affiliated with AIMCo (the “AIMCo Investors”) regarding the payment of certain dividends on our Class C stock (the “Special Dividend Side Letter”). Pursuant to the terms of the Special Dividend Side Letter, we agreed to pay dividends in respect of the shares of Class C stock owned by each AIMCo Investor in an amount equal to $1.0 million multiplied by the quotient of (i) the number of shares of Class A stock owned by AIMCo divided by (ii) the number of shares of Class A stock owned collectively by the Sponsors.
In addition, we agreed to reimburse the AIMCo Investors for their reasonable out-of-pocket expenses to the same extent as CCMP and MSD Partners are entitled to reimbursement pursuant to the Advisory Services Agreement. The Special Dividend Side Letter will terminate pursuant to its terms upon termination of the Advisory Services Agreement in connection with this offering.
The AIMCo Investors received special dividends and expense reimbursements totaling $0.2 million, $0.2 million and $0.2 million during the years ended December 31, 2020, 2019 and 2018, respectively.
Arrangements with our Directors and Officers
In addition, we have certain agreements with our directors and officers which are described in the sections entitled “Executive Compensation—Agreements with our Named Executive Officers” and “Executive Compensation—Director Compensation.”
We intend to enter into indemnification agreements with our officers and directors. These agreements and our bylaws will require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The indemnification provided under the indemnification agreements will not be exclusive of any other indemnity rights. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, we have been informed that in the opinion of the SEC such indemnification is against public policy and is therefore unenforceable.
Related Persons Transaction Policy
In connection with this offering, we will adopt a policy with respect to the review, approval and ratification of related party transactions. Under the policy, the nominating and corporate governance committee will be responsible for reviewing and approving related party transactions. The policy will apply to transactions, arrangements and relationships (including any indebtedness or guarantee of indebtedness) or any series of similar transactions, arrangements or relationships in which the aggregate amount involved will, or may be expected to, exceed $120,000 with respect to any fiscal year, and where we (or one of our subsidiaries) are a participant and in which a related party has or will have a direct or indirect material interest. In the course of reviewing potential related party transactions, the nominating and corporate governance committee will consider the nature of the related party’s interest in the transaction; the presence of standard prices, rates or charges or terms otherwise consistent with arms-length dealings with unrelated third parties; the materiality of the transaction to each party; the reasons for the company entering into the transaction with the related party; the potential effect of the transaction on the status of a director as an independent, outside or disinterested director or committee member; and any other factors the nominating and corporate governance committee may deem relevant.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain of our indebtedness that is currently outstanding. The following descriptions do not purport to be complete and are qualified in their entirety by reference to the agreements and related documents referred to herein, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part, and may be obtained as described under “Where You Can Find More Information” in this prospectus.
Senior Secured Credit Facilities
Overview
In connection with the Acquisition, on August 4, 2017, Hayward Industries, as borrower, entered into (a) a $250.0 million asset-based lending facility (as amended, supplemented or otherwise modified from time to time prior to the date hereof, the “ABL Facility”) with Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”), the lenders from time to time party thereto and the other parties party thereto (b) a $850.0 million first lien term loan facility (as amended, supplemented or otherwise modified from time to time prior to the date hereof, the “First Lien Term Facility”) with Bank of America, N.A., as administrative agent and collateral agent (the “First Lien Term Agent”), the lenders from time to time party thereto and the other parties party thereto and (c) a $285.0 million second lien term loan facility (as amended, supplemented or otherwise modified from time to time prior to the date hereof, the “Second Lien Term Facility” and, together with the First Lien Term Facility, the “Term Loan Facilities”, and collectively with the ABL Facility, the “Credit Facilities”) with Bank of America, N.A., as administrative agent and collateral agent (the “Second Lien Term Agent” and, together with the First Lien Term Agent, the “Term Loan Agent”), the lenders from time to time party thereto and the other parties party thereto. On September 28, 2018 (the “First Amendment Effective Date”), Hayward Industries entered into an incremental amendment to the First Lien Term Facility, which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to, among other things, prepay a portion of the ABL Facility and prepay second lien term loans under the Second Lien Term Facility. Additionally, on October 28, 2020 (the “Second Amendment Effective Date”), Hayward Industries entered into the First Lien Incremental Term Facility, which provided for additional first lien term loans (the “2020 Incremental Term Loans”) in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million to the holders of Class A stock of Hayward Holdings.
ABL Facility
The ABL Facility consists of a $220.0 million U.S. revolving credit facility available in U.S. dollars and such other currencies acceptable to the revolving lenders (the “U.S. ABL Facility”) and a $30.0 million Canadian revolving credit facility available in Canadian dollars, U.S. dollars and such other currencies acceptable to the revolving lenders (the “Canadian ABL Facility”), in each case, providing for loans and letters of credit and subject to certain borrowing base limits. Proceeds from the ABL Facility are available to finance the working capital needs and for other general corporate purposes of Hayward Industries and its subsidiaries, including investments, restricted payments and any other purpose not prohibited by the ABL Facility. A portion of the ABL Facility not to exceed $15.0 million is available for the issuance of letters of credit in U.S. dollars and $5.0 million is available for the issuance of letters of credit in Canadian dollars. The ABL Facility also includes a $25.0 million swingline loan facility.
The ABL Facility provides the ABL Agent customary discretion to impose reserves or availability blocks, which could materially impair the amount of borrowings that would otherwise be available and may require repayment of certain amounts outstanding under the ABL Facility.
The ABL Facility provides that Hayward Industries may request increases to the ABL Facility in an aggregate principal amount not to exceed (w) the greater of (1) $100.0 million and (2) the amount by which the borrowing base exceeds the aggregate commitments then outstanding plus (x) in the case of any incremental facilities that serve to effectively replace any commitment under the ABL Facility that is terminated under the “yank-a-bank” provisions, an amount equal to the portion of the relevant terminated commitment, plus (y) the amount of any permanent voluntary reduction of the commitments under the
ABL Facility and/or any incremental revolving facility, or if the first net leverage ratio does not exceed 5.00:1.00 after giving pro forma effect to any such increase, an unlimited amount. The lenders are not obligated to provide such additional commitments, and any increase in commitments is subject to customary conditions precedent.
Additional borrowings under the ABL Facility will be subject to the satisfaction of customary conditions, including absence of events of default and availability.
First Lien Term Facility
The First Lien Term Facility provides that Hayward Industries may (a) request increases to the First Lien Term Facility and add one or more incremental term loan facilities and (b) add one or more incremental cash-flow revolving facilities and increase commitments under any then existing incremental cash-flow revolving facilities in an aggregate principal amount not to exceed (w) the greater of $125.0 million and 75.0% of consolidated EBITDA, less any other incremental borrowings incurred in reliance on that amount (including any such borrowings under the Second Lien Term Facility), plus (x) in the case of any incremental facilities that serve to effectively extend the maturity of any term loans or commitments or effectively replace any incremental cash-flow revolving facility, an amount equal to the reductions in the term loans or commitments to be replaced thereby or the terminated incremental cash-flow revolving facility, plus (y) the amount of certain voluntary prepayments of any term loans and any permanent reduction of the commitments under any incremental cash-flow revolving facility, plus (z) an unlimited amount so long as (1) if such incremental indebtedness is secured by a lien on the collateral on a pari passu basis with the First Lien Term Facility, Hayward Industries is in compliance on a pro forma basis with a first lien net leverage ratio of no greater than 5.00:1.00, (2) if such incremental indebtedness is secured by a lien on the collateral that is junior to the lien securing the First Lien Term Facility, Hayward Industries is in compliance on a pro forma basis with a secured net leverage ratio of no greater than 6.75:1.00, or (3) if such incremental indebtedness is unsecured, Hayward Industries is in compliance on a pro forma basis with either (i) a total net leverage ratio of no greater than 6.75:1.00 or (ii) a net interest coverage ratio of no greater than 2.00:1.00. The lenders are not obligated to provide such additional commitments, and the incurrence of any incremental indebtedness is subject to customary conditions precedent.
Second Lien Term Facility
The Second Lien Term Facility provides that Hayward Industries may (a) request increases to the Second Lien Term Facility and add one or more incremental term loan facilities and (b) add one or more incremental cash-flow revolving facilities and increase commitments under any then existing incremental cash-flow revolving facilities in an aggregate principal amount not to exceed (w) the greater of $125.0 million and 75.0% of consolidated EBITDA, less any other incremental borrowings incurred in reliance on that amount (including any such borrowings under the First Lien Term Facility), plus (x) in the case of any incremental facilities that serve to effectively extend the maturity of any term loans or commitments or effectively replace any incremental cash-flow revolving facility, an amount equal to the reductions in the term loans or commitments to be replaced thereby or the terminated incremental cash-flow revolving facility, plus (y) the amount of certain voluntary prepayments of any term loans and any permanent reduction of the commitments under any incremental cash-flow revolving facility, plus (z) an unlimited amount so long as (1) if such incremental indebtedness is secured by a lien on the collateral on a pari passu basis with the Second Lien Term Facility, Hayward Industries is in compliance on a pro forma basis with a secured net leverage ratio of no greater than 6.75:1.00, or (2) if such incremental indebtedness is unsecured, Hayward Industries is in compliance on a pro forma basis with either (i) a total net leverage ratio of no greater than 6.75:1.00 or (ii) a net interest coverage ratio of no greater than 2.00:1.00. The lenders are not obligated to provide such additional commitments, and the incurrence of any incremental indebtedness is subject to customary conditions precedent.
Interest Rate and Fees
ABL Facility: The interest rate applicable to loans under the ABL Facility denominated in (a) U.S. dollars is equal to an applicable interest rate margin, plus, at our option, either (1) a base rate determined by the reference to the highest of (A) the prime commercial lending rate publicly announced by the ABL
Agent as the “prime rate” in effect on such day, (B) the federal funds effective rate, plus 0.50%, and (C) the one-month LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits, plus 1.00%, or (2) a LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the specified interest period, as adjusted for certain statutory reserve requirements or (b) Canadian dollars is equal to an applicable interest rate margin, plus, at our option, either (1) the average rate applicable to Canadian dollar bankers’ acceptances (the “B/A Equivalent Rate”) or (2) the highest of (A) the prime commercial lending rate publicly announced by the ABL Agent in Canada as its “prime rate” as in effect on such day or (B) one-month B/A Equivalent Rate plus 1.0% per annum. All interest rate options applicable to loans under the ABL Facility are subject to a floor of 0%.
A commitment fee is charged on the average daily unused portion of the ABL Facility, adjusted quarterly, of (a) 0.375% per annum if the average daily unused portion of the non-defaulting revolving lenders commitments is less than 50% or (b) 0.25% per annum if the average daily unused portion of the non-defaulting revolving lenders commitments is equal to or greater than 50%.
Term Loan Facilities. Borrowings under the First Lien Term Facility (other than the 2020 Incremental Term Loans) bear interest at a rate per annum equal to, at our option (1) a margin of 2.50% plus a base rate determined by reference to the highest of (A) the federal funds effective rate in effect on such day plus 0.50%, (B) the one-month LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits, plus 1.00% and (C) the prime commercial lending rate publicly announced by the Term Loan Agent as the “prime rate” in effect or (2) a margin of 3.50% plus a LIBOR rate (subject to a floor of 0%) determined by reference to the cost of funds for U.S. dollar deposits, as adjusted for certain statutory reserve requirements. 2020 Incremental Term Loans bear interest at a rate per annum equal to, at our option (1) a margin of 2.75% plus a base rate determined by reference to the highest of (A) the federal funds effective rate in effect on such day plus 0.50%, (B) the one-month LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits, plus 1.00% and (C) the prime commercial lending rate publicly announced by the Term Loan Agent as the “prime rate” in effect or (2) a margin of 3.75% plus a LIBOR rate (subject to a floor of 0.75%) determined by reference to the cost of funds for U.S. dollar deposits, as adjusted for certain statutory reserve requirements. Borrowings under the Second Lien Term Facility bear interest at a rate per annum equal to, at our option (1) a margin of 7.25% plus a base rate determined by reference to the highest of (A) the federal funds effective rate in effect on such day plus 0.50%, (B) the one-month LIBOR rate determined by reference to the cost of funds for U.S. dollar deposits, plus 1.00% and (C) the prime commercial lending rate publicly announced by the Term Loan Agent as the “prime rate” in effect or (2) a margin of 8.25% plus a LIBOR rate (subject to a floor of 0%) determined by reference to the cost of funds for U.S. dollar deposits, as adjusted for certain statutory reserve requirements.
Mandatory Prepayments
ABL Facility. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and outstanding letters of credit under either the U.S. ABL Facility or the Canadian ABL Facility exceeds the lesser of (i) the applicable commitment amount under such facility and (ii) the then-applicable borrowing base for such facility, Hayward Industries must repay the outstanding loans under such facility (and cash collateralize outstanding letters of credit) in an aggregate amount equal to such excess. If at any time the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and outstanding letters of credit under the ABL Facility exceeds the lesser of (i) the sum of all commitments under the ABL Facility and (ii) the then-applicable U.S. Borrowing Base plus the then-applicable Canadian Borrowing Base, Hayward Industries must repay the outstanding loans under such facility (and cash collateralize outstanding letters of credit) in an aggregate amount equal to such excess.
Term Loan Facilities. The Term Loan Facilities require Hayward Industries to prepay, subject to certain exceptions, outstanding term loans with:
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100% of net cash proceeds of any incurrence of debt, other than the net cash proceeds of certain debt permitted under the Term Loan Facilities;
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100% of net cash proceeds above a threshold amount of certain asset sales, subject to reinvestment rights and certain other exceptions; and
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50% (subject to step-downs to 25% and 0% based upon (x) in the case of the First Lien Term Facility, pro forma first lien net leverage ratio levels of 4.50:1.00 and 3.75:1.00, respectively, and (y) in the case of the Second Lien Term Facility, pro forma secured net leverage ratio levels of 4.75:1.00 and 4.00:1.00, respectively) of our annual excess cash flow above a certain threshold amount.
Voluntary prepayment
We may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under either of the Credit Facilities at any time without premium or penalty other than (i) customary “breakage” costs with respect to LIBOR borrowings and (ii) any prepayment of 2020 Incremental Term Loans made on or prior to the date that is six months after the Second Amendment Effective Date as part of a repricing transaction shall be subject to a premium of 1.00% of the applicable 2020 Incremental Term Loans in the manner outlined in the definitive documentation for the First Lien Term Facility.
Amortization and final maturity
All outstanding revolving loans under the ABL Facility and second lien term loans under the Second Lien Term Facility are due and payable in full upon the expiration of its five-year term or the eight-year term, respectively. In the case of the first lien term loans borrowed under the First Lien Term Facility other than the 2020 Incremental Term Loans, Hayward Industries is required to make scheduled quarterly payments equal to the First Amendment Amortization Percentage (as defined below) of the principal amount of the term loans as of the First Amendment Effective Date, with the balance due on August 4, 2024. In the case of the 2020 Incremental Term Loans, Hayward Industries is required to make scheduled quarterly payments equal to 0.25% of the original principal amount of the term loans incurred on the Second Amendment Effective Date, with the balance due on August 4, 2026. For the purposes hereof, the “First Amendment Amortization Percentage” means the percentage equal to the product of (x) 0.25% multiplied by (y) the result of $850,000,000 divided by $841,500,000.
Guarantees and Security
All obligations under the Credit Facilities are unconditionally guaranteed jointly and severally on a senior basis by: (i) in the case of the Term Loan Facilities, Hayward Intermediate, certain of Hayward Industries’ existing and future direct and indirect wholly-owned domestic subsidiaries (collectively, the “U.S. Guarantors”); (ii) in the case of the U.S. ABL Facility, Hayward Industries and the U.S. Guarantors (other than any such person in its capacity as a primary obligor in respect of the relevant obligation); and (iii) in the case of the Canadian ABL Facility, by each of the Canadian ABL Facility borrower’s wholly-owned Canadian subsidiaries (subject to customary exceptions), Hayward Industries and the U.S. Guarantors.
All obligations under the Credit Facilities, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of the Hayward Industries under each such facility and the assets of the respective guarantors under each such facility.
The assets securing the U.S. ABL Facility and the Canadian ABL Facility (the “ABL Collateral”) include a first priority (subject to permitted liens and other exceptions) security interest in Hayward Industries’ and each guarantors’ personal property, consisting of accounts receivable, inventory, cash and cash equivalents (other than cash and cash equivalents constituting proceeds of Term Loan Collateral (as defined below), cash collateral subject to certain permitted liens or certain identifiable tax and trust funds), deposit accounts and securities accounts (other than any deposit account or securities account established solely to hold identified proceeds of Term Loan Collateral), and general intangibles, instruments, chattel paper, documents, commercial tort claims, letter of credit rights and supporting obligations related to the foregoing (other than capital stock and intellectual property), intellectual property to the extent attached to or necessary to sell the foregoing and books and records to the extent related to the foregoing, and, in each case, proceeds thereof, subject to customary exceptions.
The First Lien Term Facility and the Second Lien Term Facility are secured by a second priority lien and third priority lien, respectively, on and security interest in the ABL Collateral securing the ABL Facility.
The assets securing the First Lien Term Facility and the Second Lien Term Facility (the “Term Loan Collateral”) include a first priority security interest and second priority security interest, respectively, (subject to permitted liens and other exceptions) on 100% of the present and future capital stock of Hayward Industries and the subsidiary guarantors’ direct subsidiaries (but limited in the case of the voting capital stock of any first-tier foreign subsidiary and any direct or indirect domestic subsidiary of which substantially all of its assets consist of the equity and/or debt of one or more direct or indirect foreign subsidiaries, to 65% of such capital stock), substantially all of Hayward Industries’ and the subsidiary guarantors’ material owned real property and equipment and all other personal property of Hayward Industries and the subsidiary guarantors to the extent not constituting collateral securing the ABL Facility on a first priority basis, including, without limitation, contracts (other than those relating to collateral securing the ABL Facility on a first priority basis), patents, copyrights, trademarks, other general intangibles, intercompany notes and proceeds of the foregoing, subject to customary exceptions.
The ABL Facility is secured by a third priority lien on and security interest in the Term Loan Collateral.
Certain Covenants and Events of Default
The Credit Facilities contain a number of restrictive covenants that, among other things and subject to certain exceptions, restrict the ability of Hayward Industries’ and the ability of its subsidiaries to:
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incur additional indebtedness;
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pay dividends on capital stock or redeem, repurchase or retire capital stock;
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make investments, acquisitions, loans and advances;
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create negative pledge or restrictions on the payment of dividends or payment of other amounts owed from subsidiaries;
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engage in transactions with affiliates;
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sell, transfer or otherwise dispose of assets, including capital stock of subsidiaries;
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materially alter the conduct of the business;
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modify certain material documents;
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change the fiscal year;
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consolidate, merge, liquidate or dissolve;
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incur liens; and
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make prepayments of subordinated or junior debt.
Hayward Intermediate is also subject to a “passive holding company” covenant under the Credit Facilities.
In addition, the ABL Facility contains a financial covenant requiring Hayward Industries to maintain a 1.0:1.0 minimum trailing four quarter fixed charge coverage ratio, to be tested at any time that excess availability under the ABL Facility decreases to a level below the greater of 10% of the Line Cap (as defined below) and either (i) $20.0 million if calculated from January 1 to July 31 of any year or (ii) $10.0 million if calculated from August 1 to December 1 of any year until the date on which excess availability for each day over a 30 consecutive day period exceeds the greater of 10% of the Line Cap and either (i) $20.0 million if calculated from January 1 to July 31 of any year or (ii) $10.0 million if calculated from August 1 to December 1 of any year. As used herein “Line Cap” means the lesser of (i) the aggregate commitments under the ABL Facility and (ii) the sum of the then-applicable U.S. borrowing base plus the then-applicable Canadian borrowing base.
The Credit Facilities also contain certain customary representations and warranties, affirmative covenants and reporting obligations. In addition, the lenders under the Credit Facilities are permitted to accelerate the loans and terminate commitments thereunder or exercise other specified remedies available to secured creditors upon the occurrence of certain events of default, subject to certain grace periods and
exceptions, which include, among others, payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to certain material indebtedness, certain events of bankruptcy, certain events under the Employee Retirement Income Security Act of 1974, as amended, material judgments and changes of control.
DESCRIPTION OF CAPITAL STOCK
General
Upon the closing of this offering, the total amount of our authorized capital stock will consist of 750,000,000 shares of common stock, par value $0.001 per share and 100,000,000 shares of undesignated preferred stock. As of December 31, 2020, we had outstanding 869,822.82 shares of Class A stock (including 949.49 shares of Class A restricted stock), 14,220.17 shares of Class B common stock (including 12,620.17 shares of Class B restricted common stock) and 100 shares of Class C stock.
As of December 31, 2020, we had 103 stockholders of record of Class A stock (including 1 holder of Class A restricted stock), 19 stockholders of record of Class B common stock (including 17 holders of Class B restricted common stock) and two stockholders of record of Class C stock and had outstanding options to purchase 67,949.20 restricted shares of Class B common stock, which options were exercisable at a weighted average exercise price of $209.80 per share.
On March 2, 2021, we reclassified our Class B common stock into common stock and then effected a 195-for-1 split of our common stock. Prior to the completion of this offering, (i) we will convert each outstanding share of our Class A stock into 195 shares of our common stock plus an additional number of shares determined by dividing (a) the Class A Preference Amount of such share of Class A stock, or $683.84 per share, by (b) the initial public offering price of a share of our common stock in this offering, net of the per share underwriting discount, rounded to the nearest whole share, and (ii) we will redeem each outstanding share of our Class C stock for an aggregate price of $1.00. See “The Reclassification.”
After giving effect to this offering, we will have 229,557,132 shares of common stock and no shares of preferred stock outstanding. The following summary describes all material provisions of our capital stock. We urge you to read our second restated certificate of incorporation and amended and restated bylaws, each of which will be in effect upon the completion of this offering, the forms of which are filed as exhibits to the registration statement of which this prospectus is a part.
Our second restated certificate of incorporation and amended and restated bylaws will contain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of our company unless such takeover or change in control is approved by our Board of Directors. These provisions include a classified board of directors, elimination of the ability of stockholders to call special meetings (except that the holders of 50% or more of the outstanding shares of our common stock may request that the Secretary call special meetings so long as the Sponsors beneficially own a majority of the outstanding shares of our common stock), advance notice procedures for stockholder proposals and the ability of our Board of Directors to issue preferred stock without stockholder approval that could be used to dilute a potential hostile acquiror.
Common Stock
Dividend Rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, holders of outstanding shares of our common stock will be entitled to receive dividends out of assets legally available at the times and in the amounts as the Board of Directors may from time to time determine.
Voting Rights
Each outstanding share of our common stock will be entitled to one vote on all matters submitted to a vote of stockholders. Holders of shares of our common stock shall have no cumulative voting rights.
Except as otherwise required under the Delaware General Corporation Law (the “DGCL”) or provided for in our second restated certificate of incorporation, all matters other than the election of directors will be determined by a majority of the votes cast on the matter and all elections of directors will be determined by a plurality of the votes cast. Any director may resign at any time upon notice given in writing, including by electronic transmission, to the Company. Vacancies and newly-created directorships
shall be filled exclusively by vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, except that any vacancy created by the removal of a director by the stockholders for cause shall be filled by vote of a majority of the outstanding shares of our common stock. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
Preemptive Rights
Our common stock will not be entitled to preemptive or other similar subscription rights to purchase any of our securities.
Conversion or Redemption Rights
Our common stock will not have any conversion rights and there will be no redemption or sinking fund provisions applicable to our common stock.
Liquidation Rights
Upon our liquidation, the holders of our common stock will be entitled to receive pro rata our assets that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of any holders of preferred stock then outstanding.
Stock Exchange Listing
We have applied to list our common stock on the New York Stock Exchange under the symbol “HAYW.”
Preferred Stock
Our second restated certificate of incorporation will authorize our Board of Directors to establish one or more series of preferred stock (including convertible preferred stock). Once effective, our Board of Directors may, without further action by our stockholders, from time to time, direct the issuance of shares of preferred stock in series and may, at the time of issuance, determine the designations, powers, preferences, privileges, and relative participating, optional or special rights as well as the qualifications, limitations or restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of the common stock. Satisfaction of any dividend preferences of outstanding shares of preferred stock would reduce the amount of funds available for the payment of dividends on shares of our common stock. Holders of shares of preferred stock may be entitled to receive a preference payment in the event of our liquidation before any payment is made to the holders of shares of our common stock. Under certain circumstances, the issuance of shares of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of our securities or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, our Board of Directors, without stockholder approval, may issue shares of preferred stock with voting and conversion rights which could adversely affect the holders of shares of our common stock and the market value of our common stock. Upon consummation of this offering, there will be no shares of preferred stock outstanding, and we have no present intention to issue any shares of preferred stock.
Anti-Takeover Effects of Our Second Restated Certificate of Incorporation and Amended and Restated Bylaws and Certain Provisions of Delaware Law
Our second restated certificate of incorporation and amended and restated bylaws will contain certain provisions that are intended to enhance the likelihood of continuity and stability in the composition of the Board of Directors and which may have the effect of delaying, deferring or preventing a future takeover or change in control of the company unless such takeover or change in control is approved by the Board of Directors.
These provisions include:
Classified Board. Our second restated certificate of incorporation will provide that our Board of Directors will be divided into three classes of directors, with the classes as nearly equal in number as possible. As a result, approximately one-third of our Board of Directors will be elected each year. The classification of directors will have the effect of making it more difficult for stockholders to change the composition of our board. Our second restated certificate of incorporation will also provide that, subject to any rights of holders of preferred stock to elect additional directors under specified circumstances, the number of directors will be fixed exclusively pursuant to a resolution adopted by our Board of Directors. Upon completion of this offering, our Board of Directors will have thirteen members.
Special Meetings of Stockholders. Our second restated certificate of incorporation and amended and restated bylaws will provide that, except as otherwise required by law, special meetings of the stockholders may be called only (i) by our chairperson of the Board of Directors, (ii) by a resolution adopted by a majority of our Board of Directors, or (iii) by our Secretary at the request of the holders of 50% or more of the outstanding shares of our common stock so long as the Sponsors beneficially own a majority of the outstanding shares of our common stock.
Removal of Directors. Our second restated certificate of incorporation will provide that, so long as the Sponsors beneficially own a majority of the outstanding shares of our common stock, our directors may be removed only for cause by the affirmative vote of a majority of the voting power of our outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class. Following the date on which the Sponsors no longer beneficially own a majority of the outstanding shares of our common stock, no member of our Board of Directors may be removed from office except for cause by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of our outstanding shares of capital stock entitled to vote thereon.
Elimination of Stockholder Action by Written Consent. Our second restated certificate of incorporation will eliminate the right of stockholders to act by written consent without a meeting following the date on which the Sponsors no longer beneficially own a majority of the outstanding shares of our common stock.
Advance Notice Procedures. Our amended and restated bylaws will establish an advance notice procedure for stockholder proposals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to the Board of Directors. Stockholders at an annual meeting will only be able to consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the Board of Directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given our Secretary timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although the bylaws will not give the Board of Directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of the company.
Authorized but Unissued Shares. Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of a majority of our common stock by means of a proxy contest, tender offer, merger or otherwise.
Business Combinations with Interested Stockholders. We will elect in our second restated certificate of incorporation not to be subject to Section 203 of the DGCL, an antitakeover law. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination, such as a merger, with a person or group owning 15% or more of the Company’s voting stock for a period of three years following the date the person became an interested stockholder, unless (with certain exceptions)
the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Accordingly, we are not subject to any anti-takeover effects of Section 203. However, our second restated certificate of incorporation will contain provisions that have the same effect as Section 203, except that they provide that the Sponsors and their respective successors, transferees and affiliates will not be deemed to be “interested stockholders,” regardless of the percentage of our voting stock owned by them, and accordingly will not be subject to such restrictions.
Choice of Forum. Our second restated certificate of incorporation will provide that, subject to limited exceptions, the Court of Chancery of the State of Delaware (or, if, and only if, the Court of Chancery of the State of Delaware dismisses a Covered Claim (as defined below) for lack of subject matter jurisdiction, any other state or federal court in the State of Delaware that does have subject matter jurisdiction) will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for the following types of claims: (i) any derivative claim brought in the right of the Company, (ii) any claim asserting a breach of a fiduciary duty to the Company or the Company’s stockholders owed by any current or former director, officer or other employee or stockholder of the Company, (iii) any claim against the Company arising pursuant to any provision of the DGCL, our second restated certificate of incorporation or amended and restated bylaws, (iv) any claim to interpret, apply, enforce or determine the validity of our second restated certificate of incorporation or our amended and restated bylaws, (v) any claim against the Company governed by the internal affairs doctrine, and (vi) any other claim, not subject to exclusive federal jurisdiction and not asserting a cause of action arising under the Securities Act, as amended, brought in any action asserting one or more of the claims specified in clauses (a)(i) through (v) herein above (each a “Covered Claim”). This provision would not apply to claims brought to enforce a duty or liability created by the Exchange Act.
Our second restated certificate of incorporation will further provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. In addition, our second restated certificate of incorporation will provide that any person or entity purchasing or otherwise acquiring any interest in the shares of capital stock of the Company will be deemed to have notice of and consented to these choice-of-forum provisions and waived any argument relating to the inconvenience of the forums in connection with any Covered Claim.
The choice of forum provisions to be contained in our second restated certificate of incorporation may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. While the Delaware courts have determined that such choice of forum provisions are facially valid, it is possible that a court of law in another jurisdiction could rule that the choice of forum provisions to be contained in our second restated certificate of incorporation are inapplicable or unenforceable if they are challenged in a proceeding or otherwise, which could cause us to incur additional costs associated with resolving such action in other jurisdictions.
Amendment of Charter Provisions and Bylaws. The amendment of any of the above provisions, following the date on which the Sponsors no longer beneficially own a majority of the outstanding shares of our common stock, except for the provision making it possible for our Board of Directors to issue preferred stock, would require the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of our outstanding shares of capital stock entitled to vote thereon.
The provisions of Delaware law, our second restated certificate of incorporation and our amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.
Corporate Opportunities
Our second restated certificate of incorporation will provide that we renounce any interest or expectancy in the business opportunities of the Sponsors and all of their respective all of their respective
partners, principals, directors, officers, members, managers and/or employees, including any of the foregoing who serve as directors of the Company, and each such party shall not have any obligation to offer us those opportunities.
Limitations on Liability and Indemnification of Officers and Directors
Our second restated certificate of incorporation will limit the liability of our directors to the fullest extent permitted by the DGCL or any other law of the state of Delaware and our bylaws will provide that we may indemnify our directors and our officers that are appointed by the Board of Directors to the fullest extent permitted by applicable law. We expect to enter into indemnification agreements with our current directors and executive officers prior to the completion of this offering and expect to enter into a similar agreement with any new directors or executive officers. We expect to increase our directors’ and officers’ liability insurance coverage prior to the completion of this offering.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be American Stock Transfer & Trust Company, LLC. Its address is 6201 15th Avenue, Brooklyn, NY 11219. Its telephone number is (800) 937-5449.
SHARES ELIGIBLE FOR FUTURE SALE
As of January 31, 2021 after giving effect to this offering, we had a total of 229,634,661 shares of our common stock outstanding. Of the outstanding shares of common stock, the 40,277,778 shares sold in this offering by us and the selling stockholders (or 46,319,444 shares if the underwriters exercise in full their option to purchase additional shares in this offering) will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144 of the Securities Act (“Rule 144”), including our directors, executive officers and other affiliates (including affiliates of the Sponsors), may be sold only in compliance with the limitations described below.
As of January 31, 2021 before giving effect to this offering, shares of common stock held by the Sponsors and certain of our directors and executive officers represented 96.7% of the total outstanding shares of our common stock. The 182,538,701 shares of common stock held by the Sponsors and by certain of our directors and executive officers as of January 31, 2021 after giving effect to this offering, representing 79.5% of the total outstanding shares of our common stock following this offering (or 176,497,035 shares, representing 79.9% of the total outstanding shares of our common stock, if the underwriters exercise in full their option to purchase additional shares in this offering), will be deemed “restricted securities” under the meaning of Rule 144 and may be sold in the public market only if registered under the Securities Act or if an exemption from registration is available, including the exemptions pursuant to Rule 144 and Rule 701 under the Securities Act (“Rule 701”), which we summarize below.
In addition, awards with respect to 16,594,736 shares of common stock are outstanding under our 2017 Plan as of March 1, 2021, 13,737,500 shares of our common stock will be authorized and reserved for issuance in relation to potential future awards under our 2021 Plan and 2,700,000 shares of our common stock will be authorized and reserved for issuance under our ESPP.
Prior to this offering, there has not been a public market for our common stock, and we cannot predict what effect, if any, market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate. See “Risk Factors—Risks Related to this Offering and Ownership of Our Common Stock—There may be sales of a substantial amount of our common stock after this offering by our current stockholders, and these sales could cause the price of our common stock to fall.”
Our second restated certificate of incorporation will authorize us to issue additional shares of common stock for the consideration and on the terms and conditions established by our Board of Directors in its sole discretion. In accordance with the DGCL and the provisions of our second restated certificate of incorporation, we may also issue preferred stock that has designations, preferences, rights, powers, and duties that are different from, and may be senior to, those applicable to shares of common stock. See “Description of Capital Stock.”
Rule 144
In general, under Rule 144, as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person (or persons whose shares are aggregated) who is not deemed to be or have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of a prior owner other than an affiliate, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares of our common stock on behalf of our affiliates, who have met the six month holding period for beneficial ownership of “restricted shares” of our common stock, are entitled to sell upon the expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
•
1% of the number of shares of our common stock then outstanding, which will equal approximately 2,295,571 shares immediately after this offering; or
•
the average reported weekly trading volume of our common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. The sale of these shares, or the perception that sales will be made, could adversely affect the price of our common stock after this offering because a great supply of shares would be, or would be perceived to be, available for sale in the public market.
Rule 701
In general, under Rule 701 as currently in effect, any of our employees, directors, officers, consultants or advisors who received shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering are entitled to sell such shares 90 days after the effective date of this offering in reliance on Rule 144, in the case of affiliates, without having to comply with the holding period requirements of Rule 144 and, in the case of non-affiliates, without having to comply with the public information, holding period, volume limitation or notice filing requirements of Rule 144.
Lock-Up Agreements
In connection with this offering, we, our directors and executive officers, the selling stockholders and holders who in the aggregate own 184,093,725 shares of our common stock will sign lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the disposition of, or hedging with respect to, the shares of our common stock or securities convertible into or exchangeable for shares of our common stock each held by them, during the period ending 180 days after the date of this prospectus, except with the prior written consent of two of the three representatives of the underwriters. See “Underwriting” for a description of these lock-up agreements.
Registration Statement on Form S-8
As promptly as possible after the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register all of the shares of our common stock issued or reserved for future issuance under our equity incentive plans. This registration statement would cover approximately 33,030,277 shares. Shares registered under the registration statement will generally be available for sale in the open market after the 180-day lock-up period immediately following the date of this prospectus.
Registration Rights
Beginning 180 days after the date of this prospectus, subject to certain exceptions, holders of 180,670,388 shares of our common stock (or 174,628,722 shares if the underwriters exercise in full their option to purchase additional shares in this offering) will be entitled to the registration rights described under “Certain Relationships and Related Party Transactions—Amended and Restated Stockholders Agreement.” Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon effectiveness of the registration.
CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX
CONSEQUENCES TO NON-U.S. HOLDERS
The following is a summary of certain United States federal income and estate tax consequences to non-U.S. holders, defined below, of the purchase, ownership and disposition of shares of our common stock as of the date hereof. Except where noted, this summary relates only to shares of common stock purchased in this offering that are held as capital assets by a non-U.S. holder.
A “non-U.S. holder” means a beneficial owner of shares of our common stock (other than an entity treated as a partnership for United States federal income tax purposes) that, for United States federal income tax purposes, is not any of the following:
•
an individual who is a citizen or resident of the United States;
•
a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
•
an estate the income of which is subject to United States federal income taxation regardless of its source; or
•
a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.
This summary is based upon provisions of the United States Internal Revenue Code of 1986, as amended, or the Code, applicable United States Treasury regulations (“Treasury Regulations”), rulings and judicial decisions, all as of the date hereof. Those authorities are subject to different interpretations and may be changed, perhaps retroactively, so as to result in United States federal income and estate tax consequences different from those summarized below. This summary does not address all aspects of United States federal income and estate taxes and does not deal with foreign, state, local, alternative minimum or other tax considerations that may be relevant to non-U.S. holders in light of their particular circumstances (including the Medicare contribution tax on net investment income). In addition, this summary does not represent a detailed description of the United States federal income and estate tax consequences applicable to you if you are subject to special treatment under the United States federal income tax laws (including but not limited to if you are a United States expatriate, financial institution, insurance company, tax-exempt organization, trader, broker or dealer in securities, “controlled foreign corporation,” “passive foreign investment company,” a partnership or other pass-through entity for United States federal income tax purposes (or an investor in such a pass-through entity), a person who acquired shares of our common stock as compensation or otherwise in connection with the performance of services, or a person who has acquired shares of our common stock as part of a straddle, hedge, conversion transaction or other integrated investment). We cannot assure you that a change in law will not alter significantly the tax considerations that we describe in this summary.
If any entity or arrangement treated as a partnership for United States federal income tax purposes holds shares of our common stock, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding shares of our common stock, you should consult your tax advisors.
If you are considering the purchase of shares of our common stock, you should consult your own tax advisors concerning the particular United States federal income and estate tax consequences to you of the ownership and disposition of the shares of common stock, as well as the consequences to you arising under the laws of any other applicable taxing jurisdiction in light of your particular circumstances.
Dividends
Cash distributions on shares of our common stock will constitute dividends for United States federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those distributions exceed both
our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your tax basis in our common stock, but not below zero, and then will be treated as gain from the sale of our common stock, as described below under “— Gain on Disposition of Common Stock.”
Dividends paid to a non-U.S. holder generally will be subject to withholding of United States federal income tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the non-U.S. holder within the United States (and, if required by an applicable income tax treaty, are attributable to a United States permanent establishment) generally will not be subject to such withholding tax, provided certain certification and disclosure requirements are satisfied. Instead, such dividends generally will be subject to United States federal income tax on a net income basis in the same manner as if the non-U.S. holder were a United States person as defined under the Code. A corporate non-U.S. holder may be subject to an additional “branch profits tax” at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) on earnings and profits attributable to such dividends that are effectively connected with its United States trade or business (and, if an income tax treaty applies, are attributable to its United States permanent establishment).
A non-U.S. holder of shares of our common stock who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required (a) to complete the applicable Internal Revenue Service, or IRS, Form W-8 and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits or (b) if shares of our common stock are held through certain foreign intermediaries, to satisfy the relevant certification requirements of applicable United States Treasury regulations. Special certification and other requirements apply to certain non-U.S. holders that are pass-through entities rather than corporations or individuals.
A non-U.S. holder of shares of our common stock eligible for a reduced rate of United States withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
Gain on Disposition of Common Stock
Subject to the discussion of backup withholding and FATCA below, any gain realized by a non-U.S. holder on the disposition of shares of our common stock generally will not be subject to United States federal income tax unless:
•
the gain is effectively connected with a trade or business of the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment of the non-U.S. holder);
•
the non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and certain other conditions are met; or
•
we are or have been a “United States real property holding corporation” for United States federal income tax purposes and certain other conditions are met.
In the case of a non-U.S. holder described in the first bullet point above, any gain will be subject to United States federal income tax on a net income basis generally in the same manner as if the non-U.S. holder were a United States person as defined under the Code, and a non-U.S. holder that is a foreign corporation may also be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits attributable to such gain (or, if an income tax treaty applies, at such lower rate as may be specified by the treaty on its gains attributable to its United States permanent establishment). Except as otherwise provided by an applicable income tax treaty, an individual non-U.S. holder described in the second bullet point above will be subject to a 30% tax on any gain derived from the sale, which may be offset by certain United States source capital losses, even though the individual is not considered a resident of the United States under the Code, provided the non-U.S. holder has timely filed United States federal income tax returns with respect to such losses.
With respect to the third bullet point above, we believe we currently are not, and we do not anticipate becoming, a USRPHC. Because the determination of whether we are a USRPHC depends on the
fair market value of our USRPIs relative to the fair market value of our non-U.S. real property interests and our other business assets, there can be no assurance that we are not currently a USRPHC and that we will not become a USRPHC in the future. Even if we are or were to become a USRPHC, gain arising from the sale or other taxable disposition by a non-U.S. holder of shares of our common stock will not be subject to U.S. federal income tax if shares of our common stock are “regularly traded” (as defined by applicable Treasury Regulations) on an established securities market, and such non-U.S. holder owned, actually and constructively, 5% or less of shares of our common stock throughout the shorter of the five-year period ending on the date of the sale or other taxable disposition or the non-U.S. holder’s holding period.
Non-U.S. holders should consult their tax advisors regarding any applicable income tax treaties that may provide for different rules.
Federal Estate Tax
Shares of our common stock that are owned (or treated as owned) by an individual who is not a citizen or resident of the United States (as specially defined for United States federal estate tax purposes) at the time of death will be included in such individual’s gross estate for United States federal estate tax purposes, unless an applicable estate or other tax treaty provides otherwise, and therefore may be subject to United States federal estate tax.
Information Reporting and Backup Withholding
Dividends paid to a non-U.S. holder and the amount of any tax withheld with respect to such dividends generally will be reported to the IRS, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. holder resides under the provisions of an applicable income tax treaty or agreement.
A non-U.S. holder will be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is not a United States person as defined under the Code (and the payor does not have actual knowledge or reason to know that such holder is a United States person as defined under the Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances, backup withholding will apply to the proceeds of a sale of shares of our common stock within the United States or conducted through certain United States-related financial intermediaries, unless the beneficial owner certifies under penalty of perjury that it is not a United States person as defined under the Code (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder’s United States federal income tax liability provided the required information is timely furnished to the IRS.
Additional FATCA Withholding Requirements
Sections 1471 through 1474 of the Code and related Treasury Regulations, together with other Treasury Department or IRS guidance issued thereunder, and intergovernmental agreements, legislation, rules and other official guidance adopted pursuant to such intergovernmental agreements (commonly referred to as “FATCA”) generally impose a U.S. federal withholding tax of 30% on certain payments, including dividends on our common stock, to certain non-U.S. entities (including certain intermediaries) unless such persons establish that they are compliant with or exempt from FATCA. This regime requires, among other things, a broad class of persons to enter into agreements with the IRS to obtain, disclose and report information about their investors and account holders. An intergovernmental agreement between the U.S. and an applicable foreign country may, however, modify these requirements. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in our common stock, and the possible impact of these rules on the entities through which they hold our common stock.
Under the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends on shares of our common stock to such applicable non-U.S. entities that fail to establish they are compliant with or exempt from FATCA. While withholding under FATCA would have also applied to payments of gross proceeds from the sale or other disposition of stock on or after January 1, 2019 by such applicable non-U.S. entities, proposed Treasury Regulations eliminate FATCA withholding on payments of gross proceeds from the sale or other disposition of stock entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury Regulations are issued.
Prospective investors should consult their tax advisors regarding the potential application of withholding under FATCA to their investment in shares of our common stock.
UNDERWRITING
BofA Securities, Inc., Goldman Sachs & Co. LLC and Nomura Securities International, Inc., are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us, the selling stockholders and the underwriters, we and the selling stockholders have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us and the selling stockholders, the number of shares of common stock set forth opposite its name below.
|
Underwriter
|
|
|
Number
of Shares
|
|
|
BofA Securities, Inc.
|
|
|
|
|
|
Goldman Sachs & Co. LLC
|
|
|
|
|
|
Nomura Securities International, Inc.
|
|
|
|
|
|
|
|
|
Credit Suisse Securities (USA) LLC
|
|
|
|
|
|
|
|
|
Morgan Stanley & Co. LLC
|
|
|
|
|
|
|
|
|
Robert W. Baird & Co. Incorporated
|
|
|
|
|
|
|
|
|
Guggenheim Securities, LLC
|
|
|
|
|
|
|
|
|
Jefferies LLC
|
|
|
|
|
|
|
|
|
BMO Capital Markets Corp.
|
|
|
|
|
|
|
|
|
KeyBanc Capital Markets Inc.
|
|
|
|
|
|
|
|
|
William Blair & Company, L.L.C.
|
|
|
|
|
|
|
|
|
Houlihan Lokey Capital, Inc.
|
|
|
|
|
|
|
|
|
Moelis & Company LLC
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
40,277,778
|
|
|
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part. The underwriters may offer and sell shares through certain of their affiliates or other registered broker-dealers or selling agents.
Commissions and Discounts
The representatives have advised us and the selling stockholders that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to us and the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.
|
|
|
|
Per Share
|
|
|
Without Option
|
|
|
With Option
|
|
|
Public offering price
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Underwriting discount
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Proceeds, before expenses, to us
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
Proceeds, before expenses, to the selling stockholders
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
|
|
$
|
|
|
|
The expenses of the offering, not including the underwriting discount, are estimated at $8.8 million and are payable by us. We have agreed to reimburse the underwriters for expenses relating to clearance of this offering with the Financial Industry Regulatory Authority and other regulatory fees up to $60,000.00.
Option to Purchase Additional Shares
The selling stockholders have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to 6,041,666 additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.
No Sales of Similar Securities
We and the selling stockholders, our executive officers and directors and our other existing security holders that collectively own 97.5% of our stock before this offering have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for or repayable with common stock for 180 days after the date of this prospectus without first obtaining the written consent of at least two of the three representatives of the underwriters. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
•
offer, pledge, sell or contract to sell any common stock,
•
sell any option or contract to purchase any common stock,
•
purchase any option or contract to sell any common stock,
•
grant any option, right or warrant for the sale of any common stock,
•
lend or otherwise dispose of or transfer any common stock,
•
request or demand that we file or make a confidential submission of a registration statement related to the common stock, or
•
enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock, and to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition (the “Lock-Up Securities”).
Our agreement does not apply to (i) sales to the underwriters pursuant to the underwriting agreement; (ii) shares of common stock issued by us upon the exercise or vesting of an option or warrant or the conversion of a security outstanding on the date of the underwriting agreement and referred to in this prospectus; (iii) shares of common stock issued, or options to purchase common stock granted, under the employee benefit plans referred to in this prospectus; (iv) shares of common stock issued under a non-employee director stock plan or dividend reinvestment plan referred to in this prospectus; (v) the filing of a registration statement on Form S-8 or other appropriate forms relating to the common stock or other equity-based securities issuable pursuant to our equity or other incentive plans or employee stock purchase plans described in this prospectus; (vi) shares of common stock issued in connection with mergers or acquisitions of businesses, entities, property or other assets, or pursuant to any employee benefit plan assumed by the
company in connection with any such merger or acquisition; or (vii) the issuance of shares of common stock, of restricted stock awards or of options to purchase shares of common stock, in each case in connection with joint ventures, commercial relationships or other strategic transactions, partnerships with experts or other talent to develop or provide content, equipment leasing arrangements or debt financing; provided that in the case of clauses (iv) and (vii), the aggregate number of restricted stock awards or shares of common stock issued or issuable pursuant to options issued in connection does not exceed 5% of the aggregate number of shares of common stock outstanding immediately following this offering.
The agreements of our officers, directors and holders of substantially all of our common stock, including the selling stockholders, do not apply to (i) sales to the underwriters pursuant to the underwriting agreement; (ii) common stock purchased from the underwriters in this offering; (iii) common stock acquired in open-market transactions after the effective date of this offering; (iv) transfers made as a bona fide gift or gifts or by will or intestacy; (v) transfers pursuant to domestic relations or court orders; (vi) transfers to a trust or limited partnership for the direct or indirect benefit of such holder; (vii) transfers to an immediate family member or dependent of such holder; (viii) transfers made as a distribution by a trust to its beneficiaries; (ix) transfers made as a distribution to partners, members, subsidiaries, affiliates or stockholders of such holder, or to any investment fund or other entity that directly or indirectly controls or manages, is under common control with or is controlled or managed by such holder; (x) to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (iv), (vi), (vii), (viii) and (ix); (xi) transfers to us in connection with the “cashless” or “net” exercise of options, warrants or other rights to purchase common stock for the purpose of exercising such options, warrants or other rights, or to cover tax obligations of such holder in connection with such exercise, the vesting of restricted stock units or the settling of restricted shares of common stock or restricted stock units; (xii) transfers pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction involving a change in control of us; (xiii) transfers in connection with the conversion, exercise or exchange of options, warrants or other rights to acquire common stock, the vesting or restricted shares of common stock or restricted stock units, or the settling of restricted shares of common stock or restricted stock units under a plan described in this prospectus; (xiv) transfers to us pursuant to agreements under which we have the option to repurchase or reacquire Lock-Up Securities or a right of first refusal with respect to transfers of Lock-Up Securities; (xv) any pledge, charge, hypothecation or other granting of a security interest in the Lock-Up Securities to one or more lenders as collateral or security for or in connection with any margin loan or other loans, advances or extensions of credit entered into by the officer, director or holder of common stock or any of its direct or indirect subsidiaries and any transfers of such Lock-Up Securities to the applicable lender or other third parties upon or following foreclosure upon or enforcement of such Lock-Up Securities in accordance with the terms of the documentation governing any margin loan or other loan, advance or extension of credit; or (xvi) transfers in an amount up to 300 Class A shares, which amount shall be adjusted to give effect to the Reclassification; provided that the exception under clause (xvi) shall not apply to our officers, directors or the Sponsors; provided that in the case of a transfer or distribution pursuant to clauses (iv) through (x), the transferee or distributee agrees to such restrictions for the remainder of the 180-day period, and in the case of a transfer or distribution pursuant to clauses (iii) through (x), such transfers or distributions are not required to be reported with the SEC on Form 4 and no Form 4 is voluntarily filed.
Listing
We have applied to list our common stock on the New York Stock Exchange under the symbol “HAYW.”
Reserved Share Program
At our request, an affiliate of BofA Securities, Inc., a participating Underwriter, has reserved for sale, at the initial public offering price, up to 5 % of the shares offered by this prospectus for sale to some of our directors, officers, employees and related persons. If these persons purchase reserved shares it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
Determination of Offering Price
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us, the selling stockholders and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are
•
the valuation multiples of publicly traded companies that the representatives believe to be comparable to us,
•
our financial information,
•
the history of, and the prospects for, our company and the industry in which we compete,
•
an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues,
•
the present state of our development, and
•
the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
Price Stabilization, Short Positions and Penalty Bids
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option granted to them. “Naked” short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the New York Stock Exchange, in the over-the-counter market or otherwise.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
Electronic Distribution
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.
Other Relationships
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. For example, certain of the underwriters or their affiliates are lenders under our Credit Facilities, and Bank of America, N.A., an affiliate of BofA Securities, Inc., is the administrative agent for our Credit Facilities. Because a portion of the net proceeds to us from this offering will be used to repay amounts outstanding under our Credit Facilities, such lenders will receive proceeds from this offering. See “Use of Proceeds.”
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
European Economic Area
In relation to each Member State of the European Economic Area (each a “Relevant State”), no offer of shares which are the subject of this offering has been, or will be, made to the public in that Relevant State prior to the publication of a prospectus in relation to the Shares which has been approved by the competent authority in that Relevant State or, where appropriate, approved in another Relevant State and notified to the competent authority in that Relevant State, all in accordance with the Prospectus Regulation), except that offers of shares may be made to the public in that Relevant State at any time under the following exemptions under the Prospectus Regulation:
a.
to any legal entity which is a qualified investor as defined under the Prospectus Regulation;
b.
to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
c.
in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of Shares shall require the Issuer or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
Each person in a Relevant State who initially acquires any Shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the Company and the underwriters that it is a qualified investor within the meaning of the Prospectus Regulation.
In the case of any Shares being offered to a financial intermediary as that term is used in Article 5(1) of the Prospectus Regulation, each such financial intermediary will be deemed to have represented,
acknowledged and agreed that the Shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in a Relevant State to qualified investors, in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
The Company, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any Shares in any Relevant State means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase or subscribe for any Shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
The above selling restriction is in addition to any other selling restrictions set out below.
In connection with the offering, the underwriters are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
Notice to Prospective Investors in the United Kingdom
In relation to the United Kingdom, no offer of shares which are the subject of this offering has been, or will be, made to the public in the United Kingdom prior to the publication of a prospectus in relation to the Shares which has been approved by the Financial Conduct Authority in the United Kingdom in accordance with the UK Prospectus Regulation and the FSMA, except that offers of Shares may be made to the public in the United Kingdom at any time under the following exemptions under the UK Prospectus Regulation and the FSMA:
a.
to any legal entity which is a qualified investor as defined under the UK Prospectus Regulation;
b.
to fewer than 150 natural or legal persons (other than qualified investors as defined under the UK Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
c.
at any time in other circumstances falling within section 86 of the FSMA,
provided that no such offer of Shares shall require the Issuer or any underwriter to publish a prospectus pursuant to Section 85 of the FSMA or Article 3 of the UK Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the UK Prospectus Regulation.
Each person in the United Kingdom who initially acquires any Shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed to and with the Company and the underwriters that it is a qualified investor within the meaning of the UK Prospectus Regulation.
In the case of any Shares being offered to a financial intermediary as that term is used in Article 5(1) of the UK Prospectus Regulation, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer to the public other than their offer or resale in the United Kingdom to qualified investors, in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.
The Company, the underwriters and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.
For the purposes of this provision, the expression an “offer to the public” in relation to any Shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any Shares to be offered so as to enable an investor to decide to purchase or
subscribe for any Shares, the expression “UK Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018, and the expression “FSMA” means the Financial Services and Markets Act 2000.
In connection with the offering, the underwriters are not acting for anyone other than the issuer and will not be responsible to anyone other than the issuer for providing the protections afforded to their clients nor for providing advice in relation to the offering.
This document is for distribution only to persons who (i) have professional experience in matters relating to investments and who qualify as investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended, the “Financial Promotion Order”), (ii) are persons falling within Article 49(2)(a) to (d) (“high net worth companies, unincorporated associations etc.”) of the Financial Promotion Order, (iii) are outside the United Kingdom, or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) in connection with the issue or sale of any securities may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as “relevant persons”). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons.
Notice to Prospective Investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to Prospective Investors in the Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include
the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Notice to Prospective Investors in Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the shares were not offered or sold or caused to be made the subject of an invitation for subscription or purchase and will not be offered or sold or caused to be made the subject of an invitation for subscription or purchase, and this prospectus or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares, has not been circulated or distributed, nor will it be circulated or distributed, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or
any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a)
a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b)
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
securities or securities-based derivatives contracts (each term as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
(a)
to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
(b)
where no consideration is or will be given for the transfer;
(c)
where the transfer is by operation of law; or
(d)
as specified in Section 276(7) of the SFA.
Notice to Prospective Investors in Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will be passed upon for us by Ropes & Gray LLP, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
EXPERTS
The financial statements as of December 31, 2020 and December 31, 2019 and for each of the two years in the period ended December 31, 2020 included in this Prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the common stock offered in this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and, in each instance, we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement, with each such statement being qualified in all respects by reference to the document to which it refers. You may inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov.
Upon completion of this offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports, proxy statements and other information with the SEC. You will be able to inspect and copy these reports, proxy statements and other information at the public reference facilities maintained by the SEC at the address noted above or inspect them without charge at the SEC’s website. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by an independent registered public accounting firm.
Hayward Holdings, Inc.
Consolidated Financial Statements
As of and for the years ended December 31, 2020 and 2019
Index
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Page
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F-2
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Consolidated Financial Statements
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F-3
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F-4
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F-5
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F-6
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F-7 – F-38
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Hayward Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hayward Holdings, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive income, of changes in redeemable stock and stockholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 16, 2021, except for the effects of the stock split discussed in Note 21 to the consolidated financial statements, as to which the date is March 3, 2021
We have served as the Company’s auditor since 1999.
Hayward Holdings, Inc.
Consolidated Balance Sheets
(dollars in millions, except per share data)
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December 31,
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2020
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2019
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Assets
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Current assets
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|
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Cash and cash equivalents
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|
$
|
114.9
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|
|
|
|
$
|
47.2
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|
Accounts receivable, net of allowances of $1.4 and $1.6, respectively
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|
|
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140.2
|
|
|
|
|
|
184.9
|
|
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|
Inventories, net
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|
145.3
|
|
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137.1
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|
Prepaid expenses
|
|
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10.3
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|
|
|
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6.4
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Other current assets
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13.7
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|
|
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10.2
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Total current assets
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424.4
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385.8
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Property, plant, and equipment, net
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142.3
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|
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139.9
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Goodwill
|
|
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920.3
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|
|
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915.1
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Trademark
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|
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736.0
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|
|
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736.0
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Customer relationships, net
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271.5
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|
|
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302.3
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|
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|
Other intangibles, net
|
|
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|
|
106.7
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|
|
|
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115.3
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Other non-current assets
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|
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|
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5.9
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|
|
|
|
|
8.7
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|
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Total assets
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$
|
2,607.1
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|
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$
|
2,603.1
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Liabilities, Redeemable Stock and Stockholders’ Equity
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Current liabilities
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|
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Current portion of the long-term debt
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$
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2.8
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|
|
|
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$
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0.4
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Accounts payable
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69.6
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|
|
|
|
|
53.4
|
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
141.8
|
|
|
|
|
|
84.5
|
|
|
|
Income taxes payable
|
|
|
|
|
4.4
|
|
|
|
|
|
2.1
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|
|
|
Total current liabilities
|
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|
|
|
218.6
|
|
|
|
|
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140.4
|
|
|
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Long-term debt
|
|
|
|
|
1,300.3
|
|
|
|
|
|
1,147.8
|
|
|
|
Deferred tax liabilities, net
|
|
|
|
|
273.6
|
|
|
|
|
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276.4
|
|
|
|
Other non-current liabilities
|
|
|
|
|
10.9
|
|
|
|
|
|
5.0
|
|
|
|
Total liabilities
|
|
|
|
|
1,803.4
|
|
|
|
|
|
1,569.6
|
|
|
|
Commitments and contingencies (Note 14)
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Redeemable stock
|
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Class A stock $0.001 par value, 1,500,000 authorized; 872,598 issued and 869,823 outstanding at December 31, 2020; 872,547 issued and 872,297 outstanding at December 31, 2019
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|
|
|
|
594.5
|
|
|
|
|
|
869.5
|
|
|
|
Class C stock $0.001 par value, 100 authorized; 100 issued and outstanding at December 31, 2020 and 2019
|
|
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|
|
—
|
|
|
|
|
|
—
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|
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|
Stockholders’ equity
|
|
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|
|
|
|
|
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|
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Common stock $0.001 par value, 29,250,000 authorized; 3,846,960 issued and 2,772,900 outstanding at December 31, 2020; 3,143,400 issued and 3,114,150 outstanding at December 31, 2019
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|
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|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additional paid-in capital
|
|
|
|
|
10.3
|
|
|
|
|
|
8.0
|
|
|
|
Common stock in treasury; 4,340,310 and 3,295,695 at December 31, 2020 and 2019, respectively
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|
|
|
|
(3.7)
|
|
|
|
|
|
(1.2)
|
|
|
|
Retained earnings
|
|
|
|
|
203.0
|
|
|
|
|
|
159.9
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
(0.4)
|
|
|
|
|
|
(2.7)
|
|
|
|
Total stockholders’ equity
|
|
|
|
|
209.2
|
|
|
|
|
|
164.0
|
|
|
|
Total liabilities, redeemable stock and stockholders’ equity
|
|
|
|
$
|
2,607.1
|
|
|
|
|
$
|
2,603.1
|
|
|
See accompanying notes to consolidated financial statements.
Hayward Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Income
(dollars in millions, except per share data)
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net sales
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
733.4
|
|
|
|
Cost of sales
|
|
|
|
|
478.4
|
|
|
|
|
|
409.9
|
|
|
|
Gross profit
|
|
|
|
|
397.0
|
|
|
|
|
|
323.5
|
|
|
|
Selling, general, and administrative expenses
|
|
|
|
|
195.2
|
|
|
|
|
|
179.4
|
|
|
|
Research, development, and engineering
|
|
|
|
|
20.0
|
|
|
|
|
|
19.9
|
|
|
|
Acquisition and restructuring related expense (income)
|
|
|
|
|
19.3
|
|
|
|
|
|
(16.3)
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
37.9
|
|
|
|
|
|
41.8
|
|
|
|
Operating income
|
|
|
|
|
124.6
|
|
|
|
|
|
98.7
|
|
|
|
Interest expense, net
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
Other (income) expense, net
|
|
|
|
|
(6.8)
|
|
|
|
|
|
2.1
|
|
|
|
Total other expense
|
|
|
|
|
66.8
|
|
|
|
|
|
86.6
|
|
|
|
Income from operations before income taxes
|
|
|
|
|
57.8
|
|
|
|
|
|
12.1
|
|
|
|
Provision for income taxes
|
|
|
|
|
14.5
|
|
|
|
|
|
3.6
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Foreign currency translation adjustments, net of tax benefit of $1.4 million and
expense of $1.5 million, respectively
|
|
|
|
|
5.2
|
|
|
|
|
|
8.8
|
|
|
|
Change in fair value of derivatives, net of tax benefit of $1.0 million and $3.3 million, respectively
|
|
|
|
|
(2.9)
|
|
|
|
|
|
(9.4)
|
|
|
|
Comprehensive income
|
|
|
|
$
|
45.6
|
|
|
|
|
$
|
7.9
|
|
|
|
Earnings per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
$
|
0.25
|
|
|
|
|
$
|
0.05
|
|
|
|
Diluted
|
|
|
|
$
|
0.25
|
|
|
|
|
$
|
0.05
|
|
|
|
Weighted average common share outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
1,331,850
|
|
|
|
|
|
924,690
|
|
|
|
Diluted
|
|
|
|
|
2,468,895
|
|
|
|
|
|
2,436,135
|
|
|
See accompanying notes to consolidated financial statements.
Hayward Holdings, Inc.
Consolidated Statements of Changes in Redeemable Stock and Stockholders’ Equity
(dollars in millions, except per share data)
|
|
|
|
Redeemable
Class A and C Stock
|
|
|
|
Common Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Treasury
Stock
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Total
Stockholders’
Equity
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Balance at January 1, 2019
|
|
|
|
|
870,369
|
|
|
|
|
$
|
869.5
|
|
|
|
|
|
|
6,314,880
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
5.1
|
|
|
|
|
$
|
(0.2)
|
|
|
|
|
$
|
150.7
|
|
|
|
|
$
|
(2.1)
|
|
|
|
|
$
|
153.5
|
|
|
|
Change in accounting policy
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
0.9
|
|
|
|
|
|
—
|
|
|
|
|
|
0.9
|
|
|
|
Net income
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
8.5
|
|
|
|
|
|
—
|
|
|
|
|
|
8.5
|
|
|
|
Issuance of Class A stock
|
|
|
|
|
2,128
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.3
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.3
|
|
|
|
Cash distributions
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(0.2)
|
|
|
|
|
|
—
|
|
|
|
|
|
(0.2)
|
|
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.6
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.6
|
|
|
|
Exercise of stock options
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
94,965
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Repurchase of stock
|
|
|
|
|
(100)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(3,295,695)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1.0)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1.0)
|
|
|
|
Comprehensive loss items
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(0.6)
|
|
|
|
|
|
(0.6)
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
872,397
|
|
|
|
|
|
869.5
|
|
|
|
|
|
|
3,114,150
|
|
|
|
|
|
—
|
|
|
|
|
|
8.0
|
|
|
|
|
|
(1.2)
|
|
|
|
|
|
159.9
|
|
|
|
|
|
(2.7)
|
|
|
|
|
|
164.0
|
|
|
|
Net income
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
43.3
|
|
|
|
|
|
—
|
|
|
|
|
|
43.3
|
|
|
|
Issuance of Class A stock
|
|
|
|
|
51
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
0.1
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
0.1
|
|
|
|
Cash distributions
|
|
|
|
|
—
|
|
|
|
|
|
(275.0)
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(0.2)
|
|
|
|
|
|
—
|
|
|
|
|
|
(0.2)
|
|
|
|
Stock-based compensation
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.9
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1.9
|
|
|
|
Exercise of stock options
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
703,560
|
|
|
|
|
|
—
|
|
|
|
|
|
0.3
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
0.3
|
|
|
|
Repurchase of stock
|
|
|
|
|
(2,525)
|
|
|
|
|
|
—
|
|
|
|
|
|
|
(1,044,810)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2.5)
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(2.5)
|
|
|
|
Comprehensive income items
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
2.3
|
|
|
|
|
|
2.3
|
|
|
|
Balance at December 31, 2020
|
|
|
|
|
869,923
|
|
|
|
|
$
|
594.5
|
|
|
|
|
|
|
2,772,900
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
10.3
|
|
|
|
|
$
|
(3.7)
|
|
|
|
|
$
|
203.0
|
|
|
|
|
$
|
(0.4)
|
|
|
|
|
$
|
209.2
|
|
|
See accompanying notes to consolidated financial statements.
Hayward Holdings, Inc.
Consolidated Statements of Cash Flows
(dollars in millions, except per share data)
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
|
18.8
|
|
|
|
|
|
17.2
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
44.0
|
|
|
|
|
|
46.8
|
|
|
|
Amortization of deferred debt issuance costs
|
|
|
|
|
5.4
|
|
|
|
|
|
5.3
|
|
|
|
Stock-based compensation
|
|
|
|
|
1.9
|
|
|
|
|
|
1.6
|
|
|
|
Deferred income taxes
|
|
|
|
|
(0.3)
|
|
|
|
|
|
(16.6)
|
|
|
|
Loss (gain) on sale of property, plant, and equipment
|
|
|
|
|
2.0
|
|
|
|
|
|
(16.2)
|
|
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
47.1
|
|
|
|
|
|
2.2
|
|
|
|
Inventories
|
|
|
|
|
(4.7)
|
|
|
|
|
|
5.1
|
|
|
|
Other current and non-current assets
|
|
|
|
|
(13.0)
|
|
|
|
|
|
9.7
|
|
|
|
Accounts payable and accrued expenses and other liabilities
|
|
|
|
|
69.3
|
|
|
|
|
|
30.4
|
|
|
|
Net cash provided by operating activities
|
|
|
|
|
213.8
|
|
|
|
|
|
94.0
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant, and equipment
|
|
|
|
|
(14.2)
|
|
|
|
|
|
(25.0)
|
|
|
|
Purchases of intangibles
|
|
|
|
|
(1.4)
|
|
|
|
|
|
(1.7)
|
|
|
|
Proceeds from sale of property, plant, and equipment
|
|
|
|
|
0.5
|
|
|
|
|
|
28.5
|
|
|
|
Proceeds from settlements of investment currency hedge
|
|
|
|
|
2.1
|
|
|
|
|
|
2.2
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
|
|
(13.0)
|
|
|
|
|
|
4.0
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
|
|
150.0
|
|
|
|
|
|
—
|
|
|
|
Debt issuance costs
|
|
|
|
|
(4.0)
|
|
|
|
|
|
—
|
|
|
|
Payments of long-term debt
|
|
|
|
|
(3.5)
|
|
|
|
|
|
(27.7)
|
|
|
|
Net change in revolving credit facility
|
|
|
|
|
—
|
|
|
|
|
|
(37.0)
|
|
|
|
Issuance of Class A stock
|
|
|
|
|
0.1
|
|
|
|
|
|
1.3
|
|
|
|
Distributions paid to Class A and Class C stockholders
|
|
|
|
|
(275.2)
|
|
|
|
|
|
(0.2)
|
|
|
|
Purchases of treasury stock
|
|
|
|
|
(2.5)
|
|
|
|
|
|
(1.0)
|
|
|
|
Other financing activity
|
|
|
|
|
—
|
|
|
|
|
|
(0.5)
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
(135.1)
|
|
|
|
|
|
(65.1)
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents and restricted cash
|
|
|
|
|
2.4
|
|
|
|
|
|
—
|
|
|
|
Change in cash and cash equivalents and restricted cash
|
|
|
|
|
68.1
|
|
|
|
|
|
32.9
|
|
|
|
Cash and cash equivalents and restricted cash, beginning of year
|
|
|
|
|
47.2
|
|
|
|
|
|
14.3
|
|
|
|
Cash and cash equivalents and restricted cash, end of year
|
|
|
|
$
|
115.3
|
|
|
|
|
$
|
47.2
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid-interest
|
|
|
|
$
|
68.5
|
|
|
|
|
$
|
79.2
|
|
|
|
Cash paid-income taxes
|
|
|
|
$
|
12.0
|
|
|
|
|
$
|
13.0
|
|
|
|
Equipment financed under capital leases
|
|
|
|
$
|
8.1
|
|
|
|
|
$
|
—
|
|
|
See accompanying notes to consolidated financial statements.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements
1. Nature of Operations and Organization
Hayward Holdings, Inc. (“Holdings” or the “Company”) is a global designer, manufacturer, and marketer of a broad portfolio of pool equipment and associated automation systems. The Company has facilities in the United States, Canada, Spain, France, Australia and China. Cash flow is impacted by the seasonality of the swimming pool business. Cash flow is usually higher in the second and third quarters due to terms of sale to our customers.
We were acquired by entities affiliated with CCMP Capital Advisors, LP (“CCMP”), MSD Partners, L.P. (“MSD Partners”) and Alberta Investment Management Corporation (“AIMCo” and, together with CCMP and MSD Partners, the “Sponsors”) and members of management and our board of directors (the “Board of Directors”) in June 2017 (the “Acquisition”).
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to estimates and assumptions include the determination of the fair value of acquired assets and liabilities, the carrying value of goodwill and other intangible assets, valuation of allowances for receivables, inventories, deferred income tax assets, self-insurance and warranty obligations, legal and environmental liabilities, restructuring reserve liabilities, stock-based compensation and promotional program accruals. Actual results may differ significantly from those estimates.
Cash and Cash Equivalents
Cash equivalents primarily consist of cash on deposit with banks and liquid investments in next day, AAA rated money market, government securities, and treasury funds with an original term of three months or less at date of purchase. The Company’s cash and cash equivalent balances deposited at financial institutions may at times exceed federally insured limits. The Company does not believe that its cash balances are subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Periodically throughout the period, the Company’s cash balance exceeded the amount insured by the Federal Deposit Insurance Corporation (“FDIC”). The Company sweeps available cash on hand daily either to reduce any revolver balance outstanding or deposit in an interest bearing account. In the event the Company receives a remittance via wire transmission after the sweep deadline, the cash will remain as on-hand overnight and may, from time to time, exceed the amount insured by the FDIC. In addition, we maintain cash balances at banking institutions in Australia, China, Canada, France, and Spain, which are not protected by FDIC insurance. We mitigate potential cash risk by maintaining bank accounts with credit worthy financial institutions.
Authorized Shares
On March 2, 2021, the Company amended its amended and restated certificate of incorporation to increase the authorized capital stock of the Company to 301,500,100 shares, consisting of 300,000,000 shares of common stock, par value $0.001 per share, 1,500,000 shares of Class A common stock, par value $0.001 per share, and 100 shares of Class C common stock, par value $0.001 per share.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
The following table provides supplemental cash flow information and a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the consolidated balance sheets and consolidated statements of cash flows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
114.9
|
|
|
|
|
$
|
47.2
|
|
|
|
Restricted cash(a)
|
|
|
|
|
0.4
|
|
|
|
|
|
—
|
|
|
|
Total
|
|
|
|
$
|
115.3
|
|
|
|
|
$
|
47.2
|
|
|
(a)
included in Other current assets
Accounts Receivable, Net
Accounts receivable is presented net of an allowance for doubtful accounts. The Company’s allowance for doubtful accounts is determined based on a variety of factors that affect the potential collectability of related receivables, including length of time receivables are past due, customer credit ratings, financial stability of customers, specific one-time events and past customer history.
Activity in the Company’s allowance for doubtful accounts is as follows (in millions):
|
|
|
|
Balance at
Beginning of
Period
|
|
|
Charges
(Recoveries) to
Costs and
Expenses
|
|
|
Additions
(Deductions)
|
|
|
Other
|
|
|
Balance at End
of Period
|
|
|
2019
|
|
|
|
$
|
1.5
|
|
|
|
|
$
|
0.2
|
|
|
|
|
$
|
(0.1)
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
1.6
|
|
|
|
2020
|
|
|
|
$
|
1.6
|
|
|
|
|
$
|
(0.3)
|
|
|
|
|
$
|
0.1
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
1.4
|
|
|
Inventories
Inventories are stated at the lower of cost or market, net of obsolescence reserves on a first-in, first-out (“FIFO”) basis. Effective November 30, 2020, the Company changed its inventory cost method to FIFO for all U.S. inventories previously carried at last-in, first-out (“LIFO”) basis. Management determined that this change in accounting principle is preferable because the FIFO method improves comparability of the Company’s operating results with its industry peers and provides an increased level of consistency in the measurement of inventories in the Company’s consolidated financial statements. All international inventories were previously, and continue to be, measured using FIFO. The effects of the change in accounting principle from LIFO to FIFO have been retrospectively applied to all prior periods presented. The impact of the change was not material, including the increase to the opening retained earnings balance of $2.5 million, net of tax.
Property, Plant, and Equipment
Property, plant and equipment is recorded at cost and depreciated using the straight-line method of depreciation based upon the following estimated useful lives:
•
Buildings and improvements—10 to 40 years
•
Machinery, tools and equipment—3 to 20 years
Repairs and maintenance are charged to expense as incurred. Upon disposition, the asset and corresponding accumulated depreciation are removed from the related accounts and any gains or losses are reflected in operating income.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
The Company reviews the recoverability of long-lived assets to be held and used when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected undiscounted future pre-tax cash flows of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets. We recorded no long-lived asset impairment charges for the years ended December 31, 2020 and 2019.
Goodwill and Intangible Assets
The purchase price in excess of net assets of businesses acquired is classified as goodwill in the accompanying consolidated balance sheets.
The Company tests goodwill at the reporting unit level, which is defined as an operating segment or one level below an operating segment that constitutes a business for which financial information is available and is regularly reviewed by the Chief Operating Decision Maker (“CODM”). The Company determined that it has five reporting units for this purpose. The Company tests for impairment at least annually or if there is an indication that goodwill may be impaired.
The Company has the option to first complete a qualitative assessment (i.e., “Step 0”) to determine whether it is more likely than not that the fair value of the business is less than its carrying amount. If the Company determines that this is the case, it is required to perform the currently prescribed quantitative impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be charged for that reporting unit, if any.
Under the quantitative assessment, the Company compares the carrying value of goodwill at a reporting unit level to an estimate of the fair value of the respective reporting unit. Fair value of the reporting unit is estimated using a discounted six-year projected cash flow analyses and a terminal value calculation at the end of the six-year period. If the fair value of the reporting unit exceeds its carrying value, the goodwill associated with the reporting unit is not impaired. If the carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized for the amount by which the reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
For the years ended December 31, 2020 and 2019, the Company completed its annual qualitative impairment analysis of goodwill for each of its reporting units at November 30, 2020 and 2019, respectively. The results of the qualitative assessments indicated that it was not more likely than not that the fair values of the reporting units were less than the carrying values.
Intangible assets with finite lives are amortized based on the estimated useful life of the intangible asset using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, or, if that pattern cannot be reliably determined using a straight-line amortization method.
Intangible assets with indefinite lives (i.e., trademarks) are not amortized; rather, they are tested for impairment whenever events or circumstances exist that would make it more likely than not that an impairment exists. The Company first assesses qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If adverse qualitative trends are identified that could negatively impact the fair value of the asset, then quantitative impairment tests are performed to compare the carrying value of the asset to its undiscounted expected future cash flows. If this test indicates that there is impairment, the impaired asset is written down to fair value.
For the years ended December 31, 2020 and 2019, the Company completed its annual qualitative impairment analysis of indefinite-lived intangible assets at November 30, 2020 and 2019, respectively. The
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
results of the qualitative assessments indicated that it was not more likely than not that the fair values of the indefinite-lived intangible assets were less than the carrying values.
Fair Value Measurements
The Company measures certain of its assets and liabilities at fair value, which is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants, in either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability.
The common framework for measuring fair value utilizes a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.
Level 1
Quoted prices in active markets for identical assets or liabilities.
Level 2
Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
Level 3
Valuations derived from valuation techniques in which one or more significant inputs are unobservable.
Derivatives
The Company manages its economic and transaction exposure to certain risks through the use of foreign currency derivative instruments and interest rate swaps. The Company’s objective in holding derivatives is to reduce the volatility of net earnings, cash flows and net asset value associated with changes in foreign currency exchange rates and interest rates. The Company does not hold derivative instruments for trading or speculative purposes.
In accordance with Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging, the Company records all derivative instruments on its consolidated balance sheet at fair value and evaluates hedge effectiveness prospectively and retrospectively when electing to apply hedge accounting. The Company formally documents all hedging relations at inception for derivative hedges and the underlying hedged items, as well as the risk management objectives and strategies for undertaking the hedge transaction.
The Company operates in multiple functional currencies. For foreign currency exposures, derivatives are used to limit the effects of foreign exchange rate fluctuations on financial results. In the normal course of business, the Company is exposed to the impact of interest rate changes and foreign currency fluctuations. The Company limits its exposure to these risks by following established risk management policies and procedures, including the use of derivatives. For interest rate exposures, derivatives are used to manage the related cost of debt. As a result of the use of derivative instruments, the Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations. To mitigate the counterparty credit risk, the Company has a policy of only entering into contracts with carefully selected AAA rated money market investments.
Changes in the fair value of derivative instruments designated as “cash flow” hedges, to the extent the hedges are highly effective, are recorded in other comprehensive loss, net of tax effects. Ineffective portions of cash flow hedges, if any, are recognized in current period income. Other comprehensive income or loss is reclassified into current period income when the hedged transaction affects earnings. Changes in the fair value of derivative instruments designated as “fair value” hedges, along with corresponding changes in the fair values of the hedged assets or liabilities, are recorded in current period income. Ineffective
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
portions of fair value hedges are recognized in current period income. Changes in the fair value and realized gains or losses of derivative instruments designated as “net investment hedges” are recorded in cumulative translation adjustment until the hedged net investment is sold or liquidated.
Redeemable Stock
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, Distinguishing Liabilities from Equity. Conditionally redeemable stock (including stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. The Company’s Class A stock includes conversion features triggered upon an initial public offering and does not meet the definition of permanent equity. The Company’s Class C stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, stock subject to possible redemption is presented outside of the stockholders’ equity section of the Company’s consolidated balance sheet.
Revenue Recognition
Revenue is recognized by the Company, net of sales taxes, when goods or services obligated in a contract with a customer have been transferred, and no further performance obligation on such transfer is required, in an amount that reflects the consideration expected to be received. For the sale of the Company’s products, revenue is typically recognized upon shipment.
Customers are offered volume discounts and other promotional benefits. The Company estimates volume discounts, promotional benefits, and returns based upon the terms of the customer contracts and actual historical experience and records such amounts as a reduction of gross sales with an offsetting adjustment to accounts receivable. The Company regularly monitors the adequacy of these offsets by comparing to actual results.
The Company considers shipping and handling activities as a fulfillment activity. Net sales include outbound shipping and handling charges billed to customers. Cost of sales includes all costs incurred in connection with inbound and outbound shipping and handling.
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Under ASC Topic 740, deferred tax assets and deferred tax liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted rates in effect for the year in which the differences are expected to reverse. A valuation allowance is recorded if it is more likely than not that a deferred tax asset will not be realized.
The Company follows the guidance in ASC Topic 740-10 in assessing uncertain tax positions. The standard applies to all tax positions and clarifies the recognition of tax benefits in the financial statements by providing for a two-step approach of recognition and measurement. The first step involves assessing whether the tax position is more-likely-than-not to be sustained upon examination based upon its technical merits. The second step involves measurement of the amount to be recognized. Tax positions that meet the more-likely-than-not threshold are measured at the amount of tax benefit that is greater than 50% likely of being realized upon ultimate agreement with the taxing authority. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences impact income tax expense in the period in which such determination is made. Interest and penalties, if any, related to accrued liabilities for potential tax assessments are included in income tax expense. See Note 8. Income Taxes.
The Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense of which there was no expense for the years ended December 31, 2020 and 2019.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
Concentration of Credit Risks
One customer, Pool Corporation (“POOL”), accounted for approximately 30% and 26% of consolidated sales for the years ended December 31, 2020 and 2019, respectively and represented 35% and 31% of total accounts receivable at December 31, 2020 and 2019, respectively. Acquisitions of customers by POOL in 2020 have contributed to these increases. No other customer accounted for sales or accounts receivable of greater than 10% of the relative total amounts. The Company has adequate availability of suppliers. The loss of any one supplier would not have a material effect on the Company’s operations.
Research, Development, and Engineering
The Company conducts research, development and engineering (“RD&E”) activities in its own facilities, and consist primarily of the development of new products, enhanced product applications, improved manufacturing and packaging processes. Costs of RD&E are primarily expensed as incurred. RD&E costs applicable to the development of software used in Company products are expensed as incurred until the software is determined to be technologically feasible and the RD&E activities for the other related components of the product have been completed. Once the software is determined to be technologically feasible, costs incurred are capitalized and amortized over the expected life of the product.
Advertising Costs
Advertising costs are expensed as incurred. Certain costs are deferred and included within other current assets on the Company’s consolidated balance sheets. These deferred costs are expensed as the events occur or as the materials are distributed. Advertising costs expensed were $9.1 million and $11.6 million for the years ended December 31, 2020 and 2019, respectively.
Stock-Based Compensation
The Company uses its Class A stock and common stock for various forms of share-based compensation arrangements entered into with its employees and directors. Share-based compensation arrangements are accounted for at fair value on the date of grant. The fair value of stock options is determined using a Black-Scholes valuation model. The fair value of other share-based awards is based on the valuation of the common stock on the date of grant. The fair value of time-based awards that are ultimately expected to vest is recognized as an expense on a straight-line basis over the requisite service period. The fair value of performance-based awards is recognized in the period the performance condition is probable of occurring. The Company recognizes forfeitures as they occur. Stock-based compensation costs are recorded in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income. See Note 16. Stock-based Compensation.
Earnings per Share
The two-class method is an earnings allocation formula that determines earnings per share (“EPS”) for common stock and participating securities, according to rights to dividends declared and participation rights in undistributed earnings. Under this method, net earnings is reduced by the amount of dividends declared in the current period for each class of common stockholders and participating security holders. The remaining earnings or “undistributed earnings” are allocated between the classes of common stock and participating securities to the extent that each security may share in earnings as if all of the earnings for the period had been distributed. Once calculated, the earnings per common share is computed by dividing the net earnings attributable to each class of common stockholders by the weighted average number of common shares outstanding during each year presented. Diluted earnings attributable to common stockholders per common share has been computed by dividing the net earnings attributable to common stockholders by the weighted average number of common shares outstanding plus the dilutive effect of
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
options and restricted shares outstanding during the applicable periods computed using the more dilutive of the two-class method, if-converted method or treasury method. In cases where the Company has a net loss, no dilutive effect is shown as options and restricted stock become anti-dilutive, and basic and diluted EPS are computed in the same manner.
The Company calculates basic earnings per share (“Basic EPS”) using the two-class method, which is required as the Company has multiple classes of common stock. Under the two-class method, earnings for the period are allocated on a pro-rata basis to the Class A and common stockholders. The weighted-average number of Class A and common shares outstanding during the period is then used to calculate basic EPS for each class of shares.
The Class C stock does not have substantive economic rights, including distribution upon liquidation, and is therefore not a participating security. As such, separate presentation of basic and diluted earnings per share of Class C stock under the two-class method has not been presented.
Stock options and other potential common shares are included in the calculation of diluted earnings per share (“Diluted EPS”), since they are assumed to be exercised or converted, except when their effect would be anti-dilutive.
Insurance
The Company obtains standard corporate insurance policies with an insured position subject to retention (deductible) for risks including but not limited to fire, flood, cyber, directors and officers, business interruption, ocean cargo, workers’ compensation in the United States, automobile, property and casualty, general liability, and product liability. The Company offers employee medical benefits in the United States under a self funded plan combined with stop-loss coverage to limit our exposure to large claims. Insurance claims filed and claims incurred but not recorded are accrued based upon estimates of the ultimate costs to be incurred using historical experience.
Foreign Currency Translation
The Company predominantly uses the U.S. dollar as its functional currency. The Company has international subsidiaries whose local currency has been determined to be their functional currency. For these subsidiaries, the assets and liabilities are translated using period-end exchange rates, and the revenues and expenses are translated at the average rates of exchange prevailing during the period. The adjustments resulting from translation are recorded separately in stockholders’ equity as a component of accumulated other comprehensive loss. The effect of exchange rate changes on intercompany transactions of a long term and permanent nature are credited or charged directly to a separate component of stockholders’ equity. Foreign currency transaction gains and losses, including the translation of assets or liabilities denominated in a currency other than the functional currency are recorded in other income or expense.
Recent Accounting Pronouncements Not Yet Adopted
The Company plans to adopt the following recent accounting pronouncements based on accommodations for Emerging Growth Companies.
Accounting for Leases
Accounting Standards Update (the ‘‘ASU’’) 2016-02, Leases, was issued by Financial Accounting Standards Board (the ‘‘FASB’’) in February 2016. This standard requires the Company, as the lessee, to recognize most leases on the balance sheet thereby resulting in the recognition of right of use assets and lease obligations for those leases currently classified as operating leases. The standard will be effective for the
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
2. Significant Accounting Policies (Continued)
Company on January 1, 2022 and it is evaluating whether it will elect the optional transition method as well as the package of practical expedients, upon adoption.
In addition to the recognition of the rights of use assets and lease obligations, the Company anticipates changes in systems, processes and controls. While the requirements of the new guidance represent a material change from existing Generally Accepted Accounting Principles (the ‘‘GAAP’’), the underlying economics of items in scope and related cash flows are unchanged. The Company plans to focus on gathering data, developing procedures and testing before adoption. Focus areas include, but are not limited to (i) updating procedures to reflect new guidance; (ii) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.
New Credit Loss Standard
ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued by FASB in June 2016. This standard is effective January 1, 2023, and will impact, at least to some extent, the Company’s accounting and disclosure requirements for its accounts receivable. The Company will continue to identify any other financial assets not excluded from scope. The Company does not currently expect to early adopt this standard and is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
The Company anticipates an impact on the systems, processes and controls. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of items in scope and related cash flows are unchanged. The Company plans to focus on gathering data, developing procedures and testing before adoption. Focus areas include, but are not limited to (i) updating procedures to reflect new guidance requiring establishment of allowance for credit losses on accounts receivable; (ii) establishing procedures to identify and review all remaining financial assets within scope, (iii) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.
3. Revenue Recognition
The Company primarily sells pool equipment including pumps, filters, heaters, cleaners, salt chlorinators, automation, lighting, safety and flow control products to its customers. An arrangement with a customer contains a single performance obligation for sale of the products. Transfer of the individual product is considered the performance obligation. The Company ships its products via Free on Board (“FOB”) shipping point and recognizes revenue at the point-in-time of shipment to the customer. The Company’s standard customer payment terms are net thirty days. The Company has established an early-buy program for select customers for purchases made outside of peak season that extends favorable payment terms, not to exceed nine months, and applies the practical expedient in Accounting Standards Codification (the‘‘ASC’’) 606-10-32-18 to not adjust the amount of consideration for the effects of a significant financing component. The Company recognizes revenue net of incentive agreements, rebates, and other discounts.
Under some arrangements, the Company and its customer agree to an annual incentive agreement. These incentive agreements establish all potential rebates, incentives and other discounts. The transaction price is reduced for certain customer programs and incentive offerings including pricing arrangements and other volume-based incentives that represent variable consideration.
Volume-based incentives involve rebates that are negotiated at or prior to the time of sale with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, the Company determines the most likely amount of the rebate based on forecasted sales levels. These forecasts are updated at least quarterly for each customer, and the transaction price is reduced for the anticipated cost of the rebate.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
3. Revenue Recognition (Continued)
Under some arrangements, customers earn points under the Company’s reward programs, which may be redeemed within a defined period for goods, trips or cash equivalents. The Company’s reward programs provide a customer with a material right and, accordingly, are determined to be separate performance obligations. The Company allocates the transaction price between the product sale, based on a standard customer price list, and the reward program points, redeemable at defined program rates, to establish the relative stand-alone selling prices. Revenue allocated to the material right is deferred based on a rolling twelve month average redemption rate, and is subsequently recognized upon redemption of the reward points. Costs related to reward point redemption are recorded within cost of sales.
The following tables disaggregate net sales between product groups and geographic destinations, respectively (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Product groups
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential pool
|
|
|
|
$
|
815.9
|
|
|
|
|
$
|
663.5
|
|
|
|
Commercial pool
|
|
|
|
|
24.4
|
|
|
|
|
|
29.2
|
|
|
|
Industrial flow control
|
|
|
|
|
35.1
|
|
|
|
|
|
40.7
|
|
|
|
Total
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
733.4
|
|
|
|
Geographic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
|
$
|
623.6
|
|
|
|
|
$
|
509.7
|
|
|
|
Canada
|
|
|
|
|
82.9
|
|
|
|
|
|
66.2
|
|
|
|
Europe
|
|
|
|
|
118.9
|
|
|
|
|
|
99.6
|
|
|
|
Rest of World
|
|
|
|
|
50.0
|
|
|
|
|
|
57.9
|
|
|
|
Total international revenue
|
|
|
|
|
251.8
|
|
|
|
|
|
223.7
|
|
|
|
Total
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
733.4
|
|
|
4. Inventories
Inventories consist of the following (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Raw materials
|
|
|
|
$
|
67.9
|
|
|
|
|
$
|
56.1
|
|
|
|
Work in progress
|
|
|
|
|
13.5
|
|
|
|
|
|
11.0
|
|
|
|
Finished goods
|
|
|
|
|
63.9
|
|
|
|
|
|
70.0
|
|
|
|
Total
|
|
|
|
$
|
145.3
|
|
|
|
|
$
|
137.1
|
|
|
Activity in the Company’s inventory obsolescence reserve is as follows (in millions):
|
|
|
|
Balance at
Beginning of
Period
|
|
|
Charges to
Costs and
Expenses
|
|
|
Deductions
|
|
|
Other
|
|
|
Balance at End
of Period
|
|
|
2019
|
|
|
|
$
|
6.6
|
|
|
|
|
$
|
0.8
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.1
|
|
|
|
|
$
|
7.5
|
|
|
|
2020
|
|
|
|
$
|
7.5
|
|
|
|
|
$
|
6.8
|
|
|
|
|
$
|
(0.6)
|
|
|
|
|
$
|
0.3
|
|
|
|
|
$
|
14.0
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
5. Property, Plant, and Equipment, Net
The carrying value of property, plant, and equipment is as follows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Land
|
|
|
|
$
|
11.4
|
|
|
|
|
$
|
11.1
|
|
|
|
Buildings and improvements
|
|
|
|
|
47.8
|
|
|
|
|
|
38.6
|
|
|
|
Machinery, tools and equipment
|
|
|
|
|
113.1
|
|
|
|
|
|
108.4
|
|
|
|
Construction in progress
|
|
|
|
|
11.5
|
|
|
|
|
|
15.5
|
|
|
|
Owned equipment
|
|
|
|
|
183.8
|
|
|
|
|
|
173.6
|
|
|
|
Buildings and improvements
|
|
|
|
|
1.1
|
|
|
|
|
|
0.8
|
|
|
|
Machinery, tools and equipment
|
|
|
|
|
9.3
|
|
|
|
|
|
1.2
|
|
|
|
Equipment under capital lease
|
|
|
|
|
10.4
|
|
|
|
|
|
2.0
|
|
|
|
Less: Accumulated depreciation
|
|
|
|
|
(51.9)
|
|
|
|
|
|
(35.7)
|
|
|
|
Total
|
|
|
|
$
|
142.3
|
|
|
|
|
$
|
139.9
|
|
|
Depreciation expense was $18.8 million and $17.2 million for the years ended December 31, 2020 and 2019, respectively.
The following table presents property, plant, and equipment, net, by country (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
|
|
$
|
102.0
|
|
|
|
|
$
|
102.5
|
|
|
|
China
|
|
|
|
|
24.2
|
|
|
|
|
|
20.9
|
|
|
|
Canada
|
|
|
|
|
8.9
|
|
|
|
|
|
9.1
|
|
|
|
Spain
|
|
|
|
|
6.5
|
|
|
|
|
|
6.5
|
|
|
|
France
|
|
|
|
|
0.5
|
|
|
|
|
|
0.6
|
|
|
|
Other
|
|
|
|
|
0.2
|
|
|
|
|
|
0.3
|
|
|
|
Total
|
|
|
|
$
|
142.3
|
|
|
|
|
$
|
139.9
|
|
|
6. Goodwill and Intangible Assets
Goodwill
A summary of changes in goodwill is as follows (in millions):
|
|
|
|
North America
|
|
|
Europe & Rest
of World
|
|
|
Total
|
|
|
Balance at January 1, 2019
|
|
|
|
$
|
817.9
|
|
|
|
|
$
|
95.2
|
|
|
|
|
$
|
913.1
|
|
|
|
Currency translation
|
|
|
|
|
2.7
|
|
|
|
|
|
(0.7)
|
|
|
|
|
|
2.0
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
820.6
|
|
|
|
|
|
94.5
|
|
|
|
|
|
915.1
|
|
|
|
Currency translation
|
|
|
|
|
1.5
|
|
|
|
|
|
3.7
|
|
|
|
|
|
5.2
|
|
|
|
Balance at December 31, 2020
|
|
|
|
$
|
822.1
|
|
|
|
|
$
|
98.2
|
|
|
|
|
$
|
920.3
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
6. Goodwill and Intangible Assets (Continued)
Intangible Assets
Intangible assets consist of the following (in millions):
|
|
|
|
Estimated
Useful Lives
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
January 1,
2020
|
|
|
Additions
|
|
|
Amortization
|
|
|
Currency
Translation
|
|
|
Net Carrying
Amount
December 31,
2020
|
|
|
Customer relationships
|
|
|
15 – 20
|
|
|
|
$
|
397.0
|
|
|
|
|
$
|
94.7
|
|
|
|
|
$
|
302.3
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(33.5)
|
|
|
|
|
$
|
2.7
|
|
|
|
|
$
|
271.5
|
|
|
|
Trademarks
|
|
|
15
|
|
|
|
|
69.6
|
|
|
|
|
|
10.6
|
|
|
|
|
|
59.0
|
|
|
|
|
|
—
|
|
|
|
|
|
(4.4)
|
|
|
|
|
|
—
|
|
|
|
|
|
54.6
|
|
|
|
Product technology
|
|
|
10 – 15
|
|
|
|
|
67.2
|
|
|
|
|
|
10.9
|
|
|
|
|
|
56.3
|
|
|
|
|
|
2.2
|
|
|
|
|
|
(6.1)
|
|
|
|
|
|
(0.3)
|
|
|
|
|
|
52.1
|
|
|
|
Total amortizable intangibles
|
|
|
|
|
|
|
|
533.8
|
|
|
|
|
|
116.2
|
|
|
|
|
|
417.6
|
|
|
|
|
|
2.2
|
|
|
|
|
|
(44.0)
|
|
|
|
|
|
2.4
|
|
|
|
|
|
378.2
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
736.0
|
|
|
|
|
|
—
|
|
|
|
|
|
736.0
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
736.0
|
|
|
|
Total intangible assets
|
|
|
|
|
|
|
$
|
1,269.8
|
|
|
|
|
$
|
116.2
|
|
|
|
|
$
|
1,153.6
|
|
|
|
|
$
|
2.2
|
|
|
|
|
$
|
(44.0)
|
|
|
|
|
$
|
2.4
|
|
|
|
|
$
|
1,114.2
|
|
|
|
|
|
|
Estimated
Useful Lives
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net Carrying
Amount
January 1,
2019
|
|
|
Additions
|
|
|
Amortization
|
|
|
Currency
Translation
|
|
|
Net Carrying
Amount
December 31,
2019
|
|
|
Customer relationships
|
|
|
15 – 20
|
|
|
|
$
|
395.7
|
|
|
|
|
$
|
57.6
|
|
|
|
|
$
|
338.2
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(37.1)
|
|
|
|
|
$
|
1.2
|
|
|
|
|
$
|
302.3
|
|
|
|
Trademarks
|
|
|
15
|
|
|
|
|
69.8
|
|
|
|
|
|
5.9
|
|
|
|
|
|
63.7
|
|
|
|
|
|
—
|
|
|
|
|
|
(4.7)
|
|
|
|
|
|
—
|
|
|
|
|
|
59.0
|
|
|
|
Product technology
|
|
|
10 – 15
|
|
|
|
|
64.2
|
|
|
|
|
|
5.9
|
|
|
|
|
|
58.5
|
|
|
|
|
|
2.6
|
|
|
|
|
|
(5.0)
|
|
|
|
|
|
0.2
|
|
|
|
|
|
56.3
|
|
|
|
Total amortizable intangibles
|
|
|
|
|
|
|
|
529.7
|
|
|
|
|
|
69.4
|
|
|
|
|
|
460.4
|
|
|
|
|
|
2.6
|
|
|
|
|
|
(46.8)
|
|
|
|
|
|
1.4
|
|
|
|
|
|
417.6
|
|
|
|
Trademarks
|
|
|
|
|
|
|
|
736.0
|
|
|
|
|
|
—
|
|
|
|
|
|
736.0
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
736.0
|
|
|
|
Total intangible assets
|
|
|
|
|
|
|
$
|
1,265.7
|
|
|
|
|
$
|
69.4
|
|
|
|
|
$
|
1,196.4
|
|
|
|
|
$
|
2.6
|
|
|
|
|
$
|
(46.8)
|
|
|
|
|
$
|
1.4
|
|
|
|
|
$
|
1,153.6
|
|
|
Amortization expense was $44.0 million and $46.8 million (of which $6.1 million and $5.0 million is included within cost of sales) for the years ended December 31, 2020 and 2019, respectively.
At December 31, 2020, the weighted-average remaining lives of definite-lived intangible assets is approximately 14.2 years. The weighted-average remaining lives at December 31, 2020 for customer relationships, trademarks and product technology are approximately 15.4, 11.7 and 10.1 years, respectively.
Estimated future amortization expense related to amortizable intangibles as of December 31, 2020 is as follows (in millions):
|
|
2021
|
|
|
|
$
|
39.3
|
|
|
|
|
2022
|
|
|
|
|
36.2
|
|
|
|
|
2023
|
|
|
|
|
33.3
|
|
|
|
|
2024
|
|
|
|
|
30.8
|
|
|
|
|
2025
|
|
|
|
|
28.3
|
|
|
|
|
Thereafter
|
|
|
|
|
210.3
|
|
|
|
|
Total
|
|
|
|
$
|
378.2
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Selling, promotional and advertising
|
|
|
|
$
|
25.4
|
|
|
|
|
$
|
18.2
|
|
|
|
Employee compensation and benefits
|
|
|
|
|
34.2
|
|
|
|
|
|
13.8
|
|
|
|
Warranty reserve
|
|
|
|
|
16.4
|
|
|
|
|
|
14.2
|
|
|
|
Inventory purchases
|
|
|
|
|
13.7
|
|
|
|
|
|
7.4
|
|
|
|
Insurance reserve
|
|
|
|
|
9.8
|
|
|
|
|
|
11.3
|
|
|
|
Deferred income
|
|
|
|
|
11.7
|
|
|
|
|
|
8.7
|
|
|
|
Business restructuring costs
|
|
|
|
|
1.7
|
|
|
|
|
|
3.9
|
|
|
|
Derivative liability
|
|
|
|
|
9.3
|
|
|
|
|
|
0.3
|
|
|
|
Professional fees
|
|
|
|
|
2.9
|
|
|
|
|
|
1.0
|
|
|
|
Payroll taxes
|
|
|
|
|
3.2
|
|
|
|
|
|
0.7
|
|
|
|
Other accrued liabilities
|
|
|
|
|
13.5
|
|
|
|
|
|
5.0
|
|
|
|
Total
|
|
|
|
$
|
141.8
|
|
|
|
|
$
|
84.5
|
|
|
The Company offers warranties on certain of its products and records an accrual for estimated future claims. Such accruals are based on historical experience and management’s estimate of the level of future claims.
Changes in the warranty reserve are as follows (in millions):
|
|
Balance at January 1, 2019
|
|
|
|
$
|
12.2
|
|
|
|
|
Accrual for warranties issued during the period
|
|
|
|
|
25.3
|
|
|
|
|
Payments
|
|
|
|
|
(23.3)
|
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
14.2
|
|
|
|
|
Accrual for warranties issued during the period
|
|
|
|
|
27.6
|
|
|
|
|
Payments
|
|
|
|
|
(25.4)
|
|
|
|
|
Balance at December 31, 2020
|
|
|
|
$
|
16.4
|
|
|
8. Income Taxes
The components of income from operations before income taxes by jurisdiction are as follows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
United States
|
|
|
|
$
|
38.7
|
|
|
|
|
$
|
13.9
|
|
|
|
International
|
|
|
|
|
19.1
|
|
|
|
|
|
(1.8)
|
|
|
|
Total
|
|
|
|
$
|
57.8
|
|
|
|
|
$
|
12.1
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The provision for income taxes is comprised of the following (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
$
|
3.2
|
|
|
|
|
$
|
14.3
|
|
|
|
State
|
|
|
|
|
3.2
|
|
|
|
|
|
3.6
|
|
|
|
International
|
|
|
|
|
8.4
|
|
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
14.8
|
|
|
|
|
|
20.2
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
|
|
1.8
|
|
|
|
|
|
(13.4)
|
|
|
|
State
|
|
|
|
|
1.1
|
|
|
|
|
|
(3.8)
|
|
|
|
International
|
|
|
|
|
(3.2)
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
(0.3)
|
|
|
|
|
|
(16.6)
|
|
|
|
Provision for income taxes
|
|
|
|
$
|
14.5
|
|
|
|
|
$
|
3.6
|
|
|
Reconciliation between the effective tax rate on income from operations and the statutory tax rate is as follows:
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
U.S. federal statutory income tax rate
|
|
|
|
|
21.0%
|
|
|
|
|
|
21.0%
|
|
|
|
State and local income taxes—net of federal income tax benefit
|
|
|
|
|
7.1
|
|
|
|
|
|
(1.7)
|
|
|
|
International withholding taxes—net of federal income tax benefit
|
|
|
|
|
—
|
|
|
|
|
|
1.8
|
|
|
|
GILTI
|
|
|
|
|
(0.3)
|
|
|
|
|
|
—
|
|
|
|
Research & development tax credit
|
|
|
|
|
(1.7)
|
|
|
|
|
|
(6.5)
|
|
|
|
Foreign derived intangible income (“FDII”) deduction
|
|
|
|
|
(1.9)
|
|
|
|
|
|
(6.7)
|
|
|
|
Valuation allowance
|
|
|
|
|
(0.7)
|
|
|
|
|
|
34.2
|
|
|
|
Change in contingent consideration
|
|
|
|
|
—
|
|
|
|
|
|
(13.3)
|
|
|
|
Permanent differences
|
|
|
|
|
0.4
|
|
|
|
|
|
1.5
|
|
|
|
International rate differential
|
|
|
|
|
0.9
|
|
|
|
|
|
(1.1)
|
|
|
|
Other
|
|
|
|
|
0.3
|
|
|
|
|
|
0.5
|
|
|
|
Effective tax rate
|
|
|
|
|
25.1%
|
|
|
|
|
|
29.7%
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The tax effects of temporary differences that give rise to significant components of the deferred tax assets and liabilities are as follows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
$
|
7.1
|
|
|
|
|
$
|
18.1
|
|
|
|
Deferred compensation and stock options
|
|
|
|
|
1.7
|
|
|
|
|
|
1.6
|
|
|
|
Net operating loss carryforwards
|
|
|
|
|
6.3
|
|
|
|
|
|
7.4
|
|
|
|
Warranty reserve
|
|
|
|
|
3.7
|
|
|
|
|
|
3.3
|
|
|
|
Accrued liabilities
|
|
|
|
|
6.5
|
|
|
|
|
|
3.4
|
|
|
|
Insurance reserve
|
|
|
|
|
1.7
|
|
|
|
|
|
1.7
|
|
|
|
Tax credits
|
|
|
|
|
2.8
|
|
|
|
|
|
2.4
|
|
|
|
Inventory
|
|
|
|
|
5.4
|
|
|
|
|
|
3.2
|
|
|
|
Derivatives
|
|
|
|
|
0.9
|
|
|
|
|
|
—
|
|
|
|
Other
|
|
|
|
|
0.1
|
|
|
|
|
|
1.1
|
|
|
|
Total deferred tax asset
|
|
|
|
|
36.2
|
|
|
|
|
|
42.2
|
|
|
|
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
|
|
(273.6)
|
|
|
|
|
|
(280.3)
|
|
|
|
Property, plant & equipment
|
|
|
|
|
(20.4)
|
|
|
|
|
|
(20.1)
|
|
|
|
Unrealized foreign exchange (gain)/loss
|
|
|
|
|
(1.4)
|
|
|
|
|
|
—
|
|
|
|
Other current assets
|
|
|
|
|
(2.1)
|
|
|
|
|
|
(1.8)
|
|
|
|
Change in accounting policy
|
|
|
|
|
(4.8)
|
|
|
|
|
|
(6.3)
|
|
|
|
Derivatives
|
|
|
|
|
—
|
|
|
|
|
|
(1.6)
|
|
|
|
Total deferred tax liability
|
|
|
|
|
(302.3)
|
|
|
|
|
|
(310.1)
|
|
|
|
Subtotal
|
|
|
|
|
(266.1)
|
|
|
|
|
|
(267.9)
|
|
|
|
Valuation allowance
|
|
|
|
|
(7.5)
|
|
|
|
|
|
(8.5)
|
|
|
|
Net deferred tax liability
|
|
|
|
$
|
(273.6)
|
|
|
|
|
$
|
(276.4)
|
|
|
Deferred taxes are reflected in the Company’s consolidated balance sheet based on tax jurisdiction as follows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Deferred tax asset
|
|
|
|
$
|
—
|
|
|
|
|
$
|
—
|
|
|
|
Deferred tax liability
|
|
|
|
|
(273.6)
|
|
|
|
|
|
(276.4)
|
|
|
|
Net deferred tax liability
|
|
|
|
$
|
(273.6)
|
|
|
|
|
$
|
(276.4)
|
|
|
The Company has U.S. net operating loss (“NOL”) carryforwards in the amount of $12.9 million and $13.0 million as of December 31, 2020 and 2019, respectively, from historical acquisitions. The NOL carryforwards expire between 2035 and 2037. The Internal Revenue Code of 1986 contains certain provisions that can limit a taxpayer’s ability to utilize net operating loss and tax credit carryforwards in any given year resulting from ownership changes in excess of 50 percent over a three-year period. The Company estimates that $10.4 million of these NOL carryforwards may be subject to limitation and potentially expire
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
prior to their utilization. The Company maintains a valuation allowance on the portion of NOL carryforwards that may expire prior to their utilization.
In addition, the Company’s France subsidiary has NOL carryforwards totaling approximately $12.6 million and $15.5 million as of December 31, 2020 and 2019, respectively, which have no expiration. The Company recorded a valuation allowance related to this NOL carryforward as well as the other net deferred tax assets of the France subsidiary as of December 31, 2020 and 2019.
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Management evaluates the need for valuation allowances on the deferred tax assets according to the provisions of ASC 740, Income Taxes. In making this determination, the Company assesses all available evidence (positive and negative) including recent earnings, internally-prepared income projections, and historical financial performance.
The Company’s total valuation allowance of $7.5 million and $8.5 million as of December 31, 2020 and 2019, respectively, consists of U.S. NOL carryforwards, net deferred tax assets of the Company’s France subsidiary, and U.S. tax credits. The 2020 change in the valuation allowance primarily relates to the utilization of the Company’s France subsidiary net operating losses. The 2019 change in the valuation allowance primarily relates to the recording of a $4.6 million valuation allowance on the net deferred tax assets of the Company’s France subsidiary.
The following table is a rollforward of the valuation allowance applied against certain deferred tax assets (in millions):
|
|
|
|
Balance at
Beginning of
Period
|
|
|
Provision for
income taxes
|
|
|
Deductions
|
|
|
Other
|
|
|
Balance at
End of Period
|
|
|
2019
|
|
|
|
$
|
3.8
|
|
|
|
|
$
|
4.6
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.1
|
|
|
|
|
$
|
8.5
|
|
|
|
2020
|
|
|
|
$
|
8.5
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(1.0)
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
7.5
|
|
|
It is the Company’s practice and intention to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2020 and 2019, the Company has not made a provision for U.S. state tax or additional foreign withholding taxes on approximately $68.2 million for 2020 and $45.5 million for 2019 of the undistributed earnings and profits that are indefinitely reinvested. Generally, the foreign earnings previously subject to the Transition Tax in the U.S. can be distributed without additional U.S. federal tax, however any such repatriation of previously unremitted foreign earnings could incur withholding and other foreign taxes, if applicable, as well as certain U.S. state taxes when remitted in any given year. Such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to potential remittance from these foreign subsidiaries.
The Company will recognize a tax benefit in the financial statements for an uncertain tax position only if the Company’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for financial reporting purposes.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
8. Income Taxes (Continued)
The following table is a reconciliation of unrecognized tax benefits including any interest and penalties (in millions):
|
|
Balance at January 1, 2019
|
|
|
|
$
|
0.4
|
|
|
|
|
Currency
|
|
|
|
|
(0.1)
|
|
|
|
|
Balance at December 31, 2019
|
|
|
|
|
0.3
|
|
|
|
|
Currency
|
|
|
|
|
—
|
|
|
|
|
Balance at December 31, 2020
|
|
|
|
$
|
0.3
|
|
|
The Company files tax returns in various jurisdictions. The last completed Internal Revenue Service (“IRS”) audit was for the year 2011. With few exceptions, the Company is no longer subject to U.S. federal, state and local, examinations for years before 2017. The statute of limitations in non-U.S. jurisdictions generally ranges between three to four years. The Company’s policy is to record estimated interest and penalties related to uncertain tax positions in income tax expense, which as of December 31, 2020 and 2019 was zero. The Company believes that it is possible that approximately $0.3 million of unrecognized tax benefits may be recognized during the first quarter of 2021 as a result of a lapse of the statute of limitations.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law making changes to the Internal Revenue Code. Changes include, but are not limited to, the ability to elect to increase the interest deduction limitation from 30% to 50% of adjusted taxable income for 2019 and 2020. In 2020, the Company accounted for the impact of the CARES Act with the most impactful benefit being an increase in tax deductible interest expense. In addition certain technical corrections to the Tax Cuts and Jobs Act of 2017 (‘‘Jobs Act’’) were promulgated in 2020 which retroactively reduced our 2019 taxable income, allowing for a refund of taxes previously paid.
9. Long-Term Debt
Long-term debt consists of the following (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
First Lien Term Facility, due August 4, 2024
|
|
|
|
$
|
958.0
|
|
|
|
|
$
|
961.5
|
|
|
|
Incremental First Lien Term Facility, due August 4, 2026
|
|
|
|
|
150.0
|
|
|
|
|
|
—
|
|
|
|
Second Lien Term Facility, due August 4, 2025
|
|
|
|
|
205.0
|
|
|
|
|
|
205.0
|
|
|
|
ABL Revolving Credit Facility
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Capital lease obligations
|
|
|
|
|
9.7
|
|
|
|
|
|
2.2
|
|
|
|
Subtotal
|
|
|
|
|
1,322.7
|
|
|
|
|
|
1,168.7
|
|
|
|
Less: Current portion of the long-term debt
|
|
|
|
|
(2.8)
|
|
|
|
|
|
(0.4)
|
|
|
|
Less: Unamortized debt issuance costs
|
|
|
|
|
(19.6)
|
|
|
|
|
|
(20.5)
|
|
|
|
Total
|
|
|
|
$
|
1,300.3
|
|
|
|
|
$
|
1,147.8
|
|
|
Interest expense for the year ended December 31, 2020 consisted of $68.5 million of interest on the outstanding debt, $5.4 million of amortization of deferred financing fees and $0.3 million of interest income. Interest expense for the year ended December 31, 2019 consisted of $79.3 million of interest on the outstanding debt, $5.3 million of amortization of deferred financing fees and $0.1 million of interest income.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Long-Term Debt (Continued)
On August 4, 2017, the Company entered into: (i) a First Lien Credit Agreement pursuant to which it borrowed $850.0 million under a seven-year first lien term loan facility maturing on August 4, 2024 (the “First Lien Term Facility”), (ii) a Second Lien Credit Agreement pursuant to which it borrowed $285.0 million under an eight-year second lien term loan facility maturing on August 4, 2025 (the “Second Lien Term Facility”), and together with the First Lien Term Facility, the “Term Loan Facilities”) and (iii) an ABL Credit Agreement providing a five year $250.0 million asset-based revolving credit facility maturing on August 4, 2022 (the “ABL Revolving Credit Facility”).
Each of the Term Loan Facilities contain customary affirmative and negative covenants, including restrictions on indebtedness, liens, dividends, distributions, acquisitions, investments, sale or transfer of assets, transactions with affiliates and maintenance of certain financial ratios. The Term Loan Facilities also contain customary events of default, including a change of control.
The Term Facilities are guaranteed by substantially all of the Company’s domestic, wholly-owned subsidiaries and collateralized by substantially all of the assets of the Company and such guarantors. The First Lien Term Facility is secured by such collateral on a first priority basis and the Second Lien Facility is secured by such collateral on a second priority basis.
No event of default has occurred for either of the Term Loan Facilities or the Revolving Credit Facility as of December 31, 2020 and 2019.
First Lien Term Facility
On September 28, 2018, the Company entered into an amendment for the First Lien Credit Agreement (the “First Amendment”) which, among other things, increased borrowings by an aggregate principal amount equal to $150.0 million and increased the required quarterly payments of outstanding principal under the First Lien Credit Agreement from 0.25% to approximately 0.2525%. The Company used the increased borrowings to fund the acquisition of Paramount Leisure Industries, Inc., pay down approximately $80.0 million in term loans outstanding under the Second Lien Term Facility and pay all costs associated with the First Amendment and prepayment of the Second Lien Term Facility.
On October 28, 2020, the Company entered into a second incremental amendment to the First Lien Term Facility, which provided for additional first lien term loans in an aggregate principal amount of $150.0 million, the proceeds of which were used to fund a portion of a special distribution of approximately $275.0 million to the Class A stockholders. The special distribution reduced the liquidation preference of the Class A stock, and is considered a return of capital on the Class A stock for accounting purposes. At the Company’s option, borrowings under this 2020 Incremental Term Loan bear interest at either: (i) the alternative base rate plus a margin of 2.75% or (ii) the adjusted London interbank offered (“LIBO”) rate plus a margin of 3.75% subject to a LIBO floor of 0.75% per annum. The required quarterly payments of outstanding principal under the 2020 Incremental Term Loan is 0.25%. Additional borrowing under the amendment has a maturity date of August 4, 2026.
At the Company’s option, borrowings under the First Lien Term Facility bear interest at either: (i) the alternative base rate plus a margin of 2.50% or (ii) the adjusted London interbank offered (“LIBO”) rate plus a margin of 3.50%. Interest is paid quarterly beginning September 30, 2017. At December 31, 2020 and 2019, the interest rate was 4.93% and 5.30%, respectively.
The Company may voluntarily prepay any borrowings outstanding under the First Lien Term Facility without a premium or penalty. In the years ending December 31, 2020 and 2019, respectively, the Company voluntarily prepaid $3.5 million and $17.5 million of the borrowings outstanding under the First Lien Term Facility. In addition, the First Lien Credit Agreement requires mandatory principal payments to be made based on certain events, including annual excess cash flow (as calculated in accordance with the First Lien Credit Agreement), non-ordinary course sales of assets and the incurrence of debt not otherwise
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Long-Term Debt (Continued)
permitted under the First Lien Credit Agreement, each subject to certain exceptions and thresholds as set forth in the First Lien Credit Agreement.
Second Lien Term Facility
At the Company’s option, borrowings under the Second Lien Term Facility bear interest at either: (i) the alternative base rate plus a margin of 7.25% or (ii) the adjusted LIBO plus a margin of 8.25%. At December 31, 2020 and 2019, the interest rate was 9.98% and 10.05%, respectively.
Borrowings under the Second Lien Term Facility are not subject to scheduled amortization of principal. The Second Lien Credit Agreement requires mandatory prepayments substantially similar to the First Lien Credit Agreement, but voluntary prepayments under the Second Lien Credit Agreement are not permitted, subject to limited exceptions, until all amounts under the First Lien Credit Agreement have been paid in full.
ABL Revolving Credit Facility
The ABL Credit Agreement provides for an ABL Revolving Credit Facility in an aggregate amount of borrowings of up to $250.0 million, including letters of credit, subject to a borrowing base calculation based on available eligible receivables, inventory and qualified cash. The ABL Revolving Credit Facility is available for working capital and general corporate purposes. Approximately $220.0 million is available for borrowings in U.S. dollars, including up to $15.0 million in letters of credit, and $30.0 million is available for borrowings in equivalent Canadian dollars, including up to $5.0 million in letters of credit.
Unamortized debt issuance fees related to line of credit were $1.0 million and $1.6 million as of December 31, 2020 and 2019, respectively, which were recorded within Other non-current assets of the Company’s consolidated balance sheet.
At the Company’s option, borrowings denominated in U.S. dollars under the ABL Revolving Credit Facility bear interest either at (i) the alternative base rate plus an initial applicable margin of 0.50% or (ii) adjusted LIBO rate plus an initial applicable margin of 1.50%. Borrowings denominated in Canadian dollars under the ABL Revolving Credit Facility bear interest at the Canada’s prime rate plus an initial applicable margin of 0.50%.
The initial margins for such borrowings will be adjusted depending on the availability under the ABL Revolving Credit Facility. For LIBO rate borrowings, the applicable margins will be 1.25%, 1.50% and 1.75% and for alternative base rate and Canadian dollar borrowings, the applicable margins will be 0.25%, 0.50% and 0.75%. At December 31, 2020 and 2019, there were no balances outstanding on the ABL Revolving Credit Facility. In addition, the Company pays an annual unused commitment fee at a rate of 0.375% or 0.25% respectively based on whether the unused portion of the $250 million commitment facility is greater than or less than 50% of the borrowing base. The fee is calculated daily and payable quarterly.
The ABL Revolving Credit Facility contains customary affirmative and negative covenants, including restrictions on indebtedness, liens, dividends, distributions, acquisitions, investments, sale or transfer of assets and transactions with affiliates. The ABL Revolving Credit Facility also contains customary events of default, including upon a change in control. If availability under the ABL Revolving Credit Facility is less than a specified amount, the ABL Credit Agreement contains a requirement to maintain a fixed charge coverage ratio (as defined in the ABL Credit Agreement) of not less than 1.0 to 1.0. No event of default has occurred as of December 31, 2020 and 2019 and the Company did not trigger applicability of the fixed charge coverage ratio.
The U.S. dollar portion of the ABL Revolving Credit Facility is guaranteed by the same guarantors, and collateralized by the same assets, as the Term Loan Facilities. To the extent such collateral consists of
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
9. Long-Term Debt (Continued)
inventory, receivables, deposit accounts and related assets, the rights of the lenders under the ABL Revolving Credit Facility in such collateral is senior and prior to the rights of the lenders under the Term Loan Facilities. With respect to other collateral, the rights of the lenders under the Term Loan Facilities are senior and prior to the rights of the lenders under the ABL Revolving Credit Facility. The Canadian dollar portion of the ABL Revolving Credit Facility is available to the Company’s Canada subsidiary, collateralized by substantially all of their assets. At December 31, 2020 and 2019, the Company had outstanding letters of credit totaling $4.4 million and $4.9 million, respectively.
At December 31, 2020, the principal payments of the Company’s long-term debt obligations are as follows (in millions):
|
|
2021
|
|
|
|
$
|
0.8
|
|
|
|
|
2022
|
|
|
|
|
11.3
|
|
|
|
|
2023
|
|
|
|
|
11.5
|
|
|
|
|
2024
|
|
|
|
|
939.0
|
|
|
|
|
2025
|
|
|
|
|
206.5
|
|
|
|
|
Thereafter
|
|
|
|
|
143.9
|
|
|
|
|
Total
|
|
|
|
$
|
1,313.0
|
|
|
10. Derivatives and Hedging Transactions
The Company holds derivative financial instruments for the purpose of hedging the risks of certain identifiable and anticipated transactions. In general, the types of risks hedged are those relating to the variability of future earnings and cash flows caused by movements in foreign currency exchange rates and interest rates. In hedging the transactions, the Company in the normal course of business, holds the following types of derivatives.
Interest Rate Swap Agreements
The Company enters into interest rate swap agreements designated as cash flow hedges to manage its interest rate risk related to its variable rate debt obligations. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these instruments have been designated as effective and as such, the related gains or losses have been recorded as a component of accumulated other comprehensive loss, net of tax.
As of December 31, 2020, the Company is a party to two interest rate swap agreements that effectively converts an initial notional amount of $550.0 million of its variable rate debt obligations to a fixed rate debt. The interest rate swap agreements expire in August 2021.
On December 23, 2020, the Company entered into three variable rate collar derivative foreign exchange contracts to hedge US $30 million of intercompany remittances through June 2021.
Net Investment Hedges
The Company uses net investment hedges to minimize its exposure to variability in the foreign currency translation of its net investment in one of its international subsidiaries. The effective portion of changes in the fair value of the hedging instrument is recognized in accumulated other comprehensive loss consistent with the related translation gains and losses of the hedged net investment. For net investment hedges, all critical terms of the hedged item and the hedging instrument are matched at inception and on an ongoing basis to minimize the risk of hedge ineffectiveness.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
10. Derivatives and Hedging Transactions (Continued)
At December 31, 2017, the Company entered into a four year euro-denominated cross currency swap agreement of €75.0 million to hedge the net investment in one of its foreign subsidiaries designated as a hedge expiring on August 31, 2021. Since both the notional value of the derivative designated as a hedge of a net investment in a foreign subsidiary equals the portion of the net investment designated as being hedged and the derivative relates solely to the foreign exchange rate between the functional currency of the hedged net investment and the Company’s functional currency, all changes in fair value of the derivative are reported in the cumulative translation adjustment accounts, net of tax within accumulated other comprehensive loss in the consolidated balance sheet.
The amounts recorded in accumulated other comprehensive loss will be reclassified to earnings only upon the sale or liquidation of the Company’s investment in one of its international subsidiaries or on maturity of the underlying agreements.
The following table summarizes the gross fair values and location on the consolidated balance sheet of the Company’s derivatives (in millions):
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Accrued
Expenses and
Other Liabilities
|
|
|
Other Non-
Current Assets
|
|
|
Accrued
Expenses and
Other Liabilities
|
|
|
Other Non-
Current
Liabilities
|
|
|
Interest rate swaps
|
|
|
|
$
|
6.5
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
0.3
|
|
|
|
|
$
|
2.2
|
|
|
|
Net investment hedge
|
|
|
|
|
2.8
|
|
|
|
|
|
4.6
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Total
|
|
|
|
$
|
9.3
|
|
|
|
|
$
|
4.6
|
|
|
|
|
$
|
0.3
|
|
|
|
|
$
|
2.2
|
|
|
The following tables present the effects of derivative instruments by contract type in accumulated other comprehensive loss in the consolidated statement of operations (in millions):
|
|
|
|
Unrealized Gain (Loss) Recognized
in AOCI
|
|
|
Gain (Loss) Reclassified From AOCI
to Earnings
|
|
|
Location of Gain (loss)
Reclassified from AOCI
into Earnings
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Interest rate swaps
|
|
|
|
$
|
(2.9)
|
|
|
|
|
$
|
(9.4)
|
|
|
|
|
$
|
(6.6)
|
|
|
|
|
$
|
3.5
|
|
|
|
Interest Expense
|
|
|
|
Net investment hedge
|
|
|
|
|
(5.4)
|
|
|
|
|
|
2.8
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
N/A
|
|
|
|
Total
|
|
|
|
$
|
(8.3)
|
|
|
|
|
$
|
(6.6)
|
|
|
|
|
$
|
(6.6)
|
|
|
|
|
$
|
3.5
|
|
|
|
|
|
|
11. Fair Value Measurements
We are required to disclose the estimated fair values of all financial instruments, even if they are not carried at their fair value. The fair values of financial instruments are estimates based upon market conditions and perceived risks. These estimates require management’s judgment and may not be indicative of the future fair values of the assets and liabilities.
The Company’s financial instruments include cash and cash equivalents, accounts receivable, and accounts payable. The carrying amount of these instruments approximate fair value because of their short-term nature.
The Company’s interest rate swaps and the net investment hedge are measured in the financial statements at fair value on a recurring basis. The fair values of the interest rate swaps are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves. The fair value of the net investment hedge is estimated using readily observable market inputs, such as quotations on forward foreign exchange points and foreign interest rates. These instruments are customary, over-the-counter contracts with various bank counterparties that are not traded in active markets. Accordingly, the fair value measurements of the interest rate swaps and the net investment hedge are categorized as Level 2.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
11. Fair Value Measurements (Continued)
As of December 31, 2020, the Company’s long-term debt instruments with a carrying value of $1,313.0 million had a fair value of approximately $1,304.6 million. As of December 31, 2019, the Company’s long-term debt instruments with a carrying value of $1,166.5 million had a fair value of approximately $1,149.1 million. The estimated fair value of the long-term debt is based on observable quoted prices in active markets for similar liabilities and is classified as a Level 2 input. The fair value of the revolving credit facility approximates its carrying value.
12. Segments and Related Information
In November 2020, the Company redefined its operational and management structure to align to its key geographies and go-to market strategy and now has two reportable segments: North America and Europe & Rest of World. Operating segments have not been aggregated to form the reportable segments. The Company determined its reportable segments based on how the CODM reviews the Company’s operating results in assessing performance and allocating resources. The CODM reviews net sales, gross profit and segment income for each of the reportable segments. Gross profit is defined as net sales less cost of sales incurred by the segment. The CODM does not evaluate reportable segments using asset information as these are managed on an enterprise wide basis. Segment income is defined as segment gross profit less sales, general, and administrative expenses (“SG&A”) and RD&E.
The North America segment manufactures and sells residential and commercial swimming pool equipment and supplies as well as equipment that controls the flow of fluids. This segment is composed of three reporting units.
The Europe & Rest of World segment manufactures and sells residential and commercial swimming pool equipment and supplies. This segment is composed of two reporting units.
The Company sells its products primarily through distributors and retailers. Financial information by reportable segment, net of intercompany transactions, is included in the following summary (in millions):
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
North America
|
|
|
Europe & Rest
of World
|
|
|
Total
|
|
|
North America
|
|
|
Europe & Rest
of World
|
|
|
Total
|
|
|
Net sales
|
|
|
|
$
|
706.5
|
|
|
|
|
$
|
168.9
|
|
|
|
|
$
|
875.4
|
|
|
|
|
$
|
575.9
|
|
|
|
|
$
|
157.5
|
|
|
|
|
$
|
733.4
|
|
|
|
Gross profit
|
|
|
|
$
|
334.6
|
|
|
|
|
$
|
62.4
|
|
|
|
|
$
|
397.0
|
|
|
|
|
$
|
267.0
|
|
|
|
|
$
|
56.5
|
|
|
|
|
$
|
323.5
|
|
|
|
Segment income
|
|
|
|
$
|
171.8
|
|
|
|
|
$
|
30.8
|
|
|
|
|
$
|
202.6
|
|
|
|
|
$
|
105.9
|
|
|
|
|
$
|
26.4
|
|
|
|
|
$
|
132.3
|
|
|
|
Capital expenditures
|
|
|
|
$
|
13.2
|
|
|
|
|
$
|
1.0
|
|
|
|
|
$
|
14.2
|
|
|
|
|
$
|
23.6
|
|
|
|
|
$
|
1.4
|
|
|
|
|
$
|
25.0
|
|
|
|
Depreciation
|
|
|
|
$
|
16.6
|
|
|
|
|
$
|
1.5
|
|
|
|
|
$
|
18.1
|
|
|
|
|
$
|
16.0
|
|
|
|
|
$
|
1.2
|
|
|
|
|
$
|
17.2
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
12. Segments and Related Information (Continued)
The following table presents a reconciliation of segment income to income from operations before income taxes (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Total segment income
|
|
|
|
$
|
202.6
|
|
|
|
|
$
|
132.3
|
|
|
|
Corporate expense, net
|
|
|
|
|
20.8
|
|
|
|
|
|
8.1
|
|
|
|
Acquisition and restructuring related expense (income)
|
|
|
|
|
19.3
|
|
|
|
|
|
(16.3)
|
|
|
|
Amortization of intangible assets
|
|
|
|
|
37.9
|
|
|
|
|
|
41.8
|
|
|
|
Operating income
|
|
|
|
|
124.6
|
|
|
|
|
|
98.7
|
|
|
|
Interest expense, net
|
|
|
|
|
73.6
|
|
|
|
|
|
84.5
|
|
|
|
Other (income) expense, net
|
|
|
|
|
(6.8)
|
|
|
|
|
|
2.1
|
|
|
|
Total other expense
|
|
|
|
|
66.8
|
|
|
|
|
|
86.6
|
|
|
|
Income from operations before income taxes
|
|
|
|
$
|
57.8
|
|
|
|
|
$
|
12.1
|
|
|
13. Earnings Per Share
Class A shares and common shares participate in dividends on an as converted 1:1 basis following satisfaction of the dividend preference to Class A stockholders. The following table sets forth the computation of basic and diluted net income per share attributable to common stockholders (in millions, except share and per share amounts):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Dividends paid to Class C stockholders
|
|
|
|
|
0.2
|
|
|
|
|
|
0.2
|
|
|
|
Net income attributable to Class A and stockholders
|
|
|
|
|
43.1
|
|
|
|
|
|
8.3
|
|
|
|
Net income attributable to Class A stockholders, basic (a)
|
|
|
|
|
42.7
|
|
|
|
|
|
8.2
|
|
|
|
Net income attributable to common stockholders
|
|
|
|
$
|
0.4
|
|
|
|
|
$
|
0.1
|
|
|
|
Weighted average number of common shares outstanding, basic
|
|
|
|
|
1,331,850
|
|
|
|
|
|
924,690
|
|
|
|
Earnings per share attributable to common stockholders, basic
|
|
|
|
$
|
0.25
|
|
|
|
|
$
|
0.05
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
|
Dividends paid to Class C stockholders
|
|
|
|
|
0.2
|
|
|
|
|
|
0.2
|
|
|
|
Net income attributable to Class A and stockholders
|
|
|
|
|
43.1
|
|
|
|
|
|
8.3
|
|
|
|
Net income attributable to Class A stockholders, diluted (a)
|
|
|
|
|
42.5
|
|
|
|
|
|
8.2
|
|
|
|
Net income attributable to common stockholders
|
|
|
|
$
|
0.6
|
|
|
|
|
$
|
0.1
|
|
|
|
Weighted average number of common shares outstanding,
diluted (b)
|
|
|
|
|
2,468,895
|
|
|
|
|
|
2,436,135
|
|
|
|
Earnings per share attributable to common stockholders, diluted
|
|
|
|
$
|
0.25
|
|
|
|
|
$
|
0.05
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
13. Earnings Per Share (Continued)
(a)
Net income attributable to Class A stockholders is impacted by the total shares of participating securities, basic and diluted, on an as converted basis
(b)
For the years ended December 31, 2020 and 2019 there were potential common shares totaling approximately 4,078,035 and 2,778,750, respectively, that were excluded from the computation of diluted EPS as the inclusion of such shares would have been anti-dilutive.
14. Commitments and Contingencies
Litigation
The Company is involved in litigation arising in the normal course of business. Where appropriate, these matters have been submitted to the Company’s insurance carrier. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. It is not possible to quantify the ultimate liability, if any, in these matters. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on the Company, in the opinion of management, it is remote that such litigation will have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Lease Commitment Summary
The following table presents future minimum capital and operating lease payments and related sublease income under our non-cancelable lease arrangements with original or remaining terms in excess of one year as of December 31, 2020 (in millions):
|
|
|
|
Sub-lease
|
|
|
Operating
Leases
|
|
|
Capital Leases
|
|
|
2021
|
|
|
|
$
|
(0.5)
|
|
|
|
|
$
|
3.7
|
|
|
|
|
$
|
2.3
|
|
|
|
2022
|
|
|
|
|
(0.5)
|
|
|
|
|
|
4.4
|
|
|
|
|
|
2.2
|
|
|
|
2023
|
|
|
|
|
(0.5)
|
|
|
|
|
|
4.0
|
|
|
|
|
|
2.2
|
|
|
|
2024
|
|
|
|
|
(0.5)
|
|
|
|
|
|
3.2
|
|
|
|
|
|
2.1
|
|
|
|
2025
|
|
|
|
|
—
|
|
|
|
|
|
3.3
|
|
|
|
|
|
1.7
|
|
|
|
Thereafter
|
|
|
|
|
—
|
|
|
|
|
|
23.9
|
|
|
|
|
|
0.1
|
|
|
|
Total minimum lease payments
|
|
|
|
$
|
(2.0)
|
|
|
|
|
$
|
42.5
|
|
|
|
|
|
10.6
|
|
|
|
Less: amount representing interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9)
|
|
|
|
Total aggregate finance lease and debt payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9.7
|
|
|
Lease expense was $7.8 million and $4.9 million for the years ended December 31, 2020 and 2019, respectively, recorded within cost of sales and selling, general and administrative expenses, depending on the nature of the lease.
15. Stockholders’ Equity
On March 2, 2021, the Company effected a 195-for-1 stock split of its issued and outstanding shares of common stock by means of a stock dividend. The corresponding number of shares and exercise prices related to outstanding stock options and restricted awards were also adjusted. The impact of the stock split has been applied retrospectively to all periods presented.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
15. Stockholders’ Equity (Continued)
On August 4, 2017, the Company adopted its Stockholders’ Agreement to establish capitalization terms and voting rights. The outstanding capital stock of the Company consists of three classes of stock. The Company authorized 1,500,000 shares of Class A stock, at a par value of $0.001 per share. The Company also authorized 29,250,000 shares of common stock at a par value of $0.001 per share. Collectively, Class A stock and common stock are considered the “Voting Stock”, whereby each share is entitled to one vote.
With respect to dividend rights and rights on liquidation, Class A stock ranks senior to the common stock. Upon any liquidation, dissolution, or winding up of the Company, or a change of control (as defined in the Stockholders’ Agreement), the Class A stock shall be entitled to receive, on a preferred basis prior and in preference to any distribution in respect of the common stock, an amount equal to the original purchase price, of the Class A stock minus any distributions paid to Class A stockholders. Thereafter, the Class A stock and common stock will be entitled to share in any distribution on a pro rata basis based on the number of shares outstanding.
The outstanding shares of Class A stock will automatically convert into shares of common stock in connection with the first sale of shares of common stock to the public in a firm commitment underwritten public offering pursuant to a registration statement. At such time each outstanding share of Class A stock would convert into a share of common stock adjusted to give effect to any common stock split plus, an additional number of shares determined by dividing (a) the Class A preference amount of such share of Class A stock as adjusted to give effect to any stock split of common stock (the “Class A Preference Amount”), by (b) an initial public offering (“IPO”) price of a share of common stock, net of the per share underwriting discount, rounded to the nearest whole share, and the Company would redeem each outstanding share of Class C stock for an aggregate price of $1.00.
In October 2020, the Board of Directors approved a distribution of $275.0 million, or $316.16 (three hundred and sixteen dollars and sixteen cents) per share of Class A stock of the Company.
The Company shall at all times reserve and keep available out of its authorized but unissued shares of common stock, solely for effecting the conversion of shares of its Class A stock, such number that shall be sufficient to effect the conversion of all outstanding Class A stock. Class C stockholders do not have voting rights, and are entitled to receive a quarterly dividend. For the years ended December 31, 2020 and 2019, respectively, dividends declared and paid relating to Class C stock were $0.2 million. Upon a qualifying event, such as an IPO, Class C stock shall be redeemed by the Company for an aggregate purchase price of $1.00.
16. Stock-based Compensation
On August 4, 2017, the Company adopted the 2017 Equity Incentive Plan of Hayward Holdings (the “2017 Plan”), which provides for the issuance of stock options, restricted stock and restricted stock units to officers, directors and employees. The number of shares authorized for delivery under the 2017 Plan is 18,718,851.45 shares of common stock. On May 21, 2018, the Company amended and restated the 2017 Plan to increase the number of shares authorized for delivery under the 2017 Plan to include 2,000 shares of Restricted Class A stock, and the 2017 Plan was subsequently amended and restated on November 22, 2019 to increase the number of shares of Restricted Class A stock authorized for delivery under the 2017 Plan to 2,949 shares. The stock options generally have a maximum term of up to 10 years and vest over a period determined by the Compensation Committee of the Board of Directors, generally 5 years. As of December 31, 2020 there were 2,812,875 remaining shares available for grant under the 2017 Plan.
Pursuant to the 2017 Plan, the Company has granted:
•
Class A restricted stock awards which vest and become exercisable upon a change of control or an IPO;
•
time-based stock options which vest in five equal annual installments from the grant date;
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
16. Stock-based Compensation (Continued)
•
performance-based stock options which vest and become exercisable upon a qualifying change of control transaction and a minimum return equal to two times theinitial invested capital of certain holders of Class A shares (the “Minimum Return”), or an IPO and an average trade price greater than the Minimum Return over any consecutive 10-trading day period;
•
time-based restricted stock awards which vest in five equal annual installments beginning on August 4, 2018; and
•
performance-based restricted stock awards which vest upon a qualifying change of control transaction and the Minimum Return, or an IPO and an average trade price greater than the Minimum Return over any consecutive 10-trading day period .
Time-Based Stock Options
The following table summarizes activity for time-based stock option under our plan:
Intrinsic value in millions
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding as of January 1, 2019
|
|
|
|
|
4,578,210
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
2,778,750
|
|
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
(94,965)
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
(358,215)
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
|
|
6,903,780
|
|
|
|
|
$
|
0.91
|
|
|
|
|
|
8.48
|
|
|
|
|
$
|
3.71
|
|
|
|
Granted
|
|
|
|
|
1,299,285
|
|
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
(703,560)
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
(729,105)
|
|
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
|
|
6,770,400
|
|
|
|
|
$
|
1.08
|
|
|
|
|
|
7.50
|
|
|
|
|
$
|
14.99
|
|
|
|
Options exercisable as of December 31, 2020
|
|
|
|
|
2,387,190
|
|
|
|
|
$
|
0.88
|
|
|
|
|
|
6.16
|
|
|
|
|
$
|
4.86
|
|
|
|
Options expected to vest as of December 31, 2020
|
|
|
|
|
4,383,210
|
|
|
|
|
$
|
1.20
|
|
|
|
|
|
8.23
|
|
|
|
|
$
|
10.13
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
|
Options expected to vest as of December 31, 2019
|
|
|
|
|
5,503,485
|
|
|
|
|
$
|
1.39
|
|
|
|
Options expected to vest as of December 31, 2020
|
|
|
|
|
4,383,210
|
|
|
|
|
$
|
1.30
|
|
|
|
Options granted during the year ended December 31, 2020
|
|
|
|
|
1,299,285
|
|
|
|
|
$
|
1.02
|
|
|
|
Options vested during the year ended December 31, 2020
|
|
|
|
|
1,519,245
|
|
|
|
|
$
|
1.14
|
|
|
|
Options forfeited during the year ended December 31, 2020
|
|
|
|
|
729,105
|
|
|
|
|
$
|
1.63
|
|
|
Fair value of options granted
The total intrinsic value of time-based options that were exercised during 2020 was $1.2 million. At December 31, 2020, the total unrecognized compensation cost related to time-based stock options was $5.0 million. This cost is expected to be recognized over a weighted average period of 3.23 years.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
16. Stock-based Compensation (Continued)
The Company determined the fair value of these time-based stock options at the date of grant using the Black-Scholes option-pricing model. The principal assumptions used in the Black-Scholes option-pricing model for these stock options granted were as follows:
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Risk-free interest rate
|
|
|
|
|
0.13%
|
|
|
|
|
|
1.84%
|
|
|
|
Expected life (years)
|
|
|
|
|
1.5
|
|
|
|
|
|
4.0
|
|
|
|
Expected dividend yield
|
|
|
|
|
—%
|
|
|
|
|
|
—%
|
|
|
|
Expected volatility
|
|
|
|
|
58.00%
|
|
|
|
|
|
45.00%
|
|
|
The risk-free interest rate was based on the U.S. Treasury yield curve at date of grant over the expected term of these stock options. The expected volatility was based upon a comparable public company’s historical volatility.
Stock Options with Market and Performance Conditions
The following table summarizes activity for stock options with market and performance conditions under our plan:
Intrinsic value in millions
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average
Exercise Price
|
|
|
Weighted-
Average
Remaining
Contractual
Life (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding as of January 1, 2019
|
|
|
|
|
4,378,725
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
2,778,750
|
|
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
(453,180)
|
|
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
|
|
6,704,295
|
|
|
|
|
$
|
0.92
|
|
|
|
|
|
8.51
|
|
|
|
|
$
|
3.53
|
|
|
|
Granted
|
|
|
|
|
1,006,785
|
|
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
(1,231,425)
|
|
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
|
|
6,479,655
|
|
|
|
|
$
|
1.05
|
|
|
|
|
|
7.69
|
|
|
|
|
$
|
16.17
|
|
|
|
Options exercisable as of December 31, 2020
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expected to vest as of December 31, 2020
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Since these stock options vest upon a qualifying change of control transaction, and the Minimum Return, or an IPO, and an average trade price greater than the Minimum Return over any consecutive 10- trading day period the Company would recognize such stock-based compensation expense in the period in which these criteria are probable of being met. Upon the achievement of either of these conditions, any unvested performance-based stock options become 100% vested.
|
|
|
|
Number of
Shares
|
|
|
Weighted-
Average Grant-
Date Fair Value
|
|
|
Options granted during the year ended December 31, 2020
|
|
|
|
|
1,006,785
|
|
|
|
|
$
|
1.04
|
|
|
|
Options forfeited during the year ended December 31, 2020
|
|
|
|
|
1,231,425
|
|
|
|
|
$
|
1.34
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
16. Stock-based Compensation (Continued)
Fair value of options granted
For the year December 31, 2020, the Company has not recognized any stock-based compensation related to these stock options as it has determined that neither a qualifying change of control transaction nor an IPO is probable of occurring. At December 31, 2020, the total unrecognized compensation cost related to performance-based stock options was $10.3 million.
The Company determined the fair value of these performance-based stock options at the date of grant using the Black-Scholes option pricing model. The principal assumptions used in the Black-Scholes option-pricing model for these stock options granted were as follows:
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Risk-free interest rate
|
|
|
|
|
0.13%
|
|
|
|
|
|
1.84%
|
|
|
|
Expected life (years)
|
|
|
|
|
1.5
|
|
|
|
|
|
4.0
|
|
|
|
Expected dividend yield
|
|
|
|
|
—%
|
|
|
|
|
|
—%
|
|
|
|
Expected volatility
|
|
|
|
|
58.00%
|
|
|
|
|
|
45.00%
|
|
|
The risk-free interest rate was based on the U.S. Treasury yield curve at date of grant over the expected term of these stock options. The expected volatility was based upon a comparable public companies historical volatility.
Time-Based Restricted Stock Awards
The following table summarizes activity for time-based restricted stock awards under our plan:
Grant date fair value in millions
|
|
|
|
Restricted A Stock
|
|
|
Restricted B Stock
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
|
Outstanding as of January 1, 2019
|
|
|
|
|
2,000
|
|
|
|
|
$
|
2.10
|
|
|
|
|
|
3,111,225
|
|
|
|
|
$
|
2.37
|
|
|
|
Modified
|
|
|
|
|
(2,000)
|
|
|
|
|
$
|
2.10
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Redeemed
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,215,630)
|
|
|
|
|
$
|
0.63
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,895,595
|
|
|
|
|
$
|
1.73
|
|
|
|
Redeemed
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(292,500)
|
|
|
|
|
$
|
0.27
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
1,603,095
|
|
|
|
|
$
|
1.46
|
|
|
|
Restricted stock awards vested as of December 31, 2020
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
1,260,090
|
|
|
|
|
|
|
|
|
At December 31, 2020, the Company had $0.2 million of total unrecognized compensation costs relating to these restricted stock awards, which is expected to be recognized through August 4, 2022. Each share of the Company’s restricted stock is treated as an outstanding share for all purposes under Delaware General Corporation Law. Upon execution of an Award Agreement and payment of any applicable purchase price, a participant of restricted stock shall be considered the record owner of the shares of restricted stock, and shall be entitled to vote such shares of restricted stock unless otherwise specified in the Company’s certificate of incorporation or the applicable Award Agreement. There is no provision in the Company’s certificate of incorporation or any applicable award agreement that alters the voting rights associated with the shares of restricted stock. The unvested restricted stock awards do not have a nonforfeitable right to
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
16. Stock-based Compensation (Continued)
dividends and contain provisions restricting the transfer of the restricted stock. The Company or its assignees shall have the right, as may be specified in the relevant instrument, to repurchase some or all of the shares subject to the restricted stock award at such purchase price as set forth in the award agreement.
Performance-Based Restricted Stock Awards with Market and Performance Conditions
The following table summarizes activity for performance-based restricted stock awards under our plan:
Grant date fair value in millions
|
|
|
|
Restricted A Stock
|
|
|
Restricted B Stock
|
|
|
|
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
|
Number of
shares
|
|
|
Weighted
average
grant date
fair value
|
|
|
Outstanding as of January 1, 2019
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
3,111,225
|
|
|
|
|
$
|
1.56
|
|
|
|
Granted
|
|
|
|
|
949
|
|
|
|
|
$
|
1.00
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Modified
|
|
|
|
|
2,000
|
|
|
|
|
$
|
2.10
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Redeemed
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(1,960,920)
|
|
|
|
|
$
|
0.98
|
|
|
|
Outstanding as of December 31, 2019
|
|
|
|
|
2,949
|
|
|
|
|
$
|
3.10
|
|
|
|
|
|
1,150,305
|
|
|
|
|
$
|
0.58
|
|
|
|
Forfeited
|
|
|
|
|
(2,000)
|
|
|
|
|
$
|
2.10
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Redeemed
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
(292,500)
|
|
|
|
|
$
|
0.15
|
|
|
|
Outstanding as of December 31, 2020
|
|
|
|
|
949
|
|
|
|
|
$
|
1.00
|
|
|
|
|
|
857,805
|
|
|
|
|
$
|
0.43
|
|
|
|
Restricted stock awards vested as of December 31, 2020
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Since these Class A restricted stock awards vest upon a qualifying change of control transaction, or an IPO, the Company would recognize such stock-based compensation expense in the period in which these criteria are probable of being met. Upon the occurrence of a qualifying change of control, or an IPO, any unvested performance-based restricted stock awards become fully vested.
Since these restricted stock awards vest upon a qualifying change of control transaction, and the Minimum Return, or an IPO and an average trade price greater than the Minimum Return over any consecutive 10-trading day period, the Company would recognize such stock-based compensation expense in the period in which these criteria are probable of being met. Upon the achievement of either of these conditions, any unvested performance-based restricted stock awards become fully vested.
For the year ended December 31, 2020, the Company has not recognized any stock-based compensation related to these restricted stock awards as it has determined that a qualifying change of control transaction is not probable of occurring. As of December 31, 2020, the Company had $0.6 million of total unrecognized compensation costs relating to these restricted stock awards which will be recognized when a qualifying change in control transaction becomes probable. Each share of the Company’s restricted stock is treated as an outstanding share for all purposes under Delaware General Corporation Law. Upon execution of an Award Agreement and payment of any applicable purchase price, a participant of restricted stock shall be considered the record owner of the shares of restricted stock, and shall be entitled to vote such shares of restricted stock unless otherwise specified in the Company’s certificate of incorporation or the applicable Award Agreement. There is no provision in the Company’s certificate of incorporation or any applicable award agreement that alters the voting rights associated with the shares of restricted stock. The unvested restricted stock awards do not have a nonforfeitable right to dividends and contain provisions restricting the transfer of the restricted stock. The Company or its assignees shall have the right, as may
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
16. Stock-based Compensation (Continued)
be specified in the relevant instrument, to repurchase some or all of the shares subject to the restricted stock award at such purchase price as set forth in the award agreement.
17. Retirement Plans
The Company maintains the Hayward Industries Retirement Plan (“the Retirement Plan”), a Safe Harbor 401(k) Plan, for substantially all U.S. employees. Under the Retirement Plan the Company contributes 3% of compensation as a non-elective contribution, following one year of service and 1,000 hours, regardless of employee deferrals and an additional non-elective contribution between 1-3% of compensation, based on age, for employees that were hired before January 1, 1996. Additionally, the Retirement Plan allows employees to elect to defer up to 60%, unless he/she is projected to be age 50 or older by the end of the taxable year, of their compensation on a pre-tax basis, not to exceed the IRS maximum and the Company matches each participant’s deferral contribution at 50% up to 6% of the employee’s deferral. The Company’s contribution to the Retirement Plan was approximately $5.2 million and $5.8 million for the years ended December 31, 2020 and 2019, respectively.
The Company maintains the nonqualified Hayward Industries Supplemental Retirement Plan (the “Supplemental Retirement Plan”). The Supplemental Retirement Plan allows key executives to contribute up to 25% of their total cash compensation (as defined in the Supplemental Retirement Plan). The Company matches up to 9% of the compensation contributed to the Supplemental Retirement Plan. The employer contributions vest immediately. The employer contribution was approximately $0.3 million for the years ended December 31, 2020 and 2019, respectively.
The value of investments related to the Supplemental Retirement Plan is included in other assets and a corresponding liability to participants is recorded in other liabilities of approximately $2.9 million and $2.4 million for the years ended December 31, 2020 and 2019, respectively.
18. Acquisition and Restructuring Related Expense (Income)
Acquisition and restructuring related income, net consists of the following (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Gain on sale of real estate
|
|
|
|
$
|
—
|
|
|
|
|
$
|
(16.9)
|
|
|
|
Remeasurement of contingent consideration
|
|
|
|
|
—
|
|
|
|
|
|
(7.4)
|
|
|
|
Business restructuring costs
|
|
|
|
|
17.7
|
|
|
|
|
|
7.4
|
|
|
|
Other restructuring costs
|
|
|
|
|
1.6
|
|
|
|
|
|
0.6
|
|
|
|
Total
|
|
|
|
$
|
19.3
|
|
|
|
|
$
|
(16.3)
|
|
|
In 2019, we announced the cessation of certain manufacturing and distribution operations and sold the real estate associated with these operations with a one year lease back arrangement to allow for the orderly restructuring of these operations. The Company recognized a gain of $16.9 million on the sale of this real estate which is included within Acquisition and restructuring related income, net on the Company’s consolidated statement of operations and comprehensive income. The Company simultaneously entered into a one year lease-back arrangement with the buyer of this real estate through September 30, 2020 and exited the facility upon the expiration of the term. The sale and leaseback was accounted for as separate transactions based on their respective terms in accordance with ASC 840, Leases.
The Company recognizes severance charges on a straight-line basis over the notification period in accordance with ASC 420, Exit or Disposal Activities. Such charges include the facility closure described above and other one-time termination benefits (in millions):
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
18. Acquisition and Restructuring Related Expense (Income) (Continued)
|
|
|
|
Liability as of
January 1,
2020
|
|
|
2020 Activity
|
|
|
Liability as of
December 31,
2020
|
|
|
|
|
|
Costs
Recognized
|
|
|
Cash
Payments
|
|
|
One-time termination benefits
|
|
|
|
$
|
6.3
|
|
|
|
|
$
|
4.0
|
|
|
|
|
$
|
(10.3)
|
|
|
|
|
$
|
—
|
|
|
|
Facility-related
|
|
|
|
|
—
|
|
|
|
|
|
11.3
|
|
|
|
|
|
(11.3)
|
|
|
|
|
|
—
|
|
|
|
Other
|
|
|
|
|
—
|
|
|
|
|
|
2.4
|
|
|
|
|
|
(2.4)
|
|
|
|
|
|
—
|
|
|
|
Total
|
|
|
|
$
|
6.3
|
|
|
|
|
$
|
17.7
|
|
|
|
|
$
|
(24.0)
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
Liability as of
January 1,
2019
|
|
|
2019 Activity
|
|
|
Liability as of
December 31,
2019
|
|
|
|
|
|
Costs
Recognized
|
|
|
Cash
Payments
|
|
|
One-time termination benefits
|
|
|
|
$
|
—
|
|
|
|
|
$
|
6.4
|
|
|
|
|
$
|
(0.1)
|
|
|
|
|
$
|
6.3
|
|
|
|
Facility-related
|
|
|
|
|
—
|
|
|
|
|
|
0.8
|
|
|
|
|
|
(0.8)
|
|
|
|
|
|
—
|
|
|
|
Other
|
|
|
|
|
—
|
|
|
|
|
|
0.2
|
|
|
|
|
|
(0.2)
|
|
|
|
|
|
—
|
|
|
|
Total
|
|
|
|
$
|
—
|
|
|
|
|
$
|
7.4
|
|
|
|
|
$
|
(1.1)
|
|
|
|
|
$
|
6.3
|
|
|
Restructuring costs are included within acquisition and restructuring related costs on the Company’s consolidated statement of operations and comprehensive income, while the restructuring liability is included as a component of accrued expenses and other liabilities on the consolidated balance sheet.
19. Related Party Transactions
The Company paid management fees to certain sponsors of the Company in the amount of $0.8 million for the years ended December 31, 2020 and 2019. In addition, $0.2 million in Class C dividends were paid to one sponsor in lieu of management fees for each of the years ended December 31, 2020 and 2019. In October 2020, the Board of Directors approved a distribution of $275.0 million, or $316.16 per share to the Class A stockholders of the Company. The distribution reduced the liquidation preference of the Class A stock. Sponsors received $267.2 million of the total distribution.
20. Condensed Financial Information of Registrant (Parent Company Only)
Hayward Holdings, Inc. balance sheets are as follows (in millions, except per share data):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
|
$
|
1,080.2
|
|
|
|
|
$
|
1,034.1
|
|
|
|
Total assets
|
|
|
|
$
|
1,080.2
|
|
|
|
|
$
|
1,034.1
|
|
|
|
Liabilities, Redeemable Stock and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany liabilities
|
|
|
|
$
|
276.5
|
|
|
|
|
$
|
0.6
|
|
|
|
Total current liabilities
|
|
|
|
$
|
276.5
|
|
|
|
|
$
|
0.6
|
|
|
|
Total liabilities
|
|
|
|
|
276.5
|
|
|
|
|
|
0.6
|
|
|
|
Redeemable stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A stock $0.001 par value, 1,500,000 authorized; 872,598 issued and
869,823 outstanding at December 31, 2020; 872,547 issued and 872,297
outstanding at December 31, 2019
|
|
|
|
|
594.5
|
|
|
|
|
|
869.5
|
|
|
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
20. Condensed Financial Information of Registrant (Parent Company Only) (Continued)
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Class C stock $0.001 par value, 100 authorized; 100 issued and outstanding at December 31, 2020 and 2019
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock $0.001 par value, 29,250,000 authorized; 3,846,960 issued
and 2,772,900 outstanding at December 31, 2020; 3,143,400 issued and
3,114,150 outstanding at December 31, 2019
|
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
Additional paid-in capital
|
|
|
|
|
10.3
|
|
|
|
|
|
8.0
|
|
|
|
Common stock in treasury; 4,340,310 and 3,295,695 at December 31, 2020 and 2019, respectively
|
|
|
|
|
(3.7)
|
|
|
|
|
|
(1.2)
|
|
|
|
Retained earnings
|
|
|
|
|
203.0
|
|
|
|
|
|
159.9
|
|
|
|
Accumulated other comprehensive loss
|
|
|
|
|
(0.4)
|
|
|
|
|
|
(2.7)
|
|
|
|
Total stockholders’ equity
|
|
|
|
|
209.2
|
|
|
|
|
|
164.0
|
|
|
|
Total liabilities, redeemable stock and stockholders’ equity
|
|
|
|
$
|
1,080.2
|
|
|
|
|
$
|
1,034.1
|
|
|
|
|
Hayward Holdings, Inc. statement of operations are as follows (in millions):
|
|
|
|
December 31,
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Equity income in subsidiaries
|
|
|
|
$
|
43.1
|
|
|
|
|
$
|
8.3
|
|
|
|
Other income, net
|
|
|
|
|
0.2
|
|
|
|
|
|
0.2
|
|
|
|
Total other expense, net
|
|
|
|
|
43.3
|
|
|
|
|
|
8.5
|
|
|
|
Net income
|
|
|
|
$
|
43.3
|
|
|
|
|
$
|
8.5
|
|
|
A statement of cash flows has not been presented as Hayward Holdings, Inc. did not have any cash as of, or for, the years ended December 31, 2020 and 2019 other than distributions paid to Class A and Class C stockholders of $275.2 million and $0.2 million in the years ended December 31, 2020 and 2019, respectively.
Basis of Presentation
These condensed parent company only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of Hayward Holdings, Inc. (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the Company. The ability of Hayward Holdings, Inc.’s operating subsidiaries to pay dividends is restricted by the credit agreements governing the subsidiaries’ credit facilities. Under the credit agreements, dividends may only be paid to Hayward Holdings, Inc. for corporate overhead expenses and otherwise pursuant to customary dollar baskets and “builder” baskets (based on 50% of cumulative adjusted “Consolidated Net Income” as defined in the credit agreements) from July 1, 2017 to the applicable date of determination (taken as one accounting period, which was $160.3 million and $100.9 million as of December 31, 2020 and December 31, 2019, respectively) and equity proceeds among other things, an unlimited amount under the asset based revolving credit agreement subject to satisfying minimum availability requirements for borrowings under the credit agreement and the absence of certain defaults, and an unlimited amount under the term loan credit agreements subject to Hayward Industries, Inc.’s total leverage not exceeding certain thresholds on a pro forma basis.
These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method.
Hayward Holdings, Inc.
Notes to Consolidated Financial Statements (Continued)
21. Subsequent Events
The Company evaluates events and transactions that occur subsequent to the balance sheet date but prior to the issuance date of the financial statements to determine the necessity for recognition and/or reporting of any of these events and transactions in the financial statements. The Company has evaluated subsequent events through February 16, 2021, the date that these consolidated financial statements were available to be issued, and, with respect to the stock split described below, through March 3, 2021.
January 2021 Stock Option Grants
In January 2021, the Company granted options to purchase an aggregate of 1,048,125 shares of common stock evenly split between time-based and performance-based options, with an exercise price of $3,61.These stock options have terms generally consistent with previously granted time-based and performance-based stock options described in Note 16.
Given the proximity of the grant date of these stock options to the anticipated date of the Company’s IPO, the Company will use the mid-point of the estimated offering price range set forth on the cover page of the Company’s IPO prospectus as the fair market value of the Company’s common stock for purposes of determining the grant date fair value of such stock option awards and the measured but unrecognized stock-based compensation expense associated with such grants. The stock-based compensation expense will be recognized when the performance conditions are met and over the requisite service period for the performance-based and time-based stock options, respectively. The compensation cost is estimated to be $7.4 million and $7.3 million for time-based and performance-based stock options, respectively, based on an estimated initial public offering price of $18.00 per share. The final fair value of these options will take into consideration the final pricing of our common stock in this offering, and thus such estimate could change materially.
Stock Split
On March 2, 2021, the Company affected a 195-for-1 stock split of its issued and outstanding shares of common stock by means of a stock dividend. The corresponding number of shares and exercise prices related to outstanding stock options and restricted awards were also adjusted. The impact of the stock split has been applied retrospectively to all periods presented.
22. Subsequent Events (Unaudited)
Authorized Shares
On March 2, 2021, the Company amended its amended and restated certificate of incorporation to increase the authorized capital stock of the Company to 301,500,100 shares, consisting of 300,000,000 shares of common stock, par value $0.001 per share, 1,500,000 shares of Class A common stock, par value $0.001 per share, and 100 shares of Class C common stock, par value $0.001 per share.
40,277,778 Shares
Hayward Holdings, Inc.
Common Stock
P r o s p e c t u s
BofA Securities
Goldman Sachs & Co. LLC
Nomura
Credit Suisse
Morgan Stanley
Baird
Guggenheim Securities
Jefferies
BMO Capital Markets
KeyBanc Capital Markets
William Blair
Houlihan Lokey
Moelis & Company
, 2021
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by the registrant in connection with the issuance and distribution of the securities being registered hereby (other than underwriting discounts and commissions). All of such expenses are estimates, except for the Securities and Exchange Commission (the “SEC”), registration fee, the Financial Industry Regulatory Authority (“FINRA”) filing fee and listing fee.
|
|
SEC registration fee
|
|
|
|
$
|
96,000.00
|
|
|
|
|
FINRA filing fee
|
|
|
|
|
133,000.00
|
|
|
|
|
New York Stock Exchange listing fee
|
|
|
|
|
25,000.00
|
|
|
|
|
Printing fees and expenses
|
|
|
|
|
250,000.00
|
|
|
|
|
Legal fees and expenses
|
|
|
|
|
3,500,000.00
|
|
|
|
|
Blue sky fees and expenses
|
|
|
|
|
25,000.00
|
|
|
|
|
Registrar and transfer agent fees
|
|
|
|
|
15,000.00
|
|
|
|
|
Accounting fees and expenses
|
|
|
|
|
4,377,000.00
|
|
|
|
|
Miscellaneous expenses
|
|
|
|
|
329,000.00
|
|
|
|
|
Total
|
|
|
|
$
|
8,750,000.00
|
|
|
Item 14.
Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware provides as follows:
A corporation shall have the power to indemnify 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 (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.
A corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
As permitted by the DGCL, we will include in our second restated certificate of incorporation a provision to eliminate the personal liability of our directors for monetary damages for breach of their fiduciary duties as directors, subject to certain exceptions. In addition, our second restated certificate of incorporation and amended and restated bylaws will provide that we are required to indemnify our officers and directors under certain circumstances, including those circumstances in which indemnification would otherwise be discretionary, and we are required to advance expenses to our officers and directors as incurred in connection with proceedings against them for which they may be indemnified.
We intend to enter into indemnification agreements with our directors and officers. These agreements will provide broader indemnity rights than those provided under the DGCL and our second restated certificate of incorporation. The indemnification agreements are not intended to deny or otherwise limit third-party or derivative suits against us or our directors or officers, but to the extent a director or officer were entitled to indemnity or contribution under the indemnification agreement, the financial burden of a third-party suit would be borne by us, and we would not benefit from derivative recoveries against the director or officer. Such recoveries would accrue to our benefit but would be offset by our obligations to the director or officer under the indemnification agreement.
The underwriting agreement provides that the underwriters are obligated, under certain circumstances, to indemnify our directors, officers and controlling persons against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of underwriting agreement filed as Exhibit 1.1 hereto.
We maintain directors’ and officers’ liability insurance for the benefit of our directors and officers.
Item 15.
Recent Sales of Unregistered Securities.
Since December 31, 2017, we have issued an aggregate of (i) 7,485.34 shares of our Class A stock (including 2,949.49 shares of our Class A restricted stock), (ii) 5,067.30 shares of our Class B common stock (including 500 shares of our Class B restricted common stock) and (iii) options to purchase of 64,585 shares of Class B common stock at a weighted average exercise price of $251.81 per share under our 2017 Plan.
The issuances of the securities in the transactions described above were issued without registration in reliance on the exemptions afforded by Section 4(a)(2) of the Securities Act and Rules 506 and 701 promulgated thereunder.
The foregoing share numbers do not reflect the Reclassification.
Item 16.
Exhibits and Financial Statement Schedules.
|
Exhibit
No.
|
|
|
Description
|
|
|
|
|
1
|
.1
|
|
|
|
|
|
|
|
|
3
|
.1
|
|
|
|
|
|
|
|
|
3
|
.2
|
|
|
|
|
|
|
|
|
4
|
.1
|
|
|
|
Form of Stockholders’ Agreement, by and among Hayward Holdings, Inc., CCMP Capital Investors III, L.P., CCMP Capital Investors III (Employee), L.P., MSD Aqua Partners, LLC, PE16PX Rocky Mountain Ltd., PE16GV Rocky Mountain Ltd. and certain other stockholders.
|
|
|
|
|
4
|
.2
|
|
|
|
|
|
|
|
|
5
|
.1
|
|
|
|
|
|
|
|
|
10
|
.1+
|
|
|
|
|
|
|
Exhibit
No.
|
|
|
Description
|
|
|
|
|
10
|
.2+
|
|
|
|
Amendment No. 1 to First Lien Credit Agreement, dated September 28, 2018, by and among Hayward Industries, Inc., Bank of America, N.A., as administrative agent and collateral agent, and the 2018 Incremental Term Lenders party thereto.
|
|
|
|
|
10
|
.3+
|
|
|
|
Amendment No. 2 to First Lien Credit Agreement, dated October 28, 2020, by and among Hayward Industries, Inc., Bank of America, N.A., as administrative agent and collateral agent, and the 2018 Incremental Term Lenders party thereto.
|
|
|
|
|
10
|
.4+
|
|
|
|
Second Lien Credit Agreement, dated August 4, 2017, by and among Hayward Acquisition
Corp., Hayward Intermediate, Inc., Bank of America, N.A., as administrative agent and collateral
agent, and the Lenders from time to time party thereto.
|
|
|
|
|
10
|
.5+
|
|
|
|
ABL Credit Agreement, dated August 4, 2017, by and among Hayward Acquisition Corp., Hayward Intermediate, Inc., Hayward Pool Products Canada, Inc. / Produits De Piscines Hayward Canada, Inc., Bank of America, N.A., as administrative agent and collateral agent, the Swingline Lender, the Issuing Bank and the Lenders from time to time party thereto.
|
|
|
|
|
10
|
.6+
|
|
|
|
Amendment No. 1 to ABL Credit Agreement, dated August 4, 2017, by and among Hayward
Industries, Inc., Hayward Intermediate, Inc., Hayward Pool Products Canada, Inc. / Produits De
Piscines Hayward Canada, Inc., Bank of America, N.A., as administrative agent and collateral
agent, the Swingline Lender, the Issuing Bank and the Lenders from time to time party thereto.
|
|
|
|
|
10
|
.7+
|
|
|
|
Release, by and among Hayward Industries, Inc., the Registrant and Anthony P. Colucci, dated April 16, 2020.
|
|
|
|
|
10
|
.8+
|
|
|
|
Second Amended and Restated Hayward Holdings, Inc. 2017 Equity Incentive Plan.
|
|
|
|
|
10
|
.9+
|
|
|
|
Form of Class B Restricted Stock Subscription Agreement under the 2017 Plan.
|
|
|
|
|
10
|
.10+
|
|
|
|
Form of Non-Qualified Stock Option Agreement under the 2017 Plan.
|
|
|
|
|
10
|
.11+
|
|
|
|
Non-Qualified Stock Option Agreement under the Registrant’s 2017 Plan, by the Registrant and Kevin P. Holleran, granted December 24, 2019.
|
|
|
|
|
10
|
.12+
|
|
|
|
Restricted Stock Agreement under the Registrant’s 2017 Plan, by the Registrant and Kevin P. Holleran, granted December 24, 2019.
|
|
|
|
|
10
|
.13+
|
|
|
|
Non-Qualified Stock Option Agreement under the Registrant’s 2017 Plan, by the Registrant and Eifion Jones, granted April 14, 2020.
|
|
|
|
|
10
|
.14+
|
|
|
|
Non-Qualified Stock Option Agreement under the Registrant’s 2017 Plan, by the Registrant and Lawrence Silber, granted December 21, 2019.
|
|
|
|
|
10
|
.15
|
|
|
|
Hayward Holdings, Inc. 2021 Equity Incentive Plan.
|
|
|
|
|
10
|
.16
|
|
|
|
Form of Restricted Stock Unit Agreement under the Registrant’s 2021 Plan.
|
|
|
|
|
10
|
.17
|
|
|
|
Form of Non-Statutory Stock Option Agreement under the Registrant’s 2021 Plan.
|
|
|
|
|
10
|
.18
|
|
|
|
Hayward Holdings, Inc. 2021 Employee Stock Purchase Plan.
|
|
|
|
|
10
|
.19+
|
|
|
|
Hayward Holdings, Inc. 2021 Cash Incentive Plan.
|
|
|
|
|
10
|
.20
|
|
|
|
Amended and Restated Employment Agreement, by and among Hayward Industries, Inc., the Registrant and Kevin Holleran, dated March 2, 2021.
|
|
|
|
|
10
|
.21
|
|
|
|
Amended and Restated Employment Agreement, by and among Hayward Industries, Inc., the Registrant and Eifion Jones, dated March 2, 2021.
|
|
|
|
|
10
|
.22
|
|
|
|
Amended and Restated Employment Agreement, by and among Hayward Industries, Inc., the Registrant and Rick Roetken, dated March 2, 2021.
|
|
|
|
|
10
|
.23
|
|
|
|
Employment Agreement, by and among Hayward Industries, Inc., the Registrant and Anthony P.
Colucci.
|
|
|
|
|
10
|
.24
|
|
|
|
Form of Non-Qualified Deferred Compensation Plan.
|
|
|
|
|
10
|
.25
|
|
|
|
Form of Director and Officer Indemnification Agreement.
|
|
|
|
|
21
|
.1+
|
|
|
|
Subsidiaries of the Registrant.
|
|
|
Exhibit
No.
|
|
|
Description
|
|
|
|
|
23
|
.1
|
|
|
|
|
|
|
|
|
23
|
.2
|
|
|
|
|
|
|
|
|
24
|
.1+
|
|
|
|
|
|
|
|
|
99
|
.1
|
|
|
|
|
|
|
|
|
99
|
.2
|
|
|
|
|
|
+
Previously filed.
*
To be included by amendment.
Item 17.
Undertakings.
a)
The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
b)
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
c)
The undersigned registrant hereby undertakes that:
(1)
for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective; and
(2)
for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Berkeley Heights, State of New Jersey, on the 3rd day of March, 2021.
HAYWARD HOLDINGS, INC.
By:
/s/ Kevin Holleran
Name:
Kevin Holleran
Title:
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on March 3, 2021.
|
|
Signature
|
|
|
Capacity
|
|
|
|
/s/ Kevin Holleran
Kevin Holleran
|
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
*
Eifion Jones
|
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
|
|
|
|
*
Michael Colicchio
|
|
|
Vice President and Corporate Controller
(Principal Accounting Officer)
|
|
|
|
*
Mark McFadden
|
|
|
Director
|
|
|
|
*
Timothy Walsh
|
|
|
Director
|
|
|
|
*
Greg Brenneman
|
|
|
Director
|
|
|
|
*
Kevin D. Brown
|
|
|
Director
|
|
|
|
*
Jason Peters
|
|
|
Director
|
|
|
|
*
Larry Silber
|
|
|
Director
|
|
|
|
*
Arthur Soucy
|
|
|
Director
|
|
|
|
Signature
|
|
|
Capacity
|
|
|
|
*
Ali Afraz
|
|
|
Director
|
|
|
|
*
Stephen Felice
|
|
|
Director
|
|
|
|
*
Christopher Bertrand
|
|
|
Director
|
|
|
|
*
Christopher Stevenson
|
|
|
Director
|
|
* By:
/s/ Kevin Holleran
Kevin Holleran
Attorney-in-Fact
Exhibit 1.1
HAYWARD HOLDINGS, INC.
(a Delaware corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
Dated: [●], 2021
HAYWARD HOLDINGS, INC.
(a Delaware corporation)
[●] Shares of Common Stock
UNDERWRITING AGREEMENT
[●], 2021
BofA Securities, Inc.
Goldman Sachs & Co. LLC
Nomura Securities International,
Inc.
as Representatives of the several
Underwriters
c/o BofA Securities, Inc.
One Bryant Park
New York, New York 10036
c/o Goldman Sachs & Co. LLC
200 West Street
New York, New York 10282
c/o Nomura Securities International, Inc.
Worldwide Plaza, 309 West 49th Street
New York, New York 10019
Ladies and Gentlemen:
Hayward Holdings, Inc.,
a Delaware corporation (the “Company”), and the persons listed in Schedule B hereto (the “Selling Shareholders”),
confirm their respective agreements with BofA Securities, Inc. (“BofA”) and each of the other Underwriters named in
Schedule A hereto (collectively, the “Underwriters,” which term shall also include any underwriter substituted as hereinafter
provided in Section 10 hereof), for whom BofA, Goldman Sachs & Co. LLC and Nomura Securities International, Inc. are acting
as representatives (in such capacity, the “Representatives”), with respect to (i) the sale by the Company and the Selling
Shareholders, acting severally and not jointly, and the purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of Common Stock, par value $0.001 per share, of the Company (“Common Stock”) set forth
in Schedules A and B hereto and (ii) the grant by the the Selling Shareholders to the Underwriters, acting severally and not jointly,
of the option described in Section 2(b) hereof to purchase all or any part of [●] additional shares of Common Stock. The
aforesaid [●] shares of Common Stock (the “Initial Securities”) to be purchased by the Underwriters and all or
any part of the [●] shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Securities”)
are herein called, collectively, the “Securities.”
The Company and the
Selling Shareholders understand that the Underwriters propose to make a public offering of the Securities as soon as the Representatives
deem advisable after this Agreement has been executed and delivered.
The Company, the Selling
Shareholders and the Underwriters agree that up to [●] shares of the Initial Securities to be purchased by the Underwriters
(the “Reserved Securities”) shall be reserved for sale by Merrill Lynch, Pierce, Fenner & Smith Incorporated (an
affiliate of BofA, hereinafter referred to as “Merrill Lynch”) to certain persons designated by the Company (the “Invitees”),
as part of the distribution of the Securities by the Underwriters, subject to the terms of this Agreement, the applicable rules,
regulations and interpretations of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and all other applicable
laws, rules and regulations. The Company solely determined, without any direct or indirect participation by the Underwriters or
Merrill Lynch, the Invitees who will purchase Reserved Securities (including the amount to be purchased by such persons) sold by
Merrill Lynch. To the extent that such Reserved Securities are not orally confirmed for purchase by Invitees by 11:59 P.M. (New
York City time) on the date of this Agreement, such Reserved Securities may be offered to the public
as part of the public offering contemplated hereby.
The Company has filed
with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333-253184),
including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the
Securities Act of 1933, as amended (the “1933 Act”). Promptly after execution and delivery of this Agreement, the Company
will prepare and file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the rules and regulations
of the Commission under the 1933 Act (the “1933 Act Regulations”) and Rule 424(b) (“Rule 424(b)”) of the
1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time
it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule
430A(b) is herein called the “Rule 430A Information.” Such registration statement, including the amendments thereto,
the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein
called the “Registration Statement.” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein called the “Rule 462(b) Registration Statement” and, after such filing, the term “Registration Statement”
shall include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement,
and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and
delivery of this Agreement, is herein called a “preliminary prospectus.” The final prospectus, in the form first furnished
to the Underwriters for use in connection with the offering of the Securities, is herein called the “Prospectus.” For
purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system or any successor system (“EDGAR”).
As used in this Agreement:
“Applicable
Time” means [__:00 P./A.M.], New York City time, on [●], 2021 or such other time as agreed by the Company and the Representatives.
“General
Disclosure Package” means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the
most recent preliminary prospectus that is distributed to investors prior to the Applicable Time and the information included on
Schedule C-1 hereto, all considered together.
“Issuer
Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations
(“Rule 433”), including, without limitation, any “free writing prospectus” (as defined in Rule 405 of the
1933 Act Regulations (“Rule 405”)) relating to the Securities that is (i) required to be filed with the Commission
by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether
or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i)
because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the
form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s
records pursuant to Rule 433(g).
“Issuer
General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to
prospective investors (other than a “bona fide electronic road show,” as defined in Rule 433 (the “Bona
Fide Electronic Road Show”)), as evidenced by its being specified in Schedule C-2 hereto.
“Issuer
Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing
Prospectus.
“Testing-the-Waters
Communication” means any oral or written communication with potential investors in connection with the offer and sale of
the Securities undertaken in reliance on Section 5(d) of the 1933 Act.
“Written
Testing-the-Waters Communication” means any Testing-the-Waters Communication that is a written communication within the meaning
of Rule 405 under the 1933 Act.
SECTION
1. Representations
and Warranties.
(a)
Representations and Warranties by the Company. The Company represents and warrants to each Underwriter as
of the Applicable Time, the Closing Time (as defined below) and any Date of Delivery (as defined below), and agrees with each Underwriter,
as follows:
(i) Registration
Statement and Prospectuses. Each of the Registration Statement and any post-effective amendment thereto has been declared
effective by the Commission under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or
any post-effective amendment thereto has been issued by the Commission under the 1933 Act, no order preventing or suspending
the use of any preliminary prospectus or the Prospectus has been issued by the Commission and no proceedings for any of those
purposes have been instituted or are pending or, to the Company’s knowledge, threatened by the Commission. The Company
has complied with each request (if any) from the Commission for additional information.
Each of the
Registration Statement and any post-effective amendment thereto, at the time it became effective, the Applicable Time, the Closing
Time and any Date of Delivery complied and will comply in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed
with the Commission, and, in each case, at the Applicable Time, the Closing Time and any Date of Delivery complied and will comply
in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered
to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(ii)
Accurate Disclosure. Neither the Registration Statement nor any post-effective amendment thereto, when considered
together with the Registration Statement, at its effective time, on the date hereof, at the Closing Time or at any Date of Delivery,
contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading. At the Applicable Time and any Date of
Delivery, none of (A) the General Disclosure Package, (B) any individual Issuer Limited Use Free Writing Prospectus, when considered
together with the General Disclosure Package and (C) any individual Written Testing-the-Waters Communication, when considered together
with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits
or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto, when considered together
with the Prospectus, as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing
Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or
will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which
they were made, not misleading.
The
representations and warranties in this subsection shall not apply to statements in or omissions from the Registration
Statement (or any post-effective amendment thereto), the General Disclosure Package or the Prospectus (or any amendment or
supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by or on behalf
of any Underwriter through the Representatives expressly for use therein. For purposes of this Agreement, the only
information so furnished shall be the information in the first paragraph under the heading
“Underwriting–Commissions and Discounts,” the information in the second, third and fourth paragraphs under
the heading “Underwriting–Price Stabilization, Short Positions and Penalty Bids” and the information under
the heading “Underwriting–Electronic Distribution” in each case contained in the Prospectus (collectively,
the “Underwriter Information”).
(iii) Issuer
Free Writing Prospectuses. No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in
the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not
been superseded or modified. The Company has made available a “bona fide electronic road show” in compliance with
Rule 433(d)(8)(ii) such that no filing of any “road show” (as defined in Rule 433(h)) is required in connection with
the offering of the Securities.
(iv) Testing-the-Waters
Materials. The Company has not (A) engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications
with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A
under the 1933 Act or institutions that are accredited investors within the meaning of Rule 501 under the 1933 Act and (B) authorized
anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives
have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed any
Written Testing-the-Waters Communications other than those listed on Schedule E hereto.
(v) Company Not Ineligible Issuer. At the time of filing the Registration Statement and any post-effective amendment
thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within
the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is
not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant
to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
(vi) Emerging
Growth Company Status. From the time of the initial confidential submission of the Registration Statement to the Commission
(or, if earlier, the first date on which the Company engaged directly or through any Person authorized to act on its behalf in
any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company,”
as defined in Section 2(a) of the 1933 Act (an “Emerging Growth Company”).
(vii) Independent
Accountants. PricewaterhouseCoopers LLP, the accountants who certified the financial statements and supporting schedules included
in the Registration Statement, the General Disclosure Package and the Prospectus, is an independent registered public accounting
firm as required by the 1933 Act, the 1933 Act Regulations and the Public Company Accounting Oversight Board.
(viii) Financial
Statements; Non-GAAP Financial Measures. The financial statements included in the Registration Statement, the General
Disclosure Package and the Prospectus, together with the related schedules, if any, and notes, present fairly, in all
material respects, the financial position of the Company and its consolidated subsidiaries at the dates indicated and the
statement of operations and comprehensive income, changes in redeemable stock and stockholders’ equity and cash flows
of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in
conformity with U.S. generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout
the periods involved. The supporting schedules, if any, present fairly, in all material respects, in accordance with GAAP the
information required to be stated therein. The selected financial data and the summary financial information included in the
Registration Statement, the General Disclosure Package and the Prospectus under the captions “Prospectus
Summary—Summary Consolidated Financial and Other Data” and “Selected Consolidated Financial Data”
present fairly, in all material respects, the information shown therein and have been compiled on a basis consistent, in all
material respects, with that of the audited financial statements included therein. Except as included therein, no historical
or pro forma financial statements or supporting schedules are required to be included or incorporated by reference in the
Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations. All
disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus, regarding
“non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply, in
all material respects, with Regulation G of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and
Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.
(ix) No
Material Adverse Change in Business. Except as otherwise stated therein, since the respective dates as of which information
is given in the Registration Statement, the General Disclosure Package or the Prospectus (in each case, exclusive of any amendment
or supplement thereto), (A) there has been no material adverse change, or any development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the earnings or business affairs of the Company and its subsidiaries
considered as one enterprise, whether or not arising in the ordinary course of business (a “Material Adverse Effect”),
(B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary
course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.
(x) Good
Standing of the Company. The Company has been duly organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to
enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(xi) Good
Standing of Subsidiaries. Each “significant subsidiary” of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each, a “Subsidiary” and, collectively, the “Subsidiaries”) has been duly organized and
is validly existing in good standing under the laws of the jurisdiction of its incorporation or organization (to the extent that
the concept of good standing is applicable in such jurisdictions), has corporate or similar power and authority to own, lease
and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package
and the Prospectus and is duly qualified to transact business and is in good standing in each jurisdiction (to the extent that
the concept of good standing is applicable in such jurisdictions) in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except where the failure to so qualify or to be in good standing
would not result in a Material Adverse Effect. Except as otherwise disclosed in the Registration Statement, the General Disclosure
Package and the Prospectus, all of the issued and outstanding capital stock of each Subsidiary has been duly authorized and validly
issued, is fully paid and non-assessable and is owned by the Company, directly or through subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or claim, except to the extent any such security interest, mortgage,
pledge, lien, encumbrance or claim would not, individually or in the aggregate, result in a Material Adverse Effect. None of the
outstanding shares of capital stock of any Subsidiary were issued in violation of the preemptive or similar rights of any securityholder
of such Subsidiary. The only subsidiaries of the Company are (A) the subsidiaries listed on Exhibit 21 to the Registration Statement
and (B) certain other subsidiaries which, considered in the aggregate as a single subsidiary, do not constitute a “significant
subsidiary” as defined in Rule 1-02 of Regulation S-X.
(xii) Capitalization.
The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement,
the General Disclosure Package and the Prospectus in the column entitled “Actual” under the caption “Capitalization”
(except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit
plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise
of convertible securities or options referred to in the Registration Statement, the General Disclosure Package and the Prospectus).
The outstanding shares of capital stock of the Company, including the Securities to be purchased by the Underwriters from the
Selling Shareholders, have been duly authorized and validly issued and are fully paid and non-assessable. None of the outstanding
shares of capital stock of the Company, including the Securities to be purchased by the Underwriters from the Selling Shareholders,
were issued in violation of the preemptive or other similar rights of any securityholder of the Company.
(xiii) Authorization
of Agreement. This Agreement has been duly authorized, executed and delivered by the Company.
(xiv) Authorization and Description of Securities. The Securities to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered
by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully
paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any
securityholder of the Company. The Common Stock conforms in all material respects to all statements relating thereto contained
in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material
respects to the rights set forth in the instruments defining the same. No holder of Securities will be subject to personal liability
by reason of being such a holder.
(xv) Registration
Rights. There are no persons with registration rights or other similar rights to have any securities registered for sale pursuant
to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement,
other than those rights that have been disclosed in the Registration Statement, the General Disclosure Package and the Prospectus
or have been validly waived.
(xvi) Absence
of Violations, Defaults and Conflicts. Neither the Company nor any of its subsidiaries is (A) in violation of its
charter, bylaws or similar organizational document, (B) in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or its subsidiaries is a party or by which it or any of
them may be bound or to which any of the properties or assets of the Company or any subsidiary is subject (collectively,
“Agreements and Instruments”), except for such defaults that would not, individually or in the aggregate, result
in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of
any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having
jurisdiction over the Company or any of its subsidiaries or any of their respective properties, assets or operations (each, a
“Governmental Entity”), except for such violations that would not, individually or in the aggregate, result in a
Material Adverse Effect. The execution, delivery and performance of this Agreement and the consummation of the transactions
contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus (including the
issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under
the caption “Use of Proceeds”) and compliance by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage
of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result
in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or
liens, charges or encumbrances that would not, individually or in the aggregate, result in a Material Adverse Effect), nor
will such action result in any violation of (1) the provisions of the charter, bylaws or similar organizational document of
the Company or any of its subsidiaries (except for such violations in the case of the subsidiaries that would not,
individually or in the aggregate, result in a Material Adverse Effect) or (2) any law, statute, rule, regulation, judgment,
order, writ or decree of any Governmental Entity (except for such violations that would not, individually or in the
aggregate, result in a Material Adverse Effect). As used herein, a “Repayment Event” means any event or condition
which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s
behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company
or any of its subsidiaries.
(xvii) Absence
of Labor Dispute. (A) No labor dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge
of the Company, is imminent, and (B) the Company is not aware of any existing or imminent labor disturbance by the employees of
any subsidiary’s principal suppliers, manufacturers, customers or contractors, which, in either case of (A) or (B), would
result in a Material Adverse Effect.
(xviii) Absence of Proceedings. Except as disclosed in the Registration Statement, the General Disclosure Package
and the Prospectus, there is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity
now pending or, to the knowledge of the Company, threatened, to which the Company or any of its subsidiaries is a party, or of
which any property of the Company or any subsidiary is the subject, that, individually or in the aggregate, if determined adversely
to the Company or any of its subsidiaries, would reasonably be expected to result in a Material Adverse Effect, or which would
reasonably be expected to materially and adversely affect their respective properties or the consummation of the transactions contemplated
in this Agreement or the performance by the Company of its obligations hereunder; and the aggregate of all pending legal or governmental
proceedings to which the Company or any such subsidiary is a party or of which any of their respective properties or assets is
the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus, including
ordinary routine litigation incidental to the business, could not result in a Material Adverse Effect.
(xix) Accuracy
of Exhibits. There are no contracts or documents which are required to be described in the Registration Statement, the General
Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described
and filed as required.
(xx) Absence
of Further Requirements. No filing with, or authorization, approval, consent, license, order, registration, qualification
or decree of, any Governmental Entity is necessary or required for the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the
transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933
Act, the 1933 Act Regulations, the 1934 Act, the rules of the New York Stock Exchange, state securities laws or the rules of
FINRA.
(xxi) Possession
of Licenses and Permits. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations
(collectively, “Governmental Licenses”) issued by the appropriate Governmental Entities necessary to conduct the business
now operated by them, except where the failure so to possess would not, individually or in the aggregate, result in a Material
Adverse Effect. The Company and its subsidiaries are in compliance with the terms and conditions of all Governmental Licenses,
except where the failure so to comply would not, individually or in the aggregate, result in a Material Adverse Effect. All of
the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or
the failure of such Governmental Licenses to be in full force and effect would not, individually or in the aggregate, result in
a Material Adverse Effect. Neither the Company nor any of its subsidiaries has received any notice of proceedings relating to
the revocation or modification of any Governmental Licenses which, individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a Material Adverse Effect.
(xxii) Title
to Property. (A) The Company and the its subsidiaries have good and marketable title to all real property owned by them and
good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (1) do not, individually or in the aggregate, materially affect
the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any
of its subsidiaries or (2) would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect;
and (B)(1) all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise,
and under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the General Disclosure
Package or the Prospectus, are in full force and effect, and (2) neither the Company nor any such subsidiary has any notice of
any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or sublease.
(xxiii) Possession
of Intellectual Property. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus,
or as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, the Company
and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions,
copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “Intellectual
Property”) necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to
any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate
to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject
of any unfavorable decision, ruling or finding) or invalidity or inadequacy, individually or in the aggregate, would result in
a Material Adverse Effect.
(xxiv) Environmental
Laws. Except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect,
(A) neither the Company nor any of its subsidiaries is in violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance, code, policy or rule of common law or any binding judicial or administrative interpretation thereof, including
any binding judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health
or safety with respect to Hazardous Materials (as defined below), the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, those relating to the
release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products, asbestos-containing materials or mold (collectively, “Hazardous Materials”) or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “Environmental
Laws”), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company,
threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance,
violation or liability, investigations or proceedings relating to any Environmental Law against the Company or any of its subsidiaries,
(D) to the knowledge of the Company, there are no events or circumstances that would reasonably be expected to form the basis
of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against
or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws and (E) there are
no costs, obligations or liabilities associated with or arising under Environmental Laws or Hazardous Substances of or relating
to the Company or any of its subsidiaries. There are no proceedings pending or that are known to be contemplated against the Company
or any of its subsidiaries under any Environmental Laws in which a governmental entity is also a party other than such proceedings
regarding which it reasonably believes no monetary sanctions of $300,000 or more will be imposed, there are no facts or issues
regarding compliance with Environmental Laws that could reasonably be expected to have a material effect on capital expenditures,
earnings and competitive position of the Company and its subsidiaries and neither the Company nor any of its subsidiaries anticipates
any material capital expenditures relating to any Environmental Laws.
(xxv) Accounting
Controls. The Company maintains a system of internal control over financial reporting (as such term is defined in Rule 13a-15(f) under
the 1934 Act) that (i) is designed to comply with the requirements of the 1934 Act, (ii) has been designed by the Company’s
principal executive officer and principal financial officer, or under their supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and (iii) is sufficient to provide reasonable assurance (A) that records in reasonable
detail accurately and fairly reflect the transactions and dispositions of the assets of the Company, (B) that transactions
are recorded as necessary to permit preparation of financial statements in conformity with GAAP and that receipts and expenditures
of the Company are being made only in accordance with authorizations of management and directors of the Company and (C) that
unauthorized acquisitions or use or disposition of the Company’s assets that could have a material effect on the financial
statements are prevented or detected in a timely manner. Except as disclosed in the Registration Statement, the General Disclosure
Package and the Prospectus, the Company is not aware of any material weaknesses in its internal control over financial reporting.
Since the end of the Company’s most recent audited fiscal year, there has been no change in the Company’s internal
control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting.
(xxvi) Compliance
with the Sarbanes-Oxley Act. The Company has taken all necessary actions to ensure that, upon the effectiveness of the Registration
Statement, it will be in compliance with all provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated
thereunder or implementing the provisions thereof (the “Sarbanes-Oxley Act”) that are then in effect and with which
the Company is required to comply as of the effectiveness of the Registration Statement, and is actively taking steps to ensure
that it will be in compliance with other provisions of the Sarbanes Oxley Act not currently in effect, upon the effectiveness
of such provisions, or which will become applicable to the Company at all times after the effectiveness of the Registration Statement.
(xxvii) Payment of Taxes. The Company and the its subsidiaries have filed all tax returns that are required to have
been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns
would not result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment
received by the Company and its subsidiaries, except for such taxes, if any, as are being contested in good faith and as to which
adequate reserves have been established by the Company.
(xxviii) Insurance.
The Company and its subsidiaries carry or are entitled to the benefits of insurance, with financially sound and reputable insurers,
in such amounts and covering such risks as the Company reasonably believes is adequate to conduct its business and the business
of its subsidiaries as described in the Registration Statement, the General Disclosure Package and the Prospectus, and all such
insurance is in full force and effect except where the failure to carry such insurance or have such insurance be in full force
and effect would not result in a Material Adverse Effect. The Company has no reason to believe that it or any of its subsidiaries
will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable
coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that
would not result in a Material Adverse Effect. Neither of the Company nor any of its subsidiaries has been denied any insurance
coverage which it has sought or for which it has applied.
(xxix) Investment
Company Act. The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus
will not be required, to register as an “investment company” under the Investment Company Act of 1940, as amended.
(xxx) Absence
of Manipulation. Neither the Company nor any affiliate of the Company has taken, nor will the Company or any affiliate take,
directly or indirectly, any action which is designed, or would reasonably be expected, to cause or result in, or which constitutes,
the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities
or result in a violation of Regulation M under the 1934 Act.
(xxxi) Foreign
Corrupt Practices Act. None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer,
agent, employee, controlled affiliate or other person acting on behalf of the Company or any of its subsidiaries is are of or
has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices
Act of 1977, as amended, and the rules and regulations thereunder (the “FCPA”), including, without limitation, making
use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise
to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving
of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party
or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge
of the Company, its controlled affiliates have conducted their businesses in compliance with the FCPA and have instituted and
maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance
therewith.
(xxxii) Money
Laundering Laws. The operations of the Company and the its subsidiaries are and have been conducted at all times in compliance
in all material respects with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions
Reporting Act of 1970, as amended, the money laundering statutes of all jurisdictions where the Company and its subsidiaries conduct
business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered
or enforced by any Governmental Entity (collectively, the “Money Laundering Laws”); and no action, suit or proceeding
by or before any Governmental Entity involving the Company or any of its subsidiaries with respect to the Money Laundering Laws
is pending or, to the knowledge of the Company, threatened.
(xxxiii) OFAC.
None of the Company, any of its subsidiaries or, to the knowledge of the Company, any director, officer, agent, employee, controlled
affiliate or representative of the Company or any of its subsidiaries is an individual or entity (“Person”) currently
the target of any sanctions administered or enforced by the United States Government, including, without limitation, the U.S.
Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the United Nations Security Council
(“UNSC”), the European Union, Her Majesty’s Treasury (“HMT”), or other relevant sanctions authority
(collectively, “Sanctions”), nor is the Company located, organized or resident in a country or territory that is the
subject of Sanctions; and the Company will not directly or indirectly use the proceeds of the sale of the Securities, or lend,
contribute or otherwise make available such proceeds to any subsidiaries, joint venture partners or other Person, to fund any
activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject of
Sanctions or in any other manner that will result in a violation by any Person (including any Person participating in the transaction,
whether as underwriter, advisor, investor or otherwise) of Sanctions.
(xxxiv) Sales
of Reserved Securities. In connection with any offer and sale of Reserved Securities outside the United States, each preliminary
prospectus, the Prospectus and any amendment or supplement thereto, at the time it was filed, complied and will comply in all
material respects with any applicable laws or regulations of foreign jurisdictions in which the same is distributed. The Company
has not offered, or caused the Representatives or Merrill Lynch to offer, Reserved Securities to any person with the specific
intent to unlawfully influence (i) a customer or supplier of the Company or any of its affiliates to alter the customer’s
or supplier’s level or type of business with any such entity or (ii) a trade journalist or publication to write or publish
favorable information about the Company or any of its affiliates, or their respective businesses or products.
(xxxv) Lending
Relationship. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus,
the Company (i) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter
and (ii) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any
affiliate of any Underwriter.
(xxxvi) Statistical
and Market-Related Data. Any statistical and market-related data included in the Registration Statement, the General Disclosure
Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable
and accurate and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.
(xxxvii) Cybersecurity.
(A)(1) There have been no material security breaches, incidents, unauthorized access or disclosure, or other compromise of or
relating to the Company’s or its subsidiaries’ information technology and computer systems, networks, hardware, software,
data and databases (including the data and information of their respective customers, employees, suppliers, vendors and any third
party data maintained, processed or stored by the Company and its subsidiaries, and any such data processed or stored by third
parties on behalf of the Company and its subsidiaries), equipment or technology (collectively, “IT Systems and Data”);
and (2) neither the Company nor its subsidiaries have been notified of, and each of them have no knowledge of any event or condition
that would reasonably be expected to result in, any security breach or incident, unauthorized access or disclosure or other compromise
to their IT Systems and Data; (B) the Company and its subsidiaries have implemented appropriate controls, policies, procedures,
and technological safeguards to maintain and protect the integrity, continuous operation, redundancy and security of their IT
Systems and Data reasonably consistent with industry standards and practices, or as required by applicable regulatory standards;
and (C) to the knowledge of the Company the Company and its subsidiaries are presently in material compliance with all applicable
laws or statutes and all judgments, orders, rules and regulations of any court or arbitrator or governmental or regulatory authority,
internal policies and contractual obligations relating to the privacy and security of IT Systems and Data and to the protection
of such IT Systems and Data from unauthorized use, access, misappropriation or modification, except, in each case with respect
to clauses (A) through (C) hereof, as would not, individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
(b) Representations
and Warranties by the Selling Shareholders. Each Selling Shareholder severally and not jointly represents and warrants to
each Underwriter and the Company as of the date hereof, as of the Applicable Time, as of the Closing Time, and agrees with each
Underwriter and the Company, as follows:
(i) Accurate
Disclosure. Neither the General Disclosure Package nor the Prospectus or any amendments or supplements thereto includes any
untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading, provided that such representations and warranties set forth
in this subsection (b)(i) apply only to statements or omissions made in reliance upon and in conformity with information
relating to such Selling Shareholder furnished in writing by or on behalf of such Selling Shareholder expressly for use in the
Registration Statement, the General Disclosure Package, the Prospectus or any other Issuer Free Writing Prospectus or any amendment
or supplement thereto (the “Selling Shareholder Information”).
(ii) Authorization
of this Agreement. This Agreement has been duly authorized, executed and delivered by or on behalf of such Selling Shareholder.
(iii) Noncontravention.
The execution and delivery of this Agreement and the sale and delivery of the Securities to be sold by such Selling Shareholder
and the consummation of the transactions contemplated herein and compliance by such Selling Shareholder with its obligations hereunder
do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach
of, or default under, or result in the creation or imposition of any tax, lien, charge or encumbrance upon the Securities to be
sold by such Selling Shareholder or any property or assets of such Selling Shareholder pursuant to any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, license, lease or other agreement or instrument to which such Selling Shareholder
is a party or by which such Selling Shareholder may be bound, nor will such action result in any violation of the provisions of
the charter or by-laws or other organizational instrument of such Selling Shareholder, if applicable, or any applicable treaty,
law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over such Selling Shareholder, except for any such conflict, breach, violation, lien, charge,
encumbrance, tax or default that would not, individually or in the aggregate, reasonably be expected to materially affect the
ability of such Selling Shareholder to consummate the transactions contemplated by this Agreement (a “Selling Shareholder
Material Adverse Effect”).
(iv) Valid
Title. Such Selling Shareholder has, and at the Closing Time will have, valid title to the Securities to be sold by such Selling
Shareholder free and clear of all security interests, claims, liens, equities or other encumbrances and the legal right and power,
and all authorization and approval required by law, to enter into this Agreement and to sell, transfer and deliver the Securities
to be sold by such Selling Shareholder or a valid security entitlement in respect of such Securities.
(v) Delivery
of Securities. Upon payment of the purchase price for the Securities to be sold by such Selling Shareholder pursuant to this
Agreement, delivery of such Securities, as directed by the Underwriters, to Cede & Co. (“Cede”) or such other
nominee as may be designated by The Depository Trust Company (“DTC”), registration of such Securities in the name
of Cede or such other nominee, and the crediting of such Securities on the books of DTC to securities accounts (within the meaning
of Section 8-501(a) of the UCC) of the Underwriters (assuming that neither DTC nor any such Underwriter has notice of any “adverse
claim,” within the meaning of Section 8-105 of the Uniform Commercial Code then in effect in the State of New York (“UCC”),
to such Securities), (A) under Section 8-501 of the UCC, the Underwriters will acquire a valid “security entitlement”
in respect of such Securities and (B) no action (whether framed in conversion, replevin, constructive trust, equitable lien, or
other theory) based on any “adverse claim,” within the meaning of Section 8-102 of the UCC, to such Securities may
be successfully asserted against the Underwriters with respect to such security entitlement; for purposes of this representation,
such Selling Shareholder may assume that when such payment, delivery and crediting occur, (I) such Securities will have been registered
in the name of Cede or another nominee designated by DTC, in each case on the Company’s share registry in accordance with
its certificate of incorporation, bylaws and applicable law, (II) DTC will be registered as a “clearing corporation,”
within the meaning of Section 8-102 of the UCC, (III) appropriate entries to the accounts of the several Underwriters on the records
of DTC will have been made pursuant to the UCC, (IV) to the extent DTC, or any other securities intermediary which acts as “clearing
corporation” with respect to the Securities, maintains any “financial asset” (as defined in Section 8-102(a)(9)
of the UCC in a clearing corporation pursuant to Section 8-111 of the UCC, the rules of such clearing corporation may affect the
rights of DTC or such securities intermediaries and the ownership interest of the Underwriters, (V) claims of creditors of DTC
or any other securities intermediary or clearing corporation may be given priority to the extent set forth in Section 8-511(b)
and 8-511(c) of the UCC and (VI) if at any time DTC or other securities intermediary does not have sufficient Securities to satisfy
claims of all of its entitlement holders with respect thereto then all holders will share pro rata in the Securities then held
by DTC or such securities intermediary.
(vi) Absence
of Manipulation. Such Selling Shareholder has not taken, and will not take, directly or indirectly, any action which is designed
to or which constituted or would reasonably be expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Securities.
(vii) Absence
of Further Requirements. No filing with, or consent, approval, authorization, order, registration, qualification or decree
of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency, domestic
or foreign, is necessary or required to be made by such Selling Shareholder for the performance by each Selling Shareholder of
its obligations hereunder or in the Power of Attorney and Custody Agreement, or in connection with the sale and delivery by such
Selling Shareholder of the Securities hereunder or the consummation by it of the transactions contemplated for it by this Agreement,
except such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the 1934 Act, the
rules of the New York Stock Exchange, state securities laws or the rules of FINRA; except, in each case, for such consents, approvals,
authorizations, orders or qualifications as would not, individually or in the aggregate, result in a Selling Shareholder Material
Adverse Effect.
(viii) No
Free Writing Prospectuses. Such Selling Shareholder has not prepared or had prepared on its behalf or used or referred to,
any “free writing prospectus” (as defined in Rule 405), other than any Issuer General Use Free Writing Prospectus,
each electronic road show and any other written communications, in each case approved in advance by the Company and the Representatives,
and has not distributed any written materials in connection with the offer or sale of the Securities.
(ix) No
Association with FINRA. Neither such Selling Shareholder nor any of its affiliates directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control with any member firm of FINRA or is a person associated
with a member (within the meaning of the FINRA By-Laws) of FINRA.
(c) Officer’s
Certificates. Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the
Underwriters pursuant to this Agreement shall be deemed a representation and warranty by the Company to each Underwriter as to
the matters covered thereby; and any certificate signed by or on behalf of the Selling Shareholders as such and delivered to the
Representatives or to counsel for the Underwriters pursuant to the terms of this Agreement shall be deemed a representation and
warranty by such Selling Shareholder to the Underwriters as to the matters covered thereby.
SECTION
2. Sale
and Delivery to Underwriters; Closing.
(a) Initial
Securities. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and each Selling Shareholder, severally and not jointly, agree to sell to each Underwriter, severally and
not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company and each Selling Shareholder,
at the price per share set forth in Schedule A, that proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or such Selling Shareholder, as the case may be, which the number of Initial Securities set forth in Schedule
A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 11 hereof, bears to the total number of Initial Securities, subject, in each
case, to such adjustments among the Underwriters as the Representatives in their discretion shall make to eliminate any sales
or purchases of fractional shares.
(b) Option
Securities. In addition, on the basis of the representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Selling Shareholders hereby grant an option to the Underwriters, severally and not jointly, to
purchase up to an additional [●] shares of Common Stock, as set forth in Schedule B, at the price per share set forth in
Schedule A, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities. The option hereby granted may be exercised for 30 days after the date
hereof and may be exercised in whole or in part at any time from time to time within the 30-day period upon written notice by
the Representatives to the Selling Shareholders setting forth the number of Option Securities as to which the several Underwriters
are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date
of delivery (a “Date of Delivery”) shall be determined by the Representatives, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the date that is two full business days after such
notice is provided (except in the event the Representatives determine a Date of Delivery to occur at the Closing Time, in which
case such notice must be provided on or before the business day immediately preceding the Closing Time, or as otherwise agreed
with the Selling Shareholders). If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters,
acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being so purchased
which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number
of Initial Securities from each of the Company and each Selling Shareholder in such proportion which the number of Initial Securities
set forth in Schedule B opposite the name of the Company and each Selling Shareholder bears to the total number of Option Securities,
subject, in each case, to such adjustments as the Representatives in their discretion shall make to eliminate any sales or purchases
of fractional shares.
(c) Payment.
Payment of the purchase price for, and delivery of certificates or security entitlements for, the Initial Securities shall be
made at the offices of Davis Polk & Wardwell LLP, or at such other place as shall be agreed upon by the Representatives and
the Company and the Selling Shareholders, at 9:00 A.M. (New York City time) on the second (third, if the Applicable Time
is after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with
the provisions of Section 11), or such other time not later than ten business days after such date as shall be agreed upon
by the Representatives and the Company and the Selling Shareholders (such time and date of payment and delivery being herein called
“Closing Time”).
In addition, in the
event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates or security entitlements for, such Option Securities shall be made at the above-mentioned offices, or at such
other place as shall be agreed upon by the Representatives and the Company and the Selling Shareholders, on each Date of Delivery
as specified in the notice from BofA to the Company and the Selling Shareholders.
Payment shall be made
to the Company and the Selling Shareholders by wire transfer of immediately available funds to bank accounts designated by the
Company and the Custodian pursuant to each Selling Shareholder’s Power of Attorney and Custody Agreement, as the case may
be, against delivery to the Representatives for the respective accounts of the Underwriters of certificates or security entitlements
for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. BofA, individually and not as representative of the Underwriters, may (but
shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be
purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case
may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
SECTION
3. Covenants
of the Company and the Selling Shareholders. The Company and each Selling Shareholder, severally and not jointly, covenants
with each Underwriter as to the obligations with respect to itself set forth below:
(a) Compliance
with Securities Regulations and Commission Requests. The Company, subject to Section 3(b), will comply with the requirements
of Rule 430A, and will notify the Representatives promptly, and confirm the notice in writing (which may be by electronic mail),
(i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the
Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional
information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement
or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus,
or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act
concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933
Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b), in the
manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will use commercially
reasonable efforts to prevent the issuance of any stop order or suspension of the Registration Statement and, if any such order
is issued, use commercially reasonable efforts to promptly obtain the lifting thereof.
(b) Continued Compliance with Securities Laws. The Company will comply with the 1933 Act and the 1933 Act Regulations
so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration
Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Securities is (or,
but for the exception afforded by Rule 172 of the 1933 Act Regulations (“Rule 172”), would be) required by the 1933
Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in
order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General
Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not
include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein
not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration
Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with
the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of
such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration
Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior
to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the
Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to
which the Representatives or counsel for the Underwriters shall reasonably object. The Company will give the Representatives notice
of its intention to make any filing pursuant to the 1934 Act or the 1934 Act Regulations from the Applicable Time to the Closing
Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed
filing, as the case may be.
(c) Delivery
of Registration Statements. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters,
without charge and upon request, copies of the signed Registration Statement as originally filed and each amendment thereto (including
exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives,
without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits)
for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters
will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery
of Prospectuses. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the
Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number
of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments
or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Blue
Sky Qualifications. If required by applicable law, the Company will use commercially reasonable efforts, in cooperation with
the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other
jurisdictions (domestic or foreign) as the Representatives may reasonably request and to maintain such qualifications in effect
so long as required to complete the distribution of the Securities; provided, however, that the Company shall not be obligated
to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction
in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
(f) Rule
158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available
to its securityholders as soon as reasonably practicable an earnings statement for the purposes of, and to provide to the Underwriters
the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(g) Use
of Proceeds. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified
in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”
(h) Listing.
The Company will use commercially reasonably efforts to effect and maintain the listing of the Common Stock (including the Securities)
on the New York Stock Exchange.
(i) Restriction
on Sale of Securities. During a period of 180 days from the date of the Prospectus, the Company will not, without the
prior written consent of at least two of the Representatives (provided that each Representative shall have been given at
least three days’ notice of any such waiver request), (i) directly or indirectly, offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file or confidentially submit any registration statement under the 1933 Act with respect to
any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction
described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise.
The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by
the Company upon the exercise or vesting of an option or warrant or the conversion of a security outstanding on the date
hereof and referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (C) any shares of
Common Stock issued or options to purchase Common Stock granted pursuant to employee benefit plans of the Company referred to
in the Registration Statement, the General Disclosure Package and the Prospectus, (D) any shares of Common Stock issued
pursuant to any non-employee director stock plan or dividend reinvestment plan referred to in the Registration Statement, the
General Disclosure Package and the Prospectus, (E) the filing of a registration statement on Form S-8 or other appropriate
forms, and any amendments thereto, as required by the 1933 Act, relating to the Common Stock or other equity-based securities
issuable pursuant to the Company’s equity or other incentive plans or employee stock purchase plans described in the
Registration Statement, the General Disclosure Package and the Prospectus, (F) shares of Common Stock issued in connection
with mergers or acquisitions of businesses, entities, property or other assets, (including the filing of a registration
statement on Form S-4 or other appropriate form with respect thereto) or pursuant to any employee benefit plan assumed
by the Company in connection with any such merger or acquisition or (G) the issuance of shares of Common Stock, of restricted
stock awards or of options to purchase shares of Common Stock, in each case, in connection with joint ventures, commercial
relationships or other strategic transactions, partnerships with experts or other talent to develop or provide content,
equipment leasing arrangements or debt financing; provided that, in the case of clauses (F) and (G), (1) the aggregate number
of restricted stock awards or shares of Common Stock, as applicable, issued in connection with, or issuable pursuant to the
exercise of any options issued in connection with, all such transactions does not exceed 5% of the aggregate number of shares
of Common Stock outstanding immediately following the offering of the Securities pursuant to this Agreement and (2) the
recipient of any such restricted stock awards, shares of Common Stock, options or other securities shall execute and deliver
to the Representatives an agreement substantially in the form of Exhibit A hereto for the period from date of such agreement
until the end of the 180-day restricted period provided for in this Section 3(i).
(j) Lock-Up
Waivers. If the Representatives, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up
agreement described in Section 5(l) hereof for an officer or director of the Company and provide the Company with notice of the
impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees
to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news
service at least two business days before the effective date of the release or waiver.
(k) Reporting
Requirements. The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded
by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company
shall report the use of proceeds from the issuance of the Securities as may be required under Rule 463 under the 1933 Act.
(l) Issuer
Free Writing Prospectuses. Each of the Company and each Selling Shareholder agrees that, unless it obtains the prior written
consent of the Representatives, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing
Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed
by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed
to have consented to the Issuer Free Writing Prospectuses listed on Schedule C-2 hereto and any “road show that is a written
communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives. The Company and each
Selling Shareholder represents that it has treated or agrees that it will treat each such free writing prospectus consented to,
or deemed consented to, by the Representatives as an “issuer free writing prospectus,” as defined in Rule 433, and
that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing
with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing
Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted
or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or
included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the
Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing
Prospectus to eliminate or correct such conflict, untrue statement or omission.
(m) Certification
Regarding Beneficial Owners. The Company and each Selling Shareholder will deliver to the Representatives, on or prior to
the date of execution of this Agreement, a properly completed and executed Certification Regarding Beneficial Owners of Legal
Entity Customers, together with copies of identifying documentation, and the Company and each Selling Shareholder undertake to
provide such additional supporting documentation as the Representatives may reasonably request in connection with the verification
of the foregoing certification.
(n) Testing-the-Waters
Materials. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs
an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue
statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein,
in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives
and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct
such untrue statement or omission.
(o) Emerging
Growth Company Status. The Company will promptly notify the Representatives if the Company ceases to be an Emerging
Growth Company at any time prior to the later of (i) completion of the distribution of the Securities within the meaning of
the 1933 Act and (ii) completion of the 180-day restricted period referred to in Section 3(i).
(p) Restriction of Reserved Securities. The Company hereby
agrees that it will ensure that the Reserved Securities will be restricted as required by FINRA or the FINRA rules from sale, transfer,
assignment, pledge or hypothecation for a period of three months following the date of this Agreement. Merrill Lynch will notify
the Company as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the
transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or
seek to release, from such restrictions any of the Reserved Securities, the Company agrees to reimburse Merrill Lynch for any reasonable
expenses (including, without limitation, legal expenses) they incur in connection with such release.
SECTION
4.
Payment
of Expenses.
(a) Expenses.
The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally
filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary
prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated
with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery
of the certificates or security entitlements, as the case may be, for the Securities sold by the Company to the Underwriters,
including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities
to the Underwriters (but, for the avoidance of doubt, excluding such taxes on resale or otherwise transfer of any of the Securities
by the Underwriters which shall be paid by the Underwriters), (iv) the fees and disbursements of the Company’s counsel,
accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions
of Section 3(e) hereof, including filing fees and the reasonable and documented fees and disbursements of counsel for the
Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto,
(vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company
relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities,
including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any
consultants engaged with the written consent of the Company in connection with the road show presentations, travel and lodging
expenses of the representatives and officers of the Company and any such consultants, and 50% of the cost of aircraft and other
transportation chartered for use by the management team in connection with the road show, (viii) the filing fees incident to,
and the reasonable and documented fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA
of the terms of the sale of the Securities (provided that the fees and expenses of counsel for the Underwriters to be reimbursed
by the Company pursuant to clauses (v) and (viii) hereof shall not exceed $60,000.00 in the aggregate), (ix) the fees and expenses
incurred in connection with the listing of the Securities on the New York Stock Exchange, (x) the costs and expenses (including,
without limitation, any damages or other amounts payable in connection with legal or contractual liability) associated with the
reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained
in the third sentence of Section 1(a)(ii), and (xi) all costs and expenses of the Underwriters and Merrill Lynch, including the
fees and disbursements of counsel for the Underwriters and counsel for Merrill Lynch, in connection with matters related to the
Reserved Securities which are designated by the Company for sale to Invitees.
(b) Expenses
of the Selling Shareholders. The Company will pay all expenses incident to the performance by the Selling Shareholders of
their respective obligations under, and the consummation of the transactions contemplated by, this Agreement, including (i) any
stamp and other duties and stock and other transfer taxes, if any, payable upon the sale of the Securities by such Selling Shareholder
to the Underwriters (but, for the avoidance of doubt, excluding such taxes on resale or otherwise transfer of any of the Securities
by the Underwriters which shall be paid by the Underwriters), and (ii) the fees and disbursements of their respective counsel
and other advisors.
(c) Termination
of Agreement. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 6,
Section 10(a)(i) or (iii), or Section 11 hereof, the Company shall reimburse the Underwriters for all of their reasonable
and documented out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not affect any agreement that the Company and
the Selling Shareholders may make for the sharing of such costs and expenses.
SECTION
5.
Conditions
of Underwriters’ Obligations. The obligations of the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders contained herein or in certificates of any officer of
the Company or any of its subsidiaries or on behalf of any Selling Shareholder delivered pursuant to the provisions hereof, to
the performance by the Company and each Selling Shareholder of their respective covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement; Rule 430A Information. The Registration Statement, including any
Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of
the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending
the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been
instituted or are pending or, to the Company’s knowledge, threatened by the Commission; and the Company has complied with
each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have
been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8)
or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission
in accordance with the requirements of Rule 430A.
(b) Opinion
and 10b-5 Statement of Counsel for Company. At the Closing Time, the Representatives shall have received the opinion and negative
assurance statement, each dated the Closing Time, of Ropes & Gray LLP, counsel for the Company, together with signed or reproduced
copies of such letter for each of the other Underwriters, in form and substance reasonably satisfactory to the Representatives.
(c) Opinion of Counsel for the Selling Shareholders. At the Closing Time, the Representatives shall have received
the opinions, dated the Closing Time, of each of Ropes & Gray LLP and Torys LLP, counsels for the Selling Shareholders, together
with signed or reproduced copies of such letter for each of the other Underwriters, in form and substance reasonably satisfactory
to the Representatives.
(d) Opinion
of and 10b-5 Statement of Counsel for Underwriters. At the Closing Time, the Representatives shall have received the opinion
and negative assurance statement, each dated the Closing Time, of Davis Polk & Wardwell LLP, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other Underwriters, in form and substance reasonably
satisfactory to the Representatives.
(e) Officers’
Certificate. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which
information is given in the Registration Statement, the General Disclosure Package or the Prospectus (in each case, exclusive
of any amendment or supplement thereto), any material adverse change in the condition, financial or otherwise, or in the earnings
or business affairs of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course
of business, and the Representatives shall have received a certificate of either of the Chief Executive Officer or the Chief Financial
Officer of the Company, dated the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the
representations and warranties of the Company in this Agreement are true and correct in all material respects (except for such
representations, warranties and statements or portions thereof that are qualified by materiality or a Material Adverse Effect,
which shall be true and correct in all respects) with the same force and effect as though expressly made at and as of the Closing
Time, (iii) the Company has complied in all material respects with all agreements and satisfied all conditions on its part to
be performed or satisfied at or prior to the Closing Time in all material respects, and (iv) no stop order suspending the
effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any
preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or
are pending or, to his or her knowledge, threatened.
(f) CFO
Certificate. On the date of this Agreement and at the Closing Time, as the case may be, the Company shall have furnished to
the Representatives a certificate, dated the respective dates of delivery thereof and addressed to the Underwriters, of its Chief
Financial Officer with respect to certain financial data contained in the General Disclosure Package and the Prospectus, providing
“management comfort” with respect to such information, in form and substance reasonably satisfactory to the Representatives.
(g) Certificate
of Selling Shareholders. At the Closing Time, the Representatives shall have received a certificate of an Attorney-in-Fact
on behalf of each Selling Shareholder, dated the Closing Time, to the effect that (i) the representations and warranties of each
Selling Shareholder in this Agreement are true and correct in all material respects (except for such representations, warranties
and statements or portions thereof that are qualified by materiality or a Selling Shareholder Material Adverse Effect, which shall
be true and correct in all respects) with the same force and effect as though expressly made at and as of the Closing Time and
(ii) each Selling Shareholder has complied with all agreements, in all material respects, and satisfied all conditions on its
part to be performed under this Agreement at or prior to the Closing Time in all material respects.
(h) Accountant’s
Comfort Letter. At the time of the execution of this Agreement, the Representatives shall have received from PricewaterhouseCoopers
LLP, a letter, dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included
in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
(i) Bring-down Comfort Letter. At the Closing Time, the Representatives shall have received from PricewaterhouseCoopers
LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant
to subsection (h) of this Section, except that the specified date referred to shall be a date not more than three business days
prior to the Closing Time.
(j) Approval
of Listing. At the Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject
only to official notice of issuance.
(k) No
Objection. FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements relating to the offering of the Securities.
(l) Lock-up Agreements. At the date of this Agreement, the Representatives shall have received an agreement substantially
in the form of Exhibit A hereto signed by the persons listed on Schedule D hereto.
(m) Rating
of Securities. Neither the Company nor its subsidiaries have any debt securities or preferred stock that are rated by any
“nationally recognized statistical rating organization” (as defined in Section 3(a)(62) of the 1934 Act).
(n) Conditions
to Purchase of Option Securities. In the event that the Underwriters exercise their option provided in Section 2(b) hereof
to purchase all or any portion of the Option Securities, the representations and warranties of the Company and the Selling Shareholders
contained herein and the statements in any certificates furnished by the Company, any of its subsidiaries and the Selling Shareholders
hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall
have received:
(i) Officers’
Certificate. A certificate, dated such Date of Delivery, of either the Chief Executive Officer or the Chief Financial Officer
of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(e) hereof remains true and correct
as of such Date of Delivery.
(ii) CFO
Certificate. A certificate, dated such Date of Delivery, addressed to the Underwriters, of the Chief Financial Officer of the
Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(f) hereof remains true and correct
as of such Date of Delivery.
(iii) Certificate
of Selling Shareholders. A certificate, dated such Date of Delivery, of an Attorney-in-Fact on behalf of each Selling
Shareholder confirming that the certificate delivered at the Closing Time pursuant to Section 5(g) remains true and correct
as of such Date of Delivery.
(iv) Opinion
and 10b-5 Statement of Counsel for Company. If requested by the Representatives, the opinion and negative assurance letter
of Ropes & Gray LLP, counsel for the Company, in form and substance reasonably satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(b) hereof.
(v) Opinion
of Counsels for the Selling Shareholders. If requested by the Representatives, the opinions of each of Ropes & Gray LLP
and Torys LLP, counsels for the Selling Shareholders, in form and substance reasonably satisfactory to counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c) hereof.
(vi) Opinion
of and 10b-5 Statement of Counsel for Underwriters. If requested by the Representatives, the opinion and negative assurance
letter of Davis Polk & Wardwell LLP, counsel for the Underwriters, in form and substance reasonably satisfactory to the Representatives,
dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(d) hereof.
(vii) Bring-down
Comfort Letter. If requested by the Representatives, a letter from PricewaterhouseCoopers LLP, in form and substance satisfactory
to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to
the Representatives pursuant to Section 5(h) hereof, except that the “specified date” in the letter furnished pursuant
to this paragraph shall be a date not more than three business days prior to such Date of Delivery.
(o) Additional Documents. At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters
shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company and the
Selling Shareholders in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory
in form and substance to the Representatives and counsel for the Underwriters.
(p) Termination
of Agreement. If any condition specified in this Section shall not have been fulfilled when and as required to be
fulfilled, unless due to a result of a breach of this Agreement by any of the Underwriters, this Agreement, or, in the case
of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations
of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to
the Company and the Selling Shareholders at any time at or prior to Closing Time or such Date of Delivery, as the case may
be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6, 7, 8, 14, 15, 16 and 17 shall survive any such termination and remain in full force and
effect.
SECTION
6. Indemnification.
(a)
Indemnification of Underwriters and Selling Shareholders. The Company agrees to indemnify and hold harmless
each Underwriter and each Selling Shareholder, their respective affiliates (as such term is defined in Rule 501(b) under the 1933
Act (each, an “Affiliate”)), each Underwriter’s selling agents and each person, if any, who controls any Underwriter
or each Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against
any and all loss, liability, claim, damage and reasonably incurred and documented expense whatsoever, as incurred, arising out
of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment
thereto), including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged
untrue statement of a material fact included (A) in any preliminary prospectus, any Issuer Free Writing Prospectus, any Written
Testing-the-Waters Communication, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or
(B) in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing
of the offering of the Securities (“Marketing Materials”), including any “roadshow” (as defined in Rule
433 under the 1933 Act) or investor presentations made to investors by the Company (whether in person or electronically), or the
omission or alleged omission in any preliminary prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters
Communication, the General Disclosure Package, the Prospectus (or any amendment or supplement thereto) or any Marketing Materials
of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made,
not misleading;
(ii) against
any and all loss, liability, claim, damage and reasonably incurred and documented expense whatsoever, as incurred, to the extent
of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission; provided that (subject to Section 6(e) below) any such settlement is effected with, in the case of
indemnification of the Underwriters, the written consent of the Company and the Selling Shareholders, and, in the case of indemnification
of the Selling Shareholders, the Company; or
(iii) against
any and all reasonably incurred and documented out-of-pocket expenses (including the reasonably incurred and documented fees and
disbursements of counsel chosen by BofA) incurred in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not
paid under (i) or (ii) above;
provided, however,
that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information, any preliminary prospectus, the General Disclosure Package, the Prospectus (or any amendment
or supplement thereto) or any Marketing Materials, including any roadshow or investor presentations made to investors by the Company
(whether in person or electronically), in reliance upon and in conformity with the Underwriter Information or the Selling Shareholder
Information, as applicable.
(b) Indemnification
of Underwriters by Selling Shareholders. Each Selling Shareholder, severally and not jointly, agrees to indemnify and hold
harmless each Underwriter, its Affiliates and selling agents and each person, if any, who controls any Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the extent and in the manner set forth in clauses (a)(i), (ii) and
(iii) above and in Section 6(f); provided that each Selling Shareholder shall be liable only
to the extent that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration
Statement, any preliminary prospectus, the General Disclosure Package, the Prospectus (or any amendment or supplement thereto)
or any Marketing Materials, including any roadshow or investor presentations made to investors by the Company (whether in person
or electronically), in reliance upon and in conformity with the Selling Shareholder Information; provided, further, that the liability
under this subsection of each Selling Shareholder shall be limited to an amount equal to the aggregate gross proceeds after underwriting
commissions and discounts, but before expenses, to such Selling Shareholder from the sale of Securities sold by such Selling Shareholder
hereunder.
(c) Indemnification
of Company, Directors and Officers and Selling Shareholders. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and each Selling Shareholder and each person,
if any, who controls any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and reasonably incurred and documented expense described in the indemnity contained
in Section 6(a) above, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, any preliminary prospectus,
the General Disclosure Package, the Prospectus (or any amendment or supplement thereto) or in any Marketing Materials, including
any roadshow or investor presentations made to investors by the Company (whether in person or electronically), in reliance upon
and in conformity with the Underwriter Information.
(d) Actions
against Parties; Notification. Each indemnified party shall promptly give notice to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any
event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. If any such
action or proceeding shall be brought or asserted against an indemnified party and it shall have notified the indemnifying party
thereof, the indemnifying party shall retain counsel reasonably satisfactory to the indemnified party to represent the indemnified
party in such action or proceeding and shall pay the reasonable and documented fees and expenses of such counsel related to such
action or proceeding, as incurred. Without limiting the foregoing, in any such action or proceeding, any indemnified party shall
have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the contrary; (ii) the indemnifying
party has failed within a reasonable time to retain counsel reasonably satisfactory to the indemnified party; (iii) if such counsel
is acting as counsel to both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded
that there are legal defenses available to it that are different from or in addition to those available to the indemnifying party;
or (iv) if such counsel is acting as counsel to both the indemnified party and the indemnifying party and the indemnifying party
shall have reasonably concluded that representation of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. In no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations
or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise
or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising
out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party.
(e) Settlement
without Consent if Failure to Reimburse. If at any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) or settlement of any claim in connection with any violation referred
to in section 6(f) effected without its written consent if (i) such settlement is entered into more than 60 days after receipt
by such indemnifying party for the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such
settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such settlement.
(f) Indemnification
for Reserved Securities. In connection with the offer and sale of the Reserved Securities, the Company agrees to indemnify
and hold harmless the Underwriters, their Affiliates (including Merrill Lynch), and selling agents and each person, if any, who
controls any Underwriter or Merrill Lynch within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act,
from and against any and all loss, liability, claim, damage and expense (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending, investigating or settling any such action or claim), as incurred, (i) arising
out of any untrue statement or alleged untrue statement of a material fact contained in any other material prepared by or with
the consent of the Company for distribution to Invitees in connection with the offering of the Reserved Securities or caused by
any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) caused by the failure of any Invitee to pay for and accept delivery of Reserved Securities which have
been orally confirmed for purchase by any Invitee by 11:59 P.M. (New York City time) on the date of
this Agreement or (iii) related to, or arising out of or in connection with, the offering of the Reserved Securities.
(g) Other
Agreements with Respect to Indemnification. The provisions of this Section shall not affect any agreement among the Company
and the Selling Shareholders with respect to indemnification.
SECTION
7. Contribution.
If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified
party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party,
as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling
Shareholders, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement
or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Selling Shareholders,
on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions, or in connection with
any violation of the nature referred to in Section 6(f) hereof, which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits
received by the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other hand, in connection with
the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Shareholders, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand,
in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities
as set forth on the cover of the Prospectus.
The relative
fault of the Company and the Selling Shareholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling
Shareholders or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or any violation of the nature referred to in Section 6(f) hereof.
The Company, the Selling
Shareholders and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount
of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Securities underwritten by it and distributed to the public.
No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this
Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act and each Underwriter’s Affiliates and selling agents shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who
controls the Company or any Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company or such Selling Shareholder, as the case may be. The Underwriters’
respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set
forth opposite their respective names in Schedule A hereto and not joint.
The provisions of this
Section shall not affect any agreement among the Company and the Selling Shareholders with respect to contribution.
SECTION
8. Representations,
Warranties and Agreements to Survive. All representations, warranties and agreements contained in this Agreement or in certificates
of officers of the Company, any of its subsidiaries or the Selling Shareholders submitted pursuant hereto, shall remain operative
and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling
agents, any person controlling any Underwriter, its officers or directors, any person controlling the Company or any person controlling
any Selling Shareholder and (ii) delivery of and payment for the Securities.
SECTION 9.
Termination of Agreement.
(a)
Termination. The Representatives may terminate this Agreement, by notice to the Company and the Selling Shareholders,
at any time at or prior to the Closing Time (i) if there has been, in the judgment of the Representatives, since the time of execution
of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure
Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs
or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary
course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States
or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change
or development involving a prospective change in national or international political, financial or economic conditions, in each
case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to proceed
with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities
of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or (iv) if trading generally
on the NYSE MKT or the New York Stock Exchange or in the Nasdaq Global Market has been suspended or materially limited, or minimum
or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by
order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial
banking or securities settlement or clearance services in the United States or with respect to Clearstream or Euroclear systems
in Europe, or (vi) if a banking moratorium has been declared by either Federal or New York authorities.
(b)
Liabilities. If this Agreement is terminated pursuant to this Section, such termination shall be without liability
of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8, 14, 15,
16 and 17 shall survive such termination and remain in full force and effect.
SECTION
10. Default by One or More
of the Underwriters. If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the
Securities which it or they are obligated to purchase under this Agreement (the “Defaulted Securities”), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters,
or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed
upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such
24-hour period, then:
(i)
if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date,
each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof
in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting
Underwriters, or
(ii) if
the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and the Company
to sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part
of any non-defaulting Underwriter.
No action taken pursuant
to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
In the event of any
such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell
the relevant Option Securities, as the case may be, either the (i) Representatives or (ii) the Company and any Selling Shareholder
shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding
seven business days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the
Prospectus or in any other documents or arrangements. As used herein, the term “Underwriter” includes any person substituted
for an Underwriter under this Section 10.
SECTION
11. Notices. All notices
and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed (including by electronic
mail) or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to BofA at One Bryant
Park, New York, New York 10036, attention of Syndicate Department with a copy to ECM Legal to Goldman Sachs & Co. LLC at 200 West Street, New York, New York 10282, Attention: Registration Department;
to Nomura Securities International, Inc., Worldwide Plaza, 309 West 49th Street, New York, New York 10019, Attention: Head of ECMS with a copy to Head of IBD Legal notices to the Company shall be directed
to it at 400 Connell Drive, Suite 6100, Berkeley Heights, New Jersey 07922, attention of Eifion Jones; and notices to the Selling
Shareholders shall be directed to CCMP Capital Investors III, L.P. and CCMP Capital Investors III (Employee), L.P., 277 Park Avenue,
New York, NY 10172, attention Mark McFadden with a copy to Richard Jansen, MSD Partners, L.P. 645 Fifth Ave, 21st Floor New York, NY 10022 5910, attention Marcello Liguori and
PE16GV Rocky Mountain Ltd. 1600 101 Street NW, Edmonton, Alberta T5J 3P4, Canada and PE16PX Rocky Mountain Ltd., 10250 101 Street
NW, Edmonton, Alberta T5J 3P4, Canada, attention to Jason Peters, Director, Private Equity with
a copy to Matthew Synnott.
SECTION
12. No Advisory or
Fiduciary Relationship. The Company and each Selling Shareholder acknowledges and agrees that (a) the purchase and sale
of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the
Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and
the Selling Shareholder, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the
offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and
is not the agent or fiduciary of the Company, any of its subsidiaries or any Selling Shareholder, or its respective
stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary
responsibility in favor of the Company or any Selling Shareholder with respect to the offering of the Securities or the
process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company, any of
its subsidiaries or any Selling Shareholder on other matters) and no Underwriter has any obligation to the Company or any
Selling Shareholder with respect to the offering of the Securities except the obligations expressly set forth in this
Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve
interests that differ from those of each of the Company and each Selling Shareholder, and (e) the Underwriters have not
provided any legal, accounting, regulatory, investment or tax advice with respect to the offering of the Securities and the
Company and each of the Selling Shareholders has consulted its own respective legal, accounting, financial, regulatory and
tax advisors to the extent it deemed appropriate, and (f) none of the activities of the Underwriters in connection with the
transactions contemplated herein constitutes a recommendation, investment advice or solicitation of any action by the
Underwriters with respect to any entity or natural person.
SECTION
13. Recognition of the
U.S. Special Resolution Regimes.
(a)
In the event that any Underwriter that is a Covered Entity becomes subject to a proceeding under a U.S. Special Resolution
Regime, the transfer from such Underwriter of this Agreement, and any interest and obligation in or under this Agreement, will
be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if this Agreement,
and any such interest and obligation, were governed by the laws of the United States or a state of the United States.
(b)
In the event that any Underwriter that is a Covered Entity or a BHC Act Affiliate of such Underwriter becomes subject
to a proceeding under a U.S. Special Resolution Regime, Default Rights under this Agreement that may be exercised against such
Underwriter are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special
Resolution Regime if this Agreement were governed by the laws of the United States or a state of the United States.
For purposes of this
Section 13, a “BHC Act Affiliate” has the meaning assigned to the term “affiliate” in, and shall be interpreted
in accordance with, 12 U.S.C. § 1841(k). “Covered Entity” means any of the following: (i) a “covered entity”
as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (ii) a “covered bank” as
that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (iii) a “covered FSI” as
that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b). “Default Right” has
the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1,
as applicable. “U.S. Special Resolution Regime” means each of (i) the Federal Deposit Insurance Act and the regulations
promulgated thereunder and (ii) Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the regulations promulgated
thereunder.
SECTION 14.
Parties. This Agreement shall inure to the benefit of and be binding upon each
of the Underwriters, the Company and the Selling Shareholders and their respective successors. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the
Company and the Selling Shareholders and their respective successors and the controlling persons and officers and directors referred
to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the Underwriters, the Company and the Selling Shareholders and their respective successors,
and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other
person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely
of such purchase.
SECTION
15. Trial by Jury.
The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates), each
of the Selling Shareholders and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable
law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby.
SECTION
16. GOVERNING LAW.
THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.
SECTION
17. Consent
to Jurisdiction; Waiver of Immunity. Any legal suit, action or proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby (“Related Proceedings”) shall be instituted in (i) the federal courts
of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of
the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the “Specified
Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard
to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is
non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by
mail to such party’s address set forth above shall be effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue
of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to
plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in
an inconvenient forum. Each party not located in the United States irrevocably appoints Corporation Service Company as its
agent to receive service of process or other legal summons for purposes of any such suit, action or proceeding that may be
instituted in any state or federal court in the City and County of New York. Each such party further agrees to take any and
all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect for a
period of five years from the date of this Agreement. With respect to any Related Proceeding, each party irrevocably waives,
to the fullest extent permitted by applicable law, all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment) and execution to which it might otherwise be
entitled in the Specified Courts, and with respect to any Related Judgment, each party waives any such immunity in the
Specified Courts or any other court of competent jurisdiction, and will not raise or claim or cause to be pleaded any such
immunity at or in respect of any such Related Proceeding or Related Judgment, including, without limitation, any immunity
pursuant to the United States Foreign Sovereign Immunities Act of 1976, as amended.
SECTION
18. TIME. TIME SHALL
BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION
19. Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts
shall together constitute one and the same Agreement.
SECTION
20. Effect of Headings.
The Section headings herein are for convenience only and shall not affect the construction hereof.
If the foregoing
is in accordance with your understanding of our agreement, please sign and return to the Company and the Selling Shareholders
a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters,
the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
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HAYWARD HOLDINGS, INC.
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By:
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Name:
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Title:
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CCMP CAPITAL INVESTORS
III, L.P.
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By CCMP Capital Associates III, L.P.
and CCMP Capital Associates III GP, LLC, its general partners
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By:
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Name:
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Title:
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CCMP CAPITAL INVESTORS
III (EMPLOYEE), L.P.
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By CCMP Capital Associates III, L.P. and Capital Associates III GP, LLC, its general partners
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By:
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Name:
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Title:
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MSD
AQUA PARTNERS, LLC
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By:
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Name:
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Title:
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PE16PX
ROCKY MOUNTAIN LTD.
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By:
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Name:
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Title:
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PE16GV
ROCKY MOUNTAIN LTD.
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By:
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Name:
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Title:
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CONFIRMED AND ACCEPTED,
as of the date first above written:
BOFA SECURITIES, INC., GOLDMAN
SACHS & CO. LLC
and Nomura Securities International, Inc.
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BOFA SECURITIES, INC.
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By:
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Name:
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Title:
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GOLDMAN SACHS & CO. LLC
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By:
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Name:
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Title:
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NOMURA SECURITIES INTERNATIONAL, INC.
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By:
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Name:
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Title:
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For themselves and as Representatives of the other Underwriters
named in Schedule A hereto.
SCHEDULE A
The initial public offering price per share for the Securities
shall be $[●].
The purchase price per share for the Securities to be paid by
the several Underwriters shall be $[●], being an amount equal to the initial public offering price set forth above less $[●]
per share, subject to adjustment in accordance with Section 2(b) for dividends or distributions declared by the Company and payable
on the Initial Securities but not payable on the Option Securities.
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Name of Underwriter
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Number of
Initial Securities
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BofA Securities, Inc.
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Goldman Sachs & Co. LLC
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Nomura Securities International, Inc.
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Credit Suisse Securities (USA) LLC
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Morgan Stanley & Co. LLC
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Robert W. Baird & Co. Incorporated
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Guggenheim Securities, LLC
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Jefferies LLC
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BMO Capital Markets Corp.
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KeyBanc Capital Markets Inc.
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William Blair & Company, L.L.C.
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Houlihan Lokey Capital, Inc.
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Moelis & Company LLC
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Total
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[●]
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SCHEDULE B
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Number
of Initial
Securities
to be Sold
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Maximum
Number of Option
Securities
to Be Sold
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HAYWARD HOLDINGS, INC.
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CCMP CAPITAL INVESTORS III, L.P.
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CCMP CAPITAL INVESTORS III (EMPLOYEE),
L.P.
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MSD AQUA PARTNERS, LLC
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PE16PX ROCKY MOUNTAIN LTD.
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PE16GV ROCKY MOUNTAIN LTD.
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Total
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SCHEDULE C-1
Pricing Terms
1. The
Company and the Selling Shareholders are selling [●] shares of Common Stock.
2. The
Company has granted an option to the Underwriters, severally and not jointly, to purchase up to an additional [●] shares
of Common Stock.
3. The initial public
offering price per share for the Securities shall be $[l].
SCHEDULE C-2
Free Writing Prospectuses
[●]
SCHEDULE D
List of Persons and Entities Subject
to Lock-up
[●]
SCHEDULE E
Written Testing-the-Waters Communications
[●]
Exhibit A
FORM OF LOCK-UP AGREEMENT FOR DIRECTORS,
OFFICERS AND OTHER STOCKHOLDERS PURSUANT TO SECTION 5(c)
[●],
2021
BofA Securities, Inc.
Goldman Sachs & Co. LLC
Nomura Securities International, Inc.
as Representatives of
the several
Underwriters to be named in the
within-mentioned Underwriting Agreement
c/o BofA Securities, Inc.
One Bryant Park
New York,
New York 10036
c/o Goldman Sachs & Co. LLC
200 West Street,
New York, New York 10282
c/o Nomura Securities International, Inc.
Worldwide Plaza, 309 West 49th Street,
New York, New York 10019
Re: Proposed Public
Offering by Hayward Holdings, Inc.
Ladies and Gentlemen:
The undersigned,
a stockholder [and an officer and/or director] of Hayward Holdings, Inc., a Delaware corporation (the “Company”),
understands that BofA Securities, Inc. (“BofA”), Goldman Sachs & Co. LLC and Nomura Securities International,
Inc. (the “Representatives”) propose to enter into an Underwriting Agreement (the “Underwriting
Agreement”) with the Company and the Selling Shareholders (as defined in the Underwriting Agreement) providing for the
initial public offering (the “Public Offering”) of shares of the Company’s common stock, par value $0.001
per share (the “Common Stock”). In recognition of the benefit that such an offering will confer upon the
undersigned as a stockholder [and an officer and/or director] of the Company, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the
Underwriting Agreement that, during the period beginning on the date hereof and ending on the date that is 180 days from the
date of the Underwriting Agreement (the “Lock-Up Period”), the undersigned will not, without the prior written
consent of at least two of the Representatives (provided that each Representative shall have been given at least three
days’ notice of any such waiver request), (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of the Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the
undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”), or
exercise any right with respect to the registration of any of the Lock-Up Securities, or file, cause to be filed or cause to
be confidentially submitted any registration statement in connection therewith, under the Securities Act of 1933, as amended,
or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise. [As the undersigned is an officer or director
of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any
issuer-directed shares of Common Stock the undersigned may purchase in the Public Offering.]
Notwithstanding the
foregoing, and subject to the conditions below, the undersigned may transfer the Lock-Up Securities without the prior written consent
of at least two of the Representatives as provided below, provided that (1) in the case of a transfer or distribution pursuant
to clauses (iv) through (x), the Representatives receive a signed lock-up agreement for the balance of the Lock-Up Period
from each donee, trustee, distributee, or transferee, as the case may be, and (2) in the case of a transfer or distribution
pursuant to clauses (iii) through (x), such transfers or distributions are not required to be reported with the Securities
and Exchange Commission on Form 4 (a “Form 4”) in accordance with Section 16 of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”) and the undersigned does not otherwise voluntarily file a Form 4:
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(i)
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pursuant to the Underwriting Agreement;
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(ii)
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if such Common Stock is purchased from the underwriters in the Public Offering, unless the undersigned
is an officer or director of the Company, whether or not issuer-directed;
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(iii)
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if such Common Stock is acquired in one or more open market transactions after the effective date
of the Public Offering;
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(iv)
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as a bona fide gift or gifts or by will or intestacy;
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(v)
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pursuant to domestic relations or court orders;
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(vi)
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to any trust or limited partnership for the direct or indirect benefit of the undersigned or the
immediate family of the undersigned (for purposes of this lock-up agreement, “immediate family” shall mean any relationship
by blood, marriage or adoption, not more remote than first cousin);
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(vii)
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to any immediate family member or dependent of the undersigned;
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(viii)
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as a distribution by a trust to its beneficiaries;
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(ix)
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as a distribution to partners, members, subsidiaries, affiliates or stockholders of the undersigned
or to any investment fund or other entity that directly or indirectly controls or manages, is under common control with, or is
controlled or managed by, the undersigned;
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(x)
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to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible
under clauses (iv), (vi), (vii), (viii) and (ix) above;
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(xi)
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to the Company in connection with the “cashless” or “net” exercise of options,
warrants or other rights to purchase Common Stock for the purpose of exercising such options, warrants or other rights, or to cover
tax obligations of the undersigned in connection with such exercise, the vesting of restricted shares of Common Stock or restricted
stock units, or the settling of restricted shares of Common Stock or restricted stock units, provided that (i) any remaining
Common Stock received upon such exercise or such vesting or settlement will be subject to the restrictions set forth in this lock-up
agreement and (ii) (1) with respect to the “cashless” or “net” exercise of options or any other awards
described in this (xi), any filing under Section 16 shall clearly indicate in the footnotes thereto that (A) the filing
relates to the circumstances described above and (B) no Lock-Up Securities were sold by the undersigned, other than such transfers
to the Company as described above and (2) the undersigned does not otherwise voluntarily effect any other public filing or
report regarding such transfers during the Lock-Up Period;
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(xii)
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pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction
involving a Change of Control (as defined below) of the Company, provided that in the event that such tender offer, merger, consolidation
or other such transaction is not completed, the Lock-Up Securities held by the undersigned shall remain subject to this lock-up
agreement;
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(xiii)
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in connection with the conversion, exercise or exchange of options, warrants or other rights to
acquire Common Stock, the vesting of restricted shares of Common Stock or restricted stock units, or the settling of restricted
shares of Common Stock or restricted stock units pursuant to a plan described in the Registration Statement, General Disclosure
Package and Prospectus (each as defined in the Underwriting Agreement), provided that (i) any Common Stock received upon such
conversion, exercise, exchange, vesting or settlement will be subject to this lock-up agreement, (ii) (1) any filing
under Section 16 of the Exchange Act made during the Lock-Up Period shall clearly indicate in the footnotes thereto that (A) the
filing relates to the circumstances described above and (B) no Lock-Up Securities were sold by the undersigned other than
such transfer as described above and (2) the undersigned does not otherwise voluntarily effect any other public filing or
report regarding such transfers during the Lock-Up Period;
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(xiv)
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to the Company pursuant to agreements under which the Company has the option to repurchase or reacquire
such Lock-Up Securities or a right of first refusal with respect to transfers of such securities, provided that (i)(1) any
filing under Section 16 of the Exchange Act made during the Lock-Up Period shall clearly indicate in the footnotes thereto
that (A) the filing relates to the circumstances described above and (B) no Lock-Up Securities were sold by the undersigned,
other than such transfers to the Company as described above and (2) the undersigned does not otherwise voluntarily effect
any other public filing or report regarding such transfers during the Lock-Up Period;
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(xv)
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any pledge, charge, hypothecation or other granting of a security interest in the Lock-Up Securities
to one or more banks, financial or other lending institutions (“Lenders”) as collateral or security for or in connection
with any margin loan or other loans, advances or extensions of credit entered into by the undersigned or any of its direct or indirect
subsidiaries and any transfers of such Lock-Up Securities to the applicable Lender(s) or other third parties upon or following
foreclosure upon or enforcement of such Lock-Up Securities in accordance
with the terms of the documentation governing any margin loan or other loan, advance, or extension of credit (including, without
limitation, pursuant to any agreement or arrangement existing as of the date hereof); provided that with respect to any pledge,
charge, hypothecation or other granting of a security interest set forth above after the execution of this lock-up agreement, the
applicable Lender(s) shall be informed of the existence and contents of this lock-up agreement before entering into any margin
loan or other loans, advances or extensions of credit; provided that in the case of any transfer upon foreclosure upon or enforcement
of such Lock-Up Securities pursuant to clause (xv), each transferee pursuant to a foreclosure (including, without limitation, the
Lenders) or enforcement shall execute and deliver to the Representatives a lock-up agreement (for the avoidance of doubt, any lock-up
agreement signed by a transferee pursuant to a foreclosure or enforcement under clause (xv) shall allow subsequent transfers where
the subsequent transferee executes and delivers to the Representatives a lock-up agreement); or
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(xvi)
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[in an amount up to 300 Class A shares, which amount shall be adjusted to give effect to the reclassification
and split of such Class A shares, as described in the Registration Statement.]1
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For purposes of this
lock-up agreement, “Change of Control” shall mean the transfer (whether by tender offer, merger, consolidation or other
similar transaction), in one transaction or a series of related transactions, to a person or group of affiliated persons (other
than an underwriter pursuant to the Public Offering), of the Company’s voting securities if, after such transfer, such person
or group of affiliated persons would hold more than 50% of outstanding voting securities of the Company (or surviving entity).
[As the undersigned
is an officer or director of the Company, (1) the Representatives agree that, at least three business days before the effective
date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of the Common Stock, the Representatives
will notify the Company of the impending release or waiver, and (2) the Company will agree or has agreed in the Underwriting Agreement
to announce the impending release or waiver by press release through a major news service at least two business days before the
effective date of the release or waiver. Any release or waiver granted by the Representatives hereunder to any such officer or
director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph
will not apply if (i) the release or waiver is effected solely to permit a transfer not for consideration and (ii) the transferee
has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms
remain in effect at the time of the transfer.]
In the event that a
Representative withdraws or is terminated from, or declines to participate in, the Public Offering, all references in this lock-up
agreement to the Representatives shall refer to the lead left book runner in the Public Offering (“Replacement Entity”),
and in such event, any written consent, waiver or notice given or delivered in connection with this lock-up agreement by or to
such Replacement Entity shall be deemed to be sufficient and effective for all purposes under this lock-up agreement.
[In the event that any Major Holder
(as defined below) of any Lock-Up Securities is granted an early release by the Representatives from the restrictions
described herein during the Lock-Up Period with respect to any Lock-Up Securities in excess of 1% of the outstanding shares
of the Company’s Common Stock, calculated as of the date of such release, then the same percentage of Lock-Up
Securities held by each other Major Holder shall be immediately and fully released on the same terms from any remaining
lock-up restrictions set forth herein (the “Pro-Rata Release”). For purposes of this lock-up agreement, a
“Major Holder” shall mean each (i) director and officer of the Company, and (ii) record or beneficial owner,
as of the date hereof, of more than 5% of the outstanding shares of the Company’s Common Stock (for purposes of
determining record or beneficial ownership of a shareholder, all shares of Common Stock held by investment funds affiliated
with such shareholder shall be aggregated). Notwithstanding the foregoing, no early release shall result in a Pro-Rata
Release if such early release, in full or in part, is in connection with any underwritten public offering, whether or not
such offering or sale is wholly or partially a secondary offering of the Common Stock, during the Lock-Up Period (a
“Follow-On Offering”); provided that the undersigned, to the extent the undersigned has a contractual right to
demand or require the registration of the undersigned’s Common Stock or otherwise “piggyback” on a
registration statement filed by the Company for the offer and sale of its Common Stock, (i) shall be offered the opportunity
to participate in such Follow-On Offering or (ii) such contractual rights are waived by the undersigned pursuant to the terms
thereof. Additionally, notwithstanding any other provisions of this lock-up agreement, any early release from a lock-up
agreement due to circumstances of an emergency or hardship for a director or officer of the Company shall not result in a
Pro-Rata Release.]
1To be included only for stockholders who are
not officers or directors of the Company or Sponsors (as defined below).
[In the event that
any entity affiliated with CCMP Capital Advisors, LP, MSD Partners, L.P. and Alberta Investment Management Corporation (the “Sponsors”)
is granted an early release by the Representatives from the restrictions described herein during the Lock-Up Period with respect
to any Lock-Up Securities, then the same percentage of Lock-Up Securities held by each other Sponsor shall be immediately and fully
released on the same terms from any remaining lock-up restrictions set forth herein (the “Sponsor Pro-Rata Release”).
Notwithstanding the foregoing, no early release shall result in a Sponsor Pro-Rata Release if such early release, in full or in
part is in connection with any Follow-On Offering; provided that the undersigned, to the extent the undersigned has a contractual
right to demand or require the registration of the undersigned’s Common Stock or otherwise “piggyback” on a registration
statement filed by the Company for the offer and sale of its Common Stock, (i) shall be offered the opportunity to participate
in such Follow-On Offering or (ii) such contractual rights are waived by the undersigned pursuant to the terms thereof.]
If (i) the Underwriting
Agreement does not become effective by April 30, 2021, (ii) after becoming effective, the Underwriting Agreement (other than
the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Common
Stock to be sold thereunder, or (iii) the Company notifies the Representatives, in writing, prior to the execution of the
Underwriting Agreement, that it does not intend to proceed with the Public Offering, then as of such relevant date, this lock-up
agreement shall terminate and the undersigned shall be released from all obligations under this lock-up agreement.
The undersigned acknowledges
and agrees that the underwriters have not provided any recommendation or investment advice nor have the underwriters solicited
any action from the undersigned with respect to the offering of the securities and the undersigned has consulted their own legal,
accounting, financial, regulatory and tax advisors to the extent deemed appropriate.
The undersigned also
agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the
transfer of the Lock-Up Securities except in compliance with the foregoing restrictions.
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Very truly yours,
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Signature:
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Print Name:
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Exhibit B
Form
of Press Release
TO
BE ISSUED PURSUANT TO SECTION 3(j)
HAYWARD HOLDINGS, INC.
[Date]
Hayward Holdings, Inc. (the “Company”) announced
today that [●], the book-running managers in the Company’s recent public sale of [●] shares of common stock,
are [waiving] [releasing] a lock-up restriction with respect to shares of the Company’s common stock held by [certain
officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on , 20 , and the shares
may be sold on or after such date.
This press release is not an offer for sale of the securities
in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold
in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
Exhibit 3.1
SECOND
RESTATED CERTIFICATE OF INCORPORATION
of
hayward
holdings, iNC.
Hayward Holdings, Inc.,
a Delaware corporation (the “Corporation”), hereby certifies that this Second Restated Certificate of Incorporation
has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”),
and that:
A. The
name of the Corporation is: Hayward Holdings, Inc.
B. The
original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 1,
2017 and was amended and restated on August 3, 2017 (as so amended and restated, the “Original Certificate of Incorporation”).
C. This
Second Restated Certificate of Incorporation amends and restates the Original Certificate of Incorporation.
D. The
Certificate of Incorporation upon the filing of this Second Restated Certificate of Incorporation, shall read as follows:
ARTICLE I
-- NAME
The name of the corporation
is Hayward Holdings, Inc. (the “Corporation”).
ARTICLE II
-- REGISTERED OFFICE AND AGENT
The address of the
Corporation’s registered office in the State of Delaware is 251 Little Falls Drive, Wilmington, New Castle County, DE 19808.
The name of the Corporation’s registered agent at such address is Corporation Service Company.
ARTICLE III
-- PURPOSE
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”).
ARTICLE IV
-- CAPITALIZATION
(a) Authorized
Shares. The total number of shares of all classes of common stock which the Corporation shall have authority to issue is 850,000,000
shares of stock, consisting of (i) 750,000,000 shares of Common Stock, par value $0.001 per share (“Common Stock”),
and (ii) 100,000,000 shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”). Such stock
may be issued from time to time by the Corporation for such consideration as may be fixed by the board of directors of the Corporation
(the “Board of Directors”).
(b) Common
Stock. Subject to the powers, preferences and rights of any Preferred Stock, including any series thereof, having any preference
or priority over, or rights superior to, the Common Stock and except as otherwise provided by law and this Article IV, the
holders of the Common Stock shall have and possess all powers and voting and other rights pertaining to the stock of the Corporation.
(i) Voting.
Each holder of shares of Common Stock, as such, shall be entitled to one vote for each share of Common Stock held of record by
such holder on all matters on which stockholders generally are entitled to vote; provided, that, except as otherwise required
by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Second Restated Certificate of
Incorporation (including, but not limited to, any certificate of designations relating to any series of Preferred Stock) that relates
solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either
separately or together with the holders of one or more other such series, to vote thereon pursuant to this Second Restated Certificate
of Incorporation (including, but not limited to, any certificate of designations relating to any series of Preferred Stock) or
pursuant to the DGCL. There shall be no cumulative voting.
(ii) Dividends.
Dividends may be declared and paid on the Common Stock from funds lawfully available therefor as and when determined by the Board
of Directors and subject to any preferential dividend rights of any then outstanding Preferred Stock. Except as otherwise provided
by the DGCL or this Second Restated Certificate of Incorporation, the holders of record of Common Stock shall share ratably in
all dividends payable in cash, stock or otherwise and other distributions, whether in respect of liquidation or dissolution (voluntary
or involuntary) or otherwise.
(iii) No
Preemptive Rights. The holders of the Common Stock shall have no preemptive rights to subscribe for any shares of any class
of stock of the Corporation whether now or hereafter authorized.
(iv) No
Conversion Rights. The Common Stock shall not be convertible into, or exchangeable for, shares of any other class or classes
or of any other series of the same class of the Corporation’s capital stock.
(v) Liquidation
Rights. Upon the dissolution or liquidation of the Corporation, whether voluntary or involuntary, holders of Common Stock will
be entitled to receive all assets of the Corporation available for distribution to its stockholders, subject to any preferential
rights of any then outstanding Preferred Stock. A merger or consolidation of the Corporation with or into any other corporation
or other entity or a sale or conveyance of all or any part of the assets of the Corporation, in any such case which shall not in
fact result in the liquidation of the Corporation and the distribution of assets to its stockholders, shall not be deemed to be
a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Article IV(b)(v).
(c) Preferred
Stock. Shares of Preferred Stock may be issued in one or more series, from time to time, with each such series to consist of
such number of shares and to have such voting powers relative to other classes or series of Preferred Stock, if any, or Common
Stock, full or limited or no voting powers, and such designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing
for the issuance of such series adopted by the Board of Directors, and the Board of Directors is hereby expressly vested with the
authority, to the full extent now or hereafter provided by applicable law, to adopt any such resolution or resolutions. Except
as otherwise provided in this Second Restated Certificate of Incorporation, no vote of the holders of the Preferred Stock or Common
Stock shall be a prerequisite to the designation or issuance of any shares of any series of the Preferred Stock authorized by and
complying with the conditions of this Second Restated Certificate of Incorporation, the right to have such vote being expressly
waived by all present and future holders of the capital stock of the Corporation. Any shares of Preferred Stock that are redeemed,
purchased or acquired by the Corporation shall be returned to the authorized but undesignated shares of Preferred Stock and may
be reissued except as otherwise provided by law or this Second Restated Certificate of Incorporation. Different series of Preferred
Stock shall not be construed to constitute different classes of shares for the purposes of voting by classes unless expressly provided
in the resolution or resolutions providing for the issue of such series adopted by the Board of Directors.
(d) No
Class Vote on Changes in Authorized Number of Shares of Preferred Stock. Subject to the special rights of the holders
of any series of Preferred Stock pursuant to the terms of this Second Restated Certificate of Incorporation, any certificate of
designations or any resolution or resolutions providing for the issuance of such series of stock adopted by the Board of Directors,
the number of authorized shares of 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 of the voting power of the outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors, voting together as a single class, irrespective of
the provisions of Section 242(b)(2) of the DGCL.
ARTICLE V
-- BOARD OF DIRECTORS
(a) Number
of Directors; Vacancies and Newly Created Directorships. The holders of record of the shares of Common Stock and of any other
class or series of voting stock, voting together as a single class, shall be entitled to elect the directors of the Corporation.
The number of directors constituting the Board of Directors shall be not fewer than three (3) and not more than fifteen (15),
each of whom shall be a natural person. All elections of directors shall be determined by a plurality of the votes cast. Subject
to the special rights of the holders of any series of Preferred Stock to elect directors, the precise number of directors shall
be fixed exclusively pursuant to a resolution adopted by the Board of Directors. Vacancies and newly-created directorships shall
be filled exclusively by vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining
director, except that any vacancy created by the removal of a director by the stockholders for cause shall be filled by vote of
a majority of the outstanding shares of Common Stock. No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director. A director elected to fill a vacancy shall be elected for the unexpired term
of his or her predecessor in office, and a director chosen to fill a position resulting from an increase in the number of directors
shall hold office until the next election of the class for which such director shall have been chosen, subject to the election
and qualification of his or her successor and to his or her earlier death, resignation or removal.
(b) Classified
Board of Directors. Subject to the special rights of the holders of any series of Preferred Stock to elect directors, the Board
of Directors (other than those directors elected by the holders of any series of Preferred Stock) shall be classified into three
classes: Class I; Class II; and Class III. Each class shall consist, as nearly equal in number as possible, of one-third
of the total number of directors constituting the entire Board of Directors and the allocation of directors among the three classes
shall be determined by the Board of Directors. The initial Class I Directors shall serve for a term expiring at the first
annual meeting of stockholders of the Corporation following the filing of this Second Restated Certificate of Incorporation; the
initial Class II Directors shall serve for a term expiring at the second annual meeting of stockholders following the filing
of this Second Restated Certificate of Incorporation; and the initial Class III Directors shall serve for a term expiring
at the third annual meeting of stockholders following the filing of this Second Restated Certificate of Incorporation. Each director
in each class shall hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation
or removal. At each annual meeting of stockholders beginning with the first annual meeting of stockholders following the filing
of this Second Restated Certificate of Incorporation, 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 to be held in the third year following
the year of their election, with each director in each such class to hold office until his or her successor is duly elected and
qualified or until his or her earlier death, resignation or removal. If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal in number as possible
and such apportionment shall be determined by the Board of Directors.
(c) Removal.
Subject to the rights of the holders of any series of Preferred Stock to elect directors, the directors of the Corporation may
be removed only for cause by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of
the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together
as a single class, at a meeting of the stockholders called for that purpose; provided, however, that prior to the
first date (the “Trigger Date”) on which investment funds or other entities affiliated with CCMP Capital Advisors,
LP, MSD Partners, L.P, and/or Alberta Investment Management Corporation and each of their respective successors, Transferees and
Affiliates (each a “Sponsor Entity,” and collectively, the “Sponsor Entities”) cease collectively
to beneficially own (directly or indirectly) more than fifty percent (50%) of the outstanding shares of Common Stock, the directors
of the Corporation may be removed for cause by the affirmative vote of the holders of a majority of the voting power of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single
class. “Affiliate” means, with respect to any Person, any other Person that controls, is controlled by, or is
under common control with such Person; provided, however, that a portfolio company that a Sponsor Entity controls
or that is controlled by or is under common control with a Sponsor Entity shall not be deemed to an “Affiliate” solely
as a result thereof. The term “control,” as used in the definition of “Affiliate,” means the power
to direct or cause the direction of the management and policies of such Person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise, and “controlled” and “controlling” have meanings
correlative to the foregoing. “Person” means an individual, any general partnership, limited partnership, limited
liability company, corporation, trust, business trust, joint stock company, joint venture, unincorporated association, cooperative
or association or any other legal entity or organization of whatever nature, and shall include any successor (by merger or otherwise)
of such entity. “Transferee” means any Person who (i) becomes a beneficial owner of Common Stock upon having
purchased such shares of Common Stock from a Sponsor Entity and (ii) is designated in writing by the transferor as a “Transferee”
and a copy of such writing is provided to the Corporation at or prior to the time of such purchase; provided, however,
that a purchaser of Common Stock in a registered offering or in a transaction effected pursuant to Rule 144 under the Securities
Act of 1933, as amended (the “Securities Act”), (or any similar or successor provision thereto) shall not be
a “Transferee.” For the purpose of this Second Restated Certificate of Incorporation “beneficial ownership”
shall be determined in accordance with Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”).
ARTICLE VI
-- LIMITED LIABILITY
To the fullest extent
that the DGCL or any other law of the State of Delaware (as they exist on the date hereof or as they may hereafter be amended)
permits the limitation or elimination of the liability of directors, no director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a director. No amendment to, or modification or repeal
of, this Article VI shall adversely affect any right or protection of a director of the Corporation existing hereunder with
respect to any state of facts existing or act or omission occurring, or any cause of action, suit or claim that, but for this Article VI,
would accrue or arise, prior to such amendment, modification or repeal. If, after this Second Restated Certificate of Incorporation
is filed with the Secretary of the State of Delaware, the DGCL or such other law is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated
or limited to the fullest extent permitted by the DGCL or such other law, as so amended..
ARTICLE VII
-- MEETINGS OF STOCKHOLDERS
(a) No
Action by Written Consent. From and after the Trigger Date, any action required or permitted to be taken by the stockholders
of the Corporation may be effected only at a duly called annual or special meeting of stockholders of the Corporation and may not
be effected by any consent in writing by such stockholders.
(b) Special
Meetings of Stockholders. Subject to any special rights of the holders of any series of Preferred Stock, and to the requirements
of applicable law, special meetings of stockholders of the Corporation may be called only (i) by or at the direction of the
chairperson of the Board of Directors, (ii) by or at the direction of the Board of Directors pursuant to a written resolution
adopted by a majority of the total number of directors which the Corporation would have if there were no vacancies, or (iii) prior
to the Trigger Date, by the Secretary of the Corporation at the request of the holders of fifty percent (50%) or more of the outstanding
shares of Common Stock. Any business transacted at any special meeting of stockholders shall be limited to matters relating to
the purpose or purposes stated in the notice of meeting.
(c) Election
of Directors by Written Ballot. Election of directors need not be by written ballot.
ARTICLE VIII -- AMENDMENTS TO THE BYLAWS
AND THE CERTIFICATE OF INCORPORATION
(a) Bylaws.
In furtherance and not in limitation of the powers conferred by law, the Board of Directors is expressly authorized to make, alter,
amend or repeal the bylaws of the Corporation subject to the power of the stockholders of the Corporation entitled to vote with
respect thereto to make, alter, amend or repeal the bylaws both before and after the Trigger Date; provided, that with respect
to the powers of stockholders entitled to vote with respect thereto to make, alter, amend or repeal the bylaws, from and after
the Trigger Date, in addition to any other vote otherwise required by law, the affirmative vote of the holders of at least seventy-five
percent (75%) of the voting power of the outstanding shares of capital stock of the Corporation entitled to vote with respect thereto,
voting together as a single class, shall be required to make, alter, amend or repeal the bylaws of the Corporation.
(b) Amendments
to the Certificate of Incorporation. The Corporation reserves the right to amend, alter, change or repeal any provision contained
in this Second Restated Certificate of Incorporation both before and after the Trigger Date, in the manner now or hereafter prescribed
by the DGCL, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding anything
to the contrary contained in this Second Restated Certificate of Incorporation, and notwithstanding that a lesser percentage may
be permitted from time to time by applicable law, from and after the Trigger Date, no provision of Article V, Article VI,
paragraphs (a) and (b) of Article VII, this Article VIII, Article IX, Article X and Article XI
may be altered, amended or repealed in any respect, nor may any provision or bylaw inconsistent therewith be adopted, unless, in
addition to any other vote required by this Second Restated Certificate of Incorporation or otherwise required by law, such alteration,
amendment, repeal or adoption is approved by the affirmative vote of the holders of at least seventy-five percent (75%) of the
voting power of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, at a meeting of the stockholders called for that purpose.
ARTICLE IX -- BUSINESS COMBINATIONS
(a) Opt
Out of Section 203 of the DGCL. The Corporation shall not be governed by Section 203 of the DGCL.
(b) Limitations
on Business Combinations. Notwithstanding the foregoing, the Corporation shall not engage in any business combination (as defined
below), at any point in time at which the Corporation’s Common Stock is registered under Section 12(b) or Section 12(g) of
the Exchange Act, with any interested stockholder (as defined below) for a period of three (3) years following the time that
such stockholder became an interested stockholder, unless:
(i) prior
to such time, the Board of Directors approved either the business combination or the transaction which resulted in the stockholder
becoming an interested stockholder;
(ii) upon
consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder
owned at least eighty-five percent (85%) of the voting stock (as defined below) of the Corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock
owned by the interested stockholder) those shares owned by (i) persons who are directors of the Corporation and also officers
of the Corporation or (ii) employee stock plans of the Corporation in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
(iii) at
or subsequent to such time, the business combination is approved by the Board of Directors and authorized at an annual or special
meeting of stockholders, and not by written consent, by the affirmative vote of at least sixty-six and two-thirds percent (66 2/3%)
of the outstanding voting stock of the Corporation which is not owned by the interested stockholder.
(c) Definitions.
For purposes of this Article IX, references to:
(i) “affiliate”
means, with respect to any person, any other person that directly, or indirectly through one or more intermediaries, controls,
or is controlled by, or is under common control with, such person.
(ii) “associate,”
when used to indicate a relationship with any person, means: (i) any corporation, partnership, unincorporated association
or other entity of which such person is a director, officer or partner or is, directly or indirectly, the owner of twenty percent
(20%) or more of any class of voting stock; (ii) any trust or other estate in which such person has at least a twenty percent
(20%) beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and (iii) any relative
or spouse of such person, or any relative of such spouse, who has the same residence as such person.
(iii) “business
combination,” when used in reference to the Corporation and any interested stockholder of the Corporation, means:
(1) any
merger or consolidation of the Corporation or any direct or indirect majority-owned subsidiary of the Corporation (a) with
the interested stockholder, or (b) with any other corporation, partnership, unincorporated association or other entity if
the merger or consolidation is caused by the interested stockholder and as a result of such merger or consolidation paragraph (b) of
this Article IX is not applicable to the surviving entity;
(2) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions), except
proportionately as a stockholder of the Corporation, to or with the interested stockholder, whether as part of a dissolution or
otherwise, of assets of the Corporation or of any direct or indirect majority-owned subsidiary of the Corporation which assets
have an aggregate market value equal to ten percent (10%) or more of either the aggregate market value of all the assets of the
Corporation determined on a consolidated basis or the aggregate market value of all the outstanding stock of the Corporation;
(3) any
transaction which results in the issuance or transfer by the Corporation or by any direct or indirect majority-owned subsidiary
of the Corporation of any stock of the Corporation or of such subsidiary to the interested stockholder, except: (a) pursuant
to the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the Corporation
or any such subsidiary which securities were outstanding prior to the time that the interested stockholder became such; (b) pursuant
to a merger under Section 251(g) or Section 253 of the DGCL; (c) pursuant to a dividend or distribution paid
or made, or the exercise, exchange or conversion of securities exercisable for, exchangeable for or convertible into stock of the
Corporation or any such subsidiary which security is distributed, pro rata to all holders of a class or series of stock of the
Corporation subsequent to the time the interested stockholder became such; (d) pursuant to an exchange offer by the Corporation
to purchase stock made on the same terms to all holders of such stock; or (e) any issuance or transfer of stock by the Corporation;
provided, however, that in no case under clauses (c) through (e) of this subsection (3) shall
there be an increase in the interested stockholder’s proportionate share of the stock of any class or series of the Corporation
or of the voting stock of the Corporation (except as a result of immaterial changes due to fractional share adjustments);
(4) any
transaction involving the Corporation or any direct or indirect majority-owned subsidiary of the Corporation which has the effect,
directly or indirectly, of increasing the proportionate share of the stock of any class or series, or securities convertible into
the stock of any class or series, of the Corporation or of any such subsidiary which is owned by the interested stockholder, except
as a result of immaterial changes due to fractional share adjustments or as a result of any purchase or redemption of any shares
of stock not caused, directly or indirectly, by the interested stockholder; or
(5) any
receipt by the interested stockholder of the benefit, directly or indirectly (except proportionately as a stockholder of the Corporation),
of any loans, advances, guarantees, pledges, or other financial benefits (other than those expressly permitted in subsections (1) through
(4) above) provided by or through the Corporation or any direct or indirect majority-owned subsidiary.
(iv) “control,”
including the terms “controlling,” “controlled by” and “under common control with,”
means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting stock, by contract or otherwise. A person who is the record owner of twenty percent
(20%) or more of the outstanding voting stock of the Corporation, partnership, unincorporated association or other entity shall
be presumed to have control of such entity, in the absence of proof by a preponderance of the evidence to the contrary. Notwithstanding
the foregoing, a presumption of control shall not apply where such person holds voting stock, in good faith and not for the purpose
of circumventing this Article IX, as an agent, bank, broker, nominee, custodian or trustee for one or more record or beneficial
owners who do not individually or as a group have control of such person.
(v) “interested
stockholder” means any person (other than the Corporation or any direct or indirect majority-owned subsidiary of the
Corporation) that (i) is the owner of fifteen percent (15%) or more of the outstanding voting stock of the Corporation, or
(ii) is an affiliate or associate of the Corporation and was the owner of fifteen percent (15%) or more of the outstanding
voting stock of the Corporation at any time within the three (3) year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder, and the affiliates and associates of such person; provided,
however, that the term “interested stockholder” shall not include (a) the Sponsor Entities, (b) a
stockholder that becomes an interested stockholder inadvertently and (i) as soon as practicable divests itself of ownership
of sufficient shares so that such stockholder ceases to be an interested stockholder and (ii) would not, at any time within
the three-year period immediately prior to a business combination between the Corporation and such stockholder, have been an interested
stockholder but for the inadvertent acquisition of ownership, or (c) any person whose ownership of shares in excess of the
fifteen percent (15%) limitation set forth herein is the result of any action taken solely by the Corporation; provided
that such person specified in this clause (c) shall be an interested stockholder if thereafter such person acquires additional
shares of voting stock of the Corporation, except as a result of further corporate action not caused, directly or indirectly, by
such person. For the purpose of determining whether a person is an interested stockholder, the voting stock of the Corporation
deemed to be outstanding shall include stock deemed to be owned by the person through application of the definition of “owner”
below but shall not include any other unissued stock of the Corporation which may be issuable pursuant to any agreement, arrangement
or understanding, or upon exercise of conversion rights, warrants or options, or otherwise.
(vi) “owner,”
including the terms “own” and “owned,” when used with respect to any stock, means a person
that individually or with or through any of its affiliates or associates:
(1) beneficially
owns such stock, directly or indirectly; or
(2) has
(a) the right to acquire such stock (whether such right is exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, warrants or options,
or otherwise; provided, however, that a person shall not be deemed the owner of stock tendered pursuant to
a tender or exchange offer made by such person or any of such person’s affiliates or associates until such tendered stock
is accepted for purchase or exchange; or (b) the right to vote such stock pursuant to any agreement, arrangement or understanding;
provided, however, that a person shall not be deemed the owner of any stock because of such person’s
right to vote such stock if the agreement, arrangement or understanding to vote such stock arises solely from a revocable proxy
or consent given in response to a proxy or consent solicitation made to ten (10) or more persons; or
(3) has
any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except voting pursuant to a revocable
proxy or consent as described in item (b) of subsection (2) above), or disposing of such stock with any other person
that beneficially owns, or whose affiliates or associates beneficially own, directly or indirectly, such stock.
(vii) “person”
means any individual, general partnership, limited partnership, limited liability company, corporation, trust, business trust,
joint stock company, joint venture, unincorporated association, cooperative or association or any other legal entity or organization
of whatever nature, and shall include any successor (by merger or otherwise) of such entity.
(viii) “stock”
means, with respect to any corporation, capital stock and, with respect to any other entity, any equity interest.
(ix) “voting
stock” means stock of any class or series entitled to vote generally in the election of directors.
ARTICLE X -- RENOUNCEMENT OF CORPORATE
OPPORTUNITY
(a) Scope.
The provisions of this Article X are set forth to define, to the extent permitted by applicable law, the duties of Exempted
Persons (as defined below) to the Corporation with respect to certain classes or categories of business opportunities. “Exempted
Persons” means each of the Sponsor Entities (other than the Corporation and its subsidiaries) and all of their respective
partners, principals, directors, officers, members, managers and/or employees, including any of the foregoing who serve as officers
or directors of the Corporation.
(b) Competition
and Allocation of Corporate Opportunities. The Exempted Persons shall not have any fiduciary duty to refrain from engaging
directly or indirectly in the same or similar business activities or lines of business as the Corporation or any of its subsidiaries.
To the fullest extent permitted by applicable law, 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 available to the Exempted Persons, 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 each
such Exempted Person shall have no duty to communicate or offer such business opportunity to the Corporation (and there shall be
no restriction on the Exempted Persons using the general knowledge and understanding of the Corporation and the industry in which
it operates which it has gained as an Exempted Person in considering and pursuing such opportunities or in making investment, voting,
monitoring, governance or other decisions relating to other entities or securities) and, to the fullest extent permitted by applicable
law, shall not be liable to the Corporation or any of its subsidiaries or stockholders for breach of any fiduciary or other duty,
as a director or officer or otherwise, by reason of the fact that such Exempted 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, or uses such knowledge and understanding in the manner described
herein.
(c) Certain
Matters Deemed Not Corporate Opportunities. In addition to and notwithstanding the foregoing provisions of this Article X,
a corporate opportunity shall not be deemed to belong to the Corporation if it is a business opportunity that the Corporation is
not financially able or contractually permitted or legally able to undertake, or that is, from its nature, not in the line of the
Corporation’s business or is of no practical advantage to it or that is one in which the Corporation has no interest or reasonable
expectancy.
(d) Amendment
of this Article. No amendment or repeal of this Article X in accordance with the provisions of paragraph (b) of Article X
shall apply to or have any effect on the liability or alleged liability of any Exempted Person for or with respect to any activities
or opportunities of which such Exempted Person becomes aware prior to such amendment or repeal. This Article X shall not limit
any protections or defenses available to, or indemnification or advancement rights of, any director or officer of the Corporation
under this Second Restated Certificate of Incorporation, the Corporation’s bylaws or applicable law.
ARTICLE XI -- EXCLUSIVE JURISDICTION
FOR CERTAIN CLAIMS
(a) Exclusive
Forum. Unless the Board of Directors or one of its committees otherwise approves the selection of an alternate forum, the Court
of Chancery of the State of Delaware (or, if, and only if, the Court of Chancery of the State of Delaware dismisses a Covered Claim
(as defined below) for lack of subject matter jurisdiction, any other state or federal court in the State of Delaware that does
have subject matter jurisdiction) shall, to the fullest extent permitted by applicable law, be the sole and exclusive forum for
any (i) derivative claim brought in the right of the Corporation, (ii) claim asserting a breach of a fiduciary duty to
the Corporation or the Corporation’s stockholders owed by any current or former director, officer or other employee or stockholder
of the Corporation, (iii) claim against the Corporation arising pursuant to any provision of the DGCL, this Restated Certificate
of Incorporation or the Amended and Restated Bylaws, (iv) claim to interpret, apply, enforce or determine the validity of
this Restated Certificate of Incorporation or the Amended and Restated Bylaws, (v) claim against the Corporation governed
by the internal affairs doctrine, or (vi) other claim, not subject to exclusive federal jurisdiction and not subject to paragraph
(d) below, brought in any action asserting one or more of the claims specified in clauses (a)(i) through (v) herein
above (each a “Covered Claim”); provided, however, that the provisions of this Article XI(a) will
not apply to claims brought to enforce any liability or duty created by the Securities Exchange Act of 1934, as amended.
(b) Personal
Jurisdiction. If any person or entity (a “Claiming Party”) files an action asserting a Covered Claim in
a court other than one determined in accordance with paragraph (a) above (each a “Foreign Action”) without
the prior approval of the Board of Directors or one of its committees, such Claiming Party shall be deemed to have consented to
(i) the personal jurisdiction of the court determined in accordance with paragraph (a) in connection with any such action
brought in any such court to enforce paragraph (a) (an “Enforcement Action”) and (ii) having service
of process made upon such Claiming Party in any such Enforcement Action by service upon such Claiming Party’s counsel in
the Foreign Action as agent for such Claiming Party.
(c) Notice
and Consent. Any person or entity purchasing or otherwise acquiring any interest in the shares of capital stock of the Corporation
shall be deemed to have notice of and consented to the provisions of this Article XI and waived any argument relating to the
inconvenience of the forums referenced above in connection with any Covered Claim.
(d) Federal
Forum. Unless the Corporation consents in writing to the selection of an alternative forum, the federal district courts of
the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the
Securities Act of 1933, as amended. Any person or entity purchasing or otherwise acquiring any interest in any security of the
Corporation shall be deemed to have notice of and consented to this provision.
ARTICLE XII -- SEVERABILITY
If any provision or
provisions of this Second Restated Certificate of Incorporation shall be held to be invalid, illegal or unenforceable as applied
to any circumstance for any reason whatsoever: (i) the validity, legality and enforceability of such provisions in any other
circumstance and of the remaining provisions of this Second Restated Certificate of Incorporation (including, without limitation,
each portion of any paragraph of this Second Restated Certificate of Incorporation 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 (ii) to the fullest extent possible, the provisions of this Second Restated Certificate of Incorporation (including,
without limitation, each such portion of any paragraph of this Second Restated Certificate of Incorporation 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.
* * *
IN WITNESS WHEREOF, the undersigned has
caused this Second Restated Certificate of Incorporation to be executed by the officer below this []th day of [X], 2021.
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HAYWARD HOLDINGS, INC.
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By:
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/s/
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Name:
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Title:
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Secretary
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Signature Page
to Second Restated Certificate of Incorporation
Exhibit 3.2
Amended
and Restated Bylaws
of
hayward
holdings, Inc.
SECTION 1 - STOCKHOLDERS
Section 1.1. Annual
Meeting.
An annual meeting of
the stockholders of Hayward Holdings, Inc., a Delaware corporation (the “Corporation”), for the election
of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the
meeting shall be held at the place, if any, within or without the State of Delaware, on the date and at the time that the Board
of Directors of the Corporation (the “Board of Directors”) shall each year fix. Unless stated otherwise in the
notice of the annual meeting of the stockholders of the Corporation, such annual meeting shall be at the principal office of the
Corporation. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but
may instead be held solely or in part by any permissible means of remote communication, including electronic transmission or telephonic
means (a “virtual meeting”) in accordance with the General Corporation Law of the State of Delaware (the “DGCL”).
The Corporation shall implement reasonable measures to ensure stockholders may meaningfully participate in a virtual meeting through
a secure and verifiable process, which focuses on access to the meeting, voting and access to the stockholder list. The Corporation shall
also comply with all the requirements of the Securities and Exchange Commission (the “SEC”) for virtual
meetings of stockholders, including for the electronic availability of proxy materials.
Section 1.2. Advance
Notice of Nominations and Proposals of Business.
(a) Nominations
of persons for election to the Board of Directors and proposals for other business to be transacted by the stockholders at an annual
meeting of stockholders may be made (i) pursuant to the Corporation’s notice with respect to such meeting (or any supplement
thereto), (ii) by or at the direction of the Board of Directors or any committee thereof or (iii) by any stockholder
of record of the Corporation who (A) was a stockholder of record at the time of the giving of the notice contemplated in Section 1.2(b),
(B) is entitled to vote at such meeting and (C) has complied with the notice procedures set forth in this Section 1.2.
Subject to Section 1.2(i) and except as otherwise required by law, clause (iii) of this Section 1.2(a) shall
be the exclusive means for a stockholder to make nominations or propose other business (other than nominations and proposals properly
brought pursuant to applicable provisions of federal law, including the Securities Exchange Act of 1934 (as amended from time to
time, the “Exchange Act”) and the rules and regulations of the SEC thereunder) before an annual meeting
of stockholders.
(b) Except
as otherwise required by law, for nominations or proposals to be properly brought before an annual meeting by a stockholder pursuant
to clause (iii) of Section 1.2(a), (i) the stockholder must have given timely notice thereof in writing to the Secretary
of the Corporation with the information contemplated by Section 1.2(c) including, where applicable, delivery to the Corporation
of timely and completed questionnaires as contemplated by Section 1.2(c), and (ii) the business must be a proper matter
for stockholder action under the DGCL. The notice requirements of this Section 1.2 shall be deemed satisfied by a stockholder
with respect to business other than a nomination if the stockholder has notified the Corporation of his, her or its intention to
present a proposal at an annual meeting in compliance with applicable rules and regulations promulgated under the Exchange
Act and such stockholder’s proposal has been included in a proxy statement prepared by the Corporation to solicit proxies
for such annual meeting.
(c) To
be timely for purposes of Section 1.2(b), a stockholder’s notice must be delivered to the Secretary of the Corporation
at the principal executive offices of the Corporation on a date (i) not later than the close of business on the ninetieth
(90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the anniversary
date of the prior year’s annual meeting or (ii) if there was no annual meeting in the prior year or if the date of the
current year’s annual meeting is more than thirty (30) days before or after the anniversary date of the prior year’s
annual meeting, on or before ten (10) days after the day on which the date of the current year’s annual meeting is first
disclosed in a public announcement. In no event shall any adjournment or postponement of an annual meeting or the announcement
thereof commence a new time period for the delivery of such notice. Such notice from a stockholder must state (i) as to each
nominee that the stockholder proposes for election or reelection as a director, (A) all information relating to such nominee
that would be required to be disclosed in solicitations of proxies for the election of such nominee as a director pursuant to Regulation
14A under the Exchange Act and such nominee’s written consent to serve as a director if elected, and (B) a description
of all direct and indirect compensation and other material monetary arrangements, agreements or understandings during the past
three years, and any other material relationship, if any, between or concerning such stockholder, any Stockholder Associated Person
(as defined below) or any of their respective affiliates or associates, on the one hand, and the proposed nominee or any of his
or her affiliates or associates, on the other hand; (ii) as to each proposal that the stockholder seeks to bring before the
meeting, a brief description of such proposal, the reasons for making the proposal at the meeting, the text of the proposal (including
the text of any resolutions proposed for consideration and in the event that it includes a proposal to amend the bylaws of the
Corporation, the language of the proposed amendment) and any material interest that the stockholder has in the proposal; and (iii) (A) the
name and address of the stockholder giving the notice and the Stockholder Associated Persons, if any, on whose behalf the nomination
or proposal is made, (B) the class (and, if applicable, series) and number of shares of stock of the Corporation that are,
directly or indirectly, owned beneficially or of record by the stockholder or any Stockholder Associated Person, (C) any option,
warrant, convertible security, stock appreciation right or similar instrument, right, agreement, arrangement or understanding with
an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class (or, if applicable, series)
of shares of stock of the Corporation or with a value derived in whole or in part from the value of any class (or, if applicable,
series) of shares of stock of the Corporation, whether or not such instrument, right, agreement, arrangement or understanding shall
be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise, and any other direct
or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of stock
of the Corporation (each, a “Derivative Instrument”), in each case that is directly or indirectly owned beneficially
or of record by such stockholder or any Stockholder Associated Person, (D) any proxy, contract, arrangement, understanding
or relationship pursuant to which such stockholder or any Stockholder Associated Person has a right to vote any securities of the
Corporation, (E) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly,
by a general or limited partnership in which such stockholder or any Stockholder Associated Person is a general partner or beneficially
owns, directly or indirectly, an interest in a general partner, (F) any performance-related fees (other than an asset-based
fee) that such stockholder or any Stockholder Associated Person is entitled to based on any increase or decrease in the value of
the shares of stock of the Corporation or Derivative Instruments, (G) any other information relating to such stockholder or
any Stockholder Associated Person, if any, required to be disclosed in a proxy statement or other filing 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 of the SEC thereunder,
(H) a representation that the stockholder is a holder of record 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, (I) a certification as to whether or
not the stockholder and all Stockholder Associated Persons have complied with all applicable federal, state and other legal requirements
in connection with the stockholder’s and each Stockholder Associated Person’s acquisition of shares of capital stock
or other securities of the Corporation and the stockholder’s and each Stockholder Associated Person’s acts or omissions
as a stockholder (or beneficial owner of securities) of the Corporation, and (J) whether the stockholder intends to deliver
a proxy statement and form of proxy to holders of, in the case of a proposal, at least the percentage of the Corporation’s
voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient
number of holders of the Corporation’s voting shares reasonably believed by such stockholder to be sufficient to elect such
nominee or nominees or otherwise to solicit proxies or votes from stockholders in support of such proposal or nomination. For purposes
of these bylaws, a “Stockholder Associated Person” of any stockholder means (i) any “affiliate”
or “associate” (as those terms are defined in Rule 12b-2 under the Exchange Act) of such stockholder, (ii) any
beneficial owner of any capital stock or other securities of the Corporation owned of record or beneficially by such stockholder,
(iii) any person directly or indirectly controlling, controlled by or under common control with any such Stockholder Associated
Person referred to in clause (i) or (ii) above, and (iv) any person acting in concert in respect of any matter involving
the Corporation or its securities with either such stockholder or any beneficial owner of any capital stock or other securities
of the Corporation owned of record or beneficially by such stockholder. In addition, in order for a nomination to be properly brought
before an annual or special meeting by a stockholder pursuant to clause (iii) of Section 1.2(a), any nominee proposed
by a stockholder shall complete a questionnaire, in a form provided by the Corporation, and deliver a signed copy of such completed
questionnaire to the Corporation within ten (10) days of the date that the Corporation makes available to the stockholder
seeking to make such nomination or such nominee the form of such questionnaire. The Corporation may require any proposed nominee
to furnish such other information as may be reasonably requested by the Corporation to determine the eligibility of the proposed
nominee to serve as an independent director of the Corporation or that could be material to a reasonable stockholder’s understanding
of the independence, or lack thereof, of the nominee. The information required to be included in a notice pursuant to this Section 1.2(c) shall
be provided as of the date of such notice and shall be supplemented by the stockholder not later than ten (10) days after
the record date for the determination of stockholders entitled to notice of the meeting to disclose any changes to such information
as of the record date. The information required to be included in a notice pursuant to this Section 1.2(c) shall not
include any ordinary course business activities of any broker, dealer, commercial bank, trust company or other nominee who is directed
to prepare and submit the notice required by this Section 1.2(c) on behalf of a beneficial owner of the shares held of
record by such broker, dealer, commercial bank, trust company or other nominee and who is not otherwise affiliated or associated
with such beneficial owner.
(d) Subject
to the certificate of incorporation of the Corporation (the “Certificate of Incorporation”), Section 1.2(i) and
applicable law, only persons nominated in accordance with procedures stated in this Section 1.2 shall be eligible for election
as and to serve as members of the Board of Directors and the only business that shall be conducted at an annual meeting of stockholders
is the business that has been brought before the meeting in accordance with the procedures set forth in this Section 1.2.
The chairperson of the meeting shall have the power and the duty to determine whether a nomination or any proposal has been made
according to the procedures stated in this Section 1.2 and, if any nomination or proposal does not comply with this Section 1.2,
unless otherwise required by law, the nomination or proposal shall be disregarded.
(e) For
purposes of this Section 1.2, “public announcement” means disclosure in a press release reported by the
Dow Jones News Service, Associated Press or a comparable news service or in a document publicly filed or furnished by the Corporation
with or to the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(f) Notwithstanding
the foregoing provisions of this Section 1.2, a stockholder shall also comply with applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to matters set forth in this Section 1.2. Nothing in this Section 1.2
shall affect any rights, if any, of stockholders to request inclusion of nominations or proposals in the Corporation’s proxy
statement pursuant to applicable provisions of federal law, including the Exchange Act.
(g) Notwithstanding
the foregoing provisions of this Section 1.2, unless otherwise required by law, if the stockholder (or a qualified representative
of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination
or proposed business or does not provide the information required by Section 1.2(c), including any required supplement thereto,
such nomination shall be disregarded and such proposed business shall not be transacted, notwithstanding that proxies in respect
of such vote may have been received by the Corporation. For purposes of this Section 1.2, 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.
(h) Only
such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to
the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (1) by
or at the direction of the Board of Directors or any committee thereof or (2) provided that the Board of Directors has determined
that directors shall be elected at such meeting, by any stockholder of the Corporation who is a stockholder of record at the time
the notice provided for in this Section 1.2 is delivered to the Secretary of the Corporation, who is entitled to vote at the
meeting upon such election and who complies with the notice procedures set forth in this Section 1.2. In the event the Corporation
calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder
entitled to vote in such election of directors may nominate a person or persons (as the case may be) for election to such position(s) as
specified in the Corporation’s notice of meeting, if the stockholder’s notice required by paragraph (b) of this
Section 1.2 shall be delivered to the Secretary of the Corporation at the principal executive offices of the Corporation not
earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later
than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th)
day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed
by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement
of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described
above.
(i) All
provisions of this Section 1.2 are subject to, and nothing in this Section 1.2 shall in any way limit the exercise,
or the method or timing of the exercise of, the rights of any person granted by the Corporation to nominate directors, which rights
may be exercised without compliance with the provisions of this Section 1.2.
Section 1.3. Special
Meetings; Notice.
Special meetings of
the stockholders of the Corporation may be called only to the extent and in the manner set forth in the Certificate of Incorporation.
Notice of every special meeting of the stockholders of the Corporation shall state the purpose or purposes of such meeting. Except
as otherwise required by law, the business conducted at a special meeting of stockholders of the Corporation shall be limited exclusively
to the business set forth in the Corporation’s notice of meeting, and the individual or group calling such meeting shall
have exclusive authority to determine the business included in such notice.
Section 1.4. Notice
of Meetings.
Notice of the place,
if any, date and time of all meetings of stockholders of the Corporation, 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) and
the means of remote communications, if any, by which stockholders and proxy holders may be deemed present and vote at such meeting,
and, in the case of all special meetings of stockholders, the purpose or purposes of the meeting, shall be given, not less than
ten (10) nor more than sixty (60) days before the date on which such meeting is to be held (unless a different time is specified
by law or applicable rule or regulation), to each stockholder entitled to notice of the meeting.
The Corporation may
postpone or cancel any previously called annual or special meeting of stockholders of the Corporation by making a public announcement
(as defined in Section 1.2(e)) of such postponement or cancellation prior to the meeting. When a previously called annual
or special meeting is postponed to another time, date or place, if any, notice of the place (if any), date and time of the postponed
meeting, 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) and the means of remote communications, if any, by which stockholders
and proxy holders may be deemed present and vote at such postponed meeting, shall be given in conformity with this Section 1.4
unless such meeting is postponed to a date that is not more than sixty (60) days after the date that the initial notice of the
meeting was provided in conformity with this Section 1.4.
When a meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, thereof and the means
of remote communication, if any, by which stockholders and proxy holders may be deemed to be present and vote at such adjourned
meeting are announced at the meeting at which the adjournment is taken; provided, however, that if the adjournment
is for more than thirty (30) days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote
at the meeting, or if after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting
the Board of Directors shall fix a new record date for notice of such adjourned meeting in conformity herewith and such notice
shall be given to each stockholder of record entitled to vote at such adjourned meeting as of the record date for notice of such
adjourned meeting. At any adjourned meeting, any business may be transacted that may have been transacted at the original meeting.
Section 1.5. Quorum.
At any meeting of the
stockholders, the holders of shares of stock of the Corporation entitled to cast a majority of the total votes entitled to be cast
by the holders of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors
(“Voting Stock”), present in person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number is required by applicable law or the Certificate of Incorporation. If a separate
vote by one or more classes or series is required, the holders of shares entitled to cast a majority of the total votes entitled
to be cast by the holders of the shares of the class or classes or series, present in person or represented by proxy, shall constitute
a quorum entitled to take action with respect to that vote on that matter. A quorum, once established, shall not be deemed to cease
to exist due to the subsequent withdrawal prior to the closing of the meeting of shares of Voting Stock that would result in less
than a quorum remaining present in person or by proxy at such meeting. For the purposes of the immediately preceding sentence,
an adjournment of a meeting shall not constitute the closing of such meeting.
If a quorum shall fail
to attend any meeting, the chairperson of the meeting may adjourn the meeting to another place, if any, date and time. At any such
adjourned meeting at which there is a quorum, any business may be transacted that might have been transacted at the meeting originally
called.
Section 1.6. Organization.
The chairperson of
the Board of Directors or, in his or her absence, the person whom the Board of Directors designates or, in the absence of that
person or the failure of the Board of Directors to designate a person, the President of the Corporation or, in his or her absence,
the person chosen by the holders of a majority of the shares of capital stock entitled to vote who are present, in person or by
proxy, shall call to order any meeting of the stockholders of the Corporation and act as chairperson of the meeting. In the absence
of the Secretary or any Assistant Secretary of the Corporation, the secretary of the meeting shall be the person the chairperson
appoints.
Section 1.7. Conduct
of Business.
The chairperson of
any meeting of stockholders of the Corporation shall determine the order of business and the rules of procedure for the conduct
of such meeting, including the manner of voting and the conduct of discussion as he or she determines to be in order. The chairperson
shall have the power to adjourn the meeting to another place, if any, date and time. The date and time of the opening and closing
of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Except to
the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairperson of the meeting
shall have the right and authority to convene and (for any or no reason) to adjourn the meeting, to prescribe such rules, regulations
and procedures and to do all such acts as, in the judgment of such chairperson, are appropriate for the proper conduct of the meeting.
Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairperson of the meeting,
may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) 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 entitled to vote at the meeting, their duly authorized and constituted proxies or such other persons
as the chairperson of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. The chairperson of
the 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 nomination or matter of business was not properly brought
before the meeting and if such chairperson should so determine, such chairperson shall so declare to the meeting and any such matter
or business not properly brought before the meeting shall not be transacted or considered. Unless and to the extent determined
by the Board of Directors or the chairperson of the meeting, meetings of stockholders shall not be required to be held in accordance
with the rules of parliamentary procedure.
Section 1.8. Proxies;
Inspectors.
(a) At
any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument
in writing or by a transmission permitted by applicable law, but no such proxy shall be voted or acted upon after three (3) years
from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may
revoke any proxy that is not irrevocable by attending the meeting and voting in person or by delivering to the Secretary of the
Corporation a revocation of the proxy or a new proxy bearing a later date.
(b) Prior
to a meeting of the stockholders of the Corporation, the Corporation shall appoint one or more inspectors, who may be employees
of the Corporation, to act at a meeting of stockholders of the Corporation and make a written report thereof. The Corporation
may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate
is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by applicable
law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before beginning the discharge of his or her
duties, 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 may appoint or retain other persons or entities to assist the inspectors in the performance
of the duties of inspectors. The inspectors shall have the duties prescribed by applicable law. Unless otherwise provided by the
Board of Directors, the date and time of the opening and the closing of the polls for each matter upon which the stockholders
will vote at a meeting shall be announced at the meeting. No ballot, proxies, votes or any revocation thereof or change thereto
shall be accepted by the inspectors after the closing of the polls. In determining the validity and counting of proxies and ballots
cast at any meeting of stockholders, the inspectors may consider such information as is permitted by applicable law. No person
who is a candidate for office at an election may serve as an inspector at such election.
Section 1.9. Voting
Except as otherwise
required by applicable law or any rule or regulation of any applicable stock exchange, the Certificate of Incorporation or
these bylaws, all matters other than the election of directors shall be determined by a majority of the votes cast on the matter
affirmatively or negatively. All elections of directors shall be determined by a plurality of the votes cast.
Section 1.10.
Stock List.
A complete list of
stockholders of the Corporation entitled to vote at any meeting of stockholders of the Corporation, arranged in alphabetical order
for each class of stock and showing the address of each such stockholder and the number of shares registered in the name of such
stockholder, shall be open to the examination of any such stockholder, for any purpose germane to a meeting of the stockholders
of the Corporation, for a period of at least ten (10) days before the meeting (i) on a reasonably accessible electronic
network, provided that the information required to gain access to such list is provided with the notice of the meeting or (ii) during
ordinary business hours at the principal place of business of the Corporation; provided, however, if the record date
for determining the stockholders entitled to vote is less than ten (10) days before the meeting date, the list shall reflect
the stockholders entitled to vote as of the tenth (10th) day before such meeting date. The stock list shall also be
open to the examination of any such stockholder during the entire meeting in the manner required by the DGCL. The Corporation may
look to this list as the sole evidence of the identity of the stockholders entitled to vote at a meeting and the number of shares
held by each stockholder.
SECTION 2 - BOARD
OF DIRECTORS
Section 2.1. General
Powers and Qualifications of Directors.
The business and affairs
of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authorities
these bylaws expressly confer upon them, the Board of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by the DGCL, the Certificate of Incorporation or these bylaws required to be exercised or done
by the stockholders. Directors need not be stockholders of the Corporation to be qualified for election or service as a director
of the Corporation.
Section 2.2. Removal;
Resignation.
The directors of the
Corporation may be removed in accordance with the Certificate of Incorporation and the DGCL. Any director may resign at any time
upon notice given in writing, including by electronic transmission, to the Corporation. A resignation shall be effective upon receipt,
unless the resignation otherwise provides.
Section 2.3. Regular
Meetings.
Regular meetings of
the Board of Directors shall be held at the place (if any), on the date and at the time as shall have been established by the Board
of Directors and publicized among all directors. A notice of a regular meeting, the date of which has been so publicized, shall
not be required.
Section 2.4. Special
Meetings.
Special meetings of
the Board of Directors may be called by (i) the chairperson of the Board of Directors, (ii) the Chief Executive Officer
of the Corporation, (iii) two or more directors then in office, or (iv) if the Board of Directors then includes a director
nominated or designated for nomination by investment funds or other entities affiliated with CCMP Capital Advisors, LP, MSD Partners,
L.P, and/or Alberta Investment Management Corporation and each of their respective successors, Transferees and Affiliates (each
a “Sponsor Entity,” and collectively, the “Sponsor Entities”), by any director nominated
or designated for nomination by a Sponsor Entity, and shall be held at the place, if any, on the date and at the time as he, she
or they shall fix. Notice of the place, if any, date and time of each special meeting shall be given to each director either (a) by
mailing written notice thereof not less than five (5) days before the meeting, or (b) by telephone, facsimile, e-mail
or other means of electronic transmission providing notice thereof not less than twenty-four (24) hours before the meeting. Any
and all business may be transacted at a special meeting of the Board of Directors. “Affiliate” means, with respect
to any Person, any other Person that controls, is controlled by, or is under common control with such Person; provided,
however, that a portfolio company that a Sponsor Entity controls or that is controlled by or is under common control with
a Sponsor Entity shall not be deemed to an “Affiliate” solely as a result thereof. The term “control,”
as used in the definition of “Affiliate,” means the power to direct or cause the direction of the management and policies
of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and “controlled”
and “controlling” have meanings correlative to the foregoing. “Person” means an individual,
any general partnership, limited partnership, limited liability company, corporation, trust, business trust, joint stock company,
joint venture, unincorporated association, cooperative or association or any other legal entity or organization of whatever nature,
and shall include any successor (by merger or otherwise) of such entity. “Transferee” means any Person who (i) becomes
a beneficial owner of Common Stock upon having purchased such shares of Common Stock from a Sponsor Entity and (ii) is designated
in writing by the transferor as a “Transferee” and a copy of such writing is provided to the Corporation at or prior
to the time of such purchase; provided, however, that a purchaser of Common Stock in a registered offering or in
a transaction effected pursuant to Rule 144 under the Securities Act of 1933, as amended, (or any similar or successor provision
thereto) shall not be a “Transferee.” For the purpose of these bylaws, “beneficial ownership” shall
be determined in accordance with Rule 13d-3 promulgated under the Exchange Act.
Section 2.5. Quorum.
At any meeting of the
Board of Directors, a majority of the total number of directors then in office shall constitute a quorum for all purposes; provided
that prior to the first date (the “Trigger Date”) on which the Sponsor Entities cease collectively to beneficially
own (directly or indirectly) more than 50% of the Voting Stock, it shall be necessary to constitute a quorum, in addition to a
majority of the total number of directors then in office that (a) at least one director nominated or designated for nomination
by the Sponsor Entities be present (other than attendance for the sole purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened) and (b) for an action of the Board of Directors taken at a meeting
to be valid, directors that constitute a quorum must be present (as described in Section 2.6 below) at the time that the vote
on such action is taken. For the avoidance of doubt, prior to the Trigger Date, if directors that constitute a quorum are
not present (as described in Section 2.6 below) at the time that the vote on any action is taken, a quorum shall not be constituted
with respect to such action, and any vote taken with respect to such action shall not be a valid action of the Board of Directors,
notwithstanding that a quorum of the Board of Directors may have been present at the commencement of such meeting. If a quorum
shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, if any, date or time, without
further notice or waiver thereof.
Section 2.6. Participation in Meetings
by Conference Telephone, Video Conference or Other Communications Equipment.
Members of the Board
of Directors, or of any committee thereof, may participate in a meeting of the Board of Directors or committee thereof by means
of conference telephone, video conference or other communications equipment by means of which all directors participating in the
meeting can hear each other director, and such participation shall constitute presence in person at the meeting.
Section 2.7. Conduct
of Business.
At any meeting of the
Board of Directors, business shall be transacted in the order and manner that the Board of Directors may from time to time determine,
and all matters shall be determined by the vote of a majority of the directors present, provided a quorum is present at the time
such matter is acted upon, except as otherwise provided in the Certificate of Incorporation or these bylaws or required by applicable
law. The Board of Directors or any committee thereof may take action without a meeting if all members thereof consent thereto in
writing or by electronic transmission, and the writing or writings, or electronic transmission or electronic transmissions, are
filed with the minutes of proceedings of the Board of Directors or any committee thereof. 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 2.8. Compensation
of Directors.
The Board of Directors
shall be authorized to fix the compensation of directors. The directors of the Corporation shall be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be reimbursed a fixed sum for attendance at each meeting of the
Board of Directors, paid an annual retainer or paid other compensation, including equity compensation, as the Board of Directors
determines. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation
therefor. Members of committees shall have their expenses, if any, of attendance of each meeting of such committee reimbursed and
may be paid compensation for attending committee meetings or being a member of a committee.
SECTION 3 - COMMITTEES
The Board of Directors
may designate committees of the Board of Directors, with such lawfully delegable powers and duties as it thereby confers, to serve
at the pleasure of the Board of Directors and shall, for those committees, appoint a director or directors to serve as the member
or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member
at any meeting of such committee. In the absence or disqualification of any member of any committee and any alternate member in
his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not
he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting
in the place of the absent or disqualified member. All provisions of this Section 3 are subject to, and nothing in this Section 3
shall in any way limit the exercise, or method or timing of the exercise, of the rights of any person granted by the Corporation
with respect to the existence, duties, composition or conduct of any committee of the Board of Directors.
SECTION 4 - OFFICERS
Section 4.1. Generally.
The officers of the
Corporation shall consist of a Chief Executive Officer, President, one or more Executive Vice Presidents, one or more Vice Presidents,
a Secretary, one or more Assistant Secretaries, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, Chief
Commercial Officer and such other officers as the Board of Directors may from time to time determine, each of whom shall be elected
by the Board of Directors and have such authority, functions or duties set forth in these bylaws or as determined by the Board
of Directors. The Chief Executive Officer or President may also appoint such other officers (including without limitations one
or more Vice Presidents and Controllers) as may be necessary or desirable for the conduct of the business of the Corporation. Such
other officers shall have such powers and duties and shall hold their officers for such terms as may be provided in these bylaws
or as may be prescribed by the Board or, if such officer has been appointed by the Chief Executive Officer or President, as may
be prescribed by the appointing officer. Each officer shall hold office for such term as may be prescribed by the Board of Directors
and until such person’s successor shall have been duly elected and qualified or until such person’s earlier death,
disqualification, resignation or removal. Any number of offices may be held by the same person unless the Certificate of Incorporation
or these bylaws otherwise provide; provided, however, that no officer shall execute, acknowledge or verify any instrument
in more than one capacity if such instrument is required by law, the Certificate of Incorporation or these bylaws to be executed,
acknowledged or verified by two or more parties. Officers need not be stockholders or residents of the State of Delaware. The compensation
of officers appointed by the Board of Directors shall be determined from time to time by the Board of Directors or a committee
thereof or by the officers as may be designated by resolution of the Board of Directors.
Section 4.2. President.
Unless otherwise determined
by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. Subject to the provisions of
these bylaws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management
and control of the business and affairs of the Corporation and shall perform all duties and have all powers that are commonly incident
to the office of chief executive or which are delegated to him or her by the Board of Directors. In the absence (or inability or
refusal to act) of the Chairman of the Board, the Chief Executive Officer (if he or she shall be a director) shall preside when
present at all meetings of the stockholders and the Board. He or she shall have the power to sign all stock certificates, contracts
and other instruments of the Corporation that are authorized and shall have general supervision and direction of all of the other
officers, employees and agents of the Corporation.
Section 4.3. Executive
Vice President and Vice President.
Each Executive Vice
President and Vice President shall have the powers and duties delegated to him or her by the Board of Directors or the President.
One Executive Vice President may be designated by the Board of Directors to perform the duties and exercise the powers of the President
in the event of the President’s absence or disability.
Section 4.4. Secretary
and Assistant Secretaries.
The Secretary shall
issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or
she shall have charge of the corporate books and shall perform other duties as the Board of Directors may from time to time prescribe.
Any Assistant Secretary
shall perform such duties and possess such powers as the Board of Directors, the President or the Secretary may from time to time
prescribe. In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall
be more than one, the Assistant Secretaries in the order determined by the Board of Directors), shall perform the duties and exercise
the powers of the Secretary.
Section 4.5. Chief
Financial Officer, Treasurer and Assistant Treasurers.
The Chief Financial
Officer shall keep or cause to be kept the books of account of the Corporation in a thorough and proper manner and shall render
statements of the financial affairs of the Corporation in such form and as often as required by the Board of Directors or the President.
The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities
of the Corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform
such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The
President may direct the Treasurer or any Assistant Treasurer to assume and perform the duties of the Chief Financial Officer in
the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer shall perform other duties
commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors,
the President or the Chief Financial Officer shall designate from time to time.
Section 4.6. Chief
Commercial Officer
The Chief Commercial
Officer shall perform the duties commonly incident to his office and shall also perform such other duties and have such other powers
as the Board of Directors or the President shall designate from time to time.
Section 4.7. Delegation
of Authority.
The Board of Directors
may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision
hereof.
Section 4.8. Removal;
Resignation.
The Board of Directors
may remove any officer of the Corporation at any time, with or without cause, without prejudice to the rights, if any, of such
officer under any contract to which the Corporation or any of its subsidiaries is a party. If any vacancy occurs in any office
of the Corporation, the Board of Directors may elect a successor to fill such vacancy for the remainder of the unexpired term and
until a successor shall have been duly chosen and qualified. Any officer appointed by the President may also be removed, with or
without cause, by the President, as the case may be. Any officer may resign by delivering his or her written or electronically
transmitted resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective
upon receipt, unless the resignation otherwise provides. Any vacancy occurring in any office appointed by the President may be
filled by the President, as the case may be, unless the Board of Directors then determines that such officer shall thereupon be
elected by the Board of Directors, in which case the Board of Directors shall elect such officer.
Section 4.9. Action
with Respect to Securities of Other Companies
Unless otherwise directed
by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders or equityholders of, or with
respect to any action of, stockholders or equityholders of any other entity in which the Corporation may hold securities and otherwise
to exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other
entity.
SECTION 5 - STOCK
Section 5.1. Certificates
of Stock.
Shares of the capital
stock of the Corporation may be certificated or uncertificated, subject to the sole discretion of the Board and the requirements
of the DGCL. Each certificate representing capital stock of the Corporation shall be signed by or in the name of the Corporation
by any two authorized officers of the Corporation. Any or all of the signatures on the certificate may be a facsimile. In case
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, such certificate may be issued by the
Corporation with the same effect as if such person were such officer, transfer agent or registrar on the date of issue.
Section 5.2. Transfers
of Stock.
Transfers of stock
shall be made only upon the transfer books of the Corporation kept at an office of the Corporation (within or without the State
of Delaware) or by transfer agents designated to transfer shares of the stock of the Corporation.
Section 5.3. Lost,
Stolen or Destroyed Certificates.
In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to regulations as the Board
of Directors may establish concerning proof of the loss, theft or destruction and concerning the giving of a satisfactory bond
or indemnity, if deemed appropriate.
Section 5.4. Regulations.
The issue, transfer,
conversion and registration of certificates of stock of the Corporation shall be governed by other regulations as the Board of
Directors may establish.
Section 5.5. Record
Date.
In order that the Corporation
may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board of Directors
may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, 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 of Directors so fixes a date, such date shall also be the
record date for determining the stockholders entitled to vote at such meeting unless the Board of Directors determines, at the
time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.
If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day preceding the day on which notice is given, or,
if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for determination of stockholders entitled
to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such
adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance herewith
at the adjourned meeting.
(b) In
order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record date, which shall not be more than sixty (60) days
prior to such other action. If no such record date is fixed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 6 - INDEMNIFICATION
AND ADVANCEMENT OF EXPENSES
Section 6.1. Indemnification.
The Corporation shall,
to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, indemnify, defend and hold
harmless any person (an “Indemnitee”) who was or is made, or is threatened to be made, a party or is otherwise
involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”),
by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director of the Corporation
or an officer of the Corporation elected by the Board of Directors or, while a director of the Corporation or an officer of the
Corporation elected by the Board of Directors, is or was serving at the request of the Corporation as a director, officer, employee,
member, trustee or agent of another corporation or of a partnership, joint venture, trust, nonprofit entity or other enterprise
(including, but not limited to, service with respect to employee benefit plans) (any such entity, an “Other Entity”),
against all liability and loss suffered (including, but not limited to, expenses (including, but not limited to, attorneys’
fees and expenses), judgments, fines and amounts paid in settlement actually and reasonably incurred by such Indemnitee in connection
with such Proceeding). Notwithstanding the preceding sentence, the Corporation shall be required to indemnify an Indemnitee in
connection with a Proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such Proceeding (or part
thereof) by the Indemnitee was authorized by the Board of Directors or the Proceeding (or part thereof) relates to the enforcement
of the Corporation’s obligations under this Section 6.1.
Section 6.2. Advancement
of Expenses.
The Corporation shall
to the fullest extent not prohibited by applicable law pay, on an as-incurred basis, all expenses (including, but not limited to,
attorneys’ fees and expenses) actually and reasonably incurred by an Indemnitee in defending any Proceeding, which may be
indemnifiable pursuant to this Section 6, in advance of its final disposition. Such advancement shall be unconditional, unsecured
and interest free and shall be made without regard to Indemnitee’s ability to repay any expenses advanced; provided,
however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the Proceeding
shall be made only upon receipt of an unsecured undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately
determined that the Indemnitee is not entitled to be indemnified by the Corporation under this Section 6 or otherwise.
Section 6.3. Claims.
If a claim for indemnification
(following the final disposition of such Proceeding) or advancement of expenses under this Section 6 is not paid in full within
sixty (60) days after a written claim therefor by the Indemnitee has been received by the Corporation, the Indemnitee may file
suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense
of prosecuting such claim to the fullest extent permitted by law. In any such action the Corporation shall have the burden of proving
that the Indemnitee is not entitled to the requested indemnification or advancement of expenses under applicable law.
Section 6.4. Insurance.
The Corporation shall
have the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, trustee, employee,
member or agent of the Corporation, or was serving at the request of the Corporation as a director, officer, trustee, employee,
member or agent of an Other Entity, against any liability asserted against the person and incurred by the person in any such capacity,
or arising out of his or her status as such, whether or not the Corporation would have the power or the obligation to indemnify
such person against such liability under the provisions of this Section 6 or the DGCL.
Section 6.5. Non-Exclusivity
of Rights; Other Indemnification.
The rights conferred
on any Indemnitee by this Section 6 are not exclusive of, and shall not be read to limit, restrict or modify in any respect,
any other rights (or any limitations on any other rights) to which such Indemnitee may have or hereafter acquire under any bylaw,
agreement, vote of directors or stockholders or otherwise, and shall inure to the benefit of the heirs and legal representatives
of such Indemnitee. This Section 6 shall not limit the right of the Corporation, to the extent and in the manner permitted
by law, to indemnify and to advance expenses to Indemnitees or persons other than Indemnitees when and as authorized by appropriate
corporate action, including by separate agreement with the Corporation.
Section 6.6. Amounts
Received from an Other Entity.
Subject to the terms
of any written agreement between the Indemnitee and the Corporation, the Corporation’s obligation, if any, to indemnify or
to advance expenses to any Indemnitee who was or is serving at the Corporation’s request as a director, officer, employee
or agent of an Other Entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses
from such Other Entity.
Section 6.7. Amendment
or Repeal.
Any right to indemnification
or to advancement of expenses of any Indemnitee arising hereunder shall not be eliminated or impaired by an amendment to or repeal
of this Section 6 after the occurrence of the act or omission that is the subject of the civil, criminal, administrative or
investigative action, suit, proceeding or other matter for which indemnification or advancement of expenses is sought.
Section 6.8. Reliance.
Indemnitees who after
the date of the adoption of this Section 6 become or remain an Indemnitee described in Section 6.1 will be conclusively
presumed to have relied on the rights to indemnity, advancement of expenses and other rights contained in this Section 6 in
entering into or continuing the service. The rights to indemnification and to the advancement of expenses conferred in this Section 6
will apply to claims made against any Indemnitee described in Section 6.1 arising out of acts or omissions that occurred or
occur either before or after the adoption of this Section 6 in respect of service as a director or officer of the corporation
or other service described in Section 6.1.
Section 6.9. Successful
Defense.
In the event that any
proceeding to which an Indemnitee is a party is resolved in any manner other than by adverse judgment against the Indemnitee (including,
without limitation, settlement of such proceeding with or without payment of money or other consideration) it shall be presumed
that the Indemnitee has been successful on the merits or otherwise in such proceeding for purposes of Section 145(c) of
the DGCL. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and
convincing evidence.
Section 6.10. Merger or Consolidation.
For purposes of this
Section 6, references to the “Corporation” shall include, in addition to any resulting corporation in any merger,
consolidation or similar transaction involving the Corporation, any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify
its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this
Section 6 with respect to the resulting or surviving corporation as he or she would have with respect to such constituent
corporation if its separate existence had continued.
SECTION 7 - NOTICES
Section 7.1. Notices.
Except as otherwise
provided herein or permitted by applicable law, notices to directors and stockholders shall be in writing and delivered personally
or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. If mailed, notice to a
stockholder of the Corporation shall be deemed given when deposited in the mail, postage prepaid, directed to a stockholder at
such stockholder’s address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise
may be given effectively to stockholders, any notice to stockholders of the Corporation may be given by electronic transmission
in the manner provided in Section 232 of the DGCL.
Section 7.2. Waivers.
A written waiver of
any notice, signed by a stockholder or director, or a waiver by electronic transmission by such person or entity, whether given
before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be
given to such person or entity. Neither the business nor the purpose of any meeting need be specified in the waiver. Attendance
at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or convened.
SECTION 8 - MISCELLANEOUS
Section 8.1. Corporate
Seal.
The Board of Directors
may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary of the
Corporation. If and when so directed by the Board of Directors, duplicates of the seal may be kept and used by the Treasurer or
by an Assistant Secretary, Assistant Treasurer or the Chief Financial Officer.
Section 8.2. Reliance
upon Books, Reports, and Records.
Each director and each
member of any committee designated by the Board of Directors of the Corporation shall, in the performance of his or her duties,
be fully protected in relying in good faith upon the books and records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers, agents or employees, or committees of the Board of Directors
so designated, or by any other person or entity as to matters which such director or committee member reasonably believes are within
such other person’s or entity’s professional or expert competence and that has been selected with reasonable care by
or on behalf of the Corporation.
Section 8.3. Fiscal
Year.
The fiscal year of
the Corporation shall be the calendar year or as otherwise fixed by the Board of Directors.
Section 8.4. Time
Periods.
In applying any provision
of these bylaws that requires that an act be done or not be done a specified number of days before an event or that an act be done
during a specified number of days before an event, calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
SECTION 9 - AMENDMENTS
These bylaws may be
altered, amended or repealed in accordance with the Certificate of Incorporation and the DGCL.
SECTION 10 - Severability
If any provision or
provisions of these bylaws shall be held to be invalid, illegal or unenforceable as applied to any circumstance for any reason
whatsoever: (i) the validity, legality and enforceability of such provisions in any other circumstance and of the remaining
provisions of these bylaws (including, without limitation, each portion of any paragraph of these bylaws 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 (ii) to the fullest extent possible, the provisions of these bylaws (including, without
limitation, each such portion of any paragraph of these bylaws 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.
Exhibit 4.1
HAYWARD HOLDINGS, INC.
AMENDED AND RESTATED STOCKHOLDERS’
AGREEMENT
DATED AS OF March [●], 2021
TABLE OF CONTENTS
Page
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ARTICLE I DEFINITIONS; RULES OF CONSTRUCTION
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1
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1.2
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Rules of Construction
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13
|
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ARTICLE II
ISSUANCES AND TRANSFERS OF SECURITIES
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13
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|
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2.1
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Issuances and Transfers of Securities
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13
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2.2
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Restriction on Transfer; Coordination
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13
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2.3
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[Intentionally Omitted.]
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15
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2.4
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[Intentionally Omitted.]
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15
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|
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2.5
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Call Right; Forfeiture
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15
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ARTICLE III
[INTENTIONALLY OMITTED.]
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18
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ARTICLE IV
[INTENTIONALLY OMITTED.]
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18
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ARTICLE V
REGISTRATION RIGHTS
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18
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5.1
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[Intentionally Omitted.]
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18
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|
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5.2
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Required Registration
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18
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|
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5.3
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Piggyback Registration
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20
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5.4
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Registration on Form S-3 or Form S-3ASR
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21
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5.5
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Holdback Agreement
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23
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|
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5.6
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Preparation and Filing
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24
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5.9
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Underwriting Agreement
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31
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5.10
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Information by Holder
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32
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|
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5.11
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Exchange Act Compliance
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32
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ARTICLE VI
SECURITIES LAW COMPLIANCE; LEGENDS
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32
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6.1
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Restrictive Legends
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32
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6.2
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Notice of Transfer
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32
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|
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6.3
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Removal of Legends, Etc
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33
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|
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6.5
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Future Stockholders
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34
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ARTICLE VII
AMENDMENT AND WAIVER
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34
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ARTICLE VIII
TERMINATION
|
35
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ARTICLE IX
MISCELLANEOUS
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35
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9.3
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Independence of Agreements and Covenants
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36
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9.4
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Successors and Assigns
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36
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|
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9.5
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Counterparts; Facsimile Signatures; Validity
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36
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|
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9.8
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Governing Law; Venue
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38
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9.9
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Waiver of Jury Trial
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39
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9.10
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Further Assurances
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39
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9.11
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Conflicting Agreements
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39
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9.12
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Third Party Reliance
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40
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9.13
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Subsidiaries
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40
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9.14
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Adjustments
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40
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9.15
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Non-Recourse
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40
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AMENDED AND RESTATED STOCKHOLDERS’
AGREEMENT dated as of March [●], 2021 (as amended, modified, supplemented or restated from time to time, this “Agreement”),
by and among (i) HAYWARD HOLDINGS, INC., a Delaware corporation (the “Company”), (ii) CCMP
CAPITAL INVESTORS III, L.P., a Delaware limited partnership (“CCMP III”), (iii) CCMP CAPITAL INVESTORS
III (EMPLOYEE), L.P., a Delaware limited partnership (“CCMP-E III”), (iv) MSD AQUA PARTNERS, LLC,
a Delaware limited liability company (“MSD”), (v) PE16PX ROCKY MOUNTAIN LTD., an Alberta corporation
(“AIMCo PX”), (vi) PE16GV ROCKY MOUNTAIN LTD., an Alberta corporation (“AIMCo GV”),
and (vii) such persons designated as “Other Stockholders” or “Management Stockholders” under the Original
Agreement (as defined below), and any other Person signatory hereto from time to time.
WHEREAS, the Company was formed by
the Investors for the purpose of acquiring Hayward Industries, Inc., a New Jersey corporation (“Hayward”),
indirectly through a merger of Hayward Acquisition Corp., a New Jersey corporation and indirect wholly-owned subsidiary of the
Company (“Merger Sub”), with and into Hayward (the “Merger”), with Hayward being the surviving
corporation in connection with the Merger, pursuant to that certain Acquisition Agreement and Plan of Merger, dated as of June 7,
2017 (the “Merger Agreement”), by and among the Company, Merger Sub, Hayward and the Securityholders’
Representative (as defined therein);
WHEREAS, on August 4, 2017 the
Company and certain Stockholders (as defined herein) entered into that certain Stockholders’ Agreement (the “Original
Agreement”);
WHEREAS, the Company has effected an
underwritten public offering and sale of its Common Stock for cash registered on Form S-1 under the Securities Act (the “Company
IPO”), which offering constitutes an initial public offering under the terms of the Original Agreement; and
WHEREAS, in accordance with and pursuant
to Section 7.1 of the Original Agreement, the Company and the Stockholders desire to amend and restate the Original Agreement
to eliminate those provisions of the Original Agreement that are terminating as a result of the Company IPO and to set forth their
agreements regarding certain matters following the Company IPO effective immediately upon consummation of the Company IPO.
NOW, THEREFORE, in consideration of
the promises and mutual agreements contained herein and for other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS; RULES OF CONSTRUCTION
As used in this Agreement, the following
terms shall have the meanings set forth below.
“2017 Equity Incentive Plan”
means the 2017 Equity Incentive Plan of the Company, dated as of the date of this Agreement, as the same may be amended from time
to time.
“Affiliate” means, with
respect to (a) any Person (other than AIMCo Investor), any other Person that directly, or indirectly through one or more intermediaries,
Controls, or is Controlled by, or is under common Control with, such Person, and (b) with respect to AIMCo Investor, (i) any
Person directly, or indirectly through one or more intermediaries, Controlling, Controlled by or under common Control with AIMCo
Investors or (ii) any client as designated under applicable statutes of Alberta with respect to whom Alberta Investment Management
Corporation provides investment management services and any Affiliates of the foregoing.
“Agreement” has the meaning
set forth in the preamble.
“AIMCo GV” has the meaning
set forth in the preamble.
“AIMCo Investors” means,
collectively, AIMCo GV, AIMCo PX and each of their respective Permitted Transferees.
“AIMCo Investors’ Counsel”
has the meaning set forth in Section 5.6(b).
“AIMCo PX” has the meaning
set forth in the preamble.
“Board” means the board
of directors of the Company.
“Business Day” means
any day except a Saturday, a Sunday or any other day on which commercial banks in New York, New York are authorized or required
by Law to close.
“Bylaws” means the bylaws
of the Company, as amended, modified, supplemented or restated and in effect from time to time, in accordance with the terms of
this Agreement.
“Call Notice Date” has
the meaning set forth in Section 2.5(b).
“Call Period” means,
with respect to any particular Stockholder Share to be repurchased from a Management Stockholder pursuant to Section 2.55,
the period beginning on the Call Period Start Date applicable to such Stockholder Share and ending 180 days after the Call Period
Start Date.
“Call Period Start Date”
means, with respect to any particular Stockholder Share to be repurchased from a Management Stockholder pursuant to Section 2.55:
(a) with respect to a share of Class A
Stock, the date of the Repurchase Triggering Event with respect to such Management Stockholder;
(b) with respect to a share of vested
Class B Stock or unvested Class B Stock with time-based vesting, the later of (i) the date of the Repurchase Triggering
Event with respect to such Management Stockholder, and (ii) one hundred eighty (180) days following the last date that such
share of Class B Stock to be repurchased became vested or was issued upon exercise of an Option; or
(c) with respect to a share of unvested
Class B Stock with performance-based vesting, either (i) the first (1st) anniversary of the Repurchase Triggering
Event with respect to such Management Stockholder, if such Management Stockholder’s employment was terminated due to death
or Disability, or (ii) the date of the Repurchase Triggering Event with respect to such Management Stockholder, if such Management
Stockholder’s employment was terminated for any other reason.
“Call Right Notice” has
the meaning set forth in Section 2.5(b).
“Cause” means (i) with
respect to any Management Stockholder party to an Employment Agreement, “Cause” as defined in such Management Stockholder’s
Employment Agreement, and (ii) for each other Management Stockholder, “Cause” shall mean (A) conduct by the
Management Stockholder constituting a material act of misconduct in connection with the performance of his or her duties, including,
without limitation, misappropriation of funds or property of the Company or any of its Subsidiaries or Affiliates other than the
occasional, customary and de minimis use of Company property for personal purposes; (B) the Management Stockholder’s
commission of a felony or commission of a misdemeanor involving fraud or any misconduct by the Management Stockholder that results
in material injury or reputational harm to the Company or any of its Subsidiaries and Affiliates; (C) any act or omission
that constitutes a material breach by the Management Stockholder of (a) any of his or her obligations under any material agreement
with the Company or any of its Affiliates (including this Agreement) or (b) any material written policy of the Company or
any of its Subsidiaries, including the continued non-performance by the Management Stockholder of his or her duties (other than
by reason of the Management Stockholder’s physical or mental illness, incapacity or disability) which has continued for more
than thirty (30) days following written notice from the Board delineating such non-performance; (D) a breach by the Management
Stockholder of any restrictive covenant by the Management Stockholder contained in any agreement between such Management Stockholder
and the Company or any of its Subsidiaries (including Exhibit B or Appendix B, as applicable, to any award agreement), provided,
that an immaterial and unintentional breach of a confidentiality or non-disparagement covenant shall not constitute “Cause”;
(E) the Management Stockholder’s engaging in any intentional act of dishonesty, violence or threat of violence (including
any violation of federal securities Laws) which is or could reasonably be expected to be materially injurious to the financial
condition or business reputation of the Company or any of its Subsidiaries or Affiliates; (F) the Management Stockholder’s
illegal use of controlled substances during the performance of the Management Stockholder’s duties that adversely affects
the reputation or best interest of the Company or any Affiliate thereof; or (G) the Management Stockholder’s failure
to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being
instructed by the Company to cooperate, or the willful destruction or failure to preserve documents or other materials known to
be relevant to such investigation or the inducement of others to fail to cooperate or to produce documents or other materials in
connection with such investigation.
“CCMP III” has the meaning
set forth in the preamble.
“CCMP-E III” has the
meaning set forth in the preamble.
“CCMP First Post-IPO Sale”
has the meaning set forth in Section 2.2(e).
“CCMP Investors” means,
collectively, CCMP III, CCMP-E III and each of their respective Permitted Transferees.
“CCMP Investors’ Counsel”
has the meaning set forth in Section 5.6(b).
“Certificate” means the
amended and restated certificate of incorporation of the Company, as amended, modified, supplemented or restated and in effect
from time to time in accordance with the terms of this Agreement, including any certificate of designation, correction or amendment
filed with the Secretary of State of the State of Delaware pursuant to the terms thereof.
“Closing” means closing
of the transactions contemplated by the Merger Agreement on August 4, 2017.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Commission” means the
Securities and Exchange Commission or any other Governmental Authority at the time administering the Securities Act.
“Common Stock” means
the Class A Stock, the Class B Stock or other class of common stock of the Company, and any share capital of the Company
into which such Common Stock may thereafter be converted, changed, reclassified or exchanged.
“Common Stock Equivalent”
means any right to acquire a share of Common Stock, including Options, warrants or convertible Securities.
“Company” has the meaning
set forth in the preamble.
“Company IPO” has the
meaning set forth in the recitals.
“Control” means, (including,
with correlative meaning, the terms “Controlling,” “Controlled” and “under common Control with”)
with respect to any Person, the possession, directly or indirectly, of the power to direct or cause the direction of the management,
policies or investment decisions of such Person, whether through the ownership of voting Securities, by contract or otherwise.
“Coordination Period”
has the meaning set forth in Section 2.2(f).
“Determination Time”
has the meaning set forth in Section 2.2(e).
“Disability” means, with
respect to any Management Stockholder, the meaning set forth in such Management Stockholder’s Employment Agreement. If such
Management Stockholder does not have an Employment Agreement or “Disability” is not defined in such agreement, “Disability”
shall mean the failure or inability of the Management Stockholder to perform duties with the Company or any of its Affiliates for
a period of at least 180 consecutive days (or 180 days during any twelve (12) month period) by reason of any physical or mental
condition, as determined in good faith by the Company in its sole discretion; provided, that, if the Company’s long
term disability plan contains a definition of “Disability,” the definition in such plan will control.
“Disclosure Package”
means, with respect to any offering of Securities, (i) the preliminary Prospectus, (ii) each Free Writing Prospectus
and (iii) all other information, in each case, that is deemed, under Rule 159 promulgated by the Commission under the
Securities Act, to have been conveyed to purchasers of Securities at the time of sale of such Securities (including a contract
of sale).
“Employment Agreement”
means, with respect to a Management Stockholder, any Existing Employment Agreement and any existing or future employment, services,
severance or similar agreement entered into between the Company and/or any of its parent companies or Subsidiaries, or any Affiliates
thereof, on the one hand, and such Management Stockholder, on the other hand.
“Equity Incentive Plan”
means (i) the 2017 Equity Incentive Plan, (ii) any other plan or agreement established, entered into, or assumed, by
the Company or any of its Subsidiaries prior to the date hereof for the purposes of issuing Common Stock Equivalents to any officers,
directors and employees or substantially full-time consultants of the Company or any of its Subsidiaries as incentive or bonus
compensation and (iii) any grant, issuance or purchase agreements executed in accordance with any of the foregoing.
“Exchange Act” means
the Securities Exchange Act of 1934 or any successor statute, and the rules and regulations of the Commission promulgated
thereunder, all as the same shall be in effect from time to time.
“Existing Employment Agreement”
means, with respect to a Management Stockholder, any employment or similar agreement effective as of the date hereof between the
Company and/or any of its Subsidiaries, or any Affiliates thereof, and such Management Stockholder (as the same may be amended,
modified supplemented or restated from time to time).
“Fair Market Value” means,
with respect to the valuation of a Stockholder Share, (i) if there is a pending transaction in which Stockholder Shares are
valued and a definitive agreement for such pending transaction has been entered into by the Company, the per Stockholder Share
value in such valuation, or (ii) if there is no such pending transaction, the per share value as determined in good faith
by the Board, taking into account (A) the valuation set forth in the most recently issued report to the limited partners of
the CCMP Investors and (B) the valuation set forth in the most recently issued report to the limited partners of the MSD Investors
(which determination, except as otherwise provided in this Agreement, shall be binding and conclusive on all parties, absent manifest
error).
“Family Member” means,
with respect to any individual, any spouse or lineal descendants of such individual.
“FINRA” means the Financial
Industry Regulatory Authority, Inc.
“Form S-1” means
the Securities and Exchange Commission Form S-1, or any successor form.
“Form S-3” has the
meaning set forth in Section 5.4(a).
“Free Writing Prospectus”
means “free writing prospectus” as defined Rule 405 promulgated by the Commission under the Securities Act.
“GAAP” means generally
accepted accounting principals.
“Governmental Authority”
means any domestic or foreign government or political subdivision thereof, whether on a federal, state or local level and whether
executive, legislative or judicial in nature, including any agency, authority, board, bureau, commission, court, department or
other instrumentality thereof.
“Group” means:
(a) in
the case of any Stockholder who is an individual, (i) such Stockholder, (ii) the spouse, parent, sibling, lineal descendant,
heir, executor, administrator, testamentary trustee, legatee or beneficiary of such Stockholder, (iii) all trusts for the
benefit of such Stockholder and the Persons identified in clause (ii) but only if such trust is Controlled by such Stockholder,
and (iv) all Persons Controlled by, and principally owned by and/or operating for the benefit of, any of the foregoing;
(b) in
the case of any Stockholder that is a partnership, (i) such Stockholder, (ii) its limited, special and general partners,
and managers, and (iii) all Affiliates of such Stockholder; and
(c) in
the case of any Stockholder which is a corporation or a limited liability company, (i) such Stockholder, (ii) its stockholders,
members and managers, as the case may be, and (iii) all Affiliates of such Stockholder.
“Hayward” has the meaning
set forth in the recitals.
“Information” has the
meaning set forth in Section 5.6(i).
“Inspectors” has the
meaning set forth in Section 5.6(i).
“Investor Permitted Transferee”
means:
(i) any present or future limited partnership,
limited liability company or other investment vehicle so long as it is Controlled, sponsored or managed (including as a general
partner or through the management of investments) by any of the Investors or any of their respective Affiliates (a “Sponsor
Control Vehicle”);
(ii) any present or former or future
managing director, general partner, director, limited partner, officer or employee of any entity described in clause (i) immediately
above or any spouse, lineal descendant, sibling, parent, heir, executor, administrator, trustee or beneficiary of any of the foregoing
persons described in this clause, so long as all such Company equity Securities subject to such applicable Permitted Transfer remain
in a Sponsor Control Vehicle.
“Investor Subscription Agreements”
means the subscription agreements dated as of August 4, 2017, by and among the Company and each of CCMP III, CCMP-E III, MSD,
AIMCo GV and AIMCo PX, pursuant to which the Investors subscribed for shares of Class A common stock of the Company, par value
$0.001 per share (as the same has been or may hereafter be converted, changed, reclassified or exchanged, the “Class A
Stock”).
“Investors” means the
CCMP Investors, the MSD Investors and the AIMCo Investors.
“Issue Price” means,
with respect to (i) any Class A Stock purchased or acquired at the Closing (including pursuant to the Management Rollover
Agreements), the price per share of Class A Stock as set forth in the Company’s records, (ii) the shares of Class B
Stock purchased or acquired as of the date hereof by a Management Stockholder pursuant to the Management Rollover or Management
Subscriptions, the price per share of Class B Stock as set forth in the Company’s records; (iii) any shares of
Class B Stock purchased or acquired by, or granted to, a Management Stockholder by the Company pursuant to the Equity Incentive
Plan after the Closing, the amount paid or consideration provided to the Company with respect to the grant of such shares (or,
if no cash or other property was received by the Company in connection with the grant of such shares, the aggregate amount of income
tax actually paid by a Management Stockholder in connection with making an election in accordance with Section 83(b) of
the Code with respect to the grant of such share of Class B Stock); (iv) a Stockholder Share issued upon the exercise,
exchange or conversion of a Common Stock Equivalent, the exercise price paid by a Stockholder to acquire such Stockholder Share
from the Company; and (v) any other Stockholder Share not covered by clauses (i) – (iv) of this definition,
the original purchase price paid by a Stockholder to acquire such Stockholder Share from the Company.
“Joinder Agreement” means
a joinder agreement in substantially the form attached hereto as Exhibit A (as amended, modified, supplemented or restated
from time to time), pursuant to which the signatory thereto will thereupon become a party to, and be bound by and obligated to
comply with the terms and provisions of, this Agreement.
“Law” means any federal,
state, county, local or foreign statute, law, ordinance, regulation, rule, code, order or rule of common law.
“Liquidity Event” means
(i) any Sale of the Company or (ii) any voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Company or one or more Subsidiaries of the Company which constitute(s) all or substantially all of the consolidated
assets of the Company.
“Management Permitted Transferee”
means with respect to any Management Stockholder, (i) any executor, administrator or testamentary trustee of such Management
Stockholder’s estate if such Management Stockholder dies, (ii) any person or entity receiving equity securities of such
Management Stockholder by will, intestacy laws or the laws of descent or survivorship, (iii) any trustee of a trust (including
an inter vivos trust) of which there are no principal beneficiaries other than such Stockholder or one or more Family Members of
such Management Stockholder, or (iv) any corporation, partnership, limited liability company or similar entity Controlled
by such Management Stockholder and of which there are no principal beneficiaries or owners other than such Management Stockholder
or one or more Family Members of such Management Stockholder.
“Management Rollover Agreements”
means, collectively, the Contribution and Exchange Agreements entered into on or prior to the Closing between the Company and certain
Management Stockholders.
“Management Stockholder Persons”
means, with respect to each Management Stockholder, any member of such Management Stockholder’s Group that holds Stockholder
Shares (other than any such Person who is also an employee or director of the Company or any of its Subsidiaries and has received
such Stockholder Shares in such capacity) and any other Management Permitted Transferees of such Management Stockholder (which
shall include any such Persons who, as of the date of this Agreement, would be deemed to be Management Permitted Transferees of
such Management Stockholder).
“Management Stockholders”
means, collectively, (i) the individuals who executed Management Rollover Agreements, (ii) those Persons designated as
such hereunder or in a Joinder Agreement and signatories to this Agreement or a Joinder Agreement, (iii) those Persons who
have acquired Common Stock from the Company under any Equity Incentive Plan and executed a Joinder Agreement and/or (iv) each
of the respective Permitted Transferees of the foregoing; provided, however, that any Permitted Transferee that is
an Other Stockholder (but not a Management Stockholder or a member of such Management Stockholder’s Group) or an Investor,
or any of their respective Affiliates, shall remain an Other Stockholder or Investor, as applicable, and shall not be considered
a “Management Stockholder”.
“Management Stockholders’
Counsel” has the meaning set forth in Section 5.6(b).
“Material Transaction”
means any material transaction in which the Company or any of its Subsidiaries proposes to engage or is engaged, including a purchase
or sale of assets or Securities, financing, merger, tender offer or any other transaction that would require disclosure pursuant
to the Exchange Act, and with respect to which the Board reasonably has determined in good faith that compliance with this Agreement
may reasonably be expected to either materially interfere with the Company’s or such Subsidiary’s ability to consummate
such transaction in a timely fashion or require the Company to disclose material, non-public information prior to such time as
it would otherwise be required to be disclosed.
“Merger” has the meaning
set forth in the recitals.
“Merger Agreement” has
the meaning set forth in the recitals.
“Merger Sub” has the
meaning set forth in the recitals.
“MSD” has the meaning
set forth in the preamble.
“MSD Investors” means
MSD and its Permitted Transferees.
“MSD Investors’ Counsel”
has the meaning set forth in Section 5.6(b).
“Non-Underwritten Shelf Take-Down”
has the meaning set forth in Section 5.4(c).
“Option” means an option
to purchase shares of Class B common stock (as the same has been or may hereafter be converted, changed, reclassified or exchanged,
the “Class B Stock”) or other Securities of the Company granted pursuant to any Equity Incentive Plan of
the Company.
“Other Shares” means
at any time those shares of Common Stock which do not constitute Primary Shares or Registrable Shares hereunder.
“Other Stockholders”
means all Stockholders other than the Investors (for avoidance of doubt, an Other Stockholder may simultaneously be a Management
Stockholder as well).
“Permitted Transfer”
means a Transfer, (i) with respect to the Investors, to an Investor Permitted Transferee, and (ii) with respect to a
Management Stockholder and any Other Stockholder, to a Management Permitted Transferee; provided, however that no
subsequent Transfer by a Permitted Transferee (other than by an Investor Permitted Transferee) of Stockholder Shares received in
a Permitted Transfer shall constitute a Permitted Transfer.
“Permitted Transferee”
means any Person (a) to whom a Permitted Transfer is made and (b) that has executed a Joinder Agreement or is already
a party to this Agreement.
“Person” shall be construed
as broadly as possible and shall include an individual person, a partnership (including a limited liability partnership), a corporation,
an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and
a Governmental Authority.
“Piggyback Notice” has
the meaning set forth in Section 5.3(a).
“Primary Shares” means,
at any time, authorized but unissued shares of Common Stock to be issued in connection with the applicable Public Offering.
“Prospectus” means the
prospectus included or deemed to be included in a Registration Statement, whether preliminary or final and including any amendment
or prospectus subject to completion, and any such prospectus as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Shares and, in each case, by all other amendments and supplements
to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.
“Public Offering” means
an underwritten public offering of shares of Common Stock pursuant to an effective registration statement under the Securities
Act other than pursuant to a registration restatement on form S-4 or Form S-8 and any similar or successor form.
“Records” has the meaning
set forth in Section 5.6(i).
“Registrable Shares”
means (a) any equity Securities of the Company purchased or otherwise acquired by any Stockholder or (b) any Securities
issued or issuable directly or indirectly with respect to the Securities referred to in clause (a) above by way of stock dividend
or stock split or in connection with a combination of shares, recapitalization, reclassification, merger, consolidation or other
reorganization; provided, however, as to any particular shares constituting Registrable Shares, such shares shall
cease to be Registrable Shares when they (i) have been effectively registered under the Securities Act and disposed of pursuant
to the effective Registration Statement covering them, (ii) cease to be outstanding, (iii) are held, or become held by,
any Stockholder (including any Management Stockholder) who holds less than one percent (1%) of the issued and outstanding equity
Securities of the Company (and would not otherwise deemed to be acting in concert with any Investor (excluding such Stockholder
or any Affiliate of such Stockholder) for purposes of Rule 144 as a result of any agreement with such Investor), (iv) have
been registered for resale pursuant to an effective Registration Statement on a Form S-8 (or any successor or similar form),
(v) in respect of any Other Stockholder, have become eligible to be sold or distributed pursuant to Rule 144 in a single
transaction by any such Other Stockholder without limitation, or (vi) have been sold pursuant to Rule 144.
“Registration Statement”
means any registration statement of the Company filed pursuant to the Securities Act that covers an offering of any Registrable
Shares, and all amendments and supplements to any such registration statement, including post-effective amendments, in each case
including the prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.
“Relative CCMP/AIMCo Ownership
Percentage” has the meaning set forth in Section 2.2(e).
“Representative” of a
Person shall be construed broadly and shall include such Person’s partners, members, officers, directors, managers, employees,
agents, advisors, counsel, accountants and other representatives.
“Repurchase Price” has
the meaning set forth in Section 2.5(c).
“Repurchase Triggering Event”
means, with respect to a Management Stockholder, the termination for any reason of such Management Stockholder’s employment
or engagement with the Company or any of its Subsidiaries; provided, that in respect of shares of Class B Stock purchased
pursuant to the exercise of vested Options or other Common Stock Equivalents by any Management Stockholder, the “Repurchase
Triggering Event” shall mean the date that is the later of (a) the Termination Date with respect to such Management
Stockholder and (b) the date of the exercise of such vested Options or other Common Stock Equivalents by any Management Stockholder.
“Requesting Party” has
the meaning set forth in Section 5.4(c).
“Requesting Stockholders”
has the meaning set forth in Section 5.2(a).
“Restricted Stock Purchase Agreements”
means, collectively, the Restricted Stock Purchase Agreements, dated on or prior to the Closing, by and between the Company and
certain of the Management Stockholders, respectively, or any purchase, subscription or similar agreement entered into after the
Closing and prior to the date hereof by and between the Company and any employee, director or consultant pursuant to which any
such individual subscribed for or purchased restricted shares of Common Stock of the Company.
“Rule 144” means
Rule 144 (including Rule 144(b)(1) and all other subdivisions thereof) promulgated by the Commission under the Securities
Act, as such rule may be amended from time to time, or any similar or successor rule then in force.
“Sale of the Company”
means (i) a consolidation or merger which results in the holders of capital stock of the Company or of Hayward immediately
prior to such transaction no longer beneficially owning a majority of the voting power of the Company or Hayward, as the case may
be, (ii) a sale of equity Securities which results in the Transfer of more than 50% of the total issued and outstanding voting
equity Securities of the Company or of Hayward to any “person” or “group” (as such terms are used in Section 13(d) of
the Exchange Act) of Persons, other than the Investors and their Permitted Transferees, or (iii) a sale of all or substantially
all of the assets or business of the Company or of Hayward, and the Company’s Subsidiaries or Hayward’s Subsidiaries,
as the case may be, on a consolidated basis, in each case, to a bona fide third party (whether pursuant to a merger, stock sale
or similar transaction).
“Securities” means “securities”
as defined in Section 2(1) of the Securities Act and includes, with respect to any Person, such Person’s capital
stock or other equity interests or any Options, warrants or other securities that are directly or indirectly convertible into,
or exercisable or exchangeable for, such Person’s capital stock or other equity or equity-linked interests, including phantom
stock and stock appreciation rights.
“Securities Act” means
the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect from time to time.
“Selling Holder” has
the meaning set forth in Section 5.6(a).
“Shelf Registration”
has the meaning set forth in Section 5.4(a).
“Sponsor Non-Requesting Party”
has the meaning set forth in Section 5.4(b).
“Sponsor Requesting Party”
has the meaning set forth in Section 5.4(b).
“Stockholder Shares”
means (a) any equity Securities of the Company (including the Common Stock) purchased or otherwise acquired by any Stockholder
or (b) any Securities issued or issuable directly or indirectly with respect to the Securities referred to in clause (a) above
by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, reclassification, merger,
consolidation or other reorganization.
“Stockholders” means
the CCMP Investors, the MSD Investors, the AIMCo Investors, the Management Stockholders, and any other Person who hereafter acquires
any Common Stock, Common Stock Equivalents or other equity Securities of the Company and becomes a party to this Agreement.
“Subsidiary” means, at
any time, with respect to any Person (the “subject person”), any other Person of which either (a) more than fifty
percent (50%) of the Securities or other interests entitled to vote in the election of directors or comparable governance bodies
performing similar functions, (b) more than a fifty percent (50%) interest in the profits or capital of such Person, are at
the time owned or Controlled directly or indirectly by the subject person or through one or more Subsidiaries of the subject person
or (c) is consolidated under GAAP.
“Termination Date” means,
with respect to a Management Stockholder, the date on which such Management Stockholder’s employment or engagement with the
Company or any of its Subsidiaries is terminated or otherwise ceases for any reason, if applicable.
“Transfer” of Securities
shall be construed broadly and shall include any direct or indirect issuance, sale, assignment, transfer, participation, gift,
bequest, distribution, or other disposition thereof, or any pledge or hypothecation thereof, placement of a lien thereon or grant
of a security interest therein or other encumbrance thereon, in each case whether voluntary or involuntary or by operation of Law
or otherwise. Notwithstanding anything to the contrary contained herein, Transfer shall not include (a) the exercise or conversion
of any warrant, option or other convertible or exercisable Security granted by the Company, (b) the sale or transfer of Stockholder
Shares by any Management Stockholder to the Company or any of its designees hereunder or pursuant to any employment, option, subscription
or restricted stock purchase agreement between the Company and such Management Stockholder or any plan relating to the foregoing,
or (c) direct or indirect transfers of limited partnership or membership interests of any limited partner or member of an
Investor or any Affiliated investment fund of an Investor that owns Stockholder Shares, so long as Control of the applicable Investor
as of the date hereof under this Agreement does not change.
“Transferee” means a
Person acquiring or intending to acquire Stockholder Shares through a Transfer.
“Transferor” means a
Stockholder Transferring or intending to Transfer Stockholder Shares.
“Underwriting Agreement”
has the meaning set forth in Section 5.9(a).
“Underwritten Offering”
means an offer and sale of Securities of the Company to the public under a Registration Statement, in which such Securities of
the Company are sold to an underwriter or underwriters on a firm commitment basis for reoffering to the public, including via a
block trade.
“Underwritten Shelf Take-Down”
has the meaning set forth in Section 5.4(b).
“Well-Known Seasoned Issuer”
means a “well-known seasoned issuer” as defined in Rule 405 promulgated under the Securities Act and which (i) is
a “well-known seasoned issuer” under paragraph (1)(i)(A) of such definition or (ii) is a “well-known
seasoned issuer” under paragraph (1)(i)(B) of such definition and is also eligible to register a primary offering of
its Securities relying on General Instruction I.B.1 of Form S-3 or Form F-3 under the Securities Act.
“Withdrawing Holders”
has the meaning set forth in Section 5.5(c).
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1.2
|
Rules of
Construction.
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The use in this Agreement of the term “including”
means “including, without limitation.” The words “herein,” “hereof,” “hereunder”
and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from
time to time be amended, modified, supplemented or restated, and not to any particular Section, subsection, paragraph, subparagraph
or clause contained in this Agreement. All references to Sections, schedules and exhibits mean the Sections of this Agreement and
the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the Section and paragraph
headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the
terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms,
as in each case the context may require, and definitions shall be equally applicable to both the singular and plural forms of the
terms defined. Where specific language is used to clarify by example a general statement contained herein, such specific language
shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The
language used in this Agreement has been chosen by the parties hereto to express their mutual intent, and no rule of strict
construction shall be applied against any party hereto. Unless expressly provided otherwise, the measure of a period of one month
or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided
that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day
following the starting date. For example, one month following February 18 is March 18, and one month following March 31
is May 1 (or in the case of January 29, 30 or 31, the following month shall be March 1).
This Amended and Restated Agreement shall
be effective immediately upon the consummation of the Company IPO (the “Effective Time”).
ARTICLE II
ISSUANCES AND TRANSFERS OF SECURITIES
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2.1
|
Issuances and
Transfers of Securities.
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(a) The
provisions in this ARTICLE II and ARTICLE VI shall apply to all Stockholder Shares now owned by a Stockholder,
including Stockholder Shares acquired by reason of original issuance, dividend, distribution and acquisition of outstanding Stockholder
Shares from another Person, and such provisions shall apply to any Stockholder Shares obtained by a Stockholder upon the exercise,
exchange or conversion of any Common Stock Equivalent.
(b) Notwithstanding
anything to the contrary contained herein, no Stockholder shall Transfer any Stockholder Shares to any Person unless such Transfer
is done in accordance with the terms of this Agreement and applicable Law, including, but not limited to, the Securities Act.
(c) [Intentionally
Omitted.]
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2.2
|
Restriction on
Transfer; Coordination.
|
(a) In
addition to any other restrictions on the Transfer of Stockholder Shares contained in this Agreement, the Stockholders shall not
Transfer any Stockholder Shares except in compliance with the conditions specified in this ARTICLE II and ARTICLE VI.
Any Transfer of Stockholder Shares by any Stockholder that is not in compliance with this ARTICLE II and ARTICLE VI
and the other terms and conditions set forth in this Agreement shall be null and void.
(b) [Intentionally
Omitted.]
(c) [Intentionally
Omitted.]
(d) Notwithstanding
anything to the contrary set forth herein, no Stockholder may Transfer any Stockholder Shares pursuant to a Permitted Transfer
unless such Stockholder will remain liable for all liabilities and obligations relating to the Transfer unless and until the Transferee
is substituted as a Stockholder of the Company pursuant to Section 6.5 hereof.
(e) Following
the Company IPO, until such time as the CCMP Investors have consummated a secondary sale after the Company IPO of any of the Stockholder
Shares owned by the CCMP Investors (any such sale by the CCMP Investors following the Company IPO, the “CCMP First Post-IPO
Sale”), the AIMCo Investors shall not Transfer any Stockholder Shares (other than in a Permitted Transfer), including
any Transfers pursuant to a registration under ARTICLE V to the extent that such Transfer would result in the Relative
CCMP/AIMCo Ownership Percentage (as defined below) of the AIMCo Investors immediately following the effective time of the Transfer
(the “Determination Time”) being less than the Relative CCMP/AIMCo Ownership Percentage of the CCMP Investors
immediately following the Determination Time. For purposes of this Section 2.2(e), “Relative CCMP/AIMCo Ownership
Percentage” means a fraction (expressed as a percentage), (A) the numerator of which is the aggregate number of
Stockholder Shares owned by either the CCMP Investors or the AIMCo Investor, as applicable, immediately following the Determination
Time and (B) the denominator of which is the aggregate number of Stockholder Shares owned by the CCMP Investors or the AIMCo
Investor, as applicable, immediately following the Company IPO. From and after the CCMP First Post-IPO Sale and the expiration
of any applicable underwriter’s lock-up or holdback agreement pursuant to Section 5.5, the provisions of this
Section 2.2(e) shall no longer be applicable to the AIMCo Investor.
(f) Following
the Company IPO, the Investors shall use commercially reasonable efforts to coordinate with respect to the timing and manner of
disposition by any Investor of any Stockholder Shares held by the Investors until the earlier of (i) the third (3rd) anniversary
of the Company IPO, (ii) such time as either the CCMP Investors or the MSD Investors own less than five percent (5%) of the
then outstanding shares of Common Stock, or (iii) such coordination is abandoned with the consent of the CCMP Investors and
the MSD Investors (the “Coordination Period”). During the Coordination Period, the Investors shall use commercially
reasonable efforts to keep the other Investors reasonably informed as to the timing and manner of any proposed dispositions by
the Investors of any Stockholder Shares held by the Investors (including any Transfer under Rule 144, by way of a demand registration
effected under Section 5.2(a) or by way of an Underwritten Shelf Take-Down effected under Section 5.4(b)),
and any Investors wishing to Transfer any Stockholder Shares during such period shall (i) comply with any applicable advance
notice provisions in ARTICLE V, and (ii) provide reasonable advance notice and consult with the other Investors
prior to taking such action or entering into any definitive agreement with respect to such action; it being understood that the
purpose of such coordination is to facilitate an orderly process for the Investors to sell their shares of Stockholder Shares,
but in no event shall any Investor have the right to consent to any sale of Stockholder Shares by any Investor, subject to such
Investor complying with the other terms of this Agreement.
(g) The
Investors have agreed, pursuant to this Agreement and otherwise, to act together with respect to their Stockholder Shares for the
duration of the Coordination Period and, as such, may be deemed to be a group for purposes of Section 13(d) of the Exchange
Act.
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2.3
|
[Intentionally Omitted.]
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|
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2.4
|
[Intentionally Omitted.]
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|
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2.5
|
Call Right; Forfeiture.
|
(a) Following
the occurrence of a Repurchase Triggering Event, the Company shall have the right (but not the obligation) during the Call Period
to repurchase, and if such right is exercised, such Management Stockholder shall sell, and shall cause any of his, her or its Management
Stockholder Persons to sell (and each such Management Stockholder Persons shall sell), to the Company, all or any portion (as determined
by the Company) of the Stockholder Shares beneficially owned by such Persons. Each of the Management Stockholder Persons shall
be subject to this Section 2.55 as if such Management Stockholder Persons and such Management Stockholder are one and
the same. For the avoidance of doubt and except as set forth in Section 2.55(i) below, this Section 2.55
shall apply to any Stockholder Shares acquired by any Management Stockholder or any of his, her or its Management Stockholder Persons,
including pursuant to the exercise, conversion or exchange of any Options or Common Stock Equivalents before or after the date
of such Repurchase Triggering Event. Treatment of Options following a Repurchase Triggering Event shall be as set forth in the
Equity Incentive Plan and the individual award agreements issued thereunder.
(b) In
the event that the Company wishes to exercise its rights pursuant to this Section 2.55, the Company shall deliver to
the Management Stockholder and any of his, her or its Management Stockholder Persons whose Stockholder Shares are being repurchased
(or the heirs or Representatives of such Persons), a written notice (the “Call Right Notice”) at any time during
the Call Period that sets forth (i) the number of Stockholder Shares to be repurchased, (ii) the Repurchase Price and
(iii) the anticipated closing date of such transaction (the date on which such Persons are so notified, the “Call
Notice Date”). Any repurchase of Stockholder Shares by the Company pursuant to this Section 2.55 shall be
consummated no later than thirty (30) days following the Call Notice Date; provided, however, that such period shall
be automatically extended for any period of time in which such repurchase of Stockholder Shares would be prohibited as a result
of applicable Law or any contractual obligation of the Company; provided, further, that the Company shall inform the Management
Stockholder and any of his, her or its Management Stockholder Persons whose Stockholder Shares are being repurchased (or the heirs
or Representatives of such Persons) of any such prohibitions in the Call Right Notice and shall notify such Persons once such restrictions
have lapsed.
(c) (i) With
respect to any Class A Stock held by a Management Stockholder and his, her or its Management Stockholder Persons, the repurchase
of such Class A Stock by the Company pursuant to the terms of this Section 2.55 shall be made at a per share price
equal to (A) the lower of the Issue Price and the Fair Market Value of such Class A Stock as of the last day of the month
preceding the date upon which a Call Right Notice is delivered, if such Management Stockholder is terminated by the Company or
any of its Subsidiaries for Cause (or if, within six (6) months following a Management Stockholder’s termination for
any reason other than for Cause and prior to the Call Notice Date, the Board determines in its reasonable good faith judgment that
such Management Stockholder’s employment could have been terminated for Cause at the time such Management Stockholder’s
employment was terminated), or (B) the Fair Market Value of such Class A Stock as of the last day of the month preceding
the date upon which a Call Right Notice is delivered, if the employment of such Management Stockholder is terminated by the Company
or any of its Subsidiaries for any other reason (including the death or Disability of such Management Stockholder) or if the Management
Stockholder resigns or quits for any reason, (ii) with respect to any shares of vested Class B Stock (including shares
of Class B Stock purchased pursuant to the exercise of any Options or other Common Stock Equivalents) held by a Management
Stockholder and his, her or its Management Stockholder Persons as of the applicable Repurchase Triggering Event, the repurchase
of such shares of vested Class B Stock by the Company pursuant to the terms of this Section 2.55 shall be made
at a per share price equal to (A) the lower of the Issue Price and the Fair Market Value of such shares of vested Class B
Stock as of the last day of the month preceding the date upon which a Call Right Notice is delivered, if such Management Stockholder
is terminated by the Company or any of its Subsidiaries for Cause (or if, within six (6) months following a Management Stockholder’s
termination for any reason other than for Cause and prior to the Call Notice Date, the Board determines in its reasonable good
faith judgment that such Management Stockholder’s employment could have been terminated for Cause at the time such Management
Stockholder’s employment was terminated), or (B) the Fair Market Value of such shares of vested Class B Stock as
of the last day of the month preceding the date upon which a Call Right Notice is delivered, if the employment of such Management
Stockholder is terminated by the Company or any of its Subsidiaries for any other reason (including the death or Disability of
such Management Stockholder) or if the Management Stockholder resigns or quits for any reason, and (iii) with respect to any
unvested shares of Class B Stock held by a Management Stockholder and his, her or its Management Stockholder Persons as of
the applicable Repurchase Triggering Event, the repurchase of such unvested shares of Class B Stock by the Company pursuant
to the terms of this Section 2.55 shall be made at a per share price equal to the lower of the Issue Price and the Fair
Market Value of such unvested shares of Class B Stock as of the last day of the month preceding the date upon which a Call
Right Notice is delivered, if the employment of such Management Stockholder is terminated by the Company or any of its Subsidiaries
for any reason (including the death or Disability of such Management Stockholder) (such applicable price as set forth in the foregoing
clauses (i)-(iii), the “Repurchase Price”).
(d) The
Repurchase Price shall be paid to the applicable Management Stockholder in a lump sum cash payment on the date of consummation
(less any withholding tax required to be paid over to applicable Governmental Authorities); provided, however, that
if the Company is prohibited from purchasing all or any portion of such Stockholder Shares, pursuant to the terms of this Section 2.55,
(i) because restrictive covenants or other provisions contained in the documents evidencing the Company’s or any of
its Affiliates’ indebtedness for borrowed money do not permit or allow the Company to make such payments in cash in whole
or in part; or (ii) pursuant to applicable Law, the portion of the Repurchase Price not permitted to be made in cash may be
paid by the execution and delivery by the Company of a promissory note or other deferred cash payment arrangement (if applicable,
any promissory note to be subordinated to the indebtedness for borrowed money of the Company or any of its Affiliates) bearing
interest at the prime rate, as published in the Wall Street Journal, Eastern edition, on the first Business Day immediately prior
to the day on which such promissory note or other deferred cash payment is issued, with principal and accrued interest payable
at such time as is required in the Board’s determination to ensure that any payment pursuant to such promissory note or other
deferred cash payment arrangement is not prohibited because of any of the matters described in clauses (i) or (ii) of
this Section 2.55(d); provided, that such time of payment shall not be greater than five (5) years from
the date of execution of the promissory note or deferred cash payment arrangement. Each Management Stockholder and any applicable
Management Stockholder Person agree that, upon such Person’s receipt of such Repurchase Price, any outstanding Stockholder
Shares then owned by such Person that are repurchased pursuant to this Section 2.55 shall automatically, without any
further action by or on behalf of the Company or any of its Subsidiaries or any such Management Stockholder or any applicable Management
Stockholder Person, be Transferred, sold and assigned to the Company and the Secretary of the Company shall automatically and irrevocably
be appointed to Transfer such Stockholder Shares to the Company on the books of the Company with full power of substitution.
(e) With
respect to any repurchase of Stockholder Shares pursuant to the terms of this Section 2.55, the delivery of a certificate
or certificates representing such Stockholder Shares shall be deemed a representation and warranty by such Management Stockholder
or any applicable Management Stockholder Person that (i) such Management Stockholder or applicable Management Stockholder
Person has full right, title and interest in and to such Stockholder Shares, (ii) such Management Stockholder or applicable
Management Stockholder Person has all necessary power, authority and legal capacity and has taken all necessary action to enter
into such sale transaction and to Transfer valid right, title and interest in such Stockholder Shares, (iii) such Stockholder
Shares are free and clear of any and all liens, pledges or other encumbrances, (iv) there is no adverse claim with respect
to such Stockholder Shares and (v) such sale transaction does not conflict with any Laws, contracts or organizational documents
applicable to him, her or it as the result of such sale transaction. Additionally, the applicable Management Stockholder or Management
Stockholder Person agrees to deliver any certificate representing Stockholder Shares being repurchased under this Section 2.55
and shall provide such other representations and warranties to the Company that the Company reasonably determines are required
by applicable Law.
(f) The
Company shall have the right to revoke the Call Right Notice or its decision to repurchase Stockholder Shares pursuant to the terms
of this Section 2.55 at any time prior to consummation of the applicable repurchase.
(g) Should
any applicable Management Stockholder or Management Stockholder Person fail to deliver at the closing of a repurchase in accordance
with this Section 2.55 all of the applicable Stockholder Shares in accordance with the terms hereof, if the Repurchase
Price has been paid in accordance with Section 2.55(c), the Company shall, in addition to all other remedies it may
have, cancel on its books such Stockholder Shares registered in the name of such Management Stockholder or any applicable Management
Stockholder Person, and all of such Management Stockholder’s or any applicable Management Stockholder Person’s right,
title, and interest in and to such Stockholder Shares shall terminate in all respects concurrently with the payment of the Repurchase
Price.
(h) If
a Management Stockholder or any applicable Management Stockholder Person holds Stockholder Shares which the Company wishes to repurchase
in accordance with this Section 2.55, such Management Stockholder or any applicable Management Stockholder Person shall
be entitled to payment in accordance with Section 2.55(c), but shall no longer be entitled to participate in the Company
or enjoy other rights as a Stockholder of the Company with respect to such Stockholder Shares. To the maximum extent permitted
by Law, such Management Stockholder’s or any applicable Management Stockholder Person’s rights following the Call Right
Notice, with respect to the repurchase of the Stockholder Shares covered thereby, shall be solely the rights that he, she or it
has as a general creditor of the Company to receive the amount set forth in Section 2.55(c).
(i) The
Company shall not assign its call rights pursuant to this Section 2.55 to any Person.
(j) Each
Management Stockholder shall cause any of his, her or its Management Stockholder Persons that hold Stockholder Shares to comply
with the terms of this Section 2.55 and shall be liable for any breaches of the terms of this Section 2.55
by any of his, her or its Management Stockholder Persons that hold Stockholder Shares.
(k) The
rights and obligations of the parties pursuant to this Section 2.55 shall terminate and be of no further force and effect
upon the later of (i) the one (1) year anniversary of the consummation of the Company IPO and (ii) the termination
of any Call Period with a Call Period Start Date prior to the one (1) year anniversary of the consummation of the Company
IPO.
ARTICLE III
[INTENTIONALLY OMITTED.]
ARTICLE IV
[INTENTIONALLY OMITTED.]
ARTICLE V
REGISTRATION RIGHTS
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5.1
|
[Intentionally Omitted.]
|
|
|
5.2
|
Required Registration.
|
(a) The
Company shall use its best efforts to promptly effect the registration of Registrable Shares under the Securities Act, at any time
after the CCMP Investors or of the MSD Investors shall request that the Company effect the registration of such Registrable Shares
under the Securities Act (the CCMP Investors or the MSD Investors, as applicable, making such request or joining with it, the “Requesting
Stockholders”), which shall be effected as a Shelf Registration if so requested by the Requesting Stockholder and the
Company is eligible to use a Form S-3.
(b) Notwithstanding
anything contained in this Section 5.2 to the contrary, the Company shall not be obligated to effect any registration
under the Securities Act except in accordance with the following provisions:
(i) The
Company may delay the filing or effectiveness of any registration statement for a period of up to forty-five (45) days after the
date of a request for registration pursuant to Section 5.2(a) or Section 5.4 if at the time of such
request: (x) the Company is engaged, or has fixed plans to engage within thirty (30) days of the time of such request, in
an Underwritten Offering of Primary Shares in which the holders of Registrable Shares have been or will be permitted to include
all the Registrable Shares so requested to be registered pursuant to Section 5.3, (y) the Board reasonably determines
in good faith that such registration and offering would significantly interfere with any Material Transaction involving the Company,
or (z) within the last forty-five (45) days the Company has completed an Underwritten Offering of Primary Shares in which
the holders of Registrable Shares were permitted to include all of the Registrable Shares requested to be registered pursuant to
Section 5.3; provided, however, that the Company shall only be entitled to invoke its rights under this
Section 5.2(b)(i) one time with respect to a request made pursuant to Section 5.2(a) during
any 12-month period without the consent of the Requesting Stockholders;
(ii) With
respect to any registration pursuant to this Section 5.2 or Section 5.4, (a) the Company shall give
prompt written notice of such registration to each Stockholder that holds Registrable Shares and is eligible to participate in
such registration hereunder, and shall offer to and shall include in such proposed registration Registrable Shares requested to
be included in such proposed registration by each such Stockholder up to such Stockholder’s pro rata share determined based
on the number of Registrable Shares that the Requesting Stockholders propose to sell in such registration as compared to the number
of outstanding Registrable Shares held by the Requesting Stockholders immediately prior to such registration, provided that
such Stockholder responds in writing to the Company’s notice within five (5) days after delivery by the Company of such
notice (which response shall specify the number of Registrable Shares such Stockholder is requesting to include in such registration),
and (b) the Company may include in such registration any Primary Shares or Other Shares; provided, however,
that if the managing underwriter advises the Company in writing (with a copy to each Requesting Stockholder) that, in such firm’s
good faith view, the inclusion of all Registrable Shares, Primary Shares and/or Other Shares proposed to be included in such registration
would significantly interfere with the successful marketing (including pricing) of the Registrable Shares proposed to be included
in such registration, then the number of Registrable Shares, Primary Shares and/or Other Shares proposed to be included in such
registration shall be included in the following order:
(A) first,
the Registrable Shares owned by the Stockholders (including those requesting registration pursuant to this Section 5.2
and Section 5.3), pro rata based upon the number of Registrable Shares owned by the Stockholders; provided,
that if the managing underwriter advises the Company that the inclusion of all Registrable Shares proposed to be included in such
registration would materially adversely affect the offering and sale (including pricing) of all such Securities, then the number
of Registrable Shares to be included in such registration shall be allocated among the Stockholders on a pro rata basis in accordance
with the number of Registrable Shares owned by the Stockholders who have requested inclusion;
(B) second,
the Primary Shares; and
(C) third,
the Other Shares;
provided, that at the election of the Company and the
Requesting Stockholder, any registration pursuant to this Section 5.2 may be converted into a registration pursuant
to Section 5.3 or 5.4 (in which event, such registration shall not be deemed to be a registration requested
under Section 5.2(a)).
(c) If
the holders of a majority of the Registrable Shares of the Requesting Stockholders requesting to be included in a registration
pursuant to Section 5.2(a) or Section 5.4 so elect, the offering of such Registrable Shares pursuant
to such registration shall be in the form of an Underwritten Offering. The Requesting Stockholder (or the Company, in the case
of an Underwritten Offering of Primary Shares initiated by the Company) shall select one or more nationally recognized firms of
investment bankers reasonably acceptable to the Company to act as the lead managing underwriter or underwriters in connection with
such offering.
(d) At
any time before the registration statement covering such Registrable Shares becomes effective, the Requesting Stockholders may
request the Company to withdraw or not to file the registration statement. Upon receipt of notices to such effect from the Requesting
Stockholders, the Company shall cease all efforts to secure effectiveness of the applicable registration statement covering such
Registrable Shares.
(e) The
CCMP Investors and the MSD Investors shall have an unlimited number of requests under this Section 5.2.
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5.3
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Piggyback Registration.
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(a) If
the Company proposes for any reason to register any of its Securities (in any event either for its own account or for the account
of other security holders) under the Securities Act (other than on Form S-4 or Form S-8 promulgated under the Securities
Act (or any successor or similar forms thereto)), it shall give prompt written notice, with such notice to specify the number of
Registrable Shares to be registered, to each Stockholder that holds Registrable Shares of its intention to so register such Securities
at least five (5) days before the initial filing of the registration statement related thereto (a “Piggyback Notice”).
(b) Following
delivery of a Piggyback Notice, if any Stockholder receiving such notice delivers a request to the Company within two (2) Business
Days after such receipt to include such Stockholder’s Registrable Shares in such registration (which request shall specify
the number of Registrable Shares proposed to be included in such registration), the Company shall use its best efforts to cause
all such Registrable Shares to be included in such registration on the same terms and conditions as the Securities otherwise being
sold in such registration; provided, however, that if the managing underwriter, if any, advises the Company in writing
that, in such firm’s good faith view, the inclusion of all Primary Shares and Registrable Shares requested to be included
in such registration would significantly interfere with the successful marketing (including pricing) of the shares of Common Stock
proposed to be registered by the Company, then the number of Primary Shares, Registrable Shares and Other Shares proposed to be
included in such registration shall be included in the order set forth below:
(i) first,
the Primary Shares (if any);
(ii) second,
the Registrable Shares owned by Stockholders requesting that their Registrable Shares be included in such registration pursuant
to the terms of this Section 5.3, pro rata based upon the number of Registrable Shares owned by each such Stockholder
at the time of such registration; and
(iii) third,
the Other Shares.
(c) No
registration effected pursuant to this Section 5.3 shall relieve the Company of its obligation to effect any registration
upon request under Section 5.2, nor shall any registration under this Section 5.3 be deemed to have been
effected pursuant to Section 5.2. The Company will pay all expenses of registration in connection with each registration
pursuant to this Section 5.3. Notwithstanding anything to the contrary, this Section 5.3 shall not apply
to an Underwritten Shelf Take-Down effected under Section 5.4(b) or a Non-Underwritten Shelf Take-Down effected
under Section 5.4(c).
(d) The
number of requests permitted by the applicable Stockholders with respect to their Registrable Shares pursuant to this Section 5.3
shall be unlimited.
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5.4
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Registration
on Form S-3 or Form S-3ASR.
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(a) At
such time as the Company (i) shall have qualified for the use of Form S-3 or any other form which permits incorporation
of substantial information by reference to other documents filed by the Company with the Commission (“Form S-3”),
the Company shall use its best efforts to promptly file a registration statement on Form S-3, or (ii) is a Well-Known
Seasoned Issuer, the Company shall use its best efforts to promptly file a registration statement on Form S-3ASR (or any successor
form), and, in each case, to effect promptly and maintain in effect a registration under the Securities Act of Registrable Shares
in accordance with this Section 5.4 (either (i) or (ii) above, a “Shelf Registration”)
(including filing a replacement registration statement upon expiration of a Form S-3 or Form S-3ASR).
(b) The
Company shall (i) promptly use its best efforts to promptly effect such registration on Form S-3 or Form S-3ASR,
as applicable, providing for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act relating
to the offer and sale, from time to time, of the Registrable Shares that the Company has been so requested to register, and (ii) use
its best efforts to keep the Shelf Registration continuously effective under the Securities Act in order to permit the Prospectus
forming a part thereof to be usable by the CCMP Investors or the MSD Investors, as applicable, until the date as of which all Registrable
Shares have been sold pursuant to the Shelf Registration or another registration statement is filed under the Securities Act (but
in no event prior to the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder).
In connection with any proposed Underwritten Offering of Registrable Shares by the CCMP Investors or the MSD Investors (such requesting
party, the “Sponsor Requesting Party”, and any Investor that is not the Sponsor Requesting Party, the “Sponsor
Non-Requesting Party”), that is not pursuant to a demand registration under Section 5.2 and with respect
to which a Shelf Registration is expressly being utilized to effect such resale (an “Underwritten Shelf Take-Down”)
pursuant to a Shelf Registration, the Company shall give prompt notice to any Sponsor Non-Requesting Party that has Registrable
Shares registered pursuant to the Shelf Registration of the receipt of a request from the Sponsor Requesting Party of a proposed
Underwritten Shelf Take-Down under and pursuant to the Shelf Registration and, notwithstanding anything to the contrary contained
herein, will provide the Sponsor Non-Requesting Party a period of two (2) Business Days to participate in such Underwritten
Shelf Take-Down, subject to the terms negotiated by and applicable to the Sponsor Requesting Party and subject to “cutback”
limitations set forth in Section 5.2, as if the subject Underwritten Shelf Take-Down was being effected pursuant to
a demand registration thereunder.
(c) Subject
to Section 2.2(e) and Section 2.2(f), if the CCMP Investors or the MSD Investors or the AIMCo Investors
(each, a “Requesting Party”) desire to effect a shelf take-down under and pursuant to the Shelf Registration
that does not constitute an Underwritten Shelf Take-Down (“Non-Underwritten Shelf Take-Down”), the Requesting
Party shall so indicate in a written request delivered to the Company no later than two (2) Business Days prior to the expected
date of such Non-Underwritten Shelf Take-Down, which request shall include (i) the total number of Registrable Shares expected
to be offered and sold in such Non-Underwritten Shelf Take-Down, (ii) the expected plan of distribution of such Non-Underwritten
Shelf Take-Down and (iii) the action or actions required (including the timing of such Non-Underwritten Shelf Take-Down) in
connection with such Non-Underwritten Shelf Take-Down (including the delivery of one or more stock certificates representing shares
of Registrable Shares to be sold in such Non- Underwritten Shelf Take-Down), and the Company shall file and use its commercially
reasonable efforts to effect an amendment or supplement to its Shelf Registration for such purpose as soon as practicable.
(d) Subject
to the next sentence of this Section 5.4(d), the AIMCo Investors shall not be entitled to sell Registrable Shares included
in any Shelf Registration by utilizing such Shelf Registration if any such proposed sale would require a prospectus supplement
or an “underwritten” shelf takedown (including by way of block trade) such that (i) the Company would be obligated
to enter into any underwriting agreements; (ii) any officer or director, the Company, any Other Stockholder, the CCMP Investors
or the MSD Investors would have to execute a lock-up or holdback agreement for the benefit of any underwriter; (iii) the Company
would have to cause legal opinions to be delivered; or (iv) the Company would be obligated to cause comfort letters to be
delivered in connection with the proposed registration. Notwithstanding anything to the contrary set forth in this Section 5.4(d),
to the extent the CCMP Investors or MSD Investors propose to sell any of their Registrable Shares pursuant to and under a Shelf
Registration, including pursuant to an Underwritten Shelf Take-Down or a Non-Underwritten Shelf Take-Down, subject to Section 2.2(e),
the AIMCo Investors shall be entitled to participate in such sale pursuant to and in accordance with Section 5.3 (including
as applied mutatis mutandis with respect to shelf take-downs pursuant to Section 5.4) up to an amount of their Registrable
Shares equal to a fraction, the numerator being the number of Registrable Shares the CCMP Investors or MSD Investors, as applicable,
propose to sell and the denominator being the total number of Registrable Shares owned by the CCMP Investors or MSD Investors,
as applicable, immediately prior to such proposed sale (and in the event that both the CCMP Investors and MSD Investors are participating
in such Shelf Registration in different proportions, pro rata based on the Investor selling the higher proportion of its Registrable
Shares); the restrictions set forth in subclauses (i) - (iv) above shall not apply to the AIMCo Investors’ participation
in a sale pursuant to and under a Shelf Registration pursuant to this sentence if the event or circumstance described in such restriction
would have already existed as a result of the participation in such sale by the CCMP Investors or MSD Investors, as applicable.
(e) Notwithstanding
anything to the contrary contained in this ARTICLE V, the Management Stockholders shall not have any right to include
in any proposed registration any Registrable Shares in connection with, or be entitled to participate with respect to, an Underwritten
Offering effectuated by the CCMP Investors or the MSD Investors with respect to a Shelf Registration under this Section 5.4.
(a) If
the Company at any time shall register an offering and sale of shares of Common Stock under the Securities Act in an Underwritten
Offering pursuant to any registration under the Securities Act (other than on Form S-4 or Form S-8), including an Underwritten
Offering effectuated pursuant to Sections 5.2, no Stockholder shall sell, make any short sale of, grant any option for the
purchase of, or otherwise Transfer any Stockholder Shares (other than (A) those Registrable Shares included in such registration
pursuant to Sections 5.2, 5.3, or 5.4, (B) a Transfer without consideration by a Stockholder that is
a limited liability company or limited partnership to its members, partners or investment advisors, (C) a Permitted Transfer,
including a sale pursuant to Rule 144, or (D) in the case of the Investors only, any Transfers of Registrable Shares
owned by such Investors and acquired in the Company IPO or following the Company IPO, made through open market purchases by third
party investment managers with discretionary investment authority for such Investors (and who acquired such Registrable Shares
on behalf of such Investors pursuant to such discretionary authority); provided that, for the avoidance of doubt, the exception
set forth in the foregoing clause (D) shall not apply to any Registrable Shares acquired by such Investors prior to the Company
IPO), without the prior written consent of the Company for a period and on other terms as shall be determined by the lead underwriters
and that is for the same time period and on substantially similar terms as agreed to by the CCMP Investors and the MSD Investors;
provided, further, that such time period shall not exceed ninety (90) days after the consummation of such Underwritten
Offering without the prior written consent of such Stockholder.
(b) If
the Company at any time pursuant to Sections 5.2, 5.3, or 5.4, shall register under the Securities Act an
offering and sale of Registrable Shares held by Stockholders for sale to the public pursuant to an Underwritten Offering (including
an Underwritten Shelf Take-Down), the Company shall not, without the prior written consent of the lead underwriters for such offering,
effect any public sale or distribution of Securities similar to those being registered, or any Securities convertible into or exercisable
or exchangeable for such Securities, for such period as shall be determined by the lead underwriters and that is for the same period
and on substantially similar terms as agreed to by the CCMP Investors and the MSD Investors.
(c) At
any time following the Company IPO, any Stockholder that, together with its Affiliates, holds less than five percent (5%) of the
then outstanding shares of Common Stock may elect (on behalf of itself and its Affiliates (collectively, the “Withdrawing
Holders”)), by written notice to the Company, to withdraw from the provisions of this ARTICLE V and as a
result of such withdrawal, such Withdrawing Holders shall no longer be entitled to the rights, nor be subject to the obligations,
of this ARTICLE V and the Common Stock held by the Withdrawing Holders shall conclusively be deemed thereafter not
to be “Registrable Shares” under this Agreement. Notwithstanding the foregoing, no withdrawal pursuant to this Section 5.5(c) shall
release any Withdrawing Holder from any indemnification and contribution rights and obligations under ARTICLE V hereof.
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5.6
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Preparation and
Filing.
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If and whenever the Company is under an
obligation pursuant to the provisions of this Agreement to use its best efforts to effect the registration of an offering and sale
of any Registrable Shares, including pursuant to Sections 5.2, 5.3, or 5.4, the Company shall, as expeditiously
as practicable:
(a) use
its best efforts to cause a Registration Statement that registers such offering of Registrable Shares to contain a “Plan
of Distribution” that permits the distribution of Securities pursuant to all means in compliance with Law, and to prepare
and file such Registration Statement and cause such Registration Statement to become and remain effective pursuant to the terms
of this Agreement for a period of 180 days or, if earlier, until all of such Registrable Shares have been disposed of; provided,
that in the case of any registration of Registrable Shares on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement continuously effective,
supplemented and amended to the extent necessary to ensure that it is available for sales of such Registrable Shares, and to ensure
that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the
SEC as announced from time to time, until each seller of Registrable Shares (each, a “Selling Holder”) has sold
all of such Registrable Shares;
(b) furnish,
at least five (5) Business Days before filing a Registration Statement that registers such Registrable Shares, a Prospectus
relating thereto and any amendments or supplements relating to such Registration Statement or Prospectus, to each Stockholder whose
Registrable Shares are to be covered by such Registration Statement and to one counsel selected by the CCMP Investors for the benefit
of the CCMP Investors whose Registrable Shares are to be covered by such Registration Statement (the “CCMP Investors’
Counsel”), one counsel selected by the MSD Investors for the benefit of the MSD Investors whose Registrable Shares are
to be covered by such Registration Statement (the “MSD Investors’ Counsel”), one counsel selected by the
AIMCo Investors for the benefit of the AIMCo Investors whose Registrable Shares are to be covered by such Registration Statement
(the “AIMCo Investors’ Counsel”), and one counsel selected by the Management Stockholders for the benefit
of the Management Stockholders whose Registrable Shares are to be covered by such Registration Statement (the “Management
Stockholders’ Counsel”), as well as copies of all such other documents proposed to be filed (it being understood
that such five (5) Business Day period need not apply to successive drafts of the same document proposed to be filed so long
as such successive drafts are supplied to such counsel in advance of the proposed filing by a period of time that is customary
and reasonable under the circumstances), and shall use its best efforts to reflect in each such document, when so filed with the
Commission, such comments as the Stockholders whose Registrable Shares are to be covered by such Registration Statement may reasonably
propose;
(c) prepare
and file with the Commission such amendments and supplements to such Registration Statement and the Prospectus used in connection
therewith as may be reasonably requested by any Selling Holder or necessary to keep such Registration Statement effective for a
period of at least 180 days (and if a Form S-3 Registration Statement, until the expiration of the applicable period specified
in Section 5.6(a)) or, if earlier, until all of such Registrable Shares have been disposed of and to comply with the
provisions of the Securities Act with respect to the offering and sale or other disposition of such Registrable Shares;
(d) notify
the CCMP Investors’ Counsel, the MSD Investors’ Counsel, the AIMCo Investors’ Counsel and the Management Stockholders’
Counsel promptly in writing of (i) any comments by the Commission with respect to such Registration Statement or Prospectus,
or any request by the Commission for the amending or supplementing thereof or for additional information with respect thereto;
(ii) the issuance by the Commission of any stop order suspending the effectiveness of such Registration Statement or Prospectus
or any amendment or supplement thereto or the initiation of any proceedings for that purpose; and (iii) the receipt by the
Company of any notification with respect to the suspension of the qualification of such Registrable Shares for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purposes, and in each case, provide the CCMP Investors’ Counsel,
the MSD Investors’ Counsel, the AIMCo Investors’ Counsel and the Management Stockholders’ Counsel with copies
of any relevant documentation in connection therewith;
(e) use
its best efforts to register or qualify such Registrable Shares under such other securities or “blue sky” Laws of such
jurisdictions as any Selling Holder reasonably requests and do any and all other acts and things that may reasonably be necessary
or advisable to enable such Selling Holder to consummate the disposition in such jurisdictions of the Registrable Shares owned
by such Selling Holder;
(f) furnish
to each Selling Holder such number of copies of any Prospectus, in conformity with the requirements of the Securities Act, and
such other documents as such Selling Holder may reasonably request in order to facilitate the Underwritten Offering and sale or
other disposition of such Registrable Shares (to the extent not publicly available on EDGAR or the Company’s website);
(g) use
its best efforts to cause such offering and sale of Registrable Shares to be registered with or approved by such other Governmental
Authorities as may be necessary by virtue of the business and operations of the Company to enable the seller or sellers thereof
to consummate the disposition of such Registrable Shares;
(h) notify
on a timely basis each Selling Holder at any time when a Prospectus relating to such Registrable Shares is required to be delivered
under the Securities Act within the appropriate period mentioned in Section 5.6(b) of the happening of any event
as a result of which the Prospectus included in such Registration Statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing and, at the request of such seller, prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such Prospectus as may be necessary so that, as thereafter delivered
to the offerees of such shares, such Prospectus shall not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then
existing;
(i) make
available for inspection by any Selling Holder, any underwriter participating in any disposition pursuant to such Registration
Statement and any attorney, accountant or other agent retained by any such Selling Holder or underwriter (collectively, the “Inspectors”),
all pertinent financial, business and other records, pertinent corporate documents and properties of the Company (collectively,
the “Records”), as shall reasonably be necessary to enable them to exercise their due diligence responsibility,
and cause the Company’s officers, directors and employees to supply all information (together with the Records, the “Information”)
reasonably requested by any such Inspector in connection with such Registration Statement (and any of the Information that the
Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, shall not be disclosed
by the Inspectors unless (A) the disclosure of such Information is necessary to avoid or correct a material misstatement or
omission in the Registration Statement; (B) the release of such Information is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction; (C) such Information has been made generally available to the public; or (D) the
Selling Holder agrees that it will, upon learning that disclosure of such Information is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at the Company’s expense, to undertake appropriate action to prevent disclosure
of the Information deemed confidential);
(j) use
its best efforts to obtain from its independent certified public accountants a “cold comfort” letter (or, in the case
of any such Person which does not satisfy the conditions for receipt of a “cold comfort” letter specified in Statement
on Auditing Standards No. 72, an “agreed upon procedures” letter) and “bring-down” letter signed by
the independent certified public accountants and addressed to the Selling Holders (to the extent consistent with such auditing
standards), the Board, and the underwriter, if any, in customary form and covering such matters of the type customarily covered
by cold comfort letters;
(k) (i) use
its best efforts to obtain, from its counsel, an opinion or opinions in customary form (which in addition to the underwriters shall
also be addressed to the Selling Holders in such registration), and (ii) cause such authorized officers of the Company to
execute customary certificates as may be requested by any Selling Holder or any underwriter of such Registrable Shares; and
(l) have
appropriate officers of the Company prepare and make presentations at any “road shows” and before analysts and rating
agencies, as the case may be, and other information meetings organized by the underwriters, take other actions to obtain ratings
for any Registrable Shares (if they are eligible to be rated) and otherwise use its best efforts to cooperate as reasonably requested
by the sellers of such Registrable Shares in the offering, marketing or selling of such Registrable Shares;
(m) provide
a transfer agent and registrar (which may be the same Person and which may be the Company) for such Registrable Shares and a CUSIP
number for all such Registrable Shares, in each case not later than the effective date of the applicable registration statement;
(n) in
the event that the Company exercises its rights under Section 5.2(b)(i), it shall, as promptly as practicable following
the expiration of the applicable deferral or suspension period, file or update and use its reasonable best efforts to cause the
effectiveness of, as applicable, the deferred or suspended registration statement;
(o) issue
to any underwriter to which any Selling Holder may sell shares in such offering certificates evidencing such Registrable Shares;
(p) list
such Registrable Shares on any national securities exchange on which any shares of the Common Stock are listed or, if the Common
Stock is not listed on a national securities exchange, use its best efforts to qualify such Registrable Shares for quotation on
the automated quotation system of the NASDAQ, National Market System, Euronext or such other national securities exchange as the
holders of a majority of such Registrable Shares included in such registration shall request and to cause such Registrable Shares
to remain listed;
(q) register
such Registrable Shares under the Exchange Act, and otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as soon as reasonably practicable but not later than
eighteen (18) months after the effective date, earnings statements (which need not be audited) covering a period of twelve (12)
months beginning within three (3) months after the effective date of the Registration Statement, which earnings statements
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder, and cooperate with
each Selling Holder and each underwriter, if any, participating in the disposition of such Registrable Shares and their respective
counsel in connection with any filings to be made with FINRA; and
(r) use
its best efforts to take all other steps necessary to effect the registration of such Registrable Shares contemplated hereby.
Except as expressly provided otherwise,
all expenses incident to the Company’s performance of or compliance with this ARTICLE V, including (a) all
registration and filing fees, and any other fees and expenses associated with filings required to be made with any stock exchange,
the Commission and FINRA (including, if applicable, the fees and expenses of any “qualified independent underwriter”
and its counsel as may be required by the rules and regulations of FINRA); (b) all fees and expenses of compliance with
state securities or “blue sky” Laws (including fees and disbursements of counsel for the underwriters or Stockholders
in connection with “blue sky” qualifications of the Registrable Shares and determination of their eligibility for investment
under the Laws of such jurisdictions as the managing underwriters may designate); (c) all printing and related messenger and
delivery expenses (including expenses of printing certificates for the Registrable Shares in a form eligible for deposit with The
Depository Trust Company and of printing Prospectuses, all fees and disbursements of counsel for the Company and of all independent
certified public accountants of the issuer (including the expenses of any special audit and “cold comfort” letters
required by or incident to such performance)); (d) Securities Act liability insurance if the Company so desires or the underwriters
so require; (e) all fees and expenses incurred in connection with the listing of the Registrable Shares on any securities
exchange and all rating agency fees; (f) all reasonable fees and disbursements of the CCMP Investors’ Counsel, the MSD
Investors’ Counsel and the AIMCo Investors’ Counsel (plus appropriate special and local counsel selected by the CCMP
Investors, the MSD Investors and the AIMCo Investors, as applicable); (g) all reasonable fees and disbursements of the Management
Stockholders’ Counsel (plus appropriate special and local counsel selected by the Management Stockholders); (h) all
fees and disbursements of underwriters customarily paid by the issuer or sellers of Securities, excluding underwriting fees, commissions,
discounts and allowances, if any, and fees and disbursements of counsel to underwriters (other than such fees and disbursements
incurred in connection with any registration or qualification of Registrable Shares under the securities or “blue sky”
Laws of any state or any fees and expenses associated with filings required to be made with FINRA); and (i) fees and expenses
of other Persons retained by the Company, will be borne by the Company, regardless of whether the Registration Statement becomes
effective. In addition, the Company will, in any event, pay its internal expenses (including all salaries and expenses of its officers
and employees performing legal or accounting duties), the expense of any audit and the fees and expenses of any Person, including
special experts, retained by the Company.
(a) In
connection with any registration, offering or sale of Registrable Shares under the Securities Act pursuant to this Agreement, the
Company and its Subsidiaries shall indemnify and hold harmless each Selling Holder, each underwriter, broker or any other Person
acting on behalf of such seller, each other Person, if any, who Controls any of the foregoing Persons within the meaning of the
Securities Act and each Representative of any of the foregoing Persons, against any and all losses, penalties, judgments, suits,
costs (including reasonable attorneys fees and disbursements), claims, damages, liabilities and expenses, joint or several, to
which any of the foregoing Persons may become subject, whether commenced or threatened, under the Securities Act or otherwise,
insofar as such losses, penalties, judgments, suits, costs, claims, damages, liabilities and expenses (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in the Registration
Statement under which such Registrable Shares were registered, any Prospectus contained therein, any Free Writing Prospectus, any
offering circular, offering memorandum or Disclosure Package, or any amendment or supplement thereto, or any document incident
to registration or qualification of any offering and sale of any Registrable Shares, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein
not misleading or, with respect to any Prospectus, necessary to make the statements therein in light of the circumstances under
which they were made not misleading, or any violation by the Company or any of its Subsidiaries of the Securities Act or state
securities or “blue sky” Laws applicable to the Company or any of its Subsidiaries and relating to action required
or inaction of the Company or its Subsidiaries in connection with such registration or qualification under such state securities
or “blue sky” Laws, and the Company and its Subsidiaries shall promptly reimburse such seller, underwriter, broker,
Controlling Person or Representative for any legal or other expenses incurred by any of them in connection with investigating or
defending any such loss, penalty, judgment, suit, cost, claim, damage, liability or action; provided, however, that
neither the Company nor its Subsidiaries shall be liable to any such Person to the extent that any such loss, penalty, judgment,
suit, cost, claim, damage, liability or action arises out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in said Registration Statement, Prospectus, Free Writing Prospectus, offering circular, offering
memorandum or Disclosure Package, or amendment or supplement thereto, or any document incident to registration or qualification
of any Registrable Shares in reliance upon and in conformity with written information furnished to the Company or its Subsidiaries
through an instrument duly executed by such Person, or a Person duly acting on their behalf, expressly for inclusion therein.
(b) In
connection with any registration of an offering and sale of Registrable Shares under the Securities Act pursuant to this Agreement,
each Selling Holder severally, and not jointly, shall indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 5.8(a)) the Company, each underwriter or broker involved in such offering, each other Selling
Holder under such Registration Statement, each Person who Controls any of the foregoing Persons within the meaning of the Securities
Act and any Representative of the foregoing Persons with respect to any untrue statement or allegedly untrue statement or omission
or alleged omission contained in the Registration Statement under which such Registrable Shares were registered, any Prospectus
contained therein, Free Writing Prospectus, any offering circular, offering memorandum or Disclosure Package, or any amendment
or supplement thereto, or any document incident to registration or qualification of any offering and sale of any Registrable Shares,
if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company, its
Subsidiaries, or such underwriter through an instrument duly executed by such Selling Holder or a Person duly acting on such Selling
Holder’s behalf expressly for inclusion in such Registration Statement, Prospectus, Free Writing Prospectus, offering circular,
offering memorandum or Disclosure Package, or amendment or supplement thereto; provided, however, that the maximum
amount of liability in respect of such indemnification shall be limited, in the case of each Selling Holder, to an amount equal
to the net proceeds actually received by such seller from the sale of Registrable Shares effected pursuant to such registration.
(c) Promptly
after receipt by an indemnified party of notice of the commencement of any action involving a claim referred to in the preceding
paragraphs of this Section 5.8, such indemnified party will, if a claim in respect thereof is not made against an indemnifying
party, give written notice to the latter of the commencement of such action (provided, however, that an indemnified
party’s failure to give such notice in a timely manner shall only relieve the indemnification obligations of an indemnifying
party to the extent such indemnifying party is materially prejudiced by such failure). In case any such action is brought against
an indemnified party, the indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or other expenses subsequently incurred by the indemnified party in connection
with the defense thereof; provided, however, that if any indemnified party shall have reasonably concluded (based
upon the written advice of counsel) that there may be one or more legal or equitable defenses available to such indemnified party
which are in addition to or in conflict with those available to the indemnifying party, or that such claim or litigation involves
or could have an effect upon matters beyond the scope of the indemnity agreement provided in this Section 5.8, the
indemnifying party shall not have the right to assume the defense of such action on behalf of such indemnified party and such indemnifying
party shall reimburse such indemnified party and any Person Controlling such indemnified party for that portion of the fees and
expenses of any one lead counsel (plus appropriate special and local counsel) retained by the indemnified party that are reasonably
related to the matters covered by the indemnity agreement provided in this Section 5.8; provided, further,
that, if there is more than one indemnified party, then the indemnifying party shall only be required to reimburse the expenses
for the lead counsel (plus appropriate special and local counsel) approved in writing by the indemnified party or parties (as applicable)
holding a majority of the Registrable Shares held by all indemnified parties. No indemnifying party shall, without the prior written
consent of the indemnified party, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened
claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such claim or action) unless such settlement, compromise or consent includes
an unconditional release of the indemnified party from all liability arising out of such claim, action, suit or proceeding and
does not include a statement as to, or an admission of fault, culpability or a failure to act by or on behalf of such indemnified
party.
(d) If
the indemnification provided for in this Section 5.8 is held by a court of competent jurisdiction to be unavailable
to an indemnified party with respect to any loss, penalty, judgment, suit, cost, claim, damage, liability or action referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amounts
paid or payable by such indemnified party as a result of such any such loss, penalty, judgment, suit, cost, claim, damage, liability
or action in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other hand in connection with the statements or omissions that resulted in such any such loss, penalty,
judgment, suit, cost, claim, damage, liability or action as well as any other relevant equitable considerations; provided,
however, that the maximum amount of liability in respect of such contribution shall be limited, in the case of each Selling
Holder, to an amount equal to the net proceeds actually received by such Selling Holder from the sale of Registrable Shares effected
pursuant to such registration. The relative fault of the indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative
intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. No Person guilty of
fraud shall be entitled to indemnification or contribution hereunder.
(e) The
indemnification and contribution provided for under this Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party and will survive the Transfer of Registrable Shares.
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5.9
|
Underwriting
Agreement.
|
(a) Except
for the provisions of Sections 5.5, to the extent that the Selling Holders shall enter into an underwriting or similar agreement
that contains provisions covering one or more issues addressed in such Sections of this Agreement which are customary for an underwriting
or similar agreement (an “Underwriting Agreement”), to the extent such provisions of the Underwriting Agreement
are inconsistent with the provisions contained in the applicable Sections of this Agreement addressing such issue or issues, the
terms of the applicable Underwriting Agreement shall govern with respect to such provisions.
(b) If
any registration pursuant to Sections 5.2, 5.3 or 5.4 is requested to be an Underwritten Offering, the Company
shall negotiate in good faith to enter into a reasonable and customary underwriting agreement with the underwriters thereof. The
Company shall make such representations and warranties, and provide such indemnities, to the holders of Registrable Shares being
registered, and the underwriters or agents, if any, in form, substance and scope as are customarily made by issuers in secondary
Underwritten Offerings and take any other actions as such holders, or the underwriter or underwriters, if any, reasonably request
in order to expedite or facilitate the registration and disposition of such Registrable Shares. The Company and its Subsidiaries
shall be entitled to receive indemnities from lead institutions, underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution, to the same extent as provided above with respect to information so furnished
in writing by such Persons specifically for inclusion in any Prospectus or Registration Statement and to the extent customarily
given their role in such distribution.
(c) No
Stockholder may participate in any registration hereunder that is underwritten under Sections 5.2, 5.3 or 5.4
unless such Stockholder agrees to sell such Stockholder’s Registrable Shares proposed to be included therein on the basis
provided in any underwriting arrangements reasonably acceptable to the Company in the case of an offering of Primary Shares, or,
in the case of an offering pursuant to Section 5.2, reasonably acceptable to the Company and the Requesting Stockholders.
(d) Any
Selling Holder electing to be included in registration pursuant to this ARTICLE V must sell its Registrable Shares
to the underwriters selected by the Sponsor Requesting Party or the Company, as applicable, on the same terms and conditions as
apply to such Sponsor Requesting Party or the Company, as applicable, and must enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting; provided, however, that any Selling Holder
shall not be required to make any representations or warranties, or provide any indemnity, in connection with any such registration
other than representations and warranties (or indemnities with respect thereto) as to (i) such Selling Holder’s ownership
of his, her or its Registrable Shares to be transferred free and clear of all liens, claims, and encumbrances, (ii) such Selling
Holder’s power and authority to effect such transfer, and (iii) such matters pertaining to compliance with securities
Laws by such Selling Holder as may be reasonably requested; provided, that in no event shall any Selling Holder be required
to make any representations regarding the Company or any of its Subsidiaries (or their respective businesses); provided,
further, however, that the obligation of any Selling Holder to indemnify pursuant to any such underwriting arrangements
shall be several, not joint and several, among such Persons selling Registrable Shares, and the liability of each such Person will
be in proportion thereto; provided, further, that such liability will be limited to the net proceeds received by
each such Person from the sale of its Registrable Shares pursuant to such registration.
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5.10
|
Information
by Holder.
|
Each holder of Registrable Shares to be
included in any registration shall furnish to the Company and the managing underwriter such written information regarding such
holder and the distribution proposed by such holder as the Company or the managing underwriter may reasonably request in writing
and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Agreement.
Each Stockholder shall, as expeditiously as possible, notify the Company of the occurrence of any event concerning such Stockholder
as a result of which the Prospectus relating to such registration contains an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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5.11
|
Exchange Act
Compliance.
|
From and after the Effective Time hereof,
the Company shall comply with all of the reporting requirements of the Exchange Act (whether or not it shall be required to do
so) and shall comply with all other public information reporting requirements of the Commission that are conditions to the availability
of Rule 144 for the sale of the Common Stock. The Company shall cooperate with each Stockholder in supplying such information
as may be necessary for such Stockholder to complete and file any information reporting forms presently or hereafter required by
the Commission as a condition to the availability of Rule 144.
ARTICLE VI
SECURITIES LAW COMPLIANCE; LEGENDS
Each certificate for Stockholder Shares
shall (unless otherwise provided by the provisions of Section 6.3) be stamped or otherwise imprinted with a legend
in substantially the following terms:
“THE SHARES REPRESENTED HEREBY HAVE
BEEN ACQUIRED FOR INVESTMENT PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
OR BLUE SKY LAWS, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SUBSEQUENTLY REGISTERED THEREUNDER OR AN
EXEMPTION FROM REGISTRATION THEREUNDER IS AVAILABLE.”
The holder of any Stockholder Shares, by
his, her or its acceptance or purchase thereof, agrees, prior to any direct Transfer of any such Stockholder Shares (except pursuant
to an effective Registration Statement), to give written notice to the Company of such holder’s intention to effect such
Transfer and agrees to comply in all other respects with the provisions of this ARTICLE VI. Each such notice shall
describe the manner and circumstances of the proposed Transfer and if requested by the Company, such holder shall provide a written
opinion, addressed to the Company, of counsel for such holder (which counsel shall be reasonably satisfactory to the Company; provided,
that if such holder is an Investor, the opinion of its in-house counsel shall be deemed acceptable to the Company), stating that
in the opinion of such counsel (which opinion shall be reasonably satisfactory to the Company) such proposed Transfer does not
involve a transaction requiring registration of such Stockholder Shares under the Securities Act. Each certificate or other instrument
evidencing the Stockholder Shares issued upon the Transfer of any Stockholder Shares other than pursuant to an effective Registration
Statement (and each certificate or other instrument evidencing any untransferred balance of such Stockholder Shares) shall bear
the legend set forth in Section 6.1 unless (i) in such opinion of such counsel registration of future Transfer
is not required by the applicable provisions of the Securities Act or (ii) the Company shall have waived the requirement of
such legend.
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6.3
|
Removal of Legends,
Etc.
|
Notwithstanding the foregoing provisions
of this ARTICLE VI, the restrictions imposed by Sections 2.2, 6.1 and 6.2 upon the transferability
of any Stockholder Shares shall cease and terminate when (a) such Stockholder Shares are sold or otherwise disposed of in
accordance with the intended method of disposition by the seller or sellers thereof set forth in a Registration Statement or are
sold or otherwise disposed of in a transaction contemplated by Section 6.2 which does not require that the Stockholder
Shares Transferred bear the legend set forth in Section 6.1, or (b) the holder of such Stockholder Shares has met the
requirement of Transfer of such Stockholder Shares pursuant to Rule 144. Whenever the restrictions imposed by Sections
2.2, 6.1 and 6.2 shall terminate, as herein provided, the holder of any Stockholder Shares shall be entitled
to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section 6.1
and not containing any other reference to the restrictions imposed by Sections 2.2, 6.1 and 6.2.
(a) Each
certificate evidencing Stockholder Shares and each certificate issued in exchange for or upon the Transfer of any Stockholder Shares
(if such shares remain Stockholder Shares as defined herein after such Transfer) shall be stamped or otherwise imprinted with a
legend in substantially the following form:
“THE SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO AN AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT DATED AS OF MARCH [●], 2021
(AS AMENDED, MODIFIED, SUPPLEMENTED OR RESTATED FROM TIME TO TIME, THE “AGREEMENT”), AMONG THE ISSUER OF SUCH SECURITIES
(THE “COMPANY”) AND CERTAIN OF THE COMPANY’S STOCKHOLDERS. THE TERMS OF THE AGREEMENT INCLUDE, AMONG OTHER THINGS,
RESTRICTIONS ON TRANSFERS. A COPY OF THE AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN
REQUEST.”
(b) The
legend set forth above shall be removed from the certificates evidencing any shares which cease to be Stockholder Shares held by
a Stockholder in accordance with the terms of this Agreement.
Any Permitted Transferee or member of any
Stockholder Group to which any Stockholder Shares are Transferred (who is not already a party to this Agreement) shall, as a condition
to the effectiveness of such Transfer, execute a Joinder Agreement; provided, that the foregoing requirement shall not apply
to Stockholder Shares sold in a registered offering or Transferred following the Company IPO in accordance with Rule 144.
Such Person shall become an Other Stockholder, unless such Person is (i) a Permitted Transferee of an Investor, in which case
such Person shall become a CCMP Investor, MSD Investor or AIMCo Investor, as applicable, or (ii) an employee of the Company
or its Subsidiaries or an Affiliate of such employee, in which case such Person shall become both a Management Stockholder and
an Other Stockholder (it being understood that clause (ii) supersedes clause (i) above). Any failure by any Person to
obtain a Joinder Agreement from a Transferee in connection with any Permitted Transfer to the extent required under this Agreement
shall render such Transfer null and void.
ARTICLE VII
AMENDMENT AND WAIVER
Except as expressly set forth herein, the
provisions of this Agreement may only be amended or waived with the prior written consent of (a) the Company, (b) the
holders of a majority of the Registrable Shares at such time, (c) the CCMP Investors (so long as the CCMP Investors own at
least 10% of the Company’s issued and outstanding Common Stock) and (d) the MSD Investors (so long as the MSD Investors
own at least 10% of the Company’s issued and outstanding Common Stock); provided, however, that any amendment
or waiver that would (i) with respect to any particular Investor, (A) have a disproportionate (as compared to any other
Investor and taking into account and considering the rights, privileges and obligations of any such Investor hereunder prior to
such amendment or waiver) and adverse effect on the rights, privileges or obligations of such Investor under this Agreement, (B) have
an adverse effect on any rights that are expressly specific to such Investor, or (C) impose new obligations (other than non-substantive
or ministerial obligations) on such Investor, shall, in each case, also require the prior written consent of such Investor; or
(ii) have a disproportionate (as compared to the CCMP Investors or the MSD Investors and taking into account and considering
the rights and obligations of any such Management Stockholder hereunder prior to such amendment or waiver) and adverse effect on
the rights of Management Stockholders in their capacity as such under this Agreement, shall also require the prior written consent
of holders of a majority of the Stockholder Shares held by Management Stockholders; provided, further, that (i) any
amendments to this Agreement in connection with the granting of any rights, privileges and obligations to any third-party investor
to the extent necessary to implement the issuance of additional Securities to such third-party investor shall not be deemed an
amendment or modification hereof that requires the additional consent set forth in the proviso above (so long as the granting of
such rights, privileges and obligations does not involve the express modification or elimination of any rights, privileges or obligations
previously granted to any such Stockholder(s)), and (ii) any waiver that only relates to the waiver of any rights of the Stockholders
hereunder shall only need to be waived by the requisite Stockholders, as set forth above, and not the Company.
No course of dealing between the Company
and the Stockholders (or any of them) or any delay in exercising any rights hereunder will operate as a waiver of any rights of
any party to this Agreement. The failure of any party hereto to enforce any of the provisions of this Agreement will in no way
be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision
of this Agreement in accordance with its terms.
ARTICLE VIII
TERMINATION
The provisions of this Agreement will terminate
automatically upon the earlier to occur of (i) the date that no Registrable Shares are outstanding or (ii) the consummation
of a Liquidity Event.
ARTICLE IX
MISCELLANEOUS
It is the desire and intent of the parties
hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the Laws and public policies applied
in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated
by a court of competent jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction,
shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability
of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the
foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction,
it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision in any other jurisdiction.
This Agreement, the Investor Subscription
Agreements, the Management Rollover Agreements, the Restricted Stock Purchase Agreements, the 2017 Equity Incentive Plan (as any
such may be amended, supplemented or modified from time to time) and any other agreements referred to herein embody the entire
agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersede and preempt
any and all prior and contemporaneous understandings, agreements, arrangements or representations by or among such parties, written
or oral, which may relate to the subject matter hereof or thereof in any way. The parties hereto acknowledge and agree that (i) this
Agreement, the Restricted Stock Purchase Agreements, the Management Rollover Agreements and the 2017 Equity Incentive Plan (as
any such may be amended, supplemented or modified from time to time) include provisions related to the same or similar rights and
obligations of the parties hereto and thereto, as applicable, including with respect to non-competition, non-solicitation and confidentiality
restrictions, among others, and (ii) all such provisions, whether contained in this Agreement, the Restricted Stock Purchase
Agreements, the Management Rollover Agreements or the 2017 Equity Incentive Plan (as such agreements may be amended, supplemented
or modified from time to time) are intended by the parties hereto and thereto, as applicable, to co-exist with and apply in addition
to, and not in lieu or modification of, any provisions contained in any other agreement.
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9.3
|
Independence
of Agreements and Covenants.
|
All agreements and covenants hereunder shall
be given independent effect so that if a certain action or condition constitutes a default under a certain agreement or covenant,
the fact that such action or condition is permitted by another agreement or covenant shall not affect the occurrence of such default,
unless expressly permitted under an exception to such initial agreement or covenant.
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9.4
|
Successors and
Assigns.
|
Except as otherwise provided herein, this
Agreement will bind and inure to the benefit of and be enforceable by the Company and its successors and permitted assigns and
the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and permitted assigns of each of
them, so long as they hold Stockholder Shares. Notwithstanding anything to the contrary contained in this Agreement, none of the
rights that inure to any of the Investors under this Agreement shall be transferable or assignable by such Investors (whether in
connection with a Transfer of their shares of Stockholder Shares or otherwise) other than to an Investor Permitted Transferee;
provided that any Investor Permitted Transferee will be required to execute a Joinder Agreement and will be subject to any
restrictions which such Transferor was subject to under this Agreement.
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|
9.5
|
Counterparts;
Facsimile Signatures; Validity.
|
This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties hereto and delivered (by e-mail or otherwise) to the other parties hereto, it being understood
that all parties hereto need not sign the same counterpart. Any counterpart or other signature hereupon delivered by e-mail or
similar generally accepted electronic means shall be deemed for all purposes as constituting good and valid execution and delivery
of this Agreement by such party.
(a) Each
Stockholder shall have all rights and remedies reserved for such Stockholder pursuant to this Agreement and all rights and remedies
which such Stockholder has been granted at any time under any other agreement or contract and all of the rights which such Stockholder
has under any Law or in equity. Any Person having any rights under any provision of this Agreement will be entitled to enforce
such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other
rights granted by Law or in equity.
(b) Each
party hereto agrees that if any other Person party hereto seeks to resolve any dispute arising under this Agreement pursuant to
a legal proceeding, the prevailing party to such proceeding shall be entitled to receive reasonable fees and expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with such proceedings.
(c) It
is acknowledged that it will be impossible to measure in money the damages that would be suffered by any party hereto if any other
Person party hereto fails to comply with any of the obligations imposed upon such party in this Agreement and that in the event
of any such failure, the aggrieved party will be irreparably damaged and will not have an adequate remedy at Law. Any such aggrieved
party shall, therefore, be entitled to equitable relief, including specific performance, to enforce such obligations, and if any
action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at Law.
All notices, amendments, waivers or other
communications pursuant to this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered,
sent by e-mail or sent by nationally recognized overnight courier to the parties hereto at the following addresses (or at such
other address for any party hereto as shall be specified by like notice):
(a) if
to the Company:
Hayward Holdings, Inc.
400 Connell Dr., Suite 6100
Berkeley Heights, NJ 07922
Attention: Kevin Holleran, CEO
Email:
with a copy (which shall not constitute effective notice)
to:
CCMP Capital Advisors, LP
277 Park Avenue, 27th Floor
New York, New York 10172
Attention: Mark McFadden; Richard Jansen, Esq.
Email:
and
MSD Partners, L.P.
645 Fifth Avenue, 21st Floor
New York, New York 10022
Attention: Marcello Liguori
Email:
and
Alberta Investment Management Corporation
First Canadian Place
100 King Street West,
Suite 5120, P.O. Box 51
Toronto, Ontario M5X 1B1, Canada
Attn: Jason Peters
Email:
and
Alberta Investment Management Corporation
1600 - 10250 101 Street
Edmonton, Alberta T5J 3P4, Canada
Email:
(b) if
to any Stockholder, to it at its address set forth in the most recent records of the Company;
or to such other address as the party to
whom notice is to be given may have furnished to each other party in writing in accordance herewith. Any such notice or communication
shall be deemed to have been given and received (w) when delivered, if personally delivered; (x) upon machine generated
acknowledgement of receipt after transmittal by electronic mail if so acknowledged to have been received before 5:00 p.m. on
a Business Day at the location of receipt and otherwise on the next following Business Day; and (y) on the next Business Day
after dispatch, if sent by nationally recognized overnight courier guaranteeing next Business Day delivery.
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9.8
|
Governing Law;
Venue.
|
This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware, without giving effect to any choice of law or conflicting provision
or rule (whether of the State of Delaware or any other jurisdiction) that would cause the Laws of any jurisdiction other than
the State of Delaware to apply. Each of the parties hereto irrevocably agrees that it may not bring any claim, suit, action or
other proceeding in any jurisdiction other than the Delaware Chancery Court and any federal or state court sitting in the State
of Delaware to which an appeal from the Delaware Chancery Court may be validly taken (or, if (and only if) the Delaware Chancery
Court declines to accept jurisdiction over a particular matter, any state or federal court within the state of Delaware), and each
party hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of any
such court in each case in any such claim, suit, action or proceeding arising out of or relating to this Agreement and the transactions
contemplated hereby. Each of the parties agrees not to commence any claim, action, suit, proceeding or investigation relating thereto
except in the courts in Delaware described above, other than actions in any court of competent jurisdiction to enforce any judgment,
decree or award rendered by any of the courts in Delaware as described above, and no party will file a motion to dismiss any action
filed in a state or federal court in the State of Delaware, on any jurisdictional or venue-related grounds, including the doctrine
of forum non-conveniens. Upon the filing of any action or proceeding, each party hereto agrees and consents to accept from the
other party hereto service of process and all pleadings, motions, briefs and other related papers in connection with such action
or proceeding. Each party hereto irrevocably agrees that venue would be proper in any of the courts in Delaware described above,
and irrevocably and unconditionally waives any objection that it may have now or hereafter to the laying of venue of any such action
or proceeding in such courts.
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9.9
|
Waiver of Jury
Trial.
|
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR COUNTERCLAIM BASED UPON, ARISING OUT OF, UNDER, OR IN
CONNECTION WITH THIS AGREEMENT OR ANY DEALINGS BETWEEN THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF. EACH OF THE PARTIES
HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND THAT MIGHT, BUT FOR THIS WAIVER, BE REQUIRED OF THE OTHER PARTIES
HERETO. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO THIS AGREEMENT. EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED OR HAD THE OPPORTUNITY
TO REVIEW THIS WAIVER WITH ITS RESPECTIVE LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH SUCH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL
BY THE COURT.
Each party hereto shall do and perform,
or cause to be done and performed, all such further acts and things and shall execute and deliver all such other agreements, certificates,
instruments, and documents as any other party hereto reasonably may request in order to carry out the provisions of this Agreement
and the consummation of the transactions contemplated hereby.
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9.11
|
Conflicting
Agreements.
|
The Company shall not enter into any agreements
or arrangements of any kind with any Person with respect to any Stockholder Shares on terms inconsistent with the provisions of
this Agreement (whether or not such agreements or arrangements are with Stockholders or with Persons that are not parties to this
Agreement), including agreements or arrangements with respect to the acquisition or disposition of Stockholder Shares in a manner
which is inconsistent with this Agreement. The Company shall not amend either of the Certificate or the Bylaws on terms inconsistent
with the provisions of this Agreement.
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9.12
|
Third
Party Reliance.
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(a) Notwithstanding
anything to the contrary contained herein, except as expressly provided in Section 5.8 (Indemnification) or Section 9.15
(Non-Recourse), the covenants of the Company contained in this Agreement (i) are being given by the Company as an inducement
to the Stockholders to enter into this Agreement (and the Company acknowledges that the Stockholders have expressly relied thereon)
and (ii) are solely for the benefit of the Stockholders. Accordingly, except as expressly provided in Section 5.8
(Indemnification) or Section 9.15 (Non-Recourse), no third party (including any holder of capital stock of the
Company) or anyone acting on behalf of any Person other than the Stockholders, shall be a third party or other beneficiary of
such covenants and no such third party shall have any rights of contribution against the Stockholders or the Company with respect
to such covenants or any matter subject to or resulting in indemnification under this Agreement or otherwise.
(b) None
of the provisions hereof shall create, or be construed or deemed to create, any right to employment in favor of any Person by
the Company.
The
Company agrees to cause all of its Subsidiaries to be bound by, and to comply with the provisions of Section 5.8 (Indemnification)
and this ARTICLE IX. To the extent that (i) the Investors request that any current or future Subsidiary of the
Company become a party to this Agreement or (ii) the Company creates or acquires (by merger or otherwise) a new Subsidiary,
the Company shall cause such Subsidiary to become a party to, to be bound by, and to comply with the provisions of Section 5.8
(Indemnification) and this ARTICLE IX in the same manner as if such entity were an original signatory to this
Agreement.
All
references in this agreement to Stockholder Shares (or other Securities of the Company or any successor company) and ownership
percentages shall be appropriately adjusted, in the judgment of the Board, for any corporate event or transaction involving the
Company and/or any of its Subsidiaries or Affiliates (including a change in the Stockholder Shares or the capitalization of the
Company) such as a merger, consolidation, reorganization, recapitalization, separation, distribution, stock dividend, stock split,
reverse stock split, split up, spin-off, combination of Stockholder Shares, exchange of Stockholder Shares, dividend in kind,
amalgamation, or other like change in capital structure, or any similar corporate event or transaction occurring after the date
of this Agreement.
Notwithstanding
anything that may be expressed or implied in this Agreement, the Company and each Stockholder covenant, agree and acknowledge
that no recourse under this Agreement shall be had against any current or future director, officer, employee, general or limited
partner or member or equity holder of any Stockholder or direct or indirect owner or Affiliate thereof or of any Affiliate, agent
or assignee thereof, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any
applicable Law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on
or otherwise be incurred by any current or future director, officer, employee, general or limited partner or member or equity
holder of any Stockholder or of any Affiliate, agent or assignee of any Stockholder (or any of their respective current or future
directors, officers, employees, general or limited partners or members or equity holders or Affiliates, agents or assignees),
as such for any obligation of any Stockholder under this Agreement for any claim based on, in respect of or by reason of such
obligations or their creation.
*
* * * * * *
IN
WITNESS WHEREOF, the undersigned have duly executed this Stockholders’ Agreement as of the date first written above.
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COMPANY:
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HAYWARD
HOLDINGS, INC.
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By:
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Name:
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Title:
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CCMP
INVESTORS:
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CCMP
CAPITAL INVESTORS III, L.P.
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By: CCMP
CAPITAL ASSOCIATES III, L.P.,
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Its General
Partner
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By: CCMP
CAPITAL ASSOCIATES III GP, LLC,
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Its General
Partner
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By:
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Name:
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Title:
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CCMP
CAPITAL INVESTORS (EMPLOYEE) III, L.P.
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By: CCMP
CAPITAL ASSOCIATES III, L.P.,
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Its General
Partner
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By: CCMP
CAPITAL ASSOCIATES III GP, LLC,
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Its General
Partner
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By:
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Name:
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Title:
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MSD
INVESTORS:
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MSD AQUA
PARTNERS, LLC
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By:
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Name:
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Title:
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AIMCO
INVESTORS:
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PE16PX
ROCKY MOUNTAIN LTD.
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By:
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Name:
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Title:
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PE16GV
ROCKY MOUNTAIN LTD.
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By:
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Name:
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Title:
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Exhibit A
Joinder Agreement
The
undersigned is executing and delivering this Joinder Agreement pursuant to the Hayward Holdings, Inc. Amended and Restated
Stockholders’ Agreement, dated as of March [●], 2021 (as amended, modified, restated or supplemented from time
to time, the “Stockholders’ Agreement”). Capitalized terms used herein but not otherwise defined shall
have the meaning ascribed to such terms in the Stockholders’ Agreement.
By
executing and delivering this Joinder Agreement to the Company, the undersigned hereby agrees to become a party to, to be bound
by, and to comply with the provisions of the Stockholders’ Agreement in the same manner as if the undersigned were an original
signatory to such agreement.
The
undersigned agrees that the undersigned shall be a Stockholder and [a] [an] [CCMP Investor] [MSD Investor] [AIMCo Investor] [Management
Stockholder] [Other Stockholder].
Accordingly,
the undersigned has executed and delivered this Joinder Agreement as of .
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Signature of Stockholder
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Print Name of Stockholder
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Number of
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Stockholder Shares:
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___________shares of Common Stock
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Address
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E-mail
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Telephone
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ACKNOWLEDGED & ACCEPTED:
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HAYWARD HOLDINGS, INC.
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By
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Name:
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Title:
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Exhibit 4.2
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NUMBER
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate duly endorsed. This certificate and the shares represented hereby
are subject to the laws of the State of Delaware, and to the Certificate of Incorporation and Bylaws
ofthe Corporation, as now in effect or as hereafter amended.This certificate is not valid until countersigned
and registered by the Transfer Agent and Registrar.WITNESS the facsimile seal of the Corporation and
the facsimile signatures of its duly authorized officers.INCORPORATED UNDER THE LAWS OF THE STATE OF
DELAWAREThis Certifies That:is the owner ofSEE REVERSE FOR CERTAIN DEFINITIONSCUSIP 421298 100COMMON
STOCKSHARESSENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER PRESIDENT AND CHIEF EXECUTIVE OFFICER
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THE
CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE
DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED
TO BE ISSUED, SO FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD TO
DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE RELATIVE RIGHTS, PREFERENCES
AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though they were written out in full according
to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT - ....................Custodian....................
TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under
Uniform Gifts to Minors survivorship and not as tenants in common Act................... (State)
Additional abbreviations may also be used though not in the above list. For Value Received, hereby
sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP
CODE, OF ASSIGNEE) Shares of the stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named
Corporation with full power of substitution in the premises. Dated NOTICE: THE
SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE,
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER. Signature(s)
Guaranteed By The Signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved Signature
COLUMBIA PRINTING SERVICES, LLC - www.stockinformation.com COLUMBIA PRINTING SERVICES, LLC - www.stockinformation.com
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Exhibit 5.1
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ROPES & GRAY LLP
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1211 AVENUE OF THE AMERICAS
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NEW YORK, NY 10036-8704
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WWW.ROPESGRAY.COM
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March 3, 2021
Hayward Holdings, Inc.
400 Connell Drive
Suite 6100
Berkeley Heights, New Jersey 07922
Re: Hayward Holdings, Inc. Initial Public Offering of
Common Stock
Ladies and Gentlemen:
We have acted as counsel to Hayward Holdings,
Inc., a Delaware corporation (the “Company”), in connection with the Registration Statement on Form S-1 (File
No. 333-253184) (as amended through the date hereof, the “Registration Statement”) filed by the Company with
the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the
“Securities Act”), for the registration of 46,319,444 shares of the Company’s common stock, $0.001 par
value per share (the “Common Stock”), of the Company. Of the shares of Common Stock to be registered pursuant
to the Registration Statement, 22,200,000 shares are being offered by the Company (the “Company Shares”) and
up to 24,119,444 shares are being offered by certain selling stockholders (the “Selling Stockholder Shares”
and, together with the Company Shares, the “Shares”). The Shares are proposed to be sold pursuant to an underwriting
agreement (the “Underwriting Agreement”) to be entered into among the Company, the selling stockholders listed
on Schedule B thereto and the representatives of the underwriters named therein.
In connection with this opinion letter,
we have examined such certificates, documents and records and have made such investigation of fact and such examination of law
as we have deemed appropriate in order to enable us to render the opinions set forth herein. In conducting such investigation,
we have relied, without independent verification, upon certificates of officers of the Company, public officials and other appropriate
persons.
The opinions expressed below are limited
to the Delaware General Corporation Law.
Based upon and subject to the foregoing,
we are of the opinion that (1) the Company Shares have been duly authorized and, when issued and delivered pursuant to the Underwriting
Agreement against payment of the consideration set forth therein, will be validly issued, fully paid and nonassessable, and (2)
the Selling Stockholder Shares have been duly authorized and are validly issued, fully paid and non-assessable.
Hayward Holdings, Inc.
We hereby consent
to your filing this opinion as an exhibit to the Registration Statement and to the use of our name therein and in the related
prospectus under the caption “Legal Matters.” In giving such consent, we do not thereby admit that we are in the
category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the
Commission thereunder.
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Very truly yours,
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Ropes & Gray LLP
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Exhibit 10.15
Hayward
HOLDINGS, INC.
2021 Equity INCENTIVE PLAN
Exhibit A,
which is incorporated by reference, defines certain terms used in the Plan and includes certain operational rules related
to those terms.
The Plan has been established to advance
the interests of the Company by providing for the grant to Participants of Stock and Stock-based Awards.
The Plan will be administered by the Administrator.
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to administer and interpret
the Plan and any Awards; to determine eligibility for and grant Awards; to determine the exercise price, base value from which
appreciation is measured, or purchase price, if any, applicable to any Award, to determine, modify, accelerate or waive the terms
and conditions of any Award; to determine the form of settlement of Awards (whether in cash, shares of Stock, other Awards or other
property); to prescribe forms, rules and procedures relating to the Plan and Awards; and to otherwise do all things necessary
or desirable to carry out the purposes of the Plan or any Award. Determinations of the Administrator made with respect to the Plan
or any Award are conclusive and bind all persons.
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4.
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LIMITS ON AWARDS UNDER
THE PLAN
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(a) Number
of Shares. Subject to adjustment as provided in Section 7(b), the maximum number
of shares of Stock that may be delivered in satisfaction of Awards under the Plan is (i) 13,737,500 shares (the “Initial
Share Pool”), plus (ii) the number of shares of Stock underlying awards
under the Prior Plan that on or after the Date of Adoption expire or become unexercisable without delivery of shares, are forfeited
to, or repurchased for cash by, the Company, are settled in cash, or otherwise become available again for grant under the Prior
Plan, in each case, in accordance with its terms (in the case of this subclause (ii), not to exceed 16,592,727 shares of Stock)
(the Initial Share Pool, together with any shares that are available for delivery under the Prior Plan, as provided for above,
the “Share Pool”). Up to 13,737,500 shares of Stock from the Share Pool may be delivered in satisfaction of ISOs, but
nothing in this Section 4(a) will be construed as requiring that any, or any fixed number of, ISOs be awarded under
the Plan. For purposes of this Section 4(a), shares of Stock shall not be treated as delivered under the Plan, and will not
reduce the Share Pool, unless and until, and to the extent, they are actually delivered to a Participant. Without limiting the
generality of the foregoing, the number of shares of Stock delivered in satisfaction of Awards will be determined (i) by excluding
shares of Stock withheld by the Company in payment of the exercise price or purchase price of the Award or in satisfaction of tax
withholding requirements with respect to the Award, (ii) by including only the number of shares of Stock delivered in settlement
of a SAR any portion of which is settled in Stock, and (iii) by excluding any shares of Stock underlying Awards settled in
cash or that expire, become unexercisable, terminate or are forfeited to or repurchased by the Company without the delivery of
Stock. For the avoidance of doubt, the Share Pool will not be increased by any shares of Stock delivered under the Plan that are
subsequently repurchased using proceeds directly attributable to Stock Option exercises. The limits set forth in this Section 4(a) will
be construed to comply with the applicable requirements of Section 422.
(b) Substitute
Awards. The Administrator may grant Substitute Awards under the Plan. To the extent
consistent with the requirements of Section 422 and the regulations thereunder and other applicable legal requirements (including
applicable stock exchange requirements), shares of Stock delivered in respect of Substitute Awards will be in addition to and will
not reduce the Share Pool. Notwithstanding the foregoing or anything in Section 4(a) to the contrary, if any Substitute
Award is settled in cash or expires, becomes unexercisable, terminates or is forfeited to or repurchased by the Company without
the delivery (or retention, in the case of Restricted Stock or Unrestricted Stock) of Stock, the shares of Stock previously subject
to such Award will not increase the Share Pool or otherwise be available for future grant under the Plan. The Administrator will
determine the extent to which the terms and conditions of the Plan apply to Substitute Awards, if at all, provided, however,
that Substitute Awards will not be subject to the limits described in Section 4(d) below.
(c) Type
of Shares. Stock delivered by the Company under the Plan may be authorized but unissued
Stock, treasury Stock or previously issued Stock acquired by the Company. No fractional shares of Stock will be delivered under
the Plan.
(d) Director
Limits. Notwithstanding the foregoing, the aggregate value of all compensation granted
or paid to any Director with respect to any calendar year, including Awards granted under the Plan and cash fees or other compensation
paid by the Company to such Director outside of the Plan, for his or her services as a Director during such calendar year may not
exceed $750,000 in the aggregate ($900,000 in the aggregate with respect to a Director’s first year of service on the Board),
calculating the value of any Awards based on the grant date fair value in accordance with the Accounting Rules, assuming a maximum
payout (if applicable). For the avoidance of doubt, the limitation in this Section 4(d) will not apply to any compensation
granted or paid to a Director for his or her services to the Company or a subsidiary other than as a Director, including, without
limitation, as a consultant.
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5.
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ELIGIBILITY AND PARTICIPATION
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The Administrator will select Participants
from among Employees and Directors of, and consultants to, the Company and its subsidiaries. Eligibility for ISOs is limited to
individuals described in the first sentence of this Section 5 who are employees of the Company or of a “parent corporation”
or “subsidiary corporation” of the Company as those terms are defined in Section 424 of the Code. Eligibility
for Stock Options, other than ISOs, and SARs is limited to individuals described in the first sentence of this Section 5 who
are providing direct services on the date of grant of the Award to the Company or to a subsidiary of the Company that would be
described in the first sentence of Section 1.409A-1(b)(5)(iii)(E) of the Treasury Regulations.
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6.
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RULES APPLICABLE TO
AWARDS
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(a) All
Awards.
(1) Award
Provisions. The Administrator will determine the terms and conditions of all Awards,
subject to the limitations provided herein. No term of an Award shall provide for automatic “reload” grants of additional
Awards upon the exercise of an Option or SAR. By accepting (or, under such rules as the Administrator may prescribe, being
deemed to have accepted) an Award, the Participant will be deemed to have agreed to the terms and conditions of the Award and the
Plan. Notwithstanding any provision of the Plan to the contrary, Substitute Awards may contain terms and conditions that are inconsistent
with the terms and conditions specified herein, as determined by the Administrator.
(2) Term
of Plan. No Awards may be made after ten years from the Date of Adoption, but previously
granted Awards may continue beyond that date in accordance with their terms.
(3) Transferability.
Neither ISOs nor, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3),
other Awards may be transferred other than by will or by the laws of descent and distribution. During a Participant’s lifetime, ISOs
and, except as the Administrator otherwise expressly provides in accordance with the third sentence of this Section 6(a)(3),
SARs and NSOs may be exercised only by the Participant. The Administrator may permit the gratuitous transfer (i.e., transfer
not for value) of Awards other than ISOs, subject to applicable securities and other laws and such terms and conditions as the
Administrator may determine.
(4) Vesting;
Exercisability. The Administrator will determine the time or times at which an Award
vests or becomes exercisable and the terms and conditions on which a Stock Option or SAR remains exercisable. Without limiting
the foregoing, the Administrator may at any time accelerate the vesting and/or exercisability of an Award (or any portion thereof),
regardless of any adverse or potentially adverse tax or other consequences resulting from such acceleration. Unless the Administrator
expressly provides otherwise, however, the following rules will apply if a Participant’s Employment ceases:
(A) Except
as provided in (B) and (C) below, immediately upon the cessation of the Participant’s Employment each Stock Option
and SAR (or portion thereof) that is then held by the Participant or by the Participant’s permitted transferees, if any,
will cease to be exercisable and will terminate and each other Award that is then held by the Participant or by the Participant’s
permitted transferees, if any, to the extent not then vested will be forfeited.
(B) Subject
to (C) and (D) below, each vested and unexercised Stock Option and SAR (or portion thereof) held by the Participant or
the Participant’s permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment,
to the extent then exercisable, will remain exercisable for the lesser of (i) a period of three months following such cessation
of Employment or (ii) the period ending on the latest date on which such Stock Option or SAR could have been exercised without
regard to this Section 6(a)(4), and will thereupon immediately terminate.
(C) Subject
to (D) below, each vested and unexercised Stock Option and SAR (or portion thereof) held by a Participant or the Participant’s
permitted transferees, if any, immediately prior to the cessation of the Participant’s Employment due to his or her death
or by the Company due to his or her Disability, to the extent then exercisable, will remain exercisable for the lesser of (i) the
one-year period ending on the first anniversary of such cessation of Employment or (ii) the period ending on the latest date
on which such Stock Option or SAR could have been exercised without regard to this Section 6(a)(4), and will thereupon immediately
terminate.
(D) All
Awards (whether or not vested or exercisable) held by a Participant or the Participant’s permitted transferees, if any, immediately
prior to the cessation of the Participant’s Employment will immediately terminate upon such cessation of Employment if the
termination is for Cause or occurs in circumstances that in the determination of the Administrator would have constituted grounds
for the Participant’s Employment to be terminated for Cause (in each case, without regard to the lapsing of any required
notice or cure periods in connection therewith).
(5) Recovery
of Compensation. The Administrator may provide in any case that any outstanding Award
(whether or not vested or exercisable), the proceeds from the exercise or disposition of any Award or Stock acquired under any
Award, and any other amounts received in respect of any Award or Stock acquired under any Award will be subject to forfeiture and
disgorgement to the Company, with interest and other related earnings, if the Participant to whom the Award was granted is not
in compliance with any provision of the Plan or any applicable Award, any non-competition, non-solicitation, no-hire, non-disparagement,
confidentiality, invention assignment, or other restrictive covenant by which he or she is bound. Each
Award will be subject to any policy of the Company or any of its subsidiaries that relates to trading on non-public information
and permitted transactions with respect to shares of Stock, including limitations on hedging and pledging. In addition, each Award
will be subject to any policy of the Company or any of its affiliates that provides for forfeiture, disgorgement, or clawback with
respect to incentive compensation that includes Awards under the Plan and will be further subject to forfeiture and disgorgement
to the extent required by law or applicable stock exchange listing standards, including, without limitation, Section 10D
of the Exchange Act. Each Participant, by accepting or being deemed to have accepted an Award under the Plan, agrees (or will be
deemed to have agreed) to the terms of this Section 6(a)(5) and any clawback, recoupment or similar policy of the Company
or any of its subsidiaries and further agrees (or will be deemed to have further agreed) to cooperate fully with the Administrator,
and to cause any and all permitted transferees of the Participant to cooperate fully with the Administrator, to effectuate any
forfeiture or disgorgement described in this Section 6(a)(5). Neither the Administrator nor the Company nor any other person,
other than the Participant and his or her permitted transferees, if any, will be responsible for any adverse tax or other consequences
to a Participant or his or her permitted transferees, if any, that may arise in connection with this Section 6(a)(5).
(6) Taxes.
The grant of an Award and the issuance, delivery, vesting and retention of Stock, cash or other property under an Award are conditioned
upon the full satisfaction by the Participant of all tax and other withholding requirements with respect to the Award. The Administrator
will prescribe such rules for the withholding of taxes and other amounts with respect to any Award as it deems necessary.
Without limitation to the foregoing, the Company or any parent or subsidiary of the Company will have the authority and the right
to deduct or withhold (by any means set forth herein or in an Award agreement), or require a Participant to remit to the Company
or a parent or subsidiary of the Company, an amount sufficient to satisfy all U.S. and non-U.S. federal, state and local income
tax, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to participation
in the Plan and legally applicable to the Participant and required by law to be withheld (including, any amount deemed by the Company,
in its discretion, to be an appropriate charge to the Participant even if legally applicable to the Company or any parent or subsidiary
of the Company). The Administrator, in its sole discretion, may hold back shares of Stock from an Award or permit a Participant
to tender previously-owned shares of Stock in satisfaction of tax or other withholding requirements (but not in excess of the maximum
withholding amount consistent with the Award being subject to equity accounting treatment under the Accounting Rules). Any amounts
withheld pursuant to this Section 6(a)(6) will be treated as though such amounts had been made directly to the Participant.
In addition, the Company may, to the extent permitted by law, deduct any such tax and other withholding amounts from any payment
of any kind otherwise due to a Participant from the Company or any parent or subsidiary of the Company.
(7) Dividend
Equivalents. The Administrator may provide for the payment of amounts (on terms and
subject to such restrictions and conditions established by the Administrator) in lieu of cash dividends or other cash distributions
with respect to Stock subject to an Award whether or not the holder of such Award is otherwise entitled to share in the actual
dividend or distribution in respect of such Award; provided, however, that, except as contemplated by Section 7 below,
(a) dividends or dividend equivalents relating to an Award that, at the dividend payment date, remains subject to a risk of
forfeiture (whether service-based or performance-based) shall be subject to the same risk of forfeiture as applies to the underlying
Award and (b) no dividends or dividend equivalents shall be payable with respect to Stock Options or SARs. Any entitlement
to dividend equivalents or similar entitlements will be established and administered either consistent with an exemption from,
or in compliance with, the applicable requirements of Section 409A.
(8) Rights
Limited. Nothing in the Plan or any Award will be construed as giving any person the
right to be granted an Award or to continued employment or service with the Company or any of its subsidiaries, or any rights as
a stockholder except as to shares of Stock actually delivered under the Plan. The loss of existing or potential profit in any Award
will not constitute an element of damages in the event of a termination of a Participant’s Employment for any reason, even
if the termination is in violation of an obligation of the Company or any of its subsidiaries to the Participant.
(9) Coordination
with Other Plans. Shares of Stock and/or Awards under the Plan may be granted in
tandem with, or in satisfaction of or substitution for, other Awards under the Plan or awards made under other compensatory plans
or programs of the Company or any of its subsidiaries. For example, but without limiting the generality of the foregoing, awards
under other compensatory plans or programs of the Company or any of its subsidiaries may be settled in Stock (including, without
limitation, Unrestricted Stock) under the Plan if the Administrator so determines, in which case the shares delivered will be
treated as awarded under the Plan (and will reduce the number of shares thereafter available for delivery under the Plan in accordance
with the rules set forth in Section 4).
(10) Section 409A.
(A) Without
limiting the generality of Section 11(b) hereof, each Award will contain such terms as the Administrator determines and
will be construed and administered, such that the Award either qualifies for an exemption from the requirements of Section 409A
or satisfies such requirements.
(B) Notwithstanding
anything to the contrary in the Plan or any Award agreement, the Administrator may unilaterally amend, modify or terminate the
Plan or any outstanding Award, including but not limited to changing the form of the Award, if the Administrator determines that
such amendment, modification or termination is necessary or desirable to avoid the imposition of an additional tax, interest or
penalty under Section 409A.
(C) If
a Participant is determined on the date of the Participant’s termination of Employment to be a “specified employee”
within the meaning of that term under Section 409A(a)(2)(B) of the Code, then, with regard to any payment that is considered
nonqualified deferred compensation under Section 409A, to the extent applicable, payable on account of a “separation
from service”, such payment will be made or provided on the date that is the earlier of (i) the first business day following
the expiration of the six-month period measured from the date of such “separation from service” and (ii) the date
of the Participant’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments delayed
pursuant to this Section 6(a)(10)(C) (whether they would have otherwise been payable in a single lump sum or in installments
in the absence of such delay) will be paid, without interest, on the first business day following the expiration of the Delay Period
in a lump sum and any remaining payments due under the Award will be paid in accordance with the normal payment dates specified
for them in the applicable Award agreement.
(D) For
purposes of Section 409A, each payment made under the Plan or any Award will be treated as a separate payment.
(E) With
regard to any payment considered to be nonqualified deferred compensation under Section 409A that is payable upon a change
in control of the Company or other similar event, to the extent required to avoid the imposition of an additional tax, interest
or penalty under Section 409A, no amount will be payable unless such change in control constitutes a “change in control
event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations.
(b) Stock
Options and SARs.
(1) Time
and Manner of Exercise. Unless the Administrator expressly provides otherwise, no
Stock Option or SAR will be deemed to have been exercised until the Administrator receives a notice of exercise in a form acceptable
to the Administrator that is signed by the appropriate person and accompanied by any payment required under the Award. The Administrator
may limit or restrict the exercisability of any Stock Option or SAR in its discretion, including in connection with any Covered
Transaction. Any attempt to exercise a Stock Option or SAR by any person other than the Participant will not be given effect unless
the Administrator has received such evidence as it may require that the person exercising the Award has the right to do so.
(2) Exercise
Price. The exercise price (or the base value from which appreciation is to be measured)
per share of each Award requiring exercise must be no less than 100% (in the case of an ISO granted to a 10-percent stockholder
within the meaning of Section 422(b)(6) of the Code, 110%) of the Fair Market Value of a share of Stock, determined as
of the date of grant of the Award, or such higher amount as the Administrator may determine in connection with the grant.
(3) Payment
of Exercise Price. Where the exercise of an Award (or portion thereof) is to be accompanied
by a payment, payment of the exercise price must be made by cash or check acceptable to the Administrator or, if so permitted by
the Administrator and if legally permissible, (i) through the delivery of previously acquired unrestricted shares of Stock,
or the withholding of unrestricted shares of Stock otherwise deliverable upon exercise, in either case that have a Fair Market
Value equal to the exercise price; (ii) through a broker-assisted cashless exercise program acceptable to the Administrator;
(iii) by other means acceptable to the Administrator; or (iv) by any combination of the foregoing permissible forms of
payment. The delivery of previously acquired shares in payment of the exercise price under clause (i) above may be accomplished
either by actual delivery or by constructive delivery through attestation of ownership, subject to such rules as the Administrator
may prescribe.
(4) Maximum
Term. The maximum term of Stock Options and SARs must not exceed 10 years from the
date of grant (or five years from the date of grant in the case of an ISO granted to a 10-percent stockholder described in Section 6(b)(2) above).
(5) No
Repricing. Except in connection with a corporate transaction involving the Company
(which term includes, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, split-up, spin-off, combination or exchange of shares) or as otherwise contemplated by Section 7 below,
the Company may not, without obtaining stockholder approval, (A) amend the terms of outstanding Stock Options or SARs to reduce
the exercise price or base value of such Stock Options or SARs, (B) cancel outstanding Stock Options or SARs in exchange for
Stock Options or SARs that have an exercise price or base value that is less than the exercise price or base value of the original
Stock Options or SARs, or (C) cancel outstanding Stock Options or SARs that have an exercise price or base value greater than
the Fair Market Value of a share of Stock on the date of such cancellation in exchange for cash or other consideration.
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7.
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EFFECT OF CERTAIN TRANSACTIONS
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(a) Mergers, etc.
Except as otherwise expressly provided in an Award agreement or other agreement or by the Administrator, the following provisions
will apply in the event of a Covered Transaction:
(1) Assumption
or Substitution. If the Covered Transaction is one in which there is an acquiring
or surviving entity, the Administrator may provide for (A) the assumption or continuation of some or all outstanding Awards
or any portion thereof or (B) the grant of new awards in substitution therefor by the acquiror or survivor or an affiliate
of the acquiror or survivor.
(2) Cash-Out
of Awards. Subject to Section 7(a)(5) below, the Administrator may provide
for payment (a “cash-out”), with respect to some or all Awards or any portion thereof (including only the vested portion
thereof, with the unvested portion terminating as provided in subsection 7(a)(4) below), equal in the case of each applicable
Award or portion thereof to the excess, if any, of (A) the Fair Market Value of one share of Stock multiplied by the number
of shares of Stock subject to the Award or such portion, minus (B) the aggregate exercise or purchase price, if any, of such
Award or such portion thereof (or, in the case of a SAR, the aggregate base value above which appreciation is measured), in each
case on such payment and other terms and subject to such conditions (which need not be the same as the terms and conditions applicable
to holders of Stock generally), as the Administrator determines, including that any amounts paid in respect of such Award in connection
with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as the Administrator deems appropriate.
For the avoidance of doubt, if the per share exercise or purchase price (or base value) of an Award or portion thereof is equal
to or greater than the Fair Market Value of one share of Stock, such Award or portion may be cancelled with no payment due hereunder
or otherwise in respect thereof.
(3) Acceleration
of Certain Awards. Subject to Section 7(a)(5) below, the Administrator
may provide that any Award requiring exercise will become exercisable, in full or in part, and/or that the delivery of any shares
of Stock remaining deliverable under any outstanding Award of Stock Units (including Restricted Stock Units and Performance Awards
to the extent consisting of Stock Units) will be accelerated, in full or in part, in each case on a basis that gives the holder
of the Award a reasonable opportunity, as determined by the Administrator, following the exercise of the Award or the delivery
of the shares, as the case may be, to participate as a stockholder in the Covered Transaction.
(4) Termination
of Awards upon Consummation of Covered Transaction. Except as the Administrator may
otherwise determine, each Award will automatically terminate (and in the case of outstanding shares of Restricted Stock, will automatically
be forfeited) immediately upon the consummation of the Covered Transaction, other than (A) any Award that is assumed, continued
or substituted for pursuant to Section 7(a)(1) above, and (B) any Award that by its terms, or as a result of action
taken by the Administrator, continues following the Covered Transaction.
(5) Additional
Limitations. Any share of Stock and any cash or other property or other award delivered
pursuant to Section 7(a)(1), Section 7(a)(2) or Section 7(a)(3) above with respect to an Award may, in
the discretion of the Administrator, contain such restrictions, if any, as the Administrator deems appropriate, including to reflect
any performance or other vesting conditions to which the Award was subject and that did not lapse (and were not satisfied) in
connection with the Covered Transaction. For purposes of the immediately preceding sentence, a cash-out under Section 7(a)(2) above
or an acceleration under Section 7(a)(3) above will not, in and of itself, be treated as the lapsing (or satisfaction)
of a performance or other vesting condition. In the case of Restricted Stock that does not vest and is not forfeited in connection
with the Covered Transaction, the Administrator may require that any amounts delivered, exchanged or otherwise paid in respect
of such Stock in connection with the Covered Transaction be placed in escrow or otherwise made subject to such restrictions as
the Administrator deems appropriate to carry out the intent of the Plan.
(6) Uniform
Treatment. For the avoidance of doubt, the Administrator need not treat Participants
or Awards (or portions thereof) in a uniform manner, and may treat different Participants and/or Awards differently, in connection
with a Covered Transaction.
(b) Changes
in and Distributions with Respect to Stock.
(1) Basic
Adjustment Provisions. In the event of a stock dividend, stock split or combination
of shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure that constitutes
an equity restructuring within the meaning of the Accounting Rules, the Administrator shall make appropriate adjustments to the
maximum number of shares of Stock specified in Section 4(a) that may be delivered under the Plan and to the limits described
in Section 4(d), and shall make appropriate adjustments to the number and kind of shares of stock or securities underlying
Awards then outstanding or subsequently granted, any exercise or purchase prices (or base values) relating to Awards and any other
provision of Awards affected by such change.
(2) Certain
Other Adjustments. The Administrator may also make adjustments of the type described
in Section 7(b)(1) above to take into account distributions to stockholders other than those provided for in Sections
7(a) and 7(b)(1), or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion
in the operation of the Plan or any Award.
(3) Continuing
Application of Plan Terms. References in the Plan to shares of Stock will be construed
to include any stock or securities resulting from an adjustment pursuant to this Section 7.
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8.
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LEGAL CONDITIONS ON
DELIVERY OF STOCK
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The Company will not be obligated to deliver
any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan
until: (i) the Company is satisfied that all legal matters in connection with the issuance and delivery of such shares have
been addressed and resolved; (ii) if the outstanding Stock is at the time of delivery listed on any stock exchange or national
market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official
notice of issuance; and (iii) all conditions of the Award have been satisfied or waived. The Company may require, as a condition
to the exercise of an Award or the delivery of shares of Stock under an Award, such representations or agreements as counsel for
the Company may consider appropriate to avoid violation of the Securities Act of 1933, as amended, or any applicable state or
non-U.S. securities law. Any Stock delivered to Participants under the Plan will be evidenced in such manner as the Administrator
determines appropriate, including book-entry registration or delivery of stock certificates. In the event that the Administrator
determines that stock certificates will be issued in connection with Stock issued under the Plan, the Administrator may require
that such certificates bear an appropriate legend reflecting any restriction on transfer applicable to such Stock, and the Company
may hold the certificates pending the lapse of the applicable restrictions.
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9.
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AMENDMENT AND TERMINATION
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The Administrator may at any time or times
amend the Plan or any outstanding Award for any purpose which may at the time be permitted by applicable law, and may at any time
terminate the Plan as to any future grants of Awards; provided, however, that except as otherwise expressly provided in
the Plan or the applicable Award, the Administrator may not, without the Participant’s consent, alter the terms of an Award
so as to affect materially and adversely the Participant’s rights under the Award, unless the Administrator expressly reserved
the right to do so in the Plan or at the time the applicable Award was granted. Any amendments to the Plan will be conditioned
upon stockholder approval only to the extent, if any, such approval is required by applicable law (including the Code) or stock
exchange requirements, as determined by the Administrator. For the avoidance of doubt, without limiting the Administrator’s
rights hereunder, no adjustment to any Award pursuant to the terms of Section 7 or Section 12 will be treated as an amendment
requiring a Participant’s consent.
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10.
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OTHER COMPENSATION ARRANGEMENTS
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The existence of the Plan or the grant of
any Award will not affect the right of the Company or any of its subsidiaries to grant any person bonuses or other compensation
in addition to Awards under the Plan.
(a) Waiver
of Jury Trial. By accepting or being deemed to have accepted an Award under the Plan,
each Participant waives (or will be deemed to have waived), to the maximum extent permitted under applicable law, any right to
a trial by jury in any action, proceeding or counterclaim concerning any rights under the Plan or any Award, or under any amendment,
waiver, consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith,
and agrees (or will be deemed to have agreed) that any such action, proceedings or counterclaim will be tried before a court and
not before a jury. By accepting or being deemed to have accepted an Award under the Plan, each Participant certifies that no officer,
representative, or attorney of the Company has represented, expressly or otherwise, that the Company would not, in the event of
any action, proceeding or counterclaim, seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the
Plan, nothing herein is to be construed as limiting the ability of the Company and a Participant to agree to submit any dispute
arising under the terms of the Plan or any Award to binding arbitration or as limiting the ability of the Company to require any
individual to agree to submit such disputes to binding arbitration as a condition of receiving an Award hereunder.
(b) Limitation
of Liability. Notwithstanding anything to the contrary in the Plan or any Award, neither
the Company, nor any of its subsidiaries, nor the Administrator, nor any person acting on behalf of the Company, any of its subsidiaries,
or the Administrator, will be liable to any Participant, to any permitted transferee, to the estate or beneficiary of any Participant
or any permitted transferee, or to any other person by reason of any acceleration of income, any additional tax, or any penalty,
interest or other liability asserted by reason of the failure of an Award to satisfy the requirements of Section 422 or Section 409A
or by reason of Section 4999 of the Code, or otherwise asserted with respect to any Award.
(c) Unfunded
Plan. The Company’s obligations under the Plan are unfunded, and no Participant
will have any right to specific assets of the Company in respect of any Award. Participants will be general unsecured creditors
of the Company with respect to any amounts due or payable under the Plan.
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12.
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ESTABLISHMENT OF SUB-PLANS
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The Administrator may at any time and from
time to time (including before or after an Award is granted) establish, adopt, or revise any rules and regulations as it may
deem necessary or advisable to administer the Plan for Participants based outside of the U.S. and/or subject to the laws of countries
other than the U.S., including by establishing one or more sub-plans, supplements or appendices under the Plan or any Award agreement
for the purpose of complying or facilitating compliance with non-U.S. laws or taking advantage of tax favorable treatment or for
any other legal or administrative reason determined by the Administrator. Any such sub-plan, supplement or appendix may contain,
in each case, (i) such limitations on the Administrator’s discretion under the Plan and (ii) such additional or
different terms and conditions, as the Administrator deems necessary or desirable and will be deemed to be part of the Plan but
will apply only to Participants within the group to which the sub-plan, supplement or appendix applies (as determined by the Administrator);
provided, however, that no sub-plan, supplement or appendix, rule or regulation established pursuant to this
provision shall increase the Share Pool.
(a) Certain
Requirements of Corporate Law. Awards and shares of Stock will be granted, issued
and administered consistent with the requirements of applicable Delaware law relating to the issuance of stock and the consideration
to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock
is listed or entered for trading, in each case as determined by the Administrator.
(b) Other
Matters. Except as otherwise provided by the express terms of an Award agreement,
under a sub-plan described in Section 12 or as provided in Section 13(a) above, the domestic substantive laws of
the State of Delaware govern the provisions of the Plan and of Awards under the Plan and all claims or disputes arising out of
or based upon the Plan or any Award under the Plan or relating to the subject matter hereof or thereof without giving effect to
any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any
other jurisdiction.
(c) Jurisdiction.
Subject to Section 11(a) and except as may be expressly set forth in an Award
agreement, by accepting (or being deemed to have accepted) an Award, each Participant agrees or will be deemed to have agreed to
(i) submit irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the geographic
boundaries of the United States District Court for the District of Delaware for the purpose of any suit, action or other proceeding
arising out of or based upon the Plan or any Award; (ii) not commence any suit, action or other proceeding arising out of
or based upon the Plan or any Award, except in the federal and state courts located within the geographic boundaries of the United
States District Court for the District of Delaware; and (iii) waive, and not assert, by way of motion as a defense or otherwise,
in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of the above-named
courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or any Award or the subject
matter thereof may not be enforced in or by such court.
EXHIBIT A
Definition of Terms
The following terms, when used in the Plan,
have the meanings and are subject to the provisions set forth below:
“Accounting
Rules”: Financial Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.
“Administrator”:
The Compensation Committee, except with respect to such matters that are not delegated to the Compensation Committee
by the Board (whether pursuant to committee charter or otherwise). The Compensation Committee (or the Board, with respect to such
matters over which it retains authority under the Plan or otherwise) may delegate (i) to one or more of its members (or one
or more other members of the Board) such of its duties, powers and responsibilities as it may determine; (ii) to one or more
officers of the Company the power to grant Awards to the extent permitted by Section 152 or 157(c) of the Delaware General
Corporation Law; and (iii) to such Employees or other persons as it determines such ministerial tasks as it deems appropriate.
For purposes of the Plan, the term “Administrator” will include the Board, the Compensation Committee, and the person
or persons delegated authority under the Plan to the extent of such delegation, as applicable.
“Award”:
Any or a combination of the following:
(i) Stock Options.
(ii) SARs.
(iii) Restricted Stock.
(iv) Unrestricted Stock.
(v) Stock Units, including
Restricted Stock Units.
(vi) Performance Awards.
(vii) Awards (other than
Awards described in (i) through (vi) above) that are convertible into or otherwise based on Stock.
“Board”:
The Board of Directors of the Company.
“Cause”:
In the case of any Participant who is party to an employment, change of control or severance-benefit agreement with
the Company or any of its subsidiaries that contains a definition of “Cause,” the definition set forth in such agreement
applies with respect to such Participant for purposes of the Plan for so long as such agreement is in effect. In every other case,
“Cause” means, as determined by the Administrator, (a) conduct by the Participant constituting a material act
of misconduct in connection with the performance of the Participant’s duties, including, without limitation, misappropriation
of funds or property of the Company or any of its subsidiaries or affiliates other than the occasional, customary and de minimis
use of Company property for personal purposes; (b) the Participant’s commission of a felony or commission of a misdemeanor
involving fraud or any misconduct by the Participant that results in injury or reputational harm to the Company or any of its
subsidiaries and affiliates; (c) any act or omission that constitutes a material breach by the Participant of (i) any
of the Participant’s obligations under any agreement with the Company or any of its subsidiaries or affiliates or (ii) any
material written policy of the Company or any of its subsidiaries and affiliates, including the continued non-performance by the
Participant of the Participant’s duties (other than by reason of the Participant’s physical or mental illness, incapacity
or disability) which has continued for more than thirty (30) days following written notice from the Administrator delineating
such non-performance; (d) a breach by the Participant of any restrictive covenant by the Participant contained in any agreement
between such Participant and the Company or any of its subsidiaries or affiliates; (e) the Participant’s engaging in
any act of dishonesty, violence or threat of violence (including any violation of federal securities laws) which is or could reasonably
be expected to be injurious to the financial condition or business reputation of the Company or any of its subsidiaries or affiliates;
(f) the Participant’s illegal use of controlled substances during the performance of the Participant’s duties
that adversely affects the reputation or best interest of the Company or any subsidiary or affiliate thereof; or (g) the
Participant’s failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement
authorities, after being instructed by the Company to cooperate, or the willful destruction or failure to preserve documents or
other materials known to be relevant to such investigation or the inducement of others to fail to cooperate or to produce documents
or other materials in connection with such investigation.
“Change in Control”:
The consummation of (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “Person”);
(ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s outstanding voting power
immediately prior to such transaction do not own a majority of the outstanding voting power of the surviving or resulting entity
(or its ultimate parent, if applicable); (iii) the acquisition of all or a majority of the outstanding voting stock of the
Company in a single transaction or a series of related transactions by any Person; or (iv) the complete dissolution or liquidation
of the Company; provided, however, that the Company’s initial public offering, any subsequent public offering
or anther capital raising event, a merger effected solely to change the Company’s domicile or any acquisition by the Company
or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or affiliates
shall not constitute a “Change in Control”.
“Code”:
The Internal Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time
to time in effect.
“Company”:
Hayward Holdings, Inc.
“Compensation
Committee”: The Compensation Committee of the Board.
“Covered
Transaction”: Any of (i) a consolidation, merger or similar transaction or series of related transactions,
including a sale or other disposition of stock, in which the Company is not the surviving corporation or which results in the
acquisition of all or substantially all of the Company’s then outstanding common stock by a single person or entity or by
a group of persons and/or entities acting in concert, (ii) a sale or transfer of all or substantially all the Company’s
assets, (iii) a Change in Control, (iv) a dissolution or liquidation of the Company or (v) any other transaction
the Administrator determines to be a Covered Transaction. Where a Covered Transaction involves a tender offer that is reasonably
expected to be followed by a merger described in clause (i) (as determined by the Administrator), the Covered Transaction
will be deemed to have occurred upon consummation of the tender offer.
“Date
of Adoption”: The earlier of the date the Plan was approved by the Company’s stockholders or adopted by
the Board, as determined by the Committee.
“Director”:
A member of the Board who is not an Employee.
“Disability”:
In the case of any Participant who is party to an employment, change of control or severance-benefit agreement that contains a
definition of “Disability” (or a corollary term), the definition set forth in such agreement applies with respect to
such Participant for purposes of the Plan for so long as such agreement is in effect. In every other case, “Disability”
means, as determined by the Administrator, absence from work due to a disability for a period in excess of ninety (90) days in
any twelve (12)-month period that would entitle the Participant to receive benefits under the Company’s long-term disability
program as in effect from time to time (if the Participant were a participant in such program).
“Employee”:
Any person who is employed by the Company or any of its subsidiaries.
“Employment”:
A Participant’s employment or other service relationship with the Company or any of its subsidiaries. Employment
will be deemed to continue, unless the Administrator otherwise determines, so long as the Participant is employed by, or otherwise
is providing services in a capacity described in Section 5 to, the Company or any of its subsidiaries. If a Participant’s
employment or other service relationship is with any subsidiary of the Company and that entity ceases to be a subsidiary of the
Company, the Participant’s Employment will be deemed to have terminated when the entity ceases to be a subsidiary of the
Company unless the Participant transfers Employment to the Company or one of its remaining subsidiaries. Notwithstanding the foregoing,
in construing the provisions of any Award relating to the payment of “nonqualified deferred compensation” (subject
to Section 409A) upon a termination or cessation of Employment, references to termination or cessation of employment, separation
from service, retirement or similar or correlative terms will be construed to require a “separation from service” (as
that term is defined in Section 1.409A-1(h) of the Treasury Regulations, after giving effect to the presumptions contained
therein) from the Company and from all other corporations and trades or businesses, if any, that would be treated as a single “service
recipient” with the Company under Section 1.409A-1(h)(3) of the Treasury Regulations. The Company may, but need
not, elect in writing, subject to the applicable limitations under Section 409A, any of the special elective rules prescribed
in Section 1.409A-1(h) of the Treasury Regulations for purposes of determining whether a “separation from service”
has occurred. Any such written election will be deemed a part of the Plan.
“Exchange
Act”: The Securities Exchange Act of 1934, as amended.
“Fair
Market Value”: As of a particular date, unless otherwise determined by the Administrator, (i) the closing
price for a share of Stock reported on the New York Stock Exchange (or any other national securities exchange on which the Stock
is then listed) for that date or, if no closing price is reported for that date, the closing price on the immediately preceding
date on which a closing price was reported or (ii) in the event that the Stock is not traded on a national securities exchange,
the fair market value of a share of Stock determined by the Administrator consistent with the rules of Section 422 and
Section 409A to the extent applicable.
“ISO”:
A Stock Option intended to be an “incentive stock option” within the meaning of Section 422. Each
Stock Option granted pursuant to the Plan will be treated as providing by its terms that it is to be an NSO unless, as of the date
of grant, it is expressly designated as an ISO in the applicable Award agreement.
“NSO”:
A Stock Option that is not intended to be an “incentive stock option” within the meaning of Section 422.
“Participant”:
A person who is granted an Award under the Plan.
“Performance
Award”: An Award subject to performance vesting conditions, which may include Performance Criteria.
“Performance
Criteria”: Specified criteria, other than the mere continuation of Employment or the mere passage of time, the
satisfaction of which is a condition for the grant, exercisability, vesting or full enjoyment of an Award. A Performance Criterion
and any targets with respect thereto need not be based upon an increase, a positive or improved result or avoidance of loss and
may be applied to a Participant individually, or to a business unit or division of the Company or to the Company as a whole. A
Performance Criterion may also be based on individual performance and/or subjective performance criteria. The Administrator may
provide that one or more of the Performance Criteria applicable to such Award will be adjusted in a manner to reflect events (for
example, but without limitation, acquisitions or dispositions) occurring during the performance period that affect the applicable
Performance Criterion or Criteria.
“Plan”:
The Hayward Holdings, Inc. 2021 Equity Incentive Plan, as from time to time amended and in effect.
“Prior
Plan”: The Hayward Holdings, Inc. Second Amended and Restated 2017 Equity Incentive Plan.
“Restricted
Stock”: Stock subject to restrictions requiring that it be forfeited, redelivered or offered for sale to the
Company if specified performance or other vesting conditions are not satisfied.
“Restricted
Stock Unit”: A Stock Unit that is, or as to which the delivery of Stock or of cash in lieu of Stock is, subject
to the satisfaction of specified performance or other vesting conditions.
“SAR”:
A right entitling the holder upon exercise to receive an amount (payable in cash or in shares of Stock of equivalent
value) equal to the excess of the Fair Market Value of the shares of Stock subject to the right over the base value from which
appreciation under the SAR is to be measured.
“Section 409A”:
Section 409A of the Code and the regulations thereunder.
“Section 422”:
Section 422 of the Code and the regulations thereunder.
“Stock”:
Common stock of the Company, par value $0.001 per share.
“Stock
Option”: An option entitling the holder to acquire shares of Stock upon payment of the exercise price.
“Stock
Unit”: An unfunded and unsecured promise, denominated in shares of Stock, to deliver Stock or cash measured by
the value of Stock in the future.
“Substitute
Awards”: Awards granted under the Plan in substitution for one or more equity awards of an acquired company that
are converted, replaced or adjusted in connection with the acquisition.
“Unrestricted
Stock”: Stock not subject to any restrictions under the terms of the Award.
Exhibit 10.16
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Name:
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Number of Restricted Stock Units:
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Date of Grant:
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Vesting Commencement Date:
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Hayward
Holdings, Inc.
2021 Equity Incentive Plan
Restricted
Stock Unit Agreement
This
agreement (this “Agreement”) evidences a grant (the “Award”) of Restricted Stock Units (“RSUs”)
by Hayward Holdings, Inc., a Delaware corporation (the “Company”), to the individual named above
(the “Participant”), pursuant to and subject to the terms of the Hayward Holdings, Inc. 2021 Equity Incentive
Plan (as from time to time amended and in effect, the “Plan”). Except as otherwise defined herein, all capitalized
terms used herein have the same meaning as in the Plan.
1. Grant
of RSUs. On the date of grant set forth above (the “Date of Grant”), the Company granted to the Participant
the number of Restricted Stock Units (“RSUs”) set forth above, giving the Participant the conditional right
to receive, without payment and pursuant to and subject to the terms and conditions set forth in this Agreement and in the Plan,
one share of Stock (a “Share”) with respect to each RSU subject to this Award, subject to adjustment pursuant
to Section 7 of the Plan in respect of transactions occurring after the date hereof.
The RSUs are granted
to the Participant in connection with the Participant’s Employment with the Company.
2. Vesting.
Unless earlier terminated, forfeited, relinquished or
expired,
will
vest
.
3. Cessation
of Service. If the Participant’s Employment ceases for any reason, except as expressly provided for in Section 2
above [or in a written agreement between the Participant and the Company or one of its affiliates that is in effect at the time
of such cessation of Employment,]1 the RSUs, to the
extent not then vested, will be immediately forfeited for no consideration and the RSUs, to the extent then outstanding and vested
(including as a result of any accelerated vesting in connection with such cessation of Employment under Section 2 above [or
such a written agreement]), will be settled in accordance with Section 4 below. Notwithstanding the foregoing, if the Participant’s
Employment is terminated for Cause or occurs in circumstances that in the determination of the Administrator would have constituted
grounds for the Participant’s Employment to be terminated for Cause (in each case, without regard to the lapsing of any required
notice or cure periods in connection therewith), any vested RSUs will be immediately forfeited for no consideration.
1
Note to Draft: To be removed for non-employee director grants.
4. Delivery
of Shares. The Company shall, as soon as practicable upon the vesting of any RSUs (but in no event later than thirty (30) days
following the date on which such RSUs vest), effect delivery of the Shares with respect to such vested RSUs to the Participant
(or, in the event of the RSUs have passed to the estate or beneficiary of the Participant or a permitted transferee, by such estate
or beneficiary or permitted transferee) and, following such delivery of Shares, such vested RSUs shall cease to be outstanding.
5. Nontransferability.
The RSUs may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
6. Forfeiture;
Recovery of Compensation. By accepting, or being deemed to have accepted, the RSUs, the Participant expressly acknowledges
and agrees that his or her rights, and those of any permitted transferee, with respect to the RSUs, including the right to any
Shares acquired in respect of the RSUs and any amounts received in respect thereof, are subject to Section 6(a)(5) of
the Plan (including any successor provision). The Participant further agrees to be bound by the terms of any applicable clawback
or recoupment policy of the Company. Nothing in the preceding sentence will be construed as limiting the general application of
Section 8 of this Agreement.
7. [Taxes.
The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued
Shares upon settlement of the Award, are subject to the Participant promptly paying to the Company in cash or by check (or by such
other means as may be acceptable to the Administrator) all taxes and other amounts required to be withheld. No Shares will be issued
in respect of the Award unless and until the Participant has remitted to the Company an amount in cash sufficient to satisfy any
withholding requirements, or has made other arrangements satisfactory to the Company with respect to such amounts. Unless otherwise
determined by the Company, the Company shall automatically satisfy any tax withholding obligations by withholding from the Shares
that would otherwise be delivered in connection with a vesting date a number of Shares having a fair market value equal to the
minimum statutory amount required to be withheld to satisfy such tax withholding obligations and/or by causing such number of Shares
to be sold in accordance with a sell-to-cover arrangement. The Participant authorizes the Company and its subsidiaries to withhold
any amounts due in respect of any required withholdings by withholding from the Shares otherwise deliverable in connection with
the RSUs, by causing such Shares to be sold in accordance with a sell-to-cover arrangement and/or by withholding from any amounts
otherwise owed to the Participant. Nothing in this Section 7, however, shall be construed as relieving the Participant of
any liability for satisfying his or her tax obligations relating to the Award. If a sell-to-cover arrangement is selected as contemplated
hereunder the Participant shall bear all costs associated with the sale of Shares under such arrangement.]2
[The Participant is responsible for satisfying and paying all taxes arising from or due in connection with the Award, its vesting
and/or settlement and any disposition of any Shares acquired upon the vesting of the Award. The Company will have no liability
or obligation related to the foregoing.]3
2
Note to Draft: To be included for employee grants.
8. Provisions
of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference.
A copy of the Plan as in effect on the Date of Grant has been made available to the Participant. By accepting, or being deemed
to have accepted, the Award, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event of any
conflict between the terms of this Agreement and the Plan, the terms of the Plan will control.
9. Acknowledgements.
The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which
will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed
and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an
original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company
and will create a legally binding agreement when this Agreement is countersigned by the Participant.
[Signature page follows.]
3
Note to Draft: To be included for non-employee director grants.
The Company, by its
duly authorized officer, and the Participant have executed this Agreement.
Agreed and Accepted:
Signature Page
to Restricted Stock Unit Agreement
Exhibit 10.17
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Name:
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Number of Shares of Stock subject to the Stock Option:
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Exercise Price Per Share:
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$
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Date of Grant:
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[Vesting Commencement Date:]
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Hayward
Holdings, Inc.
2021 Equity Incentive Plan
Non-Statutory
Stock Option Agreement
This agreement (this
“Agreement”) evidences a stock option granted by Hayward Holdings, Inc., a Delaware corporation (the “Company”),
to the individual named above (the “Participant”), pursuant to and subject to the terms of the Hayward Holdings, Inc.
2021 Equity Incentive Plan (as from time to time amended and in effect, the “Plan”). Except as otherwise defined
herein, all capitalized terms used herein have the same meaning as in the Plan.
1. Grant
of Stock Option. On the date of grant set forth above (the “Date of Grant”), the Company granted to the
Participant an option (the “Stock Option”) to purchase, pursuant to and subject to the terms and conditions
set forth in this Agreement and in the Plan, up to the number of shares of Stock set forth above (the “Shares”),
with an exercise price per Share as set forth above, in each case subject to adjustment pursuant to Section 7 of the Plan
in respect of transactions occurring after the date hereof.
The Stock Option evidenced
by this Agreement is a non-statutory option (that is, an option that is not intended to qualify as an incentive stock option) and
is granted to the Participant in connection with the Participant’s Employment.
2. Vesting.
The term “vest” as used herein with respect to the Stock Option or any portion thereof means to become exercisable
and the term “vested” as used herein with respect to the Stock Option (or any portion thereof) means that the
Stock Option (or portion thereof) is then exercisable. Unless earlier terminated, forfeited, relinquished or expired, the Stock
Option will vest .
3. Exercise
of the Stock Option. No portion of the Stock Option may be exercised until such portion vests. Each election to exercise any
vested portion of the Stock Option will be subject to the terms and conditions of the Plan and must be in written or electronic
form acceptable to the Administrator, signed (including by electronic signature) by the Participant or, if at the relevant time
the Stock Option has passed to the estate or beneficiary of the Participant or a permitted transferee, by such estate or beneficiary
or permitted transferee. Each such written or electronic exercise election must be received by the Company at its principal office
or at such other place or by such other party as the Administrator may prescribe and must be accompanied by payment in full of
the exercise price by cash or check, through a broker-assisted exercise program acceptable to the Administrator, or as otherwise
provided in the Plan. Subject to earlier termination as set forth herein or in the Plan (including Section 6(a)(4) of
the Plan), the latest date on which the Stock Option or any portion thereof may be exercised is the tenth (10th) anniversary
of the Date of Grant (the “Final Exercise Date”) and, if not exercised on or prior to such date, the Stock Option
or any remaining portion thereof will thereupon immediately terminate.
4. Cessation
of Employment. If the Participant’s Employment ceases for any reason, except as expressly provided for in Section 2
above or in a written agreement between the Participant and the Company or one of its affiliates that is in effect at the time
of such cessation of Employment, the Stock Option, to the extent not then vested, will be immediately forfeited for no consideration,
and any vested portion of the Stock Option that is then outstanding will remain exercisable for the period, if any, described in
Section 6(a)(4) of the Plan.
5. Restrictions
on Transfer. The Stock Option may not be transferred except as expressly permitted under Section 6(a)(3) of the Plan.
6. Forfeiture;
Recovery of Compensation. By accepting, or being deemed to have accepted, the Stock Option, the Participant expressly acknowledges
and agrees that his or her rights, and those of any permitted transferee, with respect to the Stock Option, including the right
to any Shares acquired under the Stock Option and any amounts received in respect thereof, are subject to Section 6(a)(5) of
the Plan (including any successor provision). The Participant further agrees to be bound by the terms of any applicable clawback
or recoupment policy of the Company. Nothing in the preceding sentence will be construed as limiting the general application of
Section 8 of this Agreement.
7. Taxes.
The Participant expressly acknowledges and agrees that the Participant’s rights hereunder, including the right to be issued
Shares upon exercise of the Stock Option, are subject to the Participant promptly paying to the Company in cash or by check (or
by such other means as may be acceptable to the Administrator) all taxes and other amounts required to be withheld. No Shares will
be issued pursuant to the exercise of the Stock Option unless and until the person exercising the Stock Option has remitted to
the Company an amount in cash sufficient to satisfy any withholding requirements, or has made other arrangements satisfactory to
the Company with respect to such amounts. The Participant authorizes the Company and its subsidiaries to withhold any amounts due
in respect of any required withholdings from any amounts otherwise owed to the Participant, but nothing in this sentence will be
construed as relieving the Participant from any liability for satisfying his or her obligation under the preceding provisions of
this Section.
8. Provisions
of the Plan. This Agreement is subject in its entirety to the provisions of the Plan, which are incorporated herein by reference.
A copy of the Plan as in effect on the Date of Grant has been made available to the Participant. By accepting, or being deemed
to have accepted, the Stock Option, the Participant agrees to be bound by the terms of the Plan and this Agreement. In the event
of any conflict between the terms of this Agreement and the Plan, the terms of the Plan will control.
9. Acknowledgements.
The Participant acknowledges and agrees that (i) this Agreement may be executed in two or more counterparts, each of which
will be an original and all of which together will constitute one and the same instrument, (ii) this Agreement may be executed
and exchanged using facsimile, portable document format (PDF) or electronic signature, which, in each case, will constitute an
original signature for all purposes hereunder, and (iii) such signature by the Company will be binding against the Company
and will create a legally binding agreement when this Agreement is countersigned by the Participant.
[Signature page follows.]
The Company, by its duly authorized officer,
and the Participant have executed this Agreement.
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HAYWARD HOLDINGS, INC.
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By:
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Name:
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Title:
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Agreed and Accepted:
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By
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[Participant’s Name]
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Signature Page to Stock Option
Agreement
Exhibit 10.18
Hayward
Holdings, Inc.
2021
Employee Stock Purchase Plan
Exhibit A, which is incorporated
by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms.
The Plan is intended to enable Eligible
Employees to use payroll deductions to purchase shares of Stock in offerings under the Plan, and thereby acquire an interest in
the Company. The Plan is intended to qualify as an “employee stock purchase plan” under Section 423 and to be
exempt from the application and requirements of Section 409A of the Code, and is to be construed accordingly.
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3.
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OPTIONS TO PURCHASE
STOCK
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Subject to adjustment pursuant to Section 16
of the Plan, the maximum aggregate number of shares of Stock available for purchase pursuant to the exercise of Options granted
under the Plan will be 2,700,000 shares (the “Share Pool”). The shares of Stock to be delivered upon exercise of Options
under the Plan may be either shares of authorized but unissued Stock, treasury Stock, or previously issued Stock acquired by the
Company. If any Option granted under the Plan expires or terminates for any reason without having been exercised in full or ceases
for any reason to be exercisable in whole or in part, the unpurchased shares of Stock subject to such Option will not reduce the
Share Pool and will again be available for purchase under the Plan. If, on an Exercise Date, the total number of shares of Stock
that would otherwise be subject to Options granted under the Plan exceeds the number of shares then available in the Share Pool,
the Administrator shall make a pro rata allocation of the shares remaining available for purchase under the Plan in as uniform
a manner as is practicable and as it determines to be equitable. In such event, the Administrator shall notify each Participant
of such reduction and of the effect on the Participant’s Options and may reduce the rate of a Participant’s payroll
deductions, if necessary.
(a) Eligibility
Requirements. Subject to Section 13 of the Plan, and the exceptions and limitations
set forth in Section 4(b), Section 4(c), and Section 6 of the Plan, or as may be provided elsewhere in the Plan
or in any sub-plan contemplated by Section 23, each Employee (i) who has been continuously employed by the Company or
a Designated Subsidiary, as applicable, for a period of at least 90 calendar days as of the first day of an Option Period, (ii) whose
customary Employment with the Company or a Designated Subsidiary, as applicable, is for more than five (5) months per calendar
year, (iii) who customarily works twenty (20) hours or more per week, and (iv) who satisfies the requirements set forth
in the Plan will be an Eligible Employee.
(b) Five
Percent Shareholders. No Employee may be granted an Option under the Plan if, immediately
after the Option is granted, the Employee would own (or pursuant to Section 424(d) of the Code would be deemed to own)
stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or
of its Parent or Subsidiaries, if any.
(c) Additional
Requirements. The Administrator may, for Option Periods that have not yet commenced,
establish additional or other eligibility requirements, or amend the eligibility requirements set forth in subsection (a) above,
in each case, consistent with the requirements of Section 423.
The Plan will generally be implemented by
a series of separate offerings referred to as “Option Periods”. Unless otherwise determined by the Administrator, the
Option Periods will be successive periods of approximately six (6) months commencing on the first Business Day in January and
July of each year, anticipated to be on or around January 1 and July 1, and ending approximately six months later
on the last Business Day in June or December, as applicable, of each year, anticipated to be on or around June 30 and
December 31. The last Business Day of each Option Period will be an “Exercise Date”. The Administrator may change
the Exercise Date, the commencement date, the ending date and the duration of each Option Period, in each case, to the extent permitted
by Section 423; provided, however, that no Option may be exercised after 27 months from its grant
date.
Subject to the limitations set forth in
Sections 4 and 10 of the Plan and the Maximum Share Limit, on the first day of an Option Period, each Participant will automatically
be granted an Option to purchase shares of Stock on the Exercise Date; provided, however, that no Participant will
be granted an Option under the Plan that permits the Participant’s right to purchase shares of Stock under the Plan and under
all other employee stock purchase plans of the Company and its Parent and Subsidiaries, if any, to accrue at a rate that exceeds
$25,000 in Fair Market Value (or such other maximum as may be prescribed from time to time by the Code) for each calendar year
during which any Option granted to such Participant is outstanding at any time, as determined in accordance with Section 423(b)(8) of
the Code.
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7.
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METHOD OF PARTICIPATION
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(a) Payroll
Deduction and Participation Authorization. To participate in an Option Period, an
Eligible Employee must execute and deliver to the Administrator a payroll deduction and participation authorization form in accordance
with the procedures prescribed by, and in a form acceptable to, the Administrator and, in so doing, the Eligible Employee will
thereby become a Participant as of the first day of such Option Period. Such an Eligible Employee will remain a Participant with
respect to subsequent Option Periods until his or her participation in the Plan is terminated as provided herein. Such payroll
deduction and participation authorization must be delivered not later than ten (10) calendar days prior to the first day of
an Option Period, or such other time as specified by the Administrator.
(b) Changes
to Payroll Deduction Authorization for Subsequent Option Periods. A Participant’s
payroll deduction authorization will remain in effect for subsequent Option Periods unless the Participant files a new authorization
not later than ten (10) calendar days prior to the first day of the subsequent Option Period (or such other time as specified
by the Administrator) or the Participant’s Option is cancelled pursuant to Section 13 or Section 14 of the Plan.
(c) Changes
to Payroll Deduction Authorization for Current Option Period. During an Option Period,
a Participant’s payroll deduction authorization may not be increased or decreased, except that a Participant may terminate
his or her payroll deduction authorization by canceling his or her Option in accordance with Section 13 of the Plan.
(d) Payroll
Deduction Percentage. Each payroll deduction authorization will authorize payroll
deductions as a whole percentage from 1% to 10% of the employee’s Eligible Compensation per payroll period.
(e) Payroll
Deduction Account. All payroll deductions made pursuant to this Section 7 will
be credited to the Participant’s Account. Amounts credited to a Participant’s Account will not be required to be set
aside in trust or otherwise segregated from the Company’s general assets.
A Participant must pay for shares of Stock
purchased under the Plan with accumulated payroll deductions credited to the Participant’s Account.
The Purchase Price of shares of Stock issued
pursuant to the exercise of an Option on each Exercise Date will be eighty-five percent (85%) (or such greater percentage specified
by the Administrator to the extent permitted under Section 423) of the lesser of (a) the Fair Market Value of a share
of Stock on the date on which the Option was granted pursuant to Section 6 of the Plan (i.e., the first day of the
Option Period) and (b) the Fair Market Value of a share of Stock on the date on which the Option is deemed exercised pursuant
to Section 10 of the Plan (i.e., the Exercise Date).
(a) Purchase
of Shares. Subject to the limitations set forth in Section 6 of the Plan
and this Section 10, with respect to each Option Period, on the applicable Exercise Date, each Participant will be deemed
to have exercised his or her Option and the accumulated payroll deductions in the Participant’s Account will be applied to
purchase the greatest number of shares of Stock (rounded down to the nearest whole share) that can be purchased with such Account
balance at the applicable Purchase Price; provided, however, that no more than 5,000 shares of Stock
may be purchased by a Participant on any Exercise Date, or such other number as the Administrator may prescribe in accordance with
Section 423 (the “Maximum Share Limit”). As soon as practicable thereafter, shares of Stock so purchased will
be placed, in book-entry form, into a record keeping account in the name of the Participant. No fractional shares will be purchased
pursuant to the exercise of an Option under the Plan; any accumulated payroll deductions in a Participant’s Account that
are not sufficient to purchase a whole share will be retained in the Participant’s Account for the subsequent Option Period,
subject to earlier withdrawal by the Participant as provided in Section 13 hereof.
(b) Return
of Account Balance. Except as provided in Section 10(a) above with respect
to fractional shares, any accumulated amount of payroll deductions in a Participant’s Account for an Option Period that are
not used for the purchase of shares of Stock, whether because of the Participant’s withdrawal from participation in an Option
Period or for any other reason, will be returned to the Participant (or his or her designated beneficiary or legal representative,
as applicable), without interest, as soon as administratively practicable after such withdrawal or other event, as applicable.
If the Participant’s accumulated payroll deductions on the Exercise Date of an Option Period would otherwise enable the Participant
to purchase shares of Stock in excess of the Maximum Share Limit or the maximum Fair Market Value set forth in Section 6 of
the Plan, the excess of the amount of the accumulated payroll deductions over the aggregate Purchase Price of the shares of Stock
actually purchased will be returned to the Participant, without interest, as soon as administratively practicable after such Exercise
Date.
No interest will accrue or be payable on
any amount held in the Account of any Participant.
Payroll deductions will be made on an after-tax
basis. The Administrator will have the right to make such provision as it deems necessary for, and
may condition the exercise of an Option on, the satisfaction of its obligations to withhold federal, state, local income
or other taxes incurred by reason of the purchase or disposition of shares of Stock under the Plan. In the Administrator’s
discretion and subject to applicable law, such tax obligations may be satisfied in whole or in part by delivery of shares of Stock
to the Company, including shares of Stock purchased under the Plan, valued at Fair Market Value, but not in excess of the maximum
withholding amount consistent with the award being subject to equity accounting treatment under the Accounting Rules.
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13.
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CANCELLATION AND WITHDRAWAL
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A Participant who has been granted an Option
under the Plan may cancel all (but not less than all) of such Option and terminate his or her participation in the Plan by notice
to the Administrator in accordance with the procedures prescribed by, and in a form acceptable to, the Administrator. To be effective
with respect to an upcoming Exercise Date, such cancellation notice must be delivered not later than ten (10) calendar days
prior to such Exercise Date (or such other time as specified by the Administrator). Upon such termination and cancellation, the
balance in the Participant’s Account will be returned to the Participant, without interest, as soon as administratively practicable
thereafter. For the avoidance of doubt, a Participant who reduces his or her withholding rate for a future Option Period to 0%
pursuant to Section 7 of the Plan will be deemed to have terminated his or her payroll deduction authorization and canceled
his or her participation in the Plan as to such Option Period and all future Option Periods, unless the Participant delivers a
new payroll deduction authorization for a subsequent Option Period in accordance with the rules of Section 7(b) of
the Plan.
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14.
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TERMINATION OF EMPLOYMENT;
DEATH OF PARTICIPANT
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Upon the termination of a Participant’s
employment with the Company or a Designated Subsidiary, as applicable, for any reason (including the death of a Participant during
an Option Period prior to an Exercise Date) or in the event the Participant ceases to qualify as an Eligible Employee, the Participant
will cease to be a Participant, any Option held by the Participant under the Plan will be canceled, the balance in the Participant’s
Account will be returned to the Participant (or his or her estate or designated beneficiary in the event of the Participant’s
death), without interest, as soon as administratively practicable thereafter, and the Participant will have no further rights under
the Plan.
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15.
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EQUAL RIGHTS; PARTICIPANT’S
RIGHTS NOT TRANSFERABLE
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All Participants granted Options in an offering
under the Plan will have the same rights and privileges, consistent with the requirements set forth in Section 423. Any Option
granted under the Plan will be exercisable during the Participant’s lifetime only by him or her and may not be sold, pledged,
assigned, or transferred in any manner. In the event any Participant violates or attempts to violate the terms of this Section 15,
as determined by the Administrator in its sole discretion, any Options granted to the Participant under the Plan may be terminated
by the Company and, upon the return to the Participant of the balance of his or her Account, without interest, all of the Participant’s
rights under the Plan will terminate.
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16.
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CHANGE IN CAPITALIZATION;
CORPORATE TRANSACTION
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(a) Change
in Capitalization. In the event of a stock dividend, stock split or combination of
shares (including a reverse stock split), recapitalization or other change in the Company’s capital structure that constitutes
an equity restructuring within the meaning of the Accounting Rules, the Administrator shall make appropriate adjustments to the
aggregate number and type of shares of stock available under the Plan, the number and type of shares of stock granted under any
outstanding Options, the maximum number and type of shares of stock purchasable under any outstanding Option, and/or the Purchase
Price under any outstanding Option, in each case, in a manner that complies with Section 423.
(b) Corporate
Transaction. In the event of a sale of all or substantially all of the Stock or a
sale of all or substantially all of the assets of the Company, or a merger or similar transaction in which the Company is not the
surviving corporation or that results in the acquisition of the Company by another person, the Administrator may, in its discretion,
(i) if the Company is merged with or acquired by another corporation, provide that each outstanding Option will be assumed
or exchanged for a substitute Option granted by the acquiror or successor corporation or by a parent or subsidiary of the acquiror
or successor corporation, (ii) cancel each outstanding Option and return the balances in Participants’ Accounts to the
Participants, and/or (iii) pursuant to Section 18 of the Plan, terminate the Option Period on or before the date of the
proposed sale, merger or similar transaction.
The Plan will be administered by the Administrator.
The Administrator has discretionary authority, subject only to the express provisions of the Plan, to administer and interpret
the Plan; to determine eligibility under the Plan; to prescribe forms, rules and procedures relating to the Plan; and to otherwise
do all things necessary or desirable to carry out the purposes of the Plan. Determinations of the Administrator made with respect
to the Plan are conclusive and bind all persons.
The Administrator may specify the manner
in which the Company and/or Employees are to provide notices and forms under the Plan, and may require that such notices and forms
be submitted electronically.
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18.
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AMENDMENT AND TERMINATION
OF PLAN
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(a) Amendment.
The Administrator reserves the right at any time or times to amend the Plan to any extent and in any manner it may deem advisable;
provided, however, that any amendment that would be treated as the adoption of a new plan for purposes of Section 423
will have no force or effect unless approved by the shareholders of the Company within 12 months before or after its adoption.
(b) Termination.
The Administrator reserves the right at any time or times to suspend or terminate the
Plan. In connection therewith, the Administrator may provide, in its sole discretion, either that outstanding Options will be exercisable
on the Exercise Date for the applicable Option Period or on such earlier date as the Administrator may specify (in which case such
earlier date will be treated as the Exercise Date for the applicable Option Period), or that the balance of each Participant’s
Account will be returned to the Participant, without interest.
Shareholder approval of the Plan will be
obtained prior to the date that is twelve (12) months after the date of Board approval. In the event that the Plan has not been
approved by the shareholders of the Company prior to March 1, 2022, all Options to purchase shares of Stock under the Plan
will be cancelled and become null and void.
Notwithstanding anything herein to the contrary,
the obligation of the Company to issue and deliver shares of Stock under the Plan will be subject to the approval required of any
governmental authority in connection with the authorization, issuance, sale or transfer of such shares of Stock and to any requirements
of any national securities exchange applicable thereto, and to compliance by the Company with other applicable legal requirements
in effect from time to time.
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20.
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PARTICIPANTS’
RIGHTS AS SHAREHOLDERS AND EMPLOYEES
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A Participant will have no rights or privileges
as a shareholder of the Company and will not receive any dividends in respect of any shares of Stock covered by an Option granted
hereunder until such Option has been exercised, full payment has been made for such shares, and the shares have been issued to
the Participant.
Nothing contained in the provisions of the
Plan will be construed as giving to any Employee the right to be retained in the employ of the Company or any Designated Subsidiary
or as interfering with the right of the Company or any Designated Subsidiary to discharge, promote, demote or otherwise re-assign
any Employee from one position to another within the Company or any Designated Subsidiary at any time.
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21.
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RESTRICTIONS ON TRANSFER;
INFORMATION REGARDING DISQUALIFYING DISPOSITIONS.
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(a) Restrictions
on Transfer. Shares of Stock purchased under the Plan may, in the discretion of the
Administrator, be subject to a restriction prohibiting the transfer, sale, pledge or alienation of such shares of Stock by a Participant,
other than by will or by the laws of descent and distribution, for such period following such purchase as may be determined by
the Administrator.
(b) Disqualifying
Dispositions. By electing to participate in the Plan, each Participant agrees to provide
such information about any transfer of Stock acquired under the Plan that occurs within two years after the first day of the Option
Period in which such Stock was acquired and within one year after the day such Stock was purchased as may be requested by the Company
or any Designated Subsidiary in order to assist it in complying with applicable tax laws.
(a) Waiver
of Jury Trial. By electing to participate in the Plan, each Participant waives (or
will be deemed to have waived), to the maximum extent permitted under applicable law, any right to a trial by jury in any action,
proceeding or counterclaim concerning any rights under the Plan or with respect to any Option, or under any amendment, waiver,
consent, instrument, document or other agreement delivered or which in the future may be delivered in connection therewith, and
agrees (or will be deemed to have agreed) that any such action, proceedings or counterclaim will be tried before a court and not
before a jury. By electing to participate in the Plan, each Participant certifies that no officer, representative, or attorney
of the Company has represented, expressly or otherwise, that the Company would not, in the event of any action, proceeding or counterclaim,
seek to enforce the foregoing waivers. Notwithstanding anything to the contrary in the Plan, nothing herein is to be construed
as limiting the ability of the Company and a Participant to agree to submit any dispute arising under the terms of the Plan or
in respect of any Option to binding arbitration or as limiting the ability of the Company to require any individual to agree to
submit such disputes to binding arbitration as a condition of receiving an Option hereunder.
(b) Limitation
of Liability. Notwithstanding anything to the contrary in the Plan, neither the Company,
nor any of its subsidiaries, nor the Administrator, nor any person acting on behalf of the Company, any of its subsidiaries, or
the Administrator, will be liable to any Participant, to any permitted transferee, to the estate or beneficiary of any Participant
or any permitted transferee, or to any other person by reason of any acceleration of income, any additional tax, or any penalty,
interest or other liability asserted by reason of the failure of the Plan or any Option to satisfy the requirements of Section 423,
or otherwise asserted with respect to the Plan or any Option.
(c) Unfunded
Plan. The Company’s obligations under the Plan are unfunded, and no Participant
will have any right to specific assets of the Company in respect of any Option. Participants will be general unsecured creditors
of the Company with respect to any amounts due or payable under the Plan.
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23.
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ESTABLISHMENT OF SUB-PLANS
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Notwithstanding the foregoing or any provision
of the Plan to the contrary, consistent with the requirements of Section 423, the Administrator may, in its sole discretion,
amend the terms of the Plan, or an offering and/or provide for separate offerings under the Plan in order to, among other things,
reflect the impact of local law outside of the United States as applied to one or more Eligible Employees of a Designated Subsidiary
and may, where appropriate, establish one or more sub-plans to reflect such amended provisions.
(a) Certain
Requirements of Corporate Law. Options and shares of Stock will be granted, issued
and administered consistent with the requirements of applicable Delaware law relating to the issuance of stock and the consideration
to be received therefor, and with the applicable requirements of the stock exchanges or other trading systems on which the Stock
is listed or entered for trading, in each case as determined by the Administrator.
(b) Other
Matters. Except as otherwise provided by the express terms of a sub-plan described
in Section 23 or as provided in Section 24(a), the domestic substantive laws of the State of Delaware govern the provisions
of the Plan and of Options under the Plan and all claims or disputes arising out of or based upon the Plan or any Option or relating
to the subject matter hereof or thereof without giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other jurisdiction.
(c) Jurisdiction.
By electing to participate in the Plan, each Participant agrees or will be deemed to have
agreed to (i) submit irrevocably and unconditionally to the jurisdiction of the federal and state courts located within the
geographic boundaries of the United States District Court for the District of Delaware for the purpose of any suit, action or other
proceeding arising out of or based upon the Plan or any Option; (ii) not commence any suit, action or other proceeding arising
out of or based upon the Plan or any Option, except in the federal and state courts located within the geographic boundaries of
the United States District Court for the District of Delaware; and (iii) waive, and not assert, by way of motion as a defense
or otherwise, in any such suit, action or proceeding, any claim that he or she is not subject personally to the jurisdiction of
the above-named courts that his or her property is exempt or immune from attachment or execution, that the suit, action or proceeding
is brought in an inconvenient forum, that the venue of the suit, action or proceeding is improper or that the Plan or any Option
or the subject matter thereof may not be enforced in or by such court.
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25.
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EFFECTIVE DATE AND TERM
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The Plan will become effective upon adoption
of the Plan by the Board and no rights will be granted hereunder after the earliest to occur of (a) the Plan’s termination
by the Company, (b) the issuance of all shares of Stock available for issuance under the Plan or (c) the day before the
10-year anniversary of the date the Board approves the Plan.
EXHIBIT A
Definition of Terms
The following terms, when used in the Plan,
will have the meanings and be subject to the provisions set forth below:
“401(k) Plan”: A
savings plan qualifying under Section 401(k) of the Code that is sponsored by the Company or one of its Subsidiaries
for the benefit of its employees.
“Account”: A notional
payroll deduction account maintained in the Participant’s name on the books of the Company.
“Accounting Rules”: Financial
Accounting Standards Board Accounting Standards Codification Topic 718, or any successor provision.
“Administrator”: The
Compensation Committee of the Board, except that the Compensation Committee may delegate its authority under the Plan to a sub-committee
comprised of one or more of its members, to members of the Board, or to officers or employees of the Company to the extent permitted
by applicable law. In each case, references herein to the Administrator refer, as applicable, to such persons or groups so delegated
to the extent of such delegation.
“Board”: The Board of
Directors of the Company.
“Business Day”: Any
day on which the established national exchange or trading system (including the New York Stock Exchange)
on which the Stock is traded is available and open for trading.
“Code”: The Internal
Revenue Code of 1986, as from time to time amended and in effect, or any successor statute as from time to time in effect.
“Company”: Hayward Holdings, Inc.,
a Delaware corporation.
“Designated Subsidiary”:
A Subsidiary of the Company that has been designated by the Board or the Compensation Committee of the Board from time to time
as eligible to participate in the Plan. A list of the Designated Subsidiaries on the Effective Date is set forth on Annex A hereto.
For the avoidance of doubt, any Subsidiary of the Company, whether or not a Subsidiary on the Effective Date, shall be eligible
to be designated as a Designated Subsidiary hereunder.
“Effective Date”: The
date on which the Board adopts the Plan as set forth in Section 25 of the Plan.
“Eligible Compensation”:
Regular base salary, regular base wages, overtime payments, annual bonuses, commissions and sales incentives (excluding, for the
avoidance of doubt, any long-term or equity-based incentive payments or awards). Eligible Compensation will not be reduced by any
income or employment tax withholdings or any contributions by the Employee to a 401(k) Plan or a plan under Section 125
of the Code, but will be reduced by any contributions made on the Employee’s behalf by the Company or any Subsidiary to any
deferred compensation plan or welfare benefit program now or hereafter established.
“Eligible Employee”:
Any Employee who meets the eligibility requirements set forth in Section 4 of the Plan.
“Employee”: Any person
who is employed by the Company or a Designated Subsidiary. For the avoidance of doubt, independent contractors and consultants
are not “Employees”.
“Exercise Date”: The
date set forth in Section 5 of the Plan or otherwise designated by the Administrator with respect to a particular Option Period
on which a Participant will be deemed to have exercised the Option granted to him or her for such Option Period.
“Fair Market Value”:
(a) If the Stock is readily traded
on an established national exchange or trading system (including the New York Stock Exchange), the closing price of a share of
Stock as reported by the principal exchange on which such Stock is traded; provided, however, that
if such day is not a trading day, Fair Market Value will mean the reported closing price of a share of Stock for the immediately
preceding day that is a trading day.
(b) If the Stock is not traded on an
established national exchange or trading system, the average of the bid and ask prices for shares Stock where the bid and ask prices
are quoted.
(c) If the Stock cannot be valued pursuant
to clauses (a) or (b), the value as determined in good faith by the Board in its sole discretion.
“Maximum Share Limit”:
The meaning set forth in Section 10 of the Plan.
“Option”: An option granted
pursuant to the Plan entitling the holder to acquire shares of Stock upon payment of the Purchase Price per share of Stock.
“Option Period”: An offering
period established in accordance with Section 5 of the Plan.
“Parent”: A “parent
corporation” as defined in Section 424(e) of the Code.
“Participant”: An Eligible
Employee who elects to participate in an Option Period under the Plan.
“Plan”: The Hayward Holdings, Inc.
2021 Employee Stock Purchase Plan, as from time to time amended and in effect.
“Purchase Price”: The
price per share of Stock with respect to an Option Period determined in accordance with Section 9 of the Plan.
“Section 423”: Section 423
of the Code and the regulations thereunder.
“Stock”: Common stock
of the Company, par value $0.001 per share.
“Subsidiary”: A “subsidiary
corporation” as defined in Section 424(f) of the Code.
ANNEX A
Designated Subsidiaries
(as of March 1, 2021)
Hayward Industries, Inc.
Exhibit 10.20
Amended
and restated EMPLOYMENT AGREEMENT
This Amended and Restated
Employment Agreement (the “Agreement”) is entered into as of March 2, 2021 by and among Hayward Industries, Inc.
(the “Company”), Hayward Holdings, Inc. (the “Parent”) and Kevin P. Holleran (the “Executive”)
(the Company, the Parent and the Executive, individually, a “Party” and, collectively, the “Parties”)
and is effective as of the day prior to the date on which the Parent becomes subject to the reporting obligations of Section 12
of the Securities Exchange Act of 1934, as amended (the “Effective Date”). (Hereinafter the Company and the
Parent together may be referred to as the “Companies.”) This Agreement amends and restates in its entirety the
employment agreement by and among the Company, the Parent, and the Executive, effective as of August 12, 2019 (the “Prior
Agreement”).
Terms used herein with
initial capitalization not otherwise defined are defined in Section 24 hereof.
WITNESSETH:
WHEREAS, the Company
desires the Executive to continue to serve as President and Chief Executive Officer of the Company and the Executive is willing
to continue to do so pursuant to the terms of this Agreement; and
WHEREAS, the Parent
desires to continue to employ the Executive as President and Chief Executive Officer of the Parent and the Executive is willing
to continue to do so pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration
of the premises and of the covenants and agreements set forth herein and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Companies and the Executive hereby agree as follows:
1. Employment.
The Companies agree to continue to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to continue
to be so employed for a period commencing on the Effective Date and continuing until the Executive’s employment is terminated
pursuant to Section 9 hereof (the “Employment Period”).
2. Position
and Duties. During the Employment Period, the Executive shall serve as President and Chief Executive Officer of each of the
Company and the Parent and each of their subsidiaries, reporting directly to the Board of Directors of the Parent (the “Board”).
In such capacities, the Executive shall have the duties, responsibilities and authorities customarily associated with the positions
of President and Chief Executive Officer, respectively, in companies the size and nature of the Company and the Parent, respectively.
For so long as the Executive serves as the President and Chief Executive Officer of the Company and the Parent, the Parent will
nominate the Executive to serve as a member of the Board and the Executive will serve as a director of the Board if elected; provided,
however, that if the Executive ceases to be employed as President and Chief Executive Officer of the Parent, then the Executive
will be deemed to have concurrently resigned voluntarily from the Board. The Executive shall devote the Executive’s reasonable
best efforts and substantially all of the Executive’s business time to the performance of the Executive’s duties and
responsibilities hereunder; provided that the Executive shall be entitled to (a) manage the Executive’s personal
and family investments, and (b) with the prior written approval of the Board (or the Nominating and Governance Committee of
the Board), serve as a member of the board of directors of no more than one (1) public company and one (1) non-profit
or private company, each case, to the extent such activities do not materially interfere with the performance of the Executive’s
duties and responsibilities hereunder (including, for the avoidance of doubt, the terms of Sections 6, 7 and 8 hereof).
3. Place
of Performance. During the Employment Period, the Executive shall be based primarily at the Company’s principal executive
offices. The Executive understands and agrees that the Executive may be required to travel from time to time for business purposes.
4. Compensation
and Benefits; Incentive Awards; Relocation.
(a) Base
Salary. During the Employment Period, the Company shall pay to the Executive a base salary (the “Base Salary”)
at the annual rate of no less than $775,000 for the 2021 calendar year, and, provided that the Board and the Executive do not agree
to freeze management salaries due to performance or other considerations, at the annual rate of no less than $875,000 for the 2022
calendar year, less applicable deductions. Commencing with the 2023 calendar year, the Executive’s Base Salary shall be reviewed
for increase (but not decrease) by the Board or the Compensation Committee of the Board (the “Compensation Committee”),
and such review shall then occur no less frequently than annually and the Executive’s Base Salary may be increased in the
sole discretion of the Board or the Compensation Committee and any such adjusted Base Salary shall thereafter constitute the “Base
Salary” for purposes of this Agreement. The Base Salary shall be paid in substantially equal installments in accordance with
the Company’s regular payroll procedures.
(b) Annual
Bonus. During the Employment Period, the Executive shall be eligible to receive an annual cash performance bonus (an “Annual
Bonus”) under the Company’s annual incentive plan (as in effect from time to time for senior executives) in respect
of each plan year that ends during the Employment Period, to the extent earned based on the achievement of performance criteria
set by the Board or the Compensation Committee. The performance criteria for a plan year shall be determined by the Board or the
Compensation Committee, in good faith, no later than sixty (60) days after the commencement of such plan year. The Executive’s
target Annual Bonus shall be no less than 100% of the Executive’s Base Salary as of the beginning of the applicable plan
year (the “Target Bonus”) if target levels of performance for that year are achieved. The Executive’s
Annual Bonus for any plan year shall be determined by the Board or the Compensation Committee after the end of such plan year and
shall be paid to the Executive no later than seventy-five (75) calendar days following the end of such plan year. For purposes
of Section 24(a) hereof, if the Executive’s employment is terminated pursuant to the terms of Section 9
hereof after the end of any plan year (other than pursuant to Section 9(c)), but prior to such Annual Bonus determination
by the Board or the Compensation Committee with respect to that plan year, and the Board or the Compensation Committee subsequently
determines that the Annual Bonus for that plan year has been earned by the Executive, then any such earned Annual Bonus shall be
considered an Accrued Benefit.
(c) Equity
Incentive Awards. During the Employment Period, the Executive shall be eligible to participate in any equity incentive plan
that may be made available, from time to time, to other senior executives of the Companies.
(d) Vacation;
Benefits. During the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation annually (accruing
ratably on an annual basis) and to participate in all employee benefits made available, from time to time, to senior executive
officers of the Company.
(e) Perquisites.
During the Employment Period, the Executive shall be entitled to perquisites no less favorable than those generally provided by
the Company, from time to time, to other senior executive officers of the Company. Without limiting the foregoing, the Executive
shall be entitled to reimbursement pursuant to Section 5 for annual Young Presidents’ Organization (“YPO”)
dues and travel, registration, and incidental costs incurred in attending at least one (1) YPO meeting per year, not to exceed
$20,000 in the aggregate for any given year. In addition, the Executive is currently entitled to a car, and reimbursement for all
operating costs associated with such car, including insurance coverage, gas (for business usage), maintenance and repair costs
(the “Car Benefit”). The Executive shall continue to be entitled to the Car Benefit through the end of the current
car lease that ends on May 21, 2023; and, following such date, the Company shall increase the Executive’s Base Salary
by $13,000, which increase shall, for the avoidance of doubt, be separate and apart from any annual increase in Base Salary pursuant
to Section 4(a) herein.
(f) Relocation.
Consistent with the provisions of Section 5 below, during the Employment Period and until the earlier of September 30,
2023 and the date on which the Executive relocates his primary residence to the Company’s principal executive offices, the
Company shall provide the Executive with (i) reasonable temporary housing; (ii) reimbursement for travel to and from
Executive’s home in Augusta, Georgia to the Company’s principal executive offices (including first class airfare);
(iii) reimbursement for relocation costs incurred by Executive in addition to the foregoing of up to $200,000; and (iv) a
gross-up for taxes (if any) incurred in respect of any taxes imposed on items (i) through (iv), subject, in each case, to
reasonable substantiation and documentation of the same, in accordance with the Company’s reimbursement policies, as may
be in effect from time to time.
5. Expenses.
During the Employment Period, the Company shall reimburse the Executive promptly for all expenses reasonably incurred by the Executive
in the performance of his duties hereunder in accordance with policies that may be adopted from time to time by the Company following
presentation by the Executive of an itemized account, including reasonable substantiation, of such expenses. The Executive’s
right to payment or reimbursement for business expenses and other amounts hereunder shall be subject to the following additional
rules: (a) the amount of expenses eligible for payment or reimbursement during any calendar year shall not affect the expenses
eligible for payment or reimbursement in any other calendar year, (b) payment or reimbursement shall be made not later than
December 31 of the calendar year following the calendar year in which the expense or payment was incurred, and (c) the
right to payment or reimbursement shall not be subject to liquidation or exchange for any other benefit.
6. Confidentiality
and Assignment of Intellectual Property. The Executive hereby acknowledges and agrees that the business, financial and other
non-public information of the Companies and the Companies’ direct and indirect parents and subsidiaries is of a confidential
and proprietary nature. The Executive hereby further acknowledges and agrees that, during the course of his employment by the Companies,
he has received, developed or learned of, and will continue to receive, develop, or learn of, confidential and proprietary information
of the Companies and the Companies’ direct and indirect parents and subsidiaries not previously known to him and not known
or used generally. The Executive hereby agrees that, he will not disclose other than as required for the performance of his duties
under this Agreement, will continue to keep in strict secrecy and confidence, and continue to treat as the property of the Parent,
the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be, and will not use for
his own benefit or for the benefit of others any and all information, knowledge and other data relating to the business and affairs
of the Parent, the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be (whether
or not such information, knowledge or other data is in written form), that he has acquired, received, developed or learned, or
may acquire, receive, develop or learn, in the course of his employment by the Parent, Company or any of the Companies’ direct
or indirect subsidiaries. For the avoidance of doubt, (a) nothing contained in this Agreement limits, restricts or in any
other way affects the Executive’s communicating with any governmental, administrative or legislative agency or entity (including
a committee thereof), or communicating with any official or staff person of a governmental, administrative or legislative agency
or entity, concerning matters relevant to such agency or entity, or requires the Executive to provide prior notice of such communication
to the Company or Parent, (b) nothing contained in this Agreement limits, restricts or in any other way affects any disclosures
by the Executive required by law or court order, and (c) nothing contained in this Agreement limits, restricts or in any other
way affects, and the Executive will not be held criminally or civilly liable under any federal or state trade secret law for, the
Executive’s disclosing a trade secret (A) in confidence to a federal, state, or local government official, either directly
or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (B) in
a complaint or other document filed under seal in a lawsuit or other proceeding; provided, however, that notwithstanding
this immunity from liability, the Executive may be held liable if he unlawfully accesses trade secrets subject to this Section 6
by unauthorized means. Anything herein to the contrary notwithstanding, information, knowledge and other data relating to the business
and affairs of the Parent, the Company or any direct or indirect parent or subsidiary of either, including trade secrets, that
are subject to the confidentiality provisions of this Section 6 shall cease to be subject to such provisions if the
data becomes known to the public other than due to any wrongful action or negligence of the Executive.
The Executive, as part
of the consideration for this Agreement and for his employment by the Companies, hereby assigns, and agrees to assign, to (or as
otherwise directed by) the Companies his entire right, title and interest in and to any and all inventions, trade secrets, improvements,
plans and specifications (i) which he, alone or in conjunction with others, may make, conceive or develop during the period
of his employment with the Companies which relate to the business of the Parent, the Company or any of the Companies’ direct
or indirect subsidiaries, or (ii) which he, alone or in conjunction with others, may make or conceive within a period of one
(1) year after the Date of Termination which derive from any confidential or proprietary information, knowledge or other data
of the Parent, the Company or any of their respective direct or indirect subsidiaries with respect to which he has become informed
by reason of his engagement by the Companies (including, without limitation, his relations with the Companies’ direct or
indirect subsidiaries). The Executive further agrees that he will promptly disclose fully to the Companies his aforesaid inventions,
trade secrets, improvements, plans and specifications and will at any time during and after his employment with the Companies render
to the Companies such cooperation and assistance as they may deem to be advisable in order to obtain copyrights or patents, as
the case may be, on or otherwise perfect or defend the rights of the Company and/or the Parent in each such invention, trade secret,
improvement, plan or specification, including, but not limited to, the execution of any and all applications for copyrights or
patents, assignments of copyrights or patents and other written instruments which the Companies, their officers or attorneys reasonably
may deem necessary or desirable, and the aforesaid obligation shall be binding on the Executive’s assigns, executors, administrators
and other legal representatives.
The Executive hereby
irrevocably grants to each of the Companies and their successors and assigns, to the full extent permitted by law, power of attorney
to institute and prosecute from time to time, at their sole expense, any proceedings at law, in equity or otherwise, that any of
the Companies, their successors or assigns, may deem proper in order to transfer to the Companies, assert or enforce any claim,
right or title of any kind in and to the inventions, trade secrets, improvements and other proprietary interests described under
this Section 6, to defend and settle any and all actions, suits or proceedings in respect of any of said inventions,
trade secrets, improvements and other proprietary interests and, generally to do any and all such acts and things in relation thereto
as any of the Companies, their successors or assigns, shall deem advisable, including, but not limited to, execution of any and
all applications, assignments and instruments contemplated under this Section 6. The Executive declares and acknowledges
that the appointment hereby made and the powers hereby granted are coupled with an interest and shall be irrevocable by him.
7. Non-Competition
and Non-Solicitation.
(a) During
the Employment Period and for a period of one (1) year thereafter (the “Non-Compete Period”), the Executive
shall not engage, directly or indirectly, whether as principal, agent, employee, consultant, distributor, representative, five
percent (5%) or greater stockholder or otherwise, in the business of manufacturing and/or distributing pool equipment anywhere
in the United States or any other jurisdiction in which the Companies operate during the Employment Period or, with respect to
the portion of the Non-Compete Period that follows the Employment Period, as of the conclusion of the Employment Period (a “Competing
Business”). Notwithstanding the foregoing, nothing contained herein shall prohibit the Executive from providing services
for or with respect to any division, subsidiary or affiliate (each, a “Unit”) of an entity (other than
Pentair plc or any of its Affiliates) if that Unit is not engaged in a Competing Business, irrespective of whether some other Unit
of such entity engages in a Competing Business (so long as the Executive does not directly or indirectly provide services for the
competing Unit).
(b) During
the Employment Period and for a period of two (2) years thereafter (the “Non-Solicit Period”), the Executive
shall not, directly or indirectly (whether alone or jointly with another Person), (i) solicit for employment, hire, employ,
or engage any Person who, at any time during the Non-Solicit Period, is an officer or employee of the Parent or any of its direct
or indirect subsidiaries, including the Company; provided, however, that the preceding sentence does not prohibit
the Executive from (A) soliciting or hiring any Person whose employment, or engagement for services, was terminated by any
such Person at least twelve (12) months prior to the date of such solicitation or hire; and provided, further, that such
termination was not encouraged by the Executive, or (B) engaging in any general solicitation not targeted at any employee
of any such Person, including a non-directed executive search or placing general advertisements for employees in newspapers or
other media of general circulation so long as such employee is not hired, directly or indirectly, by the Executive or any of his
controlled Affiliates or (ii) solicit business from any customer or solicit products or services from any vendor of the Parent
or any of its direct or indirect subsidiaries, including the Company, that interferes with or jeopardizes the business or relationships
of any such Person with any such customer or vendor.
(c) The
Parties acknowledge and agree that the Executive’s obligations under Section 6, this Section 7 and
the following Section 8 (collectively, the “Covenants”) are of a special, unique and extraordinary
nature, that there may be no adequate remedy at law for any breach thereof, that any such breach may allow third parties to compete
unfairly with the Parent or any of its direct or indirect parents or subsidiaries, including the Company, resulting in irreparable
harm to any such Person, and, therefore, upon any such breach or any threat thereof, the Companies shall be entitled to preliminary
and permanent, mandatory or negative injunctive relief against any breach or threatened breach by the Executive of any of the Covenants,
without having to post a bond, in addition to whatever remedies they may have at law. The Executive hereby agrees that (i) the
terms of the Covenants are reasonable, (ii) the foregoing restrictions will not prevent him from obtaining gainful employment
in his occupation or field of expertise or cause him undue hardship, and (iii) in the event a court determines that any of
the provisions of the Covenants are unreasonable or contrary to public policy, or invalid or unenforceable for any reason in fact,
law or equity, then such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by
law. So that the Companies may enjoy the full benefits of the covenants set forth in this Section 7, the Executive
further agrees that the Non-Compete Period or Non-Solicit Period, as applicable, shall be tolled, and shall not run, during the
period of time during which the Executive is in breach of any of the covenants contained in this Section 7, after such
time the Company has informed the Executive that he is so in breach. It is also agreed that each of the Parent and its direct or
indirect parents or subsidiaries, including the Company, shall have the right to enforce all of the Executive’s obligations
to that Affiliate under this Agreement, including without limitation pursuant to this Section 7.
8. Mutual
Non-Disparagement. During the Employment Period and thereafter, the Executive agrees not to make public statements or communications,
or statements or communications that, at the time made, are intended or reasonably likely to become public, that disparage or criticize
the Parent or any of its direct or indirect parents or subsidiaries, including the Company, or any of their respective businesses,
services or products or their current, former or future equityholders, directors or executive officers (in their capacities as
such). During the Employment Period and thereafter, each of the Company and the Parent shall not authorize, and shall instruct
its directors and executive officers to not make, public statements or communications that disparage or criticize the Executive.
For purposes of this Section 8, “public” as used in reference to a statement or communication means the
public generally, including the current, former or future equityholders, directors or executive officers of the Parent and its
direct or indirect parents or subsidiaries, including the Company, and the customers, vendors or other business partners of any
such Person. The foregoing shall not be violated by (a) truthful statements in response to legal process, required governmental
testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with
such proceedings), (b) public comments, such as in media interviews, which include good faith, candid discussions or acknowledgements
regarding the performance or business of Parent or any of its direct or indirect parents or subsidiaries, including the Company,
or (c) discussions regarding the Executive in connection with performance evaluations, including impromptu evaluations and
feedback and good faith criticism.
9. Termination
of Employment. A termination of the Executive’s employment with either the Parent or the Company shall be treated as
a termination of the Executive’s employment with both of the Companies.
(a) Death.
If the Executive’s employment with the Companies is terminated during the Employment Period as a result of the Executive’s
death, the Employment Period shall terminate without further notice or any action required by the Companies or the Executive’s
estate or other legal representative. Upon the Executive’s death, the Company shall pay or provide to the Executive’s
estate or other legal representative (i) all Accrued Benefits and (ii) a Pro-Rata Bonus.
(b) Disability.
If the Companies, or either of them, terminate the Executive’s employment during the Employment Period because of the Executive’s
Disability, the Company shall pay or provide to the Executive (i) all Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) the
COBRA Coverage Benefits and (iv) the Post-Termination Benefits.
(c) Termination
by the Companies for Cause or by the Executive without Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment for Cause or the Executive terminates his employment with either of the Companies
without Good Reason, the Company shall pay to the Executive all Accrued Benefits.
(d) Termination
by the Companies without Cause or by the Executive for Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment without Cause (other than due to Disability) or if the Executive terminates
his employment with either of the Companies for Good Reason, the Company shall pay or provide the Executive (or the Executive’s
estate or other legal representative, if the Executive dies after such termination but before receiving such amount) (i) all
Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) an amount equal to two times the sum of (A) the Executive’s
Base Salary and (B) the Executive’s Target Bonus, which amount shall be payable in equal installments and paid at the
same time as normal payroll payments are made for the twenty-four (24) month period following the Date of Termination, with such
payments described in (iii) to commence on the first payroll date following the Payment Date (as defined below), but retroactive
to the day following the Date of Termination, subject to Section 9(i) hereof, (iv) the COBRA Coverage Benefits,
(v) outplacement counseling services for six (6) months following the Date of Termination, and (vi) the Post-Termination
Benefits.
(e) Notice
of Termination. Any termination of the Executive’s employment by the Companies or by the Executive (other than because
of the Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance
with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice
which shall indicate the specific termination provision in this Agreement relied upon. Termination of the Executive’s employment
shall take effect on the Date of Termination.
(f) Effect
of Termination. Upon any termination of the Executive’s employment with the Companies, or either of them, the Executive
shall resign from, and shall be considered to have simultaneously resigned from, all positions with the Companies and all of the
Companies’ Affiliates.
(g) Release.
As a condition to the Executive’s entitlements (other than the Accrued Benefits), as provided in Section 9(b) and
9(d) hereof (the “Severance Benefits”), the Executive must timely execute and deliver to the Companies,
and not revoke, a release of claims in substantially the form attached as Exhibit A hereto (the “Release”);
provided, that for the avoidance of doubt, the foregoing Release requirement shall not apply to the Company’s obligation
to provide the Accrued Benefits or any amounts payable under Section 9(a). The Release must be executed and delivered
by the Executive (and no longer be subject to revocation) as provided in Section 3(c) of Exhibit A.
The Release must become effective, if at all, by the date specified therein (and in all events no later than the ninetieth (90th)
calendar day following the Date of Termination). The first payment of the Severance Benefits (excluding the Pro Rata Bonus) will
be made on the Company’s next regular payday following the earlier of (i) the date upon which the Release (if applicable)
becomes effective, binding and irrevocable and (ii) the expiration of ninety (90) calendar days from the Date of Termination
(the “Payment Date”), but will be retroactive to the day following the Date of Termination.
(h) No
Offset. In the event of termination of his employment, the Executive shall be under no obligation to seek other employment
and there shall be no offset against amounts due to him on account of any remuneration or benefits provided by any subsequent employment
he may obtain, except as provided under Section 24(e) hereof. The Companies’ obligation to make any payment
pursuant to, and otherwise to perform its obligations under, this Agreement shall not be affected by any offset, counterclaim or
other right that the Parent, the Company or any of the Companies’ Affiliates may have against the Executive for any reason.
(i) Section 280G.
If any payment or benefit that the Executive may receive following a change of control of the Company, the Executive’s termination
of employment, or otherwise, whether or not payable or provided under this Agreement (“Payment”) would (i) constitute
a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount”
shall be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (B) the largest portion, up to and including the total amount, of the Payment, whichever of the amounts determined
under (A) and (B), after taking into account all applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis,
of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.
If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the
Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of
outstanding equity awards; and reduction of employee benefits. In the event that acceleration of vesting of outstanding equity
awards is to be reduced, such acceleration of vesting shall be undertaken in the reverse order of the date of grant of the Executive’s
outstanding equity awards. All calculations and determinations made pursuant this Section 9(i) will be made by
an independent accounting or consulting firm or independent tax counsel appointed by the Company (the “Tax Counsel”)
whose determinations shall be conclusive and binding on the Company and the Executive for all purposes. For purposes of making
the calculations and determinations required by this Section 9(i), the Tax Counsel may rely on reasonable, good faith
assumptions and approximations concerning the application of Section 280G of the Code and Section 4999 of the Code. The
Company shall bear all costs the Tax Counsel may reasonably incur in connection with its services.
(j) Satisfaction
of Obligations. Anything herein to the contrary notwithstanding, upon satisfaction of their respective applicable obligations
as set forth in this Section 9, the Companies shall have no further obligations to the Executive under this Agreement,
except as set forth in Section 13 hereof. The obligation of the Companies to provide the Severance Benefits (or, if
such Severance Benefits have commenced, to continue providing the Severance Benefits) to the Executive is expressly conditioned
upon the Executive’s continued performance of and compliance with his obligations under the Covenants; provided, however,
that an immaterial and unintentional breach by the Executive of the Covenants provided in Section 6 or Section 8
hereof shall not be deemed to be a failure to perform or comply with such obligations. In the event of the Executive’s death
after his termination of employment but prior to his receiving, in full, the payments or other benefits to which he is entitled
hereunder, his estate or other legal representative shall succeed to such entitlements.
10. Indemnification.
During the Employment Period and thereafter, the Companies will indemnify the Executive to the fullest extent permitted by law
and each of the Companies’ certificate of incorporation, bylaws or other governing documents, as applicable, and cause him
to be covered under such directors and officers insurance policies as the Companies maintain in effect from time to time. The Executive
agrees to promptly notify the Companies of any actual or threatened claim arising out of or as a result of the Executive’s
employment hereunder or any office or directorship held with Parent, the Company or any of their Affiliates.
11. Notices.
All notices, demands, requests, or other communications which may be or are required to be given or made by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by facsimile transmission addressed
as follows:
If to the Company, to:
Hayward Industries, Inc.
400 Connell Drive, Suite 6100
Berkeley
Heights, NJ 07922
Attn: Chairman
If to the Parent, to:
Hayward Holdings, Inc.
400 Connell Drive, Suite 6100
Berkeley
Heights, NJ 07922
Attn: Chairman
If to the Executive, to:
Address last shown on the Company’s
records.
Each party may designate by notice in writing
a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand,
request, or communication that shall be given or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, confirmation
of facsimile transmission or the affidavit of messenger being deemed conclusive but not exclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
12. Severability.
The invalidity or unenforceability of any one or more provisions of this Agreement, including, without limitation, Section 6,
shall not affect the legality, validity or enforceability of the other provisions of this Agreement, which shall remain in full
force and effect.
13. Survival.
It is the express intention and agreement of the Parties that the provisions of Sections 4, 5, 6, 7,
8, 9, 10, 11, 12, 14, 15, 16, 17, 18, 19, 20,
22, 23, and 24 hereof and this Section 13 shall survive the termination of employment of the Executive,
in accordance with the respective terms of such provisions. In addition, all obligations of the Company or the Parent to the Executive
under applicable compensation benefit plans and programs and to make payments or settle equity awards granted thereunder shall
survive any termination of this Agreement, to the extent permitted by law, in accordance with the terms of such plans, programs
and/or awards.
14. Assignment.
The rights and obligations of the Parties to this Agreement shall not be assignable or delegable except that (a) in the event
of the Executive’s death, the personal representative or legatees or distributees of the Executive’s estate, or the
trustees of any trusts established under the Executive’s will or by the Executive during his lifetime, as the case may be,
shall have the right to receive any amount owing and unpaid to the Executive hereunder and (b) the respective rights and obligations
of the Company and the Parent hereunder shall be assignable and delegable in connection with any subsequent merger, consolidation,
reorganization, sale of all or substantially all of the assets or equity interests of the Company or the Parent, or similar transaction
involving the Company or the Parent or a successor to either of them. In connection with any assignment pursuant to clause (b) of
the preceding sentence, the Parent and the Company shall require any such successor to the Parent or the Company or to their respective
business and assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the
Parent and the Company would be required to perform it if no such succession had taken place; provided, for the avoidance
of doubt, that no such express assumption and agreement shall be required where any such successor becomes subject to this Agreement
by operation of law as part of any transaction described in the foregoing clause (b). As used in this Agreement, “Company”
shall include any successor to the Company’s business and/or assets and “Parent” shall include any successor
to the Parent’s business and/or assets.
15. Binding
Effect. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon the Parties and shall
inure to the benefit of the Parties and their respective heirs, devisees, executors, administrators, legal representatives, successors
and assigns.
16. Amendment;
Waiver. This Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by the party
against whom enforcement is sought. Neither the waiver by any of the Parties of a breach of or a default under any of the provisions
of this Agreement, nor the failure of any of the Parties, on one or more occasions, to enforce any of the provisions of this Agreement
or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings.
Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of
any of the provisions hereof.
18. Governing
Law. This Agreement, the rights and obligations of the Parties, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the New Jersey (but not including any choice of law rule thereof that would
cause the laws of another jurisdiction to apply).
19. Dispute
Resolution.
(a) Arbitration.
In the event of any dispute between the Parties, including but not limited to any claims arising from or related to this Agreement
or the termination of this Agreement, any claims related to Executive’s employment or the termination of the Executive’s
employment, or any claims arising under the state and federal laws governing employment, such dispute will be determined exclusively,
upon the written request of either Party, by binding arbitration under the auspices of and pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association. Such arbitration shall be conducted in New York City, New York before a single
arbitrator who is a retired judge. This agreement to arbitrate shall include, without limitation, any and all disputes, controversies
and/or claims against Parent, the Company or any of their Affiliates or the current or former partners, members, officers or employees
of any of them, whether arising under theories of liability or damages based on contract, tort or statute, to the fullest extent
permitted by law, such as, without limitation, claims for breach of contract or breach of the covenant of good faith and fair dealing,
any claims of discrimination or other claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act,
ERISA and/or any applicable or equivalent state or local laws, claims for wrongful termination, including employment termination
in violation of public policy, and claims for personal injury including, without limitation, defamation, fraud and infliction of
emotional distress. The only claims not covered by this agreement to arbitrate are claims for benefits under workers’ compensation
or unemployment insurance statutes and other claims that cannot be arbitrated as a matter of law. As a material part of this agreement
to arbitrate claims, the Executive, Parent, and the Company expressly waive all rights to a jury trial in court on all statutory
or other claims, including, without limitation, those identified in this Section 19. The Executive also acknowledges
and agrees that no claims will be arbitrated on a class action or collective action basis. The arbitrator will have no power to
add to, subtract from, or otherwise modify any of the terms of this Agreement except that a provision otherwise invalid, illegal
or unenforceable shall be modified to the least extent necessary to make it valid, legal and enforceable. The decision of the arbitrator
shall be final, conclusive and binding and may be enforced by any court of competent jurisdiction, and all Parties consent to the
personal jurisdiction of the state and federal courts of the State of New Jersey for such purposes. Notwithstanding the foregoing,
the Parent and the Company shall be entitled to seek injunctive relief and other provisional remedies against the Executive in
any court of competent jurisdiction for any breach or threatened breach of any provisions of this Agreement. All reasonable fees,
costs and expenses (including reasonable attorneys’ fees, expenses and costs) incurred by the prevailing party in any arbitration
will be borne by the other party. Any claim must be brought to arbitration within the statute of limitations for bringing such
claim in court or before the appropriate administrative agency, as applicable.
(b) Court
Proceeding. Each of the Parties agrees that any dispute between the Parties in respect of which resolution by a court of any
issue is required either (i) in accordance with the provisions of Section 19(a) or (ii) for the purpose of
the recognition and enforcement of any judgment by the arbitrator, shall be resolved only in the courts of New Jersey or the United
States District Court for the District of New Jersey and the appellate courts having jurisdiction of appeals from such courts.
20. Entire
Agreement. This Agreement and all other agreements and plans relating to the subject matter hereof, including, without limitation,
agreements for amending awards granted under such plans, to the extent not inconsistent with any terms set forth herein, constitute
the entire understanding of the Company and the Parent on the one hand, and the Executive on the other hand, with respect to the
subject matter hereof and supersede the Prior Agreement and all other prior understandings, written or oral, concerning such subject
matter.
21. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be an original and all of which shall be deemed to constitute
one and the same instrument.
22. Withholding.
The Company may withhold from any benefit or compensation payment under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
23. Section 409A.
(a) The
intent of the Parties is that payments and benefits under this Agreement comply with Section 409A of the Code and the regulations
and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum
extent permitted, this Agreement shall be interpreted to be in compliance therewith. Specifically, if any provision of this Agreement
is ambiguous, such that one interpretation of the provision would comply with Code Section 409A and another interpretation
would result in a failure to comply with any applicable requirement under Code Section 409A, the Parties intend that the interpretation
that complies with Code Section 409A shall be the one that governs. To the extent permitted under Code Section 409A,
this Agreement, and the terms of any Plan (as defined in Section 23(f) below) to the extent they relate to the
Executive’s entitlements thereunder, shall be modified, either as reasonably requested by the Executive, with the Company’s
and Parent’s consent), or as the Company may propose (or, as the Parent may propose, with respect to any Plan maintained
by it) with the Executive’s consent, to the extent necessary to comply with all applicable requirements of, and to avoid
the imposition of any additional tax, interest or penalties under, Code Section 409A in connection with the payments and benefits
to be paid or provided to the Executive hereunder or under such Plan. To the extent that any provision hereof, or of any Plan,
is modified in order to comply with Code Section 409A, such modification shall be made in good faith, shall not impose any
additional costs on the Parent or the Company and shall, to the maximum extent reasonably possible, maintain the original intent
and economic benefit to the Executive and the Companies of the applicable provision without violating the provisions of Code Section 409A.
(b) A
termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the
payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation
from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references
to a “termination,” “termination of employment” or like terms shall mean “separation from service.”
If the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term
under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred
compensation under Code Section 409A (after taking into account all exclusions applicable to such payment or benefit under
Code Section 409A) and that is payable or to be provided to the Executive on account of his “separation from service,”
such payment or benefit shall be made or provided at the date which is the earliest to occur of (i) the expiration of the
six (6)-month period measured from the date of the Executive’s “separation from service, (ii) the date of the
Executive’s death, or (iii) such earlier date as may be permitted under Code Section 409A. Upon the expiration
of the foregoing delay period, all payments and benefits delayed pursuant to this Section 23(b) (whether they
would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed
to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance
with the normal payment dates specified for them herein.
(c) To
the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind benefits under this
Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A (after taking into
account all exclusions applicable to such reimbursements or benefits under Code Section 409A): (i) reimbursement of any
such expense shall be made as soon as practicable after such expense has been incurred, but any event no later than December 31
of the year following the year in which the Executive incurs such expense; (ii) the amount of such expenses eligible for reimbursement,
or in-kind benefits to be provided, in any calendar year shall not affect the amount of expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year; and (iii) the Executive’s right to receive such reimbursements
or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
(d) For
purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement
shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies
a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the
sole discretion of the Company.
(e) Notwithstanding
any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified
deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted
by Code Section 409A.
(f) For
purposes of the foregoing, the term “Plan” shall mean any plan, program, agreement (other than this Agreement)
or other arrangement maintained by the Company, the Parent or any of the Companies’ Affiliates that is a “nonqualified
deferred compensation plan” within the meaning of Code Section 409A, and under which any payments or benefits are to
be made or provided to the Executive, to the extent they constitute a deferral of compensation subject to the requirements of Code
Section 409A after taking into account all exclusions applicable to such payments or benefits under Code Section 409A.
24. Definitions.
(a) “Accrued
Benefits” means (i) any unpaid Base Salary through the date the Executive’s employment terminates, (ii) except
in the case of a termination of employment pursuant to Section 9(c), any earned and payable, but unpaid, Annual Bonus,
(including any Annual Bonus payable pursuant to the last sentence of Section 4(b)); (iii) any accrued and unpaid
vacation; (iv) any amounts or benefits or other rights owing to the Executive or to the Executive’s beneficiaries under
the then applicable benefit plans of the Company or Parent (including without limitation Parent’s Amended and Restated 2017
Equity Incentive Plan) in which the Executive participated immediately prior to the Date of Termination (excluding any severance
plan, program, agreement or arrangement); and (v) any amounts owing to the Executive for reimbursement of business expenses
properly incurred by the Executive prior to the Date of Termination and which are reimbursable in accordance with Section 4
or Section 5, provided that the Executive, or his estate or other legal representative, submits all expenses
and supporting documentation required within thirty (30) days of the Date of Termination (or one-hundred eighty (180) days in the
case of termination due to death). Amounts payable (A) under clauses (i), (ii) and (iii) shall be paid promptly
after the Date of Termination but in any event by no later than thirty (30) days after such date (or, in the case of (ii), when
bonuses are paid to executives of the Company generally); (B) under clause (iv) shall be paid in accordance with the
terms and conditions of the applicable plan, program or arrangement; and (C) under clause (v) shall be paid in accordance
with the terms of the applicable expense policy but in any event by no later than the time for payment of the reimbursement required
pursuant to Section 23(c)(i) above.
(b) “Affiliate”
of a person or entity means any entity controlled by, in control of, or under common control with, such person or entity.
(c) “Cause”
means: (i) conduct by the Executive constituting a material act of misconduct in connection with the performance of his duties,
including, without limitation, misappropriation of funds or property of the Parent, the Company or any of their Subsidiaries or
Affiliates other than the occasional, customary and de minimis use of Company or Parent property for personal purposes; (ii) the
Executive’s commission of a felony or commission of a misdemeanor involving fraud or any misconduct by the Executive that
results in material injury or reputational harm to the Company, the Parent or any of their Affiliates; (iii) any act or omission
that constitutes a material breach by the Executive of (A) any of his obligations under any material agreement with the Company,
the Parent or any of their Affiliates (including this Agreement) or (B) any material written policy of the Company, the Parent
or any of their Affiliates, including the continued willful non-performance by the Executive of his duties (other than by reason
of the Executive’s physical or mental illness, incapacity or disability), in each case which has continued for more than
thirty (30) days following written notice from the Board delineating such material breach; (iv) a breach by the Executive
of any restrictive covenant by the Executive contained in any agreement between such Executive and the Company, the Parent or any
of their Affiliates (including any exhibit or appendix to any award agreement), provided, that an immaterial and unintentional
breach of the Covenants provided in Section 6 or Section 8 hereof shall not constitute “Cause”;
(v) the Executive’s engaging in any intentional act of dishonesty, violence or threat of violence (including any violation
of federal securities laws) which is or could reasonably be expected to be materially injurious to the financial condition or business
reputation of the Company, the Parent, or any of their Affiliates; (vi) the Executive’s illegal use of controlled substances
during the performance of the Executive’s duties that adversely affects the reputation or best interest of the Company, the
Parent or any Affiliate thereof; or (vii) the Executive’s failure to cooperate with a bona fide internal investigation
or an investigation by regulatory or law enforcement authorities, after being instructed by the Company or the Parent to cooperate,
or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the
inducement of others to fail to cooperate or to produce documents or other materials in connection with such investigation. For
purposes of this Section 24(c), written notice means written notice by the Parent to the Executive pursuant to Section 11
hereof.
(d) “COBRA”
means the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
(e) “COBRA
Coverage Benefits” shall mean continued coverage for the Executive and his dependents under the Company’s group
health care benefit plans for a period of twelve (12) months following the Date of Termination, with the Executive (or in the event
of the Executive’s death, his dependents) paying the same portion of the total cost of such coverage that the Company’s
active employees are required to pay for such coverage, and the Company paying for that portion of such total cost as exceeds the
portion paid for by the Executive. The COBRA Coverage Benefits shall be provided to the Executive or his dependents subject to
(i) the Executive’s (or in the event of the Executive’s death, his dependent’s) making a timely election
of continuation coverage under COBRA, and remaining eligible for COBRA coverage during such period, and (ii) the Executive’s
(or in the event of the Executive’s death, his dependent’s) continued payment of the portion of the total cost of such
coverage required to be paid by the Executive as provided in the preceding sentence. The COBRA Coverage Benefits shall immediately
cease to be provided hereunder on the date on which the Executive commences to receive equivalent health care benefit coverage
under a health care plan, or plans, of any subsequent employer of the Executive. If and to the extent necessary in order for the
Executive to avoid being subject to tax under section 105(h) of the Code on any payment or reimbursement of any health care
expenses made to him or for his benefit pursuant to Section 9 hereof the Company shall impute as taxable income to
the Executive an amount equal to the excess of (A) the full actuarial cost of the health care benefit coverages provided to
him and his dependents under Section 9 hereof over (B) the portion of such total cost paid for by the Executive
or his dependents for each period during which such coverages are provided.
(f) “Date
of Termination” means (i) if the Executive’s employment is terminated by the Executive’s death, automatically
on the date of the Executive’s death; (ii) if the Executive’s employment is terminated because of the Executive’s
Disability, five (5) calendar days after the Notice of Termination unless the Executive shall have returned to the performance
of the Executive’s duties on a full-time basis during such five (5)-day period; or (iii) if the Executive’s employment
is terminated during the Employment Period by the Companies or by the Executive, the date specified in the Notice of Termination;
provided that in the case of a termination by the Companies for Cause or a termination by the Executive for Good Reason
the Date of Termination shall occur no sooner than the completion of the applicable notice period (if any) and, if applicable,
opportunity to cure, as provided in the definitions of those terms this Section 24.
(g) “Disability”
or “Disabled” means the inability of the Executive to perform the Executive’s material duties hereunder
due to a physical or mental injury, infirmity or incapacity, which is expected to exceed one hundred eighty (180) days (including
weekends and holidays) in any three hundred sixty-five (365)-day period. If any question shall arise as to whether the Executive
is Disabled to the extent that the Executive is unable to perform substantially all of his duties and responsibilities for the
Company and its Affiliates, the Executive shall, at the request of the Board in accordance with the Americans with Disabilities
Act of 1990 and the Family and Medical Leave Act of 1993, each as amended, submit to a medical examination by a physician selected
by the Board to whom the Executive or his guardian, if any, has no reasonable objection to determine whether the Executive is so
Disabled, and such determination shall for purposes of this Agreement be conclusive of the issue. If such a question arises and
the Executive fails to submit to the requested medical examination, the Board’s determination of the issue shall be binding
on the Executive.
(h) “Good
Reason” means, if occurring without the Executive’s consent: (i) any act taken by the Company or the Parent
that results in any material and sustained diminution in the Executive’s responsibilities or authority from those that are
consistent with his title; (ii) a failure of the Executive to be paid his Base Salary, Annual Bonus or material employee benefits
required to be provided to him, when due or (iii) any material breach of this Agreement by the Company or the Parent (each
such event, a “Good Reason Condition”). Notwithstanding the foregoing, Good Reason will not be deemed to exist
unless (i) the Executive reasonably determines in good faith that a Good Reason Condition has occurred; (ii) the Executive
notifies the Company in writing of the first occurrence of the Good Reason Condition within thirty (30) days of the first occurrence
of such condition; (iii) the Executive cooperates in good faith with the Company's efforts, if any, for a period of not less
than thirty (30) days following such notice (the “Cure Period”), to remedy the Good Reason Condition; (iv) notwithstanding
such efforts, or in the event the Company does not remedy such event, the Good Reason Condition continues to exist; and (v) the
Executive terminates his or her employment within ninety (90) days after the Good Reason Condition has occurred; provided,
that, for the avoidance of doubt, if the Company cures the Good Reason Condition due the Cure Period, Good Reason shall be deemed
not to have occurred. For purposes of this Section 24(h), written notice means written notice by the Executive to both
the Parent and the Company pursuant to Section 11 hereof.
(i) “Post-Termination
Benefits” shall mean, at the Parent’s election, either (i) payment by the Companies to the Executive of an
amount equal to the cost of any perquisites, welfare benefits, and retirement plan contributions the Executive would otherwise
have been eligible to receive in the twelve (12) months following the Executive’s Date of Termination, or (ii) the provision,
for twelve (12) months following the Executive’s Date of Termination, in kind by the Company to the Executive of the perquisites,
welfare benefits, or retirement plan contributions described in clause (i) of this definition, provided that, in the
case of provision of benefits under clause (ii), the Parent has determined in its reasonable and sole discretion that it would
be permissible to do so under the terms of any applicable plan and applicable law. For the sake of clarity, COBRA Coverage Benefits
shall be as provided in Section 24(e) above.
(j) “Pro-Rata
Bonus” shall mean, to the extent actually earned, a pro-rata portion of the Executive’s Annual Bonus for the plan
year in which the Executive’s termination occurs (such pro-ration to be determined by multiplying the amount of such bonus
which would be payable to the Executive if he had remained in employment with the Company for the full plan year by a fraction,
the numerator of which is the number of days during the plan year of termination that the Executive was employed by the Company,
and the denominator of which is 365), which shall be payable by the Company to the Executive (or in the event of his death, to
his estate or legal representatives) at such time when bonuses are paid to executives of the Companies generally or, if later,
on the Payment Date.
[Remainder of Page Intentionally
Left Blank]
IN WITNESS WHEREOF,
the undersigned have duly executed and delivered this Agreement as of March 2, 2021.
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EXECUTIVE
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Kevin P. Holleran
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Employment Agreement Signature Page
EXHIBIT A
Release
For good and valuable
consideration, including the rights and obligations contained in the Amended and Restated Employment Agreement dated as of March 2,
2021 (the “Employment Agreement”) this agreement and release is entered into by and among Kevin P. Holleran
(the “Executive”), Hayward Industries, Inc. (the “Company”) and Hayward Holdings, Inc.
(the “Parent”) (the “Release”). (Together, the Company and the Parent may hereinafter be
referred to as the “Companies.”)
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1.
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The Executive, on behalf of himself and his dependents, heirs, administrators, agents, personal
representatives, executors, successors and assigns (together with the Executive, the “Executive Releasees”),
does hereby irrevocably, completely and unconditionally release, waive and forever discharge the Companies and their past, present
and future parents, subsidiaries, affiliated corporations, partnerships, joint ventures, employee benefit plans, insurers and their
predecessors, successors and assigns (collectively, “Company Affiliates”) and all of the Company Affiliates’
past, present and future shareholders, directors, officers, employees, agents, trustees, and representatives, both individually
and in their official capacities, and their successors and assigns (together with the Company Affiliates, the “Company
Releasees”), from any and all actions, rights, claims, demands, obligations, liabilities, attorneys’ fees and causes
of action of any kind or description whatsoever, in law, equity or otherwise, whether known or unknown, whether past or present,
including, without limitation, those arising out of or in any way related to the Executive’s employment, or termination of
employment, with either or both of the Companies (including any events, acts, conduct or omissions related thereto) occurring at
any time prior to or at the date on which the Executive signs and returns this Release (the “Release Date”),
including, but not limited to, any action, claim, demand, obligation, liability or cause of action arising under any Federal, state,
or local law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866, 1871, 1964
and 1991, the Equal Pay Act, the Americans with Disabilities Act of 1990, the National Labor Relations Act, the Fair Labor Standards
Act of 1938, the Employee Retirement Income Security Act of 1974 (other than any claim as excepted below), the Age Discrimination
in Employment Act of 1967, all as amended, and the wage and hour, wage payment and fair employment practices laws of the state
or states in which the Executive has been employed), tort, contract or any other legal obligation (collectively, the “Claims”);
provided, however, the Executive does not release any of the following Claims:
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a.
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any Claim to workers’ compensation or unemployment insurance benefits;
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b.
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any Claim arising from a breach of the Employment Agreement following the Release Date, including
any right to enforce the Employment Agreement;
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c.
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any Claim for indemnification in accordance with applicable laws, the applicable constituent documents
(including bylaws and certificates of incorporation) of the Company, the Parent or any Company Affiliate, and any applicable insurance
policy with respect to any liability the Executive incurs or has incurred as a director, officer or employee of the Company, the
Parent or any Company Affiliate;
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d.
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any Claim the Executive may have to obtain contribution as permitted by law in the event of entry
of judgment against the Executive as a result of any act or failure to act for which the Executive and the Company, the Parent
and/or any Company Affiliate are jointly liable in whole or in part;
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e.
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any Claim that by law may not be released by private agreement without judicial or governmental
review and approval; or
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f.
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any Claim that arises after the Release Date.
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2.
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Nothing contained in this Release shall be construed to prohibit the Executive from filing a charge
with or participating in any investigation or proceeding conducted by the federal Equal Employment Opportunity Commission or a
comparable state or local agency, provided, however, that the Executive hereby agrees to waive his right to recover monetary damages
or other individual relief in any such charge, investigation or proceeding or any related complaint or lawsuit filed by the Executive
or by anyone else on his behalf.
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3.
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The following shall apply in connection with the signing of this Release:
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a.
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The Executive acknowledges and agrees that he has no less than [twenty-one (21)/forty-five (45)]1
days in which to consider this Release (though he may choose voluntarily to sign it earlier) and is hereby advised that this Release
creates a legally binding obligation and that the Executive should therefore consult an attorney about this Release (though he
may choose voluntarily not to do so).
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b.
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The Executive represents that he has read this Release carefully; has had the opportunity to consult
with an attorney of the Executive’s own choosing about the Release; understands fully what this Release means; and is entering
into it knowingly, voluntarily, and without coercion.
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c.
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The Executive may not sign and return this Release to the Companies earlier than the Date of Termination
(as defined in the Employment Agreement) and must sign and return it no later than [twenty-one (21)/forty-five (45)]2
calendar days following the later of (i) the Date of Termination and (ii) five (5) calendar days following the date
of delivery of this Release to the Executive as provided in Section 9(g) of the Employment Agreement (such period of
time being the “Release Consideration Period”). The Executive will have an additional seven (7) calendar
days after the Release Date in which to revoke his acceptance by providing written notice of revocation to the Companies (such
period of time the “Release Revocation Period”). The Release will not be effective until the date upon which
the Release Revocation Period has expired, which will be the eighth (8th) calendar day after the Release Date, if not
previously revoked.
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1
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To be determined by the Company at the time of separation.
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2
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To be determined by the Company at the time of separation.
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d.
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By signing this Release, Executive represents that (i) he is signing it voluntarily and with
a full understanding of its terms, (ii) he has had sufficient opportunity, before signing this Release, to consider its terms
and consult with an attorney (if he so wished to do so) and (iii) he has not relied on any promises or representations, express
or implied, that are not set forth expressly in this Release.
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4.
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The Executive represents that as of the date he has executed this Release he has not assigned to
any other party, and agrees not to assign, any Claim released by the Executive herein.
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5.
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The Executive represents that he has returned to the Companies any and all documents, materials
and information (whether in hardcopy, on electronic media or otherwise) related to the business of the Companies or their affiliates
(whether present or otherwise), and all keys, access cards, credit cards, computer hardware and software, telephones and telephone-related
equipment and all other property of the Companies or their affiliates in the Executive’s possession or control. Further,
the Executive agrees that he has not retained any copy or derivation of any documents, materials or information (whether in hardcopy,
on electronic media or otherwise) of the Companies or their affiliates.
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6.
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Whenever possible, each provision of this Release shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Release is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Release shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained herein.
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7.
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This Release may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same instrument.
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8.
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This Release shall be governed by and construed and interpreted in accordance with the laws of
the State of New Jersey without reference regard to principles of conflicts of law that would result in the application of the
laws of any other jurisdiction.
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[remainder of page intentionally
blank]
IN WITNESS WHEREOF,
the Executive, the Company and the Parent have executed this Release each as of the date indicated below.
AGREED AND EXECUTED:
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KEVIN
P. HOLLERAN
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Dated: __________, 20___
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HAYWARD
INDUSTRIES, INC.
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Dated: __________, 20___
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Name:
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Title:
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HAYWARD
HOLDINGS, INC.
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Dated: __________, 20___
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Name:
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Title:
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Exhibit 10.21
Amended
and restated EMPLOYMENT AGREEMENT
This Amended and Restated
Employment Agreement (the “Agreement”) is made and entered into as of March 2, 2021 by and among Hayward
Industries, Inc. (the “Company”), Hayward Holdings, Inc. (the “Parent”) and Eifion
Jones (the “Executive”) (the Company, the Parent and the Executive, individually, a “Party”
and, collectively, the “Parties”) and is effective as of the day prior to the date on which the Parent becomes
subject to the reporting obligations of Section 12 of the Securities Exchange Act of 1934, as amended (the “Effective
Date”). (Hereinafter the Company and the Parent together may be referred to as the “Companies.”) This
Agreement amends and restates in its entirety the employment agreement by and among the Company, the Parent, and the Executive,
effective as of April 20, 2020 (the “Prior Agreement”).
Terms used herein with
initial capitalization not otherwise defined are defined in Section 24 hereof.
WITNESSETH:
WHEREAS, the Company
desires the Executive to continue to serve as Senior Vice President, Chief Financial Officer of the Company and the Executive is
willing to continue to do so pursuant to the terms of this Agreement; and
WHEREAS, the Parent
desires to continue to employ the Executive as Senior Vice President, Chief Financial Officer and the Executive is willing to continue
to do so pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration
of the premises and of the covenants and agreements set forth herein and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Companies and the Executive hereby agree as follows:
1. Employment.
The Companies agree to continue to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to continue
to be so employed, for a period commencing on the Effective Date and continuing until the Executive’s employment is terminated
pursuant to Section 9 hereof (the “Employment Period”).
2. Position
and Duties. During the Employment Period, the Executive shall serve as Senior Vice President, Chief Financial Officer of the
Company, reporting directly to the Chief Executive Officer of the Company. In such capacity, the Executive shall have the duties,
responsibilities and authorities customarily associated with the position of Senior Vice President, Chief Financial Officer in
companies the size and nature of the Company. The Executive shall devote the Executive’s reasonable best efforts and substantially
all of the Executive’s business time to the performance of the Executive’s duties and responsibilities hereunder; provided
that the Executive shall be entitled to (a) manage the Executive’s personal and family investments and (b) with
the prior written approval of the Board of Directors of the Parent (the “Board”) (or the Nominating and Governance
Committee of the Board), serve as a member of the board of directors of no more than one (1) public company and one (1) non-profit
or private company, in each case, to the extent such activities do not materially interfere with the performance of the Executive’s
duties and responsibilities hereunder (including, for the avoidance of doubt, the terms of Sections 6, 7 and 8 hereof).
For the avoidance of doubt, none of the Executive’s existing board of director positions set forth on Exhibit B,
and Executive’s actions with respect thereto, shall be a breach of this Agreement.
3. Place
of Performance. During the Employment Period, the Executive shall be based primarily at the Company’s principal executive
offices. The Executive understands and agrees that the Executive may be required to travel from time to time for business purposes.
4. Compensation
and Benefits; Incentive Awards.
(a) Base
Salary. During the Employment Period, the Company shall pay to the Executive a base salary (the “Base Salary”)
at the rate of $464,000 per calendar year, less applicable deductions. The Base Salary shall be reviewed for increase by the Board
or the Compensation Committee of the Board (the “Compensation Committee”) no less frequently than annually and
may be increased in the sole discretion of the Board or the Compensation Committee and any such adjusted Base Salary shall thereafter
constitute the “Base Salary” for purposes of this Agreement. The Base Salary shall be paid in substantially equal installments
in accordance with the Company’s regular payroll procedures.
(b) Annual
Bonus. During the Employment Period, the Executive shall be eligible to receive an annual cash performance bonus (an “Annual
Bonus”) under the Company’s annual incentive plan (as in effect from time to time for senior executives) in respect
of each plan year that ends during the Employment Period, to the extent earned based on the achievement of performance criteria
set by the Board or the Compensation Committee. The performance criteria for a plan year shall be determined by the Board or the
Compensation Committee, in good faith, no later than sixty (60) days after the commencement of such plan year. The Executive’s
target annual bonus opportunity shall be 75% of the Executive’s Base Salary as of the beginning of the applicable plan year
(the “Target Bonus”) if target levels of performance for that year are achieved. The Executive’s actual
Annual Bonus for any plan year shall be determined by the Board or the Compensation Committee after the end of such plan year and
shall be paid to the Executive no later than seventy-five (75) calendar days following the end of such plan year. For purposes
of Section 24(a) hereof, if the Executive’s employment is terminated pursuant to the terms of Section 9
hereof after the end of any plan year (other than pursuant to Section 9(c)), but prior to such Annual Bonus determination
by the Board or the Compensation Committee with respect to that plan year, and the Board or the Compensation Committee subsequently
determines that the Annual Bonus for that plan year has been earned by the Executive, then any such earned Annual Bonus, in an
amount equal to such earned Annual Bonus payout percentage as determined by the Board or the Compensation Committee, shall be considered
an Accrued Benefit.
(c) Equity
Incentive Awards. During the Employment Period, the Executive shall be eligible to participate in any equity incentive
plan that may be made available, from time to time, to other senior executives of the Companies.
(d) Vacation;
Benefits. During the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation annually (accruing
ratably on an annual basis) and to participate in employee benefits made available, from time to time, to senior executive officers
of the Company.
(e) Perquisites.
During the Employment Period, the Executive shall be entitled to perquisites no less favorable than those generally provided by
the Company, from time to time, to other senior executive officers of the Company (other than the Chief Executive Officer). The
Executive is currently entitled to a car, insurance coverage, gas (for business usage) and repair costs relating to such car, for
which the Company will reimburse the Executive (the “Car Benefit”). The Executive shall continue to be entitled
to the Car Benefit through the end of the current car lease that ends on August 19, 2021; and, following such date, the Company
shall increase the Executive’s Base Salary by $12,500, which increase shall, for the avoidance of doubt, be separate and
apart from any annual increase in Base Salary pursuant to Section 4(a) herein.
(f) Relocation.
Consistent with the provisions of Section 5 below, during the Employment Period and until the earlier of December 31,
2021 and the date on which the Executive relocates his primary residence to the Company’s principal executive offices, the
Company shall provide the Executive with (i) temporary housing of $3,500/month; (ii) reimbursement for travel to and
from the Executive’s home in Covington, LA to the Company’s principal executive offices; (iii) reimbursement for
relocation costs incurred by Executive of up to $175,000; and (iv) a gross-up for taxes (if any) incurred in respect of any
taxes imposed on items (i) through (iv), subject, in each case, to reasonable substantiation and documentation of the same,
in accordance with the Company’s reimbursement policies, as may be in effect from time to time.
5. Expenses.
The Company shall reimburse the Executive promptly for all expenses reasonably incurred by the Executive in the performance of
his duties hereunder in accordance with policies that may be adopted from time to time by the Company following presentation by
the Executive of an itemized account, including reasonable substantiation, of such expenses. The Executive’s right to payment
or reimbursement for business expenses and other amounts hereunder shall be subject to the following additional rules: (a) the
amount of expenses eligible for payment or reimbursement during any calendar year shall not affect the expenses eligible for payment
or reimbursement in any other calendar year, (b) payment or reimbursement shall be made not later than December 31 of
the calendar year following the calendar year in which the expense or payment was incurred, and (c) the right to payment or
reimbursement shall not be subject to liquidation or exchange for any other benefit.
6. Confidentiality
and Assignment of Intellectual Property. The Executive hereby acknowledges and agrees that the business, financial and other
non-public information of the Companies and the Companies’ direct and indirect parents and subsidiaries is of a confidential
and proprietary nature. The Executive hereby further acknowledges and agrees that, during the course of his employment by the Companies,
he has received, developed or learned of, and will continue to receive, develop, or learn of, confidential and proprietary information
of the Companies and the Companies’ direct and indirect parents and subsidiaries not previously known to him and not known
or used generally. The Executive hereby agrees that, he will not disclose other than as required for the performance of his duties
under this Agreement, will continue to keep in strict secrecy and confidence, and continue to treat as the property of the Parent,
the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be, and will not use for
his own benefit or for the benefit of others any and all information, knowledge and other data relating to the business and affairs
of the Parent, the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be (whether
or not such information, knowledge or other data is in written form), that he has acquired, received, developed or learned, or
may acquire, receive, develop or learn in the course of his employment by the Parent, Company or any of the Companies’ direct
or indirect subsidiaries. For the avoidance of doubt, (a) nothing contained in this Agreement limits, restricts or in any
other way affects the Executive’s communicating with any governmental, administrative or legislative agency or entity (including
a committee thereof), or communicating with any official or staff person of a governmental, administrative or legislative agency
or entity, concerning matters relevant to such agency or entity, or requires the Executive to provide prior notice of such communication
to the Company or Parent, (b) nothing contained in this Agreement limits, restricts or in any other way affects any disclosures
by the Executive required by law or court order, and (c) nothing contained in this Agreement limits, restricts or in any other
way affects, and the Executive will not be held criminally or civilly liable under any federal or state trade secret law for, the
Executive’s disclosing a trade secret (A) in confidence to a federal, state, or local government official, either directly
or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (B) in
a complaint or other document filed under seal in a lawsuit or other proceeding; provided, however, that notwithstanding
this immunity from liability, the Executive may be held liable if he unlawfully accesses trade secrets subject to this Section 6
by unauthorized means. Anything herein to the contrary notwithstanding, information, knowledge and other data relating to the business
and affairs of the Parent, the Company or any direct or indirect parent or subsidiary of either, including trade secrets, that
are subject to the confidentiality provisions of this Section 6 shall cease to be subject to such provisions if the
data becomes known to the public other than due to any wrongful action or negligence of the Executive.
The Executive, as part
of the consideration for this Agreement and for his employment by the Companies, hereby assigns, and agrees to assign, to (or as
otherwise directed by) the Companies his entire right, title and interest in and to any and all inventions, trade secrets, improvements,
plans and specifications (i) which he, alone or in conjunction with others, may make, conceive or develop during the period
of his employment with the Companies which relate to the business of the Parent, the Company or any of the Companies’ direct
or indirect subsidiaries, or (ii) which he, alone or in conjunction with others, may make or conceive within a period of one
(1) year after the Date of Termination which derive from any confidential or proprietary information, knowledge or other data
of the Parent, the Company or any of their respective direct or indirect subsidiaries with respect to which he has become informed
by reason of his engagement by the Companies (including, without limitation, his relations with the Companies’ direct or
indirect subsidiaries). The Executive further agrees that he will promptly disclose fully to the Companies his aforesaid inventions,
trade secrets, improvements, plans and specifications and will at any time during and after his employment with the Companies render
to the Companies such cooperation and assistance as they may deem to be advisable in order to obtain copyrights or patents, as
the case may be, on or otherwise perfect or defend the rights of the Company and/or the Parent in each such invention, trade secret,
improvement, plan or specification, including, but not limited to, the execution of any and all applications for copyrights or
patents, assignments of copyrights or patents and other written instruments which the Companies, their officers or attorneys reasonably
may deem necessary or desirable, and the aforesaid obligation shall be binding on the Executive’s assigns, executors, administrators
and other legal representatives.
The Executive hereby
irrevocably grants to each of the Companies and their successors and assigns, to the full extent permitted by law, power of attorney
to institute and prosecute from time to time, at their sole expense, any proceedings at law, in equity or otherwise, that any of
the Companies, their successors or assigns, may deem proper in order to transfer to the Companies, assert or enforce any claim,
right or title of any kind in and to the inventions, trade secrets, improvements and other proprietary interests described under
this Section 6, to defend and settle any and all actions, suits or proceedings in respect of any of said inventions,
trade secrets, improvements and other proprietary interests and, generally to do any and all such acts and things in relation thereto
as any of the Companies, their successors or assigns, shall deem advisable, including, but not limited to, execution of any and
all applications, assignments and instruments contemplated under this Section 6. The Executive declares and acknowledges
that the appointment hereby made and the powers hereby granted are coupled with an interest and shall be irrevocable by him.
7. Non-Competition
and Non-Solicitation.
(a) During
the Employment Period and for a period of one (1) year thereafter (the “Non-Compete Period”), the Executive
shall not engage, directly or indirectly, whether as principal, agent, employee, consultant, distributor, representative, five
percent (5%) or greater stockholder or otherwise, in any business activities in the United States of America or any other jurisdiction
in which the Parent or any of its direct or indirect subsidiaries operate, which are in any way competitive with the business conducted
by the Parent or any of its direct or indirect subsidiaries during the Employment Period.
(b) During
the Employment Period and for a period of two (2) years thereafter (the “Non-Solicitation Period” and together
with the Non-Compete Period, the “Restricted Period”), the Executive shall not, directly or indirectly (whether
alone or jointly with another Person), (i) solicit for employment, hire, employ, or engage any Person who, at any time during
the Non-Solicitation Period, is an officer or employee of the Parent or any of its direct or indirect subsidiaries, including the
Company; provided, however, that the preceding sentence does not prohibit the Executive from (A) soliciting or hiring
any Person whose employment, or engagement for services, was terminated by any such Person at least twelve (12) months prior to
the date of such solicitation or hire; and provided, further, that such termination was not encouraged by the Executive,
or (B) engaging in any general solicitation not targeted at any employee of any such Person, including a non-directed executive
search or placing general advertisements for employees in newspapers or other media of general circulation so long as such employee
is not hired, directly or indirectly, by the Executive or any of his controlled Affiliates or (ii) solicit business from any
customer or solicit products or services from any vendor of the Parent or any of its direct or indirect subsidiaries, including
the Company, that interferes with or jeopardizes the business or relationships of any such Person with any such customer or vendor.
(c) The
Parties acknowledge and agree that the Executive’s obligations under Section 6, this Section 7 and
the following Section 8(c) (collectively, the “Covenants”) are of a special, unique and extraordinary
nature, that there may be no adequate remedy at law for any breach thereof, that any such breach may allow third parties to compete
unfairly with the Parent or any of its direct or indirect parents or subsidiaries, including the Company, resulting in irreparable
harm to any such Person, and, therefore, upon any such breach or any threat thereof, the Companies shall be entitled to preliminary
and permanent, mandatory or negative injunctive relief against any breach or threatened breach by the Executive of any of the Covenants,
without having to post a bond, in addition to whatever remedies they may have at law. The Executive hereby agrees that (i) the
terms of the Covenants are reasonable, (ii) the foregoing restrictions will not prevent him from obtaining gainful employment
in his occupation or field of expertise or cause him undue hardship, and (iii) in the event a court determines that any of
the provisions of the Covenants are unreasonable or contrary to public policy, or invalid or unenforceable for any reason in fact,
law or equity, then such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by
law. So that the Companies may enjoy the full benefits of the covenants set forth in this Section 7, the Executive
further agrees that the Restricted Period shall be tolled, and shall not run, during the period of time during which the Executive
is in breach of any of the covenants contained in this Section 7, after such time the Company has informed the Executive
that he is so in breach. It is also agreed that each of the Parent and its direct or indirect parents or subsidiaries, including
the Company, shall have the right to enforce all of the Executive’s obligations to that Affiliate under this Agreement, including
without limitation pursuant to this Section 7.
8. Mutual
Non-Disparagement. During the Employment Period and thereafter, the Executive agrees not to make public statements or communications,
or statements or communications that, at the time made, are intended or reasonably likely to become public, that disparage or criticize
the Parent or any of its direct or indirect parents or subsidiaries, including the Company, or any of their respective businesses,
services or products or their current, former or future equityholders, directors or executive officers (in their capacities as
such). During the Employment Period and thereafter, each of the Company and the Parent shall not authorize, and shall instruct
its directors and executive officers to not make, public statements or communications that disparage or criticize the Executive.
For purposes of this Section 8, “public” as used in reference to a statement or communication means the
public generally, including the current, former or future equityholders, directors or executive officers of the Parent and its
direct or indirect parents or subsidiaries, including the Company, and the customers, vendors or other business partners of any
such Person. The foregoing shall not be violated by (a) truthful statements in response to legal process, required governmental
testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with
such proceedings), (b) public comments, such as in media interviews, which include good faith, candid discussions or acknowledgements
regarding the performance or business of Parent or any of its direct or indirect parents or subsidiaries, including the Company,
or (c) discussions regarding the Executive in connection with performance evaluations, including impromptu evaluations and
feedback and good faith criticism.
9. Termination
of Employment. A termination of the Executive’s employment with either the Parent or the Company shall be treated as
a termination of the Executive’s employment with both of the Companies.
(a) Death.
If the Executive’s employment with the Companies is terminated during the Employment Period as a result of the Executive’s
death, the Employment Period shall terminate without further notice or any action required by the Companies or the Executive’s
estate or other legal representative. Upon the Executive’s death, the Company shall pay or provide to the Executive’s
estate or other legal representative (i) all Accrued Benefits and (ii) a Pro-Rata Bonus.
(b) Disability.
If the Companies, or either of them, terminate the Executive’s employment during the Employment Period because of the Executive’s
Disability, the Company shall pay or provide to the Executive (i) all Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) the
COBRA Coverage Benefits, and (iv) the Post-Termination Benefits.
(c) Termination
by the Companies for Cause or by the Executive without Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment for Cause or the Executive terminates his employment with either of the Companies
without Good Reason, the Company shall pay to the Executive all Accrued Benefits.
(d) Termination
by the Companies without Cause or by the Executive for Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment without Cause (other than due to Disability) or if the Executive terminates
his employment with either of the Companies for Good Reason, the Company shall pay or provide the Executive (or the Executive’s
estate or other legal representative, if the Executive dies after such termination but before receiving such amount) (i) all
Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) an amount equal to the sum of the Executive’s Base Salary and Target
Bonus, payable in equal installments paid at the same time as normal payroll payments are made for the twelve (12) month period
following the Date of Termination, with such payments to commence on the first payroll date following the Payment Date (as defined
below), but retroactive to the day following the Date of Termination, subject to Section 9(j) hereof, (iv) the
COBRA Coverage Benefits, (v) outplacement counseling services for six (6) months following the Date of Termination, and
(vi) the Post-Termination Benefits.
(e) Notice
of Termination. Any termination of the Executive’s employment by the Companies or by the Executive (other than because
of the Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance
with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice
which shall indicate the specific termination provision in this Agreement relied upon. Termination of the Executive’s employment
shall take effect on the Date of Termination.
(f) Effect
of Termination. Upon any termination of the Executive’s employment with the Companies, or either of them, the Executive
shall resign from, and shall be considered to have simultaneously resigned from, all positions with the Companies and all of the
Companies’ Affiliates.
(g) Release.
As a condition to the Executive’s entitlements (other than the Accrued Benefits), as provided in Section 9(b) and
9(d) hereof (the “Severance Benefits”), the Executive must timely execute and deliver to the Companies,
and not revoke, a release of claims in substantially the form attached as Exhibit A hereto (the “Release”);
provided, that for the avoidance of doubt, the foregoing Release requirement shall not apply to the Company’s obligation
to provide the Accrued Benefits or any amounts payable under Section 9(a). The Release must be executed and delivered
by the Executive (and no longer be subject to revocation) as provided in Section 3(c) of Exhibit A.
The Release must become effective, if at all, by the date specified therein (and in all events no later than the ninetieth (90th)
calendar day following the Date of Termination). The first payment of the Severance Benefits (excluding the Pro Rata Bonus) will
be made on the Company’s next regular payday following the earlier of (i) the date upon which the Release (if applicable)
becomes effective, binding and irrevocable and (ii) the expiration of ninety (90) calendar days from the Date of Termination
(the “Payment Date”), but will be retroactive to the day following the Date of Termination.
(h) No
Offset. In the event of termination of his employment, the Executive shall be under no obligation to seek other employment
and there shall be no offset against amounts due to him on account of any remuneration or benefits provided by any subsequent employment
he may obtain, except as provided under Section 24(d) hereof. The Companies’ obligation to make any payment
pursuant to, and otherwise to perform its obligations under, this Agreement shall not be affected by any offset, counterclaim or
other right that the Parent, the Company or any of the Companies’ Affiliates may have against the Executive for any reason.
(i) Section 280G.
If any payment or benefit that the Executive may receive following a change of control of the Company, the Executive’s termination
of employment, or otherwise, whether or not payable or provided under this Agreement (“Payment”) would (i) constitute
a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount”
shall be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (B) the largest portion, up to and including the total amount, of the Payment, whichever of the amounts determined
under (A) and (B), after taking into account all applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis,
of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.
If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the
Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of
outstanding equity awards; and reduction of employee benefits. In the event that acceleration of vesting of outstanding equity
awards is to be reduced, such acceleration of vesting shall be undertaken in the reverse order of the date of grant of the Executive’s
outstanding equity awards. All calculations and determinations made pursuant this Section 9(i) will be made by
an independent accounting or consulting firm or independent tax counsel appointed by the Company (the “Tax Counsel”)
whose determinations shall be conclusive and binding on the Company and the Executive for all purposes. For purposes of making
the calculations and determinations required by this Section 9(i), the Tax Counsel may rely on reasonable, good faith
assumptions and approximations concerning the application of Section 280G of the Code and Section 4999 of the Code. The
Company shall bear all costs the Tax Counsel may reasonably incur in connection with its services.
(j) Satisfaction
of Obligations. Anything herein to the contrary notwithstanding, upon satisfaction of their respective applicable obligations
as set forth in this Section 9, the Companies shall have no further obligations to the Executive under this Agreement,
except as set forth in Section 13 hereof. The obligation of the Companies to provide the Severance Benefits (or, if
such Severance Benefits have commenced, to continue providing the Severance Benefits) to the Executive is expressly conditioned
upon the Executive’s continued performance of and compliance with his obligations under the Covenants; provided, however,
that an immaterial and unintentional breach by the Executive of the Covenants provided in Section 6 or Section 8
hereof shall not be deemed to be a failure to perform or comply with such obligations. In the event of the Executive’s death
after his termination of employment but prior to his receiving, in full, the payments or other benefits to which he is entitled
hereunder, his estate or other legal representative shall succeed to such entitlements.
10. Indemnification.
During the Employment Period and thereafter, the Companies will indemnify the Executive to the fullest extent permitted by law
and each of the Companies’ certificate of incorporation, bylaws or other governing documents, as applicable, and cause him
to be covered under such directors and officers insurance policies as the Companies maintain in effect from time to time. The Executive
agrees to promptly notify the Companies of any actual or threatened claim arising out of or as a result of the Executive’s
employment hereunder or any office or directorship held with Parent, the Company or any of their Affiliates.
11. Notices.
All notices, demands, requests, or other communications which may be or are required to be given or made by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by facsimile transmission addressed
as follows:
If to the Company, to:
Hayward Industries, Inc.
400 Connell Drive, Suite 6100
Berkeley Heights, NJ 07922
Attn: Chief Executive Officer
If to the Parent, to:
Hayward Holdings, Inc.
400 Connell Drive, Suite 6100
Berkeley Heights, NJ 07922
Attn: Chief Executive Officer
If to the Executive, to: Address
last shown on the Company’s records.
Each party may designate by notice in writing
a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand,
request, or communication that shall be given or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, confirmation
of facsimile transmission or the affidavit of messenger being deemed conclusive but not exclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
12. Severability.
The invalidity or unenforceability of any one or more provisions of this Agreement, including, without limitation, Sections
6, 7 and 8, shall not affect the legality, validity or enforceability of the other provisions of this Agreement, which shall
remain in full force and effect.
13. Survival.
It is the express intention and agreement of the Parties that the provisions hereof shall survive the termination of employment
of the Executive, in accordance with the respective terms of such provisions. In addition, all obligations of the Company or the
Parent to the Executive under applicable compensation benefit plans and programs and to make payments or settle equity awards granted
thereunder shall survive any termination of this Agreement, to the extent permitted by law, in accordance with the terms of such
plans, programs and/or awards.
14. Assignment.
The rights and obligations of the Parties to this Agreement shall not be assignable or delegable except that (a) in the event
of the Executive’s death, the personal representative or legatees or distributees of the Executive’s estate, or the
trustees of any trusts established under the Executive’s will or by the Executive during his lifetime, as the case may be,
shall have the right to receive any amount owing and unpaid to the Executive hereunder and (b) the respective rights and obligations
of the Company and the Parent hereunder shall be assignable and delegable in connection with any subsequent merger, consolidation,
reorganization, sale of all or substantially all of the assets or equity interests of the Company or the Parent, or similar transaction
involving the Company or the Parent or a successor to either of them. In connection with any assignment pursuant to clause (b) of
the preceding sentence, the Parent and the Company shall require any such successor to the Parent or the Company or to their respective
business and assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the
Parent and the Company would be required to perform it if no such succession had taken place; provided, for the avoidance
of doubt, that no such express assumption and agreement shall be required where any such successor becomes subject to this Agreement
by operation of law as part of any transaction described in the foregoing clause (b). As used in this Agreement, “Company”
shall include any successor to the Company’s business and/or assets and “Parent” shall include any successor
to the Parent’s business and/or assets.
15. Binding
Effect. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon the Parties and shall
inure to the benefit of the Parties and their respective heirs, devisees, executors, administrators, legal representatives, successors
and assigns.
16. Amendment;
Waiver. This Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by the party
against whom enforcement is sought. Neither the waiver by any of the Parties of a breach of or a default under any of the provisions
of this Agreement, nor the failure of any of the Parties, on one or more occasions, to enforce any of the provisions of this Agreement
or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings.
Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of
any of the provisions hereof.
18. Governing
Law. This Agreement, the rights and obligations of the Parties, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the New Jersey (but not including any choice of law rule thereof that would
cause the laws of another jurisdiction to apply).
19. Dispute
Resolution.
(a) Arbitration.
In the event of any dispute between the Parties, including but not limited to any claims arising from or related to this Agreement
or the termination of this Agreement, any claims related to Executive’s employment or the termination of the Executive’s
employment, or any claims arising under the state and federal laws governing employment, such dispute will be determined exclusively,
upon the written request of either Party, by binding arbitration under the auspices of and pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association. Such arbitration shall be conducted in New York City, New York before a single
arbitrator who is a retired judge. This agreement to arbitrate shall include, without limitation, any and all disputes, controversies
and/or claims against Parent, the Company or any of their Affiliates or the current or former partners, members, officers or employees
of any of them, whether arising under theories of liability or damages based on contract, tort or statute, to the fullest extent
permitted by law, such as, without limitation, claims for breach of contract or breach of the covenant of good faith and fair dealing,
any claims of discrimination or other claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act,
ERISA and/or any applicable or equivalent state or local laws, claims for wrongful termination, including employment termination
in violation of public policy, and claims for personal injury including, without limitation, defamation, fraud and infliction of
emotional distress. The only claims not covered by this agreement to arbitrate are claims for benefits under workers’ compensation
or unemployment insurance statutes and other claims that cannot be arbitrated as a matter of law. As a material part of this agreement
to arbitrate claims, the Executive, Parent, and the Company expressly waive all rights to a jury trial in court on all statutory
or other claims, including, without limitation, those identified in this Section 19. The Executive also acknowledges
and agrees that no claims will be arbitrated on a class action or collective action basis. The arbitrator will have no power to
add to, subtract from, or otherwise modify any of the terms of this Agreement except that a provision otherwise invalid, illegal
or unenforceable shall be modified to the least extent necessary to make it valid, legal and enforceable. The decision of the arbitrator
shall be final, conclusive and binding and may be enforced by any court of competent jurisdiction, and all Parties consent to the
personal jurisdiction of the state and federal courts of the State of New Jersey for such purposes. Notwithstanding the foregoing,
the Parent and the Company shall be entitled to seek injunctive relief and other provisional remedies against the Executive in
any court of competent jurisdiction for any breach or threatened breach of any provisions of this Agreement. All reasonable fees,
costs and expenses (including reasonable attorneys’ fees, expenses and costs) incurred by the prevailing party in any arbitration
will be borne by the other party. Any claim must be brought to arbitration within the statute of limitations for bringing such
claim in court or before the appropriate administrative agency, as applicable.
(b) Court
Proceeding. Each of the Parties agrees that any dispute between the Parties in respect of which resolution by a court of any
issue is required either (i) in accordance with the provisions of Section 19(a) or (ii) for the purpose
of the recognition and enforcement of any judgment by the arbitrator, shall be resolved only in the courts of New Jersey or the
United States District Court for the District of New Jersey and the appellate courts having jurisdiction of appeals from such courts.
20. Entire
Agreement. This Agreement and all other agreements and plans relating to the subject matter hereof, including, without limitation,
agreements for amending awards granted under such plans, to the extent not inconsistent with any terms set forth herein, constitute
the entire understanding of the Company and the Parent on the one hand, and the Executive on the other hand, with respect to the
subject matter hereof and supersede the Prior Agreement and all other prior understandings, written or oral, concerning such subject
matter.
21. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be an original and all of which shall be deemed to constitute
one and the same instrument.
22. Withholding.
The Company may withhold from any benefit or compensation payment under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
23. Section 409A.
(a) The
intent of the Parties is that payments and benefits under this Agreement comply with Section 409A of the Code and the regulations
and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum
extent permitted, this Agreement shall be interpreted to be in compliance therewith. Specifically, if any provision of this Agreement
is ambiguous, such that one interpretation of the provision would comply with Code Section 409A and another interpretation
would result in a failure to comply with any applicable requirement under Code Section 409A, the Parties intend that the interpretation
that complies with Code Section 409A shall be the one that governs. To the extent permitted under Code Section 409A,
this Agreement, and the terms of any Plan (as defined in Section 23(f) below) to the extent they relate to the
Executive’s entitlements thereunder, shall be modified, either as reasonably requested by the Executive, with the Company’s
and Parent’s consent), or as the Company may propose (or, as the Parent may propose, with respect to any Plan maintained
by it) with the Executive’s consent, to the extent necessary to comply with all applicable requirements of, and to avoid
the imposition of any additional tax, interest or penalties under, Code Section 409A in connection with the payments and benefits
to be paid or provided to the Executive hereunder or under such Plan. To the extent that any provision hereof, or of any Plan,
is modified in order to comply with Code Section 409A, such modification shall be made in good faith, shall not impose any
additional costs on the Parent or the Company and shall, to the maximum extent reasonably possible, maintain the original intent
and economic benefit to the Executive and the Companies of the applicable provision without violating the provisions of Code Section 409A.
(b) A
termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the
payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation
from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references
to a “termination,” “termination of employment” or like terms shall mean “separation from service.”
If the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term
under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred
compensation under Code Section 409A (after taking into account all exclusions applicable to such payment or benefit under
Code Section 409A) and that is payable or to be provided to the Executive on account of his “separation from service,”
such payment or benefit shall be made or provided at the date which is the earliest to occur of (i) the expiration of the
six (6)-month period measured from the date of the Executive’s “separation from service, (ii) the date of the
Executive’s death, or (iii) such earlier date as may be permitted under Code Section 409A. Upon the expiration
of the foregoing delay period, all payments and benefits delayed pursuant to this Section 23(b) (whether they
would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed
to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance
with the normal payment dates specified for them herein.
(c) To
the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind benefits under this
Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A (after taking into
account all exclusions applicable to such reimbursements or benefits under Code Section 409A): (i) reimbursement of any
such expense shall be made as soon as practicable after such expense has been incurred, but any event no later than December 31
of the year following the year in which the Executive incurs such expense; (ii) the amount of such expenses eligible for reimbursement,
or in-kind benefits to be provided, in any calendar year shall not affect the amount of expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year; and (iii) the Executive’s right to receive such reimbursements
or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
(d) For
purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement
shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies
a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the
sole discretion of the Company.
(e) Notwithstanding
any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified
deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted
by Code Section 409A.
(f) For
purposes of the foregoing, the term “Plan” shall mean any plan, program, agreement (other than this Agreement)
or other arrangement maintained by the Company, the Parent or any of the Companies’ Affiliates that is a “nonqualified
deferred compensation plan” within the meaning of Code Section 409A, and under which any payments or benefits are to
be made or provided to the Executive, to the extent they constitute a deferral of compensation subject to the requirements of Code
Section 409A after taking into account all exclusions applicable to such payments or benefits under Code Section 409A.
24. Definitions.
(a) “Accrued
Benefits” means (i) any unpaid Base Salary through the date the Executive’s employment terminates, (ii) except
in the case of a termination of employment pursuant to Section 9(c), any earned and payable, but unpaid, Annual Bonus
(including any Annual Bonus payable pursuant to the last sentence of Section 4(b)); (iii) any accrued and unpaid vacation;
(iv) any amounts or benefits owing to the Executive or to the Executive’s beneficiaries under the then applicable benefit
plans of the Company in which the Executive participated immediately prior to the Date of Termination (excluding any severance
plan, program, agreement or arrangement); and (v) any amounts owing to the Executive for reimbursement of business expenses
properly incurred by the Executive prior to the Date of Termination and which are reimbursable in accordance with Section 4
or Section 5, provided that the Executive, or his estate or other legal representative, submits all expenses
and supporting documentation required within thirty (30) days of the Date of Termination (or one-hundred eighty (180) days in the
case of termination due to death). Amounts payable (A) under clauses (i), (ii) and (iii) shall be paid promptly
after the Date of Termination but in any event by no later than thirty (30) days after such date (or, in the case of (ii), when
bonuses are paid to executives of the Company generally); (B) under clause (iv) shall be paid in accordance with the
terms and conditions of the applicable plan, program or arrangement; and (C) under clause (v) shall be paid in accordance
with the terms of the applicable expense policy but in any event by no later than the time for payment of the reimbursement required
pursuant to Section 23(c)(i) above.
(b) “Affiliate”
of a person or entity means any entity controlled by, in control of, or under common control with, such person or entity.
(c) “Cause”
means: (i) conduct by the Executive constituting a material act of misconduct in connection with the performance of his duties,
including, without limitation, misappropriation of funds or property of the Parent, the Company or any of their Subsidiaries or
Affiliates other than the occasional, customary and de minimis use of Company or Parent property for personal purposes; (ii) the
Executive’s commission of a felony or commission of a misdemeanor involving fraud or any misconduct by the Executive that
results in material injury or reputational harm to the Company, the Parent or any of their Subsidiaries and Affiliates; (iii) any
act or omission that constitutes a material breach by the Executive of (A) any of his obligations under any material agreement
with the Company, the Parent or any of their Affiliates (including this Agreement) or (B) any material written policy of the
Company, the Parent or any of their Subsidiaries and Affiliates, including the continued non-performance by the Executive of his
duties (other than by reason of the Executive’s physical or mental illness, incapacity or disability), in each case, which
has continued for more than thirty (30) days following written notice from the Board delineating such non-performance; (iv) a
breach by the Executive of any restrictive covenant by the Executive contained in any agreement between such Executive and the
Company, the Parent or any of their Affiliates (including in any incentive award agreement), provided, that an immaterial
and unintentional breach of the Covenants provided in Section 6 or Section 8 hereof shall not constitute
“Cause”; (v) the Executive’s engaging in any intentional act of dishonesty, violence or threat of violence
(including any violation of federal securities Laws) which is or could reasonably be expected to be materially injurious to the
financial condition or business reputation of the Company, the Parent or any of their Subsidiaries or Affiliates; (vi) the
Executive’s illegal use of controlled substances during the performance of the Executive’s duties that adversely affects
the reputation or best interest of the Company, the Parent or any Affiliate thereof; or (vii) the Executive’s failure
to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being
instructed by the Company or the Parent to cooperate, or the willful destruction or failure to preserve documents or other materials
known to be relevant to such investigation or the inducement of others to fail to cooperate or to produce documents or other materials
in connection with such investigation. For purposes of this Section 24(c), written notice means written notice by the
Parent to the Executive pursuant to Section 11 hereof.
(d) “COBRA
Coverage Benefits” shall mean continued coverage for the Executive and his dependents under the Company’s group
health care benefit plans for a period of twelve (12) months following the Date of Termination, with the Executive (or in the event
of the Executive’s death, his dependents) paying the same portion of the total cost of such coverage that the Company’s
active employees are required to pay for such coverage, and the Company paying for that portion of such total cost as exceeds the
portion paid for by the Executive. The COBRA Coverage Benefits shall be provided to the Executive or his dependents subject to
(i) the Executive’s (or in the event of the Executive’s death, his dependent’s) making a timely election
of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
and remaining eligible for COBRA coverage during such period, and (ii) the Executive’s (or in the event of the Executive’s
death, his dependent’s) continued payment of the portion of the total cost of such coverage required to be paid by the Executive
as provided in the preceding sentence. The COBRA Coverage Benefits shall immediately cease to be provided hereunder on the date
on which the Executive commences to receive equivalent health care benefit coverage under a health care plan, or plans, of any
subsequent employer of the Executive. If and to the extent necessary in order for the Executive to avoid being subject to tax under
section 105(h) of the Code on any payment or reimbursement of any health care expenses made to him or for his benefit pursuant
to Section 9 hereof the Company shall impute as taxable income to the Executive an amount equal to the excess of (A) the
full actuarial cost of the health care benefit coverages provided to him and his dependents under Section 9 hereof
over (B) the portion of such total cost paid for by the Executive or his dependents for each period during which such coverages
are provided.
(e) “Date
of Termination” means (i) if the Executive’s employment is terminated by the Executive’s death, automatically
on the date of the Executive’s death; (ii) if the Executive’s employment is terminated because of the Executive’s
Disability, five (5) calendar days after the Notice of Termination unless the Executive shall have returned to the performance
of the Executive’s duties on a full-time basis during such five (5)-day period; or (iii) if the Executive’s employment
is terminated during the Employment Period by the Companies or by the Executive, the date specified in the Notice of Termination;
provided that in the case of a termination by the Companies for Cause or a termination by the Executive for Good Reason
the Date of Termination shall occur no sooner than the completion of the applicable notice period (if any) and, if applicable,
opportunity to cure, as provided in the definitions of those terms this Section 24.
(f) “Disability”
or “Disabled” means the inability of the Executive to perform the Executive’s material duties hereunder
due to a physical or mental injury, infirmity or incapacity, which is expected to exceed one hundred eighty (180) days (including
weekends and holidays) in any three hundred sixty-five (365)-day period. If any question shall arise as to whether the Executive
is Disabled to the extent that the Executive is unable to perform substantially all of his duties and responsibilities for the
Company and its Affiliates, the Executive shall, at the request of the Board in accordance with the Americans with Disabilities
Act of 1990 and the Family and Medical Leave Act of 1993, each as amended, submit to a medical examination by a physician selected
by the Board to whom the Executive or his guardian, if any, has no reasonable objection to determine whether the Executive is so
Disabled, and such determination shall for purposes of this Agreement be conclusive of the issue. If such a question arises and
the Executive fails to submit to the requested medical examination, the Board’s determination of the issue shall be binding
on the Executive.
(g) “Good
Reason” means, if occurring without the Executive’s consent: (i) any act taken by the Company that results
in any material and sustained diminution in the Executive’s responsibilities or authority from those that are consistent
with his title; (ii) a failure of the Company to pay or cause to be paid the Executive’s Base Salary, Annual Bonus or
material employee benefits required to be provided to him, when due or (iii) any material breach of this Agreement by the
Company (each such event, a “Good Reason Condition”). Notwithstanding the foregoing, Good Reason will not be
deemed to exist unless (i) the Executive reasonably determines in good faith that a Good Reason Condition has occurred; (ii) the
Executive notifies the Company in writing of the first occurrence of the Good Reason Condition within thirty (30) days of the first
occurrence of such condition; (iii) the Executive cooperates in good faith with the Company's efforts, if any, for a period
of not less than thirty (30) days following such notice (the “Cure Period”), to remedy the Good Reason Condition;
(iv) notwithstanding such efforts, or in the event the Company does not remedy such event, the Good Reason Condition continues
to exist; and (v) the Executive terminates his or her employment within ninety (90) days after the Good Reason Condition has
occurred; provided, that, for the avoidance of doubt, if the Company cures the Good Reason Condition during the Cure Period,
Good Reason shall be deemed not to have occurred. For purposes of this Section 24(g), written notice means written notice
by the Executive to both the Parent and the Company pursuant to Section 11 hereof.
(h) “Post-Termination
Benefits” shall mean, at the Parent’s election, either (i) payment by the Companies to the Executive of an
amount equal to the cost of any perquisites, welfare benefits, and retirement plan contributions the Executive would otherwise
have been eligible to receive in the twelve (12) months following the Executive’s Date of Termination, or (ii) the provision,
for twelve (12) months following the Executive’s Date of Termination, in kind by the Company to the Executive of the perquisites,
welfare benefits, or retirement plan contributions described in clause (i) of this definition, provided that, in the
case of provision of benefits under clause (ii), the Parent has determined in its reasonable and sole discretion that it would
be permissible to do so under the terms of any applicable plan and applicable law. For the sake of clarity, COBRA Coverage Benefits
shall be as provided in Section 24(d) above.
(i) “Pro-Rata
Bonus” shall mean, to the extent actually earned, a pro-rata portion of the Executive’s Annual Bonus for the plan
year in which the Executive’s termination occurs based on the actual Annual Bonus earned for the year in which termination
occurs (such pro-ration to be determined by multiplying the amount of such bonus which would be payable to the Executive if he
had remained in employment with the Company for the full plan year by a fraction, the numerator of which is the number of days
during the plan year of termination that the Executive was employed by the Company, and the denominator of which is 365), which
shall be payable by the Company to the Executive (or in the event of his death, to his estate or legal representatives) at such
time when bonuses are paid to executives of the Companies generally or, if later, on the Payment Date.
IN WITNESS WHEREOF,
the undersigned have duly executed and delivered this Agreement as of March 2, 2021.
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HAYWARD
INDUSTRIES, INC.
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By:
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Name:
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Title:
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HAYWARD
HOLDINGS, INC.
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By:
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Name:
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Title:
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EXECUTIVE
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Eifion
Jones
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[Signature Page to Employment Agreement]
EXHIBIT A
Release
For good and valuable
consideration, including the rights and obligations contained in the Amended and Restated Employment Agreement dated as of March 2,
2021 (the “Employment Agreement”) this agreement and release is entered into by and among Eifion Jones (the
“Executive”), Hayward Industries, Inc. (the “Company”) and Hayward Holdings, Inc.
(the “Parent”) (the “Release”). (Together, the Company and the Parent may hereinafter be
referred to as the “Companies.”)
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1.
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The Executive, on behalf of himself and his dependents, heirs, administrators, agents, personal
representatives, executors, successors and assigns (together with the Executive, the “Executive Releasees”),
does hereby irrevocably, completely and unconditionally release, waive and forever discharge the Companies and their past, present
and future parents, subsidiaries, affiliated corporations, partnerships, joint ventures, employee benefit plans, insurers and their
predecessors, successors and assigns (collectively, “Company Affiliates”) and all of the Company Affiliates’
past, present and future shareholders, directors, officers, employees, agents, trustees, and representatives, both individually
and in their official capacities, and their successors and assigns (together with the Company Affiliates, the “Company
Releasees”), from any and all actions, rights, claims, demands, obligations, liabilities, attorneys’ fees and causes
of action of any kind or description whatsoever, in law, equity or otherwise, whether known or unknown, whether past or present,
including, without limitation, those arising out of or in any way related to the Executive’s employment, or termination of
employment, with either or both of the Companies (including any events, acts, conduct or omissions related thereto) occurring at
any time prior to or at the date on which the Executive signs and returns this Release (the “Release Date”),
including, but not limited to, any action, claim, demand, obligation, liability or cause of action arising under any Federal, state,
or local law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866, 1871, 1964
and 1991, the Equal Pay Act, the Americans with Disabilities Act of 1990, the National Labor Relations Act, the Fair Labor Standards
Act of 1938, the Employee Retirement Income Security Act of 1974 (other than any claim as excepted below), the Age Discrimination
in Employment Act of 1967, all as amended, and the wage and hour, wage payment and fair employment practices laws of the state
or states in which the Executive has been employed), tort, contract or any other legal obligation (collectively, the “Claims”);
provided, however, the Executive does not release any of the following Claims:
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a.
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any Claim to workers’ compensation or unemployment insurance benefits;
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b.
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any Claim arising from a breach of the Employment Agreement following the Release Date, including
any right to enforce the Employment Agreement;
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c.
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any Claim for indemnification in accordance with applicable laws, the applicable constituent documents
(including bylaws and certificates of incorporation) of the Company, the Parent or any Company Affiliate, and any applicable insurance
policy with respect to any liability the Executive incurs or has incurred as a director, officer or employee of the Company, the
Parent or any Company Affiliate;
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d.
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any Claim the Executive may have to obtain contribution as permitted by law in the event of entry
of judgment against the Executive as a result of any act or failure to act for which the Executive and the Company, the Parent
and/or any Company Affiliate are jointly liable in whole or in part;
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e.
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any Claim that by law may not be released by private agreement without judicial or governmental
review and approval; or
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f.
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any Claim that arises after the Release Date.
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2.
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Nothing contained in this Release shall be construed to prohibit the Executive from filing a charge
with or participating in any investigation or proceeding conducted by the federal Equal Employment Opportunity Commission or a
comparable state or local agency, provided, however, that the Executive hereby agrees to waive his right to recover monetary
damages or other individual relief in any such charge, investigation or proceeding or any related complaint or lawsuit filed by
the Executive or by anyone else on his behalf.
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3.
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The following shall apply in connection with the signing of this Release:
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a.
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The Executive acknowledges and agrees that he has no less than [twenty-one (21)/forty-five (45)]1
days in which to consider this Release (though he may choose voluntarily to sign it earlier) and is hereby advised that this Release
creates a legally binding obligation and that the Executive should therefore consult an attorney about this Release (though he
may choose voluntarily not to do so).
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b.
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The Executive represents that he has read this Release carefully; has had the opportunity to consult
with an attorney of the Executive’s own choosing about the Release; understands fully what this Release means; and is entering
into it knowingly, voluntarily, and without coercion.
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c.
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The Executive may not sign and return this Release to the Companies earlier than the Date of Termination
(as defined in the Employment Agreement) and must sign and return it no later than [twenty-one (21)/forty-five (45)]2
calendar days following the later of (i) the Date of Termination and (ii) five (5) calendar days following the date
of delivery of this Release to the Executive as provided in Section 9(g) of the Employment Agreement (such period of
time being the “Release Consideration Period”). The Executive will have an additional seven (7) calendar
days after the Release Date in which to revoke his acceptance by providing written notice of revocation to the Companies (such
period of time the “Release Revocation Period”). The Release will not be effective until the date upon which
the Release Revocation Period has expired, which will be the eighth (8th) calendar day after the Release Date, if not previously
revoked.
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1
To be determined by the Company at the time of separation.
2
To be determined by the Company at the time of separation.
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d.
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By signing this Release, Executive represents that (i) he is signing it voluntarily and with
a full understanding of its terms, (ii) he has had sufficient opportunity, before signing this Release, to consider its terms
and consult with an attorney (if he so wished to do so) and (iii) he has not relied on any promises or representations, express
or implied, that are not set forth expressly in this Release.
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4.
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The Executive represents that as of the date he has executed this Release he has not assigned to
any other party, and agrees not to assign, any Claim released by the Executive herein.
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5.
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The Executive represents that he has returned to the Companies any and all documents, materials
and information (whether in hardcopy, on electronic media or otherwise) related to the business of the Companies or their affiliates
(whether present or otherwise), and all keys, access cards, credit cards, computer hardware and software, telephones and telephone-related
equipment and all other property of the Companies or their affiliates in the Executive’s possession or control. Further,
the Executive agrees that he has not retained any copy or derivation of any documents, materials or information (whether in hardcopy,
on electronic media or otherwise) of the Companies or their affiliates.
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6.
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Whenever possible, each provision of this Release shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Release is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Release shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained herein.
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7.
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This Release may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same instrument.
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8.
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This Release shall be governed by and construed and interpreted in accordance with the laws of
the State of New Jersey without reference regard to principles of conflicts of law that would result in the application of the
laws of any other jurisdiction.
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[remainder of page intentionally
blank]
IN WITNESS WHEREOF,
the Executive, the Company and the Parent have executed this Release each as of the date indicated below.
AGREED AND EXECUTED:
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EIFION JONES
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Dated: __________, 20___
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HAYWARD INDUSTRIES, INC.
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Dated: __________, 20___
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Name:
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Title:
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HAYWARD HOLDINGS, INC.
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Dated: __________, 20___
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Name:
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Title:
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Exhibit 10.22
Amended
and restated EMPLOYMENT AGREEMENT
This Amended and Restated
Employment Agreement (the “Agreement”) is made and entered into as of March 2, 2021 by and among Hayward
Industries, Inc. (the “Company”), Hayward Holdings, Inc. (the “Parent”) and Rick
Roetken (the “Executive”) (the Company, the Parent and the Executive, individually, a “Party”
and, collectively, the “Parties”) and is effective as of the day prior to the date on which the Parent becomes
subject to the reporting obligations of Section 12 of the Securities Exchange Act of 1934, as amended (the “Effective
Date”). (Hereinafter the Company and the Parent together may be referred to as the “Companies.”) This
Agreement amends and restates in its entirety the employment agreement by and among the Company, the Parent, and the Executive,
effective as of August 4, 2017, as revised on August 8, 2018 (the “Prior Agreement”).
Terms used herein with
initial capitalization not otherwise defined are defined in Section 24 hereof.
WITNESSETH:
WHEREAS, the Company
desires the Executive to continue to serve as President, North America of the Company and the Executive is willing to continue
to do so pursuant to the terms of this Agreement; and
WHEREAS, the Parent
desires to continue to employ the Executive as President, North America and the Executive is willing to continue to do so pursuant
to the terms of this Agreement.
NOW THEREFORE, in consideration
of the premises and of the covenants and agreements set forth herein and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Companies and the Executive hereby agree as follows:
1. Employment.
The Companies agree to continue to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to continue
to be so employed, for a period commencing on the Effective Date and continuing until the Executive’s employment is terminated
pursuant to Section 9 hereof (the “Employment Period”).
2. Position
and Duties. During the Employment Period, the Executive shall serve as President, North America of the Company, reporting directly
to the Chief Executive Officer of the Company. In such capacity, the Executive shall have the duties, responsibilities and authorities
customarily associated with the position of President, North America in companies the size and nature of the Company. The Executive
shall devote the Executive’s reasonable best efforts and substantially all of the Executive’s business time to the
performance of the Executive’s duties and responsibilities hereunder; provided that the Executive shall be entitled
to (a) manage the Executive’s personal and family investments, and (b) with the prior written approval of the Board
of Directors of the Parent (the “Board”) (or the Nominating and Governance Committee of the Board), serve as
a member of the board of directors of one (1) public company and one (1) non-profit or private company, provided
that any such company is not a competitor of or supplier to the Companies or doing business in the industry in which the Companies
conduct business, in each case, to the extent such activities do not materially interfere with the performance of the Executive’s
duties and responsibilities hereunder (including, for the avoidance of doubt, the terms of Sections 6, 7 and 8 hereof).
3. Place
of Performance. During the Employment Period, the Executive shall be based primarily at the Company’s principal executive
offices. The Executive understands and agrees that the Executive may be required to travel from time to time for business purposes.
4. Compensation
and Benefits; Incentive Awards.
(a) Base
Salary. During the Employment Period, the Company shall pay to the Executive a base salary (the “Base Salary”)
at the rate of $456,000 per calendar year, less applicable deductions. The Base Salary shall be reviewed for increase (but not
decrease) by the Board or the Compensation Committee of the Board (the “Compensation Committee”) no less frequently
than annually and may be increased in the sole discretion of the Board or the Compensation Committee and any such adjusted Base
Salary shall thereafter constitute the “Base Salary” for purposes of this Agreement. The Base Salary shall be paid
in substantially equal installments in accordance with the Company’s regular payroll procedures.
(b) Annual
Bonus. During the Employment Period, the Executive shall be eligible to receive an annual cash performance bonus (an “Annual
Bonus”) under the Company’s annual incentive plan (as in effect from time to time for senior executives) in respect
of each plan year that ends during the Employment Period, to the extent earned based on the achievement of performance criteria
set by the Board or the Compensation Committee. The performance criteria for a plan year shall be determined by the Board or the
Compensation Committee, in good faith, no later than sixty (60) days after the commencement of such plan year. The Executive’s
target annual bonus opportunity shall be 70% of the Executive’s Base Salary as of the beginning of the applicable plan year
(the “Target Bonus”) if target levels of performance for that year are achieved. The Executive’s actual
Annual Bonus for any plan year shall be determined by the Board or the Compensation Committee after the end of such plan year and
shall be paid to the Executive no later than seventy-five (75) calendar days following the end of such plan year. For purposes
of Section 24(a) hereof, if the Executive’s employment is terminated pursuant to the terms of Section 9
hereof after the end of any plan year (other than pursuant to Section 9(c)), but prior to such Annual Bonus determination
by the Board or the Compensation Committee with respect to that plan year, and the Board or the Compensation Committee subsequently
determines that the Annual Bonus for that plan year has been earned by the Executive, then any such earned Annual Bonus, in an
amount equal to such earned Annual Bonus payout percentage as determined by the Board or the Compensation Committee, shall be considered
an Accrued Benefit.
(c) Equity
Incentive Awards. During the Employment Period, the Executive shall be eligible to participate in any equity incentive
plan that may be made available, from time to time, to other senior executives of the Companies.
(d) Vacation;
Benefits. During the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation annually (accruing
ratably on an annual basis) and to participate in employee benefits made available, from time to time, to senior executive officers
of the Company.
(e) Perquisites.
During the Employment Period, the Executive shall be entitled to perquisites no less favorable than those generally provided by
the Company, from time to time, to other senior executive officers of the Company (other than the Chief Executive Officer). The
Executive is currently entitled to a car, insurance coverage, gas (for business usage) and repair costs relating to such car, for
which the Company will reimburse the Executive (the “Car Benefit”). The Executive shall continue to be entitled
to the Car Benefit through the end of the current car lease that ends on August 26, 2023; and, following such date, the Company
shall increase the Executive’s Base Salary by $12,500, which increase shall, for the avoidance of doubt, be separate and
apart from any annual increase in Base Salary pursuant to Section 4(a) herein.
5. Expenses.
The Company shall reimburse the Executive promptly for all expenses reasonably incurred by the Executive in the performance of
his duties hereunder in accordance with policies that may be adopted from time to time by the Company following presentation by
the Executive of an itemized account, including reasonable substantiation, of such expenses. The Executive’s right to payment
or reimbursement for business expenses and other amounts hereunder shall be subject to the following additional rules: (a) the
amount of expenses eligible for payment or reimbursement during any calendar year shall not affect the expenses eligible for payment
or reimbursement in any other calendar year, (b) payment or reimbursement shall be made not later than December 31 of
the calendar year following the calendar year in which the expense or payment was incurred, and (c) the right to payment or
reimbursement shall not be subject to liquidation or exchange for any other benefit.
6. Confidentiality
and Assignment of Intellectual Property. The Executive hereby acknowledges and agrees that the business, financial and other
non-public information of the Companies and the Companies’ direct and indirect parents and subsidiaries is of a confidential
and proprietary nature. The Executive hereby further acknowledges and agrees that, during the course of his employment by the Companies,
he has received, developed or learned of, and will continue to receive, develop, or learn of, confidential and proprietary information
of the Companies and the Companies’ direct and indirect parents and subsidiaries not previously known to him and not known
or used generally. The Executive hereby agrees that, he will not disclose other than as required for the performance of his duties
under this Agreement, will continue to keep in strict secrecy and confidence, and continue to treat as the property of the Parent,
the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be, and will not use for
his own benefit or for the benefit of others any and all information, knowledge and other data relating to the business and affairs
of the Parent, the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be (whether
or not such information, knowledge or other data is in written form), that he has acquired, received, developed or learned, or
may acquire, receive, develop or learn in the course of his employment by the Parent, Company or any of the Companies’ direct
or indirect subsidiaries. For the avoidance of doubt, (a) nothing contained in this Agreement limits, restricts or in any
other way affects the Executive’s communicating with any governmental, administrative or legislative agency or entity (including
a committee thereof), or communicating with any official or staff person of a governmental, administrative or legislative agency
or entity, concerning matters relevant to such agency or entity, or requires the Executive to provide prior notice of such communication
to the Company or Parent, (b) nothing contained in this Agreement limits, restricts or in any other way affects any disclosures
by the Executive required by law or court order, and (c) nothing contained in this Agreement limits, restricts or in any other
way affects, and the Executive will not be held criminally or civilly liable under any federal or state trade secret law for, the
Executive’s disclosing a trade secret (A) in confidence to a federal, state, or local government official, either directly
or indirectly, or to an attorney, solely for the purpose of reporting or investigating a suspected violation of law, or (B) in
a complaint or other document filed under seal in a lawsuit or other proceeding; provided, however, that notwithstanding
this immunity from liability, the Executive may be held liable if he unlawfully accesses trade secrets subject to this Section 6
by unauthorized means. Anything herein to the contrary notwithstanding, information, knowledge and other data relating to the business
and affairs of the Parent, the Company or any direct or indirect parent or subsidiary of either, including trade secrets, that
are subject to the confidentiality provisions of this Section 6 shall cease to be subject to such provisions if the
data becomes known to the public other than due to any wrongful action or negligence of the Executive.
The Executive, as part
of the consideration for this Agreement and for his employment by the Companies, hereby assigns, and agrees to assign, to (or as
otherwise directed by) the Companies his entire right, title and interest in and to any and all inventions, trade secrets, improvements,
plans and specifications (i) which he, alone or in conjunction with others, may make, conceive or develop during the period
of his employment with the Companies which relate to the business of the Parent, the Company or any of the Companies’ direct
or indirect subsidiaries, or (ii) which he, alone or in conjunction with others, may make or conceive within a period of one
(1) year after the Date of Termination which derive from any confidential or proprietary information, knowledge or other data
of the Parent, the Company or any of their respective direct or indirect subsidiaries with respect to which he has become informed
by reason of his engagement by the Companies (including, without limitation, his relations with the Companies’ direct or
indirect subsidiaries). The Executive further agrees that he will promptly disclose fully to the Companies his aforesaid inventions,
trade secrets, improvements, plans and specifications and will at any time during and after his employment with the Companies render
to the Companies such cooperation and assistance as they may deem to be advisable in order to obtain copyrights or patents, as
the case may be, on or otherwise perfect or defend the rights of the Company and/or the Parent in each such invention, trade secret,
improvement, plan or specification, including, but not limited to, the execution of any and all applications for copyrights or
patents, assignments of copyrights or patents and other written instruments which the Companies, their officers or attorneys reasonably
may deem necessary or desirable, and the aforesaid obligation shall be binding on the Executive’s assigns, executors, administrators
and other legal representatives.
The Executive hereby
irrevocably grants to each of the Companies and their successors and assigns, to the full extent permitted by law, power of attorney
to institute and prosecute from time to time, at their sole expense, any proceedings at law, in equity or otherwise, that any of
the Companies, their successors or assigns, may deem proper in order to transfer to the Companies, assert or enforce any claim,
right or title of any kind in and to the inventions, trade secrets, improvements and other proprietary interests described under
this Section 6, to defend and settle any and all actions, suits or proceedings in respect of any of said inventions,
trade secrets, improvements and other proprietary interests and, generally to do any and all such acts and things in relation thereto
as any of the Companies, their successors or assigns, shall deem advisable, including, but not limited to, execution of any and
all applications, assignments and instruments contemplated under this Section 6. The Executive declares and acknowledges
that the appointment hereby made and the powers hereby granted are coupled with an interest and shall be irrevocable by him.
7. Non-Competition
and Non-Solicitation.
(a) During
the Employment Period and for a period of one (1) year thereafter (the “Non-Compete Period”), the Executive
shall not engage, directly or indirectly, whether as principal, agent, employee, consultant, distributor, representative, five
percent (5%) or greater stockholder or otherwise, in any business activities in the United States of America or any other jurisdiction
in which the Parent or any of its direct or indirect subsidiaries operate, which are in any way competitive with the business conducted
by the Parent or any of its direct or indirect subsidiaries during the Employment Period.
(b) During
the Employment Period and for a period of two (2) years thereafter (the “Non-Solicitation Period” and together
with the Non-Compete Period, the “Restricted Period”), the Executive shall not, directly or indirectly (whether
alone or jointly with another Person), (i) solicit for employment, hire, employ, or engage any Person who, at any time during
the Non-Solicitation Period, is an officer or employee of the Parent or any of its direct or indirect subsidiaries, including the
Company; provided, however, that the preceding sentence does not prohibit the Executive from (A) soliciting or hiring
any Person whose employment, or engagement for services, was terminated by any such Person at least twelve (12) months prior to
the date of such solicitation or hire; and provided, further, that such termination was not encouraged by the Executive,
or (B) engaging in any general solicitation not targeted at any employee of any such Person, including a non-directed executive
search or placing general advertisements for employees in newspapers or other media of general circulation so long as such employee
is not hired, directly or indirectly, by the Executive or any of his controlled Affiliates or (ii) solicit business from any
customer or solicit products or services from any vendor of the Parent or any of its direct or indirect subsidiaries, including
the Company, that interferes with or jeopardizes the business or relationships of any such Person with any such customer or vendor.
(c) The
Parties acknowledge and agree that the Executive’s obligations under Section 6, this Section 7 and
the following Section 8(c) (collectively, the “Covenants”) are of a special, unique and extraordinary
nature, that there may be no adequate remedy at law for any breach thereof, that any such breach may allow third parties to compete
unfairly with the Parent or any of its direct or indirect parents or subsidiaries, including the Company, resulting in irreparable
harm to any such Person, and, therefore, upon any such breach or any threat thereof, the Companies shall be entitled to preliminary
and permanent, mandatory or negative injunctive relief against any breach or threatened breach by the Executive of any of the Covenants,
without having to post a bond, in addition to whatever remedies they may have at law. The Executive hereby agrees that (i) the
terms of the Covenants are reasonable, (ii) the foregoing restrictions will not prevent him from obtaining gainful employment
in his occupation or field of expertise or cause him undue hardship, and (iii) in the event a court determines that any of
the provisions of the Covenants are unreasonable or contrary to public policy, or invalid or unenforceable for any reason in fact,
law or equity, then such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by
law. So that the Companies may enjoy the full benefits of the covenants set forth in this Section 7, the Executive
further agrees that the Restricted Period shall be tolled, and shall not run, during the period of time during which the Executive
is in breach of any of the covenants contained in this Section 7, after such time the Company has informed the Executive
that he is so in breach. It is also agreed that each of the Parent and its direct or indirect parents or subsidiaries, including
the Company, shall have the right to enforce all of the Executive’s obligations to that Affiliate under this Agreement, including
without limitation pursuant to this Section 7.
8. Mutual
Non-Disparagement. During the Employment Period and thereafter, the Executive agrees not to make public statements or communications,
or statements or communications that, at the time made, are intended or reasonably likely to become public, that disparage or criticize
the Parent or any of its direct or indirect parents or subsidiaries, including the Company, or any of their respective businesses,
services or products or their current, former or future equityholders, directors or executive officers (in their capacities as
such). During the Employment Period and thereafter, each of the Company and the Parent shall not authorize, and shall instruct
its directors and executive officers to not make, public statements or communications that disparage or criticize the Executive.
For purposes of this Section 8, “public” as used in reference to a statement or communication means the
public generally, including the current, former or future equityholders, directors or executive officers of the Parent and its
direct or indirect parents or subsidiaries, including the Company, and the customers, vendors or other business partners of any
such Person. The foregoing shall not be violated by (a) truthful statements in response to legal process, required governmental
testimony or filings, or administrative or arbitral proceedings (including, without limitation, depositions in connection with
such proceedings), (b) public comments, such as in media interviews, which include good faith, candid discussions or acknowledgements
regarding the performance or business of Parent or any of its direct or indirect parents or subsidiaries, including the Company,
or (c) discussions regarding the Executive in connection with performance evaluations, including impromptu evaluations and
feedback and good faith criticism.
9. Termination
of Employment. A termination of the Executive’s employment with either the Parent or the Company shall be treated as
a termination of the Executive’s employment with both of the Companies.
(a) Death.
If the Executive’s employment with the Companies is terminated during the Employment Period as a result of the Executive’s
death, the Employment Period shall terminate without further notice or any action required by the Companies or the Executive’s
estate or other legal representative. Upon the Executive’s death, the Company shall pay or provide to the Executive’s
estate or other legal representative (i) all Accrued Benefits and (ii) a Pro-Rata Bonus.
(b) Disability.
If the Companies, or either of them, terminate the Executive’s employment during the Employment Period because of the Executive’s
Disability, the Company shall pay or provide to the Executive (i) all Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) the
COBRA Coverage Benefits, and (iv) the Post-Termination Benefits.
(c) Termination
by the Companies for Cause or by the Executive without Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment for Cause or the Executive terminates his employment with either of the Companies
without Good Reason, the Company shall pay to the Executive all Accrued Benefits.
(d) Termination
by the Companies without Cause or by the Executive for Good Reason. If, during the Employment Period, the Companies, or either
of them, terminate the Executive’s employment without Cause (other than due to Disability) or if the Executive terminates
his employment with either of the Companies for Good Reason, the Company shall pay or provide the Executive (or the Executive’s
estate or other legal representative, if the Executive dies after such termination but before receiving such amount) (i) all
Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) an amount equal to the sum of the Executive’s Base Salary and Target
Bonus, payable in equal installments paid at the same time as normal payroll payments are made for the twelve (12) month period
following the Date of Termination, with such payments to commence on the first payroll date following the Payment Date (as defined
below), but retroactive to the day following the Date of Termination, subject to Section 9(j) hereof, (iv) the
COBRA Coverage Benefits, (v) outplacement counseling services for six (6) months following the Date of Termination, and
(vi) the Post-Termination Benefits.
(e) Notice
of Termination. Any termination of the Executive’s employment by the Companies or by the Executive (other than because
of the Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance
with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination” shall mean a notice
which shall indicate the specific termination provision in this Agreement relied upon. Termination of the Executive’s employment
shall take effect on the Date of Termination.
(f) Effect
of Termination. Upon any termination of the Executive’s employment with the Companies, or either of them, the Executive
shall resign from, and shall be considered to have simultaneously resigned from, all positions with the Companies and all of the
Companies’ Affiliates.
(g) Release.
As a condition to the Executive’s entitlements (other than the Accrued Benefits), as provided in Section 9(b) and
9(d) hereof (the “Severance Benefits”), the Executive must timely execute and deliver to the Companies,
and not revoke, a release of claims in substantially the form attached as Exhibit A hereto (the “Release”);
provided, that for the avoidance of doubt, the foregoing Release requirement shall not apply to the Company’s obligation
to provide the Accrued Benefits or any amounts payable under Section 9(a). The Release must be executed and delivered
by the Executive (and no longer be subject to revocation) as provided in Section 3(c) of Exhibit A.
The Release must become effective, if at all, by the date specified therein (and in all events no later than the ninetieth (90th)
calendar day following the Date of Termination). The first payment of the Severance Benefits (excluding the Pro Rata Bonus) will
be made on the Company’s next regular payday following the earlier of (i) the date upon which the Release (if applicable)
becomes effective, binding and irrevocable and (ii) the expiration of ninety (90) calendar days from the Date of Termination
(the “Payment Date”), but will be retroactive to the day following the Date of Termination.
(h) No
Offset. In the event of termination of his employment, the Executive shall be under no obligation to seek other employment
and there shall be no offset against amounts due to him on account of any remuneration or benefits provided by any subsequent employment
he may obtain, except as provided under Section 24(d) hereof. The Companies’ obligation to make any payment
pursuant to, and otherwise to perform its obligations under, this Agreement shall not be affected by any offset, counterclaim or
other right that the Parent, the Company or any of the Companies’ Affiliates may have against the Executive for any reason.
(i) Section 280G.
If any payment or benefit that the Executive may receive following a change of control of the Company, the Executive’s termination
of employment, or otherwise, whether or not payable or provided under this Agreement (“Payment”) would (i) constitute
a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”), and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the
Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The “Reduced Amount”
shall be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the
Excise Tax or (B) the largest portion, up to and including the total amount, of the Payment, whichever of the amounts determined
under (A) and (B), after taking into account all applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis,
of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.
If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the
Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of
outstanding equity awards; and reduction of employee benefits. In the event that acceleration of vesting of outstanding equity
awards is to be reduced, such acceleration of vesting shall be undertaken in the reverse order of the date of grant of the Executive’s
outstanding equity awards. All calculations and determinations made pursuant this Section 9(i) will be made by
an independent accounting or consulting firm or independent tax counsel appointed by the Company (the “Tax Counsel”)
whose determinations shall be conclusive and binding on the Company and the Executive for all purposes. For purposes of making
the calculations and determinations required by this Section 9(i), the Tax Counsel may rely on reasonable, good faith
assumptions and approximations concerning the application of Section 280G of the Code and Section 4999 of the Code. The
Company shall bear all costs the Tax Counsel may reasonably incur in connection with its services.
(j) Satisfaction
of Obligations. Anything herein to the contrary notwithstanding, upon satisfaction of their respective applicable obligations
as set forth in this Section 9, the Companies shall have no further obligations to the Executive under this Agreement,
except as set forth in Section 13 hereof. The obligation of the Companies to provide the Severance Benefits (or, if
such Severance Benefits have commenced, to continue providing the Severance Benefits) to the Executive is expressly conditioned
upon the Executive’s continued performance of and compliance with his obligations under the Covenants; provided, however,
that an immaterial and unintentional breach by the Executive of the Covenants provided in Section 6 or Section 8
hereof shall not be deemed to be a failure to perform or comply with such obligations. In the event of the Executive’s death
after his termination of employment but prior to his receiving, in full, the payments or other benefits to which he is entitled
hereunder, his estate or other legal representative shall succeed to such entitlements.
10. Indemnification.
During the Employment Period and thereafter, the Companies will indemnify the Executive to the fullest extent permitted by law
and each of the Companies’ certificate of incorporation, bylaws or other governing documents, as applicable, and cause him
to be covered under such directors and officers insurance policies as the Companies maintain in effect from time to time. The Executive
agrees to promptly notify the Companies of any actual or threatened claim arising out of or as a result of the Executive’s
employment hereunder or any office or directorship held with Parent, the Company or any of their Affiliates.
11. Notices.
All notices, demands, requests, or other communications which may be or are required to be given or made by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by facsimile transmission addressed
as follows:
If to the Company, to:
Hayward Industries, Inc.
400 Connell Drive, Suite 6100
Berkeley Heights, NJ 07922
Attn: Chief Executive Officer
If to the Parent, to:
Hayward Holdings, Inc.
400 Connell Drive, Suite 6100
Berkeley Heights, NJ 07922
Attn: Chief Executive Officer
If to the Executive, to: Address
last shown on the Company’s records.
Each party may designate by notice in writing
a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand,
request, or communication that shall be given or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, confirmation
of facsimile transmission or the affidavit of messenger being deemed conclusive but not exclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
12. Severability.
The invalidity or unenforceability of any one or more provisions of this Agreement, including, without limitation, Sections
6, 7 and 8, shall not affect the legality, validity or enforceability of the other provisions of this Agreement, which shall
remain in full force and effect.
13. Survival.
It is the express intention and agreement of the Parties that the provisions hereof shall survive the termination of employment
of the Executive, in accordance with the respective terms of such provisions. In addition, all obligations of the Company or the
Parent to the Executive under applicable compensation benefit plans and programs and to make payments or settle equity awards granted
thereunder shall survive any termination of this Agreement, to the extent permitted by law, in accordance with the terms of such
plans, programs and/or awards.
14. Assignment.
The rights and obligations of the Parties to this Agreement shall not be assignable or delegable except that (a) in the event
of the Executive’s death, the personal representative or legatees or distributees of the Executive’s estate, or the
trustees of any trusts established under the Executive’s will or by the Executive during his lifetime, as the case may be,
shall have the right to receive any amount owing and unpaid to the Executive hereunder and (b) the respective rights and obligations
of the Company and the Parent hereunder shall be assignable and delegable in connection with any subsequent merger, consolidation,
reorganization, sale of all or substantially all of the assets or equity interests of the Company or the Parent, or similar transaction
involving the Company or the Parent or a successor to either of them. In connection with any assignment pursuant to clause (b) of
the preceding sentence, the Parent and the Company shall require any such successor to the Parent or the Company or to their respective
business and assets to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the
Parent and the Company would be required to perform it if no such succession had taken place; provided, for the avoidance
of doubt, that no such express assumption and agreement shall be required where any such successor becomes subject to this Agreement
by operation of law as part of any transaction described in the foregoing clause (b). As used in this Agreement, “Company”
shall include any successor to the Company’s business and/or assets and “Parent” shall include any successor
to the Parent’s business and/or assets.
15. Binding
Effect. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon the Parties and shall
inure to the benefit of the Parties and their respective heirs, devisees, executors, administrators, legal representatives, successors
and assigns.
16. Amendment;
Waiver. This Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by the party
against whom enforcement is sought. Neither the waiver by any of the Parties of a breach of or a default under any of the provisions
of this Agreement, nor the failure of any of the Parties, on one or more occasions, to enforce any of the provisions of this Agreement
or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings.
Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of
any of the provisions hereof.
18. Governing
Law. This Agreement, the rights and obligations of the Parties, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the New Jersey (but not including any choice of law rule thereof that would
cause the laws of another jurisdiction to apply).
19. Dispute
Resolution.
(a) Arbitration.
In the event of any dispute between the Parties, including but not limited to any claims arising from or related to this Agreement
or the termination of this Agreement, any claims related to Executive’s employment or the termination of the Executive’s
employment, or any claims arising under the state and federal laws governing employment, such dispute will be determined exclusively,
upon the written request of either Party, by binding arbitration under the auspices of and pursuant to the Employment Dispute Resolution
Rules of the American Arbitration Association. Such arbitration shall be conducted in New York City, New York before a single
arbitrator who is a retired judge. This agreement to arbitrate shall include, without limitation, any and all disputes, controversies
and/or claims against Parent, the Company or any of their Affiliates or the current or former partners, members, officers or employees
of any of them, whether arising under theories of liability or damages based on contract, tort or statute, to the fullest extent
permitted by law, such as, without limitation, claims for breach of contract or breach of the covenant of good faith and fair dealing,
any claims of discrimination or other claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination
in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act,
ERISA and/or any applicable or equivalent state or local laws, claims for wrongful termination, including employment termination
in violation of public policy, and claims for personal injury including, without limitation, defamation, fraud and infliction of
emotional distress. The only claims not covered by this agreement to arbitrate are claims for benefits under workers’ compensation
or unemployment insurance statutes and other claims that cannot be arbitrated as a matter of law. As a material part of this agreement
to arbitrate claims, the Executive, Parent, and the Company expressly waive all rights to a jury trial in court on all statutory
or other claims, including, without limitation, those identified in this Section 19. The Executive also acknowledges
and agrees that no claims will be arbitrated on a class action or collective action basis. The arbitrator will have no power to
add to, subtract from, or otherwise modify any of the terms of this Agreement except that a provision otherwise invalid, illegal
or unenforceable shall be modified to the least extent necessary to make it valid, legal and enforceable. The decision of the arbitrator
shall be final, conclusive and binding and may be enforced by any court of competent jurisdiction, and all Parties consent to the
personal jurisdiction of the state and federal courts of the State of New Jersey for such purposes. Notwithstanding the foregoing,
the Parent and the Company shall be entitled to seek injunctive relief and other provisional remedies against the Executive in
any court of competent jurisdiction for any breach or threatened breach of any provisions of this Agreement. All reasonable fees,
costs and expenses (including reasonable attorneys’ fees, expenses and costs) incurred by the prevailing party in any arbitration
will be borne by the other party. Any claim must be brought to arbitration within the statute of limitations for bringing such
claim in court or before the appropriate administrative agency, as applicable.
(b) Court
Proceeding. Each of the Parties agrees that any dispute between the Parties in respect of which resolution by a court of any
issue is required either (i) in accordance with the provisions of Section 19(a) or (ii) for the purpose
of the recognition and enforcement of any judgment by the arbitrator, shall be resolved only in the courts of New Jersey or the
United States District Court for the District of New Jersey and the appellate courts having jurisdiction of appeals from such courts.
20. Entire
Agreement. This Agreement and all other agreements and plans relating to the subject matter hereof, including, without limitation,
agreements for amending awards granted under such plans, to the extent not inconsistent with any terms set forth herein, constitute
the entire understanding of the Company and the Parent on the one hand, and the Executive on the other hand, with respect to the
subject matter hereof and supersede the Prior Agreement and all other prior understandings, written or oral, concerning such subject
matter.
21. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be an original and all of which shall be deemed to constitute
one and the same instrument.
22. Withholding.
The Company may withhold from any benefit or compensation payment under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
23. Section 409A.
(a) The
intent of the Parties is that payments and benefits under this Agreement comply with Section 409A of the Code and the regulations
and guidance promulgated thereunder (collectively “Code Section 409A”) and, accordingly, to the maximum
extent permitted, this Agreement shall be interpreted to be in compliance therewith. Specifically, if any provision of this Agreement
is ambiguous, such that one interpretation of the provision would comply with Code Section 409A and another interpretation
would result in a failure to comply with any applicable requirement under Code Section 409A, the Parties intend that the interpretation
that complies with Code Section 409A shall be the one that governs. To the extent permitted under Code Section 409A,
this Agreement, and the terms of any Plan (as defined in Section 23(f) below) to the extent they relate to the
Executive’s entitlements thereunder, shall be modified, either as reasonably requested by the Executive, with the Company’s
and Parent’s consent), or as the Company may propose (or, as the Parent may propose, with respect to any Plan maintained
by it) with the Executive’s consent, to the extent necessary to comply with all applicable requirements of, and to avoid
the imposition of any additional tax, interest or penalties under, Code Section 409A in connection with the payments and benefits
to be paid or provided to the Executive hereunder or under such Plan. To the extent that any provision hereof, or of any Plan,
is modified in order to comply with Code Section 409A, such modification shall be made in good faith, shall not impose any
additional costs on the Parent or the Company and shall, to the maximum extent reasonably possible, maintain the original intent
and economic benefit to the Executive and the Companies of the applicable provision without violating the provisions of Code Section 409A.
(b) A
termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the
payment of any amounts or benefits upon or following a termination of employment unless such termination is also a “separation
from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references
to a “termination,” “termination of employment” or like terms shall mean “separation from service.”
If the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term
under Code Section 409A(a)(2)(B), then with regard to any payment or the provision of any benefit that is considered deferred
compensation under Code Section 409A (after taking into account all exclusions applicable to such payment or benefit under
Code Section 409A) and that is payable or to be provided to the Executive on account of his “separation from service,”
such payment or benefit shall be made or provided at the date which is the earliest to occur of (i) the expiration of the
six (6)-month period measured from the date of the Executive’s “separation from service, (ii) the date of the
Executive’s death, or (iii) such earlier date as may be permitted under Code Section 409A. Upon the expiration
of the foregoing delay period, all payments and benefits delayed pursuant to this Section 23(b) (whether they
would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed
to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance
with the normal payment dates specified for them herein.
(c) To
the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind benefits under this
Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A (after taking into
account all exclusions applicable to such reimbursements or benefits under Code Section 409A): (i) reimbursement of any
such expense shall be made as soon as practicable after such expense has been incurred, but any event no later than December 31
of the year following the year in which the Executive incurs such expense; (ii) the amount of such expenses eligible for reimbursement,
or in-kind benefits to be provided, in any calendar year shall not affect the amount of expenses eligible for reimbursement, or
in-kind benefits to be provided, in any other calendar year; and (iii) the Executive’s right to receive such reimbursements
or in-kind benefits shall not be subject to liquidation or exchange for any other benefit.
(d) For
purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement
shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies
a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the
sole discretion of the Company.
(e) Notwithstanding
any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified
deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted
by Code Section 409A.
(f) For
purposes of the foregoing, the term “Plan” shall mean any plan, program, agreement (other than this Agreement)
or other arrangement maintained by the Company, the Parent or any of the Companies’ Affiliates that is a “nonqualified
deferred compensation plan” within the meaning of Code Section 409A, and under which any payments or benefits are to
be made or provided to the Executive, to the extent they constitute a deferral of compensation subject to the requirements of Code
Section 409A after taking into account all exclusions applicable to such payments or benefits under Code Section 409A.
24. Definitions.
(a) “Accrued
Benefits” means (i) any unpaid Base Salary through the date the Executive’s employment terminates, (ii) except
in the case of a termination of employment pursuant to Section 9(c), any earned and payable, but unpaid, Annual Bonus
(including any Annual Bonus payable pursuant to the last sentence of Section 4(b)); (iii) any accrued and unpaid vacation;
(iv) any amounts or benefits owing to the Executive or to the Executive’s beneficiaries under the then applicable benefit
plans of the Company in which the Executive participated immediately prior to the Date of Termination (excluding any severance
plan, program, agreement or arrangement); and (v) any amounts owing to the Executive for reimbursement of business expenses
properly incurred by the Executive prior to the Date of Termination and which are reimbursable in accordance with Section 4
or Section 5, provided that the Executive, or his estate or other legal representative, submits all expenses
and supporting documentation required within thirty (30) days of the Date of Termination (or one-hundred eighty (180) days in the
case of termination due to death). Amounts payable (A) under clauses (i), (ii) and (iii) shall be paid promptly
after the Date of Termination but in any event by no later than thirty (30) days after such date (or, in the case of (ii), when
bonuses are paid to executives of the Company generally); (B) under clause (iv) shall be paid in accordance with the
terms and conditions of the applicable plan, program or arrangement; and (C) under clause (v) shall be paid in accordance
with the terms of the applicable expense policy but in any event by no later than the time for payment of the reimbursement required
pursuant to Section 23(c)(i) above.
(b) “Affiliate”
of a person or entity means any entity controlled by, in control of, or under common control with, such person or entity.
(c) “Cause”
means: (i) conduct by the Executive constituting a material act of misconduct in connection with the performance of his duties,
including, without limitation, misappropriation of funds or property of the Parent, the Company or any of their Subsidiaries or
Affiliates other than the occasional, customary and de minimis use of Company or Parent property for personal purposes; (ii) the
Executive’s commission of a felony or commission of a misdemeanor involving fraud or any misconduct by the Executive that
results in material injury or reputational harm to the Company, the Parent or any of their Subsidiaries and Affiliates; (iii) any
act or omission that constitutes a material breach by the Executive of (A) any of his obligations under any material agreement
with the Company, the Parent or any of their Affiliates (including this Agreement) or (B) any material written policy of the
Company, the Parent or any of their Subsidiaries and Affiliates, including the continued non-performance by the Executive of his
duties (other than by reason of the Executive’s physical or mental illness, incapacity or disability), in each case, which
has continued for more than thirty (30) days following written notice from the Board delineating such non-performance; (iv) a
breach by the Executive of any restrictive covenant by the Executive contained in any agreement between such Executive and the
Company, the Parent or any of their Affiliates (including in any incentive award agreement), provided, that an immaterial
and unintentional breach of the Covenants provided in Section 6 or Section 8 hereof shall not constitute
“Cause”; (v) the Executive’s engaging in any intentional act of dishonesty, violence or threat of violence
(including any violation of federal securities Laws) which is or could reasonably be expected to be materially injurious to the
financial condition or business reputation of the Company, the Parent or any of their Subsidiaries or Affiliates; (vi) the
Executive’s illegal use of controlled substances during the performance of the Executive’s duties that adversely affects
the reputation or best interest of the Company, the Parent or any Affiliate thereof; or (vii) the Executive’s failure
to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being
instructed by the Company or the Parent to cooperate, or the willful destruction or failure to preserve documents or other materials
known to be relevant to such investigation or the inducement of others to fail to cooperate or to produce documents or other materials
in connection with such investigation.
(d) “COBRA
Coverage Benefits” shall mean continued coverage for the Executive and his dependents under the Company’s group
health care benefit plans for a period of twelve (12) months following the Date of Termination, with the Executive (or in the event
of the Executive’s death, his dependents) paying the same portion of the total cost of such coverage that the Company’s
active employees are required to pay for such coverage, and the Company paying for that portion of such total cost as exceeds the
portion paid for by the Executive. The COBRA Coverage Benefits shall be provided to the Executive or his dependents subject to
(i) the Executive’s (or in the event of the Executive’s death, his dependent’s) making a timely election
of continuation coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
and remaining eligible for COBRA coverage during such period, and (ii) the Executive’s (or in the event of the Executive’s
death, his dependent’s) continued payment of the portion of the total cost of such coverage required to be paid by the Executive
as provided in the preceding sentence. The COBRA Coverage Benefits shall immediately cease to be provided hereunder on the date
on which the Executive commences to receive equivalent health care benefit coverage under a health care plan, or plans, of any
subsequent employer of the Executive. If and to the extent necessary in order for the Executive to avoid being subject to tax under
section 105(h) of the Code on any payment or reimbursement of any health care expenses made to him or for his benefit pursuant
to Section 9 hereof the Company shall impute as taxable income to the Executive an amount equal to the excess of (A) the
full actuarial cost of the health care benefit coverages provided to him and his dependents under Section 9 hereof
over (B) the portion of such total cost paid for by the Executive or his dependents for each period during which such coverages
are provided.
(e) “Date
of Termination” means (i) if the Executive’s employment is terminated by the Executive’s death, automatically
on the date of the Executive’s death; (ii) if the Executive’s employment is terminated because of the Executive’s
Disability, five (5) calendar days after the Notice of Termination unless the Executive shall have returned to the performance
of the Executive’s duties on a full-time basis during such five (5)-day period; or (iii) if the Executive’s employment
is terminated during the Employment Period by the Companies or by the Executive, the date specified in the Notice of Termination;
provided that in the case of a termination by the Companies for Cause or a termination by the Executive for Good Reason
the Date of Termination shall occur no sooner than the completion of the applicable notice period (if any) and, if applicable,
opportunity to cure, as provided in the definitions of those terms this Section 24.
(f) “Disability”
or “Disabled” means the inability of the Executive to perform the Executive’s material duties hereunder
due to a physical or mental injury, infirmity or incapacity, which is expected to exceed one hundred eighty (180) days (including
weekends and holidays) in any three hundred sixty-five (365)-day period. If any question shall arise as to whether the Executive
is Disabled to the extent that the Executive is unable to perform substantially all of his duties and responsibilities for the
Company and its Affiliates, the Executive shall, at the request of the Board in accordance with the Americans with Disabilities
Act of 1990 and the Family and Medical Leave Act of 1993, each as amended, submit to a medical examination by a physician selected
by the Board to whom the Executive or his guardian, if any, has no reasonable objection to determine whether the Executive is so
Disabled, and such determination shall for purposes of this Agreement be conclusive of the issue. If such a question arises and
the Executive fails to submit to the requested medical examination, the Board’s determination of the issue shall be binding
on the Executive.
(g) “Good
Reason” means, if occurring without the Executive’s consent: (i) any act taken by the Company that results
in any material and sustained diminution in the Executive’s responsibilities or authority from those that are consistent
with his title; (ii) a failure of the Company to pay or cause to be paid the Executive’s Base Salary, Annual Bonus or
material employee benefits required to be provided to him, when due or (iii) any material breach of this Agreement by the
Company (each such event, a “Good Reason Condition”). Notwithstanding the foregoing, Good Reason will not be
deemed to exist unless (i) the Executive reasonably determines in good faith that a Good Reason Condition has occurred; (ii) the
Executive notifies the Company in writing of the first occurrence of the Good Reason Condition within thirty (30) days of the first
occurrence of such condition; (iii) the Executive cooperates in good faith with the Company's efforts, if any, for a period
of not less than thirty (30) days following such notice (the “Cure Period”), to remedy the Good Reason Condition;
(iv) notwithstanding such efforts, or in the event the Company does not remedy such event, the Good Reason Condition continues
to exist; and (v) the Executive terminates his or her employment within ninety (90) days after the Good Reason Condition has
occurred; provided, that, for the avoidance of doubt, if the Company cures the Good Reason Condition during the Cure Period,
Good Reason shall be deemed not to have occurred.
(h) “Post-Termination
Benefits” shall mean, at the Parent’s election, either (i) payment by the Companies to the Executive of an
amount equal to the cost of any perquisites, welfare benefits, and retirement plan contributions the Executive would otherwise
have been eligible to receive in the twelve (12) months following the Executive’s Date of Termination, or (ii) the provision,
for twelve (12) months following the Executive’s Date of Termination, in kind by the Company to the Executive of the perquisites,
welfare benefits, or retirement plan contributions described in clause (i) of this definition, provided that, in the
case of provision of benefits under clause (ii), the Parent has determined in its reasonable and sole discretion that it would
be permissible to do so under the terms of any applicable plan and applicable law. For the sake of clarity, COBRA Coverage Benefits
shall be as provided in Section 24(d) above.
(i) “Pro-Rata
Bonus” shall mean, to the extent actually earned, a pro-rata portion of the Executive’s Annual Bonus for the plan
year in which the Executive’s termination occurs based on the actual Annual Bonus earned for the year in which termination
occurs (such pro-ration to be determined by multiplying the amount of such bonus which would be payable to the Executive if he
had remained in employment with the Company for the full plan year by a fraction, the numerator of which is the number of days
during the plan year of termination that the Executive was employed by the Company, and the denominator of which is 365), which
shall be payable by the Company to the Executive (or in the event of his death, to his estate or legal representatives) at such
time when bonuses are paid to executives of the Companies generally or, if later, on the Payment Date.
IN WITNESS WHEREOF,
the undersigned have duly executed and delivered this Agreement as of March 2, 2021.
[Signature Page to Employment Agreement]
EXHIBIT A
Release
For good and valuable
consideration, including the rights and obligations contained in the Amended and Restated Employment Agreement dated as of March 2,
2021 (the “Employment Agreement”) this agreement and release is entered into by and among Rick Roetken (the
“Executive”), Hayward Industries, Inc. (the “Company”) and Hayward Holdings, Inc.
(the “Parent”) (the “Release”). (Together, the Company and the Parent may hereinafter be
referred to as the “Companies.”)
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1.
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The Executive, on behalf of himself and his dependents, heirs, administrators, agents, personal
representatives, executors, successors and assigns (together with the Executive, the “Executive Releasees”),
does hereby irrevocably, completely and unconditionally release, waive and forever discharge the Companies and their past, present
and future parents, subsidiaries, affiliated corporations, partnerships, joint ventures, employee benefit plans, insurers and their
predecessors, successors and assigns (collectively, “Company Affiliates”) and all of the Company Affiliates’
past, present and future shareholders, directors, officers, employees, agents, trustees, and representatives, both individually
and in their official capacities, and their successors and assigns (together with the Company Affiliates, the “Company
Releasees”), from any and all actions, rights, claims, demands, obligations, liabilities, attorneys’ fees and causes
of action of any kind or description whatsoever, in law, equity or otherwise, whether known or unknown, whether past or present,
including, without limitation, those arising out of or in any way related to the Executive’s employment, or termination of
employment, with either or both of the Companies (including any events, acts, conduct or omissions related thereto) occurring at
any time prior to or at the date on which the Executive signs and returns this Release (the “Release Date”),
including, but not limited to, any action, claim, demand, obligation, liability or cause of action arising under any Federal, state,
or local law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866, 1871, 1964
and 1991, the Equal Pay Act, the Americans with Disabilities Act of 1990, the National Labor Relations Act, the Fair Labor Standards
Act of 1938, the Employee Retirement Income Security Act of 1974 (other than any claim as excepted below), the Age Discrimination
in Employment Act of 1967, all as amended, and the wage and hour, wage payment and fair employment practices laws of the state
or states in which the Executive has been employed), tort, contract or any other legal obligation (collectively, the “Claims”);
provided, however, the Executive does not release any of the following Claims:
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a.
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any Claim to workers’ compensation or unemployment insurance benefits;
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b.
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any Claim arising from a breach of the Employment Agreement following the Release Date, including
any right to enforce the Employment Agreement;
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c.
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any Claim for indemnification in accordance with applicable laws, the applicable constituent documents
(including bylaws and certificates of incorporation) of the Company, the Parent or any Company Affiliate, and any applicable insurance
policy with respect to any liability the Executive incurs or has incurred as a director, officer or employee of the Company, the
Parent or any Company Affiliate;
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d.
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any Claim the Executive may have to obtain contribution as permitted by law in the event of entry
of judgment against the Executive as a result of any act or failure to act for which the Executive and the Company, the Parent
and/or any Company Affiliate are jointly liable in whole or in part;
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e.
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any Claim that by law may not be released by private agreement without judicial or governmental
review and approval; or
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f.
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any Claim that arises after the Release Date.
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2.
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Nothing contained in this Release shall be construed to prohibit the Executive from filing a charge
with or participating in any investigation or proceeding conducted by the federal Equal Employment Opportunity Commission or a
comparable state or local agency, provided, however, that the Executive hereby agrees to waive his right to recover monetary
damages or other individual relief in any such charge, investigation or proceeding or any related complaint or lawsuit filed by
the Executive or by anyone else on his behalf.
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3.
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The following shall apply in connection with the signing of this Release:
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a.
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The Executive acknowledges and agrees that he has no less than [twenty-one (21)/forty-five (45)]1
days in which to consider this Release (though he may choose voluntarily to sign it earlier) and is hereby advised that this Release
creates a legally binding obligation and that the Executive should therefore consult an attorney about this Release (though he
may choose voluntarily not to do so).
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b.
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The Executive represents that he has read this Release carefully; has had the opportunity to consult
with an attorney of the Executive’s own choosing about the Release; understands fully what this Release means; and is entering
into it knowingly, voluntarily, and without coercion.
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c.
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The Executive may not sign and return this Release to the Companies earlier than the Date of Termination
(as defined in the Employment Agreement) and must sign and return it no later than [twenty-one (21)/forty-five (45)]2
calendar days following the later of (i) the Date of Termination and (ii) five (5) calendar days following the date
of delivery of this Release to the Executive as provided in Section 9(g) of the Employment Agreement (such period of
time being the “Release Consideration Period”). The Executive will have an additional seven (7) calendar
days after the Release Date in which to revoke his acceptance by providing written notice of revocation to the Companies (such
period of time the “Release Revocation Period”). The Release will not be effective until the date upon which
the Release Revocation Period has expired, which will be the eighth (8th) calendar day after the Release Date, if not previously
revoked.
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1
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To be determined by the Company at the time of separation.
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To be determined by the Company at the time of separation.
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d.
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By signing this Release, Executive represents that (i) he is signing it voluntarily and with
a full understanding of its terms, (ii) he has had sufficient opportunity, before signing this Release, to consider its terms
and consult with an attorney (if he so wished to do so) and (iii) he has not relied on any promises or representations, express
or implied, that are not set forth expressly in this Release.
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4.
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The Executive represents that as of the date he has executed this Release he has not assigned to
any other party, and agrees not to assign, any Claim released by the Executive herein.
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5.
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The Executive represents that he has returned to the Companies any and all documents, materials
and information (whether in hardcopy, on electronic media or otherwise) related to the business of the Companies or their affiliates
(whether present or otherwise), and all keys, access cards, credit cards, computer hardware and software, telephones and telephone-related
equipment and all other property of the Companies or their affiliates in the Executive’s possession or control. Further,
the Executive agrees that he has not retained any copy or derivation of any documents, materials or information (whether in hardcopy,
on electronic media or otherwise) of the Companies or their affiliates.
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6.
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Whenever possible, each provision of this Release shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Release is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Release shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained herein.
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7.
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This Release may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same instrument.
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8.
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This Release shall be governed by and construed and interpreted in accordance with the laws of
the State of New Jersey without reference regard to principles of conflicts of law that would result in the application of the
laws of any other jurisdiction.
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IN WITNESS WHEREOF,
the Executive, the Company and the Parent have executed this Release each as of the date indicated below.
AGREED AND EXECUTED:
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RICK ROETKEN
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Dated:
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, 20
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HAYWARD INDUSTRIES, INC.
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Dated:
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, 20
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Name:
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Title:
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HAYWARD HOLDINGS, INC.
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Dated:
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, 20
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Name:
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Title:
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Exhibit 10.23
EMPLOYMENT AGREEMENT
This Employment
Agreement (the “Agreement”) is entered into effective immediately following the Effective Time (as
hereinafter defined) by and among Hayward Industries, Inc. (the “Company”), Hayward
Holdings, Inc. (the “Parent”) and Anthony P. Colucci (the “Executive”) (the
Company, the Parent and the Executive, individually, a “Party” and, collectively, the
“Parties”). (Hereinafter the Company and the Parent together may be referred to as the
“Companies.”)
Terms used herein with
initial capitalization not otherwise defined are defined in Section 24 hereof.
WITNESSETH:
WHEREAS, the Executive
serves as Senior Vice President, Chief Financial Officer of the Company;
WHEREAS, the Company
desires the Executive to serve as Senior Vice President, Chief Financial Officer of the Company and the Executive is willing to
do so pursuant to the terms of this Agreement; and
WHEREAS, the Parent
desires to employ the Executive and the Executive is willing to do so pursuant to the terms of this Agreement.
NOW THEREFORE, in consideration
of the premises and of the covenants and agreements set forth herein and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the Companies and the Executive hereby agree as follows:
1. Employment.
The Companies agree to employ the Executive pursuant to the terms of this Agreement, and the Executive agrees to be so employed,
for a period commencing immediately following the Effective Time and continuing until the Executive’s employment is terminated
pursuant to Section 7(c) hereof (the “Employment Period”).
2. Position
and Duties. During the Employment Period, the Executive shall serve as Senior Vice President, Chief Financial Officer of
the Company, reporting directly to the Chief Executive Officer of the Company. In such capacity, the Executive shall have the
duties, responsibilities and authorities customarily associated with the position of Senior Vice President, Chief Financial
Officer in companies the size and nature of the Company. The Executive shall devote the Executive’s reasonable best
efforts and substantially all of the Executive’s business time to the performance of the Executive’s duties and
responsibilities hereunder; provided that the Executive shall be entitled to (i) serve as a member of the board
of directors of one (1) for-profit company, provided that such company is not a competitor of or supplier to the
Companies or doing business in the industry in which the Companies conduct business; (ii) serve on civic, charitable,
educational, religious, public interest or public service boards; and (iii) manage the Executive’s personal
and family investments, in each case to the extent such activities do not materially interfere with the performance of the
Executive’s duties and responsibilities hereunder (including, for the avoidance of doubt, the terms of Sections
6, 7 and 7(c) hereof).
3. Place
of Performance. During the Employment Period, the Executive shall be based primarily at the Company’s principal
executive offices, currently located at 620 Division Street, Elizabeth, New Jersey. The Executive understands and
agrees that the Executive may be required to travel from time to time for business purposes.
4. Compensation and Benefits; Incentive Awards.
(a)
Base Salary. During the Employment Period, the Company shall pay
to the Executive a base salary (the “Base Salary”) at the rate of no less than $420,000 per calendar
year, less applicable deductions. The Base Salary shall be reviewed for increase (but not decrease) by the Parent’s
Board of Directors (the “Board”) no less frequently than annually and may be increased in the sole
discretion of the Board and any such adjusted Base Salary shall thereafter constitute the “Base Salary” for
purposes of this Agreement. The Base Salary shall be paid in substantially equal installments in accordance with the
Company’s regular payroll procedures.
(b) Annual
Bonus. During the Employment Period, the Executive shall be paid an annual cash performance bonus (an “Annual
Bonus”) under the Company’s annual incentive plan (as in effect from time to time for senior executives) in
respect of each plan year that ends during the Employment Period, to the extent earned based on the achievement of
performance criteria set by the Board. The performance criteria for a plan year shall be determined by the Board, in good
faith, no later than sixty (60) days after the commencement of such plan year. The Executive’s target annual
bonus opportunity shall be 70% of the Executive’s Base Salary as of the beginning of the applicable plan year (the
“Target Bonus”) if target levels of performance of that year are achieved. The Executive’s Annual
Bonus for any plan year shall be determined by the Board after the end of such plan year and shall be paid to the Executive
no later than seventy-five (75) calendar days following the end of such plan year. For purposes of Section 25(a) hereof,
if the Executive’s employment is terminated pursuant to the terms of Section 10 hereof after the end of any
plan year, but prior to such Annual Bonus determination by the Board with respect to that plan year, and the Board
subsequently determines that the Annual Bonus for that plan year has been earned by the Executive, then any such earned
Annual Bonus shall be considered an Accrued Benefit.
(c) Incentive
Awards. During the Employment Period, the Executive shall be eligible to participate in any incentive plan that may be
made available, from time to time, to other senior executives of the Companies. You are offered the opportunity to
participate in Hayward’s equity incentive program. This opportunity is offered exclusively to key management
personnel and requires a personal investment by participants. You will receive 8000 stock options under the terms of the
program. As substantiated by proper documentation, you will also receive up to 2,000 restricted A shares to offset any
restricted stock or options that Honeywell may claw back. Vesting for the RSUs will be 100% upon exit for CCMP/MSD. [***]. Further details of this program will be provided
under separate cover.
(d) Signing Bonuses. We are pleased to offer you two signing bonuses as follows:
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(i)
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$400,000 ($250,000 proceeds to be invested in Hayward) and
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(ii) $165,000
Both bonuses will be paid in
a lump sum in separate checks on the next regularly scheduled pay date after you start employment with Hayward. The signing bonuses
are taxable, and all regular payroll taxes will be withheld. In the event that you leave Hayward within two (2) years of your
date of hire, you will be responsible for reimbursing the company for the signing bonuses.
(e) As
substantiated by proper documentation, you will receive up to a $90,000 total payment in case of any retention/relocation clawback
by current employer.
(f) Vacation;
Benefits. During the Employment Period, the Executive shall be entitled to four (4) weeks paid vacation annually (accruing
ratably on an annual basis) and to participate in employee benefits made available, from time to time, to senior executive officers
of the Company, including, without limitation, the Hayward Industries 401k Retirement Plan, the Hayward Industries Supplementary
Retirement Plan (Non Qual Plan), medical, dental and vision plans, short and long-term disability and life insurance programs and
Hayward’s ArmadaCare Executive Medical Plan.
(g) Perquisites.
During the Employment Period and until the date of an IPO, the Executive shall be entitled to perquisites no less favorable than
generally provided by the Company, from time to time, to other senior executive officers of the Company (other than the Chief Executive
Officer), including a car (BMW 5 Series or similar). Both you and your spouse are permitted full personal use of this automobile.
The company will be responsible for insurance coverage, gas and repairs.
5. Expenses.
The Company shall reimburse the Executive promptly for all expenses reasonably incurred by the Executive in the performance
of his duties hereunder in accordance with policies which may be adopted from time to time by the Company following
presentation by the Executive of an itemized account, including reasonable substantiation, of such expenses. The
Executive’s right to payment or reimbursement for business expenses hereunder shall be subject to the following
additional rules: (i) the amount of expenses eligible for payment or reimbursement during any calendar year shall not
affect the expenses eligible for payment or reimbursement in any other calendar year, (ii) payment or reimbursement
shall be made not later than December 31 of the calendar year following the calendar year in which the expense or
payment was incurred, and (iii) the right to payment or reimbursement shall not be subject to liquidation or exchange
for any other benefit.
6. Confidentiality
and Assignment of Intellectual Property. The Executive hereby acknowledges and agrees that the business, financial and
other non-public information of the Companies and the Companies’ direct and indirect parents and subsidiaries is of a
confidential and proprietary nature. The Executive hereby further acknowledges and agrees that, during the course of his
employment by the Companies, he will have received, developed or learned of confidential and proprietary information of the
Companies and the Companies’ direct and indirect parents and subsidiaries not previously known to him and not known or
used generally. The Executive hereby agrees that, he will not disclose other than as required for the performance of his
duties under this Agreement, will keep in strict secrecy and confidence, and treat as the property of the Parent, the
Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may be, and will not use for
his own benefit or for the benefit of others any and all information, knowledge and other data relating to the business and
affairs of the Parent, the Company or any of the Companies’ direct or indirect parents or subsidiaries, as the case may
be (whether or not such information, knowledge or other data is in written form), that he may acquire, receive, develop or
learn in the course of his employment by the Parent, Company or any of the Companies’ direct or indirect subsidiaries.
For the avoidance of doubt, (i) nothing contained in this Agreement limits, restricts or in any other way affects the
Executive’s communicating with any governmental, administrative or legislative agency or entity (including a committee
thereof), or communicating with any official or staff person of a governmental, administrative or legislative agency or
entity, concerning matters relevant to such agency or entity, or requires the Executive to provide prior notice of such
communication to the Company or Parent, (ii) nothing contained in this Agreement limits, restricts or in any other way
affects any disclosures by the Executive required by law or court order, and (iii) nothing contained in this Agreement
limits, restricts or in any other way affects, and the Executive will not be held criminally or civilly liable under any
federal or state trade secret law for, the Executive’s disclosing a trade secret (y) in confidence to a federal,
state, or local government official, either directly or indirectly, or to an attorney, solely for the purpose of reporting or
investigating a suspected violation of law, or (z) in a complaint or other document filed under seal in a lawsuit or
other proceeding; provided, however, that notwithstanding this immunity from liability, the Executive may be held liable if
he unlawfully accesses trade secrets subject to this Section 7 by unauthorized means. Anything herein to the contrary
notwithstanding, information, knowledge and other data relating to the business and affairs of the Parent, the Company or any
direct or indirect parent or subsidiary of either, including trade secrets, that are subject to the confidentiality
provisions of this Section 7 shall cease to be subject to such provisions if the data becomes known to the public
other than due to any wrongful action or negligence of the Executive.
The Executive, as
part of the consideration for this Agreement and for his employment by the Companies, hereby assigns, and agrees to assign,
to (or as otherwise directed by) the Companies his entire right, title and interest in and to any and all inventions, trade
secrets, improvements, plans and specifications (i) which he, alone or in conjunction with others, may make, conceive or
develop during the period of his employment with the Companies which relate to the business of the Parent, the Company or any
of the Companies’ direct or indirect subsidiaries, or (ii) which he, alone or in conjunction with others, may make
or conceive within a period of one (1) year after the Date of Termination which derive from any confidential or
proprietary information, knowledge or other data of the Parent, the Company or any of their respective direct or indirect
subsidiaries with respect to which he has become informed by reason of his engagement by the Companies (including, without
limitation, his relations with the Companies’ direct or indirect subsidiaries ). The Executive further agrees that he
will promptly disclose fully to the Companies his aforesaid inventions, trade secrets, improvements, plans and specifications
and will at any time during and after his employment with the Companies render to the Companies such cooperation and
assistance as they may deem to be advisable in order to obtain copyrights or patents, as the case may be, on or otherwise
perfect or defend the rights of the Company and/or the Parent in each such invention, trade secret, improvement, plan or
specification, including, but not limited to, the execution of any and all applications for copyrights or patents,
assignments of copyrights or patents and other written instruments which the Companies, their officers or attorneys
reasonably may deem necessary or desirable, and the aforesaid obligation shall be binding on the Executive’s assigns,
executors, administrators and other legal representatives.
The Executive hereby
irrevocably grants to each of the Companies, their successors and assigns, to the full extent permitted by law, power of attorney
to institute and prosecute from time to time, at their sole expense, any proceedings at law, in equity or otherwise, that any of
the Companies, their successors or assigns, may deem proper in order to transfer to the Companies, assert or enforce any claim,
right or title of any kind in and to the inventions, trade secrets, improvements and other proprietary interests described under
this Section 6, to defend and settle any and all actions, suits or proceedings in respect of any of said inventions,
trade secrets, improvements and other proprietary interests and, generally to do any and all such acts and things in relation thereto
as any of the Companies, their successors or assigns, shall deem advisable, including, but not limited to, execution of any and
all applications, assignments and instruments contemplated under this Section 6. The Executive declares and acknowledges
that the appointment hereby made and the powers hereby granted are coupled with an interest and shall be irrevocable by him.
7. Non-Competition
and Non-Solicitation.
(a)
During the Employment Period and for a period of one (1) year
thereafter (the “Non-Compete Period”), the Executive shall not engage, directly or indirectly, whether as
principal, agent, employee, consultant, distributor, representative, five percent (5%) or greater stockholder or otherwise,
in any business activities in the United States of America or any other jurisdiction in which the Companies operate, which
are in any way competitive with the business conducted by the Companies during the Employment Period.
(b)
During the Employment Period and for a period of two (2) years
thereafter (the “Non-Solicitation Period” and together with the Non-Compete Period, the
“Restricted Period”), the Executive shall not, directly or indirectly (whether alone or jointly with
another), (i) solicit for employment, hire, employ, or engage any Person who, at any time during the Non-Solicitation
Period, is an officer or employee of the Parent or any of its direct or indirect subsidiaries, including the Company;
provided, however, that the preceding sentence does not prohibit the Executive from (x) soliciting or hiring any Person
whose employment, or engagement for services, was terminated by any such Person at least twelve (12) months prior to the date
of such solicitation or hire; and provided, further, that such termination was not encouraged by the Executive, or
(y) engaging in any general solicitation not targeted at any employee of any such Person, including non-directed
executive search or placing general advertisements for employees in newspapers or other media of general circulation so long
as such employee is not hired, directly or indirectly, by the Executive or any of his controlled Affiliates or
(ii) solicit business from any customer or solicit products or services from any vendor of the Parent or any of its
direct or indirect subsidiaries, including the Company, that interferes with or jeopardizes the business or relationships of
any such Person with any such customer or vendor.
(c) The Parties
acknowledge and agree that the Executive’s obligations under Section 6, this Section 7 and the following
Section 7(c) (collectively, the “Covenants”) are of a special, unique and extraordinary nature,
that there may be no adequate remedy at law for any breach thereof, that any such breach may allow third parties to compete unfairly
with the Parent or any of its direct or indirect parents or subsidiaries, including the Company, resulting in irreparable harm
to any such Person, and, therefore, upon any such breach or any threat thereof, the Companies shall be entitled to preliminary
and permanent, mandatory or negative injunctive relief against any breach or threatened breach by the Executive of any of the Covenants,
without having to post a bond, in addition to whatever remedies they may have at law. The Executive hereby agrees that (i) the
terms of the Covenants are reasonable, (ii) the foregoing restrictions will not prevent him from obtaining gainful employment
in his occupation or field of expertise or cause him undue hardship, and (iii) in the event a court determines that any of
the provisions of the Covenants are unreasonable or contrary to public policy, or invalid or unenforceable for any reason in fact,
law or equity, then such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by
law. So that the Companies may enjoy the full benefits of the covenants set forth in this Section 7, the Executive
further agrees that the Restricted Period shall be tolled, and shall not run, during the period of time during which the Executive
is in breach of any of the covenants contained in this Section 7, after such time the Company has informed the Executive
that he is so in breach. It is also agreed that each of the Parent and its direct or indirect parents or subsidiaries, including
the Company, shall have the right to enforce all of the Executive’s obligations to that Affiliate under this Agreement, including
without limitation pursuant to this Section 7.
8. Mutual
Non-Disparagement. During the Employment Period and for the two-year period following the Date of Termination, the Executive
agrees not to make public statements or communications, or statements or communications that, at the time made, are intended or
reasonably likely to become public, that disparage or criticize the Parent or any of its direct or indirect parents or subsidiaries,
including the Company, or any of their respective businesses, services or products or their current, former or future equityholders,
directors or executive officers (in their capacities as such). During the Employment Period and for the two-year period following
the Date of Termination, each of the Company and the Parent shall instruct its directors and executive officers to not make public
statements or communications that disparage or criticize the Executive. For purposes of this Section 8, “public”
as used in reference to a statement or communication means the public generally, including the current, former or future equityholders,
directors or executive officers of the Parent and its direct or indirect parents or subsidiaries, including the Company, and the
customers, vendors or other business partners of any such Person. The foregoing shall not be violated by truthful statements in
response to legal process, required governmental testimony or filings, or administrative or arbitral proceedings (including, without
limitation, depositions in connection with such proceedings).
9. Termination
of Employment. A termination of the Executive’s employment by either the Parent or the Company shall be treated as a
termination of the Executive’s employment by both of the Companies.
Death. If the
Executive’s employment with the Companies is terminated during the Employment Period as a result of the
Executive’s death, the Employment Period shall terminate without further notice or any action required by the Companies
or the Executive’s estate or other legal representative. Upon the Executive’s death, the Company shall pay or
provide to the Executive’s estate or other legal representative (i) all Accrued Benefits, (ii) a Pro-Rata
Bonus and (iii) Class A restricted shares will be treated in the same manner as Class A Common Stock, as noted
in the separate Subscription Agreement.
(a) Disability.
If the Companies, or either of them, terminate the Executive’s employment during the Employment Period because of the Executive’s
Disability, the Company shall pay or provide to the Executive (i) all Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) the
Post-Termination Benefits, (iv) the COBRA Coverage Benefits and (v) Class A restricted shares and Class A Common
Stock will be treated as noted in the separate Subscription Agreement.
(b) Termination
by the Companies for Cause or by the Executive without Good Reason. If, during the Employment Period, the Companies, or
either of them, terminate the Executive’s employment for Cause or the Executive terminates his employment with
either of the Companies without Good Reason, the Company shall pay to the Executive all Accrued Benefits.
(c) Termination
by the Companies without Cause or by the Executive for Good Reason. If, during the Employment Period, the Companies, or
either of them, terminate the Executive’s employment without Cause (other than due to Disability) or if the
Executive terminates his employment with either of the Companies for Good Reason, the Company shall pay or provide the
Executive (or the Executive’s estate or other legal representative, if the Executive dies after such termination but
before receiving such amount) (i) all Accrued Benefits, (ii) a Pro-Rata Bonus, (iii) an amount equal to the sum of
the Executive’s Base Salary and TargetBonus, payable in equal installments paid at the same time as normal payroll
payments are made for the twelve (12) month period following the Date of Termination, with such payments to commence on the
first payroll date following the Payment Date (as defined below), but retroactive to the day following the Date of
Termination, subject to Section 9(h) hereof, (iv) the Post Termination Benefits, (v) the COBRA
Coverage Benefits and (vi) outplacement counseling services at a total cost not to exceed Twelve Thousand Dollars
($12,000).
(d) Notice
of Termination. Any termination of the Executive’s employment by the Companies or by the Executive (other than
because of the Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in
accordance with Section 11 hereof. For purposes of this Agreement, a “Notice of Termination”
shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon. Termination
of the Executive’s employment shall take effect on the Date of Termination.
(e) Effect
of Termination. Upon any termination of the Executive’s employment with the Companies, or either of them, the
Executive shall resign from, and shall be considered to have simultaneously resigned from, all positions with the Companies
and all of the Companies’ Affiliates.
(f) Release.
As a condition to the Executive’s entitlements (other than the Accrued Benefits), as provided in Section 7(c)(b) and
10(d) hereof (the “Severance Benefits”), the Executive must timely execute and deliver to the Companies,
and not revoke, a release of claims in substantially the form attached as Exhibit A hereto (the “Release”);
provided, that for the avoidance of doubt, the foregoing Release requirement shall not apply to the Company’s obligation
to provide the Accrued Benefits or any amounts payable under Section 10(a). The Release must be executed and delivered
by the Executive (and no longer be subject to revocation) as provided in Section 3(c) of Exhibit A.
The Release must become effective, if at all, by the date specified therein (and in all events no later than the ninetieth (90th)
calendar day following the Date of Termination). The first payment of the Severance Benefits (excluding the Pro Rata Bonus)
hereof will be made on the Company’s next regular payday following the earlier of (i) the date upon which the Release
(if applicable) becomes effective, binding and irrevocable and (ii) the expiration of ninety (90) calendar days from the
Date of Termination (the “Payment Date”), but will be retroactive to the day following the Date of Termination.
(g) No
Offset. In the event of termination of his employment, the Executive shall be under no obligation to seek other
employment and there shall be no offset against amounts due to him on account of any remuneration or benefits provided by any
subsequent employment he may obtain, except as provided under Section 24(f) hereof. The Companies’
obligation to make any payment pursuant to, and otherwise to perform its obligations under, this Agreement shall not be
affected by any offset, counterclaim or other right that the Parent, the Company or any of the Companies’
Affiliates may have against the Executive for any reason.
(h) Change
of Control Consequences. Upon a Change of Control, whether occurring during the Employment Period or after the Employment Period
and prior to an IPO of the common stock of the Parent, the Parent will use its good faith best efforts to hold a shareholder vote
in accordance with Section 280G(b)(5)(B) of the Code seeking approval of any amounts treated as excess parachute payments
in connection with a Change of Control in the event the Change of Control is subject to Internal Revenue Code Section 280G.
(i) Satisfaction
of Obligations. Anything herein to the contrary notwithstanding, upon satisfaction of their respective applicable obligations
as set forth in this Section 7(c), the Companies shall have no further obligations to the Executive under this
Agreement, except as set forth in Section 14 hereof. The obligation of the Companies to provide the Severance Benefits
(or, if such Severance Benefits have commenced, to continue providing the Severance Benefits) to the Executive are expressly conditioned
upon the Executive’s continued performance of and compliance with his obligations under the Covenants; provided, however,
that an immaterial and unintentional breach by the Executive of the Covenants provided in Section 7 or Section 9
hereof shall not be deemed to be a failure to perform or comply with such obligations. In the event of the Executive’s death
after his termination of employment but prior to his receiving, in full, the payments or other benefits to which he is entitled
hereunder, his estate or other legal representative shall succeed to such entitlements.
10.
Indemnification. During the Employment Period and thereafter,
and without limiting any provision contained in the Acquisition Agreement, the Companies will indemnify the Executive to the
fullest extent permitted by law and each of the Companies’ certificate of incorporation, bylaws or other governing
documents, as applicable, and cause him to be covered under such directors and officers insurance policies as the Companies
maintain in effect from time to time; provided that such policies shall furnish directors and officers insurance protection
no less in amount and extent of coverage than furnished by policies provided by the Company for the benefit of the Executive
prior to the Effective Time. The Executive agrees to promptly notify the Companies of any actual or threatened claim arising
out of or as a result of the Executive’s employment hereunder or any office or directorship held with Parent, the
Company or any of their Affiliates.
11. Notices.
All notices, demands, requests, or other communications which may be or are required to be given or made by any party to any other
party pursuant to this Agreement shall be in writing and shall be hand delivered, mailed by first-class registered or certified
mail, return receipt requested, postage prepaid, delivered by overnight air courier, or transmitted by facsimile transmission addressed
as follows:
If to the Company, to:
Hayward Industries, Inc.
620 Division Street
Elizabeth, NJ 07201
Attn: Chairman
If to the Parent, to:
Hayward Holdings, Inc.
620 Division Street
Elizabeth, NJ 07201
Attn: Chairman
If to the Executive, to: Address last shown on the
Company’s records.
Each party may designate by notice in writing
a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand,
request, or communication that shall be given or made in the manner described above shall be deemed sufficiently given or made
for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, confirmation
of facsimile transmission or the affidavit of messenger being deemed conclusive but not exclusive evidence of such delivery) or
at such time as delivery is refused by the addressee upon presentation.
12. Severability.
The invalidity or unenforceability of any one or more provisions of this Agreement, including, without limitation, Section
6, shall not affect the legality, validity or enforceability of the other provisions of this Agreement, which shall remain in full
force and effect.
13. Survival.
It is the express intention and agreement of the Parties that the provisions of Sections 4, 6, 6, 7, 7(c), 7(c),
10, 11, 12, 14, 15, 16, 17, 18, 19, 20, 22, 23, and 24 hereof and this Section 14 shall survive
the termination of employment of the Executive, in accordance with the respective terms of such provisions. In addition, all obligations
of the Company or the Parent to the Executive under applicable compensation benefit plans and programs and to make payments or
settle equity awards granted thereunder shall survive any termination of this Agreement, to the extent permitted by law, in accordance
with the terms of such plans, programs and/or awards.
14. Assignment.
The rights and obligations of the Parties to this Agreement shall not be assignable or delegable except that (a) in the
event of the Executive’s death, the personal representative or legatees or distributees of the Executive’s
estate, or the trustees of any trusts established under the Executive’s will or by the Executive during his lifetime,
as the case may be, shall have the right to receive any amount owing and unpaid to the Executive hereunder and
(b) the
respective rights and obligations of the Company and the Parent hereunder shall be assignable and delegable in connection
with any subsequent merger, consolidation, reorganization, sale of all or substantially all of the assets or equity interests
of the Company or the Parent, or similar transaction involving the Company or the Parent or a successor to either of them. In
connection with any assignment pursuant to clause (b) of the preceding sentence, the Parent and the Company shall
require any such successor to the Parent or the Company or to their respective business and assets to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that the Parent and the Company would be required
to perform it if no such succession had taken place; provided, for the avoidance of doubt, that no such express
assumption and agreement shall be required where any such successor becomes subject to this Agreement by operation of law as
part of any transaction described in the foregoing clause (b). As used in this Agreement, “Company” shall
include any successor to the Company’s business and/or assets and “Parent” shall include any
successor to the Parent’s business and/or assets.
15. Binding
Effect. Subject to any provisions hereof restricting assignment, this Agreement shall be binding upon the Parties and shall
inure to the benefit of the Parties and their respective heirs, devisees, executors, administrators, legal representatives, successors
and assigns.
16. Amendment;
Waiver. This Agreement shall not be amended, altered or modified except by an instrument in writing duly executed by the party
against whom enforcement is sought. Neither the waiver by any of the Parties of a breach of or a default under any of the provisions
of this Agreement, nor the failure of any of the Parties, on one or more occasions, to enforce any of the provisions of this Agreement
or to exercise any right or privilege hereunder, shall thereafter be construed as a waiver of any subsequent breach or default
of a similar nature, or as a waiver of any such provisions, rights or privileges hereunder.
17. Headings.
Section and subsection headings contained in this Agreement are inserted for convenience of reference only, shall not be deemed
to be a part of this Agreement for any purpose, and shall not in any way define or affect the meaning, construction or scope of
any of the provisions hereof.
18. Governing
Law. This Agreement, the rights and obligations of the Parties, and any claims or disputes relating thereto, shall be governed
by and construed in accordance with the laws of the New Jersey (but not including any choice of law rule thereof that would
cause the laws of another jurisdiction to apply).
(a) Arbitration.
In the event of any dispute between the Parties, including but not limited to any claims arising from or related to this
Agreement or the termination of this Agreement, any claims related to Executive’s employment or the termination of the
Executive’s employment, or any claims arising under the state and federal laws governing employment, such dispute will
be determined exclusively, upon the written request of either Party, by binding arbitration under the auspices of and
pursuant to the Employment Dispute Resolution Rules of the American Arbitration Association. Such arbitration shall be
conducted in New York City, New York before a single arbitrator who is a retired judge. This agreement to arbitrate shall
include, without limitation, any and all disputes, controversies and/or claims against Parent, the Company or any of their
Affiliates or the current or former partners, members, officers or employees of any of them, whether arising under theories
of liability or damages based on contract, tort or statute, to the fullest extent permitted by law, such as, without
limitation, claims for breach of contract or breach of the covenant of good faith and fair dealing, any claims of
discrimination or other claims under Title VII of the Civil Rights Act of 1964, as amended, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act, the Fair Labor Standards Act,
ERISA and/or any applicable or equivalent state or local laws, claims for wrongful termination, including employment
termination in violation of public policy, and claims for personal injury including, without limitation, defamation, fraud
and infliction of emotional distress. The only claims not covered by this agreement to arbitrate are claims for benefits
under workers’ compensation or unemployment insurance statutes and other claims that cannot be arbitrated as a matter
of law. As a material part of this agreement to arbitrate claims, the Executive, Parent, and the Company expressly waive all
rights to a jury trial in court on all statutory or other claims, including, without limitation, those identified in this Section
19. The Executive also acknowledges and agrees that no claims will be arbitrated on a class action or collective action
basis. The arbitrator will have no power to add to, subtract from, or otherwise modify any of the terms of this Agreement
except that a provision otherwise invalid, illegal or unenforceable shall be modified to the least extent necessary to make
it valid, legal and enforceable. The decision of the arbitrator shall be final, conclusive and binding and may be enforced by
any court of competent jurisdiction, and all Parties consent to the personal jurisdiction of the state and federal courts of
the State of New Jersey for such purposes. Notwithstanding the foregoing, the Parent and the Company shall be entitled to
seek injunctive relief against the Executive in any court of competent jurisdiction for any breach or threatened breach of
any provisions of this Agreement. All reasonable fees, costs and expenses (including reasonable attorneys’ fees,
expenses and costs) incurred by the prevailing party in any arbitration will be borne by the other party. Any claim must be
brought to arbitration within the statute of limitations for bringing such claim in court or before the appropriate
administrative agency, as applicable.
(b) Court Proceeding.
Each of the Parties agrees that any dispute between the Parties in respect of which resolution by a court of any issue is required
either (i) in accordance with the provisions of Section 20(a) or (ii) for the purpose of the recognition
and enforcement of any judgment by the arbitrator, shall be resolved only in the courts of New Jersey or the United States District
Court for the District of New Jersey and the appellate courts having jurisdiction of appeals from such courts.
20. Entire
Agreement. This Agreement and all other agreements and plans relating to the subject matter hereof, including, without
limitation, agreements for amending awards granted under such plans, to the extent not inconsistent with any terms set forth
herein, constitute the entire understanding of the Company and the Parent on the one hand, and the Executive on the other
hand, with respect to the subject matter hereof and supersede the Prior Agreement and all other prior understandings, written
or oral, concerning such subject matter.
21. Counterparts.
This Agreement may be executed in two counterparts, each of which shall be an original and all of which shall be deemed to constitute
one and the same instrument.
22. Withholding.
The Company may withhold from any benefit payment under this Agreement all federal, state, city or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
(a) The
intent of the Parties is that payments and benefits under this Agreement comply with Internal Revenue Code Section 409A
and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”) and,
accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in compliance therewith.
Specifically, if any provision of this Agreement is ambiguous, such that one interpretation of the provision would comply
with Code Section 409A and another interpretation would result in a failure to comply with any applicable requirement
under Code Section 409A, the Parties intend that the interpretation that complies with Code Section 409A shall be
the one that governs. To the extent permitted under Code Section 409A, this Agreement, and the terms of any Plan (as
defined in Section 24(f) below) to the extent they relate to the Executive’s entitlements thereunder,
shall be modified, either (i) as reasonably requested by the Executive, with the Company’s and Parent’s
consent), or as the Company may propose (or, as the Parent may propose, with respect to any Plan maintained by it)
with the Executive’s consent, to the extent necessary to comply with all applicable requirements of, and to avoid the
imposition of any additional tax, interest or penalties under, Code Section 409A in connection with the payments and
benefits to be paid or provided to the Executive hereunder or under such Plan. To the extent that any provision hereof, or of
any Plan, is modified in order to comply with Code Section 409A, such modification shall be made in good faith, shall
not impose any additional costs on the Parent or the Company and shall, to the maximum extent reasonably possible, maintain
the original intent and economic benefit to the Executive and the Companies of the applicable provision without violating the
provisions of Code Section 409A.
(b) A
termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for
the payment of any amounts or benefits upon or following a termination of employment unless such termination is also a
“separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of
this Agreement, references to a “termination,” “termination of employment” or like terms shall mean
“separation from service.” If the Executive is deemed on the date of termination to be a “specified
employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the
provision of any benefit that is considered deferred compensation under Code Section 409A (after taking into account all
exclusions applicable to such payment or benefit under Code Section 409A) and that is payable or to be provided to the Executive
on account of his “separation from service,” such payment or benefit shall be made or provided at the date which
is the earliest to occur of (i) the expiration of the six (6)-month period measured from the date of the
Executive’s “separation from service, (ii) the date of the Executive’s death, or (iii) such
earlier date as may be permitted under Code Section 409A. Upon the expiration of the foregoing delay period, all
payments and benefits delayed pursuant to this Section 23(b) (whether they would have otherwise been
payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a
lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the
normal payment dates specified for them herein.
(c) To
the extent that the reimbursement of any expenses eligible for reimbursement or the provision of any in-kind benefits under
this Agreement constitute “nonqualified deferred compensation” for purposes of Code Section 409A (after
taking into account all exclusions applicable to such reimbursements or benefits under Code
Section 409A):(i) reimbursement of any such expense shall be made as soon as practicable after such expense has
been incurred, but any event no later than December 31 of the year following the year in which the Executive incurs such
expense; (ii)the amount of such expenses eligible for reimbursement, or in-kind benefits to be provided, in any calendar year
shall not affect the amount of expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar
year; and (iii) the Executive’s right to receive such reimbursements or in-kind benefits shall not be
subject to liquidation or exchange for any other benefit.
(d) For
purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement
shall be treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies
a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the
sole discretion of the Company.
(e) Notwithstanding
any other provision of this Agreement to the contrary, in no event shall any payment under this Agreement that constitutes “nonqualified
deferred compensation” for purposes of Code Section 409A be subject to offset by any other amount unless otherwise permitted
by Code Section 409A.
(f) For
purposes of the foregoing, the term “Plan” shall mean any plan, program, agreement (other than this
Agreement) or other arrangement maintained by the Company, the Parent or any of the Companies’ Affiliates that
is a “nonqualified deferred compensation plan” within the meaning of Code Section 409A, and under which any
payments or benefits are to be made or provided to the Executive, to the extent they constitute a deferral of compensation
subject to the requirements of Code Section 409A after taking into account all exclusions applicable to such payments or
benefits under Code Section 409A.
24. Definitions.
(a) “Accrued
Benefits” means (i) any unpaid Base Salary through the date the Executive’s employment terminates,
(ii) except in the case of a termination of employment pursuant to Section 9(b), any earned and payable,
but unpaid, Annual Bonus; (iii) any accrued and unpaid vacation; (iv) any amounts or benefits owing to the
Executive or to the Executive’s beneficiaries under the then applicable benefit plans of the Company in which the
Executive participated immediately prior to the Date of Termination (excluding any severance plan, program, agreement or
arrangement); and (v) any amounts owing to the Executive for reimbursement of business expenses properly incurred by the
Executive prior to the Date of Termination and which are reimbursable in accordance with Section 6, provided that
the Executive, or his estate or other legal representative, submits all expenses and supporting documentation required within
thirty (30) days of the Date of Termination (or one-hundred eighty (180) days in the case of termination due to death).
Amounts payable (A) under clauses (i), (ii) and (iii) shall be paid promptly after the Date of Termination but
in any event by no later than thirty (30) days after such date; (B) under clause (iv) shall be paid in accordance
with the terms and conditions of the applicable plan, program or arrangement; and (C) under clause (v) shall be
paid in accordance with the terms of the applicable expense policy but in any event by no later than the time for payment of
the reimbursement required pursuant to Section 23(c) above.
(b) “Acquisition
Agreement” means the Acquisition Agreement and Plan of Merger dated June 7, 2017 entered into by, inter alia,
the Company and the Parent, as amended.
(c) “Affiliate”
of a person or entity means any entity controlled by, in control of, or under common control with, such person or entity.
(d) “Cause”
means: (i) conduct by the Executive constituting a material act of misconduct in connection with the performance of his
duties, including, without limitation, misappropriation of funds or property of the Company or any of its Subsidiaries or
Affiliates other than the occasional, customary and de minimis use of Company property for personal purposes; (ii) the
Executive’s commission of a felony or commission of a misdemeanor involving fraud or any misconduct by the Executive
that results in material injury or reputational harm to the Company or any of its Subsidiaries and Affiliates; (iii) any
act or omission that constitutes a material breach by the Executive of (a) any of his obligations under any material
agreement with the Company or any of its Affiliates (including this Agreement) or (b) any material written policy of the
Company or any of its Subsidiaries, including the continued non-performance by the Executive of his duties (other than by
reason of the Executive’s physical or mental illness, incapacity or disability) which has continued for more than
thirty (30) days following written notice from the Board delineating such non-performance; (iv) a breach by the
Executive of any restrictive covenant by the Executive contained in any agreement between such Executive and the Company or
any of its Subsidiaries (including Exhibit B or Appendix B, as applicable, to any award agreement), provided,
that an immaterial and unintentional breach of the Covenants provided in Section 7 or Section 9
hereof shall not constitute “Cause”; (v) the Executive’s engaging in any intentional act of
dishonesty, violence or threat of violence (including any violation of federal securities Laws) which is or could
reasonably be expected to be materially injurious to the financial condition or business reputation of the Company or any of
its Subsidiaries or Affiliates; (vi) the Executive’s illegal use of controlled substances during the performance
of the Executive’s duties that adversely affects the reputation or best interest of the Company or any Affiliate
thereof; or (vii) the Executive’s failure to cooperate with a bona fide internal investigation or an investigation
by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the willful destruction
or failure to preserve documents or other materials known to be relevant to such investigation or the inducement of others to
fail to cooperate or to produce documents or other materials in connection with such investigation.
(e) “Change
of Control” means a Liquidity Event as that term is defined in the Stockholders Agreement.
(f) “COBRA
Coverage Benefits” shall mean continued coverage for the Executive and his dependents under the Company’s
group health care benefit plans for a period of twelve (12) months following the
Date of Termination, with the Executive (or in the event of the Executive’s death , his dependents) paying the same
portion of the total cost of such coverage that the Company’s active employees are required to pay for such coverage,
and the Company paying for that portion of such total cost as exceeds the portion paid for by the Executive. The COBRA
Coverage Benefits shall be provided to the Executive or his dependents subject to (A) the Executive’s (or in the
event of the Executive’s death, his dependent’s) making a timely election of continuation coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), and remaining eligible for
COBRA coverage during such period, and (B) the Executive’s (or in the event of the Executive’s death, his
dependent’s) continued payment of the portion of the total cost of such coverage required to be paid by the Executive
as provided in the preceding sentence. The COBRA Coverage Benefits shall immediately cease to be provided hereunder on the
date on which the Executive commences to receive equivalent health care benefit coverage under a health care plan, or plans,
of any subsequent employer of the Executive. If and to the extent necessary in order for the Executive to avoid being subject
to tax under section 105(h) of the Internal Revenue Code on any payment or reimbursement of any health care expenses
made to him or for his benefit pursuant to Section 7(c) hereof the Company shall impute as taxable income
to the Executive an amount equal to the excess of (i) the full actuarial cost of the health care benefit coverages
provided to him and his dependents under Section 7(c) hereof over (ii) the portion of such total cost
paid for by the Executive or his dependents for each period during which such coverages are provided.
(g) “Date
of Termination” means (i) if the Executive’s employment is terminated by the Executive’s death, automatically
on the date of the Executive’s death; (ii) if the Executive’s employment is terminated because of the Executive’s
Disability, five (5) calendar days after the Notice of Termination unless the Executive shall have returned to the
performance of the Executive’s duties on a full-time basis during such five (5)-day period; or (iii) if the Executive’s
employment is terminated during the Employment Period by the Companies or by the Executive, the date specified in the Notice of
Termination; provided that in the case of a termination by the Companies for Cause or a termination by the Executive for Good
Reason the Date of Termination shall occur no sooner than the completion of the applicable notice period and, if applicable, opportunity
to cure, as provided in the definitions of those terms this Section 24.
(h) “Disability”
or “Disabled” means the inability of the Executive to perform the Executive’s material duties hereunder
due to a physical or mental injury, infirmity or incapacity, which is expected to exceed one hundred eighty (180) days (including
weekends and holidays) in any three hundred sixty-five (365)-day period. If any question shall arise as to whether the Executive
is Disabled to the extent that the Executive is unable to perform substantially all of his duties and responsibilities for the
Company and its Affiliates, the Executive shall, at the request of the Board in accordance with the ADA and the Family and Medical
Leave Act of 1993, as amended, submit to a medical examination by a physician selected by the Board to whom the Executive or his
guardian, if any, has no reasonable objection to determine whether the Executive is so Disabled, and such determination shall
for purposes of this Agreement be conclusive of the issue. If such a question arises and the Executive fails to submit
to the requested medical examination, the Board’s determination of the issue shall be binding on the Executive.
(i) “Effective Time” has the meaning set forth in the Acquisition Agreement.
(j) “Good
Reason” means that the Executive has complied with the Good Reason Process following the occurrence of the
following events: (i) any act taken by the Company that results in any material and sustained diminution in the
Executive’s responsibilities or authority from those that are consistent with his title; (ii) a failure of the
Company to pay or cause to be paid the executive’s Base Salary, Annual Bonus or material employee benefits required to
be provided to him, when due or (iii) any material breach of this Agreement by the Companies (each such event, a
“Good Reason Condition”).
(k) “Good
Reason Process” means that (i) the Executive reasonably determines in good faith that a Good Reason Condition
has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason Condition
within thirty (30) days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the
Company's efforts, if any, for a period of not less than thirty (30) days following such notice (the “Cure
Period”), to remedy the Good Reason Condition; (iv) notwithstanding such efforts, or in the event the Company
does not remedy such event, the Good Reason Condition continues to exist; and (v) the Executive terminates his or her
employment within ninety (90) days after the Good Reason Condition has occurred; provided, that, for the avoidance of
doubt, if the Company cures the Good Reason Condition due the Cure Period, Good Reason shall be deemed not to have
occurred.
(l) “IPO” has the meaning set forth in the Stockholders Agreement.
(m) “Post-Termination
Benefits” shall mean, at the Parent’s election, either (i) payment by the Companies to the Executive of an
amount equal to the cost of any perquisites, welfare benefits, and retirement plan contributions the Executive would otherwise
have been eligible to receive in the twelve (12) months following the Executive’s Date of Termination, or
(ii) the
provision, for twelve (12) months following the Executive’s Date of Termination, in kind by the Company to the Executive
of the perquisites, welfare benefits, or retirement plan contributions described in clause (i) of this definition, provided
that, in the case of a payment under clause (i), the Parent has determined in its reasonable and sole discretion that it would
be permissible to do so under the terms of any applicable plan and applicable law. For the sake of clarity, COBRA Coverage Benefits
shall be as provided in Section 25(f) above.
(n) “Pro-Rata
Bonus” shall mean, to the extent actually earned, a pro-rata portion of the Executive’s Annual Bonus for the
plan year in which the Executive’s termination occurs based on the Target Bonus for such year (such pro-ration to be
determined by multiplying the amount of such bonus which would be payable to the Executive if he had remained in employment
with the Company for the full plan year by a fraction, the numerator of which is the number of days during the plan year of
termination that the Executive was employed by the Company, and the denominator of which is 365), which shall be payable by
the Company to the Executive (or in the event of his death, to his estate or legal representatives) at such time when
bonuses are paid to executives of the Companies generally or, if later, on the Payment Date.
(o) “Stockholders
Agreement” shall mean the Hayward Holdings, Inc. Stockholders Agreement, dated as of the date hereof,
as it may be amended, modified or amended and restated from time to time.
IN WITNESS WHEREOF, the undersigned have
duly executed and delivered this Agreement as of the Effective Time.
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HAYWARD INDUSTRIES, INC.
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By:
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Name:
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Title:
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HAYWARD HOLDINGS, INC.
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By:
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Name:
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Title:
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EXECUTIVE
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Anthony P. Colucci
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[Signature Page to Employment Agreement]
EXHIBIT A
Release
For good and valuable
consideration, including the rights and obligations contained in the Employment Agreement dated as of ________, 2018 (the “Employment
Agreement”) this agreement and release is entered into by and among _______________ (the “Executive”),
Hayward Industries, Inc. (the “Company”) and Hayward Holdings, Inc. (the “Parent”)
(the “Release”). (Together, the Company and the Parent may hereinafter be referred to as the “Companies.”)
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1.
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The Executive, on behalf of himself and his dependents, heirs, administrators, agents, personal
representatives, executors, successors and assigns (together with the Executive, the “Executive Releasees”),
does hereby irrevocably, completely and unconditionally release, waive and forever discharge the Companies and their past, present
and future parents, subsidiaries, affiliated corporations, partnerships, joint ventures, employee benefit plans, insurers and their
predecessors, successors and assigns (collectively, “Company Affiliates”)
and all of the Company Affiliates’ past, present and future shareholders, directors, officers, employees, agents, trustees,
and representatives, both individually and in their official capacities, and their successors and assigns (together with the Company
Affiliates, the “Company Releasees”), from any and all actions, rights, claims, demands, obligations, liabilities,
attorneys’ fees and causes of action of any kind or description whatsoever, in law, equity or otherwise, whether known or
unknown, whether past or present, arising out of or in any way related to the Executive’s employment, or termination of employment,
with either or both of the Companies (including any events, acts, conduct or omissions related thereto) occurring at any time prior
to or at the date on which the Executive signs and returns this Release (the “Release Date”), including, but
not limited to, any action, claim, demand, obligation, liability or cause of action arising under any Federal, state, or local
law (including, but not limited to, Title VII of the Civil Rights Act of 1964, the Civil Rights Acts of 1866, 1871, 1964 and 1991,
the Equal Pay Act, the Americans with Disabilities Act of 1990, the National Labor Relations Act, the Fair Labor Standards Act
of 1938, the Employee Retirement Income Security Act of 1974 (other than any claim as excepted below), the Age Discrimination in
Employment Act of 1967, all as amended, and the wage and hour, wage payment and fair employment practices laws of the state or
states in which the Executive has been employed), tort, contract or any other legal obligation (collectively, the “Claims”);
provided, however, the Executive does not release any of the following Claims:
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a.
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any Claim to payments, benefits or other entitlements, including, without limitation, under any
compensation or benefit plan, program or other arrangement of the Company, the Parent or any Company Affiliate including, without
limitation, any incentive or deferred compensation plan including any cash or equity award, any pension plan or benefits under
any medical, dental, vision, life insurance or disability insurance plan;
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b.
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any Claim to workers’ compensation or unemployment insurance benefits;
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c.
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any Claim arising from a breach of the Employment Agreement, including any right to enforce the
Employment Agreement;
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d.
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any Claim for indemnification in accordance with applicable laws, the applicable constituent documents
(including bylaws and certificates of incorporation) of the Company, the Parent or any Company Affiliate, and any applicable insurance
policy with respect to any liability the Executive incurs or has incurred as a director, officer or employee of the Company, the
Parent or any Company Affiliate;
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e.
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any Claim the Executive may have to obtain contribution as permitted by law in the event of entry
of judgment against the Executive as a result of any act or failure to act for which the Executive and the Company, the Parent
and/or any Company Affiliate are jointly liable in whole or in part;
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f.
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any Claim that by law may not be released by private agreement without judicial or governmental
review and approval; or
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g.
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any Claim that arises after the Release Date.
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2.
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The following shall apply in connection with the signing of this Release:
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a.
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The
Executive acknowledges and agrees that he has no less than [twenty-one (21)/forty-five
(45)]1 days in which to consider this Release (though he may choose voluntarily
to sign it earlier) and is hereby advised that this Release creates a legally binding
obligation and that the Executive should therefore consult an attorney about this Release
(though he may choose voluntarily not to do so).
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b.
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The Executive represents that he has read this Release carefully; has had the opportunity to consult
with an attorney of the Executive’s own choosing about the Release; understands fully what
this Release means; and is entering into it knowingly, voluntarily, and without coercion.
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c.
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The Executive may not sign and return this Release to the Companies earlier than the Date of Termination
(as defined in the Employment Agreement) and must sign and return it no later than [twenty-one (21)/forty-five (45)]2 calendar
days following the later of (i) the Date of Termination and (ii) five (5) calendar days following the date of delivery
of this Release to the Executive as provided in Section 9(f) of the Employment Agreement (such
period of time being the “Release Consideration Period”). The Executive will have an additional seven
(7) calendar days after the Release Date in which to revoke his acceptance by providing written notice of revocation to
the Companies (such period of time the “Release Revocation Period”). The Release will not be effective
until the date upon which the revocation period has expired, which will be the eighth (8th) calendar day
after the Release Date, if not previously revoked.
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1
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To be determined by the Company at the time of separation.
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2
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To be determined by the Company at the time of separation.
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d.
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By signing this Release, Executive represents that (i) he is signing it voluntarily and with
a full understanding of its terms, (ii) he has had sufficient opportunity, before signing this Release, to consider its terms
and consult with an attorney (if he so wished to do so) and (iii) he has not relied on any promises or representations, express
or implied, that are not set forth expressly in this Release.
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3.
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The Executive represents that as of the date he has executed this Release he has not assigned to
any other party, and agrees not to assign, any Claim released by the Executive herein.
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4.
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Whenever possible, each provision of this Release shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this Release is held to be invalid, illegal or unenforceable
in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall
not affect any other provision or any other jurisdiction, but this Release shall be reformed, construed and enforced in such jurisdiction
as if such invalid, illegal or unenforceable provision had never been contained herein.
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5.
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This Release may be executed in one or more counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the same instrument.
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6.
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This Release shall be governed by and construed and interpreted in accordance with the laws of
the State of New Jersey without reference regard to principles of conflicts of law that would result in the application of the
laws of any other jurisdiction.
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page intentionally blank]
IN WITNESS WHEREOF, the Executive, the Company
and the Parent have executed this Release each as of the date indicated below.
AGREED AND EXECUTED:
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Anthony P. Colucci
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Dated: __________, 2018
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HAYWARD INDUSTRIES, INC.
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Dated: __________, 2018
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Name:
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Title:
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HAYWARD HOLDINGS, INC.
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Dated: __________, 2018
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Name:
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Title:
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Exhibit 10.24
The
CORPORATEplan for RetirementSM
EXECUTIVE
PLAN
BASIC PLAN DOCUMENT
CORPORATEplan
for Retirement EXECUTIVE
BASIC PLAN DOCUMENT
ARTICLE 1
ADOPTION AGREEMENT
ARTICLE 2
DEFINITIONS
2.01 - Definitions
ARTICLE 3
PARTICIPATION
3.01 - Date of Participation
3.02 - Resumption of Participation Following Re
employment
3.03 - Cessation or Resumption of Participation Following
a Change in Status
ARTICLE 4
CONTRIBUTIONS
4.01 - Deferral Contributions
4.02 - Matching Contributions
4.03 - Employer Contributions
4.04 - Time of Making Contributions
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 - Individual Accounts
ARTICLE 6
INVESTMENT OF CONTRIBUTIONS
6.01 - Manner of Investment
6.02 - Investment Decisions
ARTICLE 7
RIGHT TO BENEFITS
7.01 - Normal or Early Retirement
7.02 - Death
7.03 - Other Termination of Employment
7.04 - Separate Account
7.05 - Forfeitures
7.06 - Adjustment for Investment Experience
7.07 - Unforeseeable Emergency Withdrawals
7.08 - Change in Control
ARTICLE 8
DISTRIBUTION OF BENEFITS PAYABLE AFTER TERMINATION
OF SERVICE
8.01 - Distribution of Benefits to Participants
and Beneficiaries
8.02 - Determination of Method of Distribution
8.03 - Notice to Trustee
8.04 - Time of Distribution
ARTICLE 9
AMENDMENT AND TERMINATION
9.01 - Amendment by Employer
9.02 - Retroactive Amendments
9.03 - Termination
9.04 - Distribution Upon Termination of the Plan
ARTICLE 10
MISCELLANEOUS
10.01 - Communication to Participants
10.02 - Limitation of Rights
10.03 - Nonalienability of Benefits
10.04 - Facility of Payment
10.05 - Information between Employer and Trustee
10.06 - Notices
10.07 - Governing Law
ARTICLE 11
PLAN ADMINISTRATION
11.01 - Powers and responsibilities of the Administrator
11.02 - Nondiscriminatory Exercise of Authority
11.03 - Claims and Review Procedures
PREAMBLE
It is the intention of the Employer to establish herein an
unfunded plan maintained solely for the purpose of providing deferred compensation for a select group of management or highly compensated
employees as provided in ERISA.
Article 1. Adoption Agreement.
Article 2. Definitions.
(a) Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:
(1) "Account"
means an account established on the books of the Employer for the purpose of recording amounts credited on behalf of a Participant
and any income, expenses, gains or losses included thereon.
(2) "Administrator"
means the Employer adopting this Plan, or other person designated by the Employer in Section 1.01(b).
(3) "Adoption
Agreement" means Article 1, under which the Employer establishes and adopts or amends the Plan and designates the optional
provisions selected by the Employer. The provisions of the Adoption Agreement shall be an integral part of the Plan.
(4) "Beneficiary"
means the person or persons entitled under Section 7.02 to receive benefits under the Plan upon the death of a Participant.
(5) “Bonus”
means any performance-based Compensation based on services performed for the Employer over a period of at least 12 months.
(6) “Change
of Control” means a change in the ownership or effective control of the Employer, or a substantial portion of the Employer’s
assets as defined in the regulations under Code Section 409A.
(7) "Code" means the Internal Revenue Code of 1986, as amended from time to time.
(8) "Compensation"
means for purposes of Article 4 (Contributions) wages as defined in Section 3401(a) of the Code and all other payments
of compensation to an employee by the Employer (in the course of the Employer’s trade or business) for which the Employer
is required to furnish the employee a written statement under Section 6041(d) and 6051(a)(3) of the Code, excluding
any items elected by the Employer in Section 1.04, reimbursements or other expense allowances, fringe benefits (cash and
non-cash), moving expenses, deferred compensation and welfare benefits, but including amounts that are not includable in the gross
income of the Participant under a salary reduction agreement by reason of the application of Sections 125, 132(f)(4), 402(e)(3),
402(h) or 403(b) of the Code. Compensation shall be determined without regard to any rules under Section 3401(a) of
the Code that limit the remuneration included in wages based on the nature or location of the employment or the services performed
(such as the exception for agricultural labor in Section 3401(a)(2) of the Code).
Compensation shall also include amounts
deferred pursuant to an election under Section 4.01.
In the case of any Self-Employed Individual
or an Owner-Employee, Compensation means the Self-Employed Individual's Earned Income.
(9) "Earned
Income" means the net earnings of a Self-Employed Individual derived from the trade or business with respect to which the
Plan is established and for which the personal services of such individual are a material income-providing factor, excluding any
items not included in gross income and the deductions allocated to such items, except that for taxable years beginning after December 31,
1989 net earnings shall be determined with regard to the deduction allowed under Section 164(f) of the Code, to the extent
applicable to the Employer. Net earnings shall be reduced by contributions of the Employer to any qualified plan, to the extent
a deduction is allowed to the Employer for such contributions under Section 404 of the Code.
(10) "Employee"
means any employee of the Employer, Self-Employed Individual or Owner-Employee.
(11) "Employer"
means the employer named in Section 1.02(a) and any Related Employers designated in Section 1.02(b).
(12) "Employment
Commencement Date" means the date on which the Employee first performs an Hour of Service.
(13) “Entry Date” means the date(s) designated in Section 1.03(b).
(14) "ERISA"
means the Employee Retirement Income Security Act of 1974, as from time to time amended.
(15) "Fund
Share" means the share, unit, or other evidence of ownership in a Permissible Investment.
(16) "Hour of Service" means, with respect to any Employee,
(A) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, for the performance of duties for the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period in which the duties were performed;
(B) Each hour for which the Employee is directly or indirectly paid, or entitled to payment, by the Employer or Related Employer (including payments made or due from a trust fund or insurer to which the Employer contributes or pays premiums) on account of a period of time during which no duties are performed (irrespective of whether the employ-ment relationship has terminated) due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence, each such hour to be credited to the Employee for the Eligibility Computation Period in which such period of time occurs, subject to the following rules:
(i) No
more than 501 Hours of Service shall be credited under this paragraph (B) on account of any single continuous period during
which the Employee performs no duties;
(ii) Hours
of Service shall not be credited under this paragraph (B) for a payment which solely reimburses the Employee for medically-related
expenses, or which is made or due under a plan maintained solely for the purpose of complying with applicable workmen's compensation,
unemployment compensation or disability insurance laws; and
(iii) If
the period during which the Employee performs no duties falls within two or more computation periods and if the payment made on
account of such period is not calculated on the basis of units of time, the Hours of Service credited with respect to such period
shall be allocated between not more than the first two such computation periods on any reasonable basis consistently applied with
respect to similarly situated Employees; and
(C) Each hour not counted under paragraph (A) or (B) for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to be paid by the Employer or a Related Employer, each such hour to be credited to the Employee for the computation period to which the award or agreement pertains rather than the computation period in which the award agreement or payment is made.
For purposes
of determining Hours of Service, Employees of the Employer and of all Related Employers will be treated as employed by a single
employer. For purposes of paragraphs (B) and (C) above, Hours of Service will be calculated in accordance with the provisions
of Section 2530.200b-2(b) of the Department of Labor regulations, which are incorporated herein by reference.
Solely
for purposes of determining whether a break in service for participation purposes has occurred in a computation period, an
individual who is absent from work for maternity or paternity reasons shall receive credit for the hours of service which
would otherwise been credited to such individual but for such absence, or in any case in which such hours cannot be
determined, 8 hours of service per day of such absence. For purposes of this paragraph, an absence from work for maternity
reasons means an absence (1) by reason of the pregnancy of the individual, (2) by reason of a birth of a child of
the individual, (3) by reason of the placement of a child with the individual in connection with the adoption of such
child by such individual, or (4) for purposes of caring for such child for a period beginning immediately following such
birth or placement. The hours of service credited under this paragraph shall be credited (1) in the computation period
in which the absence begins if the crediting is necessary to prevent a break in service in that period, or (2) in all
other cases, in the following computation period.
(17) “Key
Employee” means a Participant who is key employee pursuant to Code Section 416(i), without regard to paragraph (5) thereof.
A Participant will not be considered a Key Employee unless the Employer is a corporation which has any of its stock publicly traded
according to Code Section 409A and regulations thereunder.
(18) "Normal
Retirement Age" means the normal retirement age specified in Section 1.07(f) of the Adoption Agreement.
(19) "Owner-Employee"
means, if the Employer is a sole proprietorship, the individual who is the sole proprietor, or, if the Employer is a partnership,
a partner who owns more than 10 percent of either the capital interest or the profits interest of the partnership.
(20) "Participant"
means any Employee who participates in the Plan in accordance with Article 3 hereof.
(21) "Permissible
Investment" means the investments specified by the Employer as available for investment of assets of the Trust and agreed
to by the Trustee. The Permissible Investments under the Plan shall be listed in the Service Agreement.
(22) "Plan"
means the plan established by the Employer as set forth herein as a new plan or as an amendment to an existing plan, by executing
the Adoption Agreement, together with any and all amendments hereto.
(23) "Plan
Year" means the 12-consecutive-month period designated by the Employer in Section 1.01(c).
(24) "Related
Employer" means any employer other than the Employer named in Section 1.02(a), if the Employer and such other employer
are members of a controlled group of corporations (as defined in Section 414(b) of the Code) or an affiliated service
group (as defined in Section 414(m)), or are trades or businesses (whether or not incorporated) which are under common control
(as defined in Section 414(c)), or such other employer is required to be aggregated with the Employer pursuant to regulations
issued under Section 414(o).
(25) "Self-Employed
Individual" means an individual who has Earned Income for the taxable year from the Employer or who would have had Earned
Income but for the fact that the trade or business had no net profits for the taxable year.
(26) “Service
Agreement” means the agreement between the Employer and Trustee regarding the arrangement between the parties for recordkeeping
services with respect to the Plan.
(27) "Trust" means the trust created by the Employer.
(28) "Trust
Agreement" means the agreement between the Employer and the Trustee, as set forth in a separate agreement, under which assets
are held, administered, and managed subject to the claims of the Employer's creditors in the event of the Employer's insolvency,
until paid to Plan Participants and their Beneficiaries as specified in the Plan.
(29) "Trust Fund" means the property held in the Trust by the Trustee.
(30) "Trustee"
means the corporation or individual(s) appointed by the Employer to administer the Trust in accordance with the Trust Agreement.
(31) "Years
of Service for Vesting" means, with respect to any Employee, the number of whole years of his periods of service with the
Employer or a Related Employer (the elapsed time method to compute vesting service), subject to any exclusions elected by the Employer
in Section 1.07(c). An Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's
Employment Commencement Date and ending on the date a break in service begins, unless any such years are excluded by Section 1.07(c).
An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year
will be expressed in terms of days.
In the case of a Participant
who has 5 consecutive 1-year breaks in service, all years of service after such breaks in service will be disregarded for the purpose
of vesting the Employer-derived account balance that accrued before such breaks, but both pre-break and post-break service will
count for the purposes of vesting the Employer -derived account balance that accrues after such breaks. Both accounts will share
in the earnings and losses of the fund.
In the case of a Participant
who does not have 5 consecutive 1-year breaks in service, both the pre-break and post-break service will count in vesting both
the pre-break and post-break employer-derived account balance.
A break
in service is a period of severance of at least 12 consecutive months. Period of severance is a continuous period of time during
which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged,
or if earlier, the 12-month anniversary of the date on which the Employee was otherwise first absent from service.
In the case
of an individual who is absent from work for maternity or paternity reasons, the 12-consecutive month period beginning on the first
anniversary of the first date of such absence shall not constitute a break in service. For purposes of this paragraph, an absence
from work for maternity or paternity reasons means an absence (1) by reason of the pregnancy of the individual, (2) by
reason of the birth of a child of the individual, (3) by reason of the placement of a child with the individual in connection
with the adoption of such child by such individual, or (4) for purposes of caring for such child for a period beginning immediately
following such birth or placement.
If the Plan
maintained by the Employer is the plan of a predecessor employer, an Employee's Years of Service for Vesting shall include years
of service with such predecessor employer. In any case in which the Plan maintained by the Employer is not the plan maintained
by a predecessor employer, service for such predecessor shall be treated as service for the Employer to the extent provided in
Section 1.08.
(b) Pronouns used in the Plan are in the masculine
gender but include the feminine gender unless the context clearly indicates otherwise.
Article 3. Participation.
3.01.
Date of Participation. An eligible Employee (as set forth in Section 1.03(a)) who has filed an election
pursuant to Section 4.01 will become a Participant in the Plan on the first Entry Date coincident with or following the date
on which such election would otherwise become effective, as determined under Section4.01.
3.02.
Resumption of Participation Following Reemployment. If a Participant ceases to be an Employee and thereafter
returns to the employ of the Employer he will again become a Participant as of an Entry Date following the date on which he completes
an Hour of Service for the Employer following his re employment, if he is an eligible Employee as defined in Section 1.03(a),
and has filed an election pursuant to Section 4.01.
3.03.
Cessation or Resumption of Participation Following a Change in Status. If any Participant continues in the employ
of the Employer or Related Employer but ceases to be an eligible Employee as defined in Section 1.03(a), the individual shall
continue to be a Participant until the entire amount of his benefit is distributed; however, the individual shall not be entitled
to make Deferral Contributions or receive an allocation of Matching or Employer Contributions during the period that he is not
an eligible Employee. Such Participant shall continue to receive credit for service completed during the period for purposes of
determining his vested interest in his Accounts. In the event that the individual subsequently again becomes an eligible Employee,
the individual shall resume full participation in accordance with Section 3.01.
Article 4. Contributions.
4.01. Deferral
Contributions. Each Participant may elect to execute a salary reduction agreement with the Employer to reduce
his Compensation by a specified percentage, not exceeding the percentage set forth in Section 1.05(a) and equal to
a whole number multiple of one (1) percent, per payroll period, subject to any election regarding Bonuses, as set out in
Subsection 1.05(a)(2). Such agreement shall become effective on the first day of the period as set forth in the Participant's
election. The election will be effective to defer Compensation relating to all services performed in a calendar year
subsequent to the filing of such an election, subject to any election regarding Bonuses, as set out in Subsection 1.05(a)(2).
An election once made will remain in effect until a new election is made; provided, however that such an election choosing a
distribution date pursuant to 1.06(b)(1)(B) will only be effective for the Plan Year indicated. A new election will be
effective as of the first day of the following calendar year and will apply only to Compensation payable with respect to
services rendered after such date, except that a separate election made pursuant to Section 1.05(a)(2) will be
effective immediately if made no later than 6 months before the end of the period during which the services on which the
Bonus is based are performed. If the Employer has selected 1.05(a)(2), no amount will be deducted from Bonuses unless the
Participant has made a separate election. Amounts credited to a Participant's account prior to the effective date of any new
election will not be affected and will be paid in accordance with that prior election. The Employer shall credit an amount to
the account maintained on behalf of the Participant corresponding to the amount of said reduction. Under no circumstances may
a salary reduction agreement be adopted retroactively. To the extent permitted in regulations under Code Section 409A, a
Participant may revoke a salary reduction agreement for a calendar year during that year, provided, however, that such
revocation shall apply only to Compensation not yet earned. In that event, the Participant shall be precluded from electing
to defer future Compensation hereunder during the calendar year to which the revocation applies. Notwithstanding the above,
in the calendar year in which the Plan first becomes effective or in the year in which the Participant first becomes eligible
to participate, an election to defer compensation may be made within 30 days after the Participant is first eligible or the
Plan is first effective, which election shall be effective with respect to Compensation payable with respect to services
rendered after the date of the election.
4.02.
Matching Contributions. If so provided by the Employer in Section 1.05(b), the Employer shall make a “Matching
Contribution” to be credited to the account maintained on behalf of each Participant who had “Deferral Contributions”
pursuant to Section 4.01 made on his behalf during the year and who meets the requirement, if any, of Section 1.05(b)(3).
The amount of the “Matching Contribution” shall be determined in accordance with Section 1.05(b).
4.03.
Employer Contributions. If so provided by the Employer in Section 1.05(c)(1), the Employer shall make an
“Employer Contribution” to be credited to the account maintained on behalf of each Participant who meets the requirement,
if any, of Section 1.05(c)(3) in the amount required by Section 1.05(c)(1). If so provided by the Employer in Section 1.05(c)(2),
the Employer may make an “Employer Contribution” to be credited to the account maintained on behalf of any Participant
in such an amount as the Employer, in its sole discretion, shall determine. In making “Employer Contributions” pursuant
to Section 1.05(c)(2), the Employer shall not be required to treat all Participants in the same manner in determining such
contributions and may determine the “Employer Contribution” of any Participant to be zero.
4.04.
Time of Making Contributions. The Employer shall remit contributions deemed made hereunder to the Trust as soon
as practicable after such contributions are deemed made under the terms of the Plan.
Article 5. Participants' Accounts.
5.01.
Individual Accounts . The Administrator will establish and maintain an Account for each Participant, which will
reflect Matching, Employer and Deferral Contributions credited to the Account on behalf of the Participant and earnings, expenses,
gains and losses credited thereto, and deemed investments made with amounts in the Participant's Account. The Administrator will
establish and maintain such other accounts and records as it decides in its discretion to be reasonably required or appropriate
in order to discharge its duties under the Plan. Participants will be furnished statements of their Account values at least once
each Plan Year. The Administrator shall provide the Trustee with information on the amount credited to the separate account of
each Participant maintained by the Administrator in its records.
Article 6. Investment of Contributions.
6.01.
Manner of Investment. All amounts credited to the Accounts of
Participants shall be treated as though invested and reinvested only in eligible investments selected by the Employer in the Service
Agreement.
6.02.
Investment Decisions. Investments in which the Accounts of Participants shall be treated as invested and reinvested
shall be directed by the Employer or by each Participant, or both, in accordance with the Employer's election in Section 1.11(a).
(a) All dividends, interest, gains and distributions of any nature that would be earned in respect of Fund Shares in which the Account is treated as investing shall be credited to the Account as though reinvested in additional shares of that Permissible Investment.
(b) Expenses that would be attributable to the acquisition of investments shall be charged to the Account of the Participant for which such investment is treated as having been made.
Article 7. Right to Benefits.
7.01.
Normal or Early Retirement. If provided by the Employer in Section 1.07(e), each Participant who attains
his Normal Retirement Age or Early Retirement Age will have a nonforfeitable interest in his Account in accordance with the vesting
schedule(s) elected in Section 1.07. If a Participant retires on or after attainment of Normal or Early Retirement Age,
such retirement is referred to as a normal retirement. On or after his normal retirement, the balance of the Participant's Account,
plus any amounts thereafter credited to his Account, subject to the provisions of Section 7.06, will be distributed to him
in accordance with Article 8.
If provided by the
Employer in Section 1.07, a Participant who separates from service before satisfying the age requirements for early retirement,
but has satisfied the service requirement will be entitled to the distribution of his Account, subject to the provisions of Section 7.06,
in accordance with Article 8, upon satisfaction of such age requirement.
7.02.
Death. If a Participant dies before the distribution of his Account has commenced, or before such distribution
has been completed, his Account shall become vested in accordance with the vesting schedule(s) elected in Section 1.07
and his designated Beneficiary or Beneficiaries will be entitled to receive the balance or remaining balance of his Account, plus
any amounts thereafter credited to his Account, subject to the provisions of Section 7.06. Distribution to the Beneficiary
or Beneficiaries will be made in accordance with Article 8. A distribution to a beneficiary of a Key Employee is not considered
to be a distribution to a Key Employee for purposes of Sections 1.06 and 7.08.
A Participant may designate
a Beneficiary or Beneficiaries, or change any prior designation of Beneficiary or Beneficiaries, by giving notice to the Administrator
on a form designated by the Administrator. If more than one person is designated as the Beneficiary, their respective interests
shall be as indicated on the designation form.
A copy of the death
certificate or other sufficient documentation must be filed with and approved by the Administrator. If upon the death of the Participant
there is, in the opinion of the Administrator, no designated Beneficiary for part or all of the Participant's Account, such amount
will be paid to his surviving spouse or, if none, to his estate (such spouse or estate shall be deemed to be the Beneficiary for
purposes of the Plan). If a Beneficiary dies after benefits to such Beneficiary have commenced, but before they have been completed,
and, in the opinion of the Administrator, no person has been designated to receive such remaining benefits, then such benefits
shall be paid to the deceased Beneficiary's estate.
7.03. Other
Termination of Employment. If provided by the Employer in Section 1.07, if a Participant terminates his
employment for any reason other than death or normal retirement, he will be entitled to a termination benefit equal to
(i) the vested percentage(s) of the value of the Matching and Employer Contributions to his Account, as adjusted
for income, expense, gain, or loss, such percentage(s) determined in accordance with the vesting
schedule(s) selected by the Employer in Section 1.07, and (ii) the value of the Deferral Contributions to his
Account as adjusted for income, expense, gain or loss. The amount payable under this Section 7.03 will be subject to the
provisions of Section 7.06 and will be distributed in accordance with Article 8. For purposes of the Plan, a
termination of employment is a separation from service as defined pursuant to Code Section 409A and regulations
thereunder.
7.04.
Separate Account. If a distribution from a Participant's Account has been made to him at a time when he has a
nonforfeitable right to less than 100 percent of his Account, the vesting schedule in Section 1.07 will thereafter apply only
to amounts in his Account attributable to Matching and Employer Contributions allocated after such distribution. The balance of
his Account immediately after such distribution will be transferred to a separate account that will be maintained for the purpose
of determining his interest therein according to the following provisions.
At any relevant time
prior to a forfeiture of any portion thereof under Section 7.05, a Participant's nonforfeitable interest in his Account held
in a separate account described in the preceding paragraph will be equal to P(AB + (RxD))-(RxD), where P is the nonforfeitable
percentage at the relevant time determined under Section 7.05; AB is the account balance of the separate account at the relevant
time; D is the amount of the distribution; and R is the ratio of the account balance at the relevant time to the account balance
after distribution. Following a forfeiture of any portion of such separate account under Section 7.05 below, any balance in
the Participant's separate account will remain fully vested and nonforfeitable.
7.05.
Forfeitures. If a Participant terminates his employment, any portion of his Account (including any amounts credited
after his termination of employment) not payable to him under Section 7.03 will be forfeited by him.
7.06.
Adjustment for Investment Experience. If any distribution under this Article 7 is not made in a single payment,
the amount remaining in the Account after the distribution will be subject to adjustment until distributed to reflect the income
and gain or loss on the investments in which such amount is treated as invested and any expenses properly charged under the Plan
to such amounts.
7.07.
Unforeseeable Emergency Withdrawals. Subject to the provisions of Article 8, a Participant shall not be
permitted to withdraw his Account (and earnings thereon) prior to retirement or termination of employment, except that, to the
extent permitted under Section 1.09, a Participant may apply to the Administrator to withdraw some or all of his Account if
such withdrawal is made on account of an unforeseeable emergency as determined by the Administrator in accordance with the requirements
of and subject to the limitations provided within Code Section 409A and regulations thereunder.
7.08.
Change in Control Distributions. If the Employer has elected to apply Section 1.06(c), then, upon a Change
in Control, notwithstanding any other provision of the Plan to the contrary, all Participants shall have a nonforfeitable right
to receive the entire amount of their account balances under the Plan. All distributions due to a Change in Control shall be paid
out to Participants as soon as administratively practicable, except that any such distribution to a Key Employee who has terminated
employment pursuant to Section 7.03 shall not be earlier than the 1st day of the seventh month following that Key Employee’s
termination of employment.
Article 8. Distribution of Benefits.
8.01.
Form of Distribution of Benefits to Participants and Beneficiaries. The Plan provides for distribution as
a lump sum to be paid in cash on the date specified by the Employer in Section 1.06 pursuant to the method provided in Section 8.02.
If elected by the Employer in Section 1.10 and specified in the Participant's deferral election, the distribution will be
paid through a systematic withdrawal plan (installments) for a time period not exceeding 10 years beginning on the date specified
by the Employer in Section 1.06.
8.02. Events Requiring Distribution of Benefits to Participants
and Beneficiaries.
(a) If
elected by the Employer in Section 1.06(a), the Participant will receive a distribution upon the earliest of the events specified
by the Employer in Section 1.06(a), subject to the provisions of Section 7.08, and at the time indicated in Section 1.06(a)(2).
If the Participant dies before any event in Section 1.06(a) occurs, the Participant shall be considered to have terminated
employment and the Participant’s benefit will be paid to the Participant’s Beneficiary in the same form and at the
same time as it would have been paid to the Participant pursuant to this Article 8.
(b) If
elected by the Employer in Section 1.06(b), the Participant will receive a distribution of all amounts not deferred pursuant
to Section 1.06(b)(1)(B) (and earnings attributable to those amounts) upon termination of employment, subject to the
delay applicable to Key Employees described therein, as applicable. If elected by the Employer in Section 1.06(b)(1)(B), the
Participant shall have the election to receive distributions of amounts deferred pursuant to Section 4.01 (and earnings attributable
to those amounts) after a date specified by the Participant in his deferral election which is at least 12 months after the first
day of the calendar year in which such amounts would be earned. Amounts distributed to the Participant pursuant to Section 1.06(b) shall
be distributed at the time indicated in Section 1.06(b)(2). Subject to the provisions of Section 7.08, the Participant
shall receive a distribution in the form provided in Section 8.01. If the Participant dies before any event in Section 1.06(a) occurs,
the Participant shall be considered to have terminated employment and the Participant’s benefit will be paid to the Participant’s
Beneficiary in the same form and at the same time as it would have been paid to the Participant pursuant to this Article 8.
However, if the Participant dies before the date specified by the Participant in an election pursuant to Section 1.06(b)(1)(B),
then the Participant’s benefit shall be paid to the Participant’s Beneficiary in the form provided in Section 8.01
as if the Participant had elected to be paid at termination of employment.
8.03. Determination
of Method of Distribution. The Participant will determine the method of distribution of benefits to himself and
his Beneficiary, subject to the provisions of Section 8.02. Such determination will be made at the time the Participant makes
a deferral election. A Participant's election cannot be altered, except, if elected by the Employer in Section 1.10(b), if
the Participant's balance falls below the level described in regulations under Code Section 409A, the Participant's benefit
payable due to termination of employment will be distributed in a lump sum rather than installments.
(a) When Section 1.06(a) has been elected by the Employer. The distribution period specified in a Participant's first deferral election specifying distribution under a systematic withdrawal plan shall apply to all subsequent elections of distributions under a systematic withdrawal plan made by the Participant. Once a Participant has made an election for the method of distribution, that election shall be effective for all contributions made on behalf of the Participant attributable to any Plan Year after that election was made and before the Plan Year for which that election has been altered in the manner prescribed by the Administrator. If the Participant does not designate in the manner prescribed by the Administrator the method of distribution, such method of distribution shall be a lump sum at termination of employment.
(b) When Section 1.06(b) has been elected by the Employer. The distribution period for distributions under a systematic withdrawal plan shall be specified in each Participant's contribution election selecting payments under a systematic withdrawal plan. If the Participant does not designate in the manner prescribed by the Administrator the method of distribution, such method of distribution for all such contributions shall be a lump sum at termination of employment.
8.04.
Notice to Trustee. The Administrator will notify the Trustee, pursuant to the method stated in the Trust Agreement
for providing direction, whenever any Participant or Beneficiary is entitled to receive benefits under the Plan. The Administrator's
notice shall indicate the form, amount and frequency of benefits that such Participant or Beneficiary shall receive.
8.05. Time
of Distribution. In no event will distribution to a Participant be made later than the date specified by the
Participant in his salary reduction agreement. All distributions will be made as soon as administratively feasible following
the distribution date specified in Section 1.06 or Section 7.08, if applicable.
Article 9. Amendment and Termination.
9.01
Amendment by Employer. The Employer reserves the authority to amend the Plan by filing with the Trustee an amended
Adoption Agreement, executed by the Employer only, on which said Employer has indicated a change or changes in provisions previously
elected by it. Such changes are to be effective on the effective date of such amended Adoption Agreement. Any such change notwithstanding,
no Participant's Account shall be reduced by such change below the amount to which the Participant would have been entitled if
he had voluntarily left the employ of the Employer immediately prior to the date of the change. The Employer may from time to time
make any amendment to the Plan that may be necessary to satisfy the Code or ERISA. The Employer's board of directors or other individual
specified in the resolution adopting this Plan shall act on behalf of the Employer for purposes of this Section 9.01.
9.02
Retroactive Amendments. An amendment made by the Employer in accordance with Section 9.01 may be made effective
on a date prior to the first day of the Plan Year in which it is adopted if such amendment is necessary or appropriate to enable
the Plan and Trust to satisfy the applicable requirements of the Code or ERISA or to conform the Plan to any change in federal
law or to any regulations or ruling thereunder. Any retroactive amendment by the Employer shall be subject to the provisions of
Section 9.01.
9.03.
Termination. The Employer has adopted the Plan with the intention and expectation that contributions will be
continued indefinitely. However, said Employer has no obligation or liability whatsoever to maintain the Plan for any length of
time and may discontinue contributions under the Plan or terminate the Plan at any time by written notice delivered to the Trustee
without any liability hereunder for any such discontinuance or termination.
9.04.
Distribution upon Termination of the Plan. Upon termination of the Plan, no further Deferral, Employer or Matching
Contributions shall be made under the Plan, but Accounts of Participants maintained under the Plan at the time of termination shall
continue to be governed by the terms of the Plan until paid out in accordance with the terms of the Plan.
Article 10. Miscellaneous.
10.01.
Communication to Participants. The Plan will be communicated to all Participants by the Employer promptly after
the Plan is adopted.
10
02. Limitation of Rights. Neither the establishment of the Plan and the Trust, nor any amendment thereof, nor
the creation of any fund or account, nor the payment of any benefits, will be construed as giving to any Participant or other person
any legal or equitable right against the Employer, Administrator or Trustee, except as provided herein; and in no event will the
terms of employment or service of any Participant be modified or in any way affected hereby.
10.03.
Nonalienability of Benefits. The benefits provided hereunder will not be subject to alienation, assignment, garnishment,
attachment, execution or levy of any kind, either voluntarily or involuntarily, and any attempt to cause such benefits to be so
subjected will not be recognized, except to such extent as may be required by law.
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04. Facility of Payment. In the event the Administrator determines, on the basis of medical reports or other
evidence satisfactory to the Administrator, that the recipient of any benefit payments under the Plan is incapable of handling
his affairs by reason of minority, illness, infirmity or other incapacity, the Administrator may disburse such payments, or direct
the Trustee to disburse such payments, as applicable, to a person or institution designated by a court which has jurisdiction
over such recipient or a person or institution otherwise having the legal authority under State law for the care and control of
such recipient. The receipt by such person or institution of any such payments shall be complete acquittance therefore, and any
such payment to the extent thereof, shall discharge the liability of the Trust for the payment of benefits hereunder to such recipient.
10.05.
Information between Employer and Trustee. The Employer agrees to furnish the Trustee, and the Trustee agrees
to furnish the Employer with such information relating to the Plan and Trust as may be required by the other in order to carry
out their respective duties hereunder, including without limitation information required under the Code or ERISA and any regulations
issued or forms adopted thereunder.
10.06.
Notices. Any notice or other communication in connection with this Plan shall be deemed delivered in writing
if addressed as provided below and if either actually delivered at said address or, in the case of a letter, three business days
shall have elapsed after the same shall have been deposited in the United States mails, first-class postage prepaid and registered
or certified:
(a) If
to the Employer or Administrator, to it at the address set forth in the Adoption Agreement, to the attention of the person specified
to receive notice in the Adoption Agreement;
(b) If to the Trustee, to it at the address set forth in the Trust Agreement;
or, in each case at such other address
as the addressee shall have specified by written notice delivered in accordance with the foregoing to the addressor's then effective
notice address.
10.07.
Governing Law. The Plan and the accompanying Adoption Agreement will be construed, administered and enforced
according to ERISA, and to the extent not preempted thereby, the laws of the Commonwealth of Massachusetts, without regard to its
conflicts of law principles.
Article 11. Plan Administration.
11.01.
Powers and responsibilities of the Administrator . The Administrator has the full power and the full responsibility
to administer the Plan in all of its details, subject, however, to the applicable requirements of ERISA. The Administrator's powers
and responsibilities include, but are not limited to, the following:
(a) To
make and enforce such rules and regulations as it deems necessary or proper for the efficient administration of the Plan;
(b) To
interpret the Plan, its interpretation thereof in good faith to be final and conclusive on all persons claiming benefits under
the Plan;
(c) To
decide all questions concerning the Plan and the eligibility of any person to participate in the Plan;
(d) To administer the claims and review procedures specified in Section 11.03;
(e) To
compute the amount of benefits which will be payable to any Participant, former Participant or Beneficiary in accordance with the
provisions of the Plan;
(f) To determine the person or persons to whom such benefits will be paid;
(g) To authorize the payment of benefits;
(h) To
comply with any applicable reporting and disclosure requirements of Part 1 of Subtitle B of Title I of ERISA;
(i) To
appoint such agents, counsel, accountants, and consultants as may be required to assist in administering the Plan;
(j) By
written instrument, to allocate and delegate its responsibilities, including the formation of an Administrative Committee to administer
the Plan;
11.02. Nondiscriminatory
Exercise of Authority. Whenever, in the administration of the Plan, any discretionary action by the Administrator
is required, the Administrator shall exercise its authority in a nondiscriminatory manner so that all persons similarly situated
will receive substantially the same treatment.
11.03. Claims and Review Procedures.
(a) Claims
Procedure. If any person believes he is being denied any rights or benefits under the Plan, such person may file a claim in
writing with the Administrator. If any such claim is wholly or partially denied, the Administrator will notify such person of its
decision in writing. Such notification will contain (i) specific reasons for the denial, (ii) specific reference to pertinent
Plan provisions, (iii) a description of any additional material or information necessary for such person to perfect such claim
and an explanation of why such material or information is necessary, and (iv) information as to the steps to be taken if the
person wishes to submit a request for review, including a statement of the such person’s right to bring a civil action under
Section 502(a) of ERISA following as adverse determination upon review. Such notification will be given within 90 days
after the claim is received by the Administrator (or within 180 days, if special circumstances require an extension of time for
processing the claim, and if written notice of such extension and circumstances is given to such person within the initial 90-day
period).
If the claim
concerns disability benefits under the Plan, the Plan Administrator must notify the claimant in writing within 45 days after the
claim has been filed in order to deny it. If special circumstances require an extension of time to process the claim, the Plan
Administrator must notify the claimant before the end of the 45-day period that the claim may take up to 30 days longer to process.
If special circumstances still prevent the resolution of the claim, the Plan Administrator may then only take up to another 30
days after giving the claimant notice before the end of the original 30-day extension. If the Plan Administrator gives the claimant
notice that the claimant needs to provide additional information regarding the claim, the claimant must do so within 45 days of
that notice.
(b) Review Procedure.
Within 60 days after the date on which a person receives a written notice of a denied claim (or, if applicable, within 60 days
after the date on which such denial is considered to have occurred), such person (or his duly authorized representative) may (i) file
a written request with the Administrator for a review of his denied claim and of pertinent documents and (ii) submit written
issues and comments to the Administrator. This written request may include comments, documents, records, and other information
relating to the claim for benefits. The claimant shall be provided, upon the claimant’s request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for benefits. The review will take
into account all comments, documents, records, and other information submitted by the claimant relating to the claim, without
regard to whether such information was submitted or considered in the initial benefit determination. The Administrator will notify
such person of its decision in writing. Such notification will be written in a manner calculated to be understood by such person
and will contain specific reasons for the decision as well as specific references to pertinent Plan provisions. The decision on
review will be made within 60 days after the request for review is received by the Administrator (or within 120 days, if special
circumstances require an extension of time for processing the request, such as an election by the Administrator to hold a hearing,
and if written notice of such extension and circumstances is given to such person within the initial 60-day period). The extension
notice shall indicate the special circumstances requiring an extension of time and the date by which the Plan expects to render
the determination on review.
If the initial claim
was for disability benefits under the Plan and has been denied by the Plan Administrator, the claimant will have 180 days from
the date the claimant received notice of the claim’s denial in which to appeal that decision. The review will be handled
completely independently of the findings and decision made regarding the initial claim and will be processed by an individual who
is not a subordinate of the individual who denied the initial claim. If the claim requires medical judgment, the individual handling
the appeal will consult with a medical professional whom was not consulted regarding the initial claim and who is not a subordinate
of anyone consulted regarding the initial claim and identify that medical professional to the claimant.
The Plan Administrator
shall provide the claimant with written notification of a plan’s benefit determination on review. In the case of an adverse
benefit determination, the notification shall set forth, in a manner calculated to be understood by the claimant – the specific
reason or reasons for the adverse determinations, reference to the specific plan provisions on which the benefit determination
is based, a statement that the claimant is entitled to receive, upon the claimant’s request and free of charge, reasonable
access to, and copies of, all documents, records, and other information relevant to the claim for benefits.
Exhibit 10.25
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this “Agreement”)
is made and entered into as of [●], 2021, by and among Hayward Holdings, Inc.,
a Delaware corporation (the “Company”), and [NAME OF DIRECTOR/OFFICER]
(“Indemnitee”).
WHEREAS, in light of the litigation costs
and risks to directors and officers resulting from their service to companies, and the desire of the Company to attract and retain
qualified individuals to serve as directors and officers, it is reasonable, prudent and necessary for the Company to indemnify
and advance expenses on behalf of the Company’s directors and/or officers to the fullest extent permitted by Delaware corporate
law so that they will serve or continue to serve the Company free from undue concern regarding such risks;
WHEREAS, the Company has requested that
Indemnitee serve or continue to serve as a director and/or officer of the Company and may have requested or may in the future request
that Indemnitee serve one or more Hayward Entities (as hereinafter defined) as a director or an officer or in other capacities;
WHEREAS, one of the conditions that Indemnitee
requires in order to serve as a director and/or officer of the Company is that Indemnitee be so indemnified; and
WHEREAS, Indemnitee may have certain
rights to indemnification, advancement of expenses and/or insurance provided by one or more of the Affiliate Indemnitors (as hereinafter
defined) (or their affiliates) and/or any insurer providing insurance coverage under any policy purchased or maintained by such
Affiliate Indemnitors (or their affiliates), which Indemnitee, the Company and the Affiliate Indemnitors (or their affiliates)
intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Company’s
acknowledgement of and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve as a director
and/or officer the Company.
NOW, THEREFORE, in consideration of the
premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
1. Services
by Indemnitee. Indemnitee agrees to serve as a director and/or officer of the Company. Indemnitee may at any time and for any
reason resign from such position (subject to any contractual obligation the Indemnitee may have under any other agreement).
2. Indemnification
- General. On the terms and subject to the conditions of this Agreement, the Company shall, to the fullest extent permitted
by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless from and against, all losses, damages, liabilities,
judgments, fines, penalties, costs, amounts paid in settlement, Expenses (as hereinafter defined) and other amounts that Indemnitee
reasonably incurs and that result from, arise in connection with or are by reason of Indemnitee’s Corporate Status (as hereinafter
defined) and shall advance Expenses to Indemnitee. The obligations of the Company shall continue after such time as Indemnitee
ceases to serve as a director and/or officer of the Company or in any other Corporate Status and include, without limitation, claims
for monetary damages against Indemnitee in respect of any actual or alleged liability or other loss of Indemnitee, to the fullest
extent permitted under Delaware corporate law (including, if applicable, Section 145 of the Delaware General Corporation Law)
as in existence on the date hereof and as amended from time to time.
3. Proceedings
Other Than Proceedings by or in the Right of the Company. If in connection with or by reason of Indemnitee’s Corporate
Status, Indemnitee was, is, or is threatened to be made, a party to or a participant in any Proceeding (as hereinafter defined)
other than a Proceeding by or in the right of the Company to procure a judgment in its favor, the Company shall, to the fullest
extent permitted by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless from and against, all Expenses, losses,
damages, liabilities, judgments, penalties, fines and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such liabilities, judgments, penalties, fines and amounts paid in settlement)
reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with such Proceeding or any claim, issue or matter therein.
4. Proceedings
by or in the Right of the Company. If in connection with or by reason of Indemnitee’s Corporate Status, Indemnitee
was, is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure
a judgment in the Company’s favor, the Company shall, to the fullest extent permitted by law, indemnify Indemnitee with respect
to, and hold Indemnitee harmless from and against, all Expenses reasonably incurred by Indemnitee or on behalf of Indemnitee in
connection with such Proceeding or any claim, issue or matter therein.
5. Mandatory
Indemnification in Case of Successful Defense. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee
is, by reason of Indemnitee’s Corporate Status, a party to (or a participant in) and is successful, on the merits or otherwise,
in defense of any Proceeding or any claim, issue or matter therein (including, without limitation, any Proceeding brought by or
in the right of the Company), the Company shall, to the fullest extent permitted by law, indemnify Indemnitee with respect to,
and hold Indemnitee harmless from and against, all Expenses reasonably incurred by Indemnitee or on behalf of Indemnitee in connection
therewith. If Indemnitee is not wholly successful in defense of such Proceeding but is successful, on the merits or otherwise,
as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall, to the fullest extent permitted
by law, indemnify Indemnitee against all Expenses reasonably incurred by Indemnitee or on behalf of Indemnitee in connection with
each successfully resolved claim, issue or matter. For purposes of this Section 5 and without limitation, the termination
of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, on substantive or procedural grounds,
or settlement of any such claim prior to a final judgment by a court of competent jurisdiction with respect to such Proceeding,
shall be deemed to be a successful result as to such claim, issue or matter; provided, however, that any settlement
of any claim, issue or matter in such a Proceeding shall not be deemed to be a successful result as to such claim, issue or matter
if such settlement is effected by Indemnitee without the Company’s prior written consent, which consent shall not be unreasonably
withheld, delayed or conditioned.
6. Partial
Indemnification. If Indemnitee is entitled under any provision of this Agreement or otherwise to indemnification by the Company
for some or a portion of the Expenses, liabilities, judgments, penalties, fines and amounts paid in settlement (including all interest,
assessments and other charges paid or payable in connection with or in respect of such liabilities, judgments, penalties, fines
and amounts paid in settlement) incurred by Indemnitee or on behalf of Indemnitee in connection with a Proceeding or any claim,
issue or matter therein, in whole or in part, the Company shall, to the fullest extent permitted by law, indemnify Indemnitee to
the fullest extent to which Indemnitee is entitled to such indemnification.
7. Indemnification
for Additional Expenses Incurred to Secure Recovery or as Witness.
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(a)
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The Company shall, to the fullest extent permitted by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless
from and against, any and all Expenses and, if requested by Indemnitee, shall advance on an as-incurred basis (as provided in Section 8
of this Agreement) such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action or proceeding or
part thereof brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement,
any other agreement, the Certificate of Incorporation or By-laws of the Company as now or hereafter in effect, or pursuant to indemnification
agreements in effect as of the date hereof; or (ii) recovery under any director and officer liability insurance policies maintained
by any Hayward Entity.
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(b)
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To the extent that Indemnitee is, by reason of Indemnitee’s Corporate Status, a witness (or is forced or asked to respond
to discovery requests) in any Proceeding to which Indemnitee is not a party, the Company shall, to the fullest extent permitted
by law, indemnify Indemnitee with respect to, and hold Indemnitee harmless from and against, and the Company will advance on an
as-incurred basis (as provided in Section 8 of this Agreement), all Expenses reasonably incurred by Indemnitee or on
behalf of Indemnitee in connection therewith.
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8. Advancement
of Expenses. The Company shall, to the fullest extent permitted by law, pay on a current and as-incurred basis all Expenses
incurred by Indemnitee in connection with any Proceeding in any way connected with, resulting from or relating to Indemnitee’s
Corporate Status. Such Expenses shall be paid in advance of the final disposition of such Proceeding, without regard to whether
Indemnitee will ultimately be entitled to be indemnified for such Expenses and without regard to whether an Adverse Determination
(as hereinafter defined) has been or may be made. Upon submission of a request for advancement of Expenses pursuant to Section 9(c) of
this Agreement, Indemnitee shall be entitled to advancement of Expenses as provided in this Section 8, and such
advancement of Expenses shall continue until such time (if any) as there is a final non-appealable judicial determination that
Indemnitee is not entitled to indemnification. Indemnitee shall repay such amounts advanced if and to the extent that it shall
ultimately be determined in a decision by a court of competent jurisdiction from which no appeal can be taken that Indemnitee is
not entitled to be indemnified by the Company for such Expenses. Such repayment obligation shall be unsecured and shall not bear
interest. The Company shall not impose on Indemnitee additional conditions to advancement or require from Indemnitee additional
undertakings regarding repayment. Indemnitee shall, in all events, be entitled to advancement of Expenses, without regard to Indemnitee’s
ultimate entitlement to indemnification, until the final determination of the Proceeding.
9. Indemnification
Procedures.
(a) Notice
of Proceeding. Indemnitee agrees to notify the Company promptly upon being served with any summons, citation, subpoena, complaint,
indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement
of Expenses hereunder. Any failure by Indemnitee to notify the Company will not relieve the Company of its advancement or indemnification
obligations under this Agreement unless, and only to the extent that, the Company can establish that such omission to notify resulted
in actual and material prejudice to it, which prejudice cannot be reversed or otherwise eliminated without any material negative
effect on the Company, and the omission to notify the Company will, in any event, not relieve the Company from any liability which
it may have to indemnify Indemnitee otherwise than under this Agreement. If, at the time of receipt of any such notice, the Company
has a director and officer liability insurance policy in effect, the Company will promptly notify the relevant insurer in accordance
with the procedures and requirements of such policy.
(b) Defense;
Settlement. Indemnitee shall have the sole right and obligation to control the defense or conduct of any claim or Proceeding
with respect to Indemnitee. The Company shall not, without the prior written consent of Indemnitee, which may be provided or withheld
in Indemnitee’s sole discretion, effect any settlement of any Proceeding against Indemnitee or which, in the opinion of Independent
Counsel, could have been brought against Indemnitee or which potentially or actually imposes any cost, liability, exposure or burden
on Indemnitee unless (i) such settlement solely involves the payment of money or performance of any obligation by persons
other than Indemnitee or any Affiliate Indemnitor affiliated with Indemnitee and includes an unconditional, full release of Indemnitee
and Affiliate Indemnitors by all relevant parties from all liability on any matters that are the subject of such Proceeding and
an acknowledgment that Indemnitee denies all wrongdoing in connection with such matters and (ii) the Company has fully indemnified
the Indemnitee with respect to, and held Indemnitee harmless from and against, all Expenses and other amounts incurred by Indemnitee
or on behalf of Indemnitee in connection with such Proceeding. The Company shall not be obligated to indemnify Indemnitee against
amounts paid in settlement of a Proceeding against Indemnitee if such settlement is effected by Indemnitee without the Company’s
prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, unless such settlement solely
involves the payment of money or performance of any obligation by persons other than the Company and includes an unconditional
release of the Company by any party to such Proceeding other than the Indemnitee from all liability on any matters that are the
subject of such Proceeding and an acknowledgment that the Company denies all wrongdoing in connection with such matters; provided,
however, that if a Change in Control has occurred, the Company shall be liable for indemnification of Indemnitee for amounts paid
in settlement if the Independent Counsel (selected pursuant to Section 9(e) of this Agreement) has approved the settlement.
(c) Request
for Advancement; Request for Indemnification.
(i) To
obtain advancement of Expenses under this Agreement, Indemnitee shall submit to the Company a written request therefor, together
with such invoices or other supporting information as may be reasonably requested by the Company and reasonably available to Indemnitee,
and, only to the extent required by applicable law which cannot be waived, an unsecured written undertaking to repay amounts advanced
in the event of a decision by a court of competent jurisdiction from which no appeal can be taken that Indemnitee is not entitled
to be indemnified by the Company for such Expenses. The Company shall make advance payment of Expenses to Indemnitee no later than
five (5) business days after receipt of the written request for advancement (and each subsequent request for advancement)
by Indemnitee. If, at the time of receipt of any such written request for advancement of Expenses, the Company has a director and
officer insurance policy in effect, the Company will promptly notify the relevant insurer in accordance with the procedures and
requirements of such policy. The Company shall thereafter keep such insurer informed of the status of the Proceeding or other claim
(with assistance from the Indemnitee as reasonably required) and take such other actions, as appropriate to secure coverage of
Indemnitee for such claim.
(ii) To
obtain indemnification under this Agreement, at any time before or after submission of a request for advancement pursuant to Section 9(c)(i) of
this Agreement, Indemnitee may submit a written request for indemnification hereunder. The time at which Indemnitee submits
a written request for indemnification shall be determined by the Indemnitee in the Indemnitee’s sole discretion. Once Indemnitee
submits such a written request for indemnification (and only at such time that Indemnitee submits such a written request for indemnification),
a Determination (as hereinafter defined) shall thereafter be made, as provided in and only to the extent required by Section 9(d) of
this Agreement. In no event shall a Determination be made, or required to be made, as a condition to or otherwise in connection
with any advancement of Expenses pursuant to Section 8 and Section 9(c)(i) of this Agreement. If,
at the time of receipt of any such request for indemnification, the Company has a director and officer insurance policy in effect,
the Company will promptly notify the relevant insurer and take such other actions as necessary or appropriate to secure coverage
of Indemnitee for such claim in accordance with the procedures and requirements of such policies.
(d) Determination.
The Company agrees that Indemnitee shall be indemnified to the fullest extent permitted by law and that no Determination shall
be required in connection with such indemnification unless specifically required by applicable law which cannot be waived. In no
event shall a Determination be required in connection with indemnification for Expenses pursuant to Section 7 of this
Agreement or incurred in connection with any Proceeding or portion thereof with respect to which Indemnitee has been successful
on the merits or otherwise. Any decision that a Determination is required by law in connection with any other indemnification of
Indemnitee, and any such Determination, shall be made within twenty (20) days after receipt of Indemnitee’s written request
for indemnification pursuant to Section 9(c)(ii) and such Determination shall be made either (i) by the Disinterested
Directors (as hereinafter defined), even though less than a quorum, so long as Indemnitee does not request that such Determination
be made by Independent Counsel (as hereinafter defined), or (ii) if so requested by Indemnitee, in Indemnitee’s sole
discretion, by Independent Counsel in a written opinion to the Company and Indemnitee. If a Determination is made that Indemnitee
is entitled to indemnification, payment to Indemnitee shall be made within five (5) business days after such Determination.
Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s
entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such Determination. Any Expenses incurred by Indemnitee in so cooperating with the Disinterested Directors
or Independent Counsel, as the case may be, making such determination shall be advanced and borne by the Company (irrespective
of the Determination as to Indemnitee’s entitlement to indemnification). If the person, persons or entity empowered or selected
under this Section 9(d) to determine whether Indemnitee is entitled to indemnification shall not have made a determination
within twenty (20) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification
shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification,
absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s
statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification
under applicable law; provided, however, that such twenty (20) day period may be extended for a reasonable time,
not to exceed an additional twenty (20) days, if the person, persons or entity making the determination with respect to entitlement
to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information
relating thereto; and provided, further, that the foregoing provisions of this Section 9(d) shall
not apply if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 9(e).
(e) Independent
Counsel. In the event Indemnitee requests that the Determination be made by Independent Counsel pursuant to Section 9(d) of
this Agreement, the Independent Counsel shall be selected as provided in this Section 9(e). The Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board of Directors, in which
event the Board of Directors shall make such selection on behalf of the Company, subject to the remaining provisions of this Section 9(e)),
and Indemnitee or the Company, as the case may be, shall give written notice to the other, advising the Company or Indemnitee of
the identity of the Independent Counsel so selected. The Company or Indemnitee, as the case may be, may, within five (5) days
after such written notice of selection shall have been received, deliver to Indemnitee or the Company, as the case may be, a written
objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent
Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 15 of
this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written objection is so made and substantiated, the Independent
Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction
has determined that such objection is without merit. If, within ten (10) days after submission by Indemnitee of a written
request for indemnification pursuant to Section 9(c)(ii) of this Agreement and after a request for the appointment
of Independent Counsel has been made, no Independent Counsel shall have been selected and not objected to, either the Company or
Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company
or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person
selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections
are so resolved or the person so appointed shall act as Independent Counsel under Section 9(d) of this Agreement.
Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 9(f) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing). Any expenses incurred by or in connection with the appointment of Independent Counsel shall
be borne by the Company (irrespective of the Determination of Indemnitee’s entitlement to indemnification) and not by Indemnitee.
(f) Consequences
of Determination; Remedies of Indemnitee. The Company shall be bound by and shall have no right to challenge a Favorable Determination.
If an Adverse Determination is made, or if for any other reason the Company does not make timely indemnification payments or advances
of Expenses, Indemnitee shall have the right to commence a Proceeding before a court of competent jurisdiction to challenge
such Adverse Determination and/or to require the Company to make such payments or advances (and the Company shall have the right
to defend its position in such Proceeding and to appeal any adverse judgment in such Proceeding). Indemnitee shall be entitled
to be indemnified for all Expenses incurred in connection with such a Proceeding and to have such Expenses advanced by the Company
in accordance with Section 8 of this Agreement. If Indemnitee fails to challenge an Adverse Determination within twenty
(20) business days, or if Indemnitee challenges an Adverse Determination and such Adverse Determination has been upheld by a final
judgment of a court of competent jurisdiction from which no appeal can be taken, then, to the extent and only to the extent required
by such Adverse Determination or final judgment, the Company shall not be obligated to indemnify Indemnitee under this Agreement.
(g) Presumptions;
Burden and Standard of Proof. The parties intend and agree that, to the extent permitted by law, in connection with any Determination
with respect to Indemnitee’s entitlement to indemnification hereunder by any person, including a court:
(i) it
will be presumed that Indemnitee is entitled to indemnification under this Agreement (notwithstanding any Adverse Determination),
and the Company or any other person or entity challenging such right will have the burden of proof to overcome that presumption
in connection with the making by any person, persons or entity of any determination contrary to that presumption;
(ii) the
termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that Indemnitee’s conduct was unlawful;
(iii) Indemnitee
will be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Company,
including financial statements, or on information supplied to Indemnitee by the officers, employees, or committees of the board
of directors of the Company, or on the advice of legal counsel or other advisors (including financial advisors and accountants)
for the Company or on information or records given in reports made to the Company by an independent certified public accountant
or by an appraiser or other expert or advisor selected by the Company; and
(iv) the
knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Company or relevant enterprises
will not be imputed to Indemnitee in a manner that limits or otherwise adversely affects Indemnitee’s rights hereunder.
The provisions of this Section 9(g) shall
not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed to have met the
applicable standard of conduct set forth in this Agreement.
10. Remedies
of Indemnitee.
(a) In
the event that (i) a determination is made pursuant to Section 9(d) of this Agreement that Indemnitee is
not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 8
and Section 9(c)(i) of this Agreement, (iii) no determination of entitlement to indemnification shall have
been made pursuant to Section 9(d) of this Agreement within twenty (20) days after receipt by the Company of the
request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7
of this Agreement within five (5) business days after receipt by the Company of a written request therefor, (v) payment
of indemnification pursuant to Section 3 or 4 of this Agreement is not made within five (5) business days
after a determination has been made that Indemnitee is entitled to indemnification, or (vi) the Company or any other person
takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action
or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee
hereunder, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement
of Expenses. Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator
pursuant to the Commercial Arbitration Rules of the American Arbitration Association in New York (or JAMS in New York, if
requested by the Indemnitee). The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In
the event that a determination shall have been made pursuant to Section 9(d) of this Agreement that Indemnitee
is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 10 shall
be conducted in all respects as a de novo trial, or arbitration, on the merits, in which (i) Indemnitee shall not be
prejudiced by reason of that adverse determination, and (ii) the Company shall bear the burden of establishing that Indemnitee
is not entitled to indemnification.
(c) If
a determination shall have been made pursuant to Section 9(d) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant
to this Section 10, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or
(ii) a prohibition of such indemnification under Delaware corporate law.
(d) The
Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration
commenced pursuant to this Section 10 that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions
of this Agreement.
11. Insurance;
Subrogation; Other Rights of Recovery, etc.
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(a)
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The Company shall use its reasonable best efforts to purchase and maintain a policy or policies of insurance with reputable
insurance companies with A.M. Best ratings of “A” or better, providing Indemnitee with coverage for any liability
asserted against, and incurred by, Indemnitee or on Indemnitee’s behalf by reason of Indemnitee’s Corporate Status,
or arising out of Indemnitee’s status as such, whether or not the Company would have the power to indemnify Indemnitee against
such liability. Such insurance policies shall have coverage terms and policy limits at least as favorable to Indemnitee as the
insurance coverage provided to any other director and/or officer of the Company. If the Company has such insurance in effect at
the time it receives from Indemnitee any notice of the commencement of an action, suit, proceeding or other claim, the Company
shall give prompt notice of the commencement of such action, suit, proceeding or other claim to the insurers and take such other
actions in accordance with the procedures set forth in the policy as required or appropriate to secure coverage of Indemnitee for
such action, suit, proceeding or other claim. The Company shall thereafter take all necessary or desirable action to cause such
insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such action, suit, proceeding or other claim in accordance
with the terms of such policy. The Company shall continue to provide such insurance coverage to Indemnitee for a period of at least
seven (7) years after Indemnitee ceases to serve as a director or in any other Corporate Status.
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(b)
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In the event of any payment by the Company under this Agreement, the Company shall be subrogated to the extent of such payment
to all of the rights of recovery of Indemnitee against any other Hayward Entity, and Indemnitee hereby agrees, as a condition to
obtaining any advancement or indemnification from the Company, to assign the Company all of Indemnitee’s rights to obtain
from such other Hayward Entity such amounts to the extent that they have been paid by the Company to or for the benefit of Indemnitee
as advancement or indemnification under this Agreement and are adequate to indemnify Indemnitee with respect to the costs, Expenses
or other items to the full extent that Indemnitee is entitled to indemnification or other payment hereunder; and Indemnitee will
(upon request by the Company) execute all papers required and use reasonable best efforts to take all action reasonably necessary
to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit or enforce such
rights.
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(c)
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The Company hereby acknowledges that the rights to indemnification, advancement of expenses and/or insurance provided pursuant
to this Agreement may also be provided to certain Indemnitees by one or more of their respective affiliates (other than the Hayward
Entities) or their insurers (collectively, and including, in the case of the [CCMP Capital Investors III, L.P., CCMP Capital Investors
III (Employee), L.P., CCMP Capital Advisors, LP, MSD Aqua Partners, LLC, MSD Partners, L.P., PE16PX Rocky Mountain Ltd., PE16GV
Rocky Mountain Ltd. and Alberta Investment Management Corporation], each of their respective partners, shareholders, members, affiliates,
associated investment funds, directors, officers, fiduciaries, managers, controlling persons, employees and agents and each of
the partners, shareholders, members, affiliates, associated investment funds, directors, officers, fiduciaries, managers, controlling
persons, employees and agents of each of the foregoing, the “Affiliate Indemnitors”). The Company hereby agrees
that, as between the Company, on the one hand, and the Affiliate Indemnitors, on the other hand, (i) the Company is the full
indemnitor of first resort and the Affiliate Indemnitors are the full indemnitors of second resort with respect to all such indemnifiable
claims against such Indemnitees, whether arising under this Agreement or otherwise (i.e., the obligations of the Company to such
Indemnitees are primary and any obligation of the Affiliate Indemnitors to advance expenses or to provide indemnification for the
same expenses or liabilities incurred by such Indemnitees are secondary), (ii) upon receipt by the Company of an undertaking
by or on behalf of such Indemnitees to repay such amount if it shall be determined that the Indemnitee is not entitled to be indemnified
as authorized by this Agreement or otherwise, the Company shall be required to advance the full amount of expenses incurred by
such Indemnitees and shall be liable for the full amount of all expenses, judgments, penalties, fines and amounts paid in settlement
to the extent legally permitted and as required by the terms of this Agreement (or any other agreement between the Company and
such Indemnitees), without regard to any rights such Indemnitees may have against the Affiliate Indemnitors and (iii) the
Company irrevocably waives, relinquishes and releases the Affiliate Indemnitors from any and all claims against the Affiliate Indemnitors
for contribution, subrogation or any other recovery of any kind in respect thereof. The Company agrees to indemnify the Affiliate
Indemnitors directly for any amounts that the Affiliate Indemnitors pay as indemnification or advancement on behalf of any such
Indemnitee and for which such Indemnitee may be entitled to indemnification from the Company in connection with serving as a director
and/or officer of the Company. The Company further agrees that no advancement or payment by the Affiliate Indemnitors on behalf
of any such Indemnitee with respect to any claim for which such Indemnitee has sought indemnification from the Company shall affect
the foregoing and the Affiliate Indemnitors shall be subrogated to the extent of such advancement or payment to all of the rights
of recovery of such Indemnitee against the Company, and the Company shall cooperate with the Affiliate Indemnitors in pursuing
such rights.
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(d)
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Except as provided in Sections 11(c), the Company shall not be liable to pay or advance to Indemnitee any amounts otherwise
indemnifiable under this Agreement or under any other indemnification agreement if, and to the extent that, Indemnitee has
otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.
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(e)
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The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee in respect of or relating to Indemnitee’s
service at the request of the Company as a director, officer, employee, fiduciary, trustee, representative, partner or agent of
any other Hayward Entity shall be reduced by any amount Indemnitee has actually received as payment of indemnification or advancement
of Expenses from such other Hayward Entity, except to the extent that such indemnification payments and advance payment of Expenses
when taken together with any such amount actually received from other Hayward Entities or under director and officer insurance
policies maintained by one or more Hayward Entities are inadequate to fully pay all costs, Expenses or other items to the full
extent that Indemnitee is otherwise entitled to indemnification or other payment hereunder.
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(f)
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Except as provided in Sections 11(c), 11(d) and 11(e) of this Agreement, the rights to
indemnification and advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to
which Indemnitee may at any time, whenever conferred or arising, be entitled under applicable Delaware corporate law, under the
Hayward Entities’ organizational documents, or under any other agreement, vote of stockholders or resolution of directors
of any Hayward Entity, or otherwise. Indemnitee’s rights under this Agreement are present contractual rights that fully vest
upon Indemnitee’s first service as a director and/or officer of the Company. The Parties hereby agree that Sections 11(c),
11(d) and 11(e) of this Agreement shall be deemed exclusive and shall be deemed to modify, amend and clarify
any right to indemnification or advancement provided to Indemnitee under any other contract, agreement or document with any Hayward
Entity.
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(g)
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No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee
under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitee’s Corporate Status prior
to such amendment, alteration or repeal. To the extent that a change in the General Corporation Law of the State of Delaware (or
other applicable law), whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than
would be afforded currently under the Hayward Entities’ organizational documents and this Agreement, it is the intent of
the parties hereto that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change. No change in applicable
law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Delaware law as in effect on the
date hereof or as such benefits may improve as a result of amendments to Delaware law that become effective after the date hereof.
The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment
of any other right or remedy.
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12. Employment
Rights; Successors; Third Party Beneficiaries.
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(a)
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This Agreement shall not be deemed an employment contract between the Company and Indemnitee. This Agreement shall continue
in force as provided above after Indemnitee has ceased to serve as a director and/or officer of the Company or any other Corporate
Status.
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(b)
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This Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of Indemnitee
and Indemnitee’s heirs, executors and administrators. If the Company or any of its successors or assigns shall (i) consolidate
with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation
or merger or (ii) transfer all or substantially all of its properties and assets to any individual, corporation or other entity,
then, and in each such case, proper provisions shall be made so that the successors and assigns of the Company shall assume all
of the obligations set forth in this Agreement.
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(c)
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The Affiliate Indemnitors are express third party beneficiaries of this Agreement, are entitled to rely upon this Agreement,
and may specifically enforce the Company’s obligations hereunder (including but not limited to the obligations specified
in Section 11 of this Agreement) as though a party hereunder.
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13. Severability.
If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(i) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation,
each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; (ii) such provision
or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the
intent of the parties hereto; and (iii) to the fullest extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable,
that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.
14. Exception
to Right of Indemnification or Advancement of Expenses. Notwithstanding any other provision of this Agreement and except as
provided in Section 7(a) of this Agreement or as may otherwise be agreed by the Company, Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this Agreement with respect to any Proceeding brought by Indemnitee
(other than (i) a Proceeding by Indemnitee (i) by way of defense or counterclaim or other similar portion of a Proceeding,
(ii) to enforce any other rights of Indemnitee to indemnification, advancement or contribution from the Company under this
Agreement, or under any other contract, by-laws or charter or under statute or other law, including any rights under Section 145
of the Delaware General Corporation Law, or (iii) after a Change in Control), unless the bringing of such Proceeding or making
of such claim shall have been approved by the Board of Directors or similar governing body of the Company.
15. Definitions.
For purposes of this Agreement:
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(a)
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“Board of Directors” means the board of directors of the Company.
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(b)
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“By-laws” means, in each case, the bylaws or similar governing document of the relevant entity as amended
from time to time.
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(c)
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“Certificate of Incorporation” means, in each case, the certificate of incorporation, articles of incorporation
or similar constituting document as amended from time to time.
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(d)
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“Change in Control” shall be deemed to have occurred if (i) any “person” (as such term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the
“Beneficial Owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company
representing 20% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during
any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director
whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination
for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation
that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting
power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or
consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s
assets.
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(e)
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“Corporate Status” describes the status of a person by reason of such person’s past, present or future
service as a director, officer, employee, fiduciary, trustee, or agent of the Company (including, without limitation, one who serves
at the request of the Company as a director, officer, employee, fiduciary, trustee or agent of any other Hayward Entity), in all
cases whether or not Indemnitee is acting or serving in any such capacity or has such status at the time any Expenses are incurred
for which indemnification, advancement or any other right can be provided by this Agreement.
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(f)
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“Determination” means a determination that either (x) there is a reasonable basis for the conclusion
that indemnification of Indemnitee is proper in the circumstances because Indemnitee met a/the particular standard(s) of conduct
(a “Favorable Determination”) or (y) there is no reasonable basis for the conclusion that indemnification
of Indemnitee is proper in the circumstances because Indemnitee met a/the particular standard(s) of conduct (an “Adverse
Determination”). An Adverse Determination shall include the decision that a Determination was required in connection
with indemnification and the decision as to the applicable standard of conduct.
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(g)
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“Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding
in respect of which indemnification is sought by Indemnitee and does not otherwise have an interest materially adverse to any interest
of the Indemnitee.
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(h)
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“Expenses” shall mean all direct and indirect costs, fees and expenses of any type or nature whatsoever
and shall specifically include, without limitation, all reasonable attorneys’ fees, retainers, court costs, transcript costs,
fees and costs of experts, witness fees and costs, travel expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed
receipt of any payments under this Agreement, ERISA excise taxes and penalties, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or
preparing to be a witness, in, or otherwise participating in, a Proceeding or an appeal resulting from a Proceeding, including,
but not limited to, the premium for appeal bonds, attachment bonds or similar bonds and all interest, assessments and other charges
paid or payable in connection with or in respect of any such Expenses, and shall also specifically include, without limitation,
all reasonable attorneys’ fees and all other expenses incurred by or on behalf of Indemnitee in connection with preparing
and submitting any requests or statements for indemnification, advancement, contribution or any other right provided by this Agreement.
Expenses, however, shall not include amounts of judgments or fines against Indemnitee.
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(i)
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“Hayward Entity” means the Company, any of its respective subsidiaries and any other corporation, partnership,
limited liability company, joint venture, trust, employee benefit plan or other enterprise with respect to which Indemnitee serves
as a director, officer, employee, partner, representative, fiduciary, trustee or agent, or in any similar capacity, at the request
of the Company.
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(j)
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“Independent Counsel” means, at any time, any law firm, or a member of a law firm, that (a) is experienced
in matters of corporation law and (b) is not, at such time, or has not been in the five years prior to such time, retained
to represent: (i) any Hayward Entity or Indemnitee in any matter material to either such party (other than with respect to
matters concerning Indemnitee under this Agreement, or of other indemnities under similar indemnification agreements), or (ii) any
other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights
under this Agreement. The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and
to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto and to be jointly and severally liable therefor.
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(k)
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“Proceeding” includes any actual, threatened, pending or completed action, suit, arbitration, alternate
dispute resolution mechanism, investigation (formal or informal), inquiry, administrative hearing or any other actual, threatened,
pending or completed proceeding, whether brought by or in the right of any Hayward Entity or otherwise and whether civil, criminal,
administrative or investigative in nature, in which Indemnitee was, is, may be or will be involved as a party, witness or otherwise,
by reason of Indemnitee’s Corporate Status or by reason of any action taken by Indemnitee or of any inaction on Indemnitee’s
part while acting as director, officer, employee, fiduciary, trustee or agent of any Hayward Entity (in each case whether or not
Indemnitee is acting or serving in any such capacity or has such status at the time any liability or expense is incurred for which
indemnification or advancement of Expenses can be provided under this Agreement). If Indemnitee believes in good faith that a given
situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceeding under this paragraph.
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(l)
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“Voting Securities” means any securities of the Company that vote generally in the election of directors.
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16. Construction.
Whenever required by the context, as used in this Agreement the singular number shall include the plural, the plural shall include
the singular, and all words herein in any gender shall be deemed to include (as appropriate) the masculine, feminine and neuter
genders.
17. Reliance.
The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby
in order to induce Indemnitee to serve as a director and/or officer of the Company, and the Company acknowledges that Indemnitee
is relying upon this Agreement in serving as a director and/or officer of the Company.
18. Modification
and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in a writing identified
as such by all of the parties hereto. Except as otherwise expressly provided herein, the rights of a party hereunder (including
the right to enforce the obligations hereunder of the other parties) may be waived only with the written consent of such party,
and no waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
19. Notice
Mechanics. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have
been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have
been directed, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
[DIRECTOR/OFFICER
CONTACT INFORMATION]
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(b)
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If to the Company, to:
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c/o Hayward Holdings, Inc.
400 Connell Drive
Suite 6100
Berkeley Heights, NJ 07922
Attn: Eifion Jones
with a copy
to: Ropes & Gray
LLP
Prudential Tower, 800 Boylston Street
Boston, MA 02199-3600
Attn: Craig Marcus, Rachel Phillips
or to such other address as may have been furnished (in the
manner prescribed above) as follows: (a) in the case of a change in address for notices to Indemnitee, furnished by Indemnitee
to the Company and (b) in the case of a change in address for notices to the Company, furnished by the Company to Indemnitee.
20. Contribution.
To the fullest extent permissible under Delaware corporate law, if the indemnification provided for in this Agreement is unavailable
to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred
by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for reasonably
incurred Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as
is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative
benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such
Proceeding; and/or (ii) the relative fault of the Company (and its other directors, officers, employees and agents) and Indemnitee
in connection with such event(s) and/or transaction(s).
21. Governing
Law; Submission to Jurisdiction; Appointment of Agent for Service of Process. This Agreement and the legal relations among
the parties shall, to the fullest extent permitted by law, be governed by, and construed and enforced in accordance with, the laws
of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally
(i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Court
of Chancery of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in
the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the
Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any
objection to the laying of venue of any such action or proceeding in the Delaware Court, and (iv) waive, and agree not to
plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or
otherwise inconvenient forum.
22. Headings.
The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
23. Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but
all of which together shall constitute one and the same Agreement.
[Remainder of Page Intentionally
Blank]
IN WITNESS WHEREOF, the parties hereto have
executed this Agreement on the day and year first above written.
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Company:
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HAYWARD HOLDINGS, INC.
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Indemnitee:
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Name: [NAME OF INDEMNITEE]
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[Signature
Page to Indemnification Agreement]
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 1 to
the Registration Statement on Form S-1 of Hayward Holdings, Inc. of our report dated February 16, 2021, except for the
effects of the stock split discussed in Note 21 to the consolidated financial statements, as to which the date is March 3,
2021, relating to the financial statements of Hayward Holdings, Inc., which appears in this Registration Statement. We also
consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 3, 2021
Exhibit 99.1
CONSENT
OF LORI A. WALKER
In connection with the filing by Hayward
Holdings, Inc. (the “Company”) of its Registration Statement (the “Registration Statement”)
on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities
Act”), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board
of directors of the Company in the Registration Statement and any and all amendments and supplements thereto. I also consent to
the filing of this consent as an exhibit to such Registration Statement and any amendments and supplements thereto.
Dated: March 3, 2021
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/s/ Lori A. Walker
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Lori A. Walker
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Exhibit 99.2
CONSENT
OF DIANE DAYHOFF
In connection with the filing by Hayward
Holdings, Inc. (the “Company”) of its Registration Statement (the “Registration Statement”)
on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities
Act”), I hereby consent, pursuant to Rule 438 of the Securities Act, to being named as a nominee to the board
of directors of the Company in the Registration Statement and any and all amendments and supplements thereto. I also consent to
the filing of this consent as an exhibit to such Registration Statement and any amendments and supplements thereto.
Dated: March 3, 2021
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/s/ Diane Dayhoff
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Diane Dayhoff
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