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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-258075

 

PROSPECTUS

LOGO

109,257,218 Shares of Common Stock

Up to 6,333,334 Shares of Common Stock Issuable Upon Exercise of the Warrants

Up to 6,333,334 Warrants

 

 

This prospectus relates to the offer and sale from time to time by the selling securityholders named in this prospectus of: (i) up to 109,257,218 shares of our common stock, and (ii) up to 6,333,334 warrants to purchase common stock. We will not receive any proceeds from the sale of shares of common stock or warrants by the selling securityholders pursuant to this prospectus.

In addition, this prospectus relates to the issuance by us of up to an aggregate of 6,333,334 shares of our common stock issuable upon the exercise of the warrants offered hereby. We will receive the proceeds from any exercise of any warrants for cash. We will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, NYSE listing fees and fees and expenses of our counsel and our independent registered public accounting firm. The selling securityholders will pay any underwriting discounts and commissions and expenses incurred by the selling securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the selling securityholders in disposing of the securities.

We are registering the securities for resale pursuant to the selling securityholders’ registration rights under certain agreements between us and the selling securityholders. Our registration of the securities covered by this prospectus does not mean that either we or the selling securityholders will offer or sell any of the shares of common stock or warrants. The selling securityholders or their permitted transferees may offer, sell or distribute all or a portion of their shares of common stock or warrants publicly or through private transactions at prevailing market prices or at negotiated prices. We provide more information about how the selling securityholders may sell the common stock or warrants in the section entitled “Plan of Distribution.”

You should read this prospectus and any prospectus supplement or amendment carefully before you invest in our securities.

Our common stock and our warrants are listed on the New York Stock Exchange, under the symbols “HLLY” and “HLLY WS,” respectively. On July 27, 2021, the closing price of our common stock was $11.11 and the closing price of our warrants was $2.52.

 

 

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements.

 

 

Investing in our securities involves a high degree of risk. See the section entitled “Risk Factors beginning on page 17 of this prospectus to read about factors you should consider before buying our securities.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is July 28, 2021.


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TABLE OF CONTENTS

 

     Page  

TABLE OF CONTENTS

     i  

INTRODUCTORY NOTE REGARDING THE BUSINESS COMBINATION

     ii  

ABOUT THIS PROSPECTUS

     iv  

MARKET, RANKING AND OTHER INDUSTRY DATA

     v  

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

     v  

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     vi  

SUMMARY

     1  

THE OFFERING

     11  

SUMMARY HISTORICAL FINANCIAL INFORMATION OF HOLLEY

     12  

SUMMARY HISTORICAL FINANCIAL INFORMATION OF EMPOWER

     14  

SUMMARY UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

     16  

RISK FACTORS

     17  

USE OF PROCEEDS

     39  

DIVIDEND POLICY

     40  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     41  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     53  

BUSINESS

     72  

MANAGEMENT

     84  

EXECUTIVE AND DIRECTOR COMPENSATION

     92  

PRINCIPAL SECURITYHOLDERS

     100  

SELLING SECURITYHOLDERS

     102  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     107  

DESCRIPTION OF SECURITIES

     110  

SECURITIES ELIGIBLE FOR FUTURE SALE

     121  

PLAN OF DISTRIBUTION

     123  

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

     126  

LEGAL MATTERS

     132  

EXPERTS

     132  

WHERE YOU CAN FIND MORE INFORMATION

     132  

INDEX TO FINANCIAL STATEMENTS

     F-1  

 

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INTRODUCTORY NOTE REGARDING THE BUSINESS COMBINATION

On July 16, 2021 (the “Closing” and such date, the “Closing Date”), we consummated the business combination pursuant to that certain Agreement and Plan of Merger dated March 11, 2021 (the “Merger Agreement”), by and among Empower Ltd., a Cayman Islands exempted company (“Empower”), Empower Merger Sub I Inc., a Delaware corporation and a direct wholly owned subsidiary of Empower (“Merger Sub I”), Empower Merger Sub II LLC, a Delaware limited liability company and a direct wholly owned subsidiary of Empower (“Merger Sub II”), and Holley Intermediate Holdings, Inc., a Delaware corporation (“Holley Intermediate”).

The Merger Agreement provided for, among other things, the following transactions: (i) Empower changed its jurisdiction of incorporation by deregistering as a Cayman Islands exempted company and continuing and domesticating as a corporation incorporated under the laws of the State of Delaware (the “Domestication”), and, in connection with the Domestication, (A) each outstanding Class A ordinary share of Empower, par value $0.0001 per share (the “Empower Class A Shares”), converted automatically into one share of our common stock, par value $0.001 per share (the “Common Stock”), and (B) each outstanding Class B ordinary share of Empower, par value $0.0001 per share (the “Founder Shares”), converted automatically into one share of our Common Stock; and (ii) following the Domestication, (A) Merger Sub I merged with and into Holley Intermediate, with Holley Intermediate surviving as a wholly owned subsidiary of Empower (“Merger I”), (B) immediately following Merger I, Holley Intermediate merged with and into Merger Sub II, with Merger Sub II surviving as a limited liability company and a wholly owned subsidiary of Empower (“Merger II” and, together with Merger I, the “Mergers”). The transactions set forth in the Merger Agreement, including the Mergers, constituted a “Business Combination” as contemplated by Empower’s amended and restated memorandum and articles of association. Pursuant to the Merger Agreement, at the Closing, all outstanding shares of Holley Intermediate common stock as of immediately prior to the effective time of Merger I were cancelled and Holley Parent Holdings, LLC, the sole stockholder of Holley Intermediate (the “Holley Stockholder”), received $264,717,627.49 in cash and 67,673,884 shares of Common Stock (at a deemed value of $10.00 per share). Upon the Closing, Empower changed its name to Holley Inc. and its trading symbol of its Common Stock on the New York Stock Exchange (the “NYSE”) from “EMPW” to “HLLY.”

Concurrent with the execution of the Merger Agreement, Empower entered into certain Subscription Agreements, dated as of March 11, 2021, by and between Empower, on the one hand, and certain investors (“PIPE Investors”) on the other hand (collectively, the “PIPE Subscription Agreements”) pursuant to which, among other things, the PIPE Investors agreed to subscribe for and purchase, and Empower agreed to issue and sell to the PIPE Investors an aggregate of 24,000,000 shares of Common Stock, at a per share price of $10.00 for an aggregate purchase price of $240,000,000, concurrent with the Closing, on the terms and subject to the conditions set forth therein (the “PIPE Financing”).

Concurrent with the execution of the Merger Agreement, Empower entered into that certain Sponsor Agreement (the “Sponsor Agreement”) with Empower Sponsor Holdings LLC, a Delaware limited liability company (the “Sponsor”), and the Holley Stockholder, whereby the Sponsor agreed to (i) waive certain of its anti-dilution and conversion rights with respect to the Founder Shares and (ii) an earn-out in respect of 2,187,500 Founder Shares (the “Earn-Out Shares”) vesting in two equal tranches upon the achievement of specified conditions. The Earn-Out Shares will be forfeited by the Sponsor if the applicable conditions are not satisfied before July 16, 2028 (seven years after the Closing Date). See the section entitled “Certain Relationships and Related Party Transactions—Empower—Founder Shares.

Concurrent with the execution of the Merger Agreement, Empower and Empower Funding, LLC, a Delaware limited liability company and an affiliate of the Sponsor (the “A&R FPA Investor”) entered into that certain Amended and Restated Forward Purchase Agreement (the “A&R FPA”), pursuant to which the A&R FPA Investor agreed to purchase an aggregate of 5,000,000 units of Empower (the “Empower Units”), each Empower unit representing a right to acquire one share of Common Stock and one-third of one warrant to purchase Common Stock at an exercise price of $11.50 per share (each a “Public Warrant”), for $50,000,000 in the aggregate. On July 9, 2021, Empower and the A&R FPA Investor entered into that certain Assignment and

 

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Assumption Agreement with the New FPA Purchasers, pursuant to which the A&R FPA Investor assigned its right to purchase 4,975,000 Empower Units to MidOcean Partners V, L.P. and 25,000 Empower Units to MidOcean Partners V Executive, L.P. (collectively, the “New FPA Purchasers”), in each case pursuant to the A&R FPA. Immediately prior to the Domestication, the New FPA Purchasers were issued 5,000,000 Empower Units for an aggregate purchase price of $50,000,000. Following the Domestication, each Empower Unit was subsequently separated into one share of Common Stock and one-third of one Public Warrant. Pursuant to the A&R FPA, the New FPA Purchasers agreed to not exercise the underlying Public Warrants until October 9, 2021 (the one year anniversary of Empower’s initial public offering).

In connection with the Business Combination, certain parties entered into agreements imposing certain transfer restrictions on their ownership of Common Stock and Warrants. Pursuant to the terms of a letter agreement (the “Letter Agreement”) entered into with Empower, dated October 6, 2020, the Sponsor and Empower’s officers and directors agreed not to transfer, assign or sell their Founder Shares until the earliest of (A) July 16, 2022 (one year after the Closing Date), (B) the closing price of the Common Stock equals or exceeds $12.00 per share for a specified post-Closing time period, or (C) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction. These parties also agreed, subject to limited exceptions, not to transfer, assign or sell any of the warrants to purchase Common Stock issued to the Sponsor in a private placement in connection with Empower’s initial public offering (the “Private Warrants” and together with the Public Warrants, the “Warrants”) until August 15, 2021. Concurrent with the execution of the Merger Agreement, the Holley Stockholder entered into a lock-up agreement (the “Seller Lock-Up Letter”) with Empower, pursuant to which the Holley Stockholder agreed, among other things, to certain transfer restrictions on its shares of Common Stock as follows, subject to certain exceptions: (i) 50,750,000 shares of Common Stock may not be transferred until the earlier to occur of: (A) July 16, 2022, (B) if the closing price of Common Stock equals or exceeds $12.00 per share for a specified post-Closing time period, or (C) the date on which the Company completes a liquidation, merger, share exchange or other similar transaction and (ii) 16,923,884 shares of Common Stock may not be transferred before January 16, 2022 (six months following the Closing Date). See the section entitled “Securities Eligible for Future Sale—Lock-up Agreements.

At the Closing, the Sponsor, the Company and the Holley Stockholder entered into that certain Amended and Restated Registration Rights Agreement (the “A&R Registration Rights Agreement”), pursuant to which the Company agreed to register for resale certain shares of Common Stock and other equity securities of the Company that are held by the Sponsor and the Holley Stockholder from time to time. See the sections entitled “Certain Relationships and Related Party Transactions—Empower—Registration Rights” and “—A&R FPA.

At the Closing, the Company, the Sponsor, certain affiliates of the Sponsor (the “Sponsor Investors”), the Holley Stockholder and Sentinel Capital Partners V, L.P., Sentinel Capital Partners V-A, L.P. and Sentinel Capital Investors V, L.P., controlling affiliates of the Holley Stockholder (collectively, the “Sentinel Investors”) entered into a Stockholders’ Agreement (“Stockholders’ Agreement”), pursuant to which the Holley Stockholder and the Sponsor have the right to designate nominees for election to the Company’s board of directors subject to certain beneficial ownership requirements. See “Management—Director Nominations.”

This prospectus relates to the offer and sale from time to time by the selling securityholders named in this prospectus (the “Selling Securityholders”) of the following:

 

   

up to 109,257,218 shares of Common Stock, consisting of: (i) 6,250,000 shares of Common Stock issued to holders of the Founder Shares in connection with the Domestication; (ii) 4,666,667 shares of Common Stock issuable upon the exercise of the Private Warrants; (iii) 24,000,000 shares of Common Stock issued to the PIPE Investors pursuant to the PIPE Subscription Agreements; (iv) 5,000,000 shares of Common Stock issued to the New FPA Purchasers pursuant to the A&R FPA, as assigned by the A&R FPA Investor; (v) 1,666,667 shares of Common Stock issuable upon exercise of Public Warrants issued to the New FPA Purchasers pursuant to the A&R FPA, as assigned by the A&R FPA Investor; and (vi) 67,673,884 shares of Common Stock issued to the Holley Stockholder in connection with the Business Combination; and

 

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up to 6,333,334 Warrants, consisting of (i) 1,666,667 Public Warrants issued to the New FPA Purchasers pursuant to the A&R FPA, as assigned by the A&R FPA Investor, and (ii) 4,666,667 Private Warrants issued to the Sponsor.

In addition, this prospectus relates to the issuance by us of up to an aggregate of 6,333,334 shares of Common Stock issuable upon the exercise of the Warrants offered hereby.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using a “shelf” registration process. Under this shelf registration process, we and the Selling Securityholders may, from time to time, issue, offer and sell, as applicable, any combination of the securities described in this prospectus in one or more offerings from time to time through any means described in the section entitled “Plan of Distribution.” More specific terms of any securities that the Selling Securityholders offer and sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the Common Stock and/or Warrants being offered and the terms of the offering.

A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”

Neither we nor the Selling Securityholders have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any accompanying prospectus supplement or any free writing prospectus we have prepared or authorized. We and the Selling Securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus or any prospectus supplement is accurate only as of the date on the front of those documents only, regardless of the time of delivery of this prospectus or any applicable prospectus supplement, or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

For investors outside the United States: neither we nor the Selling Securityholders have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our securities and the distribution of this prospectus outside the United States.

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

 

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MARKET, RANKING AND OTHER INDUSTRY DATA

Certain market, ranking and industry data included in this prospectus, including the size of certain markets and our size or position and the positions of our competitors within these markets, including its products and services relative to its competitors, are based on estimates of our management. These estimates have been derived from our management’s knowledge and experience in the markets in which we operate, as well as information obtained from surveys, reports by market research firms, our customers, distributors, suppliers, trade and business organizations and other contacts in the markets in which we operate, which, in each case, we believe are reliable.

We are responsible for all of the disclosure in this prospectus and while we believe the data from these sources to be accurate and complete, we have not independently verified data from these sources or obtained third-party verification of market share data and this information may not be reliable. In addition, these sources may use different definitions of the relevant markets. Data regarding our industry is intended to provide general guidance, but is inherently imprecise. Market share data is subject to change and cannot always be verified with certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data gathering process and other limitations and uncertainties inherent in any statistical survey of market shares. In addition, customer preferences can and do change. As a result, you should be aware that market share, ranking and other similar data set forth herein, and estimates and beliefs based on such data, may not be reliable. References herein to us being a leader in a market or product category refers to our belief that it has a leading market share position in each specified market, unless the context otherwise requires. In addition, the discussion herein regarding our various markets is based on how we define the markets for our products, which products may be either part of larger overall markets or markets that include other types of products and services.

Assumptions and estimates of our future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Cautionary Note Regarding Forward-Looking Statements.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

This prospectus contains references to trademarks, trade names or service marks of Holley and other entities. Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are presented without the TM, SM and ® symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our respective rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things, the plans, strategies and prospects, both business and financial of the Company. These statements are based on the beliefs and assumptions of our management. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Generally, statements that are not historical facts, including statements concerning possible or assumed future actions, business strategies, events or results of operations, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends” or similar expressions. Forward-looking statements contained in this prospectus include, but are not limited to, statements about the ability of the Company to:

 

   

access, collect and use personal data about consumers;

 

   

execute its business strategy, including monetization of services provided and expansions in and into existing and new lines of business;

 

   

anticipate the impact of the coronavirus disease 2019 (“COVID-19”) pandemic and its effect on business and financial conditions;

 

   

manage risks associated with operational changes in response to the COVID-19 pandemic;

 

   

recognize the anticipated benefits of and successfully deploy the proceeds from the Business Combination, which may be affected by, among other things, competition, the ability to integrate the combined businesses and the ability of the combined business to grow and manage growth profitably;

 

   

anticipate the uncertainties inherent in the development of new business lines and business strategies;

 

   

retain and hire necessary employees;

 

   

increase brand awareness;

 

   

attract, train and retain effective officers, key employees or directors;

 

   

upgrade and maintain information technology systems;

 

   

acquire and protect intellectual property;

 

   

meet future liquidity requirements and comply with restrictive covenants related to long-term indebtedness;

 

   

effectively respond to general economic and business conditions;

 

   

maintain proper and effective internal controls;

 

   

maintain the listing on, or the delisting of the Company’s securities from, the NYSE or an inability to have our securities listed on another national securities exchange;

 

   

obtain additional capital, including use of the debt market;

 

   

enhance future operating and financial results;

 

   

anticipate rapid technological changes;

 

   

comply with laws and regulations applicable to its business, including laws and regulations related to environmental health and safety;

 

   

stay abreast of modified or new laws and regulations;

 

   

anticipate the impact of, and response to, new accounting standards;

 

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respond to fluctuations in foreign currency exchange rates and political unrest and regulatory changes in international markets from various events;

 

   

anticipate the rise in interest rates which would increase the cost of capital;

 

   

anticipate the significance and timing of contractual obligations;

 

   

maintain key strategic relationships with partners and resellers;

 

   

respond to uncertainties associated with product and service development and market acceptance;

 

   

manage to finance operations on an economically viable basis;

 

   

anticipate the impact of new U.S. federal income tax law, including the impact on deferred tax assets;

 

   

litigation, complaints, product liability claims and/or adverse publicity;

 

   

anticipate the time during which we will be an emerging growth company under the JOBS Act;

 

   

anticipate the impact of changes in consumer spending patterns, consumer preferences, local, regional and national economic conditions, crime, weather, demographic trends and employee availability; and

 

   

comply with privacy and data protection laws, and respond to privacy or data breaches, or the loss of data.

These and other factors that could cause actual results to differ from those implied by the forward-looking statements in this prospectus are more fully described under the heading “Risk Factors” and elsewhere in this prospectus. The risks described under the heading “Risk Factors” are not exhaustive. Other sections of this prospectus describe additional factors that could adversely affect the business, financial condition or results of operations of the Company. New risk factors emerge from time to time and it is not possible to predict all such risk factors, nor can the Company assess the impact of all such risk factors on the business of the Company, or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements attributable to the Company or persons acting on their behalf are expressly qualified in their entirety by the foregoing cautionary statements. The Company undertakes no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In addition, statements of belief and similar statements reflect the beliefs and opinions of the Company on the relevant subject. These statements are based upon information available to the Company as of the date of this prospectus, and while the Company believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and statements should not be read to indicate that the Company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements.

 

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SUMMARY

This summary highlights certain significant aspects of our business and is a summary of information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read this entire prospectus, including the information presented under the sections titled “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Unaudited Pro Forma Condensed Combined Financial Information,” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus before making an investment decision. Unless the context indicates otherwise, references in this prospectus to the “Company,” “we,” “us,” “our” and similar terms prior to the Closing are intended to refer to Empower Ltd., and after the Closing, Holley Inc. and its consolidated subsidiaries.

Business Summary

Overview

Founded in 1903, Holley has been a part of the automotive industry for well over a century. Holley Intermediate was incorporated in Delaware on September 12, 2018, as the holding company of the various operating entities that then comprised the Holley business. We are a designer, marketer, and manufacturer of high performance automotive aftermarket products serving car and truck enthusiasts. Our products span a number of automotive platforms and are sold across multiple channels. We attribute a major component of our success to our brands, including “Holley”, “APR”, “MSD” and “Flowmaster”, among others. In addition, we have recently added to our brand lineup through a series of strategic acquisitions, including our 2020 acquisitions of Simpson Racing Products, Inc. (“Simpson”), Drake Automotive Group LLC (“Drake”) and Detroit Speed, Inc. (“Detroit Speed”) and our 2021 acquisition of AEM Performance Electronics (“AEM”). Through these strategic acquisitions, we have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. Based on a third-party study conducted by a market leading consulting firm in October 2020 that was commissioned by an affiliate of the Sentinel Investors, the Holley Stockholder’s controlling shareholder (the “Study”), and based on product category gross sales, we believe our Holley EFI, APR, MSD, Holley and Simpson brands hold the #1 market position in the EFI, Electronic Tuning, Electronic Ignition, Carburetor and Safety categories, respectively, and Flowmaster holds the #2 market position in the Exhaust category. We believe these category-leading positions highlight the value of the products we offer the large and diverse addressable community of more than 15 million automotive enthusiasts in the United States.

We operate in the performance automotive aftermarket parts industry that we estimate based on the Study to be a $34 billion industry comprised of 20 different aftermarket part categories, all of which product categories include products sold by Holley under its portfolio of 60 brands. This broad, fragmented industry has grown at a 6.5% compound annual growth rate (“CAGR”) for the last 18 years driven by a wealthier consumer demographic that delivers a higher degree of spending relative to the non-enthusiast population. Our passionate and highly engaged automotive enthusiasts have helped us realize a net sales CAGR of 11.9% since 2018.

Our Strengths

Large Base of Passionate Enthusiast Consumers with Attractive Demographics

Based on the Study, we estimate that approximately 70% of automotive enthusiasts who purchased performance automotive aftermarket products from Holley during 2020 owned more than one car, which can

create multiple touch points for us throughout the year. Additionally, we estimate based on the Study that


 

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approximately 82% of automotive enthusiasts who purchased performance automotive aftermarket products from Holley during 2020 at one point considered parts for their cars or trucks as a budgeted, recurring expense, 64% have traded in more than one car or truck to begin a new personalized vehicle build, and on average such automotive enthusiasts spent 25% more on aftermarket automotive parts for their car or trucks relative to the broader enthusiast aftermarket.

Brand Portfolio

Our portfolio of 60 brands covers an array of product categories and car models. With our 118-year operating history, we believe our brands are deeply engrained in car culture. Based on the Study, which surveyed sales for the 20 different aftermarket part categories comprising the estimated $34 billion performance automotive aftermarket parts industry during the first ten months of 2020 for Holley and several of Holley’s leading competitors, we believe our Holley EFI, APR, MSD, Holley and Simpson brands hold the #1 market position in the below product categories that fall within the Core Engine and Safety Products submarket discussed above:

 

   

EFI: The EFI category includes electronic fuel injection products and represents approximately 2% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Electronic Tuning: The Electronic Tuning category includes tuners, gauges, displays and other tuning products to enhance vehicle driveability and represents approximately 1% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Electronic Ignition: The Electronic Ignition category includes ignition boxes, distributors and ignition coils and represents approximately 3% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Carburetor: The Carburetor category represents approximately 1% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Safety: The Safety category includes roll cages, helmets and safety apparel and represents approximately 2% of the estimated $34 billion performance automotive aftermarket industry.

In addition, based on the Study we believe that the Flowmaster brand holds the #2 market position in the Exhaust category, which includes exhaust headers, exhaust systems and mufflers and represents approximately 4% of the estimated $34 billion performance automotive aftermarket industry.

We believe the popularity of our brands is the result of consistently delivering high quality, innovative products that resonate with our enthusiast consumers. Our brands have allowed us to build direct, trusted and long-lasting relationships with our consumers and resellers.

Legacy of Product Innovation

We offer our enthusiast consumers a comprehensive suite of performance automotive aftermarket products to meet a wide range of needs. We are continuously innovating and evolving our product offerings to meet ever- changing consumer needs. We invest heavily in developing new products, spending an average of $17 million per year on research and development since 2015. New products are the lifeblood of our business with approximately 40% of our 2020 sales coming from products introduced by us into the market since 2015. In addition, we introduced approximately 1,850 new products during 2020 out of approximately 40,000 total stock-keeping units offered, which accounted for approximately 5% of our 2020 sales. We believe our product development capabilities create sustainable long-term growth and margin enhancements for our business.


 

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We have a history of developing innovative products, including new products in existing product families, product line expansions, and accessories, as well as products that bring us into new categories. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs. We expand our existing product families and enter new product categories by creating solutions grounded in our expert insights and relevant market knowledge. We believe we have a meaningful runway across our target product categories and product vintages and we are well positioned for future growth by expanding in categories that present opportunities for further market penetration in the Electronic Fuel Injection and Powertrain Conversion Systems markets, among others, as well as opportunities to capitalize on newly entered categories like Performance & Appearance Packages, Wheels & Tires, and Performance Suspension.

Proven Acquisition Platform

We maintain a highly disciplined and focused approach to M&A and have experience sourcing, executing and integrating value-enhancing acquisitions in a highly fragmented market. From 2014 to the end of 2020, we completed eight accretive acquisitions that have contributed meaningful sales and earnings growth, added new product categories and brands and have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. We believe our highly scalable operational platform enables us to efficiently and effectively integrate acquired businesses into our operations and realize cost savings opportunities as well as revenue and distribution increases.

We have historically used strategic acquisitions to (i) expand our brand portfolio, (ii) enter new product categories and consumer segments, (iii) increase DTC scale and connection, (iv) expand share in current product categories and (v) realize value-enhancing revenue and cost synergies. We believe our track record of recent acquisitions is indicative of our ability to make both transformational acquisitions, such as the acquisitions of MSD in 2015 and Driven Performance Brands in 2018, as well as strategic bolt-ons such as the recent acquisitions of Drake, Simpson and Detroit Speed in 2020 and AEM in 2021.

Digital and DTC Opportunity with Omni-Channel Distribution

We have a diverse omni-channel distribution strategy led by our growing DTC channel. Our omni-channel model enables us to reach our consumers through the DTC, Performance E-tailer, Traditional Retailer, and Performance Jobber channels. We have mutually beneficial relationships with our resellers and are able to maintain strong pricing discipline across our channels with strict conformance to minimum advertised pricing.

Consumers are increasingly meeting us online through our DTC channel, which, on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed, as if each had occurred on January 1, 2020, grew at a CAGR of 43% between 2014 and the end of 2020. Our DTC channel provides consumers full access to all of our brands, our unique branded content and our full product assortment. We have turned Holley.com into our primary hub for consumer communication and continue to add features and brands that make it an increasingly attractive digital destination for our consumers. Our DTC channel enables us to directly interact with our customers, more effectively control our brand experience, better understand consumer behavior and preferences, and offer exclusive products, content, and customization capabilities. We believe our control over our DTC channel provides our customers with quality brand engagement and further builds customer loyalty, while generating attractive margins.

Flexible Operating Model

We run a flexible, sourcing model with a mix of global sourcing and in-house manufacturing. Our best value sourcing model decisions are based on a mix of cost, quality and service. We have a diverse global supplier base and no material supplier concentration. We have a track record of topline growth. Our efficient sourcing model enables strong gross margins and cash conversion.


 

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Experienced Team with a Track Record of Execution

Members of our senior management team, led by CEO Tom Tomlinson, have an average of 30 years of experience in creating solutions that help brands succeed in the performance automotive aftermarket. In addition, many members of our management team and many of our employees are enthusiast consumers themselves, which further extends their knowledge of, and expertise in, our products and end-markets. We believe Holley’s consumer-oriented culture inspires and encourages innovation and helps us attract, retain and motivate employees.

Our Growth Strategies

Continuous New Product Development

Innovation, including new product development, is a key component of our growth strategy. In our experience, our enthusiast consumers continuously crave new products that allow them to improve the performance, functionality and appearance of their vehicles. New products allow us to increase market share in existing categories, extend into adjacent categories, capture new enthusiast consumers and extend or further penetrate new vehicle platforms. In the case of EFI, we have also created new segments of the market through innovation. New products also provide consumers with a reason to upgrade their existing parts. The ability to develop products that meet the evolving needs of our enthusiast consumers and the vehicles they are passionate about is a key competitive advantage of Holley. We have made significant investments in our new product development capabilities, including both capital equipment and engineering talent. Our new product development team is comprised of 135 engineers dedicated to developing new products.

Positioned for Growth in the Emerging Performance Electronic Vehicle Segment

Electric vehicles present an exciting growth opportunity for us. We are dedicated to developing products that allow our enthusiast consumers to personalize and elevate the performance of their vehicles and have invested significant resources in product development for electric vehicles. The products we are developing will be issued in two categories:

 

   

Performance products for existing electric vehicles. These products will allow consumers to personalize or increase the performance and functionality of vehicles that came from the factory with an electric drivetrain.

 

   

Electric drivetrain conversion products. These products will enable consumers to retrofit an electric drivetrain into a vehicle that came from the factory with an internal combustion engine.

Accelerate Growth Through Continued M&A

We maintain a robust M&A pipeline and we believe that our scalable business platform, relationships with our distribution and channel partners, strong loyalty of our growing consumer base, experienced management team and board of directors, and strong cash generation position us to continue to acquire and integrate value- enhancing acquisitions. Our strong existing platform in the enthusiast performance automotive aftermarket creates a large and highly fragmented addressable market with a broad set of potential acquisition targets. We believe our scale, management team and board’s experience with integration, together with access to capital, will allow us pursue both small and large future acquisitions and create value through integration.

Engage with Our Consumers and Expand DTC Sales

We are focused on deepening our engagement with our enthusiast consumers. We have multiple touch points in our consumer ecosystem, ranging from social media to our website, to our knowledgeable phone


 

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technical sales advisors, to our in-person enthusiast events. Our focus is to reach and engage consumers both online and in person. We have a strong digital focus that is complemented by an experiential strategy. Our consumer comes first in everything we do and we expect to continue the meaningful investment we have made in our community.

DTC represents our fastest-growing sales channel, with annual gross sales increasing from $10 million in 2014 to $84 million in 2020 on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed as if each had occurred on January 1, 2020, representing a 43% CAGR. We intend to continue to drive direct sales to our enthusiast consumers primarily through our Holley.com website, our primary hub for consumer engagement. Engagement on our website has increased meaningfully, with 17.6 million web sessions during the first ten months of 2020, up 45% from 2019 and 85% from 2017. We recently launched a new content marketing initiative called MotorLife within Holley.com. MotorLife is a digital publication and since its launch, we have seen an improvement in web traffic as well as improvement in crucial search rankings for high priority keywords. As our online presence expands, we will continue to focus on increasingly building personalized experiences for our consumers, which will both deepen our consumer engagement and drive additional sales.

Our in-person events include multiple fests that we hold for our consumers. These are action-packed events that drive authentic connections with enthusiasts designed to create brand ambassadors and drive loyalty. We host four annual fests (LS Fest East, LS Fest West, Ford Fest and MoParty) throughout the year, that are rooted in popular engine and car platforms and plan to add a fifth in 2021. These events drive extensive media coverage including substantial impressions on YouTube, Instagram and other social media platforms.

Organizational Structure

On the Closing Date, the Company consummated the Business Combination pursuant to that certain Merger Agreement, by and among the Company, Merger Sub I, Merger Sub II and Holley Intermediate. The Merger Agreement provided for the Business Combination which consisted of, among other things, the Domestication and the Mergers. The transactions set forth in the Merger Agreement, including the Mergers, constituted a “Business Combination” as contemplated by Empower’s amended and restated memorandum and articles of association. Upon the Closing, Empower Ltd. changed its name to Holley Inc. See “Introductory Note Regarding the Business Combination.


 

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The diagram below depicts a simplified version of our equity ownership and organizational structure immediately following the Business Combination.

LOGO

 

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Recent Developments

Impact of COVID-19

The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption. Since COVID-19 was declared a pandemic, international, federal and state orders shutting down or restricting business operations to contain the spread of COVID-19 have generally exempted automotive repair and the related supply and distribution of parts as those businesses have generally been classified as critical, essential or life-sustaining. Therefore, the vast majority of Holley’s retail and wholesale customers have been and currently remain open for business. In turn, all of the Company’s facilities have also remained, and currently remain, open and operating, with modified staffing in certain locations where appropriate. Holley has taken actions to promote the welfare of its employees by enhancing safety protocols, including requiring administrative employees to work from home where applicable and implementing social distancing and robust sanitization practices at its facilities. The Company also has adopted a COVID-19 sick leave policy providing continued salary and benefits to eligible employees.

Holley initially experienced softening customer demand as a result of these government-imposed restrictions. While customer orders temporarily dropped in the last two weeks of March 2020 and first two weeks of April 2020 due to government-imposed restrictions, the Company saw a rapid recovery as the second quarter progressed with orders up significantly above prior year. Holley continued to see an increase in orders in the third and fourth quarters of 2020, where sales performance reached a record high for the Company. However, as government-imposed restrictions vary globally and continue to change, it remains difficult to determine the full impact that the pandemic will have on the overall demand environment or on national and international economic and financial markets. Correspondingly, to the extent there may be fluctuations in demand as a result of the pandemic, it remains difficult to determine the full impact that the pandemic will have on various aspects of Holley’s operations, including, but not limited to, inventory levels, the ability to fulfill contractual requirements and staffing at Holley facilities.

Significant uncertainty still exists concerning the overall magnitude of the impact and the duration of the COVID-19 pandemic. As a result, the Company will continue to closely monitor updates regarding the spread of COVID-19 and adjust its operations according to guidelines from local, state and federal officials.

Implications of Being an Emerging Growth Company and a Smaller Reporting Company

We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. If some investors find our securities less attractive as a result, there may be a less active trading market for our securities and the prices of our securities may be more volatile.

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period.


 

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We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our Common Stock that are held by non-affiliates exceeds $700 million as of the prior June 30, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our Common Stock held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our Common Stock held by non-affiliates exceeds $700 million as of the prior June 30.

Summary of Risk Factors

An investment in our securities involves risks and uncertainties. You should carefully consider the following risks as well as the other information included in this prospectus, including “Cautionary Note Regarding Forward-Looking Statements,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus, before investing in our securities. See “Risk Factors” for a more detailed discussion of the risk factors listed below.

Risk Related to Our Business and Industry

 

   

The COVID-19 pandemic could adversely affect the Company’s financial condition and results of operations.

 

   

A downturn in consumer spending, including as a result of a severe or prolonged economic downturn, could adversely impact the Company’s financial condition and results of operations.

 

   

Failure to compete effectively or to develop and market new products and a reduction in demand for the Company’s products could reduce the Company’s business, financial condition and results of operations.

 

   

Increased electric vehicles ownership could impact the Company’s financial condition and results of operations.

 

   

Inaccurate forecasting of product demand could harm the Company’s financial performance.

 

   

The Company may not be able to effectively manage its growth.

 

   

The Company’s growth partially depends on attracting new customers in a cost-effective manner and expanding into additional consumer markets and it may not successfully do so.

 

   

The Company’s failure to protect its brand could harm its financial condition and results of operations.

 

   

The Company’s profitability may decline as a result of increasing pressure on pricing.

 

   

Disruptions in the Company’s manufacturing facilities or distribution centers could have a material adverse effect on its sales, profitability and results of operations.


 

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Increases in cost, disruption of supply or shortage of raw materials could harm the Company’s business.

 

   

The Company’s current and future products may experience quality problems, which could result in negative publicity, litigation, product recalls, and warranty claims, resulting in decreased sales.

 

   

The Company’s failure to maintain relationships with retail partners or increase sales through its DTC channel could harm its business.

 

   

The Company’s success depends on the continuing efforts of its employees and retention of skilled personnel.

 

   

A failure of the Company’s information system or a cyber-attack could adversely impact its business.

 

   

If the Company’s estimates relating to its accounting policies prove to be incorrect, its results of operations could be harmed.

Legal, Regulatory and Compliance Risks Related to Our Business

 

   

The Company may become involved in legal or regulatory proceedings, including intellectual property claims or lawsuits that could cause it to incur significant costs or that could prohibit it from selling its products.

 

   

Unauthorized sales of the Company’s products could harm its reputation.

 

   

The Company is subject to environmental, health and safety laws and regulations as well as privacy laws, regulations, and standards, which could subject it to liabilities, increase its costs or restrict its operations in the future.

 

   

The Company’s insurance policies may not provide adequate levels of coverage against all claims and the Company may incur losses that are not covered by its insurance.

 

   

Potential for litigation or other disputes may arise from the restatement of our previously issued financial statements and material weakness in our internal controls over financial reporting and the preparation of our financial statements.

Risks Related to Ownership of Our Securities

 

   

Certain of the Company’s stockholders, including the Holley Stockholder and the Sponsor, may have conflicts of interest with other stockholders and may limit your ability to influence corporate matters.

 

   

Warrants will become exercisable for Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

 

   

The Warrants may never be in the money, and they may expire worthless and the terms of the Warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then-outstanding Warrants approve of such amendment.

 

   

The market price and trading volume of Common Stock and Warrants may be volatile.

 

   

If securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about the Company, its share and Warrant price and trading volume could decline significantly.


 

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Corporate Information

We were incorporated on August 19, 2020 as a Cayman Islands exempted company. Upon the Closing, we changed our name to Holley Inc. Our principal executive office is located at 1801 Russellville Road, Bowling Green, KY 42101, and our telephone number is (270) 495-4081. Our website address is www.holley.com. The information contained in or accessible from our website is not incorporated into this prospectus, and you should not consider it part of this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.


 

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THE OFFERING

 

Issuer    Holley Inc.

Shares of Common Stock offered by us

   Up to 6,333,334 shares of Common Stock issuable upon exercise of the Warrants.

Shares of Common Stock offered by the Selling Securityholders

  

Up to 109,257,218 shares of Common Stock.

Warrants Offered by the Selling Securityholders

   Up to 6,333,334 Warrants.

Exercise Price of Warrants

   $11.50 per share, subject to adjustment as described herein.

Shares of Common Stock outstanding prior to exercise of all Warrants

  

117,993,139 shares of Common Stock (as of July 20, 2021).

Shares of Common Stock outstanding assuming exercise of all Warrants

  

132,659,806 (based on total shares outstanding as of July 20, 2021).

Use of Proceeds

   We will not receive any proceeds from the sale of shares of Common Stock or Warrants by the Selling Securityholders. We will receive up to an aggregate of approximately $72.8 million from the exercise of the Warrants, assuming the exercise in full of all of the Warrants for cash. We expect to use the net proceeds from the exercise of the Warrants for general corporate purposes. See “Use of Proceeds.”

Redemption

   The Warrants are redeemable in certain circumstances. See “Description of Securities — Warrants” for further discussion.

Business Combination - Related Lock-Up Agreements

   Certain of our securityholders, including certain of the Selling Securityholders, are subject to certain restrictions on transfer until the termination of applicable lock-up periods. See “Securities Eligible for Resale—Lock-Up Agreements” for further discussion.

Market for Common Stock and Warrants

   Our Common Stock and Warrants are currently traded on the NYSE under the symbols “HLLY” and “HLLY WS,” respectively.

Risk Factors

   See “Risk Factors” and other information included in this prospectus for a discussion of factors you should consider before investing in our securities.

 

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SUMMARY HISTORICAL FINANCIAL INFORMATION OF HOLLEY

The following table sets forth summary historical financial information derived from Holley’s (i) audited consolidated statements of comprehensive income (loss) for the years ended December 31, 2020 and 2019, (ii) audited consolidated statements of cash flows for the years ended December 31, 2020 and 2019, (iii) audited consolidated balance sheets data as of December 31, 2020 and 2019, (iv) unaudited condensed consolidated statements of comprehensive income (loss) for the thirteen weeks ended March 28, 2021 and March 29, 2020, (v) unaudited condensed consolidated statements of cash flows for the thirteen weeks ended March 28, 2021 and March 29, 2020, and (vi) unaudited condensed consolidated balance sheets data as of March 28, 2021, each of which is included elsewhere in this prospectus.

The summary historical financial information below also includes references to EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. A non-GAAP financial measure is a performance metric that departs from GAAP because it excludes earnings components that are required under GAAP. Other companies may define non-GAAP financial measures differently and, as a result, Holley’s non-GAAP financial measures may not be directly comparable to those of other companies. The presentation of non-GAAP financial measures provides additional information to investors regarding Holley’s results of operations that management believes is useful for trending, analyzing and benchmarking the performance and value of Holley’s business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Non-GAAP Financial Measures” for more information as to how we define and calculate EBITDA and Adjusted EBITDA and for a reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA.

The summary historical information of Holley included below and elsewhere in this prospectus are not necessarily indicative of the future performance of Holley. Results from interim periods are not necessarily indicative of results that may be expected for the entire year. You should read the following summary financial information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the related notes appearing elsewhere in this prospectus.

Consolidated Statements of Comprehensive Income

(Loss) Data ($ in thousands)

 

     Thirteen Weeks Ended      Years Ended December 31,  
     March 28,
2021
     March 29,
2020
     2020      2019  

Net sales

   $ 160,332      $ 107,157      $ 504,179      $ 368,663  

Cost of goods sold

     94,653        63,824        295,935        219,884  
  

 

 

    

 

 

    

 

 

    

 

 

 

Gross profit

     65,679        43,333        208,244        148,779  

Selling, general, and administrative

     24,012        15,193        70,875        62,371  

Research and development costs

     5,969        5,621        23,483        20,630  

Amortization of intangibles

     3,336        2,699        11,082        10,456  

Acquisition and restructuring costs

     18,833        1,414        9,743        4,942  

Related party acquisition and management fee costs

     881        891        6,089        3,662  

Other (income) expense

     (133      (159      1,517        644  
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     12,781        17,674        85,455        46,074  

Interest expense

     10,071        11,505        43,772        50,386  
  

 

 

    

 

 

    

 

 

    

 

 

 

Income (loss) before income taxes

     2,710        6,169        41,683        (4,312

Income tax expense (benefit)

     4,766        1,317        8,826        (4,873
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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     Thirteen Weeks Ended      Years Ended December 31,  
     March 28,
2021
     March 29,
2020
     2020      2019  

Net income (loss)

     (2,056      4,852        32,857        561  

Foreign currency translation adjustment

     (16      —          16        —    

Pension liability loss

     —          —          (293      (123
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

   $ (2,072    $ 4,852      $ 32,580      $ 438  
  

 

 

    

 

 

    

 

 

    

 

 

 

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA ($ in thousands)

           

Net income (loss)

   $ (2,056    $ 4,852      $ 32,857      $ 561  

Depreciation

     2,252        2,025        7,886        8,827  

Amortization of intangibles

     3,336        2,699        11,082        10,456  

Interest expense

     10,071        11,505        43,772        50,386  

Income tax expense (benefit)

     4,766        1,317        8,826        (4,873
  

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA

     18,369        22,398        104,423        65,357  

Unusual or nonrecurring expenses

     5,715        116        4,378        7,179  

Acquisition and restructuring costs

     18,833        1,414        9,743        4,942  

Related party acquisition and management fee costs

     881        891        6,089        3,662  

Other expense (benefit)

     (133      (159      1,517        644  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA

   $ 43,665      $ 24,660      $ 126,150      $ 81,784  
  

 

 

    

 

 

    

 

 

    

 

 

 

Consolidated Balance Sheets Data ($ in thousands)

 

     Thirteen Weeks
Ended
     Years Ended December 31,  
     March 28, 2021      2020      2019  

Cash and cash equivalents

   $ 87,462      $ 71,674      $ 8,335  

Working capital1

     177,657        175,971        117,268  

Total assets

     1,080,698        1,065,330        829,213  

Total liabilities

     842,258        824,949        623,799  

Total stockholder’s equity

     238,440        240,381        205,414  

Consolidated Statements of Cash Flows Data ($ in thousands)

 

     Thirteen Weeks Ended      Years Ended December 31,  
     March 28,
2021
     March 29,
2020
     2020      2019  

Net cash from operating activities

   $ 18,956      $ 17,580      $ 88,413      $ 9,418  

Net cash used in investing activities

     (3,104      (1,283      (165,618      (14,479

Net cash (used in) from financing activities

     (64      27,500        140,544        2,433  
  

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

   $ 15,788      $ 43,797      $ 63,339      $ (2,628
  

 

 

    

 

 

    

 

 

    

 

 

 

 

1 

We define working capital as current assets less current liabilities.


 

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SUMMARY HISTORICAL FINANCIAL INFORMATION OF EMPOWER

The following table sets forth summary historical financial information regarding Empower. The summary financial information as of December 31, 2020 and for the period from August 19, 2020 (inception) through December 31, 2020 are derived from the audited historical statement of operations (Restated) and audited balance sheet (Restated) of Empower. The summary financial information as of and for the three months ended March 31, 2021 are derived from the unaudited historical condensed statement of operations and unaudited condensed balance sheet of Empower. You should read the following selected financial data in conjunction with the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Empower’s Annual Report on Form 10-K/A filed with the SEC on May 19, 2021 (the “Annual Report”) and the audited and unaudited financial statements and the related notes appearing elsewhere in this prospectus. Results from interim periods are not necessarily indicative of results that may be expected for the entire year.

Statements of Operations

 

     For the three
months ended
March 31,
2021
(Unaudited)
    For the Period from
August 19, 2020
(Inception) through
December 31, 2020
(Restated)
 

Formation and operating costs

   $ 2,937,356     $ 273,915  
  

 

 

   

 

 

 

Loss from operations

     (2,937,356     (273,915

Other income:

    

Interest earned on marketable securities held in trust account

     52,169       49,118  

Unrealized gain on marketable securities held in trust account

     4,366       3,788  

Change in fair value of warrant liability

     (436,667     (1,690,000

Change in fair value of forward purchase agreement liability

     300,000       (2,050,000

Transaction costs

     —         (482,885
  

 

 

   

 

 

 

Other expenses, net

     (80,132     (4,169,979
  

 

 

   

 

 

 

Net loss

   $ (3,017,488   $ (4,443,894
  

 

 

   

 

 

 

Weighted average common stock subject to possible redemption

     22,040,218       22,435,483  
  

 

 

   

 

 

 

Basic and diluted net loss per common stock subject to possible redemption

     0.00       0.00  

Weighted average shares outstanding, basic and diluted

     9,209,782       7,850,413  
  

 

 

   

 

 

 

Basic and diluted net loss per ordinary share

     (0.33   $ (0.58
  

 

 

   

 

 

 

 

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Balance Sheets

 

     As of  
     March 31, 2021
(Unaudited)
    December 31, 2020
(Restated)
 

Current Assets

    

Cash

   $ 1,026,938     $ 1,080,629  

Prepaid expenses

     319,334       379,166  
  

 

 

   

 

 

 

Total Current Assets

     1,346,272       1,459,795  

Cash and marketable securities held in trust account

     250,109,441       250,052,906  
  

 

 

   

 

 

 

Total Assets

   $ 251,455,713     $ 251,512,701  
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities — accrued expenses

   $ 2,997,706     $ 173,873  

Warrant liability

     15,526,667       15,090,000  

Forward purchase agreement liability

     1,750,000       2,050,000  

Deferred underwriting fee payable

     8,750,000       8,750,000  
  

 

 

   

 

 

 

Total Liabilities

     29,024,373       26,063,873  
  

 

 

   

 

 

 

Commitments

    

Class A ordinary shares subject to possible redemption, 21,733,619 and 22,040,218 shares, respectively, at redemption value

     217,431,332       220,448,820  

Shareholders’ Equity

    

Preference shares, $0.0001 par value; 5,000,000 shares authorized; none issued and outstanding

     —         —    

Class A ordinary shares, $0.0001 par value; 500,000,000 shares authorized; 3,266,381 and 2,959,782 shares issued and outstanding, respectively (excluding 21,733,619 and 22,040,218 shares, respectively, subject to possible redemption)

   $ 327     $ 296  

Class B ordinary shares, $0.0001 par value; 50,000,000 shares authorized; 6,250,000 shares issued and outstanding

     625       625  

Additional paid-in capital

     12,460,438       9,442,981  

Accumulated deficit

     (7,461,382     (4,443,894
  

 

 

   

 

 

 

Total Shareholders’ Equity

     5,000,008       5,000,008  
  

 

 

   

 

 

 

Total Liabilities and Shareholders’ Equity

   $ 251,455,713     $ 251,512,701  

 

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SUMMARY UNAUDITED CONDENSED COMBINED PRO FORMA FINANCIAL INFORMATION

The following table presents certain summary unaudited pro forma condensed combined financial information giving pro forma effect to certain transactions. The unaudited pro forma condensed combined balance sheet as of March 31, 2021 gives effect to the Business Combination, the PIPE Financing, the A&R FPA, and the partial repayment of Holley’s debt (the “Debt Paydown”), on a pro forma basis as if each had been completed as of March 31, 2021. The summary unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 gives effect to the Business Combination, the PIPE Financing, the A&R FPA, and the Debt Paydown, on a pro forma basis as if each had been completed on January 1, 2020.

The summary pro forma information has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial information appearing elsewhere in this prospectus and the accompanying notes thereto. The unaudited pro forma condensed combined financial information is based on and should be read in conjunction with the audited and unaudited historical financial statements of each of Empower and Holley and the notes thereto included elsewhere in this prospectus.

The summary pro forma information been presented for illustrative purposes only and do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the Business Combination and related transactions occurred on the dates indicated. Further, the summary pro forma information also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected below due to a variety of factors.

 

Summary Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 2021
      

Total assets

   $ 1,110,751  

Total liabilities

     778,761  

Total stockholder’s equity

     331,990  

 

Summary Unaudited Pro Forma Condensed Combined Statement of
Comprehensive Income (Loss) for the Period Ended March 31, 2021
      

Revenue

   $ 160,332  

Weighted average shares outstanding, basic and diluted

     115,805,639  

Basic and diluted net income per share

     (0.03

 

Summary Unaudited Pro Forma Condensed Combined Statement of
Comprehensive Income (Loss) for the Year Ended December 31, 2020
      

Revenue

   $ 504,179  

Weighted average shares outstanding, basic and diluted

     115,805,639  

Basic and diluted net income per share

     0.32  

 

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RISK FACTORS

Investing in our securities involves risks. Before you make a decision to buy our securities, in addition to the risks and uncertainties discussed above under “Cautionary Note Regarding Forward-Looking Statements,” you should carefully consider the specific risks set forth herein. If any of these risks actually occur, it may materially harm our business, financial condition, liquidity and results of operations. As a result, the market price of our securities could decline, and you could lose all or part of your investment. Additionally, the risks and uncertainties described in this prospectus, any prospectus supplement or in any document incorporated by reference herein or therein are not the only risks and uncertainties that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may become material and adversely affect our business.

Additionally, the COVID-19 pandemic may amplify many of the risks discussed below to which we are subject and, given the unpredictable, unprecedented and fluid nature of the pandemic, it may materially and adversely affect us in ways that are not anticipated by or known to us or that we do not consider to present significant risk. Therefore, we are unable to estimate the extent to which the pandemic and its related impacts will adversely affect our business, financial condition and results of operations as well as our stock price following completion of this offering.

Risks Relating to Our Business and Industry

The COVID-19 pandemic could adversely affect the Company’s business, sales, financial condition and results of operations and the Company’s ability to access current or obtain new lending facilities.

Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States, and has been declared a pandemic by the World Health Organization. The COVID-19 pandemic and preventative measures taken to contain or mitigate such have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas and significant disruption in the financial markets both globally and in the United States, which could lead to a decline in discretionary spending by consumers, and in turn impact, possibly materially, the Company business, sales, financial condition and results of operations. The impacts include, but are not limited to:

 

   

the possibility of renewed retail store closures or reduced operating hours and/or decreased retail traffic;

 

   

disruption to the Company’s distribution centers and other vendors, including the effects of facility closures as a result of outbreaks of COVID-19 or measures taken by federal, state or local governments to reduce its spread, reductions in operating hours, labor shortages, and real time changes in operating procedures, including for additional cleaning and disinfection procedures; and

 

   

significant disruption of global financial markets, which could have an adverse impact on the Company ability to access capital in the future.

The COVID-19 pandemic has significantly impacted the global supply chain, with restrictions and limitations on related activities causing disruption and delay. These disruptions and delays have strained certain domestic and international supply chains, which have affected and could continue to adversely affect the flow or availability of certain products.

The further spread of COVID-19, and the requirements to take action to help limit the spread of the illness, could impact the Company’s ability to carry out its business as usual and may materially adversely impact global economic conditions, the Company’s business, sales, financial condition and results of operations. The extent of the impact of COVID-19 on the Company’s business and financial results will depend on future developments, including the duration and spread of the outbreak within the markets in which the Company operates, the related impact on consumer confidence and spending, and the effect of governmental regulations imposed in response to

 

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the pandemic, all of which are highly uncertain and ever-changing. The sweeping nature of the COVID-19 pandemic makes it extremely difficult to predict how the Company’s business and operations will be affected in the longer run. However, the likely overall economic impact of the pandemic is viewed as highly adverse to the general economy. Any of the foregoing factors, or other cascading effects of the coronavirus pandemic, could materially increase the Company’s costs, adversely impact the Company’s sales and damage the Company’s business, sales, financial condition and results of operations, possibly to a significant degree. The duration of any such impacts cannot be predicted.

Unfavorable economic conditions could have an adverse impact on consumer discretionary spending and therefore adversely impact the Company’s business, sales, financial condition and results of operations.

The Company’s products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to make discretionary purchases of automotive products during favorable economic conditions and when consumers are feeling confident and prosperous. Discretionary spending is also affected by many other factors, including general business conditions, interest rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. Purchases of the Company’s products could decline during periods when disposable income is lower, or during periods of actual or perceived unfavorable economic conditions. A significant or prolonged decline in general economic conditions or uncertainties regarding future economic prospects that adversely affect consumer discretionary spending, whether in the United States or in the Company’s international markets, could result in reduced sales of the Company’s products, which in turn would have an adverse impact on the Company’s business, sales, financial condition and results of operations.

A severe or prolonged economic downturn could adversely affect the Company’s distributors’ financial condition, their levels of business activity and their ability to pay trade obligations.

The Company primarily sells its products to retailers directly and through its domestic and foreign subsidiaries, and to foreign distributors. The Company generally requires no collateral from its customers. However, a severe or prolonged downturn in the general economy could adversely affect the retail market which in turn, would adversely impact the liquidity and cash flows of the Company’s customers, including the ability of such customers to obtain credit to finance purchases of the Company’s products and to pay their trade obligations. This could result in increased delinquent or uncollectible accounts for some of the Company’s customers. A failure by the Company’s customers to pay on a timely basis a significant portion of outstanding account receivable balances would adversely impact the Company’s business, sales, financial condition and results of operations.

Failure to compete effectively could reduce the Company’s market share and significantly harm the Company’s business, sales, financial condition and results of operations.

The Company’s industry is highly competitive, and the Company’s success depends on the Company’s ability to compete with suppliers of automotive aftermarket products, some of which may have substantially greater financial, marketing and other resources than the Company does. Due to the diversity of the Company’s product offering, the Company competes with several large and medium-sized companies and a large number of smaller regional and specialty companies and numerous category-specific competitors. In addition, the Company faces competition from original equipment manufacturers, which, through their automotive dealerships, supply many of the same types of replacement parts the Company sells.

Some of the Company’s competitors may have larger customer bases and significantly greater financial, technical and marketing resources than the Company does. These factors may allow the Company’s competitors to:

 

   

respond more quickly than the Company can to new or emerging technologies and changes in customer requirements by devoting greater resources than we can to the development, promotion and sale of automotive aftermarket products;

 

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engage in more extensive research and development; and

 

   

spend more money and resources on marketing and promotion.

Increased competition could put additional pressure on the Company to reduce prices or take other actions, which may have an adverse effect on the Company’s business, sales, financial condition and results of operations. The Company may also lose significant customers or lines of business to competitors.

If the Company is unable to successfully design, develop and market new products, the Company’s business may be harmed.

To maintain and increase sales, the Company must continue to introduce new products on a timely basis to respond to new and evolving consumer preferences and improve or enhance the Company’s existing products. The success of the Company’s new and enhanced products depends on many factors, including anticipating consumer preferences, finding innovative solutions to consumer problems, differentiating the Company’s products from those of the Company’s competitors, and maintaining the strength of the Company’s brands. The design and development of the Company’s products is costly, and the Company typically has several products in development at the same time. Problems in the design or quality of the Company’s products, or delays in product introduction, may harm the Company’s brands, business, sales, financial condition and results of operations. Any new products that the Company develops and markets may not generate sufficient revenues to recoup their development, production, marketing, selling and other costs.

A drive toward electric vehicles or away from vehicle ownership in general could impact the Company’s and its subsidiaries’ business, sales, financial condition and results of operations.

The automotive industry is increasingly focused on the development of hybrid and electric vehicles and of advanced driver assistance technologies, with the goal of developing and introducing a commercially viable, fully automated driving experience, and many manufacturers have announced plans to transition from internal- combustion engines into electric vehicle platforms over the coming years. There has also been an increase in consumer preferences for mobility on demand services, such as car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. Accordingly, if we do not continue to innovate and develop, or acquire, new and compelling products that capitalize upon new technologies in response to original equipment manufacturer and consumer preferences, or if there is a future shift in consumer preferences towards ownership of more utilitarian vehicles or vehicles that are otherwise less interesting to a large portion of the Company’s customers who are automotive enthusiasts, or if there is otherwise a future shift away from automobile ownership among consumers in general, the Company’s and its subsidiaries’ business, sales, financial condition and results of operations could be impacted.

The Company’s business depends on maintaining and strengthening its brands to generate and maintain ongoing demand for its products, and a significant reduction in such demand could harm the Company’s business, sales, financial condition and results of operations.

The Company’s success depends on the value and reputation of the Company’s brands, which, in turn, depends on factors such as the quality, design, performance, functionality, and durability of the Company’s products, the image of the Company’s e-commerce platform and retail partner floor spaces, the Company’s communication activities, including advertising, social media, and public relations, and the Company’s management of the customer experience, including direct interfaces through customer service. Maintaining, promoting, and positioning the Company’s brands are important to expanding its customer base, and will depend largely on the success of the Company’s marketing and merchandising efforts and the Company’s ability to provide consistent, high-quality customer experiences. The Company intends to continue making investments in these areas in order to maintain and enhance the Company’s brands, and such investments may not be successful. Ineffective marketing, negative publicity, product diversion to unauthorized distribution channels, product or

 

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manufacturing defects, counterfeit products, unfair labor practices, and failure to protect the intellectual property rights in the Company’s brands are some of the potential threats to the strength of the Company’s brands, and those and other factors could rapidly and severely diminish customer confidence in us. Furthermore, these factors could cause the Company’s customers to lose the personal connection they feel with the Company’s brands. The Company believes that maintaining and enhancing the image of the Company’s brands in its current markets and in new markets where it has limited brand recognition is important to expanding its customer base. If the Company is unable to maintain or enhance its brands in current or new markets, the Company’s business, sales, financial condition and results of operations could be harmed.

If the Company inaccurately forecasts demand for its products, it may manufacture either insufficient or excess quantities, which, in either case, could adversely affect its financial performance.

The Company plans its manufacturing capacity based upon the forecasted demand for its products. Forecasting the demand for the Company’s products is very difficult given the manufacturing lead time and the amount of specification involved. Forecasting demand for specific automotive part goods can also be challenging due to changing consumer preferences and competitive pressures and longer supply lead times. The nature of the Company’s business makes it difficult to adjust quickly its manufacturing capacity if actual demand for its products exceeds or is less than forecasted demand. If actual demand for its products exceeds the forecasted demand, the Company may not be able to produce sufficient quantities of new products in time to fulfill actual demand, which could limit the Company’s sales and adversely affect its financial performance. On the other hand, if actual demand is less than the forecasted demand for its products, the Company could produce excess quantities, resulting in excess inventories and related obsolescence charges that could adversely affect the Company’s financial performance.

The Company may not be able to effectively manage its growth.

As the Company grows its business, slower growing or reduced demand for the Company’s products, increased competition, a decrease in the growth rate of the Company’s overall market, failure to develop and successfully market new products, or the maturation of the Company business or market could harm the Company’s business. The Company has made and expects to continue to make significant investments in the Company’s research and development and sales and marketing organizations, expand the Company’s operations and infrastructure both domestically and internationally, design and develop new products, and enhance the Company’s existing products. In addition, in connection with operating as a public company, the Company will incur significant additional legal, accounting, and other expenses that the Company did not incur as a private company. If the Company’s sales do not increase at a sufficient rate to offset these increases in the Company’s operating expenses, its profitability may decline in future periods.

The Company only has a limited history operating the Company’s business at its current scale. Consequently, if the Company’s operations grow at a rapid pace in the future, the Company may experience difficulties in managing this growth and building the appropriate processes and controls. Future rapid growth may increase the strain on the Company’s resources, and the Company could experience operating difficulties, including difficulties in sourcing, logistics, recruiting, maintaining internal controls, marketing, designing innovative products, and meeting consumer needs. If the Company does not adapt to meet these evolving challenges, the strength of the Company’s brands may erode, the quality of the Company’s products may suffer, the Company may not be able to deliver products on a timely basis to the Company’s customers, and the Company’s corporate culture may be harmed.

If the Company fails to attract new customers, or fails to do so in a cost-effective manner, the Company may not be able to increase sales.

The Company’s success depends, in part, on its ability to attract customers in a cost-effective manner. In order to expand the Company’s customer base, the Company must appeal to and attract customers ranging from

 

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automotive enthusiasts to individuals who simply value products of uncompromising quality and design. The Company has made, and the Company expects that the Company will continue to make, significant investments in attracting new customers, including through the use of traditional, digital, and social media and participation in, and sponsorship of, community events. Marketing campaigns can be expensive and may not result in the cost- effective acquisition of customers. Further, as the Company’s brands becomes more widely known, future marketing campaigns may not attract new customers at the same rate as past campaigns. If the Company is unable to attract new customers, or fails to do so in a cost-effective manner, the Company’s growth could be slower than it expects and the Company’s business will be harmed.

The Company’s growth depends, in part, on expanding into additional consumer markets, and the Company may not be successful in doing so.

The Company believes that its future growth depends not only on continuing to reach its current core demographic, but also continuing to broaden its retail partner and customer bases. The growth of the Company’s business will depend, in part, on the Company’s ability to continue to expand its retail partner and customer bases in the United States, as well as in international markets. In these markets, the Company may face challenges that are different from those the Company currently encounters, including competitive, merchandising, distribution, hiring, and other difficulties. The Company may also encounter difficulties in attracting customers due to a lack of consumer familiarity with or acceptance of the Company’s brands, or a resistance to paying for premium products, particularly in international markets. The Company continues to evaluate marketing efforts and other strategies to expand the customer base for the Company’s products. In addition, although the Company is investing in sales and marketing activities to further penetrate newer regions, including expansion of the Company dedicated sales force, the Company cannot assure you that the Company will be successful. If the Company is not successful, its business, sales, financial condition and results of operations may be harmed.

Competitors have attempted, and will likely continue to attempt to, imitate the Company’s products and technology. If the Company is unable to protect or preserve the image of the Company’s brands and proprietary rights, the Company’s business, sales, financial condition and results of operations may be harmed.

As the Company’s business continues to expand, its competitors have imitated or attempted to imitate, and will likely continue to imitate or attempt to imitate, the Company’s product designs and branding, which could harm the Company’s business, sales, financial condition and results of operations. Only a portion of the intellectual property used in the manufacture and design of the Company’s products is patented, and the Company therefore relies significantly on trade secrets, trade and service marks, trade dress, and the strength of the Company’s brands. The Company regards its patents, trade dress, trademarks, copyrights, trade secrets, and similar proprietary rights as critical to its success. The Company also relies on trade secret protection and confidentiality agreements with its employees, consultants, suppliers, manufacturers, and others to protect its proprietary rights. Nevertheless, the steps the Company takes to protect its proprietary rights against infringement or other violations may be inadequate, and it may experience difficulty in effectively limiting the unauthorized use of its patents, trademarks, trade dress, and other intellectual property and proprietary rights worldwide. The Company also cannot guarantee that others will not independently develop technology with the same or similar function to any proprietary technology the Company relies on to conduct its business and differentiate itself from its competitors. Unauthorized use or invalidation of its patents, trademarks, copyrights, trade dress, trade secrets, or other intellectual property or proprietary rights may cause significant damage to the Company’s brands and harm its business, sales, financial condition and results of operations.

While the Company actively develops and protects its intellectual property rights, there can be no assurance that the Company will be adequately protected in all countries in which the Company conducts its business or that the Company will prevail when defending its patent, trademark, and proprietary rights. Additionally, the Company could incur significant costs and management distraction in pursuing claims to enforce its intellectual

 

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property rights through litigation and defending any alleged counterclaims. If the Company is unable to protect or preserve the value of its patents, trade dress, trademarks, copyrights, or other intellectual property rights for any reason, or if the Company fails to maintain the image of the Company’s brands due to actual or perceived product or service quality issues, adverse publicity, governmental investigations or litigation, or other reasons, the Company’s brands and reputation could be damaged, and the Company’s business may be harmed.

The Company’s profitability may decline as a result of increasing pressure on pricing.

The Company’s industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, pressure from retailers to reduce the costs of products, and changes in consumer demand. These factors may cause the Company to reduce its prices to retailers and customers or engage in more promotional activity than the Company anticipates, which could adversely impact its margins and cause the Company’s profitability to decline if it is unable to offset price reductions with comparable reductions in the Company’s operating costs. This could materially harm the Company’s business, sales, financial condition and results of operations. In addition, ongoing and sustained promotional activities could harm the image of the Company’s brands.

A significant disruption in the operations of the Company’s manufacturing facilities or distribution centers could have a material adverse effect on the Company’s business, sales, financial condition and results of operations.

A significant disruption at any of the Company’s manufacturing facilities or distribution centers could materially and adversely affect the Company’s business, sales, financial condition and results of operations. The Company’s manufacturing facilities and distribution centers are highly automated, which means that their operations are complicated and may be subject to a number of risks related to computer viruses, the proper operation of software and hardware, electronic or power interruptions, and other system failures. Risks associated with upgrading or expanding these facilities may significantly disrupt or increase the cost of the Company’s operations, which may have an immediate, or in some cases prolonged, impact on the Company’s margins.

Increases in cost, disruption of supply or shortage of raw materials or components used in the Company’s products could harm its business and profitability.

The Company’s products contain various raw materials, including corrosion-resistant steel, non-ferrous metals such as aluminum and nickel, and precious metals such as platinum and palladium. The Company uses raw materials directly in manufacturing and in components that the Company purchases from its suppliers. The Company generally purchases components with significant raw material content on the open market. The prices for and availability of these raw materials fluctuate depending on market conditions. Volatility in the prices of raw materials such as steel, aluminum and nickel could increase the cost of manufacturing the Company’s products. The Company may not be able to pass on these costs to its customers, and this could have a material adverse effect on the Company’s business, sales, financial condition and results of operations. Even in the event that increased costs can be passed through to customers, the Company’s gross margin percentages would decline. Additionally, the Company’s suppliers are also subject to fluctuations in the prices of raw materials and may attempt to pass all or a portion of such increases on to the Company. In the event they are successful in doing so, the Company’s margins would decline.

The Company’s current and future products may experience quality problems from time to time that can result in negative publicity, litigation, product recalls, and warranty claims, which could result in decreased sales and operating margin, and harm to the Company’s brand.

Although the Company extensively and rigorously tests new and enhanced products, there can be no assurance the Company will be able to detect, prevent, or fix all defects. Defects in materials or components can unexpectedly interfere with the products’ intended use and safety and damage the Company reputation. Failure to

 

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detect, prevent, or fix defects could result in a variety of consequences, including a greater number of product returns than expected from customers and retail partners, litigation, product recalls, and credit claims, among others, which could harm the Company’s business, sales, financial condition and results of operations. The occurrence of real or perceived quality problems or material defects in the Company’s current and future products could expose the Company to product recalls, warranty, or other claims. In addition, any negative publicity or lawsuits filed against the Company related to the perceived quality and safety of the Company products could also harm the Company brand and decrease demand for the Company’s products.

The Company’s reliance on foreign suppliers for some of the automotive parts the Company sell to its customers or included in its products presents risks to the business.

A portion of automotive parts and components the Company uses in its manufacturing process are imported from suppliers located outside the U.S. As a result, the Company is subject to various risks of doing business in foreign markets and importing products from abroad, such as:

 

   

significant delays in the delivery of cargo due to port security considerations;

 

   

imposition of duties, taxes, tariffs or other charges on imports;

 

   

potential recalls or cancellations of orders for any product that does not meet the Company’s quality standards;

 

   

disruption of imports by labor disputes or strikes and local business practices;

 

   

heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;

 

   

natural disasters, disease epidemics and health related concerns, which could result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargoing of goods produced in infected areas;

 

   

inability of the Company’s non-U.S. suppliers to obtain adequate credit or access liquidity to finance its operations; and

 

   

the Company’s ability to enforce any agreements with its foreign suppliers.

Any of the foregoing factors, or a combination of them, could increase the cost or reduce the supply of products available to the Company and materially and adversely impact the Company’s business, sales, financial condition and results of operations.

The Company depends on retail partners to display and present its products to customers, and the Company’s failure to maintain and further develop the Company’s relationships with retail partners could harm the Company’s business.

The Company sells a significant amount of its products through knowledgeable national, regional, and independent retail partners. The Company’s retail partners service customers by stocking and displaying the Company’s products, explaining the Company product attributes, and sharing the story of the Company’s brands. The Company’s relationships with these retail partners are important to the authenticity of the Company’s brands and the marketing programs the Company continues to deploy. The Company’s failure to maintain these relationships with its retail partners or financial difficulties experienced by these retail partners could harm its business.

The Company has key relationships with national retail partners. If the Company loses any of the Company’s key retail partners or any key retail partner reduces its purchases of the Company’s existing or new products or its number of stores or operations or promotes products of the Company’s competitors over the

 

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Company’s, the Company’s sales would be harmed. Because the Company is a premium brand, its sales depend, in part, on retail partners effectively displaying its products, including providing attractive space and point of purchase displays in their stores, and training their sales personnel to sell its products. If the Company’s retail partners reduce or terminate those activities, the Company may experience reduced sales of its products, resulting in lower gross margins, which would harm its business, sales, financial condition and results of operations.

If the Company’s plans to increase sales through its DTC channel are not successful, the Company’s business, sales, financial condition and results of operations could be harmed.

For 2020, the Company generated through its DTC channel approximately $84 million in gross sales on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed as if each had occurred on January 1, 2020. Part of the Company’s growth strategy involves increasing sales through its DTC channel. The level of customer traffic and volume of customer purchases through the Company’s website is substantially dependent on the Company’s ability to provide a content-rich and user-friendly website, a hassle- free customer experience, sufficient product availability, and reliable, timely delivery of the Company’s products. If the Company is unable to maintain and increase customers’ use of its website, allocate sufficient product to the Company’s website, and increase any sales through its website, the Company’s business, sales, financial condition and results of operations could be harmed.

The Company’s future success depends on the continuing efforts of the Company’s management and key employees, and on the Company’s ability to attract and retain highly skilled personnel and senior management.

The Company depends on the talents and continued efforts of its senior management and key employees. The loss of members of management or key employees may disrupt the Company’s business and harm the Company’s business, sales, financial condition and results of operations. Furthermore, the Company’s ability to manage further expansion will require it to continue to attract, motivate, and retain additional qualified personnel. Competition for this type of personnel is intense, and the Company may not be successful in attracting, integrating, and retaining the personnel required to grow and operate its business effectively. There can be no assurance that the Company’s current management team or any new members of the management team will be able to successfully execute the Company’s business and operating strategies.

The Company relies on complex information systems for management of its manufacturing, distribution, sales and other functions. If the Company’s information systems fail to perform these functions adequately or if the Company experiences an interruption in their operation, including a breach in cyber security, its business, sales, financial condition and results of operations could suffer.

All of the Company’s major operations, including manufacturing, distribution, sales and accounting, are dependent upon the Company’s complex information systems. The Company’s information systems are vulnerable to damage or interruption from:

 

   

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

 

   

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

 

   

hackers, computer viruses, software bugs or glitches.

Any damage or significant disruption in the operation of such systems, the failure of the Company’s information systems to perform as expected, the failure to successfully integrate the information technology systems of the businesses that the Company has recently acquired or any security breach to the information systems (including financial or credit/payment frauds) would disrupt the Company’s business, which may result in decreased sales, increased overhead costs, excess inventory and product shortages and otherwise adversely affect the Company’s reputation, operations, financial performance and condition.

 

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Cyber-attacks, unauthorized access to, or accidental disclosure of, consumer personally-identifiable information including credit card information, that the Company collects through its websites may result in significant expense and adversely impact the Company’s reputation and business.

There is heightened concern and awareness over the security of personal information transmitted over the Internet, consumer identity theft and user privacy. While the Company has implemented security measures, the Company’s computer systems may nevertheless be susceptible to electronic or physical computer break-ins, viruses and other disruptions and security compromises. Any perceived or actual unauthorized or inadvertent disclosure of personally-identifiable information, whether through a compromise of the Company’s network by an unauthorized party, employee theft, misuse or error or otherwise, could harm the Company’s reputation, impair the Company’s ability to attract website visitors, or subject the Company to claims or litigation arising from damages suffered by consumers, and adversely affect the Company’s operations, financial performance and condition.

The Company depends on cash generated from its operations to support its growth, and the Company may need to raise additional capital, which may not be available on terms acceptable to the Company or at all.

The Company primarily relies on cash flow generated from its sales to fund its current operations and growth initiatives. As the Company expands its business, the Company will need significant cash from operations to purchase inventory, increase product development, expand its manufacturer and supplier relationships, pay personnel, pay for the increased costs associated with operating as a public company and further invest in sales and marketing efforts. If the Company’s business does not generate sufficient cash flow from operations to fund these activities and sufficient funds are not otherwise available from the Company’s current or future credit facility, the Company may need additional equity or debt financing. If such financing is not available to the Company on satisfactory terms, the Company’s ability to operate and expand the Company’s business or to respond to competitive pressures could be harmed. Moreover, if the Company raises additional capital by issuing equity securities or securities convertible into equity securities, the ownership of the Company’s existing stockholders may be diluted. The holders of new securities may also have rights, preferences or privileges which are senior to those of existing holders of the Common Stock. In addition, any indebtedness the Company incurs may subject the Company to covenants that restrict the Company’s operations and will require interest and principal payments that could create additional cash demands and financial risk for the Company.

Indebtedness of the Company and its subsidiaries may limit the Company’s and its subsidiaries’ ability to invest in the ongoing needs of its business and if the Company and its subsidiaries are unable to comply with the covenants in its current credit agreements, the Company’s and its subsidiaries’ business, sales, financial condition and results of operations could be harmed.

As of July 16, 2021, the direct subsidiary of the Company, Holley Purchaser, Inc., a Delaware corporation (“Holley Purchaser”), had an aggregate of $542.0 million principal amount of indebtedness outstanding under that certain First Lien Credit Agreement, dated as of October 26, 2018 (as amended, restated and/or supplemented), among Holley Purchaser, as borrower representative, the Company, UBS AG Stamford Branch, as agent, the lenders party thereto, and the other parties thereto from time to time (the “First Lien Credit Agreement”), and an aggregate of $45 million principal amount of indebtedness outstanding (after giving effect to the Debt Paydown) under that certain Second Lien Credit Agreement, dated as of October 26, 2018 (as amended, restated and/or supplemented), among Holley Purchaser, as borrower representative, the Company, AEA Debt Management LP, as agent, the lenders party thereto, and the other parties party thereto from time to time (the “Second Lien Credit Agreement”). Each of the First Lien Credit Agreement and the Second Lien Credit Agreement are jointly and severally guaranteed by the Company and certain of the Company’s wholly-owned material subsidiaries and the Company’s future subsidiaries that become guarantors (together with the Company and Holley Purchaser, collectively, the “Loan Parties”). The First Lien Credit Agreement is secured by a first-priority lien on substantially all of the Loan Parties’ assets, in each case subject to certain customary exceptions. The Second Lien Credit Agreement is secured by a second-priority lien on substantially all of the Loan Parties’ assets, in each case subject to certain customary exceptions.

 

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Each of the First Lien Credit Agreement and the Second Lien Credit Agreement places certain conditions on Holley Purchaser, including, subject to certain conditions, reductions and exceptions, requiring Holley Purchaser to utilize a portion of its and its subsidiaries’ cash flow from operations to make payments on its and its subsidiaries’ indebtedness, reducing the availability of the Company’s and its subsidiaries’ cash flow to fund working capital, capital expenditures, development activity, return capital to the Company’s stockholders, and other general corporate purposes. The Company’s and its subsidiaries’ compliance with this condition may limit the Company’s and its subsidiaries’ ability to invest in the ongoing needs of the Company’s and its subsidiaries’ business. For example, complying with this condition:

 

   

increases the Company’s and its subsidiaries’ vulnerability to adverse economic or industry conditions;

 

   

limits the Company’s and its subsidiaries’ flexibility in planning for, or reacting to, changes in the Company’s and its subsidiaries’ business or markets;

 

   

makes the Company and its subsidiaries more vulnerable to increases in interest rates, as borrowings under the First Lien Credit Agreement and the Second Lien Credit Agreement bear interest at variable rates;

 

   

limits the Company’s and its subsidiaries’ ability to obtain additional financing in the future for working capital or other purposes; and

 

   

potentially places the Company and its subsidiaries at a competitive disadvantage compared to the Company’s and its subsidiaries’ competitors that have less indebtedness.

Each of the First Lien Credit Agreement and the Second Lien Credit Agreement places certain limitations on the Company’s and certain of its subsidiaries’ ability to incur additional indebtedness. However, subject to the certain exceptions and baskets in each of the First Lien Credit Agreement and the Second Lien Credit Agreement, Holley Purchaser and its subsidiaries may incur substantial additional indebtedness under and outside of each such credit agreement. Each of the First Lien Credit Agreement and the Second Lien Credit Agreement also limit or prohibits, among other things, and in each case, subject to exceptions, materiality thresholds and baskets, Holley Purchaser’s and certain of its subsidiaries’ ability to: (a) pay dividends on, redeem or repurchase stock, or make other distributions; (b) incur or guarantee additional indebtedness; (c) sell stock in certain of the Company’s subsidiaries; (d) create or incur liens; (e) make acquisitions or investments; (f) transfer or sell certain assets or merge or consolidate with or into other companies; (g) make certain payments or prepayments of indebtedness subordinated to Holley Purchaser’s obligations under each of the First Lien Credit Agreement and the Second Lien Credit Agreement, including under the First Lien Credit Agreement, a restriction on the prepayment of indebtedness under the Second Lien Credit Agreement subject to certain baskets and exceptions; and (h) enter into certain transactions with the Company’s affiliates (including paying certain management fees).

In addition to the restrictions described above, each of the First Lien Credit Agreement and the Second Lien Credit Agreement requires the Company and certain of its subsidiaries to comply with certain other covenants, including a financial maintenance covenant regarding the Company’s total net leverage ratio on the last day of each fiscal quarter, with step downs to lower total net leverage ratio levels at specified times as set forth therein. Failure to comply with these covenants and certain other provisions of each of the First Lien Credit Agreement and the Second Lien Credit Agreement, or the occurrence of a change of control, could result in an event of default and an acceleration of the Loan Parties’ obligations under each of the First Lien Credit Agreement and the Second Lien Credit Agreement or other indebtedness that the Company and its subsidiaries may incur in the future.

If such an event of default and acceleration of the Loan Parties’ obligations occurs, subject to intercreditor agreements agreed to by the lenders, the lenders under each of the First Lien Credit Agreement and the Second Lien Credit Agreement would have the right to proceed against the collateral the Loan Parties granted to them to secure such indebtedness. If the debt under either of the First Lien Credit Agreement or the Second Lien Credit

 

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Agreement were to be accelerated, the Company and its subsidiaries may not have sufficient cash or be able to sell sufficient collateral to repay this debt, which would immediately and materially harm the Company’s and its subsidiaries’ business, sales, financial condition and results of operations. The threat of the Company’s debt being accelerated in connection with a change of control could make it more difficult for the Company to attract potential buyers or to consummate a change of control transaction that would otherwise be beneficial to the Company stockholders.

The Company’s failure to maintain effective internal controls over financial reporting could harm us.

The Company’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. Internal controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”). Under standards established by the Public Company Accounting Oversight Board (“PCAOB”), a deficiency in internal controls over financial reporting exists when the design or operation of a control does not allow management or personnel, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. The PCAOB defines a material weakness as a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis. The PCAOB defines a significant deficiency as a deficiency, or a combination of deficiencies, in internal controls over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant’s financial reporting.

As a public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control over financial reporting. As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event that it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The efforts required to ensure that we have adequate internal financial and accounting controls and procedures in place to produce accurate financial statements on a timely basis, and to remediate any existing material weakness, are costly and time-consuming, and may need to be re-evaluated frequently. Implementing appropriate changes to our internal controls may take a significant amount of time to complete, including that of directors, officers and employees, and may entail substantial costs in order to modify existing accounting systems.

Additionally, we may experience material weaknesses or significant deficiencies in our internal control over financial reporting in the future. For example, in connection with the restatement by Empower of its previously issued audited financial statements as of December 31, 2020 and for the period from August 19, 2020 (inception) through December 31, 2020 as a result of the April 2021 statement by the SEC regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies, Empower identified a material weakness in its internal controls over financial reporting relating to the accounting for warrants issued in connection with Empower’s initial public offering and the Forward Purchase Agreement, dated October 6, 2020, by and among the Company and the A&R FPA Investor. Remediation efforts can be time-consuming and expensive and can place a significant burden on management, thereby increasing pressure on our financial resources and processes. We may not be successful in making the improvements necessary to remediate the existing or any future material weakness, or in doing so in a timely and cost-effective manner.

 

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Any failure to maintain internal control over financial reporting, or any failure to fully remediate the existing or any future material weaknesses that may be found to exist, could inhibit our ability to accurately and on a timely basis report our cash flows, results of operations or financial condition in compliance with applicable securities laws. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Common Stock and Warrants could decline and we could be subject to sanctions or investigations by NYSE, the SEC or other regulatory authorities. Failure to remediate any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets and negatively impact the price and trading market for our Common Stock and Warrants.

The Company may acquire or invest in other companies, which could divert the Company management’s attention, result in dilution to the Company’s stockholders, and otherwise disrupt the Company’s operations and harm the Company’s business, sales, financial condition and results of operations.

In the future, the Company may acquire or invest in businesses, products, or technologies that the Company believe could complement or expand the Company business, enhance the Company capabilities, or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause the Company to incur various costs and expenses in identifying, investigating, and pursuing suitable acquisitions, whether or not they are consummated.

In any future acquisitions, the Company may not be able to successfully integrate acquired personnel, operations, and technologies, or effectively manage the combined business following the acquisition. The Company also may not achieve the anticipated benefits from future acquisitions due to a number of factors, including: (a) an inability to integrate or benefit from acquisitions in a profitable manner; (b) unanticipated costs or liabilities associated with the acquisition; (c) the incurrence of acquisition-related costs; (d) the diversion of management’s attention from other business concerns; (e) the loss of the Company or the acquired business’ key employees; or (f) the issuance of dilutive equity securities, the incurrence of debt, or the use of cash to fund such acquisitions. In addition, a significant portion of the purchase price of companies the Company may acquire may be allocated to acquired goodwill and other intangible assets, which must be assessed for impairment at least annually. In the future, if the Company’s acquisitions do not yield expected returns, the Company may be required to take charges to the Company results of operations based on this impairment assessment process, which could harm the Company results of operations.

Most members of the Company’s management team do not have prior experience in operating a public company.

Most members of the Company’s management team do not have prior experience in managing a publicly traded company. As such, the management team may encounter difficulties in successfully or effectively managing its transition to a public company and in complying with its reporting and other obligations under federal securities laws and other regulations and in connection with operating as a public company. Their lack of prior experience in dealing with the reporting and other obligations and laws pertaining to public companies could result the management of the Company being required to devote significant time to these activities which may result in less time being devoted to the management and growth of the Company. In addition, the Company is hiring additional personnel with the appropriate level of knowledge, experience, and training in the accounting policies, practices or internal controls over financial reporting required of public companies. The Company may be required to incur significant expense in connection with these efforts.

 

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If the Company’s goodwill, other intangible assets, or fixed assets become impaired, the Company may be required to record a charge to its earnings.

The Company may be required to record future impairments of goodwill, other intangible assets, or fixed assets to the extent the fair value of these assets falls below their book value. The Company’s estimates of fair value are based on assumptions regarding future cash flows, gross margins, expenses, discount rates applied to these cash flows, and current market estimates of value. Estimates used for future sales growth rates, gross profit performance, and other assumptions used to estimate fair value could cause the Company to record material non-cash impairment charges, which could harm the Company’s business, sales, financial condition and results of operations.

Legal, Regulatory and Compliance Risks Related to Our Business

The Company may become involved in legal or regulatory proceedings and audits.

The Company’s business requires compliance with many laws and regulations, including labor and employment, sales and other taxes, customs, and consumer protection laws and ordinances that regulate retailers generally and/or govern the importation, promotion, and sale of merchandise, and the operation of stores and warehouse facilities. Failure to comply with these laws and regulations could subject the Company to lawsuits and other proceedings, and could also lead to damage awards, fines, and penalties. The Company may become involved in a number of legal proceedings and audits, including government and agency investigations, and consumer, employment, tort, and other litigation. The outcome of some of these legal proceedings, audits, and other contingencies could require the Company to take, or refrain from taking, actions that could harm the Company’s operations or require the Company to pay substantial amounts of money, harming the Company’s business, sales, financial condition and results of operations. Additionally, defending against these lawsuits and proceedings may be necessary, which could result in substantial costs and diversion of management’s attention and resources, harming the Company’s business, sales, financial condition and results of operations. Any pending or future legal or regulatory proceedings and audits could harm the Company’s business, sales, financial condition and results of operations.

The Company may become subject to intellectual property claims or lawsuits that could cause it to incur significant costs or pay significant damages or that could prohibit it from selling its products.

The Company’s competitors also seek to obtain patent, trademark, copyright or other protection of their proprietary rights and designs for automotive products. From time to time, third parties have claimed or may claim in the future that the Company’s products infringe upon their proprietary rights. The Company evaluates any such claims and, where appropriate, has obtained or sought to obtain licenses or other business arrangements. To date, there have been no significant interruptions in the Company’s business as a result of any claims of infringement. However, in the future, intellectual property claims could force the Company to alter its existing products or withdraw them from the market or could delay the introduction of new products.

Various patents have been issued to the Company’s competitors in the automotive parts industry and these competitors may assert that the Company’s products infringe their patent or other proprietary rights. If the Company’s products are found to infringe third-party intellectual property rights, the Company may be unable to obtain a license to use such technology, and it could incur substantial costs to redesign its products, withdraw them from the market, and/or to defend legal actions.

Sales of the Company’s products by unauthorized retailers or distributors could adversely affect the Company’s authorized distribution channels and harm the Company’s reputation.

Some of the Company’s products may find their way to unauthorized outlets or distribution channels. This “gray market” for the Company’s products can undermine authorized retailers and foreign wholesale distributors

 

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who promote and support the Company’s products, and can injure the Company’s brands in the minds of its customers and consumers. On the other hand, stopping such commerce could result in a potential decrease in sales to those customers who are selling the Company’s products to unauthorized distributors or an increase in sales returns over historical levels. While the Company has taken some lawful steps to limit commerce of its products in the “gray market” in both the United States and abroad, it has not stopped such commerce.

The Company is subject to environmental, health and safety laws and regulations, which could subject the

Company to liabilities, increase its costs or restrict its operations in the future.

The Company’s properties and operations are subject to a number of environmental, health and safety laws and regulations in each of the jurisdictions in which the Company operates, including, among others, regulations of the California Air Resources Board. These laws and regulations govern, among other things, air emissions, water discharges, handling and disposal of solid and hazardous substances and wastes, soil and groundwater contamination and employee health and safety. The Company’s failure to comply with such environmental, health and safety laws and regulations could result in substantial civil or criminal fines or penalties or enforcement actions, including regulatory or judicial orders enjoining or curtailing operations or requiring remedial or corrective measures, installation of pollution control equipment or other actions.

The Company may also be subject to liability for environmental investigations and cleanups, including at properties that the Company currently or previously owned or operated, even if such contamination was not caused by the Company, and the Company may face claims alleging harm to health or property or natural resource damages arising out of contamination or exposure to hazardous substances. The Company may also be subject to similar liabilities and claims in connection with locations at which hazardous substances or wastes the Company has generated have been stored, treated, otherwise managed, or disposed. Environmental conditions at or related to the Company’s current or former properties or operations, and/or the costs of complying with current or future environmental, health and safety requirements (which have become more stringent and complex over time) could materially adversely affect the Company’s business, sales, financial condition and results of operations.

Changes in, or any failure to comply with, privacy laws, regulations, and standards may adversely affect the

Company’s business.

Personal privacy and data security have become significant issues in the United States, Europe, and in many other jurisdictions in which the Company operates. The regulatory framework for privacy and security issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Furthermore, federal, state, or foreign government bodies or agencies have in the past adopted, and may in the future adopt, laws and regulations affecting data privacy, all of which may be subject to invalidation by relevant foreign judicial bodies.

Industry organizations also regularly adopt and advocate for new standards in this area. In the United States, these include rules and regulations promulgated under the authority of federal agencies and state attorneys general and legislatures and consumer protection agencies, including, but not limited to, the California Consumer Privacy Act (“CCPA”). Internationally, many jurisdictions in which the Company operates have established their own data security and privacy legal framework with which the Company or its customers must comply, including but not limited to, the European General Data Protection Regulation (“GDPR”), which imposes certain privacy-

related obligations and potential penalties and risks upon the Company’s business. In many jurisdictions, enforcement actions and consequences for noncompliance are also rising. In addition to government regulation, privacy advocates and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to the Company. Any inability or perceived inability to adequately address privacy and security concerns, even if unfounded, or comply with applicable privacy and data security laws, regulations, and policies, could result in additional cost and liability to the Company, damage its reputation and adversely affect its business.

 

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The Company’s insurance policies may not provide adequate levels of coverage against all claims and the Company may incur losses that are not covered by its insurance.

The Company maintains insurance of the type and in amounts that the Company believes is commercially reasonable and that is available to businesses in its industry. The Company carries various types of insurance, including general liability, auto liability, workers’ compensation and excess umbrella, from highly rated insurance carriers. Market forces beyond the Company’s control could limit the scope of the insurance coverage that the Company can obtain in the future or restrict its ability to buy insurance coverage at reasonable rates. The Company cannot predict the level of the premiums that the Company may be required to pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks. In the event of a substantial loss, the insurance coverage that the Company carries may not be sufficient to compensate the Company for the losses the Company incurs or any costs the Company is responsible for.

The Company may face litigation and other risks as a result of Empower’s restatement of its historical financial statements and related matters.

On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the Warrant Agreement, dated October 6, 2020, between Continental Stock Transfer & Trust Company, as Warrant agent, and Empower (the “Warrant Agreement”). Following the issuance of the SEC Statement, after consultation with Empower’s independent registered public accounting firm, Empower’s management and audit committee concluded that it was appropriate to restate its previously issued audited financial statements as of December 31, 2020 and for the period from August 19, 2020 (inception) through December 31, 2020. As part of the restatement, Empower identified a material weakness in its internal controls over financial reporting.

As a result of such material weakness, the restatement, the change in accounting for the Warrants and the A&R FPA, and other matters raised or that may in the future be raised by the SEC, the Company faces potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the restatement and material weaknesses in Empower’s internal control over financial reporting and the preparation of Empower’s financial statements. As of the date of this prospectus, the Company has no knowledge of any such litigation or dispute. However, the Company can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on the Company’s business, results of operations and financial condition.

Changes in tax laws or unanticipated tax liabilities could adversely affect the Company’s effective income tax rate and profitability.

The Company is subject to income taxes in the United States (federal and state) and various foreign jurisdictions. The Company’s effective income tax rate could be adversely affected in the future by a number of factors, including changes in the valuation of deferred tax assets and liabilities, changes in tax laws and regulations or their interpretations and application, and the outcome of income tax audits in various jurisdictions around the world. In particular, the Biden administration has proposed increases to the U.S. corporate income tax rate from 21% to 28% and made other proposals. If any of these (or similar) proposals are ultimately enacted into law, in whole or in part, they could have a negative impact on our effective tax rate. We cannot predict the likelihood, timing or substance of U.S. tax proposals and will continue to monitor the progress of such proposals, as well as other global tax reform initiatives.

 

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Risks Related to Ownership of Our Securities

Certain of the Company’s stockholders, including the Holley Stockholder and the Sponsor, may have conflicts of interest with other stockholders and may limit your ability to influence corporate matters.

The Holley Stockholder, and the Sponsor (together with its affiliates) beneficially own, in the aggregate, approximately 67.82% of our shares of Common Stock. See “Principal Securityholders” and “Selling Securityholders” for more information on the beneficial ownership of our Common Stock. As a result of this concentration of stock ownership, these parties acting together and, in the case of the Holley Stockholder, on its own, have sufficient voting power to effectively control all matters submitted to our stockholders for approval, including director elections and proposed amendments to our certificate of incorporation and bylaws. At the Closing, the Company, the Sponsor, the Sponsor Investors, the Holley Stockholder and the Sentinel Investors entered into the Stockholders’ Agreement, pursuant to which the Holley Stockholder and the Sponsor have the right to designate nominees for election to the Company’s board of directors subject to certain beneficial ownership requirements. See “Management—Director Nominations” for more information.

In addition, this concentration of ownership may delay or prevent a merger, consolidation or other business combination or change in control of our Company and make some transactions that might otherwise give you the opportunity to realize a premium over the then-prevailing market price of our securities more difficult or impossible without their support. Because we have opted out of Section 203 of the Delaware General Corporation Law (“DGCL”) regulating certain business combinations with interested stockholders, after the lock-up periods discussed in “Securities Eligible for Future Sale” expire, as applicable, these parties may transfer their shares of Common Stock and such control of us to a third party, which would not require the approval of our board of directors or other stockholders and may limit the price that investors are willing to pay in the future for shares of our Common Stock. The interests of these parties may not always coincide with our interests as a company or the interests of other stockholders. Accordingly, these parties could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree. This concentration of ownership may also adversely affect the trading prices of our securities.

Each of the Holley Stockholder and the Sponsor is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with the Company. The certificate of incorporation provides that none of the Holley Stockholder, the Sponsor, any of their affiliates or any director who is not employed by the Company (including any non-employee director who serves as one of the Company’s officers in both his or her director and officer capacities) or his or her affiliates will have any duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which the Company operates. Each of the Holley Stockholder and the Sponsor also may pursue acquisition opportunities that may be complementary to the Company’s business and, as a result, those acquisition opportunities may not be available to the Company.

Warrants will become exercisable for Common Stock, which would increase the number of shares eligible for future resale in the public market and result in dilution to our stockholders.

The Company has an aggregate of 14,666,667 Warrants issued and outstanding, representing the right to purchase an equivalent amount shares of Common Stock. The Warrants will become exercisable on October 9, 2021. The exercise price of the Warrants is $11.50 per share. To the extent such Warrants are exercised, additional shares of Common Stock will be issued, which will result in dilution to our stockholders and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market or the fact that such Warrants may be exercised could adversely affect the market price of our Common Stock. However, there is no guarantee that the Warrants will ever be in the money prior to their expiration, and as such, the Warrants may expire worthless.

 

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The Warrants may never be in the money, and they may expire worthless and the terms of the Warrants may be amended in a manner adverse to a holder if holders of at least 50% of the then-outstanding Warrants approve of such amendment.

The Warrant Agreement provides that the terms of the Warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then-outstanding Warrants to make any change that adversely affects the interests of the registered holders of the Warrants. Accordingly, we may amend the terms of the Warrants in a manner adverse to a holder if holders of at least 50% of the then-outstanding Warrants approve of such amendment. Although our ability to amend the terms of the Warrants with the consent of at least 50% of the then outstanding Warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the exercise price of the Warrants, shorten the exercise period or decrease the number of Common Stock purchasable upon exercise of a Warrant.

The market price and trading volume of Common Stock and Warrants may be volatile.

Stock markets, including the NYSE, have from time to time experienced significant price and volume fluctuations. Even if an active, liquid and orderly trading market develops and is sustained for Common Stock and Warrants, the market price of Common Stock and Warrants may be volatile and could decline significantly, whether or not any price changes are related to matters specific to the Company. In addition, the trading volume in Common Stock and Warrants may fluctuate and cause significant price variations to occur. If the market price of Common Stock and Warrants declines significantly, you may be unable to resell your shares of Common Stock and Warrants at or above the market price of Common Stock and Warrants. We cannot assure you that the market price of Common Stock and Warrants will not fluctuate widely or decline significantly in the future in response to a number of factors, including, among others, the following:

 

   

the realization of any of the risk factors presented in this prospectus;

 

   

actual or anticipated differences in the Company’s estimates, or in the estimates of analysts, for the Company’s revenues, results of operations, level of indebtedness, liquidity or financial condition;

 

   

additions and departures of key personnel;

 

   

failure to comply with the requirements of the NYSE;

 

   

failure to comply with the Sarbanes-Oxley Act or other laws or regulations;

 

   

future issuances, sales or resales, or anticipated issuances, sales or resales, of Common Stock;

 

   

perceptions of the investment opportunity associated with Common Stock relative to other investment alternatives;

 

   

the performance and market valuations of other similar companies;

 

   

future announcements concerning the Company’s business or its competitors’ businesses;

 

   

broad disruptions in the financial markets, including sudden disruptions in the credit markets;

 

   

speculation in the press or investment community;

 

   

actual, potential or perceived control, accounting or reporting problems;

 

   

changes in accounting principles, policies and guidelines; and

 

   

general economic and political conditions, such as the effects of the COVID-19 outbreak, recessions, interest rates, local and national elections, fuel prices, international currency fluctuations, corruption, political instability and acts of war or terrorism.

In the past, securities class-action litigation has often been instituted against companies following periods of volatility in the market price of their securities. This type of litigation could result in substantial costs and divert

 

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the Company’s management’s attention and resources, which could have a material adverse effect on the Company.

If securities or industry analysts do not publish research, publish inaccurate or unfavorable research or cease publishing research about the Company, its share and Warrant price and trading volume could decline significantly.

The market for Common Stock and Warrants depends in part on the research and reports that securities or industry analysts publish about the Company or its business. Securities and industry analysts do not currently, and may never, publish research on the Company. If no securities or industry analysts commence coverage of the Company, the market price and liquidity for Common Stock could be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover the Company downgrade their opinions about Common Stock, publish inaccurate or unfavorable research about the Company, or cease publishing about the Company regularly, demand for Common Stock and Warrants could decrease, which might cause its share and Warrant price and trading volume to decline significantly.

Future sales of our Common Stock and Warrants in the public market could cause our stock price to fall.

Certain holders of our Common Stock and Warrants have entered into the lock-up agreements in connection with the Business Combination. The counterparties to these agreements may, in certain instances, without notice, release all or any portion of the securities subject to these lock-up agreements. See the section entitled “Securities Eligible for Future Sale” for a description of these lock-up agreements. The market price of our Common Stock and Warrants may decline materially when these restrictions on resale by our other affiliates lapse or if they are waived.

The Holley Stockholder and the Sponsor (together with its affiliates) beneficially own, in the aggregate, approximately 67.82% of our shares of Common Stock. See “Principal Securityholders” and “Selling Securityholders” for more information on the beneficial ownership of our Common Stock. Upon the expiration of the lock-up agreements, all shares held by our affiliates will be eligible for resale in the public market, subject to applicable securities laws, including the Securities Act. Therefore, unless shares owned by any of our affiliates are registered under the Securities Act, these shares may only be resold into the public markets in accordance with the requirements of an exemption from registration or safe harbor, including Rule 144 and the volume limitations, manner of sale requirements and notice requirements thereof. However, pursuant to the terms the A&R Registration Rights Agreement, the Sponsor and the Holley Stockholder have the right to demand that we register their shares under the Securities Act as well as the right to include their shares in any registration statement that we file with the SEC, subject to certain exceptions. See the section entitled “Certain Relationships and Related Party Transactions.” The registration statement of which this prospectus forms a part, which was filed pursuant to these registration rights, and any registration of other shares we may file in the future, enable those securities to be sold in the public market, subject to certain restrictions in the lock-up agreements referred to above. Any sale by the Holley Stockholder, the Sponsor or other affiliates and stockholders, including in any offering pursuant to this prospectus, or any perception in the public markets that such a transaction may occur could cause the market price of our Common Stock and Warrants to decline materially.

An active, liquid trading market for our securities may not develop, which may limit your ability to sell your securities.

An active trading market for our securities may never develop or be sustained. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our Common Stock and Warrants. An inactive market may also impair our ability to raise capital to continue to fund operations by

 

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issuing securities and may impair our ability to acquire other companies or technologies by using our securities as consideration.

The Company is a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, qualifies for exemptions from certain corporate governance requirements. If we rely on such exemptions, you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

The Holley Stockholder owns a majority of our Common Stock, meaning that the Company is a controlled company within the meaning of the NYSE corporate governance standards. Under the NYSE rules, a company of which more than 50% of the voting power is held by an individual, company or group of persons acting together is a controlled company and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that:

 

   

a majority of the board of directors consist of independent directors;

 

   

the nominating and governance committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

 

   

the compensation committee be composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

These requirements will not apply to us as long as we remain a controlled company. We are not utilizing these exemptions; however, if in the future we decide to rely on such exemptions, we may elect not to comply with the foregoing NYSE corporate governance requirements and, if we do, investors in our securities may not have the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements.

The Company may redeem your unexpired Warrants prior to their exercise at a time that is disadvantageous to you, thereby making your Warrants worthless.

The Company has the ability to redeem outstanding Warrants at any time after they become exercisable and prior to their expiration, at a price of $0.01 per Warrant, provided that the last reported sales price of Common Stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) on the trading day prior to the date on which we send the notice of redemption to the Warrant holders. If and when the Warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of Common Stock upon exercise of the Warrants is not exempt from registration or qualification under applicable state blue sky laws or it is unable to effect such registration or qualification. The Company will use its best efforts to register or qualify such shares of Common Stock under the blue sky laws of the state of residence in those states in which the Warrants were offered. Redemption of the outstanding Warrants could force you (i) to exercise your Warrants and pay the exercise price therefor at a time when it may be disadvantageous for you to do so, (ii) to sell your Warrants at the then-current market price when you might otherwise wish to hold your Warrants or (iii) to accept the nominal redemption price which, at the time the outstanding Warrants are called for redemption, is likely to be substantially less than the market value of your Warrants. None of the Private Warrants will be redeemable by the Company so long as they are held by the Sponsor, or its permitted transferees.

The NYSE may delist the Company’s securities from trading on its exchange, which could limit stockholders’ ability to make transactions in its securities and subject the Company to additional trading restrictions.

Our Common Stock and Warrants are currently listed on NYSE. We cannot assure you that our securities will continue to be listed on the NYSE. In order to continue listing our securities on the NYSE, the Company will

 

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be required to maintain certain financial, distribution and stock price levels. Generally, the Company will be required to maintain a minimum amount in stockholders’ equity.

If the NYSE delists our securities from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

 

   

a limited availability of market quotations for our securities;

 

   

reduced liquidity for our securities;

 

   

a determination that our Common Stock is a “penny stock” which will require brokers trading in our Common Stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

   

a limited amount of news and analyst coverage; and

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Since the Company’s Common Stock and Warrants are listed on the NYSE, they are covered securities. Although the states are preempted from regulating the sale of its securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if the Company was no longer listed on the NYSE, its securities would not be covered securities and it would be subject to regulation in each state in which it offers its securities.

Future issuances of debt securities and equity securities may adversely affect the Company, including the market price of Common Stock and may be dilutive to existing stockholders.

There is no assurance that the Company will not incur debt or issue equity ranking senior to Common Stock. Those securities will generally have priority upon liquidation. Such securities also may be governed by an indenture or other instrument containing covenants restricting its operating flexibility. Additionally, any convertible or exchangeable securities that the Company issues in the future may have rights, preferences and privileges more favorable than those of Common Stock. Separately, additional financing may not be available on favorable terms, or at all. Because the Company’s decision to issue debt or equity in the future will depend on market conditions and other factors beyond the Company’s control, it cannot predict or estimate the amount, timing, nature or success of the Company’s future capital raising efforts. As a result, future capital raising efforts may reduce the market price of Common Stock and be dilutive to existing stockholders.

The Company does not intend to pay cash dividends for the foreseeable future.

The Company currently intends to retain its future earnings, if any, to finance the further development and expansion of its business and does not intend to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Company’s board of directors and will depend on its financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments, business prospects and such other factors as its board of directors deems relevant.

The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies.

The Company qualifies as an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act. As such, we take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies for as long as we continue to be an emerging growth company, including (i) the exemption from the auditor attestation

 

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requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act, (ii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. As a result, our stockholders may not have access to certain information they deem important. We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year (a) following the fifth anniversary of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of the Common Stock and Warrants that are held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt out is irrevocable. We have elected to avail ourselves of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

We cannot predict if investors will find the Common Stock and Warrants of the Company less attractive because we will rely on these exemptions. If some investors find the Common Stock and Warrants of the Company less attractive as a result, there may be a less active trading market for the Common Stock, and Warrants of the Company and more stock price volatility.

Delaware law and the Company’s certificate of incorporation and bylaws contain certain provisions, including anti-takeover provisions that limit the ability of stockholders to take certain actions and could delay or discourage takeover attempts that stockholders may consider favorable.

The certificate of incorporation, bylaws and the DGCL contain provisions that could have the effect of rendering more difficult, delaying, or preventing an acquisition that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our Common Stock, and therefore depress the trading price of Common Stock. These provisions could also make it difficult for stockholders to take certain actions, including electing directors who are not nominated by the current members of the Company’s board of directors or taking other corporate actions, including effecting changes in our management. Among other things, the certificate of incorporation and bylaws include provisions regarding:

 

   

a classified board of directors with staggered, three-year terms;

 

   

prevent stockholders from acting by written consent;

 

   

limit the ability of stockholders to amend our certificate of incorporation;

 

   

limit the ability of stockholders to remove directors;

 

   

prevent stockholders from calling special meetings of stockholders;

 

   

the ability of the board of directors to issue shares of preferred stock, including “blank check” preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder;

 

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the certificate of incorporation prohibits cumulative voting in the election of directors;

 

   

the limitation of the liability of, and the indemnification of, the Company’s directors and officers;

 

   

the ability of the board of directors to amend the bylaws; and

 

   

advance notice procedures with which stockholders must comply to nominate candidates to the board of directors or to propose matters to be acted upon at a stockholders’ meeting.

These provisions, alone or together, could discourage, delay or prevent hostile takeovers and changes in control, including transactions in which the acquirer may offer a premium price for our Common Stock and Warrants, or changes in the Company’s board of directors or management. See “Description of Securities—Certain Anti-Takeover Provisions of Delaware Law; Certificate of Incorporation and Bylaws.”

In addition, our Incentive Plan provides for accelerated vesting of awards that are assumed or substituted in connection with a change in control of the Company as a result of the change in control if a participant experiences a qualifying termination within two years following the change in control, which could discourage, delay or prevent a merger or acquisition at a premium price.

The provisions of the certificate of incorporation requiring exclusive forum in the Court of Chancery of the State of Delaware for certain types of lawsuits may have the effect of discouraging lawsuits against our directors and officers.

The certificate of incorporation provides that, unless the Company selects or consents in writing to the selection of an alternative forum, to the fullest extent permitted by the applicable law: (a) the sole and exclusive forum for any complaint asserting any internal corporate claims, to the fullest extent permitted by law, and subject to applicable jurisdictional requirements, shall be the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have, or declines to accept, jurisdiction, another state court or a federal court located within the State of Delaware); and (b) the sole and exclusive forum for any complaint asserting a cause of action arising under the Securities Act of 1933, to the fullest extent permitted by law, shall be the federal district courts of the United States of America. For purposes of the foregoing, “internal corporate claims” means claims, including claims in the right of the Company that are based upon a violation of a duty by a current or former director, officer, employee or stockholder in such capacity, or as to which the DGCL confers jurisdiction upon the Court of Chancery. Any person or entity purchasing or otherwise acquiring any interest in any shares of Common Stock will be deemed to have consented to (i) the personal jurisdiction of the state and federal courts located within the State of Delaware in connection with any action brought in any such court to enforce the certificate of incorporation’s exclusive forum provision (an “FSC Enforcement Action”), and (ii) having service of process made upon such holder of Common Stock in any such FSC Enforcement Action by service upon such holder of Common Stock’s counsel in such action as agent for such holder of Common Stock.

These provisions may have the effect of discouraging lawsuits against the Company’s directors and officers. The enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that, in connection with any applicable action brought against the Company, a court could find the choice of forum provisions contained in the certificate of incorporation to be inapplicable or unenforceable in such action.

 

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USE OF PROCEEDS

All of the Common Stock and Warrants offered by the Selling Securityholders pursuant to this prospectus will be sold by the Selling Securityholders for their respective accounts. The Company will not receive any of the proceeds from these sales.

The Company will receive up to an aggregate of approximately $72.8 million from the exercise of the Warrants offered by the Selling Securityholders pursuant to this prospectus, assuming the exercise in full of all of the Warrants for cash. Unless we inform you otherwise in a prospectus supplement or free writing prospectus, the Company intends to use the net proceeds from the exercise of such Warrants for general corporate purposes, which may include acquisitions or other strategic investments or repayment of outstanding indebtedness. The Company will have broad discretion over the use of proceeds from the exercise of the Warrants. There is no assurance that the holders of the Warrants will elect to exercise any or all of such Warrants.

The Selling Securityholders will pay any underwriting discounts and commissions and expenses incurred by the Selling Securityholders for brokerage, accounting, tax or legal services or any other expenses incurred by the Selling Securityholders in disposing of the securities. We will bear the costs, fees and expenses incurred in effecting the registration of the securities covered by this prospectus, including all registration and filing fees, NYSE listing fees and fees and expenses of our counsel and our independent registered public accounting firm.

 

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DIVIDEND POLICY

The Company has not paid any cash dividends on its Common Stock or the Warrants to date. The board of directors may from time to time consider whether or not to institute a dividend policy. The payment of cash dividends in the future will be dependent upon the Company’s revenues and earnings, if any, capital requirements and general financial condition. The payment of any cash dividends will be within the discretion of the board of directors. The Company’s ability to declare dividends will also be limited by restrictive covenants pursuant to any debt financing.

 

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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following unaudited pro forma condensed combined balance sheet as of March 31, 2021 and the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 present the combination of the financial information of Empower and Holley after giving effect to the Business Combination, the PIPE Financing, the A&R FPA, and the Debt Paydown, and have been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses”.

The unaudited pro forma condensed combined balance sheet as of March 31, 2021 combines the unaudited historical condensed balance sheet of Empower as of March 31, 2021 with the unaudited historical condensed consolidated balance sheets of Holley as of March 28, 2021 giving effect to the Business Combination, the PIPE Financing, the A&R FPA, and the Debt Paydown described in the accompanying notes, on a pro forma basis as if each had been completed as of March 31, 2021.

The unaudited pro forma condensed consolidated statement of operations for the three months ended March 31, 2021 and the year ended December 31, 2020 combines the unaudited historical condensed statement of operations of Empower for the three months ended March 31, 2021 and the period from August 19, 2020 (inception) through December 31, 2020 with the unaudited historical condensed consolidated statements of comprehensive income (loss) of Holley for the 13 weeks ended March 28, 2021 and the year ended December 31, 2020 on a pro forma basis giving effect to the Business Combination, the PIPE Financing, the A&R FPA, and the Debt Paydown described in the accompanying notes, on a pro forma basis as if each had been completed on January 1, 2020.

The unaudited pro forma condensed combined financial statements do not give effect to the potential impact of any integration costs, tax deductibility of transaction costs, or anticipated synergies in the pre-acquisition period of entities acquired by Holley. These synergies are effective starting on the date of each acquisition and therefore, are not fully captured in the results for the three months ended March 31, 2021 and the year ended December 31, 2020.

The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what the Company’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of operations of the Company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.

The unaudited pro forma condensed combined financial information is based on and should be read in conjunction with the unaudited historical condensed financial statements of each of Empower and Holley and the notes thereto, as well as the disclosures contained in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

On March 11, 2021, Empower entered into the Merger Agreement with Merger Sub I, Merger Sub II and Holley Intermediate, pursuant to which, among other things, following the Domestication, (i) Merger Sub I, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Holley Intermediate surviving such merger as a wholly owned subsidiary of Holley and (ii) Merger Sub II, a direct wholly owned subsidiary of Empower, merged with and into Holley Intermediate, with Merger Sub II surviving such merger as a wholly owned subsidiary of Holley.

 

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The Business Combination will be accounted for as a reverse recapitalization in accordance with GAAP. Under this method of accounting, Empower has been treated as the “acquired” company for financial reporting purposes. This determination was primarily based on current shareholders of Holley having a relative majority of the voting power of the Company, the operations of Holley prior to the acquisition comprising the only ongoing operations of the Company, and senior management of Holley comprising the majority of the senior management of the Company. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Holley with the acquisition being treated as the equivalent of Holley issuing stock for the net assets of Empower, accompanied by a recapitalization. The net assets of Empower have been stated at historical cost, with no goodwill or other intangible assets recorded.

In connection with the execution of the Merger Agreement, Empower entered into the PIPE Subscription Agreements with the PIPE Investors to sell an additional 24,000,000 shares of Common Stock (at a price of $10.00 per share) at Closing, for a total aggregate purchase price of up to $240.0 million. Per the Merger Agreement, $100.0 million of the PIPE Financing proceeds were used for the Debt Paydown.

Pursuant to the A&R FPA, Empower entered into an agreement to issue 5,000,000 Empower Units to the A&R FPA Investor, which was subsequently assigned to the New FPA Purchasers, and consummated concurrently with the Closing, for total proceeds of $50.0 million.

 

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Unaudited Pro forma Condensed Combined Balance Sheet

As of March 31, 2021

(in USD thousands)

 

    Empower
(Historical)
    Holley
(Historical)
    Pro Forma
Transaction
Accounting
Adjustments
    Financing
Transaction
Accounting
Adjustments
    Pro Forma
Adjustments
for A&R
FPA
    Pro Forma
Consolidated
    Note  

Assets

             

Cash and cash equivalents

  $ 1,027     $ 87,462     $ (154,306   $ 133,012     $ 50,000     $ 117,195       a  

Accounts receivable, less allowance for credit losses

    —         55,285       —         —         —         55,285    

Inventory

    —         126,194       —         —         —         126,194    

Prepaids and other current assets

    320       6,891       —         —         —         7,211    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total current assets

    1,347       275,832       (154,306     133,012       50,000       305,885    

Property, plant and equipment, net

    —         44,581       —         —         —         44,581    

Goodwill

    —         359,099       —         —         —         359,099    

Cash and marketable securities held in Trust Account

    250,109       —         (250,109     —         —         —         a  

Other intangible assets, net

    —         401,186       —         —         —         401,186    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total assets

    251,456       1,080,698       (404,415     133,012       50,000       1,110,751    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Liabilities and stockholders’ equity

             

Accounts payable

    —         36,107       —         —         —         36,107    

Accrued interest

    —         6,164       —         —         —         6,164    

Accrued liabilities

    —         26,003       —         —         —         26,003    

Acquisition contingent consideration payable

    —         24,373       —         —         —         24,373    

Other Accrued expenses

    2,998       —         (2,998     —         —         —         a  

Current portion of long-term debt

    —         5,528         —         —         5,528    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total current liabilities

    2,998       98,175       (2,998     —         —         98,175    

Warrant liability

    15,527       —         —         —         1,967       17,494       a  

A&R FPA liability

    1,750       —         —         —         (1,750     —         a  

Earn-out liability

    —         —         19,009       —         —         19,009       b  

Deferred underwriting fee payable

    8,750       —         (8,750     —         —         —         a  

Long-term debt, net of current portion

    —         650,123       —         (100,000     —         550,123       c  

Long-term debt due to related party

    —         20,000       —         —         —         20,000    

Deferred taxes

    —         71,814       —         —         —         71,814    

Other noncurrent liabilities

    —         2,146       —         —         —         2,146    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total liabilities

    29,025       842,258       7,261       (100,000     217       778,761    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Ordinary shares subject to possible redemption

    217,431       —         (217,431     —         —         —         d  

Shareholders’ Equity

             

Class A ordinary shares

    —         —         82       22       5       109       d  

Class B ordinary shares

    1       —         (1     —         —         —         d  

Common stock

    —         —         —         —         —         —      

Additional paid-in capital

    12,460       239,021       (182,778     232,990       49,778       351,471       d  

Accumulated other comprehensive loss

    —         (690     —         —         —         (690  

Retained earnings (accumulated deficit)

    (7,461     109       (11,548     —           (18,900     d  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total stockholders’ equity

    5,000       238,440       (194,245     233,012       49,783       331,990    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total liabilities and stockholders’ equity

  $ 251,456     $ 1,080,698     $ (404,415   $ 133,012     $ 50,000     $ 1,110,751    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

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Unaudited Pro forma Condensed Combined Statement of Comprehensive Loss

For the three months ended March 31, 2021

(in USD thousands, except share and per share amounts)

 

    Empower
(Historical)
    Holley
(Historical)
    Pro Forma
Transaction
Accounting
Adjustments
    Financing
Transaction
Accounting
Adjustments
    Pro Forma
Adjustments
For A&R
FPA
    Pro Forma
Consolidated
    Note  

Revenue

    —         160,332       —         —         —         160,332    

Cost of goods sold

    —         94,653       —         —         —         94,653    

Operating Expenses

      —         —         —         —         —      

Selling, general and administrative

    —         24,012       —         —         —         24,012    

Research and development costs

    —         5,969       —         —         —         5,969    

Formation and operational costs

    2,937       —         —         —         —         2,937    

Amortization of intangibles

    —         3,336       —         —         —         3,336    

Acquisition, restructuring and management fee costs

    —         18,833       —         —         —         18,833    

Related party acquisition and management fee costs

    —         881       —         —         —         881    

Other income

    —         (133     —         —         —         (133  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

    2,937       52,898       —         —         —         55,835    

Income (loss) before interest expense and income taxes

    (2,937     12,781       —         —         —         9,844    

Interest expense

    —         10,071       —         (2,101     —         7,970       AA  

Interest income

    52       —         (52     —         —         —         AB  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes

    (2,885     2,710       (52     2,101       —         1,874    

Unrealized gain (loss) on other marketable securities

    4       —         —         —         —         4    

Change in fair value of warrant liability

    (437     —         —         —         —         (437  

Change in fair value of forward purchase agreement liability

    300       —         —         —         (300     —         AC  

Transaction costs

    —         —         —         —         —         —      

Income tax expense (benefit)

    —         4,766       —         530       —         5,296       AD  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net loss

    (3,018     (2,056     (52     1,571       (300     (3,855  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Comprehensive loss:

    —         —               —      

Foreign currency translation adjustment

    —         (16     —         —         —         (16  

Pension liability loss

    —         —         —         —         —         —      
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total comprehensive loss

    (3,018     (2,072     (52     1,571       (300     (3,871  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Weighted average shares outstanding, basic and diluted

    9,209,782               115,805,639    

Basic and diluted net income per share

    (0.33             (0.03  

 

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Index to Financial Statements

Unaudited Pro forma Condensed Combined Statement of Comprehensive Income (Loss)

For the year ended December 31, 2020

(in USD thousands, except share and per share amounts)

 

    Empower
(Historical)
    Holley
(Historical)
    Pro Forma
Transaction
Accounting
Adjustments
    Financing
Transaction
Accounting
Adjustments
    Pro Forma
Adjustments
for A&R
FPA
    Pro Forma
Consolidated
    Note  

Revenue

    —         504,179       —         —         —         504,179    

Cost of goods sold

    —         295,935       —         —         —         295,935    

Operating Expenses

      —         —         —         —         —      

Selling, general and administrative

    —         70,875       —         —         —         70,875    

Research and development costs

    —         23,483       —         —         —         23,483    

Formation and operational costs

    274       —         —         —         —         274    

Amortization of intangibles

    —         11,082       —         —         —         11,082    

Acquisition, restructuring and management fee costs

    —         9,743       —         —         —         9,743    

Related party acquisition and management fee costs

    —         6,089       —         —         —         6,089    

Other income

    —         1,517       —         —         —         1,517    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total operating expenses

    274       122,789       —         —         —         123,063    

Income (loss) before interest expense and income taxes

    (274     85,455       —         —         —         85,181    

Interest expense

    —         43,772       —         (9,513     —         34,259       AA  

Interest income

    49       —         (49     —         —         —         AB  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Income (loss) before income taxes

    (225     41,683       (49     9,513       —         50,922    

Unrealized gain (loss) on other marketable securities

    4       —         —         —         —         4    

Change in fair value of warrant liability

    (1,690     —         —         —         —         (1,690  

Change in fair value of purchase agreement liability

    (2,050     —         —         —         2,050       —         AC  

Transaction costs

    (483     —         —         —         —         (483  

Income tax expense (benefit)

    —         8,826       —         2,399       —         11,225       AD  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net income (loss)

    (4,444     32,857       (49     7,114       2,050       37,528    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Comprehensive income (loss):

    —         —               —      

translation adjustment

    —         16       —         —         —         16    

Pension liability loss

    —         (293     —         —         —         (293  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total comprehensive income (loss)

    (4,444     32,580       (49     7,114       2,050       37,251    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Weighted average shares outstanding, basic and diluted

    7,850,413               115,805,639    

Basic and diluted net income per share

    (0.58             0.32    

 

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Index to Financial Statements

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

Note 1 — Basis of Presentation

The pro forma adjustments have been prepared as if the Business Combination had been consummated on March 31, 2021 in the case of the unaudited pro forma condensed combined balance sheet and on January 1, 2020, the beginning of the earliest period presented in the unaudited pro forma condensed combined statement of operations.

The unaudited pro forma condensed combined financial information has been prepared assuming the following methods of accounting in accordance with GAAP.

The pro forma adjustments reflecting the completion of the Business Combination, the PIPE Financing, and the transactions contemplated by the A&R FPA are based on currently available information and assumptions and methodologies that management believes are reasonable under the circumstances. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments and it is possible the difference may be material. The assumptions and methodologies provide a reasonable basis for presenting all of the significant effects of the Business Combination and related transactions based on information available to management at the current time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the unaudited pro forma condensed combined financial information.

Notwithstanding the legal form of the Business Combination pursuant to the Merger Agreement, the Business Combination will be accounted for as a reverse capitalization, with no goodwill or other intangible assets recorded, in accordance with GAAP. Under this method of accounting, Empower is treated as the “acquired” company for financial reporting purposes. The net assets of Empower are stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination are those of Holley.

The Business Combination will be accounted for as a reverse recapitalization because Holley has been determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”). The determination is primarily based on the evaluation of the following facts and circumstances taking into consideration both the no redemption and maximum redemption scenario:

 

   

The pre-merger equity holders of Holley hold the majority of voting rights in the Company;

 

   

The pre-merger equity holders of Holley have the right to appoint the majority of members of the Company’s board of directors;

 

   

Senior management of Holley comprise the senior management of the Company; and

 

   

Operations of Holley comprise the ongoing operations of the Company.

Accordingly, for accounting purposes, the Business Combination will be treated as the equivalent of Holley issuing stock for the net assets of Empower, accompanied by a recapitalization.

Following the closing of the Business Combination, holders of Empower Class A Shares that exercised their redemption rights received their per share redemption price out of the funds in the trust account. Each holder of Empower Class A Shares was able to elect to redeem all or a portion of its Empower Class A Shares at a per-share price, payable in cash, equal to a pro rata share of the aggregate amount on deposit in the trust account (including any interest earned on the funds held in the trust account).

 

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The 2,187,500 Earn-Out Shares issued to Sponsor at Closing are carried as a liability on the pro forma balance sheet. The Earn-Out shares do not have an income statement impact as the fair value of the Earn-Out liability has not materially changed. Please see the section entitled “Certain Relationships and Related Party Transactions — Empower — Founder Shares” for additional information on vesting and forfeiture of the Earn-Out Shares.

Note 2 — Description of the Business Combination

On March 11, 2021, Empower entered into the Merger Agreement with Merger Sub I, Merger Sub II and Holley, pursuant to which, among other things, following the Domestication, (i) Merger Sub I merged with and into Holley Intermediate, the separate corporate existence of Merger Sub I ceased and Holley Intermediate became the surviving corporation and a wholly owned subsidiary of Empower, and (ii) Holley Intermediate merged with and into Merger Sub II, the separate corporate existence of Holley Intermediate ceased and Merger Sub II became the surviving limited liability company and a wholly owned subsidiary of Empower.

At the Closing, Empower ceased to exist, and the Company will operate under the name “Holley Inc.”.

As a result of and upon the Closing, among other things, all outstanding shares of Holley common stock as of immediately prior to the effective time of Merger I were cancelled in exchange for the right to receive an aggregate of $264.7 million in cash (subject to adjustment) and 67,673,884 shares (subject to adjustment) of Common Stock (at a deemed value of $10.00 per share). Cash consideration was reduced by COVID-19 related deferral taxes and accrued and unpaid income tax liabilities for any tax period prior to closing (but giving effect to certain transaction tax deductions and prepayments not less than zero). Because redemptions of Empower Class A Shares resulted in the trust account having an amount less than $540 million at the Closing (after giving effect to proceeds received from the PIPE Financing and A&R FPA, but before payment of the unpaid transaction expenses of the parties), (i) cash consideration was proportionally reduced by the shortfall of $99.4 million and (ii) securities consideration was proportionally increased at a price of $10.00 per share of Common Stock.

An additional 24,000,000 shares of Common Stock were purchased (at a price of $10.00 per share) at the Closing by the PIPE Investors, for a total aggregate purchase price of $240.0 million. Per the Merger Agreement, $100.0 million of the PIPE Financing proceeds were used to partially pay off Holley’s debt.

Pursuant to the A&R FPA, Empower issued 5,000,000 Empower Units to the New FPA Purchasers, concurrently with the Closing, for total proceeds for $50.0 million.

Pursuant to the governing documents of Empower, holders of Empower Class A Shares were offered the opportunity to redeem, upon the closing of the Business Combination, all or a portion of such holder’s Empower Class A Shares then held by them for cash equal to their pro rata share of the aggregate amount on deposit in the trust account (as of two business days prior to the Closing).

Subject to the terms and conditions set forth in the Merger Agreement, the Holley Stockholder received aggregate consideration with a value equal to $1,155,000,000, which consists of (a) $264,717,627 of cash consideration and (b) $676,738,839 in shares of Common Stock based on an assumed price of $10.00 per share. This consideration was determined given (i) the trust account value at redemption of $250,113,825, (ii) the per share redemption amount is equal to approximately $10.005, (iii) that 9,930,745 Empower Class A Shares were redeemed for an aggregate payment of approximately $99.4 million from the trust account, and (iv) there is an upward adjustment to the securities consideration issued to the Holley Stockholder pursuant to the Merger Agreement.

 

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Index to Financial Statements

The following table summarizes the pro forma Common Stock issued and outstanding immediately after the Closing, excluding the potential dilutive effect of the exercise of the Warrants and Earn-Out Shares.

 

     Shares          %  

Empower public shareholders

     15,069,255        13.01

Holley Stockholder

     67,673,884        58.44

Sponsor and related parties

     9,062,500        7.83

PIPE Investors

     24,000,000        20.72

Closing Shares

     115,805,639        100.00

Note 3 — Pro Forma Adjustments

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheets

The adjustments included in the unaudited pro forma condensed combined balance sheet as of March 31, 2021 are as follows:

a. Cash. Represents the impact of the Business Combination on the cash balance of Holley. The table below represents the sources and uses of funds related to the Business Combination:

 

     Note         

Cash balance of Empower prior to the Business Combination

      $ 1,027  

Cash balance of Holley prior to the Business Combination

        87,462  

Total Pre-adjustment cash balance

        88,489  

Proceeds from cash held in Trust Account

     1        250,114  

PIPE proceeds

     2        240,000  

A&R FPA proceeds

     3        50,000  

Payment to redeeming Empower stockholders

     4        (99,353

Payment to the Sellers

     5        (264,718

Payment of accrued expenses

     6        (2,998

Payment of deferred offering costs

     7        (8,750

Payment of transaction costs

     7        (35,589

Debt paydown from PIPE proceeds

     8        (100,000
     

 

 

 

Adjustment to cash in connection with the Business Combination

        28,706  

Ending cash and restricted cash balance

     9        117,195  

 

  (1)

Represents the amount of the restricted investments and cash held in the trust account upon consummation of the Business Combination.

 

  (2)

Represents the issuance, pursuant to the PIPE Financing consummated concurrently with the Closing, to the PIPE Investors of 24.0 million shares of Common Stock at a price of $10 per share.

 

  (3)

Represents the issuance of 5,000,000 Empower Units under the A&R FPA to the New FPA Purchasers, consummated concurrently with the Closing.

 

  (4)

Represents the amount paid to Empower shareholders who exercised their redemption rights.

 

  (5)

Represents the amount of cash paid to the existing equity holders of the Holley Stockholder upon the consummation of the Business Combination.

 

  (6)

Represents payment of Empower’s accrued expenses.

 

  (7)

Reflects the settlement of $35.6 million of transaction costs and $8.8 million of Empower’s deferred underwriting fees at close in connection with the Business Combination. The $35.6 million of transaction fees relates to advisory, legal, accounting, printing and other fees to be incurred, including $7.0 million of PIPE Financing expenses.

 

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Index to Financial Statements
  (8)

Reflects Debt Repayment of Holley’s debt with net cash proceeds from the PIPE Financing in an aggregate principal amount of $100.0 million. See Note 3(b) below.

 

  (9)

Amount excludes the impact of Holley’s second quarter acquisition of AEM Performance Inc., which occurred on April 14, 2021. The purchase price was approximately $52 million and was funded by Holley using cash on hand. See “Note 14 (Subsequent Events)” to Holley’s unaudited condensed consolidated financial statements, which are incorporated by reference into the Form 8-K to which this Unaudited Pro Forma Condensed Combined Financial Information is attached.

b. Earn-Out Liability. Represents recognition of earn-out related to 2,187,500 shares of Common Stock as required under terms of the Merger Agreement. The earn-out is classified as a liability in the unaudited pro forma condensed combined balance sheet and becomes issuable upon achieving certain market share price milestones as outlined in the Merger Agreement during the earn-out period. The earn-out liability was recognized at its estimated fair value of $19,009,375 as of March 31, 2021. This liability will be remeasured to its fair value at the end of each reporting period, and subsequent changes in the fair value post-Business Combination will be recognized in the Company’s statement of operations within other income/expense.

c. Debt. Represents the impact of the Business Combination on the debt balance, specifically in respect of the net cash proceeds from the PIPE Financing in an aggregate principal amount of $100.0 million, (as also indicated above per Pro Forma adjustment (a)(8)). The following table represents the impact of the Debt Paydown by Empower shareholders:

 

Debt paydown from PIPE proceeds

   $ 100,000  

Allocated to:

  

Long-term debt, net of current portion and deferred loan costs

   $ 100,000  

 

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Index to Financial Statements

d. Equity

The following table represents the impact of the Business Combination on total equity section:

 

          Common Stock     Common
Stock
    Additional
Paid in
Capital
    Accumulated
Other
Comprehensive
Loss
    Retained
Earnings
Accumulated
Deficit
 
          Number of Shares     Par Value  
    Note     Class A
Stock
    Class B
Stock
    Class A
Stock
    Class B
Stock
 

Pre Business Combination — Empower

      3,266,381       6,250,000       —         1       —         12,460       —         (7,461

Pre Business Combination — Holley

      —         —         —         —         —         239,021       (690     109  

Founder Shares

    1       4,062,500       (6,250,000     —         (1     —         —         —         —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balances after share transaction of the Company

      7,328,881       —         —         —         —         251,481       (690     (7,352
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Reclassification of redeemable shares to Class A shares

    2       21,733,619       —         22       —         —         226,130       —         —    

Less: Redemption of redeemable stock

    10       (9,930,745     —         (10     —         —         (99,307     —         —    

Cash to the Holley Stockholder at Business Combination

    3       —         —         —         —         —         (264,718     —         —    

Shares issued to Holley Stockholder as consideration

    4       67,673,884       —         68       —         —         (68     —         —    

PIPE Financing Proceeds

    5       24,000,000       —         24       —         —         232,987       —         —    

Forward purchase agreement proceeds

    6       5,000,000       —         5       —         —         49,778       —         —    

Earn-out liability

    7       —         —         —         —         —         —         —         (19,009

Holley transaction costs

    8       —         —         —         —         —         (27,965     —         —    

Empower transaction costs

    8       —         —         —         —         —         (9,386     —         —    

Elimination of historical accumulated deficit of Empower

    9       —         —         —         —         —         (7,461     —         7,461  

Elimination of historical common stock of Holley

      —         —         —         —         —         —           —    
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Post-Business Combination

      115,805,639       —         109       —         —         351,471       (690     (18,900
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(1) Represents the automatic conversion of Founder Shares into Common Stock at Closing; 2,187,500 shares of Common Stock classified as Earn-Out Shares will be restricted from transfer at Closing subject to vesting and forfeiture.

(2) Represents redeemable shares of Empower Pre-Business Combination, which became permanent equity of the Company at Closing.

(3) Represents Cash consideration received by the Holley Stockholder at Closing subject to the terms and conditions set forth in the Merger Agreement.

(4) Represents shares of Common Stock that were issued to the Holley Stockholder at Closing subject to the terms and conditions set forth in the Merger Agreement; 67,673,884 shares of Common Stock were issued to the Holley Stockholder.

(5) Represents the issuance, in a PIPE Financing consummated concurrently with the Closing, to the PIPE Investors of 24,000,000 shares of Common Stock at a price of $10 per share.

(6) Represents the issuance of 5,000,000 Empower Units under the A&R FPA to the New FPA Purchasers, consummated concurrently with the Closing.

 

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Index to Financial Statements

(7) Represents recognition of the earn-out liability under the terms of the Merger Agreement.

(8) Represents capitalized expenses related to the Business Combination as a reduction to equity proceeds.

(9) Represents the equity reclassification of the historical accumulated deficit of Empower to the combined additional paid in capital of the Company.

(10) Represents the amount paid to and the Empower Class A Shares redeemed by Empower public shareholders who exercised their redemption rights.

Adjustments to Unaudited Pro Forma Condensed Combined Statements of Operations

The adjustments included in the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2021 and twelve months ended December 31, 2020 are as follows:

(AA) Represents the estimated changes in historical interest expense following the partial repayment of the existing debt in the amount of $100.0 million in connection with the Business Combination. The impact of the partial repayment was calculated as follows for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.

 

Period

   Amount      Rate     Interest  

1/1/2021 to 2/26/2021

   $ 100,000        8.73   $ 1,383  

2/27/2021 to 3/28/2021

     100,000        8.61     718  
  

 

 

    

 

 

   

 

 

 

Total

        $ 2,101  
       

 

 

 

 

Period

   Amount      Rate     Interest  

1/1/2020 to 2/28/2020

   $ 100,000        10.41   $ 1,706  

3/1/2020 to 5/29/2020

     100,000        10.11     2,528  

5/30/2020 to 8/28/2020

     100,000        8.86     2,240  

8/28/2020 to 11/30/2020

     100,000        8.76     2,287  

12/1/2020 to 12/31/2020

     100,000        8.73     752  
       

 

 

 

Total

        $ 9,513  
       

 

 

 

(AB) Represents elimination of investment income and unrealized loss on marketable securities related to the investment held in the trust account.

(AC) Represents the elimination of the loss on Empower’s forward purchase agreement liability whereby New FPA Purchasers purchased, on a private placement basis, an aggregate of 5,000,000 Empower Units, consisting of one share of Common Stock and one-third of one Public Warrant at the Closing of the Business Combination.

(AD) Represents the income tax expense resulting from the pro forma adjustment on interest expense. The impact on the income tax expense due to the partial debt repayment was calculated as follows for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively:

 

Adjustment

   Amount      Tax Rate     Tax Benefit  

Partial debt paydown

   $ 2,101        25.22   $ 530  

Adjustment

   Amount      Tax Rate     Tax Benefit  

Partial debt paydown

   $ 9,513        25.22   $ 2,399  

 

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The estimated tax impacts of the pro forma adjustments have been reflected in Income tax expense (benefit) in the unaudited pro forma condensed combined statement of comprehensive income (loss) for the year ended December 31, 2020 and for the three months ended March 31, 2021, by using a tax rate which was determined using the weighted average statutory tax rate of the jurisdictions expected to be impacted. The total effective tax rate of the Company could be significantly different depending on the post-acquisition geographical mix of income and other factors. Because the tax rate used for these pro forma condensed combined financial statements is an estimate, it will likely vary from the actual rate in periods subsequent to the completion of the Business Combination and those differences may be material.

4. Net Income (Loss) per Share

Represents the net income (loss) per share calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination and other related events, assuming such additional shares were outstanding since January 1, 2020. As the Business Combination is being reflected as if it had occurred as of January 1, 2020, the calculation of weighted average shares outstanding for basic and diluted net income (loss) per share assumes the shares issued in connection with the Business Combination have been outstanding for the entire periods presented.

 

     Three months ended
March 31, 2021
 

Numerator

  

Pro forma total comprehensive loss

   $ (3,871

Denominator

  

Empower shareholders

     15,069,255  

Sellers

     67,673,884  

Sponsor and related parties

     9,062,500  

PIPE Investors

     24,000,000  

Basic and diluted weighted average shares outstanding

     115,805,639  

Loss per share — basic and diluted

   $ (0.03
  

 

 

 

 

     Year ended
December 31, 2020
 

Numerator

  

Pro forma total comprehensive income

   $ 37,251  

Denominator

  

Empower shareholders

     15,069,255  

Sellers

     67,673,884  

Sponsor and related parties

     9,062,500  

PIPE Investors

     24,000,000  

Basic and diluted weighted average shares outstanding

     115,805,639  

Earnings per share — basic and diluted

   $ 0.32  
  

 

 

 

Pursuant to the Sponsor Agreement, 2,187,500 Earn-Out Shares vest in two equal tranches; 1,093,750 of the Earn-Out Shares will vest the earlier of the date (x) the closing price of the Common Stock equals or exceeds $13.00 per share for any twenty (20) trading days within any thirty-trading day period or (y) Holley completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of Holley’s stockholders having the right to exchange their Common Stock at a price per share equal to or exceeding $13.00 per share. The other 1,093,750 of Earn-Out Shares will be subject to the same conditions but will vest at a target price that equals or exceeds $15.00 per share.

The additional 2,187,500 Earn-Out Shares are not included in the computation of diluted earnings per share as the share price as of the closing of the Business Combination is less than $13.00 per share.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context requires otherwise, references to “Holley,” “we,” “us,” “our” and “the Company” in this section are to the business and operations of Holley and its consolidated subsidiaries, including those periods prior to the Business Combination. The following discussion and analysis should be read in conjunction with Holley’s consolidated financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties, and assumptions that could cause Holley’s actual results to differ materially from management’s expectations. Factors which could cause such differences are discussed in herein and in “Risk Factors.” See “Cautionary Note Regarding Forward-Looking Statements.”

Certain figures, such as interest rates and other percentages, included in this section have been rounded for ease of presentation. Percentage figures included in this section have not in all cases been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this section may vary slightly from those obtained by performing the same calculations using the figures in Holley’s financial statements or in the associated text. Certain other amounts that appear in this section may similarly not sum due to rounding.

Overview

We are a designer, marketer, and manufacturer of high performance automotive aftermarket products serving car and truck enthusiasts, with sales, processing, and distribution facilities reaching most major markets in the United States, Canada, Europe and China. Holley designs, markets, manufactures and distributes a diversified line of performance automotive products including fuel injection systems, tuners, exhaust products, carburetors, safety equipment and various other performance automotive products. The Company’s products are designed to enhance street, off-road, recreational and competitive vehicle performance and safety.

Innovation is at the core of our business and growth strategy. Approximately 40%, 40% and 36%, of our annual sales for fiscal 2020, 2019 and 2018, respectively, were generated by products that we first introduced in just the last five years. We have a history of developing innovative products, including new products in existing product families, product line expansions, and accessories, as well as products that bring us into new categories. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs.

In addition, we have historically used strategic acquisitions to (i) expand our brand portfolio, (ii) enter new product categories and consumer segments, (iii) increase direct-to-consumer (“DTC”) scale and connection, (iv) expand share in current product categories and (v) realize value-enhancing revenue and cost synergies. While we believe our business is positioned for continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions that would complement our current business and expand our addressable target market. Between 2014 and the end of 2020 we completed eight acquisitions, which have generated $35 million of cost saving synergies through reductions in product cost, elimination of headcount, facility costs and other SG&A expenses.

Factors Affecting our Performance

We believe that our performance and future success depend on a number of factors that present significant opportunities for us but also pose risks and challenges, including those discussed below and in the section of this prospectus titled “Risk Factors.”

Business Combination

On March 11, 2021, Holley’s predecessor entered into the Merger Agreement with Empower, pursuant to which the parties underwent a series of transactions. The Business Combination closed on July 16, 2021. The

 

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Business Combination was accounted for as a reverse recapitalization. Holley’s predecessor was deemed the accounting acquirer and Holley is the successor registrant, meaning that the financial statements of Holley’s predecessor for previous periods will be disclosed in its future periodic reports filed with the SEC. Under this method of accounting, Empower is treated as the acquired company for financial statement reporting purposes. The most significant change in Holley’s reported financial position and results are a net decrease in cash (as compared to Holley’s Consolidated Balance Sheet at December 31, 2020) of approximately $700,000, after giving effect to the transactions contemplated by the Business Combination, including $240.0 million in gross proceeds from the PIPE Financing and $50 million in gross proceeds from the A&R FPA. Total transaction costs were approximately $44.3 million.

As a result of the Business Combination, Holley listed on the NYSE, which required Holley to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. Holley expects to incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees, and additional internal and external accounting, legal, and administrative resources, including increased personnel costs, audit and other professional service fees.

Acquisitions

Holley has historically pursued a growth strategy through both organic growth and acquisitions. The Company has pursued acquisitions that it believes will help drive profitability, cash flow and stockholder value. Holley targets companies that are market leaders, expand the Company’s geographic presence, provide a highly synergistic opportunity and enhance Holley’s ability to provide a wide array of its products to its customers through its distribution network.

The most significant of these acquisitions impacting the comparability of our operating results were:

 

   

Drake Automotive Group: On November 11, 2020, Holley acquired Drake, a designer and seller of automotive aftermarket appearance parts, wheels, chassis & suspension products and accessories. This acquisition increases Holley’s penetration within the Ford/ Mustang platform where it has historically been under indexed relative to the market.

 

   

Simpson: On November 16, 2020, Holley acquired Simpson, a designer and seller of motorsport safety products including helmets head & neck restraints, seat belts, firesuits and more. This acquisition extended Holley’s footprint into the safety and racing segment.

 

   

HPI: On October 26, 2018, the Holley Stockholder acquired High Performance Industries, Inc. (“HPI”) and Driven Performance Brands Inc. (“Driven”), each a designer, manufacturer, and distributor of performance automotive products. The business combination of HPI and Driven under the Holley Stockholder was transacted in order to acquire strong automotive brands in the carburetor, fuel injection, exhaust, automotive plumbing, distributor, ignition, and tuning markets.

The acquisitions have all been accounted for in accordance with FASB ASC Topic 805, Business Combinations, and the operations of the acquired entities are included in our historical results for the periods following the closing of the acquisition. See Note 2, “Summary of Significant Accounting Policies,” and Note 3, “Acquisition,” in the consolidated financial statements included in this prospectus for additional information related to the Company’s acquisitions and investments.

Seasonality

Holley’s operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond the Company’s

control. Due to these factors and others, which may be unknown to the Company at this time, operating results in future periods can be expected to fluctuate. Accordingly, the Company’s historical results of operations may not be indicative of future performance.

 

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Geopolitical

Geopolitical factors could adversely impact the U.S. and other economies, with specific impacts felt by the automotive sector. In particular, changes to international trade agreements, such as the United States-Mexico- Canada Agreement or other political pressures could affect the operations of the Company’s customers, resulting in reduced automotive production in certain regions or shifts in the mix of production to higher cost regions.

Competition

The performance automotive industry is highly competitive. The principal factors on which industry participants compete include technical features, performance, product design, innovation, reliability and durability, brand, time to market, customer service, reliable order execution, and price. Existing competitors may expand their product offerings and sales strategies, and new competitors may enter the market. If Holley’s market share decreases due to increased competition, its revenue and ability to generate profits in the future may be impacted.

Regulatory Environment

Holley is subject to federal, state and local regulations including consumer laws and regulations, tax laws and regulations, and engineering and environmental laws and regulations. Holley’s current business plan assumes no material change in these laws and regulations. In the event any such change occurs, compliance with new laws and regulations might significantly affect Holley’s operations and cost of doing business.

COVID-19 Outbreak

The COVID-19 pandemic has resulted and is expected to continue to result in significant economic disruption. Since COVID-19 was declared a pandemic, international, federal and state orders shutting down or restricting business operations to contain the spread of COVID-19 have generally exempted automotive repair and the related supply and distribution of parts as those businesses have generally been classified as critical, essential or life-sustaining. Therefore, the vast majority of Holley’s retail and wholesale customers have been and currently remain open for business. In turn, all of the Company’s facilities have also remained, and currently remain, open and operating, with modified staffing in certain locations where appropriate. Holley has taken actions to promote the welfare of its employees by enhancing safety protocols, including requiring administrative employees to work from home where applicable and implementing social distancing and robust sanitization practices at its facilities. The Company also has adopted a COVID-19 sick leave policy providing continued salary and benefits to eligible employees.

Holley initially experienced softening customer demand as a result of these government-imposed restrictions. While customer orders temporarily dropped in the last two weeks of March 2020 and first two weeks of April 2020 due to government-imposed restrictions, the Company saw a rapid recovery as the second quarter progressed with orders up significantly above prior year. Holley continued to see an increase in orders in the third and fourth quarters of 2020, where sales performance reached a record high for the Company. However, as government-imposed restrictions vary globally and continue to change, it remains difficult to determine the full impact that the pandemic will have on the overall demand environment or on national and international economic and financial markets. Correspondingly, to the extent there may be fluctuations in demand as a result of the pandemic, it remains difficult to determine the full impact that the pandemic will have on various aspects of Holley’s operations, including, but not limited to, inventory levels, the ability to fulfill contractual requirements and staffing at Holley facilities.

Significant uncertainty still exists concerning the overall magnitude of the impact and the duration of the COVID-19 pandemic. As a result, the Company will continue to closely monitor updates regarding the spread of COVID-19 and adjust its operations according to guidelines from local, state and federal officials.

 

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Key Components of Results of Operations

Net Sales

The principal activity from which the Company generates its sales is the designing, marketing, manufacturing and distribution of performance after-market automotive parts for its end consumers. Sales are displayed net of rebates and sales returns allowances. Sales returns are recorded as a charge against gross sales in the period in which the related sales are recognized.

Cost of Goods Sold

Cost of goods sold consists primarily of the cost of purchased parts and manufactured products, including materials and direct labor costs. In addition, warranty, shipping and handling and inspection and repair costs are also included within costs of goods sold. Reductions in the cost of inventory to its net realizable value are also a component of cost of goods sold.

Gross Profit and Gross Margin

Gross profit consists of Holley’s net sales less its cost of goods sold. Gross margin is gross profit as a percentage of net sales.

Selling, General, and Administrative

Selling, general, and administrative consist of payroll and related personnel expenses, IT and office services, office rent expense and professional services. In addition, self-insurance, advertising, research and development, pre-production and start-up costs are also included within selling, general, and administrative. The Company expects to incur additional expenses as a result of operating as a public company, including expenses necessary to comply with the rules and regulations applicable to companies listed on a national securities exchange and related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, as well as expenses for general and director and officer insurance, investor relations and other professional services.

Research and Development Costs

Research and development costs consist of personnel expenses and other costs associated with the development and innovation of new products as well as the maintenance of existing products.

Amortization of Intangibles

Amortization of intangibles consists of amortization of definite-lived intangible assets over their respective useful lives.

Acquisition and Restructuring Costs

Acquisition and restructuring costs consist of professional fees for legal, accounting, consulting, administrative, and other professional services directly attributable to potential acquisitions. In addition, operational restructuring costs are included within this classification.

Related Party Acquisition and Management Fee Costs

Related party acquisition and management fee costs consist of fees paid to Sentinel Capital Partners pursuant to a management services agreement for management services and consulting services directly attributable to potential acquisitions. The management services agreement with Sentinel Capital Partners was terminated upon the Closing.

Other Expenses

Other expenses consist of foreign currency transaction gains and losses, gains and losses on the disposal of fixed asset and other miscellaneous items.

 

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Operating Income (Loss)

Operating income (loss) consists of Holley’s gross profit less selling, general and administrative expenses, amortization of intangibles, acquisition, restructuring and management fee costs and other expenses.

Interest Expense

Interest expense consists of interest due on the indebtedness under our credit facilities. Interest is based on LIBOR or the prime rate, plus the applicable margin rate. As of December 31, 2020, $542.0 million was outstanding under the First Lien Credit Agreement and $145.0 million outstanding under our Second Lien Credit Agreement.

Income Tax Expense (Benefit)

Income tax expense (benefit) consists of the Company’s current income tax expense less the deferred income tax benefit.

Pension Liability Loss

Pension liability loss consists of the actuarial loss related to the Company’s projected benefit plan obligation.

Foreign Currency Translation Adjustment

Foreign currency translation adjustment is based on the translation of assets and liabilities translated using period end exchange rates and revenue and expenses translated using average exchange rates.

Results of Operations

Thirteen Weeks Ended March 28, 2021 Compared With Thirteen Weeks Ended March 29, 2020

The table below presents Holley’s results of operations for the thirteen weeks ended March 28, 2021 and March 29, 2020:

 

     For the thirteen weeks ended      Change  
     March 28, 2021      March 29, 2020      $      %  

Net sales

   $ 160,332      $ 107,157      $ 53,175        49.62

Cost of goods sold

     94,653        63,824        30,829        48.30
  

 

 

    

 

 

    

 

 

    

Gross profit

     65,679        43,333        22,346        51.57

Selling, general, and administrative

     24,012        15,193        8,819        58.05

Research and development costs

     5,969        5,621        348        6.19

Amortization of intangibles

     3,336        2,699        637        23.60

Acquisition and restructuring costs

     18,833        1,414        17,419        1,231.90

Related party acquisition and management fee costs

     881        891        (10      (1.12  %) 

Other income

     (133      (159      26        (16.35 %) 
  

 

 

    

 

 

    

 

 

    

Operating income

     12,781        17,674        (4,893      27.68

Interest expense

     10,071        11,505        (1,434      (12.46 %) 
  

 

 

    

 

 

    

 

 

    

Income before income taxes

     2,710        6,169        (3,459      (56.07 %) 

Income tax expense

     4,766        1,317        3,449        261.88
  

 

 

    

 

 

    

 

 

    

Net (loss) income

     (2,056      4,852        (6,908      (142.37 %) 

Foreign currency translation adjustment

     (16      —          (16      100.00
  

 

 

    

 

 

    

 

 

    

Total comprehensive (loss) income

   $ (2,072    $ 4,852      $ (6,924      (142.70 %) 
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Net Sales

Net sales for the thirteen weeks ended March 28, 2021 increased $53.2 million, or 49.6%, to $160.3 million, as compared to $107.2 million for the thirteen weeks ended March 29, 2020. Net sales during the thirteen weeks ended March 28, 2021 increased $25.9 million due to our 2020 business acquisitions. In addition our electronic products increased $16.2 or 28.4% and our exhaust products increased $4.6 million, or 30.6% on the continued success of our new product introductions.

Cost of Goods Sold

Cost of goods sold for thirteen weeks ended March 28, 2021 increased $30.8 million, or 48.3%, to $94.7 million, as compared to $63.8 million for the thirteen weeks ended March 29, 2020. The increase in cost of goods sold during the thirteen weeks ended March 28, 2021 was in line with a corresponding increase in product sales during such period.

Gross Profit and Gross Margin

Gross profit for the thirteen weeks ended March 28, 2021 increased $22.3 million, or 51.6%, to $65.7 million, as compared to $43.3 million for the thirteen weeks ended March 29, 2020. The increase in gross profit was driven by the increase in sales. Gross margin for the thirteen weeks ended March 28, 2021 increased 0.53% to 41.00% compared to a gross margin of 40.47% for the thirteen weeks ended March 29, 2020.

Selling, General and Administrative

Selling, general and administrative costs for the thirteen weeks ended March 28, 2021 increased $8.8 million, or 58.0%, to $24.0 million, as compared to $15.2 million for the thirteen weeks ended March 29, 2020. $3.7 million of the increase is related to selling, general and administrative costs of the 2020 acquisitions. The increase in costs was also driven by a $1.6 million increase in shipping costs related to higher sales and a $1.7 million increase in costs associated with the Business Combination.

Research and Development Costs

Research and development costs for the thirteen weeks ended March 28, 2021 increased $0.3 million, or 6.2%, to $6.0 million, as compared to $5.6 million for the thirteen weeks ended March 29, 2020. The increase in research and development costs was primarily due to headcount investments as we continue to pursue product innovation and new products.

Amortization of Intangibles

Amortization of intangible assets for the thirteen weeks ended March 28, 2021 increased $0.6 million, or 23.6%, to $3.3 million, as compared to $2.7 million for the thirteen weeks ended March 29, 2020 due to the amortization of the intangible assets of the businesses we acquired during 2020.

Acquisition and Restructuring Costs

Acquisition and restructuring costs increased $17.4 million, to $18.8 million for the thirteen weeks ended March 28, 2021, as compared to $1.4 million for the thirteen weeks ended March 29, 2020. The increase was primarily due to an increase of $17.1 million to the contingent consideration payable from the Simpson acquisition.

Related Party Acquisition and Management Fee Costs

Related party acquisition and management fee costs of $0.9 million was comparable to the prior period.

 

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Operating Income

As a result of factors described above, our operating income decreased $4.9 million, or 27.7%, to $12.8 million in the thirteen weeks ended March 28, 2021, as compared to $17.7 million for the thirteen weeks ended March 28, 2020.

Interest Expense

Interest expense for the thirteen weeks ended March 28, 2021 decreased $1.4 million, or 12.5%, to $10.1 million, as compared to $11.5 million for the thirteen weeks ended March 29, 2020. The decrease was due to lower outstanding debt and lower interest rates.

Income before Income Taxes

As a result of factors described above, our income before income taxes decreased $3.5 million to $2.7 million in the thirteen weeks ended March 28, 2021, as compared to $6.2 million for the thirteen weeks ended March 29, 2020.

Income Tax Expense

Income tax expense for the thirteen weeks ended March 28, 2021 increased $3.4 million to $4.8 million, as compared to $1.3 million for the thirteen weeks ended March 28, 2020. The increase was due to an increase in taxable income from the growth in sales. The effective tax rates were 174.8% and 21.4% for the thirteen weeks ended March 28, 2021 and March 29, 2020, respectively. The significant difference between the effective tax rate and the federal statutory rate in 2021 was due to the permanent difference resulting from the adjustment to the Simpson earnout during the period.

Net Income (Loss)

As a result of factors described above, our net (loss) income decreased $6.9 million to a net loss of $2.1 million in the thirteen weeks ended March 28, 2021, as compared to net income of $4.9 million for the thirteen weeks ended March 29, 2020.

Foreign Currency Translation Adjustment

The foreign currency translation adjustment was for the thirteen weeks ended March 28, 2021 resulted from the increase in currency exchange rate for the period.

Total Comprehensive Income (Loss)

As a result of factors described above, total comprehensive (loss) income for the thirteen weeks ended March 28, 2021 decreased $6.9 million to a comprehensive loss of $2.1 million from comprehensive income of $4.9 million for the thirteen weeks ended March 29, 2020.

 

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Year Ended December 31, 2020 Compared With Year Ended December 31, 2019

The table below presents Holley’s results of operations for the years ended December 31, 2020 and 2019:

 

     Year ended December 31      Change  
     2020      2019      $      %  

Net sales

   $ 504,179      $ 368,663      $ 135,516        36.76

Cost of goods sold

     295,935        219,884        76,051        34.59
  

 

 

    

 

 

    

 

 

    

Gross profit

     208,244        148,779        59,465        39.97

Selling, general, and administrative

     70,875        62,371        8,504        13.63

Research and development costs

     23,483        20,630        2,853        13.83

Amortization of intangibles

     11,082        10,456        626        5.99

Acquisition and restructuring costs

     9,743        4,942        4,801        97.15

Related party acquisition and management fee costs

     6,089        3,662        2,427        66.28

Other expense

     1,517        644        873        135.56
  

 

 

    

 

 

    

 

 

    

Operating income

     85,455        46,074        39,381        85.47

Interest expense

     43,772        50,386        (6,614      (13.13 %) 
  

 

 

    

 

 

    

 

 

    

Income (loss) before income taxes

     41,683        (4,312      45,995        (1,066.67 %) 

Income tax expense (benefit)

     8,826        (4,873      13,699        (281.12 %) 
  

 

 

    

 

 

    

 

 

    

Net income

     32,857        561        32,296        5,756.86

Foreign currency translation adjustment

     16        —          

Pension liability loss

     (293      (123      
  

 

 

    

 

 

    

 

 

    

Total comprehensive income

   $ 32,580      $ 438        
  

 

 

    

 

 

    

 

 

    

Net Sales

Net sales for the year ended December 31, 2020 increased $135.5 million, or 36.8%, to $504.2 million, as compared to $368.7 million for the year ended December 31, 2019. The increase in net sales during 2020 was primarily due to a $ 33.5 million or 64.3% increase in our electronic fuel injection products sold, a $20.1 million or 38.8% increase in our exhaust products sold and a $16.3 million or 31.4% increase in our ignition products sold. These product lines increased as we continued to see growth of our new product introductions. We also believe our ability to fulfill demand with a nimble supply chain contributed to the increase in net sales.

Cost of Goods Sold

Cost of goods sold for the year ended December 31, 2020 increased $76.1 million, or 34.6%, to $295.9 million, as compared to $219.9 million for the year ended December 31, 2019. The increase in cost of goods sold during 2020 was driven primarily by an increase in product sales.

Gross Profit and Gross Margin

Gross profit for the year ended December 31, 2020 increased $59.5 million, or 40.0%, to $208.2 million, as compared to $148.8 million for the year ended December 31, 2019. The increase in gross profit was driven by the increase in sales. Gross margin for the year ended December 31, 2020 increased to 41.3%, as compared to 40.4% for the year ended December 31, 2019. The higher gross margin was primarily due to increased fixed cost leverage from increased sales and integration activities.

Selling, General and Administrative

Selling, general and administrative costs for the year ended December 31, 2020 increased $8.5 million, or 13.6%, to $70.9 million, as compared to $62.4 million for the year ended December 31, 2019. When expressed as

 

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a percentage of sales, selling, general and administrative costs decreased to 14.1% of sales for the year ended December 31, 2020, as compared to 16.9% of sales in 2019. The increase in costs was driven by a $3.6 million increase in shipping and handling costs related to higher sales and a $2.4 million increase in costs associated with the significant growth in our DTC business as the Company focused its efforts in growing this business.

Research and Development Costs

Research and development costs for the year ended December 31, 2020 increased $2.9 million, or 13.8%, to $23.5 million, as compared to $20.6 million for the year ended December 31, 2019. The increase in research and development costs were primarily due to headcount investments of $2.3 million as we continue to pursue product innovation and new products.

Amortization of Intangibles

Amortization of intangible assets for the year ended December 31, 2020 increased $0.6 million, or 6%, to $11.1 million for the year ended December 31, 2020, as compared $10.5 million for the year ended December 31, 2019 due to the full year amortization of the Range acquisition intangible assets.

Acquisition and Restructuring Costs

Acquisition and restructuring costs increased $4.8 million, or 97.2%, to $9.7 million for the year ended December 31, 2020, as compared to $4.9 million for the year ended December 31, 2019. The increase was primarily due to $2.3 million in professional fees associated with the Simpson, Drake and Detroit Speed acquisitions completed in 2020 and $3.2 million in restructuring costs incurred with the move of the West Sacramento, CA operations to Bowling Green, KY facilities.

Related Party Acquisition and Management Fee Costs

Related party acquisition and management fee costs increased $2.4 million, or 66.3%, to $6.1 million for the year ended December 31, 2020, as compared to $3.7 million for the year ended December 31, 2019. The increase in costs was due to one-time costs associated with acquisition, integration and restructuring activities. The acquisition costs were primarily attributable to the Drake and Simpson acquisitions.

Other Expense

Other expense for the year ended December 31, 2020 increased $0.9 million, or 135.6%, to $1.5 million, as compared to $0.6 million for the year ended December 31, 2019. The increase was primarily due the disposal of plant, property and equipment at our West Sacramento, California facility that was shut down in 2020.

Operating Income

As a result of factors described above, our operating income increased $39.4 million, or 85.5%, to $85.5 million in the year ended December 31, 2020, as compared to $46.1 million for the year ended December 31, 2019.

Interest Expense

Interest expense for the year ended December 31, 2020 decreased $6.6 million, or 13.1%, to $43.8 million, as compared to $50.4 million for the year ended December 31, 2019. The decrease was due to lower outstanding debt for much of 2020 and lower interest rates.

Income (loss) before Income Taxes

As a result of factors described above, our income (loss) before income taxes increased $46.0 million to $41.7 million in the year ended December 31, 2020, as compared to a loss of $4.3 million for the year ended December 31, 2019.

 

 

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Income Tax Expense (Benefit)

Income tax expense for the year ended December 31, 2020 increased $13.7 million to $8.8 million, as compared to a $4.9 million benefit for the year ended December 31, 2019. The increase was due to an increase in income from the growth in sales. The effective tax rates were 21.2% and 113.0% for the years ended December 31, 2020 and 2019, respectively.

Net Income (Loss)

As a result of factors described above, our net income increased $32.3 million to $32.9 million in the year ended December 31, 2020, as compared to $0.6 million for the year ended December 31, 2019.

Pension Liability Loss

Pension liability loss for the year ended December 31, 2020 was $0.3 million, an increase of $0.2 million, as compared to $0.1 million for the year ended December 31, 2019. The increased liability loss was primarily due to a decrease in the discount rate.

Foreign Currency Translation Adjustment

The foreign currency translation adjustment for the year ended December 31, 2020 resulted from the increase in currency exchange rate for the period.

Total Comprehensive Income (Loss)

As a result of factors described above, total comprehensive income (loss) for the year ended December 31, 2020 increased $32.1 million to $32.6 million from $0.4 million for the year ended December 31, 2019.

Year Ended December 31, 2019 Compared with Year Ended December 31, 2018

The table below presents Holley’s results of operations for the years ended December 31, 2019 and 2018:

 

     Year ended December 31      Change  
     2019      2018      $      %  

Net sales

   $ 368,663      $ 137,911      $ 230,752        167.32

Cost of goods sold

     219,884        86,405        133,479        154.48
  

 

 

    

 

 

    

 

 

    

Gross profit

     148,779        51,506        97,273        188.86

Selling, general, and administrative

     62,371        33,231        29,140        87.69

Research and development costs .

     20,630        6,802        13,828        203.29

Amortization of intangibles

     10,456        4,434        6,022        135.81

Acquisition and restructuring costs

     4,942        9,153        (4,211      (46.01 %) 

Related party acquisition and management fee cost

     3,662        12,869        (9,207      (71.54 %) 

Other expense

     644        1,209        (565      (46.73 %) 
  

 

 

    

 

 

    

 

 

    

Operating income (loss)

     46,074        (16,192      62,266        (384.55 %) 

Interest expense

     50,386        18,996        31,390        165.25
  

 

 

    

 

 

    

 

 

    

Loss before income taxes

     (4,312      (35,188      30,876        (87.75 %) 

Income tax benefit

     (4,873      (4,575      (298      6.51
  

 

 

    

 

 

    

 

 

    

Net income (loss)

     561        (30,613      31,174        (101.83 %) 

Pension liability loss

     (123      (274      151        (55.11 %) 
  

 

 

    

 

 

    

 

 

    

Total comprehensive income (loss)

   $ 438      $ (30,887    $ 31,325        (101.42 %) 
  

 

 

    

 

 

    

 

 

    

 

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Net Sales

Net sales for the year ended December 31, 2019 increased $230.8 million, or 167.3%, to $368.7 million, as compared to $137.9 million for the year ended December 31, 2018. The increase in net sales during 2019 was primarily due to the acquisition of HPI in 2018. Partially offsetting this increase was a decrease of the legacy Driven business of 9.0% as the distribution channel adjusted its inventory to the new pricing program.

Cost of Goods Sold

Cost of goods sold for the year ended December 31, 2019 increased $133.5 million, or 154.5%, to $219.9 million, as compared to $86.4 million for the year ended December 31, 2018. The increase in cost of sales during 2019 was primarily due to the acquisition of HPI.

Gross Profit and Gross Margin

Gross profit for the year ended December 31, 2019 increased $97.3 million, or 188.9%, to $148.8 million, as compared to $51.5 million for the year ended December 31, 2018. The increase in gross profit was driven by the increase sale volume from the HPI acquisition. Gross margin for the year ended December 31, 2019 increased to 40.4% compared to 37.3% for the year ended December 31, 2018 as the HPI products have a higher gross margin. Also, 2018 was more severely impacted by the amortization of the fair market value increase to inventory from purchase accounting.

Selling, General and Administrative

Selling, general and administrative costs for the year ended December 31, 2019 increased $29.1 million, or 87.7%, to $62.4 million, as compared to $33.2 million for the year ended December 31, 2018. When expressed as a percentage of sales, selling general and administrative costs decreased to 16.9% of sales for the year ended December 31, 2019 compared to 24.1% of sales in 2018. The increase in costs was driven primarily by HPI acquisition. The decrease in selling, general and administrative costs as a percentage of sales was due to integration activities as well as leverage from increased sales.

Research and Development Costs

Research and development costs for the year ended December 31, 2019 increased $13.8 million, or 203.3%, to $20.6 million, as compared to $6.8 million for the year ended December 31, 2018. The increase in costs was primarily driven by new product development and the HPI acquisition.

Amortization of Intangibles

Amortization of intangibles for the year ended December 31, 2019 increased $6.0 million, or 135.8%, to $10.5 million, as compared to $4.4 million for the year ended December 31, 2018. The increase was primarily due to a full year of amortization of intangible assets from the HPI purchase in 2018.

Acquisition and Restructuring Costs

Acquisition and restructuring costs decreased $4.2 million to $4.9 million, as compared to $9.2 million for the year ended December 31, 2018. The decrease in expense was due primarily to the $5.6 million in transaction costs incurred with the HPI purchase in 2018.

Related Party acquisition and Management Fee Costs

Related party acquisition and management fee costs decreased $9.2 million to $3.7 million for the year ended December 31, 2019 compared to $12.9 million for the year ended December 31, 2018. The decrease in costs was due to an $11.8 million fee paid in conjunction with the HPI acquisition in 2018.

 

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Other Expense

Other expense for the year ended December 31, 2019 decreased $0.6 million, or 46.7%, to $0.6 million compared to $1.2 million for the year ended December 31, 2018. The decrease resulted from lower foreign currency transaction losses.

Operating Income (Loss)

As a result of factors described above, our operating income increased $62.3 million to $46.1 million in the year ended December 31, 2019 from a loss of $16.2 million for the year ended December 31, 2018.

Interest Expense

Interest expense for the year ended December 31, 2019 increased $31.4 million, or 165.3%, to $50.4 million, as compared to $19.0 million for the year ended December 31, 2018. The increase in interest expense was due to the significant increase in debt in the fourth quarter of 2018 related to the purchase of HPI.

Loss before Income Taxes

As a result of factors described above, our loss before income taxes decreased $30.9 million to $4.3 million in the year ended December 31, 2019, as compared to $35.2 million in the year ended December 31, 2018

Income Tax Benefit

Income tax benefit for the year ended December 31, 2019 increased $0.3 million, or 6.5%, to $4.9 million, as compared to $4.6 million for the year ended December 31, 2018. The increase was due to non-deductible permanent items in 2018.

Net Income (Loss)

As a result of factors described above, our net income (loss) increased $31.2 million to $0.6 million in the year ended December 31, 2019, as compared to a loss of $30.6 million in the year ended December 31, 2018.

Pension Liability Loss

Pension liability loss for the year ended December 31, 2019 was $0.1 million, a $0.2 million, or 55% decrease compared to $0.3 million for the year ended December 31, 2019. The change in liability loss was primarily due to a decrease in the discount rate.

Total Comprehensive Income (Loss)

As a result of factors described above, total comprehensive income (loss) for the year ended December 31, 2019 increased $31.3 million to $0.4 million from a loss of $30.9 million for the year ended December 31, 2018.

Non-GAAP Financial Measures

Holley believes EBITDA and Adjusted EBITDA are useful to investors in evaluating the Company’s financial performance. In addition, Holley uses these measures internally to establish forecasts, budgets and operational goals to manage and monitor its business. Holley believes that these non-GAAP financial measures help to depict a more realistic representation of the performance of the underlying business, enabling the Company to evaluate and plan more effectively for the future. Holley believes that investors should have access to the same set of tools that its management uses in analyzing operating results.

 

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Holley defines EBITDA as earnings before (a) interest expense, (b) income taxes and (c) depreciation and amortization. Holley defines Adjusted EBITDA as EBITDA plus (i) unusual or nonrecurring expenses that consist primarily of the addback of the amortization of the fair market value increase in inventory in 2019 and

2018 (for 2020, the addbacks consist of the amortization of the fair market value increase in inventory and legal settlement) (ii) acquisition and restructuring costs, which for the thirteen weeks ended March 28, 2021 also included the $17.2 million adjustment to the acquisition contingent consideration payable, (iii) related party acquisition and management fee costs, and (iv) other expenses, which includes losses from disposal of fixed assets and foreign currency transactions.

EBITDA and Adjusted EBITDA are not prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and may be different from non-GAAP financial measures used by other companies. These measures should not be considered as measures of financial performance under GAAP, and the items excluded from or included in these metrics are significant components in understanding and assessing Holley’s financial performance. These metrics should not be considered as alternatives to net income (loss) or any other performance measures derived in accordance with GAAP. The following unaudited table presents the reconciliation of net income (loss), the most directly comparable GAAP measure, to EBITDA and Adjusted EBITDA for the thirteen weeks ended March 28, 2021 and March 29, 2020 and for the years ended December 31, 2020, 2019, and 2018:

 

     Thirteen Weeks Ended     Year ended December 31  
     March 28, 2021     March 29, 2020     2020      2019     2018  

Net income (loss)

   $ (2,056   $ 4,852     $ 32,857      $ 561     $ (30,613

Adjustments:

         

Depreciation

     2,252       2,025       7,886        8,827       3,654  

Amortization

     3,336       2,699       11,082        10,456       4,434  

Interest expense

     10,071       11,505       43,772        50,386       18,996  

Income tax expense (benefit)

     4,766       1,317       8,826        (4,873 )       (4,575
  

 

 

   

 

 

   

 

 

      

 

 

 

EBITDA

     18,369       22,398       104,423        65,357       (8,104

Unusual or nonrecurring expenses

     5,715       116       4,378        7,179       12,746  

Acquisition and restructuring costs

     18,833       1,414       9,743        4,942       9,153  

Related party acquisition and management fee costs

     881       891       6,089        3,662       12,869  

Other (income) expense

     (133     (159     1,517        644       1,209  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Adjusted EBITDA

     43,665       24,660       126,150        81,784       27,873  
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Liquidity and Capital Resources

Holley’s primary cash needs are to support working capital, capital expenditures, acquisitions, and debt repayments. The Company has generally financed its historical needs with operating cash flows, capital contributions and borrowings under its credit facilities. These sources of liquidity may be impacted by various factors, including demand for Holley’s products, investments made in acquired businesses, plant and equipment and other capital expenditures, and expenditures on general infrastructure and information technology.

The Company believes that its cash on hand, cash from operations and borrowings available under its revolving credit facility will be sufficient to satisfy its liquidity needs and capital expenditure requirements for at least the next twelve months.

 

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Cash Flows

The following table provides a summary of cash flows from operating, investing, and financing activities for the periods presented:

Thirteen Weeks Ended March 28, 2021 Compared With Thirteen Weeks Ended March 29, 2020

 

     Thirteen weeks ended  
     March 28, 2021      March 29, 2020  

Cash flows from operating activities

   $ 18,956      $ 17,580  

Cash flows used in investing activities

     (3,104      (1,283

Cash from financing activities

     (64      27,500  
  

 

 

    

 

 

 

Net increase (decrease in cash and cash equivalents

     15,788        43,797  
  

 

 

    

 

 

 

Operating Activities. Cash provided by operating activities for the thirteen weeks ended March 28, 2021 was $19.0 million compared to cash provided by operating activities of $17.6 million during the thirteen weeks ended March 29, 2020. Cash provided by increases in accrued liabilities and accounts payable increased by $14.9 million and $2.3 million, respectively. Offsetting these increases were decreases in cash provided by accounts receivable of $4.2 million, inventory of $2.8 million and prepaids and other current assets of $2.7 million. The changes in accounts receivable, inventory and accounts payable reflect the growth in the business in 2021. The change in accrued liabilities resulted from changes in the fair value of the acquisition contingent consideration payable.

Investing Activities. Cash used in investing activities for the thirteen weeks ended March 28, 2021 was $3.1 million, primarily relating to capital expenditures. During the thirteen weeks ended March 29, 2020, cash used in investing activities was $1.3 million, primarily relating to capital expenditures.

Financing Activities. Cash used by financing activities for the thirteen weeks ended March 28, 2021 was for payments on long-term debt. Cash provided by financing activities for the thirteen weeks ended March 29, 2020 related to borrowings under the revolving credit agreement.

Year Ended December 31, 2020 Compared With Year Ended December 31, 2019

 

     Year ended December 31,  
             2020                      2019          

Cash flows from operating activities

   $ 88,413      $ 9,418  

Cash flows used in investing activities

     (165,618      (14,479

Cash from financing activities

     140,544        2,433  
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash
equivalents

     63,339        (2,628
  

 

 

    

 

 

 

Operating Activities. Cash provided by operating activities for the year ended December 31, 2020 was $88.4 million compared to cash provided by operating activities of $9.4 million during the year ended December 31, 2019. The year-over-year increase was primarily due to a net increase in non-cash items of $19.6 million, an increase in net income of $32.3 million and cash provided by inventory of $25.0 million. Cash provided by increases in accrued liabilities and accounts payable increased by $0.9 million and $8.2 million, respectively. Offsetting these increases were decreases in cash provided by accounts receivable of $13.5 million. The changes in accounts receivable, inventory and accounts payable reflect the growth in the business in 2020.

 

 

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Investing Activities. Cash used in investing activities for the year ended December 31, 2020 was $165.6 million, primarily relating to business purchase transactions of $156.8 million and capital expenditures of $9.4 million. During the year ended December 31, 2019, cash used in investing activities was $14.5 million, primarily relating to capital expenditures of $7.4 million and business purchase transactions of $5.9 million.

Financing Activities. Cash provided by financing activities for the year ended December 31, 2020 was $140.5 million, comprised of $170.0 million from proceeds of long-term debt, partially offset by net payments of $20.5 million under the revolving credit agreement and principal payments on long-term debt of $4.1 million. Cash provided by financing activities for the year ended December 31, 2019 was $2.4 million, primarily comprised of cash inflows of $6.5 million related to borrowings under the revolving credit agreement, offset by cash outflows of $3.8 million related to principal payments on long-term debt.

Working Capital. Holley’s working capital as of December 31, 2020 was $176.0 million, compared to $117.3 million as of December 31, 2019. During the year ended December 31, 2020, Holley’s cash balance increased by $63.3 million, its accounts receivable balance increased by $18.0 million and its inventory balance increased by $11.9 million. Offsetting these items were increases in accounts payable of $14.1 million, accrued liabilities of $9.0 million and acquisition contingent consideration payable of $9.2 million.

Year Ended December 31, 2019 Compared With Year Ended December 31, 2018

 

     Year ended December 31,  
     2019      2018  

Cash flows from (used in) operating activities

   $ 9,418      $ (13,823

Cash flows used in investing activities

     (14,479      (590,255

Cash from financing activities

     2,433        609,562  
  

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2,628      5,484  
  

 

 

    

 

 

 

Operating Activities. Cash provided by operating activities for the year ended December 31, 2019 was $9.4 million compared to cash used in operating activities of $13.8 million during the year ended December 31, 2018. The year-over-year increase was primarily due to a net increase in non-cash items of $6.1 million and a decrease in net loss of $31.2 million. Cash provided by accrued liabilities and accounts receivable increased by $5.8 million and $5.5 million, respectively. Offsetting these increases were decreases in cash provided by accrued interest, inventories, and accounts payable of $10.8 million, $8.7 million, and $4.2 million, respectively.

Investing Activities. Cash used in investing activities for the year ended December 31, 2019 was $14.5 million, relating to capital expenditures of $7.4 million and business purchase transactions of $5.9 million. During the year ended December 31, 2018, cash used in investing activities related primarily to the acquisition of HPI.

Financing Activities. Cash provided by financing activities for the year ended December 31, 2019 was $2.4 million, primarily comprised of cash inflows of $6.5 million related to the revolving credit agreement, offset by cash outflows of $3.8 million related to principal payments on long-term debt. Cash provided by financing activities for the year ended December 31, 2018 was $609.6 million, comprised primarily of proceeds of long- term debt of $525.0 million and capital contributions net of $188.8 million.

Working Capital. Holley’s working capital as of December 31, 2019 was $117.3 million, compared to $116.0 million as of December 31, 2018. During the year ended December 31, 2019, Holley’s inventory balance increased by $4.2 million and accrued interest decreased by $2.5 million. Offsetting these items were decreases in cash and cash equivalents of $2.6 million, accounts receivable of $2.1 million, and increases in accrued liabilities of $1.4 million.

 

 

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Contractual Obligations

The Company’s contractual obligations as of December 31, 2020 consisted of the following (in thousands):

 

     Total      Less than
1 year
     1-3 years      4-5 years      More than
5 years
 

Payments due by period

              

Long-term borrowings(1)

   $ 691,670      $ 5,528      $ 16,584      $ 669,558      $ —    

Operating lease obligations(2)

     17,381        4,543        7,733        2,472        2,633  

Purchase obligations(3)

     90,358        90,358        —          —          —    

Contingent acquisition payables(4)

     9,200        9,200        —          —          —    

Total

   $ 808,609      $ 109,629      $ 24,317      $ 672,030      $ 2,633  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Long-term borrowings: Holley’s long-term borrowing under contractual obligations includes the First Lien Credit Agreement and the Second Lien Credit Agreement. The long-term borrowings balance excludes debt issuance costs, as these expenses have already been paid. Interest on the Company’s borrowings is calculated based on the respective stated rates. Future estimated interest expenses for the next year, one to three years, and three to five years is $40.6 million, $120.2 million, and $42.1 million, respectively.

(2)

Operating lease obligations: The operating lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under the Company’s operating leases but are generally not fixed and can fluctuate from year to year. Also, the Company has excluded future minimum lease payments for leases that have been signed but have not commenced as of December 31, 2020.

(3)

Purchase obligations: Holley’s purchase obligations include open purchase orders for inventory.

(4)

Contingent acquisition payables: Contingent acquisition payables are potential earn out payments due to the sellers of certain companies acquired by Holley in the fourth quarter of 2020.

Off-Balance Sheet Arrangements

Holley does not have any off-balance sheet financing arrangements at March 28, 2021, March 29, 2020, December 31, 2020, December 31, 2019, or December 31, 2018.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, sales, expenses and related disclosures. We evaluate our estimates, judgements and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe that the assumptions, judgements and estimates associated with the following have the greatest potential impact on, and are critical to the understanding of, our results of operations: revenue recognition, accounts receivable and allowance for credit losses, inventory, goodwill and intangible assets, income taxes, business combinations and purchase accounting. For further information see Note 2 –Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Revenue Recognition

The Company recognizes revenue with customers when control of the promised goods transfers to the customer. This generally occurs when the product is delivered to the customer. Revenue is recorded at the amount of consideration the Company expects to be entitled to in exchange for the delivered goods, which includes an estimate of variable consideration, expected returns, or refunds when applicable. The Company estimates variable consideration, such as sales incentives, by using the most likely amount approach, which

 

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considers the single most likely amount from a range of possible consideration amounts. Estimates of variable consideration result in an adjustment to the transaction price such that it is probable that a significant reversal of cumulative revenue would not occur in the future. Sales incentives and allowances are recognized as a reduction to revenue at the time of the related sale. Revenue is recorded net of sales tax. Shipping and handling fees billed to customers are included in net sales, while costs of shipping and handling are included in selling, general and administrative costs.

Accounts Receivable and Allowance for Credit Losses

Accounts receivable represent amounts due from customers in the ordinary course of business. The receivables are stated at the amount management expects to collect. The Company is subject to risk of loss from uncollectible receivables in excess of its allowance. The Company maintains an allowance for credit losses for estimated losses from customers’ inability to make required payments. In order to estimate the appropriate level of this allowance, the Company analyzes historical bad debts, customer concentrations, current customer credit worthiness, current economic trends and changes in customer payment patterns. Accounts are written off when management determines the account is uncollectable. Interest is not charged on past due accounts.

Inventory

The Company’s inventories are stated at the lower of cost or net realizable value using the first-in, first-out (FIFO) method. Adjustments to reduce the cost of inventory to its net realizable value are made, if required, for estimated excess, obsolescence or impaired balances.

We regularly monitor inventory quantities on hand and on order and record write-downs for excess and obsolete inventories based on our estimate of the demand for our products, potential obsolescence of technology, product life cycles, and when pricing trends or forecast indicate that the carrying value of inventory exceeds our estimated selling price. These factors are affected by market and economic conditions, technology changes, and new product introductions and require estimates that may include elements that are uncertain. Actual demand may differ from forecasted demand and may have a material effect on our gross margin. If inventory is written down, a new cost basis will be established that cannot be increased in future periods.

Goodwill and Intangible Assets

Goodwill is not subject to amortization and is tested for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. Goodwill represents the excess of the purchase price paid over the fair value of its identifiable net assets acquired. If the carrying amount of the goodwill exceeds the fair value, then an impairment loss will be recognized in the amount equal to the excess. After an impairment loss is recognized, the adjusted carrying amount of goodwill is its new accounting basis. Accounting guidance on the testing of goodwill for impairment allows entities testing goodwill for impairment, the option of performing a qualitative assessment to determine the likelihood of goodwill impairment and whether it is necessary to perform such impairment test.

Under Accounting Standards Update (“ASU”) No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, step 2 of the goodwill impairment test has been eliminated. Step 2 of the goodwill impairment test required companies to determine the implied fair value of the reporting unit’s goodwill. Under the new standard, an entity recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Intangible assets include trade names, customer relationships and developed technology obtained through business acquisitions. Intangible assets acquired in a business combination are recognized at fair value using generally accepted valuation methods deemed appropriate for the type of intangible assets acquired. Intangible

 

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assets with finite lives are amortized over their estimated useful life and are reported net of accumulated amortization, separately from goodwill. Indefinite life intangibles are not amortized but are subject to testing for impairment annually.

Income Taxes

We are subject to income taxes in the U.S. (federal and state) and foreign jurisdictions. We compute our provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using the currently enacted tax rates that are expected to apply to taxable income for the years in which those tax assets and liabilities are expected to be realized or settled. The income tax effects of these differences are classified as long-term deferred tax assets and liabilities in our consolidated balance sheets.

Significant judgments are required in order to determine the realizability of these deferred tax assets. In assessing the need for a valuation allowance, we evaluate all significant available positive and negative evidence, including but not limited to, historical operating results, forecasted earnings, estimates of future taxable income of a character necessary to realize the deferred asset, relative proportions of revenue and pre-tax income in the various domestic and jurisdictions in which we operate, and the existence of prudent and feasible tax planning strategies. Changes in the expectations regarding the realization of deferred tax assets could materially impact income tax expense in future periods.

Business Combinations and Purchase Accounting

Business combinations are accounted for using the acquisition method of accounting, and accordingly, the assets and liabilities of the acquired business are recorded at their respective fair values. The excess of the purchase price over the estimated fair value is recorded as goodwill. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires knowledge of current market values and the values of assets in use, and often requires the application of judgment regarding estimates and assumptions.

While the ultimate responsibility resides with management, for certain acquisitions the Company retains the services of certified valuation specialists to assist with assigning estimated values to certain acquired assets and assumed liabilities, including intangible assets and tangible long-lived assets. Acquired intangible assets, excluding goodwill, are valued using various methodologies including discounted cash flows, relief from royalty, and multiperiod excess earnings depending on the type of intangible asset purchased. These methodologies incorporate various estimates and assumptions, such as projected revenue growth rates, profit margins and forecasted cash flows based on discount rates and terminal growth rates.

Recent Accounting Pronouncements

For a discussion of Holley’s new or recently adopted accounting pronouncements, see Note 2, “Summary of Significant Accounting Policies,” in the Notes to the Consolidated Financial Statements included elsewhere in this prospectus.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. Holley is exposed to market risk in the normal course of business due to the Company’s ongoing investing and financing activities. The risk of loss can be assessed from the perspective of adverse changes in fair values, cash flows and future earnings. Holley has established policies and procedures governing the Company’s management of market risks and the use of financial instruments to manage exposure to such risks. The Company generally does not hedge its interest rate exposure. The Company had $691.7 million of debt outstanding as of December 31, 2020. A hypothetical 100 basis point increase or decrease in the interest rate on the Company’s debt would have resulted in an approximately $6.9 million change to Holley’s interest expense for the year ended December 31, 2020.

 

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Credit and other Risks. Holley is exposed to credit risk associated with cash and cash equivalents and trade receivables. As of December 31, 2020, the majority the Company’s cash and cash equivalents consisted of cash balances in non-interest bearing checking accounts which exceed the insurance coverage provided on such deposits. The Company does not believe that its cash equivalents present significant credit risks because the counterparties to the instruments consist of major financial institutions. Substantially all trade receivable balances of the business are unsecured. The credit risk with respect to trade receivables is concentrated by the number of significant customers that the Company has in its customer base and a prolonged economic downturn could increase exposure to credit risk on the Company’s trade receivables. To manage exposure to such risks, Holley performs ongoing credit evaluations of the Company’s customers and maintains an allowance for potential credit losses.

Exchange Rate Sensitivity. As of December 31, 2020, the Company is exposed to changes in foreign currency exchange rates. While historically this exposure to changes in foreign currency exchange rates has not had a material effect on the Company’s financial condition or results of operations, foreign currency fluctuations could have an adverse effect on business and results of operations in the future. Historically, Holley’s primary exposure has been related to transactions denominated in the Euros and Canadian dollars. The majority of the Company’s sales, both domestically and internationally, are denominated in U.S. Dollars. Historically, the majority of the Company’s expenses have also been in U.S. Dollars and we have been somewhat insulated from currency fluctuations. However, Holley may be exposed to greater exchange rate sensitivity in the future. Currently, the Company does not hedge foreign currency exposure; however, the Company may consider strategies to mitigate foreign currency exposure in the future if deemed necessary.

 

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BUSINESS

Overview

Founded in 1903, Holley has been a part of the automotive industry for well over a century. Holley Intermediate was incorporated in Delaware on September 12, 2018, as the holding company of the various operating entities that then comprised the Holley business. We are a designer, marketer, and manufacturer of high performance automotive aftermarket products serving car and truck enthusiasts. Our products span a number of automotive platforms and are sold across multiple channels. We attribute a major component of our success to our brands, including “Holley”, “APR”, “MSD” and “Flowmaster”, among others. In addition, we have recently added to our brand lineup through a series of strategic acquisitions, including our 2020 acquisitions of Simpson, Drake and Detroit Speed and our 2021 acquisition of AEM. Through these strategic acquisitions, we have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. Based on the Study, and based on product category gross sales, we believe our Holley EFI, APR, MSD, Holley and Simpson brands hold the #1 market position in the EFI, Electronic Tuning, Electronic Ignition, Carburetor and Safety categories, respectively, and Flowmaster holds the #2 market position in the Exhaust category. We believe these category- leading positions highlight the value of the products we offer the large and diverse addressable community of automotive enthusiasts.

We operate in the performance automotive aftermarket parts industry that we estimate based on the Study to be a $34 billion industry. This broad, fragmented industry has grown at a 6.5% CAGR for the last 18 years driven by a wealthier consumer demographic that delivers a higher degree of spending relative to the non-enthusiast population. Our passionate and highly engaged automotive enthusiasts have helped us realize a net sales CAGR of 11.9% since 2018.

Our vision is to be the most compelling and inclusive platform for automotive enthusiasts, to inspire and support enthusiasts’ transition to cleaner, more sustainable technologies, and to further accelerate the automotive lifestyle. Our aim is to provide a platform where automotive enthusiasts can purchase aftermarket autoparts for both old model restorations and new vehicle enhancements. Based on the Study, we believe our consumers are enthusiastic and passionate about the performance and the personalization of their classic and modern cars. We aim to provide the products and service they need to pursue that passion.

Innovation is at the core of our business and growth strategy. Approximately 40%, 40% and 36% of our annual sales for 2020, 2019 and 2018, respectively, were generated by products that we first introduced within the last five years. Our team of 135 in-house product engineers, many of whom are enthusiasts themselves, leverage their understanding of the automotive enthusiasts and the performance automotive aftermarket to develop products that we believe consumers desire. This approach has driven the expansion of the types of products we offer and the car models to which they can be applied. Over the past three years, our DTC and digital capabilities have been core drivers of our positive sales growth. For the year ended December 31, 2020, we generated through our DTC channel approximately $84 million in gross sales on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed as if each had occurred on January 1, 2020, which continues to be our fastest growing sales channel.

While we believe our business is positioned for continued organic growth, we intend to continue evaluating opportunities for strategic acquisitions to complement our current business and expand our addressable target market. Between 2014 and the end of 2020 we completed eight acquisitions that have collectively generated approximately $35 million of cost saving synergies through reductions in product costs and elimination of duplicative headcount, facility costs and other selling, general and administrative expenses. We believe that future accretive acquisitions will provide long-term value creation opportunities by increasing our market penetration through expanded product offerings and allowing us to become a single source for an array of automotive performance aftermarket product in what we believe is an otherwise highly fragmented industry.

Finally, since 2018 we have maintained strong profitability and sales growth. For the year ended December 31, 2020, on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit

 

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Speed, as if each had occurred on January 1, 2020, we generated gross sales of $606 million. The charts below highlight our GAAP net income, GAAP net sales, adjusted EBITDA and adjusted EBITDA margin for the years ended December 31, 2018, 2019 and 2020 on an actual basis. We provide a detailed description of adjusted EBITDA and adjusted EBITDA margin and how we use these non-GAAP measures, including a reconciliation of adjusted EBITDA to GAAP net income and a reconciliation of adjusted EBITDA margin to GAAP net sales, under “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Non-GAAP Financial Measures.”

 

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We believe our strategic combination with Empower and our enhanced access to capital as a public company will position us to continue growing our topline and increasing our enthusiast consumer base.

Market Overview

We operate in the performance automotive aftermarket parts industry that we estimate based on the Study to be a $34 billion industry comprised of 20 different aftermarket part categories, all of which product categories include products sold by Holley under its portfolio of 60 brands, and which industry has experienced a positive CAGR since 2001. According to U.S. Census data for 2019 and population estimates by the World Bank Group

 

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for 2020, there are approximately 246 million individuals in the United States between the ages of 18 and 85. Based on the Study, we believe that approximately 6% of such population, or approximately 15 million individuals, purchased performance automotive aftermarket parts during the 36-month period ended October 2020, which individuals we view as our addressable market and refer to herein as automotive enthusiasts. As presented below, the CAGR in the performance automotive aftermarket parts industry between 2001 and 2019 was 6.5%, which includes a 3% CAGR during the recession of 2007-2009. We believe there is ample opportunity to continue our expansion into new products and markets such as exterior accessories and mobile electronics, representing a natural progression for us to grow market share as these adjacencies are driven by passionate enthusiasts, consistent with our core categories.

We group our competitors based on product offerings as follows: multi-product category providers, single product category providers, E-tailer private label providers and niche custom manufacturing shops. According to the Study, and based on product category gross sales, we are the largest multi-product category provider in the automotive aftermarket industry. Our largest competitor in the multi-product category space is Edelbrock. Competitors in the single-product category space include Pertonix, FiTech and K&N, each of whom specializes in a single product category. Our competitive advantage over these market participants is the breadth of products we offer our consumers and resellers. E-tailer private label providers include our E-tailer resellers such as Summit and JEGS. These market participants sell other manufacturers’ products, but also compete with our DTC channel in select product categories such as fuel delivery, plumbing and accessories. These market participants offer a one-stop-shop for all aftermarket parts and offer multiple brands for consumers to purchase. The final set of competitors are niche manufacturing shops that are smaller shops typically focused on fully customizing a specific make or model of a car. These market participants offer a high level of customization and do-it-for-me service for enthusiasts.

 

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Source: SEMA data; performance aftermarket based on performance engines, wheels, tires, brakes, and suspension categories.

We assess our industry’s competitive landscape by dividing the performance automotive aftermarket parts industry into the following three products groups: (i) core engine and safety products, (ii) other engine products and (iii) other aftermarket parts.

 

   

Core Engine and Safety Products. Based on the Study, we believe that the core engine and safety products group represents approximately $4 billion of the $34 billion performance automotive aftermarket parts industry. This products group includes products such as electronic fuel injection, electronic tuning, electronic ignition, carburetors and safety solutions products, and exhaust products.

 

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Other Engine Products. Based on the Study, we believe that the other engine products group represents approximately $5 billion of the $34 billion performance automotive aftermarket parts industry. This products group includes products such as electronic fuel pumps, engine dress up parts, and engine cooling systems, among others.

 

   

Other Aftermarket Parts. Based on the Study, we believe that the other aftermarket parts products group represents approximately $25 billion of the $34 billion performance automotive aftermarket parts industry. This products group includes products such as wheels and tires, suspension, steering, chassis and drivetrain parts.

Our Strengths

Large Base of Passionate Enthusiast Consumers with Attractive Demographics

Based on the Study, we estimate that approximately 70% of automotive enthusiasts who purchased performance automotive aftermarket products from Holley during 2020 owned more than one car, which can create multiple touch points for us throughout the year. Additionally, we estimate based on the Study that approximately 82% of automotive enthusiasts who purchased performance automotive aftermarket products from Holley during 2020 at one point considered parts for their cars or trucks as a budgeted, recurring expense, 64% have traded in more than one car or truck to begin a new personalized vehicle build, and on average such automotive enthusiasts spent 25% more on aftermarket automotive parts for their car or trucks relative to the broader enthusiast aftermarket.

Additionally, while we serve consumers from all walks of life. Based on the Study, we believe we over-index with affluent and younger consumers, as illustrated in the charts below:

 

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Brand Portfolio

Our portfolio of 60 brands covers an array of product categories and car models. With our 118-year operating history, we believe our brands are deeply engrained in car culture. Based on the Study, which surveyed sales for the 20 different aftermarket part categories comprising the estimated $34 billion performance automotive aftermarket parts industry during the first ten months of 2020 for Holley and several of Holley’s leading competitors, we believe our Holley EFI, APR, MSD, Holley and Simpson brands hold the #1 market position in the below product categories that fall within the Core Engine and Safety Products submarket discussed above:

 

   

EFI: The EFI category includes electronic fuel injection products and represents approximately 2% of the estimated $34 billion performance automotive aftermarket industry.

 

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Electronic Tuning: The Electronic Tuning category includes tuners, gauges, displays and other tuning products to enhance vehicle driveability and represents approximately 1% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Electronic Ignition: The Electronic Ignition category includes ignition boxes, distributors and ignition coils and represents approximately 3% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Carburetor: The Carburetor category represents approximately 1% of the estimated $34 billion performance automotive aftermarket industry.

 

   

Safety: The Safety category includes roll cages, helmets and safety apparel and represents approximately 2% of the estimated $34 billion performance automotive aftermarket industry.

In addition, based on the Study we believe that the Flowmaster brand holds the #2 market position in the Exhaust category, which includes exhaust headers, exhaust systems and mufflers and represents approximately 4% of the estimated $34 billion performance automotive aftermarket industry.

We believe the popularity of our brands is the result of consistently delivering high quality, innovative products that resonate with our enthusiast consumers. Our brands have allowed us to build direct, trusted and long-lasting relationships with our consumers and resellers.

Legacy of Product Innovation

We offer our enthusiast consumers a comprehensive suite of performance automotive aftermarket products to meet a wide range of needs. We are continuously innovating and evolving our product offerings to meet ever- changing consumer needs. We invest heavily in developing new products, spending an average of $17 million per year on research and development since 2015. New products are the lifeblood of our business with approximately 40% of our 2020 sales coming from products introduced by us into the market since 2015. In addition, we introduced approximately 1,850 new products during 2020 out of approximately 40,000 total stock- keeping units offered, which accounted for approximately 5% of our 2020 sales. We believe our product development capabilities create sustainable long-term growth and margin enhancements for our business.

We have a history of developing innovative products, including new products in existing product families, product line expansions, and accessories, as well as products that bring us into new categories. We have thoughtfully expanded our product portfolio over time to adapt to consumer needs. We expand our existing product families and enter new product categories by creating solutions grounded in our expert insights and relevant market knowledge. We believe we have a meaningful runway across our target product categories and product vintages and we are well positioned for future growth by expanding in categories that present opportunities for further market penetration in the Electronic Fuel Injection and Powertrain Conversion Systems markets, among others, as well as opportunities to capitalize on newly entered categories like Performance & Appearance Packages, Wheels & Tires, and Performance Suspension.

Proven Acquisition Platform

We maintain a highly disciplined and focused approach to M&A and have experience sourcing, executing and integrating value-enhancing acquisitions in a highly fragmented market. From 2014 to the end of 2020, we completed eight accretive acquisitions that have contributed meaningful sales and earnings growth, added new product categories and brands and have increased our market position in the otherwise highly fragmented performance automotive aftermarket industry. We believe our highly scalable operational platform enables us to efficiently and effectively integrate acquired businesses into our operations and realize cost savings opportunities as well as revenue and distribution increases.

We have historically used strategic acquisitions to (i) expand our brand portfolio, (ii) enter new product categories and consumer segments, (iii) increase DTC scale and connection, (iv) expand share in current product categories and (v) realize value-enhancing revenue and cost synergies. We believe our track record of recent

 

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acquisitions is indicative of our ability to make both transformational acquisitions, such as the acquisitions of MSD in 2015 and Driven Performance Brands in 2018, as well as strategic bolt-ons such as the recent acquisitions of Drake, Simpson and Detroit Speed in 2020 and AEM in 2021.

Digital and DTC Opportunity with Omni-Channel Distribution

We have a diverse omni-channel distribution strategy led by our growing DTC channel. Our omni-channel model enables us to reach our consumers through the DTC, Performance E-tailer, Traditional Retailer, and Performance Jobber channels. We have mutually beneficial relationships with our resellers and are able to maintain strong pricing discipline across our channels with strict conformance to minimum advertised pricing.

Consumers are increasingly meeting us online through our DTC channel, which, on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed, as if each had occurred on January 1, 2020, grew at a CAGR of 43% between 2014 and the end of 2020. Our DTC channel provides consumers full access to all of our brands, our unique branded content and our full product assortment. We have turned Holley.com into our primary hub for consumer communication and continue to add features and brands that make it an increasingly attractive digital destination for our consumers. Our DTC channel enables us to directly interact with our customers, more effectively control our brand experience, better understand consumer behavior and preferences, and offer exclusive products, content, and customization capabilities. We believe our control over our DTC channel provides our customers with quality brand engagement and further builds customer loyalty, while generating attractive margins.

Flexible Operating Model

We run a flexible, sourcing model with a mix of global sourcing and in-house manufacturing. Our best value sourcing model decisions are based on a mix of cost, quality and service. We have a diverse global supplier base and no material supplier concentration. We have a track record of topline growth. Our efficient sourcing model enables strong gross margins and cash conversion.

Experienced Team with a Track Record of Execution

Members of our senior management team, led by CEO Tom Tomlinson, have an average of 30 years of experience in creating solutions that help brands succeed in the performance automotive aftermarket. In addition, many members of our management team and many of our employees are enthusiast consumers themselves, which further extends their knowledge of, and expertise in, our products and end-markets. We believe Holley’s consumer-oriented culture inspires and encourages innovation and helps us attract, retain and motivate employees.

Growth Strategies

Continuous New Product Development

Innovation, including new product development, is a key component of our growth strategy. In our experience, our enthusiast consumers continuously crave new products that allow them to improve the performance, functionality and appearance of their vehicles. New products allow us to increase market share in existing categories, extend into adjacent categories, capture new enthusiast consumers and extend or further penetrate new vehicle platforms. In the case of EFI, we have also created new segments of the market through innovation. New products also provide consumers with a reason to upgrade their existing parts. The ability to develop products that meet the evolving needs of our enthusiast consumers and the vehicles they are passionate about is a key competitive advantage of Holley. We have made significant investments in our new product development capabilities, including both capital equipment and engineering talent. Our new product development team is comprised of 135 engineers dedicated to developing new products.

 

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Positioned for Growth in the Emerging Performance Electronic Vehicle Segment

Electric vehicles present an exciting growth opportunity for us. We are dedicated to developing products that allow our enthusiast consumers to personalize and elevate the performance of their vehicles and have invested significant resources in product development for electric vehicles. The products we are developing will be issued in two categories:

 

   

Performance products for existing electric vehicles. These products will allow consumers to personalize or increase the performance and functionality of vehicles that came from the factory with an electric drivetrain.

 

   

Electric drivetrain conversion products. These products will enable consumers to retrofit an electric drivetrain into a vehicle that came from the factory with an internal combustion engine.

Accelerate Growth Through Continued M&A

We maintain a robust M&A pipeline and we believe that our scalable business platform, relationships with our distribution and channel partners, strong loyalty of our growing consumer base, experienced management team and board of directors, and strong cash generation position us to continue to acquire and integrate value- enhancing acquisitions. Our strong existing platform in the enthusiast performance automotive aftermarket creates a large and highly fragmented addressable market with a broad set of potential acquisition targets. We believe our scale, management team and board’s experience with integration, together with access to capital, will allow us pursue both small and large future acquisitions and create value through integration.

Engage with Our Consumers and Expand DTC Sales

We are focused on deepening our engagement with our enthusiast consumers. We have multiple touch points in our consumer ecosystem, ranging from social media to our website, to our knowledgeable phone technical sales advisors, to our in-person enthusiast events. Our focus is to reach and engage consumers both online and in person. We have a strong digital focus that is complemented by an experiential strategy. Our consumer comes first in everything we do and we expect to continue the meaningful investment we have made in our community.

DTC represents our fastest-growing sales channel, with annual gross sales increasing from $10 million in 2014 to $84 million in 2020 on a pro forma basis after giving effect to our acquisitions of Simpson, Drake and Detroit Speed as if each had occurred on January 1, 2020, representing a 43% CAGR. We intend to continue to drive direct sales to our enthusiast consumers primarily through our Holley.com website, our primary hub for consumer engagement. Engagement on our website has increased meaningfully, with 17.6 million web sessions during the first ten months of 2020, up 45% from 2019 and 85% from 2017. We recently launched a new content marketing initiative called MotorLife within Holley.com. MotorLife is a digital publication and since its launch, we have seen an improvement in web traffic as well as improvement in crucial search rankings for high priority keywords. As our online presence expands, we will continue to focus on increasingly building personalized experiences for our consumers, which will both deepen our consumer engagement and drive additional sales.

Our in-person events include multiple fests that we hold for our consumers. These are action-packed events that drive authentic connections with enthusiasts designed to create brand ambassadors and drive loyalty. We host four annual fests (LS Fest East, LS Fest West, Ford Fest and MoParty) throughout the year, that are rooted in popular engine and car platforms and plan to add a fifth in 2021. These events drive extensive media coverage including substantial impressions on YouTube, Instagram and other social media platforms.

Recent Acquisitions

We operate in a large, fragmented industry and see M&A as a powerful component of our growth strategy.

On April 14, 2021, we acquired substantially all assets of AEM, a developer and supplier of electronic control and monitoring systems for performance automotive applications. We believe this acquisition will increase our penetration into the import and other sport compact cars submarket.

 

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On December 18, 2020, we completed the acquisition of Detroit Speed, a designer and producer of high performance automotive aftermarket chassis, suspension, and driveline components, primarily for classic American muscle cars. Detroit Speed has a strong DTC sales presence and allows enthusiasts to improve the performance of their vehicles by upgrading the aforementioned components.

On November 16, 2020, we completed the acquisition of Simpson, a designer and seller of motorsport safety products including helmets, head and neck restraints, seat belts and firesuits. Simpson has a strong share across key categories where demand is driven by brand recognition, consumable nature of products and a predictable certification refresh cycle. Simpson adds a scalable platform of safety products to our platform while diversifying our product categories and adding non-engine component products to our portfolio. Additionally, Simpson augments our DTC sales, enhances our existing DTC offerings and expands our acquisition opportunity landscape.

On November 11, 2020, we completed the acquisition of Drake, a designer and seller of automotive aftermarket appearance parts, wheels, chassis and suspension products as well as automotive accessories. Drake is a collection of well-known enthusiast brands with a product offering for an array of vehicles. Sales are driven by strong brands, consistent new product development and a diverse product offering. Drake increases our penetration within for Ford Mustang platform and offers strong cost-savings opportunities. Additionally, Drake diversifies our product categories by adding non-engine components and provides a compelling opportunity to drive DTC sales with Drake brands which have not historically been sold DTC.

Brands

We have a strong portfolio of brands covering various product categories. Our portfolio consists of 60 brands spanning across 21 product categories.

Our top five brands generated 68% of our sales in 2020, representing a 34% CAGR compared to our top five brands in 2019.

 

   

Holley EFI: Currently our largest brand and represented 17% of our sales for 2020. Our Holley EFI brand focuses on electronic fuel injection technology and showcases our new product development engine as this was our fastest growing category in 2020 based on annual sales.

 

   

Holley: Currently our second largest brand and represented 17% of our sales for 2020. The Holley brand resonates with consumers as approximately 75% of enthusiast consumers recognize the Holley brand, according to the Study. Holley offers a variety of products across multiple categories but traces its roots back to carburetors which originally made the brand famous with automotive enthusiasts.

 

   

MSD: Currently our third leading brand and represented 13% of our sales for 2020. MSD was acquired in 2015 and has historically been focused on production of ignition products but today has been more focused on developing electronics for the powertrain category.

 

   

Powerteq: Currently our fourth leading brand and represented 11% of our sales for 2020. Powerteq was acquired in the MSD acquisition in 2015 and has focused on exhaust, intakes, drivetrain and engine tuning products and accessories.

 

   

Flowmaster: Currently our fifth largest brand that contributed 10% of our sales in 2020 and mainly develops exhaust products. Flowmaster was acquired in 2018 through the Driven transaction.

Products

We produce a broad range of performance automotive aftermarket parts for passenger vehicles. Our product categories include EFI, ignition, software and electronic tuning, exhaust, carburetors, drivetrain, fuel pumps, accessories, intakes, plumbing, chemicals, cooling, NOS, forced induction, other, wheels, cold air intake, suspension, safety solutions and off-road.

We are able to offer a broad suite of products and act as a one-stop shop for our resellers and consumers, which we believe gives us a competitive advantage compared to our industry peers. We have thoughtfully grown

 

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our product portfolio and will continue to expand our product offerings that aim to provide solutions for all enthusiasts’ needs. The below chart below compares, by product category, gross sales for 2010 on an actual basis to gross sales in 2020 on a pro forma basis after giving effect to the Drake, Simpson and Detroit Speed acquisitions as if each had occurred on January 1, 2020.

 

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Marketing

We reach and engage our consumers where they participate in the performance automotive aftermarket – online and in person. Our marketing strategy is centered around strong brand equity, leading new product innovation capabilities and delivering consistently high-quality products. In 2020, we spent approximately $7 million (or approximately 1% of our 2020 annual gross sales) on marketing and advertising. Going forward, consistent with our value creation strategies and in collaboration with the Empower team, we intend to meaningfully increase investments in direct consumer marketing and advertising as well as refocus our current mix of spending towards activities believed to generate the highest return on investment. We believe these strategies will have a meaningfully positive impact across our brand portfolio and will result in the continuation of net sales growth.

In recent years, we have shifted our marketing efforts towards digital advertising and have increased investments in consumer engagement directly via digital and social media platforms and campaigns. In mid-2020, Sean Crawford joined our team as Chief Marketing Officer to focus on expanding our e-commerce and digital platforms. These efforts have included increased focus on turning Holley.com into a destination for automotive enthusiasts and launching MotorLife, our internal digital publication that is available to the public on our website. As a result, we experienced a significant increase in social media and online engagement during 2020 that has sustained into 2021. Continued expansion of and investment in digital and social media are expected in the future, including focusing on strategies to grow the high margin DTC channel.

We have also spent significant time and effort in creating engaging in-person events. These events focus on creating memorable experiences for enthusiast consumers and encourage consumers to be among other enthusiasts, celebrate car culture, build community and enjoy their vehicles. Since 2015, our events have grown in total annual attendance from 14,000 to 77,000 in 2020. We currently host four annual self-funding events (LS Fest East, LS Fest West, Ford Fest and MoParty) and plan to add a fifth in 2021.

Resellers

We have historically sold the majority of our products through resellers who purchase our products and resell them through various channels. These resellers consist of performance e-tailers, warehouse distributors, traditional retailers, and jobber/installers with (i) performance e-tailers and warehouse distributors accounting for

 

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63% of our sales in 2020, (ii) our top ten resellers accounting for 48% of our sales in 2020, with our largest reseller making up 22% of our sales in 2020, and (iii) all top ten accounts growing from 2019 to 2020 at an overall combined CAGR of 37%.

We have established mutually beneficial and long-term relationships with our resellers. We believe resellers benefit from our broad suite of product offerings that they can leverage to meet consumer demand across multiple product categories. Based on the value that we offer to our resellers, we are able to operating with pricing discipline that supports the value of our products in the marketplace and buttresses our profit margins. We believe our approach to pricing allows us to better understand consumer demand and identify what our end consumers are buying.

Competition

The performance automotive aftermarket parts industry in the United States is large and highly fragmented. Based on the Study, we estimate the performance automotive aftermarket parts industry to be $34 billion. In addition, we have seen consistent growth within the automotive aftermarket parts industry over the last two decades. Products in the performance automotive aftermarket parts industry range from functional products that enhance vehicle performance to products that improve safety, stability, handling and appearance.

Our core competitive set is comprised of four primary types of competitors with fragmentation across the majority of our major product categories:

 

   

Multi-product category providers: legacy brands with coverage across multiple performance aftermarket products with multiple brands often under one banner and built through acquisition. We are one of the largest multi-product category brands in the performance automotive aftermarket based on gross sales.

 

   

Single-product category providers: established companies focused on one product category in the market primarily selling via resellers. Single-product category providers generally offer either lower priced products or higher-quality products focused within one product category.

 

   

E-Tailer Private Labels: traditional online resellers sell other manufactured products and offer private label products, often at a lower price point. E-tailer private labels generally occupy the value end of the market and have a greater presence in less engineered categories with less product-specific brand strength.

 

   

Niche custom manufacturers: while not our core competitors, smaller shops typically focus on fully customizing specific make or model vehicles. Niche custom manufacturers are typically local or regionally focused, and some also may resell customized products from other manufactured brands.

We believe the following factors distinguish Holley from its competitors:

 

   

Brand that resonates with enthusiasts: we actively engage enthusiasts at the platform level across multiple channels (e.g. events, digital media, online communities, etc.), creating reference networks for potential consumers.

 

   

Innovative, product development: we invest heavily in product research, innovation and development, and introduce products that meet latest platform and use case-specific needs of our enthusiast consumers.

 

   

Operational ability that enables efficient order execution: we make significant investments in sourcing, manufacturing and distribution excellence, enabling management of multiple product lines while maintaining scale and attractive relative pricing.

 

   

Differentiated go-to-market strategy: we offer a mix of single product and platform-oriented solutions across DTC and reseller channels, delivering a strong overall consumer experience.

 

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Employees

As of December 31, 2020, we employed 1,358 full-time employees and 132 temporary employees. Our employees are not involved in any labor unions. Approximately 27% of our full-time employees are based primarily in our Bowling Green, KY headquarters.

Many of our employees are automotive enthusiasts themselves. We pride ourselves on having a platform built for enthusiasts by enthusiasts. As of December 2020, we have 135 enthusiast-focused engineers, many of whom are passionate about cars themselves. We continue to seek out top level talent that will help accomplish our mission and vision moving forward. Our goal is to create an inclusive and safe environment for our employees that keeps them engaged in their work.

Properties

Our corporate headquarters is located at 1801 Russellville Rd, Bowling Green, Kentucky 42101. We own the property and building where our headquarters is located. Our facility is approximately 200,000 square feet and includes approximately 68,500 square feet for corporate office space, 88,300 square feet for manufacturing and approximately 42,100 square feet for product shipment and delivery acceptance.

We have a number of locations that serve multiple functions including distribution, engineering, manufacturing, office space, R&D, and retail sales. We have 13 facilities that perform manufacturing of our products. We operate 14 distribution locations across the United States and Canada. We also have 15 R&D/Engineering facilities designed to grow our new product innovations.

The table below sets forth certain information regarding our material owned and leased properties. We believe these properties are suitable and adequate for our business:

 

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Property Location

   Approximate
Size
    

Function

   Owned/
Leased
 
1   

Bowling Green, KY

     200,000     

HQ Manufacturing, Assembly, Engineering

     Owned  
2   

Bowling Green, KY CSD

     300,000     

Distribution

     Leased  
3   

Bowling Green, KY Century St

     187,500     

Manufacturing, Assembly

     Leased  
4   

El Paso, TX

     102,000     

Electronic Manufacturing, Distribution, Engineering

     Leased  
5   

Opelika, AL

     78,000     

Electronic Manufacturing, Distribution, Engineering

     Leased  
6   

New Braunfels, TX

     80,000     

HQ, Manufacturing, Assembly, Engineering, Distribution, Retail Sales

     Leased  
7   

Harbor City, CA

     52,000     

Manufacturing, Warehouse, Distribution, R&D, Retail Sales

     Leased  
8   

Perdrengo, Italy

     21,200     

Manufacturing, Warehouse, Distribution, R&D

     Leased  
9   

Mooresville, NC

     26,191     

Manufacturing, Engineering

     Leased  

Regulation

We are subject to a variety of federal, state, local and foreign laws and regulations, including those governing the discharge of pollutants into the air or water, the management and disposal of hazardous substances or wastes, and the cleanup of contaminated sites. Some of our operations require environmental permits and controls to prevent and reduce air and water pollution. These permits are subject to modification, renewal and revocation by issuing authorities. We believe we are in substantial compliance with all material environmental laws and regulations applicable to our plants and operations. Historically, our annual costs of achieving and maintaining compliance with environmental, health and safety requirements have not been material to our financial results.

 

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Increasing global efforts to control emissions of carbon dioxide, methane, ozone, nitrogen oxide and other greenhouse gases and pollutants, as well as the shifting focus of regulatory efforts towards total emissions output, have the potential to impact our facilities, costs, products and customers. The U.S. Environmental Protection Agency (“EPA”) has taken action to control greenhouse gases from certain stationary and mobile sources. In addition, several states have taken steps, such as adoption of cap and trade programs or other regulatory systems, to address greenhouse gases. There have also been international efforts seeking legally binding reductions in emissions of greenhouse gases. These developments and further actions that may be taken in the U.S. and in other countries, states or provinces could affect our operations both positively and negatively (e.g., by affecting the demand for or suitability of some of our products).

We also may be subject to liability as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act and similar state or foreign laws for contaminated properties that we currently own, lease or operate or that we or our predecessors have previously owned, leased or operated, and sites to which we or our predecessors sent hazardous substances. Such liability may be joint and several so that we may be liable for more than our share of any contamination, and any such liability may be determined without regard to causation or knowledge of contamination. We or our predecessors have been named potentially responsible parties at contaminated sites from time to time. We do not anticipate any potential liability relating to contaminated sites to be material to our financial results.

Intellectual Property

Patents, trademarks, and other proprietary rights are important to the continued success of our business. We own and have licensing arrangements for a number of U.S. and foreign patents, trademarks, and other proprietary rights related to our products and business. We also rely upon continuing technological innovation and licensing opportunities to develop and maintain our competitive position. We protect our proprietary rights through a variety of methods, including the use of confidentiality and other similar agreements. We do not consider our business to be dependent on any single patent, nor will the expiration of any patent materially affect our business. Our current patents will expire over various periods and we continue to file new patent applications on newly- developed technology. We from time to time become aware of potential infringement of our patent, trademark, or other proprietary rights and we investigate instances of alleged infringement where we believe it is merited and take appropriate actions under applicable intellectual property laws in response to such infringements where we determine it is valuable to do so. Similarly, from time to time we are the subject of intellectual property and other proprietary rights related suits and other litigation.

Legal Proceedings

From time to time, we may become involved in additional legal proceedings arising in the ordinary course of our business. We have been and continue to be involved in legal proceedings that arise in the ordinary course of business, the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition and results of operations.

 

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MANAGEMENT

The following table sets forth, as of July 21, 2021, certain information regarding our directors and executive officers who are responsible for overseeing the management of our business.

 

Name

  

Age

  

Position

Matthew Rubel

   63    Chairman

Tom Tomlinson

   61    Director and Chief Executive Officer

James D. Coady

   51    Director

Owen M. Basham

   35    Director

Gina Bianchini .

   49    Director

Ginger M. Jones

   56    Director

Michelle Gloeckler.

   55    Director

Dominic Bardos

   56    Chief Financial Officer