SEC Filing - Latham Group, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended July 3, 2021


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

For the transition period from to

Commission file number: 001-40358

LATHAM GROUP, Inc.

(Exact name of registrant as specified in its charter)


Delaware		83-2797583
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

787 Watervliet Shaker Road, Latham, NY		12110
(Address of principal executive offices)		(Zip Code)

(800) 833-3800

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.0001 per share	SWIM	The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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.


Large accelerated filers	☐	Accelerated filers	☐	Non-accelerated filers	☒	Smaller reporting companies	☐	Emerging growth companies	☒

If emerging growth companies, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 3, 2021, 120,409,271 shares of the registrant’s common stock, $0.0001 par value were outstanding.

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TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		43
PART II — OTHER INFORMATION		43
Item 1A. Risk Factors		44
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		44
Item 6. Exhibits		45
SIGNATURES

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Index to Condensed Consolidated Financial Statements (Unaudited)


Condensed Consolidated Balance Sheets		4
Condensed Consolidated Statements of Operations		5
Condensed Consolidated Statements of Comprehensive (Loss) Income		6
Condensed Consolidated Statements of Stockholders’ Equity		7
Condensed Consolidated Statements of Cash Flows		9
Notes to Condensed Consolidated Financial Statements		10

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Latham Group, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(unaudited)


	July 3,		December 31,
	2021		2020
Assets
Current assets:
Cash	$	76,517	$	59,310
Trade receivables, net		77,242		32,758
Inventories, net		74,475		64,818
Income tax receivable		4,452		4,377
Prepaid expenses and other current assets		10,103		6,063
Total current assets		242,789		167,326
Property and equipment, net		56,180		47,357
Equity method investment		25,276		25,384
Deferred tax assets		793		345
Deferred offering costs		—		1,041
Goodwill		115,532		115,750
Intangible assets, net		277,906		289,473
Other assets		211		—
Total assets	$	718,687	$	646,676

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	40,645	$	29,789
Accounts payable - related party		1,350		500
Current maturities of long-term debt		14,234		13,042
Accrued expenses and other current liabilities		55,662		50,606
Total current liabilities		111,891		93,937
Long-term debt, net of discount and current portion		223,111		208,454
Deferred income tax liabilities, net		55,949		55,193
Liability for uncertain tax positions		5,605		5,540
Other long-term liabilities		2,056		1,943
Total liabilities		398,612		365,067
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.0001 par value; 100,000,000 and no shares authorized as of July 3, 2021 and December 31, 2020, respectively; no shares issued and outstanding as of both July 3, 2021 and December 31, 2020		—		—
Common stock, $0.0001 par value; 900,000,000 and 500,000,000 shares authorized as of July 3, 2021 and December 31, 2020, respectively; 120,409,271 and 118,854,249 shares issued and outstanding as of July 3, 2021 and December 31, 2020, respectively		12		12
Additional paid-in capital		350,017		265,478
(Accumulated deficit) retained earnings		(31,300)		13,765
Accumulated other comprehensive income		1,346		2,354
Total stockholders’ equity		320,075		281,609
Total liabilities and stockholders’ equity	$	718,687	$	646,676

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

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Latham Group, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except share and per share data)

(unaudited)


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net sales	$	180,889	$	112,822	$	329,635	$	163,956
Cost of sales		122,534		68,460		218,840		109,495
Gross profit		58,355		44,362		110,795		54,461
Selling, general and administrative expense		95,288		15,360		122,460		30,792
Amortization		5,479		4,063		11,074		8,126
(Loss) income from operations		(42,412)		24,939		(22,739)		15,543
Other expense (income):
Interest expense		7,516		4,308		16,572		9,641
Other (income) expense, net		(794)		(1,242)		(1,349)		2,499
Total other expense (income), net		6,722		3,066		15,223		12,140
Earnings from equity method investment		754		—		998		—
(Loss) income before income taxes		(48,380)		21,873		(36,964)		3,403
Income tax expense		5,218		5,459		8,101		2,440
Net (loss) income	$	(53,598)	$	16,414	$	(45,065)	$	963
Net (loss) income per share attributable to common stockholders:
Basic	$	(0.49)	$	0.17	$	(0.41)	$	0.01
Diluted	$	(0.49)	$	0.17	$	(0.41)	$	0.01
Weighted average common shares outstanding:
Basic		109,163,698		96,268,250		109,115,991		96,300,029
Diluted		109,163,698		96,654,697		109,115,991		96,719,370

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

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Latham Group, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(in thousands)

(unaudited)


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27 2020		July 3, 2021		June 27 2020
Net (loss) income	$	(53,598)	$	16,414	$	(45,065)	$	963
Other comprehensive income (loss):
Foreign currency translation adjustments		164		2,295		(1,008)		357
Total other comprehensive income (loss)		164		2,295		(1,008)		357
Comprehensive (loss) income	$	(53,434)	$	18,709	$	(46,073)	$	1,320

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

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Latham Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)


						(Accumulated		Accumulated
				Additional		Deficit)		Other		Total
				Paid-in		Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income (Loss)		Equity
Balances at December 31, 2019	96,498,943	$	10	$	196,474	$	(2,218)	$	(471)	$	193,795
Net loss	—		—		—		(15,451)		—		(15,451)
Foreign currency translation adjustments	—		—		—		—		(1,938)		(1,938)
Repurchase and retirement of treasury stock	(200,173)		—		(400)		—		—		(400)
Stock-based compensation expense	—		—		224		—		—		224
Balances at March 28, 2020	96,298,770		10		196,298		(17,669)		(2,409)		176,230

Net income	—		—		—		16,414		—		16,414
Foreign currency translation adjustments	—		—		—		—		2,295		2,295
Repurchase and retirement of treasury stock	(75,065)		—		(176)		—		—		(176)
Stock-based compensation expense	—		—		240		—		—		240
Balances at June 27, 2020	96,223,705	$	10	$	196,362	$	(1,255)	$	(114)	$	195,003

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

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Latham Group, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

(unaudited)


						Retained		Accumulated
				Additional		Earnings		Other		Total
				Paid-in		(Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit)		Income (Loss)		Equity
Balances at December 31, 2020	118,854,249	$	12	$	265,478	$	13,765	$	2,354	$	281,609
Net income	—		—		—		8,533		—		8,533
Foreign currency translation adjustments	—		—		—		—		(1,172)		(1,172)
Dividend ($1.00 per share)	—		—		(110,033)		—		—		(110,033)
Repurchase and retirement of treasury stock	(21,666,653)		(2)		(64,936)						(64,938)
Distributions	—		—		(29)		—		—		(29)
Stock-based compensation expense	—		—		1,464		—		—		1,464
Balances at April 3, 2021	97,187,596		10		91,944		22,298		1,182		115,434

Net loss	—		—		—		(53,598)		—		(53,598)
Foreign currency translation adjustments	—		—		—		—		164		164
Net proceeds from initial public offering	23,000,000		2		399,262		—		—		399,264
Repurchase and retirement of treasury stock	(12,264,438)		(1)		(216,699)		—		—		(216,700)
Issuance of restricted stock in connection with the Reorganization	8,340,126		1		(1)		—		—		—
Issuance of common stock upon conversion of Class B units	4,145,987		—		—		—		—		—
Stock-based compensation expense	—		—		75,511		—		—		75,511
Balances at July 3, 2021	120,409,271	$	12	$	350,017	$	(31,300)	$	1,346	$	320,075

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

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Latham Group, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Two Fiscal Quarters Ended
	July 3,		June 27,
	2021		2020
Cash flows from operating activities:
Net (loss) income	$	(45,065)	$	963
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		15,670		11,609
Amortization of deferred financing costs and discounts		5,698		1,325
Stock-based compensation expense		76,975		464
Other non-cash		1,041		791
Earnings from equity method investment		(998)		—
Distributions received from equity method investment		998		—
Changes in operating assets and liabilities:
Trade receivables		(44,472)		(25,688)
Inventories		(9,455)		(792)
Prepaid expenses and other current assets		(3,680)		871
Income tax receivable		(75)		(115)
Other assets		830		—
Accounts payable		11,007		10,659
Accrued expenses and other current liabilities		5,580		9,513
Other long-term liabilities		113		639
Net cash provided by operating activities		14,167		10,239
Cash flows from investing activities:
Purchases of property and equipment		(12,967)		(6,205)
Proceeds from sale of equipment		16		—
Return of equity method investment		108		—
Net cash used in investing activities		(12,843)		(6,205)
Cash flows from financing activities:
Proceeds from borrowings on term loan		172,813		—
Payments on term loan		(161,275)		(4,425)
Proceeds from borrowings on revolving credit facility		16,000		5,000
Payments on revolving credit facility		(16,000)		(5,000)
Deferred financing fees paid		(1,250)		—
Distributions		(29)		—
Dividend to Class A unitholders		(110,033)		—
Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs		399,264		—
Repurchase and retirement of treasury stock		(281,638)		(576)
Net cash provided (used in) by financing activities		17,852		(5,001)
Effect of exchange rate changes on cash		(1,969)		1,857
Net increase in cash		17,207		890
Cash at beginning of period		59,310		56,655
Cash at end of period	$	76,517	$	57,545
Supplemental cash flow information:
Cash paid for interest	$	10,267	$	10,237
Income taxes paid, net	$	6,751	$	131
Supplemental disclosure of non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses	$	530	$	173
Capitalized internal-use software included in accounts payable – related party	$	1,350	$	—

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

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Notes to Condensed Consolidated Financial Statements

1. NATURE OF THE BUSINESS

Latham Group, Inc. (“the Company”) wholly owns Latham Pool Products, Inc. (“Latham Pool Products”) (together, “Latham”) and is a designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. Latham offers a portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers.

On December 18, 2018, Latham Investment Holdings, LP (“Parent”), an investment fund managed by affiliates of Pamplona Capital Management (the “Sponsor”), Wynnchurch Capital, L.P. and management acquired all of the outstanding equity interests of Latham Topco., Inc. a newly incorporated entity in the State of Delaware. Latham Topco, Inc. changed its name to Latham Group, Inc. on March 3, 2021.

Initial Public Offering, Reorganization and Stock Split

On April 27, 2021, the Company completed its initial public offering (the “IPO”), pursuant to which it issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by the Company pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by the Company from the IPO were $399.3 million, after deducting underwriting discounts and commissions and other offering costs.

Prior to the closing of the Company’s IPO on April 27, 2021 (the “Closing of the IPO”), the Company’s parent entity, Parent, merged with and into Latham Group, Inc., with Latham Group, Inc. surviving the merger (the “Reorganization”). The purpose of the Reorganization was to allow existing indirect owners of the Company to become direct shareholders of the Company.

In connection with the Reorganization, Class A units of the Parent (the “Class A units”)were converted into shares of the Company’s common stock, and Class B units of the Parent (the “Class B units”) were converted into an economically equivalent number of restricted and unrestricted shares of the Company’s common stock on a pro rata basis. The Reorganization was accounted for as an equity reorganization between entities under common control. As the Class A units were akin to common shares as all holders held economic interest of the Parent and were entitled to distributions on a pro rata basis to their respective the individual holders’ ownership, the conversion of Class A units to common shares as part of the Reorganization was considered to be the equivalent to a stock split , which requires retrospective treatment for accounting purposes. Accordingly, all share and per share amounts in these condensed consolidated financials statements and related notes have been retroactively restated, where applicable, for all periods herein, to give effect to the conversion ratio applied in connection with the Reorganization.

Class B units were historically accounted for as compensatory arrangements in accordance with ASC 718 “Compensation – Stock Compensation”, akin to stock appreciation rights, that when vested would share on the economic appreciation of the equity value of Parent over the agreed hurdles. As a result of the Reorganization, the Company determined that only vested Class B units are considered outstanding for accounting purposes. A portion of the Class B units vest based on continued employment by the holder, or time-vesting units, and the remaining Class B units vest upon defined performance and market conditions, or performance-vesting units. Therefore, the Company has considered any unvested restricted shares as contingentable issuable shares until they vest. The conversion of time-vesting Class B units to restricted shares is retrospectively included in the weighted-average common shares outstanding for diluted net income (loss) per share using the treasury stock method for each period in which the individual unit holder’s threshold was met at the reporting date and therefore the individual unit holder would have participated in a hypothetical distribution to the Parent unit holders. The conversion of performance-vesting Class B units to restricted shares is not included in the shares outstanding for diluted net income (loss) per share for any period prior to the Reorganization and IPO as the performance vesting thresholds were not satisfied and the performance units were not considered probable to vest historically.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The Company’s unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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Unaudited Interim Financial Information

The consolidated balance sheet at December 31, 2020 was derived from audited financial statements but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of July 3, 2021 and for the fiscal quarters and two fiscal quarters ended July 3, 2021 and June 27, 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with Latham Group, Inc.’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Registration Statement on Form S-1, as amended, File No. 333-254930 on file with the SEC. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of July 3, 2021 and results of operations for the fiscal quarters and two fiscal quarters ended July 3, 2021 and June 27, 2020 and cash flows for the two fiscal quarters ended July 3, 2021 and June 27, 2020 have been made. The Company’s results of operations for the fiscal quarter and two fiscal quarters ended July 3, 2021 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2021.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Estimates are evaluated on an ongoing basis and revised as there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known.

Seasonality

Although the Company generally has demand for its products throughout the year, its business is seasonal and weather is one of the principal external factors affecting the business. Historically, net sales and net income are highest during spring and summer, representing the peak months of swimming pool use, pool installation and remodeling and repair activities. Sales periods having severe weather may also affect net sales.

Accounting Policies

Refer to the Company’s final prospectus for the IPO filed pursuant to Rule 424(b)(4) under the Securities Act with the SEC on April 26, 2021 (“the Prospectus”) for a discussion of the Company’s accounting policies, as updated below.

Stock-based Compensation

Stock-based compensation is measured and recognized based on the grant date fair value of the awards. The Class B units of the Parent were granted to employees in the form of Profits Interest Units (“PIUs”). The Company determined the grant date fair value of PIUs using the Black-Scholes option pricing model. As part of the Reorganization the vested and unvested PIUs of the Parent, were converted on a pro rata basis into equivalent restricted stock units and restricted stock awards of the Company’s underlying common stock. The fair value of the awards is expensed using a graded vesting method over the requisite service period in which employees earn the awards. The Company accounts for forfeitures of stock-based awards as they occur rather than applying an estimated forfeiture rate to stock-based compensation expense.

The Black-Scholes pricing model requires critical assumptions including risk-free rate, volatility, expected term and expected dividend yield. The expected term is computed using the simplified method. The Company uses the simplified method to calculate expected term of the PIUs as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the stock-based award. The Company considers the historical volatility of the Company’s stock price, as well as implied volatility. The Company utilized a dividend yield of zero, as it had no history or plan of declaring dividends on its common stock. The assumptions underlying these valuations represented the Company’s best estimate, which involved inherent

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uncertainties and the application of judgment. As a result, if the Company had used significantly different assumptions or estimates, the fair value of the Company’s stock-based compensation expense could have been materially different.

Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021, the Company effected its Omnibus Incentive Plan in which it granted to certain employees of the Company restricted stock awards, restricted stock units and option awards inclusive of the as converted Class B units as a result of the Reorganization (see Note 14).

Equity Method Investments

Investments and ownership interests in common stock or in-substance common stock are accounted for under the equity method accounting if the Company has the ability to exercise significant influence over the entity but does not have a controlling financial interest. Under the equity method, investments are initially recognized at cost and adjusted to reflect the Company’s interest in net earnings, dividends received and other-than-temporary impairments. The Company records its interest in the net earnings of its equity method investee, along with adjustments for amortization of basis differences, investee capital transactions and other comprehensive income (loss), within earnings from equity method investment in the condensed consolidated statements of operations. Basis differences represent differences between the cost of the investment and the underlying equity in net assets of the investment and are generally amortized over the lives of the related assets that gave rise to the underlying basis differences. Profits or losses related to intra-entity sales with its equity method investee are eliminated until realized by the investor or investee.

The Company records its proportionate share of earnings or losses of Premier Holdco, LLC (“Premier Pools & Spas”) within earnings from equity method investment in the condensed consolidated statements of operations on a three-month lag. The Company recorded its interest in the net earnings of Premier Pools & Spas of $0.8 million and $1.0 million, respectively, for the fiscal quarter and two fiscal quarters ended July 3, 2021, which included a less than $0.1 million and $0.1 million adjustment for the amortization of basis differences, within earnings from equity method investment in the condensed consolidated statements of operations during the fiscal quarter and two fiscal quarters ended July 3, 2021. As the Company initially invested in Premier Pools & Spas on October 30, 2020 there was no earnings from equity method investment recorded during the fiscal quarter and the two fiscal quarters ended June 27, 2020. The Company received distributions of $0.9 million and $1.1 million during the fiscal quarter and two fiscal quarters ended July 3, 2021, respectively.

For presentation in the condensed consolidated statements of cash flows, the Company utilizes the cumulative earnings approach for purposes of determining whether distributions should be classified as either a return on investment, which are be included in operating activities, or a return of investment, which would be included in investing activities. Under the cumulative earnings approach, the Company compares the distributions received to its cumulative equity-method earnings since inception. Any distributions received up to the amount of cumulative equity earnings are be considered a return on investment and classified in operating activities. Any excess distributions would be considered a return of investment and classified in investing activities.

Equity method goodwill is not amortized or tested for impairment; instead the Company evaluates equity method investments for impairment when events or changes in circumstances indicate that the decline in value below the carrying amount of its equity method investment is determined to be other than temporary. In such a case, the decline in value below the carrying amount of its equity method investment is recognized in the condensed consolidated statements of operations in the period the impairment occurs.

Recently Issued Accounting Pronouncements

The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is

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recognized based on an effective interest method or on a straight-line basis over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to prior guidance for operating leases today. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented. In November 2019, the FASB issued guidance delaying the effective date for all entities, except for public business entities. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2020. In June 2020, the FASB issued additional guidance delaying the effective date for all entities, except for public business entities. For public entities, ASU 2016-02 was effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. For nonpublic entities, this guidance is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which narrowed the scope and changed the effective date for nonpublic entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU 2019-05, Financial Instruments — Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For public entities that are SEC filers, excluding entities eligible to be smaller reporting companies, ASU 2016-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. For all other entities, ASU 2016-13 is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its consolidated financial statements. In addition to that main objective, the amendments in the update make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. Additional updates to further clarify the guidance in ASU 2017-12 were issued by the FASB in October 2018 within ASU 2018-16. For public entities, the amendment is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For nonpublic entities, ASU 2017-12 is effective for fiscal years beginning after December 15, 2020 and interim periods beginning after December 15, 2021. Early application is permitted in any interim period after the issuance of the update. The Company is currently evaluating the impact that the adoption of ASU 2017-12 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. For public entities, ASU 2019-12 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2019-12 is effective for annual periods beginning after December 15, 2021, and interim periods within those reporting periods. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, Investments — Equity Securities (Topic 321), Investments — Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”), which is intended to clarify the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. For public entities, ASU 2020-01 is effective for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. For nonpublic companies, ASU 2020-01 is effective for annual periods beginning after December 15, 2021, and

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interim periods within those reporting periods. The Company is currently evaluating the impact that the adoption of ASU 2020-01 will have on its consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued. This guidance is effective for all entities upon issuance on March 12, 2020 and may be applied through December 31, 2022. The expedients and exceptions in this guidance are optional, and the Company is evaluating the potential future financial statement impact of any such expedient or exception that it may elect to apply as the Company evaluates the effects of adopting this guidance on its consolidated financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. Specifically, this guidance applies to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The ASU became effective as of March 12, 2020 and can be adopted anytime during the period of January 1, 2020 through December 31, 2022. The Company is currently evaluating the impact that the adoption of ASU 2021-01 will have on its consolidated financial statements.

3. ACQUISITIONS

GL International, LLC

On October 22, 2020, Latham Pool Products acquired GL International, LLC (“GLI”) for a total purchase price of $79.7 million (the “GLI Acquisition”). The results of GLI’s operations have been included in the condensed consolidated financial statements since that date. GLI specializes in manufacturing custom pool liners and safety covers. As a result, this acquisition expanded the Company’s liner and safety cover product offerings. In connection with the GLI Acquisition, consideration paid was $79.7 million in cash, or $74.7 million net of cash acquired of $5.0 million, and excluding a net working capital adjustment receivable of $0.8 million. The net working capital adjustment receivable was settled during fiscal quarter ended April 3, 2021. The cash consideration was funded from existing cash on hand. The Company incurred $2.4 million in transaction costs.

The Company accounted for the GLI Acquisition using the acquisition method of accounting in accordance with FASB ASC 805, Business Combinations (“ASC 805”). This requires that the assets acquired and liabilities assumed be measured at fair value. The Company estimated, using Level 3 inputs, the fair value of certain fixed assets using a combination of the cost approach and the market approach. Inventories were valued using the comparative sales method, less the cost of disposal. Specific to intangible assets, dealer relationships were valued using the multi-period excess earnings method, whereas trade names were valued using the relief from royalty method. The Company recorded the assets acquired and liabilities assumed at their respective fair values as of the acquisition date.

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The following summarizes the purchase price allocation for the GLI Acquisition:


(in thousands)	October 22, 2020
Total consideration	$	79,743
Allocation of purchase price:
Cash		5,007
Trade receivables		10,639
Inventories		11,854
Prepaid expenses and other current assets		3,949
Property and equipment		1,402
Intangible assets		46,700
Total assets acquired		79,551
Accounts payable		3,536
Accrued expenses and other current liabilities		8,853
Other long-term liabilities		524
Total liabilities assumed		12,913
Total fair value of net assets acquired, excluding goodwill:		66,638
Goodwill	$	13,105

The excess of the purchase price over the fair value of the identifiable assets acquired and the liabilities assumed in the acquisition was allocated to goodwill in the amount of $13.1 million. Goodwill resulting from the GLI Acquisition was attributable to the expanded market share and product offerings. Goodwill resulting from the GLI Acquisition is deductible for tax purposes.

The Company allocated a portion of the purchase price to specific intangible asset categories as follows:


			Amortization
	Fair Value		Period
Definite-lived intangible assets:	(in thousands)		(in years)
Trade names	$	9,500	9
Dealer relationships		37,200	8
	$	46,700

Pro Forma Financial Information (Unaudited)

The following pro forma financial information presents the statements of operations of the Company combined with GLI as if the acquisition occurred on January 1, 2020. The pro forma results do not include any anticipated synergies, cost savings or other expected benefits of an acquisition. The pro forma financial information is not necessarily indicative of what the financial results would have been had the acquisition been completed on January 1, 2020 and is not necessarily indicative of the Company’s future financial results.


	Fiscal Quarter Ended		Two Fiscal Quarters
(in thousands)	June 27, 2020		Ended June 27, 2020
Net sales	$	133,772	$	192,692
Net income (loss)	$	20,182	$	(646)

The pro forma financial information presented above has been calculated after adjusting for the results of the GLI Acquisition for the fiscal quarter and the two fiscal quarters ended June 27, 2020 to reflect the accounting effects as a result of the acquisition, including the amortization expense from acquired intangible assets, the depreciation and amortization expense from acquired property and equipment, the additional cost of sales from acquired inventory, interest expense from debt financing, and any related tax effects.

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4. EQUITY METHOD INVESTMENT

On October 30, 2020, the Company entered into a securities purchase agreement to purchase 28% of the common units of Premier Pools & Spas for $25.4 million. The Company concluded that it holds common stock of Premier Pools & Spas and has the ability to exercise significant influence over Premier Pools & Spas but does not have a controlling financial interest. Accordingly, the Company accounts for this investment using the equity method of accounting. The Company’s proportionate share of the earnings or losses of the investee are reported as a separate line in the condensed consolidated statements of operations.

Premier Pools & Spas is a holding company for its manufacturing and franchising companies including PFC LLC, Premier Franchise Management LLC, Premier Pools Management LLC, and Premier Fiberglass LLC (the “Premier Companies”). The Premier Companies are a leading swimming pool-building brand that uses its franchisee network to sell and install pools around the United States.

In connection with Latham’s Investment in Premier Pools & Spas, the Company entered into an exclusive supply agreement with Premier Pools & Spas, the Premier Companies, and Premier Pools & Spas’ franchisees (“Premier Franchisees”) (together, the “Customer”). Premier Pools & Spas does not consolidate the operations of the Premier Franchisees. Per the supply agreement, Latham is the exclusive supplier of the Premier Franchisees for specific pool and pool products. These products include fiberglass products and package pool products. The initial term of the supply agreement is ten years.

For the first three years of the supply agreement, the Customer is entitled to a low-teens percentage rebate for all fiberglass pools sold and an additional growth rebate of a low single-digit to low-teens percentage based on year over year sales growth on fiberglass pools (the “Rebates”). The Rebates will be paid directly to Premier Pools Management Corp. Holdco.

As of July 3, 2021, the Company’s carrying amount for the equity method investment in Premier Pools & Spas was $25.3 million. During the two fiscal quarters ended July 3, 2021, Premier Pools & Spas paid the Company dividends of $1.1 million that are presented on the condensed consolidated statement of cash flows as distribution received from equity method investment of $1.0 million and return of equity method investment of $0.1 million, respectively. The Company has elected a three-month financial reporting lag. The Company recorded its interest in net earnings of Premier Pools & Spas of $0.8 million and $1.0 million for the fiscal quarter and two fiscal quarters ended July 3, 2021, along with a basis difference adjustment of less than $0.1 million and $0.1 million, respectively.

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value.

Level 1 — Quoted prices in active markets for identical assets or liabilities.

Level 2 — Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3 — Unobservable inputs that reflect the Company’s own assumptions incorporated into valuation techniques. These valuations require significant judgment.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. When there is more than one input at different levels within the hierarchy, the fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Assessment of the significance of a particular input to the fair value measurement in its entirety requires substantial judgment and consideration of factors specific to the asset or liability. Level 3 inputs are inherently difficult to estimate. Changes to these inputs can have significant impact on fair value measurements. Assets and liabilities measured at fair value using Level 3 inputs are based on one or more of the following valuation techniques: market approach, income approach or cost approach. There were no transfers between fair value measurement levels during the two fiscal quarters ended July 3, 2021 or June 27, 2020.

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Assets and liabilities measured at fair value on a nonrecurring basis

The Company’s non-financial assets such as goodwill, intangible assets and property and equipment are measured at fair value upon acquisition or remeasured to fair value when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 2 and Level 3 inputs.

Assets and liabilities measured at fair value on a recurring basis

On May 31, 2019 (the “Acquisition Date”), Latham Pool Products acquired Narellan Group Pty Limited and its subsidiaries (collectively “Narellan”) for a total purchase price of $35.2 million (the “Narellan Acquisition”). In connection with the Narellan Acquisition, consideration paid included $20.2 million in cash, $7.6 million in equity consideration and $7.4 million of contingent consideration as of the Acquisition Date. The Company agreed to pay the contingent consideration in the form of cash and equity consideration to the seller if certain EBITDA targets were achieved for any of the trailing twelve months periods ended December 31, 2019, June 30, 2020 or the year ended December 31, 2020 (the “Contingent Consideration”). The fair value of the Contingent Consideration at the Acquisition Date was $7.4 million. On September 25, 2020, the Company amended the terms of the Narellan Share Purchase Agreement and settled the Contingent Consideration with the selling shareholders of Narellan based upon estimated EBITDA for the year ended December 31, 2020.

The fair value of the Company’s Contingent Consideration is measured and recorded on the condensed consolidated balance sheets using Level 3 inputs because it is valued based on unobservable inputs and other estimation techniques due to the absence of quoted market prices. The Company values the Contingent Consideration using a Monte Carlo simulation, which relies on management’s projections of EBITDA and the estimated probability of achieving such targets. The changes in the fair value of the Contingent Consideration for the fiscal quarter and the two fiscal quarters ended June 27, 2020 of $0.9 million and $(0.2) million, respectively, were due to foreign currency translation.

Estimates of fair value are subjective in nature, involve uncertainties and matters of significant judgment, and are made at a specific point in time. Thus, changes in key assumptions from period to period could significantly affect the estimate of fair value.

The Monte Carlo simulation utilized the following unobservable inputs to determine the fair value of the Contingent Consideration as of June 27, 2020:


	Two Fiscal Quarters Ended
	June 27, 2020
EBITDA Risk Adjustment	17.30	%
Annual EBITDA Volatility	55.00	%
Risk-free rate of return	2.10	%

Pension Plan

The fair value of the benefit plan assets related to the Company’s pension plan is measured and was recorded on the condensed consolidated balance sheets using Level 2 inputs. The fair value of the Company’s plan assets was $1.3 million as of June 27, 2020. During the year ended December 31, 2020, the Company terminated its defined benefit pension plan.

Fair value of financial instruments

The Company considers the carrying amounts of cash, trade receivables, prepaid expenses and other current assets, accounts payable, and accrued expenses and other current liabilities, to approximate fair value due to the short-term maturities of these instruments.

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Term loan

The term loan is carried at amortized cost; however, the Company estimates the fair value of the term loan for disclosure purposes. The fair value of the term loan is determined using inputs based on observable market data of a non-public exchange using, which are classified as Level 2 inputs. The following table sets forth the carrying amount and fair value of the term loan (in thousands):


	July 3, 2021				December 31, 2020
			Estimated				Estimated
	Carrying Value		Fair Value		Carrying Value		Fair Value
Term loan	$	237,345	$	238,532	$	221,496	$	221,081

Interest rate swap

The Company estimates the fair value of the interest rate swap (see Note 8) on a quarterly basis using Level 2 inputs, including the forward LIBOR curve. The fair value is estimated by comparing (i) the present value of all future monthly fixed rate payments versus (ii) the variable payments based on the forward LIBOR curve. As of July 3, 2021 and December 31, 2020, the Company’s interest rate swap liability was $0.7 million and $0.3 million, respectively, which was recorded within other long-term liabilities on the condensed consolidated balance sheets.

6. GOODWILL AND INTANGIBLE ASSETS, NET

Goodwill

The carrying amount of goodwill as of July 3, 2021 and as of December 31, 2020 was $115.5 million and $115.8 million, respectively. The change in the carrying value during the two fiscal quarters ended July 3, 2021 was solely due to fluctuations in foreign currency exchange rates.

Intangible Assets

Intangible assets, net as of July 3, 2021 consisted of the following (in thousands):


	July 3, 2021
			Foreign
	Gross Carrying		Currency		Accumulated
	Amount		Translation		Amortization		Net Amount
Trade names and trademarks	$	135,100	$	789	$	13,323	$	122,566
Patented technology		16,126		117		4,335		11,908
Pool design		5,728		474		854		5,348
Franchise relationships		1,187		97		620		664
Dealer relationships		160,376		39		24,212		136,203
Non-competition agreements		2,476		—		1,258		1,218
	$	320,993	$	1,515	$	44,602	$	277,906

The Company recognized $5.5 million and $11.1 million of amortization expense related to intangible assets during the fiscal quarter and the two fiscal quarters ended July 3, 2021, respectively.

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Intangible assets, net as of December 31, 2020 consisted of the following (in thousands):


	December 31, 2020
			Foreign
	Gross Carrying		Currency		Accumulated
	Amount		Translation		Amortization		Net Amount
Trade names and trademarks	$	135,100	$	1,047	$	10,258	$	125,889
Patented technology		16,126		155		3,452		12,829
Pool designs		5,728		629		648		5,709
Franchise relationships		1,187		130		470		847
Dealer relationships		160,376		52		17,697		142,731
Non-competition agreements		2,476		—		1,008		1,468
	$	320,993	$	2,013	$	33,533	$	289,473

The Company recognized $4.1 million and $8.1 million of amortization expense related to intangible assets during the fiscal quarter and the two fiscal quarters ended June 27, 2020, respectively.

The Company estimates that amortization expense related to definite-lived intangible assets will be as follows in each of the next five years and thereafter (in thousands):


	Estimated
	Future
	Amortization
Year Ended	Expense
Remainder of fiscal 2021	$	10,653
2022		21,959
2023		21,768
2024		20,948
2025		20,791
Thereafter		181,787
Total	$	277,906

7. INVENTORIES, NET

Inventories, net consisted of the following (in thousands):


	July 3, 2021		December 31, 2020
Raw materials	$	48,676	$	37,010
Finished goods		25,799		27,808
	$	74,475	$	64,818

8. LONG-TERM DEBT

The components of the Company’s outstanding debt obligations consisted of the following (in thousands):


	July 3, 2021		December 31, 2020
Term loan	$	241,872	$	228,147
Revolving credit facility		—		—
Less: Unamortized discount and debt issuance costs		(4,527)		(6,651)
Total debt		237,345		221,496
Less: Current portion of long-term debt		(14,234)		(13,042)
Total long-term debt	$	223,111	$	208,454

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Revolving Credit Facility

On December 18, 2018, the Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC (“Nomura”) that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a term loan (as described below). The Revolving Credit Facility was utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $30.0 million. The Revolving Credit Facility matures on December 18, 2023. On April 27, 2021, upon completion of the IPO, the Company used $16.0 million of the net proceeds from the IPO to repay $16.0 million then outstanding on the Revolver.

The Revolving Credit Facility allows for either Eurocurrency borrowings, bearing interest ranging from 4.50% to 4.75%, or base rate borrowings, bearing interest ranging from 3.50% to 3.75% depending on the First Lien Net Leverage Ratio, as defined in the Credit Agreement. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears and is equal to the applicable margin times the actual daily amount by which the $30.0 million initial commitment exceeds the sum of the outstanding borrowings under the Revolver and outstanding Letters of Credit obligations. The applicable margin ranges from 0.375% to 0.500% as determined by the Company’s First Lien Net Leverage Ratio as defined in the Credit Agreement.

The Company is required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on the Company’s ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates and make prepayments. As of July 3, 2021 and December 31, 2020, the Company was in compliance with all financial-related covenants related to the Credit Agreement. There were no amounts outstanding as of both July 3, 2021 and December 31, 2020, on the Revolving Credit Facility or Letters of Credit.

Term Loan Facility

On December 18, 2018, in connection with the Acquisition, the Company entered into the Credit Agreement with Nomura to borrow $215.0 million (the “Original Term Loan”). The Company incurred debt issuance costs of $11.5 million related to the transaction.

The Original Term Loan was amended on May 29, 2019, to provide additional borrowings of $23.0 million at a discount of $0.7 million (the “First Amendment”) to fund the Narellan Acquisition. Any portion of the First Amendment not used to fund the Narellan Acquisition was required to be applied to repay the First Amendment in an aggregate amount equal to such portion of the First Amendment, without any premium or penalty.

On August 6, 2020, the Company entered into a Form of Affiliated Lender Assignment and Assumption with Nomura (the “Assignment”). Under the Assignment, the Company repaid $5.0 million of the outstanding principal balance.

On October 14, 2020, the Company entered into a subsequent amendment under the Original Term Loan with Nomura to borrow an additional $20.0 million (the “Second Amendment” and collectively with the Original Term Loan and the First Amendment, the “Term Loan”). The Company accounted for the borrowings under the Second Amendment as new debt and recorded $0.1 million of third-party costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet. There were no financing costs incurred with the Second Amendment. The Term Loan has a maturity date of June 18, 2025. Interest and principal payments are due quarterly.

On January 25, 2021, the Company entered into a subsequent amendment to the Term Loan with Nomura to borrow an additional $175.0 million (the “Third Amendment” and collectively with the “Term Loan”, the “Amended Term Loan”). In connection with the Third Amendment, the Company is required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $5.8 million, commencing March 31, 2021. The amendment did not change the maturity date of the Term Loan and the Amended Term Loan bears interest under the same terms as the Term Loan. The Company accounted for $165.0 million of the borrowings under the Third Amendment as new debt and $10.0 million of the borrowings under the Third Amendment as a debt modification. The Company recorded an aggregate of $1.2 million of debt issuance costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheet. During the fiscal quarter ended July 3, 2021, in accordance with the terms of the Amended Term Loan, the Company elected to change the terms of the prepayment schedule from an inverse application to a pro rata application and as a result the Company is required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $3.6 million, commencing June 30, 2021.

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The Amended Term Loan allowed for the $175.0 million of proceeds to be distributed to Class A unitholders. On February 2, 2021, the Company used the proceeds of the Amended Term Loan to repurchase and retire treasury stock of $64.9 million and to pay a dividend to Class A unitholders of $110.0 million.

On April 27, 2021, upon completion of the IPO, the Company used $152.7 million of the net proceeds from the IPO to repay $152.7 million of the Amended Term Loan.

The Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate plus 1∕2 of 1%, (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR plus 1.00% (2) plus a Loan Margin of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00% for Base Rate Loans, as defined in the Credit Agreement. Principal payments under the First Amendment were calculated as 0.629% of the outstanding principal balance. Outstanding borrowings as of July 3, 2021 and December 31, 2020 were $237.3 million and $221.5 million, respectively, net of discount and debt issuance costs of $4.5 million and $6.7 million, respectively. In connection with the Term Loan, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

As of July 3, 2021, the unamortized debt issuance costs and discount on the Term Loan were $3.4 million and $1.1 million, respectively. As of December 31, 2020, the unamortized debt issuance costs and discount on the Term Loan were $6.3 million and $0.4 million, respectively. The effective interest rate was 11.57% and 8.03% for the fiscal quarters ended July 3, 2021 and June 27, 2020, respectively, and 10.34% and 8.03% for the two fiscal quarters ended July 3, 2021 and June 27, 2020, respectively.

Interest rate risk associated with the Company’s Credit Agreement is managed through an interest rate swap which the Company executed on April 30, 2020. The swap has an effective date of May 18, 2020 and a termination date of May 18, 2023. Under the terms of the swap, the Company fixed its LIBOR borrowing rate at 0.442% on a notional amount of $200.0 million. The interest rate swap is not designated as a hedging instrument for accounting purposes (see Note 2 and Note 5). The Company recorded interest expense associated with the Revolving Credit Facility, Second Amendment, Third Amendment and interest rate swap, as follows (in thousands):


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Interest expense	$	4,630		3,896	$	10,522		8,316
Amortization of debt issuance costs		2,173		388		4,246		1,247
Amortization of original issue discount		720		24		1,452		78
Interest rate swap		(7)		—		352		—
Total interest expense	$	7,516	$	4,308	$	16,572	$	9,641

Principal payments due on the outstanding debt in the next five fiscal years, excluding any potential payments based on excess cash flow levels, are as follows (in thousands):


	Term Loan
Year Ended	Facility
Remainder of fiscal 2021	$	7,117
2022		14,234
2023		14,234
2024		14,234
2025		192,053
	$	241,872

The obligations under the Credit Agreement are guaranteed by certain wholly owned subsidiaries (the “Guarantors”) of the Company as defined in the security agreement. The obligations under the Credit Agreement are secured by substantially all of the Guarantors’ tangible and intangible assets, including their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict the Company’s ability to pay dividends.

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9. PRODUCT WARRANTIES

The warranty reserve activity consisted of the following (in thousands):


	Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020
Balance at the beginning of the year	$	2,882	$	2,846
Accruals for warranties issued		3,338		1,012
Less: Settlements made (in cash or in kind)		(2,504)		(1,226)
Balance at the end of the year	$	3,716	$	2,632

10. NET SALES

The following table sets forth the Company’s disaggregation of net sales by product line (in thousands):


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
In-ground swimming pools	$	108,001	$	62,129	$	201,644	$	91,587
Covers		26,223		16,822		50,229		27,833
Liners		46,665		33,871		77,762		44,536
	$	180,889	$	112,822	$	329,635	$	163,956

11. INCOME TAXES

The effective income tax rate for the fiscal quarter and two fiscal quarters ended July 3, 2021 was (10.8)% and (21.9)%, respectively, compared to 25.0% and 71.7% for the fiscal quarter and two fiscal quarters ended June 27, 2020, respectively. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended July 3, 2021 was primarily attributable to the impact of stock compensation expense pursuant to the Reorganization. The results for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation expense of $73.5 million related to the Reorganization for which there is no associated tax benefit. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended April 3, 2021 was impacted primarily by state income tax expense. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter and two fiscal quarters ended June 27, 2020 was primarily impacted by the Company switching to an income position for the fiscal quarter ended June 27, 2020. The pre-tax income for the two fiscal quarters included losses in tax jurisdictions for which the company did not record a tax benefit, which increased the effective income tax rate for the fiscal quarter ended June 27, 2020.

12. SHAREHOLDERS’ EQUITY

Equity Structure Prior to Reorganization

Prior to the IPO and the Reorganization, the Parent owned 100% of the issued and outstanding common stock of the Company. The capital structure of the Parent consisted of two different classes of limited partnership interests, Class A and Class B units (profits interests). Prior to the Reorganization, none of the Class B units would have been vested for accounting purposes due to the Parent’s $0 Repurchase Right, which applied in the event of a voluntary termination or termination without cause, since it functions as a vesting condition.

Equity Structure Subsequent to the Reorganization

On April 13, 2021, the Company’s certificate of incorporation was amended, which amended and restated certain terms of the certificate of incorporation. Under the amended certificate of incorporation, the Company had authority to issue 500,000,000 shares of common stock, par value $0.0001 per share. On April 12, 2021, the Company’s board of directors declared and on April 13, 2021, the Company effected a 109,673.709-for-one stock split of its issued and outstanding shares of common stock.

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As a part of the equity Reorganization, on April 22, 2021, 194,207,115 Class A units converted into 97,187,596 shares of common stock and 26,158,894 Class B units converted into 4,145,987 shares of common stock and 8,340,126 shares of unvested restricted stock. Refer to Note 1 for detail regarding the Company’s Reorganization and conversion of Class A and Class B units to common and restricted shares.

Amendment and Restatement of Certificate of Incorporation

On April 22, 2021, the Company’s certificate of incorporation was further amended and restated to, among other things, increase the authorized shares to 1,000,000,000, of which 900,000,000 are shares of common stock, par value $0.0001 per share and 100,000,000 are shares of preferred stock, par value 0.0001 per share.

As of July 3, 2021 and December 31, 2020 112,153,832 and 118,854,249 shares of common stock are issued and outstanding for accounting purposes, respectively.

13. PROFITS INTEREST UNITS

Prior to the Reorganization, the Company’s Parent granted PIUs in the form of Class B units of the Parent to certain key employees and directors for purposes of retaining them and enabling such individuals to participate in the long-term growth and financial success of the Company. The following table summarizes the activity for all PIUs during the two fiscal quarters ended July 3, 2021 and the year ended December 31, 2020:


		Weighted
		Average Grant-
	Number of PIUs	Date Fair Value
Balance at January 1, 2020	21,734,170	$	0.60
Granted	7,843,107		0.35
Forfeited	(2,152,315)		0.43
Balance at December 31, 2020	27,424,962
Granted	—
Forfeited	(1,266,068)		0.34
Balance at April 21, 2021	26,158,894
Converted at IPO in connection with the Reorganization	(26,158,894)	$	0.43
Balance at July 3, 2021	—

On January 29, 2021 an employee holder of PIUs terminated his employment with the Company, at which time all 1,055,057 of his performance-vesting units were forfeited. At the time of his termination, the employee held 527,528 of time-vesting units, of which 211,011 time-vesting units were vested. Per the terms of his termination agreement, the Company accelerated the vesting of an additional 105,506 time-vesting units, such that the total time-vesting units vested were equal to 316,517 upon his termination and the remaining 211,011 of unvested time-vesting units were forfeited upon his termination. As the employee’s profits interest units had not vested from an accounting perspective, the retention and immediate vesting of the retained time-vesting units was accounted for as a cancellation of the original award and a new grant under the revised terms. A cumulative catch-up charge of $1.1 million was recorded during the fiscal quarter ended April 3, 2021 to reflect the incremental fair value of the awards as of the date of the modification, as compared to the grant-date fair value.

14. STOCK-BASED COMPENSATION

On April 12, 2021, the Company’s stockholders approved the 2021 Omnibus Incentive Plan (the “Omnibus Incentive Plan”), which became effective on April 22, 2021, upon pricing of the IPO. The Omnibus Incentive Plan provides for the issuance of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based and cash-based awards. The maximum aggregate number of shares reserved for issuance under the Omnibus Incentive Plan is 13,170,212 shares. The maximum grant date fair value of cash and equity awards that may be awarded to a non-employee director under the Omnibus Incentive Plan during any one fiscal year, together with any cash fees paid to such non-employee director during such fiscal year, will be $750 thousand.

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Contemporaneously with the pricing of the Company’s IPO, on April 22, 2021 the Company granted 8,340,126 of restricted stock awards, 341,301 of restricted stock units and 886,862 of option awards under the Omnibus Incentive Plan to employees of the Company. Of the 8,340,126 restricted stock awards granted, (i) 6,799,414 vest every six months in equal installments beginning on December 27, 2021 and ending on December 27, 2023, and (ii) 1,540,712 vest every six months in equal installments, beginning on December 27, 2021 and ending on December 27, 2024. Of the 341,301 restricted stock unit awards granted, (i) 251,828 vest 1/3 on the nine-month anniversary of the Closing of the IPO, 1/3 on the first anniversary of the Closing of the IPO, and 1/3 on the two-year anniversary of the Closing of the IPO; (ii) 22,367 vest on the first anniversary of the Closing of the IPO; (iii) 51,316 vest on the nine-month anniversary of the Closing of the IPO; and (iv) 15,790 vest evenly on each of the first three anniversaries of the Closing of the IPO. All 886,862 of the option awards vest 25% annually on each of the first four anniversaries of the Closing of the IPO. The option awards were granted with a strike price of $19.00 per share. Under the terms of the Omnibus Incentive Plan, all stock options will expire if not exercised within ten years of the grant date.

Stock-based compensation expense for the fiscal quarters and two fiscal quarters ended July 3, 2021 was $75.5 million and $77.0 million, respectively. Stock-based compensation expense for the fiscal quarters and two fiscal quarters ended June 27, 2020 was and $0.2 million and $0.5 million, respectively. Stock-based compensation expense of $4.9 million and $70.6 was recorded in cost of sales and selling, general and administrative expense, respectively, for the fiscal quarter ended July 3, 2021. Stock-based compensation expense of $4.9 million and $72.1 was recorded in cost of sales and selling, general and administrative expense, respectively, for the two fiscal quarters ended July 3, 2021. Stock-based compensation expense for the fiscal quarters and two fiscal quarters ended June 27, 2020 was was recorded in selling, general and administrative expense on the condensed consolidated statements of operations. Of the $75.5 million of stock-based compensation expense recorded during the fiscal quarter ended July 3, 2021, $0.5 million was due to the accelerated vesting of restricted stock and $49.0 million was due to the modification as a result of the Reorganization. The remaining $26.0 million in stock-based compensation expense for the fiscal quarter ended July 3, 2021 was recognized based on the grant date fair value over the requisite service period. Refer to Note 12 above for detail regarding the Company’s equity-based awards issued in the form of PIUs prior to the Reorganization and IPO. As of July 3, 2021, total unrecognized stock-based compensation expense related to all unvested stock-based awards of $145.4 million, which is expected to be recognized over a weighted-average period of 1.84 years.

The following table sets forth the significant assumptions used in the Black-Scholes option-pricing model on a weighted-average basis to determine the fair value of option awards granted:


	Two Fiscal Quarters
	Ended July 3, 2021
Risk-free interest rate	0.63	%
Expected volatility	38.16	%
Expected term (in years)	6.25
Expected dividend yield	0.00	%

Restricted Stock Awards

The following table represents the Company’s restricted stock awards activity during the two fiscal quarters ended July 3, 2021:


		Weighted-Average
		Grant-Date Fair
	Shares	Value
Outstanding at January 1, 2021	—	$	—
Granted	8,340,126		19.00
Vested	(84,687)		19.00
Forfeited	—		—
Outstanding at July 3, 2021	8,255,439	$	19.00

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Restricted Stock Units

The following table represents the Company’s restricted stock units activity during the two fiscal quarters ended July 3, 2021:


		Weighted-Average
		Grant-Date Fair
	Shares	Value
Outstanding at January 1, 2021	—	$	—
Granted	341,301		19.00
Vested	—		—
Forfeited	(809)		19.00
Outstanding at July 3, 2021	340,492	$	19.00

Stock Options

The following table represents the Company’s stock option activity during the two fiscal quarters ended July 3, 2021:


				Weighted-
		Weighted-		Average
		Average Exercise		Remaining	Aggregate
	Shares	Price per Share		Contract Term	Intrinsic Value
				(in years)	(in thousands)
Outstanding on January 1, 2021	—	$	—	—	$	—
Granted	886,862		19.00
Exercised	—
Forfeited	—
Outstanding at July 3, 2021	886,862	$	19.00	9.80	$	10,802
Vested and expected to vest at July 3, 2021	886,862	$	19.00	9.80	$	10,802
Options exercisable at July 3, 2021	—		—	—		—

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock.

The weighted average grant-date fair value of stock options granted during the two fiscal quarters ended July 3, 2021 was $7.20 per share.

15. NET INCOME (LOSS) PER SHARE

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows (in thousands, except share and per share data):


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Numerator:
Net income (loss) attributable to common stockholders	$	(53,598)	$	16,414	$	(45,065)	$	963
Denominator:
Weighted-average common shares outstanding
Basic		109,163,698		96,268,250		109,115,991		96,300,029
Diluted		109,163,698		96,654,697		109,115,991		96,719,370
Net income (loss) per share attributable to common stockholders:
Basic	$	(0.49)	$	0.17	$	(0.41)	$	0.01
Diluted	$	(0.49)	$	0.17	$	(0.41)	$	0.01

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The following table includes the number of shares that may be dilutive common shares in the future that were not included in the computation of diluted net income (loss) per share because the effect was anti-dilutive:


	Fiscal Quarter Ended		Two Fiscal Quarters Ended
	July 3, 2021	June 27, 2020	July 3, 2021	June 27, 2020
Restricted stock awards	5,075,346	54,124	8,721,817	39,858
Restricted stock units	112,449	—	55,613	—
Stock options	81,017	—	40,068	—

16. RELATED PARTY TRANSACTIONS

BrightAI Services

Starting in 2020, BrightAI rendered services to the Company, for which the cost was capitalized as internal-use software. A co-founder of BrightAI Services has served on the Company’s board of directors since December 9, 2020. During the two fiscal quarters ended July 3, 2021 and the year ended December 31, 2020, the Company incurred $1.3 million and $0.5 million, respectively, associated with services performed by BrightAI, which is recorded as construction in progress within property and equipment, net on the condensed consolidated balance sheet as of July 3, 2021. As of July 3, 2021 and December 31, 2020, the Company had accounts payable - related party to BrightAI of $1.4 million and $0.5 million, respectively. There were no services rendered by BrightAI during the two fiscal quarters ended June 27, 2020.

Expense Reimbursement and Management Fees

The Company had an expense reimbursement agreement (the “management fee arrangement”) with the Sponsor and Wynnchurch Capital, L.P. for ongoing consulting and advisory services. The management fee arrangement provided for the aggregate payment of up to $1.0 million each year for reimbursement of expenses incurred with services provided and, depending on the extent of services provided, management fees. The management fee arrangement terminated upon consummation of the Company’s IPO.

There were no management fees incurred by the Company during the two fiscal quarters ended July 3, 2021 and June 27, 2020. As of both July 3, 2021 and June 27, 2020, there was less than $0.1 million outstanding amounts payable to the Sponsor and Wynnchurch Capital, L.P.

Operating Lease

In May 2019, in connection with the Narellan Acquisition, the Company assumed an operating lease for the manufacture, sale and storage of swimming pools and associated equipment with Acquigen Pty Ltd, which is owned by an employee who is also a shareholder of the Company. The lease expires in June 2028. As of July 3, 2021 and December 31, 2020, future minimum lease payments totaled $3.9 million and $4.2 million, respectively, related to this lease. The Company recognized $0.1 million of rent expense related to this lease during each of the fiscal quarters ended July 3, 2021 and June 27, 2020, as well as $0.2 million of rent expense during each of the two fiscal quarters ended July 3, 2021 and June 27, 2020, which is recognized within selling, general and administrative expense on the condensed consolidated statements of operations.

17. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Information

During 2020, the Company made operational changes in how its CODM manages the business including organizational alignment, performance assessment and resource allocation. The segment disclosure is based on the intention to provide the users of the financial statements with a view of the business from the Company’s perspective. The Company conducts its business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

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Geographic Information

Net sales by geography is based on the delivery address of the customer as specified in purchase order. Net sales by geographic area was as follows (in thousands):


	Fiscal Quarter Ended				Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
Net sales
United States	$	142,712	$	92,770	$	261,782	$	131,776
Canada		27,401		15,470		48,516		21,412
Australia		6,501		3,631		12,251		7,748
New Zealand		1,772		769		3,528		1,416
Other		2,503		182		3,558		1,604
Total	$	180,889	$	112,822	$	329,635	$	163,956

Our long-lived assets by geographic area, which consist of property and equipment, net assets were as follows (in thousands):


	July 3,		December 31,
	2021		2020
Long-lived assets
United States	$	45,394	$	37,680
Canada		4,400		3,050
Australia		4,735		4,979
New Zealand		1,651		1,648
Total	$	56,180	$	47,357

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

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

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act, with the Securities and Exchange Commission, or SEC, on April 26, 2021 (the “Prospectus”).

Cautionary Note Regarding Forward-Looking Statements

This discussion contains forward-looking statements that involve risk, assumptions and uncertainties, such as statements of our plans, objectives, expectations, intentions and forecasts. These forward-looking statements are generally identified by the use of forward-looking terminology, including the terms “anticipate,” “believe,” “confident,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and, in each case, their negative or other various or comparable terminology. Our actual results and the timing of selected events could differ materially from those discussed in these forward-looking statements as a result of several factors, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause our results to vary from expectations include, but are not limited to secular shifts in consumer demand for swimming pools and spending on outdoor living spaces; slow pace of material conversion from concrete pools to fiberglass pools in the pool industry; general economic conditions and uncertainties affecting markets in which we operate and economic volatility that could adversely impact our business, including the COVID-19 pandemic; changes in access to consumer credit or increases in interest rates impacting consumers’ ability to finance their purchases of pools; the impact of weather on our business; our ability to attract new customers and retain existing customers; our ability to sustain further growth and to manage it effectively; the ability of our suppliers to continue to deliver the quantity or quality of materials sufficient to meet our needs to manufacture our products; the availability and cost of third-party transportation services for our products and raw materials; product quality issues; our ability to successfully defend litigation brought against us; our ability to adequately obtain, maintain, protect and enforce our intellectual property and proprietary rights and claims of intellectual property and proprietary right infringement, misappropriation or other violation by competitors and third parties; failure to hire and retain qualified employees and personnel; exposure to risks associated with international sales and operations, including foreign currency exchange rates, corruption and instability; security breaches, cyber-attacks and other interruptions to our and our third-party service providers’ technological and physical infrastructures; catastrophic events, including war, terrorism and other international conflicts, public health issues or natural catastrophes and accidents; risk of increased regulation of our operations, particularly related to environmental laws; fluctuations in our operating results; inability to compete successfully against current and future competitors; and other risks, uncertainties and factors set forth in this Quarterly Report on Form 10-Q, including those set forth under section titled “Risk Factors.” These forward-looking statements reflect our views with respect to future events as of the date of this Quarterly Report on Form 10-Q and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements represent our estimates and assumptions only as of the date of this Quarterly Report on Form 10-Q and, except as required by law, we undertake no obligation to update or review publicly any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. You should read this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. Our forward-looking statements do not reflect the potential impact of any future acquisitions, merger, dispositions, joint ventures or investments we may undertake. We qualify all of our forward-looking statements by these cautionary statements.

Overview

We are the largest designer, manufacturer and marketer of in-ground residential swimming pools in North America, Australia and New Zealand. We hold the #1 market position in North America in every product category in which we compete. We believe that we are the most sought-after brand in the pool industry and the only pool company that has established a direct relationship with the homeowner. We are Latham, The Pool Company.

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With an operating history that spans over 65 years, we offer the industry’s broadest portfolio of pools and related products, including in-ground swimming pools, pool liners and pool covers.

We have a heritage of innovation. In an industry that has traditionally marketed on a business-to-business basis (pool manufacturer to dealer), we pioneered the first “direct-to-homeowner” digital and social marketing strategy that has transformed the homeowner’s purchase journey. Through this marketing strategy, we are able to create demand for our pools and generate and provide high quality, purchase-ready consumer leads to our dealer partners.

Partnership with our dealers is integral to our collective success, and we have enjoyed long-tenured relationships averaging over 14 years. In 2020, we sold to over 6,000 dealers; we also entered into a new and exclusive long-term strategic partnership with the nation’s largest franchised dealer network. We support our dealer network with business development tools, co-branded marketing programs and in-house training, as well as a coast-to-coast operations platform consisting of over 2,000 employees across 32 facilities. The broad geographic reach of our manufacturing and distribution network allows us to deliver a fiberglass pool in a cost-effective manner to approximately 95% of the U.S. population in two days. No other competitor in the residential in-ground swimming pool industry has more than three manufacturing facilities.

The full resources of our company are dedicated to designing and manufacturing high-quality pool products with the homeowner in mind, and positioning ourselves as a value-added partner to our dealers.

We conduct our business as one operating and reportable segment that designs, manufactures and markets in-ground swimming pools, liners and covers.

Recent Developments

Highlights for the fiscal quarter ended July 3, 2021

●

Increase in net sales of 60.3%, or $68.1 million, to $180.9 million for the fiscal quarter ended July 3, 2021, compared to $112.8 million for the fiscal quarter ended June 27, 2020.

●

Increase in net loss of $70.0 million, to $53.6 million for the fiscal quarter ended July 3, 2021, compared to a net income of $16.4 million for the fiscal quarter ended June 27, 2020, representing a (29.6)% net loss margin for the fiscal quarter ended July 3, 2021.

●

Increase in Adjusted EBITDA (as defined below) of $9.7 million, to $42.8 million for the fiscal quarter ended July 3, 2021, compared to $33.1 million for the fiscal quarter ended June 27, 2020.

Highlights for the two fiscal quarters ended July 3, 2021

●

Increase in net sales of 101.1%, or $165.6 million, to $329.6 million for the two fiscal quarters ended July 3, 2021, compared to $164.0 million for the two fiscal quarters ended June 27, 2020.

●

Increase in net loss of $46.1 million, to $45.1 million for the fiscal quarter ended July 3, 2021, compared to a net income of $1.0 million for the fiscal quarter ended June 27, 2020, representing a (13.7)% net loss margin for the two fiscal quarters ended July 3, 2021.

●

Increase in Adjusted EBITDA (as defined below) of $45.2 million, to $76.4 million for the fiscal quarter ended July 3, 2021, compared to $31.2 million for the fiscal quarter ended June 27, 2020.

Initial Public Offering

On April 27, 2021, we completed our initial public offering (the “IPO”) in which we sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. The aggregate net proceeds received by us from the IPO were $399.3 million, after deducting underwriting discounts and commissions and other offering costs. We used the net proceeds to (i) pay down $152.7 million of the Amended Term Loan (as defined below) under

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the Credit Agreement (as defined below), (ii) repay the $16.0 million outstanding on the Revolving Credit Facility (as defined below), (iii) repurchase 12,264,438 shares of common stock from certain existing shareholders for $216.7 million and (iv) fund general corporate requirements, including working capital, for $13.9 million.

Contemporaneously with the pricing of the IPO, on April 22, 2021, we have put in place our Omnibus Incentive Plan, pursuant to which we granted to certain of our employees restricted stock awards, restricted stock units and option awards (the “Omnibus Plan”).

Reorganization

Prior to the closing of the IPO, our parent entity, Latham Investment Holdings, LP (“Parent”) merged with and into Latham Group, Inc., with Latham Group, Inc. surviving the merger (the “Reorganization”). The purpose of the Reorganization was to reorganize our structure so that our existing investors would own only common stock rather than limited partnership interests in our Parent. In connection with the Reorganization, 194,207,115 Class A units of our Parent (“Class A units”) were converted into 97,187,596 shares of our common stock and 26,158,894 Class B units of our Parent were converted into 4,145,987 shares of common stock and 8,340,126 shares of restricted stock. The Reorganization was accounted for as a transaction between entities under common control and retrospectively applied starting December 2018, the earliest period in which common control existed.

Stock Split

On April 13, 2021, our Board of Directors approved a 109,673.709-for-one stock split of our common stock, par value $0.0001. Accordingly, all share and per share data for all periods presented have been adjusted retroactively to reflect the impact of the amended certificate of incorporation and the stock split.

Charter Amendment

On April 13, 2021, our certificate of incorporation was amended, which amended and restated certain terms of the certificate of incorporation. Under the amended certificate of incorporation, we had the authority to issue 500,000,000 shares of common stock, par value $0.0001 per share.

On April 22, 2021, as part of the Reorganization, our certificate of incorporation was further amended and restated to, among other things, increase the authorized shares to 1,000,000,000, of which 900,000,000 are shares of common stock, par value $0.0001 per share and 100,000,000 are shares of preferred stock, par value 0.0001 per share.

Key Performance Indicators

Net Sales

We derive our revenue from the design, manufacture and sale of in-ground swimming pools, pool covers and liners. We sell fiberglass pools, which are one-piece manufactured fiberglass pools that are ready to be installed in a consumer’s backyard and custom vinyl pools, which are manufactured pools that are made out of non-corrosive steel or composite polymer frame, on top of which a vinyl liner is installed. We sell liners for the interior surface of vinyl pools (including pools that were not manufactured by us). We also sell all-season covers, which are winterizing mesh and solid pool covers that protect pools against debris and cold or inclement weather and automatic safety covers for pools that can be operated with a switch.

Our sales are made through one-step and two-step business-to-business distribution channels. In our one-step distribution channel, we sell our products directly to dealers who, in turn, sell our products to consumers. In our two-step distribution channel, we sell our products to distributors who warehouse our products and sell them on to dealers, who ultimately sell our products to consumers.

Each product shipped is considered to be one performance obligation. With the exception of our extended service warranties and our custom product contracts, we recognize our revenue when control of our promised goods is transferred to our customers, either upon shipment or arrival at our customer’s destination depending upon the terms of the purchase order. Sales are recognized net of any estimated rebates, cash discounts or other sales incentives. Revenue that is derived from our extended service warranties, which are separately priced and sold, is recognized over the term of the contracts. Revenue from custom products is recognized over time utilizing an input method that compares the cost of cumulative work-in-process to date to the most current estimates for the entire cost

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of the performance obligation. Custom products are generally delivered to the customer within three days of receipt of the purchase order.

Gross Margin

Gross margin is gross profit as a percentage of our net sales. Gross margin is dependent upon several factors, such as changes in prices of raw materials, the volume and relative sales mix among product lines, the average price of our products sold and plant performance, among other factors. Gross margin is also impacted by the costs of distribution and occupancy costs, which can vary.

Our gross profit is variable in nature and generally follows changes in net sales. The components of our cost of sales may not be comparable to the components of cost of sales or similar measures of other companies. As a result, our gross profit and gross margin may not be comparable to similar data made available by other companies.

Adjusted EBITDA and Adjusted EBITDA Margin

We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions, to establish our annual management incentive bonus plan compensation and to compare our performance against that of other peer companies using similar measures. We define Adjusted EBITDA as net income (loss) plus (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, , (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) other non-cash items, (ix) strategic initiative costs, (x) acquisition and integration related costs, (xi) other, (xii) IPO costs, and (xiii) COVID-19-related expenses (income). We believe excluding these items allows for better comparison of our financial results across reporting periods.

We define Adjusted EBITDA margin as Adjusted EBITDA divided by net sales. Our definitions of Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similarly titled measures of other companies.

For a discussion of Adjusted EBITDA and Adjusted EBITDA margin and the limitations on their use, and the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP financial measure, and our calculation of Adjusted EBITDA margin see “—Non-GAAP Financial Measures” below.

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Results of Operations

Fiscal Quarter Ended July 3, 2021 Compared to Fiscal Quarter Ended June 27, 2020

The following table summarizes our results of operations for the fiscal quarters ended July 3, 2021 and June 27, 2020:

	Fiscal Quarter Ended
			% of Net				% of Net		Change		Change %
	July 3, 2021		Sales		June 27, 2020		Sales		Amount		of Net Sales

	(dollars in thousands)
Net sales	$	180,889	100.0	%	$	112,822	100.0	%	$	68,067	0.0	%
Cost of sales		122,534	67.7	%		68,460	60.7	%		54,074	7.0	%
Gross profit		58,355	32.3	%		44,362	39.3	%		13,993	(7.0)	%

Selling, general and administrative expense		95,288	52.7	%		15,360	13.6	%		79,928	39.1	%
Amortization		5,479	3.0	%		4,063	3.6	%		1,416	(0.6)	%
(Loss) income from operations		(42,412)	23.4	%		24,939	22.1	%		(67,351)	1.3	%
Other expense (income):
Interest expense		7,516	4.2	%		4,308	3.8	%		3,208	0.4	%
Other (income) expense, net		(794)	0.4	%		(1,242)	1.1	%		448	(0.7)	%
Total other expense (income), net		6,722	3.7	%		3,066	2.7	%		3,656	1.0	%
Earnings from equity method investment		754	0.4	%		—	0.0	%		754	0.4	%
(Loss) income before income taxes		(48,380)	26.7	%		21,873	19.4	%		(70,253)	7.3	%
Income tax expense		5,218	2.9	%		5,459	4.8	%		(241)	(1.9)	%
Net (loss) income	$	(53,598)	29.6	%	$	16,414	14.5	%	$	(70,012)	15.1	%
Adjusted EBITDA^(a)	$	42,848	23.7	%	$	33,095	29.3	%	$	9,753	(5.6)	%

(a)Adjusted EBITDA is a non-GAAP measure. See “Non-GAAP Measures” for a reconciliation to net income (loss), the most directly comparable GAAP measure, and for information regarding our use of Adjusted EBITDA.

Net Sales

Net sales was $180.9 million for the fiscal quarter ended July 3, 2021, compared to $112.8 million for the fiscal quarter ended June 27, 2020. The $68.1 million, or 60.3%, increase in net sales was due to a $54.1 million increase from volume and a $14.0 million increase from pricing. The $54.1 million volume increase stemming from strong consumer demand for our products and continued growth in the number of new exclusive Latham Dealers and includes $18.2 million due to having three months of GLI’s net sales in our net sales in the fiscal quarter ended July 3, 2021. The increase in total net sales of $68.1 million across our product lines was $45.9 million for in-ground swimming pools, $12.8 million for liners and $9.4 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $122.5 million for the fiscal quarter ended July 3, 2021, compared to $68.5 million for the fiscal quarter ended June 27, 2020. Gross margin decreased by 7.0% to 32.3% of net sales for the fiscal quarter ended July 3, 2021 compared to 39.3% of net sales for the fiscal quarter ended June 27, 2020. The $54.0 million, or 79.0% increase in cost of sales was primarily due to an increase in net sales, partially offset by the addition of non-cash stock-based compensation expense of $4.9 million. The 7.0% decrease in gross margin was due to, temporary cost-savings initiatives implemented in response to the COVID-19 pandemic and lower rebates and incentive plan accruals in the fiscal quarter ended June 27, 2020, which reflected modest sales volumes, as compared to the fiscal quarter ended July 3, 2021, which was impacted by the inclusion of non-cash stock-based compensation, expense, higher growth-related rebates from sales growth and challenges in the supply chain, including constrained raw material supply that has resulted in intermittent manufacturing inefficiencies, and cost inflation. These factors were not fully offset by the timing of price increases and benefits of positive mix shift dynamics.

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Selling, General and Administrative Expense

Selling, general and administrative expense was $95.3 million for the fiscal quarter ended July 3, 2021, compared to $15.4 million for the fiscal quarter ended June 27, 2020, and increased as a percentage of net sales by 39.1%. The $79.9 million, or 520.4% increase in selling, general and administrative expense was primarily due to $70.4 million increase in stock-based compensation expense, $2.8 million increase in wages from an increase in headcount, particularly for customer-facing activities to support growth of the business, and as a result of the increase in the number of employees following the acquisition of GLI, $1.1 million increase due to legal, accounting and professional fees incurred in connection with our IPO that were not capitalizable and $0.6 million increase in incentive plan accruals reflecting strong sales performance.

Amortization

Amortization was $5.5 million for the fiscal quarter ended July 3, 2021, compared to $4.1 million for the fiscal quarter ended June 27, 2020. The $1.4 million, or 34.9% increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI International, LLC (“GLI”) in October 2020.

Interest Expense

Interest expense was $7.5 million for the fiscal quarter ended July 3, 2021, compared to $4.3 million for the fiscal quarter ended June 27, 2020. The $3.2 million, or 74.5% increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt and amortization from increased deferred financing fees from entering into an amendment to the Term Loan, compared to the fiscal quarter ended June 27, 2020.

Other (Income) Expense, Net

Other (income) expense, net was $(0.8) million for the fiscal quarter ended July 3, 2021, compared to $(1.2) million for the fiscal quarter ended June 27, 2020. The $0.4 million decrease in other (income) expense, net was due to a $0.4 million unfavorable change in net foreign currency transaction gains and losses associated with our international subsidiaries, compared to the fiscal quarter ended June 27, 2020.

Earnings from Equity Method Investment

Earnings from equity method investment of Premier Pools & Spa was $0.8 million for the fiscal quarter ended July 3, 2021, compared to no equity in net earnings of Premier Pools & Spa for the fiscal quarter ended June 27, 2020 as the equity method investment was made in October 2020.

Income Tax Expense

Income tax expense was $5.2 million for the fiscal quarter ended July 3, 2021, compared to $5.5 million for the fiscal quarter ended June 27, 2020. Our effective tax rate was (10.8)% for the fiscal quarter ended July 3, 2021, compared to 25.0% for the fiscal quarter ended June 27, 2020. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended July 3, 2021 was primarily attributable to the impact of stock compensation expense pursuant to the Reorganization. The results for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation expense of $73.5 million related to the Reorganization for which there is no associated tax benefit. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended June 27, 2020 was primarily impacted by our switching to an income position for the fiscal quarter ended June 27, 2020.

Net (Loss) Income

Net (loss) income was $(53.6) million for the fiscal quarter ended July 3, 2021, compared to $16.4 million of net income for the fiscal quarter ended June 27, 2020. The $70.0 million, or 426.5% increase in net loss was primarily due to the factors described above.

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Net (Loss) Income Margin

Net loss margin was (29.6)% for the fiscal quarter ended July 3, 2021, compared to net income margin of 14.5% for the fiscal quarter ended June 27, 2021. The (44.1)% increase in net (loss) income margin was due to a $70.0 million increase in net loss and an $68.1 million increase in net sales, compared to the fiscal quarter ended June 27, 2020 due to the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $42.8 million for the fiscal quarter ended July 3, 2021, compared to $33.1 million for the fiscal quarter ended June 27, 2020. The $9.7 million, or 29.5%, increase in Adjusted EBITDA was primarily due to a $10.1 million increase in earnings before depreciation and amortization, interest expense, income tax (benefit) expense and stock based compensation expense, as well as a $1.1 million increase in legal, accounting and professional fees incurred in connection with our IPO that are not capitalizable.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.7% for the fiscal quarter ended July 3, 2021, compared to 29.3% for the fiscal quarter ended June 27, 2020. The 5.6% decrease in Adjusted EBITDA margin was primarily due to a $9.7 million increase in Adjusted EBITDA and a $68.1 million increase in net sales, compared to the fiscal quarter ended June 27, 2020.

Two Fiscal Quarters Ended July 3, 2021 Compared to Two Fiscal Quarters Ended June 27, 2020

The following table summarizes our results of operations for the two fiscal quarters ended July 3, 2021 and June 27, 2020:


	Two Fiscal Quarters Ended
			% of Net				% of Net		Change		Change %
	July 3, 2021		Sales		June 27, 2020		Sales		Amount		of Net Sales

	(dollars in thousands)
Net sales	$	329,635	100.0	%	$	163,956	100.0	%	$	165,679	0.0	%
Cost of sales		218,840	66.4	%		109,495	66.8	%		109,345	(0.4)	%
Gross profit		110,795	33.6	%		54,461	33.2	%		56,334	0.4	%

Selling, general and administrative expense		122,460	37.2	%		30,792	18.8	%		91,668	18.4	%
Amortization		11,074	3.4	%		8,126	5.0	%		2,948	(1.6)	%
(Loss) income from operations		(22,739)	6.9	%		15,543	9.5	%		(38,282)	(2.6)	%
Other expense (income):
Interest expense		16,572	5.0	%		9,641	5.9	%		6,931	(0.9)	%
Other (income) expense, net		(1,349)	0.4	%		2,499	1.5	%		(3,848)	(1.1)	%
Total other expense (income), net		15,223	4.6	%		12,140	7.4	%		3,083	(2.8)	%
Earnings from equity method investment		998	0.3	%		—	0.0	%		998	0.3	%
(Loss) income before income taxes		(36,964)	11.2	%		3,403	2.1	%		(40,367)	9.1	%
Income tax expense		8,101	2.5	%		2,440	1.6	%		5,661	0.9	%
Net (loss) income	$	(45,065)	13.7	%	$	963	0.6	%	$	(46,028)	13.1	%
Adjusted EBITDA^(a)	$	76,368	23.2	%	$	31,210	19.0	%	$	45,158	4.2	%

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Net Sales

Net sales was $329.6 million for the two fiscal quarters ended July 3, 2021, compared to $164.0 million for the two fiscal quarters ended June 27, 2020. The $165.6 million, or 101.1%, increase in net sales was due to a $143.7 million increase from volume and a $21.9 million increase from pricing. The $143.7 million volume increase across our product lines primarily attributable to continued strong consumer demand and order volumes across the Company’s product portfolio, expanded strategic partnerships with Latham’s exclusive dealers, and includes $34.1 million due to having six months of GLI’s net sales in our net sales in the two fiscal quarters ended July 3, 2021. The increase in total net sales of $165.6 million across our product lines was $110.0 million for in-ground swimming pools, $33.2 million for liners and $22.4 million for covers.

Cost of Sales and Gross Margin

Cost of sales was $218.8 million for the two fiscal quarters ended July 3, 2021, compared to $109.5 million for the two fiscal quarters ended June 27, 2020. Gross margin increased by 0.4% to 33.6% of net sales for the two fiscal quarters ended July 3, 2021 compared to 33.2% of net sales for the two fiscal quarters ended June 27, 2020. The $109.3 million, or 99.9% increase in cost of sales was primarily the result of the overall increase in sales volume, inflation in the cost of our raw materials and $4.9 million of non-cash stock-based compensation expense. The 0.4% increase in gross margin was primarily due to price increases, higher utilization of fixed cost structure, and a mix shift towards in-ground pools, partially offset by supply chain headwinds and inflation, higher growth-related rebates driven by strong sales growth, and stock-based compensation expense.

Selling, General and Administrative Expense

Selling, general and administrative expense was $122.5 million for the two fiscal quarters ended July 3, 2021, compared to $30.8 million for the two fiscal quarters ended June 27, 2020, and increased as a percentage of net sales by 18.4%. The $91.7 million, or 297.7% increase in selling, general and administrative expense was primarily due to $71.6 million increase in stock-based compensation expense, $5.7 million increase in wages from an increase in headcount particularly for customer-facing activities to support growth of the business and as a result of the increase in the number of employees following the acquisition of GLI, $4.0 million increase due to legal, accounting and professional fees incurred in connection with our IPO that were not capitalizable; and $2.8 million increase in incentive plan accruals reflecting strong sales performance.

Amortization

Amortization was $11.1 million for the two fiscal quarters ended July 3, 2021, compared to $8.1 million for the two fiscal quarters ended June 27, 2020. The $3.0 million, or 36.3%, increase in amortization was due to the increase in our definite-lived intangible assets resulting from our acquisition of GLI in October 2020.

Interest Expense

Interest expense was $16.6 million for the two fiscal quarters ended July 3, 2021, compared to $9.6 million for the two fiscal quarters ended June 27, 2020. The $7.0 million, or 71.9%, increase in interest expense was primarily due to an increase in the outstanding balance of long-term debt and amortization from increased deferred financing fees from entering into an amendment to the Term Loan (as defined below), compared to the two fiscal quarters ended June 27, 2020.

Other (Income) Expense, Net

Other (income) expense, net was $(1.3) million for the two fiscal quarters ended July 3, 2021, compared to $2.5 million for the two fiscal quarters ended June 27, 2020. The $3.8 million increase in other (income) expense, net was due to a $3.8 million favorable change in net foreign currency transaction gains and losses associated with our international subsidiaries, compared to the two fiscal quarters ended June 27, 2020.

Earnings from Equity Method Investment

Earnings from equity method investment of Premier Pools & Spa was $1.0 million for the two fiscal quarters ended July 3, 2021, compared to no equity in net earnings of Premier Pools & Spa for the two fiscal quarters ended June 27, 2020 as the equity method investment was made in October 2020.

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Income Tax Expense

Income tax expense was $8.1 million for the two fiscal quarters ended July 3, 2021, compared to $2.4 million for the two fiscal quarters ended June 27, 2020. Our effective tax rate was (21.9)% for the two fiscal quarters ended July 3, 2021, compared to 71.7% for the two fiscal quarters ended June 27, 2020. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended July 3, 2021 was primarily attributable to the impact of stock compensation expense pursuant to the Reorganization. The results for the fiscal quarter ended July 3, 2021 include pre-tax stock compensation expense of $73.5 million related to the Reorganization for which there is no associated tax benefit. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter ended April 3, 2021 was impacted primarily by state income tax expense. The difference between the U.S. federal statutory income tax rate and our effective income tax rate for the fiscal quarter and two fiscal quarters ended June 27, 2020 was primarily impacted by our switching to an income position for the fiscal quarter ended June 27, 2020. The pre-tax income for the two fiscal quarters included losses in tax jurisdictions for which we did not record a tax benefit, which increased the effective income tax rate for the fiscal quarter ended June 27, 2020.

Net (Loss) Income

Net loss was $(45.1) million for the two fiscal quarters ended July 3, 2021, compared to $1.0 million of net income for the two fiscal quarters ended June 27, 2020. The $46.1 million, or 4,779.6% increase in net loss was primarily due to the factors described above.

Net (Loss) Income Margin

Net loss margin was (13.7)% for the two fiscal quarters ended July 3, 2021, compared to net income margin of 0.6% for the two fiscal quarters ended June 27, 2021. The (14.3)% increase in net (loss) income margin was due to a $45.1 million increase in net loss and an $165.6 million increase in net sales, compared to the two fiscal quarters ended June 27, 2020 due to the factors described above.

Adjusted EBITDA

Adjusted EBITDA was $76.4 million for the two fiscal quarters ended July 3, 2021, compared to $31.2 million for the two fiscal quarters ended June 27, 2020. The $45.2 million, or 144.7%, increase in Adjusted EBITDA was primarily due to a $47.1 million increase in earnings before depreciation and amortization, interest expense, income tax (benefit) expense and stock based compensation expense, as well as a $4.0 million increase in legal, accounting and professional fees incurred in connection with our IPO that are not capitalizable, partially offset by a $3.4 million decrease in unrealized (gains) losses on foreign currency transactions, which included changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan Group Pty Limited and its subsidiaries, which was settled in September 2020.

Adjusted EBITDA Margin

Adjusted EBITDA margin was 23.2% for the two fiscal quarters ended July 3, 2021, compared to 19.0% for the two fiscal quarters ended June 27, 2020. The 4.2% increase in Adjusted EBITDA margin was primarily due to a $45.2 million increase in Adjusted EBITDA and an $165.6 million increase in net sales, compared to the fiscal quarter ended June 27, 2020.

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Non-GAAP Financial Measures

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA and Adjusted EBITDA margin are key metrics used by management and our board of directors to assess our financial performance. Adjusted EBITDA and Adjusted EBITDA margin are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures. We use Adjusted EBITDA and Adjusted EBITDA margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies, to make budgeting decisions and to compare our performance against that of other companies using similar measures. We have presented Adjusted EBITDA and Adjusted EBITDA margin solely as supplemental disclosures because we believe they allow for a more complete analysis of results of operations and assist investors and analysts in comparing our operating performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, such as (i) depreciation and amortization, (ii) interest expense, (iii) income tax (benefit) expense, (iv) loss on sale and disposal of property and equipment, (v) restructuring charges, (vi) stock-based compensation expense, (vii) unrealized (gains) losses on foreign currency transactions, (viii) strategic initiative costs, (ix) acquisition and integration related costs, (x) other, and (xi) IPO costs.

Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures and should not be considered as alternatives to net income as a measure of financial performance or any other performance measure derived in accordance with GAAP, and they should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA and Adjusted EBITDA margin, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. There can be no assurance that we will not modify the presentation of Adjusted EBITDA and Adjusted EBITDA margin following this offering, and any such modification may be material. Our presentation of Adjusted EBITDA and Adjusted EBITDA margin should not be construed to imply that our future results will be unaffected by any such adjustments. In addition, other companies, including companies in our industry, may not calculate Adjusted EBITDA and Adjusted EBITDA margin at all or may calculate Adjusted EBITDA and Adjusted EBITDA margin differently and accordingly, are not necessarily comparable to similarly entitled measures of other companies, which reduces the usefulness of Adjusted EBITDA and Adjusted EBITDA margin as tools for comparison.

Adjusted EBITDA and Adjusted EBITDA margin have their limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are that Adjusted EBITDA and Adjusted EBITDA margin:

●

do not reflect every expenditure, future requirements for capital expenditures or contractual commitments;

●

do not reflect changes in our working capital needs;

●

do not reflect the interest expense, or the amounts necessary to service interest or principal payments, on our outstanding debt;

●

do not reflect income tax (benefit) expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate;

●

do not reflect non-cash equity compensation, which will remain a key element of our overall equity-based compensation package; and

●

do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations.

Although depreciation and amortization are eliminated in the calculation of Adjusted EBITDA and Adjusted EBITDA margin, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA and Adjusted EBITDA margin do not reflect any costs of such replacements.

Management compensates for these limitations by primarily relying on our GAAP results, while using Adjusted EBITDA and Adjusted EBITDA margin as supplements to the corresponding GAAP financial measures.

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The following table provides a reconciliation of our net income to Adjusted EBITDA for the periods presented and the calculation of Adjusted EBITDA margin:


	Fiscal Quarter Ended						Two Fiscal Quarters Ended
	July 3, 2021			June 27, 2020			July 3, 2021			June 27, 2020

	(dollars in thousands)
Net (loss) income	$	(53,598)		$	16,414		$	(45,065)		$	963
Depreciation and amortization		7,770			5,854			15,670			11,609
Interest expense		7,516			4,308			16,572			9,641
Income tax expense		5,218			5,459			8,101			2,440
Loss on sale and disposal of property and equipment		22			(3)			187			—
Restructuring charges(a)		36			347			407			633
Stock-based compensation(b)		75,511			240			76,975			464
Unrealized gains (losses) on foreign currency transactions(c)		(731)			(1,176)			(792)			2,565
Strategic initiative costs(d)		376			1,457			376			2,549
Acquisition and integration related costs(e)		4			126			72			238
Other(f)		(355)			69			(91)			108
IPO Costs(g)		1,079			—			3,956			—
Adjusted EBITDA	$	42,848		$	33,095		$	76,368		$	31,210
Net sales	$	180,889		$	112,822		$	329,635		$	163,956
Net (loss) income margin		(29.6)	%		14.5	%		(13.7)	%		0.6	%
Adjusted EBITDA margin		23.7	%		29.3	%		23.2	%		19.0	%

(a) Represents severance and other costs for our executive management changes.

(b) Represents non-cash stock-based compensation expense. Of the expense recorded during the fiscal quarter ended July 3, 2021, $0.5 million was due to the accelerated vesting of restricted stock and $49.0 million was due to the modification as a result of the Reorganization.

(c) Represents foreign currency transaction (gains) and losses associated with our international subsidiaries and changes in the fair value of the contingent consideration recorded in connection with the acquisition of Narellan Group Pty Limited and its subsidiaries, which was settled in September 2020.

(d) Represents fees paid to external consultants for our strategic initiatives, including our rebranding initiative.

(e) Represents acquisition and integration costs primarily related to the acquisition of GLI, the equity investment in Premier Pools & Spas, as well as other costs related to a transaction that was abandoned.

(f) Other costs consist of other discrete items as determined by management, including (i) fees paid to external consultants for tax restructuring, (ii) the cost for legal defense of a specified matter, (iii) the cost incurred and insurance proceeds related to our production facility fire in Picton, Australia in 2020, (iv) temporary cleaning, equipment and salary costs incurred in response to the COVID-19 pandemic, offset by government grants received in the United States, Canada and New Zealand and (v) non-cash adjustments to record the step-up in the fair value of inventory related to the acquisition of GLI, which are amortized through cost of sales in the condensed consolidated statements of operations.

(g) Represents items management believes are not indicative of ongoing operating performance. These expenses are primarily composed of legal, accounting and professional fees incurred in connection with the IPO that are not capitalizable, which are included within selling, general and administrative expense.

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Liquidity and Capital Resources

Overview

Our primary sources of liquidity are net cash provided by operating activities and availability under our Revolving Credit Facility. Historically, we have funded working capital requirements, capital expenditures, payments related to acquisitions, and debt service requirements with internally generated cash on hand and through our Amended Term Loan and Revolving Credit Facility (each as defined below under “—Our Indebtedness”) and through the issuance of shares of our common stock. Our primary cash needs are to fund working capital, capital expenditures, debt service requirements and any acquisitions we may undertake. As of July 3, 2021, we had $76.5 million of cash, $237.3 million of outstanding borrowings and an additional $30.0 million of availability under our Revolving Credit Facility, which was undrawn. In April 2021, we completed our IPO, pursuant to which we issued and sold 23,000,000 shares of common stock, inclusive of 3,000,000 shares sold by us pursuant to the full exercise of the underwriters’ option to purchase additional shares. We received net proceeds of $399.3 million.

Our primary working capital requirements are for the purchase of inventory, payroll, rent, facility costs and other selling, general and administrative costs. Our working capital requirements fluctuate during the year, driven primarily by seasonality and the timing of raw material purchases. Our capital expenditures are primarily related to growth, including production capacity, storage and delivery equipment. We are in the midst of a multi-year capital plan to invest in our facilities, technology and systems, including investments to expand our fiberglass manufacturing capacity. We expect to fund these capital expenditures from net cash provided by operating activities.

We believe that our existing cash, cash generated from operations and availability under our Revolving Credit Facility, will be adequate to fund our operating expenses and capital expenditure requirements over the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

Our Indebtedness

Revolving Credit Facility

On December 18, 2018, Latham Pool Products entered into an agreement (the “Credit Agreement”) with Nomura Corporate Funding Americas, LLC (“Nomura”) that included a revolving line of credit (the “Revolver”) and letters of credit (“Letters of Credit” or collectively with the Revolver, the “Revolving Credit Facility”), as well as a Term Loan (as described and defined below). The Revolving Credit Facility is utilized to finance ongoing general corporate and working capital needs with the Revolver of up to $30.0 million. The Revolving Credit Facility matures on December 18, 2023.

The Revolving Credit Facility allows for either Eurocurrency borrowings, which bear interest ranging from 4.50% to 4.75%, or U.S. dollar base rate borrowings, which bear interest ranging from 3.50% to 3.75% depending on the First Lien Net Leverage Ratio, as defined in the Credit Agreement. A commitment fee accrues on any unused portion of the commitments under the Revolving Credit Facility. The commitment fee is due and payable quarterly in arrears and is equal to the applicable margin times the actual daily amount by which the $30.0 million initial commitment exceeds the sum of the outstanding borrowings under our Revolving Credit Facility. The applicable margin ranges from 0.375% to 0.500% as determined by our First Lien Net Leverage Ratio as defined in the Credit Agreement.

We are required to meet certain financial covenants, including maintaining specific liquidity measurements. There are also negative covenants, including certain restrictions on our ability to incur additional indebtedness, create liens, make investments, consolidate or merge with other entities, enter into transactions with affiliates and make prepayments.

As of July 3, 2021 we had no outstanding borrowings under the Revolving Credit Facility.

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Term Loan Facility

Pursuant to the Credit Agreement, Latham Pool Products also borrowed $215.0 million in term loans (the “Term Loan”). The Term Loan was amended in May 2019 and October 2020 to provide additional borrowings (the “Amended Term Loan”). The Term Loan was further amended on January 25, 2021, to provide an additional incremental term loan of $175.0 million (the “Third Amendment”). We accounted for $165.0 million of the borrowings under the Third Amendment as new debt and $10.0 million of the borrowings under the Third Amendment as a debt modification. We recorded an aggregate of $1.2 million of debt issuance costs as a direct reduction to the carrying amount of long-term debt on the condensed consolidated balance sheets. On January 25, 2021, Latham Pool Products borrowed the incremental term loan, and the proceeds were used on February 2, 2021 to repurchase and retire treasury stock in the amount of $64.9 million and to make a $110.0 million dividend to Class A unitholders. The Term Loan, together with the Third Amendment, are referred to as the “Amended Term Loan.”

The Amended Term Loan bears interest at (1) a base rate equal to the highest of (i) the Federal Funds Rate, as defined in the Credit Agreement, plus 1∕2 of 1.00%, (ii) the “prime rate” published in the Money Rates section of the Wall Street Journal and (iii) LIBOR plus 1.00% (2) plus a Loan Margin, as defined in the Credit Agreement, of (i) 6.00% for Eurocurrency Rate Loans and (ii) 5.00% for Base Rate Loans, as defined in the Credit Agreement. The Amended Term Loan has a maturity date of June 18, 2025. Interest and principal payments are due quarterly.

In accordance with the terms of the Amended Term Loan, we elected to change the terms of the prepayment schedule from an inverse application to a pro rata application and as a result we are required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $3.6 million, commencing June 30, 2021. In connection with the Amended Term Loan, we are subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements.

The obligations under the Credit Agreement are guaranteed by certain of our wholly owned subsidiaries as defined in the security agreement. The obligations under the Credit Agreement are secured by substantially all of the guarantors’ tangible and intangible assets, including, but not limited to, their accounts receivables, equipment, intellectual property, inventory, cash and cash equivalents, deposit accounts and security accounts. The Credit Agreement also restricts payments and other distributions unless certain conditions are met, which could restrict our ability to pay dividends.

As of July 3, 2021, we were in compliance with all covenants under the Revolving Credit Facility and the Amended Term Loan.

As of July 3, 2021 we had $237.3 million of outstanding borrowings under the Amended Term Loan. On April 27, 2021, we used a portion of the net proceeds of our IPO to repay $152.7 million of the Amended Term Loan.

Cash Flows

The following table summarizes our sources and uses of cash for each of the periods presented:


	Two Fiscal Quarters Ended
	July 3, 2021		June 27, 2020

	(in thousands)
Net cash provided by operating activities	$	14,167	$	10,239
Net cash used in investing activities		(12,843)		(6,205)
Net cash provided by (used in) financing activities		17,852		(5,001)
Effect of exchange rate changes on cash		(1,969)		1,857
Net increase in cash	$	17,207	$	890

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Operating Activities

During the two fiscal quarters ended July 3, 2021, operating activities provided $14.2 million of cash. Net income, after adjustments for non-cash items, provided cash of $54.3 million. Cash provided by operating activities was further driven by changes in our operating assets and liabilities of $(40.2) million. Net cash used in changes in our operating assets and liabilities for the two fiscal quarters ended July 3, 2021 consisted primarily of a $44.5 million increase in trade receivables, a $9.5 million increase in inventories, a $3.7 increase in prepaid expenses and other current assets, and a $0.1 increase in income tax receivable, partially offset by an $11.0 million increase in accounts payable, a $5.6 increase in accrued expenses and other current liabilities, a $0.8 million decrease in other assets and a $0.1 million increase in other long-term liabilities. The change in trade receivables was primarily due to the timing of and increase in net sales, and the increase in inventories was primarily due to increased production and inventory build in response to existing and anticipated customer demand. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to timing of payments.

During the two fiscal quarters ended June 27, 2020, operating activities provided $10.2 million of cash. Net income, after adjustments for non-cash items, provided cash of $15.2 million. Cash used in operating activities was further driven by changes in our operating assets and liabilities of $(4.9) million. Net cash used in changes in our operating assets and liabilities for the two fiscal quarters ended June 27, 2020 consisted primarily of a $25.7 million increase in trade receivables, a $0.8 million increase in inventories, partially offset by a $10.7 million increase in accounts payable, $9.5 increase in accrued expenses and other current liabilities, and a $0.9 decrease in prepaid expenses and other current assets. The change in trade receivables was primarily due to the timing of net sales, and the increase in inventories was primarily due to increased production in response to customer demand. The changes in accrued expenses and other current liabilities and accounts payable were primarily due to timing of payments.

Investing Activities

During the two fiscal quarters ended July 3, 2021, investing activities used $12.8 million of cash, primarily consisting of purchases of property and equipment for $13.0 million. The purchase of property and equipment was to expand capacity for inventory production in order to meet increasing customer demand.

During the fiscal quarter ended June 27, 2020, investing activities used $6.2 million of cash, consisting of purchases of property and equipment of $6.2 million.

Financing Activities

During the two fiscal quarters ended July 3, 2021, financing activities provided $17.9 million of cash, primarily consisting of proceeds from our IPO, net of underwriting discounts, commissions and offering costs of $399.3 million, proceeds from borrowings on the Amended Term Loan of $172.8 million and borrowings on the Revolving Credit Facility of $16.0 million, partially offset by the repurchase of treasury stock of $281.6 million, payments on long-term debt borrowings of $161.3 million, dividends to Class A unitholders of $110.0 million, and payments on Revolving Credit Facility borrowings of $16.0 million.

During the two fiscal quarters ended June 27, 2020, financing activities used $5.0 million of cash, consisting of payments on long-term debt borrowings of $4.4 million and repurchase and retirement of treasury stock of $0.6 million.

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Contractual Obligations

Long-term indebtedness and interest on long-term indebtedness changed materially due to the Third Amendment dated January 25, 2021, which increased the outstanding principal balance of the Term Loan by $175.0 million. A portion of these proceeds were used to repurchase and retire treasury stock in the amount of $64.9 million on February 2, 2021. The Third Amendment did not change the Term Loan’s maturity date of June 18, 2025, at which time the remaining principal is due. The Third Amendment increased the fixed quarterly principal payments from $3.3 million under the Second Amendment to $5.8 million. Upon completion of the IPO we used $152.7 million of the net proceeds from the IPO to repay $152.7 million of the Amended Term Loan. During the fiscal quarter ended July 3, 2021, in accordance with the terms of the Amended Term Loan, we elected to change the terms of the prepayment schedule from an inverse application to a pro rata application and as a result we are required to repay the outstanding principal balance of the Amended Term Loan in fixed quarterly payments of $3.6 million, commencing June 30, 2021. Due to the revised principal payments under the Amended Term Loan, the required principal payments are $7.1 million in the next year, $28.5 million in the next one to three years, and $206.3 million in the next four to five years. At the new assumed interest rate of 7.73% as of January 25, 2021, the interest payments are $10.5 million in the next year, $38.9 million in the next one to three years, and $25.9 million in the next four to five years.

There have been no other material changes, outside of the ordinary course of business, to these contractual obligations during the quarter ended July 3, 2021 from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations” in our Prospectus with the exception of long-term indebtedness. See “—Our Indebtedness.”

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. Throughout the preparation of these financial statements, we have made estimates and assumptions that impact the reported amounts of assets, liabilities and the disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our Prospectus. These estimates are based on historical results, trends and other assumptions we believe to be reasonable. We evaluate these estimates on an ongoing basis. Actual results may differ from estimates. For additional information about our critical accounting policies and estimates, see the disclosure included in our Prospectus as well as Note 2 - Summary of Significant Accounting Policies in the notes to the condensed consolidated financial statements included in Part I, Item 1, of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Recently Issued and Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures about Market Risk

Market risk is the potential loss that may result from market changes associated with our business or with an existing or forecasted financial transaction. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to changes in interest rates and foreign currency exchange rates because we finance certain operations through variable rate debt instruments and denominate some of our transactions in foreign currencies. Changes in these rates may have an impact on future cash flow and earnings. We manage these risks through normal operating and financing activities. During the fiscal quarter ended July 3, 2021, there have been no material changes to the information included under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Quantitative and Qualitative Disclosures about Market Risk” in our Prospectus.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of July 3, 2021, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in disputes or litigation relating to claims arising out of our operations. We are not currently a party to any legal proceedings that could reasonably be expected to have a material adverse effect on our business, financial condition and results of operations.

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Item 1A. Risk Factors

We have disclosed under the heading “Risk Factors” in our Prospectus, the risk factors that materially affect our business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed. You should carefully consider the risk factors set forth in the Prospectus and the other information set forth elsewhere in this Form 10-Q. You should be aware that these risk factors and other information may not described every risk that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Initial Public Offering

On April 22, 2021, we completed our IPO, which closed on April 27, 2021. Pursuant to the Registration Statement on Form S-1 (Registration No. 333-254930), which was declared effective by the SEC on April 22, 2021, we registered 23,000,000 shares of common stock. All 23,000,000 shares of our common stock were sold in the IPO at a price per share to the public of $19.00 for an aggregate offering price of $437.0 million. Barclays Capital Inc., BofA Securities, Inc., Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC were the representatives of the underwriters. The following tables show the per share and total underwriting discounts and commissions paid by us to the underwriters:


Underwriting Discounts and
Commissions Paid By Us
Per Share	$	1.33
Total	$	30,590,000

The total gross proceeds of the IPO were approximately $437.0 million and the total net proceeds of the IPO were approximately $399.3 million. Of the proceeds, approximately $30.6 million was used to pay underwriting discounts and commissions and $7.1 million was used to pay other offering costs. Of the remaining proceeds, $168.7 million was used to repay $168.7 million of our indebtedness under our Amended Term Loan and the Revolving Credit Facility and $216.7 million was used to purchase 12,264,438 shares of common stock from our principal stockholders and a current employee. The remaining $13.9 million of the proceeds will be used for general corporate purposes, including working capital.

There has been no material change in the planned use of the IPO net proceeds from the use of proceeds described in the Prospectus.

Issuances of Common Stock

In connection with our Reorganization, we issued 109,673,709 shares of common stock to our principal stockholders, our senior management and board members, and our current and former employees on April 22, 2021. The shares of common stock were issued in reliance on the exemption contained in Section 4(a)(2) of the Securities Act on the basis that the transaction did not involve a public offering. No underwriters were involved in the transaction.

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Item 6. Exhibits

Exhibit
No.		Description
2.1#		Merger Agreement by and between Latham Group, Inc. and Latham Investment Holdings, L.P., dated as of April 22, 2021 (incorporated by reference to Latham Group Inc.’s quarterly report on Form 10-Q filed with the Commission on June 3, 2021 (File No. 001-40358)).
3.1		Amended and Restated Certificate of Incorporation of Latham Group, Inc., dated as of April 22, 2021 (incorporated by reference to Latham Group Inc.’s quarterly report on Form 10-Q filed with the Commission on June 3, 2021 (File No. 001-40358)).
3.2		Amended and Restated Bylaws of Latham Group, Inc., dated as of April 22, 2021 (incorporated by reference to Latham Group Inc.’s quarterly report on Form 10-Q filed with the Commission on June 3, 2021 (File No. 001-40358)).
10.1*		Stockholders Agreement by and among Latham Group, Inc. and the stockholders party thereto, dated as of April 27, 2021
10.2*		Registration Rights Agreement by and among Latham Group, Inc. and the stockholders party thereto, dated as of April 27, 2021
10.3*		Form of Indemnification Agreement by and among the Latham Group, Inc. and each of its directors and executive officers
10.4 †*		Latham Pool Products, Inc. Management Incentive Bonus Plan
10.5 †*		Latham Group, Inc. 2021 Omnibus Equity Incentive Plan
10.6 †*		Form of Nonqualified Option Award Agreement under the 2021 Omnibus Equity Incentive Plan
10.7 †*		Form of Restricted Stock Award Agreement under the 2021 Omnibus Equity Incentive Plan
10.8 †*		Form of Restricted Stock Unit Award Agreement under the 2021 Omnibus Equity Incentive Plan

31.1*		Certification of CEO, pursuant to SEC Rule 13a-14(a) and 15d-14(a)
31.2*		Certification of CFO, pursuant to SEC Rule 13a-14(a) and 15d-14(a)
32.1*		Certification by the CEO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*		Certification by the CFO, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith.

# Portions of this exhibit have been omitted pursuant to Item 601(a)(v) of Regulation S-K

† Indicates management contract or compensatory plan

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SIGNATURES

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

Date August 5, 2021

	LATHAM GROUP, INC.

	/s/ James Mark Borseth
	James Mark Borseth
	Chief Financial Officer
	(Principal Financial Officer)

Exhibit 10.1

EXECUTION VERSION

STOCKHOLDERS AGREEMENT

DATED AS OF APRIL 27, 2021

AMONG

LATHAM GROUP, INC.

AND

THE OTHER PARTIES HERETO

TABLE OF CONTENTS


ARTICLE I INTRODUCTORY MATTERS‌		1
1.1	Defined Terms‌	1
1.2	Construction‌	4
ARTICLE II CORPORATE GOVERNANCE MATTERS‌		4
2.1	Election of Directors‌	4
2.2	Consent Rights‌	6
2.3	Permitted Disclosure‌	8
ARTICLE III INFORMATION‌		8
3.1	Books and Records; Access‌	8
3.2	Confidentiality‌	9
ARTICLE IV GENERAL PROVISIONS‌		9
4.1	Termination‌	9
4.2	Notices‌	10
4.3	Amendment; Waiver‌	11
4.4	Further Assurances‌	11
4.5	Assignment‌	12
4.6	Indemnification‌	12
4.7	Third Parties‌	14
4.8	Reimbursement of Expenses‌	14
4.9	Governing Law‌	15
4.10	Jurisdiction; Waiver of Jury Trial‌	15
4.11	Specific Performance‌	15
4.12	Entire Agreement‌	16
4.13	Severability‌	16
4.14	Table of Contents, Headings and Captions‌	16
4.15	Counterparts‌	16
4.16	Effectiveness‌	16
4.17	No Recourse‌	16

STOCKHOLDERS AGREEMENT

This Stockholders Agreement is entered into as of April 27, 2021 by and among Latham Group, Inc., a Delaware corporation (the “Company”), and each of the Principal Stockholders (as defined below).

BACKGROUND:

WHEREAS, the Company is currently contemplating an underwritten initial public offering (“IPO”) of shares of its Common Stock (as defined below); and

WHEREAS, in connection with, and effective upon, the date of completion of the IPO (the “Closing Date”), the Company and the Principal Stockholders wish to set forth certain understandings between such parties, including with respect to certain governance matters.

NOW, THEREFORE, the parties agree as follows:

ARTICLE I

INTRODUCTORY MATTERS

1.1Defined Terms. In addition to the terms defined elsewhere herein, the following terms have the following meanings when used herein:

“Affiliate” has the meaning set forth in Rule 12b-2 promulgated under the Exchange Act, as in effect on the date hereof.

“Agreement” means this Stockholders Agreement, as the same may be amended, supplemented, restated or otherwise modified from time to time in accordance with the terms hereof.

“beneficially own” has the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.

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

“Change in Control” means any transaction or series of related transactions (whether by merger, consolidation, recapitalization, liquidation or sale or transfer of Common Stock or assets (including equity securities of the Subsidiaries) or otherwise) as a result of which any Person or group, within the meaning of Section 13(d)(3) of the Exchange Act (other than the Principal Stockholders and their respective Affiliates, any group of which the foregoing are members and any other members of such a group), obtains ownership, directly or indirectly, of (i) Common Stock that represent more than 50% of the total voting power of the outstanding capital

stock of the Company or applicable successor entity or (ii) all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis.

“Closing Date” has the meaning set forth in the Background.

“Company” has the meaning set forth in the Preamble.

“Common Stock” means the shares of common stock, par value $0.0001 per share, of the Company, and any other capital stock of the Company into which such stock is reclassified or reconstituted and any other common stock of the Company.

“Control” (including its correlative meanings, “Controlled by” and “under common Control with”) means possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise) of a Person.

“Controlled Entity” means, without limitation, any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise controlled by the Company.

“Director” means any member of the Board.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, as the same may be amended from time to time.

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“IPO” has the meaning set forth in the Background.

“Law” means any statute, law, regulation, ordinance, rule, injunction, order, decree, governmental approval, directive, requirement, or other governmental restriction or any similar form of decision of, or determination by, or any interpretation or administration of any of the foregoing by, any Governmental Authority.

“Necessary Action” means, with respect to a specified result, all actions necessary to cause such result, including (i) voting or providing a written consent or proxy with respect to the shares of Common Stock or other equity securities of the Company, (ii) causing the adoption of stockholders’ resolutions and amendments to the organizational documents of the Company, (iii) executing agreements and instruments, and (iv) making, or causing to be made, with governmental, administrative or regulatory authorities, all filings, registrations or similar actions that are required to achieve such result.

“Pamplona Designee” has the meaning set forth in Section 2.1(a).

“Pamplona Investor” means Pamplona Capital Partners V, L.P., an exempted limited partnership organized under the laws of the Cayman Islands.

“Pamplona Investor Entities” means the Pamplona Investor, its Affiliates and their respective successors and Permitted Assigns; provided, that for purposes of determining any ownership threshold hereunder relevant to the Pamplona Investor Entities, such threshold shall be determined based on the ownership of the Pamplona Investor and its Affiliates (and not, for the avoidance of doubt, any Permitted Assigns).

“Permitted Assigns” means with respect to a Pamplona Investor Entity, a Transferee of shares of Common Stock that agrees to become party to, and to be bound to the same extent as its Transferor by the terms of, this Agreement.

“Person” means any individual, partnership, corporation, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization, or other form of business organization, whether or not regarded as a legal entity under applicable Law, or any Governmental Authority or any department, agency or political subdivision thereof.

“Principal Stockholder Designee” has the meaning set forth in Section 2.1(b).

“Principal Stockholder Entities” means each Pamplona Investor Entity and Wynnchurch Investor Entity.

“Principal Stockholders” means, collectively, the Pamplona Investor and the Wynnchurch Investors, and each, a “Principal Stockholder”.

“Repurchase” has the meaning set forth in Section 2.3(f).

“Subsidiary” means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which: (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, representatives or trustees thereof is at the time owned or Controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; or (ii) if a limited liability company, partnership, association or other business entity, a majority of the total voting power of stock (or equivalent ownership interest) of the limited liability company, partnership, association or other business entity is at the time owned or Controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall

be or Control the managing member, managing director or other governing body or general partner of such limited liability company, partnership, association or other business entity.

“Total Number of Directors” means the total number of Directors comprising the Board.

“Transfer” (including its correlative meanings, “Transferor”, “Transferee” and “Transferred”) shall mean, with respect to any security, directly or indirectly, to sell, contract to sell, give, assign, hypothecate, pledge, encumber, grant a security interest in, offer, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any economic, voting or other rights in or to such security. When used as a noun, “Transfer” shall have such correlative meaning as the context may require.

“Wynnchurch Designee” has the meaning set forth in Section 2.1(b).

“Wynnchurch Investor Entities” means each Wynnchurch Investor and its Affiliates.

“Wynnchurch Investors” means, collectively, Wynnchurch Capital Partners IV, L.P., a Cayman Islands limited partnership, and WC Partners Executive IV, L.P. a Cayman Islands limited partnership.

1.2Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. Unless the context otherwise requires: (a) “or” is disjunctive but not exclusive, (b) words in the singular include the plural and in the plural include the singular, and (c) the words “hereof”, “herein”, and “hereunder” and words of similar import when used in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section references are to this Agreement unless otherwise specified.

ARTICLE II

CORPORATE GOVERNANCE MATTERS

2.1

Election of Directors.

(a)Following the Closing Date, the Pamplona Investor (together with any Permitted Assigns who are assigned such rights in accordance with the terms hereof) shall have the right, but not the obligation, to nominate to the Board an aggregate number of designees equal to at least: (i) a majority of the Total Number of Directors, so long as the Pamplona Investor Entities collectively beneficially own 50% or more of the outstanding shares of Common Stock; (ii) 40% of the Total Number of Directors, in the event that the Pamplona Investor Entities collectively beneficially own 40% or more, but less than 50%, of the outstanding shares of Common Stock; (iii) 30% of the Total Number of Directors, in the event that the Pamplona

Investor Entities collectively beneficially own 30% or more, but less than 40%, of the outstanding shares of Common Stock; (iv) 20% of the Total Number of Directors, in the event that the Pamplona Investor Entities collectively beneficially own 20% or more, but less than 30%, of the outstanding shares of Common Stock; and (v) 10% of the Total Number of Directors, in the event that the Pamplona Investor Entities collectively beneficially own 5% or more, but less than 20%, of the outstanding shares of Common Stock. For purposes of calculating the number of Directors that the Pamplona Investor (together with any Permitted Assigns who are assigned such rights in accordance with the terms hereof) is entitled to designate pursuant to the immediately preceding sentence, any fractional amounts shall automatically be rounded up to the nearest whole number (e.g., one and one quarter (1¹/4) Directors shall equate to two (2) Directors), and any such calculations shall be made after taking into account any increase in the Total Number of Directors. Each such individual whom the Pamplona Investor (together with any Permitted Assigns who are assigned such rights in accordance with the terms hereof) shall actually nominate pursuant to this Section 2.1(a) and who is thereafter elected to the Board to serve as a Director shall be referred to herein as a “Pamplona Designee”.

(b)Following the Closing Date, the Wynnchurch Investors shall have the right, but not the obligation, to nominate to the Board one (1) designee in the event that the Wynnchurch Investor Entities collectively beneficially own five percent (5)% or more of the outstanding shares of Common Stock. Each such individual whom the Wynnchurch Investors shall actually nominate pursuant to this Section 2.1(b) and who is thereafter elected to the Board to serve as a Director shall be referred to herein as a “Wynnchurch Designee” and, together with each Pamplona Designee, collectively, the “Principal Stockholder Designees”.

(c)Except as provided in Section 2.1(a) or Section 2.1(b), as applicable, the Pamplona Investor and the Wynnchurch Investors, as applicable, shall have the exclusive right to, at any time, from time to time, remove their respective designees from the Board, and the Company and the Principal Stockholders shall take all Necessary Action to cause the removal of any such designee at the request of the designating Investor.

(d)Following the Closing Date and subject to applicable Laws and stock exchange regulations, the Pamplona Investor shall have the right, but not the obligation, to have representatives appointed to serve on each committee of the Board in the same proportion as the Pamplona Designees’ representation on the Board. Following the Closing Date and subject to applicable Laws and stock exchange regulations, the Pamplona Investor shall have the right, but not the obligation, to have a representative appointed as an observer to any committee of the Board to which the Pamplona Investor (i) does not elect to have a representative appointed or (ii) is prohibited by applicable Laws or stock exchange regulations from having a representative appointed, in each case for so long as the Pamplona Investor has the right to designate at least one (1) director for nomination under this Agreement. Following the Closing Date and subject to applicable Laws and stock exchange regulations, the Wynnchurch Investor shall have the right, but not the obligation, to have a representative appointed as an observer to any committee of the Board for so long as the Wynnchurch Investor has the right to designate at least one (1) director for nomination under this Agreement.

(e)In the event that the Pamplona Investor or the Wynnchurch Investors have nominated less than the total number of designees the Pamplona Investor or the Wynnchurch Investors shall be entitled to nominate pursuant to Section 2.1(a) or Section 2.1(b), as applicable, the Pamplona Investor and the Wynnchurch Investors, as applicable, shall have the right, at any time, to nominate such additional designees to which they are entitled, in which case the Company, the Principal Stockholders and the Directors shall take all Necessary Action, to the fullest extent permitted by applicable Law (including with respect to fiduciary duties under Delaware law), to (x) enable the Pamplona Investor or the Wynnchurch Investors, as applicable, to nominate and effect the election or appointment of such additional individuals, whether by increasing the size of the Board or otherwise, and (y) designate such additional individuals nominated by the Pamplona Investor or the Wynnchurch Investors, as applicable, to fill such newly-created vacancies or to fill any other existing vacancies.

(f)In the event that a vacancy is created at any time by the death, retirement or resignation of any Director designated pursuant to Section 2.1(a) or Section 2.1(b), the remaining Directors, the Principal Stockholders and the Company shall, to the fullest extent permitted by applicable Law (including with respect to fiduciary duties under Delaware law), cause the vacancy created thereby to be filled by a new designee of the Pamplona Investor or the Wynnchurch Investors, as applicable, as soon as possible, and the Company and the Principal Stockholders hereby agree to take, to the fullest extent permitted by applicable Law (including with respect to fiduciary duties under Delaware law), at any time and from time to time, all Necessary Action to accomplish the same.

(g)The Company agrees, to the fullest extent permitted by applicable Law (including with respect to fiduciary duties under Delaware law), to include the individuals designated pursuant to this Section 2.1 in the slate of nominees recommended by the Board for election at any meeting of stockholders called for the purpose of electing Directors and to take all Necessary Action to cause the election of each such designee to the Board, including nominating each such individual to be elected as a Director as provided herein, recommending such individual’s election and soliciting proxies or consents in favor thereof.

2.2Voting Agreement. Each Principal Stockholder agrees to, and to cause its Affiliates to, cast all votes to which such Principal Sponsor or any of its Affiliates is entitled in respect of its Common Stock, whether at any annual or special meeting, by written consent or otherwise, so as to cause to be elected to the Board those individuals designated in accordance with Section 2.1 and to otherwise effect the intent of this Article II.

2.3Consent Rights. For so long as the Pamplona Investor Entities collectively beneficially own at least 25% of the outstanding shares of Common Stock, the following actions by the Company or any of its Subsidiaries shall require the approval of the Pamplona Investor, in

addition to the Board’s approval (or the approval of the required governing body of any Subsidiary of the Company):

(a)entering into or effecting a Change in Control;

(b)entering into any agreement providing for the acquisition or divestiture of assets or equity security of any Person, in each case providing for aggregate consideration in excess of $50 million;

(c)entering into any joint venture or similar business alliance having a fair market value as of the date of formation thereof (as reasonably determined by the Board) in excess of $50 million;

(d)initiating a voluntary liquidation, dissolution, receivership, bankruptcy or other insolvency proceeding involving the Company or any Subsidiary of the Company that is a “significant subsidiary” as defined in Rule 1-02 of Regulation S-X under the Exchange Act;

(e)any material change in the nature of the business of the Company or any Subsidiary, taken as a whole;

(f)any redemption, acquisition or other purchase of any shares of Common Stock (a “Repurchase”) other than Repurchases in accordance with any existing compensation plan of the Company or any Subsidiary or a Repurchase from an employee in connection with such employee’s termination of employment with the Company or any Subsidiary;

(g)any payment or declaration of any dividend or other distribution on any shares of Common Stock or entering into any recapitalization transaction the primary purpose of which is to pay a dividend;

(h)the incurrence of indebtedness for borrowed money (including through capital leases, the issuance of debt securities or the guarantee of indebtedness of another Person) in an aggregate principal amount in excess of $50 million, other than (x) the incurrence of trade payables arising in the ordinary course of business of the Company and its Subsidiaries or (y) borrowings under the Company’s term loan or revolving credit facility (or amendments, extensions, or replacements thereof);

(i)terminating the employment of the Chief Executive Officer of the Company or hiring a new Chief Executive Officer of the Company;

(j)increasing or decreasing the size of the Board; and

(k)any transaction with or involving any Affiliate of the Company or any Affiliate of any stockholder of the Company that beneficially owns in excess of ten percent (10%) of the voting power of the Company (in each case, other than any Pamplona Investor Entity), other than any transaction or series of related transactions in the ordinary course of business and on arms-length third-party terms and in an amount less than $10 million.

2.4Permitted Disclosure. Each Pamplona Designee and Wynnchurch Designee is permitted to disclose to the Pamplona Investor Entities (other than any portfolio company of such Pamplona Investor Entity or its Affiliates) and Wynnchurch Investor Entities (other than any portfolio company of such Wynnchurch Investor Entity or its Affiliates), respectively, information about the Company and its Affiliates he or she receives as a result of being a Director.

ARTICLE III

INFORMATION

3.1Books and Records; Access. The Company shall, and shall cause its Subsidiaries to, keep proper books, records and accounts, in which full and correct entries shall be made of all financial transactions and the assets and business of the Company and each of its Subsidiaries in accordance with generally accepted accounting principles. The Company shall, and shall cause its Subsidiaries to, permit the Principal Stockholder Entities (other than any portfolio company of such Principal Stockholder Entity or its Affiliates) and their respective designated representatives, at reasonable times and upon reasonable prior notice to the Company, to review the books and records of the Company or any of such Subsidiaries and to discuss the affairs, finances and condition of the Company or any of such Subsidiaries with the officers of the Company or any such Subsidiary. In addition to other information that might be reasonably requested by the Principal Stockholder Entities from time to time (other than any portfolio company of such Principal Stockholder Entity or its Affiliates), the Company shall also provide (i) direct access to the Company’s auditors and officers upon request, (ii) copies of all materials provided to the board of directors (or committee of the board of directors) at the same time as provided to the directors (or members of a committee of the board of directors) of the Company, (iii) access to appropriate officers and directors of the Company and its Subsidiaries at such times as may be requested by the Principal Stockholder Entities for consultation with the Principal Stockholder Entities with respect to matters relating to the business and affairs of the Company and its Subsidiaries, (iv) information in advance with respect to any significant corporate actions, including, without limitation, extraordinary dividends, stock redemptions or repurchases, mergers, acquisitions or dispositions of assets, issuances of significant amounts of debt or equity and material amendments to the organizational documents of the Company or any of its Subsidiaries, and to provide the Principal Stockholder Entities with the right to consult with the Company and its Subsidiaries with respect to such actions and (v) to the extent otherwise prepared by the Company, operating and capital expenditure budgets and periodic information packages relating to the operations and cash flows of Company and its Subsidiaries. Notwithstanding the foregoing, or anything else to the contrary contained herein, (x) the Company shall not be required to disclose any privileged information of the Company so long as the Company has used its reasonable best efforts to provide such information to the Principal Stockholder Entities without the loss of any such privilege and notified the Principal Stockholder Entities that such information has not been provided and (y) all of the rights of the Pamplona Investor Entities and the Wynnchurch Investor Entities, as applicable, under this Section 3.1 shall terminate when the Pamplona Investor Entities

or the Wynnchurch Investor Entities, as applicable, no longer collectively beneficially own at least five percent (5)% of the outstanding shares of Common Stock.

3.2Confidentiality. The Principal Stockholders agree that such Principal Stockholders will keep confidential and will not disclose, divulge, or use for any purpose (other than to monitor their investment in the Company) any confidential information obtained from the Company pursuant to the terms of this Agreement, unless such confidential information (a) is known or becomes known to the public in general (other than as a result of a breach of this Section 3.2 by such Principal Stockholders or Principal Stockholder Entity), (b) is or has been independently developed or conceived by the Principal Stockholders without use of the Company’s confidential information, or (c) is or has been made known or disclosed to the Principal Stockholders by a third party without a breach of any obligation of confidentiality such third party may have to the Company; provided, however, that a Principal Stockholder may disclose confidential information (i) to its attorneys, accountants, consultants, and other professionals to the extent necessary to obtain their services in connection with monitoring its investment in the Company, provided that prior to such disclosure such advisor has agreed to be bound to provisions which are the same substantially similar to the provisions of this Subsection 3.2 or otherwise is obligated to keep such information confidential; (ii) to any prospective purchaser of any securities from such Principal Stockholders, provided that prior to such disclosure such prospective purchaser has agreed to be bound to provisions which are the same or substantially similar to the provisions of this Subsection 3.2; (iii) to any Affiliate (other than any portfolio company of such Principal Stockholder Entity or its Affiliates), partner, member, stockholder, or wholly owned subsidiary of such Principal Stockholders in the ordinary course of business, provided that such Principal Stockholders informs such Person that such information is confidential and directs such Person to maintain the confidentiality of such information; (iv) to investors or prospective investors in any investment fund managed (currently or in the future) by any Person that directly or indirectly manages a Principal Stockholder or any affiliate thereof; or (v) as may otherwise be required by law, provided that the Principal Stockholders, to the extent legally permitted, promptly notify the Company of such disclosure and takes reasonable steps to minimize the extent of any such required disclosure. The Principal Stockholders acknowledge and agree that they are aware that the U.S. securities laws prohibit any person who has material non-public information from purchasing or selling securities of the Company, or from communicating such material non-public information to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities.

ARTICLE IV

GENERAL PROVISIONS

4.1Termination. This Agreement shall terminate at such time as no Principal Stockholder is entitled to nominate a Director pursuant to Section 2.1(a) or Section 2.1(b), as applicable. All of the rights and obligations (whether as a Principal Stockholder or otherwise) of

(a) the Pamplona Investor Entities, their respective Affiliates and their respective successors and Permitted Assigns shall terminate upon the Pamplona Investor Entities ceasing to own any shares of Common Stock and (b) the Wynnchurch Investor Entities, their respective Affiliates and their respective successors shall terminate upon the Wynnchurch Investor Entities ceasing to own any shares of Common Stock; provided, that all of the rights of the Pamplona Investor Entities and the Wynnchurch Investor Entities, as applicable, under Section 3.1 and Section 4.8 shall terminate upon the Pamplona Investor Entities or the Wynnchurch Investor Entities, as applicable, ceasing to collectively beneficially own at least five percent (5%) of the outstanding shares of Common Stock.

4.2Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, mailed first class mail (postage prepaid), sent by reputable overnight courier service (charges prepaid) or sent by electronic mail, to the Company at the address or e-mail address set forth below and to any other recipient at the address or e-mail address indicated on the Company’s records, or at such address or e-mail address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when, the day delivered personally, five (5) days after deposit in the U.S. mail, one (1) day after deposit with a reputable overnight courier service, or the day sent by electronic mail (receipt confirmed).

The Company’s address is:

Latham Group, Inc.

787 Watervliet Shaker Road

Latham, New York 12110

Attention: General Counsel

with a copy (not constituting notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attention: Angelo Bonvino, John C. Kennedy

Pamplona Investor’s address is:

c/o Pamplona Capital Management LLC

667 Madison Avenue, 22nd Floor

New York, NY 10065

Attention: Andrew Singer

with a copy (not constituting notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attention: Angelo Bonvino, John C. Kennedy

Wynnchurch Investors’ address is:

c/o Wynnchurch Capital, LLC

6250 N. River Road, Suite 10-100

Rosemont, IL 60018

Attention: Christopher P. O’Brien; Carl Howe

with a copy (not constituting notice) to:

Foley & Lardner LLP

500 Woodward Ave, Suite 2700

Detroit, MI 48226

Attention: Omar Lucia, Thomas B. Spillane

4.3Amendment; Waiver. This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by the Company and the Pamplona Investor; provided, however, that any such amendment, supplement or modification to Section 2.1(b) or that otherwise, by its terms, adversely and uniquely affects the Wynnchurch Investor Entities without similarly affecting the Pamplona Investor Entities shall require the consent of the Wynnchurch Investors. Neither the failure nor delay on the part of any party hereto to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

4.4Further Assurances. The parties hereto will sign such further documents, cause such meetings to be held and resolutions passed, exercise their votes and do and perform and cause to be done such further acts and things necessary, proper or advisable in order to give

full effect to this Agreement and every provision hereof. To the fullest extent permitted by Law, the Company shall not directly or indirectly take any action that is intended to, or would reasonably be expected to result in, any Principal Stockholder Entity being deprived of the rights contemplated by this Agreement.

4.5Assignment. This Agreement will inure to the benefit of and be binding on the parties hereto and their respective successors and permitted assigns. This Agreement and any right hereunder may not be assigned by a Principal Stockholder without the express prior written consent of the Company, and any attempted assignment, without such consents, will be null and void; provided, however, that each Pamplona Investor Entity shall be entitled to assign, in whole or in part, to any of its Permitted Assigns without such prior written consent any of its rights hereunder.

4.6

Indemnification.

(a)The Company, will, and will cause its Subsidiaries to, jointly and severally, indemnify, exonerate and hold each Principal Stockholder and its respective partners, stockholders, members, Affiliates, directors, officers, fiduciaries, managers, controlling Persons, employees and agents and each of the partners, stockholders, members, Affiliates, directors, officers, fiduciaries, managers, controlling Persons, employees and agents of each of the foregoing (collectively, the “Indemnitees”) free and harmless from and against any and all liabilities, losses, damages and costs and out-of-pocket expenses in connection therewith (including reasonable attorneys’ fees and expenses) incurred by the Indemnitees or any of them before or after the date of this Agreement (collectively, the “Indemnified Liabilities”), arising out of any action, cause of action, suit, litigation, investigation, inquiry, arbitration or claim (each, an “Action”) arising directly or indirectly out of, or in any way relating to, (i) Indemnitees’ ownership of the Company’s securities or such Indemnitees’ control or ability to influence the Company or any of its Subsidiaries (other than any such Indemnified Liabilities (x) to the extent such Indemnified Liabilities arise out of any breach of this Agreement, any other agreement by such Indemnitee or its Affiliates or other related Persons or the breach of any fiduciary or other duty or obligation of such Indemnitee to its direct or indirect equity holders, creditors or Affiliates, (y) to the extent such control or the ability to control the Company or any of its Subsidiaries derives from such Stockholder’s or its Affiliates’ capacity as an officer or director of the Company or any of its Subsidiaries or (z) to the extent such indemnification would violate any applicable law) or (ii) the business, operations, properties, assets or other rights or liabilities of the Company or any of its Subsidiaries; provided, however that if and to the extent that the foregoing undertaking may be unavailable or unenforceable for any reason, the Company, will, and will cause its Subsidiaries to, jointly and severally make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable Law. For the purposes of this Section 4.6, none of the circumstances described in the limitations contained in the immediately preceding sentence shall be deemed to apply absent a final non-appealable judgment of a court of

competent jurisdiction to such effect, in which case to the extent any such limitation is so determined to apply to any Indemnitee as to any previously advanced indemnity payments made by the Company, then such payments shall be promptly repaid by such Indemnitee to the Company.

(b)The Company, will, and will cause its Subsidiaries to, jointly and severally, reimburse any Indemnitee for all reasonable costs and expenses (including reasonable attorneys’ fees and expenses and any other litigation-related expenses) as they are incurred in connection with investigating, preparing, pursuing, defending or assisting in the defense of any Action for which the Indemnitee would be entitled to indemnification under the terms of this Section 4.6, or any action or proceeding arising therefrom, whether or not such Indemnitee is a party thereto. The Company or its Subsidiaries, in the defense of any Action for which an Indemnitee would be entitled to indemnification under the terms of this Section 4.6, may, without the consent of such Indemnitee, consent to entry of any judgment or enter into any settlement if and only if it (i) includes as a term thereof the giving by the claimant or plaintiff therein to such Indemnitee of an unconditional release from all liability with respect to such Action, (ii) does not impose any limitations (equitable or otherwise) on such Indemnitee, and (iii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of such Indemnitee, and provided that the only penalty imposed in connection with such settlement is a monetary payment that will be paid in full by the Company or its Subsidiaries.

(c)The Company acknowledges and agrees that the Company shall, and to the extent applicable shall cause its Subsidiaries to, be fully and primarily responsible for the payment to the Indemnitee in respect of Indemnified Liabilities in connection with any Jointly Indemnifiable Claims (as defined below), pursuant to and in accordance with (as applicable) the terms of (i) the Delaware General Corporation Law, as amended, (ii) the certificate of incorporation or similar organizational documents, as amended, of the Company, (iii) the bylaws or similar organizational documents, as amended, of the Company, (iv) any director or officer indemnification agreement, (v) this Agreement, (vi) any other agreement between the Company or any Controlled Entity and the Indemnitee pursuant to which the Indemnitee is indemnified, (vii) the laws of the jurisdiction of incorporation or organization of any Controlled Entity and/or (viii) the certificate of incorporation, certificate of organization, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or other organizational or governing documents of any Controlled Entity (clauses (i) through (viii), collectively, the “Indemnification Sources”), irrespective of any right of recovery the Indemnitee may have from any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise (other than the Company, any Controlled Entity or the insurer under and pursuant to an insurance policy of the Company or any Controlled Entity) from whom an Indemnitee may be entitled to indemnification with respect to which, in whole or in part, the Company or any Controlled Entity may also have an indemnification obligation (together, the “Indemnitee-Related Entities”). Under no circumstance shall the Company or any Controlled

Entity be entitled to any right of subrogation or contribution by the Indemnitee-Related Entities and no right of advancement or recovery the Indemnitee may have from the Indemnitee-Related Entities shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company or any Controlled Entity under the Indemnification Sources. The Company shall cause each of the Controlled Entities to perform the terms and obligations of this Section 4.6(c) as though each such Controlled Entity was a party to this Agreement. For purposes of this Section 4.6(c), the term “Jointly Indemnifiable Claims” shall be broadly construed and shall include, without limitation, any Indemnified Liabilities for which the Indemnitee shall be entitled to indemnification from both (1) the Company and/or any Controlled Entity pursuant to the Indemnification Sources, on the one hand, and (2) any Indemnitee-Related Entity pursuant to any other agreement between any Indemnitee-Related Entity and the Indemnitee pursuant to which the Indemnitee is indemnified, the laws of the jurisdiction of incorporation or organization of any Indemnitee-Related Entity and/or the certificate of incorporation, certificate of organization, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or other organizational or governing documents of any Indemnitee-Related Entity, on the other hand.

(d)The rights of any Indemnitee to indemnification pursuant to this Section 4.6 will be in addition to any other rights any such Person may have under any other Section of this Agreement or any other agreement or instrument to which such Indemnitee is or becomes a party or is or otherwise becomes a beneficiary or under law or regulation or under the certificate of incorporation or bylaws of the Company, any newly formed direct or indirect parent or any direct or indirect Subsidiary or investment holding vehicle with respect to any of the foregoing.

(e)The Company shall obtain and maintain in effect at all times directors’ and officers’ liability insurance reasonably satisfactory to the Principal Stockholders.

4.7Third Parties. This Agreement does not create any rights, claims or benefits inuring to any Person that is not a party hereto or create or establish any third-party beneficiary hereto.

4.8

Reimbursement of Expenses.

(a)The Company will pay directly or reimburse, or cause to be paid directly or reimbursed, the actual and reasonable out-of-pocket costs and expenses incurred by each Principal Stockholder and its respective Affiliates in connection with the monitoring and/or overseeing of their investment in the Company, including (i) reasonable out-of-pocket expenses incurred by directors designated by such Principal Stockholder hereunder in connection with such directors’ board service (including travel), (ii) fees and actual and reasonable out-of-pocket disbursements of any independent professionals and organizations, including independent accountants, outside legal counsel or consultants retained by such Principal Stockholder or any of

their Affiliates, (iii) reasonable costs of any outside services or independent contractors such as financial printers, couriers, business publications, on-line financial services or similar services, retained or used by such Principal Stockholder or any of their respective Affiliates and (iv) reasonable transportation, word processing expenses or any similar expense.

(b)All payments or reimbursement for such costs and expenses pursuant to this Section 4.8 will be made by wire transfer in same-day funds to the bank account designated by such Principal Stockholder or its relevant Affiliate promptly upon or as soon as practicable following request for reimbursement; provided, however, that such Principal Stockholder or Affiliate has provided the Company with such supporting documentation reasonably requested by the Company.

(c)Notwithstanding the foregoing, or anything else to the contrary contained herein, all of the rights of the Pamplona Investor Entities and the Wynnchurch Investor Entities, as applicable, under this Section 4.8 shall terminate when the Pamplona Investor Entities or the Wynnchurch Investor Entities, as applicable, no longer collectively beneficially own at least five percent (5)% of the outstanding shares of Common Stock.

4.9Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws thereof.

4.10Jurisdiction; Waiver of Jury Trial. In any judicial proceeding involving any dispute, controversy or claim arising out of or relating to this Agreement, each of the parties unconditionally accepts the jurisdiction and venue of the Delaware Court of Chancery or, if the Delaware Court of Chancery does not have subject matter jurisdiction over this matter, the Superior Court of the State of Delaware (Complex Commercial Division) or, if jurisdiction over the matter is vested exclusively in federal courts, the United States District Court for the District of Delaware, and the appellate courts to which orders and judgments thereof may be appealed. In any such judicial proceeding, the parties agree that in addition to any method for the service of process permitted or required by such courts, to the fullest extent permitted by Law, service of process may be made by delivery provided pursuant to the directions in Section 4.2. EACH OF THE PARTIES HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

4.11Specific Performance. Each party hereto acknowledges and agrees that in the event of any breach of this Agreement by any of them, the other parties hereto would be irreparably harmed and could not be made whole by monetary damages. Each party accordingly agrees to waive the defense in any action for specific performance that a remedy at law would be adequate and that the parties, in addition to any other remedy to which they may be entitled at law

or in equity, shall be entitled to specific performance of this Agreement without the posting of bond.

4.12Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. There are no agreements, representations, warranties, covenants or understandings with respect to the subject matter hereof or thereof other than those expressly set forth herein and therein. This Agreement supersedes all other prior agreements and understandings between the parties with respect to such subject matter.

4.13Severability. If any provision of this Agreement, or the application of such provision to any Person or circumstance or in any jurisdiction, shall be held to be invalid or unenforceable to any extent, (a) the remainder of this Agreement shall not be affected thereby, and each other provision hereof shall be valid and enforceable to the fullest extent permitted by Law, (b) as to such Person or circumstance or in such jurisdiction, such provision shall be reformed to be valid and enforceable to the fullest extent permitted by Law and (c) the application of such provision to other Persons or circumstances or in other jurisdictions shall not be affected thereby.

4.14Table of Contents, Headings and Captions. The table of contents, headings, subheadings and captions contained in this Agreement are included for convenience of reference only and in no way define, limit or describe the scope of this Agreement or the intent of any provision hereof.

4.15Counterparts. This Agreement and any amendment hereto may be signed in any number of separate counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one Agreement (or amendment, as applicable).

4.16Subsequent Acquisition of Shares. Any equity securities of the Company acquired subsequent to the date hereof by a Principal Stockholder shall be subject to the terms and conditions of this Agreement.

4.17

Effectiveness. This Agreement shall become effective upon the Closing Date.

4.18No Recourse. This Agreement may only be enforced against, and any claims or cause of action that may be based upon, arise out of or relate to this Agreement, or the negotiation, execution or performance of this Agreement, may only be made against the entities that are expressly identified as parties hereto, and no past, present or future Affiliate, director, officer, employee, incorporator, member, manager, partner, stockholder, agent, attorney or representative of any party hereto shall have any liability for any obligations or liabilities of the parties to this Agreement or for any claim based on, in respect of, or by reason of the transactions contemplated hereby.

[Remainder of Page Intentionally Left Blank]

IN WITNESS WHEREOF, the parties hereto have executed this Stockholders Agreement on the day and year first above written.

COMPANY:

LATHAM GROUP, INC.


By:	/s/ Jason Duva
	Name:	Jason Duva
	Title:	General Counsel and Chief
		Administrative Officer

[Signature Page to Stockholders Agreement]

PRINCIPAL STOCKHOLDERS:

PAMPLONA CAPITAL PARTNERS V, L.P.

By: Pamplona Equity Advisors V, Ltd., its
General Partner


By:	/s/ Andrew Singer
	Name:	Andrew Singer
	Title:	Attorney in Fact

[Signature Page to Stockholders Agreement]

	WYNNCHURCH CAPITAL PARTNERS IV, L.P.

	By: Wynnchurch Partners IV, L.P.
	its General Partner

	By: Wynnchurch Management, Ltd.
	its General Partner

	By:	/s/ Chris O'Brien
	Name:	Chris O'Brien
	Title:	Vice President

	WC PARTNERS EXECUTIVE IV, L.P.

	By Wynnchurch Partners IV, L.P.
	its General Partner

	By: Wynnchurch Management, Ltd.
	its General Partner

	By:	/s/ Chris O'Brien
	Name:	Chris O'Brien
	Title:	Vice President

[Signature Page to Stockholders Agreement]

Exhibit 10.2

EXECUTION VERSION

REGISTRATION RIGHTS AGREEMENT

dated as of April 27, 2021

between

LATHAM GROUP, INC.

AND

CERTAIN STOCKHOLDERS

TABLE OF CONTENTS


		Page
ARTICLE I DEFINITIONS‌		3
1.1	Definitions‌	3
ARTICLE II REGISTRATION RIGHTS‌		7
2.1	Demand Rights‌	7
2.2	Piggyback Registration Rights‌	9
2.3	Form S-3 Registration; Shelf Registration‌	12
2.4	Shelf Take-Downs‌	14
2.5	Selection of Underwriters‌	16
2.6	Withdrawal Rights; Expenses‌	16
2.7	Registration and Qualification‌	16
2.8	Underwriting; Due Diligence‌	20
2.9	Indemnification and Contribution‌	22
2.10	Cooperation; Information by Selling Holder‌	25
2.11	Rule 144‌	25
2.12	Holdback Agreement‌	26
2.13	Suspension of Sales‌	26
2.14	Third Party Registration Rights‌	26
2.15	Mergers‌	27
ARTICLE III MISCELLANEOUS‌		27
3.1	Notices‌	27
3.2	Section Headings‌	29
3.3	Governing Law‌	29
3.4	Consent to Jurisdiction and Service of Process‌	29
3.5	Amendments; Termination‌	29
3.6	Specific Enforcement‌	30
3.7	Entire Agreement‌	30
3.8	Severability‌	30
3.9	Counterparts‌	30

REGISTRATION RIGHTS AGREEMENT

This Registration Rights Agreement (as amended, supplemented or otherwise modified from time to time, this “Agreement”), dated as of April 27, 2021, is made by and among Latham Group, Inc., a Delaware corporation (the “Company”), Wynnchurch Capital Partners IV, L.P., a Cayman Islands limited partnership and WC Partners Executive IV, L.P., a Cayman Islands limited partnership (collectively, “Wynnchurch”), Pamplona Capital Partners V, L.P., a Cayman Islands limited partnership (“Pamplona” and collectively with Wynnchurch, the “Principal Stockholders”) and the other Persons who execute the signature pages hereto under the heading “Other Holders” (the “Other Holders”).

WHEREAS, the Company is currently contemplating an underwritten initial public offering (“IPO”) of shares of its Common Stock (as defined below);

WHEREAS, certain stockholders of the Company propose to sell shares of Common Stock concurrently with the IPO; and

WHEREAS, in connection with, and effective upon, the date of completion of the IPO, the Principal Stockholders, the Other Holders and the Company wish to set forth certain understandings among such parties.

NOW, THEREFORE, in consideration of the mutual covenants and undertakings contained herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1Definitions. The following terms shall have the following respective meanings:

“Affiliate” means, with respect to any Person, any Person directly or indirectly controlling, controlled by or under common control with, such other Person; provided, however, that portfolio companies in which any Principal Stockholder or any of its Affiliates has an investment shall not be deemed an Affiliate of such person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) when used with respect to any Person, means the possession, directly or indirectly, of the power to cause the direction of management or policies of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning set forth in the preamble.

“Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by applicable law to close.

“Common Stock” means shares of the Company’s common stock, $0.0001 par value per share.

“Company” has the meaning set forth in the preamble.

“Continuance Notice” has the meaning set forth in Section 2.6(c).

“Demand” has the meaning set forth in Section 2.1(a).

“Demand Registration” has the meaning set forth in Section 2.1(a).

“Disclosure Package” means (i) the preliminary prospectus, (ii) each Free Writing Prospectus and (iii) all other information that is deemed, under Rule 159 under the Securities Act, to have been conveyed to purchasers of securities at the time of sale (including a contract of sale).

“Equity Securities” means, with respect to any Person, any (i) partnership or membership interests or shares of capital stock, (ii) equity, ownership, voting, profit or participation interests or (iii) similar rights or securities in such Person or any of its Subsidiaries, or any rights or securities convertible into or exchangeable for, options or other rights to acquire from such Person or any of its Subsidiaries, or obligation on the part of such Person or any of its Subsidiaries to issue, any of the foregoing.

“Form S-3 Registration Statement” has the meaning set forth in Section 2.3(b).

“Form S-3 Shelf Registration Statement” has the meaning set forth in Section 2.3(b).

“Free Writing Prospectus” means any “free writing prospectus,” as defined in Rule 405 under the Securities Act.

“Governmental Authority” means any transnational, domestic or foreign federal, state or local governmental, regulatory or administrative authority, department, court, agency or official, including any political subdivision thereof.

“Holder” means Principal Stockholders, the Other Holders and their successors, Transferees under Section 2.1(c) holding Registrable Securities and any New Holder.

“Initiating Shelf Holder” has the meaning set forth in the Section 2.4(a).

“IPO” has the meaning set forth in the recitals.

“Marketed Underwritten Shelf Take-Down” has the meaning set forth in Section 2.4(b).

“New Holder” has the meaning set forth in Section 2.14.

“Non-Marketed Take-Down Share” means with respect to each Initiating Shelf Holder and each other Notice Recipients delivering a notice with respect to and participating in such Non-Marketed Underwritten Shelf Take-Down subject to Section 2.4(d), a number equal to the product of (i) the total number of Registrable Securities to be included in such Non-Marketed

Underwritten Shelf Take-Down pursuant to Section 2.4(c) and (ii) a fraction, the numerator of which is the total number of Registrable Securities beneficially owned by the Initiating Shelf Holder or such participating Notice Recipient, as applicable, and the denominator of which is the total number of Registrable Securities beneficially owned by the Initiating Shelf Holder and all participating Notice Recipients delivering a notice and participating in such Non-Marketed Underwritten Shelf Take-Down.

“Non-Marketed Underwritten Shelf Take-Down” has the meaning set forth in Section 2.4(c).

“Non-Marketed Underwritten Shelf Take-Down Notice” has the meaning set forth in Section 2.4(d).

“Notice Recipient” has the meaning set forth in Section 2.4(d).

“Ordinary S-3 Registration Statement” has the meaning set forth in Section 2.3(d).

“Other Holders” has the meaning set forth in the preamble.

“Other Securities” means Common Stock of the Company sought to be included in a registration other than Registrable Securities.

“Parties” means the Company and the Holders that are from time to time party to this Agreement.

“Person” means any individual, firm, corporation, partnership, limited liability company, trust, estate, joint venture, Governmental Authority or other entity.

“Piggyback Notice” has the meaning set forth in Section 2.2(a).

“Registrable Securities” means shares of Common Stock owned by a Holder, whether now held or hereinafter acquired, including any shares of Common Stock issuable or issued upon conversion or exchange of other securities of the Company or any of its Subsidiaries (“Overlying Securities”), including by way of stock dividend or stock split, or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, until: (i) a registration statement covering such shares of Common Stock or applicable Overlying Securities has been declared effective by the SEC and such shares of Common Stock or applicable Overlying Securities have been disposed of pursuant to such effective registration statement; (ii) such shares of Common Stock or applicable Overlying Securities are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met; (iii) with respect to any Holder, such Holder and its Affiliates beneficially own less than 2% of the outstanding Common Stock and all of such shares of Common Stock may be sold without restriction under Rule 144 (or any similar provisions then in force) or (iv) (A) such shares of Common Stock or applicable Overlying Securities are otherwise Transferred to a non-Affiliate of the Transferor, (B) the Company has delivered a new certificate or other evidence of ownership for such shares of Common Stock or applicable Overlying Securities not bearing a restrictive legend and (C) such shares of Common

Stock or applicable Overlying Securities may be resold without limitation or subsequent registration under the Securities Act.

“Registration Expenses” means any and all expenses incident to performance of or compliance with any registration of securities pursuant to Article II (other than underwriting discounts and commissions), including (i) the fees, disbursements and expenses of the Company’s counsel and accountants, including for special audits and comfort letters; (ii) all expenses, including filing fees, in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus, any other offering document and amendments and supplements thereto and the mailing and delivering of copies thereof to any underwriters and dealers; (iii) the cost of printing or producing any underwriting agreements and blue sky or legal investment memoranda and any other documents in connection with the offering, sale or delivery of the securities to be disposed of; (iv) all expenses in connection with the qualification of the securities to be disposed of for offering and sale under state “blue sky” securities laws, including the reasonable fees and disbursements of one counsel for the underwriters and the Selling Holders in connection with such qualification and in connection with any blue sky and legal investment surveys; (v) all expenses, including filing fees, incident to securing any required review by FINRA of the terms of the sale of the securities to be disposed of; (vi) transfer agents’ and registrars’ fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering; (vii) all security engraving and security printing expenses; (viii) all fees and expenses payable in connection with the listing of the securities on any securities exchange or automated interdealer quotation system or the rating of such securities; (ix) all expenses with respect to road shows that the Company is obligated to pay pursuant to Section 2.7(o); and (x) the reasonable fees and disbursements of one counsel for the Selling Holders participating in the registration (which counsel shall be chosen by the participating Selling Holders that then holds the most Registrable Securities) incurred in connection with any such registration and any offering of Common Stock relating to such registration, including any Shelf Take-Down.

“Selling Holder” means, with respect to any registration statement, any Holder whose Registrable Securities are included therein.

“Shelf Holder” means any Holder whose Registrable Securities are included in the Form S-3 Shelf Registration Statement.

“Shelf Registration Statement” means a registration statement providing for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act in accordance with the plan and method of distribution set forth in the prospectus included in such registration statement.

“Shelf Take-Down” has the meaning set forth in Section 2.4(a).

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the

direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.

“Transfer” means any sale, assignment, transfer, exchange, gift, bequest, pledge, hypothecation or other disposition or encumbrance, direct or indirect, in whole or in part, by operation of law or otherwise. The terms “Transferred”, “Transferring”, “Transferor”, “Transferee” and “Transferable” have meanings correlative to the foregoing.

“Underwritten Shelf Take-Down” has the meaning set forth in Section 2.4(b).

“Underwritten Shelf Take-Down Notice” has the meaning set forth in Section 2.4(b).

“Withdrawn Offering” has the meaning set forth in Section 2.6(c).

ARTICLE II

REGISTRATION RIGHTS

2.1Demand Rights.

(a)Demand Rights. Subject to the terms and conditions of this Agreement (including Section 2.1(b)), at any time upon written notice delivered by a Principal Stockholder (a “Demand”) at any time requesting that the Company effect the registration (a “Demand Registration”) under the Securities Act of any or all of the Registrable Securities held by such Principal Stockholder, which Demand shall specify the number and type of such Registrable Securities to be included in such registration and the intended method or methods of disposition of such Registrable Securities, the Company shall, as promptly as reasonably practicable, give written notice of such Demand to all other Holders and shall, as promptly as reasonably practicable, at any time after the expiration or waiver of the lock-up agreements delivered pursuant to the underwriting agreement relating to the IPO, file the appropriate registration statement and use reasonable best efforts to effect the registration under the Securities Act and applicable state securities laws of (i) the Registrable Securities which the Company has been so requested to register for sale by such Principal Stockholder in the Demand, and (ii) all other Registrable Securities which the Company has been requested to register for sale by such Holders by written request given to the Company within 10 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Registrable Securities), in each case subject to Section 2.1(f), all to the extent required to permit the disposition (in accordance with such intended methods of disposition) of the Registrable Securities to be so registered for sale. Notwithstanding the foregoing, in the event the method of disposition is an underwritten offering, the right of any Holder to include Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided in this Agreement, and all Holders proposing to distribute their Registrable Securities through such underwriting shall (together with the Company as provided in Section 2.7) enter

into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting.

(b)Limitations on Demand Rights. Any Demand by a Principal Stockholder shall include a number of Registrable Securities that equals or is greater than the lesser of (i) 1.0% of the total Registrable Securities then outstanding and (ii) $20 million (such value shall be determined based on the value of such Registrable Securities on the date immediately preceding the date upon which the Demand has been received by the Company). Wynnchurch shall have the right to make only two Demands for a Demand Registration and only beginning on the first anniversary of the closing of the IPO.

(c)Assignment. In connection with the Transfer of Registrable Securities to any Person other than by operation of law, a Holder may assign to any Transferee of such Registrable Securities (i) the right to make Demands pursuant to Section 2.1(a) and (ii) the right to participate in or effect any registration and/or Shelf Take-Down pursuant to the terms of Section 2.1(a), Section 2.2, Section 2.3 and Section 2.4, in each case to the extent that such Transferor has such rights. In the event of any such assignment, references to Holders or Principal Stockholders, as applicable, in this Agreement shall be deemed to refer to such Transferee if such Transferee is making any Demand or otherwise exercising its registration rights hereunder. In each of the foregoing cases, as a condition to such Transfer, a Transferee shall enter into a joinder agreement in the form attached hereto as Annex A to become party to this Agreement and expressly be subject to Section 2.12 herein. If any such Transferee is an individual and married, as a condition to such Transfer, such Transferee shall deliver to the Company a duly executed copy of a spousal consent in the form attached hereto as Annex B. In the event of any such assignment, references to the Holder or Principal Stockholder in Section 2.12 shall be deemed to refer to such Transferee. In addition, in each of the foregoing cases, the relevant Holder shall, as promptly as reasonably practicable, give written notice of any such assignment to the Company and, in the case of an assignment by a Principal Stockholder, the other Principal Stockholders in accordance with the addresses and other contact information set forth under Section 3.1.

(d)[Reserved]

(e)Fulfillment of Registration Obligations. Notwithstanding any other provision of this Agreement, a registration requested pursuant to this Section 2.1 shall not be deemed to have been effected: (i) if the registration statement is withdrawn without becoming effective; (ii) if, after it has become effective, such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or any other Governmental Authority for any reason other than a misrepresentation or an omission by a Selling Holder that is the Principal Stockholder, or an Affiliate of the Principal Stockholder (other than the Company and its Subsidiaries), that made the Demand relating to such registration and, as a result thereof, the Registrable Securities requested to be registered cannot be completely distributed in accordance with the plan of distribution set forth in the related registration statement; (iii) if the registration does not contemplate an underwritten offering, if it does not remain effective for at least 180 days (or such shorter period as will terminate when all securities covered by such registration statement have been sold or withdrawn); or if such registration statement contemplates an underwritten offering, if it does not remain effective for at least 180 days plus such longer period

as, in the opinion of counsel for the underwriter or underwriters, a prospectus is required by applicable law to be delivered in connection with the sale of Registrable Securities by an underwriter or dealer; or (iv) in the event of an underwritten offering, if the conditions to closing (including any condition relating to an overallotment option) specified in the purchase agreement or underwriting agreement entered into in connection with such registration are not satisfied or waived other than by reason of some wrongful act or omission by a Selling Holder that is the Principal Stockholder, or an Affiliate of the Principal Stockholder (other than the Company and its Subsidiaries), that made the Demand relating to such registration.

(f)Cutbacks in Demand Registration. If the lead underwriter or managing underwriter advises the Company in writing that, in such firm’s good faith view, the number of Registrable Securities and Other Securities requested to be included in a Demand Registration exceeds the number which can be sold in such offering without being likely to have a significant adverse effect upon the price, timing or distribution of the offering and sale of the Registrable Securities and Other Securities then contemplated, the Company shall provide a copy of such notice to each Selling Holder and include in such registration:

(1)first, Registrable Securities owned by the Principal Stockholders that are requested to be included in such registration pursuant to Section 2.1(a) and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Principal Stockholders requesting inclusion in such registration;

(2)second, Registrable Securities owned by the Other Holders that are requested to be included in such registration pursuant to Section 2.1(a) and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Other Holders requesting inclusion in such registration;

(3)third, shares of Common Stock that the Company proposes to sell for its own account that can be sold without having the significant adverse effect referred to above; and

(4)fourth, the Other Securities owned by any holder thereof with a contractual right to include such Other Securities in such registration that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Other Securities owned by the Persons requesting inclusion in such registration.

2.2Piggyback Registration Rights.

(a)Notice and Exercise of Rights. If the Company at any time proposes or is required to register any of its Common Stock or any other Equity Securities under the Securities Act (other than a Demand Registration pursuant to Section 2.1 or a registration pursuant to Section 2.3), whether or not for sale for its own account, in a manner that would permit registration of Registrable Securities for sale for cash to the public under the Securities Act, subject to the last sentence of this Section 2.2(a), it shall at each such time give written notice (the “Piggyback Notice”), as promptly as reasonably practicable, to each Holder of its intention to do so, which Piggyback Notice shall specify the number of shares of such Common Stock or

other Equity Securities to be included in such registration. Upon the written request of any Holder made within 10 days after receipt of the Piggyback Notice by such Person (which request shall specify the number of Registrable Securities intended to be disposed of), subject to the other provisions of this Article II, the Company shall effect, in connection with the registration of such Common Stock or other Equity Securities, the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register; provided, that in no event shall the Company be required to register pursuant to this Section 2.2 any securities other than Common Stock. Notwithstanding anything to the contrary contained in this Section 2.2, the Company shall not be required to effect any registration of Registrable Securities under this Section 2.2 incidental to the registration of any of its securities on Forms S-4 or S-8 (or any similar or successor form providing for the registration of securities in connection with mergers, acquisitions, exchange offers, subscription offers, dividend reinvestment plans or stock option or other executive or employee benefit or compensation plans) or any other form that would not be available for registration of Registrable Securities. Notwithstanding any other provision of this Agreement, the IPO shall be treated as a registration under this Section 2.2 and subject to the terms hereof (except that the Company shall be deemed to have given a Piggyback Notice and any Holder who is not a Selling Holder in the IPO registration shall be deemed to have waived its rights hereunder).

(b)Determination Not to Effect Registration. If at any time after giving such Piggyback Notice and prior to the effective date of the registration statement filed in connection with such registration the Company shall determine for any reason not to register the securities originally intended to be included in such registration, the Company may, at its election, give written notice of such determination to the Selling Holders and thereupon the Company shall be relieved of its obligation to register such Registrable Securities in connection with the registration of securities originally intended to be included in such registration, without prejudice, however, to the right of a Principal Stockholder immediately to request that such registration be effected as a registration under Section 2.1 or a shelf registration under Section 2.3 to the extent permitted thereunder.

(c)Cutbacks in Company Offering. If the registration referred to in the first sentence of Section 2.2(a) is to be an underwritten registration on behalf of the Company, and the lead underwriter or managing underwriter advises the Company in writing (with a copy to each Selling Holder) that, in such firm’s good faith view, the number of Other Securities and Registrable Securities requested to be included in such registration exceeds the number which can be sold in such offering without being likely to have a significant adverse effect upon the price, timing or distribution of the offering and sale of the Other Securities and Registrable Securities then contemplated, the Company shall include in such registration:

(1)first, all securities proposed to be registered on behalf the Company;

(2)second, Registrable Securities owned by the Principal Stockholders that are requested to be included in such registration pursuant to this Section 2.2 and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Principal Stockholders requesting inclusion in such registration;

(3)third, Registrable Securities owned by the Other Holders that are requested to be included in such registration pursuant to this Section 2.2 and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Other Holders requesting inclusion in such registration; and

(4)fourth, the Other Securities that are requested to be included in such registration pursuant to the terms of any agreement providing for registration rights to which the Company is a party that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Other Securities owned by the Persons requesting inclusion in such registration.

(d)Cutbacks in Other Offerings. If the registration referred to in the first sentence of Section 2.2(a) is to be an underwritten registration other than on behalf of the Company, and the lead underwriter or managing underwriter advises the Selling Holders in writing (with a copy to the Company) that, in such firm’s good faith view, the number of Registrable Securities and Other Securities requested to be included in such registration exceeds the number which can be sold in such offering without being likely to have a significant adverse effect upon the price, timing or distribution of the offering and sale of the Registrable Securities and Other Securities then contemplated, the Company shall include in such registration:

(1)first, the Other Securities held by any holder thereof with a contractual right to include such Other Securities in such registration prior to any other Person;

(4)fourth, shares of Common Stock that the Company proposes to sell for its own account that can be sold without having the significant adverse effect referred to above; and

(5)fifth, the Other Securities that are requested to be included in such registration pursuant to the terms of any agreement providing for registration rights to which the Company is a party that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Other Securities owned by the Persons requesting inclusion in such registration.

2.3Form S-3 Registration; Shelf Registration.

(a)Notwithstanding anything in Section 2.1 or Section 2.2 to the contrary, in case the Company shall receive from any Principal Stockholder a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Principal Stockholder, and the Company is then eligible to use Form S-3 for the resale of Registrable Securities, the Company shall:

(1)as promptly as reasonably practicable, give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(2)as promptly as reasonably practicable, file and use reasonable best efforts to effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Principal Stockholder’s Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.3 (or, with respect to a request under Section 2.4, any Shelf Take-Down pursuant to Section 2.4):

(A)

if Form S-3 is not available for such offering by the Principal Stockholders;

(B)solely with respect to filing and causing the effectiveness of a registration on Form S-3 or effecting a Marketed Underwritten Shelf Take-Down, if the Principal Stockholders, together with the holders of any Registrable Securities entitled to inclusion in such registration (or Marketed Underwritten Shelf Take-Down, as applicable), propose to sell Registrable Securities at an aggregate price to the public (before any underwriters’ discounts or commissions) of less than $20 million;

(C)

[reserved]

(D)solely with respect to filing and causing the effectiveness of a registration on Form S-3, subject to Section 2.3(d), if the Company has, within the 90-day period preceding the date of such request, already effected one registration on Form S-3 for a Principal Stockholder pursuant to this Section 2.3 (but, for the avoidance of doubt, regardless of whether any Shelf Take-Downs have been effected during such period); provided, that any such registration shall be deemed to have been “effected” if the registration statement relating thereto (x) has become or been declared or ordered effective under the Securities Act, and any of the Registrable Securities of the Principal Stockholder included in such registration have actually been sold thereunder, and (y) has remained effective for a period of at least 180 days; or

(E)in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

(b)Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities so requested to be registered, as promptly as reasonably practicable, after receipt of the request or requests of the Principal Stockholders (the “Form S-3 Registration Statement”) and any such Principal Stockholder may request inclusion of a plan of distribution in accordance with Section 2.7(i) and/or that such Form S-3 Registration Statement constitute a shelf offering on a delayed or continuous basis in accordance with Rule 415 under the Securities Act (a “Form S-3 Shelf Registration Statement”), in which case the provisions of Section 2.4 shall also be applicable.

(c)If a Principal Stockholder intends to distribute the Registrable Securities covered by its request under this Section 2.3 by means of a Marketed Underwritten Shelf Take-Down pursuant to Section 2.4(b), it shall so advise the Company as a part of its request made pursuant to this Section 2.3 and, subject to the limitations set forth in Section 2.3(a), the Company shall include such information in the written notice referred to in Section 2.3(a). In such event, the right of any Holder to include Registrable Securities in such registration (or Underwritten Shelf Take-Down, as applicable) shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting to the extent provided in this Agreement. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 2.7) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.3 or Section 2.4, if the lead underwriter or managing underwriter advises the Company in writing that, in such firm’s good faith view, the number of Registrable Securities and Other Securities requested to be included in such offering exceeds the number which can be sold in such offering without being likely to have a significant adverse effect upon the price, timing or distribution of the offering and sale of the Registrable Securities and Other Securities then contemplated, the Company shall provide a copy of such notice to each Selling Holder and include in such offering:

(1)first, Registrable Securities owned by the Principal Stockholders that are requested to be included in such registration pursuant to Section 2.3 and Section 2.4 and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Principal Stockholders requesting inclusion in such registration;

(2)second, Registrable Securities owned by the Other Holders that are requested to be included in such registration pursuant to Section 2.3 and Section 2.4 and that can be sold without having the significant adverse effect referred to above, pro rata on the basis of the relative number of such Registrable Securities owned by the Other Holders requesting inclusion in such registration;

(3)third, shares of Common Stock that the Company proposes to sell for its own account that can be sold without having the significant adverse effect referred to above; and

(4)fourth, the Other Securities owned by any holder thereof with a contractual right to include such Other Securities in such offering that can be sold without having

the significant adverse effect referred to above, pro rata on the basis of the relative number of such Other Securities owned by the Persons seeking inclusion in such offering.

(d)Notwithstanding the foregoing, if the Company shall receive from any Principal Stockholder of Registrable Securities then outstanding a written request or requests under Section 2.3 that the Company effect a registration statement on Form S-3 that includes only those items and that information that is required to be included in parts I and II of such Form, and does not include any additional or extraneous items of information (e.g., a lengthy description of the Company or the Company’s business) (an “Ordinary S-3 Registration Statement”), then Section 2.3(a)(2)(D) shall not apply to such Ordinary S-3 Registration Statement request.

(e)Upon the written request of any Principal Stockholder, prior to the expiration of effectiveness of any existing Form S-3 Shelf Registration Statement in accordance with Rule 415, the Company shall file and seek the effectiveness of a new Form S-3 Shelf Registration Statement in order to permit the continued offering of the Registrable Securities included under such existing Form S-3 Shelf Registration Statement.

2.4Shelf Take-Downs.

(a)Any Selling Holder of Registrable Securities included in a Form S-3 Shelf Registration Statement (an “Initiating Shelf Holder”) may initiate an offering or sale of all or part of such Registrable Securities (a “Shelf Take-Down”), in which case the provisions of this Section 2.4 shall apply; provided, however, that Wynnchurch may initiate only two Shelf Take-Downs that are Underwritten Shelf Take-Downs.

(b)If an Initiating Shelf Holder that is a Principal Stockholder so elects in a written request delivered to the Company (an “Underwritten Shelf Take-Down Notice”), a Shelf Take-Down may be in the form of an underwritten offering (an “Underwritten Shelf Take-Down”) and, subject to the limitations set forth in Section 2.3(a)(2)(D) as modified by Section 2.3(d), the Company shall file and effect an amendment or supplement to its Shelf Registration Statement (including the filing of a supplemental prospectus) for such purpose as promptly as reasonably practicable. Such Initiating Shelf Holder shall indicate in such Underwritten Shelf Take-Down Notice whether it intends for such Underwritten Shelf Take-Down to involve a customary “road show” (including an “electronic road show”) or other substantial marketing effort by the underwriters over a period of at least 48 hours (a “Marketed Underwritten Shelf Take-Down”). Upon receipt of an Underwritten Shelf Take-Down Notice indicating that such Underwritten Shelf Take-Down will be a Marketed Underwritten Shelf Take-Down, the Company shall as promptly as reasonably practicable (but in any event no later than two Business Days after receipt of the notice for such Marketed Underwritten Shelf Take-Down) give written notice of such Marketed Underwritten Shelf Take-Down to all other Shelf Holders and shall permit the participation of all such Shelf Holders that request inclusion in such Marketed Underwritten Shelf Take-Down who respond in writing within three Business Days after the receipt of such notice of their election to participate. The provisions of Section 2.3(c) (other than the first sentence thereof) shall apply with respect to the right of the Initiating Shelf Holder and any other Shelf Holder to participate in any Underwritten Shelf Take-Down.

(c)If the Initiating Shelf Holder that is a Principal Stockholder desires to effect an Underwritten Shelf Take-Down that does not constitute a Marketed Underwritten Shelf Take-Down (a “Non-Marketed Underwritten Shelf Take-Down”), the Initiating Shelf Holder shall so indicate in a written request delivered to the Company no later than two Business Days prior to the expected date of such Non-Marketed Underwritten Shelf Take-Down, which request shall include (i) the total number of Registrable Securities expected to be offered and sold in such Non-Marketed Underwritten Shelf Take-Down, (ii) the expected plan of distribution of such Non-Marketed Underwritten Shelf Take-Down and (iii) the action or actions required (including the timing thereof) in connection with such Non-Marketed Underwritten Shelf Take-Down (including the delivery of one or more stock certificates representing shares of Registrable Securities to be sold in such Non-Marketed Underwritten Shelf Take-Down) and, subject to the limitations set forth in Section 2.3(a)(2)(D) as modified by Section 2.3(d), the Company shall file and effect an amendment or supplement to its Shelf Registration Statement (including the filing of a supplemental prospectus) for such purpose as promptly as reasonably practicable (and in any event within three Business Days).

(d)Upon receipt from any Principal Stockholder of a written request pursuant to Section 2.4(c), the Company shall provide written notice (a “Non-Marketed Underwritten Shelf Take-Down Notice”) of such Non-Marketed Underwritten Shelf Take-Down promptly to all Principal Stockholders (other than the requesting Principal Stockholder), which Non- Marketed Underwritten Shelf Take-Down Notice shall set forth (i) the total number of Registrable Securities expected to be offered and sold in such Non-Marketed Underwritten Shelf Take-Down, (ii) the expected plan of distribution of such Non-Marketed Underwritten Shelf Take-Down, (iii) that each recipient of such Non-Marketed Underwritten Shelf Take-Down Notice (each, a “Notice Recipient”) shall have the right, upon the terms and subject to the conditions set forth in this Section 2.4(d), to elect to sell up to its Non-Marketed Take-Down Share and (iv) the action or actions required (including the timing thereof, which for the avoidance of doubt shall not require any delay in the expected date of such Non-Marketed Underwritten Shelf Take-Down or extension of the Company’s obligation to file and effect an amendment or supplement to its Shelf Registration Statement as soon as practicable (and in any event within three Business Days) of the Initiating Shelf Holder’s Non-Marketed Underwritten Shelf Take-Down request pursuant to Section 2.4(c)) in connection with such Non-Marketed Underwritten Shelf Take-Down with respect to each Notice Recipient that elects to exercise such right (including the delivery of one or more stock certificates representing shares of Registrable Securities held by such Notice Recipient to be sold in such Non-Marketed Underwritten Shelf Take-Down). Upon receipt of such Non-Marketed Underwritten Shelf Take-Down Notice, each such Notice Recipient may elect to sell up to its Non-Marketed Take-Down Share with respect to each such Non-Marketed Underwritten Shelf Take-Down, by taking such action or actions referred to in clause (iv) above in a timely manner. If the Initiating Shelf Holder does not elect to sell all of its respective Non-Marketed Take-Down Share, the unelected portion of such Non-Marketed Take-Down Share shall be allocated to the Notice Recipients, pro rata based on their respective Non-Marketed Take-Down Shares. Notwithstanding the delivery of any Non-Marketed Underwritten Shelf Take-Down Notice, all determinations as to whether to complete any Non-Marketed Underwritten Shelf Take-Down and as to the timing, manner, price and other terms of any Non-Marketed Underwritten Shelf Take-Down contemplated by Section 2.4(d) shall be at the discretion of the Initiating Shelf Holder.

2.5Selection of Underwriters. In the event that any registration pursuant to this Article II (other than a registration under Section 2.2) shall involve, in whole or in part, an underwritten offering, the underwriter or underwriters shall be designated by the Principal Stockholders (or in the case of a Shelf Take-Down, the Initiating Shelf Holder) that requested such underwritten offering in accordance with this Article II, which underwriter or underwriters shall be reasonably acceptable to the Company.

2.6Withdrawal Rights; Expenses.

(a)A Selling Holder may withdraw all or any part of its Registrable Securities from any registration or offering (including a registration effected pursuant to Section 2.1) by giving written notice to the Company of its request to withdraw at any time. In the case of a withdrawal, any Registrable Securities so withdrawn shall be reallocated among the remaining participants in accordance with the applicable provisions of this Agreement.

(b)Except as provided in this Agreement, the Company shall pay all Registration Expenses with respect to a particular offering (or proposed offering). Except as provided herein, each Selling Holder and the Company shall be responsible for its own fees and expenses of financial advisors and their internal administrative and similar costs, as well as their respective pro rata shares of underwriters’ commissions and discounts, which shall not constitute Registration Expenses.

(c)If the Principal Stockholder(s) that requested a Demand Registration or a Marketed Underwritten Shelf Take-Down pursuant to Section 2.1 or Section 2.4 withdraw all of its Registrable Securities from such Demand Registration or Marketed Underwritten Shelf Take- Down (a “Withdrawn Offering”), the other Principal Stockholder(s) or the Company may, in any of their sole discretion, elect within two Business Days thereafter to have the Company continue such Withdrawn Offering by giving written notice of such election to the Company and/or the other Principal Stockholders (a “Continuance Notice”), in which case such Withdrawn Offering shall proceed in accordance with the applicable provisions of this Agreement as if such Withdrawn Offering had been initiated by the Party providing the Continuance Notice (which, for the avoidance of doubt, shall not cause any new notice or consent period with respect to other Holders to occur under this Agreement and shall not otherwise change the requirements for and timing of any notices and consents under this Agreement as they then exist with respect to such Withdrawn Offering).

2.7Registration and Qualification. If and whenever the Company is required to effect the registration of any Registrable Securities under the Securities Act as provided in this Article II, the Company shall as promptly as practicable:

(a)Registration Statement. (i) Prepare and (as promptly as reasonably practicable thereafter and in any event no later than 20 days after the end of the applicable period specified in Section 2.1(a), Section 2.2(a) or Section 2.3(a)(2) within which requests for registration may be given to the Company) file a registration statement under the Securities Act relating to the Registrable Securities to be offered and use reasonable best efforts to cause such registration statement to become effective as promptly as practicable thereafter, and keep such registration statement effective for 180 days or, if earlier, until the distribution contemplated in

the registration statement has been completed; provided, that in the case of any registration of Registrable Securities 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 Securities, 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 (A) the Selling Holders have sold all of such Registrable Securities or (B) no Registrable Securities then exist; (ii) furnish to the lead underwriter or underwriters, if any, and to the Selling Holders who have requested that Registrable Securities be covered by such registration statement, prior to the filing thereof with the SEC, a copy of the registration statement, and each amendment thereof, and a copy of any prospectus, and each amendment or supplement thereto (excluding amendments caused by the filing of a report under the Exchange Act); and (iii) use reasonable best efforts to reflect in each such document, when so filed with the SEC, such comments as such Persons reasonably may on a timely basis propose;

(b)Amendments; Supplements. Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be (i) reasonably requested by any Selling Holder (to the extent such request relates to information relating to such Selling Holder), or (ii) necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities until the earlier of (A) such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition set forth in such registration statement and (B) if a Form S-3 registration, the expiration of the applicable period specified in Section 2.7(a) and, if not a Form S-3 registration, the applicable period specified in Section 2.1(e)(iii); provided, that any such required period shall be extended for such number of days (x) during any period from and including the date any written notice contemplated by paragraph (f) below is given by the Company until the date on which the Company delivers to the Selling Holders the supplement or amendment contemplated by paragraph (f) below or written notice that the use of the prospectus may be resumed, as the case may be, and (y) during which the offering of Registrable Securities pursuant to such registration statement is interfered with by any stop order, injunction or other order or requirement of the SEC or any other governmental agency or court; provided, further, that the Company shall have no obligation to a Selling Holder participating on a “piggyback” basis pursuant to Section 2.1(a) or Section 2.2 in a registration statement that has become effective to keep such registration statement effective for a period beyond 180 days from the effective date of such registration statement. The Company shall respond, as promptly as reasonably practicable, to any comments received from the SEC and request acceleration of effectiveness, as promptly as reasonably practicable, after it learns that the SEC will not review the registration statement or after it has satisfied comments received from the SEC. With respect to each Free Writing Prospectus or other materials to be included in the Disclosure Package, ensure that no Registrable Securities be sold “by means of” (as defined in Rule 159A(b) under the Securities Act) such Free Writing Prospectus or other materials without the prior written consent of the Selling Holders of the Registrable Securities covered by such registration statement, which Free Writing Prospectuses or other materials shall be subject to the review of counsel to such Selling Holders, and make all required filings of all Free Writing Prospectuses with the SEC;

(c)Copies. Furnish to the Selling Holders and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus, summary prospectus and Free Writing Prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as such Selling Holders or such underwriter may reasonably request, and upon request a copy of any and all transmittal letters or other correspondence to or received from, the SEC or any other Governmental Authority or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering;

(d)Blue Sky. Register and qualify the securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions as shall be reasonably requested by the Selling Holders and do any and all other acts and things which may be reasonably necessary or advisable to enable such Selling Holders to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder; provided, that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business, or to file a general consent to service of process in any such states or jurisdictions;

(e)Delivery of Certain Documents. (i) Furnish to each Selling Holder and to any underwriter of such Registrable Securities an opinion of counsel for the Company (which opinion (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, or, in the case of a non-underwritten offering, to the Selling Holders) addressed to each Selling Holder and any underwriter of such Registrable Securities and dated the date of the closing under the underwriting agreement (if any) (or if such offering is not underwritten, dated the effective date of the applicable registration statement) covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings, (ii) in connection with an underwritten offering, furnish to each Selling Holder and any underwriter of such Registrable Securities a “cold comfort” and “bring-down” letter addressed to each Selling Holder and any underwriter of such Registrable Securities and signed by the independent public accountants who have audited the financial statements of the Company included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in accountants’ letters delivered to underwriters in underwritten public offerings of securities and such other matters as any Selling Holder may reasonably request and, in the case of such accountants’ letter, with respect to events subsequent to the date of such financial statements and (iii) 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 Securities;

(f)Notification of Certain Events; Corrections. Promptly notify the Selling Holders and any underwriter of such Registrable Securities in writing (i) of the occurrence of any event as a result of which the registration statement or the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any 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, (ii) of any

request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and (iii) if for any other reason it shall be necessary to amend or supplement such registration statement or prospectus in order to comply with the Securities Act and, in any such case as promptly as reasonably practicable thereafter, prepare and file with the SEC an amendment or supplement to such registration statement or prospectus which will correct such statement or omission or effect such compliance;

(g)Notice of Effectiveness. Notify the Selling Holders and the lead underwriter or underwriters, if any, and (if requested) confirm such advice in writing, as promptly as reasonably practicable after notice thereof is received by the Company (i) when the applicable registration statement or any amendment thereto has been filed or becomes effective and when the applicable prospectus or any amendment or supplement thereto has been filed, (ii) of any comments by the SEC, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or any order preventing or suspending the use of any preliminary or final prospectus or the initiation or threat of any proceedings for such purposes and (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering or sale in any jurisdiction or the initiation or threat of any proceeding for such purpose;

(h)Stop Orders. Use its reasonable best efforts to prevent the entry of, and use its reasonable best efforts to obtain as promptly as reasonably practicable the withdrawal of, any stop order with respect to the applicable registration statement or other order suspending the use of any preliminary or final prospectus;

(i)Plan of Distribution. Promptly incorporate in a prospectus supplement or post-effective amendment to the applicable registration statement such information as any Selling Holder requests (subject to the agreement of the lead underwriter or underwriters, if any) be included therein relating to the plan of distribution with respect to such Registrable Securities, which may include disposition of Registrable Securities by all lawful means, including firm-commitment underwritten public offerings, block trades, in-kind distributions, agented transactions, sales directly into the market, purchases or sales by brokers, derivative transactions, short sales, stock loan or stock pledge transactions and sales not involving a public offering; and make all required filings of such prospectus supplement or post-effective amendment as promptly as reasonably practicable after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment;

(j)Other Filings. Use its reasonable best efforts to cause the Registrable Securities covered by the applicable registration statement to be registered with or approved by such other Governmental Authorities as may be necessary to enable the seller or sellers thereof or the underwriter or underwriters, if any, to consummate the disposition of such Registrable Securities;

(k)FINRA Compliance. Cooperate with each Selling Holder and each underwriter or agent, if any, participating in the disposition of such Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA;

(l)Listing. Use its reasonable best efforts to cause all such Registrable Securities registered pursuant to such registration to be listed and remain on each securities exchange and automated interdealer quotation system on which identical securities issued by the Company are then listed;

(m)Transfer Agent; Registrar; CUSIP Number. Provide a transfer agent and registrar for all Registrable Securities registered pursuant to such registration and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of the applicable registration statement;

(n)Compliance; Earnings Statement. Otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and make available to each Selling Holder, as soon as reasonably practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first month after the effective date of the applicable registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;

(o)Road Shows. To the extent reasonably requested by the lead or managing underwriters in connection with an underwritten offering pursuant to Section 2.1 or a Form S-3 underwritten offering pursuant to Section 2.3 and Section 2.4(b), send appropriate officers of the Company to attend any “road shows” scheduled in connection with any such underwritten offering, with all out of pocket costs and expenses incurred by the Company or such officers in connection with such attendance to be paid by the Company;

(p)Certificates. Unless the relevant securities are issued in book-entry form, furnish for delivery in connection with the closing of any offering of Registrable Securities pursuant to a registration effected pursuant to this Article II unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by any Selling Holder or the underwriters of such Registrable Securities (it being understood that the Selling Holders shall use reasonable best efforts to arrange for delivery to the Depository Trust Company); and

(q)Reasonable Best Efforts. Use reasonable best efforts to take all other steps necessary to effect the registration and offering of the Registrable Securities contemplated hereby.

2.8Underwriting; Due Diligence.

(a)If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Article II, the Company shall enter into an underwriting agreement with such underwriters for such offering, which agreement will contain such representations and warranties by the Company and such other terms and provisions as are customarily contained in underwriting agreements generally with respect to secondary distributions to the extent relevant, including indemnification and contribution provisions substantially to the effect and to the extent provided in Section 2.9, and agreements as to the provision of opinions of counsel and accountants’ letters to the effect and to the extent provided in Section 2.7(e). The Selling Holders on whose behalf the Registrable

Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement, and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders and the conditions precedent to the obligations of such underwriters under such underwriting agreement shall also be conditions precedent to the obligations of such Selling Holders to the extent applicable. Subject to the following sentence, such underwriting agreement shall also contain such representations and warranties by such Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, when relevant. No Selling Holder shall be required in any such underwriting agreement or related documents to make any representations or warranties to or agreements with the Company or the underwriters other than customary representations, warranties or agreements regarding such Selling Holder’s title to Registrable Securities and any written information provided by the Selling Holder to the Company expressly for inclusion in the related registration statement, and the liability of any Selling Holder under the underwriting agreement shall be several and not joint and in no event shall the liability of any Selling Holder under the underwriting agreement be greater in amount than the dollar amount of the proceeds received by such Selling Holder under the sale of the Registrable Securities pursuant to such underwriting agreement (net of underwriting discounts and commissions).

(b)In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act pursuant to this Article II, the Company shall make available upon reasonable notice at reasonable times and for reasonable periods for inspection by each Selling Holder, by any lead underwriter or underwriters participating in any disposition to be effected pursuant to such registration statement, and by any attorney, accountant or other agent retained by any Selling Holder or any lead underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and use its reasonable best efforts to cause all of the Company’s officers, directors and employees and the independent public accountants who have certified the Company’s financial statements to make themselves reasonably available to discuss the business of the Company and to supply all information reasonably requested by any such Selling Holders, lead underwriters, attorneys, accountants or agents in connection with such registration statement as shall be necessary to enable them to exercise their due diligence responsibility (subject to entry by each party referred to in this clause (b) into customary confidentiality agreements in a form reasonably acceptable to the Company).

(c)In the case of an underwritten offering requested by the Principal Stockholders pursuant to Section 2.1 or Section 2.3 or an Underwritten Shelf Take-Down pursuant to Section 2.4, the price, underwriting discount and other financial terms for the Registrable Securities of the related underwriting agreement shall be determined by the Principal Stockholder exercising its Demand or requesting such Underwritten Shelf Take-Down. In the case of any underwritten offering of securities by the Company pursuant to Section 2.2, such price, discount and other terms shall be determined by the Company, subject to the right of Selling Holders to withdraw their Registrable Securities from the registration pursuant to Section 2.6(a).

(d)Subject to Section 2.8(a), no Person may participate in an underwritten offering (including an Underwritten Shelf Take-Down) unless such Person (i) agrees to sell such

Person’s securities on the basis provided in any underwriting arrangements approved by the Persons entitled to approve such arrangements and (ii) completes and executes all customary questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreement and other documents reasonably required under the terms of such underwriting arrangements.

2.9Indemnification and Contribution.

(a)Indemnification by the Company. In the case of each offering of Registrable Securities made pursuant to this Article II, the Company agrees to indemnify and hold harmless, to the extent permitted by applicable law, each Selling Holder, each underwriter of Registrable Securities so offered and each Person, if any, who controls or is alleged to control (within the meaning set forth in the Securities Act) any of the foregoing Persons, the Affiliates of each of the foregoing (other than the Company and its controlled Affiliates), and the officers, directors, partners, members, employees and agents of each of the foregoing, against any and all losses, liabilities, costs (including reasonable attorney’s fees and disbursements), claims and damages, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary, final or summary prospectus included therein) or in the Disclosure Package, or in any offering memorandum or other offering document relating to the offering and sale of such Registrable Securities, or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus or preliminary prospectus, in light of the circumstances under which they were made) not misleading; provided, however, that the Company shall not be liable to any Person in any such case to the extent that any such loss, liability, cost, claim or damage arises out of or relates to any untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information relating to such Person (which information shall be limited to the name of such Person, the address of such Person, the number of shares of Common Stock held by such Person, the number of shares of Common Stock being offered by such Person in the offering and the nature of the beneficial ownership of the Common Stock owned by such Person) furnished in writing to the Company by or on behalf of such Person expressly for inclusion in the registration statement (or in any preliminary, final or summary prospectus included therein), offering memorandum or other offering document, or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such Person and shall survive the transfer of such securities.

(b)Indemnification by Selling Holders. In the case of each offering made pursuant to this Agreement, each Selling Holder, by exercising its registration and/or piggyback rights under this Agreement, agrees, severally and not jointly, to indemnify and hold harmless, to the extent permitted by applicable law, the Company, each other Selling Holder and each Person, if any, who controls or is alleged to control (within the meaning set forth in the Securities Act) any of the foregoing, any Affiliate of any of the foregoing, and the officers, directors, partners, members, employees and agents of each of the foregoing, against any and all losses, liabilities,

costs (including reasonable attorney’s fees and disbursements), claims and damages to which they or any of them may become subject, under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, insofar as such losses, liabilities, costs, claims and damages (or actions or proceedings in respect thereof, whether or not such indemnified Person is a party thereto) arise out of or are based upon any untrue statement made by such Selling Holder of a material fact contained in the registration statement (or in any preliminary, final or summary prospectus included therein) or in the Disclosure Package relating to the offering and sale of such Registrable Securities prepared by the Company or at its direction, or any amendment thereof or supplement thereto, or any omission by such Selling Holder of a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus or preliminary prospectus, in light of the circumstances under which they were made) not misleading, but in each case only to the extent that such untrue statement of a material fact occurs in reliance upon and in conformity with, or such material fact is omitted from, information relating to such Selling Holder (which information shall be limited to the name of such Selling Holder, the address of such Selling Holder, the number of shares of Common Stock held by such Selling Holder, the number of shares of Common Stock being offered by such Selling Holder in the offering and the nature of the beneficial ownership of the Common Stock owned by such Person) furnished in writing to the Company by or on behalf of such Selling Holder expressly for inclusion in such registration statement (or in any preliminary, final or summary prospectus included therein) or Disclosure Package, or any amendment thereof or supplement thereto.

(c)Indemnification Procedures. Each Party entitled to indemnification under this Section 2.9 shall give notice to the Party required to provide indemnification, as promptly as reasonably practicable, after such indemnified Party has actual knowledge that a claim is to be made against the indemnified Party as to which indemnity may be sought, and shall permit the indemnifying Party to assume the defense of such claim or litigation resulting therefrom and any related settlement and settlement negotiations, subject to the limitations on settlement set forth below; provided, that counsel for the indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the indemnified Party (whose approval shall not unreasonably be withheld, conditioned or delayed), and the indemnified Party may participate in such defense at such Party’s expense; and provided, further, that the failure of any indemnified Party to give notice as provided in this Agreement shall not relieve the indemnifying Party of its obligations under this Section 2.9, except to the extent the indemnifying Party is actually prejudiced by such failure to give notice. Notwithstanding the foregoing, an indemnified Party shall have the right to retain separate counsel, with the reasonable fees and expenses of such counsel being paid by the indemnifying Party, if representation of such indemnified Party by the counsel retained by the indemnifying Party would be inappropriate due to actual or potential differing interests between such indemnified Party and any other party represented by such counsel or if the indemnifying Party has failed to assume the defense of such action. No indemnified Party shall enter into any settlement of any litigation commenced or threatened with respect to which indemnification is or may be sought without the prior written consent of the indemnifying Party (such consent not to be unreasonably withheld, conditioned or delayed). No indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified Party of a release, reasonably satisfactory

to the indemnified Party, from all liability in respect to such claim or litigation. Each indemnified Party shall furnish such information regarding itself or the claim in question as an indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom.

(d)Contribution. If the indemnification provided for in this Section 2.9 shall for any reason be unavailable (other than in accordance with its terms) to an indemnified Party in respect of any loss, liability, cost, claim or damage referred to therein, then each indemnifying Party shall, in lieu of indemnifying such indemnified Party, contribute to the amount paid or payable by such indemnified Party as a result of such loss, liability, cost, claim or damage in such proportion as shall be appropriate to reflect the relative fault of the indemnifying Party on the one hand and the indemnified Party on the other with respect to the statements or omissions which resulted in such loss, liability, cost, claim or damage as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue statement of a material fact or omission to state a material fact relates to information supplied by the indemnifying Party on the one hand or the indemnified Party on the other, the intent of the Parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by an indemnified Party as a result of the loss, cost, claim, damage or liability, or action in respect thereof, referred to above in this paragraph (d) shall be deemed to include, for purposes of this paragraph (d), any legal or other expenses reasonably incurred by such indemnified Party in connection with investigating or defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Notwithstanding anything in this Section 2.9(d) to the contrary, no indemnifying Party (other than the Company) shall be required pursuant to this Section 2.9(d) to contribute any amount in excess of the amount by which the net proceeds received by such indemnifying Party from the sale of Registrable Securities in the offering to which the losses of the indemnified Parties relate exceeds the amount of any damages which such indemnifying Party has otherwise been required to pay by reason of such untrue statement or omission. The Parties agree that it would not be just and equitable if contribution pursuant to this Section 2.9(d) were determined by pro rata allocation or by any other method of allocation which does not take into account the equitable considerations referred to in this Section 2.9(d).

(e)Indemnification/Contribution under State Law. Indemnification and contribution similar to that specified in the preceding paragraphs of this Section 2.9 (with appropriate modifications) shall be given by the Company and the Selling Holders with respect to any required registration or other qualification of securities under any state applicable law or with any Governmental Authority.

(f)Obligations Not Exclusive. The obligations of the Parties under this Section 2.9 shall be in addition to any liability which any Party may otherwise have to any other Person.

(g)Survival. For the avoidance of doubt, the provisions of this Section 2.9 shall survive any termination of this Agreement.

(h)Limitation of Selling Holder Liability. The liability of any Selling Holder under this Section 2.9 shall be several and not joint and in no event shall the liability of any Selling Holder under this Section 2.9 be greater in amount than the dollar amount of the proceeds, net of underwriting discounts and commissions, received by such Selling Holder from the sale of the Registrable Securities giving rise to such indemnification/contribution obligation.

(i)Third Party Beneficiary. Each of the indemnified Persons referred to in this Section 2.9 shall be a third party beneficiary of the rights conferred to such Person in this Section.

2.10Cooperation; Information by Selling Holder.

(a)It shall be a condition of each Selling Holder’s rights under this Article II that such Selling Holder cooperate with the Company by entering into any undertakings and taking such other action relating to the conduct of the proposed offering which the Company or the underwriters may reasonably request as being necessary to insure compliance with federal and state securities laws and the rules or other requirements of FINRA or which are otherwise customary and which the Company or the underwriters may reasonably request to effectuate the offering.

(b)Each Selling Holder shall furnish to the Company such information regarding such Selling Holder and the distribution proposed by such Selling Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Article II. The Company shall have the right to exclude from the registration any Selling Holder that does not comply with this Section 2.10.

(c)At such time as an underwriting agreement with respect to a particular underwriting is entered into, the terms of any such underwriting agreement shall govern with respect to the matters set forth therein to the extent inconsistent with this Article II; provided, that the indemnification provisions of such underwriting agreement as they relate to the Selling Holders are customary for registrations of the type then proposed and provide for indemnification by such Selling Holders only with respect to information relating to such Selling Holder (which information shall be limited to the name of such Selling Holder, the address of such Selling Holder, the number of shares of Common Stock held by such Selling Holder, the number of shares of Common Stock being offered by such Selling Holder in the offering and the nature of the beneficial ownership of the Common Stock owned by such Person) furnished in writing to the Company by or on behalf of such Selling Holder expressly for inclusion in such registration statement (or in any preliminary, final or summary prospectus included therein) or Disclosure Package, or any amendment thereof or supplement thereto.

2.11Rule 144. The Company shall use its reasonable best efforts to ensure that the conditions to the availability of Rule 144 under the Securities Act set forth in paragraph (c) of Rule 144 shall be satisfied. The Company agrees to use its reasonable best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act, at any time after it has become subject to such reporting requirements. Upon the request of any Holder for so long as such information is a necessary

element of such Person’s ability to avail itself of Rule 144, the Company shall deliver to such Person (i) a written statement as to whether it has complied with such requirements and (ii) a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as such Person may reasonably request in availing itself of any rule or regulation of the SEC allowing such Person to sell any such securities without registration.

2.12

Holdback Agreement.

(a)In the case of any underwritten offering pursuant to this Agreement, each Holder participating in such underwritten offering, agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of Equity Securities of the Company, or any securities convertible into or exchangeable or exercisable for such equity securities, during any time period reasonably requested by the managing underwriter(s) of such underwritten offering, which shall not exceed 90 days. Each Holder subject to the restrictions of the preceding sentence shall receive the benefit of any shorter “lock-up” period or permitted exceptions agreed to by the managing underwriter(s) for any underwritten offering pursuant to this Agreement and the terms of such lock-up agreements shall govern such Holder in lieu of the preceding sentence.

(b)In the case of any underwritten offering pursuant to this Agreement, the Company shall use commercially reasonable efforts to cause any stockholders that beneficially own 5% or more of the Common Stock (other than the Principal Stockholders) and its directors and executive officers to execute any lock-up agreements in form and substance as agreed by the Principal Stockholders and as reasonably requested by the managing underwriters.

(c)In the case of any underwritten offering pursuant to this Agreement, the Company agrees not to effect any public offering or distribution of any Equity Securities of the Company, or securities convertible into or exchangeable or exercisable for Equity Securities of the Company for a period commencing on the date of the prospectus pursuant to which such offering may be made and ending 90 days after the date of such prospectus, except as part of such underwritten offering. In the case of the IPO, each Holder shall enter into the lock-up agreement requested by the managing underwriters and approved by the Principal Stockholders.

2.13Suspension of Sales. Each Selling Holder participating in a registration agrees that, upon receipt of notice from the Company pursuant to Section 2.7(f), such Selling Holder shall discontinue disposition of its Registrable Securities pursuant to such registration statement until receipt of the copies of the supplemented or amended prospectus contemplated by Section 2.7(f), or until advised in writing by the Company that the use of the prospectus may be resumed, as the case may be, and, if so directed by the Company, such Selling Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Selling Holder’s possession, of the prospectus covering such Registrable Securities which are current at the time of the receipt of the notice of the event described in Section 2.7(f).

2.14

Third Party Registration Rights.

(a)Nothing in this Agreement shall be deemed to prevent the Company from providing registration rights to any other Person on such terms as the board of directors of the Company deems desirable in its sole discretion; provided that the Company does not grant any

shelf, demand, piggyback or incidental registration rights that are senior to or otherwise conflict with the rights granted to the Holders under this Agreement to any other Person without the prior written consent of the Principal Stockholders.

(b)(i) Any Person may join this Agreement as a Holder with the prior written consent of the Company and the Principal Stockholders (such Person, a “New Holder”), provided that such New Holder (a) enters into a joinder agreement in the form attached hereto as Annex A to become party to this Agreement and expressly be subject to Section 2.12 herein and (b) if a New Holder is an individual and married, such New Holder shall, as a condition to becoming a Holder deliver to the Company a duly executed copy of a spousal consent in the form attached hereto as Annex B.

2.15Mergers. The Company shall not, directly or indirectly, (x) enter into any merger, consolidation, recapitalization, combination of shares or other reorganization in which the Company shall not be the surviving corporation or (y) Transfer or agree to Transfer all or substantially all the Company’s assets, unless prior to such merger, consolidation, reorganization or asset Transfer, the surviving corporation or the transferee, as applicable, shall have agreed in writing to assume the obligations of the Company under this Agreement, and for that purpose references hereunder to “Registrable Securities”, shall be deemed to include the securities which the Holders, would be entitled to receive in exchange for Registrable Securities, pursuant to any such merger, consolidation, reorganization or asset Transfer.

ARTICLE III

MISCELLANEOUS

3.1Notices. All notices, requests, demands and other communications to any party hereunder shall be made in writing (including facsimile transmission and electronic mail (“e-mail”) transmission, so long as a receipt of such e-mail is requested and received by non-automated response) and shall be given:

(a)

if to the Company, to:

Latham Group, Inc.

787 Watervliet Shaker Road

Latham, New York 12110

Attention: General Counsel

With copies (which shall not constitute actual or constructive notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attention: Angelo Bonvino
John C. Kennedy

(b)

if to Wynnchurch:

c/o Wynnchurch Capital, L.P.

6250 N. River Rd., Suite 10-100

Rosemont, IL 60018

Attention: Christopher P. O’Brien; Carl Howe

With copies (which shall not constitute actual or constructive notice) to:

Foley & Lardner LLP

500 Woodward Ave, Suite 2700

Detroit, MI 48226

Attention: Omar Lucia

(c)

if to Pamplona:

c/o Pamplona Capital Management LLC

667 Madison Avenue, 22nd Floor

New York, NY 10065

Attention: Andrew Singer

With copies (which shall not constitute actual or constructive notice) to:

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1285 Avenue of the Americas

New York, NY 10019

Attention: Angelo Bonvino
John C. Kennedy

(d)

if to any Other Holder, to the addresses and other contact information set forth on Schedule I to this Agreement (it being understood that any Holder may, from time to time, update any address and/or other contact information for itself on Schedule I by providing written notice of such update to the Company and the other Holders), or to such other address or facsimile number as such party may hereafter specify for the purpose by notice to the other Parties hereto.

All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. New York City time on a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding Business Day in the place of receipt.

(e)if to any Transferee or any New Holder, to the address specified by such Person on the applicable joinder to this Agreement.

Notwithstanding anything to the contrary herein, any Person may, from time to time, update any address and/or other contact information for itself by providing written notice of such update to the Company and the other Holders. All notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. New York City time on a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding Business Day in the place of receipt.

3.2Section Headings. The article and section headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. References in this Agreement to a designated “Article” or “Section” refer to an Article or Section of this Agreement unless otherwise specifically indicated.

3.3Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware.

3.4Consent to Jurisdiction and Service of Process. The Parties agree that any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated by this Agreement (whether brought by any Party or any of its Affiliates or against any Party or any of its Affiliates) shall be brought in the Delaware Chancery Court or, if such court shall not have jurisdiction, any federal court located in the State of Delaware or other Delaware state court, and each of the Parties hereby irrevocably consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. Process in any such suit, action or proceeding may be served on any Party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each Party agrees that service of process on such Party as provided in Section 3.1 shall be deemed effective service of process on such Party.

3.5Amendments; Termination. This Agreement may be amended only by an instrument in writing executed by the Company and the Principal Stockholders; provided, however, that, with respect to a particular Holder or group of Holders, any such amendment, supplement, modification or waiver that (a) would materially and adversely affect such Holder or group of Holders in any respect or (b) would disproportionately benefit any other Holder or group of Holders or confer any benefit on any other Holder or group of Holders to which such

Holder of group of Holders would not be entitled, shall not be effective against such Holder or group of Holders unless approved in writing by such Holder or the Holders of a majority of the Registrable Securities held by such group of Holders, as the case may be. This Agreement will terminate as to any Holder when it no longer holds any Registrable Securities.

3.6Specific Enforcement. The Parties acknowledge that the remedies at law of the other Parties for a breach or threatened breach of this Agreement would be inadequate and, in recognition of this fact, any Party to this Agreement, without posting any bond, and in addition to all other remedies that may be available, shall be entitled to obtain equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy that may then be available.

3.7Entire Agreement. This Agreement constitutes the entire agreement and understanding of the Parties with respect to the transactions contemplated by this Agreement. The registration rights granted under this Agreement supersede any registration, qualification or similar rights with respect to any Registrable Securities granted under any other agreement at any time, and any of such preexisting registration rights are hereby terminated.

3.8Severability. The invalidity or unenforceability of any specific provision of this Agreement shall not invalidate or render unenforceable any of its other provisions. Any provision of this Agreement held invalid or unenforceable shall be deemed reformed, if practicable, to the extent necessary to render it valid and enforceable and to the extent permitted by law and consistent with the intent of the Parties to this Agreement.

3.9Counterparts. This Agreement may be executed in multiple counterparts, including by means of facsimile or .pdf, each of which shall be deemed an original, but all of which together shall constitute the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered as of the date first set forth above.


	LATHAM GROUP, INC.


	By:	/s/ Jason Duva
	Name: Jason Duva
	Title: General Counsel