S-1

As filed with the Securities and Exchange Commission on March 8, 2012.

Registration No. 333-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FENDER MUSICAL INSTRUMENTS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Delaware	3931	33-0081996
(State or Other Jurisdiction of Incorporation or Organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

17600 North Perimeter Drive, Suite 100

Scottsdale, Arizona 85255

(480) 596-9690

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Mark D. Van Vleet

Chief Legal Officer

Fender Musical Instruments Corporation

17600 North Perimeter Drive, Suite 100

Scottsdale, Arizona 85255

(480) 596-9690

(Name, address including zip code, and telephone number, including area code, of agent for service)

Copies to:

Alison S. Ressler John L. Savva Sullivan & Cromwell LLP 1870 Embarcadero Road Palo Alto, California 94303 (650) 461-5600 Kevin P. Kennedy Simpson Thacher & Bartlett LLP 2550 Hanover Street Palo Alto, California 94304 (650) 251-5000

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, as amended, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨             

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨             

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x  (do not check if a smaller reporting company)	Smaller reporting company	¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Proposed Maximum Aggregate Offering Price (1)(2)	Amount of Registration Fee
Common Stock, $0.01 par value per share	$200,000,000	$22,920

(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.

(2) Includes offering price of shares that the underwriters have the option to purchase.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling stockholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and neither we nor the selling stockholders are soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated March 8, 2012

Prospectus

                 shares

Fender Musical Instruments Corporation

Common stock

This is an initial public offering of common stock by Fender Musical Instruments Corporation. We are selling                  shares of common stock. The selling stockholders identified in this prospectus are selling                  shares of common stock. We will not receive any of the proceeds from the sale of the shares by the selling stockholders.

Prior to this offering, there has been no public market for our common stock. The estimated initial public offering price is between $         and $         per share.

We intend to apply to have our shares of common stock listed on the Nasdaq Global Market, subject to notice of issuance, under the symbol “FNDR.”

	Per share	Total
Initial public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds to us, before expenses	$	$
Proceeds to selling stockholders, before expenses	$	$

Delivery of the shares of common stock is expected to be made on or about                     , 2012. Certain of the selling stockholders identified in this prospectus have granted the underwriters an option for a period of 30 days to purchase, on the same terms and conditions as set forth above, up to an additional                      shares of our common stock. We will not receive any of the proceeds from the sale of shares by these selling stockholders if the underwriters exercise their option to purchase additional shares of common stock.

Investing in our common stock involves substantial risk. Please read “Risk factors” beginning on page 15.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

J.P. Morgan William Blair & Company

Baird Stifel Nicolaus Weisel Wells Fargo Securities

                    , 2012

[Artwork to come]

Table of contents

	Page
Prospectus summary		1
Risk factors		15
Special note regarding forward-looking statements		38
Use of proceeds		39
Dividend policy		39
Capitalization		40
Dilution		43
Selected consolidated financial data		45
Management’s discussion and analysis of financial condition and results of operations		48
Business		77
Management		102
Transactions with related persons		137
Principal and selling stockholders		140
Description of capital stock		143
Shares eligible for future sale		147
Material U.S. tax consequences to non-U.S. holders of common stock		150
Underwriting		154
Conflicts of interest		160
Validity of common stock		161
Experts		161
Where you can find more information		161
Index to consolidated financial statements		F-1

No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

Prospectus summary

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including our consolidated financial statements and related notes, and our risk factors beginning on page 15, before deciding whether to purchase shares of our common stock. Unless the context otherwise requires, we use the terms “FMIC,” the “company,” “we,” “us” and “our” in this prospectus to refer to Fender Musical Instruments Corporation and its subsidiaries on a consolidated basis.

Our company

We are a leading, global musical instruments company whose portfolio of renowned, music lifestyle brands brings the passion of music to life. Since the founding of our predecessor company by Leo Fender in 1946, we have built a comprehensive portfolio of brands led by the iconic Fender brand and other renowned brands such as Squier, Jackson, Guild, Ovation and Latin Percussion, which we own, and Gretsch, EVH (Eddie Van Halen) and Takamine, for which we are the licensee. We believe that the Fender brand in particular is closely associated with the birth of rock ‘n roll and has a strong legacy in music and in popular culture. The authenticity and quality of our brands are highlighted by the numerous, well-known current and historical musicians and groups that are often associated with our products. While a number of our brands, including Fender, have broad appeal, other brands in our portfolio offer products with distinct sounds or styles targeted at musicians in particular genres, including rock ‘n roll, country, jazz, heavy metal, blues and world music.

We believe that we have assembled one of the broadest product portfolios in the musical instruments industry. Our product portfolio includes fretted instruments (comprised of electric, acoustic and bass guitars, banjos, ukuleles, mandolins and resonator guitars), guitar amplifiers, percussion instruments and accessories. We believe our guitars and guitar amplifiers revolutionized the way music is written, played and heard. We design and market our products to a variety of musicians from beginners to professionals across a broad range of prices.

In 2011, we had the #1 market share by revenue in the United States in electric, acoustic and bass guitars and electric and bass guitar amplifiers, according to an industry source. In addition, since the acquisition of Kaman Music Corporation (now known as KMC Musicorp), or KMC, in 2007, we have been one of the largest independent distributors of musical instrument accessories in the United States, according to an industry source. To support our brands and product leadership, we continue to bring new and innovative products to market that inspire our consumers and enhance brand loyalty.

We distribute our products globally in over 85 countries through one of the largest direct-to-retail sales forces in the musical instruments industry in the United States, Canada, Europe and Mexico, as well as through a network of distributors in selected international markets. We sell our products through independent and national music retailers, mass merchants, online and catalog retailers and third-party distributors. In fiscal 2011, we generated 58.7% of our gross sales before discounts and allowances from the independent channel (representing over 13,000 independently-owned music stores), 23.5% collectively from the national channel, mass merchants and online and catalog retailers, and 17.8% from third-party distributors. Gross

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sales before discounts and allowances is comprised of our product sales but, unlike net sales, does not include licensing income and dealer freight collection, and is not net of cash discounts, sales return allowances and rebates.

Our strategically managed global supply chain is comprised of a network of our own manufacturing facilities in the United States and Mexico, distribution and warehouse facilities in North America (the United States and Canada) and Europe, and established sourcing relationships with original equipment manufacturers, or OEMs, and suppliers in Asia, Europe, North America and Mexico. We manufacture our premium products primarily in the United States.

Our portfolio of renowned brands, broad selection of high-quality products, longstanding culture of ongoing innovation and new product introductions, global supply chain and distribution network and strong consumer loyalty have been key drivers of our strong financial performance. Our net sales grew from $612.5 million in fiscal 2009 to $700.6 million in fiscal 2011, representing a compound annual growth rate, or CAGR, of 6.9%. Our net income was $10.8 million in fiscal 2009, compared to $19.0 million in fiscal 2011, representing a CAGR of 32.8%. Our adjusted EBITDA grew from $43.7 million in fiscal 2009 to $52.9 million in fiscal 2011, representing a CAGR of 10.0%. See “Summary consolidated financial data—Non-GAAP financial measures” for the definition of adjusted EBITDA and a reconciliation from net income (loss) to adjusted EBITDA.

Market opportunity

We operate in the global musical instruments and accessories industry, which generated approximately $15.8 billion in global retail sales and $6.4 billion in U.S. retail sales in 2010, according to an industry source. The categories of retail musical products that we address, including fretted instruments, instrument amplifiers, percussion products and general accessories, generated an estimated $4.7 billion in U.S retail sales in 2010, according to the same industry source.

We believe our opportunities for sales growth are supported by several long-term trends that we think will increase consumer demand for our products, including the continued popularity of guitar-based music and bands and visibility of guitars in popular culture; increasing accessibility as improvements in manufacturing techniques are resulting in high-quality instruments at relatively low retail prices; technological advancements that continue to enhance a consumer’s ability to access, learn, create, personalize and distribute music; and increasing popularity and gradual incorporation of guitar-based music in some large, emerging markets like China, India and Indonesia; and increasing availability of guitar-based music and alternative music education programs.

The musical instruments industry is highly fragmented and is served by a variety of companies, including independent instrument makers, large multinational corporations, technology-based electronics manufacturers and print publishers. We anticipate future industry consolidation and believe we are well-positioned to make strategic acquisitions or enter into strategic partnerships when opportunities arise.

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Our competitive strengths

Portfolio of iconic and renowned lifestyle brands and associations with leading musicians

We have a portfolio of some of the most recognized global music lifestyle brands and products. Our brands are used by many of the world’s best known musicians and groups, both current and historical. We believe that the use of our products by these professional musicians, whose popularity and actions often influence consumers, establishes the authenticity of our brands so consumers aspire to own our products and are inspired to create their own music using our products. We collaborate with many of these famous musicians through our Signature Artist Program, in which these musicians provide specifications for instruments bearing their signatures and endorse their signature instruments, which are then marketed and sold to our customers. We also have a dedicated Artist Relations group that works closely with professional musicians to meet their musical instrument needs, including through custom made products.

Industry leader with broad product portfolio

In 2011, we had the #1 market share by revenue in electric, acoustic and bass guitars and electric and bass guitar amplifiers, and were the leading U.S.-based supplier by revenue to the overall musical instruments industry, according to industry sources. We believe the broad and diversified range of products in our portfolio helps to mitigate the impact of economic cycles, as sales of some product categories are less affected than others by economic downturns. We have expanded our product portfolio through a combination of innovation, strategic acquisitions, joint ventures and licensing arrangements. We believe that our range of brands and products positions us to be a strategic and reliable supplier to our retail partners and consumers.

Heritage of innovation and new product introductions

With the creation of the Telecaster guitar and Stratocaster guitar over 50 years ago, we began a tradition of innovation that continues today. We have had a profound influence on the evolution of the music industry – for example, we produced the Precision Bass, the first commercially successful electric bass guitar, which we believe was a key enabler of rock ‘n roll music. We have demonstrated an ability to continuously develop and introduce innovative products and features that are designed to grow the market for our products and enhance our brands. An example is our Fender Mustang amplifier, which we introduced in fiscal 2010. This product includes the FUSE software platform, which lets musicians connect to an online community where they can play, edit and share their own music. In addition, we often collaborate with leading artists through our Signature Artist Program and incorporate their ideas into our designs. Our Custom Shop, where we design and build custom and limited edition electric and bass guitars, also serves as a laboratory for the generation of ideas that can be more widely incorporated in our products.

Leading global footprint

We have developed global design, production and distribution capabilities and longstanding customer relationships that we believe would be difficult to replicate. We believe the scale and quality of our direct-to-retail sales force and distributor network enhance the loyalty of our retail partners and position us to become an increasingly important manufacturer and supplier in the

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industry. By facilitating a positive in-store experience at our retail partners and providing customer service programs, we believe we further enhance our brands and build consumer loyalty. Our manufacturing platform provides scalability and volume flexibility as we have a balanced mix of products manufactured internally and sourced externally. This infrastructure allows us to rapidly respond to the changing needs of consumers in our key markets, while maintaining high quality.

Distinguished management team and skilled workforce

We have assembled a proven and talented management team led by Larry Thomas, our Chief Executive Officer. Our senior management team has an average of 21 years of musical instruments industry experience and brings together a deep knowledge of our industry, products, mission and culture, and an execution-oriented operating philosophy that are critical to our success. This extensive experience goes beyond senior management and deep into the organization. We believe that our company culture and the strength of our brands enable us to attract and retain highly-talented employees who share our passion for music and interact with our retail partners and consumers in an authentic and credible way.

Our strategy

Increase awareness and consumer loyalty as lifestyle brands

We intend to continue to develop our brands as lifestyle brands through a variety of activities. An important component of this strategy is to increase our brands’ presence outside of our normal retail channels, such as at global music festivals, where consumers can directly interact with our products. We intend to continue to increase our social media presence through tools such as Facebook and Twitter, and to engage directly with consumers through online lifestyle communities focused on artist-driven music content. In addition, we intend to tailor our marketing communications to cultivate our aspirational lifestyle brands’ images and also to develop products to meet specific consumer preferences. We believe that applying the marketing and branding strategies that have been successful with our Fender brand has the potential to increase consumer awareness of, and loyalty to, other high potential brands in our portfolio.

Expand our product offering through continued innovation

We intend to continue our tradition of innovation to bring new products and features to consumers, while maintaining the high standards of quality with which our brands are associated. Over the last two years, we have increased the pace at which we bring new products to market through more robust innovation processes and expanded the breadth of new products introduced. A recent example is our Fender Select line of premium, hand-crafted production guitars, which we introduced in January 2012. Our new product releases have the potential to produce a high margin revenue stream, as well as provide us with an opportunity to update and refresh our existing product lines. We believe that new product releases also create an aspirational desire for consumers to upgrade and purchase new products.

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Accelerate our international growth

We intend to extend our reach to a broader global consumer base that might not otherwise be exposed to our products. Over the past 10 years, we have experienced strong international sales growth as we have entered new markets and introduced additional products into established international markets. We believe that international markets will provide growth opportunities in the near to intermediate term, and we intend to expand our reach in countries where we have not historically focused our sales efforts; increase sales of our KMC products outside the United States; and grow our direct-to-retail sales internationally in markets that we believe present opportunities for additional growth.

Expand our licensing and co-branding activities

We believe licensing our trademarks such as Fender and others builds awareness of our brands and furthers our strategy of reaching new consumers, while developing additional relationships with existing consumers through new products. These licensing agreements typically offer low investment costs and attractive margin opportunities without the risk of cannibalizing existing sales. We intend to expand our licensing activities to additional products in new and existing categories and further expand our licensing activities outside the United States. In addition, we intend to continue to pursue non-revenue generating co-branding initiatives, which we believe further increase our exposure and position our products as premier lifestyle brands by leveraging our partners’ resources and consumer reach beyond the musical instruments industry.

Continue to be a partner of choice for strategic relationships

We believe that our experience in successful acquisitions and partnerships, our reputation for enhancing brands and our global scale make us an attractive partner within the musical instruments industry. We intend to build on our experience in acquisitions and strategic relationships by continuing to evaluate potential acquisition opportunities, license agreements, distribution arrangements and other strategic relationships. We evaluate these opportunities based on the potential to leverage our marketing, sales, distribution, sourcing and manufacturing capabilities to add value and contribute to growth with new brands and products. Over the last 15 years, we have successfully executed a variety of acquisitions of companies and assets and entered into licensing and distribution arrangements that have expanded our brand portfolio.

Promote operational efficiencies

We intend to continue to drive operational efficiencies to improve our operating margin while maintaining or enhancing the quality of our products. In addition, we intend to continue investing in manufacturing technologies, such as robotic painting, to improve product quality, increase capacity and lower cost. We also plan to improve our wood storage, climate control and wood grading practices and expand our capability to manufacture the raw pieces of wood used in the manufacture of guitars. We continually evaluate shifting additional production to manufacturing facilities with lower or more stable costs. For example, our Ensenada, Mexico manufacturing facility provides us with high-quality products at stable, relatively low costs, and we intend to explore opportunities to move additional production to that facility.

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Risks related to our business

Our business is subject to numerous risks and uncertainties, including those highlighted in the section titled “Risk factors.” Some of these risks are:

• Recent difficult economic conditions have adversely affected consumer purchases of discretionary items, such as our products, and may continue to harm our business and results of operations.

• We derive a substantial portion of our net sales from Europe, and the financial crisis in Europe could significantly harm our business and results of operations.

• Our ability to increase our net sales will depend in large part on growth in the markets for our products.

• If we are not able to accurately forecast demand for our products, our business and results of operations would be harmed.

• If we are unable to anticipate and respond to changes in consumer demand and trends, our net sales, business and results of operations would suffer.

• Any delay in the delivery of our products to customers could harm our business and results of operations.

• We depend on OEMs for production of a significant portion of our products. If we are unable to maintain these manufacturing relationships or enter into additional or different arrangements as needed, our net sales would suffer.

• Any disruption we experience at our manufacturing facilities or our distribution system or any disruption at our OEMs could hurt our ability to deliver our products to customers.

• Our OEMs may not continue to produce products that are consistent with our standards, which could damage the value of our brands and harm our business and results of operations.

• Any disruption in the supply of raw materials and components we and third parties need to manufacture our products could harm our net sales.

• We may be subject to the enforcement of regulations and laws relating to the importation and use of certain raw material, which could adversely affect our ability to use certain raw materials and harm our business.

• We depend on our relationships with dealers and their ability to sell our products, and one dealer is responsible for a significant percentage of our net sales. Any disruption in these relationships could harm our net sales.

• For sales in some countries outside the United States, we rely in part on third party distributors and are subject to the risk that these distributors may not effectively sell our products.

• We are subject to credit risk associated with our largest customer.

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Corporate information

We were incorporated in Delaware in January 1985. Our principal executive offices are located at 17600 North Perimeter Drive, Suite 100, Scottsdale, Arizona 85255. Our telephone number is (480) 596-9690. Our website address is www.fender.com. Information contained on our website is not incorporated by reference into this prospectus, and you should not consider information contained on our website to be part of this prospectus or in deciding whether to purchase shares of our common stock.

We have a number of registered marks, including Fender^®, Stratocaster^®, Telecaster^®, Precision Bass^®, Jazz Bass^®, Squier^® and others, in several jurisdictions, including the United States, and we have also applied to register a number of other marks in various jurisdictions. This prospectus also contains trademarks and trade names of other companies. All trademarks and trade names appearing in this prospectus are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

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The offering

Common stock offered by us                  shares

Common stock offered by the selling stockholders                  shares

Underwriters’ option to purchase additional shares Certain of the selling stockholders have granted the underwriters a 30-day option to purchase up to an additional                  shares.

Common stock to be outstanding after this offering                  shares

Use of proceeds We estimate that the net proceeds to us from this offering will be approximately $         million, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us, assuming an initial public offering price of $         per share, which is the midpoint of the range of the initial public offering price listed on the cover page of this prospectus. We intend to use approximately $100 million of the net proceeds to us to repay a portion of the amount outstanding under the term loan portion of our senior secured credit facility and to use the remainder of the net proceeds to us for working capital and other general corporate purposes. We may also use a portion of the net proceeds to us to acquire other businesses, products or technologies. We do not have agreements or commitments for any specific significant acquisitions at this time. We will not receive any proceeds from the sale of the shares sold by the selling stockholders. See “Use of proceeds.”

Directed share program The underwriters have reserved for sale, at the initial public offering price, up to approximately                  shares of our common stock being offered for sale to certain persons and entities that have relationships with us. We will offer these shares to the extent permitted under applicable regulations in the United States and in various countries. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares.

Conflicts of interest We expect to use more than 5% of the net proceeds from the sale of our common stock to repay indebtedness under the term loan portion

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of our senior secured credit facility owed by us to affiliates of certain of the underwriters who are lenders under the term loan portion of our senior secured credit facility. See “Use of proceeds.” Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority’s conduct rules. This rule provides generally that if at least 5% of the net proceeds from the sale of securities, not including underwriting compensation, is used to reduce or retire the balance of a loan or credit facility extended by the underwriters or their affiliates, a “qualified independent underwriter” meeting certain standards must participate in the preparation of this prospectus and exercise the usual standards of diligence with respect thereto. William Blair & Company, L.L.C. is assuming the responsibilities of acting as the qualified independent underwriter in conducting due diligence. See “Conflicts of interest” for a more detailed discussion of potential conflicts of interest.

Dividend policy Currently, we do not anticipate paying cash dividends.

Proposed Nasdaq Global Market symbol FNDR

The number of shares of our common stock to be outstanding following this offering is based on 196,112 shares of our common stock outstanding as of January 1, 2012, and excludes:

• 67,511 shares of common stock issuable upon exercise of options outstanding as of January 1, 2012 at a weighted average exercise price of $953 per share;

• restricted stock units, representing the right, at the option of the company, to deliver 300 shares of common stock or an equivalent cash amount, of which 60 restricted stock units have vested as of January 1, 2012; and

•                  shares of our common stock reserved for future issuance under equity compensation plans, consisting of                  shares of common stock reserved for issuance under our 2012 Equity Compensation Plan, which will become effective upon completion of this offering, and 7,783 additional shares reserved for issuance under our 2007 Equity Compensation Plan. On the date of this prospectus, any remaining shares available for issuance under our 2007 Equity Compensation Plan will be added to the shares to be reserved under our 2012 Equity Compensation Plan and we will cease granting awards under our 2007 Equity Compensation Plan.

Unless otherwise indicated, this prospectus reflects and assumes the following:

• a                      -for-                      stock split of our classes of common stock, which occurred on                     , 2012;

• the effectiveness of amendments to our certificate of incorporation as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis;

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• the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock upon the closing of this offering; and

• no exercise by the underwriters of their option to purchase up to an additional                  shares of common stock from certain selling stockholders in the offering.

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Summary consolidated financial data

The following table sets forth our summary consolidated financial data as of the dates and for the periods indicated. Our summary consolidated statement of operations for each of the years ended January 3, 2010, January 2, 2011, and January 1, 2012, and the summary consolidated balance sheet data as of January 1, 2012, have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus.

We operate and report financial information on a 52 or 53 week fiscal year ending on the Sunday closest to the end of December. The reporting periods contained in our audited consolidated financial statements included in this prospectus contain 53 weeks of operations in fiscal 2009, 52 weeks of operations in fiscal 2010 and 52 weeks of operations in fiscal 2011.

The historical results presented below are not necessarily indicative of the results to be expected for any future period, and the results for any interim period may not necessarily be indicative of the results that may be expected for a full year. The following summaries of our consolidated financial data for the periods presented should be read in conjunction with “Risk factors”, “Selected consolidated financial data”, “Capitalization”, “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the related notes, which are included elsewhere in this prospectus.

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Fiscal year ended (in thousands, except share and per share data)	January 3, 2010			January 2, 2011			January 1, 2012
Consolidated statement of operations data:
Net sales	$	612,521		$	617,830		$	700,554
Cost of goods sold		420,919			447,250			483,020
Gross profit		191,602			170,580			217,534
Operating expenses:
Selling, general and administrative		125,711			121,651			137,128
Warehouse		25,878			27,713			28,426
Research and development		9,004			9,299			10,157
Impairment charges		1,200			—			—
Total operating expenses		161,793			158,663			175,711
Income from operations		29,809			11,917			41,823
Other income (expense):
Net foreign currency exchange (loss)		(3,602	)		(1,175	)		(3,807	)
Interest expense		(15,636	)		(12,688	)		(14,927	)
Other, net		1,723			(391	)		1,130
Total other income (expense)		(17,515	)		(14,254	)		(17,604	)
Income (loss) before income taxes		12,294			(2,337	)		24,219
Income tax expense (benefit)		1,507			(652	)		5,208
Net income (loss)		10,787			(1,685	)		19,011
Net income available to redeemable common stockholders		4,724			15,584			15,785
Net income (loss) available (attributable) to common stockholders	$	6,063		$	(17,269	)	$	3,226
Net income (loss) per common share available (attributable) to common stockholders:
Basic	$	51.89		$	(147.75	)	$	28.38
Diluted	$	43.70		$	(147.75	)	$	24.72
Weighted average common shares outstanding:
Basic		116,853			116,877			113,691
Diluted		138,744			116,877			130,508
Pro forma net income per common share (unaudited):
Basic							$	97.28
Diluted							$	89.57
Weighted average common shares used in computing pro forma net income per common share (unaudited) (1):
Basic								195,422
Diluted								212,239

(1) Weighted average common shares used in computing pro forma net income per common share (unaudited) gives effect as of January 3, 2011 to (i) the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock, which will occur upon the closing of this offering and (ii) the effectiveness of amendments to our certificate of incorporation as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis.

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Our consolidated balance sheet data as of January 1, 2012, is presented:

• on an actual basis;

• on a pro forma basis to reflect (i) the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock upon the closing of the offering and (ii) the effectiveness of amendments to our certificate of incorporation as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis; and

• on a pro forma as adjusted basis, reflecting the pro forma adjustments and the sale of                  shares of common stock by us in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the range of the initial public offering price listed on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us, and the application of a portion of such proceeds to repay approximately $100 million of the amount outstanding under the term loan portion of our senior secured credit facilities.

As of January 1, 2012 (in thousands)	Actual			Pro forma (unaudited)		Pro forma as adjusted (unaudited)
Consolidated balance sheet data (1):
Cash and cash equivalents	$	12,971		$	12,971
Inventories		181,333			181,333
Working capital		190,569			190,569
Property and equipment—net		31,389			31,389
Total assets		366,580			366,580
Total debt and capital lease obligations, including current maturities		247,520			247,520
Redeemable common stock		99,789			—
Total stockholders’ (deficit) equity	$	(67,811	)	$	31,978

(1) A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity by $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting assumed underwriting discounts and commissions. An increase or decrease of 100,000 shares in the number of shares sold in this offering by us would increase or decrease cash and cash equivalents, working capital, total assets and total stockholders’ (deficit) equity from this offering by $        , assuming an initial public offering price of $         per share and after deducting assumed underwriting discounts and commissions.

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Non-GAAP financial measures

To provide investors with additional information about our financial results, we disclose within this prospectus adjusted EBITDA, a non-GAAP financial measure. We have provided below a reconciliation between adjusted EBITDA and net income or loss, the most directly comparable GAAP financial measure.

We have included adjusted EBITDA in this prospectus because we believe it allows investors to understand and evaluate our core operating performance and trends. In particular, the exclusion of certain expenses in calculating adjusted EBITDA can provide a useful measure for period-to-period comparisons of our core business.

Some limitations of adjusted EBITDA are:

• adjusted EBITDA does not include the impact of equity-based compensation;

• adjusted EBITDA does not include the impact of impairment charges;

• adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

• adjusted EBITDA does not reflect income tax payments that may represent a reduction in cash available to us;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future; and

• other companies may calculate adjusted EBITDA differently or not at all, which reduces its usefulness as a comparative measure.

Because of these limitations, you should consider adjusted EBITDA alongside other financial performance measures, including net income (loss) and our financial results presented in accordance with GAAP. The following table presents a reconciliation of net income (loss) to adjusted EBITDA for each of the periods indicated:

Fiscal year ended (in thousands)	January 3, 2010		January 2, 2011			January 1, 2012
Reconciliation of net income (loss) to adjusted EBITDA
Net income (loss)	$	10,787	$	(1,685	)	$	19,011
Interest expense		15,636		12,688			14,927
Income tax expense (benefit)		1,507		(652	)		5,208
Depreciation and amortization		12,052		10,776			8,732
Impairment charges		1,200		—			—
Stock based compensation		2,592		1,741			5,049
Adjusted EBITDA	$	43,774	$	22,868		$	52,927

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Risk factors

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this prospectus, before deciding whether to purchase shares of our common stock. The risks described below are not the only ones that we face. Additional risks that are not yet known to us or that we currently believe to be immaterial also could impair our business or results of operations. If any of the following risks is realized, our business, results of operations and prospects could be harmed. In that event, the price of our common stock could decline and you could lose part or all of your investment.

Risks related to our business and industry

Recent difficult economic conditions have adversely affected consumer purchases of discretionary items, such as our products, and may continue to harm our business and results of operations.

Sales of musical instruments depend in significant part on discretionary consumer spending, which tends to decline during difficult economic conditions. Discretionary consumer spending also is affected by other factors, including changes in tax rates and tax credits, interest rates and the availability and terms of consumer credit. The recent recession in the United States and other countries in which we sell our products has adversely impacted consumers’ ability and willingness to spend discretionary income, and we believe it has adversely affected our net sales in recent years. A continuation or worsening of the current weakness in the economy would negatively affect consumer purchases of our products and would continue to harm our business and results of operations.

We derive a substantial portion of our net sales from Europe, and the financial crisis in Europe could significantly harm our business and results of operations.

In fiscal 2011, Europe accounted for approximately 27.3% of our net sales. The current financial crisis in Europe (including concerns that certain European countries may default in payments due on their national debt) and the resulting economic uncertainty in recent months has adversely affected, and may continue to adversely affect, sales of our products in Europe. To the extent that these adverse economic conditions in Europe continue or worsen, demand for our products by both consumers and retailers may decline, which could significantly harm our business and results of operations.

Our ability to increase our net sales will depend in large part on growth in the markets for our products.

Our ability to grow our net sales depends on growth in the markets for our products. In particular, growth in our core markets is primarily driven by individuals deciding to play fretted or percussion instruments, as well as by existing musicians purchasing additional instruments and accessories. We believe that the rate at which new fretted instrument or percussion players are created, as well as the extent to which musicians continue to play these instruments and purchase new products, depends on a number of factors, including:

• the popularity of genres of music that feature our primary product categories (namely fretted instruments, guitar amplifiers and percussion);

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• the popularity of music in general;

• other factors, such as music and song sales, that affect individuals’ exposure to music;

• the ability to entice consumers to play musical instruments initially and to continue playing; and

• the ability of music programs to foster a lasting interest in music and musical instruments at an early age.

Any changes in trends or preferences that negatively affect these or other factors may lead to a decline in the size of the market for our products. In addition, our ability to grow our business internationally may be limited to the extent that popular music genres in a particular country or region do not incorporate the types of products that we sell.

If we are not able to accurately forecast demand for our products, our business and results of operations would be harmed.

Our products typically have a lead time of 90 days and, in some cases, longer, to obtain sufficient inventory and to replenish supply. Accordingly, we make decisions that determine our inventory levels based on our expectations regarding demand for our products. Actual demand may differ significantly from demand levels that we project, and is particularly uncertain with respect to new products. If we underestimate demand for a new or existing product, we will not have sufficient inventory to meet this demand, which could result in delayed shipments to customers and lost sales. On the other hand, if we overestimate demand, we will have excess inventory of finished products as well as raw materials and work-in-progress. This excess inventory could become obsolete, could result in us incurring costs to manufacture those products earlier than we would otherwise have been required to do so or could result in us shifting production to other products for which we may not have materials in stock, all of which would harm our business and results of operations.

The current difficult, volatile economic conditions in the Unites States, Europe and other countries has made, and may continue to make, accurate forecasting particularly challenging. Any failure on our part to accurately forecast demand for our products could adversely affect our net sales, business and results of operations.

If we are unable to anticipate and respond to changes in consumer demand and trends, our net sales, business and results of operations would suffer.

Consumer preferences and demand, both within the markets for our various products and with respect to the musical instruments market as a whole, are subject to rapid change and are difficult to predict. Consumer preferences may shift away from fretted instruments or musical instruments in general, and towards other areas based on new products and trends or for other reasons. In addition, shifts of preferences as to style of music may impact demand for our products and can change our product mix. For example, shifts towards electronic music or music created using sampling or other digital technology, synthesizers or keyboards could reduce the demand for many of our products, as we do not sell significant quantities of synthesizers, keyboards or software-based musical instruments. Because our brand names are most closely associated with electric, acoustic and bass guitars, percussion instruments and guitar amplifiers, shifts in consumer preferences towards genres that typically do not incorporate these products,

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such as rap or electronic music, also could reduce the demand for many of our products. In fiscal 2011, fretted instruments and guitar amplifiers represented 72.0% of our gross sales before discounts and allowances.

If we are not able to anticipate, identify and respond to changes in consumer preferences in a timely manner, or at all, our net sales could decline and our business and results of operations would be harmed.

Any delay in the delivery of our products to customers could harm our business and results of operations.

A critical component of our ability to complete sales to our customers is our ability to meet our customers’ demand in a timely manner. Any delay in the shipment of our products could result in lost sales. It is especially important that we meet our customers’ demand in a timely manner during the holiday selling season. In some instances, delays in filling our retail customers’ product orders has led to increased backlog as we work to fulfill these orders. Events that could result in shipment delays include:

• disruption at our manufacturing facilities or those of our OEMs, as a result of a variety of factors, including labor disruptions, natural disasters, and technological or mechanical failures in the machines used to manufacture our products or in our enterprise resource planning, or ERP, systems;

• delays in receiving raw materials or component parts required to manufacture our products;

• delays in the transportation of our products either to our warehouse facilities or to our customers; and

• inaccurate forecasting.

Any of these or other events that disrupt the supply of our products to our customers could cause our net sales to decline and harm our business and results of operations.

We depend on OEMs for production of a significant portion of our products. If we are unable to maintain these manufacturing relationships or enter into additional or different arrangements as needed, our net sales would suffer.

We depend on OEMs located in Asia to manufacture a significant portion of our products. In fiscal 2011, products manufactured by OEMs accounted for approximately 64.0% of our gross sales before discounts and allowances, including distributed brands, and 36.0% of our gross sales before discounts and allowances of our owned brands. In certain of our product lines, we are dependent on a single manufacturer to produce those products. Due to lack of financial resources, disruptions at their facilities, labor shortages or disputes, difficulty or delay in obtaining raw materials, parts and components or otherwise, these manufacturers may not be able to provide us with manufacturing capacity to meet our needs. From time to time, some of our OEMs, including OEMs that are the sole manufacturer of specific product lines, have encountered financial difficulties or other problems, which have caused delays in the production and delivery of our products. If we were unable to obtain sufficient quantities of our products from these manufacturers in a timely manner, our business and results of operations would suffer.

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We do not have long-term contracts with any of these OEMs, and there can be no assurance that we will be able to renew these contracts on favorable terms or at all. In addition, there can be no assurance that these OEMs will continue to devote sufficient time, attention and resources to our products or that these OEMs will not manufacture products for our competitors. It is also possible that financial difficulties could cause one or more our OEMs to discontinue their business. For example, in the fourth-quarter of fiscal 2011, Chushin Musical Instruments Mfg., Inc., which manufactured certain electric guitars for us, discontinued its business, and, as a result, we were required to source those guitars from other OEMs.

Manufacturing our products, especially our fretted instruments, requires a skilled and trained workforce, and we have invested significant resources in training our OEMs in the production of our products. If we were to have to obtain an additional OEM due to the loss of one of our existing OEMs, because we are not satisfied with one of our existing OEM’s performance, one of our existing OEMs discontinued its business, or otherwise, we would need to spend significant resources in locating and training a new OEM and there can be no assurance that we could locate such a manufacturer in a timely manner or at all. Any failure to locate a new OEM in a timely manner or at all could adversely affect our business and results of operations.

In addition, we have in the past replaced, and may in the future replace, OEMs for a variety of reasons, including cost, quality and capacity. The replacement of any OEM could lead to disruptions in our supply chain and lost sales.

Any disruption we experience at our manufacturing facilities or our distribution system or any disruption at our OEMs could hurt our ability to deliver our products to customers.

We rely on our manufacturing facilities in Arizona, California, Connecticut, South Carolina and Mexico, and OEMs in China, India, Indonesia, Japan, South Korea, Taiwan, Thailand and Vietnam to produce our products, and we rely on our distribution facilities in California, Kentucky, Tennessee, the Netherlands and Canada to manage our inventory and ship our products. Our manufacturing and distribution facilities include computer controlled equipment, and are subject to a number of risks related to security, computer viruses, software and hardware malfunctions, power interruptions, mechanical failures or other system failures. Our operations also could be interrupted by earthquakes, fires, floods, tornadoes or other natural disasters near our manufacturing facilities or distribution centers. One of our primary manufacturing facilities and our primary distribution facility are located in Southern California, an area that has experienced earthquakes and fires. A natural disaster or other catastrophic event could cause interruptions in the manufacture or distribution of our products and loss of inventory and could impair our ability to fulfill customer orders in a timely manner. Our manufacturing facility in Corona, California is also located in an area where many workers are represented by labor unions. If the employees in our Corona facility were to become unionized, we could be subject to labor disruptions and increased labor costs. We also operate a manufacturing facility in Ensenada, Mexico. Recently, Mexico has experienced a period of increasing criminal violence, primarily due to the activities of drug cartels and related organized crime. These activities and the possible escalation of violence associated with them could disrupt our manufacturing activities in Mexico and impair our ability to fulfill customer orders in a timely manner.

Our OEMs’ operations could similarly be disrupted, either temporarily or completely, by any of the events described above, as well as by other events, including poor financial condition, labor disputes, social unrest, quarantines or closures due to disease outbreak, or terrorism. Any

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disruptions at our OEMs’ operations could delay the shipment of our products and could result in lost sales or price increases we must either absorb or pass on to our customers, which could adversely affect the demand for our products. For example, in fiscal 2011 one of our OEMs experienced severe flooding at one of its factories. This OEM requested price increases from us that we were not willing to fully absorb or seek to pass on to our customers. As a result, we are currently exploring alternative sources for the products manufactured by that OEM.

We are currently expanding our Mexican plant capability to operate as a cost-effective alternative to some of our OEM capacity in Asia. Although we have switched some production to Mexico on a limited basis, switching production to Mexico on a larger scale in the event of disruptions in Asia would take from several months to a year and could result in significant lost sales. Any disruption to an OEM that is the sole manufacturer of a particular product would have a significant impact on our net sales of that product. To the extent disruptions at an OEM occur for an extended time period, we may be required to obtain new manufacturers. This process would increase the complexity of our supply chain management and be time consuming and expensive, and would likely result in delays in deliveries of our products to our customers. Furthermore, there is no assurance that we could find new manufacturers who are satisfactory to us on commercially acceptable terms or at all. We maintain only a limited amount of business interruption insurance that would not be sufficient to cover us in the event of significant disruption at our facilities or at any of our OEMs.

Our operations depend on the timely performance of services by third parties, including the shipment of our products to and from our distribution facilities, as well as the shipment of supplies to our manufacturing operations. If we encounter problems with our manufacturing or distribution operations, our net sales and our business and results of operations could be harmed.

Our OEMs may not continue to produce products that are consistent with our standards, which could damage the value of our brands and harm our business and results of operations.

We rely on our OEMs to maintain production quality that meets our standards. Our OEMs may not continue to produce products that are consistent with our standards as a result of the use of lower-quality raw materials, changes in production methods, a shortage of qualified employees or poor financial condition. For example, as of December 31, 2011, more than 11,000 guitars manufactured by one of our OEMs had failed our quality control inspections because the OEM began using a lower-quality component without our permission, and several thousand additional guitars manufactured by that OEM may fail our inspections as well. Our quality control measures largely consist of inspecting samples of products shipped to us and visiting our OEMs. We do not, however, base any of our employees at these manufacturing sites. Our inspection methods may prove inadequate to detect defects in our products before they reach consumers. If OEMs do not maintain adequate quality control measures, or if the quality control inspection measures that we employ fail to detect quality control issues, our reputation and the value of our brands could be harmed, and we could incur increased returns and warranty expense, which would harm our business and operating results.

Any disruption in the supply of raw materials and components we and third parties need to manufacture our products could harm our net sales.

At our owned factories, the primary raw material used in our products is hardwood, principally poplar, ash, alder and hardwood maple. We also use rosewood in portions of approximately 45.0%

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of our finished goods from these factories. In addition, we use a limited amount of other exotic and rare woods in our products. We depend on third party suppliers to supply these raw materials to us and our OEMs. In addition to raw materials, we also use third party suppliers for certain components needed for our fretted and percussion instruments and guitar amplifiers. These components include fretted instrument cases, tubes for our guitar amplifiers, strings for our fretted instruments, drum heads, printed circuit boards, guitar amplifier speakers, selected pick-ups, paint, machine heads, grill-cloths and plastic and metal components such as control knobs.

We do not have long-term contracts with our suppliers and, in some cases, rely on a single supplier for all of our requirements for a particular raw material or component. We are subject to the risk that these third party suppliers will not be able or willing to continue to provide us and our OEMs with raw materials and components that meet our specifications, quality standards and delivery schedules. Factors that could impact our suppliers’ willingness and ability to continue to provide us with the required materials and components include disruption at or affecting our suppliers’ facilities, such as work stoppages or natural disasters, adverse weather or other conditions that affect wood supply, the financial condition of our suppliers and deterioration in our and our OEMs’ relationships with these suppliers. In addition, we cannot be sure that we or our OEMs will be able to obtain these materials and components on satisfactory terms. For example, the supply of exotic woods, such as mahogany and rosewood, used in some of our guitars and bass guitars is becoming less available, which, over time, may increase cost or cause us to seek alternative materials that may not be consistent with current quality standards. Any increase in raw material and component costs could reduce our sales and harm our gross margins. In addition, any loss of a specific wood may permanently cause a change in one or more of our products that may not be accepted by end users or cause us to eliminate that product altogether.

Similarly, in the past, we relied on a single supplier of paint for the guitars manufactured at our Corona, California manufacturing facility. That supplier discontinued business in fiscal 2010. For a variety of reasons, including the specialized nature of the paint we require, replacing that supplier was costly and time consuming. As a result, we were unable to produce guitars at our Corona facility for a period of approximately four months in fiscal 2010, and full production did not resume for a further three months. This disruption significantly reduced our net sales and income from operations in fiscal 2010, and the associated delays created a backlog of orders. The disruption also led to increases in scrap and rework rates and costs associated with testing new paints and training personnel to use new paints during this period. Although we have since developed secondary sources for our primary paint coatings, the unavailability of paints or other key raw materials could adversely affect our business in the future.

We depend on a limited number of suppliers for tubes used in our guitar amplifiers and certain exotic woods that we use in a selection of our guitars. For example, we believe there are only three primary manufacturers for the tubes used in certain of our guitar amplifiers, located in China, Russia, and the Czech Republic. In some cases, these manufacturers are the sole source of certain types of tubes. If we are unable to find acceptable substitutes for these suppliers, we may be required to produce these tubes internally or change our designs. Similarly, through-hole componentry used in certain of our guitar amplifiers is becoming scarcer worldwide as most electronics manufacturers shift to surface-mount components. We do not have long-term agreements with these suppliers and we cannot be sure that they will continue to supply us or our OEMs with the materials needed to manufacture our products, on acceptable terms or at all.

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If we are unable to sustain historical technologies, such as vacuum tubes, traditional tone woods and through-hole componentry, our business and results of operations could suffer.

Disruption in the supply of materials would impair our ability to sell our products and meet customer demand, and also could delay the launch of new products, any of which could harm our business and results of operations. If we were to have to change suppliers, the new supplier may not be able to provide us materials or components in a timely manner and in adequate quantities that are consistent with our quality standards and on satisfactory pricing terms. In addition, alternative sources of supply may not be available for raw materials that are scarce or components for which there are a limited number of suppliers.

We may be subject to the enforcement of regulations and laws relating to the importation and use of certain raw materials, which could adversely affect our ability to use certain raw materials and harm our business.

We are subject to a variety of customs and import regulations that, if not properly followed could delay or impact our importation of raw materials, which could adversely affect our business. For example, in June 2011, German officials began a criminal investigation pertaining to less than 500 Fender guitars containing Brazilian rosewood fingerboards to determine if they were improperly imported into Germany between approximately March 2010 and January 2011. We are investigating whether the necks of the subject products may be replaced with materials that are not subject to the import restriction at issue.

One of our competitors, Gibson Guitar Corp., is in litigation with the U.S. Fish & Wildlife Service, or Fish & Wildlife, for alleged violations of the Lacey Act, which regulates trade in wood and other plant products. Most recently in August 2011, Fish & Wildlife raided Gibson’s headquarters and seized rosewood from India, alleging that it was exported under an incorrect tariff code and that Gibson was not identified in importation paperwork. Although we believe our sourcing and importation practices are in compliance with the Lacey Act and other applicable regulations, Fish & Wildlife or other applicable regulators could take a different view, which could restrict or prevent our use of specific types of woods from specific countries/regions of the world, and/or subject us to fines and other penalties.

In the case of certain raw materials that we use in our products, including certain types of woods, we may be subject to pressure from environmental groups to use alternative types of materials. These alternative materials could reduce the quality of our products or could be more expensive, either of which could harm our business and results of operations. In addition, negative publicity regarding environmental matters also could harm our brands.

We may also be subject to the enforcement of other new or existing regulations and laws relating to the sourcing, transportation, distribution and use of raw materials and components, including wood, electrical components and adhesives, which could impact our ability to use certain raw materials or components and harm our business.

We depend on our relationships with dealers and their ability to sell our products, and one dealer is responsible for a significant percentage of our net sales. Any disruption in these relationships could harm our net sales.

We sell our products at wholesale to dealers and, accordingly, depend on the willingness and ability of our dealers to market and sell our products to consumers. For fiscal 2009, fiscal 2010

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and fiscal 2011, Guitar Center Inc., or Guitar Center, and its affiliates accounted for approximately 15.2%, 15.8% and 15.8% of our net sales, respectively. Sales of our products depend in part on dealers and distributors implementing effective retail sales initiatives that create and sustain demand for the products they purchase from us. If these initiatives are not successfully implemented or if any of our significant customers were to reduce the quantity of our products it sells, stop selling our products, focus selling efforts on our competitors’ products or generally reduce its operations due to financial difficulties or otherwise, our business and results of operations would suffer. For example, during fiscal 2009, Guitar Center and its affiliates reduced their purchases of our products, which in turn negatively affected our net sales. We do not have long-term contracts with dealers, including Guitar Center and its affiliates. Our dealers are generally not obligated to purchase specified amounts of our products, and they generally purchase products from us on a purchase order basis.

In addition, we rely on our dealers, especially specialty music dealers that provide individual sales assistance, to be knowledgeable about our products and their features. If we are not able to educate our dealers so that they may effectively sell our products, or if our dealers do not provide positive buying experiences for our consumers, our brands and business would be harmed.

For sales in some countries outside the United States, we rely in part on third party distributors and are subject to the risk that these distributors may not effectively sell our products.

For sales in some countries outside the United States, including markets in Asia and Latin America, we rely on independent distributors to sell our products to dealers. We do not control our independent distributors, and many of our contracts allow our distributors to offer our competitors’ products. Our competitors may incentivize distributors to favor their products. We generally do not have long-term contracts with these distributors and the substantial majority of our contracts do not contain meaningful minimum purchase commitments. Consequently, with little or no notice, many of these distributors may terminate their relationships with us or materially reduce the level of their purchases of our products. If we were to lose one or more of our distributors, we would need to obtain a new distributor to cover the particular location or product line, which may not be possible on favorable terms or at all. In the alternative, we would need to use our own sales force to replace the distributor. Expanding our sales force into new locations takes a significant amount of time and resources, and there is no assurance that we would be successful in such an expansion. In addition, we are party to two exclusive distribution agreements for the Japanese market with two of our significant stockholders that contain restrictions limiting our ability to terminate the agreements. Should we desire to replace these distributors with our own sales force, as we have done in Europe, or if we were to seek to retain a new distributor for the Japanese market, these agreements may prevent us from doing so.

We are subject to credit risk associated with our largest customer.

Historically, a significant portion of our domestic net sales has been generated by our largest customer. As a result, we experience some concentration of credit risk in our accounts receivable, with Guitar Center and its affiliates representing an aggregate of $8.7 million, or approximately 13.8%, of our accounts receivable as of January 1, 2012. In November 2010, Moody’s Investors Service downgraded Guitar Center’s corporate family rating and probability of default rating to Caa2 (which Moody’s defines as “poor standing and subject to very high credit risk”) from Caa1, citing Guitar Center’s highly leveraged capital structure and heavy interest burden. Moody’s

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affirmed Guitar Center’s Caa2 rating on February 29, 2012. These factors make Guitar Center more vulnerable to any deterioration in its financial performance, whether as a result of adverse economic conditions or otherwise. A substantial majority of our accounts receivable, including all of our accounts receivable from Guitar Center and its subsidiaries, are not covered by collateral or credit insurance.

If one or more of our significant customers were to experience serious financial difficulty, as a result of weak economic conditions or otherwise, and were to reduce its inventory in one or more of our products or limit or cease operations, our business and results of operations would be significantly harmed. Consolidation of our customers in the future or additional concentration of market share among our customers may also increase the concentration of our credit risk.

We participate in floor plan financing arrangements for many of our independent dealers under which a third party finances, or “floors,” the purchase of products from us. Under these arrangements, we are subject to credit risk in the event that the independent dealers do not repay amounts owed under these arrangements. In particular, under those floor plan arrangements that are recourse, we would be obligated to reimburse the third party financing sources either in full or in part in the event the independent dealers default on their obligations. Any failure of these independent dealers to satisfy their obligations, either as a result of deterioration in their financial condition or otherwise, could cause our bad debt expense to increase. In addition, one of the primary third party financing sources that finances floor plan arrangements ceased providing these arrangements in the United Kingdom in 2009, and any further reduction in the availability of floor plan financing may prevent dealers from carrying an adequate inventory of our products, which could reduce demand and reduce our net sales.

We operate in highly competitive markets, and, if we do not compete effectively, our business and results of operations will be harmed.

The markets in which we operate are highly competitive and are served by a variety of established companies with recognized brand names, as well as new market entrants. Companies in these markets compete based on a variety of factors, including price, style of instrument, sound and sound quality, features and brand recognition. Our ability to increase our net sales depends, in part, on our ability to compete effectively and maintain or increase our market share. We compete with different types of companies and based on different factors in each market. For example, in the market for beginner instruments competition is largely based on price as well as brand recognition. In the markets for higher-priced and professional instruments, competition tends to be based more on sound, sound quality and style of instrument. In certain areas of the markets in which we compete, some of our competitors may be more established, benefit from greater name recognition or have greater manufacturing and distribution channels and other resources than we do. If we are not able to compete effectively, we may lose market share, our net sales could decline or grow at a slower rate and our business and results of operations would be harmed.

If we fail to maintain the value of our brands, our business will be harmed.

Our success depends on the value of our brands. Fender and our other brand names are central to our business as well as to the implementation of our strategies for expanding our business. Maintaining, promoting and positioning our brands will depend largely on our ability to provide high-quality products that respond to consumer preferences in a timely manner, as well as on the

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success of our marketing efforts. Our brands could be adversely affected if we fail to achieve these objectives or if we or others with whom we are associated take actions that harm our public image or reputation. In addition, our brands could be harmed if our products are not viewed as distinctive. If the value of our brands were to decline, our net sales would decline and our business and results of operations would be harmed.

If we are unable to protect our intellectual property rights, the value of our brands could decline and our business could suffer.

Our intellectual property is critical to the success of our business. We particularly rely on our trademarks for our brand recognition, and rely on trade dress, patents and other intellectual property rights to protect and maintain the distinctiveness of our products and their sound quality and style. Despite our efforts, the steps we have taken to protect our intellectual property may not be adequate to prevent infringement of our intellectual property. For example, we have been unable to obtain registered trademark protection in the United States for the specific category of musical instruments for the two dimensional guitar body designs commonly used on our iconic Stratocaster, Telecaster and Precision Bass guitars. In addition, the regulations of certain foreign countries do not protect our intellectual property rights to the same extent as the laws of the United States. From time to time, we have discovered unauthorized products in the marketplace that are counterfeit reproductions of our products. Although we expend efforts to pursue counterfeiters, it is not practicable to pursue all counterfeiters. If we are unsuccessful in challenging a third party’s products on the basis of trademark infringement or if we are unable to dedicate sufficient resources to detecting and pursuing counterfeit products or otherwise do not aggressively pursue producers or sellers of counterfeit products, continued sales of these products could adversely impact our brands and our business and results of operations.

We have registered many of our brand names and some of our product designs as trademarks in the United States and in certain foreign countries. We may not, however, be successful in asserting trademark, trade name or trade dress protection with respect to our brand names and our product designs and third parties may seek to oppose or challenge our trademark registrations. For instance, as described further under “Business—Legal proceedings,” in connection with trademark registration opposition proceedings that we initiated against one of our competitors, Peavey Electronics Corporation, or Peavey, filed counterclaims against us, petitioning for cancellation of two of our registered headstock designs that are used in many of our electric guitars and bass guitars. If we are not successful in this cancellation proceeding, our ability to prevent other companies from copying the subject headstock designs may suffer. In addition, our pending patent applications may not result in the issuance of patents, and even issued patents may be contested, circumvented or invalidated and may not provide us with proprietary protection or competitive advantages.

Further, while we enter into non-disclosure agreements with employees, OEMs, distributors and others to protect our confidential information and trade secrets, we may be unable to prevent such parties from breaching these agreements with us and using our intellectual property in an unauthorized manner. If our efforts to protect our intellectual property are inadequate, or if a third party misappropriates our rights, the value of our brands could be harmed, which would adversely affect our business. Defending our intellectual property rights, including through litigation, can be very expensive and time consuming, and there is no assurance that we will be successful.

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We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as our trademarks, to third parties. Despite our efforts to protect our trademarks, these licensees may take actions that diminish the value of our proprietary rights and harm our brands and reputation.

Claims by others that we infringe their intellectual property rights could harm our business.

From time to time, third parties claim that one or more of our products or the products that we distribute infringe their proprietary rights. Any claims of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, and could distract our management from our business. Furthermore, a party making such a claim, if successful, could secure a judgment that requires us to pay substantial damages or that prevents us from offering one or more of our products. In addition, we might be required to seek a license for the use of such intellectual property, which may not be available on acceptable terms or at all. Alternatively, we may be required to alter our products to make them non-infringing, which could require significant effort and expense and ultimately may not be successful. Any of these events could harm our business and results of operations.

If we do not develop new or innovative products that meet evolving market needs, or if our new products do not achieve market acceptance, our business and results of operations will suffer.

We believe our long-term success will depend in part on our ability to continue to introduce new products that appeal to consumers and on our ability to develop new and innovative products that employ developing technologies and address evolving market needs. A significant portion of our sales in any year is from new or modified products that we have introduced in that year. For example, in fiscal 2011, 10.8% of our gross sales before discounts and allowances were attributable to products introduced in that year. In addition, modern technologies, such as digital signal processing technologies, are offering opportunities to develop instruments and guitar amplifiers that can address the needs of musicians in a wide variety of musical styles, and developments in technology offer opportunities to develop instruments and guitar amplifiers that provide higher sound quality at a lower cost. We have devoted, and continue to devote, significant resources to research and development. Our research and development expenses totaled $10.2 million in fiscal 2011. Our business and results of operations will, however, suffer if we are unable to develop innovative new products that achieve market acceptance.

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

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

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

• new advertising initiatives;

• fluctuations in raw materials and component costs;

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• changes in school budgets for musical instrument purchases; and

• changes in our practices with respect to building inventory.

As a result of these quarterly fluctuations, comparisons of our operating results between different quarters within a single year are not necessarily meaningful and may not be accurate indicators of our future performance. Any quarterly fluctuations that we report in the future may differ from the expectations of market analysts and investors, which could cause the price of our common stock to fluctuate significantly.

The loss of one or more members of our senior management team would adversely affect our business and our ability to execute our business strategy.

Our future success depends in large part on our ability to retain members of our senior management team, including our Chief Executive Officer, Larry Thomas, and to attract and retain other qualified managerial personnel. Mr. Thomas’ current employment agreement with us expires on March 31, 2015. Our management and other employees can terminate their employment with us at any time, and we do not maintain key person life insurance on employees other than Mr. Thomas. The proceeds of that policy would likely be inadequate to compensate us for the loss of Mr. Thomas’ services. While we have begun developing a management succession plan, it remains in the early stages of development and there can be no assurance that we will implement a successful management succession plan. The unexpected loss of one or more members of our senior management team could harm our business and our ability to execute our business strategy.

We depend on skilled craftspeople and engineers to develop and create our products, and an educated sales force to sell our products, and the failure to attract and retain such individuals could adversely affect our business.

Although portions of our manufacturing processes are automated, certain of our products, particularly our high-end guitars, continue to require a significant amount of skilled labor and handiwork. We rely on skilled and well-trained engineers and craftspeople both for the design and production of our products, as well as in our research and development functions. Our inability to attract or retain qualified employees in our design, production or research and development functions or elsewhere in our company could result in diminished quality of our product and delinquent production schedules, impede our ability to develop new products and harm our business and results of operations. In addition, we rely on a skilled sales force that is knowledgeable about our products. If we are not able to retain or attract qualified individuals to our sales force, or if we are not able to grow our sales force when needed, our ability to maintain or increase our net sales would suffer.

Many of the skills we require are not widely taught in traditional universities or schools. For example, vacuum tube and transistor based electronics design is no longer widely taught. Similarly, the skills required to construct and repair fretted instruments are only taught in highly-specialized trade schools. For these reasons, many of the skills required to manufacture our products are taught to new employees by more experienced staff. If we are unable to retain and promote talent within these areas of expertise who can teach their skills to new employees, we may be unable to sustain our historical technologies, and the long-term success of our business could be adversely affected.

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The artists who play our instruments are an important aspect of our brands’ images. The loss of the support of artists for our products or the inability to attract new artists may harm our business.

If our products are not used by current or future artists and famous musicians, our brands could lose value and our net sales could decline. Similarly, our Signature Artist program is a significant component of our marketing program. Through this program, famous musicians provide specifications for instruments bearing their signature, endorse their signature instrument and permit us to use their images in selected advertisements or on our websites, typically in exchange for royalties based on sales of their signature instruments. We do not have long-term contracts with any of these musicians, and these musicians are not restricted from endorsing our competitors’ products or required to use our products exclusively. If we are unable to maintain our current relationships with these artists, if these artists are no longer popular or if we are unable to continue to attract the endorsement of new artists in the future, the value of our brands and our net sales could decline.

If we are not able to maintain our relationships with third parties for whom we act as distributor or sales representative, our business and results of operations would be harmed.

We derive a portion of our net sales from product lines for which we act as distributor or sales representative. These arrangements include products such as Gretsch guitars and drums, Sabian cymbals, EVH guitars and guitar amplifiers and Takamine guitars. Some of the agreements governing these arrangements are for a fixed term and are renewable only upon the agreement of both parties. In other cases, the agreements have fixed terms and automatically renew unless notice is given a specified period of time in advance of the expiration of the current term. In addition, some of these agreements may be terminated in the event we do not satisfy certain performance conditions, including minimum purchase, sale and royalty requirements, and in the event of a change in control of FMIC.

If we are unable to renew these agreements on acceptable terms or at all or if we take actions that permit these agreements to be terminated, we may lose access to those product lines, which could adversely affect our business and results of operations. In some instances, including with respect to the distribution of Takamine guitars, we do not have agreements, other than purchase orders, that govern the distributor relationship. In such instances, this lack of an agreement means that should a dispute develop between us and the licensor, we could quickly lose the business associated with that product line.

We rely on information technology systems in all aspects of our business, and any failure or interruption in our information technology systems could disrupt and harm our business.

We rely on information technology systems in all aspects of our business, including for order processing, inventory and supply chain management, control of our distribution channels, communications and customer billing. If any aspect of these information technology systems were to suffer security breaches, hardware or software malfunctions or other disruptions or failures, our ability to meet customers’ expectations, retain critical data and otherwise operate our business could suffer. If a breach of security were to occur, sensitive customer transactional data could be misappropriated, and we could be exposed to liability and our reputation could be harmed. We are in the process of modifying our online payment processing technology to be in compliance with the applicable Payment Card Industry data security standards, or PCI DSS, but

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are not yet PCI DSS compliant. If we are not successful in implementing the applicable PCI DSS or fail to respond successfully to these additional risks, our business and operating results could be adversely affected.

In addition, maintenance and upgrades of our systems could result in significant capital expenditures. Some of these systems are legacy systems that are no longer supported by the original vendor of the product. Accordingly, we are required to perform maintenance and upgrades of these systems ourselves, which can be time consuming and expensive, and, depending on the required maintenance or upgrade, we may not be able to perform these functions effectively or at all.

We currently utilize three separate enterprise resource planning systems. One of these systems is no longer supported externally. In addition, there is no assurance that these systems will continue to work together to enable us to operate our business in an efficient manner. We are planning to integrate these systems. Integration of the systems would be time consuming and costly and may disrupt our business. If we attempt to integrate these systems, or implement new enterprise resource planning systems, but are unable to do so effectively or at all, our ability to meet customer expectations and to manage our business operations could suffer.

We use third party data centers to co-locate or host some of our systems and to provide key data processing and hosting functions. We do not control the operation of these facilities. These facilities, as well as our own facilities over which we retain control, could suffer damage or interruption from earthquakes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events, and could also be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of any of these events, a decision by a third party to close facilities without adequate notice or other unanticipated problems could result in significant disruption to our business operations.

Actions taken by our suppliers, OEMs, licensees and others may harm our reputation and net sales.

We do not control our suppliers, OEMs or licensees of our trademarks or their labor, environmental or other practices. A violation of labor, environmental or other laws by our suppliers, OEMs or licensees, or a failure of these parties to follow generally accepted ethical business practices, could create negative publicity and harm our reputation. In addition, we may be required to seek alternative suppliers, OEMs or licensees if these violations or failures were to occur. We do not inspect or audit compliance by our suppliers, OEMs or licensees with these laws or practices, and we do not have a formal supplier code of conduct. We generally ask our suppliers to represent to us that they are fully in compliance with applicable labor, health and environmental laws but, other than seeking these representations, we do not generally monitor this compliance. In certain instances, our channel distribution partners have inspected our OEMs and have found violations of these channel partners’ internal codes of conduct relating to certain labor and environmental matters that have needed to be remedied. Other consumer products companies have faced significant criticism for the actions of their OEMs, and we could face such problems ourselves. Any of these events could reduce demand for our products, harm our ability to meet demand if we need to locate alternative suppliers or OEMs and harm our reputation, business and results of operations.

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Currency exchange rate fluctuations could result in lower net sales and decreased gross margins.

Foreign currency fluctuations have had and could in the future have an adverse effect on our business and results of operations. A significant portion of our products are sold outside of the United States in foreign currencies. Our expenses are chiefly denominated in U.S. dollars, while a significant percentage of our net sales from sales in euros and the British pound. This exposes us to the risk that a strengthening U.S. dollar could cause our net sales to decline relative to our costs, thereby decreasing our gross margins.

We engage in hedging activities to mitigate the impact of the translation of foreign currencies on our financial results. Our hedging activities are designed to reduce, but do not eliminate, the effects of foreign currency fluctuations. Factors that could affect the effectiveness of our hedging activities include accuracy of sales forecasts, volatility of currency markets and the availability of hedging instruments. In particular, the current economic volatility in Europe makes it more difficult to forecast sales in Europe and put in place effective hedging activities in relation to our exposure to the euro. In recent months there have been concerns over the future of the euro single currency. Any breakup of the eurozone would adversely affect our foreign currency exposure and the effectiveness of our hedging activities. Since our hedging activities are designed to reduce volatility, they not only reduce the negative impact of a stronger U.S. dollar, but they also reduce the positive impact of a weaker U.S. dollar.

Our international operations and the operations of our OEMs are subject to additional risks that are beyond our control and that could harm our business.

We have international operations and also use OEMs located in Asia to manufacture some of our products. Accordingly, we are subject to a number of risks related to conducting business internationally, any of which could harm our business, including:

• differing cultural, social and economic customs;

• increased transportation costs;

• delays and other logistical problems relating to the transportation of goods shipped by ocean or air freight;

• tariffs, import and export controls and other barriers;

• longer payment cycles and greater problems in collecting accounts receivable;

• restrictions on the transfer of funds;

• changing economic conditions;

• increased labor costs and/or shortages;

• fluctuations in exchange rates;

• changes in governmental policies and regulations;

• limitations on the level of intellectual property protection;

• poor or unstable infrastructure of certain foreign countries;

• differing and potentially adverse tax laws;

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• trade sanctions, political unrest, terrorism, war and epidemics or the threats of any of these events;

• difficulties in ensuring compliance by our employees, agents and contractors with our business practices, as well as with applicable U.S. or foreign laws, including anti-bribery laws, labor laws and laws regulating the manufacture of our products; and

• difficulties in understanding and complying with local laws and regulations in foreign jurisdictions.

Changes in our effective tax rates could affect future results.

We are subject to taxation in the United States and various other foreign jurisdictions in which we do business. Some of these foreign jurisdictions have higher statutory tax rates than those in the United States, and certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income and absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. In addition, we are subject to examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense reserves and income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.

In the past, we have expanded our operations in part through acquisitions, license agreements and distribution arrangements, and may continue to do so in the future. These transactions subject us to risks that, if not properly managed, could harm our business and results of operations.

We have in the past grown our business in part through strategic acquisitions, license agreements and distribution arrangements and expect to continue to do so in the future as part of our strategy to grow our business and expand our product lines. In December 2007 we acquired KMC, which was our largest acquisition to date. Our recent acquisitions, as well as any future acquisitions, entail a number of risks that may prevent us from achieving the expected benefits from the acquisitions, including:

• diversion of management time from operating the business to focus on integration issues;

• difficulties in integrating operations, personnel and information technology systems across different corporate cultures and systems;

• declining employee retention and morale issues resulting from changes in reporting arrangements, job functions or compensation arrangements;

• difficulties in integrating different production facilities and methodologies;

• difficulties in integrating new products into our marketing functions;

• potential exposure to unanticipated liabilities;

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• increased borrowings under our current credit facility or a new facility in the event we borrow funds in connection with an acquisition; and

• dilution to our existing stockholders if we issue equity in connection with future acquisitions.

Since the acquisition of KMC, we have consolidated some of our existing manufacturing and other operations with those of KMC. We have migrated sales and distribution of KMC products in Europe to our existing European sales and distribution platforms. KMC is, however, still responsible for its international sales and distribution operations outside of Europe. We also are evaluating our current warehouse facilities in an effort to streamline our inventory and distribution functions and shorten the time it takes to deliver our products to customers. These and other activities designed to integrate KMC operations with our existing operations are disruptive and require significant management time and attention, and a number of these activities have only recently been completed or are continuing. To the extent we cannot complete these integration activities effectively and on a timely basis, we will not achieve the benefits we intend to realize from the KMC acquisition and our business and results of operations would be harmed.

The pursuit of future acquisitions also may divert management’s time and attention from our operations. In addition, to the extent that we are not able to identify or complete additional acquisitions on satisfactory terms or at all, our ability to grow our business and expand our product lines may be adversely affected. If we are not able to effectively manage these or any other risks relating to past or future acquisitions, our business and results of operations could be harmed.

From time to time, we make investments in certain joint ventures or other entities in which we have a minority or non-controlling interest. These investments may involve risks, including that our interests are not aligned with those of our partners. These joint ventures or other entities may take actions that could harm the value of our investment or our reputation, or otherwise harm our business and results of operations.

Defects in our products could harm our brands and our business.

Our products may expose us to liability from claims by consumers for damages, including bodily injury or property damage. These claims, whether meritorious or not, could harm our reputation and net sales, be costly to defend and could harm our business and results of operations. In addition, even if no bodily injury or property damage occurs from a defect, if our products do not function properly, we may be obligated to replace these products at no additional charge, which also could harm our business and results of operations. Although we maintain general product liability insurance, there can be no assurance that we will be adequately covered against claims or that we will not have to obtain additional coverage in the future, which may not be available on acceptable terms or at all.

Our operations may subject us to liabilities for environmental or other regulatory matters, the costs of which could be material.

Our manufacturing operations in the United States and Mexico involve the use, handling, storage and disposal of hazardous substances, including, for example, the paint used for our guitars, and we are subject to numerous environmental, health and safety laws and regulations, including those regulating the handling, storage and disposal of hazardous substances and discharges to

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the air, soil and water, as well as the investigation and remediation of contaminated sites. Many of these laws impose strict, retroactive, joint and several liability upon owners and operators of properties, including with respect to environmental matters that occurred prior to the time the party became an owner or operator. In addition, we may have liability with respect to third party sites to which we sent waste for disposal in the past. From time to time, we have been required to make payments or modify our operations and facilities as a result of environmental matters. For example, in fiscal 2009, we reached a settlement with the Environmental Protection Agency pursuant to which we agreed to pay approximately $79,000 in penalties due to improper waste storage and inadequate personnel training at our Corona, California facility. If we were to become liable in the future with respect to the release of any hazardous substance or contamination of any site, we may be subject to significant fines and cleanup costs. In addition, these or other events, including changes in environmental, health and safety laws, may require us to modify our operations or facilities, which could be costly.

In addition to risks relating to traditional environmental law and regulations, we also face increasing complexity in the design and manufacture of our products as we must adjust to new and upcoming requirements relating to the materials composition of many of our products, including worker safety laws. We have incurred costs to comply with these regulations in the past and will incur additional costs in the future. In addition, compliance with these regulations could disrupt our operations and logistics. We will need to ensure that we can design and manufacture compliant products and that we can be assured a supply of compliant components from our suppliers. These and other environmental regulations may require us to redesign our products to utilize new components that are compatible with these regulations, which may result in additional costs to us or cause us to eliminate the products from our portfolio.

Many of our products are also subject to regulations, including with respect to certifications and safety testing. In the second quarter of fiscal 2010, we received a letter of inquiry from the Federal Communications Commission, or FCC, asking for information about Fender electronic digital device products subject to part 15 of the FCC’s rules governing radio frequency devices. As regulations of our products and operations increase, there is a risk that we are not aware of, and not in full compliance with, all regulations to which we may be subject globally.

Our secured credit facilities contain restrictive and financial covenants, and if we are unable to comply with these covenants, we will be in default, which could result in acceleration of our outstanding indebtedness.

As of January 1, 2012, on an as adjusted basis after giving effect to the application of a portion of the net proceeds to us of this offering, we would have approximately $146.2 million outstanding under our secured credit facilities. Our secured credit facilities contain covenants that require us to maintain certain specified financial ratios and restrict our ability to pay dividends with respect to our capital stock, encumber our assets, incur additional indebtedness, engage in certain business combinations or undertake various other corporate activities. In addition, we have pledged substantially all of our assets and properties under these facilities. These restrictive and financial covenants, as well as the pledge, reduce our operating flexibility and may prevent us from engaging in certain transactions that may be beneficial to us. In addition, our ability to comply with these covenants could be affected by events beyond our control.

If we are unable to comply with any of these covenants, we will be in default, which could result in the acceleration of our outstanding indebtedness. In such event, we would most likely need to

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raise funds from alternative sources, which funds may not be available to us on acceptable terms or at all. Alternatively, such an event could require us to sell our assets and otherwise curtail our operations in order to pay our lenders, which could harm our business and results of operations.

If we are required to refinance our credit facilities, due to an acceleration of indebtedness as a result of an event of default, a change of control of our company, an acceleration of the revolver portion of our credit facilities as a result of the term loan portion not being refinanced, extended or repaid by March 9, 2014, or otherwise, we do not believe that we would be able to receive terms that are as favorable to us as those under our current facilities, either with respect to interest rate or operating and financial covenants.

In addition, our indebtedness and our need to allocate a portion of our cash flows to repayments under our credit facilities could have important consequences, including:

• reducing the availability of our cash flow for other purposes, including working capital, capital expenditures, product development, acquisitions or other corporate requirements;

• increasing our vulnerability to general adverse economic and industry conditions; and

• limiting our flexibility in planning for, or reacting to, changes in our business and our industry.

Our debt obligations under our secured credit facilities have variable interest rates, which makes us more vulnerable to increases in interest rates and could cause our interest expense to increase and decrease cash available for operations and other purposes.

We have $246.2 million of debt, bearing interest at a variable rate, outstanding under our credit facilities as of January 1, 2012. Recent interest rates in the United States have been at historically low levels, and any increase in these rates would increase our interest expense and reduce our funds available for operations and other purposes. Although from time to time we enter into agreements to hedge a portion of our interest rate exposure, these agreements may be costly and may not protect against all interest rate fluctuations. Accordingly, we may experience material increases in our interest expense as a result of increases in interest rate levels generally. Based on the $246.2 million of variable interest rate indebtedness that was outstanding as of January 1, 2012, a hypothetical 100 basis point increase or decrease in the interest rate on our long-term debt would have resulted in an approximately $1.0 million change to our interest expense for fiscal 2011.

We will incur significant increased costs as a result of being a public company, and our management will be required to devote substantial time to compliance efforts.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and the Nasdaq Stock Market’s Global Market, or Nasdaq, impose additional requirements on public companies, including enhanced corporate governance practices and reporting requirements. We also will be required to establish and maintain internal control over financial reporting and disclosure controls and procedures. In particular, under the current rules of the SEC, beginning with fiscal 2013, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our independent

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registered public accounting firm also will be required to report on our internal control over financing reporting. We expect to incur substantial accounting and auditing expenses and expend significant management time in complying with the requirements of Section 404. In addition, we could be required to expend significant management time and financial resources to correct any material weaknesses in our internal control over financial reporting that may be identified. If our management is unable to certify the effectiveness of our internal control over financial reporting, our independent registered public accounting firm cannot render an opinion on the effectiveness of our internal control over financial reporting, or material weaknesses in our internal control over financial reporting were identified, we could be subject to regulatory scrutiny and a loss of public confidence, which could seriously harm our business and reduce our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to accurately report our financial performance on a timely basis, which could cause a decline in our stock price and harm our ability to raise capital. Failure to accurately report our financial performance on a timely basis could also jeopardize our continued listing on Nasdaq or any other stock exchange on which our common stock may be listed. Delisting of our common stock on any exchange would reduce the liquidity of the market for our common stock, which would reduce the price of our stock and increase the volatility of our stock price.

Our management and other personnel will need to devote a substantial amount of time to these public company requirements, and there is no assurance that we will be able to comply with these requirements in a timely manner or at all. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. These rules and regulations also could make it more difficult for us to attract and retain qualified persons to serve on our board of directors and board committees or as executive officers. Some members of our management team have limited or no experience in managing a public company, which may require those members to devote additional time to familiarize themselves with public company requirements and may increase the risk that we will not be able to comply with those requirements in a timely manner or at all.

Risks related to this offering and ownership of our common stock

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

Our common stock has no prior trading history. The trading price of our common stock could be volatile, and you could lose all or part of your investment in our common stock. Factors affecting the trading price of our common stock could include:

• variations in our operating results or those of our competitors;

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

• changes in our product mix;

• changes in consumer preferences;

• fluctuations in currency exchange rates;

• the gain or loss of significant customers;

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• recruitment or departure of key personnel;

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

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

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

• the expiration of contractual lock-up agreements.

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

A market for our securities may not develop or be maintained and our stock price may decline after the offering.

Prior to this offering, there has been no public market for shares of our common stock. An active public trading market for our common stock may not develop or, if it develops, may not be maintained, after this offering. Our company, the selling stockholders and the representatives of the underwriters will negotiate to determine the initial public offering price, and the initial public offering price does not necessarily reflect the price at which investors will be willing to buy and sell our shares following this offering. The initial public offering price may be higher than the trading price of our common stock following this offering. As a result, you could lose all or part of your investment.

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

If our existing stockholders sell substantial amounts of our common stock in the public market, or are perceived by the public market as intending to sell, the trading price of our common stock could decline below the initial public offering price. Based on shares outstanding as of January 1, 2012, upon completion of this offering, we will have                  shares of common stock outstanding after this offering. Of these shares,                  shares of common stock will be freely tradable, without restriction, in the public market. Our executive officers, directors and the holders of substantially all of our shares of common stock have entered, or will enter, into contractual lock-up agreements with the underwriters pursuant to which they have agreed, subject to certain exceptions, not to sell or otherwise transfer any of their common stock or securities convertible into or exchangeable for shares of common stock for a period through the date 180 days after the date of the final prospectus for this offering, subject to extension under some circumstances. J.P. Morgan Securities LLC and William Blair & Company, L.L.C. may, however, permit these holders to sell shares prior to the expiration of the lock-up agreements. For additional information, see “Shares eligible for future sale” and “Underwriting.”

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Upon the expiration of the contractual lock-up agreements pertaining to this offering, up to an additional                  shares will be eligible for sale in the public market,                  of which are held by directors, executive officers and other affiliates and will be subject to volume and manner of sale limitations under Rule 144 under the U.S. Securities Act of 1933, as amended, or the Securities Act. Certain of our existing stockholders have demand and piggyback rights to require us to register with the SEC up to                  shares of our common stock, subject to contractual lock-up agreements. See “Description of capital stock—Registration rights” for more information. If we register any of these shares of common stock, those stockholders would be able to sell those shares freely in the public market.

In addition, the shares that are either subject to outstanding options or that may be granted in the future under our equity incentive plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting agreements, the contractual lock-up agreements and Rules 144 and 701 under the Securities Act. The following table shows when the                  shares of our common stock that are not being sold in this offering, but which will be outstanding when this offering is complete, will be eligible for sale in the public market:

	Shares eligible for sale
Date	Number of shares	Percentage of outstanding shares
On the date of this prospectus
90 days after the date of this prospectus
At various times beginning 181 days or more after the date of this prospectus

After this offering, we intend to register the shares of our common stock that we have issued or may issue under our equity plans. Once we register these shares, they can be freely sold in the public market upon issuance, subject to any vesting or contractual lock-up agreements.

In addition, our amended and restated certificate of incorporation to be effective immediately prior to the completion of this offering authorizes us to issue              shares of common stock, of which              shares will be outstanding after this offering.

If any of these additional shares described are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline. For additional information, see “Shares eligible for future sale.”

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

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If securities and industry analysts do not commence and continue coverage of our company, the trading price for our stock would suffer. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our stock or publishes unfavorable research about our business or our industry, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

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Weston Presidio and our directors and officers and insiders will continue to have substantial control over us after this offering and will be able to influence corporate matters.

Upon completion of this offering, funds and a director affiliated with the growth capital firm Weston Presidio will beneficially own             % of our outstanding common stock, and our other directors and executive officers and their affiliates will beneficially own, in the aggregate, approximately     % of our outstanding common stock. As a result, these stockholders will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us. For information regarding the ownership of our outstanding stock by Weston Presidio and our executive officers and directors and their affiliates, see “Principal and selling stockholders.”

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

Our certificate of incorporation and bylaws, as well as Delaware law, contain provisions that may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Among other things, these provisions:

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

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

• require that directors only be removed from office for cause;

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

• limit who may call special meetings of stockholders;

• prohibit stockholder action by written consent, requiring all actions to be taken at a meeting of the stockholders;

• require supermajority stockholder voting to effect certain amendments to our bylaws;

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

• impose restrictions on mergers and other combinations between us and certain interested stockholders.

For more information regarding these and other provisions, see “Description of capital stock—Anti-takeover effects of our certificate of incorporation and bylaws and Delaware law.”

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Special note regarding forward-looking statements

This prospectus contains forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” “may,” “might,” the negative of these terms and other comparable terminology. Forward-looking statements include, but are not limited to, statements about:

• anticipated trends and challenges in our business and the markets in which we operate;

• our expectations regarding consumer preferences and our ability to respond to changes in consumer preferences;

• our ability to maintain the popularity of our brands or continue developing our brands as lifestyle brands;

• our ability to expand our product offerings;

• our ability to expand our brands beyond the traditional musical instruments category or to expand our licensing and co-branding activities;

• our ability to maintain or broaden our relationships with signature artists, dealers, manufacturers, distributors and others;

• our ability to expand in international markets;

• our ability to successfully identify and manage any potential acquisitions or distribution relationships and to benefit from our recent acquisitions or distribution relationships; and

• our ability to maintain or enhance operational efficiencies;

• our expectations regarding the use of proceeds from this offering.

Actual events or results may differ materially from expected events or results. All forward-looking statements involve risks, assumptions and uncertainties. See “Risk factors” and elsewhere in this prospectus for additional discussion of these risks, assumptions and uncertainties and for other risks and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. There may also be risks of which we are currently unaware, or that we currently regard as immaterial based on the information available to us, that later prove to be material. In addition, new risks may emerge from time to time, and it is not possible for management to predict or identify all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors may cause actual events or results to differ materially from those contained in any forward-looking statements. In light of these risks, assumptions and uncertainties the forward-looking events discussed in this prospectus might not occur. Except as required by law, we undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Use of proceeds

We estimate that our net proceeds from the sale of the common stock that we are offering will be approximately $        , assuming an initial public offering price of $         per share, which is the midpoint of the range of the initial public offering price listed on the cover page of this prospectus, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us. A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease the net proceeds to us from this offering (after deducting assumed underwriting discounts and commissions) by $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. An increase or decrease of 100,000 shares in the number of shares sold in this offering by us would increase or decrease the net proceeds to us from this offering (after deducting assumed underwriting discounts and commissions) by $        , assuming an initial public offering price of $         per share. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.

We intend to use approximately $100 million of the net proceeds to us from this offering to repay a portion of the amount outstanding under the term loan portion of our senior secured credit facility. As of January 1, 2012, the interest rate on the term loan portion of our senior secured credit facility, which is scheduled to mature in June 2014, was 2.55%. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources—Long-term debt” for more information. We have used borrowings under our credit facility for working capital purposes, capital expenditures and to fund acquisitions of businesses and assets, including the acquisition of KMC. We intend to use the remainder of the net proceeds to us for working capital and other general corporate purposes. We may also use a portion of the net proceeds to us to acquire other businesses, products or technologies. We do not have agreements or commitments for any specific significant acquisitions at this time.

Dividend policy

We have not declared or paid cash dividends on our common stock within the past two fiscal years. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant. In addition, our senior secured credit facility limits our ability to pay dividends to our stockholders. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources” for additional information.

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Capitalization

The following table sets forth our cash and cash equivalents, short-term debt and capitalization as of January 1, 2012:

• on an actual basis;

• on a pro forma basis to reflect (i) the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock upon the closing of the offering and (ii) the effectiveness of amendments to our certificate of incorporation as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis; and

• on a pro forma as adjusted basis, reflecting the pro forma adjustments and the sale of                  shares of common stock by us in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the range of the initial public offering price listed on the cover page of this prospectus, after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us, and the application of a portion of such proceeds to repay approximately $100 million of the amount outstanding under the term loan portion of our senior secured credit facility.

You should read this table in conjunction with the sections of this prospectus titled “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations” and with our consolidated financial statements and related notes included elsewhere in this prospectus.

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As of January 1, 2012 (in thousands, except share and per share data)	Actual			Pro forma (unaudited)			Pro forma as adjusted (1) (unaudited)
Cash and cash equivalents	$	12,971		$	12,971		$
Short-term debt	$	6,607		$	6,607		$
Long-term debt:
Revolver		—			—
Term loan		239,598			239,598
Redeemable common stock:
Class A and B common stock, par value $0.01 per share; 361,408 shares authorized, 4,920 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		5,887			—			—
Class C common stock, par value $0.01 per share; 77,176 shares authorized, issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		93,902			—			—
Stockholders’ (deficit) equity:
Preferred stock, par value $0.01 per share; no shares, authorized, issued and outstanding, actual;              shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted		—			—			—
Common stock, par value $0.01 per share; no shares authorized, issued and outstanding, actual;              shares authorized, 196,112 shares issued and outstanding, pro forma;              shares authorized,              shares issued and outstanding, pro forma as adjusted		—			2
Class A common stock, par value $0.01 per share; 276,572 shares authorized, 106,274 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma adjusted		1			—			—
Class B common stock, par value $0.01 per share; 84,836 shares authorized, 7,742 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted		0			—			—
Additional paid-in capital		—			99,788
Accumulated other comprehensive income		4,775			4,775
Accumulated deficit		(72,587	)		(72,587	)
Total stockholders’ (deficit) equity		(67,811	)		31,978			—
Total capitalization	$	278,183		$	278,183		$	—

(1) A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting assumed underwriting discounts and commissions. An increase or decrease of 100,000 shares in the number of shares sold in this offering by us would increase or decrease cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by $        , assuming an initial public offering price of $         per share and after deducting assumed underwriting discounts and commissions.

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The number of shares of our common stock to be outstanding following this offering is based on 196,112 shares of our common stock outstanding as of January 1, 2012, and excludes:

• 67,511 shares of common stock issuable upon exercise of options outstanding as of January 1, 2012, at a weighted average exercise price of $953 per share;

• restricted stock units, representing the right at the option of the company to deliver 300 shares of common stock or an equivalent cash amount, of which 60 restricted stock units have vested as of January 1, 2012; and

•                  shares of our common stock reserved for future issuance under equity compensation plans, consisting of                  shares of common stock reserved for issuance under our 2012 Equity Compensation Plan, which will become effective upon completion of this offering, and 7,783 additional shares reserved for issuance under our 2007 Equity Compensation Plan. On the date of this prospectus, any remaining shares available for issuance under our 2007 Equity Compensation Plan will be added to the shares to be reserved under our 2012 Equity Compensation Plan, and we will cease granting awards under our 2007 Equity Compensation Plan.

See “Management—Equity benefit plans” for a description of our equity plans.

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Dilution

Our pro forma net tangible book value as of January 1, 2012, was negative $6.8 million, or approximately negative $34.71 per share. Our pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of our common stock outstanding after giving effect to (i) the automatic conversion of all outstanding shares of class B common stock and class C common stock into shares of common stock upon the closing of this offering and (ii) the effectiveness of amendments to our certificate of incorporation as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis.

Net tangible book value dilution per share to new investors represents the difference between the amount per share paid by new investors in this offering and the net tangible book value per share of common stock immediately after completion of this offering. After giving effect to the pro forma adjustments described above and receipt of the net proceeds from our sale of                  shares of common stock in this offering at an assumed initial public offering price of $         per share, which is the midpoint of the range of the initial public offering price listed on the cover page of this prospectus, and after deducting assumed underwriting discounts and commissions and estimated offering expenses payable by us and reflecting the application of a portion of the net proceeds to us from the offering to repay approximately $100 million of the amount outstanding under the term loan portion of our senior secured credit facility, our pro forma as adjusted net tangible book value as of January 1, 2012 would have been $         million, or $         per share. This represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $         per share to new investors in this offering, as illustrated in the following table:

Assumed initial public offering price per share		$
Pro forma net tangible book value per share as of January 1, 2012	$
Increase in pro forma as adjusted net tangible book value per share attributable to new investors in this offering
Pro forma as adjusted net tangible book value per share after giving effect to this offering
Dilution per share to new investors in this offering		$

A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease our pro forma as adjusted net tangible book value per share after giving effect to this offering by $         and increase or decrease dilution per share to new investors in this offering by $        , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting assumed underwriting discounts and commissions payable by us.

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The following table presents on a pro forma as adjusted basis as of             , after giving effect to the differences between the existing stockholders and the new investors in this offering with respect to the number of shares purchased from us, the total consideration paid and the average price paid per share:

	Shares purchased			Total consideration			Average price per share
	Number	Percent		Amount	Percent
Existing stockholders			%	$		%	$
New investors in this offering
Totals			100.0%	$		100.0%	$

A $1.00 increase or decrease in the assumed initial public offering price of $         per share would increase or decrease the total consideration paid by new investors in this offering and the total consideration paid by all stockholders by $        , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting assumed underwriting discounts and commissions. An increase or decrease of 100,000 shares in the number of shares sold in this offering by us would increase or decrease the total consideration paid by new investors in this offering and the total consideration paid by all stockholders by $        , assuming an initial public offering price of $         per share and after deducting assumed underwriting discounts and commissions.

Sales of shares of common stock by the selling stockholders in our initial public offering will reduce the number of shares of common stock held by existing stockholders to                 , or approximately     % of the total shares of common stock outstanding after our initial public offering, and will increase the number of shares held by new investors to                 , or approximately     % of the total shares of common stock outstanding after our initial public offering.

If the underwriters’ option to purchase additional shares is exercised in full, our existing stockholders would own     % and new investors in this offering would own     % of the total number of shares of our common stock outstanding after this offering.

As of January 1, 2012, there were options outstanding to purchase 67,511 shares of our common stock and restricted stock units outstanding representing the right, at our option, to deliver 300 shares of common stock to the holders of such units. To the extent outstanding options are exercised or we deliver shares of common stock to holders of outstanding stock units, there will be further dilution to new investors. For a description of our equity plans, see “Management—Equity benefit plans.”

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Selected consolidated financial data

The following selected consolidated financial data for each of the years ended January 3, 2010, January 2, 2011, and January 1, 2012, and the selected consolidated balance sheet data as of January 2, 2011, and January 1, 2012, have been derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. The selected consolidated financial data for each of the years ended December 30, 2007, and December 28, 2008, and the balance sheet data as of December 30, 2007, December 28, 2008, and January 3, 2010, have been derived from our audited consolidated financial statements, which are not included in this prospectus.

We operate and report financial information on a 52 or 53 week year with the fiscal year ending on the Sunday closest to the end of December. Fiscal 2007 contained 52 weeks of operations, fiscal 2008 contained 52 weeks of operations, fiscal 2009 contained 53 weeks of operations, fiscal 2010 contained 52 weeks of operations and fiscal 2011 contained 52 weeks of operations.

The historical results presented below are not necessarily indicative of the results to be expected for any future period and the results for any interim period may not necessarily be indicative of the results that may be expected for a full year. You should read the selected consolidated financial and operating data for the periods presented in conjunction with “Risk factors,” “Capitalization,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the related notes, which are included elsewhere in this prospectus.

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Fiscal year ended (in thousands, except share and per share data)	December 30, 2007 (1)			December 28, 2008			January 3, 2010			January 2, 2011			January 1, 2012
Consolidated statement of operations data:
Net sales	$	457,156		$	712,907		$	612,521		$	617,830		$	700,554
Cost of goods sold		299,121			485,072			420,919			447,250			483,020
Gross profit		158,035			227,835			191,602			170,580			217,534
Operating expenses:
Selling, general and administrative		88,234			150,349			125,711			121,651			137,128
Warehouse		14,699			26,536			25,878			27,713			28,426
Research and development		7,011			8,557			9,004			9,299			10,157
Impairment charges		—			32,570			1,200			—			—
Total operating expenses		109,944			218,012			161,793			158,663			175,711
Income from operations		48,091			9,823			29,809			11,917			41,823
Other income (expense):
Net foreign currency exchange gain (loss)		(832	)		1,781			(3,602	)		(1,175	)		(3,807	)
Interest expense		(24,521	)		(25,766	)		(15,636	)		(12,688	)		(14,927	)
Other, net		(1,977	)		533			1,723			(391	)		1,130
Total other income (expense)		(27,330	)		(23,452	)		(17,515	)		(14,254	)		(17,604	)
Income (loss) before income taxes		20,761			(13,629	)		12,294			(2,337	)		24,219
Income tax expense (benefit)		6,151			(5,435	)		1,507			(652	)		5,208
Net income (loss)		14,610			(8,194	)		10,787			(1,685	)		19,011
Net income available to redeemable common stockholders		69,844			—			4,724			15,584			15,785
Net income (loss) available (attributable) to common stockholders	$	(55,234	)	$	(8,194	)	$	6,063		$	(17,269	)	$	3,226
Net income (loss) per common share available (attributable) to common stockholders:
Basic	$	(493.99	)	$	(70.25	)	$	51.89		$	(147.75	)	$	28.38
Diluted	$	(493.99	)	$	(70.25	)	$	43.70		$	(147.75	)	$	24.72
Weighted average common shares outstanding:
Basic		111,812			116,640			116,853			116,877			113,691
Diluted		111,812			116,640			138,744			116,877			130,508

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Fiscal year ended (in thousands, except share and per share data)	December 30, 2007 (1)	December 28, 2008	January 3, 2010	January 2, 2011	January 1, 2012
Pro forma net income per common share (unaudited):
Basic					$	97.28
Diluted					$	89.57
Weighted average common shares used in computing pro forma net income per common share (unaudited) (2):
Basic						195,422
Diluted						212,239

(1) Excludes the impact of our acquisition of KMC, which was completed on December 31, 2007.

(2) Weighted average common shares used in computing pro forma net income per common share (unaudited) gives effect as of January 3, 2011, to (i) the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock, which will occur upon the closing of this offering and (ii) the effectiveness of amendments to our certificate of incorporation, which redesignated our class A common stock as common stock on a share-for-share basis.

As of (in thousands)	December 30, 2007 (1)			December 28, 2008			January 3, 2010			January 2, 2011			January 1, 2012
Consolidated balance sheet data:
Cash and cash equivalents	$	28,784		$	19,369		$	44,961		$	15,990		$	12,971
Inventories		119,093			202,615			145,648			163,876			181,333
Working capital		145,242			183,080			169,912			184,489			190,569
Property and equipment—net		31,310			37,498			32,906			28,504			31,389
Total assets		272,476			422,161			356,772			346,897			366,580
Total debt and capital lease obligations, including current maturities		201,062			344,229			249,971			268,287			247,520
Total stockholders’ equity (deficit)		(133,348	)		(79,420	)		(68,308	)		(84,272	)		(67,811	)

(1) Excludes the impact of our acquisition of KMC, which was completed on December 31, 2007.

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Management’s discussion and analysis of

financial condition and results of operations

You should read the following discussion and analysis of our financial condition and results of operations together with “Selected consolidated financial data” and our consolidated financial statements and the related notes and other financial information, which are included elsewhere in this prospectus. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the “Risk factors” and “Special note regarding forward-looking statements” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

We operate and report financial information on a 52 or 53 week fiscal year ending on the Sunday closest to the end of December. The reporting periods contained in our audited consolidated financial statements included in this prospectus contain 52 weeks of operations in fiscal 2011, 52 weeks of operations in fiscal 2010 and 53 weeks of operations in fiscal 2009. Historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period may not necessarily be indicative of the results that may be expected for a full year.

Overview

We are one of the world’s leading marketers, manufacturers and distributors of musical instruments and accessories. We design, develop, manufacture and purchase musical instruments, accessories and related products for sale and distribution to wholesale and retail outlets throughout the world. We have built a comprehensive portfolio of brands led by the iconic Fender brand and other renowned brands such as Squier, Jackson, Guild, Ovation and Latin Percussion, which we own, and Gretsch, EVH (Eddie Van Halen) and Takamine, for which we are the licensee. We act as an exclusive manufacturer and/or distributor for brands such as Gretsch, EVH and Takamine. For some of the brands we distribute, we pay the licensors a royalty payment based on sales we generate on those brands. For the remaining brands that we distribute, we purchase products from manufacturers or OEMs, and resell those products to our customers. Through these brands, we reach a broad range of musicians, from beginners to professionals, across many genres of music.

Our revenues are derived primarily from the sale of fretted instruments, guitar amplifiers, percussion and accessories. For fiscal 2011, approximately 59.9% of our gross sales before discounts and allowances were generated from the sale of fretted instruments, 12.1% from guitar amplifiers, 9.1% from percussion and 18.9% from accessories. Gross sales before discounts and allowances is comprised of product sales but, unlike net sales, does not include licensing income and dealer freight collection, and is not net of cash discounts, sales return allowances and rebates. We distribute our products through the following five sales channels:

• Independent channel—comprised of over 13,000 independently owned music stores that typically offer personalized customer service. Some of our independent retailers are also authorized to sell our products on their websites. This channel represented a majority of our gross sales before discounts and allowances for fiscal 2011.

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• National channel—comprised of large, multi-unit musical instrument retailers such as Guitar Center and Sam Ash who have nationwide store networks through which they then resell these products to consumers.

• Mass merchant channel—comprised of large-format, multi-unit stores that purchase our products from us and then resell these products to consumers. Costco was our most significant mass merchant customer in fiscal 2011.

• Online and catalog channel—we also sell some of our products to certain online, mail order, catalog and telesales companies, including Musician’s Friend and American Music Supply.

• Distributor channel—within Asia, Latin America and certain other markets, we sell our products primarily through distributors who, in turn, sell to retailers within their authorized distribution areas.

We are organized into two reporting segments: Fender Musical Instruments, or FMI, and KMC Musicorp, or KMC. While both FMI and KMC include the sale and distribution of fretted instruments, guitar amplifiers, percussion and accessories, FMI markets to both domestic and international customers and KMC primarily focuses on distribution of accessories and certain musical instruments in North America. For fiscal 2011, FMI represented 73.1% and KMC represented 26.9% of our net sales, respectively.

Our products are manufactured by us at our owned or leased manufacturing facilities or by OEMs. We believe this combination of facilities provides us with increased manufacturing capacity and the flexibility and scale to more efficiently and quickly respond to consumer demand. We have manufacturing operations in Corona, California; New Hartford, Connecticut; Ensenada, Mexico; Scottsdale, Arizona; and Ridgeland, South Carolina. We manufacture our premium products primarily in the United States. Products manufactured by our OEMs are typically sold at lower price points.

Our products are sold in the United States and approximately 85 countries around the world, with net sales outside of the United States representing approximately 46.7% of our net sales in fiscal 2011. Geographically, we segregate our business into the following three regions:

• North America (United States and Canada)

• Europe (including the Middle East and Africa)

• International (Asia, Australia and Latin America)

Our predecessor company was founded in 1946 by Leo Fender. In 1965, Leo Fender sold Fender Electric Instrument Company to Columbia Records Distribution Corp., a division of Columbia Broadcasting System, Inc., or CBS. The business reemerged as a stand-alone company when the late William Schultz and current Board member, William (Bill) Mendello, formed Fender Musical Instruments Corporation to purchase the business from CBS in 1985. On December 31, 2007, we acquired Kaman Music Corporation, now known as KMC Musicorp, a distributor of musical instruments and accessories.

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Opportunities, challenges and risks

We intend to focus on generating sales through our existing sales channels. As we grow and expand our business, we anticipate an increasing percentage of our new sales will come from our international dealers and distributors.

Europe represented approximately 27.3% of our net sales in fiscal 2011 and has been the geographic area where we have historically realized higher gross margins. Europe has been a critical part of our growth, and we intend to continue to increase our presence in the European market through expansion of our accessories business and by increasing the portion of net sales we generate by selling product directly to European retailers. However, in the near term, we expect the percentage of our net sales generated from Europe to decline due to current difficult European economic and market conditions.

During fiscal 2012, we intend to create a specialty sales force in North America to focus on selling our non-Fender branded instruments and accessories. We intend to apply the sales, marketing and branding strategies that have been successful with our Fender brand to these other brands to enhance their future earnings contribution.

We generated less than 1% of our net sales through licensing fees and royalties in fiscal 2011. As this is an area where we see a significant growth opportunity, we plan to increase our licensing fee and royalty revenue as a percentage of our net sales through expansion into new product categories and geographies.

We have a global manufacturing footprint through our owned facilities and OEM partners that is focused on delivering high-quality products at a competitive price. Our products manufactured in our Corona, California factory are priced at a premium and we believe offer us a distinct competitive advantage. In fiscal 2011, we began increasing our level of capital investment in both our Corona, California and Ensenada, Mexico facilities to improve productivity. We intend to continue these capital investments as we believe these investments will ultimately allow us to achieve higher overall gross margins, although in the near term the benefits of these investments may not be reflected in our financial results.

For fiscal 2011, approximately 52.2% of our finished goods were purchased and sourced from OEMs. Accordingly, our operating results are affected by conditions in the geographic regions in which these OEMs are located, including, in many cases, rising labor rates, commodity price fluctuations and currency fluctuations. We continually evaluate shifting additional production to manufacturing facilities with lower or more stable costs. For example, our Ensenada, Mexico manufacturing facility provides us with high-quality products at stable, relatively low costs, and we intend to explore opportunities to move additional production to that facility.

We intend to increase our investment in research and development in absolute dollars to develop new products, including our specialty products. We also plan to invest in our marketing efforts by increasing our focus on direct to consumer marketing initiatives.

During the second quarter of fiscal 2010, we experienced a supply issue with our main paint supplier, who ceased operation due to financial difficulty. This paint supply issue caused us to temporarily stop the production of a number of our electric and bass guitars manufactured in Corona, California in April 2010. We resumed full production at this facility by the end of fiscal 2010. As of January 2, 2011, we had approximately $26.2 million of cancellable backlog. We believe that a substantial majority of this backlog related to this production problem and

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contributed to higher sales in the first and second quarters of fiscal 2011 as we filled the backlog. Following this disruption, we increased our focus on evaluating our sources of supply across our manufacturing operations to develop second sources of supplies where feasible. Nevertheless, we could face other manufacturing difficulties that could similarly harm our results in the future.

Basis of presentation

Net sales is comprised of:

Revenue from:

• Product sales:    consists of sales of fretted instruments, guitar amplifiers, percussion and accessories, sold through our independent channel, national channel, distributor channel, mass merchant channel and online/catalog channel. We recognize revenue when products are delivered, collection of the receivable is probable, persuasive evidence of an arrangement exists, and the sales price to our customers is fixed or determinable;

• Royalty income:    consists of licensing fees and royalties earned by us from contractual relationships we have with third parties that allow them to use our intellectual property in return for a fixed fee or percentage of their sales; and

• Dealer freight collection:    consists of the net freight billed to customers less freight allowances;

Net of:

• Cash discounts:    consists of discounts given to customers for early payment of their receivable balances;

• Sales returns allowances:    consists of adjustments to our sales returns reserve. This reserve is based upon estimates of the projected returns in future periods based on our experience with returns recorded in previous periods; and

• Rebates:    consists of incentives we provide to customers who achieve predetermined growth targets, which we accrue based on our expectation of whether these targets will be achieved.

Cost of goods sold consists of:

• The cost of manufactured products (raw materials consumed, the cost to procure materials, labor costs, including wages, stock based compensation expense and employee benefits, and factory overhead to produce finished good products).

• The cost of products purchased for resale;

• The cost to inspect and repair products;

• Shipping costs associated with inbound freight. These costs are capitalized as part of inventory and included in cost of goods sold as the inventory is sold;

• Promotional expense associated with products or samples provided to our dealers, distributors and customers, in addition to certain advertising arrangements, such as purchasing catalog pages or providing customer training and conventions;

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• Royalty expenses, including payments to certain artists for our use of their names, likeness and/or images in connection with the sales of products we jointly develop with them. Royalty expenses also includes amounts paid for Gretsch and EVH products and other products incorporating third party intellectual property;

• Dealer freight expense incurred for shipments to customers, excluding customers who pay for their own freight;

• Warranty costs associated with the repair of products under warranty agreements; and

• Charges to write-down the carrying value of our inventory when it exceeds the net realizable value, to adjust for obsolete inventory and to adjust for periodic physical inventory counts.

Gross profit/gross margin

Our gross profit equals our net sales minus cost of goods sold. Our gross margin measures our gross profit as a percentage of net sales.

Our gross margins fluctuate based on product and geographic mix as certain of our products are sold at higher gross margins than others. Generally, we earn higher gross margins on our Fender brand electric guitars. We typically earn lower gross margins on products we purchase from others and distribute. Gross margins have typically been higher in North America and Europe than in other international markets where the majority of our net sales are through distributors.

In the near term, we anticipate our gross margins to be in line with our historical results. We believe our gross margins in the intermediate to long term will benefit from our strategies of increasing our direct sales to retailers in international markets and earning additional royalty income by expanding our licensing business. Furthermore, we are also increasing our investment in our manufacturing facilities to improve our operating efficiencies and gross margins.

Operating expenses

Our operating expenses consist of the following:

• Selling, general and administrative;

• Warehouse;

• Research and development; and

• Impairment charges.

Our selling, general and administrative expenses consist primarily of personnel and facility costs related to our executive, sales, marketing, finance, customer service, information technology, human resources and administrative personnel, including wages, stock based compensation and employee benefits. Other significant selling, general and administrative expenses include advertising and promotions related to in-store advertising, trade shows, travel and entertainment and promotional products. We also record professional and contract service expenses, rent and lease expenses associated with corporate locations and equipment, and legal expenses in selling, general and administrative expenses. In the long term, we expect selling, general and administrative expenses to stay relatively flat as a percentage of sales. However in the near term, we expect selling, general and administrative expenses to increase as a percentage of sales as we

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expand into new international markets, invest in additional marketing initiatives and incur expenses associated with becoming a public company.

Our warehouse expenses consist primarily of personnel costs, including wages and employee benefits, and facility costs. These warehouse costs represent our handling costs to store, move and prepare products for shipment from our warehouse facilities. Additionally, we incur outside service expenses related to the use of a third party warehouse distribution management service for our European distribution of products. We expect our warehouse expenses to stay relatively flat as a percentage of sales in both the near and long term.

Our research and development expenses consist primarily of personnel costs, including wages, stock based compensation and employee benefits, for our research and development teams. We also incur costs associated with professional services when we require external expertise on various projects such as advanced electronics for our guitar amplifiers. We expense research and development costs as incurred. We expect our research and development expenses to increase slightly as a percentage of sales in the near and long term as a result of investment in product innovation.

Impairment charges consist of charges we record when we have determined that the carrying value of our goodwill, long-lived assets, or indefinite-lived intangible assets exceeds the fair value. We conduct an annual impairment test of goodwill and other intangibles at the end of each fiscal year or more frequently if there are any impairment indicators identified during the year. We also continually evaluate whether events and circumstances have occurred that indicate the remaining useful life of amortizable intangible assets may warrant revision.

Income from operations

We define income from operations as gross profit less our operating expenses. We use operating income as an indicator of the profitability of our business and our ability to manage costs.

Net foreign currency exchange gain (loss)

Net foreign currency exchange gain (loss) consists of gains and losses resulting from foreign exchange hedging activity, the foreign currency effect of the remeasurement of certain assets and liabilities of our foreign subsidiaries that are denominated in currencies other than the functional currency of the subsidiary and foreign exchange transaction gains and losses.

We use derivatives, including foreign currency forward contracts and options, to hedge against certain of the foreign exchange risks to which we are exposed. Certain derivatives are designated and qualify as cash flow hedges. Cash flow hedges are generally hedges against the foreign currency risk arising from changes in cash flows from forecasted foreign currency transactions, forecasted cash flows arising from an asset or liability that is carried on our consolidated balance sheets, or foreign currency firm commitments that are not recognized on our consolidated balance sheets. In order to qualify for accounting as a cash flow hedge, a derivative must satisfy a

number of criteria, including the requirement that the derivative is deemed to be highly effective in hedging the related foreign currency risk. Changes in the fair value of cash flow hedges are divided into an effective and an ineffective portion. The effective portion of a change in value of a cash flow hedge is generally the change in value of the derivative to the extent that it offsets, but does not exceed, the change in value of the item being hedged. Any excess in the change in fair value of the derivative over the change in fair value of the item being hedged is deemed to

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be the ineffective portion. The effective portion of changes in the fair value of cash flow hedges is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into earnings in the same period that the hedged item affects earnings. Any ineffective portion of the change in fair value of the cash flow hedge is recorded directly in net foreign currency gain (loss) in the consolidated statement of operations and comprehensive income (loss). Certain of our derivatives used to manage the foreign currency exposures are not designated as cash flows hedges because they do not satisfy the requirements of cash flow hedges or because we have not elected to apply hedge accounting to them. Changes in the fair value of the derivatives not designated as cash flow hedges are recorded directly in net foreign currency gain (loss) in earnings. The fair value of our derivative instruments is determined either using market quotes or valuation models that are based upon the net present value of estimated future cash flows that incorporate current market data inputs. We hold derivative instruments for hedging purposes only, not for speculative or trading purposes.

We operate outside the United States primarily through wholly-owned subsidiaries in Europe, Canada and Mexico. We have determined that the functional currency of each of our foreign subsidiaries, with the exception of our Mexican and Dutch subsidiaries, is the local currency of each such subsidiary, and that the functional currency of our Mexican and Dutch subsidiaries is the U.S. dollar. For each of our subsidiaries, monetary assets and liabilities (such as cash, marketable securities, accounts receivable and accounts payable) that are denominated in a currency that is not the functional currency of that subsidiary are remeasured and translated into the subsidiary’s functional currency using current exchange rates. Gains and losses resulting from this remeasurement process are included in net foreign currency exchange gain (loss).

Interest expense

Interest expense consists of interest on our term loan and revolver, amortization of deferred loan costs and net settlements on interest rate swap agreements. We use interest rate swap agreements to manage our exposure to interest rate fluctuations by effectively fixing the interest rate on a portion of our floating-rate debt. We expect our interest expense to decrease following this offering both in absolute terms and as a percentage of net sales as we repay a portion of the amount outstanding under the term loan portion of our senior secured credit facility with a portion of the net proceeds to us from this offering.

Other, net

Other, net consists of miscellaneous income and expenses and interest income from financing charges to customers.

Income tax expense (benefit)

We are subject to income taxes in the United States and various other foreign jurisdictions in which we do business. Some of these foreign jurisdictions have higher statutory tax rates than those in the United States, and certain of our international earnings are also taxable in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income and absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. In addition, we are subject to examination of our income tax returns by the U.S. Internal Revenue Service, or IRS, and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these

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examinations to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense reserves and income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As of January 1, 2012, we did not have any valuation allowances recorded as we expect to fully utilize all of our deferred tax assets. As of January 1, 2012, we did not have any net operating loss or tax credit carry-forwards. For fiscal 2009, 2010 and 2011, we had effective tax rates of 12.3%, 27.9% and 21.5%, respectively. We expect our effective tax rate to increase to the mid 30% range in the long term as we do not expect the recurrence of certain tax refunds and credits that we have had in the recent past.

Results of operations

The following table sets forth selected items in our consolidated statements of operations in dollars and as a percentage of net sales for the periods presented:

Fiscal year	2009					2010					2011
(dollars in thousands)	Actual			Percent of net sales		Actual			Percent of net sales		Actual			Percent of net sales
Net sales	$	612,521			100.0%	$	617,830			100.0%	$	700,554			100.0%
Cost of goods sold		420,919			68.7%		447,250			72.4%		483,020			68.9%
Gross profit		191,602			31.3%		170,580			27.6%		217,534			31.1%
Operating expenses:
Selling, general and administrative		125,711			20.5%		121,651			19.7%		137,128			19.6%
Warehouse		25,878			4.2%		27,713			4.5%		28,426			4.1%
Research and development		9,004			1.5%		9,299			1.5%		10,157			1.4%
Impairment charges		1,200			0.2%		—			0.0%		—			0.0%
Total operating expenses		161,793			26.4%		158,663			25.7%		175,711			25.1%
Income from operations		29,809			4.9%		11,917			1.9%		41,823			6.0%
Other income (expense):
Net foreign currency exchange (loss)		(3,602	)		-0.6%		(1,175	)		-0.2%		(3,807	)		-0.5%
Interest expense		(15,636	)		-2.6%		(12,688	)		-2.1%		(14,927	)		-2.1%
Other, net		1,723			0.3%		(391	)		-0.1%		1,130			0.2%
Total other income (expense)		(17,515)			-2.9%		(14,254)			-2.3%		(17,604)			-2.5%
Income (loss) before income taxes		12,294			2.0%		(2,337	)		-0.4%		24,219			3.5%
Income tax expense (benefit)		1,507			0.2%		(652	)		-0.1%		5,208			0.7%
Net income (loss)	$	10,787			1.8%	$	(1,685	)		-0.3%	$	19,011			2.7%

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Fiscal 2011 compared to fiscal 2010

Net sales

Net sales increased by $82.7 million, or 13.4%, to $700.6 million in fiscal 2011 from $617.8 million in fiscal 2010. The increase was primarily driven by an increase in overall effective prices and a reduction in discounts for our products, success in new product introductions, continued strong growth in international markets and overall market conditions, and the resolution of a paint supplier issue fiscal in 2010. During the second quarter of fiscal 2010, we experienced a supply issue with our main paint supplier who ceased operations as a result of its financial difficulty. This impacted the production of our electric and bass guitars manufactured in Corona, California as discussed in our “—Opportunities, challenges and risks” section above. As of January 2, 2011, we had approximately $26.2 million of cancellable backlog. We believe a substantial majority of this backlog related to this production problem and contributed to higher sales in the first and second quarters of fiscal 2011 as we filled the backlog.

Net sales from FMI increased by $77.8 million, or 17.9%, to $512.0 million in fiscal 2011 from $434.3 million in fiscal 2010. We experienced growth in net sales in both domestic and international markets in fiscal 2011, including 15.6% growth in North America, international growth of 31.0% and European growth of 15.7%. We estimate that less than 5.0% of our FMI fiscal 2011 sales resulted from filling the backlog from fiscal 2010, as described above. Further impacting net sales performance was an $11.9 million increase in overall effective prices and reduction in discounts for our products in fiscal 2011. The effects of foreign currency movements favorably contributed approximately $7.6 million to net sales in fiscal 2011 compared to fiscal 2010.

Net sales from KMC increased by $4.9 million, or 2.7%, to $188.5 million in fiscal 2011 from $183.6 million in fiscal 2010. The increase was primarily driven by the growth in the North America mass merchant channel, which increased by $4.0 million with increased online retail sales.

Gross profit/gross margin

Gross profit increased by $47.0 million, or 27.5%, to $217.5 million in fiscal 2011 from $170.6 million in fiscal 2010. Gross margin of 31.1% in fiscal 2011 increased 350 basis points from fiscal 2010 gross margin of 27.6%. The increase in gross profit was driven by a volume increase and favorable product mix of $25.4 million. We estimate that approximately 40.0% of this volume and mix increase was due to the resolution of the previously discussed paint supply issue. In addition, the increase in gross profit was due in part to an increase in overall effective prices and reduction in discounts for our products in fiscal 2011 of $11.5 million and improved factory operating efficiency gains in fiscal 2011 of $3.7 million. In addition, the fiscal 2010 paint supply issue contributed to manufacturing variances and idle facility charges of $4.5 million in fiscal 2010 that did not occur in fiscal 2011. Further favorably impacting fiscal 2011 gross profit was a decrease in workers’ compensation expense from fiscal 2010 of $0.8 million as well as a favorable adjustment for a government refund related to customs and duties charges of $0.5 million in fiscal 2011. The effects of foreign currency movements contributed approximately $3.7 million of the increase in gross profit in fiscal 2011 compared to fiscal 2010. These increases were partially offset by increases in our material costs of $3.9 million in fiscal 2011 compared to fiscal 2010.

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FMI gross profit increased by $47.3 million, or 39.8%, to $166.2 million in fiscal 2011 from $118.9 million in fiscal 2010. Gross margin of 32.5% in fiscal 2011 increased 510 basis points from fiscal 2010 gross margin of 27.4%. The increase in gross profit was driven by a volume increase and favorable product mix of $26.1 million in fiscal 2011, an increase in overall effective prices and reduction in discounts for our products of $11.8 million and improved factory operating efficiency gains of $3.7 million. We estimate that approximately 40.0% of this volume and mix increase was due to the resolution of the previously discussed paint supply issue. In addition, the paint supply issue contributed to manufacturing variances and idle facility charges of $4.5 million in fiscal 2010 that did not occur in fiscal 2011. Gross profit in fiscal 2011 was also favorably impacted by a decrease in workers’ compensation expense of $0.8 million compared to fiscal 2010 and a favorable adjustment for a government refund related to customs and duties charges of $0.5 million in fiscal 2011. The effects of foreign currency movements contributed approximately $3.7 million of the increase in gross profit in fiscal 2011 compared to fiscal 2010. These increases were partially offset by increases in our material costs of $3.9 million in fiscal 2011 compared to fiscal 2010.

KMC gross profit decreased by $0.4 million, or 0.7%, to $51.3 million in fiscal 2011 from $51.7 million in fiscal 2010. Gross margin of 27.2% in fiscal 2011 decreased 100 basis points compared to fiscal 2010 gross margin of 28.2%. The decrease in gross profit was primarily driven by product and channel mix along with higher freight allowance programs.

Selling, general and administrative expenses

Selling, general and administrative expenses increased by $15.5 million, or 12.7%, to $137.1 million in fiscal 2011 compared to $121.7 million in fiscal 2010. Approximately $11.5 million of the increase in selling, general and administrative expense was the result of an increase in our labor-related expenses. The remaining increase in selling, general and administrative expenses in fiscal 2011 was the result of travel and entertainment expenses of $2.8 million related to strategic marketing initiatives to expand and strengthen our customer base and relationships and a $1.0 million increase in our legal costs primarily as the result of a settlement payment made to resolve a dispute with a supplier.

The increase in our labor expense resulted from the reinstatement of our annual merit, 401(k) employer matching contribution and management bonus programs during fiscal 2011 which resulted in an increase of approximately $7.3 million in labor expenses as compared to fiscal 2010. Additionally, stock options issued during fiscal 2011 resulted in an increase in our stock based compensation expense by approximately $3.1 million compared to fiscal 2010. The remaining increase in labor-related costs was the result of increased employee benefits and insurance rates, commissions and the use of temporary labor services.

Warehouse expenses

Warehouse expenses increased by $0.7 million, or 2.6%, to $28.4 million in fiscal 2011 compared to $27.7 million in fiscal 2010. The increase was primarily due to an increase in labor-related expenses of approximately $0.9 million as a result of temporary labor and overtime worked by warehouse personnel and additional outside services costs of $0.6 million related to our third party distribution center in Europe. The increase was partially offset by decreases in our rent expense of $0.5 million and depreciation of $0.5 million in fiscal 2011 compared to fiscal 2010.

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Research and development expenses

Research and development expenses increased by $0.9 million, or 9.2%, to $10.2 million in fiscal 2011 compared to $9.3 million in fiscal 2010. The overall increase was primarily related to an increase in labor costs of $0.5 million as the result of the reinstatement of our employee benefit plans as noted above and increased professional services of $0.2 million related to new product development projects.

Income from operations

As a result of the factors discussed above, our consolidated income from operations increased $29.9 million to $41.8 million in fiscal 2011 compared to $11.9 million in fiscal 2010. As a percentage of net sales, income from operations increased to 6.0% in fiscal 2011 from 1.9% in fiscal 2010.

Interest expense

Interest expense increased by $2.2 million, or 17.6%, to $14.9 million in fiscal 2011 compared to $12.7 million in fiscal 2010. The increase was primarily related to additional interest expense of $2.9 million resulting from our interest rate swap agreement, net of a decrease in interest expense under our term loan and revolver of $0.3 million.

Net foreign currency exchange loss

Our net foreign currency exchange loss increased by $2.6 million, to $3.8 million in fiscal 2011 from $1.2 million in fiscal 2010. The increase was the result of an increase in losses primarily related to our Euro and Mexican Peso denominated foreign exchange hedging activity of approximately $3.4 million, net of a decrease in losses from our Canadian Dollar, Japanese Yen and British Pound denominated foreign exchange hedging activity of approximately $0.8 million.

Other, net

Other, net increased by $1.5 million to $1.1 million of income in fiscal 2011 compared to $0.4 million in expense in fiscal 2010. The change in other, net was primarily due to the write-off of inventory management software of approximately $0.8 million in fiscal 2010 and higher interest income of $0.3 million earned in fiscal 2011.

Income taxes expense (benefit)

Income tax expense increased by $5.9 million to $5.2 million in fiscal 2011 compared to an income tax benefit of $0.7 million in fiscal 2010. Effective tax rates were 21.5% and 27.9% for fiscal 2011 and fiscal 2010, respectively.

The effective tax rate in fiscal 2011 was impacted by a favorable resolution of a tax dispute resulting in a refund of $1.9 million and the utilization of research and development tax credits of approximately $1.0 million. This accounted for approximately 12.0 percentage points of the effective tax rate. Excluding these items, the effective tax rate for fiscal 2011 would have been approximately 34.0%. The effective tax rate in fiscal 2010 was impacted by a change in our position regarding undistributed earnings of our European subsidiaries which we began to remit

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to the United States in fiscal 2010, resulting in additional tax expense of $0.5 million. Additionally, the add-back of meals and entertainment expenses, which historically has not been material to our total tax expense, resulted in additional tax expense of $0.2 million. Offsetting these amounts were additional tax benefits of $0.6 million primarily related to the difference in domestic and foreign tax rates and dividends, net of foreign tax credits, paid to us from foreign subsidiaries. Excluding these items, the effective tax rate for fiscal 2010 would have been approximately 35.0%.

Net income

As a result of the factors above, net income increased $20.7 million to $19.0 million in fiscal 2011 compared to a net loss of $1.7 million in fiscal 2010.

Fiscal 2010 compared to fiscal 2009

Net sales

Net sales remained relatively flat at $617.8 million in fiscal 2010 compared to $612.5 million in fiscal 2009. The slight increase was primarily the result of higher sales volume of $20.7 million in fiscal 2010, which increased despite the unfavorable impact of the paint supply issue discussed in the “—Opportunities, challenges and risks” section above. We did not face any similar supply issues in fiscal 2009. This sales volume increase was offset by the effects of unfavorable currency movements of $7.6 million in fiscal 2010, $6.6 million paid in higher rebates for sales volume growth and higher sales allowances due to customer mix in fiscal 2010 compared to fiscal 2009 and a $1.2 million increase in discounting on both discontinued product and freight in fiscal 2010 compared to fiscal 2009.

Net sales from FMI increased by $9.2 million, or 2.2%, to $434.3 million in fiscal 2010 compared to $425.1 million in fiscal 2009. The increase was primarily the result of higher sales volume of $25.0 million in fiscal 2010, which increased despite the unfavorable impact of the paint supply issue discussed above. This sales volume increase was partially offset by the effects of unfavorable currency movements of $9.3 million and a decrease in net sales in fiscal 2010 as a result of $6.6 million paid in higher rebates for sales volume growth and higher sales allowances due to customer mix in fiscal 2010 compared to fiscal 2009.

Net sales from KMC decreased by $3.9 million, or 2.1%, to $183.6 million in fiscal 2010 compared to $187.4 million in fiscal 2009. The decrease was primarily related to lower sales volume of $4.6 million in fiscal 2010 and an increase in price discounting on both discontinued product and freight of $1.2 million in fiscal 2010 compared to fiscal 2009. These decreases were partially offset by the effects of favorable currency movement of $1.7 million in fiscal 2010.

Gross profit/gross margin

Gross profit decreased by $21.0 million, or 11.0%, to $170.6 million in fiscal 2010 compared to $191.6 million in fiscal 2009. Gross margin of 27.6% in fiscal 2010 declined 370 basis points from fiscal 2009 gross margin of 31.3%. A majority of the gross profit decrease in fiscal 2010 was attributable to the paint supply issue. Additionally, the decrease resulted from idle facility charges of $3.5 million, a decrease in gross profit in fiscal 2010 as a result of $6.6 million paid in higher rebates for sales volume growth and higher sales allowances due to customer mix in fiscal 2010 compared to fiscal 2009, and a $1.2 million increase in discounting on both discontinued

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product and freight in fiscal 2010 compared to fiscal 2009. Gross profit was also lower due to the effects of unfavorable currency movements of $0.7 million. These decreases were partially offset by a volume increase, which contributed $3.9 million of gross profit in fiscal 2010.

FMI gross profit declined by $20.0 million or 14.4%, to $118.9 million in fiscal 2010 from $138.9 million in fiscal 2009. Gross margin of 27.4% declined 530 basis points compared to fiscal 2009 of 32.7%. A majority of the gross profit decrease in fiscal 2010 was attributable to the paint supply issue. Additionally, the decrease resulted from idle facility charges of $3.5 million and a decrease in gross profit in fiscal 2010 as a result of the $6.6 million paid in higher rebates for sales volume growth and higher sales allowances due to customer mix in fiscal 2010 compared to fiscal 2009. Gross profit in fiscal 2010 was also lower due to the effects of unfavorable currency movements of $2.9 million. These decreases in FMI gross profit were partially offset by a volume increase, which contributed $5.5 million of gross profit in fiscal 2010.

KMC gross profit declined by $1.0 million, or 1.8%, to $51.7 million in fiscal 2010 compared to $52.7 million in fiscal 2009. Gross margin of 28.2% decreased 10 basis points compared to fiscal 2009 gross margin of 28.1%. The decrease was primarily related to lower sales volume and sales through lower margin channels in fiscal 2010 of $3.1 million, and $1.2 million in greater price discounts given on discontinued products and freight in fiscal 2010 compared to fiscal 2009. Partially offsetting this reduction in gross profit was $2.1 million related to the effect of favorable currency movements in fiscal 2010.

Selling, general and administrative expenses

Selling, general and administrative expenses decreased by $4.1 million, or 3.2%, to $121.7 million in fiscal 2010 compared to $125.7 million in fiscal 2009. The overall decrease was due primarily to a decrease in labor-related expense of $3.2 million in fiscal 2010, of which $2.2 million was related to lower wages, $0.9 million was related to the discontinuation of our 401(k) employer matching contribution and $0.2 million related to lower temporary labor expenses. The decrease in wages was due to lower head count in fiscal 2010. The remaining decrease was primarily related to lower depreciation and amortization compared to fiscal 2009.

Warehouse expenses

Warehouse expenses increased by $1.8 million, or 7.1%, to $27.7 million in fiscal 2010 compared to $25.9 million in fiscal 2009. This increase was primarily due to an increase in warehouse building rent of approximately $2.7 million, partially offset by a decline in outside services costs of $0.5 million. The increase in building rent was due to the expansion of our Ontario, California warehouse as we added approximately 300,000 additional square footage of leased space. The decrease in outside services was related to lower amounts paid to our third party warehouse provider in Europe due to lower volume.

Research and development expenses

Research and development expenses increased by $0.3 million, or 3.3%, to $9.3 million in fiscal 2010 compared to $9.0 million in fiscal 2009. The increase in research and development expenses was primarily due to increased labor-related expenses of $0.3 million as a result of higher benefit charges and an increased use of temporary labor.

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Impairment charges

We recorded $1.2 million in impairment charges in fiscal 2009. No impairment charges were recorded in fiscal 2010. In fiscal 2009, due to the deterioration in economic conditions, and the reduction of forecasted sales and estimated cash flows, it was determined that several of our indefinite-lived trademarks were impaired. As a result, we recorded an impairment charge of $1.0 million in fiscal 2009 related to indefinite-lived trademarks. We also determined that certain customer list intangible assets were impaired and, as a result, recorded $0.2 million in impairment charges related to these assets in fiscal 2009.

Income from operations

As a result of the factors discussed above, income from operations decreased by $17.9 million, or 60.0%, to $11.9 million in fiscal 2010 from $29.8 million in fiscal 2009. Income from operations as a percentage of net sales decreased 3.0 percentage points to 1.9% in fiscal 2010 from 4.9% in fiscal 2009.

Net foreign currency exchange loss

Our net foreign currency exchange loss decreased by $2.4 million, to $1.2 million in fiscal 2010 compared to $3.6 million in fiscal 2009. The decrease was primarily the result of a decrease in losses from our Euro denominated foreign exchange hedging activity of approximately $1.9 million and a decrease of approximately $0.7 million in losses related to the foreign currency effect of the remeasurement of certain assets and liabilities of our foreign subsidiaries.

Interest expense

Interest expense decreased by $2.9 million, or 18.9%, to $12.7 million in fiscal 2010 from $15.6 million in fiscal 2009 primarily due to a mandatory pre-payment under our term loan agreement of approximately $34.3 million made in May 2010 lowering the weighted average term loan balance to $271.1 million in fiscal 2010 from $295.5 million in fiscal 2009, or a decrease in the weighted average term loan balance of approximately 8.3%. Also, a decrease in the London Interbank Offered Rate, or LIBOR, decreased the interest rate under our credit facility in fiscal 2010 and contributed to the overall decrease in interest expense.

Other, net

Other, net decreased by $2.1 million to an expense of $0.4 million in fiscal 2010 compared to income of $1.7 million in fiscal 2009. The $0.4 million net expense in fiscal 2010 was primarily due to a write-off of inventory management software of approximately $0.8 million, partially offset by interest income and other miscellaneous income of $0.4 million. The other income earned in fiscal 2009 was due to a settlement reached with the IRS for audits conducted for our 2005 through 2008 tax years. The audit resulted in a tax refund on which we earned approximately $1.0 million in interest income.

Income taxes expense (benefit)

Income tax expense decreased by $2.2 million to $0.7 million in tax benefit in fiscal 2010 from $1.5 million in tax expense in fiscal 2009. The effective tax rates were 27.9% in fiscal 2010 and 12.3% in fiscal 2009.

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The effective tax rate in fiscal 2010 was impacted by a change in our position regarding undistributed earnings of our European subsidiaries which we began to remit to the United States in fiscal 2010, resulting in additional tax expense of $0.5 million. Additionally, the add-back of meals and entertainment expenses, which historically has not been material to our total tax expense, resulted in additional tax expense of $0.2 million. Offsetting these amounts were additional tax benefits of $0.6 million primarily related to the difference in domestic and foreign tax rates and dividends, net of foreign tax credits, paid to us from foreign subsidiaries. Excluding these items, the effective tax rate for fiscal 2010 would have been approximately 35.0%.

The effective tax rate in fiscal 2009 was impacted by a favorable resolution of a tax dispute of $2.5 million. Excluding this item, our effective tax rate in fiscal 2009 would have been 32.4%.

Net income (loss)

As a result of the factors discussed above, we incurred a net loss of $1.7 million and net income of $10.8 million in fiscal 2010 and fiscal 2009, respectively.

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Quarterly results of operations data

The following table sets forth our unaudited quarterly consolidated statement of operations data for the eight fiscal quarters ended January 1, 2012. The information from each quarter is derived from our unaudited interim consolidated financial statements, which we have prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this prospectus. This information includes all adjustments, consisting of normal, recurring adjustments, that management considers necessary for the fair presentation of such data. The quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this prospectus. Our historical unaudited quarterly consolidated results of operations are not necessarily indicative of results for any future fiscal quarters or fiscal years.

Fiscal quarter ended (in thousands)	Apr. 4, 2010			Jul. 4, 2010 (1)			Oct. 3, 2010 (1)			Jan. 2, 2011			Apr. 3, 2011 (1)			Jul. 3, 2011 (1)			Oct. 2, 2011			Jan. 1, 2012
Net sales	$	147,666		$	126,388		$	164,534		$	179,242		$	170,106		$	167,747		$	175,395		$	187,306
Cost of goods sold		104,371			95,115			118,020			129,744			117,848			115,162			120,431			129,579
Gross profit		43,295			31,273			46,514			49,498			52,258			52,585			54,964			57,727
Operating expenses:
Selling, general and administrative		33,413			28,644			29,599			29,995			33,917			32,678			34,285			36,248
Warehouse		6,578			6,569			7,005			7,561			7,044			7,166			7,103			7,113
Research and development		2,495			2,265			2,335			2,204			2,397			2,622			2,477			2,661
Total operating expenses		42,486			37,478			38,939			39,760			43,358			42,466			43,865			46,022
Income from operations		809			(6,205	)		7,575			9,738			8,900			10,119			11,099			11,705
Other income (expense):
Net foreign currency exchange gain (loss)		144			(820	)		(96	)		(403	)		(269	)		6			(2,547	)		(997	)
Interest expense		(3,681	)		(3,543	)		(3,745	)		(1,719	)		(2,815	)		(5,325	)		(3,280	)		(3,507	)
Other, net		23			197			67			(678	)		371			177			158			424
Total other income (expense)		(3,514	)		(4,166	)		(3,774	)		(2,800	)		(2,713	)		(5,142	)		(5,669	)		(4,080	)
Income (loss) before income taxes		(2,705	)		(10,371	)		3,801			6,938			6,187			4,977			5,430			7,625
Income tax expense (benefit)		(901	)		(1,915	)		145			2,019			(695	)		1,636			1,446			2,821
Net income (loss)	$	(1,804	)	$	(8,456	)	$	3,656		$	4,919		$	6,882		$	3,341		$	3,984		$	4,804

(1) Our second and third fiscal quarters of 2010 were adversely impacted by the paint supply issue at our Corona, California manufacturing facility discussed under “—Opportunities, challenges and risks.” Similarly, our first and second fiscal quarters of 2011 were favorably impacted by filling the cancellable backlog created by this issue. The majority of this backlog was filled in the first fiscal quarter of 2011.

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Seasonality

We have historically experienced relatively low seasonal variations in our net sales and operating income. However, as we further expand our net sales into international markets and grow our business, we may experience greater levels of seasonality in our results of operations.

Liquidity and capital resources

Our primary cash needs are to support inventory purchases, working capital and capital expenditures. Historically, we have generally financed these needs with operating cash flows and borrowings under our credit facilities. These sources of liquidity may be impacted by fluctuations in demand for our products, ongoing investments in our infrastructure, fluctuations in foreign currencies and expenditures on marketing and advertising. A summary of our operating, investing and financing activities are shown in the following table:

Fiscal year
(in thousands)	2009			2010			2011
Net cash provided by operating activities	$	80,557		$	4,385		$	29,213
Net cash used in investing activities		(5,276	)		(5,308	)		(10,576	)
Net cash used in financing activities		(50,344	)		(27,398	)		(21,589	)
Effect of exchange rate changes on cash and cash equivalents		655			(650	)		(67	)
Increase (decrease) in cash and cash equivalents	$	25,592		$	(28,971	)	$	(3,019	)

We expect that proceeds from this offering, cash on hand, cash flow from operations and availability under our credit facilities will be sufficient to fund our operations for at least the next 18 months.

Net cash provided by operating activities

Cash provided by operating activities primarily consists of net income, adjusted for certain non-cash items including provision for allowances for accounts receivable (including product returns and cash discounts), depreciation and amortization, stock based compensation, deferred income taxes, amortization of loan costs, impairment charges and the effect of changes in working capital and other activities.

In fiscal 2011, net cash provided by operating activities was $29.2 million and consisted of net income of $19.0 million plus non-cash items of $39.9 million less changes in working capital and other activities of $29.7 million. Non-cash items consisted primarily of provision of allowances for accounts receivable (including product returns and cash discounts) of $14.9 million, depreciation and amortization of $8.7 million, stock based compensation of $5.0 million and amortization of a de-designated interest rate swap derivative of $4.2 million. Cash used for working capital and other activities consisted primarily of an increase in accounts receivable of $19.7 million as a result of increased sales volume, an increase in inventory of $17.6 million related to development of new products and the resolution of the paint supply issue we experienced in fiscal 2010, and an increase in prepaid expenses and other current assets of $8.4 million related to the expansion of our foreign currency derivative portfolio and an increase in the fair value of such derivatives, partially offset by an increase in accounts payable and accrued expenses of $17.2 million primarily related to the timing of payments made to our vendors and suppliers.

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In fiscal 2010, net cash provided by operating activities was $4.4 million and consisted of a net loss of $1.7 million plus $28.4 million of non-cash items less $22.3 million for changes in working capital and other activities. Non-cash items consisted primarily of provision of allowances for accounts receivable (including product returns and cash discounts) of $13.5 million, depreciation and amortization of $10.8 million and stock based compensation of $1.7 million. Cash used for working capital and other activities consisted primarily of an increase in accounts receivable of $16.1 million as a result increased sales volume compared to fiscal 2009, an increase in inventory of $18.1 million as we were making efforts to increase our inventory levels to support sales demand and an increase in prepaid expenses and other current assets of $2.3 million, partially offset by an increase in accounts payable and accrued expenses of $16.3 million as the result of an increase in purchases from suppliers compared to fiscal 2009.

In fiscal 2009, net cash provided by operating activities was $80.6 million and consisted of net income of $10.8 million plus non-cash items of $30.8 million and changes in working capital and other activities of $38.9 million. Non-cash items consisted primarily of provision of allowances for accounts receivable (including product returns and cash discounts) of $11.9 million, depreciation and amortization of $12.1 million and stock based compensation of $2.6 million. Cash provided by working capital and other activities consisted primarily of a decrease in inventory of $56.8 million primarily due to our efforts to reduce inventory levels in connection with declining economic conditions and a decrease in accounts receivable of $13.5 million related to decreased sales volume, partially offset by a decrease in accounts payable and accrued expenses of $30.2 million as the result of reductions in our inventory purchases.

Net cash used in investing activities

Cash used in investing activities primarily relates to capital expenditures.

In fiscal 2011, cash used in investing activities was primarily the result of capital expenditures of $8.4 million primarily related to investments in our manufacturing facilities and information technology, as well as the acquisition of trademarks of $2.0 million. In fiscal 2010 and fiscal 2009, net cash used in investing activities consisted almost entirely of capital expenditures of $5.3 million in both years primarily related to investments in our manufacturing facilities and information technology. We estimate that our capital expenditures for fiscal 2012 will be approximately $10.0 million to $12.0 million, primarily related to improvements in our manufacturing facilities, warehouses and information technology systems.

Net cash used in financing activities

Net cash used in financing activities primarily relates to the repayment of debt related to our term and revolving facility credit agreements. Net cash used in financing activities was $21.6 million in fiscal 2011, $27.4 million in fiscal 2010, and $50.3 million in fiscal 2009 primarily related to payments, net of issuances, of debt.

Long-term debt

On June 7, 2007, we entered into a Term Facility Credit Agreement, or the Term Loan, and a Revolving Facility Credit Agreement, or the Revolver, with a syndicate of lenders, which we refer to collectively as the Credit Facilities. The Credit Facilities provide for committed senior secured financing of $400 million, consisting of the following: the Term Loan in an aggregate original

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principal amount of $300 million; and the Revolver, available for loans and letters of credit, with an aggregate revolving commitment of up to $100 million based on borrowing-based eligibility criteria as described below.

The Term Loan consists of an initial loan of $200 million, which was drawn at closing, and a delayed draw loan of $100 million, which was drawn in connection with our acquisition of KMC on December 31, 2007. We may request one or more additional tranches of debt under the Term Loan of up to $75 million, subject to a consolidated senior secured debt ratio requirement. The $200 million initial loan is repayable in quarterly installments of $500,000 through June 9, 2014, the maturity date of the Term Loan, at which time the remaining principal balance is due. The $100 million delayed draw is repayable in quarterly installments of $250,000 through the maturity date, at which time the remaining principal balance is due.

The Term Loan bears interest based, at our option, at either (1) LIBOR plus an applicable margin of 2.25% per annum, or (2) an alternate base rate plus an applicable margin of 1.25% per annum. If our consolidated senior secured debt ratio is less than or equal to 3.5 to 1.0, the applicable margin applied to either the LIBOR or the alternative base rate is reduced to 2.00% and 1.00%, respectively. As of January 1, 2012, the interest rate on the Term Loan was 2.55%.

The Revolver, which was amended in April 2011, matures on April 27, 2016, if the Term Loan has been refinanced, extended or repaid in full by March 9, 2014; otherwise the Revolver matures on March 9, 2014. Borrowing eligibility under the Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. We may at any time, on not more than four occasions, request an increase to the Revolver of up to an aggregate amount of $50.0 million. The Revolver bears interest at a rate based on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate. The margin applied to LIBOR is either 2.00% or 2.25%, depending on our commitment utilization percentage under the Revolver. As of January 1, 2012, we had no outstanding balance on the Revolver and our availability under the Revolver was approximately $92.9 million.

All borrowings and other extensions of credit under the Credit Facilities are subject to the satisfaction of customary conditions, including absence of defaults and accuracy in material respects of representations and warranties. In addition, the Credit Facilities contain customary restrictive covenants for facilities and transactions of this type, including, among others, certain limitations on:

• incurrence of additional debt and guarantees of indebtedness;

• creation of liens;

• mergers, consolidations or sales of substantially all of our assets;

• sales or other dispositions of assets;

• distributions or dividends and repurchases of our common stock;

• restricted payments, including, without limitation, certain restricted investments;

• engaging in transactions with our affiliates; and

• sale and leaseback transactions.

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As of January 1, 2012, we were in compliance with these covenants. Our U.S. assets and a portion of the stock of our foreign subsidiaries have been pledged as collateral and secure our indebtedness under the Credit Facilities.

The Credit Facilities require mandatory prepayments in amounts equal to (1) 100% of the net cash proceeds of any indebtedness incurred in violation of the Credit Facilities; (2) the net proceeds from the sale or other disposition of property in excess of specified values (other than in the ordinary course of business and subject to other exceptions) by us or our subsidiaries, unless we intend and expect to use all or a portion of the proceeds to acquire or repair assets used in the business; and (3) with respect to the Term Loan only, a percentage ranging from 0% to 50%, depending on our consolidated leverage ratio, of excess cash flow, as defined in the Credit Facilities. Our consolidated leverage ratio was 4.1 as of January 1, 2012. As of January 3, 2010, we had a mandatory prepayment due on the Term Loan of approximately $34.3 million. This payment was made in May 2010. No mandatory prepayment was required as of January 2, 2011. As of January 1, 2012, we had a mandatory prepayment due on the Term Loan of approximately $3.6 million. This payment will be made in March 2012 with cash on hand.

We may voluntarily prepay loans under the Credit Facilities, in whole or in part, without premium or penalty. Any voluntary prepayment of loans will be subject to reimbursement of the lenders’ breakage costs in the case of a prepayment of Eurodollar rate borrowings other than on the last day of the relevant interest period. We intend to use a portion of the proceeds from this offering to prepay a portion of our outstanding loans under the Credit Facility. See the “Use of proceeds” section for further discussion.

Critical accounting policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires estimates and judgments that affect the reported amounts of our assets, liabilities, net sales and expenses, and disclosure of contingent assets and liabilities. Management bases estimates on historical experience and other assumptions it believes to be reasonable given the circumstances and evaluates these estimates on an ongoing basis. Actual results could be significantly different from these estimates. We believe that the following discussion addresses the critical accounting policies that are necessary to understand and evaluate our reported financial results.

Revenue recognition

We recognize revenue when products are delivered, collection of the receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. Our revenue is reported on a net sales basis, which is computed by deducting from our gross sales actual cash discounts, allowances established for anticipated sales returns and rebates earned by our customers. Provisions for discounts, rebates, sales incentives, returns and other adjustments are provided for in the period the related sales are recorded based on an assessment of historical trends and current projections of future results.

Our estimated allowance for sales returns is a subjective critical estimate that has a direct impact on reported net sales. This allowance is calculated based on a history of actual returns, estimated

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future returns and any significant future known or anticipated events. Consideration of these factors results in an estimated allowance for sales returns. We allow returns from our customers if properly requested and approved.

Accounts receivable allowances

We establish reserves for cash discounts, product returns and allowances for doubtful accounts. The allowance for doubtful accounts is based on trade receivables that are not probable of collection. The allowance for doubtful accounts is determined using estimated losses on accounts receivable based on historical write-offs and evaluation of the aging of the receivables as well as the specific circumstances associated with the credit risk and materiality of the receivable balance. The reserves for cash discounts and product returns are based on historical experience. We assess the adequacy of our reserves at least quarterly and we adjust our estimates as needed.

Inventories

We value our inventories at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for estimated obsolescence or unmarketable inventories based on our forecast of future demand. If our inventory on hand is in excess of our forecast of future demand, the excess amounts are written down.

We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our products less the estimated cost to convert inventory on hand into a finished product.

Property and equipment

Property and equipment are stated at cost and depreciated/amortized using the straight-line method over the following estimated useful lives:

Building	30-39 years
Machinery and equipment	3-10 years
Furniture and fixtures	3-7 years
Computer hardware and software	3-5 years
Leasehold improvements	Lesser of estimated useful life or life of lease

Our estimates relating to the anticipated useful lives of our property and equipment is a subjective critical estimate that directly impacts the value of our assets reflected on our consolidated balance sheets. Should these estimates prove inaccurate, we may be required to write down the excess value of these assets.

Goodwill and indefinite-lived intangible assets

Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Indefinite-lived intangible assets consist of trademarks. Goodwill and intangible assets with indefinite lives are not amortized but are subject to impairment tests at least annually at a reporting unit level. We conduct the annual impairment test of goodwill and other intangibles at the end of each fiscal year or more frequently if there are any impairment

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indicators identified during the year. To determine if goodwill and other intangibles are impaired, we use our best judgment and estimates and we review various factors, such as discounted cash flows analysis and comparable acquisition analysis. Trademarks are valued using the relief from royalty method of the income approach. We conducted our most recent annual impairment tests during the fourth quarter of fiscal 2011, and concluded that there were no impairment charges to record in fiscal 2011.

Impairment of long-lived assets

We evaluate the recoverability of our intangible assets and other long-lived assets with finite useful lives for impairment when events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. These trigger events or changes in circumstances include, but are not limited to, a significant decrease in the market price of a long-lived asset, a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition, significant adverse changes in legal factors or in the business climate that could affect the value of our long-lived assets, a significant adverse deterioration in the amount of revenue or cash flows we expect to generate from an asset group, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development of a long-lived asset, current or future operating or cash flow losses that demonstrate continuing losses associated with the use of our long-lived assets, or a current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Our long-lived assets consist of property and equipment and amortizable intangible assets. When factors indicate that the assets should be evaluated for possible impairment, we evaluate the recoverability of such assets by comparing the carrying amount of the asset or group of assets to the estimated undiscounted future cash flows expected to result from the use of the asset or group of assets and their eventual disposition. If the undiscounted cash flows are less than the carrying value of the asset or group of assets being evaluated, an impairment loss is recorded. The loss is measured as the difference between the fair value and the carrying value of the asset or group of assets being evaluated. Fair value is determined using the excess earnings method of the income approach.

Product warranties

We accrue warranty reserves at the time products are sold. Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact our evaluation of historical data. We review the adequacy of our reserves at least quarterly and adjust our estimates as needed.

Self-insurance reserves

We maintain an insured large deductible program for workers’ compensation, whereby we have a liability of up to $350,000 per claim, with any amounts in excess of this limit covered by stop-loss excess insurance coverage. In addition, we maintain a self-insurance program for medical and dental insurance, whereby we have a liability of up to $125,000 per member, with any amounts in excess of this limit covered by stop-loss excess insurance coverage. Estimated costs under these programs, including incurred but not reported claims, are recorded as expenses based upon actuarially determined liabilities, which are based on historical experience and trends

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of paid and incurred claims. Accounting for insurance liabilities that are self-insured involves uncertainty because estimates and judgments are used to determine the liability to be recorded for reported claims and claims incurred but not reported. If the current claim trends were to differ significantly from our historic claim experience, a corresponding adjustment would be made to the self-insurance reserves.

Derivative instruments

As a global company, we are exposed in the normal course of business to foreign currency and interest rate risks that could affect our net assets, financial position, results of operations and cash flows. We use derivative instruments to hedge against certain of these risks, and hold derivative instruments for hedging purposes only, not for speculative or trading purposes.

We record all derivative instruments on the balance sheet at fair value. Changes in the fair value of the derivative instruments are recognized in earnings unless we elect to designate the derivative in a hedging relationship and apply hedge accounting and the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. Certain of the derivatives contracts we have entered into are designated as cash flow hedges. We have not used derivative contracts designated as fair value hedges or as hedges of the foreign currency exposure of a net investment in a foreign subsidiary, although we could elect to do so in the future. We may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply, or we elect not to apply hedge accounting.

Foreign currency exchange risk

We sell our products internationally, and, in many of those markets, primarily Europe, the sales are made in the foreign country’s local currency. In addition, many of the purchases by the company and its subsidiaries from international vendors are denominated in currencies that are different from the relevant functional currency. Furthermore, we are exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in our consolidated financial statements due to the translation of the operating results and financial position of our international subsidiaries. Our most significant foreign currency risk relates to the Euro, the British Pound, the Japanese Yen, the Canadian Dollar and the Mexican Peso. We use foreign currency derivatives to hedge a portion of these exposures. The foreign currency derivatives are entered into with banks and allow us to exchange a specified amount of foreign currency with U.S. dollars at a future date, based on a fixed exchange rate.

Certain foreign currency derivatives have been designated as cash flow hedges. The effective portion of changes in the fair value of foreign currency derivatives designated and that qualify as

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cash flow hedges is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into net sales in the period the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the foreign currency derivative is recorded directly in earnings.

In addition, certain of our foreign currency derivatives used to manage the exposure related to our international sales and purchases are not designated as cash flows hedges. These hedges are economic hedges of identified risks to us to which we have elected not to apply hedge accounting. Hedges not designated as cash flows hedges are recorded at fair value on our consolidated balance sheets and any changes in fair value are recorded directly in earnings.

Certain of our subsidiaries’ assets (primarily accounts receivables) are denominated in currencies other than the functional currency of the particular subsidiary. Changes in the exchange rate between the subsidiary’s functional currency and the currency in which the asset is denominated can create fluctuations in our reported consolidated financial position, results of operations and cash flows. Accordingly, we enter into foreign currency derivatives to hedge a portion of the balance sheet exposure against the short-term effect of currency exchange rate fluctuations. We do not apply hedge accounting to these foreign currency derivatives and their gains and losses will offset all or part of the transaction gains and losses that are recognized in earnings on the related foreign currency asset. Any changes in the fair value of these foreign currency derivatives are recorded directly in earnings.

Interest rate risk

We use interest rate swap agreements to manage our exposure to interest rate fluctuations by effectively fixing the interest rate on a portion of our floating-rate debt. The effective portion of the change in fair value of the interest rate swap designated as a cash flow hedge is recorded in accumulated other comprehensive income (loss) and is subsequently reclassified to interest expense in the period the hedged forecasted transactions affect earnings. Any ineffective portion of the interest rate swap is recorded directly in earnings.

Income taxes

We utilize the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We operate in various tax jurisdictions and are subject to audit by various tax authorities. We provide tax contingencies whenever it is deemed probable that a tax asset has been impaired or a tax liability has been incurred for events such as tax claims or changes in tax laws. Tax contingencies are based upon our assessment of the technical merits of the relevant tax position, based on the relevant tax law and the specific facts and circumstances as of each reporting period. Changes in law or in the relevant facts and circumstances could result in material changes to the amounts recorded for such tax contingencies.

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Significant management judgment is required in determining our income tax expense and our deferred tax assets and liabilities. We make these estimates and judgments about our future taxable income based on assumptions that are consistent with our future plans.

Stock based compensation

We account for stock based compensation using the fair value measurement guidance. We may grant stock options for a fixed number of shares to certain employees, directors and non-employees with an exercise price equal to or greater than the estimated fair value of the shares at the date of grant. We also may grant restricted stock and restricted stock units with fair value determined on or around the date of grant.

The fair value for stock options is estimated at the date of grant using a Black-Scholes option pricing model. We recognize compensation expense over the option vesting period, net of estimated forfeiture rates, for each separately vesting portion (or tranche) of the award as if the award is, in substance, multiple awards. If actual forfeitures differ from management estimates, additional adjustments to compensation expense may be required in future periods.

The fair values of stock options are estimated using the following assumptions:

Expected dividend yield: The expected dividend yield is based on our historical practice of not paying dividends.

Risk free interest rate: The risk free interest rate for the expected term of the option is based on the U.S. Treasury yield curves.

Expected average volatility: We use an average of historical volatility of similar publicly traded companies over the expected term.

Expected term: The expected term represents the period of time that options granted are expected to be outstanding.

	Fiscal 2009		Fiscal 2010		Fiscal 2011
Expected dividend yield		None		None		None
Risk free interest rate		3.01%		2.07%		1.67%
Expected average volatility		48.96%		49.95%		50.42%
Expected term (years)		5.5 to 7.0		5.5 to 6.5		5.3 to 7.5

Stock based compensation expense related to stock options was $5.0 million, $1.6 million and $2.3 million for fiscal 2011, 2010 and 2009, respectively. We also recognized stock based compensation expense related to restricted stock units of $89,000, $178,000 and $289,000 for fiscal 2011, 2010 and 2009, respectively. As of January 1, 2012, our total amount of unamortized stock based compensation was $9.7 million. This expense will be recognized over the remaining weighted average vesting period of these securities of 1.6 years.

If different assumptions are used, stock based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining stock based compensation expense and the actual factors which become known over time, we may change the input factors used in determining stock based compensation costs for future grants. Any such changes may materially impact our results of operations in the period

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such changes are made. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock based compensation expense recognized in future periods will likely increase.

We have historically granted stock options with exercise prices equal to the fair value of our common stock as determined by our Board of Directors, based in part on valuation studies performed by an independent third party valuation firm. In determining its valuation analysis, the valuation firm engaged in discussions with management, analyzed our historical and forecasted financial performance, reviewed our corporate documents and considered a number of objective and subjective factors, including trends in our industry and the lack of liquidity of our capital stock. The valuation firm established an enterprise value using generally accepted valuation methodologies, including discounted cash flow analysis, comparable public company analysis and, when data deemed relevant was available, comparable acquisitions analysis. These methodologies are discussed in greater detail below. Total equity value was determined by adding cash and deducting debt from the enterprise value. The equity value was allocated among the securities that comprise the capital structure using an option-pricing method, which takes into account the liquidity preference of our class C common stock and the rights of holders of our class B common stock and class C common stock to convert their shares into common stock upon an initial public offering. The option-pricing method also considers volatility, term and risk-free interest rate inputs. The term input was established based on management’s expectations of a liquidity event and the risk-free interest rate corresponds to the term. The volatility of our equity was estimated by examining the standard deviation of publicly traded companies that were deemed to be comparable. Had different estimates of volatility been used, the allocations among the classes of securities that comprise our capital structure would have been different and would have resulted in different valuations. In allocating equity value among the securities that comprise our capital structure, the valuation firm also applied discounts for non-voting shares and lack of marketability.

The discounted cash flow analysis used in determining our enterprise value was based on the estimated present value of future cash flows our business is expected to generate over a forecasted period and an estimate of the present value of cash flows beyond that period, which is known as the terminal value. The terminal value was determined by applying an EBITDA multiple range based on a review of the multiples calculated in the comparable public company analysis and comparable acquisition analysis, as described below. The estimated present value was calculated using a discount rate based on our estimated weighted average cost of capital, which accounts for the time value of money and the degree of risks inherent in our business.

The comparable public company analysis used in determining our enterprise value involved analyzing transaction and financial data of publicly-traded companies to develop multiples of financial metrics. The valuation firm then applied these multiples to our own financial metrics to develop an indication of our enterprise value. The multiples that were used to value FMIC were (i) enterprise value for the latest twelve-month period and estimated enterprise value for the current and subsequent fiscal years, to (ii) EBITDA. Comparable companies were selected based on a number of criteria, including the comparability of their operations, size and growth prospects to ours. The valuation firm considered peer companies in the musical instruments industry, as well as companies that are associated with lifestyle brands.

The valuation firm also used, when appropriate, a comparable acquisition analysis to determine our enterprise value, which involved analyzing sales of controlling interests in comparable

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companies in the musical instruments industry. For comparable transactions, the valuation firm calculated multiples of the latest-twelve-month enterprise value to EBITDA.

Valuations or our common stock were performed as of January 1, 2012, June 1, 2011, January 2, 2011, January 3, 2010 and December 28, 2008. The following table summarizes, by grant date, the number of stock options and restricted stock units granted since January 1, 2009, and the associated per share exercise price, which was not less than the estimated fair value of our common stock for each of these grants.

Grant date	Type of award granted	Number of awards granted		Exercise price per share of common stock		Estimated fair value per share of common stock
June 17, 2009	stock options		310	$	628.00 to $846.00	$	627.10
May 5, 2010	restricted stock units		300		706.00		705.23
August 1,2010	stock options		3,882		706.00		705.23
June 9, 2011	stock options		21,378		987.00		986.65
August 15, 2011	stock options		10,025		987.00		986.65
October 3, 2011	stock options		500		987.00		986.65

In determining the estimated fair value of our common stock for stock options and RSUs granted on May 5, 2010, and August 1, 2010, our Board of Directors considered, in part, a valuation performed by the independent third party valuation firm as of January 3, 2010. The increase in the estimated fair value per share of common stock from June 2009 to May 2010 was primarily due to an increase in our cash balance and a decrease in our debt balance, both of which directly increased our equity value. The higher cash and lower debt balances more than offset a decline in enterprise value that resulted from weaker historical performance and a decline in forecasted financial performance.

In determining the estimated fair value per share of our common stock granted on June 9, 2011, August 15, 2011, and October 3, 2011, our Board of Directors considered, in part, a valuation performed by the independent third party valuation firm as of June 1, 2011. The increase in the estimated fair value per share of common stock from August 2010 to June 2011 was primarily due to an increase in our enterprise value attributable to stronger forecasts and improved historical performance. The estimated fair value per share was also favorably impacted by a shorter expected holding period of our equity, which resulted in a lower discount for lack of marketability. The discounted cash flow analysis indicated an increase in enterprise value due to higher revenue growth projections, offset in part by a slight increase in the discount rate due to a higher equity risk premium. The comparable public company analysis indicated an increase in enterprise value due to in increase in the forecast multiples of our musical instruments industry peers and lifestyle brand peers, and higher EBITDA performance for comparable companies for both the historical and forecast periods. The comparable acquisitions analysis was considered for this valuation but not utilized due to the lack of transactions in the musical instruments industry since 2007.

As of January 1, 2012, we had outstanding options to purchase 67,511 shares of common stock at a weighted average exercise price of $953 per share, of which 30,738 represented vested options to purchase shares with a weighted average exercise price of $929 per share.

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Contractual obligations and commitments

The following table summarizes our contractual obligations as of January 1, 2012, and the effect such obligations will have on our liquidity and cash flows in future periods.

Payments due by period (in thousands)	Total		Less than one year		1 – 3 years		3 – 5 years		More than 5 years
Principal repayment	$	246,205	$	6,607	$	239,598	$	—	$	—
Interest payment (1)		15,138		5,773		9,365		—		—
Capital lease obligations		1,370		728		566		76		—
Operating lease obligations		63,505		11,638		18,369		15,543		17,955
Royalty agreements (2)		1,500		1,500		—		—		—
Purchase commitments (3)		10,100		10,100		—		—		—
Total contractual obligations	$	337,818	$	36,346	$	267,898	$	15,619	$	17,955

(1) These amounts are an estimate of future interest payments due on our long-term debt outstanding as of January 1, 2012, based on the interest rate in effect as of such date.

(2) Represents required contractual minimums related to a royalty contract with a third party. We have several artist royalty arrangements that require us to pay the artists primarily based upon sales volumes; however, none of these arrangements have contractual minimums.

(3) Represents a purchase commitment with a supplier of percussion accessories.

Off-balance sheet arrangements

We have no material off-balance sheet arrangements.

Inflation

Historically, inflation has not had a material effect on our results of operations. However, significant increases in inflation, particularly those related to wages in Asian labor markets and the cost of raw materials, could have an adverse impact on our business, financial condition and results of operations.

Quantitative and qualitative disclosures about market risk

Foreign exchange risk

We sell our products internationally and in most markets those sales are made in the foreign country’s local currency. In addition, while our expenses are primarily in U.S. dollars, we incur certain manufacturing costs and purchase certain finished goods in foreign currencies. As a result of these exposures, our earnings can be affected by fluctuations in the value of the U.S. dollar relative to foreign currency. Our most significant foreign currency risk relates to the Euro, the British Pound, the Japanese Yen, the Canadian Dollar and the Mexican Peso. We utilize foreign currency derivatives contracts to mitigate the effect of the Euro, the British Pound, the Japanese Yen, the Canadian Dollar and the Mexican Peso fluctuations on earnings. All hedging transactions are authorized and executed pursuant to regularly-reviewed policies and procedures, which prohibit the use of financial instruments for speculative trading purposes. The foreign currency derivatives contracts are entered into with banks and allow us to exchange a specified amount of foreign currency for U.S. dollars at a future date, based on a fixed exchange rate. At January 1, 2012, the notional U.S. dollar value of outstanding Euro, British Pound, Japanese Yen, Canadian Dollar and Mexican Peso foreign currency derivatives contracts was

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approximately $193.7 million. We estimate that a uniform 10% weakening in the value of the U.S. dollar relative to the currencies underlying these contracts would result in a decrease in the fair value of the contracts of approximately $12.5 million as of January 1, 2012.

Interest rate risk

We are subject to interest rate risk in connection with our long-term debt. As of January 1, 2012, our outstanding debt balance consisted of $246.2 million due on our Term Loan. There was no outstanding balance due on our Amended Revolver at January 1, 2012. We estimate that a 100 basis point increase in the interest rate on our long-term debt would have increased our interest expense by approximately $1.0 million for fiscal 2011. The balance of our long-term debt at January 1, 2012, is not indicative of future balances that may be subject to fluctuations in interest rates.

Recent accounting pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, “Amendments to Achieve Common Fair value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” ASU 2011-04 provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for our interim and annual periods beginning after December 15, 2011. Based on our evaluation of this ASU, the adoption of this standard is not expected to have a material impact on our consolidated financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. An entity is also required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for us beginning December 31, 2012, and requires retrospective application. As this guidance only amends the presentation of the components of comprehensive income, the adoption will not have an impact on our consolidated financial position or results of operations.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment.” ASU 2011-08 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 the two-step impairment test currently required. The updated guidance is effective for our interim and annual periods beginning after December 15, 2011; however, early adoption is permitted. Based on our evaluation of this ASU, the adoption of this standard is not expected to have a material impact on our consolidated financial position or results of operations.

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Business

Overview

We are a leading, global musical instruments company whose portfolio of renowned, music lifestyle brands brings the passion of music to life. Since the founding of our predecessor company by Leo Fender in 1946, we have built a comprehensive portfolio of brands led by the iconic Fender brand and other renowned brands such as Squier, Jackson, Guild, Ovation and Latin Percussion, which we own, and Gretsch, EVH (Eddie Van Halen) and Takamine, for which we are the licensee. We believe that the Fender brand in particular is closely associated with the birth of rock ‘n roll and has a strong legacy in music and in popular culture. The authenticity and quality of our brands are highlighted by the numerous, well known, current and historical musicians and groups that are often associated with our products. While a number of our brands, including Fender, have broad appeal, other brands in our portfolio offer products with distinct sounds or styles targeted at musicians in particular genres, including rock ‘n roll, country, jazz, heavy metal, blues and world music.

We believe that we have assembled one of the broadest product portfolios in the musical instruments industry. Our product portfolio includes fretted instruments (comprised of electric, acoustic and bass guitars, banjos, ukuleles, mandolins and resonator guitars), guitar amplifiers, percussion instruments and accessories. We believe our guitars and guitar amplifiers, including the iconic Stratocaster guitar, the Telecaster guitar, the Precision Bass and Jazz Bass guitars and the Fender Bassman and Twin Reverb guitar amplifiers, revolutionized the way music is written, played and heard. We design and market our products to a variety of musicians from beginners to professionals across a broad range of prices.

In 2011, we had the #1 market share by revenue in the United States in electric, acoustic and bass guitars and electric and bass guitar amplifiers, according to an industry source. In addition, since the acquisition of Kaman Music Corporation (now known as KMC Musicorp), or KMC, in 2007, we have been one of the largest independent distributors of musical instrument accessories in the United States, according to an industry source. To support our brands and product leadership, we continue to bring new and innovative products to market that inspire our consumers and enhance brand loyalty.

We distribute our products globally in over 85 countries through one of the largest direct-to-retail sales forces in the musical instruments industry in the United States, Canada, Europe and Mexico, as well as through a network of distributors in selected international markets. We sell our products through independent and national music retailers, mass merchants, online and catalog retailers and third party distributors. In fiscal 2011, we generated 58.7% of our gross sales before discounts and allowances from the independent channel (representing over 13,000 independently owned music stores), 23.5% collectively from the national channel, mass merchants and online and catalog retailers and 17.8% from third party distributors. Gross sales before discounts and allowances is comprised of product sales but, unlike net sales, does not include licensing income and dealer freight collection, and is not net of cash discounts, sales return allowances and rebates.

Our strategically managed global supply chain is comprised of a network of our own manufacturing facilities in the United States and Mexico, distribution and warehouse facilities in North America (the United States and Canada) and Europe, and established sourcing

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relationships with OEMs and suppliers in Asia, Europe, North America and Mexico. We manufacture our premium products primarily in the United States.

Our portfolio of renowned brands, broad selection of quality products, longstanding culture of ongoing innovation and new product development, global supply chain and distribution network and strong consumer loyalty have been key drivers of our strong financial performance. Our net sales grew from $612.5 million in fiscal 2009 to $700.6 million in fiscal 2011, representing a compound annual growth rate, or CAGR, of 6.9%. Our net income was $10.8 million in fiscal 2009, compared to $19.0 million in fiscal 2011, representing a CAGR of 32.8%. Our adjusted EBITDA grew from $43.7 million in fiscal 2009 to $52.9 million in fiscal 2011, representing a CAGR of 10.0%. See “Summary consolidated financial data—Non-GAAP financial measures” for the definition of adjusted EBITDA and a reconciliation from net income (loss) to adjusted EBITDA.

Our history

After producing his first amplifier in 1945, Leo Fender founded Fender Electric Instrument Company in 1946 in Fullerton, California. In 1951, he introduced the Telecaster, the first single-cut, solid-body guitar to be mass produced and the Precision Bass, the first commercially successful electric bass guitar. These initial products combined simplicity and technology with manufacturing techniques that we believe transformed the solid body electric guitars and bass guitars into commercially viable products. In 1952, Leo Fender introduced the Fender Bassman, one of our flagship guitar amplifiers, and in 1954, Mr. Fender introduced the now iconic Stratocaster guitar. The Fender Stratocaster was the only instrument named as one of the “American Icons that have transformed our world” in the 35^th Anniversary issue of Rolling Stone magazine published in May 2003.

In 1965, Leo Fender sold Fender Electric Instrument Company to Columbia Records Distribution Corp., a division of Columbia Broadcasting System, Inc., or CBS. The business reemerged as a stand-alone company when the late William Schultz and current Board member, William (“Bill”) Mendello, formed Fender Musical Instruments Corporation to purchase the business from CBS in 1985. Under the leadership of William Schultz, Bill Mendello and current Chief Executive Officer, Larry Thomas, we have grown to become a global leader in the musical instruments industry. Since 1985, we have rebuilt our infrastructure, augmented our brands and product offerings and expanded the reach of our products, both domestically and internationally.

Market opportunity

We operate in the global musical instruments and accessories industry, which generated approximately $15.8 billion in global retail sales and $6.4 billion in U.S. retail sales in 2010, according to an industry source. The categories of our retail musical products, including fretted instruments, instrument amplifiers, percussion products and general accessories, generated an estimated $4.7 billion in U.S retail sales in 2010, according to the same industry source.

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The following chart illustrates U.S. retail sales by product type in 2010, according to an industry source:

1 Even though we participate in this segment, we have not historically generated significant net sales from pro audio products.

We believe opportunities for sales growth are supported by several long-term trends that we think will increase consumer demand for our products, including:

• Popular culture:    We believe that the musical instruments industry generally, and the fretted instruments market in particular, benefits from the continuing popularity of guitar-based music and bands, as well as the visibility of guitars in other areas of popular culture such as video games, television shows and movies.

• Accessibility of musical instruments:    Improvements in manufacturing techniques and an increase in non-domestic production result in high-quality instruments at relatively low retail prices, which provide an affordable entry point for new potential players, particularly from younger generations, and better enable musicians to upgrade their instruments and/or purchase multiple instruments.

• Changing technology:    Technological advancements in computing, portable media devices and social media enhance a consumer’s ability to access, learn, create, personalize and distribute music while integrating it into everyday life.

• Opportunities for growth in emerging markets:    The musical styles in some large, emerging global markets like China, India and Indonesia have not traditionally incorporated the guitar. We believe that guitar-based music will gradually increase in popularity in these emerging markets and help drive demand for our products.

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• Music education:    We believe the availability of guitar-based music education programs, including software- and internet-based lesson programs, and alternative music education programs such as “Kids Rock Free,” “Little Kids Rock” and others supported by the Fender Music Foundation have increased. We believe that interest in music education programs in schools and these alternative sources will continue, and that these programs will continue to receive support due to the important role of music in childhood development.

The musical instruments industry is highly fragmented and is served by a variety of companies, including independent instrument makers, large multinational corporations, technology-based electronics manufacturers and print publishers. We anticipate future industry consolidation and believe we are well-positioned to make strategic acquisitions or enter into strategic partnerships when opportunities arise.

Our competitive strengths

Portfolio of iconic and renowned lifestyle brands and associations with leading musicians

We have a portfolio of some of the most recognized global music lifestyle brands and products. In addition to the iconic Fender brand, our comprehensive brand portfolio includes brands such as Squier, Gretsch, Jackson, Charvel, EVH, Starcaster, Hamer, Guild, Ovation, Takamine, SWR, Genz Benz, Latin Percussion, Toca, Gibraltar, Sabian and Groove Tubes that we have developed, acquired or licensed, or for which we are the exclusive distributor in select territories. With this portfolio, we believe we are well-positioned to address different consumer segments through brands such as Fender that have broad appeal, and other brands that offer products with distinct sounds or styles that are important in specific genres of music, and products at a range of price points. Our brands are used by many of the world’s best known musicians and groups, both current and historical. We believe that the use of our products by these professional musicians, whose popularity and actions often influence consumers, establishes the authenticity of our brands so consumers aspire to own our products and are inspired to create their own music using our products. We collaborate with many of these famous musicians through our Signature Artist Program, in which these musicians provide specifications for instruments bearing their signatures and endorse their signature instruments, which are then marketed and sold to our customers. We also have a dedicated Artist Relations group that works closely with professional musicians to meet their musical instrument needs, including through custom made products.

Industry leader with broad product portfolio

In 2011, we had the #1 market share by revenue in electric, acoustic and bass guitars and electric and bass guitar amplifiers, and were the leading U.S.-based supplier to the overall musical instruments industry, according to industry sources. We believe the broad and diversified range of products in our portfolio helps to mitigate the impact of economic cycles, as sales of some product categories are less affected than others by economic downturns. We have expanded our product portfolio through a combination of innovation, strategic acquisitions and licensing arrangements. We believe that our range of brands and products positions us to be a strategic and reliable supplier to our retail partners and consumers.

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Heritage of innovation and new product introductions

We began a tradition of innovation over 60 years ago, which has had a profound influence on the music industry, with:

• The Telecaster Guitar (1951), the first single-cut, solid-body guitar to be mass produced;

• The Precision Bass Guitar (1951), the first commercially successful electric bass guitar, which we believe was a key enabler of rock ‘n roll music;

• The Fender Bassman Amplifier (1952), originally introduced as a bass amplifier for the Precision Bass, this product became a leading amplifier for guitar players in a variety of music genres;

• The Stratocaster Guitar (1954), combined enhanced sonic versatility with bold visual design and became one of the most recognized and iconic instruments in many musical styles;

• The Jazz Bass Guitar (1960), provided a collection of player-centric innovations, which we believe inspired electric bassists to create bold new tones and more sophisticated playing techniques;

• The Deluxe Reverb Amplifier (1963), delivered a mix of features and power for rehearsal, small club performances and recording; and

• The Twin Reverb Amplifier (1965), incorporated innovative electronic design to meet the needs of professional musicians of the day.

These products remain some of our best-selling products today. Our ability to develop and introduce innovative products and features has continued with:

• The Fretless Precision Bass (1970), allowed bass players to achieve sounds similar to the acoustic stand-up bass;

• The 5-Way Pickup Selector Switch for Stratocaster (1977), allowed easy access to two additional in-between tones by combining pickups on the Stratocaster guitar;

• The American Standard Stratocaster (1986), featured a classic appearance with modern features, and demonstrated improved manufacturing capability;

• The Cyber-Twin Amplifier (2001), featured a combination of tube, solid-state and digital processing for enhanced levels of musical performance and was named the Music Sound Retailer Product of the Year in 2002;

• The G-DEC Amplifier (2006), named the Music Trades Product of the Year in 2006, was the first guitar amplifier to include a virtual “back-up band” with synthesized drums, bass and other instruments;

• The Mustang Amplifier (2010), included USB connectivity for high-quality, low-latency audio output as well as the Fender FUSE application for the PC and MAC, which lets musicians connect to an online community where they can play, edit and share their own music;

• The Squier Stratocaster Guitar and Controller (2011), the world’s first real guitar that works with the Rock Band 3 video game and any musical instrument digital interface, or MIDI, device; and

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• The Fender Select Guitar (2012), launched this year and positioned just below our top-of-the-line Custom Shop products, is artfully constructed of luthier-selected choice tonewoods and handcrafted finishes, combining high-quality materials and player-centric features.

In addition, we often collaborate with leading artists through our Signature Artist Program and incorporate their ideas into our designs. Our Custom Shop, where we design and build custom and limited edition electric and bass guitars, also serves as a laboratory for the generation of ideas that can be more widely incorporated in our products.

Leading global footprint

We have developed global design, production and distribution capabilities and longstanding customer relationships that we believe would be difficult to replicate. We believe the scale and quality of our direct-to-retail sales force and distributor network enhance the loyalty of our retail partners and position us to become an increasingly important manufacturer and supplier in the industry. By facilitating a positive in-store experience at our retail partners and providing a variety of customer service programs, we believe we further enhance our brands and build consumer loyalty. Our manufacturing platform provides scalability and volume flexibility as we have a balanced mix of products manufactured internally and sourced externally. This infrastructure allows us to rapidly respond to the changing needs of consumers in our key markets, while maintaining high quality.

Distinguished management team and skilled workforce

We have assembled a proven and talented management team led by Larry Thomas, our Chief Executive Officer. Complementing Mr. Thomas are James Broenen, our Chief Financial Officer and Corporate Treasurer, and Mark Van Vleet, our Chief Legal Officer, Corporate Secretary and Senior Vice President of Business Development, who have joined our company in the past five and ten years, respectively, as well as Edward Miller, President of KMC, who has been affiliated with KMC since 1972, Gordon Raison, our Managing Director of Europe, who has been with our company for five years, and Andrew Rossi, our Senior Vice President of Global Sales, who has been with our company for 20 years. Our senior management team has an average of 21 years of musical instruments industry experience and brings together a deep knowledge of our industry, products, mission and culture, and an execution-oriented operating philosophy that are critical to our success. This extensive experience goes beyond senior management and deep into the organization. We believe that our company culture and the strength of our brands enable us to attract and retain highly talented employees who share our passion for music and interact with our retail partners and consumers in an authentic and credible way.

Our strategy

Increase awareness and consumer loyalty as lifestyle brands

We intend to continue to develop our brands as lifestyle brands by:

• Increasing brand presence outside of our normal retail channels, such as at global music festivals, where consumers can directly interact with our products.

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• Increasing our social media presence through tools such as Facebook and Twitter, and engaging directly with consumers through online lifestyle communities focused on artist-driven music content.

• Using targeted segmentation and enhanced web-based profile tools and analytics to tailor marketing communications to our consumers to cultivate the aspirational lifestyle images of our brands and develop products to meet specific consumer preferences. For example, based on our analysis of historical consumer click patterns in prior e-mail messaging, we are now able to tailor marketing communications to individual consumers based on those patterns.

• Applying the marketing and branding strategies that have been successful with our Fender brand to our other high potential brands, including Gretsch, Jackson, Charvel and EVH. For example, we are promoting Gretsch at several music festivals such as the Lake Havasu Rockabilly Festival. In addition, in fiscal 2012, we intend to create a specialty sales force in North America to focus on selling our non-Fender branded instruments and accessories.

• In fiscal 2011, we established the Fender Visitor Center which features historic displays as well as a showroom featuring product offerings and sales of apparel, accessories, guitars and guitar amplifiers.

Expand our product offering through continued innovation

We intend to continue our tradition of innovation to bring new products and features to consumers, while maintaining the high standards of quality with which our brands are associated. Over the last two years we have increased the pace at which we bring new products to market through more robust innovation processes and have expanded the breadth of new products introduced. A recent example is our Fender Select line of premium, hand-crafted production guitars, which we introduced in January 2012. These new product releases can produce a high margin revenue stream, as well as provide us with an opportunity to update and refresh our existing product lines. We believe that new product releases also create an aspirational desire for consumers to upgrade and purchase new products.

Accelerate our international growth

We intend to extend our reach to a broader global consumer base that might not otherwise be exposed to our products. In fiscal 2011, net sales outside of the United States constituted approximately 46.7% of our net sales. Over the past 10 years, we have experienced strong international sales growth as we have entered new markets and introduced additional products into established international markets. We believe that international markets will provide growth opportunities in the near to intermediate term. We have a three-pronged strategy related to growing internationally: expanding our reach into countries where we have not historically focused our sales efforts; increasing sales of our KMC products outside the United States, where KMC has not historically had a significant presence; and implementing and growing a direct-to-retail channel model internationally in markets where we already have a presence and in which we believe we have an opportunity for additional growth.

Expand our licensing and co-branding activities

We believe licensing our trademarks such as Fender and others builds brand awareness and furthers our strategy of reaching new consumers, while developing additional relationships with

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existing consumers through new products. These licensing agreements typically offer low investment costs and attractive margin opportunities without the risk of cannibalizing existing sales. We believe we have a significant opportunity to expand this aspect of our business given that royalty income from licensing accounted for less than 1% of our net sales during fiscal 2011. In addition, these activities provide us with a valuable source of advertising. We intend to expand beyond our existing licensed products to additional products in existing categories and new categories, including apparel, consumer electronics, mobile communication, home décor and bags and luggage. We also intend to further expand our licensing program to markets beyond the United States. In addition, we believe our non-revenue generating co-branding initiatives, such as those with Apple Inc., Hard Rock Cafe International, Inc. and SAP Global Marketing, Inc., position our products as premier lifestyle brands by leveraging our partners’ resources and consumer reach beyond the musical instruments industry.

Continue to be a partner of choice for strategic relationships

We believe that our experience in successful acquisitions and partnerships, our reputation for enhancing brands and our global scale make us an attractive partner within the musical instruments industry. We intend to build on our experience in acquisitions and strategic relationships by continuing to evaluate potential acquisition opportunities, license agreements, distribution arrangements and other strategic relationships. We evaluate these opportunities based on the potential to leverage our marketing, sales, distribution, sourcing and manufacturing capabilities to add value and contribute to growth with new brands and products. Over the last 15 years, we have successfully executed a variety of acquisitions, including the acquisitions of Guild, Jackson, Charvel, SWR, Tacoma, KMC and Groove Tubes, and entering into manufacturing and/or distribution relationships with Gretsch, EVH and Sabian. We believe that our success with strategic relationships is due, in part, to our ability to work with family-owned companies to provide financial liquidity while also protecting the brand heritage and family name, such as in our licensing agreement with Gretsch Guitars, a 129-year-old family-owned company, for its guitars and drums. In other instances, we have been able to structure arrangements with companies that seek to leverage our broad distribution network. We also are the exclusive U.S. distributor for Sabian and the distributor in the United States and in select other countries for Takamine.

Promote operational efficiencies

We intend to continue to drive operational efficiencies to improve our operating margin while maintaining or enhancing the quality of our products. In addition, we intend to continue investing in manufacturing technologies, such as robotic painting, to improve product quality, increase capacity and lower cost. We also plan to improve our wood storage, climate control and wood grading practices and expand our capability to manufacture the raw pieces of wood used in the manufacture of guitars. We continually evaluate shifting additional production to manufacturing facilities with lower or more stable costs. For example, our Ensenada, Mexico manufacturing facility provides us with high-quality products at stable, relatively low costs, and we intend to explore opportunities to move additional production to that facility.

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Our brands and products

Brands

We market products under a broad portfolio of brands, which we believe appeals to all levels of musicians, from beginners to professional musicians and enthusiasts, and reaches across music styles and genres, including rock ‘n roll, country, jazz, punk, heavy metal, blues and world music. We indicate in the table below those brands that we own. We market the remaining brands through licensing and other agreements with third parties pursuant to which we act as manufacturer, sales representative and/or exclusive distributor in selected geographic territories.

Brand	Owned	Description (1)	Fretted instruments	Guitar amplifiers	Percussion	Accessories / other
	ü	• Our iconic brand, associated with all musical genres and serving beginners through elite professional players • Prices typically range from $80 to $24,000	ü	ü		ü
	ü	• Entry-to-mid level extension of the Fender line of instruments • Prices typically range from $179 to $600	ü	ü		ü
		• A classic American brand founded in 1883, known for premium electric guitars and drums • Prices typically range from $195 to $12,000	ü	ü	ü	ü
	ü	• Guitars known for their aggressive styling favored by many heavy-metal guitarists around the world • Prices typically range from $266 to $4,000	ü			ü
	ü	• Customized versions of traditional guitar designs favored by many rock guitarists for their high quality, visual appeal and ease of playing • Prices typically range from $270 to $3,500	ü

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Brand	Owned	Description (1)	Fretted instruments	Guitar amplifiers	Percussion	Accessories / other
		• Designed to Eddie Van Halen’s exacting specifications and used by musicians in a variety of genres • Prices typically range from $499 to $5,066	ü	ü		ü
	ü	• Sold through KMC, the Starcaster by Fender brand generally targets new musicians • Prices typically range from $39 to $299	ü	ü		ü
	ü	• Offers consumers alternatives to traditional guitar designs • Prices typically range from $400 to $800	ü
	ü	• One of the original American acoustic guitars, recognized for its top quality craftsmanship, durability and classic sound • Prices typically range from $740 to $4,600	ü			ü
	ü	• The first commercially successful acoustic/electric guitars, famous for their roundback design, high-tech components and electronic systems • Prices typically range from $220 to $5,600	ü			ü
		• An early innovator in flat-back guitars and in acoustic/electric models, having pioneered embedded preamp technology • Prices typically range from $300 to $4,300	ü			ü

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Brand	Owned	Description (1)	Fretted instruments	Guitar amplifiers	Percussion	Accessories / other
	ü	• Offers bass and acoustic guitar amplifiers targeted at the professional market • Prices typically range from $575 to $2,500		ü
	ü	• Offers a range of acoustic and bass amplifiers targeted at music professionals • Prices typically range from $49 to $2,100		ü
	ü	• A brand of choice among many hand-percussion musicians across the world • Prices typically range from $2 to $1,038			ü	ü
	ü	• Popular among consumers ranging from beginners to professionals performing Latin, African and Middle Eastern music • Prices typically range from $3 to $810			ü	ü
	ü	• Offers hardware solutions for drums and percussion set-ups, supporting many brands of drums • Prices typically range from $4 to $725			ü	ü
		• One of the world’s largest cymbal designers and manufacturers offering products for musicians of skill levels from beginners to professionals • Prices typically range from $42 to $4,918			ü	ü

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Brand	Owned	Description (1)	Fretted instruments	Guitar amplifiers	Percussion	Accessories / other
	ü	• A premium brand of replacement vacuum tubes for all applications in musical instrument amplifiers • Prices typically range from $19 to $540				ü

(1) All listed prices reflect manufacturer suggested retail price, or MSRP, and exclude accessories other than with respect to Groove Tubes and Gibraltar.

We became affiliated with many of the brands listed above through acquisitions and other strategic relationships. For more than 15 years, our management team has demonstrated the ability to execute these transactions and integrate these new brands into our U.S. and international operations, while also leveraging our existing manufacturing and sales and distribution capabilities to help improve or enhance net sales and profitability of the acquired brands. Examples of our acquisitions include Guild in 1995, Jackson and Charvel in 2002, SWR in 2003, Tacoma in 2004 and Groove Tubes in 2008. In December 2007, we acquired KMC, through which we gained ownership of, or distribution rights for, over 100 brands, including the Ovation, Latin Percussion, Toca, Gibraltar, Genz Benz and Hamer brands, which we own, and Sabian, Gretsch drums and Takamine, for which we act as distributor. This acquisition, our single largest, enabled us to significantly expand our product offerings, particularly in percussion and accessories. Since this acquisition, we have been one of the largest independent distributors of musical instrument accessories in the United States, according to an industry source.

Our products

Our products fall into four major categories.

• Fretted instruments:    This category consists of electric, acoustic and bass guitars, as well as banjos, ukuleles, mandolins and resonator guitars. The fretted instrument brands we own include Fender, Squier, Jackson, Charvel, Guild, Tacoma, Ovation, Hamer and Starcaster. We also control worldwide production, marketing and distribution of Gretsch and EVH guitars, and distribute Takamine guitars in the United States, Europe, Latin America and parts of Africa. Our flagship guitars include the iconic Telecaster, Stratocaster, Precision Bass and Jazz Bass models and the popular Jazzmaster, Jaguar and Mustang models. Our fretted instruments have MSRPs typically ranging from $99 for entry-level models up to $24,000 for a high-end limited edition or custom electric guitar or bass guitar produced in our Custom Shop and targeted towards professional musicians and affluent players and collectors. We also periodically produce one-of-a-kind guitars that can sell for a retail price of as much as $90,000.

• Guitar amplifiers:    This category includes our Fender, Squier, SWR and Genz Benz brands, which are designed for electric, acoustic and bass guitars, as well as EVH guitar amplifiers that are designed for electric guitars. Our flagship guitar amplifiers include the Fender Bassman, Fender Twin Reverb and Fender Deluxe Reverb. We are known for both our tube guitar amplifiers as well as our solid-state and digital guitar amplifiers. We offer a variety of guitar amplifiers that cover a wide range of styles and genres, including rock ‘n roll, blues, country and heavy metal. Our guitar amplifiers have MSRPs typically ranging from $39 to over

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$4,000, and in many configurations, such as combos, which are generally smaller and more portable, and half-stack models, which are used primarily in larger performance and recording venues. We also offer popular vintage reissue models, which recreate some of our most iconic guitar amplifiers from the 1950s and 1960s. We license our guitar amplifier sounds in software form to third parties with whom we have licensing relationships.

• Percussion:    We offer a wide variety of percussion products, including drum sets, hand percussion (such as congas and bongos), cymbals, educational percussion, drum sticks, drum heads, tambourines and percussion accessories. Our principal brands in this category are Latin Percussion, Toca and Gibraltar. We are also the exclusive U.S. distributor for Sabian Cymbals and the exclusive worldwide manufacturer and distributor for Gretsch drums. Our percussion instruments have MSRPs typically ranging from $2 up to $4,300 depending on the product and the brand.

• Accessories/other:    Over time, we have expanded our product selection to include a wide variety of accessories, including strings, picks, pickups, pedals, cables, cases and straps, and have developed a business in replacement parts. We also offer a variety of other products, including pro audio products such as Passport Public Address (PA) products, educational musical instruments, including stringed instruments and band and orchestral accessories, drums and drum heads and lighting. We distribute, on an exclusive and non-exclusive basis, brands including Elixir strings, Remo drum heads, Hohner harmonicas, Dunlop products and Hercules music stands. In addition, through our website, we offer merchandise and products such as clothing and collectibles for several of our brands. Our licensees further sell other products that embody the Fender lifestyle, such as the Fender Premium Audio System, which is included in select Volkswagen vehicles globally.

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The table below sets forth the percentage of gross sales before discounts and allowances represented by our primary product categories in fiscal 2011:

Category	Products	% of gross sales before discounts and allowances
Fretted instruments			59.9	%
Guitar amplifiers			12.1	%
Percussion			9.1	%
Accessories/other			18.9	%

Sales channels

We primarily sell our products through five sales channels—the independent channel, the national channel, the mass merchant channel, the online and catalog channel and the distributor channel.

• Independent channel:    The independent channel is comprised of over 13,000 independently owned music stores that typically offer personalized customer service. We select these independent retailers based on location, expertise, commitment to the product line, financial

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integrity and other factors. We qualify each retail location separately, and retailers are approved to handle only those parts of our product lines that we believe they have demonstrated the expertise and ability to effectively market and sell. Some of our independent retailers are also authorized to sell our products on their websites. The independent channel is our largest channel in North America and Europe and is a smaller channel in our other international markets.

• National channel:    The national channel is comprised of large, multi-unit musical instrument retailers such as Guitar Center and Sam Ash, who have nationwide store networks. These stores offer a variety of our products, providing consumers the opportunity to view large portions of our product lines, and must maintain an agreed-upon inventory of our products. The national channel is one of our largest channels in North America, and is a smaller channel for our international operations. Some of our national channel retailers are also authorized to sell our products on their websites. Our contracts with our national retailers are typically short term, can be terminated by either party on short notice and do not obligate the retailer to purchase fixed amounts of our products.

• Mass merchant channel:    The mass merchant channel is comprised of large-format, multi-unit stores that purchase our products from us and then resell these products to consumers. Costco was our most significant mass merchant customer in fiscal 2011. Mass merchant stores offer us access to parts of the general population that we believe typically do not visit traditional music stores. We generally offer entry-level products that are branded solely for the mass merchant stores in this channel, which helps to introduce our brands to a potentially wider base of consumers. We believe we can instill brand loyalty in these consumers and benefit as they buy additional instruments and accessories or upgrade from their current instruments in the future. Our largest mass merchant customers are located in North America, with smaller mass merchant customers located in certain countries in Europe.

Contracts with our mass merchant customers are generally short term, may be terminated by either party on short notice and do not obligate our mass merchant customers to purchase a fixed amount of our products. Some of these contracts entitle our mass merchant customers to our most favorable prices, benefits or allowances that we offer to similarly-situated dealers.

• Online and catalog channel:    We also sell some of our products to certain online, mail order, catalog and telesales companies, including Musician’s Friend and American Music Supply. Our products are featured in both the online and catalog campaigns of most of these retailers and often are presented on the home page or front cover space resulting in nationwide exposure to consumers who seek out our products in these channels. In the United States, in addition to third party sites, such as Musician’s Friend, certain of our products are sold by independent dealers directly to consumers through websites they have developed. Although we market clothing and collectibles directly through the Fender.com website, we do not sell musical instruments through this website.

• Distributor channel:    Within Asia, Latin America and certain other markets, we sell our products primarily through distributors who, in turn, sell to retailers within their authorized distribution area. Some of these distributors are the sole distributor of certain of our products and others are one of several non-exclusive distributors within their territory. Our largest markets that are covered by third party distributors are Japan, Australia and Italy. Our strategy in entering new international markets is to identify and partner with local distributors who understand the market and consumers. We continually monitor the markets in which we

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operate, and, when we believe a market opportunity to be of appropriate size, we evaluate whether to establish our own direct sales operations within that market.

Our contracts with our distributors generally prohibit them from selling competing products other than certain competing products authorized by us. The distribution agreements are generally short term, typically with durations of one year or less and terminable by either party on short notice. Two of our stockholders act as our distributors in Japan. See “Transactions with related persons.”

In fiscal 2011, we generated 58.7% of gross sales before discounts and allowances from the independent channel, 23.5% collectively from the national channel, mass merchants and online and catalog retailers and 17.8% from third party distributors.

Global brand management and sales forces

We recently realigned our brand management strategy and created five global brand management positions for Fender/Squier, Specialty Brands (Gretsch, Jackson, Charvel, EVH, SWR and Genz-Benz), Acoustic Guitars (Fender, Squier, Guild, Takamine and Ovation), Percussion (Gretsch, LP, Toca, Gibraltar and Sabian) and Accessories. These global brand managers manage their brands and products under their brands across all markets and channels.

Our sales efforts are focused on building close relationships with musical instrument distributors and retailers and educating their sales forces about our products. In addition, we maintain sales management and sales teams organized to focus on particular retail channels, which we believe enables them to create strong customer relationships in each channel.

• Sales teams for the independent channel:    In the independent channel, we separate our sales force into distinct categories, each dedicated to a particular brand portfolio in order to help maintain focus on taking orders, building product knowledge, providing dealers with highly personalized service and support and maximizing the growth potential of our brands. We also maintain inside telesales groups to support our field sales forces, adding a secondary level of service for both dealers and our field staff. In addition, our sales force focuses on various online, mail order and catalog companies within our independent channel.

• Sales teams for the national, mass merchant and online and catalog channels:    We support the national and mass merchant retailers with a sales management team dedicated solely to these channels and experienced in the business model of nationwide, multi-location retailers. This enables us to maintain close relationships with these retailers and to reduce channel conflict. In addition, our field staff infrastructure allows us to be involved with retailers in merchandising decisions, product training and inventory management, while also providing us with important market feedback. Our national accounts sales group also focuses on national online retailers such as Musician’s Friend to ensure appropriate merchandising and product presentation.

• Sales teams for the distributor channel:    In certain markets such as Asia, Latin America, Australia, Russia and Italy, and others where we do not have direct offices, we maintain management and sales groups that work directly with the authorized distributors we have chosen to represent us in those markets. Our focus is to create close relationships with our distributors and work with them to provide product knowledge, marketing material, sales plans, product mix guidance and other assistance to help them increase sales of our products.

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Marketing and advertising

Our marketing and advertising programs are focused on enhancing relationships with consumers by increasing the exposure of our core brands to the population in general and reinforcing the positive lifestyle appeal of our brands. We also implement marketing and advertising programs relating to our specialty and niche brands targeted towards musicians active in the genres with which those brands are identified. Our marketing and advertising campaigns cover a wide variety of activities, including the Signature Artist Program, licensing and co-branding efforts, media advertising and our websites and other social media and consumer activation activities, such as hosting after-hours parties near the Lollapalooza music festival featuring bands and artists playing our products. We also conduct various promotions in cooperation with our retailers, including artist appearances, product education clinics and other special events. We provide point-of-purchase advertising materials, display and merchandising fixtures and other materials designed to highlight our products at the retail level.

Signature Artist Program and Artist Relations

Our Signature Artist Program is a key component of our marketing strategy. Through this program, over 100 famous musicians across a variety of popular music styles provide specifications for unique instruments bearing their signatures and permit us to use their images in selected advertisements or on our websites, typically in exchange for royalties based on sales of their signature instruments. Some of our Signature Series artists also attend tradeshows to help market our products. In addition, some of our artists play their signature instruments at concerts and personal appearances, adding to the exposure of our products in live music venues. These musicians also mention their support of our brands in interviews, and are often seen with our brands in print publications where album or performance reviews include photographs of these artists and their instruments during performances. We believe that by associating our brands with these artists, we further enhance how consumers perceive our brands.

To support our Signature Artist Program as well as our entire artist outreach effort, our Artist Relations group focuses on fostering and maintaining relationships with professional musicians, including signature, emerging and well-known artists supporting our brands. This group coordinates closely with other parts of our organization, including our product marketing group and the Custom Shop, to provide customized products and services for professional musicians, as well as to support other aspects of our marketing and advertising programs.

Licensing and co-branding

We believe licensing our trademarks such as Fender and others builds brand awareness and furthers our strategy of reaching new consumers, while developing additional relationships with existing consumers through new products. These licensing agreements typically offer low investment costs and attractive margin opportunities without the risk of cannibalizing existing sales. In addition, these activities provide us with a valuable source of advertising. We intend to expand beyond our existing licensed products to additional products in new and existing categories. In addition, we believe our non-revenue generating co-branding initiatives such as those with Apple Inc., Hard Rock Cafe International, Inc. and SAP Global Marketing, Inc., further increase our exposure and position our products as premier lifestyles brands through leveraging our partners’ resources and consumer reach beyond the musical instruments industry.

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• Community co-branding activities:    We seek to identify opportunities to partner with communities to support philanthropic activities that we believe contribute to our brands’ awareness and appeal. For example, we have collaborated with charities to create GuitarMania—a charitable community public art project. GuitarMania enlists local artists and national celebrities to transform blank nine or ten foot tall fiberglass Fender Stratocaster guitars into works of art that are displayed on city streets for several months, and then auctioned for charity. We also support The Fender Music Foundation, a charity unaffiliated with us that provides funding and resources for music programs across America, and “Kids Rock Free,” a non-profit music education program.

• Lifestyle licensing activities:    We have license agreements with prominent brands and retailers, such as a license arrangement with Panasonic Automotive to create, promote and sell Fender Premium Audio Systems in select Volkswagen vehicles globally. We also have license arrangements with Lucky Brand Jeans and Uniqlo to sell Fender and music lifestyle branded apparel, and Harmonix Music Systems through its Rock Band^™ video games.

• Corporate co-branding activities:    In recent years, we have undertaken a number of initiatives to partner with leading corporations with whom we see mutual value in developing an affiliation or joint initiative. In 2011, we partnered with Hard Rock Cafe International, Inc. to create the “Picks” campaign enabling guests at certain Hard Rock Hotels to check out a Fender guitar to their room during their stay and even purchase it. In 2011 and 2012, the Fender Music Lodge in Park City, Utah has served as a destination for media, celebrities and musicians at the Sundance Film Festival.

Media and promotion

In an effort to expand awareness of our brands to target audiences and the population in general, we also conduct advertising campaigns. We maintain a staff dedicated to product placement and advertising campaign creation. These activities include purchasing ads in trade and broader interest publications, submitting products for reviews by various publications, as well as product placements in movies and television shows that contribute to awareness of our brands in an audience that may not necessarily be familiar with our core products.

We coordinate our advertising campaigns to support product introductions, company milestones and events and other areas that we believe are meaningful to consumers.

Website, social media and other online activity

In addition to traditional print media, we maintain an active social media platform to help expose our products, service, support and community forums to consumers as well as various artists to foster loyalty and build a community of users who share a passion for our guitars and other products. We maintain brand-specific websites that are tailored to each brand’s attributes. Many of our websites feature a community forum section where our consumers and others can communicate with each other, including sharing tips and anecdotes. The community forum section and social media also allow us to communicate directly with our consumer base and receive feedback directly from our consumers. Our websites feature product pages where consumers can research and investigate our products and where they will find extensive product information, specifications, dealer locations and other important details about our products. To support various artists and maintain excitement for our brands and to encourage consumers to

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return to our websites, our websites also feature news relevant to the brand, artist activity, links to useful websites and new product announcements. Through our websites, consumers also can access our customer service department to ask questions and receive assistance regarding our products. Our social media strategy across all of our brands connects directly with consumers via unique content delivered through various social media tools worldwide, including Facebook, Twitter, Flickr and YouTube, as well as e-mail blasts and social media contests through our websites. We consider our overall online effort to be a critical component of our marketing efforts to end consumers and intend to maintain focus in this area.

Product design and development

To support our brands and product leadership, we continue to bring new and innovative products to market that inspire our consumers and enhance brand loyalty. We strive to ensure that our products are built efficiently to achieve high quality at each price point. We design our products to satisfy our consumers’ desire for instruments that are easy to use, maintain, upgrade and customize. In the past 20 years, we have received numerous industry awards for our product leadership. In a recent example, Vintage Guitar magazine announced in its March 2012 issue that the Fender Deluxe Reverb amplifier was inducted into its Hall of Fame.

Our team of over 85 research and development professionals reports directly to our Chief Executive Officer. Our product development led to the introduction of 129, 274 and 356 new products in fiscal 2009, 2010 and 2011, respectively, and, as of January 2, 2012, we had approximately 649 ongoing projects. In fiscal 2011, sales of products introduced within the year represented 10.8% of gross sales before discounts and allowances. Over the last two years, we have also increased the pace at which we bring new products to market through more robust innovation processes. Our research and development expenditures were $9.0 million, $9.3 million and $10.2 million in fiscal 2009, 2010 and 2011, respectively.

Custom Shop

Through our Custom Shop, our skilled craftspeople design and develop custom, specialty and limited-edition electric guitars and bass guitars. In addition, the Custom Shop produces a general line of products, often employing new techniques and incorporating features drawn from artist instruments as well as new designs and hardware, pickups and finishes that can be utilized in our other facilities and products. We believe our Custom Shop generates incremental higher margin business and enhances the images of our brands. Our Custom Shop also serves as a laboratory for the generation of ideas that can be more widely incorporated in our products.

Sourcing, manufacturing and logistics

Our strategically managed global supply chain is comprised of a network of our own manufacturing facilities in the United States and Mexico, distribution and warehouse facilities in North America and Europe, and established sourcing relationships with OEMs in Asia, Europe, North America and Mexico. We manufacture our premium products primarily in the United States. We believe that effectively managing our supply chain to achieve efficient and timely delivery of our products to our retail partners is critical to our success.

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Sourcing

Our principal suppliers are providers of imported finished goods as well as raw materials and components.

• Imported finished goods:    We use approximately 97 OEMs as of January 1, 2012 to produce a significant majority of our fretted instruments, guitar amplifiers, percussion products and accessories. Our OEMs are primarily located in China, India, Indonesia, Japan, South Korea, Taiwan, Thailand and Vietnam. Our supply chain personnel visit our OEMs and we have established procedures to inspect samples of products that are manufactured by our OEMs. In fiscal 2011, products manufactured by OEMs represented 64.0% of our gross sales before discounts and allowances.

With many of our OEMs we do business on a purchase order basis rather than pursuant to formal written contracts. Where we do have contracts with our OEMs, they are short term. Most of our OEM agreements can be terminated only upon breach of contract. Most of these contracts require our OEMs to provide us with a “favored nations” pricing policy whereby we get the benefit of any more favorable prices offered to other customers of our OEMs. In addition, our OEMs that use subcontractors cannot subcontract the manufacturing of our products unless we provide advance written consent and certain other criteria are met. Although some of our OEM contracts prevent the OEM from making or dealing in competitors’ products, others do not. In most of our OEM contracts, our OEMs represent to us that they are in compliance with local labor, environmental and safety laws. Although our supply chain employees occasionally visit our OEMs’ facilities, we do not require our OEMs to abide by any formal code of conduct as a condition of doing business with us.

• Raw materials:    For our owned manufacturing facilities in the United States and Mexico, the primary raw material that we use is hardwood, particularly poplar, ash and alder for bodies, and maple and rosewood for necks. In certain of our specialty fretted instruments, we use more exotic woods. Especially in the case of rosewood and these more exotic woods, we have in the past, and may in the future, experience supply constraints. Poplar, ash, alder and maple are sourced primarily from North America whereas rosewood and other exotic woods are primarily imported from various countries outside of North America. Prior to fiscal 2011, we purchased wood spreads, which are pre-cut blocks of wood that have been glued and planed for use in the production of electric guitars and electric bass guitar bodies. We began manufacturing spreads ourselves in fiscal 2011 to control quality and cost and intend to increase the percentage of spreads we manufacture ourselves over time. We believe that multiple sources for these spreads, as well as raw wood, exist and we do not believe that we are dependent on any one supplier for wood.

• Components:    We source certain components used in our fretted instruments, guitar amplifiers and certain of our other products from third party vendors. These components include fretted instrument cases, tubes used for our guitar amplifiers, strings for our guitars, drum heads, printed circuit boards, amplifier speakers, certain bridges, selected pick-ups, machine heads and other plastic and metal components such as control knobs. We believe there are only three primary manufacturers of the tubes used in certain of our guitar amplifiers—located in Russia, China and the Czech Republic, and some of these manufacturers are the sole source of certain types of tubes. We do not have long-term supply agreements with any of these manufacturers. Although we have taken steps, such as keeping additional inventory on hand to mitigate the risk, with respect to suppliers or OEMs that are the sole

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source of a particular component or finished product, these steps may not be sufficient if a supplier or OEM were to stop providing us with components or finished products that we require.

• Planning:    Our primary planning, sourcing and purchasing offices are located in Scottsdale, Arizona and New Hartford, Connecticut in the United States and in our U.K. offices in Europe. We also have a procurement office in Ensenada, Mexico. We utilize Logility and SAP software for our demand, supply and manufacturing requirements planning. Global management of transportation of goods from our suppliers to our warehouses and from our warehouses to our retail consumers is handled out of our Scottsdale, Arizona offices.

Manufacturing

Our products are manufactured by our OEMs, and by us at our owned manufacturing facilities. We believe this combination of facilities provides us with increased manufacturing capacity and the flexibility and scale to more efficiently and quickly respond to consumer demand. We have manufacturing operations in Corona, California; New Hartford, Connecticut; Ensenada, Mexico; Scottsdale, Arizona; and Ridgeland, South Carolina. We opened our Ensenada facility in 1987 and our current Corona facility in 1998. Our 176,000 square foot Corona facility and 167,000 square foot Ensenada facility manufacture guitars, guitar amplifiers and replacement parts. In addition to the more automated manufacturing operations, our Corona facility also houses our Custom Shop, which makes Fender, Gretsch, Jackson, Charvel and EVH custom guitars. We acquired our New Hartford and Ridgeland facilities through our acquisition of KMC. Our New Hartford facility primarily manufactures acoustic guitars. Our Ridgeland facility manufactures higher-end Gretsch drums. We have invested significant resources to establish and modernize these facilities.

Our products, particularly our guitars, require a significant amount of labor and handiwork by a skilled and well-trained workforce to achieve and maintain high quality, although we also employ automated guitar and guitar amplifier production and robotic paint processes.

Our manufacturing facilities are designed to provide us with manufacturing flexibility. In times of high demand, our management is able to add shifts and make other production line adjustments to vary production levels at each of our facilities. This ability, combined with the capabilities of our OEMs, allows us to vary capacity to respond to changing demand. We believe that our manufacturing facilities provide us with sufficient flexibility to expand production in the near and medium term.

We continually evaluate shifting additional production to manufacturing facilities with lower or more stable costs. For example, our Ensenada, Mexico manufacturing facility provides us with high-quality products at stable, relatively low costs, and we intend to explore opportunities to move additional production to that facility.

Logistics

We utilize five warehouses with a total capacity of approximately 1.8 million square feet for the storage and distribution of our products. In the United States, we have three warehouses—one located in Ontario, California, one in Portland, Tennessee and one in Louisville, Kentucky. In fiscal 2011, we announced the closure of our Louisville warehouse, which will be consolidated into our Portland facility in the first half of fiscal 2012. We also have a facility in Ontario, Canada to service Canada. We operate all of our North American warehouse facilities. To support our

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European sales efforts, we have a facility in the Netherlands, which is operated by DSV Solutions and managed by us. This network of distribution and warehouse centers enables us to move products quickly and efficiently to our retail consumers.

Competition

The musical instruments industry is highly fragmented and is served by a variety of companies, including independent instrument makers, large multinational corporations, technology-based electronics manufacturers and print publishers. We also compete with online sellers of new and used products, the market for which we believe has grown with the increasing popularity of websites such as eBay. In addition, from time to time, national music retailers as well as mass merchants have carried their own private-label products that compete with ours. Companies compete based on price, style of instrument, sound and sound quality, features and brand recognition. In the markets for fretted instruments and guitar amplifiers, we and our significant competitors are each associated with particular musicians and groups. We believe that our brands’ strong recognition, high-quality innovative products and associations with leading musicians and groups provide us with significant competitive advantages. We believe our primary competitors within the electric guitar and bass guitar markets include Gibson Guitar Corp. and its Epiphone subsidiary and Ibanez, a subsidiary of Hoshino USA. In the acoustic guitar market, our primary competitors include Martin & Co., Taylor Guitars and Yamaha Corporation. In guitar amplifiers, our primary competitors include Line 6, Inc. and Marshall Amplification PLC.

Intellectual property

Our trademarks, including Fender and those associated with our other brands, are a critical component of the value of our business. Trade dress, which refers to the visual appearance of our products, also is an important part of our intellectual property rights. As described under “—Legal proceedings” below, we currently have a case pending before the U.S. Patent and Trademark Office with respect to registered trademarks covering some of our headstock designs.

Where we are the distributor for third parties’ products, including the Gretsch and EVH product lines, we license trademarks associated with those brands for use in our sales and distribution activities.

We do not have a written agreement that governs our distributorship arrangement with Takamine. Our distribution agreement with Sabian will expire on August 12, 2012, after which it will automatically renew for successive one-year periods, and will be terminable by either party for any reason upon 90 days prior written notice. Sabian may at any time stop permitting us to distribute its products upon 30 days prior written notice. For some products, this is true only if Sabian ceases manufacturing them. For other products, Sabian may stop permitting us to be a distributor of those products even if Sabian is still manufacturing them.

We also license our trademarks and related intellectual property rights to OEMs of our products from time to time, as well as in connection with licensing, co-branding or similar activities.

We hold patents for some aspects of our products and have patent applications pending. As of January 1, 2012, we had 48 issued patents and 9 patent applications pending in the United States and 32 corresponding issued patents and 9 patent applications pending in foreign countries. We cannot be certain that our patent applications will be issued or that any issued patents will provide us with any competitive advantage or will not be challenged by third parties. We also

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hold copyrights for certain of the software incorporated in our guitar amplifiers as well as for some of the material on our website.

In addition to the foregoing protections, we generally control access to and use of our proprietary and other confidential information through the use of internal and external controls, including contractual protections with employees, OEMs, distributors and others. Despite these protections, we may be unable to prevent third parties from using our intellectual property without our authorization, breaching any nondisclosure agreements with us, or independently developing products that are similar to ours, particularly in those countries where the laws do not protect our proprietary rights as fully as in the United States.

Significant customers

Guitar Center and its affiliates accounted for approximately 15.2%, 15.8% and 15.8% of our net sales for fiscal 2009, fiscal 2010 and fiscal 2011, respectively. Our arrangement with Guitar Center does not obligate it to purchase fixed amounts of our products.

Employees

As of January 2, 2012, we had 2,790 full-time and part-time employees, 1,561 of whom were employed in the United States. Except in Mexico, none of our employees are represented by a labor union, and we have experienced no work stoppages. We consider our employee relations to be good.

Facilities

The following sets forth our principal facilities as of January 1, 2012. We lease our facilities, other than our Corona, California facility, which we own.

Location	Principal uses
Scottsdale, Arizona	Executive and administrative offices, electronics research and development, manufacturing
Corona, California	Guitar manufacturing, Custom Shop and electronic manufacturing, Visitor Center
Ontario, California	Central warehouse and sales office
Burbank, California	Artist Relations
Bloomfield, Connecticut	Executive and administrative offices for KMC
New Hartford, Connecticut	Manufacturing and office space
Effingham, Illinois	Sales office
Louisville, Kentucky*	Warehouse and office space
Garfield, New Jersey	Office space
Charleston, South Carolina	Office space
Ridgeland, South Carolina	Manufacturing
Nashville, Tennessee	Artist Relations
Portland, Tennessee	Warehouse and office
Austin, Texas	Artist Relations
Mississauga, Ontario, Canada	Office space and warehouse
Horsham, West Sussex, England	European sales and marketing

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East Grinstead, West Sussex, England	Fender U.K. sales and marketing
Clichy, France	Fender France sales and marketing
Düsseldorf, Germany	Fender Germany sales and marketing
Hamamatsu, Japan	Market development
Ensenada, Mexico	Production and distribution facilities
Madrid, Spain	Fender Iberica sales and marketing
Gothenburg, Sweden	Fender Scandinavia sales and marketing

* Scheduled to close in the first half of fiscal 2012.

We also use the space of a third party warehouse in Rotterdam, the Netherlands. We do not own or lease this property.

Environmental matters

Our manufacturing operations in the United States and Mexico involve the use, handling, storage and disposal of hazardous substances, including, for example, the paint used for our guitars. Accordingly, we are subject to environmental laws and regulations, including those regulating the handling, storage and disposal of hazardous substances and discharges to the air, soil and water, as well as the investigation and remediation of contaminated sites.

From time to time, we have been required to make payments or modify our operations and facilities as a result of environmental matters. In fiscal 2009, we reached a settlement with the Environmental Protection Agency pursuant to which we agreed to pay approximately $79,000 in penalties due to improper waste storage and inadequate personnel training at our Corona, California facility. At this time we have no known material environmental liabilities. However, if we were to become liable in the future with respect to the release of any hazardous substance or contamination of any site, we may be subject to significant fines and cleanup costs.

Legal proceedings

In September 2009, we were named as a defendant, together with the National Association of Music Merchants, or NAMM, and Guitar Center, Inc., in a class action lawsuit filed in the U.S. District Court in the Southern District of California (Giambusso v. National Association of Music Merchants, Guitar Center, Inc., Fender Musical Instruments Corporation, Case No. ‘09-CV 2002-LABJMA). The lawsuit alleged that anti-competitive conduct resulted in consumers paying too much for certain guitars and guitar amplifiers between 2004 and 2009. The allegations primarily arose from a consent order agreed to by the FTC and NAMM in April 2009. Shortly thereafter, we, NAMM, Guitar Center, Inc. and several other manufacturers and retailers of fretted instruments and guitar amplifiers, including KMC, were named as defendants in additional lawsuits arising out of the same general set of facts. Often referred to as tag-along actions, these follow-on lawsuits are not uncommon. In December 2009, the lawsuits were consolidated into one proceeding by the Judicial Panel on Multidistrict Litigation, or the MDL proceeding (In re Musical Instruments and Equipment Antitrust Litigation, MDL-2121). Following the filing of the consolidated complaint, we, together with NAMM, Guitar Center and several other musical instrument manufacturers, moved in the MDL proceeding to dismiss the complaint in its entirety. In August 2011, the court granted the motion to dismiss, but gave the plaintiffs leave to re-file a more specific complaint, which they did file on September 22, 2011. The court also granted plaintiffs limited discovery rights, as well as another opportunity to amend their complaint based on information received during the limited discovery period, which is now closed. Plaintiffs filed a second amended complaint on February 22, 2012, purporting to contain more specific

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allegations. Although we cannot predict the outcome of this matter with certainty, we do not believe that an adverse outcome in this matter is probable or that any liability is reasonably ascertainable. We are also responsible for and are defending KMC in this litigation. We intend to vigorously defend this matter.

In July 2009, we were advised by U.S. Customs and Border Protection, or U.S. Customs, that we had been selected for an audit covering approximately the previous five years of imports. In response, we conducted our own review and then voluntarily disclosed to U.S. Customs potential duty underpayments. In addition, we made an offer to pay duties owed plus interest in the amount of approximately $400,000, which amount was reduced by approximately $75,000 as a result of a credit from U.S. Customs. In cooperation with U.S. Customs, we also developed improved control measures, standard operating procedures, or SOPs, and policies to improve our management of duty programs. Final resolution, which includes an exit conference, is not expected until the second half of 2012.

In the second quarter of fiscal 2010, we received a letter of inquiry from the FCC asking for information about Fender electronic digital device products subject to part 15 of the FCC’s rules governing radio frequency devices. We have provided information to the FCC throughout the course of its inquiry. The FCC’s inquiry remains open as of this date.

In June 2011, the German Customs Office in Essen commenced an investigation into our suspected violation of import restrictions against the importation of protected plant species. More specifically, German officials had undertaken a criminal investigation as to whether less than 500 Fender guitars with Brazilian rosewood fingerboards were improperly imported into Germany between approximately March 2010 and January 2011. We recalled the subject products from our inventory and from our customers if they had not been sold to consumers pending the resolution of the inquiry. We are investigating whether the necks of the subject products may be replaced with materials not subject to the import restriction at issue. Simultaneously, we are seeking an exemption from the import restriction in question (which if granted, may be retroactive).

In connection with trademark registration opposition proceedings that we initiated against Peavey Electronics Corporation, or Peavey, on March 5, 2008, Peavey filed counterclaims against us before the Trademark Trial and Appeal Board, or TTAB, of the U.S. Patent and Trademark Office, petitioning for cancellation of two of our registered headstock designs that are used in many of our electric guitars and bass guitars. The counterclaims allege that we (and our predecessors) fraudulently applied for and/or maintained these registrations by misrepresenting whether we used those headstock designs in commerce on all the goods as identified. On March 16, 2011, we filed a motion for summary judgment on the counterclaims, which was denied on December 12, 2011. The case is currently proceeding to trial before the TTAB. To the extent we are not successful in any of these counterclaims, our ability to prevent other companies from copying the subject headstock designs may suffer.

An adverse outcome in any of these actions could negatively impact our results of operations and financial condition and damage our reputation.

In addition, we are subject to lawsuits, investigations and claims from time to time in the ordinary course of business. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party is likely to have a material adverse effect on our business, results of operations, cash flows or financial condition.

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Management

Executive officers and directors

Our executive officers and directors, and their ages and positions as of February 29, 2012 are as follows:

Name	Age	Position
Executive officers
Larry E. Thomas	62	Chief Executive Officer and Director
James S. Broenen	49	Chief Financial Officer and Corporate Treasurer
Mark D. Van Vleet	46	Chief Legal Officer, Corporate Secretary and Senior Vice President of Business Development
Edward G. Miller	64	President of KMC Musicorp
Gordon L. T. Raison	46	Managing Director, Europe
Andrew M. Rossi	49	Senior Vice President, Global Sales
Directors
Conrad A. Conrad (1)	66	Director
Mark H. Fukunaga (1)(3)	56	Co-Chairman of the Board
Kenneth L. Goodson Jr. (2)	59	Director
Donald Haider (1)(2)	70	Director
Michael P. Lazarus (2)(3)	56	Co-Chairman of the Board
William L. Mendello	67	Director
Robert C. Wood (1)(3)	57	Director

(1) Member of our audit committee

(2) Member of our compensation committee

(3) Member of our nominating and corporate governance committee

Larry E. Thomas has been our CEO since August of 2010. He was appointed to the FMIC Board of Directors in 2009. Mr. Thomas joined Guitar Center in 1977 as a salesperson and was store manager, regional manager, general manager, president and ultimately chairman and CEO. He served as Chairman and CEO of Guitar Center from 1996 to 2004. Between 2004 and August 2010, Mr. Thomas was retired. Our board of directors has concluded that Mr. Thomas should serve on the board of directors based on his extensive experience in senior executive positions in the musical instruments industry.

James S. Broenen has served as our Chief Financial Officer and Corporate Treasurer since November 2008. From April 2006 to November 2008, Mr. Broenen was our Vice President Financial Planning and Analysis. Mr. Broenen is a certified public accountant.

Mark D. Van Vleet served as our General Counsel beginning in January 2002. Mr. Van Vleet was appointed Corporate Secretary in May 2002 and named our Chief Legal Officer and Senior Vice President of Business Affairs, now Business Development, in March 2007.

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Edward G. Miller has been President of KMC since July 2007. Mr. Miller served as Executive Vice President and Chief Operating Officer of KMC from 1998 to July 2007.

Gordon L. T. Raison has served as our Managing Director, Europe since October 2005.

Andrew M. Rossi has been employed with FMIC in a variety of sales and marketing roles since 1991. He has served as Senior Vice President of Global Sales for the last five years.

Conrad A. Conrad has served as a member of our board of directors since July 2005. Mr. Conrad is a member of the board of directors of Universal Technical Institute, Inc. and served as a director of Rural/Metro Corporation until June 2011. He is also a certified public accountant. Our board of directors has determined that Mr. Conrad should serve on the board of directors and audit committee based on his extensive experience in senior executive positions in consumer products companies, his experience in finance and his financial literacy.

Mark H. Fukunaga has served as a member of our board of directors since July 1993 and Co-Chairman of the Board since August 2010. Since 1994, he has been the Chairman and CEO of Servco Pacific Inc., a company with operations in automotive distribution and retailing, home products distribution and commercial insurance brokerage, and investments in venture capital and private equity. Our board of directors has determined that Mr. Fukunaga should serve on the board of directors and the audit and nominating and corporate governance committees based on his executive experience in the retail industry and his general business experience.

Kenneth L. Goodson Jr. has served as a member of our board of directors since February 2006. Mr. Goodson has served as Executive Vice President of Operations for Herman Miller Incorporated, a company that designs, manufactures and sells furniture systems and products for offices and healthcare facilities, since 2002. Our board of directors has determined that Mr. Goodson should serve on the board of directors and compensation committee based on his experience in the manufacturing sector and general business experience.

Donald Haider has served as a member of our board of directors since January 1997. Mr. Haider is a Professor of Management at the Kellogg School of Management, Northwestern University, where he has been a faculty member since 1973. Mr. Haider served as the Treasurer for the City of Chicago School Finance Authority until 2010 and, since 1995, has served as Dean of the National Association of State Treasurers National Institute for Public Finance. He has served on the board of directors of Asset Acceptance Capital Corporation since 2004 and served on the board of directors of LaSalle Bank Corporation, Chicago, Illinois, until its acquisition by Bank of America in October 2007. Our board of directors has determined that Mr. Haider should serve on the board of directors and the audit and compensation committees based on his experience in finance and his financial literacy.

Michael P. Lazarus has served as a member of our board of directors since December 2001 and Co-Chairman of the Board since August 2010. Mr. Lazarus co-founded Weston Presidio, a growth capital firm, in 1991. Prior to the formation of Weston Presidio, he served as Managing Director and Director of the Private Placement Department of Montgomery Securities. Mr. Lazarus serves on the board of advisors of Azul Linhas Aereas Brasileiras SA, and the boards of directors of lntegro and Jimmy John’s LLC. He was previously the Founding Chairman of JetBlue Airways and served on the board of directors for the airline as well as on the boards of directors for Restoration Hardware and Guitar Center. Our board of directors has determined that Mr. Lazarus should serve on the board of directors and the compensation and nominating and corporate governance committees based on his knowledge of investments in retail companies, his financial literacy and his general business experience.

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William L. Mendello has served as a member of our board of directors since January 1985. He served as Chief Executive Officer of our company from April 2005 to August 2010. From May 1996 through March 2005, Mr. Mendello served as our President and Chief Operating Officer. Prior to May 1996, he served in many positions at our company, including Chief Financial Officer. Our board of directors has concluded that Mr. Mendello should serve on the board of directors based on his deep knowledge of our company gained from his positions as Chief Executive Officer, President and Chief Operating Officer and Chief Financial Officer, as well as his experience in the musical instruments industry.

Robert C. Wood has served as a member of our board of directors since 2011. Mr. Wood served as the President of Nike Golf from September 1998 to September 2008. From September 2008 to July 2011, he served as the Vice President of SPARQ Training at Nike, Inc. and since September 2011 has acted as an independent consultant for Nike, Inc. Our board of directors has determined that Mr. Wood should serve on the board of directors and audit and nominating and corporate governance committees based on his executive experience in the retail industry and his general business experience.

Board of directors

Our board of directors is currently composed of eight members. Our board of directors and its committees set schedules to meet throughout the year and also can hold special meetings and act by written consent under certain circumstances. The independent members of our board of directors also regularly hold separate executive session meetings at which only independent directors are present.

Independent directors

Our board of directors has determined that a majority of its members are independent under the rules of Nasdaq listing standards and the federal securities laws. In particular, our board of directors has determined that the following directors are independent: Messrs. Conrad, Fukunaga, Goodson, Haider, Lazarus and Wood. In making its determination, our board of directors reviewed Mr. Lazarus’ affiliation with Weston Presidio. To assist it in its determination of director independence, effective upon completion of this offering, our board of directors has adopted categories of relationships that it has deemed immaterial for director independence purposes.

Selection of our directors

Our current directors were elected pursuant to the terms of a stockholders agreement that we entered into in December 2001 with certain of our stockholders. Pursuant to the stockholders agreement, Weston Presidio is entitled to designate one director and has designated Mr. Lazarus as a director, and Servco has a right to designate one director and has designated Mr. Fukunaga as a director. The rights to appoint board members under our stockholders’ agreement will terminate upon the completion of this offering. Our directors hold office until their successors have been elected and qualified or their earlier death, resignation or removal.

Classified board

Upon completion of this offering, our board of directors will be divided into three classes of directors, each serving a staggered three-year term. As a result, only one class of our board of directors will be elected each year from and after the closing. Messrs. Haider and Mendello will

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be assigned as Class I directors whose terms will expire at the first annual meeting of stockholders after the closing of the offering. Messrs. Conrad, Goodson and Wood will be assigned as Class II directors whose terms will expire at the second annual meeting of stockholders after the closing of the offering. Messrs. Fukunaga, Lazarus and Thomas will be assigned as Class III directors whose terms will expire at the third annual meeting of stockholders after the closing of the offering. Our certificate of incorporation and bylaws provide that the number of authorized directors will be not less than seven and no more than eleven and may be changed only by resolution of a number of directors that is more than half of the number of directors then authorized (including any vacancies), and that any vacancies or new directorships on the board may be filled only by the vote of a majority of the directors then in office. Whenever the holders of any class or classes of stock are entitled to a director under our certificate, vacancies and newly created directorships of such class may be filled only by a majority of that class’ director or directors then in office. The classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

Board committees

Our board of directors has established an audit committee, a compensation committee and a nominating and corporate governance committee. All of the members of these committees are independent as required by the Nasdaq listing standards and applicable federal law. Our board of directors has delegated various responsibilities and authority to its committees as generally described below. These committees regularly report on their activities and actions to the full board of directors. Each committee of our board of directors has a written charter approved by our board of directors, which will become effective upon the completion of this offering. At that time, copies of each charter will be available on the Investor Relations’ section of our website at www.fender.com. Information on our website does not constitute part of this prospectus.

Audit committee

The audit committee of our board of directors oversees our accounting practices, system of internal controls, audit procedures and financial reporting system. Our audit committee is responsible for, among other things,

• engaging and overseeing the work of our independent auditors and approving the audit and non-audit services to be performed by our independent auditors;

• evaluating the performance of our internal audit function;

• reviewing our financial statements and critical accounting policies and practices;

• reviewing and discussing with management and our independent auditors the results of the audit of our financial statements;

• reviewing and approving, if appropriate, related party transactions in accordance with our related person transaction approval policy;

• reviewing our internal controls; and

• reviewing with management our major financial risk exposures and significant regulatory, compliance and legal matters.

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Messrs. Conrad, Fukunaga, Wood and Haider comprise the audit committee. Mr. Conrad is the chairman of the audit committee. Our board of directors has determined that Mr. Conrad is an “audit committee financial expert” as defined in the SEC’s rules.

Compensation committee

The compensation committee of our board of directors is responsible for assisting and advising our board with respect to compensation of our Chief Executive Officer, Chief Financial Officer, Chief Legal Officer and other executive officers and their performance, and oversees and makes recommendations regarding compensation for our executive officers. The compensation committee is responsible for, among other things:

• reviewing and recommending to our board of directors the compensation arrangements for our executive officers;

• identifying corporate goals and objectives relating to our compensation program, and evaluating each executive officer’s performance in light of those goals and objectives; and

• administering our equity incentive plans.

Messrs. Goodson, Haider and Lazarus comprise the compensation committee. Mr. Goodson is the chairman of the compensation committee.

Nominating and corporate governance committee

The nominating and corporate governance committee of our board of directors is responsible for assisting our board of directors in a variety of matters relating to board and committee composition and other corporate governance matters. The nominating and corporate governance committee is responsible for, among other things:

• identifying individuals who may be qualified to serve on our board of directors and making recommendations to our board of directors regarding board nominees;

• periodically reviewing, and making any recommendations for changes to, our corporate governance guidelines;

• overseeing the evaluation of our board of directors and its committees; and

• making recommendations for committee memberships.

Messrs. Fukunaga, Lazarus, and Wood comprise the nominating and corporate governance committee. Mr. Fukunaga is the chairman of the nominating and corporate governance committee.

Code of business conduct and ethics

Our board of directors has adopted a code of business conduct and ethics that applies to all of our employees, officers and directors effective upon the completion of this offering. At that time, the full text of our code of business conduct and ethics will be available on the Investor Relations section of our website at www.fender.com. We intend to disclose future amendments to certain provisions of our code of business conduct, or waivers of certain provisions as they relate to our directors and executive officers, at the same location on our website or otherwise as

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required by applicable law. Information on our website does not constitute part of this prospectus.

Compensation committee interlocks and insider participation

As noted above, the compensation committee of our board of directors currently consists of Messrs. Goodson, Haider and Lazarus. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or compensation committee. See “Transactions with related persons” for a summary of certain transactions involving the members of the compensation committee. In fiscal 2011, the compensation committee of our board of directors consisted of Messrs. Fukunaga, Haider, Lazarus, Goodson, Mendello and, for a portion of fiscal 2011, Wood. Mr. Mendello has served our company in a variety of executive officer positions, including most recently as Chief Executive Officer from April 2005 to August 2010.

Limitation of liability and indemnification

Our certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability for:

• any breach of the director’s duty of loyalty to our company or our stockholders;

• acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;

• unlawful payments of dividends or unlawful stock repurchases or redemptions; or

• any transaction from which the director derived any improper personal benefit.

Our certificate of incorporation and our bylaws also provide that we will indemnify our directors and officers to the fullest extent permitted by law and that we may, by resolution of our board of directors, indemnify our employees and other agents as well. These provisions also provide that we will advance the expenses incurred by a director or officer in advance of the final disposition of an action or proceeding, and we may advance expenses of our employees and other agents as well in the event that we determine to indemnify them. Our certificate of incorporation also permits us to purchase and maintain insurance on our own behalf and on behalf of any current or former director, officer, employee or agent or any person who is or was serving at our request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not the laws of Delaware would permit us to indemnify that person. We also maintain directors’ and officers’ insurance.

We also have entered into indemnification agreements with each of our directors and executive officers. With specified exceptions, these agreements provide for indemnification to the fullest extent permitted by law of related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts actually and reasonably incurred by the applicable director or executive officer in any action, proceeding or similar event by reason of such person’s status as a director, officer, employee, agent or fiduciary of the company or any similar status at an entity where the individual is serving at our request. The agreements also provide that, to the fullest extent permitted by law, we will advance all expenses incurred by our directors and

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executive officers in connection with a legal proceeding in which they may be entitled to indemnification. We have entered into a separate indemnification agreement with entities affiliated with Weston Presidio and Michael Lazarus, who is affiliated with Weston Presidio. This agreement is similar to our agreements with our other directors and our executive officers, but also provides for indemnification of expenses incurred in connection with any action, proceeding or similar event by reason of or related to the fact that the parties to the agreement are or may be stockholders or controlling persons of our company.

Director compensation

Each non-management member of our board of directors, or the Board, receives a $25,000 annual retainer, with the chairman of the audit committee receiving an additional $15,000 annual retainer and the chairmen of the nominating and corporate governance committee and the compensation committee each receiving an additional $5,000 annual retainer. In addition, the members of our Board are entitled to receive fees of $1,000 per board meeting that they attend in person, and $500 per regularly scheduled board meeting that they attend telephonically. The board members also receive $1,000 for all committee meetings attended, whether in person or by telephone. Fees are paid following each meeting. In lieu of cash payments, our non-management directors are entitled to elect to receive an amount of our products, at the equivalent dealer net price. Our directors also are entitled to participate in our employee discount program, but none did so in fiscal 2011. Management directors do not receive any additional compensation for serving on the Board.

In June 2011, our Board approved individual option grants under our 2007 Amended and Restated Equity Compensation Plan, or 2007 Equity Compensation Plan, in the amount of 250 stock options to each of our non-management directors. The exercise price of these options is $987 per share, and the options vest in annual installments over a four year period following the grant date or upon an earlier “change of control” of the company (as described below in the section titled “—Potential payments upon termination or change in control (year-end 2011)”).

The following table sets forth total compensation awarded to, earned by or paid to each person who served as a director during fiscal 2011, other than a director who also served as an executive officer.

Fiscal 2011 director compensation

	Fees earned or paid in cash (1)		Option awards (2)		All other compensation (3)		Total
Conrad A. Conrad	$	46,500	$	123,593	$	—	$	170,093
Laurence Franklin(4)	$	30,000	$	123,593	$	—	$	153,593
Mark Fukunaga	$	41,000	$	123,593	$	—	$	164,593
Kenneth L. Goodson	$	36,000	$	123,593	$	3,500	$	163,093
Donald Haider	$	42,000	$	123,593	$	—	$	165,593
Michael P. Lazarus	$	35,000	$	123,593	$	—	$	158,593
William L. Mendello	$	33,000	$	123,593	$	—	$	156,593
Robert C. Wood(5)	$	28,917	$	123,593	$	—	$	152,510

(1) This column includes the meeting retainers, meeting fees, and committee fees described above. Mr. Conrad received $15,000 for serving as chairman of the audit committee. Mr. Fukunaga received $5,000 for serving as the chairman of the nominating and corporate governance committee. Mr. Haider received $5,000 for serving as the chairman of the compensation committee.

(2) On June 9, 2011, each non-management director was awarded 250 stock options under the 2007 Equity Compensation Plan. This column shows the aggregate grant date fair value of the stock options under FASB ASC Topic 718, which was determined

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using the Black-Scholes Method with a call option value of $494.37 per share and the assumptions set forth in “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies—Stock based compensation”. As of the end of fiscal 2011, the non-management directors had the following number of options outstanding: Mr. Conrad 345 options, Mr. Fukanaga 325 options, Mr. Goodson 325 options, Mr. Haider 325 options, Mr. Lazarus 325 options, Mr. Mendello 4,700 stock options from the time of his employment as CEO and 250 stock options for serving on the Board, and Mr. Wood 250 options. Mr. Franklin resigned from the Board on November 1, 2011. At that time, he forfeited 250 options and on February 1, 2012, he forfeited his remaining 65 options, in accordance with the terms of the 2007 Equity Compensation Plan.

(3) Mr. Goodson periodically provided consulting services to us on manufacturing processes. These services were provided on terms negotiated at the time of service. In fiscal 2011, Mr. Goodson received $3,500 in consulting fees.

(4) Mr. Franklin resigned from the Board on November 1, 2011 and his fees represent only the time for which he served on the Board.

(5) Mr. Wood joined the Board in May 2011 and received a prorated retainer for his services.

As of January 1, 2012, our board committees had the following members:

Board committees fiscal 2011 year end

	Audit committee	Compensation committee	Nominating and corporate governance committee
Conrad A. Conrad	Chair		X
Laurence Franklin
Mark Fukunaga	X	X	Chair
Kenneth L. Goodson	X	X
Donald Haider	X	Chair	X
Michael P. Lazarus		X	X
William L. Mendello		X
Robert C. Wood		X
Number of Meetings	3	4	1

Effective February 29, 2012, our board committees were reconstituted to have the membership set forth under “—Board committees.”

As described in “—Board of directors—Independent directors”, our Board has determined that a majority of its members are independent under the rules of Nasdaq listing standards and the federal securities laws. Specifically, our Board has determined that the following directors are independent: Messrs. Conrad, Fukunaga, Goodson, Haider, Lazarus and Wood.

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Compensation discussion and analysis

This compensation discussion and analysis describes the material elements of our fiscal 2011 executive compensation program and the principles underlying our executive compensation policies and decisions, and provides information regarding the compensation paid to our Chief Executive Officer, our Chief Financial Officer, and our three most highly compensated executive officers (other than the Chief Executive Officer and Chief Financial Officer) for fiscal 2011 (collectively, our “Named Executive Officers” or “NEOs”). In fiscal 2011, our Named Executive Officers were:

Name	Title
Larry E. Thomas	Chief Executive Officer
James S. Broenen	Chief Financial Officer and Corporate Treasurer
Mark D. Van Vleet	Chief Legal Officer, Corporate Secretary, Senior Vice President of Business Development
Andrew M. Rossi	Senior Vice President, Global Sales
Gordon L. T. Raison	Managing Director, Europe

Highlights

• Underscoring our pay-for-performance philosophy, three of our Named Executive Officers earned above-target payouts for fiscal 2011 under our First Amended and Restated Fender Musical Instruments Corporation Annual Incentive Plan, or Annual Incentive Plan, and two of our Named Executive Officers received below-target payouts. As described below, the amount earned for fiscal 2011 reflects above-target achievement of our EBITDA goal for our CEO and the other NEOs, as well as the level of achievement of other performance goals applicable to our NEOs other than the CEO.

• Base salaries of our Named Executive Officers remained flat in fiscal 2011 based on the Board’s decision to award stock options in lieu of cash to better align our pay practices to market practices. As described below, our CEO’s base salary was increased effective January 1, 2012, in connection with extending the term of his employment agreement.

• Our Named Executive Officers were awarded stock options, which generally vest in annual installments over four years and, in the case of our CEO, are also subject to certain performance-vesting requirements. These grants were intended to maintain competitive pay practices and to further align the long-term interests of senior management with our primary stockholders’ objectives.

Objectives of our compensation program

Our compensation program for our Named Executive Officers, as well as other members of senior management, is designed to:

• attract, align, motivate and retain a high performing executive team in order to foster sustainable long-term growth of the company;

• align the interests of our executives with those of our stockholders in order to meet our stated business goals and objectives;

• provide a competitive total compensation package; and

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• reward performance at the company-wide and individual levels.

To help incentivize our Named Executive Officers to meet these objectives, our executive compensation program consists of several elements, including:

• a base salary, which is intended to attract and retain highly qualified executives;

• an at-risk, annual performance-based incentive, which is a cash incentive to reward an executive based on our short-term performance and the executives’ individual performance;

• grants of long-term equity-based compensation in the form of stock options and restricted stock units, or RSUs, which are intended to reward the executive based on our successful long-term performance and to align executives’ interests with our stockholders’ interests;

• employment agreements for some, but not all, of our Named Executive Officers setting forth payments that may be made in connection with a termination of employment; and

• other benefits and perquisites that are intended to attract and retain qualified executives by ensuring that our compensation program is competitive.

Overall, we believe the design of our executive compensation program creates alignment between the level of performance achieved and the amount of compensation awarded and motivates achievement of both annual goals and sustainable long-term performance.

The following table sets forth the percentage of each NEO’s fiscal 2011 compensation that was comprised of fixed compensation (i.e., base salary) and variable compensation (i.e., annual incentive and long-term incentive awards). The variable component percentages are based on actual fiscal 2011 annual incentive payments and the aggregate grant date fair value of option grants made in fiscal 2011.

Executive	Fixed % (1)		Total variable % (2)		Annual variable % (3)		Long-term variable % (4)
Larry E. Thomas		15%		85%		33%		67%
James S. Broenen		16%		84%		25%		75%
Mark D. Van Vleet		45%		55%		67%		33%
Andrew M. Rossi		28%		72%		44%		56%
Gordon L. T. Raison		28%		72%		33%		67%

(1) This column represents the annual cash salary of each NEO for fiscal 2011.

(2) This column represents the variable compensation earned in fiscal 2011, including both annual incentives paid for fiscal 2011 performance and the aggregate grant date fair value of long-term incentives granted in fiscal 2011.

(3) This column represents the annual incentive component of the variable compensation paid for fiscal 2011 performance.

(4) This column represents the fiscal 2011 equity grant component of the variable compensation.

Determination of executive compensation

Given the competitiveness of the market for executive talent and our business strategy, we believe that our executive compensation program must reflect the realities of our business environment. As a result, our compensation decisions are based on competitive pay practices and individual performance in determining the compensation of our executives. As a general matter, the compensation committee is responsible for the determination of executive compensation for Messrs. Thomas, Broenen, and Van Vleet and considers recommendations from Mr. Thomas for

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Messrs. Broenen’s and Van Vleet’s compensation, as well as objective and subjective factors in structuring the executive compensation program. These factors include:

• competitive pay practices;

• individual performance and potential; and

• historical compensation levels.

Using the same factors, in fiscal 2011, the compensation for Messrs. Rossi and Raison was determined by Mr. Thomas in consultation with our Senior Vice President of Human Resources.

Pay decision process

In determining fiscal 2011 executive compensation, the compensation committee relied on general industry survey data and then evaluated base pay and total target compensation for our executives as discussed below. We did not, however, formally benchmark executive compensation to a set percentile of compensation at other companies. Differences in total target compensation generally reflect the tenure, relevant experience, and expertise of the individual Named Executive Officers within their roles. Our strategy following this offering is to utilize our peer group (listed below in the section titled “Benchmarking”) in conjunction with national survey data to benchmark the compensation of our Named Executive Officers against both general industry data and our peer group. This strategy is intended to help ensure that we take a comprehensive systemic approach to the establishment and evaluation of our executives’ compensation.

In fiscal 2011, the compensation committee retained Mercer (US) Inc., or Mercer, to assist it in evaluating our Named Executive Officers’ compensation levels and targets relative to those of both the broader national data and our selected peer group. Mercer assisted the compensation committee in fiscal 2011 in the determination of appropriate levels of long-term incentive grants for our Named Executive Officers. For fiscal 2012, Mercer assisted the compensation committee in the determination of each of the components of fiscal 2012 compensation for our Named Executive Officers by providing data related to competitive levels of compensation and making recommendations for award levels for consideration by the compensation committee. In fiscal 2011, neither Mercer nor any of its affiliates provided any additional services to us.

The compensation committee established the compensation for Mr. Thomas in fiscal 2011. In making this determination, the compensation committee considered the following factors: the compensation committee’s assessment of Mr. Thomas’ individual performance, our operating and financial performance and Mr. Thomas’ tenure with the organization.

Mr. Thomas recommended to the compensation committee the compensation for Messrs. Broenen and Van Vleet, based on his assessment of their individual responsibility, performance, overall contribution, and competitive market data. The compensation committee approved the recommended compensation arrangements. Using the same factors, the compensation for Messrs. Rossi and Raison, was determined by Mr. Thomas in consultation with the Senior Vice President of Human Resources.

The compensation committee has not established specific policies for allocating between long-term and currently-paid compensation or between cash and non-cash compensation. The current approach to compensation is to remain competitive as compared to the market but to have

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flexibility to tailor our approach to compensation by responding to market conditions and retention issues as they arise.

Benchmarking

We believe that it is important to continually evaluate the competitiveness and effectiveness of our pay practices. In the past, we have done so by reviewing market survey data and data that reports on national market trends. Following this offering, we will continue to use those resources to evaluate the competitiveness of our compensation programs and also will periodically benchmark executive pay within our peer group. In fiscal 2011, Mercer assisted us in developing the list of our peer group companies, which we will use to benchmark compensation beginning in fiscal 2012.

The selected peer group consists of 18 companies from the Consumer Discretionary GICS Sector, which was further refined down to the GICS Sub Industry of Apparel, Textile & Luxury Goods, Electronics, Entertainment and Household Durable Goods categories with revenue ranging from one-half to two times our revenue. The decision to set the range for establishing the peer group at one-half to two times our revenue was made based on recommendations from Mercer due to our unique blend of businesses.

Fender Musical Instruments Corporation fiscal 2012 peer group

Arctic Cat Inc.	Lululemon Athletica Inc.
Avid Technology, Inc.	Movado Group, Inc.
Callaway Golf Co.	Oxford Industries Inc.
Dolby Laboratories, Inc.	Polycom, Inc.
Elizabeth Arden, Inc.	Steinway Musical Instruments Inc.
Helen of Troy Ltd.	Tempur Pedic International Inc.
Inter Parfums Inc.	Under Armour, Inc.
JAKKS Pacific, Inc.	Universal Electronics Inc.
Johnson Outdoors Inc.	VOXX International Corporation

Base salary

Base salaries for executive officers, including our Named Executive Officers, were reviewed during our fiscal 2011 annual compensation review process, which we refer to as our “merit process.” The Chief Executive Officer did not recommend salary increases for any of our Named Executive Officers for fiscal 2011, and the compensation committee did not determine to increase the CEO’s salary for fiscal 2011. Instead, we looked to award significant long-term incentives to better align our executives with our long-term strategy.

In August 2011, the compensation committee determined to increase our CEO’s base salary at the same time that it amended and restated his employment agreement effective January 1, 2012, among other things, to extend the term of his employment to December 31, 2013 (which was subsequently extended to March 31, 2015). In making its fiscal 2012 base salary determination for the CEO, the compensation committee took into account his fiscal 2011 performance, his fiscal 2011 annual incentive target and goals and the market data review and determined to increased his base salary from $600,000 to $800,000 beginning January 1, 2012.

Annual incentive plan

We pay an annual cash incentive to our Named Executive Officers if certain performance goals are met. In fiscal 2011, we made changes to the performance goals used to determine annual

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incentive payments under our Annual Incentive Plan. The fiscal 2011 goals were approved by the compensation committee and required attainment of certain company financial performance goals and individual project-based performance goals. Each Named Executive Officer was assigned a personalized set of goals that was intended to specifically align his performance to the company’s performance, based on his role within the company. Because our Chief Executive Officer is responsible for our performance, as a whole, for fiscal 2011, his annual incentive was determined, based solely on achievement of an EBITDA goal. In establishing EBITDA goals for purposes of our Annual Incentive Plan and for certain options granted to Mr. Thomas with performance-vesting conditions, we use a definition of EBITDA that differs from the definition of Adjusted EBITDA used elsewhere in this prospectus. EBITDA for these purposes is equal to Adjusted EBITDA as described under “Prospectus summary—Summary consolidated financial data—Non-GAAP financial measures,” further adjusted to exclude equity in losses from investees and foreign currency losses from hedging activities. The relative weighting of each of our Named Executive Officers’ fiscal 2011 performance goals under the Annual Incentive Plan is set forth in the table below.

The targets for each performance goal were determined by the compensation committee at the beginning of fiscal 2011. Achievement for each individual project-based goal was determined on an achieved or not achieved basis and, therefore, the threshold and maximum payouts were equal to target. All financial performance goals had a threshold of 90% of target performance, with the exception of our CEO and CFO, whose financial performance goals had a threshold of 100% of target performance, because their actual EBITDA target levels were lower than the applicable EBITDA target levels of our other Named Executive Officers. As set forth below, the maximum achievement for each financial goal is 125% of target performance.

No incentive is awarded with respect to a goal if the threshold for that performance goal is not achieved. Each individual project-based performance goal is personalized for each NEO and the Named Executive Officer could receive all or none of his target payout for that performance goal based on his specific performance. The financial goals for our CEO and CFO differ from the financial goals of our other Named Executive Officers due to the nature of the performance goals for each. The CEO’s performance goals were solely based on our financial performance and our CFO’s performance goals were primarily weighted towards our financial performance, while the other Named Executive Officers’ performance goals were more weighted toward individual project-based goals.

For fiscal 2011, target annual incentive awards for our NEOs were equal to 100% of base salary for the CEO and 50% of base salary for all other Named Executive Officers. Annual incentive awards for all NEOs were capped at 125% of the target award. Our Chief Executive Officer has a higher target annual incentive award as a percentage of compensation based on his responsibility for our overall financial performance and based on the compensation committee’s assessment of market practice.

The weighting of each company financial performance goal and individual project-based performance goal for each Named Executive Officer was determined by the compensation committee and is described in the following table. Each performance goal that is a component of a Named Executive Officer’s annual incentive calculation is individually considered by the compensation committee at the end of the performance year for the purpose of calculating that officer’s total annual incentive payment. For financial performance goals, the portion of the annual incentive that relates to each goal is based on the percentage of the goal achieved. For

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individual project-based performance goals, the portion of the annual incentive that relates to that objective is only awarded if the objective is achieved.

Fiscal 2011 annual incentive plan weighting, threshold and target performance goals table

	Performance weighting			Threshold required (% of target performance)	Goal type	Payout based on achievement (% of target performance)
						Threshold	Target	Maximum
Larry E. Thomas		100	%	FMIC EBITDA	Financial	100%	100%	125%
James S. Broenen		20	%	Cash Flow from Operations	Financial	100%	100%	125%
		70	%	FMIC EBITDA	Financial	100%	100%	125%
		10	%	KMC Financial/ Supply Chain Integration	Individual Project Based	100%	100%	100%
Mark D. Van Vleet		18	%	Budget—Legal Fees	Individual Project Based	100%	100%	100%
		20	%	FMIC EBITDA	Financial	90%	100%	125%
		18	%	License/Co-branding Agreements	Individual Project Based	100%	100%	100%
		18	%	FMI Licensing Revenue	Financial	90%	100%	125%
		18	%	Sales—Clothing/Collectibles	Financial	90%	100%	125%
		8	%	Scottsdale Lease	Individual Project Based	100%	100%	100%
Andrew M. Rossi		10	%	Customer Service	Individual Project Based	100%	100%	100%
		10	%	Emerging Market Plan	Individual Project Based	100%	100%	100%
		10	%	FMIC EBITDA	Financial	90%	100%	125%
		60	%	Global Sales Operations Contribution Margin	Financial	90%	100%	125%
		5	%	Sales—Small Parts/ Accessories (Domestic)	Financial	90%	100%	125%
		5	%	Sales—Clothing/Collectibles	Financial	90%	100%	125%
Gordon L. T. Raison		70	%	Europe Contribution Margin	Financial	90%	100%	125%
		10	%	Europe Marketing Reorganization	Individual Project Based	100%	100%	100%
		10	%	FMIC EBITDA	Financial	90%	100%	125%
		5	%	Europe Compensation and Benefits Harmonization	Individual Project Based	100%	100%	100%
		5	%	Europe MBO Program Implementation	Individual Project Based	100%	100%	100%

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The following table sets forth, for each NEO, the fiscal 2011 achievement for each financial performance goal and individual project-based performance goal as a percentage of target for each goal:

Fiscal 2011 annual incentive plan performance table

(in millions)	Weighting			Goal	Target		Actual achievement		Percentage payout(1) (% of target incentive)
Larry E. Thomas		100	%	FMIC EBITDA		$50.0		$59.4		116	%
James S. Broenen		20	%	Cash Flow from Operations		$26.0		$29.2		100	%
		70	%	FMIC EBITDA		$50.0		$59.4		116	%
		10	%	KMC Financial/ Supply Chain Integration		N/A		Achieved		100	%
Mark D. Van Vleet		18	%	Budget—Legal Fees (2)		$2.0		Achieved		100	%
		20	%	FMIC EBITDA		$56.0		$59.4		116	%
		18	%	License/Co-branding Agreements		7 agreements		Achieved		100	%
		18	%	FMI Licensing Revenue		$2.5		$1.1		0	%
		18	%	Sales—Clothing/Collectibles		$1.6		$1.9		165	%
		8	%	Scottsdale Lease		N/A		Achieved		100	%
Andrew M. Rossi		10	%	Customer Service		N/A		Achieved		100	%
		10	%	Emerging Market Plan		N/A		Achieved		100	%
		10	%	FMIC EBITDA		$56.0		$59.4		116	%
		60	%	Global Sales Operations Contribution Margin (3)		Confidential		Confidential		110	%
		5	%	Sales—Small Parts/ Accessories (Domestic)		$2.1		$3.0		176	%
		5	%	Sales—Clothing/Collectibles		$1.6		$1.9		165	%
Gordon L. T. Raison		70	%	Europe Contribution Margin (3)		Confidential		Confidential		0	%
		10	%	Europe Marketing Reorganization		N/A		Achieved		100	%
		10	%	FMIC EBITDA		$56.0		$59.4		116	%
		5	%	Europe Compensation and Benefits Harmonization		N/A		Achieved		100	%
		5	%	Europe MBO Program Implementation		N/A		Achieved		100	%

(1) For Messrs. Van Vleet, Rossi and Raison, for each 1% of achievement from 90% to 95%, the plan payout is 10% for every 1% achieved; between 95% and target, the plan payout is an additional 5% for every additional 1% achieved; and for each 1%

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above target, the plan pays out an additional 3%. For Messrs. Thomas and Broenen, the plan does not pay out below target, and after reaching target, the plan payout is the same as for the other Named Executive Officers. The plan caps at 125% of achievement, which is equal to a payout of 175.5%.

(2) The target for Mr. Van Vleet’s legal fees performance goal was $2,000,000 or less spent on outside counsel fees during fiscal 2011 (excluding unanticipated matters). The actual amount spent was $2,716,481, which was offset by approximately $1,200,000 spent on unanticipated matters.

(3) Target and actual performance numbers of Mr. Rossi’s Global Sales Operations Contribution Margin and Mr. Raison’s European Contribution Margin are not provided above because we are seeking confidential treatment for the disclosure of such target and actual performance on the basis that disclosing such information could cause competitive harm to the company. In formulating the targets for these confidential performance goals, the compensation committee balanced the consideration of the likelihood of achievement for the performance targets with the effectiveness of such targets in incentivizing Messrs. Rossi’s and Raison’s performance. The targets were set at levels that were expected to be possible, but not easy, to achieve with meaningful effort. Therefore, in general, unless there are unusual or unexpected factors affecting the performance of the applicable goal or if the applicable Named Executive Officer fails to adequately execute on planned initiatives, it is probable, though not certain, that the performance goals will be achieved at target.

The following table sets forth, for each NEO, the amount of fiscal 2011 annual incentive award paid to each NEO based on achievement of the applicable performance goals described above.

Fiscal 2011 annual incentive plan payments table

Executive	Target % of salary		Target % of salary $		Actual % of salary achieved		Actual $ of incentive achieved
Larry E. Thomas		100%	$	600,000		116%	$	696,000
James S. Broenen		50%	$	155,000		56%	$	172,360
Mark D. Van Vleet		50%	$	136,607		48%	$	132,372
Andrew M. Rossi		50%	$	113,509		57%	$	130,110
Gordon L.T. Raison		50%	$	107,839		16%	$	34,077

Long-term incentive awards

In fiscal 2011, we awarded long-term incentive compensation, in the form of stock options, to our NEOs in order to provide them with the opportunity to have a meaningful ownership stake in the company, which we believe helps to align our Named Executive Officers’ interests with those of our stockholders. We do not maintain a policy on the timing of equity-based awards, but rather grants may be made by the compensation committee at various times and in varying amounts. The size of a grant is generally set at a level that the compensation committee deems appropriate based on an individual’s position and level of experience, past performance, competitive considerations, and the previous grants made to the individual. The compensation committee also considers the potential dilutive effect of authorizing additional stock option grants, as well as the compensation charge resulting from the issuance of such grants. The compensation committee generally seeks to make awards of stock options that are competitive with the award levels at comparable companies in terms of executive compensation matters as described above.

We chose stock options as the form of long-term equity award in fiscal 2011 because they:

• enhance the link between the creation of stockholder value and long-term executive incentive compensation;

• provide an opportunity for increased equity ownership by executives; and

• maintain the competitive level of total compensation.

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For fiscal 2011 stock option grants, upon review of equity ownership by position against those at companies with which we compete for executives, the Chief Executive Officer recommended to the compensation committee that the following stock option awards be made: 3,029 options for Mr. Broenen, 450 options for Mr. Van Vleet, 1,000 options for Mr. Rossi, and 550 options for Mr. Raison. These grants were approved by the compensation committee in June 2011 for Messrs Broenen, Van Vleet and Rossi and in August 2011 for Mr. Raison. The options granted to Messrs. Broenen, Van Vleet, Rossi and Raison vest in four annual installments beginning on the first anniversary of grant.

In August 2011, Mr. Thomas was also granted stock options over 8,475 shares with the following performance- and time-vesting provisions. An option was granted over 1,224 shares that vests 50% on January 31, 2012 and 50% on July 31, 2013. The remaining options over 7,251 shares vest based on achievement of certain performance criteria over the 3-year period after the date of grant. These awards are subject to a 3-year vesting schedule, instead of a 4-year vesting schedule, because of the additional performance-vesting criteria and because the 3-year vesting schedule coincided with the term of Mr. Thomas’ employment agreement, as amended and restated in August 2011, which at the time was scheduled to end December 31, 2013. As described below in the section titled “Employment agreements and severance arrangements”, Mr. Thomas’ employment agreement was further amended and restated effective February 12, 2012, to extend the term of the agreement to March 31, 2015. This award was made in satisfaction of the equity grant requirements under the terms of Mr. Thomas’ original employment agreement, which was entered into in fiscal 2010.

Number of shares subject to stock options	Performance criteria	Vesting schedule
1,224	No performance criteria	50% on January 31, 2012 50% on July 31, 2013
2,417	Successfully hiring a Board-approved Chief Operating Officer	34% on December 31, 2011(1) 33% on December 31, 2012 33% on December 31, 2013
2,417	Fiscal 2011 Financial Performance of specific EBITDA target in fiscal 2011	34% on December 31, 2011(2) 33% on December 31, 2012 33% on December 31, 2013
2,417	Fiscal 2012 Financial Performance of Board-approved EBITDA budget. To be set by the Board at the beginning of fiscal 2012	50% on December 31, 2012 50% on December 31, 2013

(1) Both the performance criteria and time-based vesting schedule must be met in order for the option to fully vest and the performance criteria has not been achieved.

(2) The fiscal 2011 EBITDA target was achieved.

We have not made any equity-based awards for fiscal 2012 and do not intend to make any such grants in connection with this offering.

Stock options and RSUs granted by us to date have been granted under our 1997 Stock Option Plan, our 2001 Equity Compensation Plan or our 2007 Equity Compensation Plan. All outstanding awards under our 1997 Stock Option Plan and 2001 Equity Compensation Plan are fully vested.

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The 2007 Equity Compensation Plan provides for vesting of awards in the event of a “change of control” of the company (as described below in “—Potential payments upon termination or change in control (year-end 2011)”). We provided for “single-trigger” vesting on a change of control under the 2007 Equity Compensation Plan because we wished to afford award recipients the ability to immediately participate in the benefits of such a change of control and because we considered change of control vesting to be market practice among our competitors at that point in time. In addition, the terms of our Named Executive Officers’ outstanding stock option and RSU awards generally provide for full vesting in the event of an executive’s termination of employment due to death or disability (except that the performance-vesting conditions for our CEO’s options must also be met at the time of death or termination due to disability for such options to fully vest). We provide for accelerated vesting on death or a termination due to disability as described below, so that award recipients (or their estate, as applicable) will still receive the value of their outstanding awards where a termination of employment beyond their control occurs.

Retirement benefits

Employees, including the Named Executive Officers, are generally eligible to participate in the Fender Musical Instruments Corporation 401(k) Plan, or the 401(k) Plan. The 401(k) Plan is a tax-qualified defined contribution plan. Under our 401(k) Plan, we provide a discretionary employer match on employee contributions of up to 100% on employee deferrals of up to 3% of covered compensation and 50% on deferrals of up to an additional 2% of covered compensation. We provide employees with access to the 401(k) Plan because we believe that it is important to provide a retirement savings vehicle for our employees and because provision of this benefit is an important recruitment and retention tool, as most of the companies with which we compete for executive talent provide a similar plan to their employees. Mr. Raison is also entitled to participate in a statutory defined contribution retirement plan in the U.K., under which we match 50% of his contributions up to £5,000 per year.

Employee benefits and executive perquisites

We also offer a variety of health and welfare benefits to all eligible employees, including the Named Executive Officers. Our Named Executive Officers are eligible to participate in our employee benefit plan on the same basis as our other employees. Our company-wide benefits program includes medical, dental, group life, short- and long-term disability, and accidental death and dismemberment insurance. All of our employees, including our Named Executive Officers, are also entitled to participate in our employee discount program for our products. In addition, each year, at the discretion of the CEO, we may award holiday gifts to all employees. In fiscal 2011, we awarded a nominal gift of luggage to each of the NEOs. As described below under the terms of their applicable employment agreements, Mr. Thomas is also entitled to certain retiree medical benefits and Mr. Raison is entitled to certain life insurance benefits.

We limit the use of perquisites as a method of compensation and provide Named Executive Officers with only those perquisites that we believe are reasonable and consistent with our compensation goal of enabling us to attract and retain executive talent for key positions. The perquisites provided to our Chief Executive Officer in fiscal 2011 were required to be provided under the terms of his original employment agreement. These perquisites, which have been eliminated for fiscal 2012, included certain travel benefits and private use of commuter aircraft. In addition, Mr. Thomas received tax gross-up payments for taxes related to the following perquisites: his car allowance, certain personal travel, and airplane usage. The amounts of such

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gross-ups are described below in a footnote to the Summary Compensation Table. As discussed below, these gross-up provisions have been eliminated beginning in fiscal 2012. Our Named Executive Officers (other than Mr. Rossi) also were provided car allowances in fiscal 2011. Expenses associated with relocation of newly hired executives are paid pursuant to our relocation policy and based on standard market practices for executive level relocation.

Employment agreements and severance arrangements

We have entered into employment agreements with each of our Named Executive Officers, except for Mr. Rossi. The terms of these employment agreements are summarized below. As described below, in the case of Messrs. Thomas, Van Vleet and Broenen, these agreements contain “double trigger” severance provisions in the event of termination of the executive’s employment without “cause” or by the executive for “good reason” following a “change of control” of the company (“cause”, “good reason” and “change of control” generally have the meanings as described below in the section titled “—Estimated benefits and payments upon termination of employment or change of control”). In the case of Messrs. Thomas, Van Vleet and Broenen, these agreements also provide for non-change-of-control severance payments in the event of a termination of employment during the employment period other than for cause or by the relevant executive officer for good reason. The purpose of these employment agreements is to attract and retain talented executives, to provide competitive benefits, and to recognize that senior executive positions, such as those held by our Named Executive Officers, tend to be less secure than other positions, especially following a change of control event. In establishing the terms of these employment agreements, the compensation committee took into account competitive considerations and relative position of the particular executive officer within the company.

Mr. Thomas

On August 1, 2010, we entered into an employment agreement with Larry Thomas upon his appointment as Chief Executive Officer. In August 2011, we amended and restated Mr. Thomas’ employment agreement to eliminate certain benefits, including a gross-up in the event Mr. Thomas becomes liable for certain excise taxes under Section 4999 of the Internal Revenue Code of 1986, as amended, or the Code, in conjunction with a change of control of the company. Under his 2011 amended and restated employment agreement, the term of the agreement was extended until December 31, 2013, and his annual base salary was increased from $600,000 to $800,000, beginning January 1, 2012. For 2011, Mr. Thomas’ target annual incentive opportunity was 100% of base salary. Under the fiscal 2011 amended and restated employment agreement, his target annual incentive opportunity was 75% of base salary beginning in fiscal 2012. Effective February 12, 2012, we further amended and restated his employment agreement to extend the term of the agreement through March 31, 2015. In consideration for this extension of the term, his target annual incentive percentage for the remainder of the extended term was maintained at the fiscal 2011 level of 100% of base salary.

Mr. Thomas’ 2012 amended and restated employment agreement provides for severance of (i) a lump sum payment equal to Mr. Thomas’ base salary for the remainder of the term of his employment agreement (through March 31, 2015) (the end of the term under Mr. Thomas’ 2011 restated employment agreement was through December 31, 2013) in the event of termination by us without cause or by the executive for good reason, in each case, other than following a change of control, or (ii) in the event of termination by us without cause or by the executive for good reason, in each case, following a change of control, a lump sum payment equal to the

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greater of base salary for the remainder of the term (through March 31, 2015) (the end of the term under Mr. Thomas’ 2011 restated employment agreement was through December 31, 2013) and two times base salary. In addition, he is entitled to COBRA and other benefits continuation expense reimbursement for the remainder of the term. For the period following his termination of employment through his and his spouse’s deaths, Mr. Thomas and his spouse are entitled to participate in our health and life benefits as retirees, to the extent legally and administratively feasible and provided that the full cost of such benefits are borne by Mr. Thomas and his spouse. We are required to give Mr. Thomas 90 days’ written notice to terminate his employment without cause and Mr. Thomas is required to provide us with 90 days’ written notice prior to his termination of employment for good reason (or 30 days’ written notice for termination other than for good reason). In each case, we may pay Mr. Thomas his base salary in lieu of any notice.

In the event of Mr. Thomas’ death during the term of his employment agreement, we will pay his estate a lump sum payment equal to Mr. Thomas’ base salary for the month of death and for three additional months thereafter and will pay a lump sum pro-rata annual incentive for the year of his death in accordance with the terms of the annual incentive plan then in effect. In the event of his termination due to disability during the term of his employment agreement, we will continue to pay Mr. Thomas’ base salary for up to 13 weeks and will pay a lump sum pro-rata annual incentive for the year of his termination due to disability in accordance with the terms of the annual incentive plan then in effect.

As part of his 2011 amended and restated employment agreement, additional changes were made for the period beginning January 1, 2012, including the elimination of certain travel and commuting perquisites, and clarification regarding coordination of retiree medical care with Medicare. His 2011 amended and restated employment agreement also eliminated the excise tax gross-up provision under his original agreement, which would have grossed Mr. Thomas up for any excise taxes under Section 4999 of the Code in connection with severance and other benefits received that are contingent upon a change of control of the company. The amended agreement instead applies a modified provision, which provides Mr. Thomas with the greater of (i) the after-tax benefit assuming his change in control severance and other benefits are cut back to the amount that would not subject him to an excise tax under Section 4999 of the Code or (ii) the after-tax benefit (after taking into account the excise tax that the executive would have to pay), assuming no cutback was applied (this provision is referred to as a “Modified Cap”).

Under his employment agreement, Mr. Thomas has also agreed not to compete against us or to solicit any of our employees to compete against us for the period of time for which he receives severance benefits (as described above). In addition, Mr. Thomas has agreed to maintain the confidentiality of company confidential information following his termination of employment.

Mr. Broenen

Mr. Broenen has an employment agreement with us dated December 2, 2008, which was amended in 2010 as well as in August 2011. During the term of his employment with us (through March 31, 2013), Mr. Broenen (i) received an initial salary of $235,000 (subject to annual review) (2011 salary was $310,000), (ii) is eligible for an annual target incentive of 50% of base salary in accordance with our annual incentive plan then in effect and (iii) is eligible from time to time for long-term incentive awards. Effective September 5, 2011, Mr. Broenen also receives a monthly car allowance of $750 and four weeks of paid vacation each year.

In the event of his termination other than for cause or by Mr. Broenen for good reason, in each case, other than following a change in control, his employment agreement provides for

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severance of (i) a lump sum payment equal to one year’s “annual compensation” (as described below) and (ii) reimbursements for all COBRA payments or other benefit continuation expenses for one year. In the event of termination by us without cause or by the executive for good reason, in each case, following a change of control, Mr. Broenen will be entitled to (i) a lump sum payment equal to two years’ annual compensation and (ii) reimbursements for all COBRA payments or other benefit continuation expenses for two years. If, in the event of a change of control, Mr. Broenen is subject to the excise tax imposed under Section 4999 of the Code, Mr. Broenen is also subject to a Modified Cap. For purposes of calculating severance, “annual compensation” means the sum of Mr. Broenen’s base salary and his average annual incentive for the three fiscal years preceding such termination. We are required to give Mr. Broenen 60 days’ written notice to terminate his employment without cause and Mr. Broenen is required to provide us with 60 days’ written notice prior to his termination for good reason (or 30 days’ written notice for termination other than for good reason) of employment. In each case, we may pay Mr. Broenen his base salary in lieu of any notice.

In the event of Mr. Broenen’s death during the term of his employment agreement, we will pay his estate a lump sum payment equal to Mr. Broenen’s base salary for the month of death and for two additional weeks thereafter and will pay a lump sum pro-rata annual incentive for the year of his death in accordance with the terms of the annual incentive plan then in effect. In the event of his termination due to disability during the term of his employment agreement, we will continue to pay Mr. Broenen’s base salary for up to 13 weeks and will pay a lump sum pro-rata annual incentive for the year of his termination due to disability in accordance with the terms of the annual incentive plan then in effect.

Under his employment agreement, Mr. Broenen has also agreed not to compete against us or to solicit any of our employees to compete against us for the longer of 12 months after termination of his employment or the period of time for which he receives severance benefits (as described above). Mr. Broenen has also agreed to maintain the confidentiality of our confidential information following his termination of employment.

Mr. Van Vleet

Mr. Van Vleet has an employment agreement dated December 2, 2008, which was amended in 2010 as well as in August 2011. During the term of his employment with us (through March 31, 2013), Mr. Van Vleet (i) received an initial salary of $170,000 (subject to annual review) (2011 salary was $273,213), (ii) is eligible for an annual incentive in accordance with our annual incentive plan then in effect and (iii) is eligible from time to time for long-term incentive awards. Effective September 5, 2011, Mr. Van Vleet also receives a monthly car allowance of $750 and four weeks of paid vacation each year.

In the event of his termination other than for cause or by Mr. Van Vleet for good reason, in each case, other than following a change in control, his employment agreement provides for severance of (i) a lump sum payment equal to one year’s “annual compensation” (as described below) and (ii) reimbursements for all COBRA payments or other benefits continuation expenses for one year. In the event of termination by us without cause or by the executive for good reason, in each case, following a change of control, Mr. Van Vleet will be entitled to (i) a lump sum payment equal to two years’ annual compensation and (ii) reimbursements for all COBRA payments or other benefits continuation expenses for two years. If, in the event of a change of control, Mr. Van Vleet is subject to the excise tax imposed under Section 4999 of the Code, Mr. Van Vleet is also subject to a Modified Cap. For purposes of calculating severance, “annual

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compensation” means the sum of Mr. Van Vleet’s base salary and his average annual incentive for the three fiscal years preceding such termination. We are required to give Mr. Van Vleet 60 days’ written notice to terminate his employment without cause and Mr. Van Vleet is required to provide us with 60 days’ written notice prior to his termination for good reason (or 30 days’ written notice for termination other than for good reason) of employment. In each case, we may pay Mr. Van Vleet his base salary in lieu of any notice.

In the event of Mr. Van Vleet’s death during the term of his employment agreement, we will pay his estate a lump sum payment equal to Mr. Van Vleet’s base salary for the month of death and for two additional weeks thereafter and will pay a lump sum pro-rata annual incentive for the year of his death in accordance with the terms of the annual incentive plan then in effect. In the event of his termination due to disability during the term of his employment agreement, we will continue to pay Mr. Van Vleet’s base salary for up to 13 weeks and will pay a lump sum pro-rata annual incentive for the year of his termination due to disability in accordance with the terms of the annual incentive plan then in effect.

Under his employment agreement, Mr. Van Vleet has also agreed not to compete against us or to solicit any of our employees to compete against us for the longer of 12 months after termination of his employment or the period of time for which he receives severance benefits (as described above). Mr. Van Vleet has also agreed to maintain the confidentiality of our confidential information following his termination of employment.

Mr. Raison

Mr. Raison has an employment contract dated August 30, 2005, with our European subsidiary. We may terminate the agreement at any time with three months’ written notice or immediately with payment in lieu of notice and along with a mutually agreed-upon severance amount negotiated under UK employment law. Entitlement to any share options and long-term incentive awards is governed by the terms of the relevant plan. Mr. Raison also receives a monthly car allowance and 25 days of paid vacation each year. In fiscal 2011, his car allowance was equal to $18,704. In addition, he is entitled to participate in a statutory defined contribution retirement plan, under which we match 50% of his contributions up to £5,000 per year. Under the terms of his employment agreement, he is also entitled to receive life insurance coverage equal to two times his base salary, which is self-insured by the company.

During the term of employment and for a period of up to six months thereafter, Mr. Raison will be subject to non-solicitation and non-competition restrictions. Mr. Raison is also subject to confidentiality provisions under his agreement during his employment and thereafter.

Mr. Rossi

Mr. Rossi had an employment agreement that was entered into in 2006 that governed the terms of his compensation. The terms of that agreement expired and Mr. Rossi does not currently have an employment agreement with us. Mr. Rossi commenced employment with us on December 2, 1991. He was appointed as the Senior Vice President, Global Sales on October 4, 2010. We may terminate his employment at any time with or without notice in accordance with state and federal regulations. Entitlement to any stock options and other awards and benefits is governed by the terms of the relevant plans and award agreements. Mr. Rossi is also eligible to participate in our employee benefit plans in accordance with their terms. In addition, following a termination of employment without cause, Mr. Rossi may receive benefits based on our severance practice, as in effect from time to time. In fiscal 2011, he would have been eligible to

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receive, upon a termination by us without cause, base salary continuation for one year, certain outplacement services and reimbursement of COBRA premiums for five months.

Post-offering compensation arrangements

Following the effectiveness of the offering, we will provide compensation and benefits to our Named Executive Officers under the terms of our compensation and benefits programs, as in effect from time to time, and under the terms of their employment agreements as described above, if applicable. We will also provide our Named Executive Officers and other eligible employees with annual incentives under the terms of the Annual Incentive Plan. Further, to the extent equity-based awards are granted in the future, they will be granted under the terms of our 2012 Equity Compensation Plan, which will become effective upon completion of this offering.

Annual incentive plan

The purpose of our Annual Incentive Plan is to motivate participants to build and sustain a successful business, to achieve goals that are considered key to us and to attract, motivate, retain and reward the best talent. The Annual Incentive Plan was approved by the Board on April 14, 2009 and was effective for performance periods related to fiscal 2009 and thereafter. The compensation committee or such other committee established by the Board administers the Annual Incentive Plan. The compensation committee determines eligibility to participate in the plan and determines the performance goals under which awards are granted for each of our fiscal year (each, a performance period). The compensation committee has authority to (i) determine eligibility to participate in the plan, (ii) determine the amount (including target amount) of awards under the plan, (iii) determine the terms and conditions of awards under the plan, including setting the performance goals, (iv) construe and interpret the plan, (v) establish, maintain and amend rules for the plan, (vi) amend the terms of outstanding awards and (vii) determine the timing for payment of awards under the plan. The compensation committee may also amend or terminate the plan at any time.

The performance criteria for awards under the plan include, but are not limited to, net earnings or net income (before or after taxes), earnings per share, net sales or revenue growth, net operating profit, return on assets, capital, invested capital, equity, sales or revenue, cash flow, earnings before or after taxes, interest, depreciation or amortization, gross or operating margins, productivity ratios, share price, expense targets, margins, operating efficiency, market share, customer satisfaction, working capital targets, and economic value added. Performance goals may be established for the company, as a whole, or for specific business units or may be based on comparison to a specified index or group of comparator companies. Under the plan, the compensation committee establishes the applicable performance goals during the first 90 days of our fiscal year. The maximum annual incentive that any participant under the plan may receive for a performance period is $5,000,000.

In the event of a participant’s termination of employment due to death or disability during a performance period, a pro-rata incentive for the year of termination will be paid to the participant or the participant’s estate (as the case may be) once performance for the performance period has been determined. For all other terminations of employment during a performance period, the participant will have no right to receive a an annual incentive under the plan.

In the event of a change of control of the company (as described below in the section titled “—Estimated benefits and potential payments upon termination or change of control”),

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participants in the plan will be entitled to receive a pro-rata annual incentive at target for any incomplete performance period.

Policy on tax deductibility of executive compensation

As a private company, prior to the consummation of this offering, we were not subject to the limits on deductibility of compensation set forth in Section 162(m) of the Code. Section 162(m) denies a publicly held company a tax deduction for compensation in excess of $1 million paid to its chief executive officer or any of its three other most highly compensated executive officers (other than the chief financial officer), except to the extent compensation satisfies the requirements under Section 162(m) to be “performance-based compensation.” Section 162(m) will apply to us after a specified transition period lapses. In future years, we intend to structure our annual incentives and equity incentive programs so that they qualify as performance-based compensation under Section 162(m). Our compensation committee may, however, approve compensation or changes to plans, programs or awards that may cause the compensation or awards not to comply with Section 162(m) if it determines that such action is appropriate and in our best interests.

Fiscal 2011 compensation

The following tables contain information about the compensation paid to our Named Executive Officers, as well as other information regarding the NEOs’ outstanding equity awards and other potential payments as of the end of fiscal 2011.

Fiscal 2011 summary compensation table

Name and principal position	Fiscal year		Salary ($)(1)		Option/SAR awards ($)(2)		Non-equity incentive plan compensation ($)(3)		All other compensation ($)(4)		Total($)
Larry E. Thomas		2011		600,000		4,189,786		696,000		249,004		5,734,790
Chief Executive Officer
James S. Broenen		2011		310,000		1,497,447		172,360		13,177		1,992,984
Chief Financial Officer and Corporate Treasurer
Mark D. Van Vleet		2011		273,213		222,467		132,372		13,177		641,229
Chief Legal Officer, Corporate Secretary and Senior Vice President of Business Development
Andrew M. Rossi		2011		227,018		494,370		130,110		9,458		860,956
Senior Vice President, Global Sales
Gordon L. T. Raison		2011		215,677		271,904		34,077		34,570		556,218
Managing Director, Europe

(1) Mr. Raison’s base salary has been converted from GBP to USD at a rate of US $1.55235 per GBP. His fiscal 2011 salary in GBP was £138,936.00.

(2) This column shows the aggregate grant date fair value of the stock options under FASB ASC Topic 718, which was determined using the Black-Scholes Method with a call option value of $494.37 per share and the assumptions set forth in “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies—Stock based-compensation.”

(3) Amounts in this column represent the fiscal 2011 annual incentives paid to our Named Executive Officers under our Annual Incentive Plan.

(4) For details of all other compensation, refer to the footnotes in the All other compensation table below.

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All other compensation table

Name	Perquisites(1)		Tax gross- ups(2)		Defined contribution savings plan company contributions(3)		Total
Larry E. Thomas	$	133,329	$	115,675	$	0	$	249,004
James S. Broenen	$	3,377	$	0	$	9,800	$	13,177
Mark D. Van Vleet	$	3,377	$	0	$	9,800	$	13,177
Andrew M. Rossi	$	377	$	0	$	9,081	$	9,458
Gordon L. T. Raison	$	27,118	$	0	$	7,452	$	34,570

(1) Mr. Thomas received $124,179 as reimbursement for certain travel-related expenses, including the use of private aircraft, $7,569 for a leased car, $1,182 for medical expense reimbursement and a holiday gift worth $399. Messrs. Broenen and Van Vleet each received $3,000 as a car allowance for September through December and a holiday gift worth $377. Mr. Raison received $18,704 as a car allowance, $7,762 as a fuel allowance, and $652 for home broadband service. Mr. Raison also received a holiday gift, which had no taxable value under applicable U.K. law. Mr. Rossi received a holiday gift worth $377. No amount was included for participation in our employee discount program, as there is no incremental cost to us for that program.

(2) Mr. Thomas received tax gross-up payments of: $5,906 related to his car allowance and $109,769 for the gross-up of certain travel-related expenses, including for the use of a private airplane.

(3) Messrs Broenen, Van Vleet and Rossi also received a company match under our 401(k) plan in the amounts described above. Mr. Thomas does not participate in the 401(k) plan. For details on the 401(k) plan, refer to the “—Retirement benefits” section above. Mr. Raison also received a company match under the U.K. statutory retirement plan that he participates in. His company match has been converted from GBP to USD at a rate of US $1.55235 per GBP. His fiscal 2011 company match in GBP was £4,800.

Fiscal 2011 grants of plan based awards table

	Grant date		Estimated possible payouts under equity incentive plan awards(1)						All other option awards: number of securities underlying options(#)(1)		Exercise or base price of options awards ($/Sh)		Grant date fair value of stock and option awards ($)(2)
Name			Threshold(#)		Target(#)		Maximum(#)
Larry E. Thomas		8/15/2011		0		7,251		0		1,224	$	987	$	4,189,786
James S. Broenen		6/9/2011								3,029	$	987	$	1,497,447
Mark D. Van Vleet		6/9/2011								450	$	987	$	222,467
Andrew M. Rossi		6/9/2011								1,000	$	987	$	494,370
Gordon L. T. Raison		8/15/2011								550	$	987	$	271,904

(1) In fiscal 2011, Mr. Thomas received a time-based stock option grant over 1,224 shares that vests 50% on January 31, 2012 and 50% on July 31, 2013 and performance-based stock option grants over a total of 7,251 shares, which have three-year ratable time-based vesting and also include the requirement to achieve certain performance targets, as described in the section above titled “—Long term incentive awards”. The fiscal 2011 stock option grants made to the other NEOs were subject to time-based vesting conditions and vest in four equal installments beginning on the first anniversary of grant.

(2) This column shows the aggregate grant date fair value of the stock options under FASB ASC Topic 718, which was determined using the Black-Scholes Method with a call option value of $494.37 per share and the assumptions set forth in “Management’s discussion and analysis of financial condition and results of operations—Critical accounting policies—Stock based-compensation.”

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Fiscal 2011 outstanding equity awards

					Option/SAR awards(1)										Stock awards
Name	Award type		Options/ SARs grant date		Number of securities underlying unexercised options/ SARs(#) exercisable		Number of securities underlying unexercised options/ SARs(#) unexercis- able		Equity incentive pan awards: number of securities underlying unexercised unearned options(#)		Option exercise price or SAR base price		Option/ SAR expiration date		Number of shares or units of stock that have vested(#)		Market value of shares or units of stock that have vested($)		Number of shares or units of stock that have not vested(#)		Market value of shares or units of stock that have not vested($)
Larry E. Thomas		Options		8/1/2010				3,882			$	706		8/1/2020
		Options		8/15/2011		822				7,653	$	987		8/15/2021
James S. Broenen		Options		12/27/2007		133					$	1,254		12/27/2017
		Options		12/27/2007		240		60			$	1,254		12/27/2017
		Options		6/17/2009		150		150			$	628		6/17/2019
		Options		6/9/2011				3,029			$	987		6/9/2021
		RSU		8/8/2008
		RSU		5/5/2010												40		39,480		160		157,920
Mark D. Van Vleet		Options		2/28/2003		250					$	750		3/1/2023
		Options		7/28/2005		250					$	846		7/28/2025
		Options		2/14/2006		250					$	846		2/14/2026
		Options		12/27/2007		750					$	1,254		2/27/2017
		Options		6/9/2011				450			$	987		6/9/2021
Andrew M. Rossi		Options		1/1/2001		150					$	750		3/1/2021
				2/28/2003		500					$	750		3/1/2023
				3/9/2006		300					$	846		3/9/2026
				12/27/2007		400		100			$	1,254		12/27/2017
				6/9/2011				1000			$	987		6/9/2021
Gordon L. T. Raison		Options		2/14/2006		250					$	846		2/14/2026
		Options		12/27/2007		240		60			$	1,254		12/27/2017
		Options		8/15/2011				550			$	987		8/15/2021

(1) The above listed grants have a 4-year vesting schedule with the exception of the following grants: (i) the 12/27/2007 (except for Mr. Van Vleet) and 3/9/2006 grants, which had a 5-year vesting schedule, (ii) the 2/28/2003 grants, which had a 6-year vesting schedule, (iii) the 8/1/2010 grant, which vests 50% 18 months after grant and 50% on the third anniversary of grant, and (iv) Mr. Thomas’ 8/15/2011 grants, which vest as described above in footnote (1) to the fiscal 2011 grants of plan based awards table above. Mr. Broenen’s 2008 and 2010 RSU grants also have a 5-year vesting schedule.

Fiscal 2011 options exercised and stock vested

	Option awards				Stock awards
Named Executive Officer	Number of shares acquired on exercises(#)(1)		Value realized on exercise($)(1)		Number of shares acquired on vesting(#)(2)		Value realized on vesting($)(2)
Larry Thomas		—	$	—		—	$	—
Jim Broenen		—	$	—		67	$	66,129
Mark Van Vleet		—	$	—		—	$	—
Andrew M. Rossi		—	$	—		—	$	—
Gordon L. T. Raison		—	$	—		—	$	—

(1) No options were exercised by any Named Executive Officers in fiscal 2011.

(2) Mr. Broenen received 67 shares upon vesting of a restricted stock unit. He used 21 shares to pay the taxes on vesting and netted 46 shares. The realized share price at the time of distribution was $987 per share.

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Estimated benefits and payments upon termination of employment or change of control

This section describes potential payments that our Named Executive Officers may be entitled to receive upon termination of their employment or upon a change of control of the company. As described above in the section titled “—Employment agreements and severance arrangements”, Messrs Thomas, Broenen, Van Vleet, and Raison have termination provisions in their respective employment agreements. Mr. Rossi does not have an employment agreement and would be subject to our standard severance policy.

For purposes of the Named Executive Officers’ employment agreements, our Annual Incentive Plan and the stock option awards that have been made to our Named Executive Officers (other than awards made under our 1997 Stock Option Plan, all of which have vested), “change of control” is generally defined as:

• During any period of not more than two years, a change in the majority of the Board, other than directors who are (A) the members of the Board as of August 21, 2008 and (B) any director whose appointment or nomination was approved by at least a majority of such directors then on the Board.

• There is a beneficial owner of securities entitled to 30% or more of the total voting power of our then-outstanding securities in respect of the election of the Board, other than by (A) us, any of our subsidiaries or any employee benefit plan or related trust sponsored or maintained by us or any of our subsidiaries; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of voting securities as a result of certain excluded transactions.

• Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving us or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of our consolidated assets, other than certain excluded transactions.

• Our stockholders approve a plan of complete liquidation or our dissolution.

Under the employment agreements with Messrs. Thomas, Van Vleet and Broenen, “cause” and “good reason” are generally defined as follows:

“Cause” generally means the executive’s (i) misappropriation of company funds or property, (ii) conviction of, or plea of guilty or no contest to a felony, another fraudulent act or a misdemeanor involving moral turpitude, (iii) continued failure to substantially perform his duties after notice and an opportunity to cure the failure, (iv) commission of an act of dishonesty, insubordination or gross misconduct, (v) commission of an act detrimental to our interests, or (vi) material breach of the terms of his employment agreement or breach of any applicable restrictive covenants.

“Good reason” generally means: (i) a material reduction in base salary or target incentive opportunity, (ii) a material diminution in the executive’s authority, duties and responsibilities, (iii) for Mr. Thomas, a requirement that he report to someone other than the Board, and for Messrs. Van Vleet and Broenen, a material reduction in their supervisor’s authority, duties or responsibilities, (iv) a material diminution in the budget over which the executive has authority, (v) a material change in geographic location of the executive’s position or (vi) a material breach of the employment agreement by the company.

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Mr. Raison’s employment agreement does not provide for termination for good reason, and “cause” under his agreement is generally defined as follows: Mr. Raison’s (i) material or repeated breach of the terms of his employment agreement (after notice is given), (ii) gross misconduct or willful neglect of his duties, (iii) fraud, dishonesty or an act harming his or our reputation, (iv) personal bankruptcy or entering of an order related to his personal insolvency, (v) conviction for a criminal offense reasonably expected to impact his performance of his duties or certain other criminal convictions, (vi) disqualification from holding his position with us, or his resignation or his ceasing to be eligible to be one of our managing directors, or (vii) becoming of unsound mind.

The following table describes the potential payments and benefits upon termination of our Named Executive Officers’ employment in the absence of or following a change of control of the company as described above, as if each officer’s employment terminated as of January 1, 2012. No column is included below for termination of an executive’s employment by us for cause, because no severance or health and welfare continuation benefits or equity vesting would be provided under those circumstances.

Fiscal 2011 potential payments upon termination or change in control

Named Executive Officer	Benefits and payments	Termination by company without cause ($)(1)		Employee resignation for good reason ($)(1)		Termination due to death ($)(1)		Termination due to disability ($)(1)		Change of control and no termination ($)(1)(2)		Change of control and qualifying termination ($)(1)
Larry E Thomas	Cash Severance(3)		1,200,000		1,200,000		834,462		846,000		—		1,200,000
	Acceleration of equity awards(4)		—		—		3,074,900		3,074,900		3,074,900		—
	Health and Welfare Continuation(5)		43,512		43,512		—		—		—		43,512
James S Broenen	Cash Severance(6)		367,453		367,453		184,283		249,860		—		734,907
	Acceleration of equity awards(7)		—		—		786,078		786,078		786,078		—
	Health and Welfare Continuation(8)		16,285		16,285		—		—		—		32,570
Mark D Van Vleet	Cash Severance(9)		317,670		317,670		142,880		200,675		—		635,341
	Acceleration of equity awards(10)		—		—		77,252		77,252		77,252		—
	Health and Welfare Continuation(11)		21,756		21,756		—		—		—		43,512
Andrew M. Rossi	Cash Severance(12)		229,518		—		—		—		—		229,518
	Acceleration of equity awards(13)		—		—		171,670		171,670		171,670		—
	Health and Welfare Continuation(14)		6,962		—		—		—		—		6,962
Gordon L. T. Raison	Cash Severance(15)		53,919		—		—		—		—		53,919
	Acceleration of equity awards(16)		—		—		94,419		94,419		94,419		—
	Health and Welfare Continuation (17)		—		—		—		—		—		—

(1) For the purposes of quantifying payments, the triggering event is assumed to take place on the last day of fiscal 2011. The amounts above exclude amounts for accrued and unpaid salary.

(2) The Named Executive Officers’ employment agreements do not provide for any payments solely due to a change in control of the company. A change in control will, however, accelerate equity awards in accordance with the plan documentation and the definition of a change in control, as described above in “—Long-Term Incentive Awards.”

(3) For Mr. Thomas, the amount presented under cash severance not in the context of a change of control is his base salary through the remainder of the employment agreement term (December 31, 2013), based on his employment agreement as in

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effect at the end of fiscal 2011. The amount of cash severance upon a qualifying termination after a change of control is two times his fiscal 2011 annual salary. We did not include his salary for the 90-day notice period, which we may pay in lieu of notice, under either of these scenarios. Upon termination as a result of death, Mr. Thomas would have received three months’ base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan. In the event of termination of his employment due to disability, he would have received 13 weeks’ of base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan.

(4) The acceleration of equity awards represents the spread value or difference between the exercise price and the value of the awards as of January 1, 2012 (which were valued at $1,159 per share) that would vest as of the change in control. Mr. Thomas’ employment agreement does not include acceleration upon termination by the company without cause, or if Mr. Thomas resigns for good reason. However, under his stock option award agreements, his options would vest upon termination of his employment due to death or disability, assuming performance vesting conditions are met. For purposes of this table, performance vesting conditions were assumed to have been satisfied.

(5) For Mr. Thomas, he and his current spouse will have access to retiree medical benefits under our medical plan until the later of Mr. Thomas’ or his spouse’s death and will pay the cost of those benefits (those benefits will be secondary to Medicare). Should Mr. Thomas be terminated without cause of if he terminates his employment for good reason, he would also be entitled to COBRA reimbursement for the remainder of his employment agreement term.

(6) For Mr. Broenen, the amount presented under cash severance is one-times his annual compensation, which is defined as one times his base salary and the average of his last three annual incentive plan payments. For a qualifying termination following a change in control, Mr. Broenen would receive two times his annual compensation. We did not include his salary for the 90-day notice period, which we may pay in lieu of notice, under either of these scenarios. Upon termination as a result of death, Mr. Broenen would have received two weeks’ of base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan. In the event of termination of his employment due to disability, he would have received 13 weeks’ of base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan.

(7) The acceleration of equity awards represents the spread value or difference between the exercise price and the value of the awards as of January 1, 2012 (which were valued at $1,159 per share) that would vest as of the change in control. Mr. Broenen’s employment agreement does not include acceleration upon termination by the company without cause, or if Mr. Broenen resigns for good reason. However, under his stock option and RSU award agreements, his awards would vest upon termination of his employment due to death or disability.

(8) Mr. Broenen’s employment agreement also provides for reimbursement of COBRA premiums for one year upon a termination by us without cause or by him for good reason in the absence of a change of control and two years upon a qualifying termination following a change of control.

(9) For Mr. Van Vleet, the amount presented under cash severance is one-times his annual compensation, which is defined as one times his base salary and the average of his last three year annual incentive plan payments. For a qualifying termination following a change in control, Mr. Van Vleet would receive two times his annual compensation. We did not include his salary for the 90-day notice period, which we may pay in lieu of notice, under either of these scenarios. Upon termination as a result of death, Mr. Van Vleet would have received two weeks’ of base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan. In the event of termination of his employment due to disability, he would have received 13 weeks’ of base salary under his employment agreement and his fiscal 2011 annual incentive under the terms of our Annual Incentive Plan.

(10) The acceleration of equity awards represents the spread value or difference between the exercise price and the value of the awards as of January 1, 2012 (which were valued at $1,159 per share) that would vest as of the change in control. Mr. Van Vleet’s employment agreement does not include acceleration upon termination by us without cause, or if Mr. Van Vleet resigns for good reason. However, under the terms of Mr. Van Vleet’s stock option award agreements, his options vest upon a termination of employment due to his death or disability.

(11) Mr. Van Vleet’s employment agreement also provides for reimbursement of COBRA premiums for one year upon a termination by the company without cause or by him for good reason in the absence of a change of control and two years upon a qualifying termination following a change of control.

(12) For Mr. Rossi, the amount presented under cash severance is one-times his base salary under our standard severance policy and includes $2,500 for outplacement services.

(13) The acceleration of equity awards represents the spread value or difference between the exercise price and the value of the awards as of December 31, 2011 (which are valued at $1,159 per share) that would vest as of the change in control. Under the terms of Mr. Rossi’s stock option award agreements, his options would vest upon termination of his employment due to death or disability.

(14) Our standard severance practice in fiscal 2011 included 5 months of COBRA reimbursement.

(15) For Mr. Raison, the amount presented under cash severance is three months’ base salary in accordance with his employment agreement. Additional severance would be negotiated pursuant to UK law and the cash severance benefit may be greater.

(16) The acceleration of equity awards represents the spread value or difference between the exercise price and the value of the awards as of January 1, 2012 (which were valued at $1,159 per share) that would vest as of the change in control. Mr. Raison’s employment agreement does not include acceleration upon termination by the company without cause. However, under the terms of Mr. Raison’s stock option award agreements, his options would vest upon termination of his employment due to death or disability.

(17) Mr. Raison’s employment agreement does not have a health and welfare component.

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Equity benefit plans

2007 amended and restated equity compensation plan

Our 2007 Equity Compensation Plan was first adopted by our board of directors on December 27, 2007, and was most recently amended on June 8, 2011. The 2007 Equity Compensation Plan has been approved by our stockholders. The 2007 Equity Compensation Plan replaced our 2001 Equity Compensation Plan. No further option grants or other awards will be made under our 2001 Equity Compensation Plan or our 1997 Stock Option Plan. The options outstanding after this offering under the 2001 Equity Compensation Plan and the 1997 Stock Option Plan will continue to be governed by their existing terms.

Administration:    The compensation committee of our board of directors administers the 2007 Equity Compensation Plan. The compensation committee has full authority to administer the 2007 Equity Compensation Plan, including authority to determine who will be eligible to receive awards under the plan, the time, amount and type of awards that may be granted under the plan and to interpret any provisions of the plan or awards that are made under the plan. Pursuant to this authority, on or after the date that an award is made under the plan, the compensation committee may also accelerate the date on which any such award becomes vested, exercisable or transferable, as the case may be.

Share reserve:    A maximum of 84,836 shares of our common stock are issuable under the plan. This maximum will be reduced by the sum of the shares that have been issued pursuant to our 1997 Stock Option Plan and our 2001 Equity Compensation Plan, as well as shares underlying options that are outstanding under those prior plans. In general, if options or other awards that are granted under the 2007 Equity Compensation Plan terminate, expire or are canceled, forfeited, exchanged or surrendered without having been exercised, the shares subject to those grants will again be made available for issuance through the plan. As of January 1, 2012, 300 restricted stock units and options to purchase 47,226 shares were outstanding under the 2007 Equity Compensation Plan.

Eligibility:    Employees, non-employee members of our or any of our subsidiaries’ board of directors and consultants and other independent advisors who provide services to us not in connection with the offer or sale of securities in a capital-raising transaction are eligible to participate in the plan.

Types of awards.    The plan provides for the following types of awards:

• incentive and nonqualified stock options to purchase shares of our common stock;

• restricted shares of our common stock;

• performance shares;

• stock appreciation rights;

• dividend equivalent rights;

• restricted stock units; and

• cash awards.

Options:    Incentive options may only be granted to employees. Nonqualified options may be granted to any individual who is entitled to participate in the plan. The exercise price of an

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incentive option must be equal to or greater than the fair market value of a share on the date of the option grant. The exercise price of an incentive option granted to a participant who is a 10% stockholder on the date of the grant cannot be less than 110% of the fair market value of a share on the date of the grant. Optionees may pay the exercise price by using cash or cash equivalents, shares of our common stock that have been held for the requisite period to avoid a charge to our company’s earnings for financial reporting purposes or an immediate sale of the option shares through a broker designated by us.

No option granted under the plan may have a term in excess of ten years, except that in the case of incentive options granted to 10% or greater stockholders, the options may have a maximum term of five years. Options will automatically terminate three months after the participant ceases to remain in service for any reason other than death, disability or misconduct. Options will terminate 12 months following disability or death. All options terminate immediately upon a participant’s termination for misconduct.

The aggregate fair market value (determined as of the date of grant) of shares for which incentive options granted to any employee may become exercisable during any one calendar year may not exceed $100,000.

Options granted under the plan may be exercisable for unvested shares. Should the participant cease service while holding unvested shares, we may repurchase all unvested shares at the exercise price paid per share.

Restricted shares and stock units:    Restricted shares may be awarded under the 2007 Equity Compensation Plan in return for such form of payment as the compensation committee determines. Restricted shares vest at the times determined by the compensation committee. Restricted shares may be voted and recipients have the right to receive dividends or other distributions.

Stock units also may be awarded under the 2007 Equity Compensation Plan. No cash consideration will be required of the award recipients. Each award of stock units may or may not be subject to vesting, and vesting, if any, shall occur upon satisfaction of the conditions specified by the compensation committee. Settlement of vested stock units may be made in the form of cash, shares of our common stock or a combination of both.

Performance shares:    Performance shares, which are a right to payment contingent upon the achievement of specified performance goals during a performance period, also may be awarded under our 2007 Equity Compensation Plan. Settlement of performance shares may be settled in the form of cash, shares of our common stock or a combination of both.

Stock appreciation rights:    Stock appreciation rights, or SARs, may be awarded under the 2007 Equity Compensation Plan, either independently or in tandem with a related stock option. Tandem SARs may be granted at the time of an option grant or any time thereafter while the option remains outstanding. Tandem SARs granted in relation to an incentive option may only be granted at the time of the incentive option grant. A SAR is redeemable for a cash amount equal to the fair market value of the underlying share on the date of exercise less the base amount of the SAR. A SAR that is granted in tandem with an option terminates when the related option is exercised. The appreciation in a SAR may be paid in cash, shares of our common stock or a combination of both.

Dividend equivalent rights:    Dividend equivalent rights, or DERs, may be granted either independently or in conjunction with an option, and remain payable only while the participant is

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an employee of or providing services to us. DERs granted as qualified performance-based compensation for the purposes of Section 162(m) of the Internal Revenue Code in conjunction with an option will be payable regardless of whether the related option is exercised. Payment on these rights is made in cash, shares of our common stock or a combination of both.

Right of first refusal:    Until the shares are registered under the Securities Exchange Act of 1934, as amended, we have the right of first refusal with respect to any proposed sale or disposition of shares received by a participant under the plan.

Cash awards:    The compensation committee may grant cash awards to participants based upon the attainment of performance goals.

Performance-based compensation:    The compensation committee may grant restricted shares, performance shares, restricted stock units and cash awards that are intended to qualify under the requirements of Section 162(m) of the Internal Revenue Code as performance-based compensation. In this case, the performance goals must be established in writing and must set (i) objective goals, (ii) the term during which these goals must be met, (iii) the threshold, target and maximum amounts payable if these goals are met, and (iv) all other conditions, including those related to death or disability. These goals must be set no later than 90 days after the beginning of the performance period or the date on which 25% of the performance period has been completed, whichever is earlier.

Change of control:    In the event of a “change of control” of the company (as described in “—Compensation discussion and analysis—Potential payments upon termination or change in control (year-end 2011)” awards under the plan will fully vest, unless the applicable award agreement provides otherwise. Our compensation committee has the discretion to cancel awards under the plan and cash them out in the event of a change of control, provided the awards are not assumed.)

Amendments or termination:    Our board of directors may generally amend or terminate the 2007 Equity Compensation Plan at any time. If our board of directors amends the plan, it is not required to obtain stockholder approval of the amendment unless required by applicable law. The 2007 Equity Compensation Plan generally will continue in effect for ten years from its adoption date.

2001 equity compensation plan

Our 2001 Equity Compensation Plan was adopted by our board of directors and approved by our stockholders effective December 28, 2001, and amended on February 25, 2003, and July 27, 2005. The 2001 Equity Compensation Plan provides for the grant of incentive stock options to our employees, and for the grant of nonqualified stock options, restricted shares, performance shares, SARs, DERs and cash awards to employees, non-employee members of our or our subsidiaries’ board of directors and consultants who provide services to us not in connection with the offer or sale of securities in a capital-raising transaction. Effective on the adoption of our 2007 Equity Compensation Plan in December 2007, no further awards have been made under our 2001 Equity Compensation Plan. Options outstanding under the 2001 Equity Compensation Plan continue to be governed by their existing terms. As of January 1, 2012, options to purchase 4,932 shares of common stock were outstanding under the 2001 Equity Compensation Plan. If options or shares awarded under our 2001 Equity Compensation Plan are forfeited or repurchased, then those options or shares will again become available for awards under our 2007 Equity Compensation Plan.

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If we are party to a merger and our stockholders are not the owners of 20% of the combined voting power or value of the equity interests of the resulting entity, or if we dispose of all or substantially all of our assets to another entity and our stockholders do not own more than 20% of the combined voting power or value of the purchasing entity, or if a third party purchases 80% or more of our outstanding shares, in each case while unexercised options are outstanding, our board of directors may, in its discretion, waive any vesting restrictions under the plan and provide for cancellation and cash out of outstanding options. Unless our compensation committee determines otherwise, all outstanding grants that are not exercised or purchased by us prior to the closing of the applicable transaction must be assumed by, or replaced with comparable options or rights by, the surviving entity.

All outstanding options under our 2001 Stock Option Plan are fully vested.

1997 stock option plan

Our 1997 Stock Option Plan was adopted by our board of directors and approved by our stockholders effective March 1, 1997, and terminated on December 28, 2001. The 1997 Stock Option Plan provided for the grant of incentive stock options to our employees, and for the grant of nonqualified stock options to employees, non-employee members of our or our subsidiaries’ board of directors and independent contractors. Effective on the adoption of our 2001 Equity Compensation Plan in December, 2001, no further awards were made under the 1997 Stock Option Plan. Options outstanding under the 1997 Stock Option Plan continue to be governed by their existing terms. As of January 1, 2012, options to purchase 15,353 shares of common stock were outstanding under our 1997 Stock Option Plan. If options awarded under our 1997 Plan are forfeited or repurchased, then those options will again become available for awards under our 2007 Equity Compensation Plan.

All outstanding options under our 1997 Stock Option Plan are fully vested.

Summary of tax treatment of participation in equity plans

Following is a summary of the U.S. federal income tax consequences of participating in our equity plans, depending on the type of award.

Incentive stock options:    A participant will not be subject to tax upon the grant of an incentive stock option, or an ISO, or upon the exercise of an ISO. However, the excess of the fair market value of the shares on the date of exercise over the exercise price paid will be included in alternative minimum taxable income, if applicable. The participant’s basis in the shares received will be equal to the exercise price paid, and the holding period in such shares will begin on the day following the date of exercise. If the participant disposes of the shares on or after the later of (i) the second anniversary of the date of grant of the ISO and (ii) the first anniversary of the date of exercise of the ISO, or the statutory holding period, he or she will recognize a capital gain or loss in an amount equal to the difference between the amount realized on such disposition and the basis in the shares. If the participant disposes of the shares before the end of the statutory holding period, he or she will have engaged in a “disqualifying disposition” and, as a result, will be subject to tax:

1) on the excess of the fair market value of the shares on the date of exercise (or the amount realized on the disqualifying disposition, if less) over the exercise price paid, as ordinary income, and

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2) on the excess, if any, of the amount realized on such disqualifying disposition over the fair market value of the shares on the date of exercise, as capital gain.

If the amount the participant realizes from a disqualifying disposition is less than the exercise price paid (i.e., basis) and the loss sustained upon such disposition would otherwise be recognized, the participant will not recognize any ordinary income from such disqualifying disposition and instead will recognize a capital loss. In the event of a disqualifying disposition, the amount recognized by the participant as ordinary income is generally deductible by us.

Nonqualified stock options:    A participant will not be subject to tax upon the grant of an option which is not intended to be (or does not qualify as) an ISO (a “nonqualified stock option”). Upon exercise of a nonqualified stock option, an amount equal to the excess of the fair market value of the shares acquired on the date of exercise over the exercise price paid is taxable to the participant as ordinary income, and such amount is generally deductible by us. This amount of income will be subject to income tax withholding and employment taxes. The participant’s basis in the shares received will equal the fair market value of the shares on the date of exercise, and the participant’s holding period in such shares will begin on the day following the date of exercise.

Stock appreciation rights:    A participant will not be subject to tax upon the grant of a stock appreciation right. Upon exercise of a stock appreciation right, an amount equal to the cash received will be taxable to the participant as ordinary income, and such amount generally will be deductible by us. This amount of income will be subject to income tax withholding and employment taxes.

Restricted shares or performance shares:    The participant will not be subject to tax upon receipt of an award of restricted shares or performance shares subject to forfeiture conditions and transfer restrictions (the “restrictions”), unless the participant makes the election referred to below. Upon lapse of the restrictions, the participant will recognize ordinary income equal to the fair market value of the shares on the date of lapse, and such income will be subject to income tax withholding and employment taxes. The participant’s basis in the shares received will be equal to the fair market value of the shares on the date the restrictions lapse, and the participant’s holding period in such shares begins on the day after the restrictions lapse. If any dividends are paid on such shares prior to the lapse of the restrictions, they will be includible in the participant’s income during the restricted period as additional compensation (and not as dividend income) and will be subject to income tax withholding and employment taxes.

A participant may elect, within 30 days after the date of the grant of restricted shares or performance shares, to recognize immediately (as ordinary income) the fair market value of the shares awarded, determined on the date of grant (without regard to the restrictions). Such income will be subject to income tax withholding and employment taxes at such time. This election is made pursuant to Section 83(b) of the Internal Revenue Code. If a participant makes this election, the holding period will begin the day after the date of grant, dividends paid on the shares will be subject to the normal rules regarding distributions on stock, and no additional income will be recognized upon the lapse of the restrictions. However, if the participant forfeits the restricted shares before the restrictions lapse, no deduction or capital loss will be available to (even though the participant previously recognized income with respect to such forfeited shares). In the taxable year in which the participant recognizes ordinary income on account of shares awarded to the participant, we generally will be entitled to a deduction equal to the amount of income recognized by the participant. In the event that the restricted shares are forfeited after

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having made the Section 83(b) election referred to above, we generally will include in our income the amount of our original deduction.

Restricted stock units:    A participant will not be subject to tax upon the grant of a restricted stock unit. Upon vesting of the restricted stock unit, the fair market value of the shares covered by the award on the vesting date will be subject to employment taxes. Upon distribution of the shares underlying the restricted stock units, the participant will recognize as ordinary income an amount equal to fair market value (measured on the distribution date) of the shares received, and such amount will generally be deductible by us. This amount of income will generally be subject to income tax withholding on the date of distribution. The participant’s basis in any shares received will be equal to the fair market value of the shares on the date of distribution, and the holding period in such shares will begin on the day following the date of distribution. If any dividend equivalent amounts are paid to a participant, they will be includible in income as additional compensation (and not as dividend income) and will be subject to income and employment tax withholding.

Disposition of shares:    Unless stated otherwise above, upon the subsequent disposition of shares acquired under any of the preceding awards, the participant will recognize capital gain or loss based upon the difference between the amount realized on such disposition and his or her basis in the shares, and such amount will be long-term capital gain or loss if such shares were held for more than 12 months.

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Transactions with related persons

In addition to the compensation arrangements with our directors and executive officers and the registration rights described elsewhere in this prospectus, the following is a description of each transaction since December 29, 2008, and each currently proposed transaction in which:

• we have been or are to be a participant;

• the amount involved exceeds or will exceed $120,000; and

• any of our directors, executive officers or holders of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals (other than tenants or employees), had or will have a direct or indirect material interest.

Stockholders’ agreement

In 2001, we entered into an amended and restated stockholders’ agreement with several of our stockholders, including entities affiliated with Weston Presidio, the selling stockholders, as well as all of our directors and executive officers. In addition, upon exercise of stock options or receipt of shares in connection with the distribution of restricted stock unit awards, our current option holders also become party to this agreement. Pursuant to the stockholders’ agreement, we granted stockholders certain registration rights, which are summarized in “Description of capital stock—Registration rights.” In addition to the registration rights, the stockholders’ agreement also provides for, among other things, certain information rights, certain rights of William L. Mendello to require us to repurchase his shares of capital stock, repurchase rights in our favor in respect of certain employee stockholders parties to the agreement, rights with respect to the designation of the members of our board of directors, rights of first offer with respect to future issuances by us of our equity securities and certain rights that permit the holders of certain of our shares to require a sale of the company. The provisions of the stockholders’ agreement, other than those relating to registration rights, will terminate upon the closing of this offering. The full text of the agreement is filed as Exhibits 4.2 and 4.3 to the registration statement of which this prospectus forms a part.

Indemnification agreements

We have entered into indemnification agreements with each of our directors and executive officers, as well as a separate form of indemnification agreement with entities affiliated with Weston Presidio and Michael Lazarus. These agreements are described in the section titled “Management—Limitation of liability and indemnification.”

Stock option and restricted stock unit grants

We have granted stock options to purchase shares of our common stock to our executive officers and directors. See “Management—Director compensation” and “Management—Objectives of our compensation program—Executive compensation,” and “Principal and selling stockholders” elsewhere in this prospectus.

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Distribution agreements

Following the termination of a joint venture in Japan with two of our greater than 5% stockholders and their affiliates, Kanda Shokai Co., Ltd. and Yamano Music Co., Ltd., we entered into distribution agreements with each of these entities.

Pursuant to a distribution agreement most recently amended in April 2010, we granted Kanda Shokai the exclusive right to distribute certain of our products, including Japanese-manufactured Fender products and Gretsch products, within the country of Japan. Under the distribution agreement, we received $10.5 million, $15.2 million and $16.9 million from Kanda Shokai for each of fiscal 2009, 2010 and 2011, respectively. For fiscal 2012, the annual minimum purchase amount under the agreement is $15.0 million and as of January 29, 2012, we have received $1.6 million from Kanda Shokai in fiscal 2012. The agreement terminates on December 31, 2012. However, we are obligated to renew the agreement for successive one-year terms if Kanda Shokai meets certain minimum purchase thresholds and otherwise complies with the terms of the agreement.

Pursuant to a distribution agreement most recently amended in March 2005, we granted Yamano the exclusive right to distribute certain of our products, including certain Fender, Jackson, Charvel and Guild products, in Japan. Under the distribution agreement, we received $12.8 million, $14.6 million and $19.7 million from Yamano for each of fiscal 2009, 2010 and 2011, respectively. For fiscal 2012, the annual minimum purchase amount under the agreement is $17.5 million and as of January 29, 2012, we have received $1.7 million from Yamano in fiscal 2012. The agreement terminates on December 31, 2012, but will be renewed automatically for successive three-year terms unless either we or Yamano fails to comply with certain specified conditions.

Pursuant to a joint venture agreement with Yamano dated February 2, 2000, we and Yamano created a 50-50 joint venture company in Japan, K.K. Fender Promotion, for the purpose of promoting our products in Japan. Under the joint venture agreement, we paid Yamano $126,000, $142,000 and $159,000 in fiscal 2009, 2010 and 2011, respectively. This agreement has no fixed term.

We are in the process of finalizing the terms of an agreement with Cordoba Music Group, or Cordoba, pursuant to which Cordoba will supply us with guitar cases. The son of our CEO is the President of Cordoba. In fiscal 2012, we anticipate purchasing approximately $515,000 of products from Cordoba.

Review, approval or ratification of transactions with related persons

On February 12, 2012, our board of directors adopted a policy with respect to related person transactions, to take effect immediately prior to the completion of our initial public offering. This policy requires that certain transactions, subject to specified exceptions and other than ones that involve compensation, between us and any of our directors, executive officers or beneficial holders of more than 5% of our capital stock, or any immediate family member of, or person sharing the household with, any of these individuals, be subject to pre-approval or ratification by the audit committee of our board of directors. In determining whether to approve a related person transaction, the audit committee will consider the following factors where relevant:

• whether the terms of the transaction are fair to us and on terms at least as favorable as would apply if the transaction did not involve a related person;

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• whether there are demonstrable business reasons for us to enter into the transaction;

• whether the transaction would impair the independence of an otherwise independent director under our director independence guidelines;

• whether the transaction would present an improper conflict of interest for any of our directors or executive officers, taking into account (i) the size of the transaction, (ii) the overall financial position of the director or executive officer, (iii) the direct or indirect nature of the director’s or executive officer’s interest in the transaction, and (iv) the ongoing nature of any proposed relationship; and

• any other factors the audit committee deems relevant.

Transactions entered into prior to our initial public offering were not subject to this policy.

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Principal and selling stockholders

The following table presents information concerning the beneficial ownership of the shares of our common stock as of January 1, 2012, and as adjusted to reflect the sale of shares of common stock in this offering, by:

• each person or group of affiliated persons we know to be the beneficial owner of 5% of more of our outstanding shares of common stock;

• each of our named executive officers;

• each of our directors;

• all of our current executive officers and directors as a group; and

• each selling stockholder.

The following table lists the number of shares and percentage of shares beneficially owned based on 196,112 shares of common stock outstanding as of January 1, 2012. This number reflects (i) the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock immediately upon the closing of this offering and (ii) the effectiveness of amendments to our certificate of incorporation, effective as of March 5, 2012, which redesignated our class A common stock as common stock on a share-for-share basis.

The table also lists the applicable percentage beneficial ownership based on shares of common stock outstanding upon completion of this offering, assuming no exercise of the underwriters’ option to purchase up to an aggregate of                  shares of our common stock from certain selling stockholders.

Beneficial ownership is determined under the rules of the SEC, and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. Shares of common stock subject to options that are currently exercisable or exercisable within 60 days of January 1, 2012 are considered outstanding and beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person. Restricted stock units may be settled, at the option of our compensation committee, in shares of common stock or cash and, accordingly, are not considered in calculating beneficial ownership. Unless otherwise indicated, the address of each individual listed below is c/o Fender Musical Instruments Corporation, 17600 North Perimeter Drive, Suite 100, Scottsdale, Arizona 85255.

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	Share beneficially owned prior to the offering					Shares being offered		Shares subject to option to purchase additional shares	Shares beneficially owned after the offering (no exercise of option to purchase additional shares)			Shares beneficially owned after the offering (with full exercise of option to purchase additional shares)
Name and address of beneficial owner	Number		Percent						Number		Percent	Number	Percent
Greater than 5% stockholders
Entities affiliated with Weston Presidio (1)		84,176		42.92	%
Yamano Music Co., Ltd. (2)		28,000		14.28
Kanda Shokai Corporation (3)		25,200		12.85
William Charles Schultz and Mary Jane Schultz, Trustees of the Bill and Mary Jane Schultz Family Trust (4)		11,363		5.79
Directors and executive officers
Larry E. Thomas (5)		3,475		1.74
Conrad A. Conrad (6)		95		*
Mark H. Fukunaga (7)		75		*
Kenneth L. Goodson Jr (8).		75		*			—			—
Donald Haider (9)		75		*
Michael P. Lazarus (10)		84,251		42.94
William L. Mendello (11)		9,620		4.79
Robert C. Wood
James S. Broenen (12)		569		*
Mark D. Van Vleet (13)		1500		*
Andrew M. Rossi (14)		1350		*
Gordon L. T. Raison (15)		490
All current directors and executive officers as a group (13 persons) (16)		102,375		48.93
Selling stockholders

 * Less than 1% of the outstanding shares of common stock.

(1) Represents 57,776 shares of common stock held by Weston Presidio Capital IV, or WP IV, L.P., 24,288 shares of common stock held by Weston Presidio Capital III, or WP III, L.P., 1,198 shares held by WPC Entrepreneur Fund, L.P., or WP EF, and 914 shares of common stock held by WPC Entrepreneur Fund II, L.P., or WP EF II. The general partner of WP IV and WP EF II is Weston Presidio Capital Management IV, LLC, whose managing members are Michael F. Cronin and Michael P. Lazarus. The general partner of WP III and WP EF is Weston Presidio Capital Management III, LLC, whose managing members are Michael F. Cronin and Michael P. Lazarus. As managing members of the two general partners, Messrs. Cronin and Lazarus have dispositive, voting or investment control over the Weston Presidio funds that own the securities to be sold. Each of Messrs. Cronin and Lazarus disclaims any beneficial ownership of any shares beneficially owned by the above-named Weston Presidio funds, except to the extent of his pecuniary interest therein. Mr. Lazarus is also a member of our board of directors. The address of Mr. Lazarus and the above-named Weston Presidio funds is One Ferry Building, Suite 350, San Francisco, CA 94111. Mr. Cronin’s address is 200 Clarendon Street, 50th Floor, Boston, MA 02116.

(2) Yamano Music Co., Ltd. distributes FMIC products in Japan. The address of Yamano Music Co., Ltd., is Yamano Music Co., Ltd., Attn: Masamitsu Yamano, 5-6, 4-Chome Ginza 3.10.5, Chuo-U, Tokyo 104 Japan. We are also a party to a joint venture agreement with Yamano. See “Transactions with related persons.”

(3) Kanda Shokai Corporation distributes FMIC products in Japan. The address of Kanda Shokai Corporation is Kanda Shokai, 3-4-2 Kanda Kaji-cho, Chiyoda-ku, Tokyo 101-0045 Japan. See “Transactions with related persons.”

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(4) Mary Jane Schultz has sole voting and dispositive power over these shares as trustee of the Schultz Family Trust. The address of the Schultz Family Trust is c/o Fennemore Craig, 3003 North Central Avenue, Suite 2600, Phoenix, AZ 85012.

(5) Includes 3,375 shares subject to options that are exercisable within 60 days of January 1, 2012.

(6) Includes 95 shares subject to options that are exercisable within 60 days of January 1, 2012.

(7) Excludes 8,974 shares owned by Servco Pacific Inc., of which Mr. Fukunaga is Chairman and CEO. Includes 75 shares subject to options that are exercisable within 60 days of January 1, 2012.

(8) Includes 75 shares subject to options that are exercisable within 60 days of January 1, 2012.

(9) Includes 75 shares subject to options that are exercisable within 60 days of January 1, 2012.

(10) Includes shares owned by the above-named Weston Presidio funds. See footnote (1) above regarding Mr. Lazarus’ relationship with Weston Presidio. Mr. Lazarus disclaims any beneficial ownership of any shares beneficially owned by the above-named Weston Presidio funds, except to the extent of his pecuniary interest therein. Includes 75 shares subject to options that are exercisable within 60 days of January 1, 2012.

(11) Includes 4,700 shares subject to options that are exercisable within 60 days of January 1, 2012.

(12) Includes 523 shares subject to options that are exercisable within 60 days of January 1, 2012 but excludes 40 vested restricted stock units which may be settled, at the option of the compensation committee in shares of common stock or cash.

(13) Consists of 1,500 shares subject to options that are exercisable within 60 days of January 1, 2012.

(14) Consists of 1,350 shares subject to options that are exercisable within 60 days of January 1, 2012.

(15) Consists of 490 shares subject to options that are exercisable within 60 days of January 1, 2012.

(16) Includes 13,133 shares of common stock issuable upon exercise of options exercisable within 60 days of January 1, 2012.

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Description of capital stock

General

The following is a summary of our capital stock and certain provisions of our certificate of incorporation and bylaws, as they will be in effect upon the closing of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus forms a part.

Immediately following the closing of this offering, our authorized capital stock will consist of shares of common stock, par value $0.01 per share, and                  shares of preferred stock, par value $0.01 per share.

Common stock

As of January 1, 2012, after giving effect to the automatic conversion of our class B common stock and class C common stock into an aggregate of 86,418 shares of common stock immediately upon the closing of the offering, there were 196,112 shares of our common stock outstanding held of record by 75 stockholders, which excludes as of January 1, 2012:

• 67,511 shares of common stock issuable upon exercise of options outstanding at a weighted average exercise price of $953 per share;

• restricted stock units, representing the right at the option of the company to deliver 300 shares of common stock, of which 60 restricted stock units have vested; and

•                  shares of our common stock reserved for future issuance under equity compensation plans, consisting of                  shares of common stock reserved for issuance under our 2012 Equity Compensation Plan, which will become effective upon completion of this offering, and 7,783 additional shares reserved for issuance under our 2007 Equity Compensation Plan. On the date of this prospectus, any remaining shares available for issuance under our 2007 Equity Compensation Plan will be added to the shares to be reserved under our 2012 Equity Compensation Plan and we will cease granting awards under our 2007 Equity Compensation Plan.

After giving effect to the sale of the shares of common stock offered in this prospectus to the public, there will be                  shares outstanding, assuming no exercise after January 1, 2012 of outstanding options or issuance of common stock with respect to outstanding restricted stock units.

Holders of common stock are entitled to one vote per share on all matters submitted to stockholders and do not have cumulative voting rights. Holders of common stock are entitled to receive proportionately such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available, subject to preferences that may be applicable to preferred stock, if any, then outstanding. See “Dividend policy.” In the event of a liquidation, dissolution or winding up of our company, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to any preferential dividend rights of preferred stock, if any, then outstanding. Holders of common stock have no preemptive, conversion, subscription or redemption rights. All outstanding shares of common stock are duly authorized, validly issued, fully paid and non-assessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and non-assessable.

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Preferred stock

Our board of directors is authorized to issue preferred stock in one or more series, to establish the number of shares to be included in each such series and to fix the designation and powers, preferences and rights of such shares, and the qualifications, limitations, and restrictions thereof. The issuance of our preferred stock may have the effect of delaying, deterring or preventing a change in control of our company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any preferred stock.

Registration rights

After the completion of this offering, holders of                  shares of common stock will be entitled to rights with respect to the registration of those shares under the Securities Act. The holders of these registrable securities possess registration rights pursuant to the terms of the Third Amended and Restated Stockholders’ Agreement, dated December 28, 2001, as amended June 24, 2002.

We will bear all expenses incurred in connection with any underwritten registration, including, without limitation, all registration, filing and qualification fees, printers and accounting fees and fees of one counsel for the selling holders, but excluding underwriting discounts and commissions. We are also obligated to indemnify the holders of registration rights and any underwriter, and the holders of registration rights are required to indemnify us, for certain liabilities in connection with offerings conducted under the stockholders’ agreement.

Demand registration rights:    Pursuant to the terms of our stockholders’ agreement, beginning six months following our initial public offering, the holders of the              shares of common stock that were issued upon conversion of shares of our class C common stock are also entitled to specified demand registration rights under which upon the written request of holders of at least 60% of these shares they may require us to file a registration statement under the Securities Act at our expense with respect to our shares of common stock, in which case we are required to use our best efforts to effect this registration. We are required to effect only one registration pursuant to this provision of the stockholders’ agreement. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if, in the good faith judgment of the managing underwriter of an underwritten offering, marketing factors require the deferral of such registration. We are not required to effect a demand registration prior to six months after the effective date of this registration statement.

Piggyback registration rights:    Pursuant to the terms of our stockholders’ agreement, if, subject to certain exceptions, we propose to register any of our securities under the Securities Act, either for our own account or for the account of other stockholders, solely for cash, we are required to promptly give written notice of such registration to all investors who held our common stock prior to this offering. Upon the written request of each eligible holder, we will, subject to certain limitations, cause to be registered under the Securities Act all such securities that each such holder has requested to be registered. The underwriters of any underwritten offering will have the right to limit, due to marketing reasons, the number of shares registered by these holders to 30% of the total shares covered by the registration statement, unless such offering is our initial public offering, in which case, these holders may be excluded if the underwriters determine that the sale of their shares may jeopardize the success of the offering.

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Form S-3 registration rights:    The holders of at least 60% of the registrable securities that were issued upon conversion of shares of our class C common stock can request that we register all or a portion of their shares on Form S-3 if we are eligible to file a registration statement on Form S-3. We are required to file no more than three registration statements on Form S-3 upon exercise of these rights. We may postpone the filing of a registration statement for up to 90 days once in a 12-month period if in the good faith judgment of the managing underwriter marketing factors require the deferral of such registration.

Expiration of registration rights:    The registration rights expire on the fifth anniversary of the completion of this offering.

Anti-takeover effects of our certificate of incorporation and bylaws and Delaware Law

Certain provisions of our certificate of incorporation and bylaws that will be in effect upon completion of this offering, as summarized below, and applicable provisions of the Delaware General Corporation Law could make the acquisition of our company or the removal of our incumbent directors and management more difficult. These provisions are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of our company to first negotiate with our board of directors. However, these provisions could have the effect of delaying, discouraging or preventing attempts to acquire us, which could deprive our stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Delaware anti-takeover law

Following completion of this offering, we will be subject to the business combination provisions of Section 203 of the Delaware General Corporation Law. In general, these provisions prohibit a publicly held Delaware corporation from engaging in various business combination transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

• the business combination transaction or the transaction resulting in a stockholder becoming an interested stockholder is approved by the board of directors prior to the date the interested stockholder obtained such status;

• upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding stock owned by directors who are also officers of the corporation; or

• on or subsequent to such date that the stockholder became an interested stockholder, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.

A “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more

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of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price.

Undesignated preferred stock

The authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could deter or make more difficult an attempt to gain control of our company.

Election and removal of directors

Our certificate of incorporation and bylaws contain provisions that establish specific procedures for appointing and removing members of the board of directors. Under our certificate of incorporation, our board will be classified into three classes of directors, and under our bylaws directors will be elected by a plurality of the votes cast in each election. Only one class will stand for election at each annual meeting, and directors will be elected to serve three-year terms. In addition, our certificate of incorporation and bylaws provide that vacancies and newly-created directorships on the board of directors may be filled only by a majority of the directors then serving on the board or by the sole remaining director. Under our certificate of incorporation and bylaws, directors may be removed only for cause. Our bylaws provide that the size of the board of directors will be not less than seven directors and not more than 11 directors, and will be fixed from time to time by our board of directors.

Limitations on stockholder action

Under our certificate of incorporation and bylaws, only the chairman of the board, our chief executive officer or our board of directors may call special meetings of stockholders. Under our certificate of incorporation and bylaws, stockholders may not act by written consent. Our bylaws establish advance notice procedures with respect to stockholder proposals and the stockholder nomination of candidates for election as directors.

Amendment of certain provisions in bylaws

Amendments of the provisions in our bylaws with respect to the advance notice provisions for stockholder nominations or proposals, and the provisions with respect to the size of our board of directors and who can call special meetings require approval by holders of at least three-fourths of our outstanding capital stock entitled to vote generally in the election of directors.

Transfer agent and registrar

The transfer agent and registrar for our common stock will be                 . Its telephone number is                     .

Nasdaq global market listing

We have applied to list our common stock on the Nasdaq Global Market under the symbol “FNDR.”

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Shares eligible for future sale

Prior to this offering, there has been no public market for our common stock. As described below, substantially all of our currently outstanding shares will not be available for sale immediately after this offering due to certain contractual and securities law restrictions on resale. Future sales of substantial amounts of our common stock in the public market, including upon the exercise of outstanding options, or the perception that these sales may occur, could cause the prevailing market price to decline and limit our ability to raise equity capital in the future.

Upon completion of this offering, we will have outstanding an aggregate of                  shares of common stock, assuming no exercise of the underwriters’ option to purchase additional shares, no exercise of options to purchase common stock that were outstanding as of January 1, 2012, other than options exercised by selling stockholders in connection with this offering and no issuance of shares of common stock with respect to outstanding restricted stock units. The shares of common stock being sold in this offering will be freely tradable in the public market without restriction or further registration under the Securities Act unless purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act.

The remaining                  shares of common stock held by existing stockholders are restricted securities as that term is defined in Rule 144 under the Securities Act. Restricted securities may be sold in the public market, subject to the lock-up agreements described below, only if registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 promulgated under the Securities Act, which are summarized below.

The following table shows when the                  shares of our common stock that are not being sold in this offering, but which will be outstanding when this offering is complete, will be eligible for sale in the public market:

Date	Shares eligible for sale
On the date of this prospectus
90 days after the date of this prospectus
At various times beginning 181 days or more after the date of this prospectus

Resale of                  of the restricted shares that will become available for sale in the public market starting 181 days or more after the date of this prospectus (or longer period described below) will be limited by volume and other resale restrictions under Rule 144 because the holders of those shares are our affiliates.

Lock-up agreements

Our officers, directors and holders of substantially all of our common stock, including the selling stockholders, have agreed, or will agree, with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock or securities convertible into or exercisable or exchangeable for shares of common stock for a period through the date 180 days after the date of this prospectus, except with the prior written consent of each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C., as representatives of the underwriters. J.P. Morgan Securities LLC and William Blair & Company, L.L.C. may, in their sole discretion at any time and without prior notice, release all or a portion of the shares from the restrictions contained in these

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lock-up agreements. In addition, all holders of our common stock have previously entered into agreements with us not to sell or otherwise transfer (other than donees who agree to be bound by these restrictions) any of our securities for a period through the date 180 days after the date of this prospectus.

The 180-day restricted period under the agreements with the underwriters described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or announce material news or a material event relating to our company; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on (and including) the last day of the 180-day period, in which case the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, as applicable, unless each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C. waive, in writing, such extension.

Rule 144

In general, under Rule 144 under the Securities Act, as currently in effect, beginning 90 days after the date of this prospectus, a person (other than any person who is deemed to have been an affiliate of ours at any time during the three months preceding a sale) who has beneficially owned restricted shares for at least six months, including the holding period of any prior owner except an affiliate of ours, would be entitled to sell its shares without complying with the manner of sale, volume limitations, or notice provision of Rule 144, subject to compliance with the public information requirements of Rule 144. If such person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates, then that person is entitled to sell those shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling such shares on behalf of our affiliates are entitled to sell upon the expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

• 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after the completion of this offering; or

• the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to such sale.

Sales by those who are deemed to have been one of our affiliates or persons selling on behalf of our affiliates at any time during the three months preceding a sale under Rule 144 are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 under the Securities Act, as currently in effect, permits resales of shares in reliance upon Rule 144 but without compliance with certain restrictions. Any employee, officer or director of, or consultant to, us who purchased shares from us in connection with a written compensatory

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plan or contract in a transaction that was completed in reliance on Rule 701 and complied with the requirements of Rule 701 may be entitled to rely on the resale provisions of Rule 701. Rule 701 permits affiliates and non-affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. In addition, non-affiliates are not subject to the public information requirements. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701 subject to the lock-up restrictions described above.

Registration rights

After the completion of this offering, the holders of                      shares of our common stock will be entitled to the registration rights described in the section titled “Description of capital stock—Registration rights.” Following the expiration of the lock-up period, registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by our affiliates. See “Description of capital stock—Registration rights” for additional information.

Form S-8 registration statements

Prior to the expiration of the lock-up period, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock that are issuable pursuant to our 1997 Stock Option Plan, our 2001 Equity Compensation Plan, our 2007 Equity Compensation Plan and our 2012 Equity Compensation Plan. For a more complete discussion of our stock plans, see “Management—Equity benefit plans.” Subject to the lock-up agreements described above and any applicable vesting restrictions, shares registered under these registration statements will be available for resale in the public market immediately upon the effectiveness of these registration statements, except with respect to Rule 144 volume limitations that apply to our affiliates.

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Material U.S. tax consequences to non-U.S. holders of common stock

This section summarizes the material U.S. federal income and estate tax consequences of the ownership and disposition of common stock by a non-U.S. holder. You are a non-U.S. holder if you are, for U.S. federal income tax purposes:

• a nonresident alien individual,

• a foreign corporation, or

• an estate or trust that in either case is not subject to United States federal income tax on a net income basis on income or gain from common stock.

This section does not consider the specific facts and circumstances that may be relevant to a particular non-U.S. holder and does not address the treatment of a non-U.S. holder under the laws of any state, local or foreign taxing jurisdiction. This section is based on the tax laws of the United States, including the Internal Revenue Code of 1986, as amended, existing and proposed regulations, and administrative and judicial interpretations, all as currently in effect. These laws are subject to change, possibly on a retroactive basis.

If a partnership holds the common stock, the United States federal income tax treatment of a partner will generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the common stock should consult its tax advisor with regard to the United States federal income tax treatment of an investment in the common stock.

You should consult a tax advisor regarding the United States federal tax consequences of acquiring, holding and disposing of common stock in your particular circumstances, as well as any tax consequences that may arise under the laws of any state, local or foreign taxing jurisdiction.

Dividends

Except as described below, if you are a non-U.S. holder of common stock, dividends paid to you are subject to withholding of United States federal income tax at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate. Even if you are eligible for a lower treaty rate, we and other payors will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments to you, unless you have furnished to us or another payor:

• a valid Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, your status as a non-United States person and your entitlement to the lower treaty rate with respect to such payments, or

• in the case of payments made outside the United States to an offshore account (generally, an account maintained by you at an office or branch of a bank or other financial institution at any location outside the United States), other documentary evidence establishing your entitlement to the lower treaty rate in accordance with U.S. Treasury regulations.

If you are eligible for a reduced rate of United States withholding tax under a tax treaty, you may obtain a refund of any amounts withheld in excess of that rate by filing a refund claim with the United States Internal Revenue Service.

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If dividends paid to you are “effectively connected” with your conduct of a trade or business within the United States, and, if required by a tax treaty, the dividends are attributable to a permanent establishment that you maintain in the United States, we and other payors generally are not required to withhold tax from the dividends, provided that you have furnished to us or another payor a valid Internal Revenue Service Form W-8ECI or an acceptable substitute form upon which you represent, under penalties of perjury, that:

• you are a non-United States person, and

• the dividends are effectively connected with your conduct of a trade or business within the United States and are includible in your gross income.

“Effectively connected” dividends are taxed at rates applicable to United States citizens, resident aliens and domestic United States corporations.

If you are a corporate non-U.S. holder, “effectively connected” dividends that you receive may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

Gain on disposition of common stock

If you are a non-U.S. holder, you generally will not be subject to United States federal income tax on gain that you recognize on a disposition of common stock unless:

• the gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment that you maintain in the United States, if that is required by an applicable income tax treaty as a condition for subjecting you to United States taxation on a net income basis,

• you are an individual, you hold the common stock as a capital asset, you are present in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist, or

• we are or have been a United States real property holding corporation for federal income tax purposes and you held, directly or indirectly, at any time during the five-year period ending on the date of disposition, more than 5% of the common stock and you are not eligible for any treaty exemption.

If you are a corporate non-U.S. holder, “effectively connected” gains that you recognize may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.

We have not been, are not and do not anticipate becoming a United States real property holding corporation for United States federal income tax purposes.

Withholdable payments to foreign financial entities and other foreign entities

A 30% withholding tax will be imposed on certain payments that are made after December 31, 2012 to certain foreign financial institutions, investment funds and other non-US persons that fail to comply with information reporting requirements in respect of their direct and indirect United

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States shareholders and/or United States accountholders. Such payments will include US-source dividends and the gross proceeds from the sale or other disposition of stock that can produce US-source dividends. IRS Guidance issued in July 2011 indicates that regulations will be enacted that will provide that withholding will only be made to payments of dividends made on or after January 1, 2014, and to other “withholdable payments” (including payments of gross proceeds from a sale or other disposition of our common stock) made on or after January 1, 2015.

Federal estate taxes

Common stock held by a non-U.S. holder at the time of death will be included in the holder’s gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

Backup withholding and information reporting

If you are a non-U.S. holder, we and other payors are required to report payments of dividends and any tax withheld with respect to such dividends on IRS Form 1042-S even if the payments are exempt from withholding. Such information may also be made available to the tax authorities in the country in which you reside under the provisions of an applicable treaty. You are otherwise generally exempt from backup withholding and information reporting requirements with respect to:

• dividend payments and

• the payment of the proceeds from the sale of common stock effected at a United States office of a broker,

as long as the income associated with such payments is otherwise exempt from United States federal income tax, and:

• the payor or broker does not have actual knowledge or reason to know that you are a United States person and you have furnished to the payor or broker:

• a valid Internal Revenue Service Form W-8BEN or an acceptable substitute form upon which you certify, under penalties of perjury, that you are a non-United States person, or

• other documentation upon which it may rely to treat the payments as made to a non-United States person in accordance with U.S. Treasury regulations, or

• you otherwise establish an exemption.

Payment of the proceeds from the sale of common stock effected at a foreign office of a broker generally will not be subject to information reporting or backup withholding. However, a sale of common stock that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:

• the proceeds are transferred to an account maintained by you in the United States,

• the payment of proceeds or the confirmation of the sale is mailed to you at a United States address, or

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• the sale has some other specified connection with the United States as provided in U.S. Treasury regulations,

unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption.

In addition, a sale of common stock will be subject to information reporting if it is effected at a foreign office of a broker that is:

• a U.S. person,

• a controlled foreign corporation for U.S. tax purposes,

• a foreign person 50% or more of whose gross income is effectively connected with the conduct of a U.S. trade or business for a specified three-year period, or

• a foreign partnership, if at any time during its tax year:

• one or more of its partners are “U.S. persons”, as defined in U.S. Treasury regulations, who in the aggregate hold more than 50% of the income or capital interest in the partnership, or

• such foreign partnership is engaged in the conduct of a U.S. trade or business,

unless the broker does not have actual knowledge or reason to know that you are a United States person and the documentation requirements described above are met or you otherwise establish an exemption. Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.

You generally may obtain a refund of any amounts withheld under the backup withholding rules that exceed your income tax liability by filing a refund claim with the Internal Revenue Service.

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Underwriting

We and the selling stockholders are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC and William Blair & Company, L.L.C. are acting as joint book-running managers of the offering and as representatives of the underwriters. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:

Name	Number of shares
J.P. Morgan Securities LLC
William Blair & Company, L.L.C.
Robert W. Baird & Co. Incorporated
Stifel, Nicolaus & Company, Incorporated
Wells Fargo Securities, LLC
Total

The underwriters are committed to purchase all the shares offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.

The underwriters propose to offer the shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $         per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $         per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the common shares.

The underwriters have an option to buy up to                  additional shares of common stock from certain selling stockholders to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this option. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.

At our request, the underwriters have reserved for sale at the initial public offering price up to approximately                  shares of our common stock being offered for sale to certain persons and entities that have relationships with us. We will offer these shares to the extent permitted under applicable regulations in the United States and in various countries. The sales will be made by J.P. Morgan Securities LLC through a directed share program. The number of shares of common stock available for sale to the general public will be reduced to the extent that such persons purchase

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such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. We have agreed to indemnify J.P. Morgan Securities LLC in connection with the directed share program, including for the failure of any participant to pay for its shares. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of common stock sold pursuant to the directed share program.

The underwriting fee is equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting fee is $         per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares.

	Per share		Total
	Without option exercise	With full option exercise	Without option exercise	With full option exercise
Underwriting discounts and commissions paid by us	$	$	$	$
Underwriting discounts and commissions paid by selling stockholders	$	$	$	$

We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $        , which will be paid by us.

A prospectus in electronic format may be made available on the web sites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.

For a period of 180 days after the date of this prospectus, we have agreed that we will not (i) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, or (ii) enter into any swap or other arrangement that transfers all or a portion of the economic consequences associated with the ownership of any shares of common stock or any such other securities (regardless of whether any of these transactions are to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise), in each case without the prior written consent of each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C., other than the shares of our common stock to be sold hereunder and any shares of our common stock issued upon the exercise of options granted under our 2007 Equity Compensation Plan. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or announce material news or a material event relating to our company; or (2) prior to the expiration of the 180-day restricted period, we

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announce that we will release earnings results during the 16-day period beginning on (and including) the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, as applicable, unless each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C. waive, in writing, such extension.

Our directors and executive officers, and certain of our significant stockholders have entered, or will enter, into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of this prospectus, may not, without the prior written consent of each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C., (1) offer, pledge, announce the intention to sell, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by such directors, executive officers, managers and members in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock or such other securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or announce material news or a material event relating to our company; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on (and including) the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event, as applicable, unless each of J.P. Morgan Securities LLC and William Blair & Company, L.L.C. waive, in writing, such extension.

We and the selling stockholders have agreed to indemnify the underwriters and their controlling persons against, and we have agreed to indemnify William Blair & Company, L.L.C. and its controlling persons, in its capacity as qualified independent underwriter, certain liabilities, including liabilities under the Securities Act.

We will apply to have our common stock approved for listing/quotation on the Nasdaq Global Market under the symbol “FNDR.”

In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be “covered” shorts, which are short positions in an amount not greater than the underwriters’

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over-allotment option referred to above, or may be “naked” shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.

The underwriters have advised us that, pursuant to Regulation M of the Securities Act of 1933, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representatives of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representatives can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.

These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on NYSE or the Nasdaq, as applicable, in the over-the-counter market or otherwise.

Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us, the selling stockholders and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:

• the information set forth in this prospectus and otherwise available to the representatives;

• our prospects and the history and prospects for the industry in which we compete;

• an assessment of our management;

• our prospects for future earnings;

• the general condition of the securities markets at the time of this offering;

• the recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and

• other factors deemed relevant by the underwriters and us.

Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the initial public offering price.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging,

157

financing and brokerage activities. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. Specifically, affiliates of J.P. Morgan Securities LLC serve as administrative agent and a lender under both our Term Facility Credit Agreement and our Revolving Credit Agreement, and an affiliate of Wells Fargo Securities, LLC serves as Syndication Agent under our Revolving Facility Credit Agreement. We expect to use more than 5% of the net proceeds from the sale of our common stock to repay indebtedness under our Term Facility Credit Agreement. See “Use of proceeds.” Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority’s conduct rules. See “Conflicts of interest” for a more detailed discussion of potential conflicts of interest. In addition, an affiliate of J.P. Morgan Securities LLC is also a counterparty to certain hedging transactions with us.

Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans.

Selling restrictions

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities referred to by this prospectus in any jurisdiction in which such an offer or solicitation is unlawful.

Notice to prospective investors in the United Kingdom

This prospectus and any other material in relation to the shares described herein is only being distributed to, and is only directed at, persons in the United Kingdom that are qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive (“qualified investors”) that also (i) have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended, or the Order, (ii) who fall within Article 49(2)(a) to (d) of the Order or (iii) to whom it may otherwise lawfully be communicated (all such persons together being referred to as “relevant persons”). The shares are only available to, and any invitation, offer or agreement to purchase or otherwise acquire such shares will be engaged in only with, relevant persons. This prospectus and its

158

contents are confidential and should not be distributed, published or reproduced (in whole or in part) or disclosed by recipients to any other person in the United Kingdom. Any person in the United Kingdom that is not a relevant person should not act or rely on this prospectus or any of its contents.

European Economic Area

In relation to each Member State of the European Economic Area that has implemented the Prospectus Directive, with effect from and including the date on which the Prospectus Directive is implemented in that Member State, an offer of securities described in this prospectus may not be made to the public in that Member State other than:

(a) to any legal entity that is a qualified investor as defined in the Prospectus Directive;

(b) to fewer than 100 or, if that Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than “qualified investors” as defined in the Prospectus Directive) subject to obtaining the prior consent of the representative; or

(c) in any other circumstances that do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive;

provided that no such offer of securities shall require us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of the above, the expression an “offer of securities to the public” in relation to any securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe for the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in that Member State), and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in that Member State, and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

159

Conflicts of interest

We expect at least 5% of the net proceeds from the sale of our common stock to repay indebtedness owed by us to affiliates of certain of the underwriters who are lenders under our Term Facility Credit Agreement. See “Use of proceeds” and “Management’s discussion and analysis of financial condition and results of operations—Long-term debt” for additional information regarding our Term Facility Credit Agreement. Accordingly, this offering is being made in compliance with the requirements of Rule 5121 of the Financial Industry Regulatory Authority’s, or FINRA, conduct rules. This rule provides generally that if at least 5% of the net proceeds from the sale of securities, not including underwriting compensation, is used to reduce or retire the balance of a loan or credit facility extended by the underwriters or their affiliates, a “qualified independent underwriter” meeting certain standards set forth by FINRA must participate in the preparation of this prospectus and exercise the usual standards of due diligence with respect thereto. William Blair & Company, L.L.C. is assuming the responsibilities of acting as the qualified independent underwriter in connection with this offering and in conducting due diligence. J.P. Morgan Securities LLC and Wells Fargo Securities, LLC will not confirm sales of the securities to any account over which they exercise discretionary authority without the prior written approval of the customer.

160

Validity of common stock

The validity of the common stock being offered hereby will be passed upon for the company by Sullivan & Cromwell LLP, Palo Alto, California and for the underwriters by Simpson Thacher & Bartlett LLP, Palo Alto, California.

Experts

The consolidated financial statements of Fender Musical Instruments Corporation as of January 2, 2011 and January 1, 2012 and for each of the years in the three-year period ended January 1, 2012, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein and upon the authority of said firm as experts in accounting and auditing.

Where you can find more information

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock to be sold in this offering. As permitted by the SEC’s rules and regulations, this prospectus does not contain all of the information included in the registration statement and the exhibits and schedules filed as part of the registration statement. For more information about us and the shares of common stock to be sold in this offering, you should refer to the registration statement and the exhibits and schedules filed as part of the registration statement.

You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the offices of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the Public Reference Room maintained by the SEC located at 100 F Street, N.E., Washington, D.C. 20549 upon the payment of the prescribed fees. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC.

Upon completion of this offering, we will become subject to the reporting and information requirements of the Securities and Exchange Act of 1934, as amended, and as a result will file periodic reports, proxy statements and other information with the SEC. These periodic reports, proxy statements and other information will be available for inspection and copying at the SEC’s public reference room and the website of the SEC referred to above, as well as on our website, www.fender.com. Information on our website does not constitute part of this prospectus.

161

Index to consolidated financial statements

Fender Musical Instruments Corporation
Report of KPMG LLP, Independent Registered Public Accounting Firm	F-2
Consolidated balance sheets	F-3
Consolidated statements of operations and comprehensive income (loss)	F-5
Consolidated statements of redeemable common stock and stockholders’ (deficit) equity	F-6
Consolidated statements of cash flows	F-7
Notes to consolidated financial statements	F-8

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Fender Musical Instruments Corporation

We have audited the accompanying consolidated balance sheets of Fender Musical Instruments Corporation and subsidiaries as of January 2, 2011 and January 1, 2012, and the related consolidated statements of operations and comprehensive income (loss), redeemable common stock and stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended January 1, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Fender Musical Instruments Corporation and subsidiaries as of January 2, 2011 and January 1, 2012, and the results of their operations and their cash flows for each of the years in the three-year period ended January 1, 2012, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Phoenix, Arizona

March 7, 2012

F-2

Fender Musical Instruments Corporation

and subsidiaries

Consolidated balance sheets

January 2, 2011 and January 1, 2012

(In thousands, except number of shares and par value)

	2010		2011		Pro Forma 2011 (Note 1)
					(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	15,990	$	12,971	$	12,971
Accounts receivable—net of allowances of $4,368 and $4,713 at January 2, 2011 and January 1, 2012, respectively		57,211		63,153		63,153
Accounts receivable—related parties		3,927		2,809		2,809
Inventories		163,876		181,333		181,333
Prepaid expenses and other current assets		7,337		15,710		15,710
Income tax receivable		4,247		2,129		2,129
Deferred income taxes		12,856		5,679		5,679
Total current assets		265,444		283,784		283,784
Property and equipment—net		28,504		31,389		31,389
Intangibles:
Goodwill		4,683		4,683		4,683
Other intangibles		33,409		34,102		34,102
Other assets		4,410		3,999		3,999
Deferred income taxes		10,447		8,623		8,623
Total assets	$	346,897	$	366,580	$	366,580
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities:
Accounts payable	$	31,502	$	38,988	$	38,988
Accrued expenses		42,832		45,281		45,281
Accrued income taxes		3,098		1,194		1,194
Current portion of long-term debt		3,000		6,607		6,607
Current portion of capital leases		523		662		662
Total current liabilities		80,955		92,732		92,732
Long-term debt—net of current portion		264,205		239,598		239,598
Capital leases—net of current portion		559		653		653
Deferred income taxes		151		157		157
Deferred lease incentive		829		988		988
Other liabilities		466		474		474
Total liabilities		347,165		334,602		334,602

F-3

	2010			2011			Pro Forma 2011 (Note 1)
							(unaudited)
Commitments and contingencies (note 12)
Redeemable common stock (note 14):
Class A and B common stock, par value $0.01 per share; 301,408 and 361,408 shares authorized at January 2, 2011 and January 1, 2012, respectively; 3,420 and 4,920 shares issued and outstanding at January 2, 2011 and January 1, 2012, respectively, at redemption value; no shares authorized, issued and outstanding at January 1, 2012 pro forma (unaudited)		3,205			5,887			—
Class C common stock, par value $0.01 per share; 77,176 shares authorized, issued and outstanding at both January 2, 2011 and January 1, 2012, at redemption value; no shares authorized, issued and outstanding at January 1, 2012 pro forma (unaudited)		80,799			93,902			—
Stockholders’ (deficit) equity:
Class A common stock, par value $0.01 per share; 246,572 and 276,572 shares authorized at January 2, 2011 and January 1, 2012, respectively; 106,274 shares issued and outstanding at both January 2, 2011 and January 1, 2012; no shares authorized, issued and outstanding at January 1, 2012 pro forma (unaudited)		1			1			—
Class B common stock, par value $0.01 per share; 54,836 and 84,836 shares authorized at January 2, 2011 and January 1, 2012, respectively; 7,183 and 7,742 shares issued and outstanding at January 2, 2011 and January 1, 2012, respectively; no shares authorized, issued and outstanding at January 1, 2012 pro forma (unaudited)		—			—			—
Common stock, par value $0.01 per share; no shares authorized, issued and outstanding at both January 2, 2011 and January 1, 2012; 196,112 shares issued and outstanding at January 1, 2012 pro forma (unaudited)		—			—			2
Additional paid-in capital		—			—			99,788
Accumulated other comprehensive income (loss)		(2,376	)		4,775			4,775
Accumulated deficit		(78,339	)		(72,587	)		(72,587	)
Treasury stock—4,881 shares at cost at January 2, 2011		(3,558	)		—			—
Total stockholders’ (deficit) equity		(84,272	)		(67,811	)		31,978
Total liabilities and stockholders’ (deficit) equity	$	346,897		$	366,580		$	366,580

See accompanying notes to consolidated financial statements.

F-4

Fender Musical Instruments Corporation

and subsidiaries

Consolidated statements of operations and comprehensive income (loss)

Years ended January 3, 2010, January 2, 2011, and January 1, 2012

(In thousands, except share and per share amounts)

	2009			2010			2011
Net sales	$	612,521		$	617,830		$	700,554
Cost of goods sold		420,919			447,250			483,020
Gross profit		191,602			170,580			217,534
Operating expenses:
Selling, general and administrative		125,711			121,651			137,128
Warehouse		25,878			27,713			28,426
Research and development		9,004			9,299			10,157
Impairment charges		1,200			—			—
Total operating expenses		161,793			158,663			175,711
Income from operations		29,809			11,917			41,823
Other income (expense):
Net foreign currency exchange loss		(3,602	)		(1,175	)		(3,807	)
Interest expense		(15,636	)		(12,688	)		(14,927	)
Other, net		1,723			(391	)		1,130
Total other (income) expense		(17,515	)		(14,254	)		(17,604	)
Income (loss) before income taxes		12,294			(2,337	)		24,219
Income tax expense (benefit)		1,507			(652	)		5,208
Net income (loss)		10,787			(1,685	)		19,011
Net income available to redeemable common stockholders		4,724			15,584			15,785
Net income (loss) available (attributable) to common stockholders	$	6,063		$	(17,269	)	$	3,226
Net income (loss) per common share available (attributable) to common stockholders :
Basic	$	51.89		$	(147.75	)	$	28.38
Diluted	$	43.70		$	(147.75	)	$	24.72
Weighted average common shares used in computing net income (loss) per share available (attributable) to common stockholders:
Basic		116,853			116,877			113,691
Diluted		138,744			116,877			130,508
Pro forma net income per common share (unaudited):
Basic							$	97.28
Diluted							$	89.57
Weighted average common shares used in computing pro forma net income per common share (unaudited):
Basic								195,422
Diluted								212,239
Other comprehensive income (loss)—foreign currency translation adjustments/derivative instruments adjustments, net of tax		2,462			(436	)		7,151
Comprehensive income (loss)	$	13,249		$	(2,121	)	$	26,162

F-5

Fender Musical Instruments Corporation

and subsidiaries

Consolidated statements of redeemable common stock and stockholders’ (deficit) equity

Years ended January 3, 2010, January 2, 2011, and January 1, 2012

(In thousands, except number of shares)

	Redeemable common stock (shares)				Redeemable common stock				Common stock (shares)			Common stock		Additional paid-in capital			Accumulated other comprehensive income (loss)			Accumulated deficit			Treasury stock			Total stockholders’ deficit
	Class A and B		Class C		Class A and B		Class C		Class A and B			Class A and B
Balance, December 28, 2008		—		77,176	$	—	$	63,696		116,852		$	1	$	13,544		$	(4,402	)	$	(85,031	)	$	(3,558	)	$	(79,446	)
Stock-based compensation		—		—		—		—		—			—		2,592			—			—			—			2,592
Stock options exercised		—		—		—		—		25			—		21			—			—			—			21
Net unrealized change in fair value of derivative financial instruments, net of tax of $594		—		—		—		—		—			—		—			929			—			—			929
Foreign currency translation adjustments		—		—		—		—		—			—		—			1,533			—			—			1,533
Redeemable common stock fair value adjustment		—		—		—		4,724		—			—		(4,724	)		—			—			—			(4,724	)
Net income		—		—		—		—		—			—		—			—			10,787			—			10,787
Balance, January 3, 2010		—		77,176		—		68,420		116,877			1		11,433			(1,940	)		(74,244	)		(3,558	)		(68,308	)
Stock-based compensation		—		—		—		—		—			—		1,741			—			—			—			1,741
Net unrealized change in fair value of derivative financial instruments, net of tax of $254		—		—		—		—		—			—		—			398			—			—			398
Foreign currency translation adjustments		—		—		—		—		—			—		—			(834	)		—			—			(834	)
Redeemable common stock fair value adjustment		3,420		—		3,205		12,379		(3,420	)		—		(13,174	)		—			(2,410	)		—			(15,584	)
Net loss		—		—		—		—		—			—		—			—			(1,685	)		—			(1,685	)
Balance, January 2, 2011		3,420		77,176		3,205		80,799		113,457			1		—			(2,376	)		(78,339	)		(3,558	)		(84,272	)
Stock-based compensation		—		—		—		—		—			—		5,049			—			—						5,049
Stock options exercised		1,500		—		—		—		—			—		1,125			—			—			—			1,125
Tax benefit on stock option exercised		—		—		—		—		—			—		85			—			—			—			85
Issuance of common stock under employee stock plan net of shares withheld for payroll taxes		—		—		—		—		559			—		(175	)		—			—			—			(175	)
Retirement of Treasury stock		—		—		—		—		—			—		—			—			(3,558	)		3,558			—
Net unrealized change in fair value of derivative financial instruments, net of tax of $4,998		—		—		—		—		—			—		—			7,818			—			—			7,818
Foreign currency translation adjustments		—		—		—		—		—			—		—			(667	)		—			—			(667	)
Redeemable common stock fair value adjustment		—		—		2,682		13,103		—			—		(6,084	)		—			(9,701	)		—			(15,785	)
Net income		—		—		—		—		—			—		—			—			19,011			—			19,011
Balance, January 1, 2012		4,920		77,176	$	5,887	$	93,902		114,016		$	1		—		$	4,775		$	(72,587	)		—		$	(67,811	)

See accompanying notes to consolidated financial statements.

F-6

Fender Musical Instruments Corporation

and subsidiaries

Consolidated statements of cash flows

Years ended January 3, 2010, January 2, 2011, and January 1, 2012

(In thousands)

	2009			2010			2011
Cash flows from operating activities:
Net income (loss)	$	10,787		$	(1,685	)	$	19,011
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Provision for allowances for accounts receivable		11,878			13,535			14,937
Deferred income taxes		1,765			(564	)		6,016
Depreciation and amortization		12,052			10,776			8,732
Loss on retirement of property and equipment		—			783			11
Impairment charges		1,200			—			—
Stock-based compensation		2,592			1,741			5,049
Excess tax benefits from stock options exercised		—			—			(85	)
Amortization of deferred loan costs		1,247			1,283			1,167
Amortization of de-designated interest rate swap		—			965			4,193
Equity in losses of investees		126			142			159
Amortization of deferred lease incentive		(19	)		(304	)		(296	)
Changes in operating assets and liabilities, net of acquisitions:
Decrease (increase) in accounts receivable		10,709			(14,671	)		(20,864	)
Decrease (increase) in accounts receivable (related parties)		2,822			(1,135	)		1,118
Decrease (increase) in inventory		56,812			(18,057	)		(17,581	)
(Increase) in prepaid expenses and other current assets		(346	)		(2,316	)		(8,373	)
(Increase) decrease in other assets		(5	)		12			95
(Decrease) increase in accounts payable and accrued expenses		(30,216	)		16,629			17,169
(Decrease) in accrued income taxes—net		(847	)		(2,603	)		(1,708	)
Increase in other liabilities		—			466			463
Net cash provided by operating activities		80,557			4,385			29,213
Investing activities:
Purchase of property and equipment		(5,150	)		(5,166	)		(8,448	)
Other investing activities		(126	)		(142	)		(159	)
Purchase of trademarks		—			—			(1,969	)
Net cash used in investing activities		(5,276	)		(5,308	)		(10,576	)
Cash flows from financing activities:
Issuance of debt		3,000			11,000			35,000
Repayment of debt and capital leases		(52,982	)		(38,120	)		(56,782	)
Deferred loan costs		(383	)		(278	)		(842	)
Proceeds from stock options exercised		21			—			1,125
Excess tax benefit from stock options exercised		—			—			85
Payment of payroll taxes on stock based compensation through shares withheld		—			—			(175	)
Net cash used in financing activities		(50,344	)		(27,398	)		(21,589	)
Effect of exchange rate changes on cash and cash equivalents		655			(650	)		(67	)
Increase (decrease) in cash and cash equivalents		25,592			(28,971	)		(3,019	)
Cash and cash equivalents, beginning of year		19,369			44,961			15,990
Cash and cash equivalents, end of year	$	44,961		$	15,990		$	12,971
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	16,964		$	11,310		$	11,731
Income taxes		511			2,018			628
Supplemental noncash information:
Purchases of property and equipment through capital lease obligations	$	724		$	436		$	1,015
Purchases of property and equipment included in accounts payable		90			148			898

See accompanying notes to consolidated financial statements.

F-7

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(1) Description of business and significant accounting policies

(a) Description of business

Fender Musical Instruments Corporation (together with its subsidiaries, FMIC or the Company) was founded in 1946. On December 31, 2007, the Company completed the acquisition of all of the outstanding common stock of Kaman Music Corporation (now known as KMC Musicorp, KMC), and on May 30, 2008, completed the acquisition of certain assets and liabilities of Groove Tubes, LLC (GT). The Company develops, manufactures, and purchases musical instruments, accessories, and related products for sale and distribution to wholesale and retail outlets throughout the world. The Company’s products include electric and acoustic guitars and bass guitars, percussion products, amplifiers, sound equipment for both amateurs and professionals, vacuum tubes, strings, apparel, and other related parts and accessories. The Company has manufacturing facilities in the United States and Mexico, with international operations in, among other countries, including, but not limited to, the United Kingdom, Germany, France, Sweden, Spain, the Netherlands, Canada, and Mexico.

The Company’s fiscal year ends on the Sunday closest to the end of December. Fiscal year 2010 and 2011 were 52 weeks, and fiscal year 2009 was 53 weeks.

(b) Principles of consolidation

The accompanying consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles and include the accounts of Fender Musical Instruments Corporation and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

(c) Use of estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. The most significant assumptions and estimates involved in preparing the financial statements include allowances for doubtful accounts, reserves for cash discounts and product returns, inventory obsolescence, and reserves for self-funded insurance programs.

(d) Concentration of credit risk

Financial instruments that potentially expose the Company to credit risk consist primarily of cash and cash equivalents, and accounts receivable. The Company maintains ongoing credit evaluations and generally does not require collateral from its customers.

F-8

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

As part of the Company’s ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order to avoid any undue exposure. The Company mitigates its risk by depositing cash and cash equivalents in major financial institutions.

One of the Company’s customers and its subsidiaries accounted for 15%, 16%, and 16% of net sales during the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively. Accounts receivable from this customer were approximately $8,069,000 and $8,697,000 at January 2, 2011 and January 1, 2012, respectively.

During the years ended January 3, 2010, January 2, 2011, and January 1, 2012 approximately 43%, 48% and 48%, respectively, of net sales were to customers outside the United States.

If any of the Company’s significant customers reduces, delays, or cancels orders with the Company, and the Company is not able to sell its products to new customers at comparable levels, the Company’s net sales could decline significantly and the Company would have excess inventory which could result in additional obsolescence charges. In addition, any difficulty in collecting amounts due from one or more significant customers would negatively impact the Company’s operating results.

The Company contracts for the purchase of certain of its finished goods with independent third party contractors, whereby the contractor is generally responsible for all manufacturing processes, including the purchase of raw materials. Although the Company does not have any long-term agreements with any of its manufacturing contractors, the Company believes it has mutually satisfactory relationships with them. The Company allocates product manufacturing among contractors based on their capabilities, the availability of production capacity, quality, pricing, and delivery. The inability of certain contractors to provide needed services on a timely basis could adversely affect the Company’s operations and financial condition.

(e) Fair value of financial instruments

The carrying amounts for cash and cash equivalents are assumed to be fair value because of the liquidity of these instruments. The carrying amounts for accounts receivable, accounts receivable – related parties, income tax receivable, accounts payable, accrued expenses, and capital leases approximate fair value because of the short maturity of these instruments. The carrying amounts of borrowings under notes payable approximate fair value because the related interest rates vary with a market indicator of the London InterBank Offered Rate (LIBOR).

(f) Cash and cash equivalents

All investments, including money market securities, purchased with a remaining maturity of three months or less when acquired are considered to be cash equivalents.

F-9

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(g) Accounts receivable allowances

The Company establishes reserves for cash discounts and product returns, and allowances for doubtful accounts. The allowance for doubtful accounts is based on trade receivables that are not probable of collection. The allowance for doubtful accounts is determined using estimated losses on accounts receivable based on historical write-offs, and evaluation of the aging of the receivables. The reserves for cash discounts and product returns are based on historical experience.

At January 2, 2011 and January 1, 2012, the reserves for cash discounts and product returns, and allowance for doubtful accounts was as follows (in thousands):

	January 2, 2011		January 1, 2012
Cash discounts	$	724	$	759
Product returns		1,805		1,971
Doubtful accounts		1,839		1,983
Total allowances	$	4,368	$	4,713

The following is a summary of the Company’s allowances for accounts receivable (in thousands):

	January 3, 2010			January 2, 2011			January 1, 2012
Balance, beginning of year	$	7,011		$	5,024		$	4,368
Provision for allowances for accounts receivable		11,878			13,535			14,937
Amounts charged against allowance		(13,865	)		(14,191	)		(14,592	)
Balance, end of year	$	5,024		$	4,368		$	4,713

(h) Inventories

The Company values its inventories at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. Costs also include amounts paid to independent manufacturers, plus duties and freight to bring the goods to the Company’s warehouses. The Company records inventory write-downs for estimated obsolescence or unmarketable inventories based upon assumptions about future demand forecasts. If the Company’s inventory on hand is in excess of its forecast of future demand, the excess amounts are written down to net realizable value.

The Company also reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the Company to determine the estimated selling price of its products less the estimated cost to convert inventory on hand into a finished product. These adjustments are estimates, which could vary significantly from actual results if future economic conditions, customer demand or competition differ from

F-10

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

expectations. For the periods presented, there were no significant adjustments related to unrecoverable inventory.

(i) Property and equipment

Property and equipment are stated at cost less depreciation and amortization using the straight-line method over the following estimated useful lives:

Building	30—39 years
Machinery and equipment	3—10 years
Furniture and fixtures	3—7 years
Computer hardware and software	3—5 years
Leasehold improvements	Lesser of estimated useful life or life of lease

Maintenance and repairs are charged to expense in the year incurred. Costs and related depreciation for related property and equipment are removed from the accounts upon their sale or disposal and the resulting gain or loss is recognized in the results of operations.

(j) Goodwill and indefinite-lived intangible assets

Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Indefinite-lived intangible assets consist of trademarks, which are classified in other intangibles in the accompanying consolidated balance sheets. Goodwill is tested for impairment at the reporting unit level, which is equivalent to FMIC’s operating segments, and based on the net assets for each segment, including goodwill and intangible assets. Goodwill is assigned to each operating segment, as this represents the lowest level that constitutes a business and for which discrete financial information is available and is the level which management regularly reviews the operating results. The Company has two separate reporting units, KMC and FMI (as defined in note 16).

The Company conducts its annual impairment test of goodwill and other intangibles at the end of each fiscal year or more frequently if there are any impairment indicators identified during the year using discounted cash flows analysis and comparable acquisitions analysis. Trademarks are valued using the relief from royalty method of the income approach.

In 2009, due to the deterioration in economic conditions, and the reduction of forecasted sales and estimated future cash flows, it was determined that several of the Company’s indefinite-lived trademarks were impaired. As a result of the impairment analysis, the Company recorded impairment charges of $1,000,000 related to indefinite-lived trademarks as of January 3, 2010 (see note 2). Of this impairment charge, $800,000 related to KMC trademarks and the remaining $200,000 related to FMI trademarks. No impairment charges were recorded for the years ended January 2, 2011 and January 1, 2012.

F-11

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(k) Impairment of long-lived assets

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and amortizable intangible assets may warrant revision, or that the remaining balance of these assets may not be recoverable. The Company’s long-lived assets consist of property and equipment and amortizable intangible assets. Amortizable intangible assets consist primarily of customer lists, which are classified in other intangibles in the accompanying consolidated balance sheets. When factors indicate that the assets should be evaluated for possible impairment, the Company evaluates the recoverability of such assets by comparing the carrying amount of the asset or group of assets to the estimated undiscounted future cash flows expected to result from the use of the asset or group of assets and their eventual disposition. If the undiscounted cash flows are less than the carrying value of the asset or group of assets being evaluated, an impairment loss is recorded. The loss is measured as the difference between the fair value and carrying value of the asset or group of assets being evaluated. Fair value is determined using the excess earnings method of the income approach. As of January 3, 2010, the Company determined that the fair value of the KMC customer list was less than the carrying amount and, therefore, recorded impairment charges of $200,000 (see note 2). No impairment charges were recorded for the years ended January 2, 2011 and January 1, 2012.

(l) Deferred lease incentives

The Company leases office space, manufacturing and distribution facilities under agreements that are classified as operating leases. Many of these operating leases include contingent rent provisions and/or provide for certain landlord allowances related to tenant improvements and other relevant items. Rent expense is calculated by recognizing total minimum rental payment, net of tenant improvement allowances, on a straight-line basis, over the lease term. Accordingly, rent expense charged to operations differs from rent paid, resulting in the Company recording deferred rent, which is recorded in long-term liabilities in the consolidated balance sheets. The recognition of rent expense for a given operating lease commences on the earlier of the lease commencement date or the date of possession of the property. The Company accounts for tenant lease improvement as a component of deferred rent, which is amortized over the lease term as a reduction of lease expense. The Company records lease expense as a component of selling, general and administrative expenses.

(m) Product warranties

Provisions for estimated expenses related to product warranties are recorded at the time products are sold. These estimates are established using historical information based on the nature, frequency, and average cost of warranty claims.

(n) Self-insurance reserves

The Company maintains an insured large deductible program for workers’ compensation, whereby the Company has a liability of up to $350,000 per claim, with any amounts in excess of

F-12

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

this limit covered by stop-loss excess insurance coverage. In addition, the Company maintains an insured large deductible program for medical and dental insurance, whereby the Company has a liability of up to $125,000 per member, with any amounts in excess of this limit covered by stop-loss excess insurance coverage. Estimated costs under these programs, including incurred but not reported claims, are recorded as expenses based upon actuarially determined liabilities, which are based on historical experience and trends of paid and incurred claims. Accounting for insurance liabilities that are self-insured involves uncertainty because estimates and judgments are used to determine the liability to be recorded for reported claims and claims incurred but not reported. If the current claim trends were to differ significantly from the Company’s historic claim experience, a corresponding adjustment would be made to the self-insurance reserves. Self-insurance reserves amounted to approximately $6,836,000 and $6,728,000 at January 2, 2011 and January 1, 2012, respectively. The balances are included in accrued expenses in the consolidated balance sheets.

(o) Revenue recognition

The Company recognizes revenue when products are delivered, collection of the receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Provisions for discounts, rebates, sales incentives, returns, and other adjustments are provided for in the period the related sales are recorded based on an assessment of historical trends and current projections of future results.

(p) Advertising costs

Advertising costs are expensed as incurred and are included in selling, general and administrative expenses. Advertising costs for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 were approximately $13,243,000, $10,734,000, and $12,139,000, respectively.

(q) Shipping and handling fees and costs

The Company includes shipping and handling fees billed to customers in net sales. Shipping costs associated with inbound freight are capitalized as part of inventory and included in cost of goods sold as products are sold. Shipping costs associated with outbound freight are included in cost of goods sold and totaled $18,250,000, $17,938,000 and $19,766,000, during the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively. Handling costs represent the warehouse expense in the accompanying consolidated statements of operations and totaled $25,878,000, $27,713,000 and $28,426,000, during the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively.

(r) Research and development costs

Research and development costs are expensed as incurred.

F-13

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(s) Income taxes

The Company utilizes the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company changed its position in fiscal 2010 regarding undistributed earnings and profits and remits the current year and historic earnings of its European subsidiaries to the U.S. The Company determined that its European subsidiaries were performing more efficiently and that those earnings could be better utilized in the U.S. The Company has set a minimum cash requirement for each subsidiary, and any cash balance in excess of the minimum will be remitted to the U.S. The earnings that will be remitted to the U.S. have been clearly identified. U.S. taxes as well as offsetting U.S. foreign tax credits have been accrued for as of January 2, 2011 and January 1, 2012. For its subsidiaries in Mexico and Canada, the Company has historically reinvested, and expects to continue to indefinitely reinvest, earnings in those operations, and therefore, no taxes have been accrued on the earnings in those countries.

(t) Stock-based compensation

The Company accounts for stock-based compensation using the fair value measurement guidance. The Company may grant stock options for a fixed number of shares to certain employees, nonemployees and directors with an exercise price equal to or greater than the estimated fair value of the shares at the date of grant. The Company also may grant restricted stock and restricted stock units with fair value determined on or around the date of grant.

The fair value for stock options is estimated at the date of grant using a Black-Scholes option pricing model. The Company recognizes compensation expense over the period the options are expected to vest, net of estimated forfeitures, for each separately vesting portion (or tranche) of the award as if the award is, in substance, multiple awards. If actual forfeitures differ from management estimates, additional adjustments to compensation expense may be required in future periods.

The fair values of stock options are estimated using the following assumptions:

Expected dividend yield—The expected dividend yield is based on the Company’s historical practice of not paying dividends.

Risk free interest rate—The risk free interest rate for the expected term of the option is based on the U.S. Treasury yield curves.

F-14

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

Expected average volatility—The Company uses an average of historical volatility of similar publicly traded companies over the expected term.

Expected term—The expected term represents the period of time that options granted are expected to be outstanding. The Company applied a simplified method to determine the expected term as sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term was not available.

	Year ended
	January 3, 2010		January 2, 2011		January 1, 2012
Expected dividend yield		None		None		None
Risk free interest rate		3.01%		2.07%		1.67%
Expected average volatility		48.96%		49.95%		50.42%
Expected term (years)		5.5 to 7.0		5.5 to 6.5		5.3 to 7.5

See note 15 for further discussion of the Company’s stock-based compensation.

(u) Foreign currency

The Company’s reporting currency is the U.S. dollar. The financial statements of the Company’s subsidiaries whose functional currency is their local currency are translated into U.S. dollars. Foreign assets and liabilities recorded in the local currency are translated into U.S. dollars using the exchange rates in effect at each balance sheet date. Results of operations are translated using the average exchange rates throughout the period. The Company recognized net foreign currency exchange losses, including the effect of foreign currency derivatives, of $3,602,000, $1,175,000 and $3,807,000 for the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively.

The effects of exchange rate fluctuations on translation of assets and liabilities are reported as a separate component of accumulated other comprehensive income (loss) in the consolidated statement of shareholders’ deficit for subsidiaries for which the functional currency is the foreign currency. The functional currency for the Company’s Mexican and Dutch operations is the U.S. dollar. The foreign currency effect of the remeasurement of certain assets and liabilities of these operations are included in net foreign currency exchange loss in the consolidated statements of operations.

(v) Fair value measurements

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities,

F-15

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as risks inherent in valuation techniques, transfer restrictions and credit risk. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

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

Level 2—Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The Company uses interest rate swap agreements to manage its interest rate risk and foreign currency forwards and options (foreign currency derivatives) to manage foreign currency risk. The fair value of these instruments is determined using widely-accepted valuation techniques including discounted cash flow analysis of the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves, spot and forward rates, as well as volatility of the underlying.

The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. As of January 2, 2011 and January 1, 2012, the Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the

F-16

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

credit valuation adjustments are not significant to the overall valuation of its derivatives. As a result, the Company has classified the fair value of its derivatives as Level 2 of the fair value hierarchy.

The table below presents the Company’s assets and liabilities measured at fair value on a recurring basis as of January 2, 2011 and January 1, 2012, aggregated by the level in the fair value hierarchy within which those measurements fall:

(in thousands)	January 2, 2011			Level 1		Level 2			Level 3
Assets:
Foreign currency derivative financial instruments	$	2,607			—	$	2,607			—
Liabilities:
Foreign currency and interest rate swap derivative financial instruments		(6,322	)		—		(6,322	)		—
Derivative financial instruments, net	$	(3,715	)		—	$	(3,715	)		—

(in thousands)	January 1, 2012			Level 1		Level 2			Level 3
Assets:
Foreign currency derivative financial instruments	$	10,157			—	$	10,157			—
Liabilities:
Foreign currency and interest rate swap derivative financial instruments		(6,124	)		—		(6,124	)		—
Derivative financial instruments, net	$	4,033			—	$	4,033			—

(w) Derivative financial instruments

As a global company, FMIC is exposed in the normal course of business to foreign currency and interest rate risks that could affect the Company’s net assets, financial position, results of operations and cash flows. The Company uses derivative instruments to hedge against certain of these risks, and holds derivative instruments for hedging purposes only, not for speculative or trading purposes.

The Company records all derivative instruments on the balance sheet at fair value. Changes in the fair value of the derivative instruments are recognized in earnings unless the Company elects to designate the derivative in a hedging relationship and apply hedge accounting and the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in

F-17

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Foreign currency exchange risk

The Company sells its products internationally and in many of those markets where the sales are made in the foreign country’s local currency. In addition, many purchases by the Company and its subsidiaries from international vendors are denominated in currencies different from the functional currency. Furthermore, the Company is exposed to gains and losses resulting from the effect that fluctuations in foreign currency exchange rates have on the reported results in the Company’s consolidated financial statements due to the translation of the operating results and financial position of the Company’s international subsidiaries. The Company’s most significant foreign currency risk relates to the Euro, the British Pound, the Japanese Yen, the Canadian Dollar and the Mexican Peso. The Company uses foreign currency derivatives to hedge these exposures. The foreign currency derivatives are entered into with banks and allow the Company to exchange a specified amount of foreign currency with U.S. dollars at a future date, based on a fixed exchange rate. The Company’s foreign currency derivatives generally have maturities of up to two years.

Certain foreign currency derivatives outstanding at January 2, 2011 and January 1, 2012 have been designated as cash flow hedges. The effective portion of changes in the fair value of foreign currency derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into net sales in the period the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the foreign currency derivative, as well as amounts excluded from the assessment of hedge effectiveness, is recorded directly in earnings. Based on currency exchange rates at January 1, 2012, during the following twelve months, the Company would recognize in earnings approximately $8,767,000 of net unrealized gains related to these foreign currency derivatives that are included in accumulated other comprehensive income (loss) at January 1, 2012 as the earnings effect of the related forecasted transactions is realized. The amount ultimately recorded to earnings will depend on the actual exchange rate when the related forecasted transaction is realized.

In addition, certain of the Company’s foreign currency derivatives used to manage the exposure related to the Company’s international sales and purchases are not designated as cash flows hedges. These hedges are economic hedges of identified risks to which the Company has elected

F-18

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

not to apply hedge accounting. Hedges not designated as cash flow hedges are recorded at fair value on the Company’s consolidated balance sheets at each reporting period and any changes in the fair value since the last reporting period are recorded directly in earnings.

Certain of the Company’s assets (primarily accounts receivables) are denominated in currencies other than the functional currency of the subsidiary. Changes in the exchange rate between the subsidiary functional currency and the currency in which the asset is denominated can create fluctuations in the reported consolidated financial position, results of operations and cash flows. Accordingly, the Company enters into foreign currency derivatives to hedge the balance sheet exposure against the short-term effects of currency exchange rate fluctuations. The Company does not apply hedge accounting to these foreign currency derivatives and their gains and losses will offset all or part of the transaction gains and losses that are recognized in earnings on the related foreign currency asset. Any changes in the fair value since the last reporting period of these foreign currency derivatives are recorded directly in earnings. The fair value of foreign currency derivatives that are subject to master netting agreements are netted in the consolidated balance sheets, based on whether the foreign currency derivative is designated as a hedging instrument and by counterparty. However, the Company presents the gross amounts of such foreign currency derivatives in the derivative financial instruments table in note 10. The fair value of foreign currency derivatives that are not subject to master netting agreements are recorded on a gross basis in the consolidated balance sheets.

Interest rate risk

The Company uses interest rate swap agreements to manage its exposure to interest rate fluctuations by effectively fixing the interest rate on a portion of its floating-rate debt. In November 2008, the Company entered into an interest rate swap in which it received a floating rate and made fixed rate payments at 3.4%. This interest rate swap was originally designated as a cash flow hedge. In September 2010, the Company amended the interest rate swap (amended interest rate swap) and de-designated the interest rate swap from its hedging relationship due to a mismatch between the terms of the amended interest rate swap and the hedged forecasted transactions. The amended interest rate swap has a fixed rate of 2.4%, with a notional amount of $180,200,000 amortizing to $87,000,000 at maturity in March 2014.

The credit adjusted fair value, net of tax, of the interest rate swap at the de-designation date of $4,405,000 is being amortized from accumulated other comprehensive income (loss) to interest expense over the original term of the interest rate swap (June 2012) as the Company concluded the future cash flows continue to be probable. In addition, changes in the fair value of the amended interest rate swap were recorded directly to interest expense in the consolidated statements of operations in each subsequent reporting period. In 2011, the Company re-designated the amended interest rate swap once it requalified as a cash flow hedge, at which time the credit adjusted fair value, net of tax, of the amended interest rate swap was $3,159,000. The effective portion of the change in fair value of the amended interest rate swap subsequent to the re-designation date is recorded in accumulated other comprehensive income (loss) each

F-19

FENDER MUSICAL INSTRUMENTS CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

January 2, 2011 and January 1, 2012

reporting period and is subsequently reclassified to interest expense in the period the hedged forecasted transactions affect earnings. Any ineffective portion of the amended interest rate swap is recorded directly in earnings each reporting period.

At January 2, 2011, the amended interest rate swap, which was not designated as a cash flow hedge at that time, had a notional amount outstanding of $179,500,000. As of January 1, 2012, the amended interest rate swap, which was designated as a cash flow hedge, had a notional amount outstanding of $142,900,000.

In the following twelve months, based on interest rates as of January 1, 2012, the Company would recognize in earnings approximately $2,681,000 of net unrealized losses, consisting of $2,063,000 related to the original hedging relationship for the interest rate swap and $618,000 for the re-designated hedging relationship for the amended interest rate swap that are included in accumulated other comprehensive income (loss) at January 1, 2012 as the earnings effect of the related forecasted transactions is realized. The amount ultimately recorded to earnings related to the amended interest rate swap will depend on the actual interest rate when the related forecasted transactions are realized.

(x) Unaudited pro forma balance sheet and earnings per common share information

Prior to the filing of the Form S-1, the Company filed an amendment to its certificate of incorporation re-designating its Class A common stock as common stock. Upon the completion of the Company’s initial public offering, all outstanding Class C common stock, and the 3,420 common shares of common stock (formerly Class A) and 1,500 shares of Class B common stock held by the former Chief Executive Officer (CEO) of the Company will automatically convert into the Company’s common stock. On a pro forma basis, all outstanding shares of Class C common stock and the 3,420 shares of Class A and the 1,500 shares of Class B common stock were recorded as a component of stockholders’ (deficit) equity as of January 1, 2012 (note 14).

Unaudited pro forma basic and diluted net income per common share for the year ended January 1, 2012 has been computed to give effect to the conversion of the Company’s redeemable common stock (using the if-converted method) into common stock as though the conversion had occurred as of January 3, 2011.

(y) Earnings per common share

Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been converted or issued. Potentially dilutive securities include redeemable common stock, outstanding stock options and unvested Restricted Stock Units (RSUs). The dilutive effect of potentially dilutive securities is

F-20

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

reflected in diluted earnings per common share by application of the treasury stock method and if-converted method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities. In applying the if-converted method, conversion is not assumed for purposes of computing diluted earnings per share if the effect would be antidilutive. The redeemable common stock was antidilutive as of January 3, 2010, January 2, 2011, and January 1, 2012.

The following table sets forth the computation of basic and diluted earnings per common share for the three years ended January 3, 2010, January 2, 2011, and January 1, 2012 (in thousands, except per share amounts):

	2009		2010			2011
Numerator:
Net income (loss)	$	10,787	$	(1,685	)	$	19,011
Net income available to redeemable common stockholders		4,724		15,584			15,785
Net income (loss) available (attributable) to common stockholders	$	6,063	$	(17,269	)	$	3,226
Denominator:
Weighted average shares outstanding—basic		117		117			114
Effect of dilutive securities		22		—			17
Weighted average shares outstanding—diluted		139		117			131
Net income (loss) per common share available (attributable) to common stockholders:
Basic	$	51.89	$	(147.75	)	$	28.38
Diluted	$	43.70	$	(147.75	)	$	24.72
Pro forma net income per common share (unaudited)
Numerator:
Net income						$	19,011
Denominator:
Weighted average common shares outstanding—basic							114
Adjustment for assumed conversion of redeemable common stock							81
Shares used in computing pro forma basic net income per common share							195
Effective of dilutive securities							17
Shares used in computing pro forma diluted net income per common share							212
Pro forma net income per common share:
Basic						$	97.28
Diluted						$	89.57

F-21

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(z) New accounting pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-04, Amendments to Achieve Common Fair value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU 2011-04 provides additional guidance on fair value measurements that clarifies the application of existing guidance and disclosure requirements, changes certain fair value measurement principles and requires additional disclosures about fair value measurements. The updated guidance is effective on a prospective basis for interim and annual periods beginning after December 15, 2011. Based on the Company’s evaluation of this ASU, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In June 2011, The FASB issued ASU 2011-05, Presentation of Comprehensive Income. ASU 2011-05 requires the components of net income and other comprehensive income to be either presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. An entity is also required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. This new guidance is effective for the Company beginning December 31, 2012 and requires retrospective application. As this guidance only amends the presentation of the components of comprehensive income, the adoption will not have an impact on the Company’s consolidated financial position or results of operations.

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment. ASU 2011-08 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 the two-step impairment test currently required. The updated guidance is effective for the Company for interim and annual periods beginning after December 15, 2011; however, early adoption is permitted. Based on the Company’s evaluation of this ASU, the adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

(2) Goodwill, other intangible assets and impairment charges

Goodwill represents the excess of purchase price over the fair value of the net assets of businesses acquired. Goodwill is not amortized but is tested for impairment annually, or whenever impairment indicators exist. There were no charges related to the impairment of goodwill in the periods presented. As of January 1, 2012, the Company had accumulated impairment losses related to goodwill of $20,537,000.

F-22

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

Changes in the carrying amount of other intangible assets with indefinite lives are as follows:

(In thousands)	Trademarks
Balance at January 3, 2010	$	26,231
Changes		—
Balance at January 2, 2011		26,231
Additions		1,969
Balance at January 1, 2012	$	28,200

In October 2011, the Company entered into an agreement with a supplier to (1) acquire all the rights, title and interests associated with the trademarks for certain brands in Japan, and (2) settle a legal dispute. Based upon fair values of the elements of the arrangement, the Company recorded $1,969,000 as an addition to intangible assets and $1,000,000 as legal settlement which is included in selling, general and administrative expenses.

Other amortizing intangible assets consist of the following:

	January 2, 2011
(In thousands)	Gross carrying amount		Accumulated amortization			Impairment charges		Net amount
Amortizable trademarks	$	400	$	(400	)		—		—
Customer lists		12,760		(5,582	)		—	$	7,178
	$	13,160	$	(5,982	)		—	$	7,178

	January 1, 2012
(In thousands)	Gross carrying amount		Accumulated amortization			Impairment charges		Net amount
Customer lists	$	12,752	$	(6,850	)		—	$	5,902
	$	12,752	$	(6,850	)		—	$	5,902

Customer lists, including foreign currency translation adjustments, are amortized over a period of 10 years and are recorded as a component of selling, general and administrative expenses in the accompanying consolidated statements of operations. Amortizable trademarks have been fully amortized.

F-23

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

Amortization expense of other intangible assets, which is included in depreciation and amortization for the years ended January 3, 2010, January 2, 2011, and January 1, 2012, was approximately $1,622,000, $1,407,000 and $1,268,000, respectively.

The following is an expected amortization schedule for the customer lists for the years 2012 through 2016 and thereafter:

(In thousands)	Amount
Year:
2012	$	1,072
2013		966
2014		966
2015		966
2016		966
Thereafter		966
Total	$	5,902

Based on the impairment testing performed as described in note 1, the Company recognized impairment charges of $1,200,000 for the year ended January 3, 2010. No impairment charges were recorded for the years ended January 2, 2011 and January 1, 2012 as a result of the annual impairment tests. The charges have been included in operating expenses in the accompanying consolidated statements of operations and are summarized as follows:

(In thousands)	2009
Trademarks	$	1,000
Customer list		200
Total impairment charges	$	1,200

(3) Inventories

Inventories consist of the following:

(In thousands)	January 2, 2011		January 1, 2012
Finished goods	$	126,771	$	144,111
Work-in-process		15,281		13,337
Raw materials		21,824		23,885
Total inventories	$	163,876	$	181,333

F-24

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(4) Property and equipment

Property and equipment consist of the following:

(In thousands)	January 2, 2011			January 1, 2012
Land and building	$	12,472		$	12,604
Machinery and equipment		34,315			36,676
Furniture and fixtures		7,919			8,219
Computer hardware and software		23,871			25,506
Leasehold improvements		10,576			13,103
Capital projects in process		1,302			3,108
Total		90,455			99,216
Less accumulated depreciation and amortization		(61,951	)		(67,827	)
Property and equipment – net	$	28,504		$	31,389

Amortization of property and equipment held under capital lease obligations is included in depreciation and amortization expense. Property and equipment and accumulated amortization held under capital lease obligations consist of the following:

(In thousands)	January 2, 2011			January 1, 2012
Machinery and equipment	$	1,343		$	592
Computer hardware and software		1,636			1,838
Total		2,979			2,430
Less accumulated amortization		(1,467	)		(1,146	)
Net	$	1,512		$	1,284

Depreciation and amortization expense was $10,430,000, $9,369,000 and $7,464,000 for the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively. Amortization of capitalized purchased computer software costs included in depreciation expense for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 was approximately $3,066,000, $2,260,000 and $1,238,000, respectively.

F-25

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(5) Other assets

Other assets consist of the following:

(In thousands)	January 2, 2011			January 1, 2012
Security deposits	$	522		$	429
Deferred loan costs		5,830			6,393
Investments		1,053			1,053
Other		418			426
Total		7,823			8,301
Less accumulated amortization		(3,413	)		(4,302	)
Total other assets	$	4,410		$	3,999

Deferred loan costs are generally amortized using the effective interest method over the life of the debt, and such amortization is recorded as a component of interest expense. Amortization expense of deferred loan costs for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 was approximately $1,247,000, $1,283,000 and $1,167,000, respectively.

(6) Accrued expenses

Accrued expenses consist of the following:

(In thousands)	January 2, 2011		January 1, 2012
Accrued payroll and employee benefits	$	6,919	$	14,354
Self-insurance reserves		6,836		6,728
Accrued rebates		3,694		904
Accrued freight and duty		3,010		2,724
Accrued interest		1,223		377
Interest rate swap derivatives		5,131		4,829
Foreign currency derivatives		1,191		1,295
Accrued royalties		1,335		1,668
Accrued warranty expense (note 8)		2,234		1,806
Other		11,259		10,596
Total	$	42,832	$	45,281

(7) 401(k) plan

The Company has a 401(k) plan, which is available to eligible employees. The plan is qualified under Section 401(k) of the Internal Revenue Code. The 401(k) plan provides that eligible

F-26

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

participants may elect to contribute to the plan, subject to Internal Revenue Code restrictions, and also permits the Company to make matching contributions.

Participants in the 401(k) plan were immediately vested in the Company contributions through June 30, 2009. As of July 1, 2009, employer matching contributions were suspended. The Company’s contributions to the plan for the year ended January 3, 2010 were $943,000. No contribution was made for the year ended January 2, 2011. The Company reinstated its matching contributions in 2011 and recorded approximately $1,815,000 of expense in the consolidated statement of operations for the year ended January 1, 2012.

Total retirement plan expenses for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 were $1,154,000, $186,000 and $2,065,000, respectively.

(8) Warranties

The Company offers various product warranties that range from 90 days to a limited lifetime warranty depending upon the accessory, part, or product purchased.

The following is a summary of the Company’s accrual for warranty costs:

(In thousands)	January 2, 2011			January 1, 2012
Warranty accrual, beginning of year	$	2,152		$	2,234
Provision for warranty expense		2,399			1,573
Amounts charged against accrual		(2,317	)		(2,001	)
Warranty accrual, end of year	$	2,234		$	1,806

(9) Long-term debt

The Company’s long-term debt consists of the following:

(In thousands)	January 2, 2011			January 1, 2012
Term Facility Credit Agreement	$	256,205		$	246,205
Revolving Facility Credit Agreement		11,000			—
Total		267,205			246,205
Less current portion		(3,000	)		(6,607	)
Long-term debt – net of current portion	$	264,205		$	239,598

F-27

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The Company’s long-term debt is due as follows:

(In thousands)	Amount
Year:
2012	$	6,607
2013		3,000
2014		236,598
Total	$	246,205

On June 7, 2007, the Company entered into a Term Facility Credit Agreement (the Term Loan) and a Revolving Facility Credit Agreement (the Revolver) with a syndicate of lenders (collectively, as amended, the Credit Facilities). The Credit Facilities provide for committed senior secured financing of $400 million, consisting of the following: the Term Loan in an aggregate original principal amount of $300 million; and the Revolver, available for loans and letters of credit with an aggregate revolving commitment of up to $100 million (based on borrowing based eligibility as described below).

The Term Loan consists of an initial loan of $200 million, which was drawn at closing, and a delayed draw loan of $100 million, which was drawn in connection with the acquisition of KMC on December 31, 2007. The Company may request one or more additional tranches of debt under the Term Loan of up to $75,000,000, subject to a consolidated senior secured debt ratio requirement. The $200 million initial loan is repayable in quarterly installments of $500,000 through June 9, 2014, the maturity date of the Term Loan, at which time the remaining principal balance is due. The $100 million delayed draw is repayable in quarterly installments of $250,000 through the maturity date, at which time the remaining principal balance is due.

The Term Loan bears interest based, at the Company’s option, on either (1) LIBOR plus an applicable margin of 2.25% per annum, or (2) an alternate base rate plus an applicable margin of 1.25% per annum. If the Company’s consolidated senior secured debt ratio is less than or equal to 3.5 to 1.0, the applicable margin applied to either the LIBOR or the alternative base rate is reduced to 2.00% and 1.00%, respectively. As of January 1, 2012, the interest rate on the Term Loan was 2.55%.

The Revolver, which was amended in April 2011, matures on April 27, 2016, if the Term Loan has been refinanced, extended or repaid in full by March 9, 2014; otherwise the Revolver matures on March 9, 2014. Borrowing eligibility under the Revolver is subject to a monthly borrowing base calculation based on (i) certain percentages of eligible accounts receivable and inventory, less (ii) certain reserve items, including outstanding letters of credit and other reserves. The Company may at any time, on not more than four occasions, request an increase to the Revolver of up to an aggregate amount of $50 million. The Revolver bears interest at a rate based, on either (1) LIBOR plus an applicable margin, or (2) an alternate base rate. The margin applied to LIBOR is either 2.00% or 2.25%, depending on the Company’s commitment utilization percentage under

F-28

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

the Revolver. As of January 1, 2012, the Company had no outstanding balance on the Revolver and the Company’s availability under the Revolver was approximately $92,894,000, net of outstanding letters of credit of $7,106,000.

All borrowings and other extensions of credit under the Credit Facilities are subject to the satisfaction of customary conditions and restrictive covenants, including absence of defaults and accuracy in material respects of representations and warranties.

As of January 2, 2011 and January 1, 2012, the Company was in compliance with these covenants included in the agreement. The Company’s U.S. assets and a portion of the stock of its foreign subsidiaries have been pledged as collateral and secure the Company’s indebtedness under the Credit Facilities.

The Credit Facilities require mandatory prepayments in amounts equal to (1) 100% of the net cash proceeds of any indebtedness incurred in violation of the Credit Facilities; (2) the net proceeds from the sale or other disposition of property in excess of specified values (other than in the ordinary course of business and subject to other exceptions) by the Company or its subsidiaries, unless the Company intends and expects to use all or a portion of the proceeds to acquire or repair assets used in the business; and (3) with respect to the Term Loan only, a percentage ranging from 0% to 50%, based on the Company’s consolidated leverage ratio, of excess cash flow, as defined in the Credit Facilities. The Company’s consolidated leverage ratio was 4.1 as of January 1, 2012. As of January 3, 2010, the Company had a mandatory prepayment due on the Term Loan of approximately $34,295,000. This payment was made in May 2010. No mandatory prepayment was required as of January 2, 2011. As of January 1, 2012, the Company had a mandatory prepayment due on the Term Loan of approximately $3,607,000. This payment will be made in March 2012.

The Company may voluntarily prepay loans under the Credit Facilities, in whole or in part, without premium or penalty. Any voluntary prepayment of loans will be subject to reimbursement of the lenders’ breakage costs in the case of a prepayment of Eurodollar rate borrowings other than on the last day of the relevant interest period.

The weighted average interest rates of the Company’s outstanding borrowings under the Credit Facilities were 2.48% and 2.55% at January 2, 2011 and January 1, 2012, respectively.

F-29

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(10) Derivative instruments

The following table summarizes the fair value of the Company’s derivative financial instruments as of January 2, 2011 and January 1, 2012 (in thousands):

	January 2, 2011						January 1, 2012
	Prepaid expenses and other assets			Accrued expenses			Prepaid expenses and other assets			Accrued expenses
Derivatives designated as hedging instruments:
Foreign exchange contracts	$	2,659		$	64		$	9,992		$	—
Foreign exchange contracts		(608	)		(421	)		(19	)		(7	)
Interest rate contracts		—			—			—			(4,829	)
Total derivatives designated as hedging instruments	$	2,051		$	(357	)	$	9,973		$	(4,836	)
Derivatives not designated as hedging instruments
Foreign exchange contracts	$	572		$	—		$	184		$	165
Foreign exchange contracts		(16	)		(834	)		—			(1,453	)
Interest rate contracts		—			(5,131	)		—			—
Total derivatives not designated as hedging instruments	$	556		$	(5,965	)	$	184		$	(1,288	)

Note: The interest rate contract outstanding at January 2, 2011 was subsequently re-designated as a hedging instrument during the year ended January 1, 2012.

F-30

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The following table presents the amounts related to derivative instruments designated as cash flow hedges, affecting the consolidated statements of operations for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 (in thousands):

Derivative type	Amount of gain (loss) recognized in AOCI on derivative (effective portion)			Location of gain (loss) reclassified from AOCI to income (effective portion)	Amount of gain (loss) reclassified from AOCI to income (effective portion)			Location of gain (loss) recognized in income on derivative ineffectiveness and excluded from effectiveness valuation	Amount of gain (loss) recognized in income due to ineffectiveness and excluded from effectiveness valuation
Year ended January 3, 2010:
Foreign exchange contracts	$	498		Net sales	$	(79	)	Net foreign currency exchange gain (loss)	$	(114	)
Interest rate contracts		(3,392	)	Interest expense		(4,339	)	Interest expense		—
	$	(2,894	)		$	(4,418	)		$	(114	)
Year ended January 2, 2011:
Foreign exchange contracts	$	4,114		Net sales	$	2,814		Net foreign currency exchange gain (loss)	$	(1,256	)
Interest rate contracts		(5,511	)	Interest expense		(4,862	)	Interest expense		—
	$	(1,397	)		$	(2,048	)		$	(1,256	)
Year ended January 1, 2012:
Foreign exchange contracts	$	7,750		Net sales	$	(1,699	)	Net foreign currency exchange gain (loss)	$	(1,525	)
Interest rate contracts		(1,445	)	Interest expense		(4,814	)	Interest expense		(14	)
	$	6,305			$	(6,513	)		$	(1,539	)

The following table presents the amounts related to derivative instruments not designated as cash flow hedges, affecting the consolidated statements of operations for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 (in thousands):

Derivative type	Location of (loss) gain recognized in income on derivative	2009			2010			2011
Foreign exchange contracts	Net foreign currency exchange (loss) gain	$	(1,870	)	$	1,000		$	(1,339	)
Interest rate contracts	Interest expense		(22	)		(1,066	)		(1,904	)
		$	(1,892	)	$	(66	)	$	(3,243	)

F-31

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

At January 2, 2011 and January 1, 2012, the Company had foreign currency derivatives outstanding as follows (in thousands, excluding the approximate number of trades outstanding and weighted average maturity of outstanding trades in months):

		2010					2011
		Notional amount		USD equivalent			Notional amount		USD equivalent
Aggregate notional amounts outstanding:
Derivatives designated as cash flow hedges:
Options to sell EUR/purchase USD	€		4,730	$	5,687	€		150	$	183
Options to sell GBP/purchase USD	£		705		1,023	£		25		37
Forward contracts to sell EUR/purchase USD	€		56,525		77,170	€		90,250		126,226
Forward contracts to sell GBP/purchase USD	£		19,093		29,940	£		18,725		30,102
Derivatives not designated as hedging instruments:
Options to sell EUR/purchase USD	€		1,470		1,734			—		—
Options to sell GBP/purchase USD	£		1,301		1,850			—		—
Options to sell USD/purchase YEN	JPY		413,300		5,054	JPY		38,450		480
Forward contracts to sell EUR/purchase USD	€		6,020		7,859	€		3,050		3,948
Forward contracts to sell GBP/purchase USD	£		1,990		3,067	£		50		78
Forward contracts to sell CAD/purchase USD	CAD		7,425		6,986	CAD		5,165		5,059
Forward contracts to sell USD/purchase MXN	MXN		100,464		7,759	MXN		251,253		19,079
Forward contracts to sell USD/purchase YEN	JPY		413,300		4,891	JPY		672,250		8,496
Total				$	153,020				$	193,688
Approximate number of trades outstanding					640					385
Weighted average maturity of outstanding trades (in months)					6					8

Credit risk related contingencies

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations with that counterparty. In addition, the Company has agreements with certain of its derivative counterparties that contain a provision

F-32

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.

The Company has agreements with certain of its counterparties where if the counterparty is no longer a lender to the Company, the Company has repaid all amounts due to the counterparty, or commitments to lend to the Company are terminated, then the counterparty can terminate outstanding derivative contracts with the Company.

As of January 1, 2012, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $3,185,000. As of January 1, 2012, the Company has not posted any collateral related to these agreements. The Company had not breached any of these provisions as of January 1, 2012.

(11) Income taxes

The components of the provision for income taxes are as follows:

Income (loss) from continuing operations before income taxes:

(In thousands)	January 3, 2010		January 2, 2011			January 1, 2012
U.S.	$	4,695	$	(3,913	)	$	16,296
Foreign		7,599		1,576			7,923
	$	12,294	$	(2,337	)	$	24,219

Income tax expense (benefit) from continuing operations:

(In thousands)	January 3, 2010			January 2, 2011			January 1, 2012
Current:
Federal	$	(2,818	)	$	(725	)	$	(3,462	)
State		52			236			352
Foreign		2,508			401			2,302
Total current		(258	)		(88	)		(808	)
Deferred:
Federal		1,532			(741	)		5,673
State		401			209			298
Foreign		(168	)		(32	)		45
Total deferred		1,765			(564	)		6,016
Income tax expense (benefit)	$	1,507		$	(652	)	$	5,208

F-33

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

A reconciliation of the provision for income taxes to income taxes at the “expected” U.S. federal corporate income tax rate of 35% is as follows:

(In thousands)	January 3, 2010			January 2, 2011			January 1, 2012
Income tax expense at “expected” federal corporate rate	$	4,303		$	(818	)	$	8,477
State income taxes – net of federal tax effect		436			267			533
Impact of foreign taxes		(582	)		19			(713	)
Extraterritorial income exclusion/Section 199		(2,601	)		(302	)		(2,092	)
Research and development credit		(204	)		(135	)		(1,313	)
Other, net		155			317			316
Total	$	1,507		$	(652	)	$	5,208

The Company was under audit for tax years 2005 through 2008 with the Internal Revenue Service (IRS). The audit was completed in the first quarter of 2011 and resulted in the release of approximately $1,496,000 of unrecognized tax benefits, offset by any IRS adjustments in the first quarter of 2011. The completion of the audit resulted in a refund of approximately $1,900,000 and interest income of approximately $280,000, which was received in March 2011.

The Company also settled an appeal with the IRS in the first quarter of 2011. The issue related to an amended Research & Development credit taken on the Company’s 2004 tax return. The IRS concluded that the Company was due a tax refund of approximately $150,000 and approximately $35,000 in interest. This tax benefit was recognized in 2011.

Various taxing jurisdictions are examining the Company’s tax returns for various tax years. Although the outcome of tax audits cannot be predicted with certainty, the Company believes the ultimate resolution of these examinations will not have a material impact to the Company’s financial position or results of operations.

No tax expense was recorded for the exercise of employee stock options or other employee stock programs for the years ended January 3, 2010 and January 2, 2011. A tax expense of approximately $67,000 was recorded for the exercise of employee stock options or other employee stock programs for the year ended January 1, 2012.

F-34

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The tax effects of temporary differences that give rise to significant portions of the deferred tax asset and deferred tax liability are as follows:

(In thousands)	January 2, 2011			January 1, 2012
Deferred tax assets:
Intangibles	$	6,273		$	4,719
Section 263A inventory adjustment		2,164			2,310
Compensation		4,456			5,904
Unrealized losses on derivative instruments		1,161			—
Reserves and accruals not currently deductible		7,502			7,095
Tax credit carryovers		2,372			—
Deferred tax assets		23,928			20,028
Deferred tax liabilities:
Property and equipment		(776	)		(2,390	)
Unrealized gains on derivative instruments		—			(3,493	)
Deferred tax liabilities		(776	)		(5,883	)
Net deferred tax assets	$	23,152		$	14,145

The Company believes it is more likely than not that forecasted income, including income that may be generated as a result of prudent and feasible tax planning strategies, together with the tax effects of deferred tax liabilities, will be sufficient to fully recover the Company’s deferred tax assets. In the future, if the Company determines that realization of the deferred tax asset is not more likely than not, the Company will set up a valuation allowance and record additional income tax expense.

For foreign entities not treated as branches for U.S. tax purposes, the Company historically has not provided for U.S. income taxes on the undistributed earnings of these subsidiaries as earnings were considered indefinitely reinvested outside of the U.S. The Company remits the current and historic earnings and profits for its European subsidiaries. Canada and Mexico continue to indefinitely reinvest earnings abroad; therefore, no taxes have been accrued on those earnings.

The undistributed foreign earnings and profits that are deemed to be indefinitely invested outside of the U.S. were $16,547,000, $5,995,000 and $7,675,000 at January 3, 2010, January 2, 2011, and January 1, 2012, respectively. It is not practicable to determine the unrecognized deferred tax liability on these earnings.

F-35

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits at January 2, 2011, and January 1, 2012 (in thousands):

Unrecognized tax benefit—January 3, 2010	$	1,519
Gross decreases—tax positions relating to prior period		(65	)
Gross increases—tax positions relating to current period		54
Unrecognized tax benefit—January 2, 2011		1,508
Gross decrease—tax positions relating to prior period		(1,172	)
Gross increases—tax positions relating to current period		112
Unrecognized tax benefit—January 1, 2012	$	448

The Company recognizes the impact of an uncertain income tax position taken on its income tax returns at the largest amount that is more likely than not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will be recognized if it has less than a 50% likelihood of being sustained. The tax positions are analyzed periodically (at least quarterly) and adjustments are made as events occur that warrant adjustments for those positions.

As of January 2, 2011 and January 1, 2012, all unrecognized tax benefits would impact the effective tax rate if recognized. However, the Company does not believe that a material amount of its unrecognized tax benefits will be recognized by the end of fiscal 2012 as a result of a lapse of the statue of limitations.

The Company recognizes accrued interest related to unrecognized tax benefits as interest expense and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued interest of $126,000 and $32,000 during fiscal 2010 and fiscal 2011, respectively. As of January 2, 2011 and January 1, 2012, the Company has recognized a liability for penalties of $2,000 and $2,000 and interest of $391,000 and $95,000 included in accrued income taxes in the accompanying consolidated balance sheets, respectively.

The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. As of January 1, 2012, the Company’s tax years for 2007 through 2011 are subject to examination by the tax authorities. With few exceptions, as of January 1, 2012, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by tax authorities for years before 2007.

The Company recognizes tax liabilities at such time as they are judged to be probable of being incurred and they can be reasonably estimated. It is possible that either foreign or domestic taxing authorities could challenge those judgments and estimates and draw conclusions that would cause the Company to incur tax liabilities in excess of those currently recorded.

F-36

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

(12) Commitments and contingencies

(a) Financing arrangements

The Company has agreements with several third party lenders, whereby the Company arranges financing for its independent dealers. This financing is available on a recourse or nonrecourse basis to the Company.

In connection with the recourse agreements, the Company is contingently liable to the third party lenders for credit losses in the event the dealers default. At January 2, 2011 and January 1, 2012, the amounts of the contingent liability were $1,049,000 and $1,246,000, respectively. In the event of a dealer’s default under any of the agreements, the Company has the right to reclaim the unsold inventory that was financed under the agreement. Payments made in connection with these agreements were not material for the years ended January 3, 2010, January 2, 2011, and January 1, 2012.

In connection with the nonrecourse agreements, the Company has no obligation to the finance companies except to purchase any inventory repossessed. Sales financed under such agreements totaled approximately $7,276,000, $7,665,000, and $13,064,000 during the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively.

Historically, the amount of inventory the Company has repurchased under these financing arrangements has been immaterial.

(b) Other agreements

The Company has royalty agreements with certain artists and other third parties that generally relate to the sale of products with which the artists or other parties are associated. The length of the agreements varies from one year to an indefinite time period. Amounts charged to cost of goods sold in connection with royalty agreements for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 were approximately $5,073,000, $4,518,000 and $5,216,000, respectively.

The Company has a purchase commitment for fiscal 2012 of $10,100,000 with a supplier of percussion accessories.

(c) Leases

The Company leases certain computer, manufacturing, testing, and office equipment under capital leases. In addition, the Company has certain manufacturing facilities, manufacturing equipment, warehouse space, office space, and office equipment leases that are accounted for as operating leases and expire through 2016 and thereafter. Certain of these operating leases have renewal options available for additional periods of two to five years at adjusted payment terms and have lease payments that are adjusted for changes in the consumer price index during the lease term.

F-37

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The following is a schedule of the future minimum lease payments:

(In thousands)	Capital leases		Operating leases
Year:
2012	$	728	$	11,638
2013		458		9,776
2014		108		8,593
2015		69		7,881
2016		7		7,662
Thereafter		—		17,955
Total		1,370	$	63,505
Less amounts representing interest		55
Present value of net minimum capital lease payments	$	1,315

Rent expense was approximately $10,919,000, $13,759,000 and $13,691,000 during the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively.

(d) Litigation and other

In September 2009, the Company was named as a defendant, together with the National Association of Music Merchants, or NAMM, and Guitar Center, Inc., in a class action lawsuit filed in the U.S. District Court in the Southern District of California (Giambusso v. National Association of Music Merchants, Guitar Center, Inc., Fender Musical Instruments Corporation, Case No. ‘09-CV 2002-LABJMA). The lawsuit alleged that anti-competitive conduct resulted in consumers paying too much for certain guitars and guitar amplifiers between 2004 and 2009. The allegations primarily arose from a consent order agreed to by the FTC and NAMM in April 2009. Shortly thereafter, FMIC, NAMM, Guitar Center, Inc. and several other manufacturers and retailers of fretted instruments and guitar amplifiers, including KMC were named as defendants in additional lawsuits arising out of the same general set of facts. Often referred to as tag-along actions, these follow-on lawsuits are not uncommon. In December 2009, the lawsuits were consolidated into one proceeding by the Judicial Panel on Multidistrict Litigation, or the MDL proceeding (In re Musical Instruments and Equipment Antitrust Litigation, MDL-2121). Following the filing of the consolidated complaint, the Company, together with NAMM, Guitar Center and several other musical instrument manufacturers, moved in the MDL proceeding to dismiss the complaint in its entirety. In August 2011, the court granted the motion to dismiss, but gave the plaintiffs leave to re-file a more specific complaint, which they did file on September 22, 2011. The court also granted plaintiffs limited discovery rights, as well as another opportunity to amend their complaint based on information received during the limited discovery period, which is now closed. Plaintiffs filed a second amended complaint on February 22, 2012, purporting to contain more specific allegations. Although the Company cannot predict the outcome of this

F-38

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

matter with certainty, FMIC views the claims against it and the tag-along actions as groundless and without merit. Based on the Company’s valuation of the matter, and considering the results of discovery proceedings to date, the Company believes the possibility of loss is remote.

In the ordinary course of business, the Company is involved in a number of legal proceedings concerning matters arising in connection with the conduct of its business activities. Many of these proceedings are at preliminary stages, and many of these cases seek an indeterminate amount of damages. The Company regularly evaluates the status of legal proceedings to assess whether a loss is probable or there is a reasonable possibility that a loss, or additional loss, may have been incurred and determine if accruals are appropriate. The Company further evaluates each legal proceeding to assess whether an estimate of possible loss or range of loss can be made, if accruals are not appropriate.

(13) Transactions with related parties

For the years ended January 3, 2010, January 2, 2011, and January 1, 2012, the Company had related party sales of approximately $23,335,000, $29,810,000 and $36,601,000, respectively, to two of the Company’s stockholders that are distributors of the Company’s products in Japan. Accounts receivable of approximately $3,927,000 and $2,809,000 from the two stockholders are included in accounts receivable – related parties at January 2, 2011 and January 1, 2012, respectively.

(14) Capital stock

The Company’s Class A and Class C common stock have one vote per share and the Class B common stock does not have any voting rights.

The Company’s Class B common stock is convertible into shares of Class A common stock on a share-for-share basis and automatically converts into Class A common stock upon the consummation of an initial public offering.

The Company’s Class C common stock is convertible into shares of Class A common stock on a share-for-share basis, subject to adjustment if additional shares of common stock are issued at a price per share of less than the $750 original cost per share of Class C common stock. The Company’s Class C common stock automatically converts into Class A common stock upon the consummation of an initial public offering that results in gross proceeds to the Company of at least $60 million at a price per share to the public of no less than twice the original cost per share of Class C common stock of $750.

The Company’s Class C common stock has special approval rights over certain transactions, and has a senior liquidation preference over the other classes of common stock. Holders of the Company’s Class C common stock are also entitled to receive dividends in preference over holders of other classes of common stock.

At any time on or after December 28, 2006, or in the event of an initial public offering, the holders of the Class C common stock have the right to exercise a put option that would require the Company to redeem all of the Class C common stock within one year of exercise or at the closing of the initial public offering, as applicable. The redemption value will be the greatest of

F-39

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

the liquidation value, the price per share based upon the Company’s fair market value, or the price per share of the common stock sold to the public in an initial public offering, if one had been consummated prior to exercise of the redemption right. Liquidation value is defined as the greater of (i) the $750 original cost per share of Class C common stock plus all declared but unpaid dividends, if any, and (ii) the resulting value of converting the Class C shares into Class A shares. The put option has not been exercised as of January 1, 2012. The put option is also exercisable if the Company is in default under certain agreements to which it is a party.

In addition, the Class C common stock shareholders have “tag-along” rights to participate proportionately in voluntary transfers of common stock made by other FMIC shareholders, have the right to appoint one director to the Company’s Board of Directors prior to an initial public offering by the Company of its Class A common stock, and have the right to require the Company to register for sale to the public shares of the Class A common stock that are issued upon the conversion of the Class C common stock.

Pursuant to a stockholders’ agreement, following termination of employment with the Company, the former CEO of the Company may require the Company to repurchase all or any portion of his common stock at a price equal to the fair market value as of the date of put notice. The employment agreement with the former CEO was terminated on December 31, 2010. This provision expires two years subsequent to the death of the officer. The former CEO holds 4,920 common shares at January 2, 2011.

(15) Stock-based compensation

Effective March 1, 1997, the Board of Directors established the Fender Musical Instruments Corporation Stock Option Plan (the 1997 Plan), authorizing the grant of options to purchase 22,000 shares of Class B common stock to officers, directors, employees, and independent contractors of the Company. On December 28, 2001, the Company replaced the 1997 Plan with the 2001 Equity Compensation Plan (the 2001 Plan). Options to purchase approximately 13,000 shares of Class B common stock were authorized to be issued pursuant to the 2001 Plan. In 2005, the Company amended the 2001 Plan and increased the number of authorized shares by 14,000 shares. Options issued under the 1997 and 2001 Plans typically have a 20-year life and vest over one to seven years. No additional options are available for issuance under these plans.

On December 20, 2007, the Company replaced the 2001 Plan with the 2007 Equity Compensation Plan (the 2007 Plan), which was subsequently amended and restated on August 21, 2008. In 2011, the Company amended the 2007 Plan and increased the number of authorized shares by 30,000 shares. The 2007 Plan provides that the maximum number of shares that may be issued over the term of the 2007 Plan shall not exceed 84,836 shares. Under the 2007 Plan, the Company may issue nonqualified stock options, stock appreciation rights, restricted stock units (RSU), and other share-based awards in the Company’s Class B common stock. Options issued under the 2007 Plan typically have a 10-year life and vest over one to five years. As of January 1, 2012, 7,783 shares of Class B common stock are available for issuance under the 2007 Plan.

F-40

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

A summary of activity and changes related to stock options is as follows:

	Shares			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value(1)
				(Per share)		(In years)		(In thousands)
Outstanding, December 28, 2008		41,459		$	968		9.9	$	—
Issued		310			635
Exercised(2)		(25	)		846
Forfeited, cancelled or expired		(4,887	)		940
Outstanding, January 3, 2010		36,857			968		9.7		23
Issued		3,882			706
Forfeited, cancelled or expired		(1,400	)		1,199
Outstanding, January 2, 2011		39,339			934		8.8		3,892
Issued		31,903			987
Exercised(2)		(1,500	)		750
Forfeited, cancelled or expired		(2,231	)		1,235
Outstanding, January 1, 2012		67,511		$	953		8.5	$	15,552
Options exercisable at January 1, 2012		30,738		$	929		7.8	$	8,378

(1) Aggregate intrinsic value represents the estimated fair value of the Company’s stock price on January 3, 2010 ($705), January 2, 2011 ($895) and January 1, 2012 ($1,159) in excess of the exercise price multiplied by the number of options outstanding or exercisable.

(2) No intrinsic value or tax benefit was recognized for options exercised during the year ended January 3, 2010. The intrinsic value recognized by options exercised was approximately $218,000 for the year ended January 1, 2012. The related tax benefit recorded was approximately $85,000 for the year ended January 1, 2012.

For the years ended January 3, 2010, January 2, 2011, and January 1, 2012, the Company recognized $2,303,000, $1,563,000 and $4,960,000 as stock-based compensation expense related to the issued stock options. The tax benefit related to stock-based compensation expenses totaled $898,000, $610,000 and $1,934,000 for the years ended January 3, 2010, January 2, 2011, and January 1, 2012, respectively. At January 1, 2012, the estimated fair value of nonvested stock-based compensation, net of estimated forfeitures totaled approximately $9,626,000, which will be recognized over the remaining weighted average vesting period of approximately 1.63 years. The weighted average grant-date fair value of stock options granted during the years ended January 3, 2010, January 2, 2011, and January 1, 2012 was $319, $346 and $491, respectively.

The Company issued RSUs as permitted under the 2007 Plan during fiscal years 2008 and 2010. The fair value of RSUs is determined based upon the fair value of the Company’s Class B common stock on the date of grant. The RSUs vest and become unrestricted five years after the date of grant. Share-based compensation expense is recognized using the same tranche vesting method the Company uses for recognizing expense related to its stock options.

F-41

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

A summary of activity and changes related to RSUs is as follows:

	Nonvested shares			Weighted average grant–date fair value
				(Per share)
Nonvested shares outstanding, December 28, 2008		442		$	1,503
Granted		—
Vested		(147	)		1,503
Nonvested shares outstanding, January 3, 2010		295			1,503
Granted		300			706
Vested		(147	)		1,503
Nonvested shares outstanding, January 2, 2011		448			969
Granted		—
Vested		(208	)		1,273
Nonvested shares outstanding, January 1, 2012		240		$	706

The total fair value of RSUs vested during the years ended January 3, 2010, January 2, 2011, and January 1, 2012 was approximately $289,000, $178,000 and $89,000, respectively. The fair value of the nonvested shares as of January 1, 2012 was approximately $278,000. The majority of RSUs which became unrestricted and distributed in 2011 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. No distribution was made for the years ended January 3, 2010 and January 2, 2011. Total payments for the employees’ tax obligations to the taxing authorities were $175,000 and reflected as a financing activity within the consolidated statement of cash flows for the year ended January 1, 2012. There was an aggregate of approximately $139,000, $197,000 and $76,000 of unearned compensation cost related to nonvested shares as of January 3, 2010, January 2, 2011, and January 1, 2012, respectively. This cost is expected to be recognized over a weighted average period of approximately 3.34 years as of January 1, 2012.

(16) Segment and geographic information

The Company reports segment information based on the management approach, or the way that management organizes the operating segments within Company for which separate financial information is evaluated regularly by the Chief Operating Decision Maker in deciding how to allocate resources. The Company operates in two reportable operating segments as follows:

• FMI—This operating segment primarily consists of worldwide operations of the Fender owned brands (Fender, Squier, Gretsch guitars, Jackson, Charvel, EVH, Guild and amplifiers,) and European operations of KMC brands as noted below.

F-42

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

• KMC—This operating segment operates primarily as a distributor of musical instruments and accessories with operations focused in the United States and Canada with smaller operations internationally (primarily in Asia.) In these regions, KMC distributes accessories and sells the following brands-Ovation, Takamine, Genz Benz, Gretsch Drums, Gibraltar, LP and Toca. As noted above, these brands are sold by FMI in Europe.

All significant intercompany transactions are eliminated upon consolidation and there are no differences between the accounting policies used to measure profit and loss for the Company’s segments or on the consolidated basis. Net sales are defined as net sales to external customers. During fiscal 2009, 2010, and 2011, the Company had one customer that accounted for approximately 15%, 17%, and 17% of net sales for the FMI operating segment, respectively. The same customer accounted for approximately 15%, 14%, and 13% of net sales for the KMC operating segment for fiscal 2009, 2010, and 2011, respectively.

Summary information for the Company’s operating segments as of and for the three years ended January 3, 2010, January 2, 2011, and January 1, 2012 was the following (in thousands).

(In thousands)	FMI		KMC		Total
2009:
Net sales	$	425,087	$	187,434	$	612,521
Operating income		25,103		4,706		29,809
Depreciation and amortization		8,351		3,701		12,052
Segment assets		251,487		105,285		356,772
2010:
Net sales	$	434,258	$	183,572	$	617,830
Operating income		5,337		6,580		11,917
Depreciation and amortization		7,321		3,455		10,776
Segment assets		243,511		103,386		346,897
2011:
Net sales	$	512,040	$	188,514	$	700,554
Operating income		38,222		3,601		41,823
Depreciation and amortization		6,553		2,179		8,732
Segment assets		256,413		110,167		366,580

The Company operates largely in three geographical areas:

• North America (United States and Canada);

• Europe (including Africa and Middle East); and

• International (Asia, Australia and Latin America)

F-43

Fender Musical Instruments Corporation

and subsidiaries

Notes to consolidated financial statements

January 2, 2011 and January 1, 2012

The table below present information about the Company’s net sales and long-lived assets, which consists of property and equipment, goodwill and other intangibles as of and for the years ended January 3, 2010, January 2, 2011, and January 1, 2012 (in thousands).

2009	North America		Europe		International		Total
Net sales(a)	$	372,317	$	180,475	$	59,729	$	612,521
Long-lived assets	$	71,240	$	683	$	450	$	72,373

2010	North America		Europe		International		Total
Net sales(a)	$	385,701	$	165,012	$	67,117	$	617,830
Long-lived assets	$	64,763	$	1,366	$	467	$	66,596

2011	North America		Europe		International		Total
Net sales(a)	$	423,425	$	190,996	$	86,133	$	700,554
Long-lived assets	$	68,470	$	1,273	$	431	$	70,174

(a) Net sales for North America include $333,505, $342,912 and $373,285 from the United States in fiscal 2009, 2010 and 2011, respectively. Long-lived assets for North America include $68,003, $61,406 and $64,031 in the United States as of January 3, 2010, January 2, 2011, and January 1, 2012, respectively.

(17) Subsequent events

The Company has evaluated subsequent events through March 6, 2012, the date of issuance of its consolidated financial statements.

On March 5, 2012, the Company filed an amendment to its certificate of incorporation re-designating its Class A common stock as common stock.

F-44

                shares

Common stock

Prospectus

J.P. Morgan William Blair & Company

Baird Stifel Nicolaus Weisel Wells Fargo Securities

                    , 2012

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of the prospectus applicable to that jurisdiction.

Until                     , 2012, all dealers that buy, sell or trade in shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II

Information not required in prospectus

Item 13. Other expenses of issuance and distribution

The following table presents the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the FINRA filing fees and the Nasdaq Global Market listing fee.

SEC Registration fee	$	22,920
FINRA filing fee		20,500
Nasdaq Global Market listing fee			*
Printing and engraving expenses			*
Legal fees and expenses			*
Accounting fees and expenses			*
Blue sky fees and expenses			*
Custodian and transfer agent fees			*
Miscellaneous fees and expenses			*
Total	$		*

* To be completed by amendment.

Item 14. Indemnification of directors and officers

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended (the Securities Act).

Our certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors and officers. Our certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability:

• for any breach of the director’s duty of loyalty to us or our stockholders;

• for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

• in respect of unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

• for any transaction from which the director derives any improper personal benefit.

Our certificate of incorporation also provides that if Delaware law is amended after the date the certificate of incorporation is filed to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by Delaware law.

II-1

Our certificate of incorporation and bylaws provide that we will indemnify our directors and officers to the fullest extent permitted by law, against all expenses and liabilities incurred in connection with their service for or on our behalf. Our certificate of incorporation and bylaws provide that we shall advance the expenses incurred by a director or officer in advance of the final disposition of an action or proceeding. Our certificate of incorporation and bylaws also authorize us, by resolution of our board of directors, to indemnify any of our other employees or agents. In addition, our certificate of incorporation permits us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of his or her action in that capacity, whether or not Delaware law would otherwise permit indemnification. We have an insurance policy covering our directors and officers with respect to certain liabilities, including liabilities arising under the Securities Act or otherwise.

We have entered into indemnification agreements with each of our directors and executive officers, a form of which is attached as Exhibit 10.1. With specified exceptions, these agreements provide for indemnification to the fullest extent permitted by law of related expenses, including, among other things, attorneys’ fees, judgments, fines and settlement amounts reasonably incurred by the applicable director or executive officer in any action, proceeding or similar event by reason of such person’s status as a director, officer, employee, agent or fiduciary of the company or any similar status at an entity where the individual is serving at our request. The agreements also provide that, to the fullest extent permitted by law, we will advance all expenses incurred by our directors and executive officers in connection with a legal proceeding in which they may be entitled to indemnification. We have entered into a separate indemnification agreement with entities affiliated with Weston Presidio and Michael Lazarus, who is affiliated with Weston Presidio. The agreement, which is attached as Exhibit 10.2, is similar to our agreements with our other directors and our executive officers, but also provides for indemnification of expenses incurred in connection with any action, proceeding or similar event by reason of or related to the fact that the parties to the indemnification agreement are or may be stockholders or controlling persons of our company.

Reference is made to Section 9 of the underwriting agreement contained in Exhibit 1.1 to this registration statement, indemnifying our directors and officers against limited liabilities. In addition, Section 6 of our stockholders’ agreement contained in Exhibits 4.2 and 4.3 to this registration statement provides for indemnification of certain of our stockholders against liabilities described in our stockholders’ agreement.

Item 15. Recent sales of unregistered securities

Since December 29, 2008, we have issued the following securities that were not registered under the Securities Act:

1. We granted stock options to purchase 36,095 shares of our class B common stock at exercise prices ranging from $628.00 to $987.00 per share, and 300 restricted stock units, to employees, consultants and directors under our 2007 Equity Compensation Plan.

2. We issued 1,525 shares of our class B common stock upon the exercise of stock options for an aggregate consideration of $1,146,150 and issued 559 shares of class B common stock upon the distribution of restricted stock units under our 2001 and 2007 Equity Compensation Plan.

The sale of securities described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Rule 701 promulgated under

II-2

the Securities Act. All amounts shown above have been adjusted to reflect our anticipated     -for-     stock split.

Item 16. Exhibits and financial statement schedules

(a) Exhibits

Exhibit no.		Description
	1.1*	Form of Underwriting Agreement.
	3.1	Third Amended and Restated Certificate of Incorporation.
	3.2	Form of Fourth Amended and Restated Certificate of Incorporation to be effective upon closing.
	3.3	Amended and Restated Bylaws.
	3.4	First Amendment to Amended and Restated Bylaws.
	3.5	Form of Second Amended and Restated Bylaws to be effective upon closing.
	4.1*	Form of Common Stock certificate.
	4.2	Third Amended and Restated Stockholders’ Agreement, dated as of December 28, 2001, by and among Fender Musical Instruments Corporation and certain stockholders listed on the signature pages thereto.
	4.3	First Amendment to Third Amended and Restated Stockholders’ Agreement, dated as of June 24, 2002, by and among Fender Musical Instruments Corporation and certain stockholders listed on the signature pages thereto.
	5.1*	Opinion of Sullivan & Cromwell LLP.
	10.1	Form of Indemnification Agreement between Fender Musical Instruments Corporation and each of its directors and executive officers.
	10.2	Amended and Restated Indemnification Agreement, dated as of January 5, 2009, by and among Fender Musical Instruments Corporation, Michael Lazarus, Weston Presidio Capital, IV, L.P., WPC Entrepreneur Fund II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.
	10.3	Amended and Restated Indemnification Agreement, dated as of January 20, 2009, by and among Fender Musical Instruments Corporation and Mark H. Fukunaga.
	10.4	First Amended and Restated Fender Musical Instruments Corporation Annual Incentive Plan.
	10.5	1997 Stock Option Plan.
	10.6	Form of Stock Option Agreement under 1997 Stock Option Plan.
	10.7	2001 Equity Compensation Plan.
	10.8	First Amendment to 2001 Equity Compensation Plan.
	10.9	Second Amendment to 2001 Equity Compensation Plan.
	10.10	Form of Stock Option Agreement under 2001 Equity Compensation Plan.
	10.11	Form of Stock Purchase Agreement under 2001 Equity Compensation Plan.
	10.12	Form of Notice of Stock Option Grant under 2001 Equity Compensation Plan.

II-3

Exhibit no.		Description
	10.13	2007 Amended and Restated Equity Compensation Plan.
	10.14	Amendment to 2007 Amended and Restated Equity Compensation Plan.
	10.15	Form of Stock Option Agreement under 2007 Amended and Restated Equity Compensation Plan.
	10.16	Form of Stock Purchase Agreement under 2007 Amended and Restated Equity Compensation Plan.
	10.17	Form of Notice of Stock Option Grant under 2007 Amended and Restated Equity Compensation Plan.
	10.18	Form of Restricted Stock Unit Agreement under 2007 Amended and Restated Equity Compensation Plan.
	10.19	Second Amended and Restated Employment Agreement, effective as of February 12, 2012, between Fender Musical Instruments Corporation and Larry E. Thomas.
	10.20	Employment Agreement, dated as of December 2, 2008, between Fender Musical Instruments Corporation and James S. Broenen.
	10.21	First Amendment to Employment Agreement, dated as of April 1, 2010, between Fender Musical Instruments Corporation and James S. Broenen.
	10.22	Second Amendment to Employment Agreement, dated as of August 15, 2011, between Fender Musical Instruments Corporation and James S. Broenen.
	10.23	Amended and Restated Employment Agreement, dated as of December 2, 2008, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.24	First Amendment to Amended and Restated Employment Agreement, dated as of April 1, 2010, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.25	Second Amendment to Amended and Restated Employment Agreement, dated as of August 15, 2011, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.26	Service Agreement, dated as of August 30, 2005, between Fender Musical Instruments Europe Limited and Gordon Raison.
	10.27	Lease, dated as of November 16, 2004, between 1151 Mildred LLC and Fender Musical Instruments Corporation.
	10.28	First Amendment to Lease, dated as of November 6, 2008, between 1151 Mildred LLC and Fender Musical Instruments Corporation.
	10.29	Lease, dated as of March 27, 2008, between Inmobiliaria Calibert, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.30	First Amendment to Lease, dated as of January 3, 2011, between Inmobiliaria Calibert, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.31	Lease between Bercali, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.32	Lease Agreement, dated as of January 3, 2011, between Bercali, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.

II-4

Exhibit no.		Description
	10.33	Term Facility Credit Agreement, dated as of June 7, 2007, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and Goldman Sachs Credit Partners L.P., as syndication agent.
	10.34	Revolving Facility Credit Agreement, dated as of June 7, 2007, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, The CIT Group/Commercial Services, Inc. and Wachovia Capital Finance Corporation (Western), as co-documentation agents, Wells Fargo Foothill, LLC, as syndication agent and JPMorgan Chase Bank, N.A., as administrative agent.
	10.35	First Amendment to Revolving Facility Credit Agreement, dated as of April 27, 2011, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities LLC and Wells Fargo Capital Finance, LLC, as Co-Lead Arrangers, J.P. Morgan Securities LLC, Wells Fargo Capital Finance, LLC and Barclays Capital, as joint bookrunners, and Barclays Capital, as syndication Agent.
	21.1	List of subsidiaries.
	23.1	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
	23.2*	Consent of Sullivan & Cromwell LLP (contained in Exhibit 5.1).
	24.1	Power of Attorney (contained in the signature page to this registration statement).

* To be filed by amendment.

(b) Financial Statement Schedules.    All financial statement schedules are omitted because they are not applicable, the required information is not present in amounts sufficient to require submission of such schedules or the information is included in the registrant’s consolidated financial statements or notes thereto.

Item 17. Undertakings

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

II-5

The undersigned registrant hereby undertakes that:

1. For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-6

Signatures

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on this 7th day of March, 2012.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:	/s/ Larry E. Thomas
	Larry E. Thomas Chief Executive Officer

Power of attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Larry E. Thomas, James S. Broenen, and Mark D. Van Vleet, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature	Title	Date
/s/ Larry E. Thomas Larry E. Thomas	Chief Executive Officer (Principal Executive Officer)	March 7, 2012
/s/ James S. Broenen James S. Broenen	Chief Financial Officer (Principal Financial and Accounting Officer)	March 7, 2012
/s/ Conrad A. Conrad Conrad A. Conrad	Director	March 7, 2012
/s/ William L. Mendello William L. Mendello	Director	March 7, 2012
/s/ Mark Fukunaga Mark Fukunaga	Co-Chairman of the Board	March 7, 2012

II-7

Signature	Title	Date
/s/ Donald Haider Donald Haider	Director	March 7, 2012
/s/ Michael P. Lazarus Michael P. Lazarus	Co-Chairman of the Board	March 7, 2012
/s/ Robert C. Wood Robert C. Wood	Director	March 7, 2012

II-8

Index to Exhibits

Exhibit no.		Description
	1.1*	Form of Underwriting Agreement.
	3.1	Third Amended and Restated Certificate of Incorporation.
	3.2	Form of Fourth Amended and Restated Certificate of Incorporation to be effective upon closing.
	3.3	Amended and Restated Bylaws.
	3.4	First Amendment to Amended and Restated Bylaws.
	3.5	Form of Second Amended and Restated Bylaws to be effective upon closing.
	4.1*	Form of Common Stock certificate.
	4.2	Third Amended and Restated Stockholders’ Agreement, dated as of December 28, 2001, by and among Fender Musical Instruments Corporation and certain stockholders listed on the signature pages thereto.
	4.3	First Amendment to Third Amended and Restated Stockholders’ Agreement, dated as of June 24, 2002, by and among Fender Musical Instruments Corporation and certain stockholders listed on the signature pages thereto.
	5.1*	Opinion of Sullivan & Cromwell LLP.
	10.1	Form of Indemnification Agreement between Fender Musical Instruments Corporation and each of its directors and executive officers.
	10.2	Amended and Restated Indemnification Agreement, dated as of January 5, 2009, by and among Fender Musical Instruments Corporation, Michael Lazarus, Weston Presidio Capital, IV, L.P., WPC Entrepreneur Fund II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.
	10.3	Amended and Restated Indemnification Agreement, dated as of January 20, 2009, by and among Fender Musical Instruments Corporation and Mark H. Fukunaga.
	10.4	First Amended and Restated Fender Musical Instruments Corporation Annual Incentive Plan.
	10.5	1997 Stock Option Plan.
	10.6	Form of Stock Option Agreement under 1997 Stock Option Plan.
	10.7	2001 Equity Compensation Plan.
	10.8	First Amendment to 2001 Equity Compensation Plan.
	10.9	Second Amendment to 2001 Equity Compensation Plan.
	10.10	Form of Stock Option Agreement under 2001 Equity Compensation Plan.
	10.11	Form of Stock Purchase Agreement under 2001 Equity Compensation Plan.
	10.12	Form of Notice of Stock Option Grant under 2001 Equity Compensation Plan.
	10.13	2007 Amended and Restated Equity Compensation Plan.
	10.14	Amendment to 2007 Amended and Restated Equity Compensation Plan.
	10.15	Form of Stock Option Agreement under 2007 Amended and Restated Equity Compensation Plan.

Exhibit no.		Description
	10.16	Form of Stock Purchase Agreement under 2007 Amended and Restated Equity Compensation Plan.
	10.17	Form of Notice of Stock Option Grant under 2007 Amended and Restated Equity Compensation Plan.
	10.18	Form of Restricted Stock Unit Agreement under 2007 Amended and Restated Equity Compensation Plan.
	10.19	Second Amended and Restated Employment Agreement, effective as of February 12, 2012, between Fender Musical Instruments Corporation and Larry E. Thomas.
	10.20	Employment Agreement, dated as of December 2, 2008, between Fender Musical Instruments Corporation and James S. Broenen.
	10.21	First Amendment to Employment Agreement, dated as of April 1, 2010, between Fender Musical Instruments Corporation and James S. Broenen.
	10.22	Second Amendment to Employment Agreement, dated as of August 15, 2011, between Fender Musical Instruments Corporation and James S. Broenen.
	10.23	Amended and Restated Employment Agreement, dated as of December 2, 2008, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.24	First Amendment to Amended and Restated Employment Agreement, dated as of April 1, 2010, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.25	Second Amendment to Amended and Restated Employment Agreement, dated as of August 15, 2011, between Fender Musical Instruments Corporation and Mark D. Van Vleet.
	10.26	Service Agreement, dated as of August 30, 2005, between Fender Musical Instruments Europe Limited and Gordon Raison.
	10.27	Lease, dated as of November 16, 2004, between 1151 Mildred LLC and Fender Musical Instruments Corporation.
	10.28	First Amendment to Lease, dated as of November 6, 2008, between 1151 Mildred LLC and Fender Musical Instruments Corporation.
	10.29	Lease, dated as of March 27, 2008, between Inmobiliaria Calibert, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.30	First Amendment to Lease, dated as of January 3, 2011, between Inmobiliaria Calibert, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.31	Lease between Bercali, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.32	Lease Agreement, dated as of January 3, 2011, between Bercali, S.A. de C.V. and Instrumentos Musicales Fender, S.A. de C.V.
	10.33	Term Facility Credit Agreement, dated as of June 7, 2007, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent and Goldman Sachs Credit Partners L.P., as syndication agent.

Exhibit no.		Description
	10.34	Revolving Facility Credit Agreement, dated as of June 7, 2007, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, The CIT Group/Commercial Services, Inc. and Wachovia Capital Finance Corporation (Western), as co-documentation agents, Wells Fargo Foothill, LLC, as syndication agent and JPMorgan Chase Bank, N.A., as administrative agent.
	10.35	First Amendment to Revolving Facility Credit Agreement, dated as of April 27, 2011, by and among Fender Musical Instruments Corporation, the several lenders from time to time parties thereto, JPMorgan Chase Bank, N.A., as administrative agent, J.P. Morgan Securities LLC and Wells Fargo Capital Finance, LLC, as Co-Lead Arrangers, J.P. Morgan Securities LLC, Wells Fargo Capital Finance, LLC and Barclays Capital, as joint bookrunners, and Barclays Capital, as syndication Agent.
	21.1	List of subsidiaries.
	23.1	Consent of KPMG LLP, Independent Registered Public Accounting Firm.
	23.2*	Consent of Sullivan & Cromwell LLP (contained in Exhibit 5.1).
	24.1	Power of Attorney (contained in the signature page to this registration statement).

* To be filed by amendment.

EX-3.1

Exhibit 3.1

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

FENDER MUSICAL INSTRUMENTS CORPORATION

Pursuant to Section 103 of the General Corporation Law of the State of Delaware, as amended (the “Delaware GCL”), the undersigned, Larry E. Thomas, the Chief Executive Officer of Fender Musical Instruments Corporation, a Delaware corporation (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Fender Musical Instruments Corporation, and the date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was January 31, 1985.

2. This Third Amended and Restated Certificate of Incorporation hereby restates, integrates and further amends the Corporation’s Certificate of Incorporation, as heretofore amended, to read in its entirety as follows:

ARTICLE I

NAME

The name of the corporation is “Fender Musical Instruments Corporation” (the “Corporation”).

ARTICLE II

REGISTERED OFFICE AND AGENT

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

ARTICLE III

OBJECTS AND PURPOSES

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE IV

CAPITAL STOCK

A. Authorized Shares.

The total number of shares of capital stock which the Corporation is authorized to issue is 438,584 shares of common stock, $0.01 par value per share (the “common stock”), of which (A) 276,572 shares are designated as Common Stock (the “Common Stock”), (B) 84,836 shares are designated as Class B Common Stock (the “Class B Common Stock”), and (C) 77,176 shares are designated as Class C Common Stock (the “Class C Common Stock”). Effective upon the filing of this Certificate of Incorporation (the “Effective Time”), each share of Class A Common Stock, par value $0.01 per share, of the Corporation then issued (the “Old Common Stock”) shall, without further action on the part of the Corporation or its stockholders, be reclassified, changed and converted into one share of Common Stock. Each outstanding stock certificate which immediately prior to the Effective Time represented a number of shares of Old Common Stock shall, without any action on the part of the holder, thereupon and thereafter, until surrendered as hereinafter provided, represent the number of shares of Common Stock represented by such certificate. The registered holder of each such certificate may following the Effective Time surrender such certificate to the Corporation for cancellation and, upon such surrender, shall receive in exchange therefor without charge, a new certificate registered in the name of such holder representing the number of shares of the Common Stock which, prior to the Effective Time, were represented by the certificate(s) representing such shares of Old Common Stock.

The designations, powers, preferences and relative, participating, optional and other special rights, and the qualifications, limitations and restrictions thereof with respect to the common stock are as set forth in this Article IV.

No stockholder of the Corporation shall have preemptive rights to purchase any Securities proposed to be issued by the Corporation, whether such rights exist pursuant to Applicable Law or otherwise; provided, however, that nothing contained herein shall in any way modify or affect the rights provided in Section 9 of the Stockholders Agreement.

B. Definitions.

As used in this Restated Certificate, the following capitalized terms have the following meanings:

“Additional Stock” shall mean shares of common stock or options to purchase or rights to subscribe for common stock, or securities convertible into or exchangeable for common stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, or common stock appreciation rights, phantom common stock rights and other rights to receive or be paid an amount based on the Market Price of the common stock; provided, however, that Additional Stock shall not include shares of Common Stock or Class B Common Stock issued pursuant to the Equity Incentive Plan (including the reissuance under the Equity Incentive Plan of any shares of stock (or options therefor) that expire or are repurchased by the Corporation under the terms of the Equity Incentive Plan or are repurchased from the Management Stockholders pursuant to Section 4 of the Stockholders Agreement as long as the total number of shares (or options therefor) issued under the Equity Incentive Plan does not exceed 84,836).

2

“Affiliate” means, with respect to any Person, (a) a director, officer, managing member or general partner of such Person or of any Person identified in clause (c) below, (b) a spouse of such Person, any lineal descendant (whether natural or adopted) of a grandparent of such Person or any Person described in clause (a) and any spouse of such lineal descendant, and (c) any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For the purpose of the above definition, the term “control” (including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or investment decisions of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Aggregate Original Cost” means an amount equal to the Original Cost multiplied by the number of shares of Class C Common Stock issued by the Corporation at the Original Issuance Date.

“Applicable Law,” with respect to any Person, means all provisions of laws, statutes, ordinances, rules, regulations, permits, certificates or orders of any Governmental Authority applicable to such Person or any of its assets or property or to which such Person or any of its assets or property is subject, and all judgments, injunctions, orders and decrees of all courts and arbitrators in proceedings or actions in which such Person is a party or by which it or any of its assets or properties is or may be bound or subject.

“Bylaws” means the Bylaws of the Corporation, as amended and in effect from time to time.

“Board” and “Board of Directors” mean the Board of Directors of the Corporation.

“Class B Common Stock” has the meaning ascribed to it in Section A of this Article IV.

“Class C Common Stock” has the meaning ascribed to it in Section A of this Article IV.

“Class C Common Stock Purchase Agreement” means the Class C Common Stock Purchase Agreement, dated on or about December 28, 2001, among the Corporation and the Investors named therein, as amended from time to time.

“common stock” means the Common Stock, the Class B Common Stock and the Class C Common Stock.

“Common Stock” has the meaning ascribed to it in Section A of this Article IV.

“Conversion Price” has the meaning ascribed to it in Section C.4(a) of this Article IV.

“Converted Shares” has the meaning ascribed to it in Section C.4(a) of this Article IV.

3

“Converting Shares” has the meaning ascribed to it in Section C.4(a) of this Article IV.

“Corporation” has the meaning ascribed to it in Article I.

“Deferral Period” has the meaning ascribed to it in Section C.4(a) of this Article IV.

“Equity Incentive Plan” means the Fender Musical Instruments Corporation 1997 Stock Option Plan (the “1997 Stock Plan”), the Fender Musical Instruments Corporation 2001 Equity Compensation Plan, as amended (the “2001 Stock Plan”), the Fender Musical Instruments Corporation 2007 Equity Compensation Plan (the “2007 Stock Plan”) and the Fender Musical Instruments Corporation 2007 Amended and Restated Equity Compensation Plan, as amended (the “2007 Amended and Restated Stock Plan”, and collectively with the 1997 Stock Plan, the 2001 Stock Plan and the 2007 Stock Plan, the “Stock Plans”) pursuant to which the Corporation has reserved 84,836 shares of Class B Common Stock for issuance to officers, directors, employees and consultants of the Corporation, of which, as of the date of this Third Amended and Restated Certificate of Incorporation, 7,848 shares of Class B Common Stock are available for future grant (plus any shares that are available for issuance under the Stock Plans due to forfeitures, lapses or terminations of options currently outstanding thereunder).

“Event of Default” shall mean any of the following events: (i) the Corporation shall fail to perform or observe any material covenant contained in any of the Related Agreements and such failure shall have continued unremedied for a period of 30 days after the earlier of (A) the date on which the Corporation should have given notice thereof to the holders of Class C Common Stock as set forth in the Stockholders Agreement or (B) the date on which the Corporation receives notice thereof from a holder of Class C Common Stock; (ii) any representation or warranty made by the Corporation in any of the Related Agreements or any information contained in any certificate, report, financial statement, financial schedule or other document prepared by, or on behalf of, the Corporation and delivered under or pursuant to any term of any of the Related Agreements or in connection with the issuance of the Class C Common Stock, shall prove to have been untrue or incorrect in any material respect or shall prove to have had omitted from it any material fact necessary to make the information provided therein, when taken as a whole, not misleading, in each case as of the date and in view of the circumstances under which it was made; (iii) the Corporation shall have been declared in default under any (A) indebtedness for money borrowed or (B) other financing or security agreement or other instrument evidencing or related to indebtedness of the Corporation in each case in an amount greater than $250,000, or (C) any indebtedness for money borrowed or other financing or security agreement or other instrument evidencing or related to indebtedness of the Corporation where the effect of such default has caused a third party to take such action as is necessary to declare or otherwise cause such indebtedness to become due and payable prior to its scheduled maturity other than in the case of good faith disputes; and (iv) any voluntary case or proceeding or involuntary case or proceeding against the Corporation, which is not dismissed within 60 days of filing, seeking liquidation, reorganization or other relief with respect to indebtedness under any applicable federal or state bankruptcy, insolvency, reorganization or similar law now or hereafter in effect or seeking the appointment of a custodian, receiver, liquidator, assignee, trustee or similar official has been instituted, or any assignment by the Corporation for the benefit of creditors or the failure by the Corporation to satisfy any judgment in excess of $100,000.

4

“Excluded Securities” means (i) up to 84,836 shares of Common Stock or Class B Common Stock issued pursuant to the Equity Incentive Plan (including the reissuance under the Equity Incentive Plan of any shares of stock (or options therefor) that expire or are repurchased by the Corporation under the terms of the Equity Incentive Plan); (ii) any shares of Common Stock issued pursuant to a Qualified Public Offering or, if the holders of Class C Common Stock have exercised their Redemption Rights, pursuant to an Initial Public Offering so long as the shares of Class C Common Stock that have elected to be redeemed pursuant to their Redemption Rights are so redeemed at the closing of such Initial Public Offering; (iii) any shares of Common Stock or Class B Common Stock issued to persons who are not Affiliates of the Corporation or any of its stockholders in connection with strategic transactions or as part of an acquisition by the Corporation of another Person provided that no more than 21,365 shares (as adjusted for any stock split, dividend, combination, reclassification or similar event involving the Common Stock or Class B Common Stock) of Common Stock or Class B Common Stock are issued in aggregate pursuant to this subsection (iii); (iv) any shares of Common Stock issued upon conversion of the Class B or Class C Common Stock; (v) the issuance to any employee of the Corporation of shares of Common Stock or Class B Common Stock repurchased from the Management Stockholders pursuant to Section 4 of the Stockholders Agreement; and (vi) the issuance of 2,667 shares of Common Stock at the purchase price per share equal to the Original Cost provided that such issuance occurs no later than January 31, 2002 and provided further that an equal number of shares of Common Stock is simultaneously repurchased with the proceeds.

“Governmental Authority” shall mean any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country.

“Initial Public Offering” means the closing of a firm commitment underwritten initial public offering for the account of the Corporation of Common Stock pursuant to a registration statement filed under the Securities Act.

“Investor Notice of Election” has the meaning ascribed to it in Section C.5.(a) of this Article IV.

“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest of any kind whatsoever in or on such asset (including the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction), (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset and (c) in the case of securities, any purchase option, call, appreciation right or similar right of a third party with respect to such securities.

“Liquidation” means (i) any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, or (ii) any Sale of the Corporation.

“Liquidation Value” has the meaning ascribed to it in Section C.3.(a) of this Article IV.

“Management Stockholders” has the meaning ascribed to it in the Stockholders Agreement.

5

“Market Price” means, as to any Security, the average of the closing prices of such Security’s sales on all United States securities exchanges on which such Security may at the time be listed, or, if there have been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day such security is not quoted in the NASDAQ System, the average of the highest bid and lowest asked prices on such day in the domestic over-the-counter market as reported by the National Quotation Bureau, Incorporated, or any similar or successor organization, in each such case averaged over a period of 21 days consisting of the day as of which “Market Price” is being determined and the 20 consecutive business days prior to such day. If at any time such Security is not listed on any domestic securities exchange or quoted in the NASDAQ System or the domestic over-the-counter market, the “Market Price” of such Security shall be the fair value thereof as determined in good faith by the Board.

“Original Cost” means, with respect to any share of Class C Common Stock, $750.00. In the event of any change (by way of any split, recapitalization, subdivision, recombination or similar event) in the number or kind of shares of Class C Common Stock, the Original Cost of the shares of Class C Common Stock immediately prior to such change shall be ratably adjusted among such shares of Class C Common Stock immediately after such change.

“Original Issuance Date” means, with respect to a share of Class C Common Stock, the date on which such share of Class C Common Stock was first issued.

“Person” shall be construed broadly and shall include without limitation an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority.

“Put Value” shall mean (i) if the Redemption Rights are exercised in connection with an Initial Public Offering prior to December 28, 2006, the per share price of the Common Stock sold to the public in such Initial Public Offering; or (ii) if the Redemption Rights are exercised in connection with an Event of Default or at any time after December 28, 2006, the greatest of (A) the Liquidation Value, (B) the price per share of the Class C Common Stock based upon the fair market value of the Company as of such date without taking into account any minority discount and (C) the price per share to the public in any Initial Public Offering consummated prior to the repurchase of the capital stock subject to the Redemption Rights. In the case of subsection (B) above, the fair market value shall be determined as of the date of the Investor Election Notice pursuant to an appraisal performed by a nationally recognized investment banking firm selected by the Company and approved by the Requisite Class C Holders.

“Qualified Public Offering” means an Initial Public Offering which results in aggregate gross proceeds to the Corporation of at least $60,000,000, at a price per share to the public of not less than (A) if such Qualified Public Offering is consummated on or prior to December 28, 2003, 1.5 times the Original Cost or (B) if the Qualified Public Offering is consummated after December 28, 2003, 2.0 times the Original Cost.

“Redemption Date” shall mean (i) if the Redemption Rights are exercised in connection with an Initial Public Offering, the closing of such Initial Public Offering; or (ii) if the Redemption Rights are exercised in connection with an Event of Default, on the date specified in

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the Investor Election Notice, which shall be a date on or after the Investor Election Notice is given; or (iii) if the Redemption Rights are exercised on or after December 28, 2006 (other than in connection with an Initial Public Offering or Event of Default), one year after receipt by the Corporation of the Investor Election Notice.

“Redemption Rights” has the meaning ascribed to such term in Section C.5.(a) of this Article IV.

“Related Documents” means, collectively, the Class C Common Stock Purchase Agreement, the Stockholders Agreement, this Restated Certificate and the Bylaws.

“Requisite Class C Holders” means the holders of a majority of the outstanding shares of Class C Common Stock at the time in question; provided, however, that for purposes of any amendment of subsection (v) of Article IV C.1.(c) pursuant to Article IV which amends in any respect the terms of the Class C Common Stock, Requisite Class C Holders shall mean the holders of at least 67% of the then outstanding shares of Class C Common Stock at the time in question.

“Requisite Common Holders” means the holders of a majority of the outstanding shares of Common Stock and the holders of a majority of the outstanding shares of Class C Common Stock, voting together as a class.

“Restated Certificate” means this Third Amended and Restated Certificate of Incorporation, as amended and in effect from time to time.

“Sale of the Corporation” means (i) the sale, conveyance or disposition of all or substantially all of the Corporation’s assets to any Person, (ii) the issuance, sale or transfer of the outstanding capital stock of the Corporation to any Person, or (iii) the merger or consolidation or reorganization of the Corporation with or into another Person, in each case in clauses (ii) and (iii) above under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Corporation, immediately prior to such transaction, own less than a majority in voting power of the outstanding capital stock of the Corporation or the surviving or resulting corporation or acquirer, as the case may be, immediately following such transaction. A sale (or multiple related sales) of one or more Subsidiaries of the Corporation (whether by way of merger, consolidation, reorganization or sale of all or substantially all assets or securities) which constitutes all or substantially all of the consolidated assets of the Corporation shall be deemed a Sale of the Corporation.

“Securities” means “securities” as defined in Section 2(1) of the Securities Act.

“Securities Act” means the Securities Act of 1933, as amended, or any similar federal law then in force.

“Stockholders Agreement” means the Amended and Restated Stockholders Agreement dated on or about December 28, 2001, among the Corporation and the stockholders of the Corporation named therein, as amended from time to time.

“Subsidiary” of any Person means any other person (i) whose securities having a majority of the general voting power in electing the board of directors or equivalent governing body of such other Person (excluding securities entitled to vote only upon the failure to pay dividends thereon or the occurrence of other contingencies) are, at the time as of which any

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determination is being made, owned by such Person either directly or indirectly through one or more other entities constituting subsidiaries or (ii) more than a 50% interest in the profits or capital of whom is, at the time as of which any determination is being made, owned by such Person either directly or indirectly through one or more other entities constituting subsidiaries.

C. Common Stock

1. Voting Rights.

(a) Common Stock.

Except as set forth herein or as otherwise required by law, each outstanding share of Common Stock shall be entitled to vote on each matter on which the stockholders of the Corporation shall be entitled to vote, voting together with the holders of Class C Common Stock as a single class. Each holder of Common Stock shall be entitled to one vote for each share of such stock held by such holder. Except as otherwise provided herein or by law, the Common Stock shall possess full and complete voting power for the election of directors.

(b) Class B Common Stock.

Except as set forth herein or as otherwise required by law, each outstanding share of Class B Common Stock shall not be entitled to vote on any matter on which the stockholders of the Corporation shall be entitled to vote, and shares of Class B Common Stock shall not be included in determining the number of shares voting or entitled to vote on any such matters; provided, however, that the holders of Class B Common Stock shall have the right to vote as a separate class on any merger or consolidation of the Corporation with or into another entity or entities, or any recapitalization or reorganization, in which shares of Class B Common Stock would receive or be exchanged for consideration different on a per share basis from consideration received with respect to or in exchange for the shares of Common Stock or would otherwise be treated differently from shares of Common Stock in connection with such transaction, except that shares of Class B Common Stock may, without such a separate class vote, receive or be exchanged for non-voting securities which are otherwise identical on a per share basis in amount and form to the voting securities received with respect to or exchanged for the Common Stock so long as (i) such non-voting securities are convertible into such voting securities on the same terms as the Class B Common Stock is convertible into Common Stock and (ii) all other consideration is equal on a per share basis. Notwithstanding the foregoing, holders of shares of the Class B Common Stock shall be entitled to vote as a separate class on any amendment to this subsection (b).

(c) Class C Common Stock.

In addition to the rights provided by law and by the next paragraph below, the holders of Class C Common Stock shall be entitled to vote on all matters as to which holders of Common Stock shall be entitled to vote, in the same manner and with the same effect as the holders of Common Stock, voting together with the holders of Common Stock, all as one class, except as set forth in the next paragraph. Each share of Class C Common Stock shall entitle the holder thereof to such number of votes as shall equal the number of shares of Common Stock into which such share of Class C Common Stock is then convertible pursuant to Section 4 below. Except as otherwise provided herein or by law, the Class C Common Stock shall possess full and complete voting power with respect to the election of directors of the Corporation.

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For so long as at least 19,309 shares (as adjusted for any stock split, dividend, combination, reclassification or similar event involving the Class C Common Stock) of the Class C Common Stock remain outstanding, the Corporation shall not, and shall not permit any Subsidiary to, without the affirmative consent or approval of holders of at least 51% (67% with respect to the actions set forth in subsection (v) below which amends or repeals in any respect the terms of the Class C Common Stock) of the then outstanding shares of Class C Common Stock:

(i) other than Excluded Securities, in any manner authorize, create, designate, issue or sell any class or series of capital stock (including any shares of treasury stock) or rights, options, warrants or other Securities convertible into or exercisable or exchangeable for capital stock or any debt Security which by its terms is convertible into or exchangeable for any equity Security or has any other equity feature or any Security that is a combination of debt and equity;

(ii) effect a Sale of the Corporation unless the holders of the Class C Common Stock receive consideration in such transaction in an aggregate amount at least equal to the (A) 1.5 times the Aggregate Original Cost if such Sale of the Corporation occurs on or prior to December 28, 2003 or (B) 2.0 times the Aggregate Original Cost if such Sale of the Corporation occurs after December 28, 2003;

(iii) declare or pay any dividends or make any distributions on the Corporation’s Common Stock or Class B Common Stock unless and until the Class C Common Stock receives the same dividends or distributions concurrently on an as converted basis;

(iv) repurchase any of the Corporation’s capital stock (except repurchases pursuant to the terms of the Equity Incentive Plan, certain repurchases of stock held by the Management Stockholders as provided in Section 4 of the Stockholders Agreements, the redemption by the Corporation of 2,066 shares of Common Stock no later than January 31, 2002 from William C. Schultz as provided in the Plan of Redemption for the Common Stock of Schultz dated as of December 1, 1997, certain repurchases of stock held by employees or former employees of the Corporation as provided in Section 4 of the Stockholder Agreement as contemplated by the Class C Common Stock Purchase Agreement or as permitted herein); or

(v) amend or repeal its Restated Certificate or amend its Bylaws (including any amendment or repeal by way of merger, reorganization or other similar event).

(d) Board of Directors.

The Board of Directors of the Corporation shall consist of a maximum of nine (9) members, which members shall be elected as set forth in the Stockholders Agreement. Election of directors need not be by written ballot, unless the Bylaws of the Corporation shall so provide.

2. Dividends and Distributions.

The holders of shares of Class C Common Stock shall be entitled to receive dividends, when and if declared by the Board of Directors, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend on any other common stock of this Corporation, in an amount equal to that declared on a share of Common

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Stock into which such shares of Class C Common Stock could then be converted. Dividends, if paid or declared, must be paid on all outstanding shares of Class C Common Stock. No dividends shall be paid on any common stock of the Corporation during any fiscal year until dividends in an amount equal to or greater than any dividends to be paid on any share of common stock shall have been declared and paid on each share of the Class C Common Stock.

3. Liquidation.

(a) Liquidation Preferences. In the event of any Liquidation, the holders of shares of Class C Common Stock then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to its other stockholders before any payment shall be made to the holders of any other capital stock of the Corporation, an amount per share equal to the greater of (a) the Original Cost of such share plus an amount equal to all declared and unpaid dividends on each share, if any, and (b) the amount such holder would have received, if, immediately prior to such Liquidation, such holder had converted all of such holder’s shares of Class C Common Stock into Common Stock (the “Liquidation Value”). If, upon any Liquidation, the assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of the Class C Common Stock the full amounts to which they shall be entitled, the holders of shares of Class C Common Stock shall share ratably in any distribution of assets according to the respective amounts which would be payable with respect to the shares held by them upon such distribution if all amounts payable on or with respect to said shares were paid in full. In the event of any Liquidation, after payment shall have been made to the holders of shares of Class C Common Stock in the full amount to which they are entitled, the holders of shares of Common Stock and Class B Common Stock shall be entitled, to the exclusion of the holders of the Class C Common Stock, to share ratably in all remaining assets of the Corporation available for distribution to its stockholders. Anything contained in this Section to the contrary notwithstanding, each holder of shares of Class C Common Stock shall have the right to convert all or any part of the shares of Class C Common Stock held by such holder as herein provided into shares of Common Stock pursuant to this Article IV.

(b) Valuation of Securities. Whenever the distribution provided for in this Section 3 is payable in property other than cash, its value shall be deemed its Market Price.

4. Conversion.

(a) Optional Conversion of Class C Common Stock into Common Stock.

Each holder of shares of Class C Common Stock shall have the right, at such holder’s option, at any time and from time to time, to convert any such share into that number of fully paid and nonassessable shares of Common Stock equal to the quotient obtained by dividing (x) the Original Cost of such share of Class C Common Stock, by (y) the Conversion Price, as last adjusted and then in effect. The conversion price per share at which shares of Common Stock shall be issuable upon conversion of shares of Class C Common Stock (the “Conversion Price”) shall initially be equal to the Original Cost of such share of Class C Common Stock and shall be subject to adjustment from time to time as set forth in paragraph (d) below.

Each conversion of shares of any class of capital stock of the Corporation into shares of another class of capital stock of the Corporation pursuant to this subsection (a) shall be effected by the surrender of the certificate or certificates representing the shares to be converted (the “Converting Shares”) at the principal office of the Corporation (or such other office or

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agency of the Corporation as the Corporation may designate by written notice to the holders of such class of capital stock) at any time during its usual business hours, together with written notice by the holder of such Converting Shares, stating that such holder desires to convert the Converting Shares, or a stated number of the shares represented by such certificate or certificates, into shares of the class into which such shares may be converted (the “Converted Shares”). Such notice shall also state the name or names (with addresses) and denominations in which the certificate or certificates for Converted Shares are to be issued and shall include instructions for the delivery thereof. A holder of Class C Common Stock may make any such notice of conversion, whether such conversion is in connection with a Sale of the Corporation, Initial Public Offering or otherwise, conditional upon the happening of any event or the passage of such time as is specified by such holder in such conversion notice (a “Deferral Period”), and may rescind any notice of conversion prior to the effective time thereof specified in any such notice. Promptly after such surrender and the receipt of such written notice of conversion, the Corporation will issue and deliver in accordance with the surrendering holder’s instructions the certificate or certificates evidencing the Converted Shares issuable upon such conversion, and the Corporation will deliver to the converting holder a certificate (which shall contain such legends as were set forth on the surrendered certificate or certificates) representing any shares which were represented by the certificate or certificates that were delivered to the Corporation in connection with such conversion, but which were not converted; provided, however, that if such conversion is subject to a Deferral Period, the Corporation shall not issue such certificate or certificates until the expiration of the Deferral Period referred to therein. Such conversion, to the extent permitted by law, shall be deemed to have been effected as of the close of business on the date on which such certificate or certificates shall have been surrendered and such notice shall have been received by the Corporation, and at such time the rights of the holder of the Converting Shares as such holder shall cease (except that, in the case of a conversion subject to a Deferral Period, the conversion shall be deemed to be effective upon the expiration of the Deferral Period referred to therein) and the person or persons in whose name or names the certificate or certificates for the Converted Shares are to be issued upon such conversion shall be deemed to have become the holder or holders of record of the Converted Shares.

(b) Mandatory Conversion of Class C Common Stock into Common Stock.

Upon the consummation of a Qualified Public Offering, all shares of Class C Common Stock then outstanding shall, by virtue of, and simultaneously with, the consummation of such Qualified Public Offering and without any action on the part of the holders thereof, be deemed automatically converted into that number of fully paid and nonassessable shares of Common Stock into which such shares would have been convertible in the event of optional conversion at such time pursuant to subsection (a) above. In the event of an automatic conversion pursuant to this Section, the outstanding shares of Class C Common Stock shall be converted automatically without any action by the holders of such shares and whether or not the certificate or certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation will not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class C Common Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Class C Common Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be

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entitled as aforesaid. Such conversion shall be deemed to have occurred immediately prior to the closing of such Qualified Public Offering, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.

(c) Mandatory Conversion of Class B Common Stock into Common Stock.

Upon the consummation of an Initial Public Offering, all shares of Class B Common Stock then outstanding shall by virtue of, and simultaneously with, the occurrence of such Initial Public Offering and without any action on the part of the holders thereof, be deemed automatically converted into one share of Common Stock. In the event of an automatic conversion pursuant to this Section, the outstanding shares of Class B Common Stock shall be converted automatically without any action by the holders of such shares and whether or not the certificate or certificates representing such shares are surrendered to the Corporation or its transfer agent; provided, however, that the Corporation will not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such automatic conversion unless the certificates evidencing such shares of Class B Common Stock are either delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Class B Common Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have occurred immediately prior to the closing of such Initial Public Offering, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.

(d) Adjustment of Conversion Price.

The Conversion Price shall be subject to adjustment from time to time as follows:

(i) If the Corporation shall, at any time or from time to time after the Original Issuance Date, issue any shares of Additional Stock without consideration or for a consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Stock, then the Conversion Price in effect immediately prior to each such issuance shall forthwith be lowered to a price equal to the quotient obtained by dividing:

(A) an amount equal to the sum of (x) the total number of shares of common stock outstanding (including any shares of common stock deemed to have been issued pursuant to subdivision (C) of clause (ii) below) immediately prior to such issuance, multiplied by the Conversion Price in effect immediately prior to such issuance, and (y) the consideration received by the Corporation upon such issuance; by

(B) the total number of shares of common stock outstanding (including any shares of common stock deemed to have been issued pursuant to subdivision (C) of clause (ii) below) immediately after the issuance of such Additional Stock.

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(ii) For the purposes of any adjustment of the Conversion Price pursuant to clause (i) above, the following provisions shall be applicable:

(A) In the case of the issuance of Additional Stock for cash in a public offering or private placement, the consideration shall be deemed to be the amount of cash paid therefor after deducting therefrom any discounts, commissions or placement fees payable by the Corporation to any underwriter or placement agent in connection with the issuance and sale thereof.

(B) In the case of the issuance of Additional Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the Market Price thereof.

(C) In the case of the issuance of options to purchase or rights to subscribe for common stock, securities by their terms convertible into or exchangeable for common stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities:

(1) the aggregate maximum number of shares of common stock deliverable upon exercise of such options to purchase or rights to subscribe for common stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subdivisions (A) and (B) above), if any, received by the Corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the common stock covered thereby;

(2) the aggregate maximum number of shares of common stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities, options, or rights were issued and for a consideration equal to the consideration, if any, received by the Corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the Corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subdivisions (A) and (B) above);

(3) on any change in the number of shares or exercise price of common stock deliverable upon exercise of any such options or rights or conversions of or exchange for such securities, other than a change resulting from the antidilution provisions thereof, the Conversion Price shall forthwith be readjusted to such Conversion Price

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as would have obtained had the adjustment made upon the issuance of such options, rights or securities not converted prior to such change or options or rights related to such securities not converted prior to such change been made upon the basis of such change; and

(4) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, securities or options or rights related to such securities been made upon the basis of the issuance of only the number of shares of common stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities, or upon the exercise of the options or rights related to such securities and subsequent conversion or exchange thereof.

(iii) If, at any time after the Original Issuance Date, the number of shares of common stock outstanding is increased by a stock dividend payable in shares of common stock or by a subdivision or split-up of shares of common stock, then, following the record date for the determination of holders of common stock entitled to receive such stock dividend, subdivision or split-up (or if no record date is set, the date such stock dividend, subdivision or stock split is consummated), the Conversion Price shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of Class C Common Stock shall, in each case, be increased in proportion to such increase in outstanding shares.

(iv) If at any time after the Original Issuance Date, the number of shares of common stock outstanding is decreased by a combination of the outstanding shares of common stock, then, following the record date for such combination, the Conversion Price shall be appropriately increased, so that the number of shares of Common Stock issuable on conversion of each share of Class C Common Stock shall, in each case, be decreased in proportion to such decrease in outstanding shares.

(v) In the event of any capital reorganization of the Corporation, any reclassification of the stock of the Corporation (other than a change in par value or from no par value to par value or from par value to no par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or any consolidation or merger of the Corporation, each share of Class C Common Stock shall after such reorganization, reclassification, consolidation, or merger be convertible into the kind and number of shares of stock or other securities or property of the Corporation or of the corporation resulting from such consolidation or surviving such merger to which the holder of the number of shares of Common Stock deliverable (immediately prior to the time of such reorganization, reclassification, consolidation or merger) upon conversion of such share of Class C Common Stock would have been entitled upon such reorganization, reclassification, consolidation or merger. The provisions of this clause shall similarly apply to successive reorganizations, reclassifications, consolidations or mergers.

(vi) If any event occurs of the type contemplated by the provisions of this subsection (d) but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights

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with equity features), then the Corporation’s Board of Directors shall make an appropriate reduction in the Conversion Price so as to protect the rights of the holders of the Class C Common Stock.

(vii) All calculations under this paragraph shall be made to the nearest one cent ($0.01).

(viii) In any case in which the provisions of this paragraph (d) shall require that an adjustment shall become effective immediately after a record date of an event, the Corporation may defer until the occurrence of such event (i) issuing to the holder of any share of Class C Common Stock converted after such record date and before the occurrence of such event the shares of capital stock issuable upon such conversion by reason of the adjustment required by such event in addition to the shares of capital stock issuable upon such conversion before giving effect to such adjustments, and (ii) paying to such holder any amount in cash in lieu of a fractional share of capital stock pursuant to paragraph (c) above; provided, however, that the Corporation shall deliver to such holder an appropriate instrument evidencing such holder’s right to receive such additional shares and such cash.

(ix) Whenever the Conversion Price shall be adjusted as provided in this paragraph (d), the Corporation shall make available for inspection during regular business hours, at its principal executive offices or at such other place as may be designated by the Corporation, a statement, signed by its chief executive officer, showing in detail the facts requiring such adjustment and the Conversion Price that shall be in effect after such adjustment. The Corporation shall also cause a copy of such statement to be sent by first class certified mail, return receipt requested and postage prepaid, to each holder of Class C Common Stock at such holder’s address appearing on the Corporation’s records. Where appropriate, such copy may be given in advance and may be included as part of any notice required to be mailed under the provisions of subparagraph (x) below.

(x) If the Corporation shall propose to take any action of the types described in clauses (iii), (iv) or (v) of this paragraph (d) above, the Corporation shall give notice to each holder of shares of Class C Common Stock, in the manner set forth in paragraph (ix) above, which notice shall specify the record date, if any, with respect to any such action and the date on which such action is to take place. Such notice shall also set forth such facts with respect thereto as shall be reasonably necessary to indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Conversion Price and the number, kind or class of shares or other securities or property which shall be deliverable or purchasable upon the occurrence of such action or deliverable upon conversion of shares of Class C Common Stock. In the case of any action which would require the fixing of a record date, such notice shall be given at least 10 days prior to the date so fixed, and in case of all other action, such notice shall be given at least 10 days prior to the taking of such proposed action. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any such action.

(xi) In the event that the Requisite Class C Holders consent in writing to limit, or waive in its entirety, any anti-dilution adjustment to which the holders of the Class C Common Stock would otherwise be entitled hereunder, the Corporation shall not be required to make any adjustment whatsoever with respect to any Class C Common Stock in excess of such limit or at all, as the terms of such consent may dictate.

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(e) Upon issuance of shares in accordance with this Section 4, such Converted Shares shall be deemed to be duly authorized, validly issued, fully paid and non-assessable, with no personal liability attaching to the ownership thereof and free from all taxes or Liens with respect thereto due to any action of the Corporation. The Corporation shall take all such actions as may be necessary to assure that all such shares may be so issued without violation of any Applicable Law or any requirements of any domestic securities exchange upon which such shares may be listed (except for official notice of issuance which will be immediately transmitted by the Corporation upon issuance). The Corporation shall not close its books against the transfer of shares in any manner which would interfere with the timely conversion of any shares. The issuance of certificates for shares of any class of capital stock (upon conversion of shares of any other class of capital stock or otherwise) shall be made without charge to the holders of such shares for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and/or the issuance of such shares; provided, however, that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the shares converted. No fractional shares of common stock or scrip shall be issued upon conversion of any shares. The number of full shares issuable upon conversion shall be computed on the basis of the aggregate number of shares to be converted by a holder. Instead of any fractional shares which would otherwise be issuable upon conversion of common stock, the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to the product of (i) the price of one share of such common stock as determined in good faith by the Board and (ii) such fractional interest. The holders of fractional interests shall not be entitled to any rights as stockholders of the Corporation in respect of such fractional interests.

5. Redemption.

(a) Redemption Rights.

At any time (i) on or after December 28, 2006 or (ii) on or after the occurrence of an Event of Default or (iii) upon the occurrence of an Initial Public Offering, upon written notice (the “Investor Notice of Election”) to the Corporation, the Requisite Class C Holders may request that the Corporation redeem the outstanding shares of Class C Common Stock at a price per share equal to the Put Value, whereupon the Corporation shall be obligated to repurchase those shares of Class C Common Stock that elect to be redeemed at the closing described in subsection (b) below on the applicable Redemption Date by paying for every share of Class C Common Stock the Put Value; provided, however, that if the Redemption Rights are being exercised pursuant to a Qualified Public Offering and if the managing underwriter recommends in writing to the holders of Class C Common Stock that the number of shares of Class C Common Stock to be redeemed in such Qualified Public Offering be reduced, then the maximum number of shares of Class C Common Stock that the Corporation shall be required to redeem in the Qualified Public Offering shall be reduced to the number recommended in writing by the managing underwriter but in no event below the number of shares that results by dividing the Aggregate Original Cost by the price per share of the common stock issued to the public in such Qualified Public Offering; and provided further, that in the event of an exercise of the Redemption Rights pursuant to subsection (i) above, the Corporation may reject exercise of the Redemption Rights by providing written notice of such rejection to the holders of the Class C Common Stock within forty-five days of receipt of the Investor Notice of Election, whereupon the provisions of Section 10 of the Stockholders Agreement shall apply. Shares of Class C Common Stock which have not yet been repurchased by the Corporation on a Redemption Date shall be deemed outstanding for all purposes of this Restated Certificate. The rights to require the Corporation to redeem shares of the Class C Common Stock hereunder are referred to herein as the “Redemption Rights”.

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(b) Redemption Closing.

(i) The closing of the Corporation’s redemption of the Class C Common Stock pursuant to Section 5(a) above shall take place at 9:00 a.m. California time on the applicable Redemption Date, at the Corporation’s principal executive office or place of business. Promptly (but in no event later than five days) after the delivery of the Investor Notice of Election to the Corporation, the Corporation shall send written notice (the “Redemption Notice”) to each of the holders of the Class C Common Stock. The Redemption Notice shall specify the Redemption Date and the location of the Corporation’s principal executive office or place of business where the closing will occur. At the closing, the Corporation shall pay to each of the holders of the Class C Common Stock, against the Corporation’s receipt from such holder of the certificate or certificates representing the aggregate shares of such Class C Common Stock elected by such holder to be redeemed, an amount equal to the aggregate payment due pursuant to Section 5(a), as applicable, for all such shares, by wire transfer of immediately available funds, or if such holder shall not have specified wire transfer instructions to the Corporation prior to the closing, by certified or official bank check made payable to the order of such holder.

(ii) In the event that, on any Redemption Date, with respect to a redemption pursuant to Section 5(a) above, the Corporation shall not have sufficient funds on hand and after using its best efforts cannot obtain such funds from third party financing sources on reasonable and customary terms to pay in full in cash the aggregate payment due on such Redemption Date pursuant to Section 5(a), then the Corporation shall be deemed to have rejected the exercise of the Redemption Rights and the provisions of Section 10 of the Stockholders Agreement shall apply.

(iii) No shares of Class C Common Stock are entitled to any dividends accruing after the date on which the full Put Value for such share is paid to the holder thereof. On such date all rights of the holder of such share shall cease, and such share shall not be deemed to be outstanding.

(iv) Anything contained in this Section 5 to the contrary notwithstanding, (A) the outstanding shares of Class C Common Stock shall remain subject to optional conversion pursuant to Article IV hereof at all times up to the Redemption Date at which such shares are redeemed and (B) in the event of a Qualified Public Offering any shares of Class C Common Stock that have not elected to be redeemed shall convert into Common Stock pursuant to the terms of Section 4 hereof.

D. Miscellaneous

1. Reservation of Shares.

The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of each class of capital stock or its treasury shares, solely for the purpose of issuance upon the conversion of shares of any other class of capital stock hereunder, such number of shares of such class as are then issuable upon the conversion of all outstanding shares of such other class which may be converted.

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2. Registration of Transfer.

The Corporation shall keep at its principal office (or such other place as the Corporation reasonably designates) a register for the registration of shares of each class of its capital stock. Upon the surrender of any certificate representing shares of any class of capital stock at such place, the Corporation shall, at the request of the registered holder of such certificate, execute and deliver a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of such class represented by the surrendered certificate, and the Corporation forthwith shall cancel such surrendered certificate. Each such new certificate will represent such number of shares of such series as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate. Subject to any other restrictions on transfer to which such holder or such shares may be bound, the Corporation will also register such new certificate in such name as requested by the holder of the surrendered certificate.

3. Replacement.

Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing one or more shares of any class of capital stock, and in the case of any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided, however, that if the holder is a financial institution or other institutional investor, its own agreement will be satisfactory), or, in the case of any such mutilation upon surrender of such certificate, the Corporation shall (at its expense) execute and deliver in lieu of such number of shares of such series represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate.

4. Stock, Splits, Stock Dividends, Etc.

(a) The Corporation shall not in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of any class of common stock unless all such subdivisions and combinations shall be payable to the holder of shares of any class of capital stock of the Corporation only in shares of such class.

(b) If the Corporation shall in any manner subdivide (by stock split, stock dividend or otherwise) or combine (by reverse stock split or otherwise) the outstanding shares of the Common Stock, then the outstanding shares of each other class of common stock shall be subdivided or combined, as the case may be, to the same extent, share and share alike, and effective provision shall be made for the protection of the conversion rights hereunder.

In case of any reorganization, reclassification or change of shares of any class of capital stock (other than a change in par value or from par to no par value or as a result of subdivision or combination), or in case of any consolidation of the Corporation with one or more corporations or a merger of the Corporation with another corporation (other than a consolidation or merger in which the Corporation is the resulting or surviving corporation and which does not result in any reclassification or change of outstanding shares of any class of capital stock), each holder of a share of any class of capital stock shall have the right any time thereafter, so long as the conversion right hereunder with respect to such share would exist had such event not occurred, to convert such share into the kind and amount of shares of stock and other securities and properties (including cash) receivable upon such reorganization, reclassification, change,

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consolidation or merger by a holder of the number of shares of such class of capital stock into which such shares might have been converted immediately prior to such reorganization, reclassification, change, consolidation or merger. In the event of such reorganization, reclassification, change, consolidation or merger, effective provision shall be made in the certificate or incorporation of the resulting or surviving corporation or otherwise for the protection of the conversion rights of the shares of Class B Common Stock and Class C Common Stock that shall be applicable, as nearly as reasonably may be, to any such other shares of stock and other securities and property deliverable upon conversion of such shares of Class B Common Stock and Class C Common Stock into which such common stock might have been converted immediately prior to such event.

5. Notices.

All notices referred to herein shall be in writing, shall be delivered personally or by first class mail, postage prepaid, and shall be deemed to have been given when so delivered or mailed to the Corporation at its principal executive offices and to any stockholder at such holder’s address as it appears in the stock records of the Corporation (unless otherwise specified in a written notice to the Corporation by such holder).

ARTICLE V

EXCULPATION OF DIRECTORS

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after the date of the filing of this Restated Certificate to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

ARTICLE VI

AMENDMENTS

Subject to the provisions of the Stockholders Agreement and this Restated Certificate for so long as shares of Class C Common Stock are outstanding:

(i) the Corporation, with the consent of (A) the Requisite Common Holders and (B) the Requisite Class C Holders reserves the right to amend or repeal any provision contained in this Restated Certificate in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. When no shares of Class C Common Stock are outstanding, the Corporation,

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with the consent of a majority of the then outstanding shares of common stock, reserves the right to amend or repeal any provision contained in this Restated Certificate in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.

(ii) the Board of Directors, with the consent of the Requisite Class C Holders is expressly authorized and empowered to make, alter, amend or repeal the Bylaws in any manner not inconsistent with the laws of the State of Delaware or this Restated Certificate. When no shares of Class C Common Stock are outstanding, the Board of Directors is expressly authorized and empowered to make, alter, amend or repeal the Bylaws in any manner not inconsistent with the laws of the State of Delaware or this Restated Certificate.

ARTICLE VII

COMPROMISE OR ARRANGEMENT WITH CREDITORS

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or any class of creditors, and/or the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, the Requisite Class C Holders and the Requisite Common Holders agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders, or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

ARTICLE VIII

CERTAIN BUSINESS COMBINATIONS

The Corporation elects not to be governed by Section 203 of the General Corporation Law of the State of Delaware.

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3. This Third Amended and Restated Certificate of Incorporation has been duly adopted by both the Corporation’s Board of Directors and its stockholders in accordance with the provisions of Sections 141,228, 242 and 245 of the Delaware GCL.

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4. The Third Amended and Restated Certificate of Incorporation shall be effective upon filing with the Secretary of State of the State of Delaware.

IN WITNESS WHEREOF, the undersigned has executed this Third Amended and Restated Certificate of Incorporation as of this 5^th day of March, 2012.

By	/s/ Larry E. Thomas
	Larry E. Thomas
	Chief Executive Officer of Fender Musical Instruments Corporation

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EX-3.2

Exhibit 3.2

FOURTH AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

FENDER MUSICAL INSTRUMENTS CORPORATION

Pursuant to Section 103 of the General Corporation Law of the State of Delaware, as amended (the “DGCL”), the undersigned, Larry E. Thomas, the Chief Executive Officer of Fender Musical Instruments Corporation, a Delaware corporation (the “Corporation”), hereby certifies as follows:

1. The name of the Corporation is Fender Musical Instruments Corporation, and the date of filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware was January 31, 1985.

2. This Fourth Amended and Restated Certificate of Incorporation hereby restates, integrates and further amends the Corporation’s Certificate of Incorporation, as heretofore amended, to read in its entirety as follows:

ARTICLE I

NAME

The name of the corporation is “Fender Musical Instruments Corporation” (the “Corporation”).

ARTICLE II

REGISTERED OFFICE AND AGENT

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

ARTICLE III

OBJECTS AND PURPOSES

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

ARTICLE IV

CAPITAL STOCK

A. Authorized Shares. The total number of shares of capital stock which the Corporation is authorized to issue is [ ], of which [ ] shares, par value $0.01 per share, shall be designated as Common Stock (the “Common Stock”) and [ ] shares shall be designated as Preferred Stock (the “Preferred Stock”).

B. Powers, Rights and Preferences of Preferred Stock. Shares of Preferred Stock may be issued in one or more series from time to time by the Board of Directors, and the Board of Directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock, including, without limitation, the following:

1. the distinctive serial designation of such series which shall distinguish it from other series;

2. the number of shares included in such series;

3. the dividend rate (or method of determining such rate) payable to the holders of the shares of such series, any conditions upon which such dividends shall be paid and the date or dates upon which such dividends shall be payable;

4. whether dividends on the shares of such series shall be cumulative and, in the case of shares of any series having cumulative dividend rights, the date or dates or method of determining the date or dates from which dividends on the shares of such series shall be cumulative;

5. the amount or amounts which shall be payable out of the assets of the Corporation to the holders of the shares of such series upon voluntary or involuntary liquidation, dissolution or winding up the Corporation, and the relative rights of priority, if any, of payment of the shares of such series;

6. the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series may be redeemed, in whole or in part, at the option of the Corporation or at the option of the holder or holders thereof or upon the happening of a specified event or events;

7. the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or otherwise and the price or prices at which, the period or periods within which and the terms and conditions upon which the shares of such series shall be redeemed or purchased, in whole or in part, pursuant to such obligation;

8. whether or not the shares of such series shall be convertible or exchangeable, at any time or times at the option of the holder or holders thereof or at the option of the Corporation or upon the happening of a specified event or events, into shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation, and the price or prices or rate or rates of exchange or conversion and any adjustments applicable thereto; and

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9. whether or not the holders of the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so the terms of such voting rights.

Subject to the rights of the holders of any series of Preferred Stock, the number of authorized shares of any class or series of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of such class or series, voting together as a single class, irrespective of the provisions of Section 242(b)(2) of the DGCL or any corresponding provision hereafter enacted.

C. Powers, Rights and Preferences of Common Stock. Except as otherwise required by applicable law, all shares of Common Stock shall be identical in all respects and shall entitle the holders thereof to the same rights and privileges, subject to the same qualifications, limitations and restrictions.

1. Voting Rights. Except as otherwise required by applicable law, all holders of Common Stock shall be entitled to one vote per share on all matters to be voted on by the Corporation’s stockholders.

2. Dividends. As and when dividends are declared or paid with respect to shares of Common Stock, whether in cash, property or securities of the Corporation, the holders of Common Stock shall be entitled to receive such dividends pro rata at the same rate per share. The rights of the holders of Common Stock to receive dividends are subject to the provisions of the Preferred Stock.

ARTICLE V

BOARD OF DIRECTORS

A. General Powers. All corporate powers shall be exercised by the Board of Directors of the Corporation, except as otherwise specifically required by law or as otherwise provided in this Certificate of Incorporation.

B. Written Ballot Not Required. Elections of directors need not be by written ballot except and to the extent provided in the by-laws of the Corporation.

C. Number of Directors. The number of directors of the Corporation shall be fixed from time to time pursuant to the by-laws of the Corporation.

D. Classes and Term. From and after the first meeting of the Board of Directors following the filing of this Certificate of Incorporation, the directors of the Corporation shall be divided into three classes (designated Class I, Class II and Class III), as nearly equal in number as reasonably possible, as determined by the Board of Directors, with the initial term of office of the first class of such directors to expire at the first annual meeting of stockholders thereafter, the initial term of office of the second class of such directors to expire at the second annual meeting of stockholders thereafter and the initial term of office of the third class of such

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directors to expire at the third annual meeting of stockholders thereafter, with each class of directors to hold office until their successors have been duly elected and qualified. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed the directors whose terms expire at such annual meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders in the third year following the year of their election and until their successors have been duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain or attain a number of directors in each class as nearly equal as reasonably possible, but no decrease in the number of directors may shorten the term of any incumbent director.

In the event that the holders of any class or series of stock of the Corporation shall be entitled, voting separately as a class, to elect any directors of the Corporation, then the number of directors that may be elected by such holders shall be in addition to the number fixed pursuant to the by-laws and, except as otherwise expressly provided in the terms of such class or series, the terms of the directors elected by such holders shall expire at the annual meeting of stockholders next succeeding their election without regard to the classification of the remaining directors.

E. Removal of Directors. No director may be removed except for cause.

F. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled only by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy shall hold office until the next election of the class of directors of the director which such director replaced, and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

ARTICLE VI

STOCKHOLDER ACTIONS

A. Special Meetings. Subject to the rights of the holders of Preferred Stock, special meetings of stockholders of the Corporation may be called at any time by, but only by, (i) the Chairman of the Board of Directors of the Corporation (or any Co-Chairman of the Board of Directors), (ii) the Board of Directors or (iii) the Chief Executive Officer, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting.

B. No Written Consents. Subject to the rights of the holders of Preferred Stock, any action required or permitted to be taken at any annual or special meeting of stockholders of the Corporation may be taken only upon the vote of the stockholders at an annual or special meeting duly called and may not be taken by written consent of the stockholders.

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C. Conduct of Meetings. Any meeting of stockholders may be postponed by action of the Board of Directors of the Corporation at any time in advance of such meeting. The Board of Directors of the Corporation shall have the power to adopt such rules and regulations for the conduct of the meetings and management of the affairs of the Corporation as it may deem proper and the power to adjourn any meeting of stockholders without a vote of the stockholders, which powers may be delegated by the Board of Directors to the chairman of such meeting either in such rules and regulations or pursuant to the by-laws of the Corporation.

ARTICLE VII

AMENDMENT OF BYLAWS

The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal by-laws of the Corporation.

ARTICLE VIII

LIABILITY OF DIRECTORS AND OFFICERS

A. Exculpation of Directors. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the DGCL is amended after the date of the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

B. Right to Indemnification. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person’s testator or intestate is or was a director or officer of the Corporation or serves or served at the request of the Corporation as a director or officer of any other enterprise. The Corporation may, by resolution of the Board of Directors, similarly indemnify its employees or agents to the full extent permitted by law. Expenses, including attorneys’ fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this Article shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. For purposes of this Article, the term “Corporation” shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term “other enterprise” shall include any corporation, partnership, joint venture, trust or employee benefit plan; service “at the request of the Corporation” shall include service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit

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plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person in good faith with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation.

C. Insurance. The Corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee or agent of the Corporation or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against him or her and incurred by him or her in any such capacity, whether or not the Corporation would have the power to indemnify such person against such expenses, liability or loss under the DGCL.

D. Non-Exclusivity of Rights; Continuation of Rights. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification or advancement of expenses may be entitled under any law (common or statutory), bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office or while employed by or acting as agent for the Corporation, and shall continue as to a person who has ceased to be a director, officer, employee or agent, and shall inure to the benefit of the estate, heirs, executors and administers of such person. All rights to indemnification under this Article shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation who serves or served in such capacity at any time while this Article is in effect. Any repeal or modification of this Article or any repeal or modification of relevant provisions of the DGCL or any other applicable laws shall not in any way diminish any rights to indemnification of such person or the obligations of the Corporation arising hereunder with respect to any proceeding arising out of, or relating to, any actions, transactions or facts occurring prior to the final adoption of such modification or repeal.

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

ARTICLE IX

COMPROMISE OR ARRANGEMENT WITH CREDITORS

Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of

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any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or any class of creditors, and/or the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.

* * *

3. This Fourth Amended and Restated Certificate of Incorporation has been duly adopted by both the Corporation’s Board of Directors and its stockholders in accordance with the provisions of Sections 141, 228, 242 and 245 of the DGCL.

4. The Fourth Amended and Restated Certificate of Incorporation shall be effective upon filing with the Secretary of State of the State of Delaware.

IN WITNESS WHEREOF, the undersigned has executed this Fourth Amended and Restated Certificate of Incorporation as of this ___ day of [            ], 2012.

By
	Larry E. Thomas, Chief Executive Officer of Fender Musical Instruments Corporation

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EX-3.3

Exhibit 3.3

AMENDED AND RESTATED

BY-LAWS

OF

FENDER MUSICAL INSTRUMENTS CORPORATION

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES AND SEAL

1.

Section 1.1. OFFICES. The principal office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The Corporation may have such other offices either within or without the State of Delaware as the Board of Directors may designate or the business of the Corporation may require. This Amended and Restated By-Laws, as from time to time amended, are referred to herein as the “By-Laws.”

Section 1.2. SEAL. The Board of Directors shall provide a corporate seal, which shall have inscribed thereon the name of the Corporation and the words “Corporate Seal, Delaware.”

ARTICLE II

STOCKHOLDERS

2.

Section 2.1. CERTIFICATES REPRESENTING STOCK.

(a) Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him in the Corporation. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. All certificates for shares of capital stock shall be consecutively numbered or otherwise identified.

(b) Whenever the Corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the Corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law of Delaware. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares.

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(c) The Corporation may issue a new certificate of stock in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Board of Directors may require the owner of any lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate.

Section 2.2. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not be required to, issue fractions of a share. If the Corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered or bearer form which shall entitle the holder to receive a certificate for a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the Corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the Corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.

Section 2.3. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the Corporation shall be made only on the stock ledger of the Corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation or with a transfer agent or a registrar, if any, and on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon.

Section 2.4. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers and may require all certificates representing shares of capital stock of the Corporation to bear the signature of a transfer agent or an assistant transfer agent and a registrar of transfer. The Board of Directors may at any time terminate the appointment of any transfer agent, assistant transfer agent or registrar of transfers. A transfer agent may serve as a registrar, and vice versa.

Section 2.5. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a

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meeting, or entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the directors may fix, in advance, a record date, which shall not be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting as stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of this meeting; provided, however, that the Board of Directors may fix a new record date for this adjourned meeting.

Section 2.6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent in writing in lieu of a meeting, as the case may be, the term “share” or “shares” or “share of stock” or “shares of stock” or “stockholder” or “stockholders” refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the Corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the Corporation’s Certificate of Incorporation (or any amendment or certificate of designation related thereto) confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law of Delaware confers such rights notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the Corporation’s Certificate of Incorporation (or any amendment or certificate of designation related thereto), except as any provision of law may otherwise require.

Section 2.7. STOCKHOLDER MEETINGS.

(a) TIME. The annual meeting of stockholders shall be held on the date and at the time fixed, from time to time, by the directors, provided that the first annual meeting shall be held on a date within thirteen months after the organization of the Corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting of stockholders shall be held on the date and at the time fixed by the directors.

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(b) PLACE. Annual meetings and special meetings of stockholders shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the principal office of the Corporation in the State of Arizona.

(c) CALL. Annual meetings and special meetings of stockholders may be called by the directors or by any officer instructed by the directors to call the meeting.

(d) NOTICE OR WAIVER OF NOTICE. Written notice of all meetings of stockholders shall be given, stating the place, date, and hour of the meeting and, if required by paragraph 2.7(e) of these By-Laws, specifying the place provided in said paragraph. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall, if any other action which could be taken at a special meeting is to be taken at such annual meeting, state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law of Delaware. Except as otherwise provided by the General Corporation Law of Delaware, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the Corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States mail. If a meeting is adjourned to another time, not more than thirty (30) days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice.

(e) STOCKHOLDER LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be

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inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the Corporation, or to vote at any meeting of stockholders.

(f) CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting: the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the Corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting.

(g) PROXY REPRESENTATION. Each stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

(h) INSPECTORS. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question or matter determined by him or them and execute a certificate of any fact found by him or them.

(i) QUORUM. The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum. If a quorum is present at the commencement of or during a meeting, withdrawal of stockholders from such meeting thereafter shall not cause failure of a duly constituted quorum at the meeting.

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(j) VOTING.

(i) Each share of stock shall entitle the holder thereof to such voting rights or lack thereof as detailed in the Corporation’s Certificate of Incorporation or any amendment or certificate of designations related thereto. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law of Delaware, the provisions of the Corporation’s Certificate of Incorporation (or any amendment or certificate of designation related thereto), the Third Amended and Restated Stockholders’ Agreement, as from time to time amended (the “Stockholders’ Agreement”), or these By-Laws prescribes a different percentage of votes and/or a different exercise of voting power.

(ii) In the election of directors, and for any other action, voting need not be by ballot, written or otherwise. Persons holding stock in a fiduciary capacity shall be entitled to vote those shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation he or she has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his or her proxy may represent the stock and vote thereon. Stock standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the charter or By-Laws of such corporation may determine. Shares of its own capital stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall be neither entitled to vote nor counted for quorum purposes, but shares of its capital stock held by the Corporation or any such other corporation in a fiduciary capacity may be voted by it and counted for quorum purposes.

Section 2.8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law of Delaware to be taken at any annual or special meeting of stockholders, or an action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting pursuant to the preceding sentence by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

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ARTICLE III

DIRECTORS

3.

Section 3.1. FUNCTION AND DEFINITION. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. The use of the phrase “whole Board” herein refers to the total number of directors which the Corporation would have if there were no vacancies.

Section 3.2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the whole board shall be not less than two (2), nor more than nine (9). Such number may be fixed from time to time by action of the stockholders or of the directors in accordance with the terms of Section 5 of the Stockholders’ Agreement.

Section 3.3. ELECTION AND TERM. The Board of Directors first elected following the adoption of these By-Laws shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the Corporation. Thereafter, directors shall be elected at the annual meeting of stockholders in accordance with the terms of the Stockholder’s Agreement. Directors who are elected at an annual meeting of stockholders and directors who are elected in the interim to fill all vacancies and newly created directorships shall hold office until their successors are elected and qualified or until then earlier, death, resignation or removal. All vacancies and newly created directorships shall be filled in accordance with the Stockholders’ Agreement.

Section 3.4. MEETINGS.

(a) TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble.

(b) PLACE. Meetings shall be held at the principal office of the Corporation in the state of California or at such other place within or without the State of Delaware as shall be fixed by the Board.

(c) CALL. No call shall be required for regular meetings for which the time and place has been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, of the Vice-Chairman of the Board, if any, of the President, or of the majority of other directors in office.

(d) NOTICE OF ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular meetings for which the time and place have been fixed provided that any director who is absent when the time and place for such meeting was fixed shall be given notice of such time and place. Written, oral, or any other mode of notice of the time

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and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Without limitation of the foregoing, written notice mailed, postage prepaid, to the address of a director shown on the records of the Corporation not later than seventy-two (72) hours prior to the convening of such meeting shall be in sufficient time for such convenient assembly. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated herein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice.

(e) QUORUM AND ACTION.

(i) A majority of the whole Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law of Delaware or the Stockholders’ Agreement, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. Notwithstanding the foregoing, the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, may authorize a contract or transaction between the Corporation and a party described in section 144(a) of the General Corporation Law of Delaware when permitted by subparagraph (1) thereof or when permitted by any other provision of law.

(ii) Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

(f) CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside.

(g) COMPENSATION. The Board of Directors, irrespective of any personal interest of any of its members, shall have authority to establish the compensation of all directors for services to the Corporation as directors, officers, or otherwise. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board.

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Section 3.5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General Corporation Law of Delaware or the Stockholders’ Agreement, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

Section 3.6. COMMITTEES. Prior to an initial public offering, the Board of Directors may not make a broad delegation of its authority but may establish committees for specific purposes (such as a pricing committee with respect to a public offering) or any other committee permitted by the Stockholders’ Agreement. The Board of Directors shall designate an Audit Committee and Compensation Committee in accordance with the terms of the Stockholders’ Agreement. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the Corporation subject to the terms of the Stockholders’ Agreement. The board may designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee subject to the terms of the Stockholders’ Agreement. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise the powers and authority of the Board of Directors, subject to the terms of the Stockholders’ Agreement, other than a power or authority which such committee expressly may not have pursuant to Section 141(c) of the General Corporation Law of Delaware and other than the power or authority to declare a dividend or authorize the issuance of stock. Any such committee may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

Section 3.7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

Section 3.8. TELEPHONIC MEETINGS. Unless otherwise restricted by the Corporation’s Certificate of Incorporation or any amendment or certificate of designation related thereto or these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

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ARTICLE IV

OFFICERS

4.

Section 4.1. CORPORATE OFFICERS. Except as set forth herein, the officers of the Corporation shall be chosen by the board of directors and shall be a chairman, a president, a secretary and a treasurer. The board of directors may also choose executive vice-presidents, assistant secretaries and assistant treasurers. The chairman shall have the right to choose and designate vice presidents with the rights and powers set forth herein. Any number of offices may be held by the same person, unless the Corporation’s Certificate of Incorporation or any amendment or certificate of designation related thereto or these By-Laws otherwise provide. The chairman may also designate persons as officers of divisions of the Corporation, but such persons shall not be officers of the Corporation.

Section 4.2. APPOINTMENT OF OFFICERS BY BOARD OF DIRECTORS. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman, a president, an executive vice president, a secretary, a treasurer and such other officers as the board of directors shall deem desirable.

Section 4.3. APPOINTMENT OF ADDITIONAL OFFICERS. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be provided for in these By-Laws determined from time to time by the board.

Section 4.4. COMPENSATION. The salaries of the chairman, the president and the executive vice presidents of the Corporation shall be fixed by the board of directors. The salaries of all other officers shall be fixed by the chairman.

Section 4.5. TERM AND REMOVAL. The officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the Corporation shall be filled by the board of directors, provided that the chairman shall be entitled to fill any vacancies occurring in the office of vice president.

Section 4.6. CHAIRMAN OF THE BOARD; VICE CHAIRMAN. The chairman of the board of directors shall be the chief executive officer of the Corporation. Subject to the direction and control of the board of directors, he or she shall have supervisory authority over, and general management and control of, the property, business and affairs of the Corporation. He or she shall preside at all meetings of the Stockholders and of the board of directors. The chairman, pursuant to the authorization of the board of directors, shall have authority to vote all shares of the capital stock of any other corporation, standing in the name of the Corporation, at any meeting of the stockholders of such other corporation, and may, on behalf of the Corporation, waive any notice of the calling of any such meeting, and, pursuant

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to the authorization of the board of directors, may be given written proxy in the name of the Corporation to vote any or all shares of capital stock of such other corporation owned by the Corporation at any such meeting. The chairman may sign, with the secretary or any other proper officer of the Corporation thereunto authorized by the board of directors, certificates for or other instruments which the board of directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors or by these By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. The chairman shall perform all duties as may be prescribed by the board of directors from time to time.

The board of directors shall have the right to appoint a vice chairman if and to the extent deemed necessary from time to time. The vice chairman shall assist the chairman in discharging the chairman’s duties in accordance with the By-Laws. The vice chairman shall perform such duties and have such powers as the chairman may from time to time prescribe. The vice chairman shall attend all meetings of the board of directors, but shall not be a director of the Corporation or be entitled to a vote at any meeting of the board of directors, unless and until such vice chairman is elected to be a director in accordance with the By-Laws. In the absence of the chairman, the vice chairman shall preside at all meetings of the board of directors and the Stockholders of the Corporation. In the event of a vacancy in the position of chairman, the vice chairman shall call a special meeting of the board of directors in accordance with these By-Laws within ten (10) business days of the occurrence of such vacancy for the sole purpose of electing a new chairman.

Section 4.7. PRESIDENT. The president shall perform such duties and have such powers as may be prescribed by the chairman or the board of directors from time to time and shall report directly to the chairman. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the board of directors or these By-Laws, he or she may execute for the Corporation certificates for its shares, and any contracts, deeds, mortgages, bonds, or other instruments which the board of directors has authorized to be executed, and he or she may accomplish such execution either under or without the seal of the Corporation and either individually or with the secretary, any assistant secretary, or any other officer thereunto authorized by the board of directors, according to the requirements of the form of the instrument. In the absence of the chairman and the vice chairman, the president shall preside at all meetings of the board of directors and the Stockholders of the Corporation.

Section 4.8. VICE PRESIDENTS. The vice-presidents shall perform such duties and have such powers as the chairman may from time to time prescribe. The Corporation may have (in descending order of rank and authority) senior executive vice presidents, executive vice presidents, senior vice presidents and vice presidents. In the absence of the president or in the event of his or her inability to act, the executive vice-president (or in the event there be more than one executive vice-president, the executive vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president.

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Section 4.9. SECRETARY. The secretary shall attend all meetings of the bard of directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He or she shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he or she shall be. He or she shall have custody of the corporate seal of the Corporation and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or by the signature of such assistant secretary.

The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his other signature.

Section 4.10. ASSISTANT SECRETARIES. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

Section 4.11. TREASURER. The treasurer shall have the custody of the corporate funds and securities and shall keep fail and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the board of directors. He or she shall disburse the funds of the Corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all of his or her transactions as treasurer and of the financial condition of the Corporation. If required by the board of directors, he or she shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

Section 4.12. ASSISTANT TREASURER The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

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ARTICLE V

FISCAL YEAR

5.

The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors.

ARTICLE VI

INDEMNIFICATION

6.

The Corporation shall indemnify its officers and directors and may, by resolution of the Board of Directors, indemnify its employees or agents to the extent permitted by the General Corporation Law of Delaware.

ARTICLE VII

CONTROL OVER BY-LAWS

7.

Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law of Delaware, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders in each case subject to the provisions of the Stockholders’ Agreement. No repeal, amendment or alteration of the By-Laws shall be approved which is inconsistent with the terms of the Stockholders’ Agreement. Notwithstanding anything to the contrary herein, in the event any provision of these By-Laws are inconsistent or conflict with the Stockholders’ Agreement, the terms of the Stockholders’ Agreement shall prevail.

IN WITNESS WHEREOF, the undersigned officers of the Corporation hereby certify on this 21st day of December, 2001, the foregoing represents a duly adopted amendment and restatement of the By-Laws of the Corporation.

By:	/s/ William C. Schultz
	William C. Schultz,
	Chairman of the Board
	Fender Musical Instruments Corporation

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EX-3.4

Exhibit 3.4

FENDER MUSICAL INSTRUMENTS COPORATION

FIRST AMENDMENT TO THE AMENDED AND RESTATED BY-LAWS

August 1, 2010

This First Amendment (the “First Amendment”) to the Amended and Restated By-Laws of Fender Musical Instruments Corporation (the “Corporation”), a Delaware corporation, is effective as of August 1, 2010. Capitalized terms used herein and not otherwise defined shall have the meanings given to such terms in the Amended and Restated By-Laws.

WHEREAS, the Board believes it is in the best interests of the Corporation to amend certain provisions of the Amended and Restated By-Laws.

NOW, THEREFORE, the Amended and Restated By-Laws are hereby amended as follows:

1. The first sentence of Section 2.1(a) is hereby deleted and replaced with the following:

“Every holder of stock in the Corporation shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman or Vice-Chairman of the board of directors, if any, the Chief Executive Officer, the President, if any, or a Vice President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation certifying the number of shares owned by him or her in the Corporation.”

2. Section 2.7(f) is hereby deleted and replaced with the following:

“Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting: the Chairman of the Board, if any, the Vice Chairman, if any, the Chief Executive Officer, the President, if any, a Vice President, or if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the Corporation, or in his or her absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present, then the chairman of the meeting shall appoint a secretary of the meeting.”

3. The first sentence of Section 3.4(b) is hereby deleted and replaced with the following:

“Meetings shall be held at the principal office of the Corporation in the state of Arizona or at such other place within or without the State of Delaware as shall be fixed by the Board.”

4. The second sentence of Section 3.4(c) is hereby deleted and replaced with the following:

“Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the Chief Executive Officer, the President, if any, or the majority of other directors in office.”

5. Section 3.4(f) is hereby deleted and replaced with the following:

“(f) CHAIRMAN OF THE MEETING. If present and acting, the Chairman of the Board, shall preside at all meetings. Otherwise, if present and acting, the Vice Chairman, the Chief Executive Officer, or any other director chosen by the board, shall preside.”

6. Article IV is hereby deleted and replaced in its entirety with the following:

“OFFICERS

Section 4.1. CORPORATE OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a Treasurer, and a Secretary. The corporation also may have a President. The Chief Executive Officer also shall have the right to choose and designate Vice Presidents with the rights and powers set forth herein. Any number of offices may be held by the same person, unless the Corporation’s Certificate of Incorporation or any amendment or certificate of designation related thereto or these By-Laws provides otherwise.

Section 4.2. APPOINTMENT OF OFFICERS BY BOARD OF DIRECTORS. Except as provided in Section 4.1 above, the officers of the Corporation, including those appointed in accordance with the provisions of Section 4.3 below, shall be elected by the board of directors and serve at the pleasure of the board of directors.

Section 4.3. APPOINTMENT OF ADDITIONAL OFFICERS. At the discretion of the board of directors, the Corporation also may have a Chairman or Co-Chairmen of the Board, a Vice Chairman, , one or more Vice Presidents, a Chief Financial Officer, one or more Assistant Secretaries, one or more Assistant Treasurers, and any other officers that the board of directors deems necessary or appropriate for the proper running of the Corporation. The board of directors may appoint these additional officers, each of whom shall have such authority and perform such duties as are provided in these By-Laws or as the board of directors may from time to time determine.

Section 4.4. COMPENSATION. The salaries of the Chairman of the Board, if any, the Chief Executive Officer, the President, if any, the Treasurer, the Secretary, and any other officers identified by the board of directors from time to time, shall be fixed by the board of directors. The salaries of all other officers shall be fixed by the Chief Executive Officer in accordance with the Corporation’s annual budget approved by the Board.

Section 4.5. TERM AND REMOVAL. The officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy in any office shall be filled in the manner prescribed by these By-Laws for regular appointments to that office.

Section 4.6. CHAIRMAN OF THE BOARD; VICE CHAIRMAN. The Chairman of the Board, if one shall be appointed, shall, subject to the direction and control of the board of directors, perform all duties incident to the office of the Chairman of the Board or as may be prescribed by the board of directors or these By-Laws from time to time. The Chairman may be designated Chief Executive Officer of the Corporation. The powers and duties of the Chairman of the Board, subject to the direction and control of the board of directors, include:

• Provide leadership to the board of directors and uphold high corporate governance and ethical standards.

• Preside over the annual stockholder meeting.

• Convene and preside as chair over regular and special meetings of the board of directors.

• Act as a liaison between the Chief Executive Officer and the board of directors and facilitate communication between meetings.

• Call special meetings of the board of directors.

• Set the agenda for meetings of the board of directors with the input of management and the board of directors.

• Establish the processes the board of directors uses in managing the responsibilities of the board of directors and committees.

• Lead the annual performance review of the Chief Executive Officer.

• Lead the board of directors in an annual review of the performance and effectiveness of the board of directors and its committees.

• If an independent director, convene and preside as chair over executive sessions and meetings of the non-management and independent directors.

• Such other duties and powers as may be conferred upon the Chairman by the board of directors or these By-Laws.

Any reference to the Chairman in these By-Laws shall be deemed to mean, if there are Co-Chairmen, either Co-Chairmen, each of whom may exercise the full powers and authorities of the office.

The board of directors shall have the right to appoint a Vice Chairman if and to the extent deemed necessary from time to time. The Vice Chairman shall assist the Chairman in discharging the Chairman’s duties in accordance with the By-Laws. The Vice Chairman shall perform such duties and have such powers as the board of directors may from time to time prescribe. The Vice Chairman shall attend all meetings of the board of directors, but shall not be a director of the Corporation or be entitled to a vote at any meeting of the board of directors, unless and until such Vice Chairman is elected to be a director in accordance with these By-Laws.

Section 4.7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall, subject to the direction and control of the board of directors, supervise and control the business and affairs of the Corporation. The Chief Executive Officer may be designated Chairman of the Board. The Chief Executive Officer shall perform all duties incident to a chief executive officer of a corporation or as may be prescribed by the board of directors or the By-Laws from time to time. Subject to the direction and control of the board of directors, the powers and duties of the Chief Executive Officer include:

• General supervision, direction and control and active management of the business, operations and affairs of the Corporation and general powers and duties usually vested in the chief executive officer of a corporation.

• General authority to exercise all of the powers and authority necessary for the Chief Executive Officer of the Corporation, except as otherwise provided in the Corporation’s bylaws.

• In the absence of the Chairman or if there is no Chairman, preside at all meetings of the board of directors and the stockholders of the Corporation.

• Present to the board of directors full information regarding the operations and affairs of the Corporation and information requisite to enable the board of directors to exercise judgment and take action upon all matters requiring its consideration, and see that all orders and resolutions of the board of directors are carried into effect.

• Such other duties and powers as may be conferred upon the Chief Executive Officer by the board of directors or the Corporation’s By-Laws.

Section 4.8. PRESIDENT. The President, if one shall be appointed, shall, subject to the provisions of these By-Laws and to the direction and control of the board of directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), supervise and control the business and affairs of the Corporation and shall perform all duties incident to that position or as may be prescribed by the board of directors, the Chief Executive Officer or the By-Laws from time to time. The President may be designated Chief Executive Officer of the Corporation. Subject to direction and control of the Board of Directors and to the supervisory powers of the Chief Executive Officer, the powers and duties of the President include:

• General supervision, direction and control of the business and affairs of the Corporation and general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer).

• In the absence of the Chairman and the Chief Executive Officer or if there is no Chairman or Chief Executive Officer, preside at all meetings of the Board of Directors and the stockholders of the Corporation.

• Sign certificates of shares of stock of the Corporation.

• Sign and execute in the name of the Corporation all contracts or other instruments authorized by the Board of Directors.

• Such other duties and powers as may be conferred upon the President by the Board of Directors, the Chairman, the Chief Executive Officer or the Corporation’s By-Laws.

Section 4.9. VICE PRESIDENTS. The Corporation may have (in descending order of rank and authority) executive vice presidents, senior vice presidents, and vice presidents. The vice presidents shall perform such duties and have such powers as prescribed for them from time to time by the board of directors or the Chief Executive Officer.

Section 4.10. TREASURER. Subject to the direction and control of the Board of Directors and to the supervisory powers of the Chief Executive Officer, the powers and duties of the Chief Financial Officer include:

• To supervise and control the keeping and maintaining of adequate and correct accounts of the Corporation’s properties and business transactions, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, surplus and shares. The books of account shall at all reasonable times be open to inspection by any director.

• To have the custody of all funds, securities, evidences of indebtedness and other valuable documents of the Corporation and, to cause any or all thereof to be deposited for the account of the Corporation with such depository as may be designated from time to time by the board of directors.

• To receive or cause to be received, and to give or cause to be given, receipts and acquittances for moneys paid in for the account of the Corporation.

• To disburse, or cause to be disbursed, all funds of the Corporation as may be directed by the Chief Executive Officer, the President, or the board of directors, taking proper vouchers for such disbursements and in compliance with all policies and procedures of the Company.

• To render to the Chief Executive Officer, the President, or the board of directors, whenever any may require, accounts of all transactions as Chief Financial Officer and of the financial condition of the Corporation.

• Generally to do and perform all such duties as pertain to such office and as may be required by the board of directors or these By-Laws.

Section 4.11. ASSISTANT TREASURER. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe.

Section 4.12. SECRETARY. The secretary shall attend all meetings of the board of directors, except as designated by the board of directors, and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He or she shall give, or cause to be given, notice of all meetings of the stockholder and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors, the Chief Executive Officer, or the President. He or she shall have custody of the corporate seal of the Corporation and he or she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his or her signature or the signature of such assistant secretary.

The board of directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his other signature.

Section 4.13. ASSISTANT SECRETARIES. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his or her inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the Chief Executive Officer, or the President may from time to time prescribe.

7. Except as expressly provided in this First Amendment, all other terms and conditions of the Amended and Restated By-Laws remain in full force and effect.

IN WITNESS WHEREOF, the undersigned officer of the Corporation hereby certifies on this 2nd day of Setember, 2010, the forgoing represents a duly adopted amendment to the Amended and Restated By-Laws of the Corporation.

By:	/s/ Mark Van Vleet
Name:	Mark Van Vleet
Title:	Secretary

EX-3.5

Exhibit 3.5

SECOND AMENDED AND RESTATED

BY-LAWS

OF

FENDER MUSICAL INSTRUMENTS CORPORATION

(A DELAWARE CORPORATION)

ARTICLE I

OFFICES AND SEAL

Section 1.1. OFFICES. The principal office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The Corporation may have such other offices either within or without the State of Delaware as the Board of Directors may designate or the business of the Corporation may require. These Second Amended and Restated By-Laws, as from time to time amended, are referred to herein as the “By-Laws.”

Section 1.2. SEAL. The Board of Directors shall provide a corporate seal, which shall have inscribed thereon the name of the Corporation and the words “Corporate Seal, Delaware.”

ARTICLE II

STOCKHOLDERS

Section 2.1. CERTIFICATES REPRESENTING STOCK.

(a) The shares of the Corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Every holder of stock in the Corporation represented by certificates shall be entitled to have a certificate signed by, or in the name of, the Corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation representing the number of shares registered in certificate form. Any and all signatures on any such certificate may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. All certificates for shares of capital stock shall be consecutively numbered or otherwise identified.

(b) Whenever the Corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the

Corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock, or the books and records of the Corporation in the case of uncertificated shares, shall set forth thereon the statements prescribed by the General Corporation Law of Delaware.

(c) The Corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of any lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient to indemnify the Corporation against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares.

Section 2.2. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall not be required to, issue fractions of a share. If the Corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or in bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the Corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing full shares or uncertificated full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the Corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.

Section 2.3. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint one or more transfer agents or assistant transfer agents and one or more registrars of transfers and may require all certificates representing shares of capital stock of the Corporation to bear the signature of a transfer agent or an assistant transfer agent and a registrar of transfer. The Board of Directors may at any time terminate the appointment of any transfer agent, assistant transfer agent or registrar of transfers. A transfer agent may serve as a registrar, and vice versa.

Section 2.4. RECORD DATE FOR STOCKHOLDERS. For the purpose of determining the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not

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be more than sixty days nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting as stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (2) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at any meeting of stockholders shall apply to any adjournment of this meeting; provided, however, that the Board of Directors may fix a new record date for this adjourned meeting.

Section 2.5. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof, the term “share” or “shares” or “share of stock” or “shares of stock” or “stockholder” or “stockholders” refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the Corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the Corporation’s Certificate of Incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law of Delaware confers such rights notwithstanding that the Corporation’s Certificate of Incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the Corporation’s Certificate of Incorporation except as any provision of law may otherwise require.

Section 2.6. STOCKHOLDER MEETINGS.

(a) ANNUAL MEETINGS. The annual meeting of stockholders shall be held on the date and at the time fixed, from time to time, by resolution of the Board of Directors.

(b) SPECIAL MEETINGS. Special meetings of stockholders may be called at any time by (i) the Chairman of the Board of Directors (or any Co-Chairman of the Board of Directors), (ii) the Board of Directors, (iii) the Chief Executive Officer, or (iv) such person or persons as authorized by the Corporation’s Certificate of Incorporation, to be held on the date and at the time as they shall fix.

(c) PLACE. Annual meetings and special meetings of stockholders shall be held at such place, within or without the State of Delaware, as the Board of Directors may, from time to time, fix. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the General Corporation Law of Delaware.

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(d) NOTICE OR WAIVER OF NOTICE. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of such meeting of stockholders shall be given, stating the place, if any, date, and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law of Delaware. Except as otherwise provided by the General Corporation Law of Delaware or these By-laws, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten (10) days nor more than sixty (60) days before the date of the meeting. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware, these By-laws or the Corporation’s Certificate of Incorporation to a stockholder, a written waiver, signed by the stockholder entitled to notice, or a waiver by electronic transmission by the stockholder entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission.

(e) MANNER OF GIVING NOTICE.

(i) Notice of any meeting of stockholders, if mailed, shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his, her or its address as it appears on the records of the Corporation.

(ii) Except as otherwise prohibited by the General Corporation Law of Delaware and without limiting the foregoing, any notice to stockholders given by the Corporation under any provision of the General Corporation Law of Delaware, the Corporation’s Certificate of Incorporation or these By-laws shall be effective if given by a form of electronic transmission consented to (and not

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properly revoked by written notice to the Corporation) by the stockholder to whom the notice is given, to the extent such consent is required by the General Corporation Law of Delaware. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed revoked if (1) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices given by the Corporation in accordance with such consent and (2) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent of the Corporation, or other person responsible for the giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Any such notice shall be deemed given (1) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder.

(iii) For the purposes of these By-laws, an “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

(iv) Except as otherwise prohibited under the General Corporation Law of Delaware and without limiting the manner by which notice otherwise may be given to stockholders, any notice to stockholders given by the Corporation under any provision of the General Corporation Law of Delaware, the Corporation’s Certificate of Incorporation or these By-laws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if a stockholder fails to object in writing to the Corporation within sixty (60) days of having been given written notice by the Corporation of its intention to send the single notice in accordance with this Section 2.6(e)(iv). Any such consent shall be revocable by the stockholders by written notice to the Corporation.

(v) An affidavit of the Secretary or an Assistant Secretary of the Corporation or of the transfer agent or other agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

(f) STOCKHOLDER LIST. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting

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of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten (10) days prior to the meeting, (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. The Corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to the stockholders of the Corporation. If the meeting is to be held at a place, then the list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the list required by this section, or to vote in person or by proxy at any meeting of stockholders.

(g) CONDUCT OF MEETING.

(i) Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting: the Chairman of the Board or any Co-Chairman (if only a single Co-Chairman is present), the Vice-Chairman of the Board, if any, the Chief Executive Officer, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders at the meeting. The Secretary of the Corporation, or in his or her absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the chairman of the meeting shall appoint a secretary of the meeting.

(ii) If a meeting of the stockholders is to be held solely by the means of remote communication, then the Corporation shall (i) implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder; (ii) implement reasonable measures to provide stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (iii) maintain a record of any vote or other action at the meeting by means of remote communication.

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(iii) The date and time of the opening and closing of the polls for each matter upon which stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of polls unless the Delaware Court of Chancery upon application by a stockholder shall determine otherwise.

(h) PROXY REPRESENTATION. Each stockholder entitled to vote at a meeting may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to act for such stockholder by proxy. No proxy shall be voted or acted upon after three (3) years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the Corporation generally.

(i) INSPECTORS. The Corporation shall, in advance of any meeting, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate inspector is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of such inspector’s ability. The inspectors shall ascertain the number of shares of stock outstanding and the voting power of each, determine the shares of stock represented at the meeting, determine the validity and effect of proxies and ballots, count all votes and ballots, determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors and certify their determination of the number of shares represented at the meeting and their count of all votes and ballots. In determining the validity and counting of proxies and ballots, the inspectors shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with Section 211(e) or Section 212(c)(2) of the General Corporation Law of Delaware, or any information provided pursuant to Section 211(a)(2)(B)(i) of the General Corporation Law of Delaware, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained, the means by which the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

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(j) QUORUM. Except as otherwise required by law or the Corporation’s Certificate of Incorporation, the holders of a majority of the outstanding shares of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders for the transaction of any business. Where a separate vote by a class or classes or series is required, a majority of the shares of such class or classes or series then outstanding and entitled to vote present in person or by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. Two or more classes or series of stock shall be considered a single class if the holders thereof are entitled to vote together as a single class at the meeting. In the absence of a quorum of the holders of any class of stock entitled to vote on a matter, the holders of such class so present or represented may, by majority vote, adjourn the meeting despite the absence of a quorum.

(k) VOTING.

(i) Unless otherwise provided in the Corporation’s Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. If the Corporation’s Certificate of Incorporation provides for more or less than one vote for any share on any matter, every reference in these By-laws to a majority or other proportion of stock shall refer to such majority or other proportion of the votes of such stock. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. In all other matters, unless otherwise required by law or by the Corporation’s Certificate of Incorporation, or these By-laws, a majority of votes cast for or against the matter at the meeting of stockholders by stockholders entitled to vote on the subject matter shall be the act of the stockholders. Where a separate vote by class or classes is required, the affirmative vote of the holders of a majority of the votes cast for or against the matter by such class or classes at the meeting shall be the act of such class or classes, except as otherwise provided by law or by the Corporation’s Certificate of Incorporation or these By-laws. Voting at meetings of stockholders need not be by written ballot unless so directed by the chairman of the meeting or the Board of Directors.

(ii) Persons holding stock in a fiduciary capacity shall be entitled to vote those shares so held. Persons whose stock is pledged shall be entitled to vote, unless in the transfer by the pledgor on the books of the Corporation such person has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or such pledgee’s proxy, may represent the stock and vote thereon. Stock standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent, or proxy as the charter or By-Laws

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of such corporation may determine. Shares of its own capital stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly by the Corporation, shall be neither entitled to vote nor counted for quorum purposes, but shares of its capital stock held by the Corporation or any such other corporation in a fiduciary capacity may be voted by it and counted for quorum purposes.

(iii) If authorized by the Board of Directors, elections of directors may be by ballot submitted by electronic transmission; provided, however, that any such electronic transmission shall be either set forth or submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxyholder.

Section 2.7. ADVANCE NOTICE PROVISIONS FOR ELECTION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation. Nominations of persons for election to the Board of Directors may be made at any annual meeting of stockholders, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.7 and on the record date for the determination of stockholders entitled to vote at such meeting and (ii) who complies with the notice procedures set forth in this Section 2.7.

In addition to any other applicable requirements, for a nomination to be made by a stockholder such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation as set forth in this Section 2.7.

To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120), nor more than one hundred fifty (150), days prior to the date of the anniversary of the previous year’s annual meeting; provided, however, that in the event the annual meeting is scheduled to be held on a date more than thirty (30) days prior to or delayed by more than thirty (30) days after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the later of the close of business ninety (90) days prior to such annual meeting or the tenth (10^th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made.

To be in proper written form, a stockholder’s notice to the Secretary must set forth (a) as to each person whom the stockholder proposes to nominate for election as a director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by the person and (iv) any other information relating to the person that would be required to be

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disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder; and (b) as to the stockholder giving the notice (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are to be made by such stockholder, (iv) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the persons named in its notice and (v) any other information relating to such stockholder that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.

No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.7. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.

Section 2.8. ADVANCE NOTICE PROVISIONS FOR BUSINESS TO BE TRANSACTED AT ANNUAL OR SPECIAL MEETING. No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.8 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 2.8. At any adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting.

No business may be transacted at a special meeting of stockholders, other than business that is specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof).

In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation as set forth in this Section 2.8.

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To be timely, a stockholder’s notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120), nor more than one hundred fifty (150), days prior to the date of the anniversary of the previous year’s annual meeting; provided, however, that in the event the annual meeting is scheduled to be held on a date more than thirty (30) days prior to or delayed by more than thirty (30) days after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the later of the close of business ninety (90) days prior to such annual meeting or the tenth (10^th) day following the day on which such notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made.

To be in proper written form, a stockholder’s notice to the Secretary must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) the text of the proposal or business (including the text of any resolutions proposed for consideration and in the event that such business includes a proposal to amend these By-laws, the language of the proposed amendment) and the reasons for such proposal or conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting.

No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 2.8; provided, however, that, once business has been properly brought before the annual meeting in accordance with such procedures, nothing in this Section 2.8 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an annual meeting determines that business was not properly brought before the annual meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

Notwithstanding the foregoing provisions of Section 2.7 or this Section 2.8, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth herein and therein. Nothing in Section 2.7 or this Section 2.8 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor provision).

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ARTICLE III

DIRECTORS

Section 3.1. FUNCTION AND DEFINITION. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation. The use of the phrase “whole Board” herein refers to the total number of directors which the Corporation would have if there were no vacancies.

Section 3.2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The number of directors constituting the whole Board shall be not less than seven (7), nor more than eleven (11). Such number may be fixed from time to time by action of the Board of Directors.

Section 3.3. ELECTION AND TERM; RESIGNATION, REMOVAL; VANCANCIES. Each director shall hold office until the next election of the class for which such director shall have been chosen, and until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any director may resign at any time upon written notice to the Board of Directors or to the Chief Executive Officer or the Secretary of the Corporation. Such resignation shall take effect at the later of delivery or as otherwise specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Unless otherwise provided in the Corporation’s Certificate of Incorporation or these By-laws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class or from any other cause may be filled only by a majority of the directors then in office, although less than a quorum, or by the sole remaining director. Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the Corporation’s Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by the sole remaining director so elected. Any director elected or appointed to fill a vacancy shall hold office until the next election of the class of directors of the director which such director replaced, and until his or her successor is elected and qualified or until his or her earlier resignation or removal.

Section 3.4. MEETINGS.

(a) TIME. Meetings shall be held at such time as the Board of Directors shall fix.

(b) PLACE. Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the Board of Directors.

(c) CALL. No call shall be required for regular meetings for which the time and place has been fixed. Special meetings may be called by or at the direction

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of the Chairman or any Co-Chairman of the Board, if any, of the Vice-Chairman of the Board, if any, or the Chief Executive Officer, or of the majority of other directors in office.

(d) NOTICE OF ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular meetings for which the time and place have been fixed provided that any director who is absent when the time and place for such meeting was fixed shall be given notice of such time and place. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Without limitation of the foregoing, written notice mailed, postage prepaid, to the address of a director shown on the records of the Corporation not later than seventy-two (72) hours prior to the convening of such meeting shall be in sufficient time for such convenient assembly. Whenever notice is required to be given under these By-laws to a director or a member of a committee of directors, a written waiver, signed by such person entitled to notice, or a waiver by electronic transmission by such person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he or she attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors or a committee thereof need be specified in any written waiver of notice or any waiver by electronic transmission.

(e) QUORUM AND ACTION.

(i) A majority of the whole Board shall constitute a quorum. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law of Delaware or the Corporation’s Certificate of Incorporation, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. Notwithstanding the foregoing, the affirmative vote of a majority of the disinterested directors, even though the disinterested directors be less than a quorum, may authorize a contract or transaction between the Corporation and a party described in section 144(a) of the General Corporation Law of Delaware when permitted by subparagraph (1) thereof or when permitted by any other provision of law.

(ii) Any member or members of the Board of Directors or of any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

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(f) CHAIRMAN OF THE MEETING. The Chairman or any Co-Chairman (if only a single Co-Chairman is present) of the Board, if any and if present and acting, shall preside at all meetings (or if the Board has Co-Chairmen and both Co-Chairmen are present and acting, the Co-Chairmen shall jointly preside). Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the Chief Executive Officer, if present and acting, or any other director chosen by the Board, shall preside.

(g) COMPENSATION. The Board of Directors, irrespective of any personal interest of any of its members, shall have authority to establish the compensation of all directors for services to the Corporation as directors, officers, or otherwise. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board.

Section 3.5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General Corporation Law of Delaware, any director or the entire Board of Directors may be removed, only for cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

Section 3.6. COMMITTEES. The Board of Directors may designate one or more committees, each committee to consist of one or more directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in these By-laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters; (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by law to be submitted to stockholders for approval or (ii) adopting, amending or repealing these By-laws¹. A committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and may delegate to a subcommittee any or all of the powers and authority of the committee.

Section 3.7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, or by electronic transmission and the writing or writings or electronic transmission are filed with the minutes of proceedings of the Board of Directors or committee.

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ARTICLE IV

OFFICERS

Section 4.1. CORPORATE OFFICERS. Except as set forth herein, the officers of the Corporation shall be chosen by the Board of Directors and shall be a chairman, a chief executive officer, a president, a secretary and a treasurer. The Board of Directors may also choose executive vice-presidents, assistant secretaries and assistant treasurers. The Chairman (or, if at any time there are Co-Chairmen, the Co-Chairmen jointly) shall have the right to choose and designate vice presidents with the rights and powers set forth herein. Any number of offices may be held by the same person, unless the Corporation’s Certificate of Incorporation or these By-Laws otherwise provide. The Chairman or any Co-Chairman may also designate persons as officers of divisions of the Corporation, but such persons shall not be officers of the Corporation.

Section 4.2. APPOINTMENT OF OFFICERS BY BOARD OF DIRECTORS. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose a chairman, a chief executive officer, a president, a secretary, a treasurer and such other officers as the Board of Directors shall deem desirable.

Section 4.3. APPOINTMENT OF ADDITIONAL OFFICERS. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be provided for in these By-Laws or as determined from time to time by the Board of Directors.

Section 4.4. TERM AND REMOVAL. The officers of the Corporation shall hold office until their successors are chosen and qualified or until their earlier resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors, provided that the Chairman (or, if at any time there are Co-Chairmen, the Co-Chairmen jointly), shall be entitled to fill any vacancies occurring in the office of vice president.

Section 4.5. Powers and Duties. The officers of the Corporation shall have such powers and duties in the management of the Corporation as shall be stated in these By-laws or in a resolution of the Board of Directors that is not inconsistent with these By-laws and, to the extent not so stated, as generally pertain to their respective offices, subject to the direction and control of the Board of Directors. The Secretary shall have the duty to record the proceedings of the meetings of the stockholders, the Board of Directors and any committees in a book to be kept for that purpose. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his or her duties.

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ARTICLE V

FISCAL YEAR

The fiscal year of the Corporation shall be fixed, and shall be subject to change, by the Board of Directors.

ARTICLE VI

INDEMNIFICATION

The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person or such person’s testator or intestate is or was a director or officer of the Corporation or serves or served at the request of the Corporation as a director or officer of any other enterprise. The Corporation may, by resolution of the Board of Directors, similarly indemnify its employees or agents to the full extent permitted by law. Expenses, including attorneys’ fees, incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this By-law shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a director, officer or employee as provided above. No amendment of this By-law shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this By-law, the term “Corporation” shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term “other enterprise” shall include any corporation, partnership, joint venture, trust or employee benefit plan; service “at the request of the Corporation” shall include service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person in good faith with respect to an employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation.

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ARTICLE VII

CONTROL OVER BY-LAWS

Subject to the provisions of the Corporation’s Certificate of Incorporation and the provisions of the General Corporation Law of Delaware, the power to amend, alter or repeal these By-Laws and to adopt new By-Laws may be exercised by the Board of Directors or by the stockholders; provided, however, that in addition to any vote of stockholders prescribed by law, the affirmative vote of the holders of three-quarters of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal Section 2.6(b), Section 2.7, Section 2.8, Section 3.2 and this Article VII of these By-Laws.

IN WITNESS WHEREOF, the undersigned officers of the Corporation hereby certify on this             day of                        , 2012, the foregoing represents a duly adopted amendment and restatement of the By-Laws of the Corporation.

By
	Larry E. Thomas, Chief Executive Officer Fender Musical Instruments Corporation

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EX-4.2

Exhibit 4.2

THIRD AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT

THIS THIRD AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT, dated as of December 28, 2001 (this “Agreement”), is made by and among Fender Musical Instruments Corporation, a Delaware corporation (the “Company”), the holders of Class A Common Stock of the Company set forth on Schedule A hereto (collectively, the “Class A Holders”), the holders of Class B Common Stock of the Company set forth on Schedule A hereto (collectively, the “Class B Holders”), and Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P.

WHEREAS, the Class A Holders and Class B Holders collectively own all the shares of Class A Common Stock, par value $.01 per share (“Class A Common Stock”), and all shares of Class B Common Stock, par value $.01 per share (“Class B Common Stock”), as well as shares, or options to purchase that number of shares of the Company’s Class A or Class B Common Stock set forth opposite his, her or its name on Schedule 2.2 of the Schedule of Exceptions to the Class C Common Stock Purchase Agreement of even date herewith (the “Class C Purchase Agreement”).

WHEREAS, the Class A Holders (other than Roland Corporation) and the Class B Holders are parties to that certain Second Amended and Restated Stockholders’ Agreement, dated as of January 16, 1995, as previously amended in 1995 and on March 5, 1997 and the Voting Rights Agreement, dated as of February 1, 1995 (collectively, the “Previous Agreements”).

WHEREAS, a condition of the Investors’ obligations under the Class C Purchase Agreement is that the Company, the Class A Holders and the Class B Holders amend and restate the Previous Agreements in their entirety in the form of this Agreement.

WHEREAS, the Company, the Class A Holders and Class B Holders desire to induce the Investors to purchase shares of the Company’s Class C Common Stock, par value $.01 per share (the “Class C Common Stock”), under the Class C Purchase Agreement by agreeing to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements of the parties contained herein, the parties agree as follows:

1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below:

“Affiliate” means, with respect to any Person, (a) a director, officer, managing member or general partner of such Person or of any Person identified in clause (c) below, (b) a spouse of such Person, any lineal descendant (whether natural or adopted) of a grandparent of such Person or any Person described in clause (a) and any spouse of such lineal descendant, and (c) any other Person that directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. For the purpose of the above definition, the term

“control” (including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or investment decisions of such Person, whether through the ownership of voting securities, by contract or otherwise.

“Approved Sale” means a proposed transaction for the Sale of the Company that is approved in writing by the Investors.

“Board” shall mean the Board of Directors of the Company.

“Book Value” shall mean the book value per share of Class A Common Stock based upon the audited financial statements of the Company for the applicable fiscal year of the Company as prepared by the independent public accountants regularly retained by the Company to audit its books in accordance with generally accepted accounting principles consistently applied, provided, that all inventory for purposes hereof shall be valued on the “first-in, first-out” method of inventory valuation. Such determination shall be binding and conclusive on the Company and each Stockholder, absent bad faith or gross negligence.

“Business Day” shall mean a day other than Saturday, Sunday or any day on which the banks located in the State of Arizona or the State of California are authorized or obligated to close. Unless specifically referred to as a “Business Day,” any reference herein to the word “day” or “days” shall mean a calendar day.

“Capital Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet of the lessee thereof in accordance with generally accepted accounting principles.

“Common Stock” shall mean the Company’s Common Stock, par value $.01 per share, including the Class A Common Stock, the Class B Common Stock and the Class C Common Stock.

“Company Competitor” means any of the following Persons or their Affiliates: Gibson Guitar, Ibanez, Taylor, Martin, Paul Reed Smith, Kaman International, Washburn, Marshall, Peavey, Crate, St. Louis Music, D’Addario, Ernie Ball, Dean Markley, Harmon International, Mackie Designs, Guitar Center, Mars Music, Sam Ash Music, Steinway, BBE, DigiDesign, ESP, Music Man, Fernandes, Musician’s Friend, G & L Music, Hohner, Hoshino Gakki, Korg, Line 6 Inc., Samick, Samson, Washburn, Yamaha International, Yamaha USA, Jerry Freed, John McLaren, and Ray Scherer. The Company and the Investors shall not modify the Persons and Affiliates to be included in this definition of Company Competitor unless mutually agreed by the Company and each of the Investors.

“Equity Incentive Plan” has the meaning set forth in the Restated Certificate.

“Equity Securities” shall mean any shares of, or securities convertible into or exercisable or exchangeable for any shares of, any class of the Company’s capital stock, including, without limitation, its Common Stock.

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“Employee Stockholder” shall mean any Stockholder (other than Schultz or Mendello) who, at the time such determination is made, is a full-time employee of the Company or any Subsidiary of the Company.

“Event of Default” has the meaning set forth in the Restated Certificate.

“Fair Value” shall mean the fair market value per share of Common Stock, as agreed to by the Company and any Stockholder transferring his shares pursuant to Sections 3.2, 4.1 or 4.2 hereof or, in the absence of such an agreement, as determined by the Board in accordance herewith. At least once per fiscal year the Board shall establish the Fair Value based on the following factors: (a) the financial condition of the Company and any anticipated changes therein; (b) economic and market conditions relating to the musical instrument industry and general economic conditions in the domestic and applicable international markets; (c) the price/earnings and cash flow multiples of comparable public and private companies to the extent such information is available; (d) the lack of a public market for the Common Stock; (e) the results of any recent appraisal of the Company performed by an independent investment banker, valuation firm, expert consultant or independent public accounting firm (a “Valuation Expert”) retained at the direction of the Board and (f) such other factors as the Board deems pertinent. Such determination shall be binding and conclusive on the Company and each Stockholder, absent bad faith or gross negligence by or on behalf of the Board. No deduction in the calculation of Fair Value shall be made to reflect the fact that any shares of Common Stock constitute a minority interest in the Company.

“Governmental Authority” means any Federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, or any court, in each case whether of the United States of America or any political subdivision thereof, or of any other country.

“Guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness.

“Indebtedness” means, with respect to any Person, any indebtedness of such Person, whether or not contingent, in respect of borrowed money or evidence by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof) or banker’s acceptances or representing Capital Lease Obligations as well as all indebtedness of others secured by a Lien on any asset of such Person (whether or not such indebtedness is assumed by such Person) and, to the extent not otherwise included, the Guarantee by such Person of any indebtedness of any other Person.

“Initial Public Offering” means the closing of a firm commitment underwritten initial public offering for the account of the Company of Common Stock pursuant to a registration statement filed under the Securities Act.

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“Investors” means Weston Presidio Capital IV, L.P., WPC Entrepreneur Fund II, L.P., Weston Presidio Capital III, L.P. and WPC Entrepreneur Fund, L.P. For purposes of this Agreement, the term Investors shall be deemed to include all assignees and successors thereto.

“Involuntary Transfer” shall mean any (a) disposition of any shares of Common Stock subject to this Agreement pursuant to or resulting from any judgment, decree, execution, levy, seizure, attachment, or similar legal process; (b) disposition pursuant to or as a result of the death of a Stockholder, whether such disposition be by will or pursuant to applicable laws of intestate succession, to any Person other than a Permitted Transferee; (c) distribution by any estate or trust or by any custodian or fiduciary to any delegate, devisee, beneficiary or donee thereof required by the governing instrument or law, to any person other than a Permitted Transferee; (d) transfer to any receiver, trustee in bankruptcy, assignee for the benefit of creditors, or other similar person or entity; (e) involuntary liquidation of a corporate Stockholder; and (f) any other nonvoluntary disposition.

“Lien” means, with respect to any asset, mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

“Management Stockholders” shall mean Schultz and Mendello.

“Mendello” shall mean William L. Mendello or a Permitted Transferee (except pursuant to Sections 5 and 11) of William L. Mendello.

“Original Cost” means, with respect to any share of Class C Common Stock, $750.00. In the event of any change (by way of any split, recapitalization, subdivision, combination or similar event) in the number or kind of shares of Class C Common Stock, the Original Cost of the shares of Class C Common Stock immediately prior to such change shall be ratably adjusted among such shares of Class C Common Stock immediately after such change.

“Percentage Share” with respect to any Remaining Stockholder, shall mean the percentage determined by dividing the number of shares of Equity Securities (treating the Equity Securities as having been converted into, exchanged for or exercised for Common Stock) held by such Remaining Stockholder by the total number of shares of Equity Securities (treating the Equity Securities as having been converted into, exchanged for or exercised for Common Stock) held by all Remaining Stockholders.

“Permitted Transferee” with respect to a Stockholder shall mean:

(a) In the case of a Stockholder who is a natural person:

(i) The spouse of such Stockholder, any lineal descendant (whether natural or adopted) of a grandparent of such Stockholder and any spouse of such lineal descendant (collectively, the “Holder’s Family Members”);

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(ii) Any guardian or conservator of such Stockholder who has been adjudged disabled by a court of competent jurisdiction;

(iii) The executor or administrator of the estate of a deceased Stockholder;

(iv) A trustee of a trust (including a voting trust) solely for the benefit of such Stockholder and/or one or more of his or her Permitted Transferees and for the benefit of no other person, provided that (a) such trust may grant a general or special power of appointment to such Holder’s Family Members and (b) such trust prohibits transfers of shares of Common Stock to persons other than Permitted Transferees of such Stockholder.

(v) Any corporation, limited liability company or partnership, in which all of the beneficial ownership of outstanding equity interests which are entitled to vote for the election of directors or managers or which participate in the management thereof, is owned by, such Stockholder and/or Permitted Transferees of such Stockholder, provided, however, that any change in the ownership of such equity interests that would result in such corporation, limited liability company or partnership no longer qualifying as a Permitted Transferee if such equity interests were deemed to be transferred as of the date of change in ownership shall be deemed a transfer subject to Section 3.2 of this Agreement.

(b) In the case of a Stockholder holding shares of Common Stock as a trustee pursuant to a trust:

(i) Any Person transferring Common Stock to such trust; and

(ii) Any Permitted Transferee of such transferor determined pursuant to clause (a) above.

(c) In the case of a Stockholder which is a corporation, limited liability company or partnership (other than an entity described in clause (a)(v) above):

(i) Any natural person or “group” of persons (as such term is defined in Rule 13d of the 1934 Act) who were on the date hereof, the holders, directly or indirectly, of a majority of the beneficial ownership of outstanding equity interests which were entitled to vote for the election of directors or managers or which otherwise had the power (as a general partner or otherwise) to direct the management thereof (such an interest shall be deemed to constitute “control” for purposes hereof); or

(ii) Any corporation, limited liability company or partnership controlling, controlled by or under common control with such Stockholder (a “Permitted Entity”); provided, that if any transfer made pursuant to this clause (c) is made of a Permitted Entity in which the Common Stock constitutes substantially all of the assets of such Permitted Transferee to any Person who does not qualify as a Permitted Transferee hereunder, such change of ownership of the Permitted Entity shall be deemed a transfer subject to Section 3.2 of this Agreement.

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(d) In the case of a Stockholder which is a corporation, limited liability company or partnership described in clause (a)(v) above:

(i) Any person transferring such shares of Common Stock to such corporation, limited liability company or partnership; or

(ii) Any Permitted Transferee of such transferor pursuant to clause (a) above.

(e) In the case of a Stockholder which is the executor or administrator of the estate of a deceased Stockholder, which is the representative or trustee of the estate of a bankrupt or insolvent Stockholder or which is the guardian or conservator of a disabled Stockholder, any Permitted Transferee of such Stockholder pursuant to the other clauses hereof.

(f) For purposes of this definition of “Permitted Transferee”:

(i) Each joint owner of shares of Common Stock shall be considered a “Stockholder” of such shares.

(ii) A minor for whom shares of Common Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Stockholder of such shares.

“Person” shall be construed broadly and shall include without limitation an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a Governmental Authority.

“Qualified Public Offering” means the closing of a firm commitment underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement under the Securities Act (i) which results in aggregate gross proceeds to the Company of an amount equal to or greater than $60,000,000 and (ii) results in a price per share to the public of not less than (A) if such Qualified Public Offering is consummated on or prior to December 28, 2003, 1.5 times the Original Cost or (B) if the Qualified Public Offering is consummated after December 28, 2003, 2.0 times the Original Cost.

“Redemption Date” shall have the meaning set forth in the Restated Certificate.

“Requisite Class C Holders” shall have the meaning set forth in the Restated Certificate.

“Restated Certificate” means the Company’s Amended and Restated Certificate of Incorporation, as filed with the Secretary of State of the State of Delaware on December 26, 2001, as amended from time to time.

“Sale of a Controlling Interest of the Company” means a Sale of the Company in which less than 100% of the voting power of the outstanding capital stock of the Company is transferred or sold.

“Sale of the Company” means (i) the sale, lease, conveyance or disposition of all or substantially all of the Company’s assets to any Person, (ii) the issuance, sale or transfer of the

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outstanding capital stock of the Company to any Person, or (iii) the merger or consolidation or reorganization of the Company with or into another Person, in each case in clauses (ii) and (iii) above under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company immediately prior to such transaction, own less than a majority in voting power of the outstanding capital stock of the Company or the surviving or resulting entity, as the case may be, immediately following such transaction. A sale (or multiple related sales) of one or more Subsidiaries of the Company (whether by way of merger, consolidation, reorganization or sale, lease, conveyance or disposition of all or substantially all assets or securities) which constitute all or substantially all of the consolidated assets of the Company shall be deemed a Sale of the Company.

“Securities Act” shall mean the Securities Act of 1933, as amended.

“Shultz” shall mean William C. Schultz or a Permitted Transferee (except pursuant to Section 5) of William C. Schultz.

“Stockholders” shall mean the Class A Holders and the Class B Holders.

“Subsidiary” shall have the meaning set forth in the Restated Certificate.

“Voting Stock” shall mean any class or series of the capital stock of the Company, the holders of which are entitled to participate generally in the election of directors of the Company, including, but not limited to, any capital stock of the Company.

“Voluntary Transfer” shall mean any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant of security interest or other voluntary disposition or alienation by a Stockholder of any of his Common Stock, including, without limitation, the change of the beneficiary of any estate or trust, other than an Involuntary Transfer.

“1934 Act” shall mean the Securities and Exchange Act of 1934, as amended.

2. EFFECTIVENESS OF THIS AGREEMENT; SUPERSEDES ALL PRIOR AGREEMENTS; TERMINATION OF PRIOR AGREEMENTS. This Agreement shall be effective from and after the date hereof and shall supersede any and all other agreements and understandings, whether oral or written, by and among the Stockholders, the Investors and the Company (or any combination of the foregoing) relating to the subject matter hereof. Without limiting the foregoing, this Agreement shall also supersede the Previous Agreements. By executing this Agreement, the parties hereto agree that all such prior agreements are hereby terminated and shall be of no further force or effect.

3. TRANSFERS; RIGHT OF FIRST REFUSAL; RIGHT OF CO-SALE.

3.1 No Stockholder shall make any Voluntary Transfer or Involuntary Transfer of any Equity Securities except as expressly permitted in this Section 3 or in Section 10. No Stockholder or Investor may make a Voluntary Transfer of any Common Stock to a Company Competitor without the approval of the disinterested members of the Board unless such Voluntary Transfer is in connection with a Sale of the Company or a transaction contemplated by Section 10 hereof. Notwithstanding the foregoing, any Stockholder may transfer any Equity

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Securities to one or more Permitted Transferees, provided that such Permitted Transferees shall, immediately upon such transfer, become parties to this Agreement and be bound by the terms hereof as fully as if they had been original signatories hereto as Stockholders. If such Permitted Transferees fail or refuse to become parties to this Agreement in accordance herewith, such transfer shall be null and void and shall confer no rights on the Permitted Transferees as against the Company or the Stockholders (other than the transferring Stockholder).

3.2 Until the closing of the Initial Public Offering, and subject to Sections 3.4 and 3.5 hereof, each time a Stockholder (the “Offering Stockholder”) proposes to make a Voluntary Transfer of any Equity Securities of such Stockholder or an Involuntary Transfer (other than an Involuntary Transfer resulting from death) occurs with respect to any Equity Securities of a Stockholder (in each case, the “Offered Stock”), this Section 3.2 shall govern. Such transfers shall be in accordance with the following provisions:

(a) In the case of a Voluntary Transfer, the Offering Stockholder shall first make an offering of such Offered Stock to the Company. Such Offering Stockholder shall deliver a notice (the “Offering Notice”) to the Company and all other Stockholders and the Investors (the “Remaining Stockholders”) stating (i) the Offering Stockholder’s bona fide intention to offer such Offered Stock or, in the case of an Involuntary Transfer, the terms of such Involuntary Transfer, (ii) the number of shares of such Offered Stock to be offered for sale or subject to the Involuntary Transfer, as the case may be, and (iii) the price and terms, if any, upon which the Offering Stockholder proposes to offer such Offered Stock.

(b) Within 30 days after the Offering Notice is given in the case of a Voluntary Transfer or 30 days after the Company is notified in writing of the occurrence of an Involuntary Transfer (other than an Involuntary Transfer resulting from death), (the “Company Option Period”), subject to the restrictions set forth in the Restated Certificate, the Company may elect to purchase from the Offering Stockholder any or all of the shares of Offered Stock at a purchase price per share equal to (A) if the transfer is a Voluntary Transfer the lesser of (i) the Fair Value as most recently determined by the Board prior to receipt of the Offering Notice by the Company and (ii) the cash or cash equivalent price per share contained in the Offering Notice or (B) if the transfer is an Involuntary Transfer, the lesser of (i) the Fair Value as most recently determined prior to the date of the Involuntary Transfer or (ii) the Book Value as of the end of the most recently completed fiscal year end preceding the date of the Involuntary Transfer. The Company shall exercise its right hereunder by delivering written notice to the Offering Stockholder prior to the expiration of the Company Option Period.

(c) The closing of the purchase of any shares of Offered Stock by the Company shall take place at the principal offices of the Company (or such other location as the parties may agree on) on the fifth business day after the expiration of the Company Option Period. At such closing, the Company shall make payment in the appropriate amount by means of a check or by a wire transfer to the Offering Stockholder against delivery of stock certificates representing the shares so purchased, duly endorsed in blank by the Person or Persons in whose name such certificate is registered or accompanied by a duly executed stock or security assignment separate from the certificate.

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(d) In the event the Company does not elect to purchase all of the shares of Offered Stock, the Company shall give written notice (the “Reoffer Notice”) to the Remaining Stockholders of the number of shares of Offered Stock available for purchase (the “Reoffered Shares”) on or before the final day of the Company Option Period, and the right to purchase such Reoffered Shares at the purchase price determined under Section 3.2(b) shall pass automatically from the Company _:to the Remaining Stockholders. Each Remaining Stockholder shall be entitled to purchase its Percentage Share of the Reoffered Shares (rounded down to the nearest whole share). The Remaining Stockholders will have 20 days from receipt of such notice from the Company (the “Investor Option Period”) to exercise their purchase rights under this Section 3.2(d) by giving written notice to the Offering Stockholder. The closing of any purchase and sale under this Section 3.2(d) shall be held on the fifth business day following the expiration of the Investor Option Period and shall be conducted in accordance with the provisions of Section 3.2(c).

(e) In the case of a Voluntary Transfer, if the consideration specified in the Offering Notice includes consideration other than cash, the Company and Remaining Stockholders shall have the right to pay the non-cash portion of the consideration included in the Offering Notice in the form of cash equal in amount to the fair market value of such non-cash consideration. If the Offering Stockholder and the Company (or Remaining Stockholders) cannot agree on such fair market value within five days after the commencement of the Company Option Period (or the commencement of the Investor Option Period), upon request of the Company (or the Remaining Stockholders) the valuation shall be made by an appraiser of recognized standing selected by the Offering Stockholder and the Company (or the Remaining Stockholders) or, if they cannot agree on an appraiser within ten days after the commencement of the Company Option Period (or the commencement of the Investor Option Period), each shall select an appraiser of recognized standing and the two appraisers shall designate a third appraiser of recognized standing, whose appraisal shall be determinative of such value, and the Company Option Period or the Investor Option Period, as applicable, shall be extended until the fifth business day following receipt by the applicable parties of the results of such appraisal. The cost of such appraisal shall be shared equally by the Offering Stockholder and the Company (or by the Remaining Stockholders, pro rata on the basis of the relative numbers of shares the Remaining Stockholders were interested in purchasing pursuant to this Section 3).

3.3 In the event that all of the shares of Offered Stock are not purchased at the closings referred to in Section 3.2(c) or (d), the Offering Stockholder shall, for a period of 45 days after the expiration of the Investor Option Period, have the right to sell or otherwise dispose of the remaining number of shares of Offered Stock offered in the Offering Notice upon terms and conditions (including the price per share) no more favorable to the third party purchaser than those specified in the Offering Notice; provided, however, that if such sale or disposition is a Voluntary Transfer it shall be subject to, and be made in full compliance with, the co-sale rights set forth in Section 3.4. In the event that the Offering Stockholder does not sell or otherwise dispose of such Offered Stock within the specified 45-day period, the rights of first refusal and co-sale provided for in this Section 3 shall continue to be applicable to any subsequent disposition of such shares.

3.4 Until the closing of the Initial Public Offering, in the event that any Offering Stockholder after the application of Section 3.2 hereof, continues to propose to effect a

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Voluntary Transfer of any Equity Securities to any Person (individually a “Third Party” and collectively, “Third Parties”) in any transaction or series of transactions, directly or indirectly, such sale or other disposition shall not be permitted unless such Offering Stockholder shall offer (or cause the Third Party to offer) each Investor the right to elect to include, at its sole option, in the sale or other disposition to the Third Party, such number of shares of Equity Securities owned by the Investor as shall be determined in accordance with Section 3.4(a) (the “Tag-Along Shares”). At any time within 30 days after the giving of the Reoffer Notice described in Section 3.2(d), each Investor may elect to include the Tag-Along Shares in such a sale or other, disposition (the “Inclusion Election”) by giving written notice of its Inclusion Election to such Offering Stockholder and delivering to the Company a stock. certificate or certificates representing the Tag-Along Shares, together with a limited power-of-attorney authorizing such Offering Stockholder to sell or otherwise dispose of such Tag-Along Shares pursuant to the terms of such Third Party’s offer.

(a) Each Investor shall have the right to sell, pursuant to the Third Party’s offer, that percentage (the “Tag-Along Percentage”) of the number of shares of Offered Stock to be sold to the Third Party equal to the ratio (expressed as a percentage) of (i) the shares of Equity Securities (treating the Equity Securities as having been converted into, exchanged for or exercised for Common Stock) held by such Investor, as compared with (ii) the aggregate number of shares of Offered Stock owned by the Offering Stockholder and the Equity Securities held by all Investors (treating the Equity Securities as having been converted into, exchanged for or exercised for Common Stock).

(b) The purchase from any Investor pursuant to this Section 3.4 shall be on the same terms and conditions, including the price per share and the date of sale or other disposition, as are received by the Offering Stockholder and stated in the Offering Notice.

(c) At the consummation of the sale or other disposition of shares of Equity Securities of the Offering Stockholder and any Investor to the Third Party pursuant to the Third Party’s offer, there shall be remitted to each selling Investor the total sales price attributable to the shares of Equity Securities which such Investor sold or otherwise disposed of pursuant thereto, and there shall be furnished to such Investor such other evidence of the completion and time of completion of such sale or other disposition and the terms thereof as may be reasonably requested by such Investor.

(d) If within 30 days after the Reoffer Notice is given, any Investor has not accepted the offer to make an Inclusion Election, such Investor will be deemed to have waived any and all of its rights with respect to the sale or other disposition of shares of Equity Securities described in the Offering Notice. The Offering Stockholder shall have 45 days after such 30-day period in which to sell or otherwise dispose of the shares of Offering Stockholders’ Stock to the Third Party at a price and on terms not more favorable to the Offering Stockholder than were set forth in the Offering Notice.

(e) If, at the end of such 45-day period, the Offering Stockholder has not completed the sale of shares of the Offering Stockholders’ Stock in accordance with the terms of the Third Party’s offer, all the restrictions regarding the sale or transfer of any of the contained in this Agreement with respect to the Offering Stockholders’ Equity Securities shall again be in effect.

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3.5 The rights of first offer provided for in Section 3.2 shall not be applicable to any transfers of Offered Stock by a Stockholder to any Permitted Transferees; provided that in each such case such Permitted Transferees shall agree in writing to be bound by the terms of this Agreement as a Stockholder. The rights of co-sale provided for in Section 3.4 shall not be applicable to any transfers of Offered Stock by a Stockholder (i) to any Permitted Transfers subject to the above provisions; (ii) pursuant to any Involuntary Transfers, (iii) pursuant to Section 4 hereof, (iv) the redemption by the Company of 2,066 shares of Class A Common Stock no later than January 31, 2002 from Schultz as provided in the Plan of Redemption for the Common Stock of Schultz dated as of December 1, 1997, and (v) which when aggregated with all other transfers by Stockholders (other than the Investors) after the date of this Agreement are less than 1% of the Equity Securities then outstanding (treating Equity Securities for this purpose as having been converted into, exchanged for, or exercised for Common Stock).

3.6 The provisions of Section 3.2 shall take priority over Section 3.4 and nothing in Section 3.4 shall be construed to relieve a Stockholder of its obligation to deliver an Offering Notice to the Company and the Remaining Stockholders pursuant to the terms of Section 3 in connection with such a proposed transaction. Any sale, assignment, transfer, pledge, hypothecation or other encumbrance or disposition of Common Stock made in contravention of the provisions of Sections 3.2 or 3.4 shall be null and void, and the Company agrees not to effect such transfer nor will it record such transfer in the books or records of the Company. No purported transferee in any prohibited such transaction shall be recognized or treated by the Company as a stockholder of the Company in respect of any Equity Security subject thereto.

4. TERMINATION OF EMPLOYMENT; DEATH.

4.1 Termination of Employment. At any time following the termination of employment with the Company of either Schultz or Mendello (hereinafter referred to as the “Terminating Stockholder”) for any reason, the Terminating Stockholder shall have the right, but not the obligation, to require the repurchase of all or any portion of the Terminating Stockholder’s Common Stock (the “Subject Shares”) at a price equal to the Fair Value of the Common Stock as of the date of the Put Notice (defined below) as agreed to by the Terminating Stockholder and the Company or, if they are unable to agree, as determined by appraisal performed by a Valuation Expert mutually agreed to by the Terminating Stockholder and the Company, which appraisal shall be performed at the expense of the Company and in accordance with the definition of Fair Value. Notwithstanding anything in the foregoing to the contrary, this Section 4.1 shall cease to be applicable at any time on or after an Initial Public Offering. The Terminating Stockholder shall exercise his right under this Section 4.1, if at all, by giving written notice (a “Put Notice”) to the Company, the Investors and the Class A Holders (the “Other Stockholders”) of his intention to sell his Common Stock hereunder; provided, that no Put Notice shall be deemed effective until a Fair Value of the Subject Shares has been determined. Notwithstanding anything herein to the contrary, any Terminating Stockholder shall be permitted to deliver no more than three Put Notices pursuant hereto, and, in the event of the death of the Terminating Stockholder, neither the estate nor the heirs, successors or legatees of such Terminating Stockholder shall have the right to deliver a Put Notice hereunder after the second anniversary of such Terminating Stockholder’s death. All shares of Stock to be repurchased hereunder shall be subject to the following procedures:

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(a) For a period of 60 days after receipt of the Put Notice by the Other Stockholders (the “Option Period”), the Other Stockholders shall have the option (and the right to assign all or any portion of such option to any Permitted Transferee of such Other Stockholder), but not the obligation, to purchase or cause to be purchased all or any portion of the Subject Shares proposed to be transferred pursuant to the Offer at a purchase price per share equal to the Fair Value of the Subject Shares on the date of the Put Notice, which purchase price shall be payable within 60 days following the end of the Option Period. Such option shall be exercised, if at all, by written notice to the Terminating Stockholder and the Company during the Option Period.

(b) Each Other Stockholder will have the initial option (the “Initial Option”) to purchase a pro rata portion of the Subject Shares (rounded down to the nearest whole share of the Subject Shares) based upon the number of shares of Equity Securities owned by him (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock) to the total number of shares of Equity Securities owned by all Other Stockholders (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock) by delivery of a written notice to the Company and the Terminating Stockholder within 30 days after receipt by such Other Stockholder of the Offer (the “Initial Option Period”). To the extent that the Other Stockholders have not elected to purchase all of the Subject Shares upon termination of the Initial Option Period, the Company shall provide written notice (the “Additional Notice”) of any remaining Subject Shares to the participating Other Stockholders, and any participating Other Stockholders will have the further option to purchase any remaining Subject Shares based upon the ratio of the number of Subject Shares which such Other Stockholder (and his Permitted Transferees) elected to purchase pursuant to the Initial Option to the number of Subject Shares which all participating Other Stockholders (and their Permitted Transferees) elected to purchase pursuant to the Initial Option, by delivery of written notice to the Company and the Terminated Stockholder within 15 days after receipt of the Additional Notice from the Company by such participating Other Stockholders. If after all options described above have been exercised and all Subject Shares have not been purchased, the officers of the Company shall have the right, but not the obligation, for a period of five days following termination of the Option Period to purchase any remaining Subject Shares on a pro rata basis on the terms described above; provided, that no individual officer, who is not also an Other Stockholder, shall be permitted to purchase, in the aggregate, Subject Shares pursuant hereto constituting in excess of 5% of the total outstanding Common Stock of the Company without the approval of two-thirds of the members of the Board. Such officers, together with all Other Stockholders and their Permitted Transferees who have exercised options hereunder, are referred to collectively, as “Purchasers” and individually, as a “Purchaser.”

(c) Exercise of the options pursuant to this Section 4.1 shall bind the Purchasers to purchase the Subject Shares with respect to which such Purchaser has exercised his option, and shall bind the Terminated Stockholder to sell said Subject Shares to each such Purchaser.

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(d) If the Purchasers have, in the aggregate, elected to purchase fewer than all of the Subject Shares, then the Company shall be required to repurchase all of the Subject Shares not purchased by the Purchasers hereunder on the same terms and conditions described herein and payable within 90 days after the expiration of the Option Period; provided, that if the total amount payable would exceed $3,000,000 or would result in a default under the agreements evidencing the Indebtedness of the Company, the Company may elect to repurchase the remaining Subject Shares by issuing a promissory note to the Terminating Stockholder subject to the following conditions:

(i) The initial payment in respect of the repurchase of the Subject Shares to be made within 90 days after the expiration of the Option Period shall be the lesser of 20% of the amount owing to the Terminating Stockholder or the maximum amount permitted to be paid pursuant to the agreements evidencing the Company’s Indebtedness.

(ii) The promissory note shall be for a term of not less than five years and shall provide for minimum annual amortization payments equal to the lesser of 20% of the original principal amount of the promissory note or the maximum amount permitted to be paid pursuant to the agreements evidencing the Company’s Indebtedness.

(iii) The promissory note shall be subordinated to the Company’s Indebtedness on terms acceptable to the Company’s lenders and shall provide, on terms mutually acceptable to the Company and the Terminating Stockholder, for the payment to Terminating Stockholder in respect of the promissory note at least 20% of the excess cash flow of the Company or the maximum amount permitted pursuant to the agreements evidencing the Company’s Indebtedness.

(iv) The promissory note shall be prepayable in full or in part at any time without premium or penalty and shall be due and payable in full upon the Initial Public Offering or a Sale of the Company.

(v) The promissory note shall bear interest at 10% per annum with interest payable quarterly, unless such payment is prohibited by the agreements evidencing the Company’s Indebtedness.

(vi) The promissory note will provide that a default of the Company’s Indebtedness which causes acceleration of the amounts due thereunder will also accelerate the obligations under the note.

(vii) The promissory note shall be secured by a pledge of the Subject Shares to be repurchased by the Company and shall contain such other covenants and events of default as are mutually acceptable to the Company and the Terminating Stockholder.

(e) Upon the termination of the employment of any Employee Stockholder or upon the violation of any non-competition or similar agreement with the Company to which any Employee Stockholder may be party, subject to the restrictions set forth in the Restated Certificate, the Company shall have the option, but not the obligation, to repurchase all, but not less than all, of the Common Stock owned by such terminated Employee Stockholder by delivery to such Employee Stockholder of written notice of its intention to purchase such Common Stock

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at any time within 365 days after the date of the termination of such Employee Stockholder’s employment with the Company or the date the Company provides notice of such violation. The purchase price for such Common Stock shall be equal to the Fair Value thereof and shall be payable within 90 days after the date of such notice; provided, that if such employee violated any non-competition or similar agreement, the purchase price shall be the lower of Book Value or Fair Value. Exercise of the option herein granted by the Company shall bind the Company to purchase the Common Stock with respect to which the Company has exercised its option and shall bind the Employee Stockholder to sell said Common Stock to the Company.

4.2 Redemption upon Death. Upon the death of any Stockholder, subject to the restrictions set forth in the Restated Certificate, the Company shall have the option, but not the obligation, to purchase all or a portion of the Common Stock owned by such deceased Stockholder (“Transferring Stockholder”) immediately prior to such occurrence (“Available Shares”) as though such Available Shares were the subject to Section 3.2 and such Transferring Stockholder had provided the required notices under Section 3.2 hereof. The estate of the Transferring Stockholder shall sell to the Company each number of Available Shares elected to be purchased by it. The price per share for any Common Stock so purchased by the Company pursuant to this Section 4.2 shall be the Fair Value and shall be payable within 120 days following the date of death. Notwithstanding anything to the contrary contained herein, in the event of a death of a Stockholder, this Section 4.2 shall not apply if the Common Stock of such deceased Stockholder is transferred by will or otherwise to a Permitted Transferee. In the event that the Company elects not to exercise its option under this Section 4.2, the Available Shares may be sold to any Person. Any Person that acquires Available Shares under this Section 4.2 who is not a Stockholder shall, as a condition to the closing of such sale, immediately upon such transfer of any Available Shares, become a party to this Agreement and be bound by the terms hereof as fully as if he had been an original signatory hereto as a Stockholder.

5. GOVERNANCE.

5.1 Composition of Board. Until the closing of the Initial Public Offering, the Stockholders and the Investors each hereby agree to take any and all action necessary (including, without limitation, voting their shares of Voting Stock, executing and delivering written consents of stockholders, and calling and attending stockholders’ meetings) to cause the Board to be comprised as follows:

(a) The number of directors on the Board shall be not more than nine, and such directors shall consist of:

(i) so long as Weston Presidio Capital IV, L.P., Weston Presidio Capital III, L.P., WPC Entrepreneur Fund, L.P. or WPC Entrepreneur Fund II, L.P. or any of their respective Affiliates or partners collectively hold at least 25% of the shares of Class C Common Stock purchased under the Class C Purchase Agreement (as adjusted for any stock splits, combinations, reclassifications or other similar events) one representative designated in writing by Weston Presidio, which designee shall initially be Michael P. Lazarus (the “Investor Director”). Notwithstanding the foregoing, if Weston Presidio is no longer entitled to designate a director to the Board pursuant to this subsection (i), so long as Weston Presidio Capital IV, L.P., Weston Presidio Capital III, L.P., WPC Entrepreneur Fund, L.P. or WPC Entrepreneur

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Fund II, L.P. or any of their respective Affiliates or partners collectively continue to own any of the shares of Class C Common Stock purchased under the Class C Purchase Agreement, Weston Presidio shall have the right to appoint a non-voting observer to attend all meetings of the Board. The Company shall provide any Weston Presidio observer with copies of all notices, minutes, consents and other materials that it provides to members of the Board at the same time that such notices, minutes, consents and other materials are provided to members of the Board.

(ii) two representatives, one designated in writing by each of the Management Stockholders (the “Management Directors”), which designees shall initially be Schultz and Mendello; provided, however, that at such time as a Management Stockholder (i) ceases for any reason to be an employee of the Company, or (ii) is employed by, consulting for, or on the board of directors of a Company Competitor or otherwise directly or indirectly in competition with the Company, or (iii) either makes a Voluntary Transfer (other than to Permitted Transferees) or an Involuntary Transfer of all of his shares of Common Stock, such Management Stockholder shall no longer be entitled to serve as a member of the Board or designate a Management Director; provided further, that (i) so long as Schultz continues to hold the offices of chief executive officer and Chairman of the Board of the Company, he shall be entitled to designate both Management Directors in the event that Mendello is no longer entitled to designate a Management Director and (ii) so long as Schultz continues to serve the Company during the Consulting Period, as defined in his Employment Agreement with the Company dated as of January 1, 1997 he shall be entitled to designate one Management Director.

(iii) the remaining individuals designated in writing by the holders of at least a majority of the Class A Common Stock then outstanding and a majority of the Class C Common Stock then outstanding (voting together as a class), which designees shall initially be Donald Haider, Masamitsu Yamano, Masayuki Suzuki, Ivor Arbiter, and Mark Fukunaga (collectively, the “Outside Directors”); provided, however, that each of Servco California, Inc. and its Affiliates, Yamano Music Co., Ltd. and its Affiliates, and Kanda Shokai Corporation and its Affiliates (each a “Corporate Holder”), so long as it and its Affiliates continue to own five percent or more of the then outstanding Class A Common Stock of the Company, may designate one Outside Director,, which designees shall initially be Mark Fukunaga, Masamitsu Yamano, and Masayuki Suzuki, respectively; provided further, that each of the Outside Directors and the individuals nominated by a Corporate Holder shall (i) have business or financial experience commensurate with serving as a director of a manufacturing business, (ii) be a director or officer of such Corporate Holder, and (iii) not be (A) employed by, consulting or on the board of directors of a Company Competitor or otherwise directly or indirectly in competition with the Company and/or (B) management or Affiliates of management.

(b) Any director who is elected to the Board pursuant to a designation under Section 5.1 (a), may be removed from the Board only upon the request of the Person(s) entitled to designate such director by vote of at least the number of shares required to elect such director. In the event that a director resigns, is removed from, or otherwise ceases to serve on, the Board, for whatever reason, the vacancy shall be filled with an individual designated in accordance with the provisions of Section 5.1 (a). The Stockholders and the Investors hereby agree to call and attend a special stockholders meeting and to vote their shares of Voting Stock at such meeting, or to execute a written consent of stockholders in order to effect the provisions of this Section 5.

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(c) Until the closing of the Initial Public Offering and provided that Weston Presidio and the Management Stockholders continue to have the right to designate directors pursuant to subsections (a)(i) and (a)(ii) hereof, the Audit Committee of the Board and the Compensation Committee of the Board shall be comprised of the Investor Director, two Management Directors and one Outside Director. Until the closing of the Initial Public Offering, the Board shall not make a broad delegation of its authority to any committee but may establish committees for specific purposes (such as a pricing committee with respect to a public offering.)

(d) The Company agrees to reimburse the Investor Director for reasonable travel and out-of-pocket expenses incurred in connection with attending Board and Committee meetings.

5.2 Board and Committee Meetings. The Company shall call, and use its best efforts to have, regular Board meetings at least once every quarter unless otherwise agreed to in writing by each of the directors. The Compensation and Audit Committees shall meet at least annually. Meetings of the Board and any committee thereof shall not be held on less than five days written notice to the directors. All notices of a Board meeting shall include an agenda setting forth in reasonable detail any and all matters to be officially acted upon at such meeting, but such agenda shall not limit any matters that may be officially acted upon at any such meeting.

5.3 Subsidiaries. The Company shall cause the Investor Director or a designated representative appointed by the Investor Director to have observation rights with respect to meetings of the board of directors or similar governing body of any Subsidiary of the Company. The Company shall provide any Weston Presidio observer with copies of all notices, minutes, consents and other materials that it provides to members of the board of directors of any Subsidiary at the same time that such notices, minutes, consents and other materials are provided to members of the board of directors of such Subsidiaries.

5.4 Special Actions. The Stockholders agree that the consent of the holders of a majority of the outstanding Class C Common Stock shall be required in connection with matters set forth in Article (IV), Section C.1.(c) of the Restated Certificate, subject to the terms thereof. In addition, the Company shall not, and the Stockholders shall cause the Company, not to take any of the following actions without the prior written consent of the Investor Director:

(i) pay any compensation to the Management Stockholders in excess of the amounts paid historically or pursuant to existing employment agreements subject to cost of living adjustments;

(ii) approve or make capital expenditures in any year other than in the ordinary course consistent with past practice;

(iii) amend, create or increase the number of shares of capital stock of the Company that are subject to the Equity Incentive Plan; or

(iv) engage in any transactions with Affiliates (other than transactions with Fender Japan in the ordinary course on terms consistent with past practice and other than arms-length transactions with Affiliates which transactions are approved by a majority of disinterested members of the Board).

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6. REGISTRATION RIGHTS. The Company covenants and agrees as follows:

6.1 Definitions. For purposes of this Section 6:

(a) The term “Form S-3” means such form under the Securities Act as in effect on the date hereof or any registration form under the Securities Act subsequently adopted by the Securities and Exchange Commission (“SEC”) which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(b) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 6.12 hereof and solely for purposes of Section 6.

(c) The term “Other Holder” means any Stockholder holding Equity Securities other than a Holder.

(d) The term “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document.

(e) The term “Registrable Securities” means (i) the shares of Class A Common Stock issued or issuable upon conversion of the Class C Common Stock purchased pursuant to the Class C Purchase Agreement, (ii) any other shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for or replacement of, any of the shares of Common Stock referred to in clause (i), and (iii) any other shares of Common Stock issued or issuable upon the exercise, conversion or exchange of all securities that are directly or indirectly exercisable to purchase, convertible into or exchangeable for shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for or replacement of, any of the shares of Common Stock referred to in clause (i).

(f) The number of shares of “Registrable Securities then outstanding” shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities.

(g) “Security holders” means collectively, the Holders and the Other Holders.

6.2 Request for Registration.

(a) If the Company shall receive at any time after six months after the effective date of the first registration statement for a public offering of securities of the Company, a written request from the Holders of at least 60% of the Registrable Securities then outstanding, that the Company file a registration statement under the Securities Act covering the registration of all or a portion of the Registrable Securities then outstanding, then the Company shall, within ten days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of Section 6.2(b) and 6.2(c), effect as soon as practicable, and in

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any event within 90 days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered within 20 days of the mailing of such notice by the Company in accordance with Section 16 hereof.

(b) If the Holders initiating the registration request hereunder (“Initiating Holders”) intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 6 and the Company shall include such information in the written notice referred to in Section 6.2(a). In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority of the Initiating Holders and such Holder to the extent provided herein). All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 6.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 6, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

(c) The Company is obligated to effect only one such registration pursuant to this Section 6.2.

(d) The Company shall not be obligated to effect a registration pursuant to this Section 6.2 if the managing underwriter shall furnish to the Holders a certificate stating that in its good faith judgment marketing factors require the deferral of such registration, in which event the Company shall have the right to defer the filing of the registration statement for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 6.2; provided, however, that the Company may not exercise this right more than once in any 12 month period.

6.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a registration relating solely to an SEC Rule 145 transaction), the Company shall, at such time, promptly give written notice to each Securityholder of such registration. Upon the written request of each such person given within 20 days after mailing of such notice by the Company in accordance with Section 16, the Company shall, subject to the provisions of Section 6.8, cause to be registered under the Securities Act all of the securities that each such Securityholder has requested to be registered. If a Securityholder decides not to include any or all of its Equity Securities, as the

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case may be, in any such registration statement filed by the Company, such Securityholder shall nevertheless continue to have the right to include any or all of its Equity Securities in any subsequent registration statement or statements filed by the Company with respect to offerings of shares of its Common Stock pursuant to this Section 6.3, all upon the terms and subject to the conditions set forth herein. Notwithstanding the foregoing, the Company shall have no obligation to register any Securityholder’s Equity Securities if the Company has previously effected five registrations of Equity Securities under this Section 6.3 and all Equity Securities covered thereby have been distributed pursuant to a registration statement.

6.4 Form S-3 Registration. In case the Company shall receive from any Holder or Holders of at least 60% of the Registrable Securities then outstanding, a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all Holders; and

(b) effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 6.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the managing underwriter shall furnish to the Holders a certificate stating that in its good faith judgment marketing factors require deferral of such Form S-3 Registration, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 90 days after receipt of the request of the Holder or Holders under this Section 6.4; provided, however, that the Company may not exercise this right more than once in any twelve month period; or (iii) if the Company has already effected three such registrations on Form S-3 for the Holders pursuant to this Section 6.4.

(c) Registrations effected pursuant to this Section 6.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 6.2 or 6.3, respectively.

6.5 Obligations of the Company. Whenever required to effect the registration of any Equity Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Equity Securities and use its best efforts to cause such registration statement to become effective, and to keep such registration statement effective for up to 90 days.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.

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(c) Furnish to the applicable Securityholders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Equity Securities owned by them.

(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the applicable Securityholders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form with the underwriters of such offering, and use its best efforts to cause the conditions to the consummation of the transactions contemplated thereby to be satisfied.

(f) Notify each Securityholder of Equity Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then and, as promptly as practicable, provide a supplement or post-effective amendment in accordance with Subparagraph (b) to cure such misstatement or omission.

(g) Cause all such Equity Securities to be listed, not later than the effectiveness of such registration, on each securities exchange or over-the-counter market on which similar securities issued by the Company are then listed.

(h) Provide, not later than the effectiveness of such registration, a transfer agent and registrar and a CUSIP number for all such Equity Securities.

(i) Use its best efforts to furnish, at the request of any Securityholder requesting registration of Equity Securities pursuant to this Section 6, on the date that such Registrable Securities are delivered to the underwriters, if such securities are being distributed through underwriters, or, if such securities are not being distributed through underwriters, on the date that the registration statement with respect to such Equity Securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily delivered to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Securityholder requesting such registration and (ii) a letter, dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily delivered to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting such registration.

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6.6 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 6 with respect to the Equity Securities of any selling Holder or selling Securityholder that such Securityholder shall furnish to the Company such information regarding itself, the Equity Securities held by it, and the intended method of disposition of such securities as shall be required under applicable law to effect the registration of such Securityholder’s Equity Securities.

6.7 Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with all registrations, filings or qualifications pursuant to this Section 6, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, reasonable fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Securityholders shall be borne by the Company.

6.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 6.3 to include any securities in such underwriting unless the selling Securityholders accepts the terms of the underwriting as agreed upon between the Company and the underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Equity Securities, requested to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Equity Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering, but in no event shall the amount of the securities of selling Holders included in the offering be reduced below 30% of the total amount of securities included in such offering unless such offering is the initial public offering of the Company’s securities in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholders securities are included. In any circumstance in which all of the Equity Securities requested to be included in a registration on behalf of Securityholders cannot be so included as a result of the above-described limitation, the number of shares of securities sold other than by the Company that may be included shall be apportioned pro rata among all Securityholders according to the total amount of Equity Securities owned by such Securityholder. For purposes of such apportionment, for any selling Securityholder which is a partnership or corporation, the partners, retired partners and stockholders of such Securityholder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Securityholder”, and any pro-rata reduction with respect to such “selling Securityholder” shall be based upon the aggregate amount of shares owned by all entities and individuals included in such “selling Securityholders,” as defined in this sentence.

6.9 Delay of Registration. No Securityholder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 6, it being understood that this shall not in any way limit the right of any such person to bring an action for damages in respect of any breach hereof.

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6.10 Indemnification. In the event any Equity Securities of a Securityholder are included in a registration statement under this Section 6.

(a) To the fullest extent permitted by law, the Company will indemnify and hold harmless such Securityholder, any underwriter (as defined in the Act) for such Securityholder and each person, if any, who controls such Securityholder or underwriter within the meaning of the Securities Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act any state securities law or any rule or regulation promulgated under the Securities Act, or the 1934 Act or any state securities law; and the Company will pay to such Securityholder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by one law firm retained by them (or such additional law firms retained by such Securityholder if such Securityholder reasonably believe there exists a conflict of interest among them) in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 6.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent (and only to the extent) that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Securityholder, underwriter or controlling person.

(b) To the fullest extent permitted by law, each selling Securityholder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Securityholder selling securities in such registration statement and any controlling person of any such underwriter or other Securityholder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, or the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Securityholder expressly for use in connection with such registration; and each such Securityholder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 6.10(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 6.10(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Securityholder, which consent shall not be unreasonably withheld; and provided, further that in no event shall any indemnity under this Section 6.10(b) exceed the net proceeds from the offering received by such Securityholder.

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(c) Promptly after receipt by an indemnified party under this Section 6.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 6.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall to the extent thereof relieve such indemnifying party of any liability to the indemnified party under this Section 6.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 6.10.

(d) Notwithstanding the foregoing, to the extent the provisions on indemnification contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(e) The obligations of the Company and Securityholders under this Section 6.10 shall survive the completion of any offering of Equity Securities in a registration statement under this Section 6, and otherwise.

6.11 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public;

(b) take such action, including voluntarily registering its Common Stock under Section 12 of the 1934 Act, to qualify for registration on Form S-3 for the sale of their Registrable Securities, such action to be taken no later than 120 days after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective and use its best efforts to maintain its eligibility thereafter to qualify for use of that Form;

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(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the 1934 Act; and

(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after 90 days after the effective date of the first registration statement filed by the Company), the Securities Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

6.12 Assignment of Registration Rights. The rights to cause the Company to register securities pursuant to this Section 6 may be assigned (but only with all related obligations) by a Person who is at such time a Holder to a purchaser, assignee or transferee of the underlying Registrable Securities; provided that such purchaser, assignee or transferee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 6.17 below.

6.13 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not (other than with respect to the Registrable Securities assigned pursuant to in Section 6.12), without the prior written consent of the Holders of at least a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would provide such holder or prospective holder any rights to register its securities.

6.14 Amendment of Registration Rights. Any provision of this Section 6 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future Securityholder.

6.15 Selection of Investment Bankers; Underwriters. In the event of a proposed transaction that would result in a Sale of the Company, an Initial Public Offering or a Qualified Public Offering, the lead investment bank or managing underwriter, as the case may be, shall be selected by the Investors.

6.16 Termination of Registration Rights. These registration rights shall terminate on the date that is five years after the date of the closing of the Company’s first underwritten public offering.

6.17 “Market Stand-Off” Agreement.

(a) Each Investor and Stockholder hereby agrees that for seven days prior to and up to 180 days following the effective date of the first registration statement of the Company

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covering Common Stock filed on Form S-l or their equivalent under the Securities Act, it shall not, to the extent reasonably requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that all officers, directors and 1% or more stockholders of the Company and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements; and provided, further all Securityholders, officers and directors are treated similarly with respect to any release prior to the termination of the 180-day period. Notwithstanding anything to the contrary contained in this Section 6.17, (i) if this restriction or any similar agreement is waived in whole or in part for any Holder, officer, director or one percent and greater stockholder, then this restriction and any similar agreement shall be waived to the same extent for all of the Securityholders. This restriction shall not apply to shares of Common Stock purchased by a Holder in or after the Company’s Initial Public Offering.

(b) In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the Equity Securities of each Investor and Stockholder (and the shares of securities of every other person subject to the foregoing restriction) until the end of such period.

7. DELIVERY OF FINANCIAL STATEMENTS. Until the closing of the Initial Public Offering, the Company shall deliver to each Investor:

(a) as soon as practicable, but in any event within 120 days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder’s equity as of the end of such year, and a cash flows statement for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by independent public accountants approved by the Board;

(b) as soon as practicable, but in any event within 30 days of the end of each month, an unaudited income statement (showing actual, budget and prior month) and cash flows statement and balance sheet for and as of the end of such month, in reasonable detail;

(c) as soon as practicable, but in any event within 45 days of the end of each fiscal quarter, an unaudited income statement, cash flows statement and balance sheet for and as of the end of each such quarter, in reasonable detail;

(d) as soon as practicable, but in any event 30 days prior to the end of each fiscal year, a budget for the next fiscal year, prepared on a monthly basis, including income statements, balance sheets and cash flows statement statements for such months and, as soon as practicable after the adoption thereof, any revisions to such annual budget;

(e) as soon as is practicable after delivery or occurrence, but in no event later than ten (10) days following such delivery or occurrence, other reports, including any notices or reports to stockholders or members of the financial community, the Company’s accountants or

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business consultants, governmental agencies and authorities, any reports filed by the Company or its officers, directors and representatives with any securities exchange or the SEC and notice of any event which might have a material effect on the Company’s business prospects or financial condition or on the Investor’s investments in the Company.

8. INSPECTION RIGHTS. So long as an Investor (together with its Affiliates) holds at least 5% of the outstanding Common Stock (including any .Common Stock issuable upon conversion of the Class C Common Stock), the Company shall permit such Investor, at such Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested upon reasonable notice by the Investor; provided, however, that such activities shall not unreasonably interfere with the ordinary course activities of the Company.

9. RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this Section 9, the Company hereby grants to each Stockholder and each Investor a right of first offer with respect to future sales or issuances by the Company of its Equity Securities. For purposes of this Section 9, each Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and Affiliates in such proportions as it deems appropriate.

Each time the Company proposes to sell or issue any Equity Securities, the Company shall first make an offering of such Equity Securities to the Stockholders and Investors in accordance with the following provisions:

(a) The Company shall deliver a written notice (“Notice”) to the Stockholders and Investors stating (i) its bona fide intention to offer such Equity Securities, (ii) the number of such Equity Securities to be offered, and (iii) the price and terms, upon which it proposes to offer such Equity Securities.

(b) Within 30 days after receipt of the Notice, each Stockholder and Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to the Stockholder’s or Investor’s pro rata portion of such Equity Securities (based upon the number of Equity Securities owned by him (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock), and the total number of shares of Equity Securities outstanding (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock)). The Company shall promptly, in writing, inform each Investor and Stockholder that purchases all of such Equity Securities available to it (a “Fully Exercising Holder”) of any other Investor’s or Stockholder’s failure to do likewise. During the ten-day period commencing after receipt of such information, each Fully Exercising Holder shall be entitled to purchase up to such Fully Exercising Holder’s pro rata portion of the Equity Securities not subscribed for by the Stockholders (based upon the number of shares of Equity Securities owned by such Fully Exercising Investor (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock), assuming the full conversion of his Equity Securities and the number of share of Equity Securities held by all Fully Exercising Holders (treating Equity Securities as having been converted into, exchanged for, or exercised for Common Stock)).

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(c) During the 90-day period following the expiration of such 10-day period, the Company may offer the remaining unsubscribed portion of such shares which the Stockholders and Investors have not elected to purchase to any person or persons at a price not less than, and upon the same terms and conditions as those specified in the Notice. If the Company does not enter into and consummate an agreement for the sale of the Equity Securities within such 90-day period, the right of first offer provided hereunder shall be deemed to be revived and such Equity Securities shall not be offered unless first re-offered to the Stockholders and Investors in accordance with this Section 9.

(d) The right of first offer in this Section 9 shall not be applicable (i) to the issuance or sale of shares of Common Stock reserved for issuance to employees and directors pursuant to the Equity Incentive Plan; (ii) on or after consummation of the Initial Public Offering; (iii) to any Class A Common Stock issued upon conversion of the Class B or Class C Common Stock; (iv) to any shares of Class A Common Stock or Class B Common Stock issued to Persons who are not Affiliates of the Company or any of its stockholders in connection with strategic transactions or as part of an acquisition by the Company of another Person provided that no more than 21,365 shares (as adjusted for any stock split, dividend, combination, reclassification or similar event involving the Class A or Class B Common Stock) of Class A or Class B Common Stock are issued in aggregate pursuant to this subsection (iv); (v) to the issuance to any employee of the Company of shares of Class A Common Stock or Class B Common Stock repurchased from the Management Stockholders pursuant to Section 4 of this Agreement; or (vi) the issuance of 2,667 shares of Class A Common Stock to Roland Corporation at the purchase price per share equal to the Original Cost provided that an equal number of shares of Class A Common Stock is repurchased with the proceeds thereof no later than January 31,2002.

(e) The Board may, by unanimous decision of the directors other than the Investor Director, waive the right of first offer in this Section 9 as to all Stockholders other than the Investors.

10. Mandatory Sale of the Company.

(a) The holders of a majority of the Class C Common Stock shall have the right, exercisable at any time and from time to time, to initiate a Sale of the Company on and after (i) the date that the Company has rejected the exercise of the Redemption Rights (as set forth in Article IV, Section 5(a) of the Restated Certificate), (ii) the date the Company notifies the holders of the Class C Common Stock that the Company is otherwise unable or unwilling to fulfill its obligations upon the exercise of the Redemption Rights, (iii) the Company fails during the one-year period following the exercise of the Redemption Rights on or after December 28, 2006 (other than the exercise of Redemption Rights in connection with an Initial Public Offering or an Event of Default) to use its best efforts to fulfill its obligations upon the exercise of the Redemption Rights, or (iv) one day after the applicable Redemption Date if the Company fails to repurchase the outstanding Class C Common Stock that are required to be redeemed on the applicable Redemption Date. To exercise such right, the holders of a majority of the Class C Common Stock shall deliver a notice to the Company in accordance with Section 16 stating that they have elected to exercise their rights under this Section 10. Following receipt of such notice, the Company shall promptly retain a nationally ranked investment bank selected by the holders

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of a majority of the Class C Common Stock to solicit parties interested in a Sale of the Company. The Company, the Board and the Stockholders signatory hereto shall use their respective best efforts to effect a Sale of the Company at the highest attainable value.

(b) The Company shall keep the Investors apprised of all developments relating to the solicitation of interest of a Sale of the Company and shall notify the Investors promptly (but in not event later than 48 hours after receipt by the Company) of any and all offers relating to a Sale of the Company, including the identity of the potential acquiror and the terms of the proposed transaction.

(c) In the event that the Investors notify the Company that they elect to effect an Approved Sale, each Stockholder shall be obligated to sell their Equity Securities and participate in the transaction contemplated by the Approved Sale, vote their shares of Equity Securities in favor of such Approved Sale at any meeting of stockholders called to vote on or approve such Approved Sale and take all action necessary to cause the Company and the Stockholders to consummate such Approved Sale; provided that any Sale of the Company effected pursuant to this Section 10 shall provide for current Stockholders who are also current investors in the Company’s Fender Japan joint venture to retain, at such Stockholders’ election and at no additional cost, up to the lesser of (a) a twenty percent (20%) fully-diluted equity interest in the Company or (b) such Stockholders’ then current aggregate percentage ownership of the Company’s Common Stock, or, if such transaction is not structured as a stock sale, the same percentage in the Company’s business as conducted by the successor owner thereof; and provided further that in the event of a Sale of a Controlling Interest in the Company, all of the shares of capital stock owned by the Investors shall be included in such transaction and then the remaining shares of capital stock to be sold in such transaction shall be sold by the Stockholders on a pro-rata basis. Any Approved Sale may be abandoned prior to its consummation pursuant to notice provided by the Investors to the Company. Upon the consummation of the Approved Sale, each Stockholder and Investor shall receive the same proportion of the aggregate consideration from such Approved Sale that such holder would have received if a Liquidation (as defined in the Restated Certificate) had occurred and such aggregate consideration had been distributed by the Company in a complete Liquidation (as defined in the Restated Certificate) pursuant to the rights and preferences set forth in the Restated Certificate including the conversion rights of the Class C Common Stock (giving effect to the applicable order of priority) and if any stockholders are given an option as to the form and amount of consideration to be received, all stockholders will be given the same option.

(d) Each Stockholder hereby grants to the general partners of the Investors an irrevocable proxy (to the fullest extent permitted by the General Corporation Law of the State of Delaware) coupled with an interest, as the sole and exclusive attorneys and proxies with full power of substitution and resubstitution, to vote and exercise all voting and related rights (to the fullest extent such Stockholder is entitled to do so pursuant to the General Corporation Law of the State of Delaware) of all the shares of capital stock of the Company that now are or hereafter may be beneficially owned by such Stockholder and all other shares or securities of Company issued or issuable in respect thereof on or after the date hereof (the “Proxy Shares”) in favor of an Approved Sale and otherwise in accordance with this Section 10 at any meeting of the stockholders of the Company and in every written consent in lieu of such meeting called to approve the Approved Sale (the “Irrevocable Proxy”). All Proxy Shares shall be counted for the

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purposes of determining the presence of a quorum at such meetings. Any and all prior proxies given by each Stockholder hereto with respect to any Proxy Shares with respect to matters subject to this Section 10 are hereby revoked to that extent only and the undersigned agrees not to grant any subsequent proxies with respect to the Proxy Shares with respect to matters subject to this Section 10. Prior to the closing of an Approved Sale, each Stockholder shall deliver, against receipt of the consideration specified in the documents governing the Approved Sale, the stock certificate(s) representing the Company held or owned by such Stockholder, with all endorsements necessary for transfer.

(e) The attorneys and proxies named above may not exercise this Irrevocable Proxy on any other matter except as provided in this Section 10. Each of the Stockholders may vote their respective Proxy Shares on all other matters. All authority herein conferred shall survive the death or incapacity of the Stockholders and any obligation of the Stockholders pursuant to the Irrevocable Proxy shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Other than as permitted in this Agreement, no Stockholder or any of its Affiliates shall deposit any voting securities of the Company beneficially owned by such holders in a voting trust or subject any such securities to any arrangement or agreement with respect to the voting of such securities that would impair their obligations under this Section 10.

(f) The Board hereby agrees (to the fullest extent permitted by the General Corporation Law of the State of Delaware) to vote in favor of an Approved Sale and otherwise in accordance with this Section 10. Any agreement which the Company executes with respect to an Approved Sale which is governed by Section 251 or 252 of the General Corporation Law of the State of Delaware shall include a provision that such agreement be submitted to the stockholders of the Company for approval, whether or not the Board determines at any time subsequent to declaring its advisability that such agreement for an Approved Sale is no longer advisable and recommends that the stockholders of the Company reject it.

(g) In the event that the Board and the holders of at least 75% of the then outstanding Voting Stock of the Company shall have approved a Sale of the Company in which the holders of the Class C Common Stock would receive consideration in such transaction in an aggregate amount at least equal to (A) if such Sale of the Company is consummated on or prior to December 28, 2003, 1.5 times the Aggregate Original Cost or (B) if such Sale of the Company is consummated after December 28, 2003, 2.0 times the Aggregate Original Cost, each of the Investors and the Stockholders hereby agree to vote their respective shares of Common Stock in favor of such Sale of the Company and sell their respective shares of Common Stock with respect to such transaction. Upon the consummation such Sale of the Company, each Stockholder and Investor shall receive the same proportion of the aggregate consideration from such Sale of the Company that such holder would have received if a Liquidation (as defined in the Restated Certificate) had occurred and such aggregate consideration had been distributed by the Company in a complete Liquidation (as defined in the Restated Certificate) pursuant to the rights and preferences set forth in the Restated Certificate including the conversion rights of the Class C Common Stock (and giving effect to the applicable order of priority) and if any stockholders are given an option as to the form and amount of consideration to be received, all stockholders will be given the same option.

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(h) The provisions of Section 10 (a) through (f) shall terminate (i) at the time all of the shares of Class C Common Stock (including shares of Class A Common Stock issuable upon conversion of the Class C Common Stock) have been redeemed by the Company or purchased by a Third Party, or (ii) on the closing of a Qualified Public Offering so long as all of the shares of Class C Common Stock have been redeemed at such closing if the holders thereof had so elected as set forth in the Restated Certificate.

11. KEY-MAN INSURANCE. The Company shall use its best efforts to obtain within 30 days following the date of this Agreement and shall maintain, with a carrier acceptable to the Investors, in full force and effect, a key-man life insurance policy in the amount of at least $2,000,000 on the life of Mendello, with proceeds payable to the Company.

12. POSITIVE COVENANTS. Unless otherwise agreed to in writing by the Board and the Investor Director, the Company agrees as follows:

(a) The Company will promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments, and governmental charges or levies imposed upon the income, profits, property, or business of the Company or any Subsidiary; provided, however, that any such tax, assessment, charge, or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereof, and provided further, that the Company will pay all such taxes, assessments, charges, or levies forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. The Company will promptly pay or cause to be paid when due, or in conformance with customary trade terms, all other indebtedness incident to the operations of the Company and any Subsidiary;

(b) The Company will keep its properties and those of its Subsidiaries in good repair, working order, and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions, and improvements thereto in accordance with its current practices; and the Company and its Subsidiaries will at all times comply with the provisions of all material leases to which any of them is a party or under which any of them occupies property so as to prevent any material adverse effect to the business, assets or property of the Company and its Subsidiaries;

(c) The Company will keep true records and books of account in which full, true, and correct entries will be made of all dealings or transactions in relation to its business and affairs in accordance with generally accepted accounting principles applied on a consistent basis;

(d) The Company and all its Subsidiaries shall use their best efforts to duly observe and conform to all valid requirements of governmental authorities which are material to the conduct of their businesses or to their property or assets; and

(e) The Company shall maintain in full force and effect its corporate existence, rights, and franchises and all material licenses and other material rights to use processes, licenses, trademarks, trade names, or copyrights owned or possessed by it or any subsidiary and deemed by the Company to be necessary to the conduct of its business.

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(f) Upon an Event of Default, the Company shall immediately delivery written notice to each of the Investors stating (i) the nature and cause of the Event of Default, (ii) when the Event of Default occurred, and (iii) any action taken or to be taken (if any) to remedy such Event of Default.

13. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements made and to be-performed in the State of Delaware without regard to the conflict of laws principles thereof.

14. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

16. NOTICES. Any notice, request, instruction or other document to be given hereunder by any party hereto to another party hereto shall be in writing, shall be deemed to have been duly given or delivered when delivered personally or telecopied (receipt confirmed, with a copy sent by certified or registered mail as set forth herein) or sent by certified or registered mail, postage prepaid, return receipt requested, or by Federal Express or other overnight delivery service or by courier, to the address of the party set forth below such person’s signature on this Agreement or to such address as the party to whom notice is to be given may provide in a written notice to each of the other parties to this Agreement, a copy of which written notice shall be on file with the Secretary of the Company.

17. LEGEND.

(a) Each certificate representing shares of Common Stock subject to this Agreement shall be endorsed with the following legend:

“THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN THIRD AMENDED AND RESTATED STOCKHOLDERS AGREEMENT, DATED AS OF DECEMBER 28, 2001, AS SUCH AGREEMENT MAY BE AMENDED FROM TIME TO TIME BY AND AMONG THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.”

(b) Each party to this Agreement agrees that the Company may instruct the transfer agent to impose transfer restrictions on the shares represented by certificates bearing the legend referred to in Section 17(a) above to enforce the provisions of this Agreement. The legend shall be removed upon termination of this Agreement.

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18. TERMINATION; AMENDMENTS AND WAIVERS. This Agreement may be terminated or any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of at least (i) a majority of the outstanding Common Stock, and (ii) a majority of the Class C Common Stock and the Class A Common Stock issued or issuable upon conversion of the Class C Common Stock. The provisions of this Agreement other than Section 6 and Section 10 (a) through (f) shall terminate upon the earlier of an Initial Public Offering or a Sale of the Company. The provisions of Section 6 and Section 10 (a) through (f) shall survive termination of this Agreement in accordance with the provisions of such Sections.

19. SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms to the fullest extent permitted by law.

20. FURTHER ASSURANCES. Each of the parties shall, without further consideration, use reasonable efforts to execute and deliver such additional documents and take such other action, as the other parties, or any of them may reasonably request to carry out the intent of this Agreement and the transactions contemplated hereby.

21. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and all rights hereto shall inure to the benefit of the respective successors and assigns of the parties hereto, including, without limitation, transferees of any shares of Common Stock issued.

22. ENTIRE AGREEMENT. This Agreement, together with the Restated Certificate and bylaws, embodies the entire agreement and understanding of the parties hereto in respect of the actions and transactions contemplated by this Agreement. There are no restrictions, promises, inducements, representations, warranties, covenants or undertakings, other than those expressly set forth or referred to herein, in the Restated Certificate or the bylaws.

23. SPECIFIC PERFORMANCE. Each of the Stockholders acknowledges and agrees .that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed and could not be made whole by monetary damages. It is accordingly agreed that the Stockholders will waive the defense in any action for specific performance that a remedy at law would be adequate and that the Stockholders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of this Agreement in any action instituted in any state court of the State of California or any United States District Court located in California or, in the event said Courts would not have jurisdiction for such action, in any court of the United States or any state thereof having jurisdiction for such action.

24. CONFIDENTIALITY. Each of the Stockholders and Investors agrees to keep confidential and not to disclose to persons other than its employees, professional consultants, investors, partners and advisors which shall not include however any Company Competitors in any of the foregoing categories any information concerning the Company which is confidential or proprietary (“Confidential Information”), except as otherwise required by law. Each

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Stockholder and Investor shall use the same level of care with the Confidential Information as it uses with its own confidential information. Notwithstanding the foregoing, the restrictions set forth in this Section 24 shall not be applicable to any information that is publicly available, any information independently developed by an Investor, Stockholder or its professional consultants, any information known to an Investor, Stockholder or its professional consultants before the disclosure thereof by the Company, or any information disclosed to an Investor or Stockholder by a person without any confidentiality duty to the Company.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized officers as of the date first above written.

FENDER MUSICAL INSTRUMENTS CORPORATION:
By:	WILLIAM C. SCHULTZ
Its:	CHAIRMAN & CEO
Address:
CLASS A COMMON HOLDERS:
[                    ]
By:
Address:
INVESTORS:
[                    ]
Address:

EX-4.3

Exhibit 4.3

FIRST AMENDMENT

TO

THIRD AMENDED AND RESTATED STOCKHOLDERS’ AGREEMENT

This First Amendment to Third Amended and Restated Stockholders’ Agreement (this “Amendment”) is entered into as of June 24, 2002, by and among Fender Musical Instruments Corporation, a Delaware corporation (the “Company”) and the holders of the Company’s Class A Common Stock and Class C Common Stock.

1. Amendment. The Company’s Third Amended and Restated Stockholders’ Agreement (the “Stockholders’ Agreement”) is hereby amended by adding a new Section 4.3, which shall state in its entirety as follows:

4.3 Reissuance of Shares. The 2,066 shares of Common Stock repurchased by the Company from Schultz on January 3, 2002, pursuant to the Plan of Redemption for the Common Stock of Schultz dated December 1, 1997 (the “Schultz Redemption Shares”) shall be deemed to have been repurchased pursuant to this Section 4. The Company shall be entitled to reissue, at the then fair market value, to current and new employees of the Company shares of Common Stock repurchased by the Company after December 28, 2001 pursuant to this Section 4, including without limitation the Schultz Redemption Shares. Shares reissued in accordance with the preceding sentence shall not be deemed to be “Additional Stock” and shall not result in an adjustment of the “Conversion Price” as such terms are defined in the Restated Certificate. No shares reissued pursuant to this Section 4.3 shall be sold to any person unless such person is already a party to this Agreement or executes a counterpart signature page to this Agreement agreeing to be bound by the terms and provisions hereof.

2. No Other Amendments. Except as expressly provided for herein, the parties hereto do not intend to amend or otherwise alter any of the terms and conditions of the Stockholders Agreement.

3. Entire Agreement. This Amendment constitutes the entire agreement of the parties hereto with respect to the amendment of the Stockholders’ Agreement. Neither this Amendment nor the Stockholders’ Agreement (as amended hereby) may be modified except in writing, signed by the requisite parties specified in the Stockholders’ Agreement.

4. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same document.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written.

COMPANY

FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation
By:	/s/ William C. Schultz
Its:

CLASS C STOCKHOLDERS

WESTON PRESIDIO CAPITAL IV, L.P.			WPC ENTREPRENEUR FUND II, L.P.
By		WESTON PRESIDIO CAPITAL MANAGEMENT IV, LLC, its General Partner	By		WESTON PRESIDIO CAPITAL MANAGEMENT IV, LLC, its General Partner
	By:	/s/ Michael P. Lazarus		By:	/s/ Michael P. Lazarus
	Its:			Its:
WESTON PRESIDIO CAPITAL III, L.P.			WPC ENTREPRENEUR FUND, L.P.
By		WESTON PRESIDIO CAPITAL MANAGEMENT III, LLC, its General Partner	By		WESTON PRESIDIO CAPITAL MANAGEMENT III, LLC, its General Partner
	By:	/s/ Michael P. Lazarus		By:	/s/ Michael P. Lazarus
	Its:			Its:

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CLASS A STOCKHOLDERS

WILLIAM CHARLES SCHULTZ & MARY JANE SCHULTZ FAMILY TRUST		KANDA SHOKAI CORPORATION
/s/ William C. Schultz		By:	/s/ Masayuki Suzuki
William C. Schultz, Trustee		Its:	Masayuki Suzuki, President
ARBITER GROUP PLC		YAMANO MUSIC CO., LTD.
By:	/s/ Ivory Arbiter	By:	/s/ Masamitsu Yamano
Its		Its:	Msamitsu Yamano, Chairman & CEO
SERVCO CALIFORNIA INC.		SERVCO PACIFIC INC.
By:	/s/ Mark Fukunaga	By:	/s/ Mark Fukunaga
Its:	Chairman & CEO	Its:	Chairman & CEO
		/s/ William C. Mendello
		William C. Mendello
		BEING THE COMPANY AND THE HOLDERS OF A MAJORITY OF THE COMPANY’S COMMON STOCK AND THE HOLDERS OF A MAJORITY OF THE COMPANY’S CLASS C COMMON STOCK

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EX-10.1

Exhibit 10.1

INDEMNIFICATION AGREEMENT

THIS INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of                     , 20    , between FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Company”), and                     (“Indemnitee”).

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the uncertainties relating to insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of any other rights of the Indemnitee and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified; and

NOW, THEREFORE, in consideration of Indemnitee’s agreement to continue to serve as a director after the date hereof, the parties hereto agree as follows:

1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding. Pursuant to this Section 1, Indemnitee shall be indemnified, to the fullest extent permitted by law, as such may be amended from time to time, against all Losses or Expenses incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein. Section 13 defines those terms that are capitalized and not defined elsewhere in this Agreement.

2. Contribution.

(a) Whether or not the indemnification provided in Section 1 hereof is available, in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance, the entire amount of any Losses or Expenses incurred without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of such Expenses or Losses incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses or Losses, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Losses and/or for Expenses incurred, in connection with any claim relating to an indemnifiable event under this Agreement, (i) in such proportion to reflect the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding or (ii) if the allocation in clause (i) is not permitted by applicable law, in such proportion as is

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appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and Indemnitee in connection with such event(s) and/or transaction(s), as well as any other relevant equitable considerations. In connection with the registration of the Company’s securities, the relative benefits received by the Company and Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered. The relative fault of the Company and Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 2(d) were determined by pro rata or per capita allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 2(d) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement that is being sold by such Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(e) The indemnification and contribution provided for in this Section 2 will remain in full force and effect regardless of any investigation made by or on behalf of Indemnitee.

3. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses incurred by him or on his behalf in connection therewith.

4. Advancement of Expenses. (a) Notwithstanding any other provision of this Agreement, the Company shall, to the fullest extent permitted by law, as such may be amended from time to time, advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses

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advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 4(a) shall be unsecured and interest free.

(b) In the event the Company shall be obligated under Section 4(a) to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee (such approval not to be unreasonably withheld or delayed), upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his or her counsel in any such Proceeding at Indemnitee’s own expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

5. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under applicable law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 5(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following three methods: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum or (3) if there are no disinterested directors or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, provided that if there is a Change of Control, such determination shall be made by Independent Counsel selected pursuant to Section 5(c). For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the Proceeding in respect of which indemnification is sought by Indemnitee.

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(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(b) hereof, the Independent Counsel shall be selected as provided in this Section 5(c). The Independent Counsel shall be selected by the Board of Directors, provided that if there is a Change of Control (other than a Change of Control that has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change of Control), then the Independent Counsel shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed). Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 5(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 5(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 5(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(c), regardless of the manner in which such Independent Counsel was selected or appointed.

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

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(e) Without limiting the foregoing, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 5(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(f) If the person, persons or entity empowered or selected under Section 5 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.

(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel or member of the Board of Directors of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and/or uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been

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successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

6. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 5(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 5 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b) In the event that a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 5(b).

(c) If a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

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(d) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement; provided, however, that both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying Indemnitee under this Agreement or otherwise, and Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee. The Company shall indemnify Indemnitee against any and all Expenses incurred and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such Expenses to Indemnitee which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

7. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, each as amended from time to time. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other Enterprise, Indemnitee shall be covered by

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such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other Enterprise.

8. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law;

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees but excluding any Proceeding for which indemnification is provided under Section 6(a), unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

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(d) for any amounts paid or to be paid in settlement of any Proceeding without the express prior written consent of the Company. Neither the Company nor Indemnitee shall unreasonably withhold or delay consent to any proposed settlement.

9. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until and terminate upon the later of (a) ten years after the date that Indemnitee has ceased to be an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) or (b) one year after the final termination of all pending Proceedings to which Indemnitee shall be subject (or any proceeding commenced under Section 6 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

10. Security. To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

11. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement or any previous indemnification agreement and assumes the obligations imposed on it hereby and thereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof.

12. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released

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unless asserted by the timely filing of a legal action within such five (5) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

13. Definitions. For purposes of this Agreement:

(a) A “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least two thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

(b) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other Enterprise.

(c) “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

(d) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

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(e) “Expenses” shall include all attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, in each case that are actually and reasonably incurred. Expenses also shall include Expenses actually and reasonably incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses incurred arising out of or relating to this Agreement or its engagement pursuant hereto.

(g) “Losses” means all amounts actually and reasonably incurred by Indemnitee that Indemnitee is legally obligated to pay as a result of any Proceeding, including, without limitation, (a) all judgments, penalties, and fines, and amounts paid or to be paid in settlement, and (b) all interest, assessments, and other charges paid or payable in connection therewith.

(h) “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of an Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

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(i) “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

14. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a) To Indemnitee at the address set forth below Indemnitee’s signature hereto.

(b) To the Company at:

  Fender Musical Instruments Corporation

  8860 E. Chaparral Road, Suite 100

  Scottsdale, AZ 85250

  Attention: Corporate Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

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18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably CT Corporation, 1209 Orange Street, Wilmington, Delaware 19081 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

SIGNATURE PAGE TO FOLLOW

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

COMPANY
FENDER MUSICAL INSTRUMENTS CORPORATION
By
	Name:
	Title:

INDEMNITEE
	Name:
	Address:

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EX-10.2

Exhibit 10.2

AMENDED AND RESTATED INDEMNIFICATION AGREEMENT

THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of January 5, 2009, between FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Company”), and the indemnitees listed on the signature pages hereto (each, an “Indemnitee” and collectively, the “Indemnitees”).

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the uncertainties relating to insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of any other rights of the Indemnitees and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of any Indemnitees thereunder;

WHEREAS, the parties desire that this Agreement supersede any previous indemnification agreement between the Company and the Indemnitees with respect to the subject matter set forth herein; and

NOW, THEREFORE, for good and valuable consideration, the adequacy of which is acknowledged, the parties hereto agree as follows:

1. Indemnity of Indemnitees. The Company hereby agrees to hold harmless and indemnify each Indemnitee (including its respective directors, officers, partners, members, employees, agents and spouse, as applicable) and each person who controls any of them or who may be liable within the meaning of Section 15 of the Securities Act of 1933, as amended (the “Securities Act”), or Section 20 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the fullest extent permitted by law, as such may be amended from time to time if, by reason of his or its Corporate Status or by reason of any action taken by him or it or of any inaction on his or its part while acting in

his or its Corporate Status, such Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding. Pursuant to this Section 1, each Indemnitee shall be indemnified, to the fullest extent permitted by law, as such may be amended from time to time, against all Losses or Expenses incurred by him or it, or on his or its behalf, in connection with such Proceeding or any claim, issue or matter therein. Section 13 defines those terms that are capitalized and not defined elsewhere in this Agreement.

2. Contribution.

(a) Whether or not the indemnification provided in Section 1 hereof is available, in respect of any Proceeding in which the Company is jointly liable with any Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance, the entire amount of any Losses or Expenses incurred without requiring such Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against such Indemnitee. The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with any Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against such Indemnitee.

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, an Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with such Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of such Expenses or Losses incurred and paid or payable by such Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than such Indemnitee, who are jointly liable with such Indemnitee (or would be if joined in such Proceeding), on the one hand, and such Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than such Indemnitee who are jointly liable with such Indemnitee (or would be if joined in such Proceeding), on the one hand, and such Indemnitee, on the other hand, in connection with the events that resulted in such Expenses or Losses, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than such Indemnitee, who are jointly liable with such Indemnitee (or would be if joined in such Proceeding), on the one hand, and such Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(c) The Company hereby agrees to fully indemnify and hold each Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than such Indemnitee, who may be jointly liable with such Indemnitee.

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(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to an Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying such Indemnitee, shall contribute to the amount incurred by such Indemnitee, whether for Losses and/or for Expenses incurred, in connection with any claim relating to an indemnifiable event under this Agreement, (i) in such proportion to reflect the relative benefits received by the Company and such Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding or (ii) if the allocation in clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and such Indemnitee in connection with such event(s) and/or transaction(s), as well as any other relevant equitable considerations. In connection with the registration of the Company’s securities, the relative benefits received by the Company and such Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and such Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered. The relative fault of the Company and such Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or such Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and each Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 2(d) were determined by pro rata or per capita allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the registration of the Company’s securities, in no event shall an Indemnitee be required to contribute any amount under this Section 2(d) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement that is being sold by such Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(e) The indemnification and contribution provided for in this Section 2 will remain in full force and effect regardless of any investigation made by or on behalf of an Indemnitee.

3. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that an Indemnitee is, by reason of his or its Corporate Status, a witness in any Proceeding to which such Indemnitee is not a party, he or it shall be indemnified against all Expenses incurred by him or it or on his or its behalf in connection therewith.

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4. Advancement of Expenses. (a) Notwithstanding any other provision of this Agreement, the Company shall, to the fullest extent permitted by law, as such may be amended from time to time, advance all Expenses incurred by or on behalf of an Indemnitee in connection with any Proceeding by reason of such Indemnitee’s Corporate Status within thirty (30) days after the receipt by the Company of a statement or statements from such Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of such Indemnitee to repay any Expenses advanced if it shall ultimately be determined that such Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 4(a) shall be unsecured and interest free.

(b) In the event the Company shall be obligated under Section 4(a) to pay the Expenses of any Proceeding against such Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by such Indemnitee (such approval not to be unreasonably withheld or delayed), upon the delivery to such Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by such Indemnitee and the retention of such counsel by the Company, the Company will not be liable to such Indemnitee under this Agreement for any fees of counsel subsequently incurred by such Indemnitee with respect to the same proceeding, provided that (i) such Indemnitee shall have the right to employ his or her counsel in any such Proceeding at such Indemnitee’s own expense and (ii) if (A) the employment of counsel by such Indemnitee has been previously authorized by the Company, (B) such Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and such Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of such Indemnitee’s counsel shall be at the expense of the Company.

5. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for each Indemnitee rights of indemnity that are as favorable as may be permitted under applicable law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether an Indemnitee is entitled to indemnification under this Agreement:

(a) To obtain indemnification under this Agreement, such Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to such Indemnitee and is reasonably necessary to determine whether and to what extent such Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that such Indemnitee has requested indemnification.

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(b) Upon written request by such Indemnitee for indemnification pursuant to the first sentence of Section 5(a) hereof, a determination, if required by applicable law, with respect to such Indemnitee’s entitlement thereto shall be made in the specific case by one of the following three methods: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum or (3) if there are no disinterested directors or if the disinterested directors so direct, by independent legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to such Indemnitee, provided that if there is a Change of Control, such determination shall be made by Independent Counsel selected pursuant to Section 5(c). For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the Proceeding in respect of which indemnification is sought by such Indemnitee.

(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(b) hereof, the Independent Counsel shall be selected as provided in this Section 5(c). The Independent Counsel shall be selected by the Board of Directors, provided that if there is a Change of Control (other than a Change of Control that has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change of Control), then the Independent Counsel shall be selected by such Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed). Such Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by such Indemnitee of a written request for indemnification pursuant to Section 5(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or such Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by such Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 5(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 5(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(c), regardless of the manner in which such Independent Counsel was selected or appointed.

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(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that such Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because such Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that such Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that such Indemnitee has not met the applicable standard of conduct.

(e) Without limiting the foregoing, such Indemnitee shall be deemed to have acted in good faith if such Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to such Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to such Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 5(e) are satisfied, it shall in any event be presumed that such Indemnitee has at all times acted in good faith and in a manner he or it reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(f) If the person, persons or entity empowered or selected under Section 5 to determine whether such Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and such Indemnitee shall be entitled to such indemnification absent (i) a misstatement by such Indemnitee of a material fact, or an omission of a material fact necessary to make such Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.

(g) Such Indemnitee shall cooperate with the person, persons or entity making such determination with respect to such Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise

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protected from disclosure and which is reasonably available to such Indemnitee and reasonably necessary to such determination. Any Independent Counsel or member of the Board of Directors of the Company shall act reasonably and in good faith in making a determination regarding such Indemnitee’s entitlement to indemnification under this Agreement. Any Expenses incurred by such Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to such Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold such Indemnitee harmless therefrom.

(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and/or uncertainty. In the event that any Proceeding to which such Indemnitee is a party is resolved in any manner other than by adverse judgment against such Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that such Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of such Indemnitee to indemnification or create a presumption that such Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that such Indemnitee had reasonable cause to believe that his conduct was unlawful.

6. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that an Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 5(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that an Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 5 of this Agreement, such Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of such Indemnitee’s entitlement to such indemnification. Such Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which such Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose such Indemnitee’s right to seek any such adjudication.

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(b) In the event that a determination shall have been made pursuant to Section 5(b) of this Agreement that an Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial on the merits, and such Indemnitee shall not be prejudiced by reason of the adverse determination under Section 5(b).

(c) If a determination shall have been made pursuant to Section 5(b) of this Agreement that an Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6, absent (i) a misstatement by such Indemnitee of a material fact, or an omission of a material fact necessary to make such Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement; provided, however, that both the Company and each Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying Indemnitees under this Agreement or otherwise, and each Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify such Indemnitee. The Company shall indemnify each Indemnitee against any and all Expenses incurred and, if requested by such Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such Expenses to such Indemnitee which are incurred by such Indemnitee in connection with any action brought by such Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether such Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

7. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which an Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, each as amended from time to time. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of an Indemnitee

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under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under this Agreement, it is the intent of the parties hereto that an Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, control persons, agents or fiduciaries, each Indemnitee shall be covered by such policies in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company’s directors, if such Indemnitee is a director, or of the Company’s officers, if such Indemnitee is not a director of the Company but is an officer; or of the Company’s controlling persons, agents or fiduciaries, if such Indemnitee is not an officer or director but is an agent, control person or fiduciary. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has such liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the applicable Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of each Indemnitee, who, as appropriate, shall each execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that an Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to an Indemnitee who is or was serving at the request of the Company as a director, officer, employee, agent, stockholder or controlling person of any other Enterprise shall be reduced by any amount such Indemnitee has actually received as indemnification or advancement of expenses from such other Enterprise.

8. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against an Indemnitee:

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(a) for which payment has actually been made to or on behalf of such Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by such Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law;

(c) in connection with any Proceeding (or any part of any Proceeding) initiated by such Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by such Indemnitee against the Company or its directors, officers, employees or other indemnitees but excluding any Proceeding for which indemnification is provided under Section 6(a), unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

(d) for any amounts paid or to be paid in settlement of any Proceeding without the express prior written consent of the Company. Neither the Company nor such Indemnitee shall unreasonably withhold or delay consent to any proposed settlement.

9. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until and terminate with respect to an Indemnitee upon the later of (a) ten years after the date that such Indemnitee has ceased to be an officer, director, stockholder, control person or fiduciary of the Company (or is or was serving at the request of the Company as a director, officer, employee, agent, stockholder, control person or fiduciary of another corporation, partnership, joint venture, trust or other enterprise) or (b) one year after the final termination of all pending Proceedings to which such Indemnitee shall be subject (or any proceeding commenced under Section 6 hereof) by reason of his or its Corporate Status, whether or not he or it is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

10. Security. To the extent requested by an Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to such Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to such Indemnitee, may not be revoked or released without the prior written consent of such Indemnitee.

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11. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement or any previous indemnification agreement and assumes the obligations imposed on it hereby or thereby in order to induce Indemnitee to serve as an officer, director, stockholder or control person of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer, director, stockholder or control person of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Without limiting the foregoing, this Agreement amends and restates any previous indemnification agreement between the Company and the Indemnitees.

12. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against the Indemnitees, the Indemnitees’ estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

13. Definitions. For purposes of this Agreement:

(a) A “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or

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consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least two thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

(b) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent, fiduciary, stockholder or control person of the Company or of any other Enterprise.

(c) “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent, fiduciary, stockholder or control person.

(d) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(e) “Expenses” shall include all attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, in each case that are actually and reasonably incurred. Expenses also shall include Expenses actually and reasonably incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or an Indemnitee in any matter material to either such party (other than with respect to matters concerning such Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or an Indemnitee in an action to determine such Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses incurred arising out of or relating to this Agreement or its engagement pursuant hereto.

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(g) “Losses” means all amounts actually and reasonably incurred by an Indemnitee that such Indemnitee is legally obligated to pay as a result of any Proceeding, including, without limitation, (a) all judgments, penalties, and fines, and amounts paid or to be paid in settlement, and (b) all interest, assessments, and other charges paid or payable in connection therewith.

(h) “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which an Indemnitee was, is or will be involved as a party or otherwise, by reason of his or its Corporate Status, by reason of any action taken by him or it or of any inaction on his or its part while acting in his or its Corporate Status; in each case whether or not he or it is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

(i) “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

14. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon the Indemnitees indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by all of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

16. Notice By Indemnitee. Each Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to an Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or

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certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a) To an Indemnitee at the address set forth below such Indemnitee’s signature hereto.

(b) To the Company at:

  Fender Musical Instruments Corporation

  8860 E. Chaparral Road, Suite 100

  Scottsdale, AZ 85250

  Attention: Corporate Secretary

or to such other address as may have been furnished to Indemnitees by the Company or to the Company by an Indemnitee, as the case may be.

18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and each Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably CT Corporation, 1209 Orange Street, Wilmington, Delaware 19081 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

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21. Additional Indemnification Agreements. Notwithstanding anything to the contrary herein, the Company hereby acknowledges that one or more of the Indemnitees have certain rights to indemnification, advancement of expenses and/or insurance provided by Weston Presidio and certain of its affiliates (collectively, the “Fund Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitees are primary and any obligation of the Fund Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitees are secondary), (ii) that it shall be required to advance the full amount of Expenses incurred by Indemnitees and shall be liable for the full amount of all Expenses, judgments, penalties, fines and amounts paid in settlement, in each case to the extent legally permitted and as required by the terms of this Agreement and the Certificate of Incorporation or Bylaws of the Company (or any other agreement between the Company and Indemnitees), without regard to any rights Indemnitees may have against the Fund Indemnitors, and, (iii) that it irrevocably waives, relinquishes and releases the Fund Indemnitors from any and all claims against the Fund Indemnitors for contribution, subrogation or any other recovery of any kind in respect of any rights Indemnitees may have against the Fund Indemnitors. The Company further agrees that no advancement or payment by the Fund Indemnitors on behalf of an Indemnitee with respect to any claim for which such Indemnitee has sought indemnification from the Company shall affect the foregoing and the Fund Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of such Indemnitee against the Company. The Company and the Indemnitees agree that the Fund Indemnitors are express third party beneficiaries of the terms of this Section 21.

SIGNATURE PAGE TO FOLLOW

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

COMPANY FENDER MUSICAL INSTRUMENTS CORPORATION
By	/s/ William L. Mendello
	Name: William L. Mendello
	Title: Chief Executive Officer
INDEMNITEE MICHAEL P. LAZARUS
/s/ Michael P. Lazarus
Name: Michael P. Lazarus
Address:

INDEMNITEE

WESTON PRESIDIO CAPITAL IV, L.P.

/s/ Michael P. Lazarus

Name: Michael P. Lazarus

Title: Managing Partner

Address:

INDEMNITEE

WPC ENTREPRENEUR FUND II, L.P.

/s/ Michael P. Lazarus

Name: Michael P. Lazarus

Title: Managing Partner

Address:

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INDEMNITEE

WESTON PRESIDIO CAPITAL III, L.P.

/s/ Michael P. Lazarus

Name: Michael P. Lazarus

Title: Managing Partner

Address:

INDEMNITEE

WPC ENTREPRENEUR FUND, L.P.

/s/ Michael P. Lazarus

Name: Michael P. Lazarus

Title: Managing Partner

Address:

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EX-10.3

Exhibit 10.3

AMENDED AND RESTATED INDEMNIFICATION AGREEMENT

THIS AMENDED AND RESTATED INDEMNIFICATION AGREEMENT (the “Agreement”) is made and entered into as of January 20, 2009, between FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Company”), and Mark H. Fukunaga (“Indemnitee”).

WHEREAS, highly competent persons have become more reluctant to serve corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation;

WHEREAS, the uncertainties relating to insurance and to indemnification have increased the difficulty of attracting and retaining such persons;

WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

WHEREAS, it is reasonable, prudent and necessary for the Company to contractually obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

WHEREAS, this Agreement is a supplement to and in furtherance of any other rights of the Indemnitee and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;

WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified;

WHEREAS, the parties desire that this Agreement supersede any previous indemnification agreement between the Company and Indemnitee; and

NOW, THEREFORE, in consideration of Indemnitee’s agreement to continue to serve as a director after the date hereof, the parties hereto agree as follows:

1. Indemnity of Indemnitee. The Company hereby agrees to hold harmless and indemnify Indemnitee to the fullest extent permitted by law, as such may be amended from time to time if, by reason of his Corporate Status, the Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding. Pursuant to this Section 1, Indemnitee shall be indemnified, to the fullest extent permitted by law, as such may be amended from time to time, against all Losses or Expenses incurred by him, or on his behalf, in connection with such Proceeding or any claim, issue or matter therein. Section 13 defines those terms that are capitalized and not defined elsewhere in this Agreement.

2. Contribution.

(a) Whether or not the indemnification provided in Section 1 hereof is available, in respect of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall pay, in the first instance, the entire amount of any Losses or Expenses incurred without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not enter into any settlement of any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding) unless such settlement provides for a full and final release of all claims asserted against Indemnitee.

(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), the Company shall contribute to the amount of such Expenses or Losses incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction from which such Proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company other than Indemnitee who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the events that resulted in such Expenses or Losses, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such Proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.

(c) The Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.

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(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for Losses and/or for Expenses incurred, in connection with any claim relating to an indemnifiable event under this Agreement, (i) in such proportion to reflect the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding or (ii) if the allocation in clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and Indemnitee in connection with such event(s) and/or transaction(s), as well as any other relevant equitable considerations. In connection with the registration of the Company’s securities, the relative benefits received by the Company and Indemnitee shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and Indemnitee, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the securities so offered. The relative fault of the Company and Indemnitee shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or Indemnitee and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

The Company and Indemnitee agree that it would not be just and equitable if contribution pursuant to this Section 2(d) were determined by pro rata or per capita allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. In connection with the registration of the Company’s securities, in no event shall Indemnitee be required to contribute any amount under this Section 2(d) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement that is being sold by such Indemnitee or (ii) the proceeds received by such Indemnitee from its sale of securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act of 1933, as amended) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.

(e) The indemnification and contribution provided for in this Section 2 will remain in full force and effect regardless of any investigation made by or on behalf of Indemnitee.

3. Indemnification for Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses incurred by him or on his behalf in connection therewith.

4. Advancement of Expenses. (a) Notwithstanding any other provision of this Agreement, the Company shall, to the fullest extent permitted by law, as such may be amended from time to time, advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding by reason of Indemnitee’s Corporate Status within

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thirty (30) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by an undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately be determined that Indemnitee is not entitled to be indemnified against such Expenses. Any advances and undertakings to repay pursuant to this Section 4(a) shall be unsecured and interest free.

(b) In the event the Company shall be obligated under Section 4(a) to pay the Expenses of any Proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such Proceeding, with counsel approved by Indemnitee (such approval not to be unreasonably withheld or delayed), upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his or her counsel in any such Proceeding at Indemnitee’s own expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company.

5. Procedures and Presumptions for Determination of Entitlement to Indemnification. It is the intent of this Agreement to secure for Indemnitee rights of indemnity that are as favorable as may be permitted under applicable law. Accordingly, the parties agree that the following procedures and presumptions shall apply in the event of any question as to whether Indemnitee is entitled to indemnification under this Agreement:

(a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.

(b) Upon written request by Indemnitee for indemnification pursuant to the first sentence of Section 5(a) hereof, a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case by one of the following three methods: (1) by a majority vote of the disinterested directors, even though less than a quorum, (2) by a committee of disinterested directors designated by a majority vote of the disinterested directors, even though less than a quorum or (3) if there are no disinterested directors or if the disinterested directors so direct, by independent

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legal counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the Indemnitee, provided that if there is a Change of Control, such determination shall be made by Independent Counsel selected pursuant to Section 5(c). For purposes hereof, disinterested directors are those members of the board of directors of the Company who are not parties to the Proceeding in respect of which indemnification is sought by Indemnitee.

(c) If the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 5(b) hereof, the Independent Counsel shall be selected as provided in this Section 5(c). The Independent Counsel shall be selected by the Board of Directors, provided that if there is a Change of Control (other than a Change of Control that has been approved by a majority of the Company’s Board of Directors who were directors immediately prior to such Change of Control), then the Independent Counsel shall be selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed). Indemnitee may, within 10 days after such written notice of selection shall have been given, deliver to the Company, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 13 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If a written objection is made and substantiated, the Independent Counsel selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit. If, within 20 days after submission by Indemnitee of a written request for indemnification pursuant to Section 5(a) hereof, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition the Court of Chancery of the State of Delaware or other court of competent jurisdiction for resolution of any objection which shall have been made by the Indemnitee to the Company’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 5(b) hereof. The Company shall pay any and all reasonable fees and expenses of Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 5(b) hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5(c), regardless of the manner in which such Independent Counsel was selected or appointed.

(d) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable

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standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

(e) Without limiting the foregoing, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors or officers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made to the Enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Enterprise. In addition, the knowledge and/or actions, or failure to act, of any director, officer, agent or employee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Whether or not the foregoing provisions of this Section 5(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(f) If the person, persons or entity empowered or selected under Section 5 to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall be deemed to have been made and Indemnitee shall be entitled to such indemnification absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.

(g) Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any Independent Counsel or member of the Board of Directors of the Company shall act reasonably and in good faith in making a determination regarding the Indemnitee’s entitlement to indemnification under this Agreement. Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

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(h) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and/or uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.

(i) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

6. Remedies of Indemnitee.

(a) In the event that (i) a determination is made pursuant to Section 5 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4 of this Agreement, (iii) no determination of entitlement to indemnification is made pursuant to Section 5(b) of this Agreement within 90 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to this Agreement within ten (10) days after receipt by the Company of a written request therefor, or (v) payment of indemnification is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification or such determination is deemed to have been made pursuant to Section 5 of this Agreement, Indemnitee shall be entitled to an adjudication in an appropriate court of the State of Delaware, or in any other court of competent jurisdiction, of Indemnitee’s entitlement to such indemnification. Indemnitee shall commence such proceeding seeking an adjudication within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 6(a). The Company shall not oppose Indemnitee’s right to seek any such adjudication.

(b) In the event that a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding commenced pursuant to this Section 6 shall be conducted in all respects as a de novo trial on the merits, and Indemnitee shall not be prejudiced by reason of the adverse determination under Section 5(b).

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(c) If a determination shall have been made pursuant to Section 5(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s misstatement not materially misleading in connection with the application for indemnification, or (ii) a prohibition of such indemnification under applicable law.

(d) The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court that the Company is bound by all the provisions of this Agreement; provided, however, that both the Company and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Company from indemnifying Indemnitee under this Agreement or otherwise, and Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Company’s right under public policy to indemnify Indemnitee. The Company shall indemnify Indemnitee against any and all Expenses incurred and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefore) advance, to the extent not prohibited by law, such Expenses to Indemnitee which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

(e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

7. Non-Exclusivity; Survival of Rights; Insurance; Subrogation.

(a) The rights of indemnification as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the certificate of incorporation of the Company, the Bylaws, any agreement, a vote of stockholders, a resolution of directors or otherwise, each as amended from time to time. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in the Delaware General Corporation Law, whether by statute or judicial decision, permits greater indemnification than would be afforded currently under this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

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(b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents or fiduciaries of the Company or of any other Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any director, officer, employee, agent or fiduciary under such policy or policies. If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies.

(c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

(d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

(e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other Enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of expenses from such other Enterprise.

8. Exception to Right of Indemnification. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

(a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

(b) for an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act, or similar provisions of state statutory law or common law;

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(c) in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees but excluding any Proceeding for which indemnification is provided under Section 6(a), unless (i) the Board of Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law; or

(d) for any amounts paid or to be paid in settlement of any Proceeding without the express prior written consent of the Company. Neither the Company nor Indemnitee shall unreasonably withhold or delay consent to any proposed settlement.

9. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until and terminate upon the later of (a) ten years after the date that Indemnitee has ceased to be an officer or director of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) or (b) one year after the final termination of all pending Proceedings to which Indemnitee shall be subject (or any proceeding commenced under Section 6 hereof) by reason of his Corporate Status, whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.

10. Security. To the extent requested by Indemnitee and approved by the Board of Directors of the Company, the Company may at any time and from time to time provide security to Indemnitee for the Company’s obligations hereunder through an irrevocable bank line of credit, funded trust or other collateral. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of the Indemnitee.

11. Enforcement.

(a) The Company expressly confirms and agrees that it has entered into this Agreement or any previous indemnification agreement and assumes the obligations imposed on it hereby and thereby in order to induce Indemnitee to serve as an officer or director of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as an officer or director of the Company.

(b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. Without limiting the foregoing, this Agreement amends and restates any previous indemnification agreement between the Company and Indemnitee.

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12. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s estate, spouse, heirs, executors or personal or legal representatives after the expiration of five (5) years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such five (5) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action, such shorter period shall govern.

13. Definitions. For purposes of this Agreement:

(a) A “Change in Control” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, (A) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person, or (B) becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than 30% of the total voting power represented by the Company’s then outstanding Voting Securities; (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least two thirds (2/3) of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all of the Company’s assets.

(b) “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other Enterprise.

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(c) “Enterprise” shall mean the Company and any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise that Indemnitee is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary.

(d) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(e) “Expenses” shall include all attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees and all other disbursements or expenses of the types incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, participating, or being or preparing to be a witness in a Proceeding, in each case that are actually and reasonably incurred. Expenses also shall include Expenses actually and reasonably incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses incurred arising out of or relating to this Agreement or its engagement pursuant hereto.

(g) “Losses” means all amounts actually and reasonably incurred by Indemnitee that Indemnitee is legally obligated to pay as a result of any Proceeding, including, without limitation, (a) all judgments, penalties, and fines, and amounts paid or to be paid in settlement, and (b) all interest, assessments, and other charges paid or payable in connection therewith.

(h) “Proceeding” includes any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether civil, criminal, administrative or investigative, in which Indemnitee was, is or will be involved as a party or otherwise, by reason of the fact that Indemnitee is or was an officer or director of the

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Company, by reason of any action taken by him or of any inaction on his part while acting as an officer or director of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee, agent or fiduciary of an Enterprise; in each case whether or not he is acting or serving in any such capacity at the time any liability or expense is incurred for which indemnification can be provided under this Agreement.

(i) “Voting Securities” shall mean any securities of the Company that vote generally in the election of directors.

14. Severability. The invalidity or unenforceability of any provision hereof shall in no way affect the validity or enforceability of any other provision. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee indemnification rights to the fullest extent permitted by applicable laws. In the event any provision hereof conflicts with any applicable law, such provision shall be deemed modified, consistent with the aforementioned intent, to the extent necessary to resolve such conflict.

15. Modification and Waiver. No supplement, modification, termination or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

16. Notice By Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with or otherwise receiving any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification covered hereunder. The failure to so notify the Company shall not relieve the Company of any obligation which it may have to Indemnitee under this Agreement or otherwise unless and only to the extent that such failure or delay materially prejudices the Company.

17. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:

(a) To Indemnitee at the address set forth below Indemnitee’s signature hereto.

(b) To the Company at:

  Fender Musical Instruments Corporation

  8860 E. Chaparral Road, Suite 100

  Scottsdale, AZ 85250

  Attention: Corporate Secretary

or to such other address as may have been furnished to Indemnitee by the Company or to the Company by Indemnitee, as the case may be.

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18. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Agreement. This Agreement may also be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

19. Headings. The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

20. Governing Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably CT Corporation, 1209 Orange Street, Wilmington, Delaware 19081 as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

21. Additional Indemnification Agreements. Notwithstanding anything to the contrary herein, the Company hereby acknowledges and agrees as follows: The Company acknowledges that Indemnitee has certain rights to indemnification, advancement of expenses and/or insurance provided by Servco Pacific Inc. and certain of its affiliates (collectively, “Servco”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of Servco to advance Expenses or to provide indemnification for Expenses or Losses incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of Expenses or Losses incurred by Indemnitee and shall be liable for the full amount of all Expenses or Losses, including without limitation judgments, penalties, fines and amounts paid in settlement, in each case to the extent legally permitted and as

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required by the terms of this Agreement and the Certificate of Incorporation or Bylaws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against Servco, and, (iii) that it irrevocably waives, relinquishes and releases Servco from any and all claims against Servco for contribution, subrogation or any other recovery of any kind in respect of any rights Indemnitee may have against Servco. The Company further agrees that no advancement or payment by Servco on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and Servco shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Servco against the Company. The Company and Servco agree that Servco is an express third party beneficiary of the terms of this Section 21.

SIGNATURE PAGE TO FOLLOW

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

COMPANY
FENDER MUSICAL INSTRUMENTS CORPORATION
By	/s/ William L. Mendello
	Name:	William L. Mendello
	Title:	Chief Executive Officer

INDEMNITEE
/s/ Mark H. Fukunaga
Name:	Mark H. Fukunaga
Address:

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EX-10.4

Exhibit 10.4

                                                       First Amended and Restated

                                                       Fender Musical Instruments

                                                       Corporation

                                                       Annual Incentive Plan

Effective December 29, 2008

Contents

Article 1. Establishment, Purpose, and Effective Date	3
Article 2. Definitions	3
Article 3. Administration	6
Article 4. Eligibility and Participation	7
Article 5. Incentive Award Determination	7
Article 6. Payment of Incentive Awards	9
Article 7. Change in Employment Status	10
Article 8. Rights of Participants	10
Article 9. Termination and Amendment	10
Article 10. Change in Control	10
Article 11. General Provisions	11

First Amended and Restated

Fender Musical Instruments Corporation

Annual Incentive Plan

Article 1. Establishment, Purpose, and Effective Date

1.1 Establishment of the Plan. The Company hereby establishes the First Amended and Restated Fender Musical Instruments Corporation Annual Incentive Plan (the “Plan”) for certain key employees of the Company selected by the Committee to participate in the Plan. The Plan provides for incentive payments to Participants based on the performance of the Company over fiscal year periods.

1.2 Purpose of the Plan. The primary purpose of the Plan is to: (a) motivate Participants to build and sustain a successful business; (b) achieve long-term goals that are considered key to the Company’s success; and (c) attract, motivate, retain, and reward the best talent.

1.3 Effective Date. This Plan was approved by the Company’s Board of Directors on April 14, 2009 and is effective for Performance Periods beginning on and after December 29, 2008 (the first day of fiscal 2009).

Article 2. Definitions

Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the defined meaning is intended, the term is capitalized:

(a) “Base Salary” means, with respect to a Participant, the sum of the base salary earned and paid to the Participant during the Performance Period.

(b) “Change in Control” means any of the following:

(1) During any period of not more than two years, the Incumbent Directors no longer represent a majority of the Board. “Incumbent Directors” are (A) the members of the Board as of August 21, 2008 and (B) any individual who becomes a director thereafter whose appointment or nomination was approved by at least a majority of the Incumbent Directors then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the member was named as nominee). However, the Incumbent Directors will not include anyone who becomes a member of the Board thereafter as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board, including as a result of any appointment, nomination or other agreement intended to avoid or settle a contest or solicitation.

(2) There is a beneficial owner of securities entitled to 30% or more of the total voting power of the Company’s then-outstanding securities in respect of the election of the Board (“Voting Securities”), other than by (A) the Company, any subsidiary of it or any employee benefit plan or related trust sponsored or maintained by the Company or any subsidiary of it; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of Voting Securities as a result of an Excluded Transaction (as defined in Section 3 below without regard to Section 3(B)).

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(3) Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”) other than an Excluded Transaction. An “Excluded Transaction” is a Reorganization or Sale pursuant to which immediately following such Reorganization or Sale:

(A) 50% or more of the total voting power of the Surviving Company’s then-outstanding securities in respect of the election of directors (or similar officials in the case of a non-corporation) is represented by Voting Securities outstanding immediately before the Reorganization or Sale or by securities into which such Voting Securities were converted in the Reorganization or Sale;

(B) there is no beneficial owner of securities entitled to 30% or more of the total voting power of the then-outstanding securities of the Surviving Company in respect of the election of directors (or similar officials in the case of a non-corporation); and

(C) a majority of the board of directors of the Surviving Company (or similar officials in the case of a non-corporation) were Incumbent Directors at the time the Board approved the execution of the initial agreement providing for the Reorganization or Sale. The “Surviving Company” means (a) in a Reorganization, the entity resulting from the Reorganization or (b) in a Sale, the entity that has acquired all or substantially all of the assets of the Company, except that, if there is a beneficial owner of securities entitled to 95% of the total voting power (in respect of the election of directors or similar officials in the case of a non-corporation) of the then-outstanding securities of the entity that would otherwise be the Surviving Company, then that beneficial owner will be the Surviving Company.

(4) The Company’s stockholders approve a plan of complete liquidation or dissolution of the Company.

For purposes of this definition of “Change in Control”, (i) any sale of only Weston Presidio L.P.’s interests in the Company that is approved by the Board shall not constitute a “Change in Control, and (ii) the term “beneficial owner” has the meaning assigned in Rule 13d-3 under the 1934 Act, as that rule is in effect as of the date hereof. After any Excluded Transaction, the Surviving Company will be treated as the Company for all purposes of the definition of Change in Control.

(c) “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time. For purposes of this Plan, references to sections of the Code shall be deemed to include references to any applicable regulations or official pronouncements and any successor or similar provision.

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(d) “Committee” means the Compensation Committee of the Board of Directors, or such other committee established by the Board of Directors to administer the Plan. At any time the Company is subject to Section 162(m) of the Code, the Committee shall consist of at least two members of the Board of Directors each of whom shall be an “outside director” within the meaning of Section 162(m) of the Code.

(e) “Company” means Fender Musical Instruments Corporation, a Delaware corporation, together with any of its subsidiaries, and any successors thereto.

(f) “Covered Employee” means, for any Plan Year, any employee of the Company who is a “covered employee” within the meaning of under Section 162(m) of the Code or any regulations or other guidance promulgated thereunder.

(g) “Disability” means a condition of a Participant, as determined by the Committee in its discretion, the result of which a Participant:

(i) Is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to last for a continuous period of not less than twelve (12) months; or

(ii) Is, by reason of any medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident, disability or health plan covering employees of the Company.

Nothing in this Plan shall be construed to affect, increase or decrease any party’s rights or obligations under the Americans with Disabilities Act, or any similar state law.

(h) “Incentive Award” means an incentive payment paid to a Participant based upon achievement of the applicable Performance Goals, established in accordance with the Plan.

(i) “Participant” means a Covered Employee, to the extent the Company is subject to Section 162(m) of the Code, an executive vice president, a senior vice president, vice president, directors, departmental managers, and other key employees of the Company who are designated by the Committee as a Participant for a Performance Period.

(j) “Performance-Based Compensation” means compensation under an Incentive Award, which, to the extent applicable, is intended to satisfy the requirements of Code Section 162(m) for certain performance-based compensation paid to Covered Employees. Notwithstanding the foregoing, nothing in this Plan shall be construed to mean that an Incentive Award which is not subject to, or does not satisfy, the requirements for performance-based compensation under Code Section 162(m) does not constitute performance-based compensation for other purposes, including Code Section 409A.

5

(k) “Performance Measures” means measures as described in Section 5.4 on which the pre-established Performance Goals are based and which, to the extent the Company is subject to Section 162(m), are approved by the Company’s stockholders pursuant to this Plan in order to qualify the Incentive Awards as “performance-based compensation” within the meaning of Code Section 162(m).

(l) “Performance Period” means the Company’s fiscal year, as determined by the Committee in its discretion.

(m) “Plan” means this First Amended and Restated Fender Musical Instruments Corporation Annual Incentive Plan, as in effect from time to time.

(n) “Target Award” means the bonus opportunity established by the Committee for each Participant under Section 5.3(a).

Article 3. Administration

3.1 Plan Administration. The Plan shall be administered by the Committee. The Committee may delegate recordkeeping, calculation, payment, and other ministerial or administrative functions to individuals designated by the Committee, who may be employees of the Company.

3.2 Authority of the Committee. Except as limited by law, and subject to the provisions hereof, the Committee shall determine: (i) the Participants who shall be eligible to participate in the Plan, (ii) the amount of each Target Award and Incentive Award, (iii) the terms and conditions of the Target Award, and (iv) the Performance Measures in a manner consistent with the Plan, including conditions under which the opportunity to receive an Incentive Award for a Performance Period shall be forfeited. The Committee shall (i) have the power to construe and interpret the Plan and any agreement or instrument entered into under the Plan; (ii) establish, amend, or waive rules and regulations for the Plan’s administration; (iii) amend the terms and conditions of any outstanding Target Award (except with respect to any modification related to a Covered Employee) for reasons the Committee deems appropriate including, without limitation, to take into account unforeseen or extraordinary circumstances or corporate events; and (iv) determine the time when Incentive Awards will be paid. Notwithstanding any provision in this Plan to the contrary, any such amendment to the terms and conditions of any outstanding Target Awards must be made by the end of the Performance Period applicable to such awards, unless otherwise permitted by law; and provided further, that any change as to the time when Incentive Awards will be paid may be made only in the very limited circumstances provided for under Code Section 409A and in accordance with the requirements of Treasury Regulation Section 1.409A-3(d). Following the end of each Performance Period, the Committee shall determine (in writing with respect to any Covered Employee) whether the Performance Goals have been met with respect to any affected Participant and, if they have, so certify and ascertain the amount of the applicable Incentive Award. No Incentive Award payment will be made until such certification is made by the Committee. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate its authorities as identified hereunder.

6

3.3 Decisions Binding. All determinations and decisions of the Committee in respect of the Plan, any Target Award, Incentive Award or any dispute or claim arising under the Plan, including questions of construction and interpretation, and eligibility for a Target Award or Incentive Award, shall be final, binding, and conclusive upon all parties.

3.4 Indemnification. Any member or former member of the Committee or any individual to whom authority is or has been delegated shall not be held personally responsible or liable for any act or omission in connection with the performance of powers or duties or the exercise of discretion or judgment in the administration and implementation of the Plan. Each individual who is or has been a member of the Committee, or delegated authority by the Committee, shall be indemnified and held harmless by the Company from and against any cost, liability, or expense imposed or incurred in connection with any act or failure to act under the Plan. Each such individual shall be justified in relying on information furnished in connection with the Plan’s administration by any appropriate person or persons.

Article 4. Eligibility and Participation

4.1 Eligibility. Only those key employees designated by the Committee for a given Performance Period shall participate in the Plan and receive an Incentive Award hereunder for that Performance Period. No Participant or other employee shall at any time have a right to be selected for participation in the Plan for any Performance Period, despite having previously participated in the Plan. The Committee may delegate its powers and duties to select Participants and set Target Awards to one or more officers or a committee of officers; provided, however, that the Committee may not delegate its power to make determinations regarding the officers of the Company and any Covered Employees.

4.2 Participation. Key employees who are chosen to participate in the Plan in a given Performance Period shall be notified, as soon as is practicable. The notification shall include each Participant’s individual Target Award. The Target Award shall be based on the Participant’s position in the Company and shall be expressed as a percentage of the Participant’s Base Salary. No employee of the Company shall have a right to participate in the Plan during any Performance Period unless and until he or she is notified in writing of such participation.

Article 5. Incentive Award Determination

5.1 General. All Incentive Awards under the Plan shall be granted upon terms approved by the Committee. No Incentive Award shall, however, be inconsistent with the terms of the Plan or fail to satisfy the requirements of applicable law. Each Incentive Award shall relate to a designated Performance Period.

5.2 Performance Period. An Incentive Award will be determined based on established Performance Goals for each fiscal year of the Company. The initial Performance Period shall begin December 29, 2008 and end January 3, 2010.

7

5.3 Selection of Performance Criteria. The Committee shall determine the following for each Participant in the manner and within the time limits specified in this Article 5 for each Performance Period:

(a) Target Award. A pre-established Target Award will be expressed as a percentage of the Participant’s Base Salary. Except to the extent the Company is subject to Section 162(m), such Target Award may change during the year due to a change in job responsibilities or assignment, or other such related factors. In the event of such a change in the Target Award, the actual Incentive Award will be based on the Participant’s Base Salary for the portion of the Performance Period in which the Target Award is applicable;

(b) Incentive Award. The Incentive Award will be expressed as a percentage of the Target Award that will be paid to the Participant at specified levels of performance by the Company based on the Performance Goals pre-established by the Committee;

(c) Performance Goals. The pre-established performance goals based on one or more of the applicable Performance Measures set forth under Section 5.4 (each, a “Performance Goal”); and

(d) Conditions on Incentive Award. The Committee may determine if there are any specific conditions under which an Incentive Award specified under (b) above may be increased, reduced, or forfeited, such as based on individual performance.

5.4 Performance Measurement. The Performance Goals upon which the payment or vesting of an Incentive Award to a Participant that is intended to qualify as Performance-Based Compensation shall be limited to the following Performance Measures:

(a) Net earnings or net income (before or after taxes);

(b) Earnings per share;

(c) Net sales or revenue growth;

(d) Net operating profit;

(e) Return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue);

(f) Cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment);

(g) Earnings before or after taxes, interest, depreciation, and/or amortization;

(h) Gross or operating margins;

(i) Productivity ratios, such as fill rate;

(j) Share price (including, but not limited to, growth measures and total stockholder return);

(k) Expense targets;

(l) Margins;

(m) Operating efficiency;

(n) Market share;

(o) Customer satisfaction;

(p) Working capital targets; and

(q) Economic value added or EVA^® (net operating profit after tax minus the sum of capital multiplied by the cost of capital).

Any Performance Measure may be used to measure the performance of the Company as a whole or any business unit of the Company or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group

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of comparator companies, or published or special index(es) that the Committee, in its sole discretion, deems appropriate, or the Company may select Performance Measure (j) above as compared to various stock market indices.

In addition to the foregoing Performance Measures, to the extent a Participant is not a Covered Employee, the Committee may, in its discretion, establish other performance measures, whether quantitative or qualitative, upon which to base such Participant’s Incentive Award.

5.5 Time of Determination by the Committee. All determinations to be made by the Committee in establishing Performance Goals for a Performance Period pursuant to this Article 5 shall be made by the Committee by the end of the first ninety (90) days of such Performance Period.

5.6 Maximum Award Payable. The maximum aggregate amount payable with respect to an Incentive Award to any one Participant in any one Performance Period may not exceed five million dollars ($5,000,000).

5.7 Evaluation of Performance. The Committee may provide in any such Incentive Award that any evaluation of performance may include or exclude any of the following events that occurs during a Performance Period: (a) asset write-downs, (b) litigation or claim judgments or settlements, (c) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (d) any reorganization and restructuring programs, (e) extraordinary nonrecurring items as described in Accounting Principles Board Opinion No. 30 and/or in management’s discussion and analysis of financial condition and results of operations appearing in the Company’s annual report to stockholders for the applicable year, (f) acquisitions or divestitures, and (g) foreign exchange gains and losses. To the extent such inclusions or exclusions would cause an Incentive Award to a Covered Employee to cease to be “performance-based compensation” within the meaning of Section 162(m) of the Code, they shall be prescribed in a form, if any, that meets the requirements of Code Section 162(m).

5.8 Adjustment of Payment. Incentive Awards that are intended to qualify as “performance-based compensation” within the meaning of Code Section 162(m) may not be adjusted upward. The Committee shall retain the discretion to adjust such awards downward, either on a formula or discretionary basis or any combination, as the Committee determines.

Article 6. Payment of Incentive Awards

6.1 Form and Timing of Payment. Except as otherwise provided in the Plan, the Incentive Award shall be paid to the Participant as soon as practicable following the end of the Performance Period but in no event earlier than the January 15^th following the close of the Performance Period and no later than the last day of the calendar year in which such January 15^th occurs.

6.2 No Rights Before Payment. The Participant shall have no right with respect to any Incentive Award or any portion of an Incentive Award unless the Participant is employed on the final day of the Performance Period.

6.3 Unsecured Interest. No Participant or any other party claiming an interest in amounts that may be paid under the Plan shall have any interest whatsoever in any specific asset of the Company. To the extent that any party acquires a right to receive payments under the Plan, conditioned on continued employment, such right shall be equivalent to that of an unsecured general creditor of the Company.

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6.4 Nontransferability. Rights under the Plan may not be sold, transferred, pledged, assigned, or otherwise alternated or hypothecated, other than by the laws of descent and distribution.

Article 7. Change in Employment Status

7.1 Termination of Employment Due to Disability or Death. If a Participant ceases to be a Participant before the end of any Performance Period because of Disability or death, a pro-rata Incentive Award shall be paid to the Participant (or the Participant’s beneficiary and/or estate) after the end of the Performance Period and at the same time payment is made to all other Participants, based on the number of days during the Performance Period through the date of the Participant’s death or Disability.

7.2 Termination of Employment for Other Reasons. In the event a Participant’s employment with the Company terminates during any Performance Period for any reason other than death or Disability, the Participant shall have no right to an Incentive Award for the Performance Period then in progress.

Article 8. Rights of Participants

8.1 Employment. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company.

8.2 Nature of the Plan. This Plan is intended as an annual short-term incentive plan, providing benefits to a select group of management employees.

Article 9. Termination and Amendment

The Committee may terminate the Plan at any time, or may from time to time amend the Plan as it deems proper and in the best interests of the Company; provided that any such termination or amendment that affects the terms and conditions of any outstanding Target Awards or the time when Incentive Awards will be paid must be made by the end of the Performance Period applicable to such awards, unless otherwise permitted by law and in a manner that complies with the requirements of Code Section 409A. No termination or amendment may impair the validity of, or the obligation of the Company to pay, any Incentive Award awarded for any Performance Period in effect in the year in which termination of the Plan occurs. All such Incentive Awards shall be paid out at such times as otherwise provided in this Plan, as if such Plan had not terminated. Notwithstanding the foregoing, the Committee shall have unilateral authority to amend the Plan and any applicable Performance Goals and Target Awards without Participant consent to the extent necessary to comply with applicable law or changes to applicable law and related regulations or other guidance, including, but not limited to, applicable federal tax and securities laws; provided, however, that any amendment to the Plan shall be submitted to the Company’s stockholders if stockholder approval is required by any applicable law, rule or regulation.

Article 10. Change in Control

Upon a Change in Control, all outstanding Incentive Awards for an incomplete Performance Period shall be paid in an amount equal to one hundred percent (100%) of each Participant’s Target

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Award for the full Performance Period, multiplied by the ratio of the number of days in the Performance Period through the date of the Change in Control, to 364 or 371 depending on the number of days in the applicable fiscal year.

Article 11. General Provisions

11.1 Benefits Not Guaranteed. The establishment and maintenance of the Plan by the Company or participation in the Plan shall not provide any guarantee or other assurance to the Participant that an Incentive Award will be payable under the terms of the Plan. Nothing in the Plan shall confer upon a Participant any right to continue in employment for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

11.2 Governing Law. The Plan and any agreements hereunder, shall be governed by and construed in accordance with the laws of the state of Arizona.

11.3 Withholding Taxes. The Company shall withhold from each Incentive Award an amount sufficient to satisfy federal, state, and local income and employment tax requirements.

11.4 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular, and the singular shall include the plural.

11.5 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

11.6 Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.

11.7 Conflicts. In the event of any conflict between the provisions of the Plan and the provisions of any agreement or communication issued in connection with the Plan, the provisions of the Plan shall govern.

11.8 Incentive Award not Counted as Compensation for Other Plans. No Incentive Award shall be counted as compensation for purposes of determining Base Salary under this Plan, or for the purposes of determining compensation under other benefit plans or programs of the Company, including but not limited to life insurance or disability plans, unless such benefit plans or programs specifically provide for inclusion of such amount.

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EX-10.5

Exhibit 10.5

FENDER MUSICAL INSTRUMENTS CORPORATION 1997 STOCK OPTION PLAN

FENDER MUSICAL INSTRUMENTS CORPORATION

1997 STOCK OPTION PLAN

(Effective as of March 1,1997)

TABLE OF CONTENTS

	Page
1. ESTABLISHMENT AND PURPOSE		1
1.1. Purpose		1
2. DEFINITIONS		1
3. ADMINISTRATION		5
3.1. Committee Structure and Authority		5
4. ELIGIBILITY: STOCK PROVISIONS		7
4.1. Eligibility		7
4.2. Number of Shares Subject to the Plan		8
4.3. Release of Shares		8
4.4. Restrictions on Shares		8
4.5. Stockholder Rights		9
4.6. Listing and Registration of Shares		9
4.7. Valuation of Common Stock		9
5. OPTION PROVISIONS		10
5.1. Stock Option Award		10
5.2. Option Period		11
5.3. Option Price		11
5.4. Exercise of Options		11
5.5. Cancellation of Options		12
5.6. Payment of Purchase Price Upon Exercise		12
5.7. Assignability		12
6. PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN		13

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FENDER MUSICAL INSTRUMENTS CORPORATION

1997 STOCK OPTION PLAN

1. ESTABLISHMENT AND PURPOSE

1.1. Purpose.

The Fender Musical Instruments Corporation Stock Option Plan is hereby established effective as of March 1, 1997 by Fender Musical Instruments Corporation. The purpose of the Plan is to promote the overall financial objectives of the Company (as defined herein) and its stockholders by motivating those persons selected to participate in the Plan to achieve long-term growth in stockholder equity in the Company by retaining the association of those individuals who are instrumental in achieving this growth.

2. DEFINITIONS

The following sections of this Section 2 provide basic definitions of terms used throughout the Plan, and whenever used herein in the capitalized form, except as otherwise expressly provided, the terms shall be deemed to have the following meanings:

“Affiliate” means any individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated association or other entity (other than the Company) that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with the Company.

“Board of Directors” or “Board” means the Board of Directors of the Company.

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“Change of Control” means and shall be deemed to have occurred on: (a) the date of the first to occur of any of the following: (i) any reorganization, consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Company’s outstanding securities having the right to vote in the election of directors would be converted into cash, securities or other property, unless, following such reorganization, merger or consolidation; or (ii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, other than to a corporation with respect to which following the sale or other disposition a majority of the voting power of the then outstanding securities having a right to vote generally in the election of directors of the acquiring entity is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were beneficial owners of the securities having a right to vote generally in the election of directors of the Company; or (b) on the date any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (“Person”) (other than (A) the Company or a person acquiring securities from the Company, (B) a person who is a party to the Voting Agreement or a group with respect to which at least 75% of the voting power of the securities held by such group is beneficially owned by persons who are parties to the Voting Agreement, (C) a person or group including Participant or with whom or with which Participant is affiliated, (D) any employee benefit plan maintained by the Company or (E) any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation, the conditions described in clauses (i)(A) and (B) of Section 2(a)(l) are satisfied) shall become the beneficial owner (within the meaning of Rule 13(d)-3 under the Exchange Act) of securities of the Company representing a majority of the combined voting power of the Company’s then outstanding securities having the right to vote in the election of directors, as a result of a tender or exchange offer, open market purchases, privately negotiated purchases or otherwise.

“Code” or “Internal Revenue Code” means the Internal Revenue Code of 1986, as amended, and any subsequent Internal Revenue Code. If there is a subsequent Internal Revenue Code, any references herein to Internal Revenue Code sections shall be deemed to refer to comparable sections of any subsequent Internal Revenue Code.

“Committee” means the person or persons appointed by the Board of Directors to administer the Plan.

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“Common Stock” means shares of the Class A Common Stock of the Company, $.01 par value per share (“Class A Common Stock”), and the Class B Non-voting Common Stock of the Company, $.01 par value per share (“Class B Common Stock”), whether presently or hereafter issued, and any other stock or security resulting from adjustment thereof as described in Section 7.3; provided, that all shares of Common Stock issuable upon exercise of the Options issued pursuant to this Plan shall be Class B Common Stock. All shares of Class B, Common Stock shall be automatically converted into shares of Class A Common Stock and all Options shall be automatically exerciseable for Class A Common Stock upon the effective date of a registration statement under the Securities Act pursuant to which shares of Common Stock shall be offered for sale in an underwritten offering. All references herein to “Common Stock” shall refer to the Class A Common Stock and the Class B Common Stock, as applicable.

“Company” means Fender Musical Instruments Corporation and includes any successor or assignee corporation or corporations into which the Company may be merged, changed or consolidated, any corporation for whose securities the securities of the Company shall be exchanged; and any assignee of or successor to substantially all of the assets of the Company.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

“Fair Market Value” means the value determined on the basis of the good faith determination of the Committee pursuant to the applicable method described in Section 4.7, provided that if any regulation or ruling applicable to Incentive Stock Options adopted by the United States Department of the Treasury specifies or requires another method, then the Fair Market Value shall be determined by the Committee consistent with such regulation or ruling.

“Incentive Stock Option” means an option to purchase Class B Common Stock in the Company within the meaning of Section 422 of the Code and the Treasury Regulations thereunder.

“NASDAQ” means National Association of Securities Dealers Automated Quotation system.

“Nonqualified Stock Option” means an option to purchase Class B Common Stock in the Company granted under the Plan other than an Incentive Stock Option.

“Option” means, unless the context indicates otherwise, both a Nonqualified Stock Option and an Incentive Stock Option.

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“Option Price” means the price at which the Company’s Class B Common Stock may be purchased under an Option as provided in Section 5.3.

“Participant” means an individual who satisfies the eligibility conditions of Article IV and to whom an Option has been granted by the Committee under the Plan, and in the event a Representative is appointed for a Participant, then the term “Participant” shall mean such appointed Representative, or successor Representative(s) appointed, as the case may be, provided that “Termination of Employment” shall mean the Termination of Employment of the Participant.

“Plan” means the Fender Musical Instruments Corporation 1997 Stock Option Plan, as herein set forth and as may be amended from time to time.

“Representative” means (a) the person or entity acting as the executor or administrator of a Participant’s estate pursuant to the last will and testament of a Participant or pursuant to the laws of the jurisdiction in which the Participant had his primary residence at the date of the Participant’s death, (b) the person or entity acting as the guardian or temporary guardian of a Participant and/or (c) the person or entity which is the beneficiary of the Participant upon or following the Participant’s death.

“Securities Act” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated pursuant thereto.

“Stock Option Agreement” means an agreement entered into between a Participant and the Company under Section 5.1.

“Stockholders’ Agreement” shall mean the Second Amended and Restated Stockholders’ Agreement, dated as of January 16, 1995, as amended, among the Company and the owners of Common Stock who are parties thereto, as the same may be amended from time to time in accordance therewith.

“Termination of Employment” means the latest date on which a Participant ceases, for whatever reason, to be an officer, director or employee of the Company or any Affiliate of the Company. With respect to an independent contractor, a Termination of Employment shall mean the termination of the engagement of the independent contractor by the Company or an Affiliate for whatever reason, except as otherwise provided in a Stock Option Agreement. For determining whether and when a Participant has incurred a Termination of Employment for cause, “cause” shall mean any act or omission which permits the Company to terminate the employment agreement or arrangement between the Participant and the Company or an Affiliate for cause as defined in such agreement or arrangement, or in the event there is no such employment agreement or arrangement or the agreement or arrangement does not define the

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term “cause,” then “cause” shall mean (a) any act or omission of a criminal nature, the result of which is detrimental to the interests of the Company or an Affiliate; (b) the material breach of a fiduciary duty owing to the Company, including without limitation, fraud and embezzlement; or (c) conduct or the omission of conduct on the part of the Participant which constitutes a material breach of any statutory or common-law duty of loyalty to the Company or its Affiliate.

“Transfer” means any sale, gift, assignment, distribution, conveyance, pledge, hypothecation, encumbrance or other transfer of title, whether by operation of law or otherwise.

“Treasury Regulations” means the final and temporary regulations of the United States Department of the Treasury interpreting the Code as set forth in the Code of Federal Regulations, from time to time.

“Voting Agreement” means that certain Voting Rights Agreement dated as of February 1,1995, as the same may be amended or supplemented from time to time.

3. ADMINISTRATION

3.1. Committee Structure and Authority.

The Plan shall be administered by the Board or the Committee; provided, that with respect to any proposed grants of Options hereunder that would include members of the Committee as Participants in such grants, the powers of the Committee shall be exercised by the Board. Any Committee shall be comprised of two or more members appointed by the Board, each of whom shall be a “Non-Employee Director,” as that term is defined in Rule 16b-3(b)(3) of the Exchange Act. If comprised of more than one person, a majority of the Committee shall constitute a quorum at any meeting thereof (including telephone conference), and the acts of a majority of the members present, or acts unanimously approved in writing by the entire Committee without a meeting, shall be the acts of the Committee. The Board shall have the authority to remove, replace or fill any vacancy of any member of the Committee upon notice to the Committee and, if possible, the affected member. Any member of the Committee may resign upon notice to the chief executive officer of the Company or to the Board. The Committee may allocate among one or more of its members, or may delegate to one or more of its agents, such duties and responsibilities as it determines. Subject to the provisions of this Plan, the Committee shall have full and final authority in its discretion to:

(a) approve any transaction involving a grant, award or other acquisition of Common Stock from the Company pursuant to the Plan as necessary to exempt such transaction from Section 16(b) of the Exchange Act in accordance with Rule 16b-3 thereof;

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(b) determine from time to time those individuals who shall be Participants;

(c) determine the Option Price;

(d) determine the number of shares of Common Stock subject to each Option;

(e) determine whether an Option is an Incentive Stock Option or a Nonqualified Stock Option, and identify the Option accordingly in the Stock Option Agreement;

(f) determine, subject to the Plan, the time or times and the manner when each Option shall be exercisable and the duration of the exercise period;

(g) provide for the acceleration of the right to exercise an Option (or portion thereof);

(h) prescribe additional terms, conditions and restrictions in the Stock Option Agreement and to provide for the forms of Stock Option Agreement to be utilized in connection with this Plan;

(i) determine whether a Participant is disabled;

(j) determine what requirements under the Securities Act and the Exchange Act, if any, are applicable to the Plan, Options, and the issuance of shares of Common Stock hereunder, and request of a Participant that appropriate action be taken;

(k) cancel, with the consent of the holder or as otherwise provided in the Plan or a Stock Option Agreement, outstanding Options;

(1) require as a condition of the exercise of an Option or the issuance or transfer of a certificate for shares of Common Stock, the withholding from a Participant the amount of any federal, state or local taxes as may be necessary;

(m) determine whether and for what reason a Participant has incurred a Termination of Employment;

(n) treat all or any portion of any period during which a Participant is on an approved leave of absence as a period of employment for purposes of accrual of his rights under an Option;

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(o) determine whether the Company or any other person has a right or obligation to purchase Common Stock from a Participant and, if so, the terms and conditions on which such Common Stock is to be purchased;

(p) to determine the restrictions or limitations on the Transfer of Common Stock;

(q) determine whether an Option is to be adjusted, modified or purchased, or is to become fully exercisable, under Section 7.3 or the terms of a Stock Option Agreement;

(r) adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan;

(s) appoint and compensate agents, counsel, auditors or other specialists to aid it in the discharge of its duties;

(t) correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Stock Option Agreement relating to an Option, in such manner and to the extent the Committee shall determine in order to carry out the purposes of the Plan; and

(u) construe and interpret this Plan and any Stock Option Agreement and make all other determinations and take all other actions deemed necessary or advisable for the administration of this Plan.

In the absence of the appointment of a Committee, the Board shall be the Committee. In the event the Board (or some portion thereof) is the Committee, it shall act only by the majority thereof. The Committee shall keep minutes of its meetings. The Board, but not the Committee, may designate in writing as not eligible to participate in the Plan any person who would otherwise be eligible to participate in the Plan. In any action by the Board, any director who may be subject of a grant or whose eligibility to participate in the Plan is to be considered by the Board shall recuse himself from participating in the Board’s consideration of such matter.

4. ELIGIBILITY: STOCK PROVISIONS

4.1. Eligibility.

Except as herein provided, the individuals who shall be eligible to participate in Plan and be granted Options shall be those individuals who are officers, directors, employees or independent contractors of the Company or any Affiliate thereof who shall be in a position, in the opinion of the Committee, to make the most significant contributions to the growth, management, protection and success of the Company and its Affiliates. Of those

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individuals described in the preceding sentence, the Committee shall, from time to time, in its sole discretion, select those individuals who are to be granted Options and shall determine the terms and conditions with respect thereto. In making this selection and in determining the form of the Option, the Committee may give consideration to the functions and responsibilities of the respective individual, the present and potential contributions of such individual to the Company and its Affiliates, the value of the individual’s service to the Company and its Affiliates and such other factors deemed relevant by the Committee. Only an individual who is an employee of the Company, any parent corporation of the Company or a subsidiary (as each such term is defined in Section 424 of the Code) on the date of grant shall be eligible to be granted an Option which is intended to be and is an Incentive Stock Option.

4.2. Number of Shares Subject to the Plan.

The stock subject to the Options granted under this Plan shall be the Company’s Class B Common Stock. Unless otherwise amended by the Board and approved by the stockholders of the Company, a maximum number of 22,000 shares of Class B Common Stock of the Company (or such number as may result following any adjustment pursuant to Section 7.3) shall be reserved and available for Options granted under the Plan. The shares issued with respect to Options under the Plan may be authorized and unissued shares, or shares issued and reacquired by the Company.

4.3. Release of Shares.

If any Option granted hereunder shall be canceled, forfeited, expire or terminate for any reason without having been exercised or realized in full, any shares of Common Stock then remaining subject to such Option shall again be available and may thereafter be granted or otherwise applied under this Plan. If any shares of Common Stock are reacquired by the Company pursuant to Section 5.6 or Section 7.4, such shares shall again be available and may thereafter be subject to additional Options granted under the Plan.

4.4. Restrictions on Shares.

Shares of Common Stock issued upon exercise of an Option shall be subject to the terms and conditions specified herein and to such other terms, conditions and restrictions as the Committee in its discretion may determine or provide in any Stock Option Agreement. The Company shall not be required to issue or deliver any certificates for shares of Common Stock prior to (a) the listing of such shares on any stock exchange (or other public market) on which the Common Stock may then be listed (or regularly traded), if applicable, (b) the completion of any registration or qualification of such shares under federal or state law, or any ruling or regulation of any government body which the Committee, in its sole discretion, determines to be necessary or advisable, and (c) the tendering to the Company of such documents and/or payments as the Committee may deem necessary to satisfy any applicable tax withholding obligation. The Company may cause any certificate for any share of Common Stock to be delivered to be properly marked with a legend or other notation reflecting the limitations on

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Transfer of such Common Stock as provided in this Plan or as the Committee may otherwise require. Fractional shares shall not be delivered but shall be rounded to the next lower whole number of shares, and the total amount due from the Participant upon the exercise of such Option shall be reduced appropriately.

4.5. Stockholder Rights.

No person shall have any rights of a stockholder as to shares of Common Stock subject to an Option until, after proper exercise of the Option or other action required, such shares shall have been recorded on the Company’s official stockholder records as having been issued or transferred. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded as issued or transferred in the Company’s official stockholder records, except as provided in Section 7.3.

4.6. Listing and Registration of Shares

If at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of any of the shares of Common Stock subject to Options under the Plan upon any securities exchange or under any state or federal law, or the consent of approval of any governmental regulatory body, is necessary or desirable as a condition of or in connection with the purchase or issue of shares thereunder, no outstanding Options, the exercise of which would result in the purchase or issuance of shares, may be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. The Board of Directors may require any person exercising an Option to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of the shares in compliance with applicable law and shall have the authority to cause the Company at its expense to take any action related to the Plan which may be required in connection with such listing, registration, qualification, consent or approval.

4.7. Valuation of Common Stock

If and when the Fair Market Value of Common Stock shall be required to be determined, it shall be determined in accordance with the following provisions, as applicable:

(a) if, on the relevant date, the Common Stock is traded on a national or regional securities exchange, on the basis of the closing sale price on the principal securities exchange on which the Common Stock may then be traded or, if there is no such sale on the relevant date, then on the last previous day on which a sale was reported.

(b) if, on the relevant date, the Common Stock is not listed on any securities exchange, but is publicly traded and reported on the National Association of Securities Dealers Automated Quotation

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(“NASDAQ”) system, on the basis of the closing sale price of the Common Stock on such date (or, in the event that the Common Stock is not traded on such date, on the last previous day on which a sale was reported) or, if such price is not reported, the mean of the bid and asked price per share of the Common Stock as reported by NASDAQ, on the basis of the mean between the closing bid and asked quotations in the over-the-counter market as reported by NASDAQ on the last previous day such bid and asked price was quoted; and

(c) if, on the relevant date, the Common Stock is not publicly traded as described in (a) or (b), Fair Market Value shall be equal to “Fair Value” as defined in and calculated in accordance with the Stockholders’ Agreement.

No adjustment in the Fair Market Value of any shares of Class B Common Stock shall be made to reflect the lack of marketability or lack of voting rights of such shares at the time of such determination.

5. OPTION PROVISIONS

5.1. Stock Option Award.

The Committee shall have authority to grant Options under the Plan at any time or from time to time to a Participant for such number of shares of Common Stock as the Committee may determine, or as may be directed by the Board through its formal actions. Options granted under the Plan may be either Incentive Stock Options or Nonqualified Stock Options. An Option shall entitle the Participant to receive shares of Common Stock upon exercise of such Option, subject to the Participant’s satisfaction in full of any conditions, restrictions or limitations imposed in accordance with the Plan or a Stock Option Agreement, including without limitation, payment of the Option Price. Each Option granted under this Plan shall be evidenced by a Stock Option Agreement, in a form approved by the Committee, which shall embody the terms and conditions of such Option and which shall be subject to the express terms and conditions set forth in this Plan and to such other terms and conditions as the Committee may deem appropriate. The grant and exercise of Options hereunder shall be subject to all applicable federal, state and local laws, rules and regulations and to such approvals by any government or regulatory agency as may be required. No Option which is intended to be an Incentive Stock Option (a) shall be granted more than 10 years from the date the Plan is adopted by the Company or the date the Plan is approved by the stockholders of the Company, whichever is earlier or (b) shall provide that the aggregate “fair market value” (as defined in Section 422 of the Code) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under the Plan or any other plan of the Company or its Affiliates) exceeds $100,000.

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5.2. Option Period.

Each Stock Option Agreement shall specify the period for which the Option thereunder is granted, which shall be determined by the Committee. In the case of an Incentive Stock Option, the exercise period shall not exceed 10 years from the date of grant or 5 years in the case of an individual who owns more than 10% of the combined voting power of all classes of stock of the Company, a corporation which is a parent corporation of the Company or any subsidiary (each as defined in Section 424 of the Code), and in the case of a Nonqualified Stock Option, the exercise period shall not exceed 20 years from the date of grant, and the Stock Option Agreement shall provide that the Option shall expire at the end of such period. Each Option not exercised shall terminate at the end of its term if not earlier terminated as herein provided.

5.3. Option Price.

Subject to the limits stated herein, the Option Price per share at which shares of Common Stock may be acquired upon exercise of an Option shall be determined by the Committee. If such Option is intended to qualify as an Incentive Stock Option, the Option Price shall be not less than the Fair Market Value per share on the date the Option is granted, or where granted to an individual who owns or who is deemed to own stock possessing more than 10% of the combined voting power of all classes of stock of the Company, a corporation which is a parent corporation of the Company or any subsidiary (each as defined in section 424 of the Code), not less than 110% of such Fair Market Value per share.

5.4. Exercise of Options.

Each Option shall be exercisable only during the option period determined by the Committee in accordance with the terms of the Plan, the Stock Option Agreement, which may prescribe for the exercise of any Option in installments or pursuant to a schedule under which a Participant accrues the right to exercise an Option only upon the completion of a period of service or the satisfaction of other conditions, and the Participant may purchase the total (or some fraction thereof) number of shares of Common Stock subject thereto; provided that if the Participant shall not in any given installment period purchase all of the shares of Common Stock which he is entitled to purchase in such installment period, his right to purchase any shares not purchased in such installment period, except to the extent his Stock Option Agreement provides otherwise, shall continue until the expiration or sooner termination of his Option. In order to exercise an Option, a Participant shall give written notice of the number of shares of Common Stock to be acquired and make such other arrangements with the Secretary of the Company as are acceptable to the Secretary to satisfy any federal, state and local tax withholding obligations and to satisfy the Participant’s payment obligation under the Plan and the Stock Option Agreement. Such notice shall be sent or delivered to the Secretary of the Company at the following address: 7975 North Hayden Road, Scottsdale, Arizona 85258 (or any office which is otherwise designated as the office to which such notice is to be given).

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5.5. Cancellation of Options.

Except as otherwise provided in a Stock Option Agreement, an Option shall cease to be exercisable on or after the first to occur of (a) the expiration of the term of the Option as provided in Section 5.2, (b) the expiration of 90 days following the date of the Participant’s Termination of Employment if such termination is other than for cause or death and (c) the expiration of 180 days following the date of the appointment of a Representative for the estate of the Participant if the Participant’s Termination of Employment is due to death. Unless otherwise expressly provided in a Stock Option Agreement, in the event the Participant incurs a Termination of Employment for cause, the Option shall be automatically canceled effective the date of the Termination of Employment without notice to the Participant.

5.6. Payment of Purchase Price Upon Exercise.

Except as otherwise provided in a Stock Option Agreement, the Option Price of the shares of Common Stock as to which an Option shall be exercised shall be paid to the Company at the time of exercise, which payment shall be made (a) in cash; or (b) if a registration statement pursuant to the Securities Act has been declared effective respecting the Common Stock, by delivery (actual or constructive) of Common Stock owned by the participant having a total Fair Market Value on the date of such delivery equal to the Option rice (or a combination of cash and shares of Common Stock owned by the Participant). The Company shall not issue or transfer Common Stock upon exercise of an Option until the Option Price is paid in full.

5.7. Assignability.

(a) Non-Qualified Stock Options may be the subject of a Transfer by a Participant to such Participant’s parents, spouse or descendants or to any trust for the benefit of the foregoing or to a custodian under a uniform gifts to minors act or similar statute for the benefit of any of the Participant’s descendants or to any corporation, partnership, limited liability company or similar entity all of the record and beneficial owners of which are permitted transferees hereunder. Any Transfer of a Non-Qualified Stock Option shall not be permitted or valid unless and until the transferee agrees to be bound by the provisions of the Plan, including, without limitation, Sections 6.1 and 6.2 and any provision respecting Common Stock under the Stock Option Agreement of the Participant in the same manner and to the same extent as the Participant was bound thereby.

(b) Incentive Stock Options shall not be transferable by the Participant to any person, other than by will or the laws of descent and distribution.

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6. PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN

6.1. Stockholders’ Agreement: Transfer of Shares.

All shares of Common Stock received pursuant to the exercise of an Option shall be subject to the terms of the Stockholders’ Agreement and shall only be subject to Transfer in accordance therewith and herewith. All Participants by their acceptance of a Stock Option exercisable for Common Stock and their execution of a Stock Option Agreement relating thereto agree to be bound by and subject to the Stockholders’ Agreement, and the terms and conditions of the Stockholders’ Agreement shall be deemed to be incorporated by reference into each Stock Option Agreement executed pursuant hereto.

6.2. Limited Transfer During Offering.

In the event there is an effective registration statement under the Securities Act pursuant to which shares of Common Stock shall be offered for sale in an underwritten offering, a Participant shall not, during the 7 days prior to, and 180 day period beginning on, the effective date of such registration (except as part of such underwritten registration), unless the underwriters managing the registered public offering have otherwise agreed, effect any public sale or distribution of shares received directly or indirectly pursuant to an exercise of an Option.

6.3. No Company Obligation.

The Company shall have no duty or obligation to affirmatively disclose to a record or beneficial holder of Common Stock or an Option, and such holder shall have no right to be advised of, any material information regarding the Company or an Affiliate at any time prior to, upon or in connection with the Company’s issuance or purchase of Common Stock or an Option to or from such holder in accordance with the terms hereof

6.4. Committee Discretion.

The Committee may in its sole discretion include in any Stock Option Agreement an obligation that the Company purchase a Participant’s shares of Common Stock received upon the exercise of an Option (including the repurchase of any unexercised Options which have not expired), or may obligate a Participant to sell shares of Common Stock received upon the exercise of an Option (including any unexercised Options which have not expired) to the Company upon such terms and conditions as the Committee may determine and set forth in a Stock Option Agreement. The provisions of this Section 6 shall be construed by the Committee in its sole discretion, and shall be subject to such other terms and conditions as the Committee may from time to time determine.

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7. GENERAL PROVISIONS APPLICABLE TO THE PLAN

7.1. Termination of Plan.

This Plan shall terminate on January 15, 2007 or at such earlier time as the Board may determine, and no Options shall be granted under the Plan after that date. Any Options outstanding under the Plan at the time of its termination shall remain in effect until they shall have been exercised, expired or otherwise canceled, settled or terminated as provided herein or in the Stock Option Agreement, and such outstanding Options shall not be affected by such termination of the Plan. The provisions of the Plan in respect to the full and final authority of the Committee under the Plan, other than the authority to grant Options, and in respect of a Participant’s obligations respecting shares of Common Stock received pursuant to the exercise of an Option (including, without limitation, Section 6), shall continue notwithstanding the termination of the Plan.

7.2. Investment Representation.

In the event the disposition of Common Stock acquired upon the exercise of any Option is not covered by a then current registration statement under the Securities Act and is not otherwise exempt from such registration, the Common Stock so acquired shall be restricted against Transfer to the extent required by the Securities Act or regulations thereunder, and each Stock Option Agreement shall contain a requirement that, upon demand by the Company for such representation, the individual exercising an Option shall state in writing, as a condition precedent to each exercise of the Option, in whole or in part, that the Common Stock acquired by such exercise is acquired for investment only and not for resale or with a view to distribution. The Committee may set forth in a Stock Option Agreement such other terms and conditions relating to the registration or qualification of the Common Stock under federal or state securities laws as it desires, including, in its discretion, the imposition of an obligation on the Company to cause the Common Stock issued to a Participant to be registered under the Securities Act.

7.3. Effect of Certain Changes.

(a) Anti-Dilution. If there is any change in the outstanding shares of Common Stock by reason of the declaration of stock dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, or recapitalizations, mergers, consolidations, reorganizations, rights offerings, share offerings, exchanges or similar events, the number of shares of Common Stock available for Options and subject to the Plan, the number of such shares covered by outstanding Options, and the Option Price per share shall be proportionately adjusted by the Committee or the Board to reflect such changes. Appropriate adjustments may also be made by the Committee or the Board in terms of any Options on an equitable basis.

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(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company (other than as a result of an event described in Section 7.3(c)) or in the event of any corporate separation or division, including without limitation, a split-up, a split-off or a spin-off, all Options shall be exercisable at the then Option Price solely for the kind and amount of shares of stock and other securities, property, cash, other consideration or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division by a holder of the number of shares of Common Stock for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division; provided, that each Option granted under the Plan may terminate as of a date to be fixed by the Committee, provided that not less than 30 days written notice of the date so fixed shall be given to each Participant, who shall have the right, during the period of 30 days preceding such termination, to exercise all Options. The Committee shall waive any limitations set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that all Options, from and after a date prior to the effective date of such dissolution or liquidation of the Company or a corporate separation or division, as the case may be, as specified by the Committee, shall be exercisable in full

(c) Merger. If the Company is a party to a merger or consolidation and the Company’s shareholders immediately prior to such merger or consolidation are not the beneficial owners, directly or indirectly, of securities representing more than 20% of the combined voting power or value of the equity interests of the merged or resulting entity, or if the Company sells or otherwise disposes of substantially all of its assets to another entity while unexercised Options remain outstanding under the Plan and the Company’s stockholders immediately prior to such sale of assets are not the beneficial owners, directly or indirectly, of securities representing more than 20% of the combined voting power or value of the equity interests of the entity which purchased the assets, then (1) subject to the provisions of clauses (2), and (3) below, effective with the date of such merger, consolidation or sale, as the case may be, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive, in lieu of shares of Common Stock, shares of such stock or other securities, property, cash, other consideration or any combination thereof receivable upon such merger, consolidation, or sale as the holders of shares of Common Stock received pursuant to the terms of the merger, consolidation, or sale, except that all outstanding Options may be canceled as of the

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effective date of any such merger, consolidation, or sale, provided that not less than 30 days written notice of the date so fixed for such cancellation shall be given to each Participant; (2) the Committee or the Board may provide that any Option otherwise exercisable on the date of any such merger, consolidation, or sale may be purchased by the Company in an amount equal to the excess, if any, of the aggregate Fair Market Value per share of Common Stock subject to the Option (or portion thereof) over the aggregate Option Price of the shares subject to the Option (or portion thereof) which the Committee or the Board determines to purchase; or (3) the Company may provide for any combination of (1) and (2) above. For purposes of this Section 7.3(c), the aggregate Fair Market Value per share of Common Stock subject to the Option that the Committee or the Board determines to purchase shall be determined by the Committee or the Board, as applicable, by reference to the cash or fair market value, determined by the Committee or the Board, as applicable, of the securities, property or other consideration receivable pursuant to the merger, consolidation or sale described in this Section 7.3(c). The Committee or the Board shall waive any limitation set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that all Options, from and after a date prior to the effective date of such merger, consolidation or sale, as the case may be, as specified by the Committee or the Board, as applicable, shall be exercisable in full. The provisions of this Section 7.3(c) shall be construed consistently with the terms or conditions of any regulation or ruling respecting the status of Incentive Stock Options and the receipt of cash or other consideration coincident with the cancellation of Incentive Stock Options.

(d) Purchase. If while Options remain outstanding under the Plan, any corporation, person or entity (other than the Company, any person controlled (directly or indirectly) by the Company, or any qualified plan maintained by the Company and described in Section 401 (a) of the Code) offers (an “Offer”) to purchase shares of the Company’s Common Stock pursuant to which purchases of 80% or more of the Company’s then outstanding shares of Common Stock are made, then from and after the date of the first purchases of Common Stock pursuant to such Offer the Committee shall waive any limitations set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that all Options, from and after the date of such Offer shall be exercisable in full, provided the Committee or the Board may provide that all outstanding Options shall terminate as of a date to be fixed by the Committee or the Board, as applicable, provided, however, that not less than 30 days written notice of the date

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so fixed shall be given to each Participant, who shall have the right, during the period of 30 days preceding such termination, to exercise all Options as to all or part of the shares of Common Stock covered thereby; or the Committee or the Board may provide that all Options on the date of any such Offer may be purchased by the Company in an amount equal to the excess, if any, of the aggregate fair market value per share of the Common Stock subject to the Options (or portion thereof) over the aggregate Option Price of the shares subject to the Option (or portion thereof), which the Committee or the Board, as applicable, determines to purchase. For purposes of this Section 7.3(d), the aggregate Fair Market Value per share of the Common Stock subject to the Option that the Committee or the Board determines to purchase shall be determined by the Committee or the Board, as applicable, by reference to the cash or fair market value, determined by the Committee or the Board, as applicable, of the securities, property, cash, other consideration or any combination thereof receivable per share pursuant to the Offer. The aggregate Option Price of the Common Stock shall be determined by multiplying the number of such shares by the Option Price. An Option may be purchased pursuant to the provisions of this Section 7.3(d) only if and to the extent neither the Participant nor any affiliate of the Participant has any control respecting the Offer, and such purchase is within the 90 day period commencing with the first purchases pursuant to the Offer. The provisions of this Section 7.3(d) shall be construed consistently with the terms or conditions of any regulation or ruling respecting the status of Incentive Stock Options and the receipt of cash or other consideration coincident with the cancellation of Incentive Stock Options.

(e) Company as Surviving Entity. In case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change in the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Committee or the Board may provide that each Option then exercisable may be exercised solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash, other consideration or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of shares of Common Stock for which such Option might have been exercised.

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(f) Change in the Common Stock. In the event of a change in the Common Stock of the Company as presently constituted, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan.

(g) Committee or Board Discretion. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee or the Board, whose determination in that respect shall be final, binding and conclusive.

(h) Limit of Rights. Except as expressly provided in this Section 7.3, the Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spinoff of assets or stock of another corporation, and any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to the option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate, sell or transfer all or part of its business or assets.

7.4. Withholding.

Notwithstanding any other provisions hereof, as a condition of delivery of shares of Common Stock pursuant to the exercise of an Option, the Participant shall pay to the Company, or the Company may at its election withhold from any salary, stock to be issued to a Participant pursuant to the exercise of an option, or other payment due to the Participant, an amount sufficient to satisfy all present or estimated future federal, state and local withholding tax requirements related thereto. The Participant may satisfy any requirement under the Plan or a Stock Option Agreement with respect to the Company’s federal, state or local tax withholding obligation by requesting that the Committee withhold and not transfer or issue shares of Common Stock with a fair market value equal to such withholding obligation, otherwise issuable or transferable to him pursuant to the exercise of that portion of the Option. If an Optionee is issued shares of Common Stock without making the election described in this Section 7.4 and if the date on which the amount of tax withholding is determined is deferred until after the exercise date of the Option, the Committee may require as a condition to issuance of shares of Common Stock that the Optionee tender to the Company the proper number of shares of Common Stock to satisfy the withholding obligation on the date the tax withholding is determined. Any right or election of an Optionee under this Section 7.4 shall be subject to the

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approval of the Committee. The amount of required withholding shall, at the election of the Participant, be at a specified rate not less than the statutory minimum federal and state withholding rate applicable to the Participant and to the particular option exercise transaction.

8. MISCELLANEOUS

8.1. Indemnification of the Board and Committee.

In addition to such other rights of indemnification as they may have and to the extent permitted by law, the Company shall indemnify, defend and hold harmless the Board, the Committee, the members of the Committee, the officers of the Company, and any agent or representative selected by the Board or Committee (collectively “indemnified party”) against the reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or any threat thereof, or in connection with any appeal therein, to which they or any of them may be a party by reason of any act or omission in connection with the Plan or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such indemnified party is liable for gross negligence or gross misconduct in the performance of his duties, provided that within 60 days after institution of any such action, suit or proceeding the indemnified party may in writing elect to defend the same at its sole expense, and if such election is made, the Company shall have no further liability or obligations to the indemnified party under this Section 8.1. The provisions of this Section 8.1 shall in no way limit any other obligation or arrangements the Company may have with regard to indemnifying an indemnified party.

8.2. Interpretation.

Whenever necessary or appropriate in this Plan and where the context so requires, the singular term and the related pronouns shall include the plural and the masculine and feminine gender.

8.3. Governing Law.

The Plan shall be governed by the laws of the State of Delaware (other than its laws respecting choice of law).

8.4. Validity.

If any provision of this Plan shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, and this Plan shall be construed as if such invalid or unenforceable provision were omitted.

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8.5. Assignment.

This Plan shall inure to the benefit of and be binding upon the parties hereof, and their respective successors and permitted assigns.

8.6. Captions.

The captions to this Plan are for convenience of reference only and in no way define, limit or describe the scope or the intent of this Plan or any part hereof, nor in any way affect this Plan or any part hereof.

8.7. Amendments.

Except as provided herein, the Board of Directors may at anytime amend, waive, discharge or terminate the Plan. No amendment, waiver, discharge or termination of the Plan shall alter, impair, limit or terminate the rights of a Participant under the Plan or a Stock Option Agreement with respect to any previously granted Option or shares of Common Stock received with respect to such Option without the written consent of the Participant. Only with the prior written consent of the Participant, the Committee may modify, extend, replace or renew an outstanding Option or Stock Option Agreement, or accept the surrender of an Option and grant a new Option in substitution thereof.

8.8. Entire Agreement.

As between the Company and any Participant, this Plan and the Stock Option Agreement executed by such Participant in accordance herewith constitute the entire agreement with respect to the subject matter hereof and thereof, provided that in the event of any inconsistency between the Plan and such Stock Option Agreement, the terms and conditions of this Plan shall control.

Executed and effective as of the date first written above.

FENDER MUSICAL INSTRUMENTS CORPORATION
By
Its	CHAIRMAN

Attest:
By
Its	Secretary

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EX-10.6

Exhibit 10.6

STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (“Agreement”) is made as of the                             day of March, 1997 (“Grant Date”) by and between FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (“Company”), and                                                                                                    (“Participant”). All definitions contained in the Fender Musical Instruments Corporation 1997 Stock Option Plan (“Plan”) are hereby incorporated by reference and shall have the same meanings in this Agreement as in the Plan.

WHEREAS, the Participant is employed by the Company or one of its subsidiaries and, in the course of such employment, provides services to the Company or to one or more of its affiliates. By affording an opportunity to purchase shares of its Common Stock, Company desires to carry out the stated purposes of the Plan.

NOW, THEREFORE, in consideration of the premises, the mutual covenants hereinafter set forth, and other good and valuable consideration, the Company and Participant agree as follows:

1. Option Grant. Subject to the terms and conditions of the Plan and this Agreement, the Company hereby grants to the Participant the option to purchase an aggregate of             shares of Class B Non-voting Common Stock at the purchase price of $                 per share (“Option Price”). The Option granted hereunder is designated as a Nonqualified Stock Option and the Option is not an incentive stock option as described in Section 422 of the Internal Revenue Code of 1986, as amended.

2. Exercise Schedule. The Option granted hereunder shall be exercisable with respect to a portion of the shares subject to the Option over the course of the Option Period as follows: (i) up to and including 20% of the shares subject to the Option shall be exercisable on and after the first anniversary of the Grant Date; (ii) up to and including 40% of the shares subject to the Option shall be exercisable on and after the second anniversary of the Grant Date; (iii) up to and including 60% of the shares subject to the Option shall be exercisable on and after the third anniversary of the Grant Date; (iv) up to and including 80% of the shares subject to the Option shall be exercisable on and after the fourth anniversary of the Grant Date; and (v) up to and including 100% of the shares subject to the Option shall be exercisable on and after May 1, 2008. Each percentage referred to in the preceding sentence shall be construed to include and not to be in addition to the percentages in the preceding clauses. In the event the Participant incurs a Termination of Employment prior to May 1, 2008, all or any portion of the Option which is not exercisable on the date of the Termination of Employment pursuant to the foregoing schedule shall not be nor become exercisable at any time on or after the date of Termination of Employment, except that if the

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Participant’s Termination of Employment is due to death or disability, as determined by the Committee, all outstanding Options shall be fully exercisable. In addition, upon the occurrence of a Change of Control as defined in the Plan, all outstanding Options shall be fully exercisable.

3. Period and Cancellation. The Option Period shall terminate 20 years from the grant Date, unless terminated earlier as provided in this Agreement or under the Plan. The Option shall terminate, unless terminated earlier under the preceding sentence or Section 2 hereof, on the Participant’s Termination of Employment, provided that:

(a) if the Termination of Employment is due to cause, the Option shall terminate simultaneously with the date of such Termination of Employment; and

(b) if the Termination of Employment (a “Non-specified Termination”) is due to other than death, disability or cause, any unexercised and unexpired Option, but only to the extent exercisable under Section 2, may be exercised at any time within the Option Period.

Unless the Option is earlier terminated, the termination of the Option Period shall result in the termination and cancellation of the unexercised portion of the Option. In no event shall the Option be exercisable for any period greater than the Option Period.

4. Method of Option Exercise. Participant shall exercise the Option by delivering written notice on a form provided by the Committee of the Participant’s intent to exercise the Option with respect to specific number of shares of Common Stock to the Secretary of the Company at the Company’s principal office located at 7975 North Hayden Road, Scottsdale, Arizona, 85258 (or such other office as the Committee may direct). Each such notice shall state the Participant’s election to exercise the Option and the number of shares of Common Stock in respect of which it is being exercised, be signed by the person or persons exercising the Option and, in the event that the Option is being exercised by any person or persons other than the Participant, be accompanied by proof, satisfactory to the Secretary of the right of such person or persons to exercise the Option, and be accompanied by payment, either (a) in cash, cashier’s check, or a combination of the foregoing, in an aggregate amount equal to the Option Price for the shares of Common Stock in respect of which the Option is being exercised, or (b) if a registration statement pursuant to the Securities Act has been declared effective respecting the Common Stock, by delivery (actual or constructive) of Common Stock owned by the Participant having a total Fair Market Value on the date of such delivery equal to the Option Price (or a combination of cash and shares of Common Stock owned by the Participant). The Option shall not have been exercised unless all the preceding provisions of this Section 4 shall have been complied with, and

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for all purposes of this Agreement, the date of the exercise of the Option with respect to any particular shares of Common Stock shall be the date on which such notice, proof (if required), and payment shall all have been received by the Secretary. Such delivery shall be made at the principal office of the Company, or at such other place as the Company shall have designated in the notice. The purchase price of any shares as to which Options shall be exercised shall be paid in full at the time of the exercise.

5. Transferability of Common Stock. Shares of Common Stock received upon the exercise of this Option shall be subject to such restrictions relating to voting and transfer as provided in the Plan, including, without limitation, Section 6 of the Plan. All shares of Common Stock received pursuant to the exercise of this Option shall be subject to the terms of the Stockholders’ Agreement and shall only be subject to Transfer in accordance therewith. Participant by his acceptance of this Option and execution of this Agreement agrees to be bound by and subject to the Stockholders’ Agreement and the terms and conditions of the Stockholders’ Agreement shall be deemed to be incorporated by reference in to this Agreement.

6. No Company Obligation. None of the Company, an Affiliate or the Committee shall have any duty or obligation to affirmatively disclose to a record or beneficial holder of Common Stock or an Option, and such holder shall have no right to be advised of, any material information regarding the Company or an Affiliate at any time prior to, upon or in connection with the Participant’s exercise of an Option or the Company’s issuance or purchase of Common Stock or an Option to or from such holder in accordance with the terms of the Plan or this Agreement.

7. No Rights as Stockholder. No Participant, by virtue of having been issued an Option, shall have any rights as a stockholder which respect to shares of Common Stock subject to such Option until such Option has been properly exercised and such shares have been recorded on the Company’s official stockholder records as issued to Participant. Upon exercise of the Option or any portion thereof, the Company will issue and deliver to the Participant the shares of Common Stock and record such issuance as soon as reasonably practicable following proper exercise of the Option. No adjustment shall be made for cash dividends or other rights for which the record date is prior to the date such shares are recorded as issued in the Company’s official stockholder records, except as provided in Section 7.3 of the Plan.

8. Requirements of Law. The Company shall not be required to sell or issue any shares under the Option if the sale or issuance of such shares shall constitute a violation of any provision of any law or regulation of any governmental authority. Specifically, in connection with the Securities Act, upon exercise of the Option, unless a registration statement under the Securities Act is in effect with respect to the shares of Common Stock covered by the Option, the Company shall not be

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required to issue such shares unless the Company has received evidence reasonably satisfactory to it to the effect that the Participant is acquiring such shares for investment and not with a view to the distribution thereof, and unless the certificate issued representing the shares of Common Stock bears the following or a similar legend:

“The shares of stock represented by this certificate (1) have not been registered under the Securities Act of 1933 or under the securities laws of any state and may not be sold or transferred except upon such registration or upon receipt by the Company of an opinion of counsel satisfactory to the Company, in form and substance satisfactory to the Company, that registration is not required for such sale or transfer; and (2) are subject to certain restrictions upon the transfer thereof, and to certain rights and obligations, all as more specifically set forth in a certain Fender Musical Instruments Corporation 1997 Stock Option Plan effective January 17, 1997 and in a certain Fender Musical Instruments Corporation Stock Option Agreement, a copy of either of which is available for inspection at the registered office of the Company. ”

In addition, the shares shall bear such additional legends as required by the Stockholders’ Agreement and the Voting Agreement. Any reasonable determination in this connection by the Company shall be final, binding and conclusive. At such time as, in the opinion of counsel for the Company, the above or similar legend is no longer required for compliance with applicable securities law, then the holders of certificates containing such a legend shall be entitled to exchange such certificates for certificates representing a like number of shares but without such legend. The Company shall not be obligated to deliver any shares of Common Stock upon exercise of an Option until there has been compliance with any tax withholding requirements, securities exchange listing or other requirements the Committee deems appropriate or as provided in this Agreement or in the Plan.

9. Nontransferability. The Option shall not be assigned, transferred (except as herein provided), pledged or hypothecated in any way (whether by operation of law or otherwise), other than in accordance with Section 5.7 of the Plan. Except as provided in this Agreement or in the Plan, any attempted assignment, transfer, pledge, hypothecation or other disposition contrary to the provisions hereof, and the levy of any attachment or similar process upon the Option shall be null and void and without effect. The Company shall have the right to terminate the Option in the event of any such assignment, transfer, pledge, hypothecation, other disposition of the Option, or levy of attachment or similar process, by notice to that effect to the person then entitled to exercise the Option, provided, however, that termination of the Option hereunder shall not prejudice any rights or remedies which the Company or an Affiliate may have under this Agreement or otherwise.

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10. Changes in Company’s Capital Structure. The existence of the Option shall not affect in any way the right or authority of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

11. Committee Action Final. Any dispute or disagreement which shall arise under, as a result of, or in any way relate to the interpretation or construction of this Agreement or the Plan shall be determined by the Committee under the Plan. Any such determination made hereunder shall be final, binding and conclusive for all purposes.

12. Withholding. The Participant and Company agree that the Company shall have no obligation to issue or transfer shares of Common Stock upon the exercise of the Option, unless and until the Participant or Representative shall have satisfied the obligation of the Company and any of its direct or indirect subsidiaries with respect to the withholding of federal, state or local taxes (including applicable employment or insurance taxes). The obligation of the preceding sentence may be satisfied, at the option of the Participant, by requesting the Company to withhold and not transfer or issue shares of Common Stock with a Fair Market Value equal to the withholding obligation as set forth in and in accordance with Section 7.4 of the Plan.

13. No Rights with Respect to Continuance of Employment. Nothing contained herein shall be deemed to alter the employment relationship between the Company or an Affiliate and the Participant. Nothing contained herein shall be construed to constitute a contract of employment between the Company or an Affiliate and the Participant. The Company and any Affiliate and the Participant continue to have the right to terminate the employment relationship at any time for any reason subject to the terms of any other agreements between Company and the Participant. The Company or an Affiliate shall have no obligation to retain the Participant in its employ as a result of the Plan or this Agreement.

14. Plan Controlling. This Agreement is executed pursuant to the provisions of the Plan and is subject to all of the provisions of the Plan which shall be controlling. Headings are for reference only.

15. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon each successor and assign of the Company. All obligations imposed upon the Participant or the Participant’s Representative, and all rights granted to the Company hereunder or as stipulated in the Plan, shall be binding upon the Participant’s or the Representative’s heirs, legal representatives and successors.

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16. Choice of Laws. This Agreement shall be governed by the laws of the State of Delaware (other than its laws respecting choice of law).

17. Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument.

18. Amendment. The Plan may be amended in accordance with its provisions. Subject to Section 7.3 of the Plan, there shall be no amendment, waiver, discharge or termination of this Agreement which shall alter, impair, limit or terminate the rights of the Participant with respect to the Option granted hereunder or the shares of Common Stock received upon the exercise of the Option, without the prior written consent of the Participant.

19. Validity. If any provision of this Agreement shall for any reason be held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid or unenforceable provision were omitted.

20. Waiver. The failure or delay of any party to this Agreement to require performance by another party to the Agreement shall not be a waiver of any obligation unless agreed to in writing. Each and every right hereunder is cumulative and may be exercised in whole or in part.

21. Entire Agreement. The Plan and this Agreement constitute the entire agreement between the parties hereto with respect to the subject matter thereof.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, effective as of the date first written above.

PARTICIPANT:	FENDER MUSICAL INSTRUMENTS CORPORATION
By	By
Print Name:

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EX-10.7

Exhibit 10.7

FENDER MUSICAL INSTRUMENTS CORPORATION

2001 EQUITY COMPENSATION PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 2001 Equity Compensation Plan (the “Plan”) is hereby established effective as of December 28, 2001, by Fender Musical Instruments Corporation a Delaware corporation (the “Company”). The Plan is intended to promote the overall financial objectives of the Company by motivating eligible persons in the Company’s employ or service to achieve long-term growth in stockholder equity in the Company by providing them the opportunity to acquire a proprietary interest, or increase their proprietary interest, in the Company.

II. DEFINITIONS

Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.

III. STRUCTURE OF THE PLAN

Awards under the Plan may consist of grants of (i) Incentive Options as described in Article Two, (ii) Nonqualified Options as described in Article Two, (iii) Restricted Shares as described in Article Three, Section I, (iv) Performance Shares as described in Article Three, Section II, (v) SARs as described in Article Three, Section III, (vi) Dividend Equivalent Rights as described in Article Three, Section IV and (vii) Cash Awards as described in Article Three, Section V (all of the foregoing grants hereinafter collectively referred to as “Grants”). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with the Plan as the Plan Administrator deems appropriate and as are specified in writing by the Plan Administrator to the individual in a Stock Option Agreement or other Grant Instrument or any amendment thereto. The Committee shall approve the form and provisions of each Grant Instrument. Grants under a particular Section of the Plan need not be uniform among the grant recipients.

IV. ADMINISTRATION OF THE PLAN

A. The Plan shall be administered by the Committee; provided, that with respect to any proposed Grants hereunder that would include members of the Committee as Participants in such Grants, the powers of the Committee shall be exercised by the Board. The Committee shall be comprised of two or more members appointed by the Board, each of whom shall be a “Non-Employee Director,” as that term is defined in Rule 16b-3(b)(3) of the 1934 Act. A majority of the Committee shall constitute a quorum at any meeting thereof (including telephone conference), and the acts of a majority of the members present, or acts unanimously approved in writing by the entire Committee without a meeting, shall be the acts of the Committee. The Board shall have the authority to remove, replace or fill any vacancy of any member of the Committee upon notice to the Committee and, if possible, the

affected member. Any member of the Committee may resign upon notice to the chief executive officer of the Company or to the Board. The Committee may allocate among one or more of its members, or may delegate to one or more of its agents, such duties and responsibilities as it determines. The Board may also at any time terminate the functions of the Committee and reassume all powers and authority previously delegated to the Committee.

B. The Plan Administrator shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding Grants thereunder as it may deem necessary or advisable. Decisions of the Plan Administrator shall be final and binding on all parties who have an interest in the Plan or any Grant thereunder. Without limiting the foregoing, the Plan Administrator shall have full and final authority in its discretion to:

1. approve any transaction involving a Grant pursuant to the Plan as necessary to exempt such transaction from Section 16(b) of the 1934 Act in accordance with Rule 16b-3 thereof;

2. provide for the acceleration of the right to exercise an Option (or portion thereof);

3. prescribe additional terms, conditions and restrictions in any Grant Instrument and to provide for the forms of Grant Instrument to be utilized in connection with this Plan;

4. determine whether a Participant has suffered a Disability;

5. determine whether and for what reason a Participant has incurred a termination of Service;

6. treat all or any portion of any period during which a Participant is on an approved leave of absence as a period of employment for purposes of accrual of his rights under a Grant;

7. determine whether the Company or any other person has a right or obligation to purchase Shares from a Participant and, if so, the terms and conditions on which such Shares are to be purchased;

8. to determine the restrictions or limitations on the Transfer of Shares;

9. determine whether a Grant is to be adjusted, modified or purchased, or is to become fully exercisable, under the Plan or the terms of a Grant Instrument;

10. adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan;

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11. appoint and compensate agents, counsel, auditors or other specialists to aid it in the discharge of its duties;

12. correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Grant Instrument, in such manner and to the extent the Committee shall determine in order to carry out the purposes of the Plan; and

13. construe and interpret this Plan and any Grant Instrument and make all other determinations and take all other actions deemed necessary or advisable for the administration of this Plan.

V. ELIGIBILITY

A. The persons eligible to be Participants in the Plan are as follows:

1. Employees,

2. non-employee members of the Board or the non-employee members of the board of directors of any Subsidiary, and

3. consultants and other independent advisors who provide services to the Company (or any Subsidiary) and such services are not in connection with the offer or sale or securities in a capital-raising transaction.

B. The Plan Administrator shall have full authority to determine with respect to all Grants, which eligible persons are to receive such Grants, the time or times when those Grants are to be made, the number of Shares to be covered by each such Grant, the status of any Option as either an Incentive Option or a Nonqualified Option, the time or times when any Option is to become exercisable, the vesting schedule (if any) applicable to any Shares, the maximum term for which any Option is to remain outstanding, and the consideration, if any, to be paid by a Participant for such Shares.

VI. STOCK SUBJECT TO THE PLAN

A. The Shares issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustments as provided in paragraphs B and C below, the maximum number of Shares which may be issued over the term of the Plan shall not exceed 33,836 Shares, less the sum of (i) the number of Shares which shall have been issued, and (ii) the number of options on Shares which may be outstanding from time to time, pursuant to the 1997 Plan.

B. If and to the extent that Options or SARs granted under the Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any Restricted Shares or Performance Shares or Dividend Equivalent Rights are forfeited, the Shares subject to such Grants shall again be available for issuance through one or more subsequent Grants under the Plan.

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C. Effect of Certain Changes.

1. Anti-Dilution. If there is any change in the outstanding shares of Common Stock by reason of the declaration of stock dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, or recapitalizations, mergers, consolidations, reorganizations, rights offerings, share offerings, exchanges or similar events, the number of Shares subject to the Plan, the number of such Shares which are Restricted Shares, Performance Shares, or Shares covered by outstanding Options, SARs, and Dividend Equivalent Rights, and the Exercise Price for an Option shall be proportionately adjusted by the Plan Administrator to reflect such changes. Appropriate adjustments may also be made by the Plan Administrator in terms of any Grant on an equitable basis to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional Shares resulting from such adjustment shall be eliminated.

2. Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company (other than as a result of an event described in Paragraph C.3. below) or in the event of any corporate separation or division, including without limitation, a split-up, a split-off or a spin-off, the Board may, in its discretion, make any or all Options exercisable at the then Exercise Price of each such Option solely for the kind and amount of shares of stock and other securities, property, cash, other consideration or any combination thereof receivable upon such dissolution, liquidation, or corporate separation or division by a holder of the number of Shares for which such Option might have been exercised immediately prior to such dissolution, liquidation, or corporate separation or division. If the Board so exercises its discretion to permit any or all Options to be exercised, the Plan Administrator shall waive any limitations set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that such Options, from and after a date prior to the effective date of such dissolution or liquidation of the Company or a corporate separation or division, as the case may be, as specified by the Plan Administrator, shall be exercisable in full.

3. Merger. If the Company is a party to a merger or consolidation and the Company’s Stockholders immediately prior to such merger or consolidation are not the beneficial owners, directly or indirectly, of securities representing more than 20% of the combined voting power or value of the equity interests of the merged or resulting entity, or if the Company sells or otherwise disposes of substantially all of its assets to another entity while unexercised Options remain outstanding under the Plan and the Company’s stockholders immediately prior to such sale of assets are not the beneficial owners, directly or indirectly, of securities representing more than 20% of the combined voting power or value of the equity interests of the entity which purchased the assets, then, effective with the date of such merger, consolidation or sale, as the case may be, the Board may, in its discretion, (1) permit any holder of an outstanding Option, upon exercise of such Option, to receive, in lieu of Shares, shares of such stock or other securities, property, cash, other consideration or any combination thereof receivable upon such merger, consolidation, or sale as the

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holders of shares of Common Stock received pursuant to the terms of the merger, consolidation, or sale, or (2) provide that any Option otherwise exercisable on the date of any such merger, consolidation, or sale may be purchased by the Company in an amount equal to the excess, if any, of the aggregate Fair Market Value per Share subject to the Option (or portion thereof) over the aggregate Exercise Price of all the Shares subject to the Option (or portion thereof) which the Committee or the Board determines to purchase. Except to the extent that the Board exercises its discretion under the preceding sentence, all outstanding Options shall be canceled as of the effective date of any such merger, consolidation, or sale, provided that not less than 30 days’ written notice of the date so fixed for such cancellation shall be given to each Participant. For purposes of this paragraph, the aggregate Fair Market Value per Share subject to the Option that the Board determines to purchase shall be determined by the Plan Administrator by reference to the cash or Fair Market Value determined by the Plan Administrator of the securities, property or other consideration receivable pursuant to the merger, consolidation or sale described in this paragraph. The Board may also, in its discretion, waive any limitation set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that any or all Options, from and after a date prior to the effective date of such merger, consolidation or sale, as the case may be, as specified by the Plan Administrator, shall be exercisable in full. The provisions of this paragraph shall be construed consistently with the terms or conditions of any regulation or ruling respecting the status of Incentive Options and the receipt of cash or other consideration coincident with the cancellation of Incentive Options.

4. Purchase. If while Options remain outstanding under the Plan, any corporation, person or entity (other than the Company, any person controlled (directly or indirectly) by the Company, or any qualified plan maintained by the Company and described in Section 401(a) of the Code) offers (an “Offer”) to purchase shares of the Company’s Common Stock pursuant to which purchases of 80% or more of the Company’s then outstanding shares of Common Stock are made, then from and after the date of the first purchases of Common Stock pursuant to such Offer the Board may, in its discretion, (1) waive any limitations set forth in or imposed pursuant to the terms and conditions of the Plan or a Stock Option Agreement so that any or all Options, from and after the date of such Offer, shall be exercisable in full, or (2) provide that any or all Options outstanding on the date of any such Offer may be purchased by the Company for an amount equal to the excess, if any, of the aggregate Fair Market Value per Share subject to the Options (or portion thereof) over the aggregate Exercise Price of the Option for such Shares subject to the Option (or portion thereof), which the Board determines to purchase In the event of an Offer, the Plan Administrator may provide that all outstanding Options shall terminate as of a date to be fixed by the Plan Administrator, provided, however, that not less than 30 days’ written notice of the date so fixed shall be given to each Participant, who shall have the right, during the period of 30 days preceding such termination, to exercise all Options otherwise exercisable as to all or part of the Shares covered thereby. For purposes solely of this paragraph, the aggregate “Fair Market Value per Share” of the Common Stock subject to the Option that the Board determines to purchase shall be determined by the Plan Administrator by reference to

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the cash or Fair Market Value, determined by the Plan Administrator, of the securities, property, cash, other consideration or any combination thereof receivable per share pursuant to the Offer. The aggregate Exercise Price of an Option for such Shares shall be determined by multiplying the number of such Shares by the Exercise Price of the Option. An Option may be purchased pursuant to the provisions of this paragraph only if and to the extent neither the Participant nor any affiliate of the Participant has any control respecting the Offer, and such purchase is within the 90-day period commencing with the first purchases pursuant to the Offer. The provisions of this paragraph shall be construed consistently with the terms or conditions of any regulation or ruling respecting the status of Incentive Options and the receipt of cash or other consideration coincident with the cancellation of Incentive Options.

5. Company as Surviving Entity. In case of any consolidation or merger of another corporation into the Company in which the Company is the surviving corporation and in which there is a reclassification or change (including a change in the right to receive cash or other property) of the shares of Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination, but including any change in such shares into two or more classes or series of shares), the Plan Administrator may provide that each Option then exercisable may be exercised solely for the kind and amount of shares of stock and other securities (including those of any new direct or indirect parent of the Company), property, cash, other consideration or any combination thereof receivable upon such reclassification, change, consolidation or merger by the holder of Shares for which such Option might have been exercised.

6. Change in the Common Stock. In the event of a change in the Common Stock of the Company as presently constituted, the shares resulting from any such change shall be deemed to be the Shares within the meaning of the Plan.

7. Assumption of Other Grants. Upon a merger or other transaction as described in Paragraph C.3 above, unless the Plan Administrator determines otherwise, all outstanding Grants that are not exercised shall be assumed by, or replaced with comparable options or rights by, the surviving corporation.

8. Plan Administrator Discretion. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Plan Administrator, whose determination in that respect shall be final, binding and conclusive.

9. Limit of Rights. Except as expressly provided in this Section, the Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spinoff of assets or stock of another corporation, and any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and

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no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate, sell or transfer all or part of its business or assets.

ARTICLE TWO

OPTIONS

I. OPTION TERMS

Each Option shall be evidenced by one or more Grant Instruments in the form approved by the Plan Administrator; provided, however, that each such Grant Instrument shall comply with the terms specified below.

A. Eligibility. Incentive Options may only be granted to Employees. Nonqualified Options may be granted to any Participant.

B. Exercise Price.

1. The purchase price (the “Exercise Price”) of Shares subject to an Option shall be determined by the Plan Administrator and may be equal to, greater than, or less than the Fair Market Value of a Share on the date the Option is granted; provided, however, that (x) the Exercise Price of an Incentive Option shall be equal to, or greater than, the Fair Market Value of a Share on the date the Incentive Option is granted and (y) an Incentive Option may not be granted to an Employee who, on the date of Grant, is a 10% Stockholder, unless the Exercise Price per Share is not less than 110% of the Fair Market Value of a Share on the date of Grant.

2. The Exercise Price shall become immediately due upon exercise of the Option and shall, subject to the provisions of Section I of Article Four and the Grant Instrument, be payable in cash or check made payable to the Company. Should the Common Stock be registered under Section 12 of the 1934 Act at the time the Option is exercised, then the Exercise Price may also be paid as follows:

(i) in shares of Common Stock held for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date, or

(ii) to the extent the Option is exercised for vested Shares, through a special sale and remittance procedure pursuant to which the Participant shall concurrently provide irrevocable instructions (A) to a Company-designated brokerage firm to effect the immediate sale of the purchased Shares in the open market and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable Federal, state and local

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income and employment taxes required to be withheld by the Company by reason of such exercise and (B) to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale.

Except to the extent such sale and remittance procedure is utilized, payment of the Exercise Price for the purchased Shares must be made on the Exercise Date.

C. Dollar Limitation. The aggregate Fair Market Value of the Shares (determined as of the respective Grant dates) for which one or more Incentive Options granted to any Employee under the Plan (or any other option plan of the Company or any Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such Incentive Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Options as Incentive Options shall be applied on the basis of the order in which such Options are granted.

D. Exercise and Term of Options. Each Option shall be exercisable at such time or times, during such period and for such number of Shares as shall be determined by the Plan Administrator and set forth in the Grant Instrument. However, (i) no Option shall have a term in excess of twenty (20) years measured from the Option Grant date, (ii) no Incentive Option shall have a term in excess of ten (10) years measured from the Option Grant Date, and (iii) if any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the Option term shall not exceed five (5) years measured from the Option Grant date.

E. Effect of Termination of Service.

1. The following provisions shall govern the exercise of any Options held by the Participant at the time of cessation of Service or death:

(i) Should the Participant cease to remain in Service for any reason other than death, Disability or Misconduct, then the Participant shall have a period of three (3) months following the date of such cessation of Service during which to exercise each outstanding Option held by such Participant.

(ii) Should Participant’s Service terminate by reason of Disability, then the Participant shall have a period of twelve (12) months following the date of such cessation of Service during which to exercise each outstanding Option held by such Participant.

(iii) If the Participant dies while holding an outstanding Option, then the personal representative of his or her estate or the person or persons to whom the Option is transferred pursuant to the Participant’s will or the laws of inheritance shall have a twelve (12)-month period following the date of the Participant’s death to exercise such Option.

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(iv) Under no circumstances, however, shall any such Option be exercisable after the specified expiration of the Option term.

(v) During the applicable post-Service exercise period, the Option may not be exercised in the aggregate for more than the number of vested Shares for which the Option is exercisable on the date of the Participant’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the Option term, the Option shall terminate and cease to be outstanding for any vested Shares for which the Option has not been exercised. However, the Option shall, immediately upon the Participant’s cessation of Service, terminate and cease to be outstanding with respect to any and all Shares for which the Option is not otherwise at the time exercisable or in which the Participant is not otherwise at that time vested.

(vi) Should the Participant’s Service be terminated for Misconduct or should Participant otherwise engage in Misconduct while holding one or more Options under the Plan, then all those Options shall terminate immediately and cease to remain outstanding.

2. The Plan Administrator shall have the discretion, exercisable either at the time an Option is granted or at any time while the Option remains outstanding, to:

(i) extend the period of time for which the Option is to remain exercisable following Participant’s cessation of Service or death from the limited period otherwise in effect for that Option to such greater period of time as the Plan Administrator shall deem appropriate, but in no event beyond the expiration of the Option term, and/or

(ii) permit the Option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested Shares for which such Option is exercisable at the time of the Participant’s cessation of Service but also with respect to one or more additional installments in which the Participant would have vested under the Option had the Participant continued in Service.

F. Stockholder Rights. The holder of an Option shall have no stockholder rights with respect to the Shares subject to the Option until such person shall have exercised the Option, paid the Exercise Price and become the record holder of the purchased Shares.

G. Unvested Shares. The Plan Administrator shall have the discretion to grant Options which are exercisable for unvested Shares. Should the Participant cease Service while holding such unvested Shares, the Company shall have the right to repurchase, at the Exercise Price paid per Share, any or all of those unvested Shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased Shares) shall be established by the Plan Administrator and set forth in the Grant Instrument. The Plan Administrator may not impose a vesting schedule upon any Option Grant or the Shares subject to that Option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to

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occur not later than one (1) year after the Grant date. However, such limitation shall not be applicable to any Option Grants made to individuals who are officers of the Company, non-employee Board members or independent consultants.

H. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Company (or its assigns) shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the document evidencing such right.

I. Limited Transferability of Options. During the lifetime of the Participant, an Incentive Option shall be exercisable only by the Participant and shall not be assignable or transferable other than by will or by the laws of descent and distribution following the Participant’s death.

II. CANCELLATION AND REGRANT OF OPTIONS

The Plan Administrator shall have the authority to effect, at any time and from time to time, with the consent of the affected Option holders, the cancellation of any or all outstanding Options under the Plan and to grant in substitution therefor new Options covering the same or different number of Shares but with an Exercise Price per share based on the Fair Market Value per share of Common Stock on the new Option Grant date.

ARTICLE THREE

OTHER EQUITY INCENTIVE GRANTS

I. RESTRICTED SHARES

The Plan Administrator may issue or transfer Shares to a Participant under a Grant of Restricted Shares, upon such terms as the Plan Administrator deems appropriate. Each such issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. The following provisions are applicable to Restricted Shares:

A. General Requirements. Shares issued or transferred pursuant to Restricted Share Grants may be issued or transferred for consideration or for no consideration, as determined by the Plan Administrator. The Plan Administrator may establish conditions under which restrictions on Restricted Shares shall lapse over a period of time or according to such other criteria as the Plan Administrator deems appropriate. The period of time during which the Restricted Shares will remain subject to restrictions will be designated in the Grant Instrument as the “Restriction Period.”

B. Number of Shares. The Plan Administrator shall determine the number of Restricted Shares to be issued or transferred and the restrictions applicable to such Grant. However, the Plan Administrator may not impose a vesting schedule upon any Restricted Shares which is more restrictive than twenty percent (20%) per year vesting, with initial vesting to occur not later than one (1) year after the issuance date. Such limitation shall not apply to any Common Stock issuances made to the officers of the Company, non-employee Board members or independent consultants.

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C. Requirement of Employment. If the Participant has a termination of Service during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Restricted Share Grant shall terminate as to all Shares covered by the Grant as to which the restrictions have not lapsed, and those Shares must be immediately returned to the Company, and the Company shall refund to the Participant the lesser of (x) the consideration, if any, paid by the Participant for such Shares and (y) the Fair Market Value of the Shares as of the date of such termination of Service. The Plan Administrator may, however, provide for complete or partial exceptions to these requirements as it deems appropriate.

D. Restrictions on Transfer and Legend on Certificate. During the Restriction Period, a Participant may not sell, assign, transfer, pledge or otherwise dispose of (“Transfer”) the Restricted Shares except as permitted under the terms of a Grant Instrument. Each certificate for Restricted Shares shall contain a legend giving appropriate notice of the restrictions in the Grant. The Participant shall be entitled to have the legend removed from the certificate covering the Restricted Shares subject to restrictions when all restrictions on such Shares have lapsed. The Plan Administrator may determine that the Company will not issue certificates for Restricted Shares until all restrictions on such Shares have lapsed, or that the Company will retain possession of certificates for Restricted Shares until all restrictions on such Shares have lapsed.

E. Right to Vote and to Receive Dividends. Unless the Plan Administrator determines otherwise, during the Restriction Period, the Participant shall have the right to vote Restricted Shares and to receive any dividends or other distributions paid on such Shares, subject to any restrictions deemed appropriate by the Plan Administrator.

F. Lapse of Restrictions. All restrictions imposed on Restricted Shares shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Plan Administrator. The Plan Administrator may determine, as to any or all Grants of Restricted Shares, that the restrictions shall lapse without regard to any Restriction Period.

G. Payment of Purchase Price. Any purchase price determined by the Plan Administrator to be payable for Restricted Shares may be paid in the form of any of the following items of consideration which the Plan Administrator may deem appropriate in each individual instance:

1. cash or check made payable to the Company, or

2. past services rendered to the Company (or any Subsidiary).

H. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Company (or its assigns) shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any Restricted Shares. Such right of first refusal shall be exercisable in accordance with the terms established by the Plan Administrator and set forth in the Grant Instrument.

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II. PERFORMANCE SHARES

A. General Requirements. The Plan Administrator may grant Performance Shares to a Participant. The value of a Performance Share shall be based on the Fair Market Value of a Share as of the date upon which payment in respect of such Performance Share is to be made or on such other measurement base as the Committee deems appropriate. The Plan Administrator shall determine the number of Performance Shares to be granted and the requirements applicable to such Shares.

B. Performance Period and Performance Goals. When Performance Shares are granted, the Plan Administrator shall establish the performance period during which performance shall be measured (the “Performance Period”), performance goals applicable to the Shares (“Performance Goals”), if any, and such other conditions of the Grant as the Committee deems appropriate. Performance Goals may relate to the financial performance of the Company or its operations, the performance of Shares, individual performance, or such other criteria as the Plan Administrator deems appropriate.

C. Payment with Respect to Performance Shares. At the end of each Performance Period, the Plan Administrator shall determine to what extent the Performance Goals and other conditions of the Performance Shares have been met and the amount, if any, to be paid with respect to the Performance Shares. Payments with respect to Performance Shares shall be made in cash, in Shares, or in a combination of the two, as determined by the Plan Administrator. Any fractional Performance Share shall be paid in cash. Unless otherwise determined by the Plan Administrator, any Performance Shares with respect to which the Plan Administrator determines that the applicable Performance Goals or other conditions have not been met within the Performance Period shall be forfeited.

D. Requirement of Employment. If the Participant has a termination of Service during a Performance Period, or if other conditions established by the Plan Administrator are not met, the Participant’s Performance Shares shall be forfeited. The Plan Administrator may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.

E. Restrictions on Transfer. Rights to payments with respect to Performance Shares granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to benefits payable hereunder, shall be void.

F. Limited Rights. Performance Shares are solely a device for the measurement and determination of the amounts to be paid to a Participant under the Plan. Each Participant’s right in the Performance Shares is limited to the right to receive payment, if any, as may herein be provided. The Performance Shares do not constitute Shares and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided,

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however, that the Company may establish a mere bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The right of any Participant receiving a Grant of Performance Shares to receive payments by virtue of participation in the Plan shall be no greater than the right of any unsecured general creditor of the Company. Nothing contained in the Plan shall be construed to give any Participant any rights with respect to Shares or any ownership interest in the Company. Except as may be provided in accordance with this Article Three, Section IV, no provision of the Plan shall be interpreted to confer upon any Participant any voting, dividend or derivative or other similar rights with respect to any Performance Share

III. STOCK APPRECIATION RIGHTS

A. General Requirements. The Committee may grant stock appreciation rights (each an “SAR”) to a Participant separately from or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Option, SARs may be granted only at the time of the grant of the Incentive Option. The Plan Administrator shall establish the base amount of the SAR at the time the SAR is granted. Unless the Plan Administrator determines otherwise, the base amount of each SAR shall be equal to the per Share Exercise Price of the related Option or, if there is no related Option, the Fair Market Value of a Share as of the date of grant of the SAR.

B. Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of Shares that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Shares covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of Shares.

C. Exercisability. An SAR shall be exercisable during the period specified by the Plan Administrator in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant Instrument. The Plan Administrator may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Participant is employed by or performing services for the Company or during the applicable period after termination of Service as described in Article Two, Section I.C. A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable. No SAR may be exercised for cash by an executive officer or director of the Company or any of its subsidiaries who is subject to Section 16 of the Exchange Act, except in accordance with Rule 16b-3 under the Exchange Act.

D. Value of SARs. When a Participant exercises an SAR, the Participant shall receive in settlement of such SAR an amount, payable in cash, Shares or a combination thereof equal to the amount by which the Fair Market Value of a Share on the date of exercise of the SAR exceeds the base amount of the SAR as described in Paragraph A above.

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E. Form of Payment. The Plan Administrator shall determine whether the appreciation in an SAR shall be paid in the form of cash, Shares, or a combination of the two, in such proportion as the Plan Administrator deems appropriate. For purposes of calculating the number of Shares to be received, Shares shall be valued at their Fair Market Value on the date of exercise of the SAR. If Shares are to be received upon exercise of a SAR, cash shall be delivered in lieu of any fractional Share.

IV. DIVIDEND EQUIVALENT RIGHTS

A. General Requirements. The Plan Administrator may grant Dividend Equivalent Rights to Participants. With respect to Dividend Equivalent Rights granted with respect to Options intended to be qualified performance-based compensation for purposes of Section 162(m) of the Code, such Dividend Equivalent Rights shall be payable regardless of whether such Option is exercised.

B. Certain Terms. Unless otherwise determined by the Plan Administrator, a Dividend Equivalent Right is exercisable or payable only while the Participant is an employee of or providing services to the Company. Payment of the amount determined in accordance with Paragraph A of this Section IV shall be in cash, in Shares or a combination of the two, as determined by the Plan Administrator. The Plan Administrator may impose such other terms and conditions on the Grant of a Dividend Equivalent Right as it deems appropriate in its discretion as reflected by the terms of the Grant Instrument.

C. Dividend Equivalent Right with Other Grants. The Plan Administrator may establish a program under which Dividend Equivalent Rights may be granted in conjunction with other Grants. For example, and without limitation, the Plan Administrator may grant a Dividend Equivalent Right in respect of each Share subject to an Option or with respect to a Performance Share, which right would consist of the right to receive a cash payment in an amount equal to the dividend distributions paid on a Share from time to time.

D. Deferral. The Plan Administrator may establish a program under which the payments with respect to Dividend Equivalent Rights may be deferred. Such program may include, without limitation, provisions for the crediting of earnings and losses on unpaid amounts, and, if permitted by the Plan Administrator, provisions under which Participants may select from among hypothetical investment alternatives for such deferred amounts in accordance with procedures established by the Plan Administrator.

V. CASH GRANTS

The Plan Administrator may grant Cash Awards to Participants. The cash payment due upon settlement of a Cash Award shall be based on the attainment of performance goals and shall be subject to such other conditions, restrictions and contingencies as the Plan Administrator shall determine and as reflected by the terms of the Grant Instrument.

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VI. QUALIFIED PERFORMANCE-BASED COMPENSATION

A. Designation as Qualified Performance-Based Compensation. The Plan Administrator may determine that Restricted Shares, Performance Shares and Cash Awards granted to an employee shall be considered “qualified performance-based compensation” under Section 162(m) of the Code. The provisions of this Section VI shall apply to Grants of Restricted Shares, Performance Shares and Cash Awards that are intended to be “qualified performance-based compensation” under Section 162(m) of the Code.

B. Performance Goals. When Restricted Shares, Performance Shares or Cash Awards that are intended to be “qualified performance-based compensation” are granted, the Plan Administrator shall establish in writing (i) the objective performance goals that must be met in order for restrictions on the Restricted Shares to lapse or amounts to be paid under the Performance Shares or Cash Awards as applicable, (ii) the term during which the performance goals must be met (the “Performance Period”), (iii) the threshold, target and maximum amounts that may be paid if the performance goals are met, and (iv) any other conditions, including without limitation provisions relating to death, Disability, or other termination of Service, that the Plan Administrator deems appropriate and consistent with the Plan and Section 162(m) of the Code and the Treasury regulations thereunder. The performance goals may relate to the Participant’s individual performance or the performance of the Company and its Subsidiaries as a whole, or any combination of the foregoing. The Plan Administrator shall use objectively determinable performance goals based on one or more of the following criteria: Share price, earnings per Share, net earnings, operating earnings, return on assets, stockholder return, return on equity, growth in assets, share volume, sales, market share, or strategic business criteria consisting of one or more objectives based on meeting specific revenue goals, market penetration goals, geographic business expansion goals, cost targets or goals relating to acquisitions or divestitures.

C. Establishment of Goals. The Plan Administrator shall establish the performance goals in accordance with Paragraph B above in writing either before the beginning of the Performance Period or during a period ending no later than the earlier of (i) 90 days after the beginning of the Performance Period or (ii) the date on which 25% of the Performance Period has been completed, or such other date as may be required or permitted under applicable regulations under Section 162(m) of the Code. The performance goals shall satisfy the requirements for “qualified performance-based compensation,” including the requirement that the achievement of the goals be substantially uncertain at the time they are established and that the goals be established in such a way that a third party with knowledge of the relevant facts could determine whether and to what extent the performance goals had been met. The Plan Administrator shall not have discretion to increase the amount of compensation that is payable upon achievement of the designated performance goals.

D. Maximum Payment. The maximum number of Shares which may be granted to a Participant under such Restricted Shares or Performance Shares for any Performance Period shall be as established by the Board in its sole discretion. If Cash Awards, or Performance Shares measured with respect to criteria other than the Fair Market Value of Shares, are granted pursuant to this Section VI, the maximum amount that may be paid to a Participant under such Cash Awards or Performance Shares with respect to a Performance Period is shall be as established by the Board in its sole discretion.

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E. Performance Certification. The Plan Administrator shall certify and announce the results for each Performance Period to all Participants immediately following the announcement of the Company’s financial results for the Performance Period. If and to the extent that the Plan Administrator does not certify that the performance goals have been met, the grants of Restricted Shares, Performance Shares, or Cash Awards made pursuant to this Section VI for the Performance Period shall be forfeited.

ARTICLE FOUR

MISCELLANEOUS

I. FINANCING

The Plan Administrator may permit any Participant to pay the Exercise Price for the Option or the purchase price for Shares issued by delivering a full-recourse, interest bearing promissory note payable in one or more installments and secured by the purchased Shares. The note shall not have term in excess of five (5) years, and interest shall accrue at a rate not less than the minimum rate of interest, compounded semi-annually, necessary to avoid the imputation of compensation income to the Participant under the federal tax laws. In addition, any promissory note delivered by a consultant must be secured by collateral in addition to the purchased Shares. In no event may the maximum credit available to the Participant exceed the sum of (i) the aggregate Exercise Price for the Options or purchase price payable for the purchased Shares plus (ii) any Federal, state and local income and employment tax liability incurred by the Participant in connection with the Option exercise or Share purchase.

II. EFFECTIVE DATE AND TERM OF PLAN

A. The Plan shall become effective when adopted by the Board, but no Option granted under the Plan may be exercised, and no Shares shall be issued under the Plan, until the Plan is approved by the Company’s stockholders. If such stockholder approval is not obtained within twelve (12) months after the date of the Board’s adoption of the Plan, then all Options previously granted under the Plan shall terminate and cease to be outstanding, and no further Options shall be granted and no Shares shall be issued under the Plan. Subject to such limitation, the Plan Administrator may grant Options and issue Shares under the Plan at any time after the effective date of the Plan and before the date fixed herein for termination of the Plan.

B. The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period measured from the date the Plan is adopted by the Board, (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested Shares or (iii) the termination of all outstanding Options in connection with any event described in Article One, Section VI.C.2 or 3. All Grants outstanding at the time of a clause (i) termination event shall continue to have full force and effect in accordance with the provisions of the Grant Instruments evidencing those Grants.

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III. AMENDMENT OF THE PLAN

The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to Grants at the time outstanding under the Plan unless the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws and regulations.

IV. USE OF PROCEEDS

Any cash proceeds received by the Company from the sale of Shares under the Plan shall be used for general corporate purposes

V. WITHHOLDING

A. Required Withholding. The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding (including all federal, state and local taxes) determined by the Plan Administrator to be required by law. Without limiting the generality of the foregoing, the Plan Administrator may, in its discretion, require the Participant to pay to the Company at such time as the Plan Administrator determines the amount that the Plan Administrator deems necessary to satisfy the Company’s obligation to withhold federal, state or local income or other taxes incurred by reason of (i) the exercise of any Option or SAR, (ii) the lapsing of any restrictions applicable to any Restricted Shares, (iii) the receipt of a payment in respect of Performance Shares, Dividend Equivalent Rights or Cash Awards or (iv) any other applicable income recognition event (for example, an election under Section 83(b) of the Code). Notwithstanding anything contained in the Plan to the contrary, the Participant’s satisfaction of any tax withholding requirements imposed by the Plan Administrator shall be a condition precedent to the Company’s obligation as may otherwise be provided hereunder to provide Shares to the Participant and to the release of any restrictions as may otherwise be provided hereunder, as applicable; and the applicable Options, SARs, Restricted Shares, Performance Shares or Dividend Equivalent Rights shall be forfeited upon the failure of the Participant to satisfy such requirements with respect to, as applicable, (i) the exercise of the Option or SAR, (ii) the lapsing of restrictions on any Restricted Share (or other income recognition event) or (iii) payments in respect of any Performance Share or Dividend Equivalent Right.

B. Election to Withhold Shares. If the Plan Administrator so permits, a Participant may make a written election to satisfy the Company’s income tax withholding obligation with respect to an Option, SAR, Restricted Shares, Performance Shares or Dividend Equivalent Rights paid in Shares by having Shares withheld by the Company from the Shares otherwise to be received by Participant, or by delivering to the Company previously owned Shares (not subject to restrictions hereunder). In the event that the Plan Administrator permits and the Participant makes such an election, the number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. Where the exercise of an Incentive Option does not give rise to an obligation by the Company to withhold federal, state or local

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income or other taxes on the date of exercise, but may give rise to such an obligation in the future, the Plan Administrator may, in its discretion, make such arrangements and impose such restrictions as it deems necessary or appropriate. The election must be in a form and manner prescribed by the Plan Administrator and shall be subject to the prior approval of the Plan Administrator.

VI. REGULATORY APPROVALS

The implementation of the Plan, the granting of any Options under the Plan and the issuance of any Shares (i) upon the exercise of any Option or (ii) under any other Grant shall be subject to the Company’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Options granted under it and the Shares issued pursuant to it.

VII. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

VIII.   MARITAL DISSOLUTION OR SEPARATION

Unvested Options and other Grants under the Plan are intended as incentives to secure the Participant’s future services to the Company and accordingly, to the maximum extent permissible under applicable law, shall not be treated as marital property to be divided between the spouses in connection with marital dissolution or legal separation proceedings except to the extent those Grants are at the time vested.

IX. FINANCIAL REPORTS

The Company shall deliver a balance sheet and an income statement at least annually to each individual holding an outstanding Option under the Plan, unless such individual is a key employee whose duties in connection with the Company (or any Subsidiary) assure such individual access to equivalent information.

X. FUNDING OF THE PLAN

The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.

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ARTICLE FIVE

ISSUANCE OR TRANSFER OF SHARES

I. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES

A. Stock Purchase Agreement. The Plan Administrator may require that a Participant execute a Stock Purchase Agreement, with such terms as the Plan Administrator deems appropriate, with respect to any Shares distributed pursuant to the Plan.

B. Limitations on Issuance or Transfer of Shares. No Shares shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Plan Administrator. The Plan Administrator shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to become subject to any agreement by which the stockholders of the Company are generally bound and to comply with such restrictions on his or her subsequent disposition of such Shares as the Plan Administrator shall deem necessary or advisable as a result of any applicable law, regulation or official interpretation thereof, and certificates representing such Shares may be legended to reflect any such restrictions. Certificates representing Shares issued or transferred under the Plan will be subject to such stop-transfer orders, registration and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

II. TRANSFERABILITY OF GRANTS

A. In General. Except as provided in Paragraph B below, only the Participant may exercise rights under a Grant during the Participant’s lifetime. A Participant may not transfer those rights except by will or by the laws of descent and distribution. When a Participant dies, the personal representative of his or her estate or the person or persons to whom the Grant is transferred pursuant to the Participant’s will or the laws of descent and distribution (“Successor”) may exercise such rights in accordance with the terms of the Plan. A Successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Participant’s will or under the applicable laws of descent and distribution.

B. Transfer of Nonqualified Options. Notwithstanding the foregoing, the Plan Administrator may provide in a Grant Instrument that a Participant may transfer Nonqualified Options to family members or other persons or entities according to such terms as the Plan Administrator may determine where the Plan Administrator determines that such transferability does not result in accelerated federal income taxation; provided that the Participant receives no consideration for the transfer of an Option and the transferred Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately before the transfer.

III. PURCHASE OF SHARES BY THE COMPANY

A. Right to Purchase. Unless otherwise determined by the Plan Administrator at or after Grant, in the event of the Participant’s termination of Service, the Company shall

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have the right to repurchase all Shares issued or to be issued to the Participant under the Plan at Fair Market Value as of the date of such termination of Service but not less than the amount paid by the Participant for such Shares. In the event that the Plan Administrator determines in good faith that the Participant has materially breached any non-compete or confidentiality agreement with the Company after termination of Service, the price at which the Company shall have the right to repurchase such Shares shall be equal to the Exercise Price or purchase price paid by the Participant. Any repurchase shall be made in accordance with accounting rules to avoid adverse accounting treatment.

B. Exercise. The Company’s right to repurchase shall be exercisable at any time within one year after the date of Participant’s termination of Service by the delivery of written notice to such effect by the Company to the Participant, his executor, administrator or beneficiaries. Within 30 days after receipt of such notice, the Participant, his executor, administrator or beneficiaries shall deliver a certificate or certificates for the Shares being sold, together with appropriate duly signed stock powers transferring such Shares to the Company, and the Company shall deliver to the Participant, his executor, administrator or beneficiaries the Company’s check in the amount of the purchase price for the Shares being sold.

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APPENDIX

The following definitions shall be in effect under the Plan:

1. Board means the Company’s Board of Directors.

2. Cash Award means the amount of cash as may be awarded pursuant to Article Three, Section V.

3. Code means the Internal Revenue Code of 1986, as amended.

4. Committee means a committee of two (2) or more Board members appointed by the Board to exercise one or more administrative functions under the Plan.

5. Common Stock means the Company’s common stock referred to in the definition of “Shares” below.

6. Company means Fender Musical Instruments Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fender Musical Instruments Corporation which shall by appropriate action adopt the Plan.

7. Dividend Equivalent Rights means the Grant of a right to receive either credits for or payments of amounts based on the dividends declared on Shares, to be credited or paid as of the dividend payment dates, during such term as may be determined by the Plan Administrator.

8. Disability means the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances.

9. Employee means an individual who is in the employ of the Company (or any Parent or Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

10. Exercise Date means the date on which the Company shall have received written notice of the Option exercise.

11. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as such price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

12. Grant means an award under the Plan of any Option, SAR, Restricted Share, Performance Share, Dividend Equivalent Right, or Cash Award.

13. Grant Instrument means any of a Stock Option Agreement, Stock Issuance Agreement or other appropriate instrument which satisfies the Plan requirements by containing relevant terms and conditions of a Grant under the Plan.

14. Incentive Option means an Option which satisfies the requirements of Code Section 422.

15. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company (or any Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Company (or any Subsidiary) in a material manner. The foregoing definition shall not be deemed to be a limitation on the acts or omissions which the Company (or any Subsidiary) may consider as grounds for the dismissal or discharge of any Participant or other person in the Service of the Company (or any Subsidiary).

16. 1933 Act means the Securities Act of 1933, as amended.

17. 1934 Act means the Securities Exchange Act of 1934, as amended.

18. 1997 Plan means the Fender Musical Instruments Corporation 1997 Stock Option Plan, effective as of March 1, 1997.

19. Nonqualified Option means an Option not intended to satisfy the requirements of Code Section 422.

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20. Option(s) means Incentive Option(s) and Nonqualified Option(s).

21. Participant means any person who receives any Grant under the Plan.

22. Performance Share means the Grant of a right to receive an amount based on the value of a Share, or on such other measurement base as the Plan Administrator deems appropriate, if performance goals established by the Plan Administrator are met.

23. Plan means the Company’s 2001 Equity Compensation Plan, as set forth in this document.

24. Plan Administrator means either the Board or the Committee acting in its capacity as administrator of the Plan.

25. Restricted Shares means Shares subject to a Grant under Article Three, Section I of the Plan.

26. SARs means stock appreciation rights subject to a Grant under Article Three, Section III of the Plan.

27. Service means the provision of services to the Company (or any Parent or Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Option grant.

28. Share means one share of Class B Common Stock of the Company, $.01 par value, and any other stock or security resulting from adjustment thereof as provided herein. All Shares shall be automatically converted into, and all Options shall be automatically exercisable for, shares of Class A Common Stock of the Company, $.01 par value per share, upon the effective date of a registration statement under the 1933 Act pursuant to which shares of Class A Common Stock shall be offered for sale in an underwritten offering. All references herein to Shares mean the Class A Common Stock or the Class B Common Stock, as applicable.

29. Stock Exchange means either the American Stock Exchange or the New York Stock Exchange.

30. Stock Issuance Agreement means the agreement entered into by the Company and the Participant at the time of issuance of Shares pursuant to a Grant under the Plan.

31. Stock Option Agreement means the agreement entered into by the Company and the Participant at the time of issuance of Options pursuant to the Plan.

32. Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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33. Termination of Service means the cessation of Service to the Company, whether voluntary or involuntary, including, by means of death, disability, retirement, discharge, resignation or otherwise.

34. 10% Stockholder means the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (or any Subsidiary).

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EX-10.8

Exhibit 10.8

FIRST AMENDMENT

TO

2001 EQUITY COMPENSATION PLAN

This First Amendment to 2001 Equity Compensation Plan (this “Amendment”) is entered into as of February 25, 2003, by Fender Musical Instruments Corporation, a Delaware corporation (the “Company”). All capitalized terms not otherwise defined herein shall have the respective meanings assigned to such terms in the Company’s 2001 Equity Compensation Plan (the “Plan”).

WHEREAS, Article IV, Section III of the Plan permits the Company’s Board of Directors to amend the Plan;

WHEREAS, no Grants are outstanding pursuant to the Plan as of the time of this Agreement; and

WHEREAS, the Company’s Board of Directors have duly approved the following amendments to the Plan;

1. Amendments. The Company’s 2001 Equity Compensation Plan (the “Plan”) is hereby amended as follows:

A. Article Two, Section II is hereby deleted in its entirety.

B. Article Two, Section I(B)(2)(i) is hereby amended to read in its entirety as follows:

(i) in Shares of Common Stock held for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (in general, if the Participant utilizes this provision to pay the Exercise Price, the Shares surrendered must have been owned by the Participant for at least six (6) months following the later of exercise or vesting, if such Shares were not acquired by the Participant on the open market); or

C. Article Two, Section I(B)(2)(ii) is hereby amended to read in its entirety as follows:

(ii) to the extent the Option is exercised for vested Shares, through a special sale and remittance procedure pursuant to which the Participant shall concurrently provide irrevocable instructions (A) to a Company-designated brokerage firm to effect the immediate sale of the purchased Shares in the open market and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise and (B) to the Company to deliver the certificates for the purchased Shares

directly to such brokerage firm in order to complete the sale; provided, that the number of purchased Shares which the Participant directs the brokerage firm to sell, shall in no event exceed the number of Shares necessary to cover the Exercise Price plus required tax withholding.

2. No Other Amendments. Except as expressly provided for herein, the Company’s Board of Directors does not intend to amend or otherwise alter any of the terms and conditions of the Plan.

3. Entire Agreement. This Amendment constitutes the entire agreement of the Company’s Board of Directors with respect to the amendment of the Plan. Neither this Amendment nor the Plan (as amended hereby) may be modified except in accordance with the provisions of the Plan.

IN WITNESS WHEREOF, the undersigned, an authorized representative of the Company, has executed this Amendment as of the day and year first above written in order to certify the action taken by the Company’s Board of Directors.

FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation
By:	/s/ William C. Schultz
Its:	CEO

-2-

EX-10.9

Exhibit 10.9

SECOND AMENDMENT

TO

2001 EQUITY COMPENSATION PLAN

This Second Amendment to 2001 Equity Compensation Plan (this “Amendment”) is entered into as of July 27, 2005, by Fender Musical Instruments Corporation, a Delaware corporation (the “Company”). All capitalized terms not otherwise defined herein shall have the respective meanings assigned to such terms in the Company’s 2001 Equity Compensation Plan (the “Plan”).

WHEREAS, Article Four, Section III of the Plan permits the Company’s Board of Directors to amend the Plan;

WHEREAS, the Company’s Board of Directors and Shareholders have duly approved the following amendments to the Plan;

NOW, THEREFORE, the Plan is hereby amended as set forth below:

1. Amendments. The Company’s 2001 Equity Compensation Plan, as amended (the “Plan”) is hereby amended as follows:

A. Article One, Section VI(A) is hereby amended to read in its entirety as follows:

The Shares issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustments as provided in paragraphs B and C below, the maximum number of Shares which may be issued over the term of the Plan shall not exceed 47,836 Shares, less the sum of (i) the number of Shares which shall have been issued, and (ii) the number of options on Shares which may be outstanding from time to time, pursuant to the 1997 Plan.

B. The first sentence of Article One, Section VI(C) is hereby amended to read in its entirety as follows:

If there is any change in the outstanding shares of Common Stock by reason of the declaration of stock dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, or recapitalizations, mergers, consolidations, reorganizations, rights offerings, exchanges or similar events, the number of Shares subject to the Plan, the number of such Shares which are Restricted Shares, Performance Shares, or Shares covered by outstanding Options, SARs, and Dividend Equivalent Rights, and the Exercise Price for an Option shall be proportionately adjusted by the Plan Administrator to reflect such changes.

C. The first sentence of Article Two, Section I(B)(2) is hereby amended to read in its entirety as follows:

The Exercise Price shall become immediately due upon exercise of the Option and shall, subject to the provisions of Section I of Article Four and the Grant Instrument, be payable in cash or check made payable to the Company or such additional method as may be permitted in the Grant Instrument.

D. Article Two, Section I(G) is hereby amended to read in its entirety as follows:

The Plan Administrator shall have the discretion to grant Options which are exercisable for unvested Shares. Should the Participant cease Service while holding such unvested Shares, the Company shall have the right to repurchase, at the Exercise Price paid per Share, any or all of those unvested Shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased Shares) shall be established by the Plan Administrator and set forth in the Grant Instrument. The Plan Administrator may not impose a vesting schedule upon any Option Grant with respect to such unvested Shares or the Shares subject to that Option which is more restrictive than twenty percent (20%) per year vesting, with the initial vesting to occur not later than one (1) year after the Grant date. However, such limitation shall not be applicable to any Option Grants made to individuals who are officers of the Company, non-employee Board members or independent consultants.

2. No Other Amendments. Except as expressly provided for herein, the Company’s Board of Directors does not intend to amend or otherwise alter any of the terms and conditions of the Plan.

3. Entire Agreement. This Amendment constitutes the entire agreement of the Company’s Board of Directors with respect to the amendment of the Plan. Neither this Amendment nor the Plan (as amended hereby) may be modified except in accordance with the provisions of the Plan.

IN WITNESS WHEREOF, the undersigned, an authorized representative of the Company, has executed this Amendment as of the day and year first above written in order to certify the action taken by the Company’s Board of Directors.

FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation
By:
Its:	CEO

Page 2 of 2

EX-10.10

Exhibit 10.10

FENDER MUSICAL INSTRUMENTS CORPORATION

STOCK OPTION AGREEMENT

RECITALS

A. The Board has adopted the Plan for the purpose of retaining the services of selected Employees, non-employee members of the Board or the board of directors of any Subsidiary and consultants and other independent advisors in the service of the Corporation (or any Subsidiary).

B. Optionee is to render valuable services to the Corporation (or a Subsidiary), and this Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the Corporation’s grant of an Option to Optionee.

C. All capitalized terms in this Agreement shall have the meaning assigned to them in the attached Appendix.

NOW, THEREFORE, it is hereby agreed as follows:

1. Grant of Option. The Corporation hereby grants to Optionee, as of the Grant Date, an option to purchase up to the number of Option Shares specified in the Grant Notice. The Option Shares shall be purchasable from time to time during the Option Term specified in Paragraph 2 at the Exercise Price.

2. Option Term. This Option shall have a term of twenty (20) years measured from the Grant Date and shall accordingly expire at the close of business on the Expiration Date, unless sooner terminated in accordance with Paragraph 5 or 6 of this Agreement.

3. Limited Transferability. During Optionee’s lifetime, this Option shall be exercisable only by Optionee and shall not be assignable or transferable other than by will or by the laws of inheritance following Optionee’s death.

4. Dates of Exercise. This Option shall become exercisable for the Option Shares in one or more installments as specified in the Grant Notice. If this Option becomes exercisable for such installments, those installments shall accumulate, and this Option shall remain exercisable for the accumulated installments until the Expiration Date or earlier termination of the Option Term under Paragraph 5 or 6 of this Agreement.

5. Cessation of Service. The Option Term specified in Paragraph 2 of this Agreement shall terminate (and this Option shall cease to be outstanding) prior to the Expiration Date should any of the following provisions become applicable:

(a) Should Optionee’s Service be terminated for Misconduct or should Optionee otherwise engage in Misconduct while this Option is outstanding, then this Option shall terminate immediately and cease to remain outstanding.

6. Corporate-Level Change in Control.

(a) In the event of any Corporate-Level Change in Control, the Option Shares at the time subject to this Option but not otherwise vested shall automatically vest in full so that this Option shall, immediately prior to the effective date of such Corporate-Level Change in Control, become exercisable for all the Option Shares as fully-vested shares and may be exercised for any or all of those Option Shares as fully-vested shares. However, the Option Shares shall not vest on such an accelerated basis if and to the extent: (i) this Option is assumed by the successor corporation (or parent thereof) in the Corporate-Level Change in Control or otherwise continued in full force and effect and any repurchase rights of the Corporation with respect to the unvested Option Shares are concurrently assigned to such successor corporation (or parent thereof) or otherwise continued in full force and effect or (ii) this Option is to be replaced with a cash incentive program which preserves the spread existing on the unvested Option Shares at the time of the Corporate-Level Change in Control and provides for subsequent payout in accordance with the same Vesting Schedule applicable to the unvested Option Shares as set forth in the Grant Notice.

(b) Immediately following the consummation of the Corporate-Level Change in Control, this Option shall terminate and cease to be outstanding, except to the extent assumed by the successor corporation (or parent thereof) or otherwise continued in full force and effect pursuant to the express terms of the Corporate-Level Change in Control transaction.

7. Additional Change in Control Provisions.

(a) If this Option is assumed in connection with a Corporate-Level Change in Control or otherwise continued in full force and effect, then this Option shall be appropriately adjusted, immediately after such transaction, to apply to the number and class of securities which would have been issuable to Optionee in consummation of such Corporate-Level Change in Control, had this Option been exercised immediately prior to such transaction. Appropriate adjustments shall also be made to the exercise price provided the aggregate exercise price shall remain the same.

(b) This Agreement shall not in any way affect the right of the Corporation to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.

8. Adjustment in Option Shares. Should any change be made to the Common Stock by reason of any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation’s receipt of consideration, appropriate adjustments shall be made to (i) the total number and/or class of securities subject to this Option and (ii) the Exercise Price in order to reflect such change and thereby preclude a dilution or enlargement of benefits hereunder.

9. Stockholder Rights. The holder of this Option shall not have any stockholder rights with respect to the Option Shares until such person shall have exercised this Option, paid the Exercise Price and become the record holder of the purchased shares.

10. Manner of Exercising Option.

(a) In order to exercise this Option with respect to all or any part of the Option Shares for which this Option is at the time exercisable, Optionee (or any other person or persons exercising this Option) must take the following actions:

(i) Execute and deliver to the Corporation a Purchase Agreement for the Option Shares for which this Option is exercised.

(ii) If not previously executed and delivered by the Optionee, execute and deliver to the Corporation a counterpart signature page to the Corporation’s Third Amended and Restated Stockholders Agreement, a copy of which will be provided to the Optionee for review a reasonable period of time prior to the exercise of this Option.

(iii) Pay the aggregate Exercise Price for the purchased shares in one or more of the following forms:

(A) cash or check made payable to the Corporation; or Should the Common Stock be registered under Section 12 of the 1934 Act at the time this Option is exercised, then the Exercise Price may also be paid as follows:

(B) in Shares of Common Stock held by Optionee (or any other person or persons exercising this Option) for the requisite period necessary to avoid a charge to the Corporation’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (in general, if the Participant utilizes this provision to pay the Exercise Price, the Shares surrendered must have been owned by the Participant for at least six (6) months following the later of exercise or vesting, if such Shares were not acquired by the Participant on the open market); or

(C) to the extent this Option is exercised for vested Option Shares, through a special sale and remittance procedure pursuant to which Optionee (or any other person or persons exercising this Option) shall concurrently provide irrevocable instructions (a) to a Corporation-designated brokerage firm to effect the immediate sale of the purchased Shares in the open

market and remit to the Corporation, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Corporation by reason of such exercise and (b) to the Corporation to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale; provided, that the number of purchased Shares which the Optionee directs the brokerage firm to sell, shall in no event exceed the number of Shares necessary to cover the Exercise Price plus required tax withholding.

Except to the extent the sale and remittance procedure is utilized in connection with the exercise of this Option, payment of the Exercise Price must accompany the Purchase Agreement delivered to the Corporation in connection with the exercise of this Option.

(iv) Furnish to the Corporation appropriate documentation that the person or persons exercising this Option (if other than Optionee) have the right to exercise this Option.

(v) Execute and deliver to the Corporation such written representations as may be requested by the Corporation in order for it to comply with the applicable requirements of Federal and state securities laws.

(vi) Make appropriate arrangements with the Corporation (or the Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the exercise of this Option.

(b) As soon as practical after the Exercise Date, the Corporation shall issue to or on behalf of Optionee (or any other person or persons exercising this Option) a certificate for the purchased Option Shares, with the appropriate legends affixed thereto.

(c) In no event may this Option be exercised for any fractional shares.

11. REPURCHASE RIGHTS. ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THIS OPTION SHALL BE SUBJECT TO CERTAIN RIGHTS OF THE CORPORATION AND ITS ASSIGNS TO REPURCHASE THOSE SHARES IN ACCORDANCE WITH THE TERMS SPECIFIED IN THE PURCHASE AGREEMENT.

12. Compliance with Laws and Regulations.

(a) The exercise of this Option and the issuance of the Option Shares upon such exercise shall be subject to compliance by the Corporation and

Optionee with all applicable requirements of law relating thereto and with all applicable regulations of any stock exchange (or the Nasdaq National Market, if applicable) on which the Common Stock may be listed for trading at the time of such exercise and issuance.

(b) The inability of the Corporation to obtain approval from any regulatory body having authority deemed by the Corporation to be necessary to the lawful issuance and sale of any Common Stock pursuant to this Option shall relieve the Corporation of any liability with respect to the non-issuance or sale of the Common Stock as to which such approval shall not have been obtained. The Corporation, however, shall use its best efforts to obtain all such approvals.

13. Successors and Assigns. Except to the extent otherwise provided in Paragraphs 3 and 6 of this Agreement, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and Optionee, Optionee’s assigns and the legal representatives, heirs and legatees of Optionee’s estate.

14. Notices. Any notice required to be given or delivered to the Corporation under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal corporate offices. Any notice required to be given or delivered to Optionee shall be in writing and addressed to Optionee at the address indicated below Optionee’s signature line on the Grant Notice. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

15. Construction. This Agreement and the Option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Plan Administrator with respect to any question or issue arising under the Plan or this Agreement shall be conclusive and binding on all persons having an interest in this Option.

16. Governing Law. The interpretation, performance and enforcement of this Agreement shall be governed by the laws of the State of Delaware without resort to that State’s conflict-of-laws rules.

17. Stockholder Approval. If the Option Shares covered by this Agreement exceed, as of the Grant Date, the number of shares of Common Stock which may be issued under the Plan as last approved by the stockholders, then this Option shall be void with respect to such excess shares, unless stockholder approval of an amendment sufficiently increasing the number of shares of Common Stock issuable under the Plan is obtained in accordance with the provisions of the Plan.

APPENDIX

The following definitions shall be in effect under this Agreement:

A. Agreement shall mean this Stock Option Agreement.

B. Board shall mean the Corporation’s Board of Directors.

C. Code shall mean the Internal Revenue Code of 1986, as amended.

D. Common Stock shall mean the Corporation’s common stock.

E. Corporate-Level Change in Control shall mean any of the following transactions involving a change in control or ownership of the Corporation:

(i) a stockholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii) a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation, or

(iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule I 3d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

F.Corporation shall mean Fender Musical Instruments Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fender Musical Instruments Corporation which shall by appropriate action adopt the Plan.

G. Disability shall mean the inability of Optionee to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment and shall be determined by the Plan

Administrator on the basis of such medical evidence as the Plan Administrator deems warranted under the circumstances. Disability shall be deemed to constitute Permanent Disability in the event that such Disability is expected to result in death or has lasted or can be expected to last for a continuous period of twelve (12) months or more.

H. Employee shall mean an individual who is in the employ of the Corporation (or any Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

I. Exercise Date shall mean the date on which this Option shall have been exercised in accordance with Paragraph 10 of this Agreement.

J. Exercise Price shall mean the exercise price payable per Option Share as specified in the Grant Notice.

K. Expiration Date shall mean the date on which this Option expires as specified in the Grant Notice.

L. Fair Market Value per share of Common Stock on any relevant date shall be determined in accordance with the following provisions:

(i) If the Common Stock is at the time traded on the Nasdaq National Market, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question, as the price is reported by the National Association of Securities Dealers on the Nasdaq National Market. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(ii) If the Common Stock is at the time listed on any Stock Exchange, then the Fair Market Value shall be the closing selling price per share of Common Stock on the date in question on the Stock Exchange determined by the Plan Administrator to be the primary market for the Common Stock, as such price is officially quoted in the composite tape of transactions on such exchange. If there is no closing selling price for the Common Stock on the date in question, then the Fair Market Value shall be the closing selling price on the last preceding date for which such quotation exists.

(iii) If the Common Stock is at the time neither listed on any Stock Exchange nor traded on the Nasdaq National Market, then the Fair Market Value shall be determined by the Plan Administrator after taking into account such factors as the Plan Administrator shall deem appropriate.

M. Grant Date shall mean the date of grant of the Option as specified in the Grant Notice.

N. Grant Notice shall mean the Notice of Grant of Stock Option accompanying this Agreement, pursuant to which Optionee has been informed of the basic terms of the Option evidenced hereby.

O. Involuntary Termination shall mean the termination of Optionee’s Service which occurs by reason of:

(i) such individual’s involuntary dismissal or discharge by the Corporation for reasons other than Misconduct, or

(ii) such individual’s voluntary resignation following (A) a change in his or her position with the Corporation which materially reduces his or her duties and responsibilities or the level of management to which he or she reports, (B) a reduction in his or her level of compensation (including base salary, fringe benefits and target bonuses under any corporate-performance based bonus or incentive programs) by more than fifteen percent (15%) or (C) a relocation of such individual’s place of employment by more than fifty (50) miles, provided and only if such change, reduction or relocation is effected without the individual’s consent.

P. Misconduct shall mean the commission of any act of fraud, embezzlement or dishonesty by Optionee, any unauthorized use or disclosure by Optionee of confidential information or trade secrets of the Corporation (or any Subsidiary), or any other intentional misconduct by Optionee adversely affecting the business or affairs of the Corporation (or any Subsidiary) in a material manner. The foregoing definition shall not be deemed to be inclusive of all the acts or omissions which the Corporation (or any Subsidiary) may consider as grounds for the dismissal or discharge of Optionee or any other individual in the Service of the Corporation (or any Subsidiary).

Q. 1934 Act shall mean the Securities Exchange Act of 1934, as amended.

R. Option shall mean the option to purchase up to the number of Option Shares specified in the Grant Notice which is described in Paragraph 1 of this Agreement.

S. Optionee shall mean the person to whom this Option is granted as specified in the Grant Notice.

T. Option Shares shall mean the number of shares of Common Stock subject to this Option.

U. Option Term shall mean the period of time specified in Paragraph 2 of this Agreement.

V. Plan shall mean the Corporation’s 2001 Equity Compensation Plan, as amended from time to time.

W. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

X. Purchase Agreement shall mean the stock purchase agreement in substantially the form of Exhibit B to the Grant Notice.

Y. Service shall mean the Optionee’s performance of services for the Corporation (or any Subsidiary) in the capacity of an Employee, a non-employee member of the board of directors or an independent consultant.

Z. Stock Exchange shall mean the American Stock Exchange or the New York Stock Exchange.

AA. Subsidiary shall mean any corporation (other than the Corporation) in an unbroken chain of corporations beginning with the Corporation, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

BB. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service.

EX-10.11

Exhibit 10.11

FENDER MUSICAL INSTRUMENTS CORPORATION

STOCK PURCHASE AGREEMENT

THIS AGREEMENT made this              day of             ,             , by and between Fender Musical Instruments Corporation, a Delaware corporation (the “Corporation”), and                      (“Optionee”) under the Corporation’s 2001 Equity Compensation Plan.

All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix.

A. EXERCISE OF OPTION

1. Exercise. Optionee hereby purchases              shares of Class B Common Stock (the “Purchased Shares”) pursuant to that certain option (the “Option”) granted Optionee on             ,              (the “Grant Date”) to purchase up to              shares of Class B Common Stock (the “Option Shares”) under the Plan at the exercise price of $             per share (the “Exercise Price”).

2. Payment. Concurrently with the delivery of this Agreement to the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in accordance with the provisions of the Option Agreement and the Plan and shall deliver whatever additional documents may be required by the Option Agreement or the Plan as a condition for exercise.

3. Stockholder Rights. Once Optionee has exercised all or a portion of the Option, Optionee (or any permitted successor in interest) shall have all the rights of a stockholder (including voting, dividend and liquidation rights) with respect to the Purchased Shares, subject, however, to the provisions of this Agreement and the Stockholders Agreement (as defined herein). Optionee acknowledges that, in addition to the restrictions set forth in this Agreement, the Purchased Shares shall be subject to the provisions of the Corporation’s Third Amended and Restated Stockholders Agreement, as such agreement may be amended from time to time (the “Stockholders Agreement”). Optionee has carefully read and hereby represents and warrants that he, she or it understands the terms and provisions of the Stockholders Agreement.

B. SECURITIES LAW COMPLIANCE

1. Restricted Securities. The Purchased Shares have not been registered under the 1933 Act and are being issued to Optionee in reliance upon the exemption from such registration provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby confirms that Optionee has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are

first registered under the Federal securities laws and under any applicable state securities laws or unless exemptions from such registration requirements are available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act.

2. Restrictions on Disposition of Purchased Shares. Optionee shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements:

(i) Optionee shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition.

(ii) Optionee shall have complied with all requirements of this Agreement and the Stockholders Agreement applicable to the disposition of the Purchased Shares.

(iii) Optionee shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or under any applicable state securities laws or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act and for compliance with any applicable state securities laws or any exemption from registration available under the 1933 Act (including Rule 144) and under any applicable state securities laws have been taken.

The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or the Stockholders Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement or the Stockholders Agreement.

3. Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legends:

“The shares represented by this certificate have not been registered under the Securities Act of 1933 or any applicable state securities laws. The shares may not be sold or offered for sale in the absence of (a) an effective

registration statement for the shares under such Act and such state securities laws, (b) a “no action” letter of the Securities and Exchange Commission and from each applicable state securities authority with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act and such state securities laws is not required with respect to such sale or offer.”

“The shares represented by this certificate are subject to certain repurchase rights and rights of first refusal granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a Stock Purchase Agreement dated                                 ,          by and between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

“In addition, the shares represented by this certificate are subject to certain restrictions set forth in the Corporation’s Third Amended and Restated Stockholders Agreement, as the same may be amended from time to time. A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

C. TRANSFER RESTRICTIONS

1. Restriction on Transfer. Optionee shall not sell, assign, transfer, gift, pledge, encumber, hypothecate, grant a security interest in or make any other voluntary or involuntary disposition of any Purchased Shares in contravention of the terms of this Agreement or the Stockholders Agreement.

2. Transferee Obligations. Each person to whom any Purchased Shares are transferred by means of any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Purchased Shares must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and the Stockholders Agreement.

3. Market Stand-Off. The Optionee hereby acknowledges that the Purchased Shares shall be subject to the market stand-off restrictions set forth in Section 6.17 of the Stockholders Agreement.

D. RIGHT OF FIRST REFUSAL

The Optionee hereby acknowledges that the Purchased Shares shall be subject to the rights of first refusal and rights of co-sale set forth in Section 3 of the Stockholders Agreement. Such rights of first refusal and rights of co-sale shall be exercisable in accordance with the provisions of Section 3 of the Stockholders Agreement.

E. REPURCHASE RIGHT

The Optionee hereby acknowledges that the Purchased Shares shall be subject to the repurchase rights set forth in Section 4 of the Stockholders Agreement. The Repurchase Right shall be exercisable in accordance with the provisions of Section 4 of the Stockholders Agreement.

F. VOTING FOR DIRECTORS

The Optionee hereby acknowledges that once Optionee has exercised all or part of the Option, Optionee shall be subject to the voting requirements set forth in Section 5 of the Stockholders Agreement.

G. GENERAL PROVISIONS

1. At Will Employment. Nothing in this Agreement or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

2. Notices. Any notice required to be given under this Agreement shall be in writing and shall be given in accordance with the provisions of Section 16 of the Stockholders Agreement.

3. No Waiver. The failure of the Corporation in any instance to exercise any of its rights under this Agreement or the Stockholders Agreement shall not constitute a waiver of any other rights that may then exist or may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Optionee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

4. Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement or the Stockholders Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement or the Stockholders Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement or the Stockholders Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement or the Stockholders Agreement.

5. Optionee Undertaking. Optionee (or any permitted successor in interest) hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Optionee (or any permitted successor in interest) or the Purchased Shares pursuant to the provisions of this Agreement.

6. Complete Agreement. This Agreement and the Stockholders Agreement constitute the complete agreement between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.

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

8. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Optionee, Optionee’s permitted assigns and the legal representatives, heirs and legatees of Optionee’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof.

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

FENDER MUSICAL INSTRUMENTS CORPORATION

By:

Title:

Address: 

	OPTIONEE
Address:

APPENDIX

The following definitions shall be in effect under this Agreement:

A. Agreement shall mean this Stock Purchase Agreement.

B. Board shall mean the Corporation’s Board of Directors.

C. Common Stock shall mean the Corporation’s common stock.

D. Corporate Level Change in Control shall mean any of the following transactions involving a change in control or ownership of the Corporation:

(i) a stockholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii) a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation; or

(iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities pursuant to a tender or exchange offer made directly to the Corporation’s stockholders.

E. Corporation shall mean Fender Musical Instruments Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets of voting stock of Fender Musical Instruments Corporation which shall by appropriate action adopt the Plan.

F. Exercise Price shall have the meaning assigned to such term in Paragraph A.1.

G. Grant Date shall have the meaning assigned to such term in Paragraph A.1.

H. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to which Optionee has been informed of the basic terms of the Option.

I. 1933 Act shall mean the Securities Act of 1933, as amended.

J. Option shall have the meaning assigned to such term in Paragraph A.1.

K. Option Agreement shall mean the Stock Option Agreement issued in connection with the Grant Notice.

L. Optionee shall mean the person to whom the Option is granted under the Plan.

M. Permitted Transfer shall mean any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Purchased Shares to a Permitted Transferee (as defined in the Stockholders Agreement).

N. Plan shall mean the Corporation’s 2001 Equity Compensation Plan, as amended from time to time.

O. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

P. Purchased Shares shall have the meaning assigned to such term in Paragraph A.1

Q. SEC shall mean the Securities and Exchange Commission.

R. Service shall mean the Optionee’s performance of services for the Corporation (or any Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant.

S. Subsidiary shall mean any entity (other than the Corporation) in an unbroken chain of entities beginning with the Corporation, provided each entity (other than the last entity) in the unbroken chain owns, at the time of the determination, fifty percent (50%) or more of the total combined voting power in one of the other entities in such chain.

T. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service.

EX-10.12

Exhibit 10.12

FENDER MUSICAL INSTRUMENTS CORPORATION

NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Class B Common Stock of Fender Musical Instruments Corporation (the “Corporation”):

Optionee:                                                                                                           

Grant Date:

Exercise Price:               $             per share.

Number of Option Shares:                                  shares of Class B Common Stock

Expiration Date:             Twenty (20) years from Grant Date, unless terminated sooner in accordance with Exhibit A.

Type of Option:             Non-Statutory Stock Option

Vesting Schedule: The Option Shares shall initially be unvested and shall vest as follows: twenty-five percent (25%) of the Option Shares shall vest upon Optionee’s completion of each year of Service measured from the Vesting Commencement Date until the Option Shares have vested in full. In no event shall any additional Option Shares vest after Optionee’s cessation of Service, except that if the Optionee’s cessation of Service is due to death or disability, as determined by the Corporation, all Options shall be fully exercisable.

Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the Corporation’s 2001 Equity Compensation Plan (as amended from time to time, the “Plan”). Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit A (the “Stock Option Agreement”). In addition, Optionee understands that any Option Shares purchased under the Option will be subject to the terms set forth in the Stock Purchase Agreement attached hereto as Exhibit B (the “Stock Purchase Agreement”), as well as the Corporation’s Third Amended and Restated Stockholders Agreement (as amended from time to time, the “Stockholders Agreement”), a copy of which will be provided to Optionee for review a reasonable period of time prior to the exercise of the Option. Finally, Optionee hereby acknowledges receipt of a copy of the Plan in the form attached hereto as

Exhibit C.

REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE STOCK PURCHASE AGREEMENT AND THE STOCKHOLDERS AGREEMENT.

At Will Employment. Nothing in this Notice or in the attached Stock Option Agreement or the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Stock Option Agreement.

DATED:                          ,             

FENDER MUSICAL INSTRUMENTS CORPORATION

By:

Title:

OPTIONEE

Address:

Attachments:

Exhibit A     Stock Option Agreement

Exhibit B     Stock Purchase Agreement

Exhibit C     2001 Equity Compensation Plan

EXHIBIT A

STOCK OPTION AGREEMENT

See attached.

EXHIBIT B

STOCK PURCHASE AGREEMENT

See attached.

EXHIBIT C

2001 EQUITY COMPENSATION PLAN

See attached.

EX-10.13

Exhibit 10.13

FENDER MUSICAL INSTRUMENTS CORPORATION

2007 AMENDED AND RESTATED EQUITY COMPENSATION PLAN

ARTICLE ONE

GENERAL PROVISIONS

I. PURPOSE OF THE PLAN

This 2007 Equity Compensation Plan (the “Plan”) was established effective as of December 20, 2007, by Fender Musical Instruments Corporation, a Delaware corporation (the “Company”) and is hereby amended and restated effective as of August 21, 2008. The Plan is intended to promote the overall financial objectives of the Company by motivating eligible persons in the Company’s employ or service to achieve long-term growth in stockholder equity in the Company by providing them the opportunity to acquire a proprietary interest, or increase their proprietary interest, in the Company.

II. DEFINITIONS

Capitalized terms herein shall have the meanings assigned to such terms in the attached Appendix.

III. STRUCTURE OF THE PLAN

Awards under the Plan may consist of grants of (i) Incentive Options as described in Article Two, (ii) Nonqualified Options as described in Article Two, (iii) Restricted Shares as described in Article Three, Section I, (iv) Performance Shares as described in Article Three, Section II, (v) SARs as described in Article Three, Section III, (vi) Dividend Equivalent Rights as described in Article Three, Section IV, (vii) Restricted Stock Unit Awards as described in Article Three Section V and (viii) Cash Awards as described in Article Three, Section VI (all of the foregoing grants hereinafter collectively referred to as “Grants”). All Grants shall be subject to the terms and conditions set forth herein and to such other terms and conditions consistent with the Plan as the Committee deems appropriate and as are specified in writing by the Committee to the individual in a Stock Option Agreement or other Grant Instrument or any amendment thereto. The Committee shall approve the form and provisions of each Grant Instrument. Grants under a particular Section of the Plan need not be uniform among the grant recipients.

IV. ADMINISTRATION OF THE PLAN

A. The Plan shall be administered by the Committee; provided, that with respect to any proposed Grants hereunder that would include members of the Committee as Participants in such Grants, the powers of the Committee shall be exercised by the Board. The Committee shall be comprised of two or more members appointed by the Board, each of whom shall be a “Non-Employee Director,” as that term is defined in Rule 16b-3(b)(3) of the 1934 Act.

B. The Committee shall have full power and authority (subject to the provisions of the Plan) to establish such rules and regulations as it may deem appropriate for proper

administration of the Plan and to make such determinations under, and issue such interpretations of, the Plan and any outstanding Grants thereunder as it may deem necessary or advisable. Decisions of the Committee shall be final and binding on all parties who have an interest in the Plan or any Grant thereunder. Without limiting the foregoing, the Committee shall have full and final authority in its discretion to:

1. approve any transaction involving a Grant pursuant to the Plan as necessary to exempt such transaction from Section 16(b) of the 1934 Act in accordance with Rule 16b-3 thereof;

2. provide for the acceleration of the right to exercise an Option (or portion thereof) or the acceleration of the vesting of, or lapse of restrictions on, any other Grant (or portion thereof);

3. prescribe additional terms, conditions and restrictions in any Grant Instrument and to provide for the forms of Grant Instrument to be utilized in connection with this Plan;

4. determine whether a Participant has suffered a Disability;

5. determine whether and for what reason a Participant has incurred a Termination of Service;

6. treat all or any portion of any period during which a Participant is on an approved leave of absence as a period of employment for purposes of accrual of his rights under a Grant;

7. determine whether the Company or any other person has a right or obligation to purchase Shares from a Participant and, if so, the terms and conditions on which such Shares are to be purchased;

8. to determine the restrictions or limitations on the Transfer of Shares;

9. determine whether a Grant is to be adjusted, modified or purchased, or is to become fully exercisable, under the Plan or the terms of a Grant Instrument;

10. adopt, amend and rescind such rules and regulations as, in its opinion, may be advisable in the administration of this Plan;

11. appoint and compensate agents, counsel, auditors or other specialists to aid it in the discharge of its duties;

12. correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Grant Instrument, in such manner and to the extent the Committee shall determine in order to carry out the purposes of the Plan; and

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13. construe and interpret this Plan and any Grant Instrument and make all other determinations and take all other actions deemed necessary or advisable for the administration of this Plan.

C. The Committee shall have full authority to determine with respect to all Grants, which eligible persons are to receive such Grants, the time or times when those Grants are to be made, the number of Shares to be covered by each such Grant, the status of any Option as either an Incentive Option or a Nonqualified Option, the time or times when any Option is to become exercisable, the vesting schedule (if any) applicable to any Shares, the maximum term for which any Option is to remain outstanding, and the consideration, if any, to be paid by a Participant for such Shares.

V. ELIGIBILITY

The persons eligible to be Participants in the Plan are as follows:

1. Employees,

2. non-employee members of the Board or the non-employee members of the board of directors of any Subsidiary, and

3. consultants and other independent advisors who provide services to the Company (or any Subsidiary) and such services are not in connection with the offer or sale of securities in a capital-raising transaction.

VI. STOCK SUBJECT TO THE PLAN

A. The Shares issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock. Subject to adjustments as provided in paragraphs B and C below, the maximum number of Shares which may be issued over the term of the Plan shall not exceed 54,836 Shares, less the sum of (i) the number of Shares which shall have been issued under the 1997 Plan and the 2001 Plan, and (ii) the number of options on Shares which may be outstanding from time to time, pursuant to the 1997 Plan and the 2001 Plan. To the extent an option under the the 1997 Plan or the 2001 Plan shall terminate before exercise, the Shares subject to each such option shall be available for grant under this Plan.

B. If any Grant is forfeited or otherwise terminates or is canceled without the delivery of Shares, Shares are surrendered or withheld from any Grant to satisfy a Participant’s income tax withholding obligations, or Shares owned by a Participant are tendered to pay the exercise price of Options granted under the Plan, then the shares covered by such forfeited, terminated or canceled Grant or which are equal to the number of shares surrendered, withheld or tendered shall again become available for issuance pursuant to Grants granted or to be granted under this Plan. Any Shares issued by the Company, any Shares with respect to which Grants are made by the Company and any Shares with respect to which the Company becomes obligated to make Grants, through the assumption of, or in substitution for, outstanding awards previously granted by an acquired entity, shall not be counted against the shares available for Grants under this Plan.

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C. Effect of Certain Changes.

1. Anti-Dilution. If there is any change in the outstanding shares of Common Stock by reason of the declaration of stock dividends, or recapitalization resulting in stock splits, or combinations or exchanges of such shares, or recapitalizations, mergers, consolidations, reorganizations, rights offerings, exchanges or similar events, the number of Shares subject to the Plan, the number of such Shares which are Restricted Shares, Performance Shares, or Shares covered by outstanding Options, SARs, Restricted Stock Unit Awards, and Dividend Equivalent Rights, and the Exercise Price for an Option shall be proportionately adjusted by the Committee to reflect such changes. Appropriate adjustments may also be made by the Committee in terms of any Grant on an equitable basis to preclude, to the extent practicable, the enlargement or dilution of rights and benefits under such Grants; provided, however, that any fractional Shares resulting from such adjustment shall be eliminated.

2. Change in Control.

(i) Upon the occurrence of a Change in Control specified in paragraph 1, 2 or 3 of the definition of Change in Control and immediately prior to the occurrence of a Change in Control specified in paragraph 4 of the definition of Change in Control, unless the applicable Grant Instrument expressly provides otherwise, Grants shall Fully Vest.

(ii) The following shall occur if Awards “Fully Vest”: (i) any Options, SARs and Dividend Equivalent Rights granted under the Plan shall become fully vested and immediately exercisable, (ii) any Restricted Shares, Stock Unit Awards and other stock-based Grants granted under the Plan will become fully vested, any restrictions applicable to such Grants shall lapse and such Grants denominated in stock will be immediately paid out, and (iii) any performance goals applicable to Performance Shares will be deemed to be fully satisfied.

(iii) Upon the occurrence of any Change in Control or upon the occurrence of an Excluded Transaction where Grants are not assumed (or substituted) by the Surviving Company or its parent corporation, if any, the Committee may, in its sole discretion, determine that any or all outstanding Grants granted under the Plan, whether or not exercisable, will be canceled and terminated and that in connection with such cancellation and termination the holder of such Grant may receive for each Share subject to such Grants a cash payment (or the delivery of shares of stock, other securities or a combination of cash, stock and securities equivalent to such cash payment) equal to the difference, if any, between the consideration received by shareholders of the Company in respect of a Share in connection with such transaction and the purchase price per share, if any, under the Grant multiplied by the number of Shares subject to such Grant; provided that if such product is zero or less or to the extent that the Grant is not then exercisable, the Grants will be canceled and terminated without payment therefor or provide that the period to exercise Options or SARs granted under the Plan shall be extended (but not beyond the expiration of such Option or SAR).

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(iv) The Committee shall determine in its sole discretion whether a Grant shall be considered “assumed” or “substituted”. Without limiting the foregoing, for the purposes of this paragraph C.2, an Option or SAR shall be considered “assumed” or “substituted” if in the reasonable determination of the Committee (i) the aggregate intrinsic value (the difference between the then fair market value as reasonably determined by the Committee and the exercise price per Share multiplied by the number of Shares subject to such award) of the assumed (or substituted) Grant immediately after the Change in Control is substantially the same as the aggregate intrinsic value of such Grant immediately before such transaction, (ii) the ratio of the exercise price per assumed (or substituted) Grant to the fair market value per share of successor corporation stock immediately after the Change in Control is substantially the same as such ratio for such Grant immediately before such transaction and (iii) the Grant is exercisable for the consideration approved by the Committee (including shares of stock, other securities or property or a combination of cash, stock, securities and other property). The provisions of this paragraph shall be construed consistently with the terms or conditions of any regulation or ruling respecting the status of Incentive Options and the receipt of cash or other consideration coincident with the cancellation of Incentive Options.

3. Change in the Common Stock. In the event of a change in the Common Stock of the Company as presently constituted, the shares resulting from any such change shall be deemed to be the Shares within the meaning of the Plan.

4. Committee Discretion. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive.

5. Limit of Rights. Except as expressly provided in this Section, the Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation, and any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to the Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structures or to merge or to consolidate or to dissolve, liquidate, sell or transfer all or part of its business or assets.

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ARTICLE TWO

OPTIONS

I. OPTION TERMS

Each Option shall be evidenced by one or more Grant Instruments in the form approved by the Committee; provided, however, that each such Grant Instrument shall comply with the terms specified below.

A. Eligibility. Incentive Options may only be granted to Employees. Nonqualified Options may be granted to any Participant.

B. Exercise Price.

1. The purchase price (the “Exercise Price”) of Shares subject to an Option shall be determined by the Committee and may be equal to, or greater than, the Fair Market Value of a Share on the date the Option is granted; provided, however, that (x) the Exercise Price of an Incentive Option shall be equal to, or greater than, the Fair Market Value of a Share on the date the Incentive Option is granted and (y) an Incentive Option may not be granted to an Employee who, on the date of Grant, is a 10% Stockholder, unless the Exercise Price per Share is not less than 110% of the Fair Market Value of a Share on the date of Grant. Subject to Article One, Section VI.C.1, the Committee shall not reduce the Exercise Price of an outstanding Option.

2. The Exercise Price shall become immediately due upon exercise of the Option and shall, subject to the provisions of Section I of Article Four and the Grant Instrument, be payable in cash or check made payable to the Company or such additional method as may be permitted in the Grant Instrument. Should the Common Stock be registered under Section 12 of the 1934 Act at the time the Option is exercised, then the Exercise Price may also be paid as follows:

(i) in Shares of Common Stock held for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date; or

(ii) through a special sale and remittance procedure pursuant to which the Participant shall concurrently provide irrevocable instructions (A) to a Company-designated brokerage firm to effect the immediate sale of the purchased Shares in the open market and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise Price payable for the purchased Shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise and (B) to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale; provided, that the number of purchased Shares which the Participant directs the brokerage firm to sell, shall in no event exceed the number of Shares necessary to cover the Exercise Price plus required tax withholding. Except to the extent such sale and remittance procedure is utilized, payment of the Exercise Price for the

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purchased Shares must be made on the Exercise Date. Notwithstanding anything herein to the contrary, the provisions of the forgoing clause (ii) shall not be used to pay the exercise price of an Option that is being exercised to purchase unvested Shares.

C. Dollar Limitation. The aggregate Fair Market Value of the Shares (determined as of the respective Grant dates) for which one or more Incentive Options granted to any Employee under the Plan (or any other option plan of the Company or any Subsidiary) may for the first time become exercisable as Incentive Options during any one (1) calendar year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To the extent the Employee holds two (2) or more such Incentive Options which become exercisable for the first time in the same calendar year, the foregoing limitation on the exercisability of such Options as Incentive Options shall be applied on the basis of the order in which such Options are granted.

D. Exercise and Term of Options. Each Option shall be exercisable at such time or times, during such period and for such number of Shares as shall be determined by the Committee and set forth in the Grant Instrument. However, (i) no Option shall have a term in excess of ten (10) years measured from the Option Grant date, and (ii) if any Employee to whom an Incentive Option is granted is a 10% Stockholder, then the Option term shall not exceed five (5) years measured from the Option Grant date.

E. Effect of Termination of Service.

1. The following provisions shall govern the exercise of any Options held by the Participant at the time of cessation of Service or death:

(i) Should the Participant cease to remain in Service for any reason other than death, Disability or Misconduct, then the Participant shall have a period of three (3) months following the date of such cessation of Service during which to exercise each outstanding Option held by such Participant.

(ii) Should Participant’s Service terminate by reason of Disability, then the Participant shall have a period of twelve (12) months following the date of such cessation of Service during which to exercise each outstanding Option held by such Participant.

(iii) If the Participant dies while holding an outstanding Option, then the personal representative of his or her estate or the person or persons to whom the Option is transferred pursuant to the Participant’s will or the laws of inheritance shall have a twelve (12)-month period following the date of the Participant’s death to exercise such Option.

(iv) Under no circumstances, however, shall any such Option be exercisable after the specified expiration of the Option term.

(v) During the applicable post-Service exercise period described in clauses (i), (ii) and (iii) above, the Option may not be exercised in the aggregate for more than the number of Shares for which the Option is exercisable on the

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date of the Participant’s cessation of Service. Upon the expiration of the applicable exercise period or (if earlier) upon the expiration of the Option term, the Option shall terminate and cease to be outstanding for any Shares for which the Option has not been exercised. However, the Option shall, immediately upon the Participant’s cessation of Service, terminate and cease to be outstanding with respect to any and all Shares for which the Option is not otherwise at the time exercisable or in which the Participant is not otherwise at that time vested.

(vi) Should the Participant’s Service be terminated for Misconduct or should Participant otherwise engage in Misconduct while holding one or more Options under the Plan, then all those Options shall terminate immediately and cease to remain outstanding.

2. The Committee shall have the discretion, exercisable either at the time an Option is granted or at any time while the Option remains outstanding, to:

(i) extend the period of time for which the Option is to remain exercisable following Participant’s cessation of Service or death from the limited period otherwise in effect for that Option to such greater period of time as the Committee shall deem appropriate, but in no event beyond the expiration of the Option term, and/or

(ii) permit the Option to be exercised, during the applicable post-Service exercise period, not only with respect to the number of vested Shares for which such Option is exercisable at the time of the Participant’s cessation of Service but also with respect to one or more additional installments in which the Participant would have vested under the Option had the Participant continued in Service.

F. Stockholder Rights. The holder of an Option shall have no stockholder rights with respect to the Shares subject to the Option until such person shall have exercised the Option, paid the Exercise Price and become the record holder of the purchased Shares.

G. Unvested Shares. The Committee shall have the discretion to grant Options which are exercisable for unvested Shares. Should the Participant cease Service while holding such unvested Shares, the Company shall have the right to repurchase, at the Exercise Price paid per Share, any or all of those unvested Shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased Shares) shall be established by the Committee and set forth in the Grant Instrument.

H. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Company (or its assigns) shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any shares of Common Stock issued under the Plan. Such right of first refusal shall be exercisable in accordance with the terms established by the Committee and set forth in the document evidencing such right.

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ARTICLE THREE

OTHER EQUITY INCENTIVE GRANTS

I. RESTRICTED SHARES

The Committee may issue or transfer Shares to a Participant under a Grant of Restricted Shares, upon such terms as the Committee deems appropriate. Each such issuance shall be evidenced by a Stock Issuance Agreement which complies with the terms specified below. The following provisions are applicable to Restricted Shares:

A. General Requirements. Shares issued or transferred pursuant to Restricted Share Grants may be issued or transferred for consideration or for no consideration, as determined by the Committee. The Committee may establish conditions under which restrictions on Restricted Shares shall lapse over a period of time or according to such other criteria as the Committee deems appropriate. The period of time during which the Restricted Shares will remain subject to restrictions will be designated in the Grant Instrument as the “Restriction Period.”

B. Number of Shares. The Committee shall determine the number of Restricted Shares to be issued or transferred and the restrictions applicable to such Grant.

C. Requirement of Employment. If the Participant has a Termination of Service during a period designated in the Grant Instrument as the Restriction Period, or if other specified conditions are not met, the Restricted Share Grant shall terminate as to all Shares covered by the Grant as to which the restrictions have not lapsed, and those Shares must be immediately returned to the Company, and the Company shall refund to the Participant the lesser of (x) the consideration, if any, paid by the Participant for such Shares and (y) the Fair Market Value of the Shares as of the date of such Termination of Service. The Committee may, however, provide for complete or partial exceptions to these requirements as it deems appropriate.

D. Restrictions on Transfer and Legend on Certificate. During the Restriction Period, a Participant may not sell, assign, transfer, pledge or otherwise dispose of (“Transfer”) the Restricted Shares except as permitted under the terms of a Grant Instrument. Each certificate for Restricted Shares shall contain a legend giving appropriate notice of the restrictions in the Grant. The Participant shall be entitled to have the legend removed from the certificate covering the Restricted Shares subject to restrictions when all restrictions on such Shares have lapsed. The Committee may determine that the Company will not issue certificates for Restricted Shares until all restrictions on such Shares have lapsed, or that the Company will retain possession of certificates for Restricted Shares until all restrictions on such Shares have lapsed.

E. Right to Vote and to Receive Dividends. Unless the Committee determines otherwise, during the Restriction Period, the Participant shall have the right to vote Restricted Shares and to receive any dividends or other distributions paid on such Shares, subject to any restrictions deemed appropriate by the Committee.

F. Lapse of Restrictions. All restrictions imposed on Restricted Shares shall lapse upon the expiration of the applicable Restriction Period and the satisfaction of all conditions imposed by the Committee. The Committee may determine, as to any or all Grants of Restricted Shares, that the restrictions shall lapse without regard to any Restriction Period.

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G. Payment of Purchase Price. Any purchase price determined by the Committee to be payable for Restricted Shares may be paid in the form of any of the following items of consideration which the Committee may deem appropriate in each individual instance:

1. cash or check made payable to the Company, or

2. past services rendered to the Company (or any Subsidiary).

H. First Refusal Rights. Until such time as the Common Stock is first registered under Section 12 of the 1934 Act, the Company (or its assigns) shall have the right of first refusal with respect to any proposed disposition by the Participant (or any successor in interest) of any Restricted Shares. Such right of first refusal shall be exercisable in accordance with the terms established by the Committee and set forth in the Grant instrument.

II. PERFORMANCE SHARES

A. General Requirements. The Committee may grant Performance Shares to a Participant. The value of a Performance Share shall be based on the Fair Market Value of a Share as of the date upon which payment in respect of such Performance Share is to be made or on such other measurement base as the Committee deems appropriate. The Committee shall determine the number of Performance Shares to be granted and the requirements applicable to such Shares.

B. Performance Period and Performance Goals. When Performance Shares are granted, the Committee shall establish the performance period during which performance shall be measured (the “Performance Period”), performance goals applicable to the Shares (“Performance Goals”), if any, and such other conditions of the Grant as the Committee deems appropriate. Performance Goals may relate to the financial performance of the Company or its operations; the performance of Shares, individual performance, or such other criteria as the Committee deems appropriate.

C. Payment with Respect to Performance Shares. At the end of each Performance Period, the Committee shall determine to what extent the Performance Goals and other conditions of the Performance Shares have been met and the amount, if any, to be paid with respect to the Performance Shares. Payments with respect to Performance Shares shall be made in cash, in Shares, or in a combination of the two, as determined by the Committee. Any fractional Performance Share shall be paid in cash. Payments on Performance Shares shall be made no later than the 15^th day of the third month following the last day of the calendar year in which the Participant first has a vested right to the Performance Shares. Unless otherwise determined by the Committee, any Performance Shares with respect to which the Committee determines that the applicable Performance Goals or other conditions have not been met within the Performance Period shall be forfeited.

D. Requirement of Employment. If the Participant has a Termination of Service during a Performance Period, or if other conditions established by the Committee are not met, the Participant’s Performance Shares shall be forfeited. The Committee may, however, provide for complete or partial exceptions to this requirement as it deems appropriate.

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E. Restrictions on Transfer. Rights to payments with respect to Performance Shares granted under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, garnishment, levy, execution, or other legal or equitable process, either voluntary or involuntary; and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, attach or garnish, or levy or execute on any right to benefits payable hereunder, shall be void.

F. Limited Rights. Performance Shares are solely a device for the measurement and determination of the amounts to be paid to a Participant under the Plan. Each Participant’s right in the Performance Shares is limited to the right to receive payment, if any, as may herein be provided. The Performance Shares do not constitute Shares and shall not be treated as (or as giving rise to) property or as a trust fund of any kind; provided, however, that the Company may establish a mere bookkeeping reserve to meet its obligations hereunder or a trust or other funding vehicle that would not cause the Plan to be deemed to be funded for tax purposes or for purposes of Title I of the Employee Retirement Income Security Act of 1974, as amended. The right of any Participant receiving a grant of Performance Shares to receive payments by virtue of participation in the Plan shall be no greater than the right of any unsecured general creditor of the Company. Nothing contained in the Plan shall be construed to give any Participant any rights with respect to Shares or any ownership interest in the Company. Except as may be provided in accordance with this Article Three, Section IV, no provision of the Plan shall be interpreted to confer upon any Participant any voting, dividend or derivative or other similar rights with respect to any Performance Share.

III. STOCK APPRECIATION RIGHTS

A. General Requirements. The Committee may grant stock appreciation rights (each an “SAR”) to a Participant separately from or in tandem with any Option (for all or a portion of the applicable Option). Tandem SARs may be granted either at the time the Option is granted or at any time thereafter while the Option remains outstanding; provided, however, that, in the case of an Incentive Option, SARs may be granted only at the time of the grant of the Incentive Option. The Committee shall establish the base amount of the SAR at the time the SAR is granted. Unless the Committee determines otherwise, the base amount of each SAR shall be equal to the per Share Exercise Price of the related Option or, if there is no related Option, the Fair Market Value of a Share as of the date of grant of the SAR.

B. Tandem SARs. In the case of tandem SARs, the number of SARs granted to a Participant that shall be exercisable during a specified period shall not exceed the number of Shares that the Participant may purchase upon the exercise of the related Option during such period. Upon the exercise of an Option, the SARs relating to the Shares covered by such Option shall terminate. Upon the exercise of SARs, the related Option shall terminate to the extent of an equal number of Shares.

C. Exercisability. An SAR shall be exercisable during the period specified by the Committee in the Grant Instrument and shall be subject to such vesting and other restrictions as may be specified in the Grant Instrument. The Committee may accelerate the exercisability of any or all outstanding SARs at any time for any reason. SARs may only be exercised while the Participant is employed by or performing services for the Company or during the applicable

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period after Termination of Service as described in Article Two, Section I.E. A tandem SAR shall be exercisable only during the period when the Option to which it is related is also exercisable. No SAR may be exercised for cash by an executive officer or director of the Company or any of its subsidiaries who is subject to Section 16 of the 1934 Act, except in accordance with Rule 16b-3 under the 1934 Act.

D. Value of SARs. When a Participant exercises an SAR, the Participant shall receive in settlement of such SAR an amount, payable in cash, Shares or a combination thereof equal to the amount by which the Fair Market Value of a Share on the date of exercise of the SAR exceeds the base amount of the SAR as described in Paragraph A above.

E. Form of Payment. The Committee shall determine whether the appreciation in an SAR shall be paid in the form of cash, Shares, or a combination of the two, in such proportion as the Committee deems appropriate. For purposes of calculating the number of Shares to be received, Shares shall be valued at their Fair Market Value on the date of exercise of the SAR. If Shares are to be received upon exercise of a SAR, cash shall be delivered in lieu of any fractional Share.

IV. DIVIDEND EQUIVALENT RIGHTS

A. General Requirements. The Committee may grant Dividend Equivalent Rights to Participants. The timing of payment, if any, of each such Grant shall be in compliance with the requirements of Section 409A of the Code and shall be set forth in the applicable Grant Instrument.

B. Certain Terms. Unless otherwise determined by the Committee, a Dividend Equivalent Right is payable only while the Participant is an employee of or providing services to the Company. Payment of the amount determined in accordance with Paragraph A of this Section IV shall be in cash, in Shares or a combination of the two, as determined by the Committee in accordance with the Grant Instrument. The Committee may impose such other terms and conditions on the Grant of a Dividend Equivalent Right as it deems appropriate in its discretion as reflected by the terms of the Grant Instrument.

C. Dividend Equivalent Right with Other Grants. The Committee may establish a program under which Dividend Equivalent Rights may be granted in conjunction with other Grants. For example, and without limitation, the Committee may grant a Dividend Equivalent Right in respect of each Share subject to a Restricted Stock Unit Award or with respect to a Performance Share or any other type of Grant, which right would consist of the right to receive a cash payment in an amount equal to the dividend distributions paid on a Share from time to time. The timing of payment, if any, of each such Dividend Equivalent Right shall be in compliance with the requirements of Section 409A of the Code and shall be set forth in the applicable Grant Instrument.

V. RESTRICTED STOCK UNIT AWARDS

A. Grant of Restricted Stock Unit Awards. A Restricted Stock Unit Award may be granted to any Participant selected by the Committee. The value of each stock unit under a Restricted Stock Unit Award is equal to the Fair Market Value of the Common Stock on the

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applicable date or time period of determination, as specified by the Committee. A Restricted Stock Unit Award shall be subject to such restrictions and conditions as the Committee shall determine. A Restricted Stock Unit Award may be granted together with a Dividend Equivalent Right with respect to the Shares subject to the Award, which may be accumulated and may be deemed reinvested in additional stock units, provided such deferral and reinvestment is set forth in advance in the Grant Instrument and is in compliance with Section 409A of the Code.

B. Vesting of Restricted Stock Unit Awards. The Committee shall in its discretion determine any vesting requirements with respect to a Restricted Stock Unit Award, which shall be set forth in the Grant Instrument, provided that the Committee may accelerate the vesting of a Restricted Stock Unit Award at any time. The requirements for vesting of a Restricted Stock Unit Award may be based on the continued Service of the Participant with the Company or an Affiliate for a specified time period (or periods), on the attainment of a specified performance goal (or goals) or on such other terms and conditions as approved by the Committee in its discretion. A Restricted Stock Unit Award may also be granted on a fully vested basis, with a deferred payment date as set forth in the Grant Instrument.

C. Payment of Restricted Stock Unit Awards. A Restricted Stock Unit Award shall become payable to a Participant at the time or times determined by the Committee and set forth in the Grant Instrument, which may be upon or following the vesting of the Award. Payments of Restricted Stock Unit Awards shall be made in such a way as to be either exempt from, or compliant with, the requirements of Section 409A of the Code. Payment of a Restricted Stock Unit Award may be made, at the discretion of the Committee, in cash or in shares of Common Stock, or in a combination thereof, subject to applicable tax withholding requirements. Any cash payment of a Restricted Stock Unit Award shall be made based upon the Fair Market Value of the Common Stock, determined on such date or over such time period as determined by the Committee in accordance with the timing of payments as set forth in the Grant Instrument.

D. No Rights as Shareholder. The Participant shall not have any rights as a shareholder with respect to the shares subject to a Restricted Stock Unit Award until such time as Shares are delivered to the Participant pursuant to the terms of the Grant Instrument.

VI. CASH AWARDS

The Committee may grant Cash Awards to Participants. The cash payment due upon settlement of a Cash Award shall be based on the attainment of performance goals and shall be subject to such other vesting conditions, restrictions and contingencies as the Committee shall determine and as reflected by the terms of the Grant Instrument.

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ARTICLE FOUR

MISCELLANEOUS

I. FINANCING

Except as otherwise prohibited by applicable securities laws, the Committee may permit any Participant to pay the Exercise Price for the Option or the purchase price for Shares issued by delivering a full-recourse, interest bearing promissory note to the Company payable in one or more installments and secured by the purchased Shares in accordance with the terms of any such note.

II. EFFECTIVE DATE AND TERM OF PLAN

A. The Plan became effective as of December 20, 2007 (the “Effective Date”) and was approved by the Company’s shareholders on May 22, 2008. The Committee may grant Options and issue Shares under the Plan at any time after the Effective Date of the Plan and before the date fixed herein for termination of the Plan.

B. The Plan shall terminate upon the earliest of (i) the expiration of the ten (10)-year period following the Effective Date, (ii) the date on which all shares available for issuance under the Plan shall have been issued as vested Shares or (iii) the termination of all outstanding Grants in connection with any event described in Article One, Section VI.C.2. All Grants outstanding at the time of a clause (i) termination event pursuant to this Article Four, Section II.B. shall continue to have full force and effect in accordance with the provisions of the Grant Instruments evidencing those Grants.

III. AMENDMENT OF THE PLAN

The Board shall have complete and exclusive power and authority to amend or modify the Plan in any or all respects. However, no such amendment or modification shall adversely affect the rights and obligations with respect to Grants at the time outstanding under the Plan unless the Participant consents to such amendment or modification. In addition, certain amendments may require stockholder approval pursuant to applicable laws and regulations.

IV. USE OF PROCEEDS

Any cash proceeds received by the Company from the sale of Shares under the Plan shall be used for general corporate purposes.

V. WITHHOLDING

A. Required Withholding. The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding (including all federal, state and local income and payroll taxes) determined by the Committee to be required by law. The Company and the Participants shall mutually determine how to effect such tax withholding.

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B. Election to Withhold Shares. If the Committee so permits, a Participant may make a written election to satisfy the Company’s income tax withholding obligation with respect to an Option, SAR, Restricted Shares, Performance Shares, Restricted Stock Unit Awards, or Dividend Equivalent Rights paid in Shares by having Shares withheld by the Company from the Shares otherwise to be received by Participant, or by delivering to the Company previously owned Shares (not subject to restrictions hereunder); provided, however, that the Participant may not make a written election to satisfy the Company’s payroll withholding obligation if the special timing rule of Treasury Regulation Section 31.3121(v)(2) applies upon vesting of any applicable Grant. In the event that the Committee permits and the Participant makes such an election, the number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the applicable withholding taxes. Where the exercise of an Incentive Option does not give rise to an obligation by the Company to withhold federal, state or local income or other taxes on the date of exercise, but may give rise to such an obligation in the future, the Committee may, in its discretion, make such arrangements and impose such restrictions as it deems necessary or appropriate. The election must be in a form and manner prescribed by the Committee and shall be subject to the prior approval of the Committee.

VI. REGULATORY APPROVALS

The implementation of the Plan, the granting of any Grants under the Plan and the issuance of any Shares (i) upon the exercise of any Option or SAR or (ii) under any other Grant shall be subject to the Company’s procurement of all approvals and permits required by regulatory authorities having jurisdiction over the Plan, the Options granted under it and the Shares issued pursuant to it.

VII. NO EMPLOYMENT OR SERVICE RIGHTS

Nothing in the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary employing or retaining such person) or of the Participant, which rights are hereby expressly reserved by each, to terminate such person’s Service at any time for any reason, with or without cause.

VIII. MARITAL DISSOLUTION OR SEPARATION

Unvested Options and other Grants under the Plan are intended as incentives to secure the Participant’s future services to the Company and accordingly, to the maximum extent permissible under applicable law, shall not be treated as marital property to be divided between the spouses in connection with marital dissolution or legal separation proceedings except to the extent those Grants are at the time vested.

IX. FUNDING OF THE PLAN

The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Grants under the Plan. In no event shall interest be paid or accrued on any Grant, including unpaid installments of Grants.

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X. NATURE OF PAYMENTS

Any and all Grants and issuances of Shares under the Plan shall constitute a special incentive payment to the Participant and shall not be taken into account in computing the amount of salary or compensation of the Participant for the purpose of determining any benefits under any pension, retirement, profit-sharing, bonus, life insurance or other benefit plan of the Company or under any agreement with the Participant, unless such plan or agreement specifically provides otherwise.

XI. NON-UNIFORM DETERMINATIONS

The Committee’s determinations under the Plan need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Grants (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Grant Instruments, as to the persons to receive Grants under the Plan, and the terms and provisions of Grants under the Plan.

XII. OTHER PAYMENTS OR AWARDS

Nothing contained in the Plan shall be deemed in any way to limit or restrict the Company from making any Grant or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.

XIII. SECTION HEADINGS

The section headings contained herein are for the purpose of convenience only and are not intended to define or limit the contents of the sections.

XIV. TERMINATION OF PLAN

Unless sooner terminated by the Board, the Plan, including the provisions respecting the grant of Incentive Options shall terminate the day before the tenth anniversary of the adoption of the Plan by the Board. All Grants made under the Plan prior to its termination shall remain in effect until such Grants have been satisfied or terminated in accordance with the terms and provisions of the Plan and the applicable Grant Instruments.

XV. GOVERNING LAW

All rights and obligations under the Plan shall be construed and interpreted in accordance with the laws of the State of Arizona, without giving effect to principles of conflict of laws.

XVI. SEVERABILITY; ENTIRE AGREEMENT

If any of the provisions of this Plan or any Grant Instrument is finally held to be invalid, illegal or unenforceable (whether in whole or in part), such provision shall be deemed modified to the extent, but only to the extent, of such invalidity, illegality or unenforceability and the remaining provisions shall not be affected thereby; provided, that if any of such provisions is finally held to be invalid, illegal, or unenforceable because it exceeds the maximum scope

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determined to be acceptable to permit such provision to be enforceable, such provision shall be deemed to be modified to the minimum extent necessary to modify such scope in order to make such provision enforceable hereunder. The Plan and any Grant Instruments contain the entire agreement of the parties with respect to the subject matter thereof and supersede all prior agreements, promises, covenants, arrangements, communications, representations and warranties between them, whether written or oral with respect to the subject matter thereof.

XVII. NO THIRD PARTY BENEFICIARIES

Except as expressly provided therein, neither the Plan nor any Grant Instrument shall confer on any person other than the Company and the grantee of any Grant any rights or remedies thereunder.

XVIII. SUCCESSORS AND ASSIGNS

The terms of this Plan shall be binding upon and inure to the benefit of the Company and its successors and assigns.

XIX. SECTION 409A COMPLIANCE

Notwithstanding anything to the contrary in this Plan or elsewhere, if a Participant is a “specified employee” as determined pursuant to Section 409A of the Code as of the date of the Participant’s Termination of Service and if any Grant provided for in this Plan or otherwise both (x) constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and (y) cannot be paid or provided in the manner otherwise provided without subjecting the Participant to “additional tax”, interest or penalties under Section 409A of the Code, then any such payment or benefit that is payable during the first six months following the Participant’s Termination of Service shall be paid or provided to the Participant on the first business day of the seventh calendar month following the month in which the Participant’s Termination of Service occurs.

ARTICLE FIVE

ISSUANCE OR TRANSFER OF SHARES

I. REQUIREMENTS FOR ISSUANCE OR TRANSFER OF SHARES

A. Stock Purchase Agreement. The Committee may require that a Participant execute a Stock Purchase Agreement; with such terms as the Committee deems appropriate, with respect to any Shares distributed pursuant to the Plan.

B. Limitations on Issuance or Transfer of Shares. No Shares shall be issued or transferred in connection with any Grant hereunder unless and until all legal requirements (including, but not limited to the effectiveness of a registration statement or the applicability of an exemption from registration) applicable to the issuance or transfer of such Shares have been complied with to the satisfaction of the Committee. The Committee shall have the right to condition any Grant made to any Participant hereunder on such Participant’s undertaking in writing to become subject to any agreement by which the stockholders of the Company are generally bound and to comply with such restrictions on his or her subsequent disposition of such Shares as the Committee shall deem necessary or advisable as a result of any applicable

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law, regulation or official interpretation thereof, and certificates representing such Shares may be legended to reflect any such restrictions. Certificates representing Shares issued or transferred under the Plan will be subject to such stop-transfer orders, registration and other restrictions as may be required by applicable laws, regulations and interpretations, including any requirement that a legend be placed thereon.

II. TRANSFERABILITY OF GRANTS

A. Only the Participant may exercise rights under a Grant during the Participant’s lifetime. A Participant may not assign or transfer those rights or any Option other than by will, or by the laws of descent and distribution, to a revocable trust, or, if applicable, as permitted by Rule 701 of the 1933 Act. When a Participant dies, the personal representative of his or her estate or the person or persons to whom the Grant is transferred pursuant to the Participant’s will or the laws of descent and distribution (“Successor”) may exercise such rights in accordance with the terms of the Plan. A Successor must furnish proof satisfactory to the Company of his or her right to receive the Grant under the Participant’s will or under the applicable laws of descent and distribution.

III. PURCHASE OF SHARES BY THE COMPANY

A. Right to Purchase. Unless otherwise determined by the Committee at or after Grant, in the event of the Participant’s Termination of Service, the Company shall have the right to repurchase all Shares issued or to be issued to the Participant under the Plan at Fair Market Value as of the date of such Termination of Service but not less than the amount paid by the Participant for such Shares. In the event that the Committee determines in good faith that the Participant has materially breached any non-compete or confidentiality agreement with the Company after Termination of Service, the price at which the Company shall have the right to repurchase such Shares shall be equal to the Exercise Price or purchase price paid by the Participant. Any repurchase shall be made in accordance with accounting rules to avoid adverse accounting treatment.

B. Exercise. The Company’s right to repurchase shall be exercisable at any time within one year after the date of Participant’s Termination of Service by the delivery of written notice to such effect by the Company to the Participant, his executor, administrator or beneficiaries. Within 30 days after receipt of such notice, the Participant, his executor, administrator or beneficiaries shall deliver a certificate or certificates for the Shares being sold, together with appropriate duly signed stock powers transferring such Shares to the Company, and the Company shall deliver to the Participant, his executor, administrator or beneficiaries the Company’s check in the amount of the purchase price for the Shares being sold.

C. Publicly Traded. The provisions of this Section III shall not apply at any time after the Shares are publicly traded on a national securities exchange.

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APPENDIX

The following definitions shall be in effect under the Plan:

1. Board means the Company’s Board of Directors.

2. Cash Award means the amount of cash as may be awarded pursuant to Article Three, Section VI.

3. Change in Control means any of the following:

(1) During any period of not more than two years, the Incumbent Directors no longer represent a majority of the Board. “Incumbent Directors” are (A) the members of the Board as of August 21, 2008 and (B) any individual who becomes a director thereafter whose appointment or nomination was approved by at least a majority of the Incumbent Directors then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the member was named as nominee). However, the Incumbent Directors will not include anyone who becomes a member of the Board thereafter as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board, including as a result of any appointment, nomination or other agreement intended to avoid or settle a contest or solicitation.

(2) There is a beneficial owner of securities entitled to 30% or more of the total voting power of the Company’s then-outstanding securities in respect of the election of the Board (“Voting Securities”), other than by (A) the Company, any subsidiary of it or any employee benefit plan or related trust sponsored or maintained by the Company or any subsidiary of it; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of Voting Securities as a result of an Excluded Transaction (as defined in Section 3 below without regard to Section 3(B)).

(3) Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”) other than an Excluded Transaction. An “Excluded Transaction” is a Reorganization or Sale pursuant to which immediately following such Reorganization or Sale:

(A) 50% or more of the total voting power of the Surviving Company’s then-outstanding securities in respect of the election of directors (or similar officials in the case of a non-corporation) is represented by Voting Securities outstanding immediately before the Reorganization or Sale or by securities into which such Voting Securities were converted in the Reorganization or Sale;

(B) there is no beneficial owner of securities entitled to 30% or more of the total voting power of the then-outstanding securities of the Surviving Company in respect of the election of directors (or similar officials in the case of a non-corporation); and

(C) a majority of the board of directors of the Surviving Company (or similar officials in the case of a non-corporation) were Incumbent Directors at the time the Board approved the execution of the initial agreement providing for the Reorganization or Sale. The “Surviving Company” means (a) in a Reorganization, the entity resulting from the Reorganization or (b) in a Sale, the entity that has acquired all or substantially all of the assets of the Company, except that, if there is a beneficial owner of securities entitled to 95% of the total voting power (in respect of the election of directors or similar officials in the case of a non-corporation) of the then-outstanding securities of the entity that would otherwise be the Surviving Company, then that beneficial owner will be the Surviving Company.

(4) The Company’s stockholders approve a plan of complete liquidation or dissolution of the Company.

For purposes of this definition of “Change in Control”, (i) any sale of only Weston Presidio L.P.’s interests in the Company that is approved by the Board shall not constitute a “Change in Control, and (ii) the term “beneficial owner” has the meaning assigned in Rule 13d-3 under the 1934 Act, as that rule is in effect as of the date hereof. After any Excluded Transaction, the Surviving Company will be treated as the Company for all purposes of the definition of Change in Control.

4. Code means the Internal Revenue Code of 1986, as amended.

5. Committee means the Compensation Committee of the Board and shall consist of not less than two directors. However, if a member of the Compensation Committee is a “non-employee director” within the meaning of Rule 16b-3 under the 1934 Act, the Compensation Committee may from time to time delegate some or all of its functions under the Plan to a committee or subcommittee composed of members that meet the relevant requirements. The term “Committee” includes any such committee or subcommittee, to the extent of the Compensation Committee’s delegation.

6. Common Stock means the Company’s common stock referred to in the definition of “Shares” below.

7. Company means Fender Musical Instruments Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets or voting stock of Fender Musical Instruments Corporation which shall by appropriate action adopt the Plan.

8. Disability means the inability of the Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

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9. Dividend Equivalent Rights means the Grant of a right to receive either credits for or payments of amounts based on the dividends declared on Shares, to be credited or paid as of the dividend payment dates, during such term as may be determined by the Committee.

10. Employee means an individual who is in the employ of the Company (or any Subsidiary), subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance.

11. Exercise Date means the date on which the Company shall have received written notice of the Option exercise.

12. Fair Market Value per Share on any relevant date shall be:

(i) the closing sale price per share of Common Stock during normal trading hours on the national securities exchange on which the Common Stock is principally traded for such date or, if there is no closing selling price for such date, for the last preceding date on which there was a sale of such Common Stock on such exchange, or

(ii) if the shares of Common Stock are then traded in an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock during normal trading hours in such over-the-counter market for such date or, if there is no bid and ask price for such date, the last preceding date on which there was a sale of such Common Stock in such market, or

(iii) if the shares of Common Stock are not then listed on a national securities exchange or traded in an over-the-counter market, such value as the Committee, in its sole discretion, shall determine.

13. Grant means an award under the Plan of any Option, SAR, Restricted Share, Performance Share, Dividend Equivalent Right, Restricted Stock Unit Award, or Cash Award.

14. Grant Instrument means any of a Stock Option Agreement, Stock Issuance Agreement, Restricted Stock Unit Agreement, or other appropriate Grant Instrument which satisfies the Plan requirements by containing relevant terms and conditions of a Grant under the Plan.

15. Incentive Option means an Option which satisfies the requirements of Code Section 422.

16. Misconduct means the commission of any act of fraud, embezzlement or dishonesty by the Participant, any unauthorized use or disclosure by such person of confidential information or trade secrets of the Company (or any Subsidiary), or any other intentional misconduct by such person adversely affecting the business or affairs of the Company (or any Subsidiary) in a material manner. The foregoing definition shall not be deemed to be a limitation on the acts or omissions which the Company (or any Subsidiary) may consider as grounds for the dismissal or discharge of any Participant or other person in the Service of the Company (or any Subsidiary).

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17. 1933 Act means the Securities Act of 1933, as amended.

18. 1934 Act means the Securities Exchange Act of 1934, as amended.

19. Nonqualified Option means an Option not intended to satisfy the requirements of Code Section 422.

20. Option(s) means Incentive Option(s) and Nonqualified Option(s).

21. Participant means any person who receives any Grant under the Plan.

22. Performance Share means the Grant of a right to receive an amount based on the value of a Share; or on such other measurement base as the Committee deems appropriate, if performance goals established by the Committee are met.

23. Plan means the Company’s 2007 Amended and Restated Equity Compensation Plan, as set forth in this document, as amended from time to time.

24. Restricted Shares means Shares subject to a Grant under Article Three, Section I of the Plan.

25. Restricted Stock Unit means the right to receive an amount, in cash or in shares of Common Stock, or in a combination thereof, based on the value of a Share, at the time or times determined by the Committee and set forth in the Restricted Stock Unit Agreement.

26. Restricted Stock Unit Award means the Grant of a right to receive an amount, in cash or in shares of Common Stock, or in a combination thereof, based on the value of a Share, at the time or times determined by the Committee and set forth in the Restricted Stock Unit Agreement.

27. Restricted Stock Unit Agreement means the agreement entered into by the Company and Participant at the time of issuance of Restricted Stock Units under the Plan.

28. SARs means stock appreciation rights subject to a Grant under Article Three, Section III of the Plan.

29. Service means the provision of services to the Company (or any Subsidiary) by a person in the capacity of an Employee, a non-employee member of the board of directors or a consultant or independent advisor, except to the extent otherwise specifically provided in the documents evidencing the Option grant.

30. Share means one share of Class B Common Stock of the Company, $.01 par value, and any other stock or security resulting from adjustment thereof as provided herein. All Shares shall be automatically converted into, and all Options shall be automatically exercisable for, shares of Class A Common Stock of the Company, $.01 par value per share, upon the effective date of a registration statement under the 1933 Act pursuant to which shares of Class A Common Stock shall be offered for sale in an underwritten offering. All references herein to Shares mean the Class A Common Stock or the Class B Common Stock, as applicable.

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31. Stock Exchange means either the American Stock Exchange or the New York Stock Exchange.

32. Stock Issuance Agreement means the agreement entered into by the Company and the Participant at the time of issuance of Shares pursuant to a Grant under the Plan.

33. Stock Option Agreement means the agreement entered into by the Company and the Participant at the time of issuance of Options pursuant to the Plan.

34. Subsidiary means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, provided each corporation (other than the last corporation) in the unbroken chain owns, at the time of the determination, stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

35. Termination of Service means the cessation of Service to the Company, whether voluntary or involuntary, including, by means of death, disability, retirement, discharge, resignation or otherwise. To the extent Section 409A of the Code applies to a Grant, such Participant shall be deemed to have experienced a Termination of Service to the extent the Participant has had a “separation from service: within the meaning of Section 409A of the Code and the regulations promulgated thereunder after applying all defaults under such regulations.

36. 10% Stockholder means the owner of stock (as determined under Code Section 424(d)) possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company (or any Subsidiary).

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EX-10.14

Exhibit 10.14

AMENDMENT TO THE

FENDER MUSICAL INSTRUMENTS CORPORATION

2007 AMENDED AND RESTATED EQUITY COMPENSATION PLAN

Fender Musical Instruments Corporation hereby amends the Fender Musical Instruments Corporation 2007 Amended and Restated Equity Compensation Plan (the “Plan”), effective June 8, 2011, as follows:

1. The reference to “54,836” in the second sentence of Article One, Section VI..A. shall be amended to refer to “84,836”.

IN WITNESS WHEREOF, the Board of Directors of Fender Musical Instruments Corporation has caused this amendment to the Plan to be executed this 8^th day of June, 2011.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:	/s/ Larry E. Thomas
Its:	CEO

EX-10.15

Exhibit 10.15

FENDER MUSICAL INSTRUMENTS CORPORATION

2007 AMENDED AND RESTATED EQUITY COMPENSATION PLAN

STOCK OPTION AGREEMENT

Fender Musical Instruments Corporation (the “Company”) hereby grants the following Option to purchase shares of the Class B Common Stock of the Company, subject to the terms of this Stock Option Agreement and the Company’s 2007 Amended and Restated Equity Compensation Plan (the “Plan”):

1. Participant:

2. Grant Date:

3. Exercise Price: $             per share

4. Number of Option Shares:              shares of Class B Common Stock

5. Expiration Date: Ten (10) years from Grant Date, unless terminated sooner in accordance with the Plan.

6. Type of Option: Nonqualified Option

7. Vesting Schedule: The Option shall initially be unvested and shall vest as follows:              percent (__%) of the Option shall vest upon Participant’s completion of each year of Service measured from the Grant Date set forth above until the Option has vested in full. In no event shall any additional portion of the Option vest after Participant’s cessation of Service, except that if the Participant’s cessation of Service is due to death or Disability, the Option shall vest in full upon the date of such death or Disability.

8. Terms and Conditions of Option and Shares: The Participant understands and agrees that the Option is granted subject to and in accordance with the terms and conditions of the Plan. The Participant further agrees to be bound by the terms of the Plan and this Stock Option Agreement. In addition, the Participant understands that any Shares purchased under the Option will be subject to the terms set forth in a stock purchase agreement, a copy of which will be provided to Participant for review a reasonable period of time prior to the exercise of the Option (the “Stock Purchase Agreement”), as well as the Company’s Third Amended and Restated Stockholders Agreement (as amended from time to time, the “Stockholders Agreement”), a copy of which will be provided to Participant for review a reasonable period of time prior to the exercise of the Option. Finally, Participant hereby acknowledges receipt of a copy of the Plan in the form attached hereto as Exhibit A.

9. Manner of Exercising Option.

(a) In order to exercise this Option with respect to all or any part of the Shares for which this Option is at the time exercisable, Participant (or any other person or persons exercising this Option) must take the following actions:

(i) Execute and deliver to the Company an exercise notice in the form determined by the Company for the number of Shares for which this Option is exercised. Except to the extent the sale and remittance procedure (described below) is utilized in connection with the exercise of this Option, payment of the Exercise Price must accompany the exercise notice delivered to the Company in connection with the exercise of this Option.

(ii) If not previously executed and delivered by the Participant, execute and deliver to the Company a counterpart signature page to the Company’s Third Amended and Restated Stockholders Agreement and/or such other stockholders agreement as may then be in effect or Company may then generally require upon exercise of options, a copy of which will be provided to the Participant for review a reasonable period of time prior to the exercise of this Option.

(iii) Pay the aggregate Exercise Price for the purchased Shares in one or more of the following forms:

A. cash or check made payable to the Company; or

B. Should the Shares be registered under Section 12 of the 1934 Act at the time this Option is exercised, then the Exercise Price may also be paid as follows:

1. in Shares held by Participant (or any other person or persons exercising this Option) for the requisite period necessary to avoid a charge to the Company’s earnings for financial reporting purposes and valued at Fair Market Value on the Exercise Date (in general, if the Participant utilizes this provision to pay the Exercise Price;

2. to the extent this Option is exercised for vested Shares, through a special sale and remittance procedure pursuant to which Participant (or any other person or persons exercising this Option) shall concurrently provide irrevocable instructions (a) to a Company-designated brokerage firm to effect the immediate sale of the purchased Shares in the open market and remit to the Company, out of the sale proceeds available on the settlement date, sufficient funds to cover the aggregate Exercise

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Price payable for the purchased Shares plus all applicable Federal, state and local income and employment taxes required to be withheld by the Company by reason of such exercise and (b) to the Company to deliver the certificates for the purchased Shares directly to such brokerage firm in order to complete the sale; provided, that the number of purchased Shares which the Participant directs the brokerage firm to sell, shall in no event exceed the number of Shares necessary to cover the Exercise Price plus required tax withholding; or

3. such other methods as the Committee may in its sole discretion determine.

(iv) Furnish to the Company appropriate documentation that the person or persons exercising this Option (if other than Participant) have the right to exercise this Option.

(v) Execute and deliver to the Company such written representations as may be requested by the Company in order for it to comply with the applicable requirements of Federal and state securities laws.

(vi) Make appropriate arrangements with the Company (or the Subsidiary employing or retaining Participant) for the satisfaction of all Federal, state and local income and employment tax withholding requirements applicable to the exercise of this Option.

(b) As soon as practical after the Exercise Date, the Company shall issue to or on behalf of Participant (or any other person or persons exercising this Option) a certificate for the purchased Shares, with the appropriate legends affixed thereto.

(c) In no event may this Option be exercised for any fractional shares.

10. REPURCHASE RIGHTS. PARTICIPANT HEREBY AGREES THAT ALL SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE COMPANY AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE STOCK PURCHASE AGREEMENT AND THE STOCKHOLDERS AGREEMENT.

11. At Will Employment. Nothing in this Stock Option Agreement or the Plan shall confer upon the Participant any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Subsidiary employing or retaining the Participant) or of the Participant, which rights are hereby expressly reserved by each, to terminate the Participant’s Service at any time for any reason, with or without cause.

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12. Definitions. All capitalized terms in this Stock Option Agreement shall have the meaning assigned to them in this Stock Option Agreement or in the Plan.

13. Notices. Any notice required to be given or delivered to the Coompany under the terms of this Stock Option Agreement shall be in writing and addressed to the Company at its principal corporate offices. Any notice required to be given or delivered to Participant shall be in writing and addressed to Participant at the address indicated below Participant’s signature line. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.

14. Construction. This Stock Option Agreement and the Option evidenced hereby are made and granted pursuant to the Plan and are in all respects limited by and subject to the terms of the Plan. All decisions of the Committee with respect to any question or issue arising under the Plan or this Stock Option Agreement shall be conclusive and binding on all persons having an interest in this Option.

15. Governing Law. The interpretation, performance and enforcement of this Stock Option Agreement shall be governed by the laws of the State of Arizona without resort to that state’s conflict-of-laws rules.

IN WITNESS WHEREOF, the undersigned parties have entered into this Stock Option Agreement as of August 29, 2008.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:
Title:	William L. Mendello

PARTICIPANT:

Name:

Address:

Attachments:

Exhibit A         2007 Amended and Restated Equity Compensation Plan

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EX-10.16

Exhibit 10.16

FENDER MUSICAL INSTRUMENTS CORPORATION

STOCK PURCHASE AGREEMENT

THIS AGREEMENT made this             day of                 ,             , by and between Fender Musical Instruments Corporation, a Delaware corporation (the “Corporation”), and                      (“Optionee”) under the Corporation’s 2007 Amended and Restated Equity Compensation Plan.

All capitalized terms in this Agreement shall have the meaning assigned to them in this Agreement or in the attached Appendix.

A. EXERCISE OF OPTION

1. Exercise. Optionee hereby purchases              shares of Class B Common Stock (the “Purchased Shares”) pursuant to that certain option (the “Option”) granted Optionee on             ,             (the “Grant Date”) to purchase up to              shares of Class B Common Stock (the “Option Shares”) under the Plan at the exercise price of $             per share (the “Exercise Price”).

2. Payment. Concurrently with the delivery of this Agreement to the Corporation, Optionee shall pay the Exercise Price for the Purchased Shares in accordance with the provisions of the Option Agreement and the Plan and shall deliver whatever additional documents may be required by the Option Agreement or the Plan as a condition for exercise.

3. Stockholder Rights. Once Optionee has exercised all or a portion of the Option, Optionee (or any permitted successor in interest) shall have all the rights of a stockholder (including voting, dividend and liquidation rights) with respect to the Purchased Shares, subject, however, to the provisions of this Agreement and the Stockholders Agreement (as defined herein). Optionee acknowledges that, in addition to the restrictions set forth in this Agreement, the Purchased Shares shall be subject to the provisions of the Corporation’s Third Amended and Restated Stockholders Agreement, as such agreement may be amended from time to time (the “Stockholders Agreement”). Optionee has carefully read and hereby represents and warrants that he, she or it understands the terms and provisions of the Stockholders Agreement.

B. SECURITIES LAW COMPLIANCE

1. Restricted Securities. The Purchased Shares have not been registered under the 1933 Act or the applicable securities laws of any state and are being issued to Optionee in reliance upon one or more exemptions from such registration, including the exemption provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Optionee hereby confirms that Optionee has been informed that the Purchased Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Purchased Shares are first registered under the Federal securities laws and under any applicable state securities laws or unless exemptions from such registration requirements are available. Accordingly, Optionee hereby acknowledges that Optionee is prepared to hold the Purchased Shares for an indefinite period and that Optionee is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to

exempt the resale of the Purchased Shares from the registration requirements of the 1933 Act. Optionee represents and warrants that it is acquiring the Shares, for its own account for investment and not with a view to distribution, assignment, resale or other transfer, and that by reason of his or her business or financial experience, or the business or experience of his or her professional advisors, Optionee has the capacity to protect his or her own interests in connection with acquiring the Shares.

2. Restrictions on Disposition of Purchased Shares. Optionee shall make no disposition of the Purchased Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements:

(i) Optionee shall have provided the Corporation with a written summary of the terms and conditions of the proposed disposition.

(ii) Optionee shall have complied with all requirements of this Agreement and the Stockholders Agreement applicable to the disposition of the Purchased Shares.

(iii) Optionee shall have provided the Corporation with written assurances, in form and substance satisfactory to the Corporation, that (a) the proposed disposition does not require registration of the Purchased Shares under the 1933 Act or under any applicable state securities laws or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act and for compliance with any applicable state securities laws or any exemption from registration available under the 1933 Act (including Rule 144) and under any applicable state securities laws have been taken.

The Corporation shall not be required (i) to transfer on its books any Purchased Shares which have been sold or transferred in violation of the provisions of this Agreement or the Stockholders Agreement or (ii) to treat as the owner of the Purchased Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Purchased Shares have been transferred in contravention of this Agreement or the Stockholders Agreement.

3. Restrictive Legends. The stock certificates for the Purchased Shares shall be endorsed with one or more of the following restrictive legends:

“The shares represented by this certificate have not been registered under the Securities Act of 1933 or any applicable state securities laws. The shares may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act and such state securities laws, (b) a “no action” letter of the Securities and Exchange Commission and from each applicable state securities authority with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act and such state securities laws is not required with respect to such sale or offer.”

“The shares represented by this certificate are subject to certain repurchase rights and rights of first refusal granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of

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except in conformity with the terms of a Stock Purchase Agreement dated by and between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

“In addition, the shares represented by this certificate are subject to certain restrictions set forth in the Corporation’s Third Amended and Restated Stockholders Agreement, as the same may be amended from time to time. A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

C. TRANSFER RESTRICTIONS

1. Restriction on Transfer. Optionee shall not sell, assign, transfer, gift, pledge, encumber, hypothecate, grant a security interest in or make any other voluntary or involuntary disposition of any Purchased Shares in contravention of the terms of this Agreement or the Stockholders Agreement.

2. Transferee Obligations. Each person to whom any Purchased Shares are transferred by means of any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Purchased Shares must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Corporation that such person is bound by the provisions of this Agreement and the Stockholders Agreement.

3. Market Stand-Off. The Optionee hereby acknowledges that the Purchased Shares shall be subject to the market stand-off restrictions set forth in Section 6.17 of the Stockholders Agreement.

D. RIGHT OF FIRST REFUSAL

The Optionee hereby acknowledges that the Purchased Shares shall be subject to the rights of first refusal and rights of co-sale set forth in Section 3 of the Stockholders Agreement. Such rights of first refusal and rights of co-sale shall be exercisable in accordance with the provisions of Section 3 of the Stockholders Agreement.

E. REPURCHASE RIGHT

The Optionee hereby acknowledges that the Purchased Shares shall be subject to the repurchase rights set forth in Section 4 of the Stockholders Agreement The Repurchase Right shall be exercisable in accordance with the provisions of Section 4 of the Stockholders Agreement.

F. VOTING FOR DIRECTORS

The Optionee hereby acknowledges that once Optionee has exercised all or part of the Option, Optionee shall be subject to the voting requirements set forth in Section 5 of the Stockholders Agreement.

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G. GENERAL PROVISIONS

1. At Will Employment. Nothing in this Agreement or in the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

2. Notices. Any notice required to be given under this Agreement shall be in writing and shall be given in accordance with the provisions of Section 16 of the Stockholders Agreement.

3. No Waiver. The failure of the Corporation in any instance to exercise any of its rights under this Agreement or the Stockholders Agreement shall not constitute a waiver of any other rights that may then exist or may subsequently arise under the provisions of this Agreement or any other agreement between the Corporation and Optionee. No waiver of any breach or condition of this Agreement shall be deemed to be a waiver of any other or subsequent breach or condition, whether of like or different nature.

4. Cancellation of Shares. If the Corporation shall make available, at the time and place and in the amount and form provided in this Agreement or the Stockholders Agreement, the consideration for the Purchased Shares to be repurchased in accordance with the provisions of this Agreement or the Stockholders Agreement, then from and after such time, the person from whom such shares are to be repurchased shall no longer have any rights as a holder of such shares (other than the right to receive payment of such consideration in accordance with this Agreement or the Stockholders Agreement). Such shares shall be deemed purchased in accordance with the applicable provisions hereof, and the Corporation shall be deemed the owner and holder of such shares, whether or not the certificates therefor have been delivered as required by this Agreement or the Stockholders Agreement.

5. Optionee Undertaking. Optionee (or any permitted successor in interest) hereby agrees to take whatever additional action and execute whatever additional documents the Corporation may deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on either Optionee (or any permitted successor in interest) or the Purchased Shares pursuant to the provisions of this Agreement.

6. Complete Agreement. This Agreement and the Stockholders Agreement constitute the complete agreement between the parties hereto with regard to the subject matter hereof. This Agreement is made pursuant to the provisions of the Plan and shall in all respects be construed in conformity with the terms of the Plan.

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

8. Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the Corporation and its successors and assigns and upon Optionee, Optionee’s permitted assigns and the legal representatives, heirs and legatees of Optionee’s estate, whether or not any such person shall have become a party to this Agreement and have agreed in writing to join herein and be bound by the terms hereof.

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

FENDER MUSICAL INSTRUMENTS CORPORATION

By:

Title:

Address: 

OPTIONEE

Address: 

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APPENDIX

The following definitions shall be in effect under this Agreement:

A. Agreement shall mean this Stock Purchase Agreement.

B. Board shall mean the corporation’s board of directors.

C. Common Stock shall mean the corporation’s common stock.

D. Corporate Level Change in Control shall mean any of the following transactions involving a change in control or ownership of the corporation:

(i) a stockholder-approved merger or consolidation in which securities possessing more than fifty percent (50%) of the total combined voting power of the Corporation’s outstanding securities are transferred to a person or persons different from the persons holding those securities immediately prior to such transaction, or

(ii) a stockholder-approved sale, transfer or other disposition of all or substantially all of the Corporation’s assets in complete liquidation or dissolution of the Corporation; or

(iii) the acquisition, directly or indirectly, by any person or related group of persons (other than the Corporation or a person that directly or indirectly controls, is controlled by, or is under common control with, the Corporation) of beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Corporations outstanding securities.

E. Corporation shall mean Fender Musical Instruments Corporation, a Delaware corporation, and any successor corporation to all or substantially all of the assets of voting stock of Fender Musical Instruments Corporation which shall by appropriate action adopt the plan.

F. Exercise Price shall have the meaning assigned to such term in Paragraph A.1.

G. Grant Date shall have the meaning assigned to such term in Paragraph A.1.

H. Grant Notice shall mean the Notice of Grant of Stock Option pursuant to which Optionee has been informed of the basic terms of the Option.

I. 1933 Act shall mean the Securities Act of 1933, as amended.

J. Option shall have the meaning assigned to such term in Paragraph A.1.

K. Option Agreement shall mean the Stock Option Agreement issued in connection with the Grant Notice.

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L. Optionee shall mean the person to whom the Option is granted under the Plan.

M. Permitted Transfer shall mean any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Purchased Shares to a Permitted Transferee (as defined in the Stockholders Agreement).

N. Plan shall mean the Corporation’s 2007 Amended and Restated Equity Compensation Plan, as amended from time to time.

O. Plan Administrator shall mean either the Board or a committee of the Board acting in its capacity as administrator of the Plan.

P. Purchased Shares shall have the meaning assigned to such term in Paragraph A.1.

Q. SEC shall mean the Securities and Exchange Commission.

R. Service shall mean the Optionee’s performance of services for the Corporation (or any Subsidiary) in the capacity of an employee, subject to the control and direction of the employer entity as to both the work to be performed and the manner and method of performance, a non-employee member of the board of directors or an independent consultant.

S. Subsidiary shall mean any entity (other than the corporation) in an unbroken chain of entities beginning with the corporation, provided each entity (other than the last entity) in the unbroken chain owns, at the time of the determination, fifty percent (50%) or more of the total combined voting power in one of the other entities in such chain.

T. Vesting Schedule shall mean the vesting schedule specified in the Grant Notice pursuant to which the Optionee is to vest in the Option Shares in a series of installments over his or her period of Service.

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EX-10.17

Exhibit 10.17

FENDER MUSICAL INSTRUMENTS CORPORATION

NOTICE OF GRANT OF STOCK OPTION

Notice is hereby given of the following option grant (the “Option”) to purchase shares of the Class B Common Stock of Fender Musical Instruments Corporation (the “Corporation”):

Optionee:

Grant Date:

Exercise Price:             $             per share.

Number of Option Shares:                          shares of Class B Common Stock

Expiration Date: Ten (10) years from Grant Date, unless terminated sooner in accordance with Exhibit A.

Type of Option: Non-Statutory Stock Option

Vesting Schedule: The Option Shares shall initially be unvested and shall vest as follows: twenty-five percent (25%) of the Option Shares shall vest upon Optionee’s completion of each year of Service measured from the Grant Date until the Option Shares have vested in full. In no event shall any additional Option Shares vest after Optionee’s cessation of Service, except that if the Optionee’s cessation of Service is due to death or disability, as determined by the Corporation, all Option Shares shall vest in full or unless otherwise provided in the attachments hereto.

Optionee understands and agrees that the Option is granted subject to and in accordance with the terms of the Corporation’s 2007 Amended and Restated Equity Compensation Plan (as amended from time to time, the “Plan”). Optionee further agrees to be bound by the terms of the Plan and the terms of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit A (the “Stock Option Agreement”). In addition, Optionee understands that any Option Shares purchased under the Option will be subject to the terms set forth in a Stock Purchase Agreement substantially in the form attached hereto as Exhibit B (the “Stock Purchase Agreement”), as well as the Corporation’s Third Amended and Restated Stockholders Agreement (as amended from time to time, the “Stockholders Agreement”), a copy of which will be provided to Optionee for review a reasonable period of time prior to the exercise of the Option. Finally, Optionee hereby acknowledges receipt of a copy of the Plan in the form attached hereto as Exhibit C.

REPURCHASE RIGHTS. OPTIONEE HEREBY AGREES THAT ALL OPTION SHARES ACQUIRED UPON THE EXERCISE OF THE OPTION SHALL BE SUBJECT TO CERTAIN REPURCHASE RIGHTS AND RIGHTS OF FIRST REFUSAL EXERCISABLE BY THE CORPORATION AND ITS ASSIGNS. THE TERMS OF SUCH RIGHTS ARE SPECIFIED IN THE STOCK PURCHASE AGREEMENT AND THE STOCKHOLDERS AGREEMENT.

At Will Employment. Nothing in this Notice or in the attached Stock Option Agreement or the Plan shall confer upon Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Corporation (or any Subsidiary employing or retaining Optionee) or of Optionee, which rights are hereby expressly reserved by each, to terminate Optionee’s Service at any time for any reason, with or without cause.

Definitions. All capitalized terms in this Notice shall have the meaning assigned to them in this Notice or in the attached Stock Option Agreement.

DATED:                              ,             

FENDER MUSICAL INSTRUMENTS CORPORATION

By:

Title:

OPTIONEE

Address:

Attachments:

Exhibit A     Stock Option Agreement

Exhibit B     Stock Purchase Agreement

Exhibit C     2007 Amended and Restated Equity Compensation Plan

EX-10.18

Exhibit 10.18

RESTRICTED STOCK UNIT AGREEMENT

THIS AGREEMENT (this “Agreement”), dated as of              is made by and between FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Company”), and              (the “Grantee”).

I. AWARD OF RESTRICTED STOCK UNITS

1.1 Grant of Restricted Stock Units. Grantee is hereby granted a restricted stock unit award (“Award”) effective as of              (the “Grant Date”). This Award applies to              shares of Class B Common Stock that will be reflected in a book account maintained by the Company until the Distribution Date (as defined below) or until forfeited (the “Restricted Stock Units”). Restricted Stock Units represent the right to receive Class B Common Stock. This Award is granted pursuant to the terms of the Fender Musical Instruments 2007 Amended and Restated Equity Compensation Plan, effective as of August 21, 2008, as amended (the “Plan”). Capitalized terms used in this Agreement and not defined herein shall have the meaning given to such terms in the Plan.

1.2 Limitations on Grant. Grantee agrees to be bound by all of the terms, provisions, conditions and limitations of the Plan and this Restricted Stock Unit Agreement.

II. VESTING OF THE RESTRICTED STOCK UNITS

2.1 Restriction on Award. The Restricted Stock Units granted under the Agreement shall be forfeitable until such Restricted Stock Units have vested.

(a) This Award shall become vested in accordance with the schedule set forth below. On the Distribution Date (as defined below), the Company shall issue to the Grantee one Share for each Restricted Stock Unit which has vested as of such date. As used herein, the Distribution Date is the earlier of:             , or such earlier date as the Grantee’s termination of Service with the Company (and its Subsidiaries) for any reason to the extent then vested, or, if earlier, the occurrence of a Change in Control. The period of time prior to the Distribution Date is referred to as the “Restricted Period.” The Company may in its discretion determine to pay to the Grantee the Fair Market Value of the Shares in cash rather than issuing the Shares, and the timing of such payment shall also be the Distribution Date. The Restricted Stock Units shall initially be unvested and shall vest as follows:              percent (__%) of the Restricted Stock Units shall vest upon the Grantee’s completion of each year of Service measured from              until the Restricted Stock Units have vested in full.

(b) If the Grantee’s termination of Service is due to death or Disability, as determined by the Company, all Restricted Stock Units shall vest in full.

2.2 Termination Prior to Vesting. If the Grantee’s Service with the Company (and its Subsidiaries) terminates for any reason during the Restricted Period, then the unvested portion (after giving effect to the vesting described in paragraph 2.1(b) above, if applicable) of the Award will be forfeited on the date of such termination of Service, without any further obligation of the Company to the Grantee and all rights of the Grantee with respect to the unvested Restricted Stock Units shall terminate.

III. RIGHTS DURING RESTRICTED PERIOD

3.1 No Voting, Dividend Rights. The Grantee will not have any right to vote the Restricted Stock Units or to receive credit for cash dividends during the Restricted Period.

3.2 No Stockholder Status, Units are not Transferable. The Grantee shall not be deemed a stockholder of the Company with respect to any of the Restricted Stock Units during the Restricted Period. The Restricted Stock Units may not be sold, assigned, pledged, encumbered or otherwise transferred, except as set forth in the Plan or with the consent of the Company.

IV. REPURCHASE RIGHTS

4.1 The Grantee hereby acknowledges that the Shares shall be subject to the repurchase rights set forth in Section 4 of the Third Amended and Restated Stockholders’ Agreement (the “Stockholders Agreement”) and may also be subject to repurchase under any employee stock ownership agreements that Grantee may be required to enter into pursuant to section 5.2 below. The repurchase right under the Stockholders Agreement shall be exercisable in accordance with the provisions of Section 4 of the Stockholders Agreement.

V. OTHER PROVISIONS

5.1 Not a Contract of Employment. Nothing in this Agreement or in the Plan shall (a) confer upon the Grantee any right to continue in the Service of the Company or any of its Subsidiaries, or (b) interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge the Grantee at any time for any reason whatsoever, with or without Cause, except pursuant to an employment agreement, if any, executed by and between the Company or any of its Subsidiaries and the Grantee.

5.2 Shares Subject to Plan and Stockholder Agreement. The Grantee acknowledges that this Award is subject to the terms of the Plan and the Shares are subject to the terms of the Plan and the Stockholders Agreement and/or such other employee stock ownership agreement as may then be in effect. Grantee further understands and agrees that as a condition of issuance of the Shares, the Company may require that Grantee become a party to an employee stock ownership agreement in such form as the Company may from time to time require as a condition to issuance of the Shares (an “Employee Stock Ownership Agreement”). Grantee has carefully read and hereby represents and warrants that he, she or it understands the terms and provisions of the Stockholders Agreement. If not previously executed and delivered by the Grantee, Grantee shall be required to execute and deliver to the Company a counterpart signature page to the Stockholders Agreement as a condition of receiving the shares.

5.3 Construction. This Agreement shall be administered, interpreted and enforced under the laws of the state of Delaware, without regard to conflicts of laws provisions that would give effect to the laws of another jurisdiction.

5.4 Conformity to Securities Laws. The Grantee acknowledges that the Plan is intended to conform to the extent necessary with all provisions of the Securities Act and the Exchange Act and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission. Notwithstanding anything herein to the contrary, the Plan shall be administered only in such a manner as to conform to such laws, rules and regulations. To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations. The Restricted Stock Units and the Shares have not been registered under the Securities Act of 1933, as amended (the “1933 Act) or the applicable securities laws of any state and are being granted and issued to Grantee in reliance upon one or more exemptions from such registration, including the exemption provided by SEC Rule 701 for stock issuances under compensatory benefit plans such as the Plan. Grantee hereby confirms that Grantee has been informed that the Shares are restricted securities under the 1933 Act and may not be resold or transferred unless the Shares are first registered under the Federal securities laws and under any applicable state securities laws or unless exemptions from such registration requirements are available. Accordingly, Grantee hereby acknowledges that Grantee is prepared to hold the Shares for an indefinite period and that Grantee is aware that SEC Rule 144 issued under the 1933 Act which exempts certain resales of unrestricted securities is not presently available to exempt the resale of the Shares from the registration requirements of the 1933 Act. Grantee represents and warrants that it will acquire the Shares, if applicable, for his or her own account for investment and not with a view to distribution, assignment, resale or other transfer, and that by reason of his or her business or financial experience, or the business or experience of his or her professional advisors, Grantee has the capacity to protect his or her own interests in connection with acquiring the Shares.

5.5 Restrictions on Disposition of Shares. Grantee shall make no disposition of the Shares (other than a Permitted Transfer) unless and until there is compliance with all of the following requirements:

(a) Grantee shall have provided the Company with a written summary of the terms and conditions of the proposed disposition.

(b) Grantee shall have complied with all requirements of this Agreement and the Stockholders Agreement applicable to the disposition of the Shares.

(c) Grantee shall have provided the Company with written assurances, in form and substance satisfactory to the Company, that (a) the proposed disposition does not require registration of the Shares under the 1933 Act or under any applicable state securities laws or (b) all appropriate action necessary for compliance with the registration requirements of the 1933 Act and for compliance with any applicable state securities laws or any exemption from registration available under the 1933 Act (including Rule 144) and under any applicable state securities laws have been taken.

The Company shall not be required (i) to transfer on its books any Shares which have been sold or transferred in violation of the provisions of this Agreement, the Stockholders Agreement, or any applicable Employee Stock Ownership Agreement or (ii) to treat as the owner of the Shares, or otherwise to accord voting, dividend or liquidation rights to, any transferee to whom the Shares have been transferred in contravention of this Agreement, the Stockholders Agreement, or any applicable Employee Stock Ownership Agreement.

A “Permitted Transfer” shall mean any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Purchased Shares to a Permitted Transferee (as defined in the Stockholders Agreement).

5.6 Restrictive Legends. The stock certificates for the Shares shall be endorsed with one or more of the following restrictive legends:

“The shares represented by this certificate have not been registered under the Securities Act of 1933 or any applicable state securities laws. The shares may not be sold or offered for sale in the absence of (a) an effective registration statement for the shares under such Act and such state securities laws, (b) a “no action” letter of the Securities and Exchange Commission and from each applicable state securities authority with respect to such sale or offer or (c) satisfactory assurances to the Corporation that registration under such Act and such state securities laws is not required with respect to such sale or offer.”

“The shares represented by this certificate are subject to certain repurchase rights and rights of first refusal granted to the Corporation and accordingly may not be sold, assigned, transferred, encumbered, or in any manner disposed of except in conformity with the terms of a Restricted Stock Unit Agreement dated by and between the Corporation and the registered holder of the shares (or the predecessor in interest to the shares). A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

“In addition, the shares represented by this certificate are subject to certain restrictions set forth in the Corporation’s Third Amended and Restated Stockholders Agreement, as the same may be amended from time to time. A copy of such agreement is maintained at the Corporation’s principal corporate offices.”

5.7 Transferee Obligations. Each person to whom any Shares are transferred by means of any sale, assignment, transfer, gift, pledge, encumbrance, hypothecation, grant or security interest or any other voluntary or involuntary disposition of Shares must, as a condition precedent to the validity of such transfer, acknowledge in writing to the Company that such person is bound by the provisions of this Agreement and the Stockholders Agreement.

5.8 Market Stand-Off. The Grantee hereby acknowledges that the Shares shall be subject to the market stand-off restrictions set forth in Section 6.17 of the Stockholders Agreement.

5.9 Right of First Refusal. The Grantee hereby acknowledges that the Shares shall be subject to the rights of first refusal and rights of co-sale set forth in Section 3 of the Stockholders Agreement. Such rights of first refusal and rights of co-sale shall be exercisable in accordance with the provisions of Section 3 of the Stockholders Agreement.

5.10 Voting for Directors. The Grantee hereby acknowledges that the Shares shall be subject to the voting requirements set forth in Section 5 of the Stockholders Agreement.

5.11 Tax Withholding. The Company is obligated to withhold federal, state and local taxes) as determined by the Plan Administrator to be required by law. Applicable withholding and source of payments shall be in accordance with the terms of the Plan.

5.12 Entire Agreement. The parties hereto acknowledge that this Agreement and the Plan set forth the entire agreement and understanding of the parties and supersede all prior written or oral agreements or understandings with respect to the subject matter hereof, except that any provisions therein regarding confidentiality or non-competition remain in full force and effect in favor of the Company and its Subsidiaries as if the agreements containing such provisions were not so superseded. The obligations imposed by this Agreement are severable and should be construed independently of each other. The invalidity of one provision shall not affect the validity of any other provision. If any provision of this Agreement shall be invalid or unenforceable, in whole or in part, or as applied to any circumstances, under the laws of any jurisdiction which may govern for such purpose, then such provision shall be deemed, to the extent allowed by the laws of such jurisdiction, to be modified or restricted to the extent and in the manner necessary to render the same valid and enforceable, either generally or as applied to such circumstance, or shall be deemed exercised from this Agreement, as the case may require, and this Agreement shall be construed and enforced to the maximum extent permitted by law, as if such provision had been originally incorporated herein as so modified or restricted, or as if such provision had not been originally incorporated herein, as the case may be.

5.13 Amendment. The Board at any time, and from time to time, may amend the terms of this Agreement, provided, however, that the rights of the Grantee shall not be adversely impaired without the Grantee’s written consent. The Company shall provide the Grantee with notice and a copy of any amendment made to this Agreement. In addition, no amendment shall accelerate or delay the time provided for distribution of [cash or] Shares in Section 2.1 of this Agreement.

5.14 Compliance with Section 409A. This Restricted Stock Unit Agreement is intended to comply and shall be administered in a manner that is intended to comply with Section 409A of the Code and shall be construed and interpreted in accordance with such intent. Payment under this Agreement shall be made in a manner that will comply with Section 409A of the Code, including regulations or other guidance issued with respect thereto, except as otherwise determined by the Committee. Any provision of this Restricted Stock Unit Agreement that would cause the payment or settlement thereof to fail to satisfy Section 409A of the Code shall be amended to comply with Section 409A of the Code on a timely basis, which may be made on a retroactive basis, in accordance with regulations and other guidance issued under Section 409A of the Code.

5.15 Notices. Any notice to be given to the Company under the terms of this Agreement shall be addressed to the Company, in care of its Secretary. Any notice to be given to Grantee may be addressed to Grantee at his address as it appears on the Company’s records, or at such other address as the Grantee may hereafter designate in writing to the Company. Any such notice shall be deemed to have been duly given if and when personally delivered or enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in the United States mails.

5.16 Counterparts. This Agreement may be executed in several counterparts, including via facsimile transmission, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto as of the day, month and year first set forth above.

FENDER MUSICAL INSTRUMENTS CORPORATION

By:

Name: William Mendello

Title:   Chief Executive Officer

THE GRANTEE:

Signature:

Name:

EX-10.19

Exhibit 10.19

SECOND AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made and effective as of February 12, 2012 (the “Effective Date”) by and between Fender Musical Instruments Corporation, a Delaware corporation (“Fender” or the “Company”), and Larry Thomas, an individual, on the other hand (“Executive”).

WHEREAS, Executive is currently employed as the Company’s Chief Executive Officer;

WHEREAS the Company and Executive had previously entered into an employment agreement dated and effective as of August 1, 2010 (the “Initial Agreement”) and an amended and restated employment agreement dated and effective as of August 15, 2011 (the “Prior Agreement”); and

WHEREAS, the Company and Executive wish to amend and restate the Prior Agreement as of the Effective Date.

NOW, THEREFORE, in consideration of the foregoing premises, the mutual covenants, terms and conditions set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, it is hereby agreed between the Company and Executive that, effective as of the Effective Date, this Agreement amends and restates the Prior Agreement in its entirety as follows:

1. Initial Term/Employment Period. Fender hereby employs Executive, and Executive hereby agrees to employment as Chief Executive Officer of Fender, for an initial term to end on March 31, 2015 (the “Initial Term”), unless the employment is earlier terminated as provided herein. Fender and Executive agree to discuss, in good faith, the possibility of an extension of the Initial Term on or by September 30, 2014. During the Initial Term or, if shorter, that portion of the Initial Term during which Executive remains continuously employed by Fender (the “Employment Period”), Executive shall perform such services, consistent with his title, as may from time to time be assigned to, or expected from, him by the Board of Directors of Fender.

2. Compensation, Expenses and Other Benefits.

(a) Commencing January 1, 2012 and for the remainder of the Employment Period, Fender agrees to pay Executive for all of his services hereunder during the Employment Period, a salary of $800,000 per annum (“Base Compensation”), payable in installments in accordance with the payroll practices of Fender, as in effect from time to time, which salary shall be subject to annual review, and shall be subject to potential increase in the sole discretion of the Board of Directors of Fender.

(b) During the Employment Period, Executive shall be eligible to participate in Fender’s Annual Incentive Plan (or any successor plan), as in effect from time to time (the “Annual Incentive Plan”). Executive’s target annual incentive opportunity under the Annual Incentive Plan will be no less than 100% of Base Compensation earned for any portion of the Employment Period. Executive’s annual bonus, if any, shall otherwise be subject to the terms of the Annual Incentive Plan.

(c) Executive hereby acknowledges that (i) the stock option grant over 8,475 shares of Class B Common Stock of the Company that was made to Executive by the Company on August 15, 2011 is in full satisfaction of all remaining obligations of the Company under Section 2(c) of the Initial Agreement and (ii) the Company is not obligated to make any additional awards of stock options or other equity-based awards to Executive during the Initial Term.

(d) Employee acknowledges that the Company paid the final installment due to AvantAir, which was due on November 15, 2011. As of January 1, 2012, any other costs associated with air travel (other than business travel covered under Section 2(e) below) to and from Fender shall be borne by Executive.

(e) For travel done on behalf of the Company, Executive shall fly in accordance with the terms of the Company’s Travel & Entertainment policy as in effect from time to time.

(f) During the Employment Period, Fender shall also provide a leased vehicle reasonably acceptable to Executive for his use. The value of such leased vehicle will be imputed income to Executive and will be grossed up for Federal and state tax purposes.

3. Extent of Services. During the Employment Period, Executive agrees to devote his business loyalties and his business time and attention to the affairs of Fender and to perform duties customarily incident to his office and such other duties as may from time to time be assigned to, or expected from, him by Fender’s Board of Directors, except during vacation periods and reasonable periods of illness or other incapacity consistent with the practices of Fender. With the approval of Fender’s Board of Directors, which shall not be unreasonably withheld, Executive may participate in business associations, charities or the board of directors of other companies. Further, nothing in this Agreement shall prevent Executive from investing his assets in such form or manner as will not require his services in the operation of the affairs of the companies in which such investments are made, and in accordance with Section 12 herein.

4. Benefit Plans.

(a) During the Employment Period, Executive shall have the same rights as other Fender employees in comparable executive positions to participate in any retirement, pension, insurance, medical, hospital or other plans (“Benefit Plans”), as in effect from time to time, it being understood that eligibility and other requirements for such participation shall be controlled by the respective plan(s) and plan documents, and

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that Fender retains the sole right to implement, change or terminate any such Benefit Plans in its discretion. In addition, at all times after the termination of Executive’s employment until the later of Executive’s death or the death of his current wife, Gina, Fender will, at the request of Executive and to the extent legally and administratively feasible, provide to Executive and his wife health and life insurance benefits in the retiree subgroup of the Corporation’s existing health and welfare plan (or any successor plan); provided, that Executive and/or Gina shall pay all retiree/spousal and Company premiums and any other related costs incurred by Fender in connection with the provisions of such insurance coverage and; provided, further, that such retiree medical coverage shall be secondary to Medicare coverage and Medicare coverage shall be primary. Executive shall take all steps reasonably required to coordinate the coverage provided by the Company with Medicare as required by this Section 4(a).

(b) Nothing in this Agreement shall be deemed to affect Executive’s rights with respect to Fender stock options or other equity-based awards. All rights with respect to such stock options and other equity-based awards shall be governed exclusively by the applicable stock option and equity-based award plan(s) and award agreement(s), which shall not be deemed to be modified or amended in any way by this Agreement.

(c) During the Employment Period, Executive shall take all steps reasonably required for the Company to obtain and maintain key man life insurance on Executive.

5. Working Facilities. Executive shall have a private office, reasonable administrative assistance, and such other facilities and services as are suitable to his position and appropriate for the performance of his duties during the Employment Period.

6. Termination.

(a) By Fender with or without Cause. Fender may terminate the Employment Period with or without Cause at any time, subject to the notice provisions hereof. For purposes of this Agreement, the term “Cause” shall mean: (1) Executive’s misappropriation (or attempted misappropriation) of any of the Company’s funds or property, or (2) Executive’s conviction of, or the entering of a guilty plea or plea of no contest with respect to, a felony, or a misdemeanor that involves moral turpitude or any other fraudulent act, (3) Executive’s continued or repeated failure to substantially perform his duties (after notice and a reasonable opportunity to cure) (4) Executive’s commission of an act of dishonesty, insubordination or gross misconduct toward the Company, (5) Executive’s commission of any act materially detrimental to the interest of the Company, including its goodwill, (6) Executive’s continued material breach of any of the terms of this Agreement (after notice and a reasonable opportunity to cure), or (7) Executive’s breach of Section 12 or 13 of this Agreement.

(b) By Executive for any Reason. Executive may terminate this Agreement for Good Reason or for any reason at any time, subject to the notice

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provisions hereof. For purposes of this Agreement, the term “Good Reason” shall mean: (1) a material diminution in Executive’s Base Compensation or target bonus opportunity under the Annual Incentive Plan (or any successor plan), (2) a material diminution in Executive’s authority, duties, or responsibilities, (3) a requirement that Executive reports to an employee of Fender instead of reporting directly to the Board, (4) a material diminution in the budget over which Executive retains authority, (5) a material change in the geographic location of Executive’s position, or (6) any other action by Fender that constitutes a material breach of this Agreement. Notwithstanding the foregoing, Executive hereby acknowledges that the appointment by Fender of a Chief Operating Officer with authority, responsibilities and reporting relationships as specified and designated by the Board, which such appointment may result in changes to Executive’s authority, duties, responsibilities or reporting relationships, shall not constitute “Good Reason”. Furthermore, no termination of Executive’s employment shall be for Good Reason unless Executive gives the Company written notice within 90 days of Executive obtaining knowledge of circumstances giving rise to Good Reason (describing in reasonable detail the circumstances and the Good Reason event that has occurred) and the Company does not remedy these circumstances within 30 days of receipt of such notice. In addition, an event will not give rise to Good Reason if it is made with Executive’s express written consent.

(c) Fender may terminate the Employment Period other than for Cause and Executive may terminate employment for Good Reason, in each case, upon ninety (90) days written notice to the other party, provided that in such an event, Executive will be entitled to receive all payments set forth in Sections 7(a) and (b) below. The Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

(d) Fender may terminate the Employment Period for Cause immediately following any cure period provided for in (a) above, upon written notice to Executive and Executive may terminate employment for any reason other than Good Reason upon thirty (30) days’ prior written notice to the Company, provided that in each case, Executive shall only receive the accrued compensation and benefits set forth in Section 7(a). If applicable, the Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

7. Payments Upon Termination.

(a) Accrued Compensation and Other Benefits. Upon any termination of the Employment Period, the Company will pay Executive (i) Executive’s Base Compensation as pro-rated through the termination date, to the extent not already paid, (ii) reimbursement (in accordance with the Company’s expense reimbursement policy) for reasonable and necessary business expenses incurred by Executive on behalf of the Company before the termination date, (iii) Executive’s accrued and unused vacation pay (in accordance with the Company’s vacation policy) to the extent not already paid, and (iv) any bonuses and incentive compensation to which Executive is entitled under the

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terms of applicable bonus or incentive plans or awards maintained by the Company. In addition, the Company will pay or provide Executive, to the extent not already paid or provided, any amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or other contract or agreement of the Company through the termination date.

(b) Severance Pay. Upon termination of the Employment Period (i) by Fender other than for Cause or (ii) by Executive for Good Reason, Executive shall be entitled to receive a lump sum amount in cash equal to his Base Compensation for the remainder of the Initial Term, if any. Upon termination of the Employment Period (i) by Fender (or any successor) other than for Cause or (ii) by Executive for Good Reason, in each case following a Change in Control, as defined blow, Executive shall not be paid the severance amount described in the preceding sentence, but rather shall be entitled to receive a lump sum amount in cash equal to (A) his Base Compensation for the remainder of the Initial Term, if any, plus (B) an additional amount, if any, necessary so that the total amount payable to Executive under this sentence is equal to at least two (2) years’ Base Compensation. In addition, Fender shall pay or reimburse Executive for any and all COBRA payments or other benefit continuation expenses incurred by Executive during the remainder of the Initial Term (provided that such reimbursements shall not exceed Fender’s costs for such benefits prior to the termination).

(c) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) During any period of not more than two years, the Incumbent Directors no longer represent a majority of the Board. “Incumbent Directors” are (A) the members of the Board as of August 21, 2008 and (B) any individual who becomes a director thereafter whose appointment or nomination was approved by at least a majority of the Incumbent Directors then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the member was named as nominee). However, the Incumbent Directors will not include anyone who becomes a member of the Board thereafter as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board, including as a result of any appointment, nomination or other agreement intended to avoid or settle a contest or solicitation.

(ii) There is a beneficial owner of securities entitled to 30% or more of the total voting power of the Company’s then-outstanding securities in respect of the election of the Board (“Voting Securities”), other than by (A) the Company, any subsidiary of it or any employee benefit plan or related trust sponsored or maintained by the Company or any subsidiary of it; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of Voting Securities as a result of an Excluded Transaction (as defined in Section iii below without regard to Section iii(B)).

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(iii) Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”) other than an Excluded Transaction. An “Excluded Transaction” is a Reorganization or Sale pursuant to which immediately following such Reorganization or Sale:

(A) 50% or more of the total voting power of the Surviving Company’s then-outstanding securities in respect of the election of directors (or similar officials in the case of a non-corporation) is represented by Voting Securities outstanding immediately before the Reorganization or Sale or by securities into which such Voting Securities were converted in the Reorganization or Sale;

(B) there is no beneficial owner of securities entitled to 30% or more of the total voting power of the then-outstanding securities of the Surviving Company in respect of the election of directors (or similar officials in the case of a non-corporation); and

(C) a majority of the board of directors of the Surviving Company (or similar officials in the case of a non-corporation) were Incumbent Directors at the time the Board approved the execution of the initial agreement providing for the Reorganization or Sale. The “Surviving Company” means (a) in a Reorganization, the entity resulting from the Reorganization or (b) in a Sale, the entity that has acquired all or substantially all of the assets of the Company, except that, if there is a beneficial owner of securities entitled to 95% of the total voting power (in respect of the election of directors or similar officials in the case of a non-corporation) of the then-outstanding securities of the entity that would otherwise be the Surviving Company, then that beneficial owner will be the Surviving Company.

(iv) The Company’s stockholders approve a plan of complete liquidation or dissolution of the Company.

For purposes of this definition of “Change in Control”, (i) any sale of only Weston Presidio L.P.’s interests in the Company that is approved by the Board shall not constitute a “Change in Control, and (ii) the term “beneficial owner” has the meaning assigned in Rule 13d-3 under the 1934 Act, as that rule is in effect as of the date hereof. After any Excluded Transaction, the Surviving Company will be treated as the Company for all purposes of the definition of Change in Control.

(d) Form and Time of Payment. The cash amounts provided for in Sections 7(a) and (b) above shall be paid in a single lump sum payment on the regularly

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scheduled payroll day immediately following the 30^th day after Executive’s termination date (but in no event later than March 15^th of the year following the year in which such termination occurred). Notwithstanding the preceding sentence, (A) if Executive is a “specified employee” at the time he terminates employment with Fender and any payment or benefit under Section 7 is determined to constitute non-qualified deferred compensation, such payment shall be made or such benefit shall be provided on the date that is six months after termination of employment with the Company, all as determined in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, applying all default provisions under such regulations.

(e) If Executive is subject to the excise tax imposed under Section 4999 of the Code, the provisions of Appendix A hereto shall apply.

8. Death During Employment. In addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, if Executive dies during the Employment Period, Fender shall pay to the estate of Executive a lump sum payment within thirty (30) days following death an amount equal to the Base Compensation, at the rate then in effect, that would have been otherwise payable to Executive up to the end of the month in which his death occurred and for three (3) additional months thereafter. In addition, Fender shall pay to the estate of Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan).

9. Disability. In the event Executive shall become Disabled during the Employment Period, as determined by a health care professional suitable to Fender (and established by a second opinion at Fender’s option), in addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, Fender shall (i) pay to Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan) and (ii) continue to pay to Executive his Base Compensation, at the rate then in effect, for up to thirteen (13) weeks following the date Executive became Disabled. For the purpose of this Agreement, Executive shall be “Disabled” if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

10. Vacations. Executive shall be entitled to six (6) weeks of annual vacation during the Employment Period, during which time his compensation shall be paid in full.

11. Expenses. Provided Executive provides proper documentation as may be required by Fender from time to time, and demonstrates an appropriate business

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purpose, during the Employment Period, Fender will reimburse Executive for expenses incident to the rendering of services hereunder. Reimbursement of expenses shall be made within thirty (30) days of the date a request for reimbursement is submitted in accordance with Fender’s policy.

12. Exclusivity/Non-Competition. Executive acknowledges that (a) his employment by Fender (which for purposes of Sections 12, 13 and 14 shall mean Fender, its subsidiaries and affiliates) is of a special, personally unique, artistic, unusual, extraordinary and intellectual character, and (b) the nature of Executive’s services, position and expertise is such that he is capable of competing with Fender from nearly any location in the world. Executive further acknowledges that his employment hereunder will, throughout the Employment Period, bring him into close contact with many confidential affairs of Fender, including without limitation information about costs, profits, customers, markets, sales, products, key personnel, pricing policies, operational methods, trade secrets and other business affairs and methods and other information not readily available to the public, and plans for further development (“Confidential Information”). In recognition of the considerations described in the foregoing provisions of this Section 12 and in the preamble to this Agreement, Executive covenants and agrees that, during the Employment Period and thereafter for any period after termination of the Employment Period during or for which Executive receives payments, compensation and/or severance pay from Fender, , he will not, in the United States of America, or in any state or other country in which Fender is engaged in any Competitive Business (as defined in the last sentence of this Section 12), directly or indirectly: (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account; (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, trustee, consultant, advisor or in any other relationship or capacity; (iv) induce, for Executive or any other person or entity, any present or future employee of Fender to leave the employ of Fender and/or seek or accept employment with Executive or with any other person or firm engaged in a Competitive Business; provided, however, that nothing contained in this Section 12 shall be deemed to prohibit Executive from acquiring, solely as an investment through market purchases, securities of such a corporation engaged in any Competitive Business which are registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded so long as such securities do not in the aggregate exceed one percent (1%) of any class of securities of such corporation. The term “Competitive Business,” as used in this Agreement, shall mean the design, manufacture or distribution of musical instruments of any category dealt in by Fender at any time during Executive’s employment by Fender under this Agreement or otherwise.

13. Protection of Confidential Information. In recognition of the considerations described in Section 12 hereof, Executive covenants and agrees that he will deliver promptly a termination of this Agreement, or at any other time Fender may also request, all Confidential Information in the form of memoranda, notes, records, reports and any other documents or media (and all copies thereof) relating to Fender’s business which he may then possess or have under his control. In addition, for as long as such information remains sensitive and confidential in nature, and is not made public

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(through no fault of Executive), Executive agrees that he will hold in strictest confidence all matters of Fender that are not otherwise in the public domain and will not disclose them to anyone outside of Fender or use them for himself or otherwise, either during or after the Employment Period. If, and only if, a court or tribunal of final jurisdiction finds this restriction overbroad as to time, then this restriction shall have a duration of five (5) years from the termination of the Employment Period.

14. Remedies. If Executive commits a breach of any of the provisions of Sections 12 or 13 of this Agreement, in addition to Fender’s rights to terminate its obligations hereunder, Fender shall have the right to an injunction or order of specific enforcement, without necessity of posting a bond or providing independent evidence of irreparable injury, by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Fender and that money damages will not provide an adequate remedy to Fender. Fender and Executive recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability of agreements similar to those contained in Section 12 hereof. It is the intention of Fender and Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which such enforcement is sought.

15. Dispute Resolution.

(a) Any and all disputes arising under, pertaining to or touching upon this Agreement, or the statutory rights or obligations of either party hereto, shall, if not settled by negotiation, be subject to non-binding mediation before an independent mediator selected by the parties pursuant to Section 15(b). Notwithstanding the foregoing, both Executive and Company may seek preliminary injunctive or other judicial relief if such action is necessary to avoid irreparable damage during the pendency of the proceedings described in this Section 15. Any demand for mediation shall be made in writing and served upon the other party to the dispute, by certified mail, return receipt requested, at the address specified in this Agreement. The demand shall set forth with reasonable specificity the basis of the dispute and the relief sought. The mediation hearing will occur at a time and place convenient to the parties in Maricopa County, Arizona, within thirty (30) days of the date of selection or appointment of the mediator. Mediation or the waiver of mediation by both parties shall be a condition precedent to Arbitration.

(b) In the event that the dispute is not settled through mediation, the parties shall then proceed to binding arbitration before an independent arbitrator selected pursuant to Section 15. The mediator shall not serve as the arbitrator. EXCEPT AS PROVIDED IN SECTION 14, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY, OR ALLEGED EMPLOYMENT TORT COMMITTED BY COMPANY OR A REPRESENTATIVE OF COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS SECTION 15 AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL.

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The arbitration hearing shall occur at a time and place convenient to the parties in Maricopa County, Arizona, within sixty (60) days of selection or appointment of the arbitrator unless such time period is extended by the arbitrator for good cause shown. If Company has adopted, with the consent of Executive, a policy that is applicable to arbitrations with executives, the arbitration shall be conducted in accordance with said policy, to the extent that the policy is consistent with this Agreement and the Federal Arbitration Act, 9 U.S.C. §§ 1-16. If no such policy has been adopted, the arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”) in effect on the date of the first notice of demand for arbitration. Notwithstanding any provisions in such rules to the contrary, the arbitrator shall issue findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.

(c) Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, except that court review of the arbitrator’s award shall be that of an appellate court reviewing a decision of a trial judge sitting without a jury.

(d) The costs and expenses of any arbitration shall be borne by Company and Executive jointly; provided, however, that any filing fee(s) required to be paid by Executive shall be limited to the filing fees required to initiate an action in the Superior Court of Arizona, County of Maricopa, and the Company will pay the balance.

16. Severability and Non-Exclusivity. The rights and remedies set forth in Sections 12, 13 and 14 shall be in addition to and not in lieu of any other rights and remedies available to Fender under the law or in equity. If the courts (or arbitration tribunals) of any one or more jurisdictions shall hold all or any part of the provisions of Sections 12, 13 or 14 unenforceable for any reason, it is the intention of the parties that such determination shall not bar or in any way affect Fender’s right to relief with respect to the remaining portions, all of which shall be deemed severable and individually enforceable, or in any other jurisdiction.

17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by facsimile, with receipt confirmed, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):

If to Fender:	Fender Musical Instruments Corporation 17600 N. Perimeter Circle, Suite 100 Scottsdale, AZ 85255 Attention: Chief Legal Officer
If to Executive:	Addressed to him at his address on the personnel records of Fender.

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18. General.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Arizona applicable to agreements made and to be performed entirely in Arizona.

(b) This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes and cancels all prior agreements, arrangements and understandings, written or oral, between the parties, including the Initial Agreement and the Prior Agreement each as defined in the preamble to this Agreement, all of which are hereby nullified, and shall be deemed fully performed.

(c) This Agreement may not be assigned by Executive. Fender may only assign this Agreement to a subsidiary of Fender, provided Fender remains liable therefore. Fender shall assign this Agreement to a bona fide successor to Fender, in the event such a transaction occurs, and Executive hereby consents to any such assignment(s). This Agreement shall inure to and be binding upon Fender, and its successors and assigns.

(d) This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party hereto of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:	/s/ Mark Van Vleet	/s/ Larry Thomas
Its:	Chief Legal Officer	Larry Thomas

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APPENDIX A

Treatment of Parachute Payments

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or another person or entity to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then (i) or (ii) below, as applicable, shall apply:

(i) If a reduction of the Payments to the Safe Harbor Cap (as defined below) would result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the Safe Harbor Cap. The reduction of the amounts payable hereunder, if applicable, shall occur in the following order unless Executive elects a different order as of the date hereof: reduction of cash payments, followed by reduction of employee benefits. If the reductions described in the preceding sentence would not result in a reduction of the Payments to the Safe Harbor Cap, further reduction of the Payments shall be made in the manner which has the least economic cost to Executive.

(ii) If a reduction of the Payments to the Safe Harbor Cap would not result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall not be reduced and Executive shall be liable for payment of the Excise Tax.

For purposes of this Agreement, “Safe Harbor Cap” shall mean the maximum amount of Payments that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”).

(b) Subject to the provisions of paragraph (a) above, all determinations required to be made under this Appendix A, including whether and when an Excise Tax is due and the assumptions to be utilized in arriving at such determinations, shall be made by a public accounting firm that is retained by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). Notwithstanding the foregoing, in the event (i) the Company’s Board of Directors shall determine that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Company’s Board of Directors determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the person(s) effecting

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a change in control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company, and the Company shall enter into any agreement reasonably requested by the Accounting Firm in connection with the performance of the services hereunder. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive.

(c) If it is established pursuant to a final determination of a court or the Internal Revenue Service (the “IRS”) proceeding, which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Appendix A (hereinafter referred to as an “Excess Payment”), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made under this Appendix A. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment.

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EX-10.20

Exhibit 10.20

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and effective as of December 2, 2008 (the “Effective Date”) by and between Fender Musical Instruments Corporation, a Delaware corporation (“Fender” or the “Company”), on one hand, and James Broenen, an individual, on the other hand (“Executive”).

WHEREAS, Fender is in the business of designing, manufacturing, marketing, selling and distributing musical instruments and related equipment and products; and

WHEREAS, Fender currently employs Executive, Fender desires to continue to employ Executive, and Executive desires to accept continued employment with Fender.

NOW THEREFORE, in consideration of the mutual promises herein expressed, the parties hereto agree as follows:

1. Initial Term/Employment Period. Fender hereby continues to employ Executive, and Executive hereby agrees to his continued employment as Chief Financial Officer, for an initial term to end on March 31, 2010 (the “Initial Term”), unless the employment is earlier terminated as provided herein. During the Initial Term or, if shorter, that portion of the Initial Term during which Executive remains continuously employed by Fender (the “Employment Period”), Executive shall perform such services, consistent with his title, as may from time to time be assigned to, or expected from, him by the Board of Directors of Fender, or those officers empowered by the Board to supervise Executive, including the CEO.

2. Compensation. Fender agrees to pay Executive, and Executive agrees to accept from Fender, for all of his services hereunder during the Employment Period, a salary of $235,000.00 per annum (“Base Compensation”), payable in installments in accordance with the payroll practices of Fender, as in effect from time to time, which salary shall be subject to annual review, and shall be subject to potential increase in the sole discretion of the CEO and/or Board of Directors of Fender. During the Employment Period, Executive shall also be eligible to participate in Fender’s Annual Incentive Plan (or any successor plan), as in effect from time to time, with a target bonus opportunity of 50% of Base Compensation, subject to the terms of such Annual Incentive Plan (or any successor plan), as in effect from time to time.

3. Extent of Services. During the Employment Period, Executive agrees to devote his entire business loyalties and all of his business time and attention to the affairs of Fender and to perform duties customarily incident to his office and such other duties as may from time to time be assigned to, or expected from, him by Fender’s CEO and/or Board of Directors, except during vacation periods and reasonable periods of illness or other incapacity consistent with the practices of Fender. Nothing in this Agreement shall prevent Executive from investing his assets in such form or manner as will not require his services in the operation of the affairs of the companies in which such investments are made, and in accordance with Section 12 herein.

4. Benefit Plans.

(a) During the Employment Period, Executive shall have the same rights as other Fender employees in comparable executive positions to participate in any retirement, pension, insurance, medical, hospital or other plans (“Benefit Plans”), as in effect from time to time, it being understood that eligibility and other requirements for such participation shall be controlled by the respective plan(s) and plan documents, and that Fender retains the sole right to implement, change or terminate any such Benefit Plans in its discretion.

(b) Nothing in this Agreement shall be deemed to affect Executive’s rights with respect to Fender stock options or other equity-based awards. All rights with respect to such stock options or other equity-based awards shall continue to be governed exclusively by the applicable stock option and equity-based award plan(s) and agreement(s), which shall not be deemed to be modified or amended in any way by this Agreement.

5. Working Facilities. Executive shall have a private office, reasonable administrative assistance, and such other facilities and services as are suitable to his position and appropriate for the performance of his duties during the Employment Period.

6. Termination.

(a) By Fender with or without Cause. Fender may terminate the Employment Period with or without Cause at any time, subject to the notice provisions hereof. For purposes of this Agreement, the term “Cause” shall mean: (1) Executive’s misappropriation (or attempted misappropriation) of any of the Company’s funds or property, or (2) Executive’s conviction of, or the entering of a guilty plea or plea of no contest with respect to, a felony, or a misdemeanor that involves moral turpitude or any other fraudulent act, (3) Executive’s continued or repeated failure to substantially perform his duties (after notice and a reasonable opportunity to cure) or Executive engaging in a pattern of incompetence, (4) Executive’s commission of an act of dishonesty, insubordination or gross misconduct toward the Company, (5) Executive’s commission of any act detrimental to the interest of the Company, including its goodwill, (6) Executive’s material breach of any of the terms of this Agreement, or (7) Executive’s breach of Section 12 or 13 of this Agreement.

(b) By Executive for any Reason. Executive may terminate this Agreement for Good Reason or for any reason at any time, subject to the notice provisions hereof. For purposes of this Agreement, the term “Good Reason” shall mean: (1) a material diminution in Executive’s Base Compensation or target bonus opportunity under the Annual Incentive Plan (or any successor plan), (2) a material diminution in

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Executive’s authority, duties, or responsibilities, (3) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, (4) a material diminution in the budget over which Executive retains authority, (5) a material change in the geographic location of Executive’s position, or (6) any other action by Fender that constitutes a material breach of this Agreement. Notwithstanding the foregoing, no termination of Executive’s employment shall be for Good Reason unless Executive gives the Company written notice within 90 days of Executive obtaining knowledge of circumstances giving rise to Good Reason (describing in reasonable detail the circumstances and the Good Reason event that has occurred) and the Company does not remedy these circumstances within 30 days of receipt of such notice. In addition, an event will not give rise to Good Reason if it is made with Executive’s express written consent.

(c) Fender may terminate the Employment Period other than for Cause and Executive may terminate employment for Good Reason, in each case, upon sixty (60) days written notice to the other party, provided that in such an event, Executive will be entitled to receive all payments set forth in Sections 7(a) and (b) below. The Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

(d) Fender may terminate the Employment Period for Cause immediately upon written notice to Executive and Executive may terminate employment for any reason other than Good Reason upon thirty (30) days’ prior written notice to the Company, provided that in each case, Executive shall only receive the accrued compensation and benefits set forth in Section 7(a). If applicable, the Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

7. Payments Upon Termination.

(a) Accrued Compensation and Other Benefits. Upon any termination of the Employment Period, the Company will pay Executive (i) Executive’s Base Compensation as pro-rated through the termination date, to the extent not already paid, (ii) reimbursement (in accordance with the Company’s expense reimbursement policy) for reasonable and necessary business expenses incurred by Executive on behalf of the Company before the termination date, (iii) Executive’s accrued and unused vacation pay (in accordance with the Company’s vacation policy) to the extent not already paid, and (iv) any bonuses and incentive compensation to which Executive is entitled under the terms of applicable bonus or incentive plans or awards maintained by the Company. In addition, the Company will pay or provide Executive, to the extent not already paid or provided, any amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or other contract or agreement of the Company through the termination date.

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(b) Severance Pay. Upon termination of the Employment Period (i) by Fender other than for Cause or (ii) by Executive for Good Reason, Executive shall be entitled to receive a lump sum amount in cash equal to the sum of (A) his Annual Compensation (as defined below) for the remainder, if any, of the Initial Term, plus (B) an additional amount, if any, necessary so that the total amount payable to Executive under this sentence is equal to at least one (1) year’s Annual Compensation. Upon termination of the Employment Period (i) by Fender (or any successor) other than for Cause or (ii) by Executive for Good Reason, in each case, following a Change in Control, as defined below, Executive shall not be paid the severance amount described in the preceding sentence, but rather shall be entitled to receive a lump sum amount in cash equal to (i) his Annual Compensation (as defined below) for the remainder, if any, of the Initial Term, plus (ii) an additional amount, if any, necessary so that the total amount payable to Executive under this sentence is equal to at least two (2) years’ Annual Compensation. In addition, Fender shall pay or reimburse Executive for any and all COBRA payments or other benefit continuation expenses incurred by Executive during the remainder of the Initial Term (provided that such reimbursements shall not exceed Fender’s costs for such benefits prior to the termination). For purposes hereof, “Annual Compensation” shall mean an amount equal to Base Compensation plus the average annual cash bonuses paid or payable to Executive during the three (3) fiscal years of Fender immediately preceding the termination of Executive’s employment (or such shorter period during which Executive was employed by Fender).

(c) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) During any period of not more than two years, the Incumbent Directors no longer represent a majority of the Board. “Incumbent Directors” are (A) the members of the Board as of August 21, 2008 and (B) any individual who becomes a director thereafter whose appointment or nomination was approved by at least a majority of the Incumbent Directors then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the member was named as nominee). However, the Incumbent Directors will not include anyone who becomes a member of the Board thereafter as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board, including as a result of any appointment, nomination or other agreement intended to avoid or settle a contest or solicitation.

(ii) There is a beneficial owner of securities entitled to 30% or more of the total voting power of the Company’s then-outstanding securities in respect of the election of the Board (“Voting Securities”), other than by (A) the Company, any subsidiary of it or any employee benefit plan or related trust sponsored or maintained by the Company or any subsidiary of it; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of Voting Securities as a result of an Excluded Transaction (as defined in Section iii below without regard to Section iii(B)).

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(iii) Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”) other than an Excluded Transaction. An “Excluded Transaction” is a Reorganization or Sale pursuant to which immediately following such Reorganization or Sale:

(A) 50% or more of the total voting power of the Surviving Company’s then-outstanding securities in respect of the election of directors (or similar officials in the case of a non-corporation) is represented by Voting Securities outstanding immediately before the Reorganization or Sale or by securities into which such Voting Securities were converted in the Reorganization or Sale;

(B) there is no beneficial owner of securities entitled to 30% or more of the total voting power of the then-outstanding securities of the Surviving Company in respect of the election of directors (or similar officials in the case of a non-corporation); and

(C) a majority of the board of directors of the Surviving Company (or similar officials in the case of a non-corporation) were Incumbent Directors at the time the Board approved the execution of the initial agreement providing for the Reorganization or Sale. The “Surviving Company” means (a) in a Reorganization, the entity resulting from the Reorganization or (b) in a Sale, the entity that has acquired all or substantially all of the assets of the Company, except that, if there is a beneficial owner of securities entitled to 95% of the total voting power (in respect of the election of directors or similar officials in the case of a non-corporation) of the then-outstanding securities of the entity that would otherwise be the Surviving Company, then that beneficial owner will be the Surviving Company.

(iv) The Company’s stockholders approve a plan of complete liquidation or dissolution of the Company.

For purposes of this definition of “Change in Control”, (i) any sale of only Weston Presidio L.P.’s interests in the Company that is approved by the Board shall not constitute a “Change in Control, and (ii) the term “beneficial owner” has the meaning assigned in Rule 13d-3 under the 1934 Act, as that rule is in effect as of the date hereof. After any Excluded Transaction, the Surviving Company will be treated as the Company for all purposes of the definition of Change in Control.

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(d) Employment Beyond Initial Term. In the event Executive remains employed by Fender upon expiration of the Initial Term, Fender shall have the option to either offer continuing at-will employment or some other employment arrangement to Executive. If and when Executive remains employed by Fender after the natural expiration of the Initial Term, unless an extension or other arrangement has been renegotiated, Executive shall become an at-will employee of Fender from that time forward, and unless Fender in its discretion notifies Executive otherwise, all of the terms and conditions of this Agreement shall cease, except for those which, by their terms, survive expiration of the Employment Period or are to be performed following the expiration or termination of the Employment Period.

(e) Form and Time of Payment. The cash amounts provided for in Sections 7(a) and (b) above shall be paid in a single lump sum payment on the regularly scheduled payroll day immediately following the 30th day after Executive’s termination date (but in no event later than March 15^th of the year following the year in which such termination occurred). Notwithstanding the preceding sentence, (A) if Executive is a “specified employee” at the time he terminates employment with Fender and any payment or benefit under Section 7 is determined to constitute non-qualified deferred compensation, such payment shall be made or such benefit shall be provided on the date that is six months after termination of employment with the Company, all as determined in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, applying all default provisions under such regulations.

(f) To the extent provided in Appendix A, if Executive is subject to the excise tax imposed under Section 4999 of the Code, Fender will pay to Executive a gross-up payment in accordance with the provisions of Appendix A.

8. Death During Employment. In addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, if Executive dies during the Employment Period, Fender shall pay to the estate of Executive a lump sum payment within thirty (30) days following death an amount equal to the Base Compensation, at the rate then in effect, that would have been otherwise payable to Executive up to the end of the month in which his death occurred and for two (2) additional weeks thereafter. In addition, Fender shall pay to the estate of Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan).

9. Disability. In the event Executive shall become Disabled during the Employment Period, as determined by a health care professional suitable to Fender (and established by a second opinion at Fender’s option), in addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, Fender shall

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(i) pay to Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan), and (ii) continue to pay to Executive his Base Compensation, at the rate then in effect, for up to thirteen (13) weeks following the date Executive became Disabled. For the purpose of this Agreement, Executive shall be “Disabled” if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

10. Vacations. Executive shall be entitled to an annual vacation allowance during the Employment Period, as determined by Fender’s CEO or Board of Directors during which time his compensation shall be paid in full.

11. Expenses. Provided Executive provides proper documentation as may be required by Fender from time to time, and demonstrates an appropriate business purpose, during the Employment Period, Fender will reimburse Executive for reasonable expenses incident to the rendering of services hereunder. Reimbursement of expenses shall be made within thirty (30) days of the date a request for reimbursement is submitted, but in no event shall any such amount be reimbursed after the last day of the calendar year following the calendar year in which expenses were incurred and in no event shall any right to reimbursement be subject to liquidation or exchange for another benefit.

12. Exclusivity/Non-Competition. Executive acknowledges that (a) his employment by Fender (which for purposes of Sections 12, 13 and 14 shall mean Fender, its subsidiaries and affiliates) is of a special, personally unique, artistic, unusual, extraordinary and intellectual character, and (b) the nature of Executive’s services, position and expertise is such that he is capable of competing with Fender from nearly any location in the world. Executive further acknowledges that his employment hereunder will, throughout the Employment Period, bring him into close contact with many confidential affairs of Fender, including without limitation information about costs, profits, customers, markets, sales, products, key personnel, pricing policies, operational methods, trade secrets and other business affairs and methods and other information not readily available to the public, and plans for further development (“Confidential Information”). In recognition of the considerations described in the foregoing provisions of this Section 12 and in the preamble to this Agreement, Executive covenants and agrees that, during the Employment Period, and thereafter for the longer of (i) any period after termination of the Employment Period during or for which Executive receives payments, compensation and/or severance pay from Fender, or (ii) twelve (12) months, he will not, in the United States of America, or in any state or other country in which Fender is engaged in any Competitive Business (as defined in the last sentence of this Section 12),

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directly or indirectly: (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account; (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, trustee, consultant, advisor or in any other relationship or capacity; (iv) induce, for Executive or any other person or entity, any present or future employee of Fender to leave the employ of Fender and/or seek or accept employment with Executive or with any other person or firm engaged in a Competitive Business; provided, however, that nothing contained in this Section 12 shall be deemed to prohibit Executive from acquiring, solely as an investment through market purchases, securities of such a corporation engaged in any Competitive Business which are registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded so long as such securities do not in the aggregate exceed one percent (1%) of any class of securities of such corporation. The term “Competitive Business,” as used in this Agreement, shall mean the design, manufacture or distribution of musical instruments of any category dealt in by Fender at any time during Executive’s employment by Fender under this Agreement or otherwise.

13. Protection of Confidential Information. In recognition of the considerations described in Section 12 hereof, Executive covenants and agrees that he will deliver promptly a termination of this Agreement, or at any other time Fender may also request, all Confidential Information in the form of memoranda, notes, records, reports and any other documents or media (and all copies thereof) relating to Fender’s business which he may then possess or have under his control. In addition, for as long as such information remains sensitive and confidential in nature, and is not made public (through no fault of Executive), Executive agrees that he will hold in strictest confidence all matters of Fender that are not otherwise in the public domain and will not disclose them to anyone outside of Fender or use them for himself or otherwise, either during or after the Employment Period. If, and only if, a court or tribunal of final jurisdiction finds this restriction overbroad as to time, then this restriction shall have a duration of five (5) years from the termination of the Employment Period.

14. Remedies. If Executive commits a breach of any of the provisions of Sections 12 or 13 of this Agreement, in addition to Fender’s rights to terminate its obligations hereunder, Fender shall have the right to an injunction or order of specific enforcement, without necessity of posting a bond or providing independent evidence of irreparable injury, by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Fender and that money damages will not provide an adequate remedy to Fender. Fender and Executive recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability of agreements similar to those contained in Section 12 hereof. It is the intention of Fender and Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which such enforcement is sought.

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15. Dispute Resolution.

(a) Any and all disputes arising under, pertaining to or touching upon this Agreement, or the statutory rights or obligations of either party hereto, shall, if not settled by negotiation, be subject to non-binding mediation before an independent mediator selected by the parties pursuant to Section 15(b). Notwithstanding the foregoing, both Executive and Company may seek preliminary injunctive or other judicial relief if such action is necessary to avoid irreparable damage during the pendency of the proceedings described in this Section 15. Any demand for mediation shall be made in writing and served upon the other party to the dispute, by certified mail, return receipt requested, at the address specified in this Agreement. The demand shall set forth with reasonable specificity the basis of the dispute and the relief sought. The mediation hearing will occur at a time and place convenient to the parties in Maricopa County, Arizona, within thirty (30) days of the date of selection or appointment of the mediator. Mediation or the waiver of mediation by both parties shall be a condition precedent to Arbitration.

(b) In the event that the dispute is not settled through mediation, the parties shall then proceed to binding arbitration before an independent arbitrator selected pursuant to Section 15. The mediator shall not serve as the arbitrator. EXCEPT AS PROVIDED IN SECTION 14, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY, OR ALLEGED EMPLOYMENT TORT COMMITTED BY COMPANY OR A REPRESENTATIVE OF COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS SECTION 15 AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL.

The arbitration hearing shall occur at a time and place convenient to the parties in Maricopa County, Arizona, within sixty (60) days of selection or appointment of the arbitrator unless such time period is extended by the arbitrator for good cause shown. If Company has adopted, with the consent of Executive, a policy that is applicable to arbitrations with executives, the arbitration shall be conducted in accordance with said policy, to the extent that the policy is consistent with this Agreement and the Federal Arbitration Act, 9 U.S.C. §§ 1-16. If no such policy has been adopted, the arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”) in effect on the date of the first notice of demand for arbitration. Notwithstanding any provisions in such rules to the contrary, the arbitrator shall issue findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.

(c) Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, except that court review of the arbitrator’s award shall be that of an appellate court reviewing a decision of a trial judge sitting without a jury.

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(d) The costs and expenses of any arbitration shall be borne by Company and Executive jointly; provided, however, that any filing fee(s) required to be paid by Executive shall be limited to the filing fees required to initiate an action in the Superior Court of Arizona, County of Maricopa, and the Company will pay the balance.

16. Severability and Non-Exclusivity. The rights and remedies set forth in Sections 12, 13 and 14 shall be in addition to and not in lieu of any other rights and remedies available to Fender under the law or in equity. If the courts (or arbitration tribunals) of any one or more jurisdictions shall hold all or any part of the provisions of Sections 12, 13 or 14 unenforceable for any reason, it is the intention of the parties that such determination shall not bar or in any way affect Fender’s right to relief with respect to the remaining portions, all of which shall be deemed severable and individually enforceable, or in any other jurisdiction.

17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by facsimile, with receipt confirmed, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):

If to Fender:	Fender Musical Instruments Corporation 8860 E. Chaparral Road, Suite 100 Scottsdale, AZ 85250 Attention: CEO
If to Executive:	Addressed to him at his address on the personnel records of Fender.

18. General.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Arizona applicable to agreements made and to be performed entirely in Arizona.

(b) This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes and cancels all prior agreements, arrangements and understandings, written or oral, between the parties, all of which are hereby nullified, and shall be deemed fully performed.

(c) This Agreement may not be assigned by Executive. Fender may only assign this Agreement to a subsidiary of Fender, provided Fender remains liable therefore. Fender shall assign this Agreement to a bona fide successor to Fender, in the

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event such a transaction occurs, and Executive hereby consents to any such assignment(s). This Agreement shall inure to and be binding upon Fender, and its successors and assigns.

(d) This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party hereto of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

FENDER MUSICAL INSTRUMENTS
CORPORATION
By:	/s/ William Mendello	/s/ James Broenen
Its:	Chief Executive Officer	James Broenen

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APPENDIX A

Additional Reimbursement Payments by the Company

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or another person or entity to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Appendix A) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to Executive an additional payment (a “Reimbursement Payment”) in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Reimbursement Payment, Executive retains an amount of the Reimbursement Payment equal to the Excise Tax imposed upon the Payments. For purposes of determining the amount of the Reimbursement Payment, Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Reimbursement Payment is to be made and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes Notwithstanding the foregoing provisions of this paragraph, if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payments would result in a greater after tax benefit to the Executive if the Payments were reduced by an amount that results in no portion of such payments being treated as “parachute payments” under Section 280G of the Code, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to Executive. The reduction of the amounts payable hereunder, if applicable, shall occur in the following order unless Executive elects in writing no less than ten (10) business days prior to the Change of Control a different order: reduction of cash payments, followed by reduction of employee benefits. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision.

(b) Subject to the provisions of paragraph (a) above, all determinations required to be made under this Appendix A, including whether and when a Reimbursement Payment is required, the amount of such Reimbursement Payment, the amount of any Option Redetermination (as defined below) and the assumptions to be utilized in arriving at such determinations, shall be made by a public accounting firm that

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is retained by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). Notwithstanding the foregoing, in the event (i) the Company’s Board of Directors shall determine that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Company’s Board of Directors determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the person(s) effecting a change in control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company, and the Company shall enter into any agreement reasonably requested by the Accounting Firm in connection with the performance of the services hereunder. The Reimbursement Payment under this Appendix A with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive.

(c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Reimbursement Payments which will not have been made by the Company should have been made (“Underpayment”) or Reimbursement Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to be made hereunder. In the event the amount of the Reimbursement Payment is less than the amount necessary to reimburse Executive for the Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the applicable rate provided for in the Code) shall be promptly paid by the Company to or for the benefit of Executive (but in any event no later than by the end of Executive’s taxable year next following Executive’s taxable year in which the Underpayment of Excise Tax is remitted). In the event the amount of the Reimbursement Payment exceeds the amount necessary to reimburse Executive for the Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the applicable rate provided for in the Code) shall be promptly paid by Executive (to the extent Executive has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. In the event that the Company makes a Reimbursement Payment to Executive and subsequently the Company

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determines that the value of any accelerated vesting of stock options held by Executive shall be redetermined within the context of Treasury Regulation §1.280G-1 Q/A 33 (the “Option Redetermination”), Executive shall (i) file with the Internal Revenue Service an amended federal income tax return that claims a refund of the overpayment of the Excise Tax attributable to such Option Redetermination and (ii) promptly pay the refunded Excise Tax to the Company; provided that the Company shall pay on a current basis all reasonable professional fees incurred in the preparation of Executive’s amended federal income tax return. If the Option Redetermination occurs in the same year that the Reimbursement Payment is included in Executive’s taxable income, then in addition to returning the refund to the Company, Executive will also promptly return to the Company any tax benefit realized by the return of such refund and the return of the additional tax benefit payment (all determinations pursuant to this sentence shall be made by the Accounting Firm).

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EX-10.21

Exhibit 10.21

FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT BETWEEN FENDER

MUSICAL INSTRUMENTS CORPORATION AND JAMES BROENEN

This First Amendment (“Amendment”) to the Employment Agreement between James Broenen and Fender Musical Instruments Corporation, which is dated December 2, 2008 (the “Employment Agreement”), shall be effective as of April 1, 2010. All capitalized terms not defined in this Amendment shall have the same meaning as in the Employment Agreement.

The Employment Agreement is hereby amended as follows:

1. Section 1 of the Employment Agreement is deleted in its entirety and replaced with the following:

“Initial Term/Employment Period. Fender hereby continues to employ Executive, and Executive hereby agrees to his continued employment as Chief Financial Officer and Treasurer, for an initial term to end on March 31, 2013 (the “Initial Term”), unless the employment is earlier terminated as provided herein. During the Initial Term or, if shorter, that portion of the Initial Term during which Executive remains continuously employed by Fender (the “Employment Period”), Executive shall perform such services, consistent with his titles, as may from time to time be assigned to, or expected from, him by the Board of Directors of Fender, or those officers empowered by the Board to supervise Executive, including the CEO.”

2. The first three sentences of Section 7(b) of the Employment Agreement are deleted and replaced with the following:

“Severance Pay. Upon termination of the Employment Period (i) by Fender other than for Cause or (ii) by Executive for Good Reason, Executive shall be entitled to receive a lump sum amount in cash equal to one (1) year’s Annual Compensation (as defined below). Upon termination of the Employment Period (i) by Fender (or any successor) other than for Cause or (ii) by Executive for Good Reason, in each case, following a Change in Control, as defined below, Executive shall not be paid the severance amount described in the preceding sentence, but rather shall be entitled to receive a lump sum amount in cash equal to two (2) years’ Annual Compensation (as defined below). In addition, Fender shall pay or reimburse Executive for any and all COBRA payments or other benefit continuation expenses incurred by Executive for (i) one year if Executive is terminated by Fender other than for cause or if Executive leaves for Good Reason, or (ii) two years if Executive is terminated by Fender other than for cause or if Executive leaves for Good Reason, in each case, following a Change of Control.”

3. Except as specifically set forth in this Amendment, all other terms and conditions in the Employment Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have duly executed this Amendment.

FENDER MUSICAL

INSTRUMENTS CORPORATION

By:	/s/ William Mendello	By:	/s/ James Broenen
Name:	William Mendello		James Broenen
Title:	CEO
Dated: 3/22/10		Dated: 3/22/10

EX-10.22

Exhibit 10.22

SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT BETWEEN

FENDER MUSICAL INSTRUMENTS CORPORATION AND JAMES BROENEN

This Second Amendment (“Amendment”) to the Employment Agreement between James Broenen and Fender Musical Instruments Corporation, which is dated December 2, 2008 (as amended by the First Amendment dated April 1, 2010, the “Employment Agreement”), shall be effective as of August 15, 2011. All capitalized terms not defined in this Amendment shall have the same meaning as in the Employment Agreement.

The Employment Agreement is hereby amended as follows:

1. Section 2 of the Employment Agreement is amended to add the following as new sentences at the end of the section:

“Effective with the pay period beginning September 5, 2011, Executive shall receive a $750 per month vehicle allowance for the remainder of the Employment Period. The vehicle allowance shall be taxed as regular wages for the Executive and be reported on the Executive’s W-2.”

2. Section 7(f) of the Agreement is deleted in its entirety and replaced with the following:

“Effective as of August 15, 2011, if Executive is subject to the excise tax imposed under Section 4999 of the Code, the provisions of Appendix A attached hereto shall apply.”

3. Section 10 of the Employment Agreement is amended to add the following as new sentences at the end of the section:

“Effective with the pay period beginning September 5, 2011, Executive shall be entitled to four (4) weeks of annual vacation during the Employment Period, during which his compensation shall be paid in full. For the remainder of 2011, that amount will be prorated based on time left in the year to two (2) additional days of paid vacation.”

4. Effective as of August 15, 2011, Appendix A to the Agreement is deleted in its entirety and replaced with Appendix A attached to this Amendment.

5. Except as specifically set forth in this Amendment, all other terms and conditions in the Employment Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have duly executed this Amendment.

FENDER MUSICAL INSTRUMENTS CORPORATION

By:	/s/ Mark Van Vleet	By:	/s/ James Broenen
Name:	Mark Van Vleet		James Broenen
Title:	Chief Legal Officer

APPENDIX A

Treatment of Parachute Payments

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or another person or entity to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then (i) or (ii) below, as applicable, shall apply:

(i) If a reduction of the Payments to the Safe Harbor Cap (as defined below) would result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the Safe Harbor Cap. The reduction of the amounts payable hereunder, if applicable, shall occur in the following order unless Executive elects a different order as of the date hereof: reduction of cash payments, followed by reduction of employee benefits. If the reductions described in the preceding sentence would not result in a reduction of the Payments to the Safe Harbor Cap, further reduction of the Payments shall be made in the manner which has the least economic cost to Executive.

(ii) If a reduction of the Payments to the Safe Harbor Cap would not result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall not be reduced and Executive shall be liable for payment of the Excise Tax.

For purposes of this Agreement, “Safe Harbor Cap” shall mean the maximum amount of Payments that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”).

(b) Subject to the provisions of paragraph (a) above, all determinations required to be made under this Appendix A, including whether and when an Excise Tax is due and the assumptions to be utilized in arriving at such determinations, shall be made by a public accounting firm that is retained by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). Notwithstanding the foregoing, in the event (i) the Company’s Board of Directors shall determine that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Company’s Board of Directors determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the person(s) effecting a change in control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company, and the Company shall enter into any agreement reasonably requested by the Accounting Firm in connection with the performance of the services hereunder. If the Accounting Firm determines that no Excise Tax is payable by

Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive.

(c) If it is established pursuant to a final determination of a court or the Internal Revenue Service (the “IRS”) proceeding, which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Appendix A (hereinafter referred to as an “Excess Payment”), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made under this Appendix A. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment.

EX-10.23

Exhibit 10.23

AMENDED AND RESTSTAED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) is made and effective as of December 2, 2008 (the “Effective Date”) by and between Fender Musical Instruments Corporation, a Delaware corporation (“Fender” or the “Company”), on one hand, and Mark Van Vleet, an individual, on the other hand (“Executive”).

WHEREAS, Fender is in the business of designing, manufacturing, marketing, selling and distributing musical instruments and related equipment and products; and

WHEREAS, Fender currently employs Executive, Fender desires to continue to employ Executive, and Executive desires to accept continued employment with Fender; and

WHEREAS, Fender and Executive were parties to a certain Employment Agreement dated February 6, 2004 (together with the First Amendment to the Employment Agreement dated September 27, 2004, the Addendum and Modification to Employment Agreement dated March 29, 2005, and the Addendum and Restatement of Terms of Employment Agreement dated September 23, 2005, the “Prior Agreement”), and the parties intend that such Prior Agreement and other terms of employment are to be completely superseded and cancelled by the terms of this Agreement;

NOW THEREFORE, in consideration of the mutual promises herein expressed, the parties hereto agree as follows:

1. Initial Term/Employment Period. Fender hereby continues to employ Executive, and Executive hereby agrees to his continued employment as General Counsel, for an initial term to end on March 31, 2010 (the “Initial Term”), unless the employment is earlier terminated as provided herein. During the Initial Term or, if shorter, that portion of the Initial Term during which Executive remains continuously employed by Fender (the “Employment Period”), Executive shall perform such services, consistent with his title, as may from time to time be assigned to, or expected from, him by the Board of Directors of Fender, or those officers empowered by the Board to supervise Executive, including the CEO.

2. Compensation. Fender agrees to pay Executive, and Executive agrees to accept from Fender, for all of his services hereunder during the Employment Period, a salary of $273,213.42 per annum (“Base Compensation”), payable in installments in accordance with the payroll practices of Fender, as in effect from time to time, which salary shall be subject to annual review, and shall be subject to potential increase in the sole discretion of the CEO and/or Board of Directors of Fender. During the Employment Period, Executive shall also be eligible to participate in Fender’s Annual Incentive Plan (or any successor plan), as in effect from time to time, with a target bonus opportunity of 50% of Base Compensation, subject to the terms of such Annual Incentive Plan (or any successor plan), as in effect from time to time.

3. Extent of Services. During the Employment Period, Executive agrees to devote his entire business loyalties and all of his business time and attention to the affairs of Fender and to perform duties customarily incident to his office and such other duties as may from time to time be assigned to, or expected from, him by Fender’s CEO and/or Board of Directors, except during vacation periods and reasonable periods of illness or other incapacity consistent with the practices of Fender. Nothing in this Agreement shall prevent Executive from investing his assets in such form or manner as will not require his services in the operation of the affairs of the companies in which such investments are made, and in accordance with Section 12 herein.

4. Benefit Plans.

(a) During the Employment Period, Executive shall have the same rights as other Fender employees in comparable executive positions to participate in any retirement, pension, insurance, medical, hospital or other plans (“Benefit Plans”), as in effect from time to time, it being understood that eligibility and other requirements for such participation shall be controlled by the respective plan(s) and plan documents, and that Fender retains the sole right to implement, change or terminate any such Benefit Plans in its discretion.

(b) Nothing in this Agreement shall be deemed to affect Executive’s rights with respect to Fender stock options or other equity-based awards. All rights with respect to such stock options or other equity-based awards shall continue to be governed exclusively by the applicable stock option and equity-based award plan(s) and agreement(s), which shall not be deemed to be modified or amended in any way by this Agreement.

5. Working Facilities. Executive shall have a private office, reasonable administrative assistance, and such other facilities and services as are suitable to his position and appropriate for the performance of his duties during the Employment Period.

6. Termination.

(a) By Fender with or without Cause. Fender may terminate the Employment Period with or without Cause at any time, subject to the notice provisions hereof. For purposes of this Agreement, the term “Cause” shall mean: (1) Executive’s misappropriation (or attempted misappropriation) of any of the Company’s funds or property, or (2) Executive’s conviction of, or the entering of a guilty plea or plea of no contest with respect to, a felony, or a misdemeanor that involves moral turpitude or any other fraudulent act, (3) Executive’s continued or repeated failure to substantially perform his duties (after notice and a reasonable opportunity to cure) or Executive engaging in a pattern of incompetence, (4) Executive’s commission of an act of

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dishonesty, insubordination or gross misconduct toward the Company, (5) Executive’s commission of any act detrimental to the interest of the Company, including its goodwill, (6) Executive’s material breach of any of the terms of this Agreement, or (7) Executive’s breach of Section 12 or 13 of this Agreement.

(b) By Executive for any Reason. Executive may terminate this Agreement for Good Reason or for any reason at any time, subject to the notice provisions hereof. For purposes of this Agreement, the term “Good Reason” shall mean: (1) a material diminution in Executive’s Base Compensation or target bonus opportunity under the Annual Incentive Plan (or any successor plan), (2) a material diminution in Executive’s authority, duties, or responsibilities, (3) a material diminution in the authority, duties, or responsibilities of the supervisor to whom Executive is required to report, (4) a material diminution in the budget over which Executive retains authority, (5) a material change in the geographic location of Executive’s position, or (6) any other action by Fender that constitutes a material breach of this Agreement. Notwithstanding the foregoing, no termination of Executive’s employment shall be for Good Reason unless Executive gives the Company written notice within 90 days of Executive obtaining knowledge of circumstances giving rise to Good Reason (describing in reasonable detail the circumstances and the Good Reason event that has occurred) and the Company does not remedy these circumstances within 30 days of receipt of such notice. In addition, an event will not give rise to Good Reason if it is made with Executive’s express written consent.

(c) Fender may terminate the Employment Period other than for Cause and Executive may terminate employment for Good Reason, in each case, upon sixty (60) days written notice to the other party, provided that in such an event, Executive will be entitled to receive all payments set forth in Sections 7(a) and (b) below. The Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

(d) Fender may terminate the Employment Period for Cause immediately upon written notice to Executive and Executive may terminate employment for any reason other than Good Reason upon thirty (30) days’ prior written notice to the Company, provided that in each case, Executive shall only receive the accrued compensation and benefits set forth in Section 7(a). If applicable, the Company may determine in its sole discretion and at any time to pay Executive the portion of his Base Compensation applicable to all or a portion of such notice period in lieu of such notice.

7. Payments Upon Termination.

(a) Accrued Compensation and Other Benefits. Upon any termination of the Employment Period, the Company will pay Executive (i) Executive’s Base Compensation as pro-rated through the termination date, to the extent not already paid, (ii) reimbursement (in accordance with the Company’s expense reimbursement policy)

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for reasonable and necessary business expenses incurred by Executive on behalf of the Company before the termination date, (iii) Executive’s accrued and unused vacation pay (in accordance with the Company’s vacation policy) to the extent not already paid, and (iv) any bonuses and incentive compensation to which Executive is entitled under the terms of applicable bonus or incentive plans or awards maintained by the Company. In addition, the Company will pay or provide Executive, to the extent not already paid or provided, any amounts or benefits required to be paid or provided or which Executive is eligible to receive under any plan, program, policy or practice or other contract or agreement of the Company through the termination date.

(b) Severance Pay. Upon termination of the Employment Period (i) by Fender other than for Cause or (ii) by Executive for Good Reason, Executive shall be entitled to receive a lump sum amount in cash equal to the sum of (A) his Annual Compensation (as defined below) for the remainder, if any, of the Initial Term, plus (B) an additional amount, if any, necessary so that the total amount payable to Executive under this sentence is equal to at least one (1) year’s Annual Compensation. Upon termination of the Employment Period (i) by Fender (or any successor) other than for Cause or (ii) by Executive for Good Reason, in each case, following a Change in Control, as defined below, Executive shall not be paid the severance amount described in the preceding sentence, but rather shall be entitled to receive a lump sum amount in cash equal to (i) his Annual Compensation (as defined below) for the remainder, if any, of the Initial Term, plus (ii) an additional amount, if any, necessary so that the total amount payable to Executive under this sentence is equal to at least two (2) years’ Annual Compensation. In addition, Fender shall pay or reimburse Executive for any and all COBRA payments or other benefit continuation expenses incurred by Executive during the remainder of the Initial Term (provided that such reimbursements shall not exceed Fender’s costs for such benefits prior to the termination). For purposes hereof, “Annual Compensation” shall mean an amount equal to Base Compensation plus the average annual cash bonuses paid or payable to Executive during the three (3) fiscal years of Fender immediately preceding the termination of Executive’s employment (or such shorter period during which Executive was employed by Fender); provided, however, that for purposes of this Agreement, Annual Compensation shall not include the Payment (within the meaning of the Prior Agreement) or any portion thereof.

(c) For purposes of this Agreement, the term “Change in Control” shall mean:

(i) During any period of not more than two years, the Incumbent Directors no longer represent a majority of the Board. “Incumbent Directors” are (A) the members of the Board as of August 21, 2008 and (B) any individual who becomes a director thereafter whose appointment or nomination was approved by at least a majority of the Incumbent Directors then on the Board (either by specific vote or by approval, without prior written notice to the Board objecting to the nomination, of a proxy statement in which the member was named as nominee). However, the Incumbent Directors will not include anyone

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who becomes a member of the Board thereafter as a result of an actual or threatened election contest or proxy or consent solicitation on behalf of anyone other than the Board, including as a result of any appointment, nomination or other agreement intended to avoid or settle a contest or solicitation.

(ii) There is a beneficial owner of securities entitled to 30% or more of the total voting power of the Company’s then-outstanding securities in respect of the election of the Board (“Voting Securities”), other than by (A) the Company, any subsidiary of it or any employee benefit plan or related trust sponsored or maintained by the Company or any subsidiary of it; (B) any underwriter temporarily holding securities pursuant to an offering of them; or (C) anyone who becomes a beneficial owner of that percentage of Voting Securities as a result of an Excluded Transaction (as defined in Section iii below without regard to Section iii(B)).

(iii) Consummation of a merger, consolidation, statutory share exchange or similar transaction (including an exchange offer combined with a merger or consolidation) involving the Company (a “Reorganization”) or a sale, lease or other disposition (including by way of a series of transactions or by way of merger, consolidation, stock sale or similar transaction involving one or more subsidiaries) of all or substantially all of the Company’s consolidated assets (a “Sale”) other than an Excluded Transaction. An “Excluded Transaction” is a Reorganization or Sale pursuant to which immediately following such Reorganization or Sale:

(A) 50% or more of the total voting power of the Surviving Company’s then-outstanding securities in respect of the election of directors (or similar officials in the case of a non-corporation) is represented by Voting Securities outstanding immediately before the Reorganization or Sale or by securities into which such Voting Securities were converted in the Reorganization or Sale;

(B) there is no beneficial owner of securities entitled to 30% or more of the total voting power of the then-outstanding securities of the Surviving Company in respect of the election of directors (or similar officials in the case of a non-corporation); and

(C) a majority of the board of directors of the Surviving Company (or similar officials in the case of a non-corporation) were Incumbent Directors at the time the Board approved the execution of the initial agreement providing for the Reorganization or Sale. The “Surviving Company” means (a) in a Reorganization, the entity resulting from the Reorganization or (b) in a Sale, the entity that has acquired all or substantially all of the assets of the Company, except that, if there is a beneficial owner of securities entitled to 95% of the total voting power (in

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respect of the election of directors or similar officials in the case of a non-corporation) of the then-outstanding securities of the entity that would otherwise be the Surviving Company, then that beneficial owner will be the Surviving Company.

(iv) The Company’s stockholders approve a plan of complete liquidation or dissolution of the Company.

For purposes of this definition of “Change in Control”, (i) any sale of only Weston Presidio L.P.’s interests in the Company that is approved by the Board shall not constitute a “Change in Control, and (ii) the term “beneficial owner” has the meaning assigned in Rule 13d-3 under the 1934 Act, as that rule is in effect as of the date hereof. After any Excluded Transaction, the Surviving Company will be treated as the Company for all purposes of the definition of Change in Control.

(d) Employment Beyond Initial Term. In the event Executive remains employed by Fender upon expiration of the Initial Term, Fender shall have the option to either offer continuing at-will employment or some other employment arrangement to Executive. If and when Executive remains employed by Fender after the natural expiration of the Initial Term, unless an extension or other arrangement has been renegotiated, Executive shall become an at-will employee of Fender from that time forward, and unless Fender in its discretion notifies Executive otherwise, all of the terms and conditions of this Agreement shall cease, except for those which, by their terms, survive expiration of the Employment Period or are to be performed following the expiration or termination of the Employment Period.

(e) Form and Time of Payment. The cash amounts provided for in Sections 7(a) and (b) above shall be paid in a single lump sum payment on the regularly scheduled payroll day immediately following the 30th day after Executive’s termination date (but in no event later than March 15^th of the year following the year in which such termination occurred). Notwithstanding the preceding sentence, (A) if Executive is a “specified employee” at the time he terminates employment with Fender and any payment or benefit under Section 7 is determined to constitute non-qualified deferred compensation, such payment shall be made or such benefit shall be provided on the date that is six months after termination of employment with the Company, all as determined in accordance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the regulations thereunder, applying all default provisions under such regulations.

(f) To the extent provided in Appendix A, if Executive is subject to the excise tax imposed under Section 4999 of the Code, Fender will pay to Executive a gross-up payment in accordance with the provisions of Appendix A.

8. Death During Employment. In addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, if Executive dies during the Employment Period, Fender shall pay to the estate of Executive a lump

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sum payment within thirty (30) days following death an amount equal to the Base Compensation, at the rate then in effect, that would have been otherwise payable to Executive up to the end of the month in which his death occurred and for two (2) additional weeks thereafter. In addition, Fender shall pay to the estate of Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan).

9. Disability. In the event Executive shall become Disabled during the Employment Period, as determined by a health care professional suitable to Fender (and established by a second opinion at Fender’s option), in addition to any other benefits Executive may be entitled to under the Benefit Plans and Section 7(a) above, Fender shall (i) pay to Executive a lump sum pro rata bonus payment pursuant to the terms and conditions of Fender’s Annual Incentive Plan (or any successor plan), and (ii) continue to pay to Executive his Base Compensation, at the rate then in effect, for up to thirteen (13) weeks following the date Executive became Disabled. For the purpose of this Agreement, Executive shall be “Disabled” if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, or is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company.

10. Vacations. Executive shall be entitled to an annual vacation allowance during the Employment Period, as determined by Fender’s CEO or Board of Directors during which time his compensation shall be paid in full.

11. Expenses. Provided Executive provides proper documentation as may be required by Fender from time to time, and demonstrates an appropriate business purpose, during the Employment Period, Fender will reimburse Executive for reasonable expenses incident to the rendering of services hereunder. Reimbursement of expenses shall be made within thirty (30) days of the date a request for reimbursement is submitted, but in no event shall any such amount be reimbursed after the last day of the calendar year following the calendar year in which expenses were incurred and in no event shall any right to reimbursement be subject to liquidation or exchange for another benefit.

12. Exclusivity/Non-Competition. Executive acknowledges that (a) his employment by Fender (which for purposes of Sections 12, 13 and 14 shall mean Fender, its subsidiaries and affiliates) is of a special, personally unique, artistic, unusual, extraordinary and intellectual character, and (b) the nature of Executive’s services, position and expertise is such that he is capable of competing with Fender from nearly any location in the world. Executive further acknowledges that his employment hereunder will, throughout the Employment Period, bring him into close contact with

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many confidential affairs of Fender, including without limitation information about costs, profits, customers, markets, sales, products, key personnel, pricing policies, operational methods, trade secrets and other business affairs and methods and other information not readily available to the public, and plans for further development (“Confidential Information”). In recognition of the considerations described in the foregoing provisions of this Section 12 and in the preamble to this Agreement, Executive covenants and agrees that, during the Employment Period, and thereafter for the longer of (i) any period after termination of the Employment Period during or for which Executive receives payments, compensation and/or severance pay from Fender, or (ii) twelve (12) months, he will not, in the United States of America, or in any state or other country in which Fender is engaged in any Competitive Business (as defined in the last sentence of this Section 12), directly or indirectly: (i) enter into the employ of or render any services to any person, firm or corporation engaged in any Competitive Business; (ii) engage in any Competitive Business for his own account; (iii) become interested in any Competitive Business as an individual, partner, shareholder, creditor, director, officer, principal, agent, employee, trustee, consultant, advisor or in any other relationship or capacity; (iv) induce, for Executive or any other person or entity, any present or future employee of Fender to leave the employ of Fender and/or seek or accept employment with Executive or with any other person or firm engaged in a Competitive Business; provided, however, that nothing contained in this Section 12 shall be deemed to prohibit Executive from acquiring, solely as an investment through market purchases, securities of such a corporation engaged in any Competitive Business which are registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded so long as such securities do not in the aggregate exceed one percent (1%) of any class of securities of such corporation; and provided, further, that nothing herein shall prohibit Executive from being employed by a law firm, banking, investment banking, private equity or other financial services organization or an independent consulting firm that has clients that are engaged in any Competitive Business. The term “Competitive Business,” as used in this Agreement, shall mean the design, manufacture or distribution of musical instruments of any category dealt in by Fender at any time during Executive’s employment by Fender under this Agreement or otherwise.

13. Protection of Confidential Information. In recognition of the considerations described in Section 12 hereof, Executive covenants and agrees that he will deliver promptly a termination of this Agreement, or at any other time Fender may also request, all Confidential Information in the form of memoranda, notes, records, reports and any other documents or media (and all copies thereof) relating to Fender’s business which he may then possess or have under his control. In addition, for as long as such information remains sensitive and confidential in nature, and is not made public (through no fault of Executive), Executive agrees that he will hold in strictest confidence all matters of Fender that are not otherwise in the public domain and will not disclose them to anyone outside of Fender or use them for himself or otherwise, either during or after the Employment Period. If, and only if, a court or tribunal of final jurisdiction finds this restriction overbroad as to time, then this restriction shall have a duration of five (5) years from the termination of the Employment Period.

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14. Remedies. If Executive commits a breach of any of the provisions of Sections 12 or 13 of this Agreement, in addition to Fender’s rights to terminate its obligations hereunder, Fender shall have the right to an injunction or order of specific enforcement, without necessity of posting a bond or providing independent evidence of irreparable injury, by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Fender and that money damages will not provide an adequate remedy to Fender. Fender and Executive recognize that the laws and public policies of various jurisdictions may differ as to the validity and enforceability of agreements similar to those contained in Section 12 hereof. It is the intention of Fender and Executive that the provisions of this Agreement shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which such enforcement is sought.

15. Dispute Resolution.

(a) Any and all disputes arising under, pertaining to or touching upon this Agreement, or the statutory rights or obligations of either party hereto, shall, if not settled by negotiation, be subject to non-binding mediation before an independent mediator selected by the parties pursuant to Section 15(b). Notwithstanding the foregoing, both Executive and Company may seek preliminary injunctive or other judicial relief if such action is necessary to avoid irreparable damage during the pendency of the proceedings described in this Section 15. Any demand for mediation shall be made in writing and served upon the other party to the dispute, by certified mail, return receipt requested, at the address specified in this Agreement. The demand shall set forth with reasonable specificity the basis of the dispute and the relief sought. The mediation hearing will occur at a time and place convenient to the parties in Maricopa County, Arizona, within thirty (30) days of the date of selection or appointment of the mediator. Mediation or the waiver of mediation by both parties shall be a condition precedent to Arbitration.

(b) In the event that the dispute is not settled through mediation, the parties shall then proceed to binding arbitration before an independent arbitrator selected pursuant to Section 15. The mediator shall not serve as the arbitrator. EXCEPT AS PROVIDED IN SECTION 14, ALL DISPUTES INVOLVING ALLEGED UNLAWFUL EMPLOYMENT DISCRIMINATION, TERMINATION BY ALLEGED BREACH OF CONTRACT OR POLICY, OR ALLEGED EMPLOYMENT TORT COMMITTED BY COMPANY OR A REPRESENTATIVE OF COMPANY, INCLUDING CLAIMS OF VIOLATIONS OF FEDERAL OR STATE DISCRIMINATION STATUTES OR PUBLIC POLICY, SHALL BE RESOLVED PURSUANT TO THIS SECTION 15 AND THERE SHALL BE NO RECOURSE TO COURT, WITH OR WITHOUT A JURY TRIAL.

The arbitration hearing shall occur at a time and place convenient to the parties in Maricopa County, Arizona, within sixty (60) days of selection or appointment of the arbitrator unless such time period is extended by the arbitrator for good cause shown. If

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Company has adopted, with the consent of Executive, a policy that is applicable to arbitrations with executives, the arbitration shall be conducted in accordance with said policy, to the extent that the policy is consistent with this Agreement and the Federal Arbitration Act, 9 U.S.C. §§ 1-16. If no such policy has been adopted, the arbitration shall be governed by the National Rules for the Resolution of Employment Disputes of the American Arbitration Association (“AAA”) in effect on the date of the first notice of demand for arbitration. Notwithstanding any provisions in such rules to the contrary, the arbitrator shall issue findings of fact and conclusions of law, and an award, within fifteen (15) days of the date of the hearing unless the parties otherwise agree.

(c) Issues of procedure, arbitrability, or confirmation of award shall be governed by the Federal Arbitration Act, 9 U.S.C. §§ 1-16, except that court review of the arbitrator’s award shall be that of an appellate court reviewing a decision of a trial judge sitting without a jury.

(d) The costs and expenses of any arbitration shall be borne by Company and Executive jointly; provided, however, that any filing fee(s) required to be paid by Executive shall be limited to the filing fees required to initiate an action in the Superior Court of Arizona, County of Maricopa, and the Company will pay the balance.

16. Severability and Non-Exclusivity. The rights and remedies set forth in Sections 12, 13 and 14 shall be in addition to and not in lieu of any other rights and remedies available to Fender under the law or in equity. If the courts (or arbitration tribunals) of any one or more jurisdictions shall hold all or any part of the provisions of Sections 12, 13 or 14 unenforceable for any reason, it is the intention of the parties that such determination shall not bar or in any way affect Fender’s right to relief with respect to the remaining portions, all of which shall be deemed severable and individually enforceable, or in any other jurisdiction.

17. Notices. All notices, requests, consents and other communications, required or permitted to be given hereunder, shall be in writing and shall be deemed to have been duly given if delivered personally or sent by facsimile, with receipt confirmed, or mailed first class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):

If to Fender:	Fender Musical Instruments Corporation 8860 E. Chaparral Road, Suite 100 Scottsdale, AZ 85250 Attention: CEO
If to Executive:	Addressed to him at his address on the personnel records of Fender.

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18. General.

(a) This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Arizona applicable to agreements made and to be performed entirely in Arizona.

(b) This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter hereof, and supersedes and cancels all prior agreements, arrangements and understandings, written or oral, between the parties, including the Prior Agreement as defined in the preamble to this Agreement, all of which are hereby nullified, and shall be deemed fully performed.

(c) This Agreement may not be assigned by Executive. Fender may only assign this Agreement to a subsidiary of Fender, provided Fender remains liable therefore. Fender shall assign this Agreement to a bona fide successor to Fender, in the event such a transaction occurs, and Executive hereby consents to any such assignment(s). This Agreement shall inure to and be binding upon Fender, and its successors and assigns.

(d) This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived, only by a written instrument executed by both of the parties hereto, or in the case of a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provisions hereof shall in no manner affect the right at a later time to enforce the same. No waiver by either party hereto of the breach of any term or covenant contained in this Agreement, whether by conduct or otherwise, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.

FENDER MUSICAL INSTRUMENTS
CORPORATION
By:	/s/ William Mendello	/s/ Mark VanVleet
Its:	Chief Executive Officer	Mark Van Vleet

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APPENDIX A

Additional Reimbursement Payments by the Company

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or another person or entity to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Appendix A) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to Executive an additional payment (a “Reimbursement Payment”) in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the Reimbursement Payment, Executive retains an amount of the Reimbursement Payment equal to the Excise Tax imposed upon the Payments. For purposes of determining the amount of the Reimbursement Payment, Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Reimbursement Payment is to be made and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Reimbursement Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes Notwithstanding the foregoing provisions of this paragraph, if it shall be determined that Executive is entitled to a Gross-Up Payment, but that the Payments would result in a greater after tax benefit to the Executive if the Payments were reduced by an amount that results in no portion of such payments being treated as “parachute payments” under Section 280G of the Code, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the maximum amount that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to Executive. The reduction of the amounts payable hereunder, if applicable, shall occur in the following order unless Executive elects in writing no less than ten (10) business days prior to the Change of Control a different order: reduction of cash payments, followed by reduction of employee benefits. For purposes of reducing the Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no other Payments) shall be reduced. If the reduction of the amounts payable hereunder would not result in a reduction of the Payments to the Safe Harbor Cap, no amounts payable under this Agreement shall be reduced pursuant to this provision.

(b) Subject to the provisions of paragraph (a) above, all determinations required to be made under this Appendix A, including whether and when a Reimbursement Payment is required, the amount of such Reimbursement Payment, the amount of any Option Redetermination (as defined below) and the assumptions to be utilized in arriving at such determinations, shall be made by a public accounting firm that

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is retained by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). Notwithstanding the foregoing, in the event (i) the Company’s Board of Directors shall determine that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Company’s Board of Directors determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the person(s) effecting a change in control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company, and the Company shall enter into any agreement reasonably requested by the Accounting Firm in connection with the performance of the services hereunder. The Reimbursement Payment under this Appendix A with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive.

(c) As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Reimbursement Payments which will not have been made by the Company should have been made (“Underpayment”) or Reimbursement Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to be made hereunder. In the event the amount of the Reimbursement Payment is less than the amount necessary to reimburse Executive for the Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment (together with interest at the applicable rate provided for in the Code) shall be promptly paid by the Company to or for the benefit of Executive (but in any event no later than by the end of Executive’s taxable year next following Executive’s taxable year in which the Underpayment of Excise Tax is remitted). In the event the amount of the Reimbursement Payment exceeds the amount necessary to reimburse Executive for the Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the applicable rate provided for in the Code) shall be promptly paid by Executive (to the extent Executive has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. In the event that the Company makes a Reimbursement Payment to Executive and subsequently the Company

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determines that the value of any accelerated vesting of stock options held by Executive shall be redetermined within the context of Treasury Regulation §1.280G-1 Q/A 33 (the “Option Redetermination”), Executive shall (i) file with the Internal Revenue Service an amended federal income tax return that claims a refund of the overpayment of the Excise Tax attributable to such Option Redetermination and (ii) promptly pay the refunded Excise Tax to the Company; provided that the Company shall pay on a current basis all reasonable professional fees incurred in the preparation of Executive’s amended federal income tax return. If the Option Redetermination occurs in the same year that the Reimbursement Payment is included in Executive’s taxable income, then in addition to returning the refund to the Company, Executive will also promptly return to the Company any tax benefit realized by the return of such refund and the return of the additional tax benefit payment (all determinations pursuant to this sentence shall be made by the Accounting Firm).

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EX-10.24

Exhibit 10.24

FIRST AMENDMENT TO THE AMENDED AND RESTATED EMPLOYMENT

AGREEMENT BETWEEN FENDER MUSICAL INSTRUMENTS CORPORATION AND

MARK VAN VLEET

This First Amendment (“Amendment”) to the Amended and Restated Employment Agreement between Mark Van Vleet and Fender Musical Instruments Corporation, which is dated December 2, 2008 (the “Employment Agreement”), shall be effective as of April 1, 2010. All capitalized terms not defined in this Amendment shall have the same meaning as in the Employment Agreement.

The Employment Agreement is hereby amended as follows:

1. Section 1 of the Employment Agreement is deleted in its entirety and replaced with the following:

“Initial Term/Employment Period. Fender hereby continues to employ Executive, and Executive hereby agrees to his continued employment as Chief Legal Officer, Senior Vice President, Business Affairs, and Corporate Secretary, for an initial term to end on March 31, 2013 (the “Initial Term”), unless the employment is earlier terminated as provided herein. During the Initial Term or, if shorter, that portion of the Initial Term during which Executive remains continuously employed by Fender (the “Employment Period”), Executive shall perform such services, consistent with his titles, as may from time to time be assigned to, or expected from, him by the Board of Directors of Fender, or those officers empowered by the Board to supervise Executive, including the CEO.”

2. The first three sentences of Section 7(b) of the Employment Agreement are deleted and replaced with the following:

“Severance Pay. Upon termination of the Employment Period (i) by Fender other than for Cause or (ii) by Executive for Good Reason, Executive shall be entitled to receive a lump sum amount in cash equal to one (1) year’s Annual Compensation (as defined below). Upon termination of the Employment Period (i) by Fender (or any successor) other than for Cause or (ii) by Executive for Good Reason, in each case, following a Change in Control, as defined below, Executive shall not be paid the severance amount described in the preceding sentence, but rather shall be entitled to receive a lump sum amount in cash equal to two (2) years’ Annual Compensation (as defined below). In addition, Fender shall pay or reimburse Executive for any and all COBRA payments or other benefit continuation expenses incurred by Executive for (i) one year if Executive is terminated by Fender other than for cause or if Executive leaves for Good Reason, or (ii) two years if Executive is terminated by Fender other than for cause or if Executive leaves for Good Reason, in each case, following a Change of Control. ”

3. For purposes of determining “Good Reason”, Executive and Fender agree that it shall not be a material diminution of Executive’s authority, duties, or responsibilities or a material diminution in the budget over which Executive retains authority for entertainment marketing and non-license related co-branding responsibility to be assigned to the Marketing Group.

4. Except as specifically set forth in this Amendment, all other terms and conditions in the Employment Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have duly executed this Amendment.

FENDER MUSICAL

INSTRUMENTS CORPORATION

By:	/s/ William Mendello	By:	/s/ Mark Van Vleet
Name:	William Mendello		Mark Van Vleet
Title:	CEO
Dated: 3/22/10		Dated: March 22, 2010

EX-10.25

Exhibit 10.25

SECOND AMENDMENT TO THE AMENDED AND RESTATED EMPLOYMENT

AGREEMENT BETWEEN FENDER MUSICAL INSTRUMENTS CORPORATION AND

MARK VAN VLEET

This Second Amendment (“Amendment”) to the Amended and Restated Employment Agreement between Mark Van Vleet and Fender Musical Instruments Corporation, which is dated December 2, 2008 (as amended by the First Amendment dated April 1, 2010, the “Employment Agreement”), shall be effective as of August 15, 2011. All capitalized terms not defined in this Amendment shall have the same meaning as in the Employment Agreement.

The Employment Agreement is hereby amended as follows:

1. Section 2 of the Employment Agreement is amended to add the following as new sentences at the end of the section:

“Effective with the pay period beginning September 5, 2011, Executive shall receive a $750 per month vehicle allowance for the remainder of the Employment Period. The vehicle allowance shall be taxed as regular wages for the Executive and be reported on the Executive’s W-2.”

2. Section 7(f) of the Agreement is deleted in its entirety and replaced with the following:

“Effective as of August 15, 2011, if Executive is subject to the excise tax imposed under Section 4999 of the Code, the provisions of Appendix A attached hereto shall apply.”

3. Section 10 of the Employment Agreement is amended to add the following as new sentences at the end of the section:

“Effective with the pay period beginning September 5, 2011, Executive shall be entitled to four (4) weeks of annual vacation during the Employment Period, during which his compensation shall be paid in full. For the remainder of 2011, that amount will be prorated based on time left in the year to two (2) additional days of paid vacation.”

4. Effective as of August 15, 2011, Appendix A to the Agreement is deleted in its entirety and replaced with Appendix A attached to this Amendment.

5. Except as specifically set forth in this Amendment, all other terms and conditions in the Employment Agreement shall remain in full force and effect.

IN WITNESS WHEREOF, the parties have duly executed this Amendment.

FENDER MUSICAL

INSTRUMENTS CORPORATION

By:	/s/ James Broenen	By:	/s/ Mark Van Vleet
Name:	James Broenen		Mark Van Vleet
Title:	CFO

APPENDIX A

Treatment of Parachute Payments

(a) Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit or distribution) by the Company (or any of its affiliated entities) or another person or entity to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then (i) or (ii) below, as applicable, shall apply:

(i) If a reduction of the Payments to the Safe Harbor Cap (as defined below) would result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall be reduced (but not below zero) to the Safe Harbor Cap. The reduction of the amounts payable hereunder, if applicable, shall occur in the following order unless Executive elects a different order as of the date hereof: reduction of cash payments, followed by reduction of employee benefits. If the reductions described in the preceding sentence would not result in a reduction of the Payments to the Safe Harbor Cap, further reduction of the Payments shall be made in the manner which has the least economic cost to Executive.

(ii) If a reduction of the Payments to the Safe Harbor Cap would not result in a greater after-tax benefit to Executive, then the amounts payable to Executive under this Agreement shall not be reduced and Executive shall be liable for payment of the Excise Tax.

For purposes of this Agreement, “Safe Harbor Cap” shall mean the maximum amount of Payments that could be paid to Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”).

(b) Subject to the provisions of paragraph (a) above, all determinations required to be made under this Appendix A, including whether and when an Excise Tax is due and the assumptions to be utilized in arriving at such determinations, shall be made by a public accounting firm that is retained by the Company (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the receipt of notice from the Company or Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). Notwithstanding the foregoing, in the event (i) the Company’s Board of Directors shall determine that the Accounting Firm is precluded from performing such services under applicable auditor independence rules or (ii) the Audit Committee of the Company’s Board of Directors determines that it does not want the Accounting Firm to perform such services because of auditor independence concerns or (iii) the Accounting Firm is serving as accountant or auditor for the person(s) effecting a change in control, the Board shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company, and the Company shall enter into any agreement reasonably requested by the Accounting Firm in connection with the performance of the services hereunder. If the Accounting Firm determines that no Excise Tax is payable by

Executive, it shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive.

(c) If it is established pursuant to a final determination of a court or the Internal Revenue Service (the “IRS”) proceeding, which has been finally and conclusively resolved, that Payments have been made to, or provided for the benefit of, Executive by the Company, which are in excess of the limitations provided in this Appendix A (hereinafter referred to as an “Excess Payment”), such Excess Payment shall be deemed for all purposes to be a loan to Executive made on the date Executive received the Excess Payment and Executive shall repay the Excess Payment to the Company on demand, together with interest on the Excess Payment at the applicable federal rate (as defined in Section 1274(d) of the Code) from the date of Executive’s receipt of such Excess Payment until the date of such repayment. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the determination, it is possible that Payments which will not have been made by the Company should have been made (an “Underpayment”), consistent with the calculations required to be made under this Appendix A. In the event that it is determined (i) by the Accounting Firm, the Company (which shall include the position taken by the Company, or together with its consolidated group, on its federal income tax return) or the IRS or (ii) pursuant to a determination by a court, that an Underpayment has occurred, the Company shall pay an amount equal to such Underpayment to Executive within ten (10) days of such determination together with interest on such amount at the applicable federal rate from the date such amount would have been paid to Executive until the date of payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment. Executive shall cooperate, to the extent his or her expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the IRS in connection with the Excise Tax or the determination of the Excess Payment.

EX-10.26

Exhibit 10.26

Fender Musical Instruments Europe Limited

Gordon Raison

Service Agreement

Date:	30th August 2005
Document Number:	163204.6

33 Cannon Street London EC4M 5TB

tel: (+44) (0) 20 7246 5800 - fax: (+44) (0) 20 7246 5838

CONTENTS

1.	Definitions	1
2.	Commencement and Term	2
3.	Probationary Period	3
4.	Role and Duties of the Executive	3
5.	Place of Work	4
6.	Remuneration	4
7.	Car	5
8.	Expenses	6
9.	Holidays	6
10.	Sickness Benefit	7
11.	Pension and Life Assurance	7
12.	Private Medical Insurance	8
13.	Permanent Health Insurance	8
14.	Other Benefits	8
15.	Restrictions During His Employment	9
16.	Confidential Information	9
17.	Company Property	10
18.	Inventions and Other Intellectual Property	11
19.	Termination	12
20.	Reconstruction or Reorganisation	14
21.	Garden Leave	14
22.	Restrictive Covenants	15
23.	Dismissal/Disciplinary and Grievance Procedure	17
24.	Data Protection and Communications	17
25.	Notices	17
26.	Deductions	18
27.	Former Contracts of Employment	18
28.	Staff Handbook	18
29.	General	18
30.	Choice of Law and Submission to Jurisdiction	19
31.	Counterparts	19
Schedule 1 Fender Profit Sharing Performance Plan		20

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THIS AGREEMENT is made the 30^th day of August 2005

BETWEEN:

(1) Fender Musical Instruments Europe Limited (registered number 03127180) whose registered office is at Hill House, 1 Little New Street, London BC4A 3TR (the “Company”);

(2) Gordon Raison of 10 Basil Close, Earley, Reading RG6 5GL (the “Executive”).

THE PARTIES AGREE that the Company will employ the Executive and the Executive will serve the Company on the following terms and conditions:

1. Definitions

1.1 Definitions

In this Agreement unless the context otherwise requires the following expressions have the following meanings:

“Act”	the Employment Rights Act 1996 as amended;
“Accrued Entitlement”	means the Executive’s annual holiday entitlement (in days) multiplied by the proportion of the holiday year during which the Executive has been employed by the Company;
“Board”	the board of directors for the time being of the Company or any committee of directors appointed by the board for the time being;
“Confidential Information”	all and any information (whether or not received in documentary form, or on computer disk or tape) relating to the business, affairs, finances, business methods, corporate plans, research, internal processes or development projects of the Company or any Group Company; all and any details of customers, potential customers or suppliers of the Comapny or any Group Company, the nature of the customers’ or suppliers’ business operations, all confidential aspects of customers’ or suppliers’ business relationships with the Company or any Group Company; all and any information relating to any employee of the Company or any Group Company; all and any trade secrets, macros formulae, inventions and any other intellectual property rights howsoever arising, designs or technical date of the Company or any Group Company or other confidential technical information relating to the research, and development, production or supply of any past,

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	present or future product or service of the Company or any Group Company, and other information to which the Company or any Group Company attaches an equivalent level of confidentiality or in respect of which it overs an obligation of confidentiality to a third party;
“Day’s Pay”	means one-fifth of the Executive’s weekly salary;
“Group”	the Company and the Group Companies;
“Group Company”	any company which is for the time being a subsidiary or holding company of the Company and any subsidiary of any such holding company and for the purposes of this Agreement the terms “subsidiary” and “holding company” shall have the meanings ascribed to them by section 7.5 of the Companies Act 1985.

1.2 References to clauses and schedules are unless otherwise stated to clauses of and schedules to this Agreement.

1.3 The headings to the clauses are for convenience only and shall not affect the construction or incorporation of this Agreement.

1.4 Unless the context otherwise requires, references in this Agreement to the masculine gender shall, where appropriate be deemed to include the feminine and vice versa.

1.5 Any reference to a statutory provision in this Agreement shall be deemed to include a reference to any statutory modification or re-enactment of it.

1.6 The Company accepts the benefits of this Agreement on its own behalf and on behalf of the Group and shall be entitled to assign (wholly or in part), at its sole discretions , its rights is connection with the Agreement to any other Group Company at any time with immediate effect on giving written notice to the Executive.

2. Commencement and Term

2.1 The employment of the Executive shall commence on such date as may be agreed between the Company and the Executive which failing agreement shall not be later than 3 months from the date of this Agreement and shall continue (except as provided in Clause 19) unless and until terminated by either the Company giving 3 months’ prior notice or the Executive giving 3 months’ prior notice in writing. It is a condition of this Agreement that the Executive commences employment within 3 months from the date of this Agreement.

2.2 For the purposes of the Act, the Executive’s period of continuous employment will commence on the date act out in Clause 2.1 above.

2.3 The Executive represents and warrants that he is not bound by or subject to any court order, agreement, arrangement or undertaking which in any way restricts or prohibits him from entering into this Agreement or as at and from the date set out in Clause 2.1 above from performing his duties under it.

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3. Probationary Period

3.1 The first 3 months of the Executive’s employment will be a probationary period. During the probationary period, the Company or the Executive may terminate the Executive’s employment on one month’s written notice.

3.2 The Company may extent the probationary period if circumstances make it reasonable and appropriate to do so, in which case the Executive will be notified in waiting of such an expansion.

4. Role and Duties of the Executive

4.1 The Executive shall serve the Company as Managing Director, although his job title may change from time to time to reflect the actual duties by undertakes. With the prior consent of the Executive but not otherwise, the Company may appoint any other person or persons to act jointly with the Executive in any position to which he may be assigned from time to time subject to there being no loss of status by the Executive. The Executive will report to the President, Fender Musical Instruments Corporation.

4.2 Subject always to Clause 4.3 below, the Executive’s duties will include:

4.2.1 having full P&L responsibility for the Company’s departments and areas act Forth in section 4.2.2 and supporting P & L responsibility for the Company’s Sales and Marketing;

4.2.2 delivering outstanding operational leadership across the region focusing on the Finance, Supply Chain, Human Resource, IT and Legal function;

4.2.3 improving the reporting structure and controls within the European Finance function, increasing its sophistication and aligning it with the US model (US GAAP and Sarbanes Oxley);

4.2.4 implementing SAP across Europe;

4.2.5 increasing the operational efficiency of the Supply Chain, reducing Inventory and Increasing fulfillment; and

4.2.6 conducting a full scale operational assessment of the Company’s and\or Group Company’s departments identified in section 4.2.2 within the first ninety (90) days of employment.

4.3 During his employment the Executive shall:

4.3.1 devote the whole of his time, attention and skill to the business and affairs of the Company both during normal business hours (which are 10.00 am to 6.00 pm, Monday to Friday) and during such additional hours as are necessary for the proper performance of his duties;

4.3.2 faithfully and diligently perform such duties and exercise such powers consistent with his position to a standard that is acceptable to the Board and/or the President, Fender Musical Instruments Corporation;

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4.3.3 do all in his power to promote, develop and extend the business of the Company and the Group;

4.3.4 obey the reasonable and lawful directions of the Board and/or the President, Fender Musical Instruments Corporation;

4.3.5 comply with all the Company’s rules, regulations, policies and procedures from time to time in force; and

4.3.6 keep the Board and the President, Fender Musical Instruments Corporation at all times promptly and fully informed (in writing if so requested) of his conduct of the business of the Company and any Group Company and provide much explanations in connection with it as the Board and the President, Fender Musical Instruments Corporation may require.

4.4 The Executive accepts that the Company may at its discretion require him to perform other duties or tasks not within the scope of his normal duties or not to perform any duties at all and save for the latter case, the Executive agrees to perform those duties or undertake those tasks as if they were specifically required under this Agreement.

4.5 The Executive agrees, for the purposes of Regulation 5 of The Working Time Regulations 1998 (the “Regulations”), that Regulation 4 of the Regulations does not apply to him. The Company and the Executive agree that the Executive’s consent, for the purpose of this Clause 4.5, shall continue indefinitely provided that the Executive may withdraw such consent at any time by giving the Company three month’s notice of his wish to do so.

4.6 The Executive shall, if and so long as the Company requires and without any further remuneration other than is specified in this Agreements.

4.6.1 carry out duties on behalf of any Group Company; and

4.6.2 act as a director or officer of any Group Company.

5. Place of Work

The Executive’s place of work will be the Company’s offices at Unit 5. The Felbridge Centre, Imberhom Lane, East Grinstead, West Sussex RH19 1XP, United Kingdom but the Company may require the Executive to work at any place (whether inside or outside the United Kingdom) for such periods as the Company may from time to time require, except that the Executive will not be required to work continuously outside the United Kingdom for more than one month without his prior consent.

6. Remuneration

6.1 The Company shall pay to the Executive a gross annual salary of £121,900 (which shall accrue from day to day), less such tax and employee National Insurance contributions or other deductions the Company is obliged or authorized to make, on or before the 15^th day of each calendar month by credit transfer to his bank account payable by equal monthly instalments in arrears (or such other sum as may from time to time be agreed). The rate of salary will be reviewed annually in January, the first such review to take place in January 2006. These is no obligation on the Company to increase the Executive’s salary.

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6.2 Subject to approval by the Board of Directors of Fender Musical Instruments Corporation, the Executive shall be entitled, from commencement of employment with the company, to participate in the Fender Profit Sharing Performance Plan or such other compassable plan for the time being in force subject to the rules applicable to such plan as amended or varied from time to time at Fender Musical Instruments Corporation’s discretion. The current terms of the Fender Profit Sharing Performance Plan are set out in the Schedule to this Agreement.

6.3 The Executive will be entitled to participate in any equity compensation plan that is introduced subject to approval of the Company or Fender Musical Instruments Corporation and / or the respective Board of Directors as appropriate.

6.4 Salary payable shall be inclusive of any fees to which the Executive may be entitled as a director of the Company or any Group Company.

6.5 Payment of salary and any payment made under the Fender Profit Sharing Performance Plan (if applicable) to the Executive shall be made either by the Company or by a Group Company and, if by more than one company, in such proportions as the Company may from time to time think fit.

7. Car

7.1 Subject to his remaining legally qualified and fix to drive, the Executive shall receive a car allowance for use of his own care of £925 per month which shall be payable together with and in the same manner as the salary in accordance with clause 6.1. The car allowance shall not be treated as part of the basic salary for any purpose and shall not be pensionable.

7.2 The Company shall tax and comprehensively insure the car and pay or reimburse, as appropriate, against receipts or other appropriate evidence as the Company may require the costs of running, servicing and repairing the car other than fuel used for private mileage. The Company shall provided the Executive with a fuel card. The Executive will be permitted to use the car for reasonable private use provided that the Executive shall most the cost of fuel and any other expenses in respect of such private use. The car will at all times remain the property of the Company.

7.3 If the Executive shall be convicted of any offence under the Road Traffic Acts or become involved in any accident involving the car, be shall immediately notify the Company and supply such information in connection with such conviction or accident as the company may request.

7.4 The Executive shall take good care of the car and ensure that the provisions and conditions of any Company car policy from time to time and of any insurance policy relating to it are observed and shall return the car and its keys to the Company at its registered office (or any other place the Company may reasonably nominate) immediately upon the termination of his employment however arising.

7.5 The Executive shall ensure that at all times when the car is driven on the road it is in the state and condition required by law and that if so required a current test certificate is in force relating to it.

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8. Expenses

8.1 The Company shall reimburse the Executive in respect of all expenses reasonably incurred by him in the proper performance of his duties, subject to his providing such receipts or other appropriate evidence as the Company may require.

8.2 The Executive will be issued with a company credit card on condition that he:

8.2.1 takes good care of such card and immediately reports any loss of it to the Company;

8.2.2 uses the card only for the purpose of the Company’s business in accordance with any applicable Company policy thereto; and

8.2.3 returns the card immediately to the Company on request.

9. Holidays

9.1 The Executive shall be entitled, in addition to all Bank and public holidays normally observed in England, to 25 working days’ paid holiday in each holiday year (being the period from 1 January to 31 December).

9.2 The Executive may take his holiday only at such times as are approved by the President Fender Musical Instruments Corporation. The Executive should give twice as much notice of the proposed holiday as the holiday period itself. In any event, no more than two weeks’ holiday may normally be taken at any one time without prior approval of the President, Fender Musical Instruments Corporation.

9.3 In the respective holiday years in which his employment commences or terminates, the Executive’s entitlement to holiday shall accrue on a pro rate basis for each completed calendar month of service during the relevant year.

9.4 A maximum of five days’ holiday may be carried forward to the next holiday year, provided it is approved by the President, Fender Musical Instruments Corporation before the end of the holiday year in which it arose and taken before 30 June in the next holiday year. Except where a five day carry-over has been approved, failure to take holiday entitlement in the appropriate holiday year will lead to forfeiture of any accrued holiday not taken without any right to payment in lieu of it.

9.5 The Company may either requires the Executive to take unused holiday during any notice period or make a payment to him in lieu of it, as calculated in Clause 9.6.

9.6 If at the date on which the Executive’s employment terminates, he has taken less of his annual holiday entitlement than his Accrued Entitlement, the Company will make a payment to him in respect of untaken holiday at the rate of Day’s pay for each day of untaken holiday. The number of days of untaken holiday will be equal to the Accrued Entitlement less the number of days taken by the Executive between the start of the holiday year and the termination date.

9.7 If at the date on which the Executive’s employment terminates, he has taken more of his annual holiday entitlement than his Accrued Entitlement, the company may recover any excess payment and the Executive authorises the Company to deduct it from any payments due to him.

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10. Sickness Benefit

10.1 Subject to Clause 19, the Company will have the discretion to continue paying the Executive’s salary for up to 40 working days’ absence on medical grounds in any period of 12 calendar months provided that the Executive shall from time to time if required:

10.1.1 supply the Company with medical certificates covering any period of sickness or incapacity exceeding seven days (including weekends); and

10.1.2 undergo at the Company’s expense, a medical examination by a doctor appointed by the Company (and the Executive agrees that copies of any medical reports prepared by such doctor shall be sent directly to the Company).

10.2 Payment in respect of any other or further period of absence shall be at the Company’s discretion.

10.3 Any payment to the Executive pursuant to Clause 10.1 shall be deemed to include any Statutory Sick Pay and any Social Security Sickness Benefit or other benefits to which the Executive may be entitled.

10.4 If the Executive’s absence shall be occasioned by the actionable negligence of a third party in respect of which damages are recoverable, then the Executive shall:

10.4.1 notify the Company immediately of all the relevant circumstances and of any claim, compromise, settlement or judgment made or awarded in connection with it;

10.4.2 give to the Company such information concerning the above matters as the Company may reasonably require; and

10.4.3 if the Company so requires, refund to the Company say amount received by him from any such third party provided that the refund shall be no more then the amount which he has recovered in respect of remuneration.

11. Pension and Life Assurance

11.1 The Company shall provide the Executive with access to designated stakeholder pension scheme as required by law. Subject to the rules thereof, the Company will match 50% of the Executive’s contributed to the relevant stakeholders pension scheme up to a maximum contribution by the Company of £5,000 per annum. If the Executive wishes to pay into a private pension scheme maintained by the Executive, as alternative arrangement will be reached.

11.2 Subject to the production of such evidence of good health as may be required, the Executive will be entitled, at the expense of the Company, to participate in life assurances arrangements under which payment of a lump sum of two times the Executive’s basic salary will be made. Life assurance arrangements are subject to certain Inland Revenues limitations and maximum payments. Further details can be provided by the Company’s personnel management. The Company reserves the right to withdraw or amend the terms of life assurance cover at any time.

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12. Private Medical Insurance

12.1 The Executive and the Executive’s spouse and children, while aged under 18 years, shall be entitled to participate in the company’s private medical insurance scheme subject to:

12.1.1 the terms of that scheme, as amended from time to time;

12.1.2 the rules or insurance policy of the relevant insurance provider, as amended from time to time; and

12.1.3 the Executive and his spouse and any dependent children under the age of 18 satisfying the normal underwriting requirements of the relevant insurance provider of that scheme and the premium being at a rate which the Company considers reasonable.

12.2 If the insurance provider refuses for any reason to provide private medical insurance benefit to the Executive or the Executive’s spouse and any dependent children under the age of 18, the company shall nor be liable to provide to the Executive any replacement benefit of the same or similar kind or to pay any compensation in lieu of such benefit.

12.3 The company in its sole and absolute discretion reserves the right to discontinue, vary or amend the scheme (including the level of the Executive’s cover) at any time on reasonable notice to the Executive.

13. Permanent Health Insurance

13.1 The Executive will be entitled, at the expense of the Company, to such permanent health insurance or disability cover as may from time to time be in operation in respect of the Company’s employees subject to the Executive being accepted under the relevant scheme at the cost of normal premiums only and subject to any medical examination that may be required before acceptance. The extent of permanent health insurance or disability cover may vary from time to time and is in the discretion of the company to alter or withdraw.

13.2 If any claim made in respect of the Executive under the permanent health insurance scheme is accepted in whole or in part, the Company shall with immediate effect from such acceptance:

13.2.1 no longer be under any obligation to pay any amounts or to provide any benefits to the Executive other than those provided for under the terms of the permanent health insurance scheme rules applicable at the date of the Executive’s claims; and

13.2.2 the Company shall automatically become entitled to appoint a successor to the Executive to perform all or any of the duties required of the Executive under the terms of this Agreement and the Executive’s duties shall be amended accordingly.

14. Other Benefits

The Executive will be entitled to receive certain discounts on Fender products. The discounts that are available from time to time will be notified to the Executive upon request.

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15. Resolutions During His Employment

15.1 During his employment, the Executive shall not directly or indirectly:

15.1.1 be employed, engaged, concerned or interested in any other business or undertaking; or

15.1.2 engage in any activity which the Board reasonably considers may be, or become harmful to the interests of the Company or of any Group Company or which might reasonably be considered to interface with the performance of the Executive’s duties under this Agreement.

15.2 The Executive agrees that he will not at any time during the course of his employment take any preparatory steps to become engaged or interested in any capacity whatsoever in any business or venture which is in or is intended to enter into competition with any business of the Company.

15.3 During the term of this Agreement, the Executive shall not whether alone or jointly with or on behalf of any other person, firm or company and whether as principal, partner, manager, employee, contractor, director, consultant, investor or otherwise (except as a representative or nominee of the Company or any Group Company or otherwise with the prior consent in writing of the Board) be engaged, concerned or interested in any other business or undertaking which is wholly or partly in competition with any business carried on by the Company or any Group Company provided that the Executive may hold (directly or through nominees) by way of bona fide personal investment any units of any authorized unit trust and up to five per cent of the issued shares, debentures or other securities of any class of any company whose shares are listed on a recognized investment exchange within the meaning of section 285 of the Financial Services and Markets Act 2000 or dealt in the Alternative Investments Market or any such other exchange as may be specified by the Board from time to time.

15.4 Subject to any regulations from time to time issued by the Company which may apply to him, the Executive shall not receive or obtain directly or indirectly any discount, sobers, commission or other inducement in respect of any sale or purchase of any goods or services affected or other business unsecured (whether or not by him) by or on behalf of the Company or any Group Company.

16. Confidential Information

16.1 The Executive acknowledges that during the course of his employment under this Agreement he is likely to create, or have access to, or be entrusted with, or come across Confidential Information. The Executive recognizes that the unauthorized use or disclosure of Confidential Information could be damaging to the Group, or to any person, company, business entity or other organisation with whom or which the Group deals, or to whom any Group Company owns an obligation of confidentiality. Accordingly the Executive shall neither during his employment (except in the proper performance of his duties) not at any time (without limit) after the termination of his employment except in compliance with an order of a competent court:

16.1.1 divulge or communicate to any person, company, business entity or other organisation any Confidential Information;

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16.1.2 use any Confidential Information for his own purposes or for any purposes other than those of the Company or any Group Company; or

16.1.3 through any failure to exercise due care and diligence, permit or cause any unauthorized disclosures of any Confidential Information.

16.2 The Executive agrees that during his employment (except in the proper course of his duties) he will not without the Company’s prior written consent:

16.2.1 publish any opinion, fact or material;

16.2.2 deliver any lecture or presentation;

16.2.3 participate in the making of any film, radio, television (whether cable, satellite or terrestrial), worldwide web or other media broadcast or transmission; or

16.2.4 communicate with any representative of the media or any other third person, company, business entity or other organization in connection with anything

that comprises or concerns Confidential Information.

16.3 The Excessive agrees that each of the above restriction:

16.3.1 covers all actions by him in whatever capacity, whether directly or indirectly via any person, company, business entity, agent, associate, company, partnership, employee, employer, shareholder, must or other organization which, if does by the Executive personally, would breach this Agreement;

16.3.2 must be drawn by him to the attention of any person, company, business entity or other organization who may at any time before or after the termination of his employment offers to employ or engage him in any capacity and for or with whom he intends to work.

17. Company Property

17.1 The Executive acknowledges that all books, notes, memoranda, records, lists of customers and suppliers and employees, correspondence, documents, computer and other discs and tapes, data listings, codes and other documents and material whatsoever (whether made or created by the Executive or otherwise) relating to the business of the Company or any Group Company (and any copies of the same):

17.1.1 shall be and remain the property of the Company or the relevant Group Company; and

17.1.2 Shall be handed over by the Executive to the Company or to the relevant Group Company on demand and in any event on the termination of his employment and the Executive shall certify that all such property has been handed over on request by the Company and agrees that he will take all reasonable steps to prevent the disclosure of the same.

17.2 The Executive will be provided with a mobile phone to assist him in the performance of his duties. The Company will pay for the business phone calls and fixed monthly costs in relation to the Executive’s mobile phone. The Executive acknowledges that the mobile Phone, mobile phone number and SIM card are the property of the Company and most be returned to the Company on the termination of his employment.

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17.3 To ensure the protection of its workers, clients/customers and business, the Company reserves the right to search the Executive’s work space (including his desk, office, and company car) and any other Company Property provided by the Company which he may use during his employment with the Company. The Company will use this right of access reasonably, but it is important that the Executive is aware that all Company property of which he has use cannot be presumed to be private.

18. Inventions and Other Intellectual Property

18.1 The parties foresee that the Executive may make inventions or create other intellectual property in the course of his duties and agree that in this respect the Executive has a special responsibility to further the interests of the Company and the Group Companies.

18.2 Any invention, improvement, design, process, information, copyright work, trade mark or trade name or get-up made, created or discovered by the Executive in the course of his employment (whether capable of being patented or registered or not and whether or nor made or discovered in the course of his employment) In conjunction with or in any way affecting or relating to the business of the Company or of any Group Company or capable of being used or adopted for use in or in connection with such business (“Intellectual Property Rights”) shall be disclosed immediately to the Company and shall (subject to section 39 to 43 Patents Act 1977) belong to and be the absolute property of the Company or such Group Company as the Company may direct.

18.3 If and whenever required so to do be the Company, the Executive shall at the expenses of the Company or such Group Company as the Company may direct:

18.3.1 apply or join with the Company or such Group Company in applying for license patent or other protection or registration for any other Intellectual Property Rights in the United Kingdom and in any other part of the world; and

18.3.2 execute all instruments and do all things necessary for vesting all such right this and interest in such letters patent or other Intellectual Property Rights in this Company or such Group Company or such other person as the Company may specify absolutely as sole beneficial owner.

18.4 The Executive irrevocably and unconditionally waives all rights under Chapter IV of Past I of the Copyright, Designs and Patents Act 1988 in connection with his subordinate of any existing or future copyright work in the course of his employment, in whatever part of the world such rights may be enforceable including, without limitations:

18.4.1 the right conferred by section 77 of that Act to be identified as the author of any such work; and

18.4.2 the right conferred by section 80 of that Act not to have any such work subjected to derogatory treatment.

18.5 The Executive irrevocably appoints the Company to be his Attorney in his name and on his behalf to execute any such instrument or do any such thing and generally to use his name for the purpose of giving to the Company the full benefits of this Clause 18. A

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certificate in writing in favour of any third party signed by any director or by the Secretary of the Company that any instrument or act falls within the authority confirmed by this Agreement shall be conclusive evidence that such is the case.

18.6 Nothing in this Clause 18 shall be construed as restricting the rights of the Executive or the Company under sections 39 to 43 Patents Act 1977.

18.7 If the Intellectual Property Rights are not the property of the Company, the Company shall subject to the provisions of the Patents Act 1977 have the right to acquire for itself or its nominee the Executive’s rights in the Intellectual Property within 3 months after disclosure pursuant to Clause 18.2 above on fair and reasonable terms to be agreed or settled by a single arbitrator appointed by the Company.

18.8 Rights and obligations under this Clause 18 shall continue in force after termination of this Agreement in respect of Intellectual Property Rights made during the Executive’s employment under this Agreement and shall be binding upon his representatives.

19. Termination

19.1 Notwithstanding any other provisions of this Agreement, in any of the following circumstances, the Company may terminate the Executive’s employment summarily and without further payment (save for any sums accrued due as at the relevant date) if the Executive:

19.1.1 commits any serious breach of this Agreement or is guilty of any gross misconduct or any wilful neglect in the discharge of his duties;

19.1.2 reports or continues (after warning) any breach of this Agreement;

19.1.3 is guilty of any fraud, dishonesty or any conduct tending to bring himself, the Company, or any Group Company into disrepute (whether or not coordinating gross misconduct);

19.1.4 consistently and/or persistently carries out or falls to carry out his duties and obligations under this Agreement in a way and/or to a standard of competence that the Board (acting reasonably) considers to be unacceptable;

19.1.5 has a position presented for a bankruptcy order to be made in respect of him, enters into (or proposes to enter into) an individual voluntary arrangement or other composition with his creditors or takes advantage of any other legislation for the time being in force offering relief for insolvent debtors;

19.1.6 is convicted of any criminal offence (other than minor offences under the Road Traffic Acts or the Road Safety Acts for which a fine or non-custodial penalty is imposed) which might reasonably be thought to affect adversely the performance of his duties;

19.1.7 is disqualified from holding office in the Company or in any other company by reason of any order made under the Company Directors Disqualifications Act 1986 or any other enactment;

19.1.8 shall become of unsound mind or become a patient under the Mental Health Act 1983;

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19.1.9 is convicted of an offence under the Criminal Justices Act 1993 Pt V32 or under any other present or future statutory enactment or regulations relating to index dealings;

19.1.10 without prejudice to clauses 19.1.1 to 19.1.9 above, resigns as or otherwise causes to be or becomes prohibited by law from being a director of the Company, otherwise than at the Company’s action or request.

19.2 Any delay by the Company in exercising such right of termination in Clause 19.1 shall not constitute a waiver of it.

19.3 Notwithstanding the existence of any permanent health insurance provided for the Executive by the Company or the provisions of Clause 10.1 if at any time the Executive is unable to perform his duties properly because of ill health, accident or otherwise for a period or periods controlling at least 65 working days in any period of 12 calendar months, or becomes incapable by reason of mental disorder of managing and administering his property and affairs, then the Company may terminate his employment by giving him not less than statutory minimum written notice to that effect.

19.4 If the Company believes that it may be entitled to terminate his employment pursuant to Clause 19.1, it shall be entitled (but without prejudice to its right subsequently to terminate his employment on the same or any other ground) to suspend the Executive on full pay and other benefits for so long as it may think fit.

19.5 The Company reserves the right, at its absolute direction, to terminate the Executive’s employment at any time by making a payment in lieu of any notice of termination and /or in lieu of the balance of the fixed term of employment corresponding either to the applicable period(s) as set our in Clause 2, or Clause 19.3 in the case of serious incapacity. For this purpose, the Executive agrees that pay in lieu will consist of basic salary only for the notice period which is accrued due as at the date of termination of his employment Should the Company exercise its direction to terminate in this way, all of the Executive’s poor-termination obligations contained in this Agreement, in particular the confidentiality provisions in Clause 16 and the restrictive covenants in Clause 22, shall remain in full force and affect.

19.6 On the termination of his employment or upon either the Company or the Executive having served notice of such termination, the Executive shall, at the request of the Company, resign from office as a director of the Company and all offices held by him in any Group Company and shall transfer without payment to the Company or as the Company may direct any qualifying shares, held by him directly or as nominee, provided which the Executive may have against the Company or any Group Company araising out of the termination of his employment; and the Executive irrevocably authorizes the Company to appoint any person in his name and on his behalf to sign any documents and do any things necessary or requisite to give effect to his obligations under this Clause 19.6 and no payment in lieu of notice shall be due to him.

19.7 If (a) the company in a general meeting shall remove the Executive from the office of director of the Company or any Group Company; or (b) under the Articles of Association for the time being of the Company at any Group Company, the Executive shall be obliged to retire by rotation or otherwise and the Company in general meeting shall fail to re-elect the Executive as a director of the relevant Group Company (either such case being referred to in the clause 19.7 as an “Event”). then the Executive’s employment under this Agreement shall automatically terminate with effect from this date of the Event.

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19.8 With a view to ensuring that his departure can be arranged with the minutes of inconvenience or disruption to the business of the Group and its relationship with third parties and its other employees, the Executive undertakes not, without the poor approval of the Board or the President, Fender Musical Instruments Corporation as to the timing and manner of any communication about his departure, to inform any of this colleges about the proposed cessation of this employment hereunder.

19.9 The Executive acknowledges the right of the Company to monitor and control the performance of its employees and acknowledges this fiduciary obligations enhancing to his position including obligations to inform the Board forthwith upon his becoming were that any of his colleagues engaged in the business of any Group Company of which is it a director is intending or contemplating the termination of his contract of employment with the company of any other company in the Group.

19.10 Without prejudice to any other provisions of this Agreement, the Executive may not (except in the legitimate performance of his duties as an employees) at any time and specifically not on the termination of his employment, delete, copy, forward to a third party or interfere in any way with any Company information (including e-mails of documents relating to Company business) held on a laptop or computer or other electronic device and any attempt to do so will be regarded as gross misconduct.

19.11 Notwithstanding clause 2.1, the Executive’s employment under this Agreement will end automatically when he reaches his normal retirement age. Currently the normal retirement age at the company is 65 (sixty five), but this may change from time to time. No agreement whereby the Executive works beyond his normal retirement age will after his normal retirement age.

20. Reconstruction or Reorganisation

20.1 if the Executive’s employment is terminated by reason of the liquidation, reorganization or other reconstruction of the Company or any Group Company or as part of any other rearrangement of the affairs of the Company or any Group Company not involving a liquidation and he is offered similar employment by a reconstructed Company or by any another Group Company on terms which (when considered in their entirely) are no less favorable than the terms of this Agreement then, subject to the provisions of the Transfer of Undertakings (Protection of Employment) Regulations 1981, he shall be obliged to accept such offer and shall have no claim against the Company or any reconstructed Company or Group Company in respect of the termination of his employment.

21. Garden Leave

21.1 At any time including after notice to terminate employment has been given by the Executive or the Company, the Company may for all or part of the durations of the notice period in its absolute discretion require the Executive;

21.1.1 to perform only such duties (including without limitation research project) as is may allocate to the Executive;

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21.1.2 not to perform any duties;

21.1.3 not to have any contact with clients of the Company or any Group Company;

21.1.4 not to have any contact with such employees or suppliers of the Company or any Group Company as the Board shall determine;

21.1.5 to disclose to the Board any attempted contact (other than purely social contact) with him made by any client, employee or supplier with whom the Executive has been required to have no contact pursuant to this sub-clause;

21.1.6 to take any accrued holiday entitlement;

21.1.7 not to enter any premises of the Company or any Group Company not to visit the premises of any of the Company’s or any Group Company’s suppliers or customers;

21.1.8 to resign as a director of the Company or from any other office held by him in the Company or any other Group Company;

Provided always that throughout the period of any such action and subject to the other provisions of this Agreement the Executive’s salary and contractual benefits shall not cease to across or be paid (subject to Clause 21.3 below) and provided further that the period of garden leave shall not be for a period exceeding six months in total.

21.2 The Executive acknowledges that such action as set out above taken on the part of the Company shall not constitute a breach of this Agreement of any kind whatever not shall the Executive have any claim against the Company in respect of any such action.

21.3 During any period of garden leave, the Executive shall owe a duty of the utmost good faith to the Company and its Group Companies, must not work for any other person or on his own account and shall remain readily contactable and available to work for the Company or any Group Company. Should the Executive work for any other person or on his own account or fail to be available for work at any time having been required by the Company to do so or otherwise be in breach of any of the provisions of this Agreement, the Executive’s right to salary and contractual benefits in respect of such period on non compliance shall be forfeit not withstanding any other provision of this Agreement.

22. Restrictive Covenants

22.1 The Executive will not for a period of 6 months (less any period during which the Executive has been on garden leave) after the termination of his employment whether as principal or agent, and whether alone or jointly with, or as director, manager, partner, shareholder, employee or consultant of any other person, directly or indirectly:

22.1.1 carry on, or be engaged, concerned or interested in any business which is similar to or competes with any business being carried on by the Company or by any Group Company at the termination of his employment and with which the Executive was involved to a material extent at any time during the last year of his employment provided that nothing in this clause 22.1 shall restrain the Executive from engaging or being interested in any such business insofar as his duties or work relate principally to services or goods of a kind with which the Executive may not have been involved during the last 12 months of his employment;

15

22.1.2 interface with, tender for, canvass, solicit or endeavour or enrice away from the Company or from any Group Company the business of any person, firm or business who at the date of termination of his employment or at any time during the period of 12 months prior to that date (or if earlier, prior to the date on which the Executive last carried our duties assigned to him by the Company) was, to his knowledge, a customer, client, agent of or supplier to, or who had dealings with the Company or with any Group Company, and with whom or which he had personal dealings in the normal course of his employment at that date of during that period. This restriction is limited to activities by the Executive which will involve offering or providing services similar to those which he will have provided during his employment;

22.1.3 supply any product, carry out or undertake or provide any service similar to those with which he was concerned to a material extent during the period of 12 months prior to the termination of his employment to or for any person who, at the date of termination of his employment or during the period of 12 months prior to that date was a customer, client, agent of or supplier to, or was in the holds of dealing with the Company or with any Group Company, and with whom the Executive had personal dealings in the normal course of his employment during that period of 12 months;

22.1.4 be employed by, or enter into partnership with, employ or attempt to employ or negodate or arrange the employment or engagement by any third party, of any person who was, at the date of the termination of his employment, or within one year prior to that date had been, an employee employed in a sales or managerial capacity of the Company or any Group Company and with whom he had personal dealings during that period, and who is in possession of confidential Information;

22.1.5 solicit, interfere with, tender for or endeavour to enrice away from the Company or from any Group Company any contact, project or business, or the renewal of any of them, carried on by the Company or by any Group Company which is currently in progress at the date of the termination of his employment or which was in the process of negotiation at the date and in respect of which the Executive had material contact with any customer, client, agent of or supplier to the Company or any Group Company at any time during the period of 12 months prior to the date of termination of his employment.

22.2 None of the restrictions contained in Clause 22.1 shall prohibit any activities by the Executive which are not in direct or indirect competition with any business being carried on by the Company or by any Group Company at the date of the termination of his employment.

22.3 Nothing in Clause 22.1 shall preclude the Executive from holding (directly or through nominees) investments in the amount and of the type specified in Clause 15.9.

22.4 At no time after the termination of his employment shall the Executive directly or indirectly represent himself as being interested in or employed by or in any way connected with the Company or any Group Company, other than as a former employee of the Company.

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22.5 The Executive acknowledges and agrees that he shall be obliged to draw the provisions of this Clause to the attention of any third party who may at any time before or after the termination of the Executive’s employment offer to employ or engage the Executive and for whom or with whom the Executive intends to work at any time during 12 months after the termination of his employment.

22.6 The Executive agrees that, having regard to all the circumstances and having when independent legal advice, the restrictions contained in this Clause are reasonable and necessary for the protection of the Company and the Group Companies and that they do nor bear harshly upon him and the parties agree that:

22.6.1 each restriction shall be read and construed independently of the other restrictions so that if one or more are found to be void or unenforceable as an unreasonable restraint of trade or for any other reason the remaining restrictions shall not be affected; and

22.6.2 if any restriction is found to be void but would be valid and enforceable if name part of it were deleted, that restriction shall apply with such deletion as may be necessary to make it valid and enforceable.

23. Dismissal/Disciplinary and Grievance Procedure

The Executive is referred to the Staff Handbook for details of the Company’s Dismissal/Disciplinary and Grievance procedure.

24. Data Protection and Communications

24.1 The Executive consents to the Company or any Group Company holding and processing both electronically and manually the data (including sensitive personal data and information contained in e-mail and e-mail attachments) it collects, stores and/or processes, which relates to the Executive for the purposes of the administration and management of its business. It may also be necessary for the Company to forward such personal information to other offices or any Group Company outside the European Economic Area and, in particular, to the United States where such company has offices or storage for the processing for administrative purposes and the Executive consents to the Company doing so as may be necessary from time to time.

24.2 To ensure the protection of its workers, clients / customers and business, the Company reserves the right to monitor, intercept, review and access the Executive’s telephone log, internet usage, voicemail, e-mail and other communication facilities provided by the Company which he may use during his employment with the Company. The Company will use this right of access reasonably, but it is important that the Executive is aware that all communications and activities on the Company’s/any Group Company’s equipment or premises cannot be presumed to be private.

25. Notices

A notice may be given by any party hereto to any other party hereto either personally or by sending it by prepaid first class post or airmail to his address stated in this Agreement

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or to any other address supplied by him to the other parties hereto for the giving of notice to him. A properly addressed and prepaid notice sent by post shall be deemed to have been served at an address within the United Kingdom at the expiry of 48 hours after the notice is posted and to have been served at an address outside the United Kingdom at the expiry of 72 hours after the notice is posted.

26. Deductions

26.1 The Executive shall pay to the Company any sums owing by him to the Company upon demand by the Company at any time (whether during the Executive’s employment by the Company or after the termination Date).

26.2 For the purposes of the Act and otherwise, the Executive consents to the deduction from his wages or from any other sums owed to the Executive by the Company of any sums owing by him to the Company at any time.

26.3 This Clause is without prejudice to the rights of the Company to recover any sums or balance of sums owing by the Executive to the Company by legal proceedings.

27. Former Contracts of Employment

This Agreement shall be in substitution for any previous contracts, whether by way of letters of appointment, agreements or arrangements, whether written, oral or implied relating to the employment of the Executive (including all bonus and option arrangements), which shall be deemed to have been terminated by mutual consent as from the date of this Agreement and the Executive acknowledges to the Company for itself and on behalf of each Group Company that he has no outstanding claims of any kind against the Company or any Group Company in respect of any such contract.

28. Staff Handbook

The Fender Europe Staff Handbook (as amended from time to time) also forms part of the Executive’s contract of employment. Where there is an inconsistency between the terms of this Agreement and the terms of the Fender Europe Staff Handbook, the terms of this Agreement will prevail.

29. General

29.1 The Executive acknowledges that the provisions of Clauses 16, 18 and 22 continue separate undertakings given for the benefit of each Group Company and may be enforced by any of them.

29.2 The expiration or termination of this Agreement shall not prejudice any claim which either parry may have against the other in respect of any pre-existing breach of or contravention of or non-compliance with any provision of this Agreement nor shall it prejudice the coming into force or the continuance in force of any provision of this Agreement which is expressly or by implication intended to or has the effect of coming into or continuing in force on or after such expiration or termination.

29.3 This Agreement constitutes the written statement of the terms of employment of the Executive provided in compliance with Part I of the Act.

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29.4 Save as otherwise herein provided, there are no terms or conditions of employment relating to hours of work or to normal working hours as to entitlement to holiday (including public holidays) or holiday pay or to incapacity for work due to sickness or injury or to pensions or pension schemes or to requirements to work abroad and no collective agreement has any effect upon the Executive’s employment under this Agreement.

29.5 No team in this Agreement is enforceable under the Contracts (Rights of Third Parties) Act 1999 but this does not affect any right or remedy of a third party which exists or is available apart from that Act.

30. Choice of Law and Submission to Jurisdiction.

30.1 This Agreement shall be governed by and interpreted in accordance with English law.

30.2 The parties submit to the exclusive jurisdiction of the English courts, but this Agreement may be enforced by the Company or any Group Company in any court of competent jurisdiction.

31. Counterparts

This agreement may be executed in any number of counterparts, each of which, when executed and delivered, shall be an original, and all the counterparts together shall constitute one and the same instrument.

IN WITNESS whereof this Agreement has been executed as a deed by the Executive the day and year first written above.

Signed by Geared Mcauley for and on behalf of the Company	) )
		Director
Executed and delivered as a Deed by the Executive in the presence of	) )
		G.RAISON

Witness Signature
Witness name:	S.THOMPSON
Witness address:	24 RYHILL WAY
	LOWER EARLEY
	READING
	BERKS R96 4AZ
	UK.

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Schedule 1

Fender Profit Sharing Performance Plan

2005 Criteria

In respect of the 2005 calendar year, the Executive will be eligible to receive a pro-rated payment under the Profit Sharing Performance Plan (“PSPP”), the amount of which will be based on the following criteria: One third will be based on whether or not Fender Musical Instruments Corporation meets or exceeds its budgeted 2005 earnings before interest, taxes, depreciation and amortization target (“EBITDA”); one-third will be based on whether or not the Company masts or exceeds its budgeted 2005 EBITDA; and one third on whether or not the Executive meets or exceeds his Key Performance Objectives (“KPO’s”), as determined by the President, Fender Musical Instruments Corporation.

2006 Onwards Criteria

In respect of the 2006 calendar year and subsequent years, it is likely that the Executive will be eligible to receive PSPP payments based on the following criteria; 50% will be based on the Executive meeting or exceeding his KPO’s; 25% will be based on Fender Musical Instruments Corporation meeting or exceeding its budgeted annual EBITDA for that year, and 25% will be based on the Company meeting or exceeding its budgeted annual EBITDA for that year.

Eligibility and Determination of Profit Sharing Performance Plan Payment

Subject to the Executive meeting or exceeding the criteria set forth above, the Executive shall receive a PSPP payment of between zero (0) and up to a maximum of forty-five percent (45%) of his base salary as set forth in the following chart PSPP payments will be subject to the usual statutory deductions.

% of Current Year’s Performance to Budgeted FMIC & PSPP EDITA and KPO’s	% of Target of 25% of Base Salary Payable as Bonus	% of Base Salary Payable as Bonus
75%	0	0%
76%	4%	1%
77%	8%	2%
78%	12%	4%
79%	16%	5%
80%	20%	6%
81%	24%	7%
82%	28%	8%
83%	32%	10%
84%	36%	11%
85%	40%	12%
86%	44%	13%
87%	48%	14%

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88%	52	%	16	%
89%	56	%	17	%
90%	60	%	18	%
91%	64	%	19	%
92%	68	%	20	%
93%	72	%	22	%
94%	76	%	23	%
95%	80	%	24	%
96%	84	%	25	%
97%	88	%	26	%
98%	92	%	28	%
99%	96	%	29	%
100%	100	%	30	%
101%	102	%	31	%
102%	104	%	31	%
103%	106	%	32	%
104%	108	%	32	%
105%	110	%	33	%
106%	112	%	34	%
107%	114	%	34	%
108%	116	%	35	%
109%	118	%	36	%
110%	120	%	36	%
111%	122	%	37	%
112%	124	%	37	%
113%	126	%	38	%
114%	128	%	38	%
115%	130	%	29	%
116%	132	%	40	%
117%	134	%	40	%
118%	136	%	41	%
119%	138	%	41	%
120%	140	%	43	%
121%	142	%	43	%
122%	144	%	43	%
123%	146	%	44	%
124%	148	%	44	%
125%	150	%	45	%

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EX-10.27

Exhibit 10.27

LEASE

BETWEEN

1151 MILDRED LLC,

AS LANDLORD,

AND

FENDER MUSICAL INSTRUMENTS CORPORATION

AS TENANT

Dated as of: November 16, 2004

TABLE OF CONTENTS

		Page
1.	PREMISES		1
2.	TERM		2
3.	RENT		3
4.	TAXES		7
5.	SERVICES AND UTILITIES		8
6.	USE; COMPLIANCE WITH LAWS		8
7.	REPAIRS AND MAINTENANCE		10
8.	ALTERATIONS		11
9.	SIGNAGE		13
10.	PARKING		14
11.	ASSIGNMENT & SUBLETTING		14
12.	QUIET ENJOYMENT		17
13.	SUBORDINATION AND NON DISTURBANCE		17
14.	INSURANCE		18
15.	INDEMNIFICATION		20
16.	DAMAGE AND DESTRUCTION		20
17.	CONDEMNATION		22
18.	ACCESS		23
19.	NOTICES		24
20.	ESTOPPEL CERTIFICATES		24
21.	DEFAULT BY TENANT		24
22.	DEFAULT BY LANDLORD		26
23.	SURRENDER; HOLDOVER		27

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24.	BROKERAGE	28
25.	HAZARDOUS MATERIALS	28
26.	ARBITRATION	31
27.	RENEWAL TERMS	32
28.	MISCELLANEOUS	34
29.	ROOFTOP AND LAND INSTALLATIONS	36
30.	RE-MEASURING THE BUILDING AND PREMISES	37
31.	RIGHT OF FIRST REFUSAL	38

EXHIBITS

Exhibit A	-	Description of Land
Exhibit B-1 and B-2	-	Location of Building and Parking Area on Land; Description of Building Premises
Exhibit C	-	Method of Measurement
Exhibit D	-	Workletter
Exhibit E		Non-Disturbance and Attornment Agreement
Exhibit F	-	Appraisal Procedures
Exhibit G	-	Form of Memorandum of Lease
Exhibit H		Form of Commencement Date Agreement
Exhibit I-1	-	Form of Tenant’s Estoppel Certificate
Exhibit I-2	-	Form of Landlord’s Estoppel Certificate

ii

LEASE

LEASE, made as of the     th day of November, 2004, by and between 1151 MILDRED LLC (the “Landlord”), a Delaware limited liability company, having an office at 100 Bayview Circle, Suite 310, Newport Beach, California 92660 and FENDER MUSICAL INSTRUMENTS CORPORATION (the “Tenant”), a Delaware corporation, with offices at 8860 E. Chaparral Road, Suite 100, Scottsdale, AZ 85250-2610, Attention: General Counsel.

W I T N E S S E T H:

In consideration of the representations, covenants and agreements herein contained, the parties hereto hereby covenant and agree as follows:

1. PREMISES

1.01 Authority. (a) Landlord represents and warrants that (i) it is the sole owner in fee simple of the Land (as hereinafter defined), (ii) it has full corporate right and authority to lease the Premises (as hereinafter defined) to Tenant and to otherwise enter into this Lease on the terms and conditions set forth herein and (iii) the party executing this Lease on behalf of Landlord has the full right, authority and power to execute and deliver this Lease on behalf of Landlord.

(b) Tenant represents and warrants that (i) it has full corporate right and authority to lease the Premises from Landlord and to otherwise enter into this Lease on the terms and conditions set forth herein and (ii) the officer executing this Lease on behalf of Tenant has the full corporate right, authority and power to execute and deliver this Lease on behalf of Tenant.

1.02 Demise of Premises. For the purposes of this Lease, the following terms shall have the following meanings:

(a) “Equipment” shall mean and include, but shall not be limited to, machinery, engines, dynamos, boilers, radiators, heat, ventilation and air conditioning compressors and equipment, sprinkler equipment, electrical and plumbing equipment, ducts, exterior doors, fire protection equipment, pipes, conduits and fittings and any other systems servicing or furnishing utilities to the Improvements at any time now or hereafter erected, constructed, affixed or attached to or placed in or placed upon the Land or the Improvements (whether by Landlord or by Tenant), and any and all alterations, renewals and replacements thereof, additions thereto and substitutes therefor. Equipment shall not mean any of the following property owned or leased by Tenant (or anyone claiming by, through or under Tenant) and located in or on the Premises (collectively, “Tenant’s Property”): trade fixtures, warehouse racking systems, office furniture and equipment, movable partitions, conveyors, communications equipment and other articles of movable personal property.

(b) “Improvements” shall mean, collectively, (i) any and all buildings, improvements, paved areas (including, without limitation, the Parking Area, as hereinafter defined) and structures (now or hereafter erected) on the Land, including, but not limited to, the Building, and (ii) the Equipment.

(c) “Building” shall mean the approximately 857,000 square foot building more particularly described in Exhibit B-1 annexed hereto, which has the street address of 1151 South Mildred Avenue, Ontario, California.

(d) “Building Premises” shall mean approximately 568,000 square feet (it being agreed that such square footage is subject to measurement as hereinafter provided) of the Building more particularly described in Exhibit B-2 annexed hereto.

(e) “Land” shall mean the parcel of land lying and being in the County of Riverside, City of Ontario, State of California, more particularly described in Exhibit A annexed hereto.

(f) “Premises” shall mean the Building Premises and Parking Area (as defined below).

Landlord does hereby lease and demise to Tenant, and Tenant does hereby hire and take from Landlord, the Premises for the Term. After the Commencement Date, the number of rentable square feet contained in the Building Premises for the purposes of this Lease shall be determined pursuant to the provisions of Article 30 hereof and in accordance with the definitions and method set forth on Exhibit C annexed hereto.

1.03 Workletter. The terms and provisions concerning the construction of and performance of the initial improvements, betterments and other work required to prepare the Premises for Tenant’s initial occupancy of the Premises are set forth in the Workletter annexed hereto as Exhibit D (the “Workletter”), which Workletter is hereby incorporated herein and made a part hereof.

2. TERM

2.01 Term. The initial term of this Lease (the “Term”) shall commence on January 1, 2005, unless the Commencement Date is deferred as provided for in Article V of the Workletter attached hereto as Exhibit D, and, subject to Tenant’s renewal rights, shall end, unless this Lease is extended as provided for in Article V of the Workletter or is sooner terminated pursuant to the provisions hereof or pursuant to law, at 11:59 p.m. on the day preceding the fifth (5th) anniversary of the Commencement Date (the “Expiration Date”), both dates inclusive. “Term” shall refer to the initial term and any renewal thereof.

2.02 Confirming the Commencement Date. Within thirty (30) days after the Commencement Date has been finally determined in accordance with the provisions of the Workletter, Landlord and Tenant shall execute an agreement, in the form annexed hereto as Exhibit H, confirming the Commencement Date and the Expiration Date, but the failure of the parties to execute such agreement shall not defer the Commencement Date or otherwise invalidate this Lease.

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3. RENT

3.01 Base Rent. (a) Tenant, for and in respect of the Premises, shall pay Landlord a base annual rent (“Base Rent”) at the following annual rates during the following periods:

(i) THIRTY TWO CENTS ($0.32) per rentable square foot of the Building Premises per month, during the period beginning on the Commencement Date to and including the last day of the thirtieth (30th) month thereafter; and

(ii) THIRTY FIVE CENTS ($0.35) per rentable square foot of the Building Premises per month, during the period beginning on the first day of the thirty-first (31st) month following the Commencement Date to and including the Expiration Date.

(b) Tenant shall pay Base Rent in equal monthly installments in advance on the Commencement Date and thereafter on the first day of each and every calendar month during the Term, without notice or demand therefor. If the Commencement Date or the date on which occurs the expiration (or earlier termination) of the Term occurs on a day other than the first or last day, respectively, of a calendar month, the Base Rent for the month in question shall be prorated on a per diem basis.

(c) Until the rentable square footage of the Building Premises is finally determined pursuant to the provisions of Article 30 hereof and in accordance with the definitions and method set forth on Exhibit C annexed hereto, Tenant shall pay Base Rent based on the assumption that the Building contains 568,000 rentable square feet. Promptly after the rentable square footage of the Building Premises is so determined, a retroactive adjustment in Base Rent shall be made and the appropriate payment shall be made by one party hereto to the other.

3.02 Additional Rent. All amounts, other than Base Rent, payable by Tenant to Landlord pursuant to the provisions of this Lease shall be payable as additional rent (collectively, “Additional Rent”). The Base Rent and all Additional Rent are collectively referred to as “Rent.” During the Term, Tenant shall pay to Landlord Tenant’s Proportionate Share of the Taxes, Landlord’s Insurance and Common Area Expenses as Additional Rent in monthly installments of one-twelfth (1/12th) of Landlord’s estimate of the Additional Rent due in any calendar year commencing on the Commencement Date and continuing on the first day of each successive month during the Term. Landlord may, from time to time, make reasonable adjustments in its estimate of Additional Rent. Subsequent Additional Rent deposits by Tenant for such year shall be based on the revised estimate of Additional Rent. Within sixty (60) days of the end of the calendar year for which estimates of Additional Rent were made, actual Additional Rent due for such year shall be calculated by Landlord and sent to Tenant. If Tenant’s Proportionate Share of actual Additional Rent exceeds the deposits paid by Tenant based on Landlord’s estimates, Landlord shall bill Tenant for the excess amount and Tenant shall pay to Landlord said amount within thirty (30) days of receipt of such billing. If Tenant’s Proportionate Share of actual Additional Rent is less than the deposits paid by Tenant based on Landlord’s estimate thereof, Tenant shall, at the option of Landlord, be paid such excess amount or be given a credit for the excess amount against the next Additional Rent deposit due for the subsequent year. If the Term commences on any day other than the first day of January, or if the

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Term ends on any day other than the last day of December, any Additional Rent due Landlord shall be pro-rated, based on a 365 day year. Upon expiration or termination of this Lease, Tenant shall pay such pro-rated amount within thirty (30) days of receipt of such billing. This covenant shall survive the expiration or termination of this Lease.

For purposes of this Lease, Tenant’s prorata share shall be 66.28% (the “Proportionate Share”), it being agreed that such percentage is subject to measurement as hereinafter provided in Article 30.

“Common Area Expenses” shall mean Landlord’s costs of operating, maintaining, protecting, repairing and replacing the Building, Land and Improvements, including, without limitation, gardening and landscaping, repairs and replacement of Building components, paving, curbs, sidewalks, drainage and lighting facilities, as may from time to time be necessary, painting, caulking, lighting, sanitary control, removal of trash, rubbish, garbage and other refuse (provided, however, that Tenant shall not be responsible for Landlord Repairs (as defined in Section 7.01(1) unless such replacement is required by reason of damage done by Tenant or its employees, agents, contractors or invitees). Notwithstanding anything to the contrary set forth above, or elsewhere in this Lease, the following shall be excluded from Common Area Expenses:

(i) Costs associated with the operation of the business or entity which constitutes “Landlord,” as distinguished from the costs of operations of the Building, Land and Improvements, including but not limited to, partnership accounting and legal matters, cost of defending any lawsuits with any mortgagee, cost of selling, syndicating, financing, mortgaging or hypothecating any of Landlord’s interest in the Building, Land or Improvements, cost of any disputes between Landlord and its employees (if any) not engaged in the operations of the Buildings, disputes of Landlord with Building management, or outside fees paid in connection with disputes with other tenants;

(ii) Costs incurred in connection with the original construction of the Building or Improvements;

(iii) Costs of alterations or improvements to the premises of other tenants in the Building;

(iv) Depreciation, amortization, interest and principal payments on mortgages, and other debt costs, if any;

(v) Cost of correcting construction defects in the initial construction of the Building, including installation of the Building sprinkler system, major Building systems such as hearing, ventilating, air conditioning (“HVAC”) or other mechanical, electrical or plumbing systems of the Building of which notice is given to Landlord within one (1) year of the Commencement Date of the Lease;

(vi) Costs for which Landlord is reimbursed by its insurance carrier or any tenant’s insurance carrier;

(vii) Any bad debt loss, rent loss, or reserves for bad debts or rent loss;

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(viii) Fines, penalties and interest for violations of law; and

(ix) Amounts paid as ground rental by Landlord.

It is understood that Common Area Expenses relating to the Building, Land and Improvements shall be reduced by all cash discounts, trade discounts or quality discounts, if any, received by Landlord or Landlord’s managing agent in the purchase of any goods, utilities or services in connection with the operation of the Building and the maintenance of the Land and Improvements. Landlord shall make payments for goods, utilities and services in a timely manner to obtain the maximum possible discounts, if any. In the calculation of any expenses hereunder, it is understood that no expense shall be charged more than once. Except as otherwise provided herein, Landlord shall use commercially reasonable efforts to effect an equitable pro-ration of bills for services rendered to the Building and to any other property owned by Landlord. Landlord agrees to keep books and records showing the Common Area Expenses and all other operating costs in accordance with a system of accounts and sound accounting practices consistently maintained on a year-to-year basis.

3.03 Disputes; Inspection Rights. In connection with Tenant’s Proportionate Share of Additional Rent, the following shall apply:

(a) If any dispute arises as to the amount of Tenant’s Proportionate Share of Additional Rent due hereunder, Tenant shall have the right after reasonable written notice to Landlord and at reasonable time to inspect Landlord’s accounting records at Landlord’s accounting office; provided, however, that Tenant shall not be entitled to a copy of Landlord’s records and Tenant’s review of Landlord’s records shall be limited to those records relating to the Common Area Expenses, taxes, insurance and utilities, and, if after such inspection Tenant shall disputes the amount of Tenant’s Proportionate Share of Additional Rent owed, a certification as to the proper amount shall be made by a certified public accountant selected by Landlord and approved by Tenant, which approval shall not be withheld or delayed, and which certification shall be final and conclusive. Tenant agrees to pay the cost of such certification unless it is determined that Landlord’s original statement overstated that portion of the Tenant’s Proportionate Share of Common Area Expenses which constitute the Controllable Expenses by more than five percent (5%).

(b) In no event shall Tenant be entitled to dispute the amount of Tenant’s Proportionate Share of Additional Rent levying more than one (1) year previous to Tenant’s written notice of the dispute given to Landlord. Further, Tenant shall not be entitled to dispute the amount of Tenant’s Proportionate Share of Additional Rent if Tenant is in material default under any provisions of this Lease or if Tenant has failed or refused to pay any amounts due under this Lease, including, without limitation, monthly installments of Base Rent and Additional Rent. Tenant shall not be entitled to withhold any sums due hereunder pending completion of inspection of Landlord’s records by Tenant or certification by Landlord’s certified public accountant. Landlord shall not be liable for and Tenant shall be solely responsible for and pay any and all costs, fees and charges relating to or arising out of Tenant’s inspection of Landlords’ records. Tenant, and any agents, consultants, contractors, accountants, auditors and employees used by

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Tenant in conducting Tenant’s inspection of Landlord’s records agree that any information obtained during the course of the inspection and the results of such inspection are and shall be held strictly confidential by Tenant, its agents, consultants, contractors, accountants, auditors and employees. Prior to exercising any right to inspect Landlords’ records, Tenant agrees to execute and/or have executed by Tenant’s agents, consultants, contractors, accountants, auditors or employees a confidentiality agreement in a form mutually agreed upon by the parties, which confidentiality agreement must be agreed upon prior to exercising the right to inspect Landlord’s records.

3.04 Late Charge. If Tenant fails to pay Landlord any Rent due under this Lease by the date such amount is due (any such failure, a “Non-Payment Event”), and notwithstanding that Tenant may be entitled to a notice pursuant to Section 21.01(a), then such past due amount shall bear interest at the Interest Rate (as defined in Section 28.02) from the due date therefor until the date paid. In addition, for the third and any subsequent Non-Payment Event in any twelve (12) month period, Tenant shall pay an additional late charge equal to five percent (5%) of the Rent which was not paid when due.

3.05 Management Fee. In addition to the Base Rent and all other Additional Rent payable under this Lease, Tenant shall pay to Landlord an annual management fee (the “Management Fee”) at the following annual rates during the following periods:

(a) THIRTY TWO HUNDREDTHS OF A CENT ($0.0032) per rentable square foot of the Building Premises per month, during the period beginning on the Commencement Date to and including the last day of the thirtieth (30th) month thereafter; and

(b) THIRTY FIVE HUNDREDTHS OF A CENT ($0.0035) per rentable square foot of the Building Premises per month, during the period beginning on the first day of the thirty-first (31st) month following the Commencement Date to and including the Expiration Date.

Tenant shall pay the Management Fee in equal monthly installments in advance on the Commencement Date and thereafter on the first day of each and every calendar month during the Term, without notice or demand therefor. If the Commencement Date or the date on which occurs the expiration (or earlier termination) of the Term occurs on a day other than the first or last day, respectively, of a calendar month, the Management Fee for the month in question shall be prorated on a per diem basis.

3.06 Security Deposit. Tenant agrees to deposit with Landlord $198,800.00 as security for the performance by Tenant of every covenant and condition of this Lease by Tenant to be performed (the “Security Deposit”). Notwithstanding the foregoing, Landlord has waived the requirement of Tenant to deposit with Landlord the Security Deposit in the amount set forth in this Section 3.06 concurrently upon the execution of this Lease. Nevertheless, if Tenant defaults in the timely payment of the Base Rent or any Additional Rent required under this Lease on more than two (2) occasions during the Term of this Lease, then Tenant shall be required, within ten (10) days written notice from Landlord to deposit with Landlord the Security Deposit as security for Tenant’s complete performance of its obligations under this Lease and the

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remainder of the terms and provisions of this Section 3.06 shall be applicable to the Security Deposit. The failure by Tenant to deposit with Landlord the Security Deposit as required hereunder shall constitute a material default under this Lease and Landlord shall not be required to deliver to Tenant any further notice of such default or allow any grace period for the cure of such default. Said deposit may be commingled with other funds of Landlord, and shall bear no interest. Upon the deposit of the Security Deposit, if Tenant shall default with respect to any covenant or condition of this Lease, including, but not limited to, the payment of any sum due hereunder, then Landlord may use such portion of the Security Deposit as is necessary to cure such default. In the event Landlord so uses the Security Deposit in part or in whole, Tenant will restore the Security Deposit to the required amount upon notice of said default and failure to do so shall be a default under this Lease. Should Tenant comply with all of the covenants and conditions of this Lease, the Security Deposit or any balance thereof shall be returned to Tenant at the expiration of the Term thereof. The Security Deposit shall not be deemed an advanced payment of Rent or measure of Landlord’s damages for any default hereunder by Tenant.

4. TAXES

4.01 Definitions. For purposes of this Lease, the following definitions shall apply:

“Tax Year” shall mean each twelve (12) calendar month period beginning on January 1st of any calendar year and ending on December 31st of such calendar year, all or any part of which period occurs during the Term.

“Taxes,” for any Tax Year, shall mean all real estate taxes and real estate assessments, special or otherwise, levied or assessed upon the Land and Improvements in respect of such Tax Year; provided, however, that the parties agree that “Taxes” shall also include any taxes, charges or assessments that are assessed or imposed upon or with respect to the Landlord or the Land and Improvements by the local, state or federal taxing authorities, and that are in lieu of, or in substitution in whole or in part for, the present method of taxation, but only to the extent that such taxes, charges or assessments would be payable if the Land and Improvements were the only property of Landlord. Notwithstanding anything to the contrary contained herein, Taxes shall not include, or there shall be deducted from Taxes, as the case may be, any inheritance, estate, succession, transfer, gift, franchise, net income or capital stock tax. If a fiscal period fixed by any governmental authority for any component of Taxes is a period other than a Tax Year, then such component of Taxes shall be averaged over the number of calendar months in such fiscal period and each such monthly portion shall be included in Taxes for the Tax Year in which such calendar month occurs.

4.02 Tax Payment. Landlord shall pay the Taxes to the applicable governmental authorities and Tenant shall reimburse Landlord the amount of such Taxes as Additional Rent in accordance with Section 3.02 hereof.

4.03 Tax Protest. (a) Landlord, within ten (10) business days after its receipt thereof, shall send Tenant a copy of any notice of reappraisal applicable to the Building. Landlord may (1) contest the amount or validity, in whole or in part, of any Taxes, and (2) seek a reduction in the valuation of the Premises assessed for tax purposes by appropriate proceedings (“Tax Protest Proceedings”) diligently conducted in good faith and the cost of such Tax Protest Proceedings shall constitute a Common Area Expense.

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(b) If Tenant requests in writing that Landlord commence Tax Protest Proceedings, Landlord shall, at its option, (1) diligently prosecute such Tax Protest Proceeding to conclusion and in which event Landlord shall provide Tenant with detailed information as to how Landlord will pursue such claim, or (2) allow Tenant to pursue such Tax Protest Proceedings with Landlord’s concurrence, in the name of Landlord with counsel acceptable to Landlord. In the event Landlord shall allow Tenant to prosecute such Tax Protest Proceeding as set forth in subclause (2) above, Landlord shall not unreasonably withhold its consent to Tenant’s proposed counsel and shall grant or deny its consent within five (5) business days of Tenant’s request. Any recovery relating to taxes paid by Tenant under this Section 3.04 shall be paid to Tenant provided that Tenant shall pay directly all reasonable costs incurred in connection with the pursuit of any such Tax Protest Proceedings.

(c) The provisions and obligations of the parties under this Article 4 shall survive the expiration or earlier termination of this Lease

5. SERVICES AND UTILITIES

5.01 Services and Utilities. Except as otherwise provided in this Lease or the Workletter, Landlord shall not be required to furnish any services or utilities to the Premises and Tenant assumes the full and sole responsibility for obtaining all services and utilities necessary for the operation of the Premises.

(b) Landlord, as part of the Base Building Work and the Tenant’s Work (as both such terms are defined in the Workletter), shall install all meters, conductors, feeders, wires and other equipment necessary to permit the direct provision by the applicable utility companies of electricity, water, gas and sewer service to the Building Premises. The electrical service to the Building Premises will be metered separately from the electrical service to the premises of any other tenant of the Building. Tenant shall make its own arrangements with the applicable utility companies for the furnishing of, and Tenant shall pay directly to the applicable utility companies all charges for, electricity, water and gas consumed in the Building Premises. Landlord shall not commit any act that would interrupt, diminish or otherwise interfere with the direct provision of electricity, water, gas or sewer service to the Building Premises.

6. USE; COMPLIANCE WITH LAWS

6.01 Permitted Uses. Tenant may use the Premises for the following uses (collectively, the “Intended Use”): (i) As a warehouse facility (which shall include use for receiving, storing, shipping and selling products, materials and merchandise), (ii) for general, executive and administrative offices, and (iii) for all lawful uses ancillary to the uses described in the preceding clauses (i) and (ii) of this sentence, including, without limitation, conference and computer facilities and employee and visitor cafeteria and dining areas.

6.02 Compliance with Laws. (a) To Landlord’s knowledge, Landlord represents and warrants that the Land is, as of the date hereof, zoned for the Intended Use, and

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that, upon completion of the Base Building Work and the Tenant’s Work, the Premises will comply with all Legal Requirements (as defined in Section 28.02 below), except as related to Tenant’s specific use of the Premises.

(b) Tenant shall comply with all Legal Requirements relating to the Premises, except that Tenant shall not be required to make any structural repairs or alterations to the Premises in order to comply with any Legal Requirement, except to the extent the need to comply therewith arises from Tenant’s particular manner of using the Premises (as distinguished from Tenant’s use of the Premises generally for warehouse/office use). Tenant shall have the right at its expense to contest, by appropriate legal proceedings conducted in good faith and with due diligence, the validity or application, in whole or in part, of any Legal Requirement with which Tenant is obligated to comply by the preceding sentence and, so long as such proceeding is being conducted in good faith and with due diligence and deferral of compliance does not subject Landlord to civil penalties or criminal prosecution or interfere with other tenants use and enjoyment of the Building and Improvements, Tenant may defer compliance pending the outcome of such contest. Landlord shall, upon request by Tenant, reasonably cooperate with any such contest (at no expense to Landlord, unless Tenant pays such expense) and shall promptly execute and deliver to Tenant any documents, information, consents or other materials required or reasonably desirable to prosecute such contest.

(c) Landlord shall comply with all Legal Requirements relating to the Improvements and the Land, other than those with which Tenant is obligated to comply by Section 6.02(b) above. Landlord shall have the right at its expense to contest, by appropriate legal proceedings conducted in good faith and with due diligence, the validity or application, in whole or in part, of any Legal Requirements with which Landlord is obligated to comply by the preceding sentence and, so long as such proceeding is being conducted in good faith and with due diligence and deferral of compliance does not subject Tenant to civil penalties or criminal prosecution, result in unsafe conditions nor interfere in any material respect with Tenant’s ability to use the Premises for the Intended Use, Landlord may defer compliance pending the outcome of such contest. Tenant shall, upon request by Landlord, reasonably cooperate with any such contest (at no expense to Tenant, unless Landlord pays such expense) and shall promptly execute and deliver to Landlord any documents, information, consents or other materials required or reasonably desirable to prosecute such contest.

6.03 Future Compliance Work. If Landlord, pursuant to the provisions of this Lease, shall be required to perform any Future Compliance Work (as defined below), then Landlord shall perform such Future Compliance Work in a good and workmanlike manner and in accordance with all Legal Requirements, and shall exercise all reasonable efforts to minimize any interference with Tenant’s business operations that may be occasioned thereby. In no event shall Tenant be responsible for any supervisory fee, construction management fee, or any similar fee payable to Landlord or an affiliate of Landlord in connection with the performance of such Future Compliance Work. Tenant agrees to cooperate with Landlord in connection with the performance by Landlord, at Landlord’s expense, of any Future Compliance Work.

(a) “Future Compliance Work” means any structural repairs or alterations to the Building, the Improvements or the Land that are required to be made in order to comply with a Future Law (i) that pertains generally to warehouse or office facilities (i.e.,

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the need to comply therewith does not arise from Tenant’s particular manner of using the Premises), other than any Landlord’s Remediation Work (as defined below), and (ii) the requirement for which is not triggered or caused by Alterations being performed by or on behalf of Tenant. The cost of Future Compliance Work shall be Common Area Expense, and such cost shall be amortized and collected over the useful life of such repairs or alterations, determined in accordance with generally accepted accounting principles, with interest at the Interest Rate.

(b) “Future Law” means (i) any Legal Requirement adopted after the Commencement Date of this Lease, (ii) any amendment to, or modification of, a Legal Requirement, which amendment or modification is adopted after the Commencement Date of this Lease or (iii) any Legal Requirement existing on the Commencement Date of this Lease, compliance with which is required only because of a judicial interpretation of such Legal Requirement first rendered after the Commencement Date of this Lease (without limiting the generality of the foregoing, the term “Future Law” shall not include any Legal Requirement existing on the Commencement Date of this Lease which, by its terms, takes effect or requires compliance after the Commencement Date of this Lease).

7. REPAIRS AND MAINTENANCE

7.01 Generally. (a) For purposes of this Lease, the following definitions shall apply:

1. “Landlord Repair” shall mean any repair to or replacement of the structural components of the following portions of the Premises: the piers, foundations, structural steel, exterior walls, columns, joists and roofs, and the work described as excluded from Common Area Expenses by subclause (v) of the definition of Common Area Expenses.

2. “Tenant Repair” shall mean any repair to or replacement of the Premises or any portion thereof that is not a Landlord Repair.

(b) Landlord and Tenant expressly acknowledge (i) that the following provisions of this Article 7 shall not apply to any repairs or replacements required as a result of fire or other casualty, and (ii) that all repairs and replacements required by fire or other casualty shall be governed by the provisions of Article 16 hereof.

7.02 Landlord’s Obligations. Landlord, at its expense, shall make all Landlord Repairs in and to the Premises in order to maintain the Premises in a first-class manner. Notwithstanding the foregoing, if, and to the extent that, any such Landlord Repair is required by reason of (a) the negligent act or omission of Tenant, its agents, contractors or employees, or (b) any Alteration performed by Tenant, then Tenant shall make the same at its expense. If Tenant performs any Landlord Repair which is covered by the insurance required to be maintained by Landlord pursuant to Section 14.01 below, then Landlord shall assign to Tenant all insurance proceeds which are or may be payable by the insurer with respect to such Landlord Repair. Landlord shall perform all Landlord Repairs in a diligent, first-class manner and in compliance

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with all Legal Requirements, and shall exercise all reasonable efforts to minimize any interference with Tenant’s business operations that may be occasioned thereby. Tenant agrees to cooperate with Landlord, at Landlord’s expense, in connection with the performance by Landlord of any Landlord Repairs provided that Landlord’s repairs shall minimize any interference with Tenant’s business operations.

7.03 Tenant’s Obligations. (a) Tenant shall take good care of the Improvements, and, as and when needed, shall make all Tenant Repairs thereto. Notwithstanding the foregoing, if, and to the extent that, any such Tenant Repair is required by reason of the negligent act or omission of Landlord, its agents, contractors or employees, then in any such event, Landlord shall make the same at its expense. If Tenant performs any Tenant Repair which is covered by the insurance required to be maintained by Landlord pursuant to Section 14.01 below, then Landlord shall assign to Tenant all insurance proceeds which are or may be payable by the insurer with respect to such Tenant Repair. Tenant shall perform all Tenant Repairs which it is required to perform pursuant to this Section 7.03 in a diligent, first-class manner and in compliance with all Legal Requirements, and shall exercise all reasonable efforts to minimize any interference with the business operations of the other tenants of the Building. If Landlord performs any Tenant Repair which is covered by the insurance required to be maintained by Tenant pursuant to Section 14.02 below, then Tenant shall assign to Landlord all insurance proceeds which are or may be payable by the insurer with respect to such Tenant Repair.

(b) Tenant shall also, at its own cost and expense, keep the Premises clean and free from dirt, snow, ice and rubbish.

8. ALTERATIONS

8.01 Definitions. For purposes of this Lease, the following definitions shall apply:

(a) “Alteration” shall mean any alteration, addition or improvement performed by, or to be performed by, Tenant in or about the Premises.

(b) “Material Alteration” shall mean any Alteration that will be directly performed on, or, when completed, will have a material effect on, the piers, footings, structural steel, exterior walls, columns joists or roof of the Building.

8.02 Generally. Tenant, without any need to obtain Landlord’s consent or approval, shall have the right to perform any Alterations, the cost of which does not exceed $75,000.00 in the aggregate, in and about the Premises, other than Material Alterations. In addition, Tenant, upon obtaining Landlord’s consent, which Landlord shall not unreasonably withhold, condition or delay, shall have the right to (i) Alterations which cost in excess of $75,000.00 in the aggregate and (ii) Material Alterations in and about the Premises.

8.03 Notice. Tenant, prior to commencing any Alteration, shall give Landlord written notice (each, an “Alteration Notice”) thereof, and, to the extent that good construction practice requires plans and specifications to be prepared with respect to such Alteration, such notice shall be accompanied by a copy of such plans and specifications. In the case of any

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Alteration for which Landlord’s consent is required or any Material Alteration, Landlord, within ten (10) business days after its receipt of such notice, shall either (i) give its written consent to the Alteration or Material Alteration, as applicable, or (ii) deny its consent and request revisions or modifications to such Alteration or Material Alteration, as applicable. If Landlord fails to deny its consent to an Alteration or Material Alteration, as applicable for which Landlord’s consent is required in a writing that sets forth the reasons for such denial within the aforesaid 10 business-day period, then Landlord shall be deemed not to have consented to the Material Alteration in question. Any dispute as to whether Landlord’s denial of consent to an Alteration or Material Alteration for which Landlord’s consent is required was proper shall be determined by arbitration in accordance with Article 26 below (except that the arbitrators shall be structural engineers).

8.04 Performance. Tenant at its own expense may perform all Alterations with contractors and subcontractors, provided that such contractors and subcontractors are approved in advance by Landlord which approval Landlord shall not unreasonably withhold, condition or delay. Tenant shall perform all Alterations in a good and workmanlike manner and in accordance with all Legal Requirements and Insurance Requirements. Landlord shall, upon Tenant’s request, furnish or execute promptly any documents, information, consents or other materials which are necessary or reasonably desirable in connection with Tenant’s efforts to obtain any license or permit for the making of any Alteration. Landlord shall not be entitled to impose upon Tenant any charges or fees of any kind (including, without limitation, charges or fees for profit, overhead or supervision) in connection with any Alterations.

8.05 Removal. (a) Any and all Alterations made by, or on behalf of, Tenant in, to or upon the Premises or the Improvements, as well as the Tenant’s Work (as defined in the Workletter), Tenant’s Additional Work (as defined in the Workletter) and any fixtures and Tenant’s Property installed on the Premises by Tenant, shall remain the property of Tenant and may be removed from the Premises at any time during the Term, provided that any damage caused by such removal shall be repaired by Tenant. Tenant may elect not to remove any or all of its Alterations, the Tenant’s Work, Tenant’s Additional Work, its fixtures or Tenant’s Property, in which case the same shall become the property of Landlord upon Tenant’s surrender of the Premises. Notwithstanding the foregoing, at the expiration or earlier termination of the Term, Tenant shall remove (i) its movable business equipment and other movable personal property (other than cables, wires and conduits located above hung ceilings, beneath raised flooring or behind walls), (ii) any Extraordinary Fixture (as defined below), (iii) the items installed pursuant to Section 29.01 below, (iv) the Tenant’s Additional Work (as defined below), including the warehouse racking system (the “Racking System”) to be installed in the Premises, and (v) any alterations, additions or improvements which Landlord has advised Tenant must be removed pursuant to Section 8.05(b). Landlord acknowledges that, in removing the Racking System from the Premises, (A) Tenant shall only be required to cut and file the bolts connecting the Racking System to the slab (rather than remove such bolts from the slab) and (B) Tenant shall not be required to remove the wiring relating to the Racking System that may be imbedded in the slab. In addition, at the expiration or earlier termination of the Term, Tenant shall fill in, to a level condition, any trenches in the slab created by Tenant (it being agreed that, for the purposes of this sentence, any holes in the slab made by the bolts and wires related to the Racking System shall not be deemed to constitute trenches).

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(b) Within 10 business days after Landlord’s receipt of any Alteration Notice, Landlord shall notify Tenant (each a “Removal Notice”) whether Tenant must remove the alterations, additions or improvements at the expiration or earlier termination of this Lease. For purposes of this Section 8.05(b), Landlord’s Work and Tenant’s Work as described in the Workletter shall not be considered an “Alteration.” If Landlord (i) gives a Removal Notice stating that Landlord will not require Tenant to remove any of the alterations, additions or improvements at the expiration or earlier termination of this Lease, or (ii) fails to give a Removal Notice within 10 business days after receipt of any Alteration Notice, then Landlord shall have waived its right to cause Tenant to remove the alterations, additions or improvements described in the Alteration Notice in question, and Tenant shall not be obligated to remove the same. “Extraordinary Fixture” means a Fixture which, at the time of installation, (aa) is not the type of improvement that is customarily found in a standard warehouse and/or office installation in Riverside County, California and (bb) is materially more expensive to remove than the type of improvement that is customarily found in a standard warehouse and/or office installation in Riverside County, California; provided that air handlers, chillers and other air conditioning equipment installed by or for Tenant shall in no event constitute “Extraordinary Fixtures”. By way of example only, vaults and safes are Extraordinary Fixtures. Notwithstanding anything to the contrary in this Section 8.05 or elsewhere in this Lease, in no event shall any of the alterations, additions and improvements comprising the Base Building Work or the Tenant’s Work constitute an “Extraordinary Fixture,” and Tenant shall not be required to remove any portion of the Base Building Work or the Tenant’s Work at the expiration (or earlier termination) of this Lease; provided, however that Tenant shall be required to remove the alterations, additions and improvements comprising the Tenant’s Additional Work (as defined below).

8.06 Violations and Liens. Tenant, at its expense and with diligence and dispatch shall immediately procure the cancellation or discharge of all notices of violation arising from or in connection with any Alterations, or any other work, labor, services or materials done for or supplied to Tenant, or any person claiming by, through or under Tenant (other than the Base Building Work or the Tenant’s Work), which (i) shall be issued by any public authority having or asserting jurisdiction over the Premises and (ii) shall not be the result of any act, omission or negligence of Landlord or its agents, servants, employees or contractors. Tenant shall have no authority to create any liens for labor or materials on or against the Premises, the Building or the Land. Tenant may contest the validity of any lien filed against the Premises, the Building or the Land for any work, labor, services or materials claimed to have been performed for or furnished to Tenant or any person or entity holding the Premises or any portion thereof by, through or under Tenant, but Tenant shall cause any such lien to be discharged or removed by deposit or otherwise within thirty (30) days after Tenant receives written notice from Landlord of the filing of the same.

9. SIGNAGE

9.01 Tenant’s Rights. Subject to Landlord’s approval of the size, materials and location, which shall not be unreasonably withheld, conditioned or delayed, Tenant, at its expense and subject to its obtaining any required governmental permits and approvals and in accordance with the requirements of any covenants, conditions or restrictions recorded against the Land, may erect, place, maintain, repair and replace such identification and directional signs and monuments concerning Tenant’s business at the Premises as Tenant deems necessary or appropriate in or on the Premises and the Land (including, without limitation at the street entrances to the Land and on the Building exterior).

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9.02 Tenant’s Obligations. Any signs or monuments installed or erected by or for Tenant shall remain Tenant’s property and shall be removed by Tenant at the expiration or earlier termination of this Lease, and Tenant shall repair any damage caused by such removal. Tenant shall procure and pay for any governmental permit required for the installation of any sign or monument in or on the Premises, the Building or the Land. Landlord shall cooperate with Tenant’s efforts to obtain any permit required or desirable in connection with the installation of any sign.

10. PARKING

Landlord, as part of the Base Building Work shall sealcoat and restripe, in the location shown on Exhibits B-1 and B-2 annexed hereto, surface parking adjacent to the Building and on the Land for not less than two hundred ninety (290) car parking spaces. Throughout the Term, Tenant shall have exclusive use of the portion of the parking designated on Exhibits B-1 and B-2 as the Tenant’s parking area (the “Parking Area”), or in the event Tenant occupies the remainder of the building of which the Premises is a part, then Tenant shall have exclusive use of all the parking on the Land.

11. ASSIGNMENT & SUBLETTING

11.01 Assignment. Tenant shall not assign this Lease without Landlord’s prior written consent; provided, however, that Tenant may, from time to time, without the need for Landlord’s consent, assign this Lease to any (a) Related Entity, (b) Successor or (c) Qualified Business Group Holder (as all such terms are defined below), provided that Tenant gives Landlord five (5) business days’ prior written notice of each such assignment. No assignment shall release, reduce or affect the liability of the Tenant for its obligations hereunder, and the original named Tenant shall remain primarily liable for such obligations.

11.02 Subletting. Tenant shall not sublet this Lease without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Tenant may, from time to time, without the need for Landlord’s consent, sublet all or any portion of the Premises to a Related Entity, Successor or Qualified Business Group Holder if Tenant gives prior written notice of each such sublease. No sublease shall release, reduce or affect the liability of the Tenant for its obligations hereunder, and the original named Tenant shall remain primarily liable for such obligations.

11.03 Consent Procedures. (a) If Tenant desires to (i) assign this Lease other than to a Related Entity, a Successor or a Qualified Business Group Holder or (ii) sublet the Premises or any part thereof to other than a Related Entity, a Successor or a Qualified Business Group Holder, then Tenant shall give Landlord notice (each, a “Transfer Notice”) of such intent. Each Transfer Notice shall be accompanied by (i) a statement setting forth in reasonable detail the identity of the proposed assignee or sublessee, the nature of its business and its proposed use of the Premises and (ii) in the case of a proposed assignment, current financial information with respect to the proposed assignee. Landlord’s consent to any such proposed assignment or to any such proposed sublease shall not be unreasonably withheld, conditioned or delayed, provided that

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(a) in the case of a proposed assignment, the proposed assignee shall have the financial ability to perform the obligations of Tenant under this Lease (it being agreed that any entity that has a tangible net worth equal to or greater than $50,000,000.00 and a minimum net income of $10,000,000 for each of the three (3) previous years shall be deemed to have the financial ability to perform the obligations of Tenant under this Lease, both as evidenced by financial statements prepared by certified public accountants. Net worth shall be calculated as of the last day of the proposed assignee’s then most recently completed fiscal year, using sound accounting principles.

(b) the proposed assignee or subtenant is of a character comparable to (or better than) that of other warehouse and/or office tenants in the area of the Premises, as determined by objective criteria;

(c) the intended use of the Premises by the proposed assignee or subtenant (A) is permitted by the first sentence of Section 6.01 above and (B) is no more likely to result in environmental contamination at the Premises than Tenant’s use of the Premises at the time of the assignment or subletting in question.

(d) in the case of a proposed assignment, such assignment will not violate the so-called “Party-In-Interest Rules” under ERISA.

(b) Landlord shall approve or disapprove a proposed sublease or a proposed assignment described in any Transfer Notice within 10 business days after Landlord’s receipt of such Transfer Notice and the information required pursuant to the provisions of Section 11.03(a) above. If Landlord fails to approve or disapprove a proposed sublease or assignment within such 10 business day period, then such proposed sublease or assignment shall be deemed disapproved; provided, however, if following such 10 business day period with no response from Landlord Tenant re-sends the Transfer Notice to Landlord, then, and in such event, if Landlord fails to approve or disapprove the proposed sublease or assignment within 10 business days after Landlord’s receipt of such re-sent Transfer Notice such proposed sublease or assignment shall be deemed approved.

11.04 Profit Sharing. (a) Except with respect to any subletting to a Related Entity, a Successor or a Qualified Business Group Holder, if the aggregate amount collected by Tenant as base rent and additional rent for any year under a sublease of all or any part of the Premises shall be in excess of Tenant’s Basic Cost (as hereinafter defined) with respect to the premises demised by such sublease for such year, then Tenant shall, in accordance with and subject to the immediately succeeding sentence, pay to Landlord, as Additional Rent, an amount equal to fifty percent (50%) of such excess (such excess, the “Sublease Profit”). For the purposes of calculating Sublease Profit, (i) such calculation shall be made annually on a calendar year basis, (ii) Subletting Expenses (defined below) shall be deducted from Sublease Profit as and when paid by Tenant (and carried forward against future Sublease Profits until fully credited to Tenant against Sublease Profits) so that Tenant shall not pay to Landlord any Sublease Profit until Tenant has first applied such Sublease Profit to pay or reimburse itself for all Subletting

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Expenses, and (iii) the calculation of Sublease Profit in each calendar year for any sublease shall be made on a cumulative basis, taking into account any profit or loss in any prior year (with any unapplied losses in prior years being deducted from the Sublease Profit for the year in question). “Tenant’s Basic Cost” means, with respect to any calendar year for which any part of the Premises is sublet, the portion of the Base Rent, Additional Rent (including, without limitation, the Management Fee), Taxes, tangible personal property taxes, electricity, water, sewer and other utility charges attributable to such sublet space (as determined on a rentable square foot basis), in each case payable by Tenant for such calendar year. “Subletting Expenses” means, with respect to any sublease, the actual costs and expenses paid or incurred by Tenant in connection with such sublease, including, without limitation, the following: (1) the cost of making changes in the layout and finish of the sublet space and/or in the Premises for the subtenant or any construction or tenant improvement allowances granted to such subtenant in connection with such sublease; (2) the amount of any brokerage commissions, advertising fees, legal fees and disbursements paid by Tenant in connection with such sublease; (3) any rent abatement or free rent periods granted by Tenant to such subtenant in connection with such sublease; and (4) any amounts paid by Tenant to the landlord of any other premises then under lease to the subtenant or to the subtenant itself in order to buy out such lease as an inducement for the subtenant to enter into the sublease; provided, however, that if any of the foregoing costs and expenses are paid or incurred to a Related Entity, then such costs and expenses shall only constitute Subletting Expenses to the extent that the same do not exceed the amount that would have been incurred to an unaffiliated third party.

(b) Upon any assignment of this Lease (other than to a Related Entity, a Successor or a Qualified Business Group Holder ), Tenant shall pay to Landlord 50% of the Net Consideration (as hereinafter defined) actually received by Tenant in respect of such assignment from such assignee. For purposes hereof, “Net Consideration” means all sums paid by the assignee in consideration of such assignment, including any sums paid for the purchase or rental of any of Tenant’s Property, minus the sum of (x) the then net, unamortized or undepreciated cost of Tenant’s Property, determined on the basis of Tenant’s Federal income tax returns, plus (y) all costs and expenses paid or incurred by Tenant in connection with assignment, including, without limitation, all closing expenses, reasonable legal fees, brokerage expenses and transfer, gains or other taxes paid or incurred by Tenant in connection with an assignment; provided, however, that if any of the foregoing costs and expenses are paid or incurred to a Related Entity, then such costs and expenses shall only constitute Net Consideration to the extent that the same do not exceed the amount that would have been incurred to an unaffiliated third party.

11.05 Definitions. For purposes of this Lease, the following terms shall have the following meanings:

“Qualified Business Group Holder” means any entity which acquires all or substantially all of the business of any division of, or other operational group within, Tenant, which division or other operational group occupied space in the Premises prior to such acquisition (including an entity created pursuant to a spin off of such division or other group, or an entity acquiring such business pursuant to an out sourcing program).

“Related Entity” means any corporation or other business entity which controls, is controlled by or is under common control with Tenant. For purposes of the preceding

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sentence, “control” means either (i) ownership or voting control, directly or indirectly, of 50% or more of the voting stock, partnership interests or other beneficial ownership interests of the entity in question or (ii) the power to direct the management and policies of such entity.

“Successor” means any one of the following: (i) an entity resulting from a merger, consolidation, reorganization or recapitalization of or with Tenant or (ii) a purchaser (or other transferee) of all or substantially all of Tenant’s assets and all or substantially all of such Tenant’s liabilities (including the liabilities of Tenant hereunder).

12. QUIET ENJOYMENT

Landlord covenants and agrees that Tenant shall and may, at all times during the Term, peaceably and quietly have, hold, occupy and enjoy the Premises, subject to the terms of this Lease.

13. SUBORDINATION AND NON DISTURBANCE

13.01 Existing Mortgages. Landlord represents and warrants that, as of the date hereof, (i) there are no mortgages or deeds of trust that constitute a lien or charge on the whole or any portion of the Land, other than that certain Deed of Trust, Security Agreement and Assignment of Rents and Leases (the “Existing Mortgage”), dated September 16, 2004 made by Landlord for the benefit of Northwestern Mutual Life Insurance Company (“Northwestern Mutual”), securing a promissory note in the original principal amount of $23,650,000.00, and (ii) there are no ground or underlying leases covering the whole or any portion of the Land or the Building. Simultaneously with the execution of this Lease, Landlord shall obtain for and deliver to Tenant a non-disturbance and attornment agreement in the form currently used by Northwestern Mutual and suitable for recording in the form attached hereto as Exhibit E, as the same may be modified by Northwestern Mutual with the reasonable review and approval by Tenant.

13.02 Subsequent Mortgages. With respect to any mortgages or deeds of trust (each, a “Future Mortgage”) that hereafter become a lien or charge upon the Land or the Improvements, Tenant agrees to subordinate this Lease to such mortgage or deed of trust, by written agreement, but only if, simultaneously therewith, the holder of such subsequent mortgage or deed of trust, executes and delivers to Tenant (whether as part of the agreement of subordination or otherwise) a Non-Disturbance Agreement (as defined below). If the holder of any Future Mortgage executes, acknowledges and delivers to Tenant a Non-Disturbance Agreement (i.e., an agreement strictly meeting the definition in Section 13.03 below) and Tenant fails or refuses to execute and deliver such agreement within 15 business days after such agreement is received by Tenant, then this Lease shall automatically and without further act be deemed to be subject and subordinate to such Future Mortgage and such Non-Disturbance Agreement shall then be deemed to be in effect with respect to such Future Mortgage.

13.03 Non-Disturbance Agreement. As used in this Lease, the term “Non-Disturbance Agreement” shall mean an agreement between a Future Mortgagee and Tenant in the form proposed by such Future Mortgagee with such modifications as are reasonably approved by Tenant and suitable for recording.

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14. INSURANCE

14.01 Landlord’s Insurance. (a) Landlord shall maintain at all times during the Term, the following, and the cost thereof shall constitute Additional Rent:

(i) Insurance on the Building, insuring against loss or damage on an “all risk” basis, in an amount sufficient to prevent Landlord from becoming coinsurer under provisions of applicable policies of insurance, but in any event in an amount not less than the actual full replacement value (without deducting depreciation) of the Building. In no event shall the deductible for the policy referenced in this Section 14.01(a)(i) be less than $10,000 or more than $50,000, unless Tenant notifies Landlord in writing that Tenant wishes to increase the amount of the deductible above, or decrease the amount of the deductible below, the aforesaid limits, and Landlord consents to such increase or decrease (which consent shall not be unreasonably withheld, conditioned or delayed).

(ii) Commercial general liability insurance, including a contractual liability endorsement, and personal injury liability coverage, in respect of the Premises, with limits of not less than Five Million ($5,000,000) Dollars combined single limit for bodily injury and property damage liability in any one occurrence (which $5,000,000 limit may be achieved in combination with one or more umbrella liability policies).

(b) All insurance to be maintained by Landlord pursuant to this Article, (i) shall be carried in favor of Landlord and, with respect to the commercial general liability insurance, shall name Tenant as an additional insured, (ii) shall be in such form normally carried by prudent owners of premises similarly situated, due regard given to the type of premises (i.e., size, age, condition), its construction and its use and occupancy, (iii) shall be issued by domestic insurance companies, licensed to do business in the State of California and having a Best’s rating of AVIII or better or the then equivalent of such rating and having a policyholders surplus of at least $100,000,000, and (iv) shall be written on policies which have a term of not less than one year, and which shall provide that no cancellation, non-renewal, change or reduction in the coverages afforded under said policies will be effective until at least thirty (30) days’ prior written notice of such cancellation or reduction has been given to Tenant in accordance with Article 20 of this Lease. Landlord shall promptly advise Tenant of any policy cancellation, reduction, non renewal, or amendment which adversely affects Tenant. Landlord shall have the right, to be exercised by written notice to Tenant, to cause the insurance to be maintained by Landlord pursuant to this Section 14.01 to be effected by a blanket policy issued to Landlord or any affiliate thereof covering the Premises and other properties owned by or leased to Landlord or any affiliate thereof; provided that such blanket policy (x) complies in all respects with the terms of this Section 14.01, and (y) expressly identifies the Premises as being covered by such blanket insurance policy.

(c) The original policy described in Section 14.01(a)(i) above (or, at Landlord’s election, a certificate thereof) and a certificate of the policy described in Section 14.02(a)(ii) above, together with evidence as to the payment of all premiums then due thereon, shall be delivered to Tenant immediately upon receipt from the insurance company or companies. New or renewal policies or certificates replacing any policies expiring during the Term shall be delivered to Tenant at least thirty (30) days before the date of expiration, together with proof satisfactory to Tenant that the full premiums have been paid.

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(d) In the event that such insurance is included as part of a blanket insurance policy covering other properties, then the amount payable by Tenant shall be equal to the excess of (x) the premiums payable for such blanket policy inclusive of coverage for the Premises in accordance with the terms hereof, over (y) the premiums payable for such blanket policy exclusive of coverage for the Premises. Landlord shall use all reasonable efforts to minimize the premiums for the insurance required pursuant to this Section 14.01, including, without limitation, to the extent permissible under its applicable insurance policies, maintaining the insurance required by this Section 14.01 under a blanket insurance policy covering other properties owned and/or operated by Landlord or its affiliates, provided such insurance complies with the terms and provisions of this Section 14.01. Notwithstanding anything herein to the contrary, Common Area Expenses shall not include insurance premiums for rent loss or rent interruption insurance to the extent that such coverage is for any period longer than twelve (12) months.

14.02 Tenant’s Insurance. (a) Tenant shall maintain at all times during the Term (i) “all risk” property insurance covering (X) the portion (the “Tenant Improvements”) of the Premises installed by or on behalf of Tenant as Tenant’s Work and Tenant’s Additional Work, together with any Alteration made subsequent thereto, and (Y) Tenant’s Property, in both cases insured to a limit of not less than the full replacement value thereof, insuring against loss or damage by perils customarily included under standard “all risk” policies and (ii) commercial general liability insurance, including a contractual liability endorsement, and personal injury liability coverage, in respect of the Premises and the conduct or operation of business therein, with Landlord and any manager of the Premises whose name and address have been furnished to Tenant as additional insureds, with limits of not less than Five Million ($5,000,000) Dollars combined single limit for bodily injury and property damage liability in any one occurrence, which comprehensive general liability policy shall be primary and non-contributory (and which $5,000,000 limit may be achieved in combination with one or more umbrella liability policies).

(b) Each policy of insurance maintained by Tenant pursuant to the foregoing provisions of this Section 14.02 shall provide that the same will not be cancelled without at least thirty (30) days’ prior written notice to Landlord (as an additional insured thereunder). Tenant, on or prior to the Commencement Date, shall deliver to Landlord certificates of insurance, showing that the insurance required to be maintained pursuant to the foregoing provisions of this Section 14.02 is in force and will not be cancelled without thirty (30) days’ prior notice being furnished to Landlord. Thereafter, certificates showing renewal of, or substitution for, policies which expire or are terminated shall be furnished not less than thirty (30) days prior to the expiration or termination of each such policy.

(c) Notwithstanding anything to the contrary contained in the foregoing provisions of this Section 14.02, Tenant shall have the right, to be exercised by written notice to Landlord, to cause the insurance to be maintained by Tenant pursuant to this Section 14.02 to be effected by blanket and/or umbrella policies issued to Tenant covering the Premises and other properties owned by or leased to Tenant or any affiliate of Tenant.

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14.03 Waiver of Subrogation. EACH OF LANDLORD AND TENANT (THE “DAMAGED PARTY”) HEREBY RELEASES THE OTHER PARTY (THE “RELEASED PARTY”) FROM ANY LIABILITY TO THE DAMAGED PARTY ON ACCOUNT OF ANY DAMAGE TO THE DAMAGED PARTY’S PROPERTY ARISING OUT OF ANY CASUALTY OR OTHER LOSS INCLUDED WITHIN A STANDARD FORM OF “ALL RISK” PROPERTY INSURANCE POLICY USED IN THE STATE OF CALIFORNIA (OR, IF THE COVERAGE PROVIDED THEREBY IS BROADER, THE FIRE AND CASUALTY INSURANCE ACTUALLY CARRIED BY THE DAMAGED PARTY), EVEN IF SUCH DAMAGE IS THE RESULT OF THE FAULT OR NEGLIGENCE OF THE RELEASED PARTY OR THE RELEASED PARTY’S EMPLOYEES, CONTRACTORS, AGENTS OR INVITEES. Neither Landlord nor Tenant shall obtain or accept any insurance policy which would be invalidated by or would conflict with such release; except that either of Landlord or Tenant shall have the right to obtain a policy of insurance that would be invalidated by or would conflict with such release (and, the release shall not apply with respect to damage covered by such a policy), if it is no longer possible for such party procuring the insurance in question to obtain a policy which would not be invalidated and would not conflict with such release, and such party so notifies the other party.

15. INDEMNIFICATION

15.01 Tenant’s Indemnification. Except as otherwise herein provided, Tenant shall indemnify Landlord against any claim for death, bodily injury or property damage asserted against Landlord by reason of the negligence or willful misconduct of Tenant or any of its employees, agents, contractors or invitees and the costs of defense thereof, including reasonable attorneys fees.

15.02 Landlord’s Indemnification. Except as otherwise herein provided, Landlord shall indemnify Tenant against any claim for death, bodily injury or property damage asserted against Tenant by reason of the negligence or willful misconduct of Landlord or any of its employees, agents, contractors or invitees (but not other tenants of the Building) and the costs of defense thereof, including reasonable attorneys fees.

15.03 Right to Assume Defense. If any claim that is within the scope of any indemnity set forth in this Lease is asserted against any indemnified party, or any legal action with respect to any such claim is commenced against an indemnified party, such indemnified party shall promptly notify the indemnifying party. The indemnifying party shall have the right to assume the defense with counsel chosen by the indemnifying party subject to the approval of the indemnified party (such approval not to be unreasonably withheld) or by the indemnifying party’s insurance company. If the indemnifying party so assumes the defense, the indemnifying party shall not be responsible for the fees of any separate counsel employed by the indemnified party.

16. DAMAGE AND DESTRUCTION

16.01 Landlord’s Restoration Work. If all or any portion of the Building shall be partially or totally damaged or destroyed by fire or other casualty, then, unless this Lease is terminated as hereinafter provided, and whether or not the damage or destruction shall have

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resulted from the fault or neglect of Tenant or its employees, agents, contractors or invitees, Landlord, at its sole expense, shall perform Landlord’s Restoration Work (as hereinafter defined) with reasonable dispatch and continuity. “Landlord’s Restoration Work” means all of the work necessary to repair and restore the Building to substantially the same condition as that in which it was immediately prior to the happening of the fire or other casualty; provided, however, that Landlord’s Restoration Work shall not include the repair and restoration of any Tenant’s Property, the Tenant Improvements or any Alterations. During the performance of Landlord’s Restoration Work, the Base Rent and Additional Rent shall be abated as a result of the Premises being rendered untenantable by reason of any such fire or other casualty. Notwithstanding anything to the contrary in this Section 16.01, in the event a fire or other casualty to the Building occurs that is covered by the insurance referenced in Section 14.01(a)(i) above, Tenant shall, within 30 days after demand therefor, pay to Landlord the amount of any deductible in respect of the insurance adjustment relating to such fire or other casualty, but only if Landlord shall have complied with the last sentence of Section 14.01(a)(i) above (it being agreed that, in any event, the payment of such amount by Tenant is not a condition precedent to any of Landlord’s obligations under this Article 16).

16.02 Intentionally omitted.

16.03 Tenant’s Termination Rights; Landlord’s Termination Rights. (a) If the Building shall be damaged or destroyed by fire or other casualty and at least five percent (5%) of the Building Premises is rendered untenantable, then, Landlord, within thirty (30) days after the occurrence of the fire or other casualty, shall furnish to Tenant an estimate (the “Estimate”), prepared and certified by an architect selected by Landlord and reasonably acceptable to Tenant, of the date (the “Estimated Date”) by which Landlord’s Restoration Work shall be completed. If the Estimated Date shall be a date later than one hundred eighty (180) days after the date of the fire or other casualty, then Tenant may, at its option, terminate this Lease by giving written notice to Landlord within thirty (30) days after Tenant’s receipt of the Estimate.

(b) In any case where the Estimate does not give rise to Tenant’s termination right as aforesaid (as well as any case where Tenant does not elect to exercise its termination right as aforesaid), Tenant shall have the right to terminate this Lease, if for any reason, Landlord’s Restoration Work is not completed by the Outside Date (as defined below). Tenant may exercise the termination right described in this Section 16.03(b) by delivering written notice thereof to Landlord at any time following the Outside Date and prior to the date Landlord completes Landlord’s Restoration Work. The “Outside Date” shall be the Estimated Date; provided, however, that, the Outside Date shall be postponed (beyond the Estimated Date) by one day for each day that Landlord is actually delayed in completing Landlord’s Restoration Work by the Estimated Date by reason of an Event of Force Majeure (as defined below); provided, further, however, that (i) Landlord shall not be deemed to have been actually delayed in completing Landlord’s Restoration Work by an Event of Force Majeure unless Landlord, within 10 days after the occurrence of the applicable Event of Force Majeure, shall have notified Tenant of such Event of Force Majeure and of the fact that the same is going to delay Landlord in completing the Restoration Work by the Estimated Date; and (ii) in no event shall the Outside Date be postponed by more than ninety (90) days (in the aggregate) beyond the Estimated Date on account of Events of Force Majeure, no matter how many days Landlord is actually delayed in completing Landlord’s Restoration Work as a result of one or more Events of Force Majeure.

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(c) If Tenant terminates this Lease as provided in this Section 16.03, then such termination shall be effective on the date specified in Tenant’s notice of termination. Any Rent paid by Tenant for a period beyond the date of termination of this Lease shall promptly be refunded by Landlord to Tenant.

(d) If (i) (A) the Building (or a portion thereof) shall be damaged or destroyed by fire or other casualty, and (B) Landlord will be required to expend more than 50% of the full insurable value of the Building (replacement cost less the cost of foundation and piers) in order to complete the Landlord’s Restoration Work with respect to such fire or other casualty, or (ii) (X) the Estimated Date with respect to such fire or other casualty shall be a date later than one hundred eighty (180) days after the date of such fire or other casualty, and (Y) Landlord elects not to perform, and in fact does not perform, the Landlord’s Restoration Work with respect to such fire or other casualty, then Landlord may, at its option, terminate this Lease by giving written notice to the Tenant within thirty (30) days after Tenant’s receipt of the Estimate. If Landlord terminates this Lease as provided in this Section 16.03(d), then such termination shall be effective on the date specified in Landlord’s notice of termination but no earlier than thirty (30) days after the date of such notice as if said date were the date fixed for the expiration of the Term. Any Rent paid by Tenant for a period beyond the date of termination of this Lease shall promptly be refunded by Landlord to Tenant.

16.04 Intentionally Omitted.

16.05 Express Agreement. The provisions of this Article 16 shall be considered an express agreement governing any case of damage or destruction of the Building by fire or other casualty and any law now or hereafter in force which is inconsistent with the provisions of this Article 16 shall have no application.

17. CONDEMNATION

17.01 Notice. Landlord and Tenant shall each notify the other if it becomes aware that there will or might occur a taking (each, a “Taking”) of any portion of the Premises by condemnation proceedings or by exercise of any right of eminent domain.

17.02 Termination of Lease. In the event of the Taking of the entire Premises, this Lease shall terminate as of the date of such Taking. If there occurs a Taking of (a) more than ten percent (10%) of the rentable area of the Premises, or (b) a portion of the Land such that, in Tenant’s reasonable opinion, no other untaken Land is available and legally permitted to be used as the functional equivalent for the Land which was so taken and as a result thereof the Premises will not, in Tenant’s reasonable opinion, be adequate or suitable for the conduct of Tenant’s business, then, in either such event, Tenant may, at its option, terminate this Lease by giving written notice to Landlord within forty-five (45) days after Tenant receives notice of such Taking and the extent thereof. If Tenant terminates this Lease as provided in this Section 17.02, then such termination shall be effective on the date specified in Tenant’s notice of termination but no earlier than thirty (30) days or later than one hundred eighty (180) days after the date of

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such notice as if said date were the date fixed for the expiration of the Term. If there occurs a Taking of twenty five percent (25%) or more of the rentable area of the Building Premises, then Landlord may, at its option, terminate this Lease.

17.03 Continuation of Lease. In any case that there occurs a Taking of a portion of the Land and this Lease is not terminated pursuant to Section 17.02 hereof, then this Lease shall remain in full force and effect, except that appropriate adjustments shall be made to the Rent, and Landlord shall proceed with due diligence to perform any work necessary to restore the remaining portions of the Premises to the condition that they were in immediately prior to the Taking, or as near thereto as possible.

17.04 Condemnation Award. The award resulting from any Taking of the Land shall be the property of Landlord. Notwithstanding the foregoing, Tenant shall have the right to prosecute a separate action against the condemnor for its moving costs, the then unamortized value of Alterations installed by Tenant and the loss of value or utility of Tenant’s Property, provided that any such separate claim by Tenant does not reduce Landlord’s award.

18. ACCESS

18.01 Generally. Landlord, upon not less than twenty-four (24) hours’ prior notice, shall have the right to enter the Premises at reasonable hours for the purpose of (i) inspecting the Premises, (ii) showing the Premises to prospective purchasers or mortgagees or, during the last twelve (12) months of the Term, prospective tenants, (iii) making repairs to the Improvements and/or the Land which Landlord is required or permitted to make pursuant to the terms of this Lease, or performing restoration thereof, and (iv) performing the services to be performed by Landlord under this Lease. Tenant may request that such entry be at a reasonably convenient time other than the time specified in Landlord’s notice or that such entry be during hours other than during business hours on Business Days. Such rights of entry shall be subject to Tenant’s reasonable security regulations or procedures, provided that Tenant shall have given Landlord prior written notice thereof. Tenant shall have the right to designate one or more portions of the Premises as “security areas” and if Tenant does so designate one or more portions of the Premises as “security areas,” then Landlord shall not have access to such designated security areas, unless Landlord is accompanied by a representative of Tenant. During the prosecution and immediately after the completion of any such repairs or construction, Landlord shall clean the Premises and the Building and shall remove any tools, equipment, supplies and debris therefrom. Landlord shall not store materials or tools in the Premises in connection with any such repairs and construction and shall not bring onto the Premises any materials in excess of those materials reasonably necessary to effect the repairs to be performed that day.

18.02 Emergencies. Notwithstanding the foregoing, in the case of any emergency with respect to which Landlord either requires immediate entry to the Premises (including without limitation cases where emergency repairs are needed), Landlord, with respect to such emergency, shall have the right to enter the Premises at any time or times without prior notice to Tenant. Landlord, to the extent practicable, shall comply with Tenant’s aforesaid security regulations or procedures.

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18.03 Standard of Care. Whenever Landlord shall enter upon and/or be present in the Premises, Landlord shall exercise all reasonable efforts to safeguard all persons and property in the Premises from any injury or damage that might be occasioned thereby and to minimize any interference with Tenant’s business operations that may be occasioned thereby.

19. NOTICES

All notices, requests, demands or other communications (each, a “Notice”) with respect to this Lease, whether or not herein expressly provided for, shall be in writing and shall be given by hand delivery or by United States certified or registered mail, postage prepaid, return receipt requested, or by express mail or overnight courier, to the parties at their respective addresses as first above written. Any such address for the giving of notice may be changed by either party by giving notice thereof in writing to the other. Notices shall be deemed given (i) in the case of hand delivery, at the time of receipt, (ii) in the case of overnight courier service, one (1) business day after sending and (iii) in the case of certified or registered mail, five (5) business days after mailing; except for any Notice of default, which shall be deemed given when received.

20. ESTOPPEL CERTIFICATES

Each of Landlord and Tenant, without charge and at any time and from time to time, within fifteen (15) business days after its receipt of a request from the other party hereto, shall certify the following, by written instrument in the form annexed to this Lease as Exhibit I-1 (if Tenant is the certifying party) or Exhibit I-2 (if Landlord is the certifying party) (each, an “Estoppel Certificate”), duly executed, acknowledged and delivered, to the extent the same is true: (i) that this Lease is unmodified and in full force and effect (or, if there has been modification, that the same is in full force and effect as modified and stating the modifications); (ii) whether, to the best knowledge of the person signing said certificate, there are then existing any defaults hereunder upon the part of the other party hereto (and, if so, specifying the same); (iii) the last dates to which Base Rent has been paid; and (iv) any other matters reasonably requested by the requesting party. If either party (the “certifying party”) fails or refuses to execute and deliver an Estoppel Certificate to the other party within fifteen (15) business days after the certifying party receives such Estoppel Certificate, then the certifying party shall automatically and without further act be deemed to have certified that the information set forth in such Estoppel Certificate is true and correct.

21. DEFAULT BY TENANT

21.01 Events of Default. The occurrence of any of the following at any time during the Term shall constitute an “Event of Default”:

(a) if Tenant shall fail to pay any installment of Base Rent or Additional Rent as and when the same becomes due and payable, and such failure shall continue for a period of five (5) days after Tenant’s receipt of written notice thereof from Landlord specifying such failure and requiring that it be remedied;

(b) if Tenant shall fail to perform or comply with any term of this Lease (other than any failure referred to in clause (1) above), and such failure shall continue for a period of thirty (30) days after Tenant’s receipt of written notice thereof from Landlord

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specifying such failure and requiring it to be remedied; provided, however, that in case such failure can be remedied but cannot with due diligence be remedied by Tenant within a period of thirty (30) days, if Tenant commences to remedy such failure within such thirty (30) days and thereafter prosecutes the remedying of such failure with reasonable diligence, the period of time after the receipt of such notice by Tenant within which such failure may be remedied shall be extended so long as Tenant prosecutes the remedying of such failure with reasonable diligence;

(c) if any execution or attachment shall be issued against Tenant pursuant to which the Premises or any part thereof shall be taken or occupied by someone other than Tenant, and such condition shall continue for a period of sixty (60) days;

(d) if any involuntary petition in bankruptcy shall be filed against Tenant under any federal or state bankruptcy or insolvency act and shall not be dismissed within ninety (90) days from the filing thereof;

(e) if a receiver shall be appointed for substantially all of the property of Tenant by any court and such permanent receiver shall not be dismissed within ninety (90) days from the date of his appointment; or

(f) if Tenant shall make an assignment for the benefit of creditors.

21.02 Termination Remedies. (a) Following the occurrence of any Event of Default, Landlord may terminate this Lease and thereafter re enter the Premises and dispossess Tenant and the legal representative of Tenant or other occupant of the Premises by summary proceedings and remove their effects and hold the Premises as if this Lease had not been made.

(b) If this Lease is terminated under the provisions of Section 21.02(a) above, then Tenant shall (I) pay to Landlord all Base Rent and Additional Rent due to Landlord in respect of the period prior to such termination and (II) pay to Landlord as damages, at the election of Landlord, either:

(i) a sum which at the time of such termination of this Lease represents the then present value (discounted at the Interest Rate in effect on the date of termination) of the excess, if any, of (1) the aggregate amount of the Base Rent and the Additional Rent which would have been payable by Tenant for the period commencing after the termination of this Lease and ending on the Expiration Date (or other date then set for the expiration of the Term) if this Lease had not been so terminated, over (2) the aggregate fair market rental value of the Premises for the same period (it being agreed that if the amount described in clause (3) of this subparagraph exceeds the amount described in subclause (1) of this subparagraph, Landlord shall have no obligation to pay Tenant all or any portion of the excess or to credit any part of the excess against any other sums or damages for which Tenant may be liable to Landlord at the time of termination), or

(ii) sums equal to the Base Rent and the Additional Rent which would have been payable by Tenant had this Lease not so terminated, payable upon the due dates therefor as specified herein for the period commencing after the termination of this

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Lease and ending on the Expiration Date (or other date then set for the expiration of the Term), provided, however, that if Landlord shall relet the Premises during said period, Landlord shall credit Tenant with the net rents received by Landlord from such reletting, such net rents to be determined by first deducting from the gross rents as and when received by Landlord from such reletting the expenses reasonably incurred or paid by Landlord in terminating this Lease or in reentering the Premises and in securing possession thereof, as well as the reasonable expenses of reletting, including, without limitation, altering and preparing the Premises for new tenants, it being understood that in no event shall Tenant be entitled to receive any excess of such net rents over the sums payable by Tenant to Landlord hereunder. If this Lease shall be terminated pursuant to the provisions of this Section 21.02 then, to the extent required by applicable law, Landlord shall use good faith reasonable efforts to relet the Premises for a reasonable rental value and to otherwise mitigate Tenant’s damages payable hereunder.

21.03 Landlord’s Cure Rights. If an Event of Default (other than an Event of Default of the type described in Section 22.02(1) hereof) and such default shall continue for a period of thirty (30) days after notice thereof from Landlord (or, if such observance or performance cannot be reasonably effected within such thirty (30) day period, Tenant has not in good faith commenced such observance or performance within such thirty (30) day period or does not thereafter prosecute the same with reasonable diligence to completion), then Landlord may (but shall not be obligated) immediately or at any time thereafter and without further notice perform the obligation of Tenant hereunder in respect of which Tenant has defaulted. If Landlord, in connection therewith, makes any expenditure or incurs any obligations for the payment of money (including, but not limited to, reasonable attorneys’ fees), then Tenant, within thirty (30) days after its receipt of a written demand therefor, shall reimburse Landlord all sums so paid or incurred, together with interest thereon at the Interest Rate from the date such sums were incurred until the date Tenant reimburses Landlord therefor.

21.04 Attorney Fees. If any Event of Default occurs and Landlord, in respect thereof, employs legal counsel to enforce Landlord’s rights under this Lease, then, and in each such case, Tenant shall reimburse Landlord the amount of any reasonable legal fees and related costs so incurred, within thirty (30) days after demand therefor.

22. DEFAULT BY LANDLORD

22.01 Tenant’s Cure Rights. If Landlord shall default in the observance or performance of any of its obligations hereunder (other than a default in the payment of any amount due to Tenant from Landlord) and such default shall continue for a period of thirty (30) days after notice thereof from Tenant (or, if such observance or performance cannot be reasonably effected within such thirty (30) day period, Landlord has not in good faith commenced such observance or performance within such thirty (30) day period or does not thereafter prosecute the same with reasonable diligence to completion), then Tenant may (but shall not be obligated) immediately or at any time thereafter and without further notice perform the obligation of Landlord hereunder. If Tenant, in connection therewith, makes any expenditure or incurs any obligations for the payment of money (including, but not limited to, reasonable attorneys’ fees), then Landlord, within thirty (30) days after its receipt of a written demand

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therefor, shall reimburse Tenant all sums so paid or incurred, together with interest thereon at the Interest Rate from the date such sums were incurred until the date Landlord reimburses Tenant therefor.

22.02 Attorney Fees. If Landlord shall (i) default in the payment of any amount due to Tenant from Landlord pursuant hereto and such default shall continue for a period of fifteen (15) days after notice thereof from Tenant, or (ii) default in the observance or performance of any of its other obligations hereunder and such default shall continue for a period of thirty (30) days after notice thereof from Tenant (or, if such observance or performance cannot be reasonably effected within such thirty (30) day period, Landlord has not in good faith commenced such observance or performance within such thirty (30) day period or does not thereafter prosecute the same with reasonable diligence to completion), and Tenant, in respect of any such default, employs legal counsel to enforce Tenant’s rights under this Lease, then, and in each such case, Landlord shall reimburse Tenant the amount of any reasonable legal fees and related costs so incurred, within thirty (30) days after demand therefor.

22.03 Interest. If Landlord fails to pay Tenant any amount due under this Lease by the date such amount is due and such failure shall continue for a period of five (5) days after written notice thereof from Tenant, then such past due amount shall bear interest at the Interest Rate from the due date therefor until the date paid.

22.04 Untenantability. Notwithstanding any other provision of this Lease, if the Building (or any portion thereof in excess of 5,000 rentable square feet) shall be rendered untenantable for Tenant’s business operations as a result of (i) any structural defect in the Building, (ii) Landlord’s failure to make any repair or perform any work that it is required to make or perform under this Lease or by any Legal Requirement, (iii) Landlord’s making of any repair to the Building or its performance of any work in or about the Building, (iv) Landlord’s performance of any work that it is required to provide under this Lease as a result of any Legal Requirement, (v) Landlord’s failure to comply with its obligations under Section 6.02(c) hereof, or (vi) any other breach of, or default under, this Lease by Landlord, then in any case that such untenantability shall continue for a period of five (5) consecutive days, all Base Rent and Additional Rent shall abate for the period that the Premises remain untenantable (or, in the event that only a portion of the Premises are rendered untenantable, Base Rent and Additional Rent shall abate for such period with respect to the portion of the Premises that are rendered untenantable).

23. SURRENDER; HOLDOVER

23.01 Surrender. At the end of the Term, Tenant agrees to quit and surrender possession of the Premises to Landlord vacant and broom clean, ordinary wear and tear not requiring repair by Tenant as provided herein and damages by fire or other casualty excepted. In this regard, Tenant shall have no liability or obligation to resurface or restripe the Parking Area except to the extent of damage or wear beyond ordinary wear and tear.

23.02 Holdover. Subject to the provisions of Section 23.03, if Tenant remains in possession of the Premises after the end of the Term, then (i) Tenant shall be deemed to be a tenant at sufferance only, under all of the same terms and conditions of this Lease, except as to

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the Base Rent and the duration of the Term, and (ii) Tenant shall pay Landlord as Base Rent for such period an amount equal to 150% of the rate of Base Rent in effect during the last month of the Term.

23.03 Short Term Permitted Holdover. Tenant shall have a one-time right to holdover in the Premises for a period not in excess of six (6) months, by giving Landlord notice of such election, and the duration of the holdover, at least nine (9) months prior to the end of the Term. In such event, all the terms of the Lease shall apply to such holdover period, except that the Base Rent shall be equal to 112% of the rate of Base Rent in effect during the last month of the Term.

24. BROKERAGE

Landlord and Tenant each represents and warrants to the other that it had no conversations or negotiations with any broker or finder in connection with this Lease transaction, except for Voit Commercial Brokerage (“Voit”) and Colliers Seely International (“Colliers”). Landlord will pay a commission to Voit in accordance with Landlord’s agreement with Voit, and a commission to Colliers in accordance with Landlord’s agreement with Colliers. Landlord and Tenant each hereby indemnifies and holds harmless the other from and against any claims for brokerage commissions or finder’s fees (together all related expenses, including, without limitation, reasonable attorneys’ fees) resulting from or arising out of any conversations or negotiations had by it with any other broker or finder in connection with this Lease.

25. HAZARDOUS MATERIALS

25.01 Landlord’s Obligations. (a) Landlord represents and warrants that, to Landlord’s actual knowledge, except as may be set forth in (i) that certain Phase I Environmental Site Assessment Report prepared by URS dated April 2, 2002, (ii) that certain Level 1 Environmental Report-Site Assessment Update prepared by ATC Associates, Inc. dated June 2, 2003, and (iii) that certain Phase I Environmental Site Assessment Report prepared by Golder Associates dated June 2004 (said reports, collectively, the “Environmental Report”), the Land (and the ground water and soil vapor on or under the Land) is, and upon completion of the Base Building Work and the Tenant’s Work the Land and the Building will be, free of Hazardous Materials (as defined below). Landlord represents that a true and correct copy of the Environmental Report has been delivered to Tenant.

(b) Landlord shall indemnify, defend (with counsel reasonably acceptable to Tenant) and hold Tenant and its officers, employees and agents harmless from and against any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlement of claims) or expenses (including reasonable attorneys’ fees and the reasonable fees of consultants and experts selected by Tenant) which arise during or after the Term in connection with any Pre-Existing Contamination (as defined below). Without limiting the generality of the foregoing indemnity, the Indemnification provided for in this Section 25.01 shall specifically cover costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of any Pre-Existing Contamination (or suspected Pre-Existing Contamination). For the purposes hereof, (I) “Contamination” shall mean the presence of

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Hazardous Materials in the Improvements and/or on the Land (including the ground water and soil vapor on or under the Land) and (II) “Pre-Existing Contamination” shall mean any Contamination that exists as of the Commencement Date.

(c) If any Contamination (other than Tenant-Created Contamination, as defined below) is discovered during the Term, then Landlord shall, promptly after the discovery thereof, at its expense (subject to Section 25.03 below) and to Tenant’s reasonable satisfaction, perform the cleanup, remediation, removal or restoration work required by any federal, state or local governmental agency or political subdivision in connection with such Contamination (any such cleanup, remediation, removal or restoration work, “Landlord’s Remediation Work”). Landlord shall perform all Landlord’s Remediation Work in a good and workmanlike manner and in accordance with all Legal Requirements, and shall exercise all reasonable efforts to minimize any interference with Tenant’s business operations that may be occasioned thereby. For the purposes hereof, “Tenant-Created Contamination” shall mean any Contamination directly caused by the use, handling, storage, treatment or disposal of Hazardous Materials by Tenant or its subtenants, officers, employees, agents or contractors.

25.02 Tenant’s Obligations. (a) Tenant agrees not to store any Hazardous Materials on the Premises and agrees not to bring onto, release or discard any Hazardous Materials on the Premises, the Building or the Land; provided, however, Tenant may bring onto, store, handle and use the following chemicals, substances or materials if they are used, stored, handled and disposed of in strict compliance with Legal Requirements then in effect: (i) chemicals, substances or materials routinely used in office and/or warehouse areas; (ii) janitorial supplies, cleaning fluids or other chemicals, substances or materials reasonably necessary for the day-to-day operation or maintenance of the Premises by Tenant; and (iii) chemicals, substances or materials, reasonably necessary for the construction or repair of improvements on the Premises.

(b) Tenant shall indemnify, defend (with counsel reasonably acceptable to Landlord) and hold Landlord and its officers, employees and agents harmless from and against any claims, judgments, damages, penalties, fines, costs, liabilities (including sums paid in settlement of claims) or expenses (including reasonable attorney’s fees and the fees of consultants and experts selected by Landlord) to the extent the same arise during or after the Term as a result of Tenant-Created Contamination (or suspected Tenant-Created Contamination). Without limiting the generality of the foregoing, the indemnification provided for in this Section 25.02 shall specifically cover costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of any Tenant-Created Contamination (or suspected Tenant-Created Contamination).

25.03 Reimbursable Remediation Work. If Landlord shall perform any Reimbursable Remediation Work (as defined below), then the following provisions shall apply:

(a) Landlord shall competitively bid the performance of any Reimbursable Remediation Work. In no event shall Landlord be entitled to any supervisory fee, construction management fee or any similar fee in connection with the performance of such Reimbursable Remediation Work.

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(b) Upon completion of any Reimbursable Remediation Work, Landlord shall furnish to Tenant a statement (each, an “RRW Cost Statement”) setting forth in reasonable detail (i) Landlord’s determination of the RRW Useful Life (as defined below) of such Reimbursable Remediation Work, (ii) the Selected Contract Price with respect to such Reimbursable Remediation Work, (iii) the RRW Cost of Funds Rate (defined below) with respect to such Reimbursable Remediation Work, and (iv) the RRW Monthly Amortization Amount (as defined below) with respect to such Reimbursable Remediation Work.

(c) Tenant shall, within 30 days after Tenant’s receipt of an RRW Cost Statement with respect to any Reimbursable Remediation Work, and thereafter on the first day of each calendar month until the sooner to occur of (i) the last day of the Term (including any exercised renewal term) and (ii) the last day of the RRW Useful Life of such Reimbursable Remediation Work, pay to Landlord the RRW Monthly Amortization Amount (defined below) with respect to such Reimbursable Remediation Work. If Tenant shall dispute Landlord’s determination of such RRW Monthly Amortization Amount, then, pending the resolution of such dispute, Tenant shall each month pay the RRW Monthly Amortization amount as set forth in such RRW Cost Statement. If, based upon the final determination of the RRW Monthly Amortization Amount, the payments of the RRW Monthly Amortization Amount made by Tenant are in excess the payments of the RRW Monthly Amortization Amount that should have been payable by Tenant based upon such final determination, then Landlord, within 30 days after such determination, shall refund to Tenant the amount of such excess, together with interest thereon computed at the Interest Rate (for the period from the dates of such payments by Tenant until the date of such refund from Landlord to Tenant). “RRW Monthly Amortization Amount” means, with respect to any Reimbursable Remediation Work, the monthly amount needed to fully amortize the Selected Contract Price with respect to such Reimbursable Remediation Work, in equal monthly installments over a period equal to the RRW Useful Life of such Reimbursable Remediation Work using a constant interest rate equal to the RRW Cost of Funds Rate with respect to such Reimbursable Remediation Work.

(d) For purposes of this Lease, the following terms shall have the following meanings:

(i) “RRW Cost of Funds Rate” means, with respect to any Reimbursable Remediation Work, either (A) the per annum rate of interest payable by Landlord with respect to any loan obtained by Landlord in order to finance the performance of such Reimbursable Remediation Work (as documented to Tenant’s reasonable satisfaction) or (B) in the absence of such financing by Landlord, an imputed per annum interest rate equal to three percent (3%) above the interest rate in effect as of the last day of the calendar month prior to the month in which Tenant receives the applicable RRW Cost Statement on United States Treasury notes, bills or bonds having a maturity date closest to the last day of the RRW Useful Life of such Reimbursable Remediation Work.

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(ii) “Reimbursable Remediation Work” means any Landlord’s Remediation Work, other than any Landlord’s Remediation Work performed in connection with (A) Contamination occasioned by either (1) Landlord or its officers, employees, agents or contractors, or (2) sub-surface migration or seepage from properties other than the Premises, or (B) Pre-Existing Contamination.

(iii) “RRW Useful Life” means, with respect to any Reimbursable Remediation Work, the useful life of such Reimbursable Remediation Work, as determined in accordance with GAAP.

25.04 Hazardous Materials. “Hazardous Materials” shall mean (a) “hazardous wastes,” as defined by the Resource Conservation and Recovery Act of 1976, as amended from time to time, (b) “hazardous substances,” as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, (c) “toxic substances,” as defined by the Toxic Substances Control Act, as amended from time to time, (d) “hazardous materials,” as defined by the Hazardous Materials Transportation Act, as amended from time to time, (e) oil or other petroleum products, (f) asbestos-containing materials, radioactive materials, and all other materials, substances, wastes and chemicals classified as hazardous or toxic substances, materials, wastes or chemicals under then-current applicable governmental laws, rules or regulations, and (g) any substance whose presence could be detrimental to the Building or hazardous to health or the environment.

26. ARBITRATION

In any case in which this Lease expressly provides that a matter is to be determined by arbitration, such arbitration shall be conducted in Ontario, California, in accordance with the Commercial Arbitration Rules (Expedited Procedures) of the AAA, except that the provisions of this Article 26 shall supersede any conflicting or inconsistent provisions of said rules. The party requesting arbitration shall do so by giving notice to that effect to the other party, specifying in said notice the nature of the dispute, an d that said dispute shall be determined in Ontario, California, by a panel of three (3) arbitrators in accordance with this Article 26. Landlord and Tenant shall each appoint their own arbitrator within five (5) days after the giving of notice by either party. If either Landlord or Tenant shall fail timely to appoint an arbitrator, the appointed arbitrator shall select the second arbitrator, who shall be impartial, within five (5) days after such party’s failure to appoint. The arbitrators so appointed shall meet and shall, if possible, determine such matter within ten (10) days after the second arbitrator is appointed and their determination shall be binding on the parties. If for any reason such two arbitrators fail to agree on such matter within such period of ten days, then either Landlord or Tenant may request the AAA to appoint an arbitrator who shall be impartial within seven (7) days of such request and both parties shall be bound by any appointment so made within such seven-day period. The third arbitrator (and the second arbitrator if selected by the other arbitrator as provided above) only shall subscribe and swear to an oath fairly and impartially to determine such dispute. Within seven (7) days after the third arbitrator has been appointed, each of the first two arbitrators shall submit their respective determinations to the third arbitrator who must select one or the other of such determinations (whichever the third arbitrator believes to be correct or the closest to a correct determination) within seven (7) days after the first two arbitrators shall have submitted their respective determinations to the third arbitrator, and the selection so made shall in all cases

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be binding upon the parties, and judgment upon such decision may be entered into any court having jurisdiction. In the event of the failure, refusal or inability of an arbitrator to act, a successor shall be appointed within ten (10) days as hereinbefore provided. The third arbitrator shall be experienced in the issue with which the arbitration is concerned and shall have been actively engaged in such field for a period of at least ten (10) years before the date of his or her appointment hereunder. If the second arbitrator is appointed by the first arbitrator as provided above, such second arbitrator shall also be experienced in the issue with which the arbitration is concerned and shall have been actively engage in such field for a period of at least ten (10) years before the date of his or her appointment hereunder. The third arbitrator shall apply the laws of the State of California, without giving effect to any principles of conflicts of laws. The third arbitrator shall schedule a hearing where the parties and their advocates shall have the right to present evidence, call witnesses and experts and cross-examine the other party’s witnesses and experts. The losing party shall pay the fees and expenses of all arbitrators acting under this Article 26.

27. RENEWAL TERMS

27.01 Renewal Terms. (a) Provided that on the date on which Tenant gives the applicable Renewal Notice (as defined below) (i) Tenant is not in monetary default under this Lease beyond the expiration of any applicable notice and grace periods and (ii) Tenant is not Insolvent (as defined below), Tenant shall have one (1) five (5) year renewal option (the “Renewal Option”) to extend the Term for a renewal term. The Renewal Term shall commence on the day after the then current expiration date of the Term and shall expire on the fifth (5th) anniversary of such then current expiration date. The Renewal Option shall be exercisable by Tenant by written notice to Landlord (a “Renewal Notice”) given not later than the date (the “Outside Exercise Date”) that is eighteen (18) months prior to the expiration date of the initial Term. In the event that Tenant fails to give any Renewal Notice by the Outside Exercise Date relating thereto, then Tenant shall have no further right to extend the Term pursuant to this Article 27. For purposes of this Section 27.01, Tenant shall be deemed to be “Insolvent” on a particular day if (i) on such date there is pending an action pursuant to a petition that was filed by Tenant under the United States Bankruptcy Code, 11 U.S.C. §§ 101 1330, as amended, or any successor thereto, or (ii) on such date there is pending an action pursuant to a petition that was filed at least 90 days prior to such date against Tenant under the United States Bankruptcy Code, 11 U.S.C. §§ 101 1330, as amended, or any successor thereto.

(b) The Renewal Term shall be upon the same covenants, terms and conditions as in this Lease for the original Term, except that no further Renewal Option shall be available and the Base Rent applicable during the Renewal Term shall be equal to the greater of (i) the existing Base Rent as of the end of the initial Term, or (ii) the Renewal Term Fair Market Base Rent (as defined in Section 27.01(e) below) applicable to the Renewal Term.

(c) Promptly after delivery to Landlord of a Renewal Notice with respect to any Renewal Term, Landlord and Tenant shall endeavor to agree upon the Renewal Term Fair Market Base Rent applicable to such Renewal Term. If Landlord and Tenant do not agree upon the Renewal Term Fair Market Base Rent applicable to the Renewal Term in question within thirty (30) days after Landlord’s receipt of the Renewal Notice applicable thereto, then Landlord shall within thirty (30) days thereafter notify Tenant (the “Rent Notice”) of Landlord’s

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determination of the Renewal Term Fair Market Base Rent applicable to such Renewal Term (“Landlord’s Determination”), which determination shall be binding on Landlord in the event such Renewal Term Fair Market Base Rent is determined by appraisal pursuant to Exhibit F annexed hereto. Tenant shall notify Landlord (“Tenant’s Notice”), within thirty (30) days after Tenant’s receipt of the Rent Notice, whether Tenant accepts or disputes Landlord’s Determination, and if Tenant disputes Landlord’s Determination, Tenant’s Notice shall set forth Tenant’s determination of the Renewal Term Fair Market Base Rent (“Tenant’s Determination”), which determination shall be binding on Tenant in the event such Renewal Term Fair Market Base Rent is determined by appraisal pursuant to Exhibit F annexed hereto. Landlord’s Determination and Tenant’s Determination are each hereinafter referred to as a “Determination” and are collectively hereinafter referred to as the “Determinations”. Alternatively, Tenant shall have the right, within thirty (30) days following receipt of Landlord’s Determination, to rescind Tenant’s Renewal Notice by notice to Landlord, in which event the provisions of this Article 27 shall be of no further force and effect and this Lease shall terminate and expire as otherwise set forth in this Lease. If Tenant fails to give Tenant’s Notice or to rescind Tenant’s Renewal Notice within such thirty (30) day period, then Tenant shall be deemed to have accepted Landlord’s Determination.

(d) Provided Tenant does not rescind Tenant’s Renewal Notice as aforesaid, if Tenant timely disputes Landlord’s Determination, then the Renewal Term Fair Market Base Rent shall be established by appraisal in accordance with the procedures set forth in Exhibit F annexed hereto and made a part hereof. Upon determination of the Renewal Term Fair Market Base Rent, Tenant shall have the right, within thirty (30) days following such determination, to rescind Tenant’s Renewal Notice by notice to Landlord, in which event this Lease shall terminate and expire as otherwise set forth in this Lease, subject however to Tenant’s obligation to pay Rent pursuant to the terms of the next following sentence, if applicable. If, for any reason, the Renewal Term Fair Market Base Rent applicable to the Renewal Term is not finally determined on or prior to the commencement of the Renewal Term, then (i) pending such final determination, Tenant shall initially pay Base Rent for the Renewal Term at the Base Rent rate in effect during the last month of the original Term, (ii) upon such final determination, the Base Rent for the Renewal Term shall be as provided in subclause (b) above, and (iii) in the event that such final determination results in a Base Rent rate in excess of the rate paid by Tenant during the Renewal Term, a retroactive adjustment in Base Rent shall be made and the appropriate payment shall be made by Tenant to Landlord.

(e) For the purposes of this Lease, the “Renewal Term Fair Market Base Rent” for the Premises applicable to the Renewal Term shall mean an amount per annum determined by reference to the market for comparable facilities that a willing landlord would offer and a willing tenant would accept in an arms length transaction for a lease of the Premises (1) commencing on the first day of the Renewal Term, (2) expiring on the expiration of the Renewal Term, (3) providing for no free rent, no work to be done by landlord to prepare the premises for tenant and no contribution by landlord toward tenant’s cost to so prepare the premises, (4) without payment of a brokerage commission (unless there is in existence a commission agreement requiring payment of commission in connection with renewal), (5) providing for an annual management fee equal to one percent (1%) of the annual base rent, and (6) otherwise on all of the terms and conditions of this Lease. To the extent that the appraisers determine “Renewal Term Fair Market Base Rent” for any Renewal Term by reference to other transactions, they

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shall consider the terms and conditions of such other transactions and if such other transactions have different terms and conditions (e.g., shorter or longer term, free rent, different escalation formulae or renewal options), the Renewal Term Fair Market Base Rent at issue shall be determined by the appraisers by making appropriate adjustment to the base rent of such other transactions.

28. MISCELLANEOUS

28.01 Governing Law. This Lease shall be governed by and construed in accordance with the laws of the State of California.

28.02 Certain Definitions. For purposes of this Lease, the following definitions shall apply:

“Business Hours” shall be from 7:00 A.M. to 7:00 P.M. on Business Days.

“Business Days” shall mean Monday through Friday, excluding those days observed as holidays by the State of California or the United States Federal Government.

“Legal Requirements” shall mean all laws, statutes, codes, ordinances, orders and regulations of any or all of the federal, state or local government or governmental (or quasi-governmental) authority having jurisdiction over the Land, the Building and/or the Premises, whether now or hereafter in force.

“Insurance Requirements” shall mean all terms of or incorporated by reference into any insurance policy (including the requirements of the Board of Fire Underwriters and the Fire Insurance Rating Organization) having jurisdiction or cognizance over the Land, Building and/or the Premises, whether now or hereafter in force.

“Interest Rate” shall mean an interest rate equal to the greater of (x) eight percent (8%) per annum, and (y) one percent (1%) above the so called annual “Base Rate” of interest publicly announced by Citibank, N.A., New York, New York (or any successor thereof) from time to time, as its interest rate charged for unsecured loans to its corporate customers, but in no event greater than the highest lawful rate from time to time in effect.

“Event of Force Majeure” shall mean any of the following events: (1) the enactment or enforcement of any law or the issuance or enforcement of any governmental order, rule or regulation establishing rationing or priorities in the use of materials or restricting the use of labor; (2) inability reasonably to obtain (other than because of a lack of funds) and utilize labor, materials, equipment or supplies; (3) state of war or national or local emergency or acts of public enemies or terrorists; (4) strikes, lockouts or other industrial disturbances; (5) insurrections, civil disturbances or civil commotion; (6) epidemics, plagues or famines; (7) explosions, fire or other unavoidable casualty; (8) acts of God (including, without limitation, adverse weather conditions); and (9) restraints of government and people.

28.03 Consents & Approvals. If, pursuant to any provision of this Lease, the consent or approval of either party is required to be obtained by the other party, then, unless expressly set forth to the contrary herein, the party whose consent or approval is required shall

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not unreasonably withhold, condition or delay such consent or approval. If the parties shall not agree as to whether a requested consent or approval has been unreasonably withheld, conditioned or delayed, either party may submit such matter to arbitration pursuant to Article 26 of this Lease.

28.04 Rights & Remedies. All rights and remedies of either party expressly set forth herein are intended to be cumulative and not in limitation of any other right or remedy set forth herein or otherwise available to such party at law or in equity. Notwithstanding the foregoing or any other provisions hereof to the contrary, (i) in no event shall either party be liable to the other for consequential damages (even in cases of negligence), (ii) in no event shall Landlord have the right to accelerate any Base Rent or Additional Rent due and payable hereunder, for any reason (including by reason of an Event of Default), even if permitted by law (it being agreed that this clause (ii) shall in no way limit the remedy afforded to Landlord in Section 21.02(b)(i) above), and (iii) in no event shall Landlord shall have the right to exercise any “lock-out,” “utility cut-off” or similar non-judicial remedies without appropriate judicial process.

28.05 No Waiver. The failure of either party hereto to seek redress for a breach of, or to insist upon the strict performance of any covenant or condition of this Lease, shall not prevent a subsequent act which would have originally constituted a breach from having all the force and effect of an original breach. The receipt by Landlord of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach and no provision of this Lease shall be deemed to have been waived by Landlord unless such waiver be in writing signed by Landlord. The payment by Tenant of rent with knowledge of the breach of any covenant of this Lease shall not be deemed a waiver of such breach and no provision of this Lease shall be deemed to have been waived by Tenant unless such waiver be in writing signed by Tenant.

28.06 Successors & Assigns. Each and all of the terms and agreements herein contained shall be binding upon and inure to the benefit of the parties hereto, their heirs, personal and legal representatives, permitted successors and assigns.

28.07 Entire Agreement; Modifications. This instrument contains the entire agreement made between the parties and may not be modified orally or in any manner other than by an agreement in writing signed by all the parties hereto or their respective successors in interest.

28.08 Landlord’s Covenants and Representations. Landlord hereby covenants, represents and warrants as follows:

(a) As of the date hereof, there are no liens, encumbrances, security interests, charges, reservations, easements, rights of way, restrictive covenants, conditions, limitations, or any other burden covering or affecting the Land or the Building or any part of either, other than those (the “Permitted Encumbrances”) which will not (x) interfere with the leasehold estate granted under this Lease, (y) interfere in any material respect with Tenant’s use and enjoyment of the Premises, or (z) prevent Tenant from realizing or exercising any of its rights or options under this Lease.

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(b) Landlord has the financial ability to perform its obligations under this Lease.

(c) For the purpose of Taxes, the Land is located entirely within one tax lot and that no other real property lies within such tax lot.

(d) Landlord (a) has obtained or will obtain from the applicable municipal departments all of the permits and other authorizations (including, without limitation, all zoning variances) necessary for the commencement, continued construction and completion of the Base Building Work in accordance with the Base Building Plans and all applicable Legal Requirements and (b) is ready, willing and able to commence construction of the Building and Parking Area.

(e) All utility and sewer facilities to be constructed and installed by Landlord and necessary for the Building Premises and the operation and use thereof are, or will prior to the commencement date be, available at the Building.

28.09 Sale of the Building. If Landlord sells or otherwise transfers the Land and the Building, then Landlord shall be relieved of any liability under any and all of the covenants and obligations of Landlord contained in or derived from this Lease which arise out of any act, occurrence or omission occurring after the effective date of such sale or transfer, and the purchaser or transferee shall be deemed, without any further agreement, to have assumed and agreed to carry out all of the covenants and obligations of Landlord under this Lease.

28.10 Recordation. Landlord, at anytime after the date hereof and within ten (10) days after its receipt of a request therefor, shall execute, acknowledge and deliver to Tenant (i) a memorandum of lease in respect of this Lease, sufficient for recording and in form of Exhibit G annexed hereto and made a part hereof, which memorandum may be recorded by Tenant, and (ii) any other instrument(s) necessary to the effective recordation of such memorandum of lease.

28.11 Tenant’s Right to Vacate the Premises. Tenant shall have the right to vacate the Premises at any time (and from time to time) during the Term, provided that Tenant (a) provides prior written notice to Landlord of its intent to remove a substantial portion of its property and equipment from the Building and (b) continues to maintain the Premises on an “as-if occupied” basis in compliance with Section 7.03 above.

29. ROOFTOP AND LAND INSTALLATIONS

29.01 Tenant’s Equipment. (a) Subject to compliance with (i) applicable governmental regulations; (ii) covenants, conditions and restrictions recorded against the Land; and (iii) Landlord’s written consent (which will not be unreasonably withheld, conditioned or delayed), Tenant shall have the right (A) to install on the Land and/or upon the roof of the Building, telecommunications equipment, generators, uninterrupted power supply and HVAC equipment (collectively, “Tenant’s Equipment”) and (B) to connect Tenant’s Equipment to the interior of the Building through the Building systems and shafts. There shall be no rent or other payments due from Tenant for the Land or roof space occupied by Tenant for Tenant’s Equipment. Any such equipment installed by Tenant shall remain Tenant’s Property and shall be

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removed by Tenant at the expiration or earlier termination of the Term, and Tenant, upon such removal, shall repair (and patch) to Landlord’s reasonable satisfaction any damage to the roof of the Building caused by the installation or removal of said equipment. In exercising its rights under this Article 29, Tenant, at its expense, shall comply with all Legal Requirements applicable to the exercise of such rights. Landlord shall cooperate, at no expense to Landlord, with Tenant’s efforts to obtain any permit required or desirable in connection with the installation of any Tenant’s Equipment.

(b) Promptly after any Tenant’s Equipment is installed on the roof of the Building, Tenant shall remove any debris and other loose materials which Tenant or its representatives may place on the roof of the Building. Tenant shall be responsible for the maintenance and repair of the Tenant’s Equipment. Tenant must install and maintain waterproofing materials around any penetrations on the roof of the Building that are made during the installation, maintenance, repair, replacement and removal of the Tenant’s Equipment, and must provide to Landlord waterproofing certifications with respect to all such penetrations from Landlord’s roofing contractor to evidence to Landlord that such penetrations do not limit or invalidate the roof warranty in effect from time to time.

30. RE-MEASURING THE BUILDING AND PREMISES

The number of rentable square feet in the Building Premises (i.e., the rentable area of the Building Premises) shall be determined in accordance with the provisions of this Article 30. Within thirty (30) days after the Commencement Date, Landlord’s architect shall certify to Tenant the rentable area of the Building Premises; the Landlord’s architect’s determination shall be made in accordance with the definitions and method set forth on Exhibit C annexed hereto. If, within sixty (60) days of its receipt of such certification, Tenant disputes any item therein, then Tenant may demand that an architect selected by agreement of the parties make a determination of the rentable area of the Building Premises binding upon Landlord and Tenant. If the rentable area of the Building Premises as determined pursuant to this Article 30 (including, but not limited to, the proviso contained at the end of this sentence) shall differ from the areas set forth in Article 1 of this Lease, then (a) the rentable area as determined by this Article 30 shall control, and (b) the Base Rent, the Proportionate Share and the Landlord’s Contribution (as defined in the Workletter) shall be adjusted on the basis of the rentable and usable areas so determined. Promptly after any such adjustment, a retroactive adjustment in Rent and the Landlord’s Contribution shall be made and the appropriate payment shall be made by one party hereto to the other. Promptly after the rentable area of the Building Premises is determined pursuant to this Article 30, Landlord and Tenant shall execute an agreement confirming the rentable area of the Building Premises and the Proportionate Share, but the failure of the parties to execute such an agreement shall not invalidate this Lease. Notwithstanding anything to the contrary in this Article 30 or elsewhere in this Lease, the determination of the rentable area of the Building Premises in accordance with this Article 30 shall be conclusive and binding on Landlord and Tenant throughout the Term, notwithstanding any subsequent alterations, additions or improvements to the Premises that increase the rentable area of the Building Premises.

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31. RIGHT OF FIRST REFUSAL

Landlord hereby grants to Tenant a one (1) time right of first refusal to lease all (but not less than all) of the remaining Building consisting of approximately an additional 289,000 square feet (“ROFR Space”). Landlord shall not lease the ROFR Space to any other party unless and until Landlord shall have first offered to lease the ROFR Space to Tenant pursuant to the terms of this Section. Landlord shall offer to lease the ROFR Space to Tenant by a written notice (“ROFR Offer”) to Tenant. If Tenant desires to lease the ROFR Space, Tenant shall give Landlord a written notice of such election (“ROFR Acceptance”) within ten (10) business days of the ROFR Offer. If Tenant does not deliver an ROFR Acceptance within such ten (10) business day period, Tenant shall have no further rights with respect to the ROFR Space, and Landlord may then or thereafter lease all or any part of the ROFR Space to any party or parties on such terms as Landlord may elect. If Tenant delivers an ROFR Acceptance within ten (10) business days of the ROFR Offer, the ROFR Space shall be added to and become a part of the Premises as of the first day of the first calendar month next following the delivery of the ROFR Acceptance. This Lease shall be amended to include the ROFR Space upon all the same terms as are applicable to the original Premises and the Base Rent and Additional Rent shall be increased to reflect the addition of the ROFR Space. If Tenant leases the ROFR Space, Landlord shall provide a Landlord’ Contribution for each square foot of ROFR Space. Such allowance shall be disbursed and used in the same manner as Landlord’s Contribution in the original Premises pursuant to this Lease.

[Remainder of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the day and year first above written.

1151 MILDRED LLC, a Delaware limited liability company
By:	Alere Property Group LLC,
	Sole Member

By:	/s/ Daniel L. Webb
Name: Daniel L. Webb
Title: Vice President
FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation
By:	/s/ William C. Schultz
Name: William C. Schultz
Title: CEO

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EXHIBIT A

Legal Description of Land

All that certain real property situated in the County of San Bernardino, State of California, described as follows:

PARCEL A:

Parcel 3 of Parcel Map No. 15625, in the City of Ontario, County of San Bernardino, State of California, as per map recorded in Book 194, page(s) 13 through 15 inclusive, of Parcel Maps, in the office of the County Recorder of said County, as amended by that certain “Certificate of Correction” recorded July 1, 2002 as Instrument No. 20020337682, of Official Records.

PARCEL B:

A non-exclusive easement for the installation, location, construction, maintenance, repair and replacement of sewer pipes, pumps, clean outs and incidentals thereto as more fully set out in that certain “Declaration and Grant of Easements (sewer lines and equipment)” recorded March 28, 2002 as Instrument No. 2002-0153878, of Official Records.

TAX PARCEL NUMBER:             0113-431-09-0-000

EXHIBIT B-1

Location of Building and Parking Area on Land

EXHIBIT B-2

Description of Building Premises

EXHIBIT C

Method of Measurement

The rentable square footage of the building shall be measured from the “dripline”.

BOMA defines the “dripline”, or Gross Building Area, as “the area computed by measuring the outside finished surface of permanent outer building walls, without deductions.”

In case of the interior demising wall, the measurement shall be from the centerline of the demising wall.

EXHIBIT D

WORKLETTER

I. DEFINITIONS

1.01. Definitions. For the purposes of this Workletter the following terms shall have the following meanings:

“Base Building Work” shall mean the design and the work (inclusive of labor and materials) set forth on the Base Building Plans, which work consists of, (i) the construction of a demising wall as shown on Exhibit B-1 annexed to the Lease, and (ii) the seal coating and restriping of surface parking adjacent to the Building and on the Land in the location designated on Exhibit B-1 annexed to the Lease for not fewer than two hundred ninety (290) cars.

“Base Building Plans” shall mean the plans and specifications for the Base Building Work that shall be developed as provided herein and upon completion shall be listed on Schedule I annexed to and made a part of this Workletter.

“Tenant’s Finish Work” shall mean the portion of the Tenant’s Work other than the Tenant’s Initial Work.

“Tenant’s Initial Work” shall mean the portion of the Tenant’s Work consisting of the installation of lighting and power in the Building Premises, consistent with Tenant’s Racking Plans, sufficient to allow Tenant to commence installation of Tenant’s racking system in the Building Premises, subject to Tenant obtaining any required permits for such installation.

“Tenant’s Work” shall mean the Tenant’s Initial Work and the Tenant’s Finish Work and shall mean all design of and all work, equipment and improvements set forth on the Tenant’s Plans, which, in Tenant’s opinion, are necessary or desirable to prepare the Premises for Tenant’s occupancy, other than the Base Building Work and the Tenant’s Additional Work.

“Tenant’s Plans” shall mean the plans and specifications for Tenant’s Work that shall be developed as provided herein and upon completion shall be listed on Schedule II annexed to and made part of this Workletter.

“Tenant’s Racking Plans” shall mean the layout and plans and specifications for Tenant’s racking system, which shall be sufficient to allow Landlord to design and install the Tenant’s Initial Work in the Building Premises.

“Tenant’s Additional Work” shall mean any work that is not part of the Tenant’s Work or the Base Building Work, but that Tenant believes is necessary or desirable to prepare the Premises for Tenant’s use and occupancy, including without limitation, the installation of the Racking System.

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“Tenant’s Additional Work Plans” shall mean the plans and specifications to be developed by Tenant for the Tenant’s Additional Work, and upon completion to be listed on Schedule III attached to and made a part of this Workletter.

“Landlord’s Contribution” shall mean an amount equal to (1) the product obtained by multiplying (x) TWO DOLLARS AND FIFTY CENTS ($2.50), by (y) the number of rentable square feet contained in the Building Premises. Assuming that the rentable square feet of the Building Premises contains 568,000 rentable square feet, Landlord’s Contribution shall be $1,420,000.00.

“Work” shall mean the Base Building Work and the Tenant’s Work.

All capitalized terms used in this Workletter and not defined herein shall have the meaning ascribed thereto in the lease (the “Lease”) to which this Workletter is annexed.

II. BASE BUILDING WORK

2.01 The Base Building Work shall be accomplished by Landlord in accordance with good construction practices and all Legal Requirements and Insurance Requirements, and at Landlord’s cost.

III. TENANT’S WORK

3.01 The Tenant’s Work shall be accomplished by Landlord in accordance with good construction practices and all Legal Requirements and Insurance Requirements, and at Tenant’s Cost, but subject to use of the Landlord’s Contribution therefor up to the maximum amount thereof. If the cost for the Tenant’s Work is estimated to, or does, exceed the amount of the Landlord’s Contribution, the amount of such excess shall be paid by Tenant, and such excess shall be deposited by Tenant with Landlord within five (5) days after the amount of any such estimated or actual excess is known. If the cost for the Tenant’s Work is less than the Landlord’s Contribution, the excess amount of the Landlord’s Contribution shall be credited against the Rent next due from Tenant.

3.02 The Tenant’s work shall be completed in two (2) phases. The first phase to be completed will be the Tenant’s Initial Work. The Tenant’s Finish Work will be completed following completion of the Tenant’s Initial Work.

3.03 Contracts for performance of the Tenant’s Work will be competitively bid, and Tenant will have reasonable review and approval of the bidding list and of the bids to be accepted. Tenant will respond within three (3) business days after delivery to Tenant of any bidding list and/or bids.

IV. INTENTIONALLY OMITTED

V. CONSTRUCTION; DELIVERY

5.01 Delivery. The Tenant’s Work will be designed and completed pursuant to the following process.

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(a) Tenant has delivered the preliminary Tenant’s Racking Plans to Landlord and Landlord has approved the Tenant’s Racking Plans for the purpose of commencing preparation of plans, specifications and working drawings for the Tenant’s Initial Work. Tenant and Tenant’s consultant shall have the right to participate with Landlord in such preparation in a cooperative, “teamwork” approach, and Landlord will cooperate with such participation. Landlord acknowledges that Tenant has a goal of maximizing available rebates from the electrical utility based upon design of the Tenant’s lighting plans. Tenant shall review and approve, or request modifications to, the plans for the Tenant’s Initial Work within three (3) business days after delivery to Tenant.

Landlord has requested additional detail for Tenant’s Racking Plans concerning height of racking, floor attachment details and estimated point loads, and Tenant or its consultant will provide that information. As Tenant’s Racking Plans are further completed Tenant will deliver such plans to Landlord for approval (not to be unreasonably withheld, conditioned or delayed).

Upon completion of plans, specifications and working drawings as required for construction of Tenant’s Initial Work, Landlord will apply for permits and approvals as required for construction of the Tenant’s Initial Work.

Upon receipt of required permits and approvals Landlord will cause the Tenant’s Initial Work to be completed in accordance with Article III above.

Landlord shall diligently proceed with the construction of the Tenant’s Initial Work and shall complete the Tenant’s Initial Work by January 1, 2005.

Completion of the Tenant’s Initial Work shall mean and require that the Tenant’s Initial Work is complete in all material respects and Tenant is able to lawfully use the Building Premises for the commencement of installation of Tenant’s racking system, subject to Tenant obtaining any required permits for such installation.

If for any reason (but subject to the provisions below concerning Tenant Delay (as defined below)) Landlord is unable to complete the Tenant’s Initial Work by January 1, 2005, such failure shall not affect the validity of the Lease; provided, however, that under such circumstances, the Commencement Date and the Tenant’s obligation to pay Rent shall be delayed for a period equal to such delay and the Term shall be extended one (1) day for each day of deferral of the Commencement Date.

(b) Tenant has delivered the Tenant’s space plan parameters for the Building Premises to Landlord, from which the Architect for the Tenant’s Work is developing the space plan for the Building Premises.

Upon delivery of the space plan to Landlord and Tenant, Landlord and Tenant shall review the space plan and upon approval by Landlord and Tenant (not to be unreasonably withheld, conditioned or delayed) Landlord shall have prepared plans, specifications and working drawings for the Base Building Work and the Tenant’s Finish Work. If Landlord or Tenant requests revisions of the space plan it will notify the other party thereof within three (3) business days of receipt and specify the requested revisions. Tenant and Tenant’s consultant shall have the right to participate with Landlord in the preparation of the plans, specifications and working drawings for the Base Building Work and the Tenant Finish Work in a cooperative, “teamwork” approach, and Landlord will cooperate with such participation.

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Landlord will deliver the completed plans, specifications and working drawings to Tenant for review (not to be unreasonably withheld, conditioned or delayed). If Tenant requests revisions of the plans, specifications or working drawings it will notify Landlord thereof within three (3) business days of Tenant’s receipt and specify the requested revisions.

Upon completion of plans, specifications and working drawings Landlord will apply for permits and approvals as required for construction of the Base Building Work and Tenant’s Finish Work.

Upon receipt of required permits and approvals Landlord will cause the Base Building Work and the Tenant’s Finish Work to be completed in accordance with the provisions of Articles II and III above. Landlord shall diligently proceed with the construction of the Base Building Work and the Tenant’s Finish Work and use reasonable efforts to complete same (with a certificate of occupancy, which may be temporary or conditional) thereof to Tenant not later than April 1, 2005. If for any reason (but subject to the provisions below concerning Tenant Delay), Landlord is unable to complete the Base Building Work and the Tenant’s Finish Work on such schedule, such failure shall not affect the validity of this Lease; provided, however, that under such circumstances, the Tenant’s obligation to pay Rent shall be abated for a period equal to such delay and the Term shall be extended one (1) day for each day of such rent abatement. Notwithstanding the foregoing, if such completion has not occurred within ninety (90) days following the scheduled completion date (which scheduled completion date will be extended for Tenant Delays and Events of Force Majeure), then Tenant shall have the right to terminate this Lease upon written notice to Landlord delivered at any time prior to Landlord’s completion of the Base Building Work and the Tenant’s Finish Work. For purposes hereof, completion of the Base Building Work and the Tenant’s Finish Work shall not be deemed to have occurred until all the following conditions shall have been satisfied:

(i) The Base Building Work and the Tenant’s Finish Work shall have been completed, other than insubstantial details of construction, mechanical adjustment or decoration (“Tenant’s Punch List Items”), the non-completion of which does not interfere with Tenant’s use of the Premises for the Intended Use or prosecution of the Tenant’s Additional Work;

(ii) The entire Premises shall be available for, and tendered to, Tenant for its exclusive use and possession, subject to completion of Tenant’s Punch List Items, broom clean and free of all construction debris materials and all personal property;

(iii) Landlord shall have delivered to Tenant (x) a temporary certificate of occupancy which permits the use and occupancy of the Premises for its Intended Use (it being agreed that Landlord shall furnish Tenant with a permanent certificate of occupancy as soon as practicable, and at no time during the term shall Landlord permit the aforesaid temporary certificate of occupancy to expire before it is replaced with a permanent certificate of occupancy) and (y) all other certificates, permits and approvals as may be necessary for Tenant lawfully to occupy and operate the Premises in accordance with the Lease; provided, however, that compliance with this subclause (iii) shall not be required to the extent that noncompliance is caused by any incomplete portions of Tenant’s Additional Work, or other matters relating to the conduct of Tenant’s operations rather than the construction by Landlord provided for herein; and

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(iv) Landlord shall obtain for and deliver to Tenant a title search (the “Title Search”) of the Land and Building, prepared by a title company licensed to issue title insurance in California, showing that, as of the Title Date (as hereinafter defined), (A) Landlord is the sole fee owner of the Land and Building, (B) there are no mortgages upon the Land or the Building or any part of either, other than those mortgages for which Tenant has received or will receive an Attornment and non-disturbance agreement as required Article 13 of the Lease, (C) there are no ground or underlying leases covering the Land or the Building or any part of either, and (D) there are no liens, encumbrances, security interests, charges, reservations, easements, rights of way, restrictive covenants, conditions, limitations, or any other burden covering or affecting the Land or the Building or any part of either, other than the Permitted Encumbrances. The “Title Date” shall be any date occurring not more than thirty (30) days prior to substantial completion of the Base Building Work and the Tenant’s Finish Work.

In the event that, prior to the satisfaction of any of the foregoing conditions, Landlord and Tenant agree that completion of the Base Building Work and the Tenant’s Finish Work has occurred, then Landlord shall still be obligated to satisfy such conditions in a timely manner subsequent to completion of the Base Building Work and the Tenant’s Finish Work.

5.02 Tenant Delay. Any delay in completion of the Work caused by an act or neglect of Tenant, or those acting for or under Tenant, including, without limitation, delay caused in production of plans and specifications, or by changes in plans and specifications, by or on behalf of Tenant and/or approval of plans and specifications by or on behalf of Tenant (each. herein, a “Tenant Delay”), shall constitute a Tenant Delay. Any delay caused by a Tenant Delay shall not cause a deferral of the Commencement Date or a deferral in or abatement of Tenant’s obligation to pay Rent in accordance with this Workletter and the Commencement Date and obligation to commence payment of Rent shall occur, and the obligation to pay Rent shall continue, as if the delay caused by the Tenant Delay had not occurred, and, in addition thereto, Tenant shall pay to Landlord all reasonable increased costs or damages incurred by Landlord attributable to Tenant Delays.

5.03 Representatives. Each party shall appoint and maintain a designated individual as its primary contact “Representative” for the design and construction of the Work. Any decision, approval or disapproval by a party’s Representative shall be deemed to be the decision, approval or disapproval of such party. A party may change its Representative, from time to time, by notice to the other party. The initial Representative for Landlord shall be Clark Neuhoff. The initial Representative for Tenant shall be Tom Humphries.

VI. TENANT’S INSPECTION; TENANT’S ADDITIONAL WORK

6.01 Inspection and Monitoring by Tenant. (a) Tenant, Tenant’s architect, Tenant’s engineers, Tenant’s contractors, Tenant’s representatives, and any agents of Tenant shall have access to the Building at all times during Business Hours on Business Days, and at all other reasonable times upon reasonable prior written or oral notice if accompanied by a representative of Landlord, in order to inspect the Base Building Work and the Tenant’s Work and monitor the progress thereof. Tenant may have a representative present at the Premises at all times during the performance of the Base Building Work and the Tenant’s Work.

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(b) From and after the date hereof, Landlord shall conduct regularly scheduled construction meetings to discuss the performance and progress of the Base Building Work and the Tenant’s Work; Tenant shall be given reasonable advance notice of each such meeting and Tenant’s representatives shall have the right to attend such meetings. Tenant shall receive a copy of the minutes of all construction meetings, which minutes Landlord shall cause to be prepared by its contractor. Landlord shall (i) keep Tenant apprised of the progress of the Base Building Work and the Tenant’s Work, (ii) promptly notify Tenant of any actual or anticipated delays, and (iii) promptly notify Tenant of any problems or anticipated problems with respect to the Base Building Work (or any portion thereof) or the Tenant’s Work (or any portion thereof). As to all aspects of the Tenant’s Work, Tenant shall have the right to approve any general contractor(s), subcontractors and trade contractors as Landlord may select for the performance of the Tenant’s Work, which approval shall not be unreasonably withheld, conditioned or delayed. If Tenant reasonably disapproves any general contractor(s), subcontractors or trade contractors proposed by Landlord, Landlord will propose a substitute, and Tenant shall have the right to approve such substitute, which approval shall not be unreasonably withheld, conditioned or delayed.

(c) Landlord shall maintain at the Premises for inspection by Tenant and Tenant’s architect during Business Hours on Business Days one record copy of (i) the Base Building Plans and the Tenant’s Plans, together with all field notes and changes of Landlord’s contractor marked on said plans during the course of construction, (ii) the progress schedule, any progress schedules prepared by any subcontractor, and all updates, supplements and amendments thereto; (iii) specifications and samples prepared in connection with the Base Building Work and the Tenant’s Work; and (iv) all drawings, diagrams, schedules, brochures and other data or information specially prepared for or otherwise provided in connection with the Base Building Work and/ or the Tenant’s Work to illustrate some portion of such work or any product, material or system to be installed or utilized in connection therewith. All of the foregoing shall be maintained in good order and marked currently to record all changes made during construction of the Work.

6.02 Tenant’s Additional Work. (a) The Tenant’s Additional Work Plans, and any changes (each, a “TAW Plan Change”) to the Tenant’s Additional Work Plans, shall be subject to obtaining Landlord’s prior approval thereof as hereinafter provided (it being agreed that Landlord’s right to review and approve or disapprove the Tenant’s Additional Work Plans and any TAW Plan Change shall be limited only to the portions thereof which would constitute Material Alterations if the Work described therein were Alterations under Article 8 of the Lease). Tenant shall submit the Tenant’s Additional Work Plans to Landlord as available, and, as applicable, shall request Landlord’s approval of any TAW Plan Change in a notice (each, a “TAW Plan Change Notice”) to Landlord describing such TAW Plan Change. Landlord, within 10 days after receiving the Tenant’s Additional Work Plans or any TAW Plan Change Notice, shall respond thereto, in writing, by either (A) approving the Tenant’s Additional Work Plans or the TAW Plan Change described therein, or (B) disapproving the Tenant’s Additional Work Plans or the TAW Plan Change described therein, subject to and in accordance with Article 8 of the Lease (it being agreed that Landlord’s right to review and approve or disapprove the Tenant’s Additional Work Plans and any TAW Plan Change shall be limited only to the

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portions thereof which would constitute Material Alterations if the Work described therein were Alterations under Article 8 of the Lease). In any case where Landlord disapproves Tenant’s Additional Work Plans on an TAW Plan Change, Landlord’s disapproval shall clearly delineate its reasons therefor. If Landlord shall fail to approve or disapprove Tenant’s Additional Work Plans on a TAW Plan Change within such 10 day period after receiving the Tenant’s Additional Work Plans or a TAW Plan Change Notice, then the Tenant’s Additional Work Plans or the TAW Plan Change shall be deemed disapproved by Landlord. Tenant, at any time, shall have the right to make revisions to, and resubmit to Landlord Tenant’s Additional Work Plans or TAW Plan Change which Landlord shall have previously disapproved pursuant to this Section 6.02(a). Upon Landlord’s approval of Tenant’s Additional Work Plans or any TAW Plan Change the same shall be deemed incorporated into, and to constitute a part of, the Tenant’s Additional Work Plans.

(b) Tenant may perform the Tenant’s Additional Work with such general contractor(s), construction manager(s), subcontractors and trade contractors as Tenant selects, subject to Landlord’s approval, which will not be unreasonably withhold, conditioned or delayed. Tenant shall perform the Tenant’s Additional Work in accordance with (i) the Tenant’s Additional Work Plans, (ii) good construction practices, and (iii) all Legal Requirements and all Insurance Requirements.

(c) Commencing on the date hereof and thereafter throughout Landlord’s prosecution of the Base Building Work and the Tenant’s Work, Tenant shall be permitted upon the Land and Building and may, simultaneously with Landlord’s prosecution of the Base Building Work and the Tenant’s Work, prosecute any Tenant’s Additional Work; provided, however, that Tenant’s prosecution of Tenant’s Additional Work simultaneously with Landlord’s prosecution of the Base Building Work and the Tenant’s Work shall not materially interfere with Landlord’s ability to prosecute the Base Building Work or the Tenant’s Work. Without limiting the generality of the foregoing, and subject to the proviso in the preceding sentence, Landlord shall permit Tenant to bring and store on the Premises all equipment, supplies and other property required or appropriate in connection with the Tenant’s Additional Work, and shall allow Tenant to use, at Tenant’s cost, such power to the Premises as exists or is being furnished for Landlord’s construction of the Base Building Work and Tenant’s Work. Any occupancy and activities in the Premises prior to the Commencement Date by or on behalf of Tenant pursuant to this subclause (c) shall be subject to all terms and provisions of the Lease other than the requirement for the payment of Rent, including, without limitation, the provision of evidence of Tenant’s insurance as required by the Lease.

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SCHEDULE I TO EXHIBIT D

Base Building Plans

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SCHEDULE II TO EXHIBIT D

Tenant’s Plans

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SCHEDULE III TO EXHIBIT D

Tenant’s Additional Plans

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EXHIBIT E

RECORDING REQUESTED BY

WHEN RECORDED MAIL TO

The Northwestern Mutual Life Ins. Co.

720 East Wisconsin Ave. - Rm N16WC

Milwaukee, WI 53202

Attn:

Loan No. SPACE ABOVE THIS LINE FOR RECORDER’S USE

NON DISTURBANCE AND ATTORNMENT AGREEMENT

THIS AGREEMENT is entered into as of _________________, 20__, between ________________, whose mailing address is ______________________ (“Tenant”), ______________, whose mailing address is _____________________ (“Borrower”), and THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (“Lender”), whose address for notices is 720 East Wisconsin Avenue, Milwaukee, WI 53202, Attention: Real Estate Investment Department, Reference Loan No. ______________.

RECITALS

A. Tenant is the lessee or successor to the lessee, and Borrower is the lessor or successor to the lessor under a certain lease dated _________________, 20__, (the “Lease”).

B. Lender has made, or will make, a mortgage loan to be secured by a mortgage, deed to secure a debt or deed of trust from Borrower for the benefit of Lender (as it may be amended, restated or otherwise modified from time to time, the “Lien Instrument”) encumbering the fee title to and/or leasehold interest in the land described in Exhibit A attached hereto and the improvements thereon (collectively, the “Property”), wherein the premises covered by the Lease (the “Demised Premises”) are located.

C. Borrower and Lender have executed, or will execute, an Absolute Assignment of Leases and Rents (the “Absolute Assignment”), pursuant to which (i) the Lease is assigned to Lender and (ii) Lender grants a license back to Borrower permitting Borrower to collect all rents, income and other sums payable under the Lease until the revocation by Lender of such license, at which time all rents, income and other sums payable under the Lease are to be paid to Lender.

D. Lender has required the execution of this Agreement by Borrower and Tenant as a condition to Lender making the requested mortgage loan or consenting to the Lease.

E. Tenant acknowledges that, as its consideration for entering into this Agreement, Tenant will benefit by entering into an agreement with Lender concerning Tenant’s relationship with any purchaser or transferee of the Property (including Lender) in the event of foreclosure of

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the Lien Instrument or a transfer of the Property by deed in lieu of foreclosure (any such purchaser or transferee and each of their respective successors or assigns is hereinafter referred to as “Successor Landlord”).

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Tenant, Borrower and Lender agree as follows:

1. Tenant and Borrower agree for the benefit of Lender that:

(a) Tenant shall not pay, and Borrower shall not accept, any rent or additional rent more than one month in advance;

(b) Except as specifically provided in the Lease, Tenant and Borrower will not enter into any agreement for the cancellation of the Lease or the surrender of the Demised Premises without Lender’s prior written consent;

(c) Tenant and Borrower will not enter into any agreement amending or modifying the Lease without Lender’s prior written consent, except for amendments or modifications specifically contemplated in the Lease for confirming the lease commencement date, the rent commencement date, the term, the square footage leased, the renewal or extension of the Lease, or the leasing of additional space at the Property;

(d) Tenant will not terminate the Lease because of a default thereunder by Borrower unless Tenant shall have first given Lender written notice and a reasonable opportunity to cure such default; provided, however, that such opportunity to cure shall not exceed sixty (60) days after written notice by Tenant to Landlord;

(e) Tenant, upon receipt of notice from Lender that it has exercised its rights under the Absolute Assignment and revoked the license granted to Borrower to collect all rents, income and other sums payable under the Lease, shall pay to Lender all rent and other payments then or thereafter due under the Lease, and any such payments to Lender shall be credited against the rent or other obligations due under the Lease as if made to Borrower and Borrower hereby fully releases Tenant of any claims, damages, actions or causes of action that Borrower may have as a result of the payment of any rent made by Tenant to Lender under this paragraph;

(f) Tenant will not conduct any dry cleaning operations on the Demised Premises using chlorinated solvents nor will Tenant use any chlorinated solvents in the operation of their business on the Demised Premises; and

(g) Tenant shall pay any and all termination fees due and payable under the Lease directly to Lender to be held in an account satisfactory to Lender.

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2. The Lease is hereby subordinated in all respects to the Lien Instrument and to all renewals, modifications and extensions thereof, subject to the terms and conditions hereinafter set forth in this Agreement, but Tenant waives, to the fullest extent it may lawfully do so, the provisions of any statute or rule of law now or hereafter in effect that may give or purport to give it any right or election to terminate or otherwise adversely affect the Lease or the obligations of Tenant thereunder by reason of any foreclosure proceeding.

3. Borrower, Tenant and Lender agree that, unless Lender shall otherwise consent in writing, the fee title to, or any leasehold interest in, the Property and the leasehold estate created by the Lease shall not merge but shall remain separate and distinct, notwithstanding the union of said estates either in Borrower or Tenant or any third party by purchase, assignment or otherwise.

4. If the interests of Borrower in the Property are acquired by a Successor Landlord:

(a) If Tenant shall not then be in default in the payment of rent or other sums due under the Lease or be otherwise in material default under the Lease, the Lease shall not terminate or be terminated and the rights of Tenant thereunder shall continue in full force and effect except as provided in this Agreement;

(b) Tenant agrees to attorn to Successor Landlord as its lessor; Tenant shall be bound under all of the terms, covenants and conditions of the Lease for the balance of the term thereof, including any renewal options which are exercised in accordance with the terms of the Lease;

(c) The interests so acquired shall not merge with any other interests of Successor Landlord in the Property if such merger would result in the termination of the Lease;

(d) If, notwithstanding any other provisions of this Agreement, the acquisition by Successor Landlord of the interests of Borrower in the Property results, in whole or part, in the termination of the Lease, there shall be deemed to have been created a lease between Successor Landlord and Tenant on the same terms and conditions as the Lease, except as modified by this Agreement, for the remainder of the term of the Lease with renewal options, if any; and

(e) Successor Landlord shall be bound to Tenant under all of the terms, covenants and conditions of the Lease, and Tenant shall, from and after Successor Landlord’s acquisition of the interests of Borrower in the real estate, have the same remedies against Successor Landlord for the breach of the Lease that Tenant would have had under the Lease against Borrower if the Successor Landlord had not succeeded to the interests of Borrower; provided, however, that Successor Landlord shall not be:

(i) Liable for the breach of any representations or warranties set forth in the Lease or for any act, omission or obligation of any landlord (including Borrower) or any other party occurring or accruing prior to the date of Successor Landlord’s acquisition of the interests of Borrower in the Demised Premises, except for any repair and maintenance obligations of a continuing nature as of the date of such acquisition;

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(ii) Liable for any obligation to construct any improvements in, or make any alterations to, the Demised Premises, or to reimburse Tenant by way of allowance or otherwise for any such improvements or alterations constructed or made, or to be constructed or made, by or on behalf of Tenant in the Demised Premises;

(iii) Subject to any offsets or defenses which Tenant might have against any landlord (including Borrower) prior to the date of Successor Landlord’s acquisition of the interests of Borrower in the Demised Premises;

(iv) Liable for the return of any security deposit under the Lease unless such security deposit shall have been actually deposited with Successor Landlord;

(v) Bound to Tenant subsequent to the date upon which Successor Landlord transfers its interest in the Demised Premises to any third party;

(vi) Liable to Tenant under any indemnification provisions set forth in the Lease; or

(vii) Liable for any damages in excess of Successor Landlord’s equity in the Property.

The provisions of this paragraph shall be effective and self-operative immediately upon Successor Landlord succeeding to the interests of Borrower without the execution of any other instrument.

5. Tenant represents and warrants that Tenant, all persons and entities owning (directly or indirectly) an ownership interest in Tenant and all guarantors of all or any portion of the Lease: (i) are not, and shall not become, a person or entity with whom Lender is restricted from doing business with under regulations of the Office of Foreign Asset Control (“OFAC”) of the Department of the Treasury (including, but not limited to, those named on OFAC’s Specially Designated and Blocked Persons list) or under any statute, executive order (including, but not limited to, the September 24, 2001 Executive Order Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism), or other governmental action; (ii) are not knowingly engaged in, and shall not engage in, any dealings or transaction or be otherwise associated with such persons or entities described in (i) above; and (iii) are not, and shall not become, a person or entity whose activities are regulated by the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 or the regulations or orders thereunder.

6. This Agreement may not be modified orally or in any other manner except by an agreement in writing signed by the parties hereto or their respective successors in interest. In the event of any conflict between the terms of this Agreement and the terms of the Lease, the terms of this Agreement shall prevail. This Agreement shall inure to the benefit of and be binding upon

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the parties hereto, their respective heirs, successors and assigns, and shall remain in full force and effect notwithstanding any renewal, extension, increase, or refinance of the indebtedness secured by the Lien Instrument, without further confirmation. Upon recorded satisfaction of the Lien Instrument, this Agreement shall become null and void and be of no further effect.

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

TENANT:
	By:
	Attest:
		Secretary

Add appropriate acknowledgment for Tenant.

(Signatures of Borrower and Lender continued on following pages)

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(Signatures continued)

BORROWER:
	By:
	Attest:
		Secretary

Add appropriate acknowledgment for Borrower.

(Signature of Lender continued on following pages)

6

(Signatures continued)

LENDER:	THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation
	By:	Northwestern Investment Management Company, LLC, a Delaware limited liability company, its wholly-owned affiliate and authorized representative
		By:
			, Managing Director
		Attest:
			, Assistant Secretary

Add appropriate acknowledgment for Northwestern

Add scriveners statement

7

EXHIBIT “A”

(Description of Property)

8

EXHIBIT F

Appraisal Procedures

This Lease provides that a Renewal Term Fair Market Base Rent shall be determined by appraisal, and said appraisal shall be conducted in accordance with the following procedures:

(1) Within ten (10) days after receipt of a notice to appraise given by either party, Landlord and Tenant shall each select a real estate broker (an “appraiser”) who (A) is licensed in the State of California, and has a SIOR or CCIM designation, (B) has been actively and continuously engaged in the leasing of industrial/office space in the San Bernardino County, California area during the preceding five-year period, (C) has been the primary broker representing either a landlord or a tenant to a lease covering at least 25,000 square feet of industrial/office space during the most recent three-year period, and (D) has not represented Landlord or Tenant during the preceding five-year period. If one of the parties hereto fails to appoint an appraiser within the time period prescribed, then the single appraiser appointed shall be the sole appraiser and shall determine the Renewal Term Fair Market Base Rent. If two appraisers are appointed, they shall have thirty (30) days from the date the second appraiser is appointed (the “30-Day Appraisal Period”) within which to agree upon the Renewal Term Fair Market Base Rent. The appraiser(s) shall be advised that the determination of the Renewal Term Fair Market Base Rent shall be governed by the definitions of same set forth in this Lease and the requirement that each appraiser select the Determination (as between Landlord’s Determination and Tenant’s Determination), which, in his/her opinion, more accurately reflects the Renewal Term Fair Market Base Rent. The Determination selected by the two appraisers as the Renewal Term Fair Market Base Rent shall be binding on Landlord and Tenant.

(2) If the two appraisers appointed by the parties hereto do not concur in such selection as aforesaid within the 30 day Appraisal Period, then said appraisers shall attempt, within ten (10) days after the expiration of the 30 day Appraisal Period, to select a third appraiser (the “Third Appraiser”). If the first two appraisers are unable to agree on the Third Appraiser within the ten (10) day period prescribed in the immediately preceding sentence, either Landlord or Tenant, by giving ten (10) days notice to the other party hereto, shall request that the presiding judge of the lowest level court of general jurisdiction for the district in which the Building is located select the Third Appraiser. The Third Appraiser, however selected, shall meet the qualifications set forth in subparagraph (1) above, and shall be a person who has not previously acted in any capacity for either Landlord or Tenant.

(3) The Third Appraiser shall subscribe and swear to an oath to fairly and impartially choose the Determination which more accurately reflects the Renewal Term Fair Market Base Rent, in accordance herewith. The Third Appraiser shall conduct such hearings as he deems appropriate (or such hearings as either Landlord or Tenant shall request). Within fifteen (15) days after the Third Appraiser has been appointed, the Third Appraiser shall select the Determination (as between Landlord’s Determination and Tenant’s Determination) which, in his/her opinion, more accurately reflects the Renewal Term Fair Market Base Rent, and shall notify Landlord, Tenant and each of the initial arbitrators of such selection in writing. With respect to Tenant’s Renewal Option, provided Tenant does not elect to rescind its Tenant’s Renewal Notice as provided in Article 27, the Renewal Term Fair Market Base Rent set forth in the final Determination selected by the Third Appraiser shall be

1

the final determination of such amounts, which determination shall be conclusive and binding upon both Landlord and Tenant.

(4) Except as otherwise provided in the Lease, each party hereto shall pay the fees and expenses of the appraiser selected by such party, and the fees and expenses of the Third Appraiser shall be borne equally by Landlord and Tenant.

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EXHIBIT G

FORM OF MEMORANDUM OF LEASE

THIS DOCUMENT HAS

BEEN PREPARED BY:

Mark P. Goss, Esq.

BRYAN CAVE LLP

Two North Central Avenue, Suite 2200

Phoenix, Arizona 85004

THIS DOCUMENT IS TO

BE RETURNED TO:

Mark Van Vleet, Esq.

FENDER MUSICAL INSTRUMENTS CORPORATION

8860 East Chaparral Road, Suite 100

Scottsdale, AZ 85250-2610

MEMORANDUM OF LEASE

THIS MEMORANDUM OF LEASE (this “Memorandum”) is executed effective as of this ____ day of ____________, 2004 (the “Effective Date”), by and between 1151 MILDRED LLC, a Delaware limited liability company (“Landlord”), whose address is 100 Bayview Circle, Suite 310, Newport Beach, California 92660, and FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (“Tenant”), whose address is 8860 E. Chaparral Road, Suite 100, Scottsdale, Arizona 85250-2610.

PRELIMINARY STATEMENT:

Landlord and Tenant entered into that certain lease (the “Lease”) dated as of the Effective Date, the terms, provisions and conditions of which are incorporated herein by this reference to the same extent as if recited in their entirety herein. Pursuant to the terms, provisions and conditions of the Lease, Landlord has leased to Tenant, and Tenant has rented and leased from

Landlord, the Premises described by address and suite number in Exhibit A attached hereto (collectively, the “Premises”), located in Ontario, California including, without limitation, the real property, together with all fixtures and other improvements now or hereafter located thereon, described more particularly in the legal description attached hereto as Exhibit A and incorporated herein by this reference. Unless otherwise expressly provided herein, all initially capitalized terms used in this Memorandum shall have the same meanings as are ascribed to such terms in the Master Lease.

NOW, THEREFORE, Landlord and Tenant hereby make specific reference to the following terms, provisions and conditions of the Lease:

1. In consideration of the rentals and other sums to be paid by Tenant and of the other terms, covenants and conditions on Tenant’s part to be kept and performed pursuant to the Lease, Landlord leases to Tenant, and Tenant takes and hires, the Premises. The Lease term commences as of the Commencement Date and expires on the fifth (5^th) anniversary of the Commencement Date, unless terminated sooner as provided in the Lease. The time period during which the Lease shall actually be in effect is referred to herein as the “Term.”

2. Pursuant to Article 31 of the Lease, Landlord has granted to Tenant a one time right of first refusal to lease all (but not less than all) of the remaining building consisting of approximately 289,000 square feet (the “ROFR Space”) and Landlord shall not lease the ROFR Space to any other party until and unless Landlord shall have first offered to lease the ROFR Space to Tenant pursuant to the terms of Article 31.

3. Pursuant to the terms of Article 27 of the Lease, Landlord has granted to Tenant the right to renew the terms of the Lease for one (1) five (5) year period in accordance with the terms and provisions and subject to the termination of the rent as set forth in said Article 27.

4. Original copies of the Lease are in the possession of Landlord and Tenant. The Lease contains other terms not herein set forth but which are incorporated by reference herein for all purposes, and this Memorandum is executed for the purpose of placing parties dealing with the Premises on notice of the existence of the Lease and, where appropriate, its contents, and shall ratify and confirm all other terms of the Lease as fully as if the same had been set forth herein.

5. This Memorandum is intended for recording purposes only, and does not modify, supersede, diminish, add to or change all or any of the terms of the Lease in any respect. The terms and conditions of the Lease shall control notwithstanding that the terms and conditions of the Lease may be inconsistent or vary from those set forth in this Memorandum.

6. This Memorandum may be executed in one or more counterparts, each of which shall be deemed an original.

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IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be duly executed as of the Effective Date.

LANDLORD:
1151 MILDRED LLC
a Delaware limited liability company
By:	Alere Property Group LLC,
	Sole Member
By:
Name:
Its:
TENANT:
FENDER MUSICAL INSTRUMENTS CORPORATION,
a Delaware corporation
By:
Name:
Its:

After Recordation Return to:

Mark Van Vleet, Esq.

FENDER MUSICAL INSTRUMENTS CORPORATION

8860 E. Chaparral Road

Suite 100

Scottsdale, AZ 85250-2610

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STATE OF CALIFORNIA	)
	) SS.
COUNTY OF ORANGE	)

I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that _______________________, whose name as ____________________ of Alere Property Group LLC, sole member of 1151 MILDRED LLC, a Delaware limited liability company, is signed to the forgoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said limited liability company, acting in its capacity as such sole member of said limited liability company.

Given under my hand and official seal this _____ day of ___________, 2004.

Notary Public

My Commission Expires:

STATE OF ARIZONA	)
	) SS.
COUNTY OF MARICOPA	)

I, the undersigned authority, a Notary Public in and for said County in said State, hereby certify that _____________________, whose name as ____________________of FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation, is signed to the forgoing instrument, and who is known to me, acknowledged before me on this day that, being informed of the contents of the instrument, he, as such officer and with full authority, executed the same voluntarily for and as the act of said corporation.

Given under my hand and official seal this ______ day of ____________, 2004.

Notary Public

My Commission Expires:

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EXHIBIT A

ADDRESS AND LEGAL DESCRIPTION OF PREMISES

EXHIBIT H

Form of Commencement Date Agreement

AGREEMENT

This Agreement is entered into in connection with that certain Lease, dated as of ______, __________ (the “Lease”), between _________________, as landlord, and __________, as tenant, covering those certain premises located at ____________________.

The undersigned, as of this ___th day of _____________, ___________, hereby agree as follows:

(1) For all purposes of the Lease, the Commencement Date shall be and shall be deemed to be ________, _______________.

(2) For all purposes of the Lease, the Expiration Date shall be and shall deemed to be ____________, ____________.

(3) Except as modified hereby, all of the terms and conditions of the Lease, as heretofore in effect, shall remain in full force and effect, and, as modified hereby, the Lease is hereby ratified and confirmed in all respects. All capitalized terms which are used herein shall have the meanings ascribed to them in the Lease, except as otherwise defined herein.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of this ___th day of ____________, _____.

[LANDLORD]
By:
	Name:
	Title:
[TENANT]
By:
	Name:
	Title:

EXHIBIT I-1

Form of Tenant’s Estoppel Certificate

[Letterhead of Tenant]

[Date]

[Name and Address of Landlord]

Re: Lease (the “Lease”), dated __________, between _____________

(“Landlord”) and ___________________ (“Tenant”)

Premises:

Dear Sir or Madam:

Tenant hereby certifies the following information as of the date of this certificate:

1. The Lease is in full force and effect and has not been modified, supplemented, or amended, except as set forth on Schedule I annexed hereto. A true, correct and complete copy of the Lease is attached as Exhibit A hereto.

2. The Base Rent and Additional Rent due under the Lease has been paid through ________.

3. Except as otherwise provided in the Lease or on Schedule II annexed hereto, no payment of Base Rent or Additional Rent has been paid by Tenant more than thirty days in advance.

4. Except as set forth on Schedule III annexed hereto, to the best of Tenant’s knowledge, as of the date hereof, Landlord is not in default under the terms of the Lease.

[5. Such other matters as Landlord shall reasonably request.]

This Certificate may be relied upon by Landlord and by any proposed successor to Landlord under the Lease and any party providing financing to Landlord.

[TENANT]

By:

Name:

Title:

EXHIBIT I-2

Form of Landlord’s Estoppel Certificate

[Letterhead of Landlord]

[Date]

[Name and Address of Tenant]

Re: Lease (the “Lease”), dated __________, between _____________

(“Landlord”) and ___________________ (“Tenant”)

Premises:

Dear Sir or Madam:

Landlord hereby certifies the following information as of the date of this certificate:

1. The Lease is in full force and effect and has not been modified, supplemented, or amended, except as set forth on Schedule I annexed hereto.

2. The Base Rent due under the Lease has been paid through ________.

3. Except as otherwise provided in the Lease or on Schedule II annexed hereto, no payment of Base Rent or Additional Rent has been paid by Tenant more than thirty days in advance.

4. Except as set forth on Schedule III annexed hereto, to the best of Landlord’s knowledge, as of the date hereof, Tenant is not in default under the terms of the Lease.

[5. Such other matters as Tenant shall reasonably request].

This Certificate may be relied upon by Tenant and by any proposed successor to Tenant under the Lease and any party providing financing to Tenant.

[LANDLORD]
By:
	Name:
	Title:

EX-10.28

Exhibit 10.28

FIRST AMENDMENT TO LEASE

THIS FIRST AMENDMENT TO LEASE (this “Amendment”) is made as of the 6th day of November, 2008 by and between 1151 MILDRED LLC, a Delaware limited liability company (“Landlord”), and FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (“Tenant”).

R E C I T A L S:

A. Landlord and Tenant entered into that certain Lease dated as of November 16, 2004 for Premises located at 1151 South Mildred Avenue, Ontario, California, which Lease has been amended, modified or otherwise supplemented by (i) that certain Memorandum of Lease, effective as of November 16, 2004, (ii) that certain ROFR Offer letter dated December 21, 2004, (iii) that certain re-measurement letter agreement dated April 26, 2005, and (iv) that certain Agreement dated July 8, 2005 regarding the Commencement Date of the Lease (collectively, the “Lease”); and

B. Landlord and Tenant now desire to amend the Lease in certain respects, all upon and subject to the terms and conditions hereinafter set forth.

NOW, THEREFORE, for and in consideration of the mutual undertakings of the parties and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows:

1. Recitals. The foregoing recitals are hereby affirmed by the parties as true and correct and are incorporated herein as though set forth again at length.

2. Extension of Lease Term. The Term of the Lease shall be extended for a period of seven (7) years, commencing on January 16, 2010 and expiring on January 15, 2017 (such period shall be referred to in this Amendment as the “Extended Term”), subject to Tenant’s renewal rights and unless sooner terminated pursuant to the provisions of the Lease or pursuant to law. The Extended Term shall be part of the Term, and all references in the Lease to the Term shall be considered to mean the Term as extended by this Amendment, and all references in the Lease to the Expiration Date shall be considered to mean January 15, 2017.

3. Expansion of Building Premises. If Tenant is not then occupying the Expansion Premises (as defined below) pursuant to the ROFO set forth in Paragraph 9 hereof, then on April 4, 2010, Landlord shall lease to Tenant and Tenant shall lease from Landlord, the Expansion Premises and the Building Premises shall automatically be expanded by 288,824 square feet to include that portion of the Building depicted on Exhibit “A” attached hereto and made a part hereof (the “Expansion Premises”). The original Building Premises together with the Expansion Premises constitute the entire Building. The commencement of Tenant’s lease of the Expansion Premises shall be expressly conditioned upon the existing tenant ACT (as defined in Paragraph 9) vacating the Expansion Premises and the delivery of the Expansion Premises by Landlord to

Tenant on or before April 4, 2010. Landlord shall take any and all reasonable action required in order to cause delivery of the Expansion Space to Tenant by April 4, 2010, which delivery shall be accomplished by the removal of the demising wall, or provision of access through the demising wall, to allow access to the Expansion Premises. Not later than February 1, 2010, Tenant shall advise Landlord as to whether Landlord should remove the demising wall or provide access through the demising wall; and if Tenant shall not so advise Landlord by February 1, 2010, Tenant shall be deemed to have advised Landlord to remove the demising wall. If ACT has not vacated the Expansion Premises and/or Landlord has not delivered to Tenant the Expansion Premises by April 4, 2010, such failure shall not affect the validity of the Lease or this Amendment, but Tenant’s obligation to pay Rent for the Expansion Premises shall be abated during such delay, and if such delay extends beyond May 4, 2010, Tenant shall be entitled to a Rent credit equal to one (1) day of Base Rent for the Expansion Premises (such Base Rent being based on the Rent calculated for the Expansion Premises) for each day beyond May 4, 2010 until the Expansion Premises are delivered to Tenant pursuant to the terms of this Amendment.

4. Base Rent. Subject to Paragraph 9 below, Base Rent for the Extended Term shall be as follows:

Period	Monthly Base Rent
January 16, 2010 to February 15, 2010	0.00
February 16, 2010 to March 15, 2010	$184,825.58
March 16, 2010 to April 3, 2010	$135,812.38
April 4, 2010 to April 15, 2010	$133,692.00
April 16, 2010 to January 15, 2011	$334,230.00
January 16, 2011 to January 15, 2012	$344,256.90
January 16, 2012 to January 15, 2013	$354,584.60
January 16, 2013 to January 15, 2014	$365,222.13
January 16, 2014 to January 15, 2015	$376,178.79
January 16, 2015 to January 15, 2016	$387,464.15
January 16, 2016 to January 15, 2017	$399,088.09

5. Proportionate Share Increase. Commencing on the date the Expansion Space becomes part of the Premises pursuant to either Paragraph 3 or Paragraph 9 hereof, Tenant’s Proportionate Share shall increase from 66.28% to 100.00%.

6. Parking. In accordance with Section 10 of the Lease, commencing on the date the Expansion Space becomes part of the Premises pursuant to either Paragraph 3 or Paragraph 9 hereof, Tenant shall have exclusive use of all the parking on the Land, and the Parking Area shall include all such parking.

7. Management Fee. Section 3.05(b) of the Lease is hereby amended to provide that commencing on January 16, 2010 the monthly Management Fee shall be equal to TWENTY ONE HUNDREDTHS OF A CENT ($0.0021) per rentable square foot of the Building Premises per month for the Extended Term (which amount equals a monthly Management Fee of $1,800.00 or $21,600.00 per annum).

8. Renewal Options. Article 27 of the Lease shall be deemed deleted and replaced by the following:

“27.01 Renewal Terms. (a) Provided that on the date on which Tenant gives the applicable Renewal Notice (as defined below) (i) Tenant is not in monetary default under this Lease beyond the expiration of any applicable notice and grace periods and (ii) Tenant is not Insolvent (as defined below), Tenant shall have two (2) five (5) year renewal options (each a “Renewal Option”) to extend the Term for a 5-year renewal term (each a “Renewal Term”). The Renewal Term shall commence on the day after the then current expiration date of the Term and shall expire on the fifth (5th) anniversary of such then current expiration date. The Renewal Option shall be exercisable by Tenant by written notice to Landlord (a “Renewal Notice”) given not later than the date (the “Outside Exercise Date”) that is twelve (12) months prior to the then current expiration date of the Term. In the event that Tenant fails to give any Renewal Notice by the Outside Exercise Date relating thereto, then Tenant shall have no further right to extend the Term pursuant to this Article 27. For purposes of this Section 27.01, Tenant shall be deemed to be “Insolvent” on a particular day if (i) on such date there is pending an action pursuant to a petition that was filed by Tenant under the United States Bankruptcy Code, 11 U.S.C. §§ 101 1330, as amended, or any successor thereto, or (ii) on such date there is pending an action pursuant to a petition that was filed at least 90 days prior to such date against Tenant under the United States Bankruptcy Code, 11 U.S.C. §§ 101 1330, as amended, or any successor thereto.

(b) Each Renewal Term shall be upon the same covenants, terms and conditions as in this Lease for the then existing Term, except for the provisions of this Article 27, and the Base Rent applicable during the applicable Renewal Term shall be equal to the greater of (i) the existing Base Rent as of the end of the then current Term, or (ii) ninety-five percent (95%) of the Renewal Term Fair Market Base Rent (as defined in Section 27.01(e) below) applicable to such Renewal Term.

(c) After delivery to Landlord of a Renewal Notice with respect to any Renewal Term, Landlord shall deliver in writing to Tenant no later six (6) months prior to the commencement date of such Renewal Term Landlord’s initial proposal for the Renewal Term Fair Market Base Rent, and Landlord and Tenant shall endeavor to agree upon the Renewal Term Fair Market Base Rent applicable to such Renewal Term. If Landlord and Tenant do not agree upon the Renewal Term Fair Market Base Rent applicable to the Renewal Term in question at least five (5) months prior to the commencement of the applicable Renewal Term, then Landlord shall within thirty (30) days thereafter notify Tenant (the “Rent Notice”) of Landlord’s determination of the Renewal Term Fair Market Base Rent applicable to such Renewal Term (“Landlord’s Determination”), which determination shall be binding on Landlord in the event such Renewal Term Fair Market Base Rent is determined by appraisal

pursuant to Exhibit F annexed hereto. Tenant shall notify Landlord (“Tenant’s Notice”), within thirty (30) days after Tenant’s receipt of the Rent Notice, whether Tenant accepts or disputes Landlord’s Determination, and if Tenant disputes Landlord’s Determination, Tenant’s Notice shall set forth Tenant’s determination of the Renewal Term Fair Market Base Rent (“Tenant’s Determination”), which determination shall be binding on Tenant in the event such Renewal Term Fair Market Base Rent is determined by appraisal pursuant to Exhibit F annexed hereto. Landlord’s Determination and Tenant’s Determination are each hereinafter referred to as a “Determination” and are collectively hereinafter referred to as the “Determinations”. Alternatively, Tenant shall have the right, within thirty (30) days following receipt of Landlord’s Determination, to rescind Tenant’s Renewal Notice by notice to Landlord, in which event the provisions of this Article 27 shall be of no further force and effect and this Lease shall terminate and expire as otherwise set forth in this Lease. If Tenant fails to give Tenant’s Notice or to rescind Tenant’s Renewal Notice within such thirty (30) day period, then Tenant shall be deemed to have accepted Landlord’s Determination.

(d) Provided Tenant does not rescind Tenant’s Renewal Notice as aforesaid, if Tenant timely disputes Landlord’s Determination, then the Renewal Term Fair Market Base Rent shall be established by appraisal in accordance with the procedures set forth in Exhibit F annexed hereto and made a part hereof. Upon determination of the Renewal Term Fair Market Base Rent, Tenant shall have the right, within thirty (30) days following such determination, to rescind Tenant’s Renewal Notice by notice to Landlord, in which event this Lease shall terminate and expire as otherwise set forth in this Lease, subject however to Tenant’s obligation to pay Rent pursuant to the terms of the next following sentence, if applicable. If, for any reason, the Renewal Term Fair Market Base Rent applicable to the Renewal Term is not finally determined on or prior to the commencement of the Renewal Term, then (i) pending such final determination, Tenant shall initially pay Base Rent for the Renewal Term at the Base Rent rate in effect during the last month of the then current Term, (ii) upon such final determination, the Base Rent for the Renewal Term shall be as provided in subclause (b) above, and (iii) in the event that such final determination results in a Base Rent rate in excess of the rate paid by Tenant during the Renewal Term, a retroactive adjustment in Base Rent shall be made and the appropriate payment shall be made by Tenant to Landlord.

(e) For the purposes of this Lease, the “Renewal Term Fair Market Base Rent” for the Premises applicable to a Renewal Term shall mean the annual amount of rental that a willing tenant would pay and a willing landlord would accept in arm’s length, bona fide negotiations for a lease of the Premises to be executed at the time of determining same and to commence on the commencement of the applicable Renewal Term, based upon other lease transactions made in the Building and other comparable buildings within a three (3) mile radius of the Building, taking into consideration all relevant terms and conditions of such comparable leasing transactions, including, without limitation: (i) location, quality and age of the building, (ii) use and size of the Premises, (iii) length of tenancy in the Building, (iv) extent of leasehold improvement allowances (considering existing improvements), (v) the amount of any abatement of rental or other charges, (vi) parking charges or includes of same in rental, (vii) market real estate brokerage fees for new transactions, (viii) relocation allowances, (ix) refurbishment and repainting allowances, (x) any and all other concessions or inducements, (xi) credit standing and financial stature of Tenant, (xii) any other adjustments (including by way of indexes) to base rental, and (xiii) length of term.

9. Right of First Offer. Landlord and Tenant acknowledge that the Expansion Premises is currently leased to ACT Fulfillment LLC and All Cartage Transportation, Inc. (such tenants, collectively are hereinafter referred to as “ACT” and its lease as the “ACT Lease”). Commencing on the date hereof and expiring on April 4, 2010, Landlord grants to Tenant a one (1) time right of first offer (“ROFO”) to lease all (but not less than all) of the Expansion Premises if the same becomes available prior to April 4, 2010. Landlord shall not lease the Expansion Premises to any other party unless and until Landlord shall have first offered to lease the Expansion Premises to Tenant pursuant to the terms of this Paragraph. Landlord shall offer to lease the Expansion Premises to Tenant by a written notice (“ROFO Offer”) to Tenant within ten (10) business days after the Expansion Premises becomes available. If Tenant desires to lease the Expansion Premises prior to April 4, 2010, Tenant shall give Landlord a written notice of such election (“ROFO Acceptance”) within ten (10) business days of the ROFO Offer. If Tenant does not deliver an ROFO Acceptance within such ten (10) business day period, Tenant shall have no further rights with respect to the Expansion Premises prior to April 4, 2010, and Landlord may then or thereafter lease all or any part of the Expansion Premises to any party or parties on such terms as Landlord may elect, subject to Tenant’s rights in and to the Expansion Premises pursuant to Paragraph 3 hereof. If Tenant delivers an ROFO Acceptance within ten (10) business days of the ROFO Offer, the Expansion Premises shall be added to and become a part of the Premises as of the tenth (10^th) business day following the delivery of the ROFO Acceptance, upon and subject to all the same terms as are applicable to the original Premises, except that until April 4, 2010 the rent payable for such Expansion Premises shall be the same as the “Rent” (as defined in the ACT Lease) which ACT would have been paying under the ACT Lease had ACT continued to occupy the Expansion Premises pursuant to ACT’s Lease, and (ii) delivery of the Expansion Premises shall not be deemed accomplished by Landlord until Landlord’s removal of the demising wall, or provision of access through the demising wall, to allow access between the original Building Premises to the Expansion Premises. The Rent payable by Tenant for the Expansion Premises prior to April 4, 2010, as aforesaid, shall be in addition to any other Rent due under the Lease. From and after April 4, 2010, the rent payable for the Premises, including the Expansion Premises, shall be as set forth in the Lease, as amended hereby.

10. Tenant Improvements. The Workletter attached hereto as Exhibit “B” shall be incorporated herein.

11. Reimbursement of Ongoing Tenant Work. In addition to Landlord’s Contribution (as defined on Exhibit “B”), Landlord shall reimburse Tenant up to a maximum amount of $220,000 for the cost of the improvements Tenant is currently constructing at the Premises. Landlord shall reimburse Tenant within ten (10) days after Tenant requests such reimbursement in writing and provides Landlord with paid receipts and lien waivers evidencing Tenant’s payment for such improvements.

12. Brokerage Commission. Landlord and Tenant each represents and warrants to the other that it had no conversations or negotiations with any broker or finder in connection with this Amendment, except for CRESA Partners-West, Inc. (“Broker”). Landlord will pay a commission to Broker in accordance with Landlord’s separate written agreement with Broker. Landlord and Tenant each hereby indemnifies and holds harmless the other from and against any claims for brokerage commissions or finder’s fees (together all related expenses, including, without limitation, reasonable attorneys’ fees) resulting from or arising out of any conversations or negotiations had by it with any other broker or finder in connection with this Amendment.

13. Integration of the Amendment. This Amendment and the Lease shall be deemed to be, for all purposes, one instrument. In the event of any conflict or inconsistency between the terms and provisions of this Amendment and the terms and provisions of the Lease, the terms and provisions of this Amendment, in all instances, shall control and prevail.

14. Entire Agreement. The Lease, as amended by this Amendment, contains all of the terms, covenants, conditions and agreements between Landlord and Tenant relating to Tenant’s leasing of the Premises. No prior or other agreement or understanding pertaining to such matters shall be valid or of any force or effect.

15. Definitions. Capitalized terms or phrases used and not otherwise expressly defined in this Amendment, shall have the same meanings ascribed to such terms and phrases as are contained in the Lease.

16. No Other Modifications. Except as hereinabove set forth, the Lease, as amended by this Amendment, shall remain unmodified and in full force and effect.

17. Headings. The headings of Sections or Paragraphs set forth herein are for convenience only and do not define, limit, expand, describe or construe the scope or intent of such Sections or Paragraphs.

18. Severability. The invalidity of any provision of the Lease, as amended by this Amendment, shall not impair or affect, in any manner, the validity, enforceability or effect of the rest of the Lease, as amended by this Amendment.

19. Counterparts; Electronic Execution. This Amendment may be executed in one or more counterparts, all of which together shall constitute one instrument. This Amendment may be executed and delivered by facsimile or other electronic means with the same force and effect as if an original had been delivered.

20. Authority. Each party hereby represents and warrants to the other party that this Amendment has been duly authorized, executed and delivered by and on behalf of said party and constitutes the legal, valid and binding agreement of said party in accordance with the terms hereof.

[Signature Page Follows]

IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as of the day first set forth above.

LANDLORD:
1151 MILDRED LLC,
a Delaware limited liability company
By:	Alere Property Group LLC,
	a Delaware limited liability company,
Its:	Sole Member
	By:	/s/ Daniel L. Webb
		Name: Daniel L. Webb
		Title: Vice President
TENANT:
FENDER MUSICAL INSTRUMENTS CORPORATION,
a Delaware corporation
By:	/s/ William Mendello
Name: William Mendello
Title: CEO

Exhibit “A”

Depiction of Expansion Premises

Exhibit “A” to First Amendment to Lease

Exhibit “B”

Workletter

(a) Landlord shall supervise, construct and complete the following alterations, additions and improvements in and to the Premises (collectively, the “Additional Tenant Improvements”):

• Add dock levelers/plates for all dock doors;

• Add dock shelters for all dock doors;

• Add fan/light units at all dock doors;

• Add two (2) additional offices on the dock;

• Create a single point of entry for employees with supporting millwork and pedestrian traffic controls;

• Create a secured outside employee area for breaks;

• Modify/upgrade the existing office space in the in the Expansion Space;

• Modify/upgrade the office space in the original Building Premises;

• Add a facility paging system;

• Create additional restroom and shower facilities; and

• Remove and/or provide access through the existing demising wall.

Tenant shall have the right, at its sole option and election, to eliminate or reduce any one or more of the Additional Tenant Improvements listed above, and in such event, any unused portion of the Landlord’s Contribution (as defined below) resulting therefrom may be used by Tenant towards Tenant’s handling equipment, racking and conveyor systems or towards the Rent credit set forth in Paragraph (b) below; provided, however, that such Rent credit and offset to Tenant’s handling equipment, racking and conveyor systems does not exceed, in the aggregate, $668,460.00. Tenant shall make any election regarding the Additional Tenant Improvements provided for in the immediately foregoing sentence by written notice to Landlord, which notice shall be given in a timely manner in the context of Landlord’s planning and construction of the Additional Tenant Improvements. In the event that Tenant elects to use any unused portion of the Landlord’s Contribution toward Tenant’s handling equipment, racking and conveyor systems, said portion will not be funded by Landlord any earlier than 90 days prior to the commencement of the Extended Term.

(b) The Additional Tenant Improvements shall be accomplished by Landlord in accordance with good construction practices and all Legal Requirements and Insurance Requirements, and at Tenant’s cost, but subject to use of Landlord’s Contribution (as defined below) therefor up to the maximum amount thereof. If the cost for the Additional Tenant Improvements is estimated to, or does, exceed the amount of the Landlord’s Contribution, the amount of such excess shall be paid by Tenant, and one half (1/2) of the estimated amount of such excess shall be deposited by Tenant with Landlord within five (5) days after the amount of any such estimated or actual excess is known and the remaining one half (1/2) shall be paid by Tenant to Landlord upon completion by Landlord of the Additional Tenant Improvements; provided, however that the amount of the excess cost to be paid by Tenant upon completion of the Additional Tenant Improvements shall not exceed $200,000 and, if necessary, Tenant shall increase the initial deposit as aforesaid in an amount that is sufficient to cause the payment upon

[Exhibit “B” to First Amendment to Lease]

completion to not exceed $200,000. If the cost for the Additional Tenant Improvements is less than the Landlord’s Contribution, the excess amount of the Landlord’s Contribution may, at Tenant’s election, either be used toward Tenant’s handling equipment, racking and conveyor systems or towards the Rent credit as provided below as Tenant may, in its sole discretion, allocate. Tenant shall make the election provided for in the immediately foregoing sentence by written notice to Landlord. At Tenant’s election, any unused portion of Landlord’s Contribution may be credited against the Rent next due from Tenant, provided that in no event shall such Rent credit exceed $668,460.00. “Landlord’s Contribution” shall mean an amount equal to $1,288,750.00 plus the cost of removing and/or providing access through the existing demising wall.

(c) Landlord will retain a general contractor for the construction of the Additional Tenant Improvements which general contractor shall be subject to Tenant’s approval, which approval will not be unreasonably withheld or delayed. The profit, fees and overhead charged by the general contractor will be at market rates. Contracts for performance of the Additional Tenant Improvements will be competitively bid, and Tenant will have reasonable review and approval of the bidding list and of the bids to be accepted. Tenant will respond within five (5) business days after delivery to Tenant of any bidding list and/or bids. Tenant may specify the inclusion of specific subcontractors.

(d) The Additional Tenant Improvements will be designed and completed pursuant to the following process:

(1) Landlord and Tenant shall work in a cooperative, “teamwork” approach to prepare mutually acceptable plans, specifications and working drawings for the Additional Tenant Improvements. Each party shall review and approve, or request modifications to, any plans, specifications and working drawings proposed by the other party for the Additional Tenant Improvements within five (5) business days after such party’s receipt thereof.

(2) Upon completion of plans, specifications and working drawings as required for construction of the Additional Tenant Improvements, Landlord will apply for permits and approvals as required for construction of the Additional Tenant Improvements.

(3) Upon receipt of required permits and approvals Landlord will promptly cause the Additional Tenant Improvements to be completed in accordance with item (b) above.

(4) Landlord shall diligently proceed with the construction of the Additional Tenant Improvements as Tenant has elected to be constructed and shall complete the Additional Tenant Improvements within 60 days after receipt of the applicable construction permit, and with respect to work to be completed in the Expansion Premises, within 60 days after the later of a) receipt of the applicable construction permit; and b) permitted access to the Expansion Premises.

(5) Completion of the Additional Tenant Improvements shall mean and require that the Additional Tenant Improvements are complete in all material respects and Tenant is able to lawfully use the Building Premises in substantially the same manner

[Exhibit “B” to First Amendment to Lease]

Tenant generally used the original Building Premises prior to the construction of the Additional Tenant Improvements.

(6) If for any reason (but subject to the provisions below concerning Tenant Delay (as defined below)) Landlord is unable to complete the Additional Tenant Improvements within the period described is subclause (4) above, such failure shall not affect the validity of the Lease; provided, however, that under such circumstances, Tenant’s obligation to pay Rent with respect to the Expansion Premises (calculated on a square footage basis) shall be abated for a period equal to such delay, but only to the extent that lack of completion of the Additional Tenant Improvements prevents the occupancy and use of the Expansion Premises as described in subclause (5) above.

(e) Any delay in completion of the Additional Tenant Improvements caused by an act or neglect of Tenant, or those acting for or under Tenant, including, without limitation, delay caused in production of plans and specifications, or by changes in plans and specifications, by or on behalf of Tenant and/or approval of plans and specifications by or on behalf of Tenant (each. herein, a “Tenant Delay”), shall constitute a Tenant Delay. Any delay caused by a Tenant Delay shall not cause a deferral in or abatement of Tenant’s obligation to pay Rent in accordance with the Lease and obligation to commence payment of Rent shall occur, and the obligation to pay Rent shall continue, as if the delay caused by the Tenant Delay had not occurred, and, in addition thereto, Tenant shall pay to Landlord all reasonable increased costs or damages incurred by Landlord attributable to Tenant Delays.

(f) Each party shall appoint and maintain a designated individual as its primary contact “Representative” for the design and construction of the Additional Tenant Improvements. Any decision, approval or disapproval by a party’s Representative shall be deemed to be the decision, approval or disapproval of such party. A party may change its Representative, from time to time, by notice to the other party. The initial Representative for Landlord shall be Clark Neuhoff. The initial Representative for Tenant shall be                         .

(g) Tenant, Tenant’s architect, Tenant’s engineers, Tenant’s contractors, Tenant’s representatives, and any agents of Tenant shall have access to the Building at all times during Business Hours on Business Days, and at all other reasonable times upon reasonable prior written or oral notice if accompanied by a representative of Landlord, in order to inspect the Additional Tenant Improvements and monitor the progress thereof. Tenant may have a representative present at the Premises at all times during the performance of the Additional Tenant Improvements.

(h) Landlord shall not charge Tenant for any fee to supervise the construction of the Additional Tenant Improvements.

(i) The Additional Tenant Improvements shall be deemed Alterations under the Lease.

Landlord’s Initial Tenant’s Initial

[Exhibit “B” to First Amendment to Lease]

EXHIBIT F

Appraisal Procedures

This Lease provides that a Renewal Term Fair Market Base Rent shall be determined by appraisal, and said appraisal shall be conducted in accordance with the following procedures:

(1) Within ten (10) days after receipt of a notice to appraise given by either party, Landlord and Tenant shall each select a real estate broker (an “appraiser”) who (A) is licensed in the State of California, and has a SIOR or CCIM designation, (B) has been actively and continuously engaged in the leasing of industrial/office space in the San Bernardino County, California area during the preceding five-year period, (C) has been the primary broker representing either a landlord or a tenant to a lease covering at least 25,000 square feet of industrial/office space during the most recent three-year period, and (D) has not represented Landlord or Tenant during the preceding five-year period. If one of the parties hereto fails to appoint an appraiser within the time period prescribed, then the single appraiser appointed shall be the sole appraiser and shall determine the Renewal Term Fair Market Base Rent. If two appraisers are appointed, they shall have thirty (30) days from the date the second appraiser is appointed (the “30-Day Appraisal Period”) within which to agree upon the Renewal Term Fair Market Base Rent. The appraiser(s) shall be advised that the determination of the Renewal Term Fair Market Base Rent shall be governed by the definitions of same set forth in this Lease and the requirement that each appraiser select the Determination (as between Landlord’s Determination and Tenant’s Determination), which, in his/her opinion, more accurately reflects the Renewal Term Fair Market Base Rent. The Determination selected by the two appraisers as the Renewal Term Fair Market Base Rent shall be binding on Landlord and Tenant.

(2) If the two appraisers appointed by the parties hereto do not concur in such selection as aforesaid within the 30 day Appraisal Period, then said appraisers shall attempt, within ten (10) days after the expiration of the 30 day Appraisal Period, to select a third appraiser (the “Third Appraiser”). If the first two appraisers are unable to agree on the Third Appraiser within the ten (10) day period prescribed in the immediately preceding sentence, either Landlord or Tenant, by giving ten (10) days notice to the other party hereto, shall request that the presiding judge of the lowest level court of general jurisdiction for the district in which the Building is located select the Third Appraiser. The Third Appraiser, however selected, shall meet the qualifications set forth in subparagraph (1) above, and shall be a person who has not previously acted in any capacity for either Landlord or Tenant.

(3) The Third Appraiser shall subscribe and swear to an oath to fairly and impartially choose the Determination which more accurately reflects the Renewal Term Fair Market Base Rent, in accordance herewith. The Third Appraiser shall conduct such hearings as he deems appropriate (or such hearings as either Landlord or Tenant shall request). Within fifteen (15) days after the Third Appraiser has been appointed, the Third Appraiser shall select the Determination (as between Landlord’s Determination and Tenant’s Determination) which, in his/her opinion, more accurately reflects the Renewal Term Fair Market Base Rent, and shall notify Landlord, Tenant and each of the initial arbitrators of such selection in writing. With respect to Tenant’s Renewal Option, provided Tenant does not elect to rescind its Tenant’s Renewal Notice as provided in Article 27, the Renewal Term Fair Market Base Rent set forth in

the final Determination selected by the Third Appraiser shall be the final determination of such amounts, which determination shall be conclusive and binding upon both Landlord and Tenant.

(4) Except as otherwise provided in the Lease, each party hereto shall pay the fees and expenses of the appraiser selected by such party, and the fees and expenses of the Third Appraiser shall be borne equally by Landlord and Tenant.

EX-10.29

Exhibit 10.29

TRADUCCIÓN OFICIAL CERTIFICADA

LEASE CONTRACT EXECUTED BY, “INMOBILIARIA CALIBERT”, S.A. DE C.V., HEREINAFTER MENTIONED AS: “CALIBERT”, REPRESENTED HEREIN BY ITS LEGAL AGENT, ENGINEER JERONIMO BERTRAN PASSANI; AND “INSTRUMENTOS MUSICALES FENDER”, S.A. DE C.V., HEREINAFTER MENTIONED AS: “FENDER”, REPRESENTED HEREIN BY ITS LEGAL AGENT SERGIO ESTEBAN VILLANUEVA RODRIGUEZ; ACCORDING TO THE BACKGROUND, STATEMENTS AND CLAUSES STATED ON THIS DOCUMENT.

B A C K G R O U N D:

I. FENDER and CALIBERT (jointly mentioned herein as “THE PARTIES”), executed a lease agreement on September 4, 2002 with regard to the following warehouses:

For CALIBERT	For FENDER	Location	Monthly rental US Dollars*
1	1	132 Huerta Street, surface 2,000 m2	$6,410.00
2	2	138 Huerta Street, surface 2,000 m2	7,356.00
5	4	279 Huerta Street, surface 2,062 m2	9,306.00
6	5	279 Huerta Street, surface 2,062 m2	10.912.00
9	8	279 Huerta Street, surface 6,600 m2,	37,136.00

... this last location with a space of 880 sq. meters for the fire water tank, for dining room and for mechanic shop, all of them located at the Carlos A. Pacheco Area in Ensenada, Baja California. The expiration date of this contract has been agreed for December 31st, 2007.

II. THE PARTIES executed a lease contract on April 1st, 2003 on the following warehouse:

For CALIBERT	For FENDER	Location	Monthly rental US Dollars*
3	3	144 Huerta Street, surface 2,000 sq. mts.	7,356.00

... all of these warehouses located at Colonia Carlos A. Pacheco in Ensenada, Baja California; expiration date for this contract has been agreed for December 31^st, 2007.

III. THE PARTIES agreed on a lease agreement on January 2003 on the following warehouses:

For CALIBERT	For FENDER	Location	Monthly rental US Dollars$*
7	6	279 Huerta Street, surface not mentioned	7,777.00
8	7	279 Huerta Street, surface not mentioned	7,538.00

... All of these properties are located at “Colonia Carlos A. Pacheco” in Ensenada, Baja California; expiration date for this contract has been agreed for December 31st, 2007.

The warehouses described in this Background Section III (the “DW WAREHOUSES”) are now leased by Drum Work Shop, Inc. (or an affiliate of Drum Work Shop. Inc.) (“DW”) pursuant to a separate Lease Contract with CALIBERT. The DW WAREHOUSES are not leased to FENDER pursuant to this Lease Contract.

(* = US Dollars)

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TRADUCCIÓN OFICIAL CERTIFICADA

IV. For purposes of this Lease Contract, the warehouses to be leased by FENDER are identified as follows (the “WAREHOUSES”):

WAREHOUSE	Location
1	132 Huerta Street, surface 2,000 m2 (see attached sketch 1)
2	138 Huerta Street, surface 2,000 m2 (see attached sketch 2)
3	144 Huerta Street, surface 2,000 m2 (see attached sketch 3)
4	279 Huerta Street, surface 2,062 m2 (see attached sketch 4)
5	279 Huerta Street, surface 2,062 m2 (see attached sketch 5)
6	279 Huerta Street, surface 6,600 m2 (see attached sketch 6),

... this last location with a space of 880 sq. meters for the fire water tank, for dining room and for mechanic shop, all of them located at the Carlos A. Pacheco Area in Ensenada, Baja California.

For purposes of this Lease Contract, the DW WAREHOUSES are identified as follows:

DW WAREHOUSE	Location
7	279 Huerta Street, surface not mentioned (see attached sketch 7)
8	279 Huerta Street, surface not mentioned (see attached sketch 8)

S T A T E M E N T S:

A. FENDER hereby declares:

To have been established as a corporation according to the Mexican Laws on May 6, 1987, pursuant to Deed N° 47,733, Book 533 recorded at the Notary Public Number 3, in Ensenada, Baja California, by Attorney Carlos Mendoza Dominguez, Adjoin Notary to Notary Public Number 3, of which Attorney Alfredo Gonzalez is the Holder, duly recorded at the Department of Public Records in Ensenada, under File No. 3,128, Sheets 282-283, Volume XV, Commerce Section, on June 19, 1987; and further declares that its legal representative has the legal capacity for such execution.

A.2. FENDER further declares that its representative has the legal capacity to execute this contract according to Deed N° 63,080, Volume 2496, dated September 15, 2006, recorded before Notary Public No. 8 in Tijuana, Baja California, Attorney Ricardo del Monte Nunez.

A.3. FENDER further declares to continue leasing all the WAREHOUSES mentioned above in Background Section IV.

B. CALIBERT hereby declares:

B.1. To have been established according to the Mexican Laws on May 6^th, 1987, according to Legal Deed No. 47,733, Book 533, recorded at Notary Public No. 3 in Ensenada, Baja California, with Attorney Alfredo Gonzalez Corral, registered at the Department of Public Records under entry number 3,128, pages 282/283, Book 15 at Business Section.

B2. CALIBERT further declares that CALIBERT has legal capacity to execute this contract according to Deed No. 47,733 dated September 15,2006, recorded at Notary Public No. 3 in Ensenada, Baja California, with Attorney Alfredo Gonzalez Corral.

B.3. CALIBERT further agrees to continue leasing THE WAREHOUSES to FENDER.

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TRADUCCIÓN OFICIAL CERTIFICADA

C. The PARTIES hereby declare that with the purpose to facilitate the administration of the lease contracts mentioned above, they want to completely substitute said lease contracts for this contract according to the following:

C L A U S E S:

FIRST. Completion of the lease contracts:

FENDER and CALIBERT hereby agree that according to the agreements of the above mentioned leased contracts, said contracts will be terminated as of December 31st, 2007; having agreed that FENDER will continue leasing THE WAREHOUSES starting January 1st, 2008, according to the terms and conditions agreed on the following clauses of this agreement.

SECOND. Assets matter to this lease contract:

THE WAREHOUSES mentioned above are buildings and property owned by CALIBERT, detailed on the sketch attached to this contract duly signed. Both PARTIES will identify said WAREHOUSES as follows:

WAREHOUSE N° 1:	Located on 132 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 2,500 sq.2 , (attached 1).
WAREHOUSE N° 2:	Located on 138 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 2,500 sq2, (attached 2).
WAREHOUSE N° 3:	Located on 144 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 2.500 sq2, (attached 3).
WAREHOUSE N° 4:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 2,887.5 sq2, (attached 4).
WAREHOUSE N° 5:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 2,750 sq2, (attached 5).
WAREHOUSE N° 6:	Located on 279 Huerta Street , Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 8,112.5 sq2, (attached 6).

THE DW WAREHOUSES mentioned above are buildings and property owned by CALIBERT, detailed on the sketch attached to this contract duly signed. Both PARTIES will identify said DW WAREHOUSES as follows:

WAREHOUSE N° 7:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total roof surface 2,580 sq2, (attached 7).
WAREHOUSE N° 8:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total roof surface 1,960 sq2, (attached 8).

Both PARTIES agree that the following three areas are additionally described on the above mentioned sketch:

RECREATIONAL AREA:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 840 sq2, identified as letter “H”
PARKING:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 1,624 sq2, identified as letter “I”
ROAD:	Located on 279 Huerta Street, Colonia Carlos A. Pacheco in Ensenada, Baja California, total surface 4,250 sq2, identified as letter “J”

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TRADUCCIÓN OFICIAL CERTIFICADA

THIRD: Rental amount:

Both PARTIES agree to set the rental price according to square meters of each WAREHOUSE pursuant to the provisions of Clause Second. FENDER agrees to pay the monthly rental in US Dollars, plus the value added tax according to the following monthly amounts:

I) WAREHOUSE N° 1 the amount of US$ 6,602.00

II) WAREHOUSE N° 2 the amount of US$ 7,577.00

III) WAREHOUSE N° 3 the amount of US$ 7,577.00

IV) WAREHOUSE N° 4 the amount of US$ 9,585,00

V) WAREHOUSE N° 5 the amount of US$ 11,239.00

VI) WAREHOUSE N° 6 the amount of US$ 38,250.00

Consequently with the above stated, FENDER should pay CALIBERT a total monthly rental of US$ 80,830.00 plus the Value Added Tax (IVA).

FOURTH: Assets and property under lease should be used as follows:

The PARTIES hereby agree that FENDER may use THE WAREHOUSES for industrial facilities, for storage, manufacturing, and assembling of all FENDER products, as well as for its offices. CALIBERT may cancel this Lease Contract if FENDER fails to comply with the agreement and uses the WAREHOUSES for any other purpose without prior consent from CALIBERT.

For the effects of the stated on the foregoing paragraph, CALIBERT, prior to this contract, provided FENDER with the following documents:

A. Attached (1) to (8), indicating dimensions of each leased area

B. Attached (9) specifying dimensions on areas subject to commodatum

C . Attached (10) stating the general lines for water and drainage.

D. Attached (11) stating fire system.

FENDER hereby declares that being advised by an expert on this matter, it has reviewed the documents listed above, as well as the current condition of each WAREHOUSE, accepting them as they are, declaring being aware of the scope and risk; therefore keeping CALIBERT free from any liability derived from the condition of said WAREHOUSES.

FIFTH: Increase on rental price:

Both PARTIES agree that the monthly rental payments will increase annually by 3% beginning on January 1, 2009, and on each January 1 thereafter during the Term of this Lease Contract.

Lease payments should be paid in monthly advanced payments to CALIBERT or whoever represents its rights, at the offices located on Ave. Pedro Loyola #             , Colonia              , in Ensenada, Baja California, the first day of each month. FENDER should refrain from retaining any monthly rental neither should request for any reduction, except in case pursuant to the provisions of article 2294 of the Civil Code, therefore FENDER renounces to the rights granted by articles 2295, 2319, and 2364 of the Civil Code.

Should FENDER fail to pay three consecutive monthly rental payments, then CALIBERT may rescind this Lease Contract upon 30 days prior written notice to FENDER with the conventional penalty agreed on clause eighth, without any judicial proceedings, requesting FENDER to vacate the property, and FENDER paying all reasonable legal expenses, if any. As noted above, prior to

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TRADUCCIÓN OFICIAL CERTIFICADA

lease rescission, and at any point prior to the rescission of this Lease Contract, Fender may cure the breach of this Lease Contract with no additional penalties or consequences by paying all of the late monies due CALIBERT at that time plus 15% interest. Upon the payment of such late monies plus interest, the Lease Contract may not be rescinded.

If FENDER remains in possession of the WAREHOUSES after the expiration or other termination of the Term, then, at CALIBERT’s option, FENDER shall be deemed to be occupying the WAREHOUSES as a non-fixed term (“tacita reconduccion”) tenant pursuant to Laws, at a monthly rental equal to 115% (1.15) times the monthly rent payable hereunder during the last month of the Term, along with Value Added Tax.

SIXTH. Current conditions of THE WAREHOUSES:

It is hereby stated that all THE WAREHOUSES mentioned above are in good conditions, therefore FENDER renounces to the rights granted by articles 2286, fraction V and 2295 of the Civil Code for the State of Baja California, accepting FENDER to return said WAREHOUSES on the same condition except for the deterioration caused for its good natural use. Otherwise FENDER will pay for the necessary repairs. It is clearly understood that CALIBERT will not pay for any minor repairs.

All of the WAREHOUSES meet the hygiene conditions foreseen by the lay and FENDER agrees to keep such conditions. Any problems with the drainage or anything related to the property will be paid by FENDER.

FENDER will be liable for any damage to the WAREHOUSES, whatever the cause is, either caused by their family, workers, visitors, with exception of natural phenomena (earthquakes, hurricanes, floods, etc.) or damages caused by CALIBERT. Any problems with the drainage system or any other problem related to the property itself, will be solved and paid by FENDER, even though such damages be caused by their use.

SEVENTH. Modifications to THE WAREHOUSES:

FENDER requires written authorization from CALIBERT for any necessary changes or improvements to the WAREHOUSES or to the property under lease. In the event CALIBERT gives authorization to FENDER for any changes or improvements to the WAREHOUSES, such authorization or permit should include the conditions for such changes or improvements; on the understanding that any improvements or construction, if not movable, will remain on the property in favor of CALIBERT, if so decided by CALIBERT, without any compensation for FENDER.

In the event FENDER makes any changes on THE WAREHOUSES or makes any improvements without written permit from CALIBERT, it will be liable pursuant to the provisions of article 2315 of the Civil Code, and CALIBERT will not pay for any improvements, FENDER should remove such improvements if so required by CALIBERT, repairing and paying for any damages, therefore it renounces to the benefits of articles 2297, 2298 and 2321 of the Civil Code.

It is clearly understood by the parties that in the event any or all the WAREHOUSES and their contents suffer any damage caused by deterioration or by any “Acts of God”, and/or destruction of the property caused by natural disasters, such as hurricanes, floods, earthquakes, etc., becoming out of control from any of the contracting parties, each of them should accept any damages to their own property.

EIGHTH. Term of Lease:

Except as provided below, the duration of this Lease Contract is for three years for both PARTIES, starting on January 1st, 2008 and ending on December 31st, 2010 (the “Term”). Notwithstanding the foregoing, FENDER shall have the right to terminate this Lease Contract on and after the end of 24^th month of the lease Term with no penalty by providing CALIBERT with at least six (6) months prior written notice. In order to be clear, in order for FENDER to terminate this Lease Contract effective January 1, 2010, it must deliver written notice to CALIBERT no later than July 1, 2009.

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TRADUCCIÓN OFICIAL CERTIFICADA

FENDER may request two (2), one (1) year extension terms if both PARTIES agree on the rental value for such renewal term.

In addition:

1. In the event FENDER decides to extend the Term of this Lease Contract, FENDER is required to notify CALIBERT three months in advance before expiration date, in order to enter into an agreement with regard to terms and conditions for the new contract, rental payments will remain in force as it has been stipulated.

2. FENDER should meet all the obligations contained in this document until THE WAREHOUSES are returned to CALIBERT according to the law and the stipulations of this instrument.

3. In the event FENDER decides to vacate some of the WAREHOUSES or all of them before the binding Term agreed by both PARTIES, FENDER should notify CALIBERT in writing at least three months before and have all rental payments current, FENDER will pay CALIBERT, as compensation, the equivalent to 3 months of rental payment.

4. Notwithstanding any provision of this Lease Contract to the contrary, in the event CALIBERT decides to sell any or all THE WAREHOUSES, FENDER will have first purchase option. Should FENDER not be interested in buying THE WAREHOUSES, then CALIBERT will honor the compliance of the binding lease Term for both PARTIES.

CALIBERT covenants and agrees that, upon FENDER’s performance of all the terms, covenants and conditions hereof on FENDER’s part to be performed, FENDER shall have, hold and enjoy the WAREHOUSES, subject to the terms, covenants and conditions of this Lease Contract.

This Lease Contract shall remain valid and binding and in full effect should there be any type of ownership change with the property. Additionally, in the event and to the extent that foreclosure of same could lead to termination of this Lease Contract, CALIBERT shall cause the holder of any such superior mortgage or superior lease to enter into a non-disturbance agreement with FENDER, in such form as the parties mutually agree upon, generally providing that FENDER’s use and possession of the WAREHOUSES will not be disturbed by such party upon a foreclosure or other exercise of a remedy thereunder. CALIBERT may assign the rents and its interest in this Lease Contract to the holder of any mortgage or other loan provider; provided that, FENDER shall have been provided prior written notice of the name and address of any lender or of a lessor under a superior lease. Upon request, FENDER shall give such party notice of any default or breach hereunder by CALIBERT. FENDER agrees to enter into one or more amendment(s) to this Lease Contract required by the holder of any mortgage and provided such amendment(s) neither expands any obligations or liabilities nor contracts any material rights of FENDER hereunder.

5. In the event that the lease for the DW WAREHOUSES is terminated for any reason during the Term of this Lease Contract, then FENDER shall have the option to lease the DW WAREHOUSES from CALIBERT on the same terms and conditions as FENDER leases the WAREHOUSES pursuant to this Lease Contract. Upon the termination of the lease for the DW WAREHOUSES, CALIBERT shall provide written notice to FENDER of such termination. FENDER shall have thirty (30) days from receipt of notice from CALIBERT to exercise its option to lease the DW WAREHOUSES (the “Option Period”). FENDER shall exercise this option by delivering written notice to CALIBERT prior to the expiration of the Option Period. Upon receipt of FENDER’s notice, CALIBERT and FENDER will amend this Lease Contract to reflect the addition of the DW WAREHOUSES. If FENDER does not exercise its option during the Option Period, then FENDER’s option will terminate.

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TRADUCCIÓN OFICIAL CERTIFICADA

NINTH. “Commodatum” (loan action) for the RECREATIONAL OR RECESS AREA, PARKING AREA AND ROADS:

Both PARTIES hereby agree that as long as FENDER is leasing the totality of WAREHOUSES N° 4, 5, 6, CALIBERT WILL allow FENDER to use in “commodatum” (loan), the RECREATIONAL AREA, THE PARKING AREA AND THE ROADS mentioned on Clause Second of this Lease contract. In the event FENDER fails to meet this requirement, CALIBERT may dispose of the Recreational Area and the Parking Area, therefore, FENDER will only have access to the roads to the leased WAREHOUSES and to the parking area of such WAREHOUSES.

TENTH. Licences and permits:

It is hereby agreed that FENDER has the obligation to obtain and keep effective all licenses, permits, authorizations, etc., from any authority for the legal operation of the business, especially for the “Use of Land” and “Functioning”; on the understanding that FENDER should obtain such permits.

Should any of THE WAREHOUSES is legally intervened, closed or foreclosed by any authority for any cause imputable to FENDER either for violation of the Law, nonpayment of taxes or by any other reason, FENDER will continue making monthly rental payments. In the event FENDER has to vacate the WAREHOUSE or WAREHOUSES due to foreclosure or legal closing for any cause imputable to FENDER, it is clearly understood that this Lease Contract will become null and void even without a judicial order, besides, any payments paid by CALIBERT in the achievement to obtain THE WAREHOUSE, including reasonable attorney’s fees or payments to personnel in charge of the proceedings, will be reimbursed by FENDER, who will pay the rental payments during the time that the WAREHOUSE is not being used, paying the equivalent to three months of rental payment.

ELEVENTH. Any other payments:

Both PARTIES agree that CALIBERT will pay property taxes on THE WAREHOUSES and any other tax, contribution or cooperation of any kind on the WAREHOUSES will be paid by FENDER, especially payments for utilities bills, such as water and electricity.

TWELFTH. Address:

It is hereby agreed that for any legal effect, the parties declare to have their domiciles as follows: FENDER: Calle Huerta N° 132, Colonia Carlos A. Pacheco, Ensenada, Baja California, renouncing to any present or future jurisdiction, any notification will be served to this domicile.

THIRTEENTH. Courts:

For the legal interpretation of this contract, they agree to be submitted to the courts in Ensenada, Baja California renouncing to their jurisdiction.

Having read the content of this Lease Contract, the PARTIES ratify it and sign it in Ensenada, Baja California, this March 27, 2008.

/s/ Jeronimo Bartran Passani	/s/ Sergio Esteban Villanueva Rodriguez
JERONIMO BARTRAN PASSANI	SERGIO ESTEBAN VILLANUEVA RODRIGUEZ
INMOBILIARIA CALIBERT, S.A C.V.	INSTRUMENTOS MUSICALES FENDER, S.A.C.V.

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EX-10.30

Exhibit 10.30

LEASE AGREEMENT SIGNED BY, “INMOBILIARIA CALIBERT, SA DE CV, HEREINAFTER NAMED “ CALIBERT”, REPRESENTED BY HIS LEGAL AGENT MR. JERONIMO BERTRAN PASSANI, AND , “INSTRUMENTOS MUSICALES FENDER , SA DE CV, HEREINAFTER NAMED:” FENDER”, REPRESENTED BY HIS LEGAL AGENT MR. SERGIO ESTEBAN VILLANUEVA RODRIGUEZ IN ACCORDANCE WITH THE BACKGROUND, THE STATEMENTS AND CLAUSES HEREIN STATED}

BACKGROUND:

I. No other modifications, except as otherwise provided herein all other terms and provisions of the original Lease shall remain in full force and effect. FENDER and CALIBERT (hereinafter and collectively named “PARTIES”) signed on January 1, 2008 lease on the property (hereinafter and collectively named “WAREHOUSES” and individually, “THE WAREHOUSE”) identified by each of THE PARTIES as follows:

For CALIBERT Warehouse #	For FENDER Warehouse	Location	Monthly current Rent
1	1	Calle Huerta # 132 Surface 2,500.0 m2	7,004.00
2	2	Calle Huerta # 138 Surface 2,500.0 m2	8,038.00
3	3	Calle Huerta # 144 Surface 2,500.0 m2	8,038.00
5	4	Calle Huerta # 279 Surface 2,887.5 m2	10,169.00
6	5	Calle Huerta # 279 Surface 2,750.0 m2	11,923.00
9	8	Calle Huerta # 279 Surface 8,112.5m2,	40,580.00

... The latter with an area of 880 m² where the water tank for fire protection system is located, a dining room and a mechanic shop, all in the Colonia Carlos A. Pacheco Ensenada, Baja California, having agreed that the expiration of that contract would be on December 31, 2010.

(* = Dollars of the United States of America)

II. CALIBERT owns the property that immediately follows, and that for the purposes of this contract is identified as Warehouses “6” and “7”, respectively:

6	Calle Huerta # 279 surface 2.580.0 m2
7	Calle Huerta # 279 surface 1,960.0 m2

STATEMENTS

A. FENDER states:

A.1. Been constituted under Mexican law on the 6^th. day of the month of May of 1987 -, as recorded in deed N ° 47,733, volume 533- granted before Mr. Carlos Mendoza Dominguez, Adjoined Notary Public to the Notary Public Number Three of the city of Ensenada, Baja California, of which title holder to said Notary is Mr. Alfredo Gonzalez Corral, which was duly entered in the Public.

Registry of Property and Commerce of the City of Ensenada, Baja California, under entry number 3,128, pages 282-283, Volume XV, Commerce Section, on June 19, 1987, and that its representative has sufficient powers to do so.

A.2 That its representative has sufficient authority to the signing of this contract, as stated in the Deed number 63,080, volume 2,496, dated September 15, 2006, granted before Ms. Elsa Maria Novoa Foglio, Adjoined Notary Public to the Notary Public Number Eight of the city of Tijuana, Baja California, of which title holder to said Notary is Mr. Ricardo del Monte Nuñez

A.3. Be his desire to continue leasing the warehouses that have been indicated in the Background section above noted, on the understanding that Warehouses 1 and 2 mentioned in the Background I of this document, wishes to leave them in a short time, but in turn wants to take on lease warehouses “6” and “7” mentioned in the Background II.

B.1 CALIBERT states: That is a company incorporated under Mexican law, as recorded in Deed No 21,007 Volume 257 dated August 14 1981 granted before Lic Alejandro Athie Carrasco, Notary Public No. 1 of Ensenada, Baja California which was duly recorded in the Public Registry of Property and Commerce of Ensenada, Baja California, under entry number 382 pages 282/283 Volume 8, Commerce Section, on March 7th, 1983 electronic file No 12666*3, dated March 7, 1983

B.2 That its representative has sufficient authority to the signing of this contract, as stated in the Deed No 69,972 Volume 1,152 dated December 28th, 2010 granted before the Notary Public N ° 4 Ensenada, Baja California, Mr. Angel Saad Said, which was duly recorded in the Public Registry of Property and Commerce of Ensenada, Baja California, under electronic file No 12666*3 dated January 3th 2011

B.3. Be his desire to continue to rent the Warehouses to FENDER, replacing sometime in the future Warehouses “1” and “2” mentioned in the Background I of this document, by the Warehouses “6” and “7” mentioned in the Background II.

B.4. That is carrying out a financial restructuring of the company, and is planning shortly to carry out the transfer of the usufruct of all or parts of buildings that make THE WAREHOUSES transmitting such rights to Grupo Inmobiliario Calibert S de R.L de CV; for the purposes of Article 2321 Civil Code of the State of Baja California, under the assumption that he could give FENDER right to be preferred in such disposition, this document contains a record of the notice of the respondent is to be done for legal purposes as appropriate.

CLAUSES

FIRST. Goods covered by this lease:

WAREHOUSES subject of the lease that the act is agreed, are identified in the sketch added to this document duly signed, and that for both PARTIES will be identified with the numbers given by Fender in the Background I like so:

RECREATION AREA: Located on Calle Huerta # 279 in Colonia Carlos A. Pacheco de la Ensenada, Baja California, with total area of 840 m², identified with the letter “H”.

PARKING: Located on Calle Huerta # 279 in Colonia Carlos A. Pacheco de la Ensenada, Baja California, with total area of 1.624 m², identified with the letter “I”

ROAD: Located on Calle Huerta # 279 in Colonia Carlos A. Pacheco de la Ensenada, Baja California, with total area of 4.250 m², identified with the letter “J”.

SECOND                         Lease Amount:

The parties agree to set the monthly rent amounts based only on the number of square meters in each one of the warehouses as it was specified in clause FIRST above, FENDER must pay CALIBERT in US Dollars , plus the corresponding Value Added Tax, as follows

A) WAREHOUSE N ° 1, the amount of $ 7.004.00

B) WAREHOUSE N ° 2, the amount of $ 8,038.00

C) WAREHOUSE N ° 3 the amount of $ 8,038.00

D) WAREHOUSE # 4 the amount of $ 10,169.00

E) WAREHOUSE N ° 5 the amount of $ 11,923.00

F) WAREHOUSE # 6 the amount of $ 8,497.50

G) WAREHOUSE No. 7 the amount of $ 8,237.00

H) WAREHOUSE No. 8 the amount of $ 40,580.00

THIRD.                         Replacement Warehouses:

PARTIES agree that WAREHOUSES 1 and 2 mentioned in the Background I of this document, shall be replaced in this lease by WAREHOUSES “6” and “7” mentioned in the Background II to which they agree on:

1 FENDER will return WAREHOUSE “I” to CALIBERT in a short time partially terminating this contract solely on what refers to WAREHOUSE “1” as FENDER renders to CALIBERT that warehouse.

2 On April 1^st, 2011 CALIBERT will give possession to FENDER of WAREHOUSE “6 “, incorporating such WAREHOUSE to all the provisions of this contract, agreeing that the amount of monthly rent FENDER will cover to CALIBERT for that property shall be the amount of $ 8,497.50 (Eight thousand four hundred ninety seven Dollars 50/100 ).

3 FENDER will return WAREHOUSE “2” to CALIBERT in a short time partially terminating this contract solely on what refers to WAREHOUSE “2” as FENDER renders to CALIBERT that warehouse

4 On May 1st, 2011 CALIBERT will give possession to FENDER of WAREHOUSE “7”, incorporating such WAREHOUSE to all the provisions of this contract, agreeing that the amount of monthly rent FENDER will cover to CALIBERT for that property shall be the amount $ 8,237.00 (Eight Thousand two hundred thirty seven Dollars 00/100 ).

5 The incorporation of BODEAS “ 6 ” and “ 7 ” to this contract shall be subject in everything that is in effect, its terms and conditions, ending the leasing of them on the date specified in clause Eight of this document.

FOURTH:                         Assets and property under lease should be used as follows:

The PARTIES hereby agree that FENDER may use THE WAREHOUSES for industrial facilities, for storage, manufacturing, and assembling of all FENDER products, as well as for its offices. CALIBERT may cancel this Lease Contract if FENDER fails to comply with the agreement and uses the WAREHOUSES for any other purpose without prior consent from CALIBERT

FIFTH:                         Increase on rental price:

Both PARTIES agree that the monthly rental payments will increase annually according to the US inflation “CPI” and wiil not exceed five (5) percent.

Lease payments should be paid in monthly advanced payments to CALIBERT or whoever represents its rights, at the offices located on Ave. Pedro Loyola # 400 , Colonia Carlos A Pacheco, in Ensenada, Baja California, the first day of each month. FENDER should refrain from retaining any monthly rental neither should request for any reduction, except in case pursuant to the provisions of article 2294 of the Civil Code, therefore FENDER renounces to the rights granted by articles 2295, 2319, and 2364 of the Civil Code.

Should FENDER fail to pay three monthly rental payments, then CALIBERT may rescind this Lease Contract upon 30 days prior written notice to FENDER with the conventional penalty agreed on clause eighth, without any judicial proceedings, requesting FENDER to vacate the property, and FENDER paying all reasonable legal expenses, if any

SIXTH.                         Current conditions of THE WAREHOUSES:

It is hereby stated that all THE WAREHOUSES mentioned above are in good conditions, therefore FENDER renounces to the rights granted by articles 2286, fraction V and 2295 of the Civil Code for the State of Baja California, accepting FENDER to return said WAREHOUSES on the same condition except for the deterioration caused for its good natural use. Otherwise FENDER will pay for the necessary repairs. It is clearly understood that CALIBERT will not pay for any minor repairs.

All of the WAREHOUSES meet the hygiene conditions foreseen by the lay and FENDER agrees to keep such conditions. Any problems with the drainage or anything related to the property will be paid by FENDER.

FENDER will be liable for any damage to the WAREHOUSES, whatever the cause is, either caused by their family, workers, visitors, with exception of natural phenomena (earthquakes, hurricanes, floods, etc.) or damages caused by CALIBERT. Any problems with the drainage system or any other problem related to the property itself, will be solved and paid by FENDER, even though such damages be caused by their use.

SEVENTH.                         Modifications to THE WAREHOUSES:

FENDER requires written authorization from CALIBERT for any necessary changes or improvements to the WAREHOUSES or to the property under lease. In the event CALIBERT gives authorization to FENDER for any changes or improvements to the WAREHOUSES, such authorization or permit should include the conditions for such changes or improvements; on the understanding that any improvements or construction, if not movable, will remain on the property in favor of CALIBERT, if so decided by CALIBERT, without any compensation for FENDER.

In the event FENDER makes any changes on THE WAREHOUSES or makes any improvements without written permit from CALIBERT, it will be liable pursuant to the provisions of article 2315 of the Civil Code, and CALIBERT will not pay for any improvements, FENDER should remove such improvements if so required by CALIBERT, repairing and paying for any damages, therefore it renounces to the benefits of articles 2297, 2298 and 2321 of the Civil Code.

It is clearly understood by the parties that in the event any or all the WAREHOUSES and their contents suffer any damage caused by deterioration or by any “Acts of God”, and/or destruction of the property caused by natural disasters, such as hurricanes, floods, earthquakes, etc., becoming out of control from any of the contracting parties, each of them should accept any damages to their own property.

EIGHT.                         Lease Term:

The lease term is for three years and will start from the 1st January 2011.

PARTIES agree that at all times FENDER may request termination of the contract, in whole or in part, provided it has notified the other party by written notice to that effect, at least one year in advance. If the termination is partial, is subject to the following:

A. Termination shall only be the full area of any of the warehouses mentioned in the FIRST and SECOND clause above.

B. In the case of termination of lease of any of the warehouses 3, 4, 5, 6, 7 and 8 in the first clause mentioned above, when it comes to recreational and parking areas will also cause the cancellation of the use of them in the same proportion of the meters of the warehouse cancelled

C. Regarding the ROAD AREA, it will remain in possession of FENDER only for time that the warehouses 4, 5, 6, 7 and 8 set out in clause first above are rented, as soon as this is not so, FENDER must open the access to this area to allow it to be freely used by the occupants of those warehouses that have not rented.

After the year of the notification referred above, in the case that Fender did not make delivery of corresponding areas in the agreed form, the parties agree that:

1 .FENDER paid as a penalty clause for the sole reason for the delay an equivalent to one month of the rent of the cancelled warehouses,

2. Regardless of the specified penalty, FENDER will pay CALIBERT as rent for each day they remain occupying the warehouse concerned, 7% (seven percent) of the monthly rent that were in effect at the time that the vacate must have occurred , and in addition will cover the damages caused to CAL1BERT for its breach.

3. If CALIBERT shall have to take legal action for the evacuation of the warehouses , shall be borne by FENDER all expenses, costs or expenses that are generated with the procedure, without conforming to the official tariffs, but the real value disbursed by CALIBERT.

4. In the case of playgrounds and parking are not delivered timely by FENDER, it is to pay as a penalty clause for the sole reason for the delay an equivalent to one month of the rent of the cancelled warehouses , and for each day of delay 3% (three percent) of the monthly rent that were in effect at the time that the vacate must have occurred

5. In the case of not allowing free access to AREA OF ROAD . the penalty is will be one month rent of the cancelled warehouses

6. In the case that FENDER has 2 or more months of delinquent rent payments, FENDER is not allowed to remove any equipment from the building until the debt has been paid as a form of guarantee for payment. If FENDER is current on its rental payments FENDER will be allowed to remove machinery and equipment from the facility.

PARTIES agree that in the event that CALIBERT decide to sell some or all of the warehouses, FENDER have the first option.

NINTH.                         Loan of the playground and the parking lot:

Both PARTIES agree that while FENDER continues leasing as a whole, all warehouses 3,4,5,6,7 and 8 under this contract, CALIBERT will allow FENDER use of the playground, parking and the adjacent road referred to in the first clause of this contract for use in a natural form and as its name indicates: if FENDER does not rent all of the warehouses 3, 4, 5, 6, 7, and 8, CALIBERT will retain rights of use to the playground, and FENDER will only be entitled to parking space according to law, and the use of the road solely and exclusively relevant to the warehouses that FENDER continues to lease, granting free access to any third party.

TENTH.                     Licences and permits:

It is hereby agreed that FENDER has the obligation to obtain and keep effective all licenses, permits, authorizations, etc., from any authority for the legal operation of the business, especially for the “Use of Land” and “Functioning”; on the understanding that FENDER should obtain such permits.

Should any of THE WAREHOUSES is legally intervened, closed or foreclosed by any authority for any cause imputable to FENDER either for violation of the Law, nonpayment of taxes or by any other reason, FENDER will continue making monthly rental payments. In the event FENDER has to vacate the

WAREHOUSE or WAREHOUSES due to foreclosure or legal closing for any cause imputable to FENDER, it is clearly understood that this Lease Contract will become null and void even without a judicial order, besides, any payments paid by CALIBERT in the achievement to obtain THE WAREHOUSE, including reasonable attorney’s fees or payments to personnel in charge of the proceedings, will be reimbursed by FENDER, who will pay the rental payments during the time that the WAREHOUSE is not being used, paying the equivalent to three months of rental payment.

ELEVENTH.                         Any other payments:

Both PARTIES agree that CALIBERT will pay property taxes on THE WAREHOUSES and any other tax, contribution or cooperation of any kind on the WAREHOUSES will be paid by FENDER, especially payments for utilities bills, such as water and electricity.

TWELFTH.                         Waiver of preference:

Attentive to what was stated in paragraph B.4 of the Declaration B of this contract, to the transmission of usufruct CALIBERT intends to carry to Grupo Inmobiliaria Calibert S. de R.L. de C.V, FENDER in this act, for the purposes of Article 2321 Civil Code of the State of Baja California, under the assumption that it could assist the right to be preferred in such alienation, expresses and records for legal purposes Where appropriate, that it is not its will to exercised that right, leaving CALIBERT in absolute freedom to carry out the transfer of usufruct rights given either in one or more mutually independent events, during the term of this contract and its extensions.

THIRTEENTH.                         Address:

It is hereby agreed that for any legal effect, the parties declare to have their domiciles as follows: FENDER: Calle Huerta N° 138, Colonia Carlos A. Pacheco, Ensenada, Baja California, CALIBERT: Ave. Pedro Loyola # 400 Colonia Carlos A. Pacheco, Ensenada, Baja California, renouncing to any present or future jurisdiction, any notification will be served to this domicile.

FOURTEENTH.                         Courts:

For the legal interpretation of this contract, they agree to be submitted to the courts in Ensenada, Baja California renouncing to their jurisdiction.

Having read the content of this Lease Contract, the PARTIES ratify it and sign it in Ensenada, Baja California, this 3rd day of January 2011,

CALIBERT	FENDER
INMOBILIARIA CALIBERT, S.A. DE C.V.	INSTRUMENTOS MUSICALES FENDER, S.A. DE C.V.
JERONIMO BERTRAN PASSANI	SERGIO ESTEBAN VILLANUEVA RODRIGUEZ

EX-10.31

Exhibit 10.31

MARIA LUISA MORALES ANDRADE, CERTIFIED TRANSLATOR

INTERPRETER, LEGALLY CERTIFIED BY THE JUDICIARY BOARD OF

THE SUPREME COURT OF JUSTICE FOR THE STATE OF BAJA

CALIFORNIA, HEREBY CERTIFY ACCORDING TO THE BEST OF MY

KNOWLEDGE, THAT THIS IS A TRUE TRANSLATION FROM SPANISH

INTO ENGLISH OF THE ANNEXED DOCUMENT.

LEASE CONTRACT EXECUTED BETWEEN BERCALI, S.A. DE

C.V. BY ITS PROXY ING. JOAQUIN ALVES IGLESIAS AND

INSTRUMENTOS MUSICALES FENDER, S.A. DE C.V. BY ITS

SOLE ADMINISTRATOR OMAR BASHAR DARCAZALLIE.

ENSENADA BAJA CALIFORNIA, FEBRUARY 15, 2010.

Profa. MARIA LUISA MORALES ANDRADE

PERITO TRADUCTOR

Autorizada por el Tribunal Superior de Justicia

de Baja California

Tel. 646-175-70-23         Cel. 179-40-16

Ensenada, B.C.

e-mail: marialuisamorales@hotmail.com

/S/ MARIA LUISA MORALES ANDRADE         

MARIA LUISA MORALES ANDRADE

LICENSE 300

Blvd. Zertuche # 347, esq. Lirio, Fracc. Valle Dorado, Ensenada, B. C.

(+52 (646) 175 7023            (-Tel-Fax (646) 176 6123

Mobile: +52 (646) 179 4016

Nextel: 152*141989*1 Tel 112 1944

Email: marialuisamorales@hotmail.com

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23 Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

LEASE CONTRACT EXECUTED BY AND BETWEEN, “BERCALI, S.A. DE C.V.”, (HEREINAFTER REFERRED TO AS: LESSOR), REPRESENTED HEREIN BY ITS LEGAL AGENTS, MR. JOAQUIN ALVES IGLESIAS AND JERONIMO BERTRAN PASSANI; AND “INSTRUMENTOS MUSICALES FENDER, S. A. DE C. V.” (HEREINAFTER REFERRED TO AS LESSEE), REPRESENTED HEREIN BY ITS SOLE ADMINISTRATOR, MR. OMAR BASHAR DARCAZALLIE; IN ACCORDANCE TO THE STATEMENTS AND CLAUSES CONTAINED INTO THIS DOCUMENT.

S T A T E M E N T S:

THE PARTIES HEREBY STATE as follows:

A.- LESSOR is a corporation constituted in accordance to the Mexican laws pursuant to Deed Number 27,461, Book 581 dated July 11, 2000, notarized before Attorney Angel Saad Said, Notary Public No. 4, in and for Ensenada, Baja California, same which was recorded at the Department of Public Records in Ensenada, Baja California, under entry number 5077420, control number 226593, on September 18, 2000, and its legal agent is legally empowered to the execution of this contract.

B.- LESSOR is the owner of the property located at 455 Calle Huerta, Colonia Carlos A. Pacheco, Ensenada, Baja California; verifying the ownership of said property according to Deed No. 34, 293, notarized at Notary Public No. 4 in Ensenada, Baja California with the Notary Public, Attorney Angel Saad Said, and legally recorded at the Department of Public Records in Ensenada, Baja California, under entry number 5101758, control number 529630, on November 12, 2002.

C.- LESSEE is a corporation constituted in accordance to the Mexican Laws on May 6, 1987, pursuant to Deed No. 47,733, book 533, notarized before the faith of Attorney Alfredo Gonzalez Corral, Notary Public No. 3 in Ensenada, Baja California, same which was legally recorded at the Department of Public Records in Ensenada, Baja California under entry number 3,128, pages 282/283, Book 15; and its legal agent is legally capable for the execution of this contract.

D.- In preparing the Lease Contract for THE WAREHOUSE, THE PARTIES have agreed to the following:

C L A U S E S:

FIRST.- LESSOR hereby agrees to lease to LESSEE, and LESSEE hereby accepts in lease THE WAREHOUSE in perfect conditions of use, evidence that has been recorded upon the signing of this contract, as well as the inventory of goods and installations mentioned into the annexed document, LESSEE hereby agrees to leave the WAREHOUSE in the same conditions as received, except for the normal use.

Once the MUTUAL CONTRACT has been paid in full by LESSOR to LESSEE, LESSEE should show a deposit in the amount equivalent to a monthly rental, as

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23 Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

a security, to cover the obligations contracted with LESSOR, and if such money does not cover the required amount, he will make sure to meet said requirement, the once LESSOR receives the WAREHOUSE at his full satisfaction, LESSEE should receive a final receipt of the contractual relations.

SECOND.- The term of this lease contract is for seven binding years, starting from the day on which the WAREHOUSE is under the disposition of LESSEE. Since this contract is under an enforced due date, this contract is due on the date stated, without a dispossession or termination of lease as provided by the Civil Code for the State of Baja California, (hereinafter referred to as the Civil Code), if LESSEE fails to vacant the WAREHOUSE, on the agreed date, it will not be prorogated, rental payment should be paid according to this contract. However, if LESSEE decides to continue using the WAREHOUSE, he should request it, 180 days before the due date, being LESSOR free to decide whether he wants to renew the contract.

THIRD.- Taking into consideration the foregoing clause, THE PARTIES hereby agree that in order to pursue with the lease, it is required a written agreement between the parties to this contract, which will include the agreement on the terms of the new contracting term; however, if no agreement is reached, as long as LESSEE is still using the WAREHOUSE, the monthly rental will be a result of multiplying one point five (1.5) times the amount of the rental payment in force from the due date, and LESSOR has not received at his full satisfaction the WAREHOUSE.

FOURTH.- In the event LESSEE fails to vacate the WAREHOUSE on time, THE PARTIES hereby agree:

1.- The rental payments will be enforced according to the stipulations.

2.- All the obligations contained into this document will be enforced until the WAREHOUSE has been returned to LESSOR.

FIFTH.- The parties to this contract hereby agree that it is their intention to update the initial rental price agreed in this contract; and for such effect, they agree that the updating should be made every year during the term of this contract according to the terms herein mentioned:

1.- The Initial Monthly rental agreement for the first year is in the amount of US Cy $ 12,739.00 (Twelve thousand seven hundred thirty nine U.S. Dollars), or its equivalent in Mexican Currency, at the official exchange rate determined by the Mexican Authorities, plus the added value tax. LESSOR is hereby committed not to disclose without previous consent from LESSEE, LESSEE’S accounting and financing information to any individuals, creditors, accountants, lawyers, legal agents, agents, officers, employees, advisors, consultants, and successors, or assignees.

2.- From the effective date of this contract, the monthly rental will increase every 12 months, at the same increase percentage than the Consumer Price Index in San Diego, California, U.S.A., determined by the Bureau of Labor Statistics, for the previous twelve months.

3.- The agreed rental payment, the value added tax, and any other tax derived from this contract, will be paid by LESSEE within the first five days of each month at the domicile of LESSOR.

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23      Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

4.- It is hereby agreed that in the event LESSOR fails to pay on time the monthly payments agreed on the MUTUAL CONTRACT, the rental payments herein agreed, will be credited to the loan. In the event LESSEE fails to pay the

rental payments stipulated in the within contract, these will be compensated against the unpaid amount of the loan agreed in the MUTUAL CONTRACT.

SIXTH.- Default in payment, on any of the obligations mentioned herein, will cause LESSEE to pay LESSOR monthly interest of one (1) per cent per month on any unpaid balance, in dollars, money from the United States of America.

SEVENTH.- During the lease term, every month will be binding on LESSEE, who will have to pay the rental payment even if THE WAREHOUSE is occupied for a shorter term, even though if rental payments are received on different dates that the agreed dates, or partial payments on account of the rent, therefore this contract is not affected at all.

EIGHTH.- LESSEE should not retain the rental payment under any circumstance, he should pay the rental payment entirely on the date stipulated on this contract, renouncing to the benefits of the provisions of the Articles          of the Civil Code in force.

NINTH.- LESSEE is not allowed to:

1.- Use the WAREHOUSE for any purpose other than for the corporation, it is forbidden to use the WAREHOUSE for religious, political or union practices or for any other purpose violating the Nationalization Law of Properties.

2.- Assign, transfer, sublease, or compromise the rights acquired by this contract, with regards to the WAREHOUSE without the written consent from LESSOR.

3.- To have pets or any devices that might damage the place.

4.- Make any changes to the WAREHOUSE without prior written consent from LESSOR, any work done in the WAREHOUSE will remain for the benefit of LESSOR, on the understanding that LESSOR shall not pay the expenses for such changes.

5.- To keep any inflammable substances within the WAREHOUSE, LESSEE will be responsible for any damages caused in violation of this regulation.

TENTH.- LESSEE is hereby committed to indemnify the LESSOR for any damage or loss to the WAREHOUSE, caused by negligence or fault of his family, staff, o anybody visiting the site, the LESSEE also agrees to have insurance on the WAREHOUSE throughout the period for which he remains in possession of the WAREHOUSE, and maintain it in force against any damage, having LESSOR as beneficiary in first place, in accordance to the following:

1.- LESSEE hereby agrees to have, during the term of this contract, full

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23 Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

insurance, with 100% coverage on the WAREHOUSE and its contents, coverage for rental payments when not using the Warehouse, and for acts of god; said insurance should not be cancelled, ended or reduced without previous written authorization from LESSOR. The amount of the insurance will be based on the annual appraisal performed by an appraiser selected by LESSOR AND LESEEE, expenses shall be paid by LESSEE, in the event of any controversy on the designation of the appraiser, it shall be the appraiser designated by the insurance company. The Insurance Policy will cover, but not limited to, any and all risks and the following additional coverage: earthquake, cyclones, storms, floods, and removal of rubbles (this last one with the insured amount).

2.- In the event THE WAREHOUSE is damaged or destroyed, at any moment during the term of this document, LESSOR with the assistance of LESSEE will request from the insurance company the payment for the repairing, and reconstruction of the warehouse and the furniture in case of damage.

3.- In the event the WAREHOUSE is damaged or destroyed in more than (20) twenty per cent during the last year of this contract, then, either LESSEE or LESSOR may cancel this lease contract on the date of said damage or destruction, notifying the other party in writing within (60) sixty days subsequent to the damage or destruction. If the lease is terminated as provided in this paragraph, then all prepaid rent and other charges paid in advance for the lease will be reimbursed to LESSEE by LESSOR, computed from the date of notification of the option that provides for this clause, provided that no charges be made against such items.

4.- The compensation paid by the insurance will be used for repairing, restoring and reconstructing the WAREHOUSE in accordance to this contract.

5.- LESSEE should obtain title Insurance for liability during the term of this lease, with full coverage for LESSEE AND LESSOR, for any claims against bodily injuries or death, or property liability that might arise from the lease, use, occupation or maintenance of the WAREHOUSE and all the adjacent areas thereof. Insurance should be in the amount of not less than USCy $ .                  :00 (— dollars 00/100) dollars from the United States of America, limited only and combined for injuries or death of one or more individuals per case, or property damages. The policy should cover risks on the WAREHOUSE and its operations, independent contractors, contractual liability and should (1) designate LESSOR as an additional insured, (2) include a provision of cross liability; (3) must contain a provision that provides for insurance to the LESSOR and will be principal, not contributing with any other insurance available to LESSOR, (4) it will provide that there will be no resource for LESSOR for any payment of premiums or deductibles; and (5) it will provide that there will be no rights of subrogation against LESSOR for any insurance or any other person.

6.- On the date of occupation of the WAREHOUSE, LESSEE will give LESSOR the original of the insurance policies mentioned in this clause and a certified copy of the receipt of full payment of the annual premium, and the renewal of the policies should be submitted within the (15) fifteen calendar days following the date when the WAREHOUSE was occupied, as well as copy of the receipt of full payment of the annual premium paid by LESSEE, otherwise LESSOR may carry out the insurance contracts on behalf of LESSEE charging him the amount of premiums paid, same which should be reimbursed immediately.

ELEVENTH.- LESSOR will carry out in the WAREHOUSE all the installations for

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23 Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

public services required for the appropriate operation, therefore, LESSEE will pay for the connection to such services during the term of this contract, and for any fuel, water, gas, electricity and telephone, as well as licenses and permits required for the opening and operation of the WAREHOUSE. Under request of LESSOR, LESSEE should prove that all payments for public facilities have been paid.

TWELFTH.- THE PARTIES to this contract, hereby agree that during the term of this Contract, LESSOR has no obligations to make any repairs other than any structural defects on the exterior walls, ceiling, floor, hidden interior plumbing, internal drainage, and foundations of the WAREHOUSE, in the event those problems were not caused by LESSEE, who agrees to make those repairs if necessary pursuant to the provisions of Article ............. of the Civil Code.

LESSOR will start the repair work within the (7) seven business days subsequent to the written notice from LESSEE, thus continuing until work is completed.

LESSEE will allow LESSOR and his authorized agents the access to the WAREHOUSE at any time during business hours for any inspection on the works, on the understanding that in case LESSEE fails to meet such requirements within the first (7) seven business days subsequent to the notification in writing from LESSOR, LESSOR may ask a third party to do such work on account of LESSEE.

THIRTEENTH.- It is hereby agreed that LESSEE is committed to get and keep in force all the licenses, permits, authorizations from any authority for the operation of the WAREHOUSE, specially those permits for “Use of Land”, on the understanding that LESSEE will be responsible to obtain such permits. In the event of negligence of LESSEE and said WAREHOUSE is closed down, either for any violation to the Laws, default on payment of taxes or any other reason, LESSOR will have the right to cancel this contract, and all payments to be made by LESSOR, including reasonable attorney fees, or expenses from the personnel will be reimbursed to LESSOR by LESSEE, who will also pay the rental payments not paid during the time the WAREHOUSE is not used for the reasons mentioned above.

FOURTEENTH.- LESSEE will have the right at all times during the term of this contract, at his expense, to install, give maintenance and operate the signs, neon signs, posters, logos and advertisement inside and outside the WAREHOUSE, which could be removed at the end of the contract. THE PARTIES to this contract hereby agree that in case of removal of any of such elements, Lessee will repair the damage, so that the WAREHOUSE may always look in excellent conditions. It is clearly understood that any brand name or trade mark used at any time or placed on the leased property by LESSEE, will be exclusively of his own property and LESSOR under no circumstance will ever have a right to use said brand name or trade mark, except prior written authorization from LESSEE.

The installation of said signs, neon signs, posters, logos or advertisement, should meet the legal regulations, LESSEE should obtain the necessary licenses, permits and authorizations.

THE PARTIES to this contract agree that nobody will use the exterior walls or the ceiling of the WAREHOUSE for any purpose whatsoever.

FIFTEENTH.- LESSOR will demand the cancellation of this contract for any of the following reasons:

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23     Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

1.- Default in rental payment, or payment of taxes on time.

2.- If LESSEE transfers, assigns or subleases part of the WAREHOUSE, or the rights he is hereby acquiring with regards to this contract, without a written consent from LESSOR. In case LESSOR authorizes a sublease, LESSEE will continue being responsible in compliance with this contract, as well as for any damage caused by the sub lessor.

3.- Failure to maintain current at all times the insurance policies as agreed in this contract.

4.- Selling the WAREHOUSE.

5.- Intervention, and closing down of the WAREHOUSE for any cause imputable to LESSEE.

6.- The noncompliance to any of the obligations LESSEE assumes in this contract.

SIXTEENTH.- During the term of this contract, or in its case, the extensions of this Lease Contract, LESSEE will have the preferential right to acquire the leased property.

SEVENTEENTH.- In case LESSOR decides to sell the WAREHOUSE, LESSOR should notify LESSEE his offer and conditions. LESSEE will have a term of (30) thirty days from the date notification is received, to execute his right of purchase. At the end of said term, if LESSEE has not exercised his right of purchase, then LESEE will have a term of (120) one hundred and twenty days from the expiration date of said term to transfer the property to a third party without any favorable conditions previously presented to LESSEE, on the understanding that in case this term of (120) one hundred and twenty days is over, and the transfer has not been executed by LESSEE in favor of any third party, then such transfer will be subject to a new right of purchase, under the stated terms.

EIGHTEENTH.- The contracting parties hereby agree that in case of lawsuit, LESSOR, in addition to having the right to demand the conventional penalties stated in this contract, may request the confiscation of property and goods, on the understanding that:

1.- LESSEE declares that from now on, that all the goods and assets placed inside the WAREHOUSE, are and will be exclusively of his own property, to be given to the person designated by LESSOR as receiver.

2.- If LESSEE is legally sued by LESSOR, all the expenses and attorney’s fees shall be reimbursed to LESSOR.

3.- If LESSEE continues using the WAREHOUSE after being sued in court, LESSEE agrees to pay LESSOR as penalty clause an amount equal to 150% of the total amount of the rent agreed without prejudice to the obligation undertaken in the preceding paragraph.

	Profa. MARIA LUISA MORALES ANDRADE
	PERITO TRADUCTOR
OFFICIAL CERTIFIED TRANSLATION	Autorizada por el Tribunal Superior de Justicia
	de Baja California
	Tel. 646-175-70-23     Cel. 179-40-16
	Ensenada, B.C.
	e-mail: marialuisamorales@hotmail.com

4.- LESSEE will not take away his goods and assets from the WAREHOUSE, if he has any debt with LESSOR, either because of rent or for any other reason.

NINETEENTH.- It is expressly agreed that LESSEE, in accordance to the provisions of Article          of the Civil Code in force, states to have his domicile for any legal effect of this contract, at the WAREHOUSE, renouncing to any other jurisdiction, and in case of a lawsuit, all notifications will be addressed to THE WAREHOUSE, waiving the rights to the provisions of Article          of the Civil Code.

TWENTIETH.- THE PARTIES hereby agree to be governed by the Courts of Ensenada, Baja California, for the interpretation and compliance with the provisions of this contract, waiving their own present or future jurisdiction.

“LESSOR”	“LESSEE”
BERCALI,	INSTRUMENTOS MUSICALES
S. A. DE C.V.	FENDER, S. A. DE C. V.
/s/ Joaquin Alves Iglesias	/s/ Sr. Omar Bashar Darcazalli
Joaquin Alves Iglesias	Sr. Omar Bashar Darcazalli
[ILLEGIBLE] Ing. Joaquin Alves Iglesias Proxy	Mr. Omar Bashar Darcazallie Sole Administrator

WITNESSES:

/s/ L.A.E. Margarita Ruiz de Ramirez

L.A.E. Margarita Ruiz de Ramirez

EX-10.32

Exhibit 10.32

LEASE AGREEMENT SIGNED BY, “BERCALI , SA DE CV, HEREINAFTER NAMED “BERCALI”, REPRESENTED BY HIS LEGAL AGENT MR. JERONIMO BERTRAN PASSANI, AND , “INSTRUMENTOS MUSICALES FENDER , SA DE CV, HEREINAFTER NAMED:” FENDER”, REPRESENTED BY HIS LEGAL AGENT MR. SERGIO ESTEBAN VILLANUEVA RODRIGUEZ IN ACCORDANCE WITH THE BACKGROUND, THE STATEMENTS AND CLAUSES HEREIN STATED)

BACKGROUND:

I. No other modifications, except as otherwise provided herein all other terms and provisions of the original Lease shall remain in full force and effect. FENDER and BERCALI (hereinafter and collectively named “PARTIES”) signed on January 2, 2004 lease on the property (hereinafter and collectively named “WAREHOUSES” and individually, “THE WAREHOUSE”) identified by each of THE PARTIES as follows:

Location	Monthly current Rent*
Calle Huerta # 455 Surface 10,000.0 m2		15,010.00

having agreed that the expiration of that contract would be on January 2nd, 2011.

(* = Dollars of the United States of America)

STATEMENTS

A. FENDER states:

A.1. Been constituted under Mexican law on the 6^th day of the month of May of 1987, as recorded in deed N ° 47,733, volume 533- granted before Mr. Carlos Mendoza Dominguez, Adjoined Notary Public to the Notary Public Number Three of the city of Ensenada, Baja California, of which title holder to said Notary is Mr. Alfredo Gonzalez Corral, which was duly entered in the Public. Registry of Property and Commerce of the City of Ensenada, Baja California, under entry number 3,128, pages 282-283, Volume XV, Commerce Section, on June 19, 1987, and that its representative has sufficient power to do so.

A.2 That its representative has sufficient authority to the signing of this contract, as stated in the Deed number 63,080, volume 2,496, dated September 15, 2006, granted before Ms. Elsa Marfa Novoa Foglio, Adjoined Notary Public to the Notary Public Number Eight of the city of Tijuana, Baja California, of which title holder to said Notary is Mr. Ricardo del Monte Nunez.

B. BERCALI States:

B.I That is a company incorporated under Mexican law, as recorded in Deed No 27,461 Volume 5817 dated July 11^th 2000 granted before Lic Angel Saad Said Notary Public No. 4 of Ensenada, Baja California which was duly recorded in the Public Registry of Property and Commerce of Ensenada, Baja California, under entry number 5077420 V. 226593 , Commerce Section, on September 18^th 2000

B.2 That its representative has sufficient authority to the signing of this contract, as stated in the Deed No 69,972 Volume 1,152 dated December 28^th, 2010 granted before the Notary Public N ° 4 Ensenada, Baja California, Mr. Angel Saad Said, which was duly recorded in the Public Registry of Property and Commerce of Ensenada, Baja California under electronic file No 12666*3 dated January 3th 2011.

B.3. Be his desire to continue to rent the Warehouse to FENDER

B.4. That is carrying out a financial restructuring of the company, and is planning shortly to carry out the transfer of the usufruct of all or parts of buildings, that make THE WAREHOUSES transmitting such rights to Grupo Inmobiliario Calibert S de R.L. de CV; for the purposes of Article 2321 Civil Code of the State of Baja California, under the assumption that he could give FENDER right to be preferred in such disposition, this document contains a record of the notice of the respondent is to be done for legal purposes as appropriate.

CLAUSES

FIRST. Goods covered by this lease:

The good owned by BERCALI is THE WAREHOUSE subject of the lease that the act is agreed, are identified in the sketch added to this document duly signed.

WAREHOUSE: Location Calle Huerta # 455 Surface 10,000.0 m²

SECOND Lease Amount:

The parties agree to set the monthly rent amount for the first year at $ 15,010.00 (Fifteen thousand and ten dollars (00/100) or its equivalent in Mexican Pesos at the official rate, plus the corresponding Value Added Tax,

THIRD: Assets and property under lease should be used as follows:

The PARTIES hereby agree that FENDER may use THE WAREHOUSES for industrial facilities, for storage, manufacturing, and assembling of all FENDER products, as well as for its offices, BERCALI may cancel this Lease Contract if FENDER fails to comply with the agreement and uses the WAREHOUSES for any other purpose without prior consent from BERCALI

FOURTH: Increase on rental price:

Both PARTIES agree that the monthly rental payments will increase annually according to the US inflation “CPI” and will not exceed five (5) percent.

Lease payments should be paid in monthly advanced payments to BERCALI or whoever represents its rights, at the offices located on Ave. Pedro Loyola # 400, Colonia Carlos A Pacheco, in Ensenada, Baja California, the first day of each month. FENDER should refrain from retaining any monthly rental neither should request for any reduction, except in case pursuant to the provisions of article 2294 of the Civil Code, therefore FENDER renounces to the rights granted by articles 2295, 2319, and 2364 of the Civil Code.

Should FENDER fail to pay three monthly rental payments, then BERCALI may rescind this Lease Contract upon 30 days prior written notice to FENDER with the conventional penalty agreed on clause eighth, without any judicial proceeding, requesting FENDER to vacate the property, and FENDER paying all reasonable legal expenses, if any

FIFTH. Current conditions of THE WAREHOUSES:

It is hereby stated that all THE WAREHOUSES mentioned above are in good conditions, therefore FENDER renounces to the rights granted by articles 2286, fraction V and 2295 of the Civil Code for the State of Baja California, accepting FENDER to return said WAREHOUSES on the same condition except for the deterioration caused for its good natural use. Otherwise FENDER will pay for the necessary repairs. It is clearly understood that BERCALI will not pay for any minor repairs.

All of the WAREHOUSES meet the hygiene conditions foreseen by the lay and FENDER agrees to keep such conditions. Any problems with the drainage or anything related to the property will be paid by FENDER.

FENDER will be liable for any damage to the WAREHOUSES, whatever the cause is, either caused by their family, workers, visitors, with exception of natural phenomena (earthquakes, hurricanes, floods, etc.) or damages caused by BERCALI, Any problems with the drainage system or any other problem related to the property itself, will be solved and paid by FENDER, even though such damages be caused by their use.

SIXTH. Modifications to THE WAREHOUSES:

FENDER requires written authorization from BERCALI for any necessary changes or improvements to the WAREHOUSES or to the property under lease. In the event BERCALI gives authorization to FENDER for any changes or improvements to the WAREHOUSES, such authorization or permit should include the conditions for such changes or improvements; on the understanding that any improvements or construction, if not movable, will remain on the property in favor of BERCALI, if so decided by BERCALI, without any compensation for FENDER.

In the event FENDER makes any changes on THE WAREHOUSES or makes any improvements without written permit from BERCALI, it will be liable pursuant to the provisions of article 2315 of the Civil Code, and BERCALI will not pay for any improvements, FENDER should remove such improvements if so required by BERCALI, repairing and paying for any damages, therefore it renounces to the benefits of articles 2297,2298 and 2321 of the Civil Code.

It is clearly understood by the parties that in the event any or all the WAREHOUSES and their contents suffer any damage caused by deterioration or by any “Acts of God” and/or destruction of the property caused by natural disasters, such as hurricanes, floods, earthquake, etc., becoming out of control from any of the contracting parties, each of them should accept any damages to their own property.

SEVENTH. Lease Term:

The lease term is for three years and will start from the 1st January 2011.

PARTIES agree, that at all times FENDER may request termination of the contract, in whole, provided it has notified the other party by written notice to that effect, at least one year in advance

After the year of the notification referred above, in the case that Fender did not make delivery of THE WAREHOUSE in the agreed form, the parties agree that:

1. FENDER paid as a penalty clause for the sole reason for the delay an equivalent to one month of the rent of the cancelled warehouses.

2. Regardless of the specified penalty, FENDER will pay BERCALI as rent for each day they remain occupying the warehouse, 7% (seven percent) of the monthly rent that were in effect at the time that the vacate must have occurred, and in addition will cover the damages caused to BERCALI for its breach.

3. If BERCALI shall have to take legal action for the evacuation of the warehouses, shall be borne by FENDER all expenses, costs or expenses that are generated with the procedure, without conforming to the official tariffs, but the real value disbursed by BERCALI.

4. In the case that FENDER has 2 or more months of delinquent rent payments, FENDER is not allowed to remove any equipment from the building until the debt has been paid as a form of guarantee for payment. If FENDER is current on its rental payments FENDER will be allowed to remove machinery and equipment from the facility.

5. PARTIES agree that in the event that BERCALI decide to sell some or all of the warehouses, FENDER have the first option.

EIGHTH. Licences and permits:

It is hereby agreed that FENDER has the obligation to obtain and keep effective all licenses, permits, authorizations, etc, from any authority for the legal operation of the business, especially for the “Use of Land” and “Functioning”; on the understanding that FENDER should obtain such permits.

Should any of THE WAREHOUSES is legally intervened, closed or foreclosed by any authority for any cause imputable to FENDER either for violation of the Law, nonpayment of taxes or by any other reason. FENDER will continue making monthly rental payments. In the event FENDER has to vacate the WAREHOUSE or WAREHOUSES due to foreclosure or legal closing for any cause imputable to FENDER, it is clearly understood that this Lease Contract will become null and void even without a judicial order, besides, any payments paid by BERCALI in the achievement to obtain THE WAREHOUSE, including reasonable attorney’s fees or payments to personnel in charge of the proceedings, will be reimbursed by FENDER, who will pay the rental payments during the time that the WAREHOUSE is not being used, paying the equivalent to three months of rental payment.

NINETH. Any other payments:

Both PARTIES agree that BERCALI will pay property taxes on THE WAREHOUSES and any other tax, contribution or cooperation of any kind on the WAREHOUSES will be paid by FENDER, especially payments for utilities bills, such as water and electricity.

TENTH. Waiver of preference:

Attentive to what was stated in paragraph B.4 of the Declaration B of this contract to the transmission of usufruct BERCALI intends to carry to Grupo lnmobiliaria Calibert S. de R.L. de C.V. FENDER in this act, for the purposes of Article 2321 Civil Code of the State of Baja California, under the assumption that it could assist the right to be preferred in such alienation, expresses and records for legal purposes Where appropriate, that it is not its will to exercised that right, leaving BERCALI in absolute freedom to carry out the transfer of usufruct rights given either in one or more mutually independent events, during the term of this contract and its extensions.

ELEVENTH. Address:

It is hereby agreed that for any legal effect, the parties declare to have their domiciles as follows: FENDER: Calle Huerta N°138, Colonia Carlos A. Pacheon, Ensenada, Baja California, BERCALI: Ave. Pedro Loyola # 400 Colonia Carlos A. Pacheco, Ensenada, Baja California, renouncing to any present or future jurisdiction, any notification will be served to this domicile.

TWELVETH. Courts:

For the legal interpretation of this contract, they agree to be submitted to the courts in Ensenada, Baja California renouncing to their jurisdiction.

Having read the content of this Lease Contract, the PARTIES ratify it and sign it in Ensenada, Baja California, this 3rd day of January 2011,

BERCALI	FENDER
BERCALI S.A de C.V.	INSTRUMENTOS MUSICALES FENDER, S.A. DE C.V.
/s/ JERONIMO BERTRAN PASSANI	/s/ SERGIO ESTEBAN VILLANUEVA RODRIGUEZ
JERONIMO BERTRAN PASSANI	SERGIO ESTEBAN VILLANUEVA RODRIGUEZ

EX-10.33

Exhibit 10.33

EXECUTION VERSION

TERM FACILITY CREDIT AGREEMENT

among

FENDER MUSICAL INSTRUMENTS CORPORATION,

as Borrower,

The Several Lenders from Time to Time Parties Hereto,

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent,

and

GOLDMAN SACHS CREDIT PARTNERS L.P.,

as Syndication Agent

Dated as of June 7, 2007

J.P. Morgan Securities Inc. and Goldman Sachs Credit Partners L.P.,

as Co-Lead Arrangers and Joint Bookrunners

TABLE OF CONTENTS

			Page
SECTION 1.		DEFINITIONS		6
	1.1	Defined Terms		6
	1.2	Other Definitional Provisions		25
SECTION 2.		AMOUNT AND TERMS OF COMMITMENTS		26
	2.1	Term Commitments		26
	2.2	Procedure for Borrowing		27
	2.3	Repayment of Loans		27
	2.4	Optional Prepayments; Termination or Reduction of Delayed Draw Loan Commitments		27
	2.5	Mandatory Prepayments		28
	2.6	Conversion and Continuation Options		29
	2.7	Limitations on Eurodollar Tranches		29
	2.8	Interest Rates and Payment Dates		30
	2.9	Computation of Interest and Fees		30
	2.10	Inability to Determine Interest Rate		30
	2.11	Pro Rata Treatment and Payments		31
	2.12	Requirements of Law		32
	2.13	Taxes		33
	2.14	Eurodollar Breakage Indemnity		35
	2.15	Change of Lending Office		35
	2.16	Replacement of Lenders		35
	2.17	Incremental Term Facility		36
	2.18	Delayed Draw Commitment Fee		36
SECTION 3.		REPRESENTATIONS AND WARRANTIES		37
	3.1	Financial Condition		37
	3.2	No Change		37
	3.3	Existence; Compliance with Law		38
	3.4	Power; Authorization; Enforceable Obligations		38
	3.5	No Legal Bar		38
	3.6	Litigation		38
	3.7	No Default		39
	3.8	Ownership of Property; Liens		39
	3.9	Intellectual Property		39
	3.10	Taxes		39
	3.11	Federal Regulations		39
	3.12	Labor Matters		39
	3.13	ERISA		40
	3.14	Investment Company Act; Other Regulations		40
	3.15	Subsidiaries		40
	3.16	Use of Proceeds		40
	3.17	Environmental Matters		41
	3.18	Accuracy of Information, etc		41
	3.19	Security Documents		42

	3.20	Solvency	42
	3.21	Regulation H	43
	3.22	Insurance	43
SECTION 4.		CONDITIONS PRECEDENT	43
	4.1	Conditions to Initial Loans	43
	4.2	Conditions to Each Extension of Credit	46
SECTION 5.		AFFIRMATIVE COVENANTS	46
	5.1	Financial Statements	46
	5.2	Certificates; Other Information	47
	5.3	Payment of Taxes	47
	5.4	Maintenance of Existence; Compliance	47
	5.5	Maintenance of Property; Insurance	48
	5.6	Inspection of Property; Books and Records; Discussions	48
	5.7	Notices	48
	5.8	Environmental Laws	49
	5.9	Additional Collateral, etc	50
SECTION 6.		NEGATIVE COVENANTS	51
	6.1	Indebtedness	51
	6.2	Liens	53
	6.3	Fundamental Changes	54
	6.4	Disposition of Property	55
	6.5	Restricted Payments	55
	6.6	Investments	56
	6.7	Optional Payments and Modifications of Certain Debt Instruments	58
	6.8	Transactions with Affiliates	58
	6.9	Swap Agreements	58
	6.10	Negative Pledge Clauses	58
	6.11	Clauses Restricting Subsidiary Distributions	59
	6.12	Lines of Business	59
SECTION 7.		EVENTS OF DEFAULT	59
SECTION 8.		THE AGENTS	62
	8.1	Appointment	62
	8.2	Delegation of Duties	62
	8.3	Exculpatory Provisions	62
	8.4	Reliance by Administrative Agent	62
	8.5	Notice of Default	63
	8.6	Non-Reliance on Agents and Other Lenders	63
	8.7	Indemnification	63
	8.8	Agent in Its Individual Capacity	64
	8.9	Successor Administrative Agent	64
	8.10	Syndication Agent	64

SECTION 9.		MISCELLANEOUS	65
	9.1	Amendments and Waivers	65
	9.2	Notices	66
	9.3	No Waiver; Cumulative Remedies	67
	9.4	Survival of Representations and Warranties	67
	9.5	Payment of Expenses and Taxes	67
	9.6	Successors and Assigns; Participations and Assignments	68
	9.7	Adjustments; Set-off	71
	9.8	Counterparts	72
	9.9	Severability	72
	9.10	Integration	72
	9.11	GOVERNING LAW	72
	9.12	Submission To Jurisdiction; Waivers	72
	9.13	Acknowledgements	73
	9.14	Releases of Guarantees and Liens	73
	9.15	Confidentiality	73
	9.16	WAIVERS OF JURY TRIAL	74
	9.17	Delivery of Addenda	74
	9.18	Intercreditor Agreement	74

SCHEDULES:
1.1A	Commitments
1.1B	Mortgaged Property
3.4	Consents, Authorizations, Filings and Notices
3.9	Intellectual Property
3.13	ERISA
3.15	Subsidiaries
3.19(a)	UCC Filing Jurisdictions
3.19(b)	Mortgage Filing Jurisdictions
6.1(e)	Existing Indebtedness
6.2(f)	Existing Liens
6.6(l)	Existing Investments
6.8	Affiliate Transactions
EXHIBITS:
A	Form of Guarantee and Collateral Agreement
B	Form of Compliance Certificate
C	Form of Closing Certificate
D	Form of Mortgage
E	Form of Assignment and Assumption
F-1	Form of Legal Opinion of Sullivan & Cromwell LLP
F-2	Form of Legal Opinion of Sullivan & Cromwell LLP (Real Property)
F-3	Form of Legal Opinion of General Counsel of the Borrower
F-4	Form of Legal Opinion of De Brauw Blackstone Westbroek New York
G	Form of Exemption Certificate
H	Form of Addendum
I	Form of Intercreditor Agreement
J	Form of Solvency Certificate

CREDIT AGREEMENT (this “Agreement”), dated as of June 7, 2007, among FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “Lenders”), JPMORGAN CHASE BANK, N.A., as administrative agent, and GOLDMAN SACHS CREDIT PARTNERS L.P., as syndication agent (in such capacity, the “Syndication Agent”).

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms.

As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.

“ABR”: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus  ¹/2 of 1%. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“ABR Loans”: Loans the rate of interest applicable to which is based upon the ABR.

“Acquired Entity”: as defined in the definition of “Permitted Acquisitions”.

“Addendum”: an instrument, substantially in the form of Exhibit H, by which a Lender becomes a party to this Agreement as of the Closing Date.

“Additional Lender”: as defined in Section 2.17.

“Administrative Agent”: JPMorgan Chase Bank, N.A., together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors.

“Affiliate”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

“Agents”: the collective reference to the Syndication Agent and the Administrative Agent.

“Aggregate Exposure”: with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the aggregate amount of such Lender’s Commitments at such time and (b) thereafter, the aggregate then unpaid principal amount of such Lender’s Loans.

“Aggregate Exposure Percentage”: with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender’s Aggregate Exposure at such time to the Aggregate Exposure of all Lenders at such time.

“Agreement”: as defined in the preamble hereto.

“Applicable Amount”: at any time (the “Reference Date”), an amount equal at such time to (a) the sum of (i) $25,000,000 and (ii) 50% of the cumulative Consolidated Net Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of such loss) of the Borrower earned subsequent to the Closing Date and on or prior to the Reference Date (treating such period as a single accounting period)

minus (b) the sum, without duplication, of:

(i) the aggregate amount of any Restricted Payments made pursuant to Section 6.5(f) after the Closing Date and on or prior to the Reference Date; and

(ii) the aggregate amount of any Investments made pursuant to Section 6.6(p) after the Closing Date and on or prior to the Reference Date.

“Applicable Margin”: (a) for ABR Loans, 1.25% per annum, and (b) for Eurodollar Loans, 2.25% per annum; provided, that on and after the first Adjustment Date occurring after the completion of four full fiscal quarters of the Borrower after the Closing Date, the Applicable Margin will be determined pursuant to the Applicable Pricing Grid.

“Applicable Pricing Grid”: the table set forth below:

Consolidated Senior Secured Debt Ratio	Applicable Margin for Eurodollar Loans	Applicable Margin for ABR Loans
> 3.50 to 1.00	2.25%	1.25%
< 3.50 to 1.00	2.00%	1.00%

For the purposes of the Applicable Pricing Grid, changes in the Applicable Margin resulting from changes in the Consolidated Senior Secured Debt Ratio shall become effective on the date (the “Adjustment Date”) that is three Business Days after the date on which financial statements are delivered to the Administrative Agent pursuant to Section 5.1 and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified in Section 5.1, then, until the date that is three Business Days after the date on which such financial statements are delivered, the highest rate set forth in each column of the Applicable Pricing Grid shall apply. In addition, at all times while an Event of Default shall have occurred and be continuing, the highest rate set forth in each column of the Applicable Pricing Grid shall apply.

“Approved Fund”: as defined in Section 9.6(b).

“Arrangers”: J.P. Morgan Securities Inc. and Goldman Sachs Credit Partners L.P.

“Asset Sale”: any Disposition of assets by the Borrower or any Restricted Subsidiary provided that the term “Asset Sale” shall not include any Dispositions (a) of Inventory (as such term is defined in the UCC) Disposed of in the ordinary course of business, (b) of obsolete, surplus or worn out assets, assets that are no longer useful or used in the business of the Borrower and any Restricted Subsidiary (including, without limitation, Intellectual Property) or scrap, in each case Disposed of in the

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ordinary course of business or by operations or divisions discontinued or to be discontinued, (c) without recourse and in the ordinary course of business of overdue accounts receivable in connection with the compromise or collection thereof, (d) constituting the licensing of Intellectual Property in the ordinary course of business and other licensing or leasing arrangements, (e) constituting the settlement, release or surrender of tort or other litigation claims, (f) constituting asset contributions made in connection with Investments otherwise permitted under Section 6.6, (g) among the Borrower and the Guarantors, and (h) that results in cash consideration of less than $500,000.

“Assignee”: as defined in Section 9.6(b).

“Assignment and Assumption”: an Assignment and Assumption, substantially in the form of Exhibit E.

“Benefitted Lender”: as defined in Section 9.7(a).

“Board”: the Board of Governors of the Federal Reserve System of the United States (or any successor).

“Borrower”: as defined in the preamble hereto.

“Borrowing Date”: any Business Day specified by the Borrower as a date on which the Borrower requests the Lenders to make Loans hereunder.

“Business”: as defined in Section 3.17(b).

“Business Day”: a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, provided, that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.

“Capital Expenditures”: for any period, the aggregate of all expenditures by the Borrower and its Restricted Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that are capitalized under GAAP on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries.

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

“Capital Stock”: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“Cash Equivalent Investment”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of

8

acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of nine months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $250,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of nine months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; or (h) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

“Change of Control”: at any time, any Person or “group” (within the meaning of Rules 13d 3 and 13d 5 under the Exchange Act) other than the Permitted Investors shall have acquired beneficial ownership of 50.1% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of the Borrower or shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of the Borrower.

“Change in Law” shall mean (a) the adoption of any law, treaty, order, policy, rule or regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law).

“Class C Shares”: the Class C shares of the Borrower.

“Closing Date”: the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied, which date is June 7, 2007.

“Code”: the Internal Revenue Code of 1986, as amended from time to time.

“Collateral”: all property of the Group Members, now owned or hereafter acquired, upon which a Lien is purported to be granted under any Security Document, provided, that Collateral shall not include any Excluded Property (as defined in the Guarantee and Collateral Agreement).

“Commitment”: as to any Lender, the sum of the Initial Loan Commitment, the Delayed Draw Loan Commitment and any commitment with respect to Incremental Loans.

9

“Commonly Controlled Entity”: an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code.

“Compliance Certificate”: a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B.

“Conduit Lender”: any special purpose corporation organized and administered by any Lender for the purpose of making Loans otherwise required to be made by such Lender and designated by such Lender in a written instrument; provided, that the designation by any Lender of a Conduit Lender shall not relieve the designating Lender of any of its obligations to fund a Loan under this Agreement if, for any reason, its Conduit Lender fails to fund any such Loan, and the designating Lender (and not the Conduit Lender) shall have the sole right and responsibility to deliver all consents and waivers required or requested under this Agreement with respect to its Conduit Lender, and provided, further, that no Conduit Lender shall (a) be entitled to receive any greater amount pursuant to Section 2.12, 2.13, 2.14 or 9.5 than the designating Lender would have been entitled to receive in respect of the extensions of credit made by such Conduit Lender or (b) be deemed to have any Commitment.

“Confidential Information Memorandum”: the Confidential Information Memorandum dated May, 2007 and furnished to certain Lenders.

“Consolidated Current Assets”: at any date, all amounts (other than cash and Cash Equivalent Investment) that would, in conformity with GAAP, be set forth opposite the caption “total current assets” (or any like caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such date.

“Consolidated Current Liabilities”: at any date, all amounts that would, in conformity with GAAP, be set forth opposite the caption “total current liabilities” (or any like caption) on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries at such date, but excluding the current portion of any Funded Debt of the Borrower and the Restricted Subsidiaries.

“Consolidated EBITDA”: with respect to the Borrower and the Restricted Subsidiaries for any period, Consolidated Net Income for such period, plus (a) the sum of the following, without duplication and, in each case, to the extent deducted in determining such Consolidated Net Income: (i) any provision for income taxes, (ii) all interest expense, (iii) depreciation and amortization expense, (iv) loss from extraordinary or non-recurring items for such period, (v) the amount of deferred compensation and severance charges and fees, losses or charges resulting from hedging activities, including but not limited to any decrease in fair value of interest rate swap agreements and any losses on foreign currency contracts not entered into for speculative purposes, (vi) the amount of all non-cash charges for such period (including any impairment or writeoff of goodwill or other intangible assets), (vii) the amortization of any financing costs or fees or original issue discount incurred in connection with any Indebtedness, (viii) the amount of any commissions, fees and charges for the issuance, renewal or maintenance of any letters of credit, bankers’ acceptances or other credit enhancements and guarantees, (ix) any non-cash compensation charge or expense arising from any grant of stock, stock options or other equity based awards and any non-cash deemed finance charges, (x) costs, fees, charges and expenses (including legal and consulting fees) incurred in connection with or written off as a result of: (1) this Agreement, (2) Permitted Acquisitions and other investments permitted under this Agreement (including one-time amounts paid in connection with the acquisition or retention of one or more individuals comprising part of a management team retained to manage the acquired business; provided that such payments are made in connection with such acquisition and are consistent with the customary practice in the industry at the time of such acquisition), (3) issuances of Capital Stock, (4) disposition, incurrence or refinancing of any

10

Indebtedness (including Capital Lease Obligations, Sale and Leaseback transactions and other items included in the definition of Indebtedness), including in each case, all deferred financing costs written off and premiums paid or other expenses incurred directly in connection with any early extinguishment of Indebtedness and any net gain (loss) from any write-off or forgiveness of Indebtedness, and (5) the Borrower’s remediation effort in connection with the implementation of the SAP ERP Software System; (xi) fees, expenses and any indemnification payments made under any Permitted Acquisition, (xii) expenses and fees incurred in connection with the registration and protection of trademarks or trade names and in connection with the prosecution or defense of intellectual property rights and infringement actions, (xiii) the amount of cost savings projected by the Borrower in good faith to be realized during such period (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period) in connection with an acquisition; provided that (A) such cost savings are reasonably identifiable and factually supportable, (B) such actions are taken within 18 months after the date of such acquisition and (C) the aggregate amount of cost savings added pursuant to this clause shall not exceed an amount equal to 15% of the Consolidated EBITDA of the Borrower and the Restricted Subsidiaries (on a pro forma basis after giving effect to such acquisition and any previous acquisition in the relevant period) for the period of four consecutive Fiscal Quarters most recently ended prior to the determination date, (xiv) net payments, if any, of obligations under any Swap Agreement, (xv) the effect of any discontinued operations or assets held for sale in accordance with GAAP, and (xvi) for the periods prior to the Closing Date, the amount of reserves taken for the bankruptcy of certain customers, including without limitation Brook Mays Music Company and Dennis Bamber Inc. in an aggregate amount not to exceed $2,000,000; less (b) the sum of the following to the extent included in determining Consolidated Net Income (i) income tax benefits for such period, (ii) gain from extraordinary or non-recurring items for such period, and (iii) any increase in fair value of interest rate swap agreements.

“Consolidated Funded Indebtedness”: for any date of determination, the sum of (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (c) all Capital Lease Obligations of such Person, and (d) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (c) above in an aggregate amount in excess of $1,000,000.

“Consolidated Leverage Ratio”: as at the last day of any Fiscal Year, the ratio of (a) Consolidated Funded Indebtedness on such day to (b) Consolidated EBITDA for such Fiscal Year.

“Consolidated Net Income”: for any period, the net income (or loss) of the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from the calculation of Consolidated Net Income (a) except as otherwise provided in this Agreement with respect to calculations to be made on a pro forma basis, the net income (or loss) of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary of, or was merged or consolidated into, such Subsidiary or any of such Subsidiary’s Subsidiaries, (b) the net income (or loss) of any Person (other than a Restricted Subsidiary) in which the Borrower or any Restricted Subsidiary has an ownership interest, except to the extent any such income has actually been received by the Borrower or such Restricted Subsidiary in the form of cash dividends or distributions, (c) the undistributed earnings of any Restricted Subsidiary (other than a Guarantor) to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary, (d) any gain or loss resulting from the write-up or write-down of any asset for which the offsetting entry would be an adjustment to net income, (e) any net gain or loss arising from the acquisition of any securities, or the extinguishment of any Indebtedness of the Borrower or any Restricted Subsidiary under GAAP, (f) any non-cash impact attributable to the application of the purchase method of accounting in accordance with GAAP in connection with any Permitted Acquisition (including, without limitation, the total amount of depreciation and amortization, cost of sales and other non-cash expense resulting from the

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write-up of assets for such period on a consolidated basis in accordance with GAAP to the extent such non-cash expense results from such purchase accounting adjustments) will be disregarded, and (g) the cumulative effect of a change in accounting principles.

“Consolidated Senior Secured Debt”: at any date, the Consolidated Funded Indebtedness of the Borrower and the Restricted Subsidiaries that is then secured by a Lien, other than Capital Lease Obligations secured solely by the property leased.

“Consolidated Senior Secured Debt Ratio”: as of the last day of any period of four consecutive Fiscal Quarters, the ratio of (a) Consolidated Senior Secured Debt on such day to (b) Consolidated EBITDA for such period.

“Consolidated Working Capital”: at any date, the excess of Consolidated Current Assets on such date over Consolidated Current Liabilities on such date.

“Contractual Obligation”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control Investment Affiliate”: as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

“Default”: any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Delayed Draw Loan”: as defined in Section 2.1(b).

“Delayed Draw Loan Commitment”: as to any Lender, the obligation of such Lender to make a Delayed Draw Loan to the Borrower in a principal amount not to exceed the amount set forth under the heading “Delayed Draw Loan Commitment” opposite such Lender’s name on Schedule 1.1A. The aggregate amount of the Delayed Draw Loan Commitments as of the Closing Date is $100,000,000.

“Delayed Draw Termination Date”: June 7, 2008.

“Disposition”: with respect to any property owned by any Group Member, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Dollars” and “$”: dollars in lawful currency of the United States.

“Domestic Subsidiary”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.

“ECF Percentage”: 50%; provided, that, with respect to each Fiscal Year of the Borrower ending on or after December 31, 2008, the ECF Percentage shall be reduced to (x) 25% if the Consolidated Leverage Ratio as of the last day of such Fiscal Year is not greater than 3.5 to 1.0 or (y) 0% if the Consolidated Leverage Ratio as of the last day of such Fiscal Year is not greater than 3.0 to 1.0.

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“Environmental Laws”: any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health from exposure to any Materials of Environmental Concern or the environment, as now or may at any time hereafter be in effect and applicable to the Group Members.

“ERISA”: the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurocurrency Reserve Requirements”: for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.

“Eurodollar Base Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on the Reuters Screen LIBOR01 Page (or otherwise on such screen), the “Eurodollar Base Rate” shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be reasonably selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein.

“Eurodollar Loans”: Loans the rate of interest applicable to which is based upon the Eurodollar Rate.

“Eurodollar Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

Eurodollar Base Rate

1.00  -  Eurocurrency Reserve Requirements

“Eurodollar Tranche”: the collective reference to Eurodollar Loans the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day).

“Event of Default”: any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Excess Cash Flow”: for any Fiscal Year of the Borrower, the excess, if any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such Fiscal Year, (ii) the amount of all non-cash debits (including depreciation and amortization) deducted in arriving at such Consolidated Net

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Income, (iii) decreases in Consolidated Working Capital for such Fiscal Year, and (iv) the aggregate net amount of non-cash loss on the Disposition of property by the Borrower and the Restricted Subsidiaries during such Fiscal Year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income over (b) the sum, without duplication, of (i) the amount of all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and the Restricted Subsidiaries in cash during such Fiscal Year on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any Reinvestment Deferred Amount), (iii) the aggregate amount of all optional prepayments of the Loans during such Fiscal Year, (iv) regularly scheduled principal payments of Indebtedness (including the Loans) of the Borrower and the Restricted Subsidiaries made during such Fiscal Year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) increases in Consolidated Working Capital for such Fiscal Year, and (vi) the aggregate net amount of non-cash gain on the Disposition of property by the Borrower and the Restricted Subsidiaries during such Fiscal Year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income.

“Excess Cash Flow Application Date”: as defined in Section 2.5(c).

“Excluded Taxes”: with respect to the Administrative Agent or any Lender or any other recipient of any payment hereunder or under any other Loan Document, Taxes to the extent constituting or relating to:

(a) income or franchise taxes imposed on (or measured by) such recipient’s net income by any Governmental Authority of the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or in which it is doing business for tax purposes or in the case of the Administrative Agent or any Lender, in which its applicable lending office is located or in which it is doing business for tax purposes;

(b) any branch profits taxes imposed by any jurisdiction described in clause (a) above;

(c) any Tax that is attributable to the Administrative Agent’s or a Lender’s failure or inability to deliver the forms required by Section 2.13(d) or Section 2.13(e);

(d) any withholding Tax imposed by a Governmental Authority that is in effect and would apply to amounts payable to the Administrative Agent or such Lender at the time the Lender becomes a party to this Agreement; provided that with respect to a Lender that is not a party to this Agreement at the Closing Date this clause (d) shall not apply to the extent (i) the indemnity payments or additional amounts such Lender (or Participant) would be entitled to receive (without regard to this clause (d)) do not exceed the indemnity payment or additional amounts that the person making such assignment, participation or transfer to such Lender (or Participant) would have been entitled to receive in the absence of such assignment, participation or transfer, or (ii) any Tax is imposed on a Lender in connection with an interest or participation in any Loan or other obligation that such Lender was required to acquire pursuant to Section 9.7(a) or that such Lender acquired pursuant to Section 2.15 (it being understood and agreed, for the avoidance of doubt, that any withholding Tax imposed on a Lender as a result of a Change in Law occurring after such time such Lender became a party to this Agreement (or designates a new lending office) shall not be an Excluded Tax).

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“Existing Credit Agreements”: the collective reference to (a) the $220,000,000 Credit and Guaranty Agreement, dated as of March 30, 2005, among the Borrower, the domestic Subsidiaries of the Borrower, the lenders parties thereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and co-syndication agent, Wells Fargo Bank, National Association, as administrative agent, collateral agent and co-syndication agent, JPMorgan Chase Bank, N.A., as co-documentation agent, and City National Bank, as co-documentation agent, as amended by the First Amendment to the Credit and Guaranty Agreement dated as of August 15, 2005 and the Second Amendment and Waiver to Credit and Guaranty Agreement (First Lien) dated as of June 5, 2006, and (b) the $100,000,000 Credit and Guaranty Agreement, dated as of March 30, 2005, among the Borrower, the domestic Subsidiaries of the Borrower, the lenders parties thereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and co-syndication agent, administrative agent and collateral agent, and Wells Fargo Bank, National Association, as co-syndication agent, JPMorgan Chase Bank, N.A., as co-documentation agent, as amended by the First Amendment to the Credit and Guaranty Agreement dated as of August 15, 2005 and the Second Amendment and Waiver to Credit and Guaranty Agreement (Second Lien) dated as of June 5, 2006.

“Federal Funds Effective Rate”: for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by JPMorgan Chase Bank, N.A. from three federal funds brokers of recognized standing selected by it.

“Fiscal Month”: each period of four or five consecutive weeks ending on or about the last Sunday immediately prior to or immediately following the last day of the calendar month.

“Fiscal Quarter”: each period of three consecutive months of four, four and five weeks ending on or about the last Sunday immediately prior to or immediately following March 31, June 30, September 30 and December 31 of each year.

“Fiscal Week”: each period of seven consecutive days ending on a Sunday.

“Fiscal Year”: each period of 52 or 53 consecutive weeks ending on or about the last Sunday immediately prior to or immediately following December 31.

“Flooring Arrangements”: any arrangements whereby a third party makes payments to the Borrower, as trade creditor, for the account of one or more customers of the Borrower in respect of certain accounts receivable or other monetary obligations owing from such customers to the Borrower and arising in the ordinary course of business in connection with the acquisition of goods or services by such customers.

“Foreign Subsidiary”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.

“Funded Debt”: as to any Person, all Indebtedness of such Person that matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans.

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“Funding Office”: the office of the Administrative Agent specified in Section 9.2 or such other office as may be specified from time to time by the Administrative Agent as its funding office by written notice to the Borrower and the Lenders.

“GAAP”: generally accepted accounting principles in the United States as in effect from time to time.

“Governmental Authority”: any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).

“Governmental Authorization”: any permit, license, authorization, plan, directive, consent order, consent decree or other approval of or from any Governmental Authority.

“Group Members”: the collective reference to the Borrower, the Guarantors and the Restricted Subsidiaries that are not Guarantors.

“Guarantee and Collateral Agreement”: the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A.

“Guarantee Obligation”: as to any Person (the “guaranteeing person”), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”), including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guarantors”: the collective reference to the Subsidiary Guarantors.

“Incremental Amendment”: as defined in Section 2.17.

“Incremental Facility Closing Date”: as defined in Section 2.17.

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“Incremental Loans”: as defined in Section 2.17.

“Indebtedness”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) the liquidation value of all mandatorily redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, and (j) for the purposes of Section 7(e) only, all obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.

“Initial Loan”: as defined in Section 2.1(a).

“Initial Loan Commitment”: as to any Lender, the obligation of such Lender to make a Loan to the Borrower in a principal amount not to exceed the amount set forth under the heading “Initial Loan Commitment” opposite such Lender’s name on Schedule 1.1A. The aggregate amount of the Initial Loan Commitments as of the Closing Date is $200,000,000.

“Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Intercreditor Agreement”: the Intercreditor Agreement, dated as of the date hereof, among the Group Members, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders and as administrative agent for the lenders under the Revolving Facility Agreement, substantially in the form of Exhibit I.

“Interest Payment Date”: (a) as to any ABR Loan, the first day of each April, July, October and January (or, if an Event of Default is in existence, the first day of each calendar month) to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period, and (d) as to any Loan, the date of any repayment or prepayment made in respect thereof.

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“Interest Period”: as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not later than 11:00 A.M., New York City time, on the date that is three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following:

(i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;

(ii) the Borrower may not select an Interest Period that would extend beyond the date final payment is due on the Loans;

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

(iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan.

“Investments”: as defined in Section 6.6.

“Lenders”: as defined in the preamble hereto; provided, that unless the context otherwise requires, each reference herein to the Lenders shall be deemed to include any Conduit Lender and any Additional Lender.

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

“Loan”: any loan made by any Lender pursuant to Section 2.1 or 2.17 of this Agreement.

“Loan Documents”: this Agreement, the Security Documents, the Notes, the Intercreditor Agreement and any amendment, waiver, supplement or other modification to any of the foregoing.

“Material Adverse Effect”: a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower or any Guarantor to perform any of its obligations under the Loan Documents to which it is a party, (c) the Collateral, or the Administrative Agent’s Lien (on behalf of itself and the Lenders) on the Collateral or the priority of such Lien, or (d) the rights of or benefits available to the Administrative Agent or the Lenders thereunder.

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“Materials of Environmental Concern”: any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

“Maturity Date”: the earlier of (i) June 9, 2014 and (ii) the date that all Loans shall be repaid in accordance with the terms herein.

“Mortgaged Properties”: the real properties listed on Schedule 1.1B, as to which the Administrative Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages.

“Mortgages”: each of the mortgages and deeds of trust made by the Borrower or any Guarantor in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded).

“Multiemployer Plan”: a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Cash Proceeds”: (a) with respect to any Asset Sale or Recovery Event, the proceeds thereof received by the Borrower or any of the Restricted Subsidiaries in the form of cash and Cash Equivalent Investment (including any such proceeds subsequently received (as and when received) in respect of non-cash consideration initially received), net of (i) selling, recovery or other transactional expenses payable by the Borrower or any of the Restricted Subsidiaries in connection with obtaining such proceeds (including reasonable and customary broker’s or investment banker’s fees or commissions, legal fees, transfer and similar taxes incurred in connection therewith and the Borrower’s good faith estimate of income taxes paid or payable in connection with such sale or other transaction), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale or Recovery Event (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale or involved in such Recovery Event and which is repaid with such proceeds (other than, in connection with an Asset Sale, any such Indebtedness assumed by the purchaser of such asset), provided, however; that, if (x) the Borrower shall deliver a Reinvestment Notice to the Administrative Agent within ten Business Days of receipt of the cash proceeds and (y) no Default or Event of Default shall have occurred and be continuing at the time of receipt by the Administrative Agent of the Reinvestment Notice, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used at the end of the 365-day period from the date of the Asset Sale or Recovery Event, at which time such proceeds shall be deemed to be Net Cash Proceeds; and (b) with respect to any issuance of Indebtedness by the Borrower or any of the Restricted Subsidiaries other than Indebtedness permitted to be incurred under the Loan Documents, the proceeds thereof received by the Borrower or any of the Restricted Subsidiaries in the form of cash and Cash Equivalent Investment, net of all taxes and all fees (including legal fees), commissions, underwriting discounts, costs and other expenses incurred or paid in connection therewith.

“Non-Excluded Taxes”: Taxes other than Excluded Taxes and Other Taxes.

“Non-U.S. Lender”: as defined in Section 2.13(d).

“Notes”: the collective reference to any promissory note evidencing Loans.

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“Obligations”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise.

“Other Taxes”: any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Participant”: as defined in Section 9.6(c).

“PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).

“Pension Act”: the Pension Protection Act of 2006, as it presently exists or as it may be amended from time to time.

“Permitted Acquisition”: any acquisition by any Group Member, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person (the “Acquired Entity”); provided, that:

(i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;

(ii) all transactions in connection therewith shall be consummated in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect;

(iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such securities in the nature of directors’ qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of the Borrower in connection with such acquisition shall be directly and beneficially owned 100% by a Group Member, and the Borrower shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of the Borrower, each of the actions set forth in Section 5.9, as applicable to such Subsidiary;

(iv) the Consolidated Senior Secured Debt Ratio, determined on a pro forma basis (including assumed Consolidated Funded Indebtedness and the consummation of such acquisition) as of the last day of the most recent Fiscal Quarter for which financial statements are available (but based on Consolidated Senior Secured Debt at the time of and after giving effect to the acquisition and any other transaction in connection therewith) shall not exceed the Required Consolidated Senior Secured Debt Ratio;

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(v) the Borrower shall have delivered to Administrative Agent at least five Business Days prior to such proposed acquisition, a certificate evidencing compliance with clause (iv) above, together with all relevant financial information with respect to such acquired assets, including the aggregate consideration for such acquisition and any other information required to demonstrate compliance with clause (iv) above;

(vi) such acquisition shall be consensual; and

(vii) any Person or assets or division acquired in accordance herewith shall be in the same or a related or complementary business or lines of business in which the Borrower and/or the Restricted Subsidiaries are engaged as of the Closing Date.

“Permitted Investors”: the collective reference to the Sponsor and its Control Investment Affiliates.

“Permitted Subordinated Debt”: Indebtedness incurred in reliance upon clause (p) of Section 6.1 that is contractually subordinated to Indebtedness of the obligor under the Loan Documents to which it is a party.

“Permitted Refinancing Indebtedness”: Indebtedness of the Borrower or any Restricted Subsidiary issued or incurred (including by means of the extension or renewal of existing Indebtedness) to refinance, refund, extend or renew existing Indebtedness (“Refinanced Indebtedness”); provided, that (a) the principal amount (or accreted value, if applicable) of such refinancing, refunding, extending or renewing Indebtedness is not greater than the sum of (i) the principal amount (or accreted value, if applicable) of such Refinanced Indebtedness plus (ii) an amount equal to unpaid accrued interest and penalties, premium thereon and fees and expenses reasonably incurred in connection with such refinancing, refunding, extension or renewal, plus (iii) if the Refinanced Indebtedness was extended under a committed financing arrangement and any such commitments remain unutilized at the time, the amount of such unutilized commitments; provided that with respect to this clause (iii), both immediately prior to and after giving effect to such Refinanced Indebtedness, no Default or Event of Default shall exist or result therefrom, (b) such refinancing, refunding, extending or renewing Indebtedness has a final maturity that is no sooner than the final maturity of, and a weighted average life to maturity that is no shorter than the then remaining weighted average life of, such Refinanced Indebtedness, (c) if such Refinanced Indebtedness or any guarantees thereof are subordinated to the Obligations, such refinancing, refunding, extending or renewing Indebtedness and any guarantees thereof remain so subordinated on terms no less favorable to the Lenders, and (d) the obligors in respect of such Refinanced Indebtedness immediately prior to such refinancing, refunding, extending or renewing are the only obligors on such refinancing, refunding, extending or renewing Indebtedness plus any entity acquired in connection with a substantially contemporaneous acquisition that was required to become an obligor under such Refinanced Indebtedness; provided, however, that Permitted Refinancing Indebtedness shall not include (i) Indebtedness of a Restricted Subsidiary (other than the Borrower) that refinances Indebtedness of the Borrower or (ii) Indebtedness of the Borrower or a Subsidiary Guarantor that refinances Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor.

“Person”: an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.

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“Plan”: at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Prime Rate”: the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMorgan Chase Bank, N.A. in connection with extensions of credit to debtors).

“Pro Forma Balance Sheet”: as defined in Section 3.1(a).

“Projections”: as defined in Section 5.2(b).

“Properties”: as defined in Section 3.17(a).

“Purchase Money Indebtedness”: Indebtedness (other than the Obligations, but including Capital Lease Obligations), incurred at the time, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.

“Recovery Event”: any settlement of or payment in respect of (other than any settlement or payment that results in cash consideration of less than $500,000) any property or casualty insurance claim or any taking under power of eminent domain or by condemnation or similar proceeding of or relating to any property or asset of a Group Member.

“Refinancing”: the refinancing of the extensions of credit under the Existing Credit Agreements.

“Register”: as defined in Section 9.6(b).

“Registered Intellectual Property”: as defined in the Guarantee and Collateral Agreement.

“Regulation U”: Regulation U of the Board as in effect from time to time.

“Reinvestment Deferred Amount”: with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by any Group Member in connection therewith that are not applied to prepay the Loans as a result of the delivery of a Reinvestment Notice.

“Reinvestment Event”: any Asset Sale or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice.

“Reinvestment Notice”: a written notice executed by a Responsible Officer stating that no Default or Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Restricted Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire or repair assets useful in the business of the Borrower or any Restricted Subsidiary.

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“Reinvestment Prepayment Amount”: with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire or repair assets useful in the business of the Borrower or any Restricted Subsidiary.

“Reinvestment Prepayment Date”: with respect to any Reinvestment Event, the earlier of (a) the date occurring 365 days after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire or repair assets useful in the business of the Borrower or any Restricted Subsidiary with all or any portion of the relevant Reinvestment Deferred Amount.

“Related Persons”: with respect to any Person, such Person’s Affiliates and the respective officers, directors, partners and employees of such Person and its Affiliates.

“Reportable Event”: any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

“Required Consolidated Senior Secured Debt Ratio”: as of any date, (a) from the Closing Date through the date that is twelve months after the Closing Date, 4.75 to 1.00 and (b) thereafter, 4.50 to 1.00.

“Required Lenders”: at any time, the holders of more than 50% of (a) until the Closing Date, the Commitments then in effect and (b) thereafter, the aggregate unpaid principal amount of the Loans then outstanding.

“Requirement of Law”: as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Responsible Officer”: the chief executive officer, president, chief financial officer or general counsel of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower.

“Restricted Payments”: as defined in Section 6.5.

“Restricted Subsidiary”: any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.

“Revolving Facility Agent”: as defined in the Intercreditor Agreement.

“Revolving Facility Agreement”: as defined in the Intercreditor Agreement.

“Revolving Facility Documents”: as defined in the Intercreditor Agreement.

“Revolving Facility Obligations Payment Date”: as defined in the Intercreditor Agreement.

“Revolving Facility Security Documents”: as defined in the Intercreditor Agreement.

“Sale and Leaseback”: any arrangement with any Person providing for the leasing by any Group Member of real or personal property that has been or is to be sold or transferred by such Group Member to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Group Member.

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“SAP ERP Software System”: the enterprise resource planning software package utilized by certain Group Members in the United States.

“Schultz Repurchase”: the repurchase by the Borrower of its Capital Stock from the estate of William C. Schultz, the former president/chief executive officer of the Borrower.

“SEC”: the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.

“Security Documents”: the collective reference to the Guarantee and Collateral Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of the Borrower or any Guarantor under any Loan Document.

“Showcase Arrangements”: any arrangements whereby certain rebates are earned by the Borrower’s dealers, in the ordinary course of business.

“Single Employer Plan”: any Plan that is covered by Title IV of ERISA, but that is not a Multiemployer Plan.

“Solvent”: when used with respect to any Person, means that, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

“Sponsor”: Weston Presidio.

“Subsidiary”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Subsidiary Guarantor”: each Domestic Subsidiary of the Borrower that is a Wholly Owned Subsidiary thereof.

“Swap Agreement”: any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more

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rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries shall be a “Swap Agreement”.

“Syndication Agent”: as defined in the preamble hereto.

“Taxes”: any present or future taxes, levies, imposts, duties, changes or withholdings now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority.

“Term Facility Priority Collateral”: as defined in the Intercreditor Agreement.

“Transferee”: any Assignee or Participant.

“UCC”: as defined in the Guarantee and Collateral Agreement.

“UCC Collateral”: as defined in the Guarantee and Collateral Agreement.

“United States”: the United States of America.

“Unrestricted Subsidiary”: (a) any Subsidiary formed or acquired after the Closing Date; provided that at such time (or promptly thereafter) the Borrower designates such Subsidiary as an Unrestricted Subsidiary in a written notice to the Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted Subsidiary by the Borrower in a written notice to the Administrative Agent, provided that in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an Investment by the Borrower on the date of such designation or re-designation in an Unrestricted Subsidiary in an amount equal to the net book value of the Borrower’s investment therein, (y) no Default or Event of Default has occurred or is continuing or would result from such designation or re-designation, and (z) immediately after giving effect to such designation or re-designation, the Consolidated Senior Secured Debt Ratio shall not exceed the Required Consolidated Senior Secured Debt Ratio, calculated on a pro forma basis as of the end of the quarter most recently ended prior to the date of such designation or re-designation for which financial statements have been delivered pursuant to Section 5.1, and (c) each Subsidiary of an Unrestricted Subsidiary; provided, further, however, that at the time of any written designation or re-designation by the Borrower to the Administrative Agent that any Unrestricted Subsidiary shall no longer constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary to the extent no Default or Event of Default would result from such designation or re-designation.

“Wholly Owned Subsidiary”: as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

1.2 Other Definitional Provisions.

(a) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (iii) the word “incur” shall be construed to mean incur, create, issue, assume or become liable in respect of (and

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the words “incurred” and “incurrence” shall have correlative meanings), (iv) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights, and (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.

(b) The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

(c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(d) In the event that any “Accounting Change” (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition and the cost of the Loans under this Agreement shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “Accounting Changes” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board or, if applicable, the SEC.

SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

2.1 Term Commitments.

(a) Subject to the terms and conditions hereof, each Lender severally agrees to make a term loan (an “ Initial Loan”) to the Borrower on the Closing Date in an amount not to exceed the amount of the Initial Loan Commitment of such Lender. The Initial Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.6.

(b) Subject to the terms and conditions hereof, each Lender severally agrees to make a term loan (a “ Delayed Draw Loan”) to the Borrower after the Closing Date on up to two occasions but no later than the Delayed Draw Termination Date in an amount not to exceed the amount of the Delayed Draw Loan Commitment of such Lender; provided that (i) at the time that any such Delayed Draw Loan is made (and immediately after giving effect thereto) no Default or Event of Default shall exist, and (ii) the Consolidated Senior Secured Debt Ratio, determined on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available (but based on Consolidated Senior Secured Debt at the time of and after giving effect to such Delayed Draw Loans and the pro forma effect of any other transaction in connection therewith) shall not exceed the Required Consolidated Senior Secured Debt Ratio. Any Delayed Draw Loan Commitment that remains unused as of the Delayed Draw Termination Date shall terminate on such date. The Delayed Draw Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.6.

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(c) All borrowings of Loans under this Agreement shall be made by the Lenders pro rata on the basis of their respective Commitments.

2.2 Procedure for Borrowing.

(a) With respect to the Initial Loans, the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 2:00 P.M., New York City time, one Business Day prior to the anticipated Closing Date) requesting that the Lenders make the Initial Loans on the Closing Date and specifying the amount to be borrowed. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. Not later than 12:00 Noon, New York City time, on the Closing Date each Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Initial Loan to be made by such Lender. The Administrative Agent shall credit the account of the Borrower on the books of such office of the Administrative Agent with the aggregate of the Initial Loans made available to the Administrative Agent by the Lenders in immediately available funds.

(b) With respect to the Delayed Draw Loans, the Borrower shall give the Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 2:00 P.M., New York City time, one Business Day prior to the anticipated borrowing date) requesting that the Lenders make the Delayed Draw Loans on the borrowing date and specifying the amount to be borrowed. Upon receipt of such notice the Administrative Agent shall promptly notify each Lender thereof. Not later than 12:00 Noon, New York City time, on the borrowing date set forth in the notice each Lender shall make available to the Administrative Agent at the Funding Office an amount in immediately available funds equal to the Delayed Draw Loan to be made by such Lender. The Administrative Agent shall credit the account of the Borrower on the books of such office of the Administrative Agent with the aggregate of the Delayed Draw Loans made available to the Administrative Agent by the Lenders in immediately available funds.

2.3 Repayment of Loans.

(a) The Borrower shall repay the Initial Loans in installments on each April 1, July 1, October 1 and January 1 of each year, commencing with October 1, 2007 and ending with the Maturity Date, in an aggregate principal amount equal to (i) in the case of each such installment due prior to the Maturity Date, $500,000, and (ii) in the case of the installment due on the Maturity Date, the entire remaining balance of the Initial Loans; provided that any such installment shall be reduced as a result of a prepayment in accordance with Section 2.11(a).

(b) The Borrower shall repay any Delayed Draw Loans in installments on each April 1, July 1, October 1 and January 1 of each year, commencing with October 1, 2008 and ending with the Maturity Date, in an aggregate principal amount equal to (i) in the case of each such installment due prior to the Maturity Date, 0.25% of the aggregate Delayed Draw Loans outstanding as of the Delayed Draw Termination Date, and (ii) in the case of the installment due on the Maturity Date, the entire remaining balance of the Delayed Draw Loans; provided that any such installment shall be reduced as a result of a prepayment in accordance with Section 2.11(a).

2.4 Optional Prepayments; Termination or Reduction of Delayed Draw Loan Commitments.

(a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent no later than 3:00 P.M., New York City time, three Business Days prior thereto, in the case of Eurodollar

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Loans, and no later than 3:00 P.M., New York City time, one Business Day prior thereto, in the case of ABR Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.14. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to such date on the amount prepaid. Partial prepayments of Loans shall be in an aggregate principal amount of $500,000 or a whole multiple thereof.

(b) All voluntary prepayments of Loans effected on or prior to the first anniversary of the Closing Date, in each case with the proceeds of a substantially concurrent incurrence or issuance of loans pursuant to this Agreement or any other credit facility (excluding a refinancing of all of the Loans outstanding under this Agreement in connection with another transaction not permitted by this Agreement (as determined prior to giving effect to any amendment or waiver of this Agreement being adopted in connection with such transaction), provided that the primary purpose of such transaction is not to refinance Indebtedness hereunder at an Applicable Margin or similar interest rate spread more favorable to the Borrower), shall be accompanied by a prepayment fee equal to 1.00% of the aggregate amount of such prepayments if the Applicable Margin or similar interest rate spread applicable to such new loans is or, upon the satisfaction of conditions provided for in the documentation governing such new loans, would be, less than the Applicable Margin applicable to the Loans being prepaid. For purposes of this paragraph (b), a prepayment of the Loans shall be deemed to have occurred in the event of any repricing thereof.

(c) The Borrower shall have the right prior to the Delayed Draw Termination Date, upon not less than three Business Days’ notice to the Administrative Agent, to terminate the then unutilized Delayed Draw Loan Commitments or, from time to time, to reduce the amount of the then unutilized Delayed Draw Loan Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Delayed Draw Loan Commitment of each Lender then in effect on a pro rata basis.

2.5 Mandatory Prepayments.

(a) Subject to the Intercreditor Agreement, if any Indebtedness shall be issued or incurred by the Borrower or any Group Member (excluding any Indebtedness incurred without violation of Section 6.1), an amount equal to 100% of the Net Cash Proceeds thereof shall be applied within three Business Days after the date of such issuance or incurrence toward the prepayment of the Loans as set forth in Section 2.5(d).

(b) If on any date the Borrower or any Subsidiary Guarantor shall receive Net Cash Proceeds from (i) prior to the Revolving Facility Obligations Payment Date, any Asset Sale or Recovery Event with respect to Term Facility Priority Collateral or (ii) after the Revolving Facility Obligations Payment Date, any Asset Sale or Recovery Event with respect to any Collateral, then, unless a Reinvestment Notice shall be delivered in respect thereof within ten Business Days after receipt of such proceeds, such Net Cash Proceeds shall be applied at the end of such ten-Business Day period toward the prepayment of the Loans as set forth in Section 2.5(d); provided, that, notwithstanding the foregoing, on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Loans as set forth in Section 2.5(d).

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(c) If, for any Fiscal Year of the Borrower commencing with the Fiscal Year ending December 31, 2008, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF Percentage of such Excess Cash Flow toward the prepayment of the Loans as set forth in Section 2.5(d). Each such prepayment shall be made on a date (an “Excess Cash Flow Application Date”) no later than ten Business Days after the date on which the financial statements of the Borrower referred to in Section 5.1(a), for the Fiscal Year with respect to which such prepayment is made, are required to be delivered to the Lenders.

(d) The application of any prepayment pursuant to Section 2.5 shall be made, first, to ABR Loans and, second, to Eurodollar Loans. Each prepayment of the Loans under Section 2.5 shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid.

2.6 Conversion and Continuation Options.

(a) The Borrower may elect from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent prior irrevocable notice of such election no later than 1:00 P.M., New York City time, on the Business Day preceding the proposed conversion date, provided that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent prior irrevocable notice of such election no later than 1:00 P.M., New York City time, on the third Business Day preceding the proposed conversion date (which notice shall specify the length of the initial Interest Period therefor), provided that no ABR Loan may be converted into a Eurodollar Loan when any Event of Default has occurred and is continuing and the Administrative Agent or the Required Lenders have determined in its or their sole discretion not to permit such conversions. Upon making such determination the Administrative Agent shall promptly notify the Borrower thereof. Upon receipt of the Borrower’s conversion notice the Administrative Agent shall promptly notify each relevant Lender thereof.

(b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term “Interest Period” set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such when any Event of Default has occurred and is continuing and the Administrative Agent has or the Required Lenders have determined in its or their sole discretion not to permit such continuations, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any such conversion notice the Administrative Agent shall promptly notify each relevant Lender thereof.

2.7 Limitations on Eurodollar Tranches.

Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions and continuations of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $2,500,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time.

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2.8 Interest Rates and Payment Dates.

(a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin.

(b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin.

(c) (i) If all or a portion of the principal amount of any Loan shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans shall bear interest at a rate per annum equal to the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% and (ii) if all or a portion of any interest payable on any Loan or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to ABR Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, from the date of such non-payment until such amount is paid in full.

(d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand.

2.9 Computation of Interest and Fees.

(a) Interest and fees payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall promptly notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall promptly notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate.

(b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.8(a).

2.10 Inability to Determine Interest Rate.

If prior to the first day of any Interest Period:

(a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or

(b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,

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the Administrative Agent shall give telecopy or telephonic notice thereof confirmed in writing to the Borrower and the relevant Lenders promptly thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert ABR Loans to Eurodollar Loans.

2.11 Pro Rata Treatment and Payments.

(a) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. The amount of each principal prepayment of the Loans shall be applied to reduce pro rata the then remaining installments of the Loans. Amounts prepaid on account of the Loans may not be reborrowed.

(b) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Funding Office, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to each relevant Lender promptly upon receipt in like funds as received, net of any amounts owing by such Lender pursuant to Section 8.7. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment date into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension.

(c) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon, at a rate equal to the greater of (i) the Federal Funds Effective Rate and (ii) a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender’s share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum that would have been payable by such Lender under this Section 2.11(c), on demand, from the Borrower.

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(d) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower.

2.12 Requirements of Law.

(a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

(i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.13 and changes in the rate of tax on the overall net income of such Lender);

(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate; or

(iii) shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled.

(b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the later of (i) the date hereof or (ii) the date such Lender became a party hereto, shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder to a level below that which such Lender or such corporation would have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, upon at least 60 days’ prior written notice, such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written request therefor setting forth in reasonable

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detail the amount payable and the basis for calculating the additional amounts owed to such Lender under this Section 2.12(b) and including reasonable supporting documentation authenticating the claim, which written statement shall be made within 180 days of the date such Lender became aware of such additional amount or amounts. The Borrower shall not be liable for any additional amount or amounts prior to such notice. The Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction.

(c) A written statement as to any additional amounts payable pursuant to this Section and delivered pursuant to Section 2.12(b) submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. Notwithstanding anything to the contrary in this Section, the Borrower shall not be required to compensate a Lender pursuant to this Section for any amounts incurred more than nine months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; provided that, if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.13 Taxes.

(a) Subject to the other provisions of Section 2.13, all payments made by the Borrower under this Agreement shall, except as required by law, be made free and clear of, and without deduction or withholding for or on account of, any Taxes; provided, that, if any Non-Excluded Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to provide to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) an amounts equal to the sum the Administrative Agent or such Lender would have received had no such withholding or deductions for Non-Excluded Taxes been made. With respect to any Other Taxes for which the Borrower fails to make a payment pursuant to the first sentence of this Section 2.13(a), the Lender or Administrative Agent entitled to such amounts shall deliver to the Borrower (in the case of a Lender, with a copy to the Administrative Agent) a written request therefor setting forth in reasonable detail the amount payable and the basis for calculating the additional amounts owed to such Lender or Administrative Agent under this Section 2.13(a) and including reasonable supporting documentation authenticating the claim (provided, however, the Lender or Administrative Agent shall not be required to provide any documentation or make any disclosures that it considers to be confidential), which written statement shall be made within 180 days of the date such Lender or Administrative Agent became aware of such additional amount or amounts.

(b) The Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure.

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(d) Each Lender (or Transferee) that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Lender”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a statement substantially in the form of Exhibit G and a Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. If any Lender fails to provide the certifications described in this paragraph, such Lender acknowledges and agrees that the Borrower and/or the Administrative Agent shall be entitled to withhold and deduct from any payment otherwise due to such Lender the amount of any Taxes imposed by any Governmental Authority to the extent required by law.

(e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

(f) If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund or credit in lieu of a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.13, it shall pay over an amount equal to such refund or credit to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.13 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund or credit), net of all out-of-pocket expenses of the Administrative Agent or any Lender that are attributable to the receipt of such refund or credit, without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

(g) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

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2.14 Eurodollar Breakage Indemnity.

The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any actual loss or out-of-pocket expense that such Lender sustains or incurs as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. A calculation as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.15 Change of Lending Office.

Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.12 or 2.13(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no material economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 2.12 or 2.13(a).

2.16 Replacement of Lenders.

The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.12 or 2.13(a), (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution or (c) does not consent to any proposed amendment, supplement, modification, consent or waiver of any provision of this Agreement or any other Loan Document that requires the consent of each of the Lenders or each of the Lenders affected thereby (so long as the consent of the Required Lenders has been obtained); provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.15 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.12 or 2.13(a), (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender for actual losses and out-of-pocket expenses, if any, due under Section 2.14 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 9.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.12 or 2.13(a), as the case may be, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender.

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2.17 Incremental Term Facility.

(a) The Borrower may at any time or from time to time after the Closing Date (on one or more occasions), by notice to the Administrative Agent (whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders), without having to seek consent from the Lenders, request one or more additional tranches of term loans (the “Incremental Loans”); provided that (i) both at the time of any such request and upon the effectiveness of any Incremental Amendment referred to below, no Default or Event of Default shall exist and at the time that any such Incremental Loan is made (and immediately after giving effect thereto) no Default or Event of Default shall exist, and (ii) the Consolidated Senior Secured Debt Ratio, determined on a pro forma basis as of the last day of the most recent Fiscal Quarter for which financial statements are available (but based on Consolidated Senior Secured Debt at the time of and after giving effect to such Incremental Loans and any other transaction in connection therewith) shall not exceed the Required Consolidated Senior Secured Debt Ratio. Each tranche of Incremental Loans shall be in an aggregate principal amount that is not less than $25,000,000 (provided that such amount may be less than $25,000,000 if such amount represents all remaining availability under the limit set forth in the next sentence). Notwithstanding anything to the contrary herein, the aggregate amount of all tranches of Incremental Loans shall not exceed $75,000,000; provided that such amount may be increased by the lesser of $25,000,000 and the aggregate amount of unused Delayed Draw Loan Commitments as of the Delayed Draw Termination Date. The Incremental Loans (A) shall rank pari passu in right of payment and of security with the Initial Loans, (B) shall not mature earlier than the Maturity Date and shall have a weighted average life to maturity (pursuant to such amortization schedules as may be determined by the Borrower and the lenders thereof) that is no shorter than the then-remaining weighted average life to maturity of the Initial Loans (as the aggregate amount thereof may have been reduced and as the scheduled amortization thereof may have been modified as of such date), (C) except as set forth above, shall be treated substantially the same as the Initial Loans (in each case, including with respect to mandatory and voluntary prepayments), and (D) will accrue interest at rates determined by the Borrower and the lenders providing such Incremental Loans, which rates may be higher or lower than the rates applicable to the Initial Loans. Each notice from the Borrower pursuant to this Section shall set forth the requested amount and proposed terms of the Incremental Loans and demonstrate compliance with the conditions set forth in clause (ii) of the proviso above. Incremental Loans may be made by any existing Lender (and each existing Lender will have the right to make a portion of any Incremental Loan) or by any other bank or other financial institution (any such other bank or other financial institution being called an “Additional Lender”), provided that such Additional Lender shall be reasonably acceptable to the Borrower and the Administrative Agent shall have consented (such consent not to be unreasonably withheld or delayed) to such Lender’s or Additional Lender’s making such Incremental Loans, if such consent would be required under Section 9.6 for an assignment of Loans to such Lender or Additional Lender. Incremental Loans shall become Loans under this Agreement pursuant to an amendment (an “Incremental Amendment”) to this Agreement and, such other Loan Documents as are necessary, executed by the Borrower, each Lender agreeing to provide such Commitment, if any, each Additional Lender, if any, and the Administrative Agent. An Incremental Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions and intent of this Section and the application of the proceeds thereof. The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (each, an “Incremental Facility Closing Date”) of each of the conditions set forth in Section 4.2. No Lender shall be obligated to provide any Incremental Loans, unless it so agrees. The Borrower may use the proceeds of each tranche of Incremental Loans for any purpose not prohibited by this Agreement unless otherwise agreed in connection with such Incremental Loans.

2.18 Delayed Draw Commitment Fee.

The Borrower agrees to pay to the Administrative Agent for the account of each Lender with a Delayed Draw Loan Commitment a commitment fee for the period from and including the Closing

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Date to but not including the earlier of (x) the date on which all Delayed Draw Loan Commitments have been terminated and (y) the date on which all Delayed Draw Loan Commitments have expired, computed at the following rate per annum: (i) from and including the Closing Date to but not including the date that is six months after the Closing Date, 1.125% and (ii) thereafter, 1.50%, in each case on the unused Delayed Draw Loan Commitment of such Lender, payable quarterly in arrears on each first day of April, July, October, January, commencing on the first such date to occur after the Closing Date.

SECTION 3. REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that:

3.1 Financial Condition.

(a) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at April 1, 2007 (the “Pro Forma Balance Sheet”), a copy of which has heretofore been furnished to the Administrative Agent, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Refinancing, (ii) the Initial Loans to be made on the Closing Date and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Restricted Subsidiaries as at April 1, 2007, assuming that the events specified in the preceding sentence had actually occurred at such date.

(b) The audited consolidated balance sheets of the Borrower as at December 31, 2006, and the related consolidated statements of income and of cash flows for the Fiscal Year ended on such date, reported on by and accompanied by an unqualified report from KPMG LLP, present fairly the consolidated financial condition of the Borrower and the Restricted Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the Fiscal Year then ended. The unaudited consolidated balance sheet of the Borrower as at April 1, 2007, and the related unaudited consolidated statements of income and cash flows for the thirteen-week period ended on such date, present fairly the consolidated financial condition of the Borrower and the Restricted Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the thirteen-week period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). As of the Closing Date, neither the Borrower nor any Group Member has any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that should be and are not reflected under GAAP in the most recent financial statements referred to in this paragraph. During the period from December 31, 2006 to and including the date hereof there has been no Asset Sale by the Borrower or any Group Member of any material part of its business or property.

3.2 No Change.

Since December 31, 2006, there has been no development or event that has had or would reasonably be expected to have a Material Adverse Effect.

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3.3 Existence; Compliance with Law.

Each Group Member (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or other organization and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except, in each case, to the extent that the failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.4 Power; Authorization; Enforceable Obligations.

Each of the Borrower and the Guarantors has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each of the Borrower and the Guarantors has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Refinancing and the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 3.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 3.19. Each Loan Document has been duly executed and delivered on behalf of each of the Borrower and the Guarantors party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each of the Borrower and the Guarantors party thereto, enforceable against each of the Borrower and the Guarantors in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

3.5 No Legal Bar.

The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of any Group Member except as would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents and the Revolving Facility Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries would reasonably be expected to have a Material Adverse Effect.

3.6 Litigation.

No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents, or (b) that would reasonably be expected to have a Material Adverse Effect.

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3.7 No Default.

No Group Member is in default under or with respect to any of its Contractual Obligations in any respect that would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

3.8 Ownership of Property; Liens.

Each Group Member has title in fee simple to all its owned real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 6.2 and except for such defects of title as would not in whole or in part reasonably be expected to have a Material Adverse Effect.

3.9 Intellectual Property.

Each Group Member owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted, except for defects as would not in whole or in part reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.9, no material claim has been asserted and is pending against any Group Member by any Person challenging or questioning (i) the use by any Group Member of any of their material Intellectual Property or (ii) the validity of any Registered Intellectual Property owned by such Group Member. To the knowledge of the Borrower, the use of Registered Intellectual Property owned by any Group Member does not infringe on the rights of any Person in any material respect.

3.10 Taxes.

Each Group Member has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all material taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any of which the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Group Member); no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such material tax, fee or other charge.

3.11 Federal Regulations.

No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Board or (b) for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.

3.12 Labor Matters.

Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of the Borrower, threatened; (b) hours worked by and payment made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant Group Member.

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3.13 ERISA.

Neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412 of the Code or Section 302 of ERISA), and, on and after the effectiveness of the Pension Act, no failure by any Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code, in each case other than as described on Schedule 3.13. On and after the effectiveness of the Pension Act, there has been no determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA) during such five-year period. Except as set forth on Schedule 3.13, the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period, in each case other than as described on Schedule 3.13. Neither the Borrower nor any Commonly Controlled Entity is party to a Multiemployer Plan.

3.14 Investment Company Act; Other Regulations.

None of the Borrower or any Guarantor is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended. None of the Borrower or any Guarantor is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness.

3.15 Subsidiaries.

Except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date or as set forth on Schedule 3.15, (a) Schedule 3.15 sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by each of the Borrower and the Guarantors and (b) there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of the Borrower or any Subsidiary, except as created by the Loan Documents.

3.16 Use of Proceeds.

The proceeds of the Loans shall be used first to finance all or a portion of the Refinancing and to pay related fees and expenses and, if any amounts remain, for working capital and other general corporate purposes of the Group Members not prohibited hereunder.

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3.17 Environmental Matters.

Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect:

(a) the facilities and properties owned, leased or operated by any Group Member (the “Properties”) do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or would give rise to liability under, any Environmental Law;

(b) no Group Member has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Group Member (the “Business”), nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened;

(c) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that would reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that would reasonably be expected to give rise to liability under, any applicable Environmental Law;

(d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;

(e) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that would give rise to liability under Environmental Laws;

(f) the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and

(g) no Group Member has incurred any liability of any other Person under Environmental Laws.

3.18 Accuracy of Information, etc.

No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished by or on behalf of any of the Borrower or any Guarantor to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected

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results set forth therein by a material amount. There is no fact known to the Borrower or any Guarantor that would reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents.

3.19 Security Documents.

(a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral as defined therein and proceeds thereof. In the case of (i) the Pledged Collateral described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Collateral are delivered to the Administrative Agent, (ii) the UCC Collateral, when financing statements specified on Schedule 3.19(a) in appropriate form are filed in the offices specified on Schedule 3.19(a), (iii) Collateral Deposit Accounts and Lock Boxes (as such terms are defined in the Guarantee and Collateral Agreement), upon the depository in which such accounts or lock boxes are maintained agreeing that it will comply with the instructions originated by the Revolving Facility Agent directing disposition of the funds or items in such accounts or lock boxes without further consent from the owner of such accounts or lock boxes, and (iv) the Registered Intellectual Property described in the Guarantee and Collateral Agreement, when (A) the security interests granted in the Guarantee and Collateral Agreement in Patents, Trademarks and Copyrights are recorded in the applicable Intellectual Property registries, including United States Patent and Trademark Office and the United States Copyright Office and (B) when financing statements are filed in such Borrower or Guarantor’s jurisdiction of organization, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower and the Guarantors in such Pledged Collateral, UCC Collateral, Collateral Deposit Accounts, Lock Boxes, Registered Intellectual Property and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Collateral, Liens permitted by Section 6.2) subject to the Intercreditor Agreement.

(b) Each of the Mortgages is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 3.19(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower and the Guarantors in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person, subject to the Intercreditor Agreement. Schedule 1.1B lists, as of the Closing Date, each parcel of owned real property located in the United States and held by the Borrower or any Subsidiary Guarantor that has a value, in the reasonable opinion of the Borrower, in excess of $1,000,000.

3.20 Solvency.

Each of the Borrower and the Guarantors is, and after giving effect to the Refinancing and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent.

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3.21 Regulation H.

No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968.

3.22 Insurance.

As of the Closing Date, all insurance premiums have been paid. The Borrower believes that the insurance maintained by or on behalf of the Borrower and the Restricted Subsidiaries is adequate.

SECTION 4. CONDITIONS PRECEDENT

4.1 Conditions to Initial Loans.

The agreement of each Lender to make the Initial Loan requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such Loan on the Closing Date, of the following conditions precedent:

(a) Credit Agreement; Guarantee and Collateral Agreement; Intercreditor Agreement. The Administrative Agent shall have received (i) this Agreement or, in the case of the Lenders, an Addendum, executed and delivered by the Administrative Agent, the Borrower and each Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral Agreement, executed and delivered by the Borrower and each Subsidiary Guarantor, and (iii) the Intercreditor Agreement executed and delivered by the Borrower, the Guarantors, the Administrative Agent and the administrative agent for the lenders under the Revolving Facility Agreement.

(b) Refinancing, etc. The Administrative Agent shall have received satisfactory evidence that (i) the Revolving Facility Agreement shall have become effective, (ii) all outstanding extensions of credit under the Existing Credit Agreements shall have been terminated and all amounts thereunder shall have been paid in full and (iii) satisfactory arrangements shall have been made for the termination of all Liens granted in connection therewith.

(c) Pro Forma Balance Sheet; Financial Statements. The Administrative Agent shall have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Borrower for the 2006 Fiscal Year and (iii) unaudited interim consolidated financial statements of the Borrower for each Fiscal Quarter ended after the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower and its Subsidiaries, as reflected in the financial statements or projections contained in the Confidential Information Memorandum.

(d) Projections. The Lenders shall have received satisfactory projections through 2012.

(e) Approvals. All governmental approvals necessary in connection with the Refinancing, the continuing operations of the Group Members and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose materially adverse conditions on the Refinancing or the financing contemplated hereby.

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(f) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where the filing of financing statements is indicated by Article 9 of the UCC, and such search shall reveal no liens on any of the assets of the Group Members except for liens permitted by Section 6.2 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Administrative Agent.

(g) Fees. The Lenders, the Arrangers and the Administrative Agent shall have received all fees required to be paid pursuant to the Fee Letter executed by the Borrower and the Arrangers including all reasonable out-of-pocket expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel) on or before the Closing Date. All such amounts will be paid on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date.

(h) Closing Certificate; Certified Certificate of Incorporation; Good Standing Certificates. The Administrative Agent shall have received (i) a certificate of the Borrower and each Guarantor, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments, including the certificate of incorporation of the Borrower and each Guarantor that is a corporation certified by the relevant authority of the jurisdiction of organization thereof, and (ii) a long form good standing certificate for the Borrower and each Guarantor from its jurisdiction of organization.

(i) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions:

(i) the legal opinion of Sullivan & Cromwell LLP, special counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-1;

(ii) the legal opinion of Sullivan & Cromwell LLP, special California real estate counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-2;

(iii) the legal opinion of the General Counsel of the Borrower and its Subsidiaries, substantially in the form of Exhibit F-3; and

(iv) the legal opinion of De Brauw Blackstone Westbroek New York, special Dutch counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-4.

Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require.

(j) Pledged Stock; Stock Powers; Pledged Notes. The Administrative Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Administrative Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

(k) Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to

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create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.2 and subject to the Intercreditor Agreement), shall be in proper form for filing, registration or recordation.

(l) Mortgages, etc. (i) The Administrative Agent shall have received a Mortgage with respect to each Mortgaged Property, executed and delivered by a duly authorized officer of each party thereto.

(ii) The Administrative Agent shall have received in respect of each Mortgaged Property a mortgagee’s title insurance policy (or policies) or marked up unconditional binder for such insurance, in each case in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall have received evidence satisfactory to it that all premiums in respect of each such policy, all charges for mortgage recording tax, and all related expenses, if any, have been paid.

(iii) If requested by the Administrative Agent, the Administrative Agent shall have received (A) a policy of flood insurance that (1) covers any parcel of improved real property that is encumbered by any Mortgage, (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage that is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not later than the maturity of the Indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board.

(iv) The Administrative Agent shall have received a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (ii) above and a copy of all other material documents affecting the Mortgaged Properties.

(m) Solvency Certificate. The Administrative Agent shall have received a solvency certificate from the chief financial officer of the Borrower, substantially in the form of Exhibit J.

(n) Insurance. The Administrative Agent shall have received such insurance certificates as reasonably requested evidencing the Borrower’s compliance with the requirements of Section 5.9(b) of the Guarantee and Collateral Agreement.

(o) USA Patriot Act. Each Lender shall have received all information necessary to enable such Lender to identify the Borrower and each Guarantor in accordance with the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001).

For the purpose of determining compliance with the conditions specified in this Section 4.1, each Lender that has signed an Addendum shall be deemed to have accepted, and to be satisfied with, each document or other matter required under this Section 4.1 unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

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4.2 Conditions to Each Extension of Credit.

The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent:

(a) Representations and Warranties. Each of the representations and warranties made by the Borrower and the Guarantors in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date.

(b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date.

Each borrowing by the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 4.2 have been satisfied.

SECTION 5. AFFIRMATIVE COVENANTS

The Borrower hereby agrees that, so long as any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower shall and shall cause each of the Restricted Subsidiaries to:

5.1 Financial Statements.

Furnish to the Administrative Agent (and upon receipt, the Administrative Agent shall furnish to each Lender):

(a) as soon as available, but in any event within 120 days after the end of each Fiscal Year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a “going concern” or like qualification or exception, or qualification arising out of the scope of the audit, by KPMG LLP or other independent certified public accountants of nationally recognized standing; and

(b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each Fiscal Year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the Fiscal Year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, in each case, in management format and certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments).

All such financial statements shall be complete and correct in all material respects, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein not materially misleading in light of the circumstances under which such statements were made and shall be prepared in reasonable detail and in accordance with GAAP applied (except as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein) consistently throughout the periods reflected therein and with prior periods.

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5.2 Certificates; Other Information.

Furnish to the Administrative Agent (and upon receipt, the Administrative Agent shall furnish to each Lender):

(a) concurrently with the delivery of any financial statements pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating that, to the best of such Responsible Officer’s knowledge, each Group Member during such period has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate with respect to each Group Member substantially in the form attached hereto as Exhibit B, and (y) to the extent not previously disclosed to the Administrative Agent, (1) a description of any change in the jurisdiction of organization of any Group Member, and (2) a description of any Person that has become a Group Member or that has been designated as an Unrestricted Subsidiary, in each case since the date of the most recent report delivered pursuant to this clause (y) (or, in the case of the first such report so delivered, since the Closing Date);

(b) as soon as available, and in any event no later than 45 days after the end of each Fiscal Year of the Borrower, a detailed consolidated budget for the following Fiscal Year (including a projected consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the end of the following Fiscal Year, the related consolidated statements of projected cash flow and projected statements of income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such Fiscal Year (collectively, the “Projections”), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; and

(c) promptly, such additional financial and other information as the Administrative Agent may from time to time reasonably request;

provided, however, that any document required to be filed publicly under the Federal securities laws, if any, will be sufficient to constitute delivery to the Administrative Agent upon filing.

5.3 Payment of Taxes.

Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material taxes of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member.

5.4 Maintenance of Existence; Compliance.

(a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary in the normal conduct of its business, except, in each case, as otherwise not prohibited by Section 6.3 and except, in the case of clause (ii) above, to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

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5.5 Maintenance of Property; Insurance.

(a) Keep all property necessary in its business in good working order and condition, ordinary wear and tear excepted to the extent that failure to do so, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, and (b) maintain with financially sound and reputable insurance companies insurance on all its property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business.

5.6 Inspection of Property; Books and Records; Discussions.

(a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP shall be made of all material dealings and transactions in relation to its business and activities that are required to be made in accordance with GAAP and which shall be in material conformance with all applicable Requirements of Law, except as would not reasonably be expected to have a Material Adverse Effect and (b) permit representatives of the Administrative Agent and the Lenders upon reasonable notice to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time during regular business hours and as often as may reasonably be necessary and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Borrower and with its independent certified public accountants; provided that so long as no Event of Default has occurred and is continuing only one such visit shall be permitted during any Fiscal Year, such visit to be coordinated by the Administrative Agent with reasonable notice to the Lenders providing each Lender the opportunity to be included in such visit.

5.7 Notices.

Promptly give notice (to the extent legally permitted to do so) to the Administrative Agent and each Lender of:

(a) the occurrence of any Default or Event of Default;

(b) any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that, in either case, if not cured or if adversely determined, as the case may be, would reasonably be expected to have a Material Adverse Effect;

(c) any litigation or proceeding affecting any Group Member (i) in which the amount involved is $5,000,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought or (iii) which questions the validity or enforceability of any Loan Document;

(d) the following events, as soon as possible and in any event within 30 days after a Responsible Officer of the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, or the creation of any Lien in favor of the PBGC or a Plan, (ii) on and after the effectiveness of the Pension Act, a determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA), or (iii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity with respect to the withdrawal from, or the termination, or insolvency of, any Plan;

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(e) any electronic chattel paper and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act which individually has a face amount of more than $500,000 or in the aggregate more than $2,000,000 promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;

(f) upon knowledge that any application or registration relating to any Registered Patent, Trademark or Copyright (now or hereafter existing) owned by the Borrower or any Guarantor and material to the conduct of the business or operations of the Borrower or any Guarantor is reasonably likely to become abandoned or dedicated to the public, or of any adverse determination or development (including the institution of any non-routine, or any such determination or development in, any non-routine proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any similar office, agency or tribunal in any country or any court) against the Borrower or any Guarantor regarding such Borrower or Guarantor’s right’s in, or the validity, enforceability, ownership or use of, any material Registered Intellectual Property owned by the Borrower or any Guarantor, including, without limitation, the right of the Borrower or any Guarantor to register or to maintain same;

(g) upon filing of an application for the registration, acquisition, or becoming the exclusive licensee of any Patent, Trademark or Copyright, or upon adopting or using any new mark or any mark which is confusingly similar to or a colorable imitation of any Trademark, in each case either directly or through any agent, employee, licensee or designee, promptly and in any event within 15 Business Days after such event;

(h) any Commercial Tort Claim (as defined in the Guarantee and Collateral Agreement) acquired by it or any Guarantor with respect to which an action has been filed in court or any other Governmental Authority with potential value in excess of $100,000 promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;

(i) any letter of credit with a stated amount in excess of $100,000 promptly and in any event within 15 Business Days after the Borrower or any Guarantor becomes a beneficiary thereof;

(j) at least 10 days prior to changing its, or permitting the Guarantors to change their, (a) name as it appears in official filings in the state of its incorporation or organization, (b) change the type of entity that it is, (c) organization identification number, if any, issued by its state of incorporation or other organization, or (d) state of incorporation or organization, and at least 5 days prior to changing or adding any location to the locations where its Collateral is held or stored as disclosed to the Administrative Agent on the Closing Date; and

(k) any development or event that has had or would reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.

5.8 Environmental Laws.

(a) Comply in all material respects with, and take commercially reasonable actions to ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable

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Environmental Laws, and obtain and comply in all material respects with and maintain, and take commercially reasonable actions to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws.

(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws.

5.9 Additional Collateral, etc.

(a) With respect to any property acquired after the Closing Date by any Group Member (other than (x) real property, (y) any property described in paragraph (b) or (c) below, and (z) any property subject to a Lien expressly permitted by Section 6.2(g)) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent reasonably deems necessary to grant to the Administrative Agent, for the benefit of the Lenders, a security interest in such property, other than Excluded Property as defined in the Guarantee and Collateral Agreement and subject to Liens expressly permitted by Section 6.2, and (ii) take all actions reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such property, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the Administrative Agent.

(b) With respect to any new Domestic Subsidiary created or acquired after the Closing Date by any Group Member that is or becomes a Wholly Owned Subsidiary thereof, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by any Group Member, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take such actions reasonably necessary to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement, other than Excluded Property as defined in the Guarantee and Collateral Agreement, with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the Administrative Agent and (C) to deliver to the Administrative Agent a certificate of such Subsidiary, substantially in the form of Exhibit C, with appropriate insertions and attachments, and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

(c) With respect to any new first-tier Foreign Subsidiary created or acquired after the Closing Date by any Group Member (other than any such new Subsidiary designated as an Unrestricted Subsidiary), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the

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Capital Stock of such new Subsidiary that is owned by any such Group Member (provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, and take such other action as may be reasonably necessary to perfect the Administrative Agent’s security interest therein, and (iii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

SECTION 6. NEGATIVE COVENANTS

The Borrower hereby agrees that, so long as any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower shall not, and shall not permit any other Group Member to, directly or indirectly:

6.1 Indebtedness.

Create, issue, incur, assume or become liable in respect of any Indebtedness, except:

(a) Indebtedness of any Group Member pursuant to any Loan Document;

(b) Indebtedness of any Group Member pursuant to the Revolving Facility Agreement or any other Revolving Facility Document and Permitted Refinancing Indebtedness in respect of any thereof;

(c) Indebtedness (i) among Group Members, (ii) among Foreign Subsidiaries or (iii) among Group Members and their Subsidiaries; provided that the sum of Indebtedness owed by Subsidiaries that are not Guarantors to the Borrower or any Guarantor and Indebtedness owed by Unrestricted Subsidiaries to the Borrower or any Restricted Subsidiary shall not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; provided that any such Indebtedness of the Borrower or any Guarantor shall be subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent;

(d) Guarantee Obligations incurred in the ordinary course of business by (i) the Borrower or any of its Subsidiaries of obligations of any Guarantor and (ii) any Restricted Subsidiary that is not a Guarantor of obligations of any other Restricted Subsidiary;

(e) Indebtedness outstanding on the date hereof and listed on Schedule 6.1(e) and any Permitted Refinancing Indebtedness in respect thereof;

(f) Indebtedness with respect to Capital Lease Obligations (including Sale and Leaseback transactions) in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding;

(g) Purchase Money Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; provided that any such Indebtedness (i) shall be secured only by the asset acquired in connection with the incurrence of such Indebtedness, (ii) shall constitute not less than 100% of the aggregate consideration paid with respect to such asset and (iii) shall be incurred within 180 days after the date of acquisition of such asset;

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(h) Indebtedness incurred by the Borrower or any of the Restricted Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing the performance of the Borrower or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of the Borrower or any of its Subsidiaries;

(i) Indebtedness which may be deemed to exist pursuant to any guarantees, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business;

(j) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts, securities accounts or cash management service;

(k) Guarantee Obligations incurred in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of the Borrower and the Restricted Subsidiaries;

(l) Indebtedness of any Foreign Subsidiary incurred in respect of bank guarantees, letters or credit or similar instruments to support local, legal, regulatory, solvency or consumer requirements or tax disputes;

(m) (i) Indebtedness in respect of (i) Flooring Arrangements in an aggregate amount not to exceed $20,000,000 at any time outstanding and (ii) Showcase Arrangements;

(n) Indebtedness incurred by Foreign Subsidiaries under working capital facilities in an aggregate principal amount not to exceed Euro 10,000,000 at any time outstanding;

(o) Indebtedness assumed in connection with a Permitted Acquisition so long as such Indebtedness is in existence at the time of the consummation of the Permitted Acquisition and is not created in anticipation thereof and Permitted Refinancing Indebtedness in respect thereof;

(p) additional unsecured Indebtedness of the Borrower; provided that (i) such Indebtedness shall not mature or require scheduled amortization or other scheduled payments of principal prior to the date that is six months after the Maturity Date, (ii) the Borrower shall not be required to comply with any financial maintenance covenant with respect to such Indebtedness, (iii) both immediately prior to and after giving effect thereto, no Default or Event of Default shall exist or result therefrom, (iv) the Consolidated Senior Secured Debt Ratio (determined on a pro forma basis) shall not exceed the Required Consolidated Senior Secured Debt Ratio and (v) such Indebtedness is incurred by the Borrower or any Guarantor and is not guaranteed by any Subsidiary other than the Guarantors, and, in each case, Permitted Refinancing Indebtedness in respect thereof;

(q) additional Indebtedness of the Borrower or any of the Restricted Subsidiaries in an aggregate principal amount (for the Borrower and all Restricted Subsidiaries) not to exceed $25,000,000 at any one time outstanding; and

(r) Indebtedness of the Borrower or any of the Restricted Subsidiaries incurred in connection with the financing of insurance premiums that is secured solely by the insurance financed not to exceed $3,000,000 in the aggregate at any time outstanding.

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6.2 Liens.

Create, incur, assume or become subject to any Lien upon any of its property, whether now owned or hereafter acquired, except:

(a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or the Restricted Subsidiaries, as the case may be, in conformity with GAAP;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 60 days or that are being contested in good faith by appropriate proceedings;

(c) Liens imposed by law and pledges or deposits made in connection with workers’ compensation, unemployment insurance, social security legislation or arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers;

(d) Liens, pledges and deposits to secure the performance of tenders, bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety, customs, stay and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of the Restricted Subsidiaries;

(f) Liens in existence on the date hereof listed on Schedule 6.2(f), securing Indebtedness permitted by Section 6.1(e), provided that no such Lien is used to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased;

(g) Liens securing Indebtedness of the Borrower or any Restricted Subsidiary incurred pursuant to Section 6.1(f) or 6.1(g), provided that (i) such Liens shall be created substantially simultaneously within 180 days of the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased;

(h) Liens created pursuant to the Security Documents;

(i) Liens created pursuant to the Revolving Facility Security Documents;

(j) any interest or title of a lessor under any lease entered into by the Borrower or any Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased;

(k) Liens arising out of judgments or awards not constituting an Event of Default under Section 7(h);

(l) Liens solely on any cash earnest money deposits made by the Borrower or any of the Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;

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(m) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

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

(o) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property so long as consistent with the use of such real property;

(p) licenses of or other agreement relating to Intellectual Property granted by the Borrower or any of the Restricted Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of the Borrower or such Subsidiary;

(q) Liens on insurance policies securing any premium financing thereof; and

(r) Liens not otherwise permitted by this Section so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Restricted Subsidiaries) $10,000,000 at any one time.

6.3 Fundamental Changes.

Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself, except that:

(a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Restricted Subsidiary (provided that when the Subsidiary that is not a Subsidiary Guarantor is merging or consolidating with a Subsidiary Guarantor, the Subsidiary Guarantor shall be the continuing or surviving corporation);

(b) any Foreign Subsidiary may be merged with or into another Foreign Subsidiary and the Capital Stock of a Foreign Subsidiary may be transferred from one Group Member to another Group Member, including the formation of a new first-tier Foreign Subsidiary holding company;

(c) any Subsidiary of the Borrower may Dispose of all or substantially all of its assets (i) to the Borrower or any Restricted Subsidiary (upon voluntary liquidation or otherwise) (provided that when a Subsidiary that is a Subsidiary Guarantor is so Disposing of all or substantially all of its assets to another Subsidiary, such other Subsidiary must be a Subsidiary Guarantor) or (ii) pursuant to a Disposition permitted by Section 6.4;

(d) any Subsidiary of the Borrower may liquidate or dissolve or change its legal form if the Borrower determines in good faith that such action is in the best interests of the Borrower and the Restricted Subsidiaries and is not disadvantageous to the Lenders in any material respect; and

(e) any Investment expressly permitted by Section 6.6 may be structured as a merger, consolidation or amalgamation.

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6.4 Disposition of Property.

Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell any shares of such Restricted Subsidiary’s Capital Stock to any Person, except:

(a) To the extent constituting a Disposition, Indebtedness, Liens, mergers, consolidations, amalgamations, Restricted Payments, Investments and Swap Agreements expressly permitted by Section 6.1, 6.2, 6.3, 6.5, 6.6 or 6.9;

(b) Dispositions that do not constitute Asset Sales; provided, that nothing in this clause (b) shall be construed as permitting the Disposition or issuance of Capital Stock of any Subsidiary Guarantor to any Person other than to the Borrower or another Subsidiary Guarantor;

(c) Asset Sales, the proceeds of which (valued at the principal amount thereof in the case of non-cash proceeds consisting of notes of other debt securities and valued at fair market value in the case of other non-cash proceeds) (i) are less than $1,000,000 with respect to any single Asset Sale or series of related Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $10,000,000; provided that (x) the consideration received for all such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of the Borrower (or any similar governing body)), (y) no less than 75% thereof shall be paid in cash, and (z) the Net Cash Proceeds thereof shall be applied as required by Section 2.5(b); provided, that nothing in this clause (c) shall be construed as permitting the Disposition or issuance of Capital Stock of any Subsidiary Guarantor to any Person other than to the Borrower or another Subsidiary Guarantor; and

(d) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom and the Consolidated Senior Secured Debt Ratio as of the last day of the most recent fiscal quarter for which financial statements have been delivered pursuant to Section 5.1 (but based on Consolidated Senior Secured Debt at the time of and after giving effect to the Disposition and any other Dispositions in the relevant period) is equal to or less than the Required Consolidated Senior Secured Debt Ratio, a Group Member may make additional Dispositions; provided that the Net Cash Proceeds thereof shall be applied to immediately prepay the Loans in accordance with Section 2.5(d).

6.5 Restricted Payments.

Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “Restricted Payments”), except that:

(a) any Subsidiary may make Restricted Payments to (i) the Borrower, (ii) any Subsidiary Guarantor or (iii) any other Restricted Subsidiary (pro rata to the ownership interest of such other Restricted Subsidiary);

(b) any Foreign Subsidiary of the Borrower may make Restricted Payments to another Foreign Subsidiary thereof;

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(c) so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Borrower may purchase Capital Stock of Borrower from present or former directors, officers or employees of any Group Member, their estates, spouses, former spouses and their heirs upon and after the death, disability or termination of employment of such officer or employee; provided, that the aggregate amount of payments under this clause after the date hereof (net of any proceeds received by the Borrower after the date hereof in connection with resales of any such Capital Stock) shall not exceed in the aggregate during any Fiscal Year $5,000,000 plus the proceeds of any key man life insurance policy; provided, further, that so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Schultz Repurchase shall be permitted in an aggregate amount not to exceed $15,000,000 which repurchase amount shall not be counted against the threshold set forth in the preceding proviso;

(d) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom and the Consolidated Senior Secured Debt Ratio as of the last day of the most recent Fiscal Quarter for which financial statements have been delivered pursuant to Section 5.1 (after giving pro forma effect to such additional Restricted Payments and any Indebtedness incurred in connection therewith) is equal to or less than the Required Consolidated Senior Secured Debt Ratio, the Borrower may make Restricted Payments to repurchase any outstanding Class C Shares;

(e) so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom, any Group Member may make Restricted Payments in the form of common stock in respect of any stock appreciation rights, plans, equity incentive or achievement plans or any similar plan, so long as such rights or similar plans are approved by the board of directors of the Borrower (or a duly constituted committee thereof; and

(f) in addition to the foregoing Restricted Payments, so long as no Default or Event of Default shall have occurred and be continuing or would result therefrom and the Consolidated Senior Secured Debt Ratio as of the last day of the most recent Fiscal Quarter for which financial statements have been delivered pursuant to Section 5.1 (after giving pro forma effect to such additional Restricted Payments and any Indebtedness incurred in connection therewith) is equal to or less than the Required Consolidated Senior Secured Debt Ratio, the Borrower may make additional Restricted Payments to any Person in an aggregate amount not to exceed the Applicable Amount.

6.6 Investments.

Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, “Investments”), except:

(a) accounts receivable and other extensions of trade credit by the Borrower and any Restricted Subsidiary in the ordinary course of business;

(b) cash and Cash Equivalent Investment;

(c) with respect to any Foreign Subsidiary, (i) investment-grade instruments and securities, (ii) deposit accounts, certificates of deposit, time deposits or overnight bank deposits with a bank or other depository institution, and (iii) such other securities and investments as the Borrower and the Administrative Agent may agree;

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(d) Guarantee Obligations permitted by Section 6.1 and intercompany Indebtedness permitted by Section 6.1(c);

(e) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in any Subsidiary Guarantors;

(f) Investments (i) in any securities received in satisfaction or partial satisfaction thereof from financially troubled debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with past practices of the Borrower and the Restricted Subsidiaries;

(g) loans and advances to officers, directors and employees of any Group Member (i) in the ordinary course of business (including for travel, entertainment and relocation expenses) consistent with past practices in an aggregate amount for all Group Members not to exceed $5,000,000 at any one time outstanding and (ii) for the purpose of funding the purchase of Capital Stock (including any director’s qualifying shares) or other equity interests in a Group Member in an aggregate amount for all Group Members not to exceed $3,000,000 at any one time outstanding;

(h) intercompany Investments by any Group Member in the Borrower or any Person that is or thereby becomes a Subsidiary Guarantor;

(i) Permitted Acquisitions;

(j) Investments (i) by any Foreign Subsidiary in another Foreign Subsidiary and (ii) by a Group Member in any Subsidiary including a Foreign Subsidiary or an Unrestricted Subsidiary; provided, that Investments permitted under this Section 6.6(j)(ii) are contemporaneously or within five Business Days remitted to a Borrower or any Guarantor and such Investments are made to facilitate repatriation of monies to the United States;

(k) to the extent constituting Investments, Indebtedness permitted under Section 6.1(m);

(l) Investments described in Schedule 6.6(l) and existing on the Closing Date;

(m) Capital Expenditures;

(n) the Borrower may enter into Swap Agreements that are not speculative in nature to the extent not prohibited under this Agreement;

(o) Investments made by any Group Member as a result of consideration received in connection with an Asset Sale or other transaction effected in compliance with Section 6.4(c);

(p) so long as immediately after giving effect to any such Investment, no Default has occurred and is continuing or would result therefrom and the Consolidated Senior Secured Debt Ratio as of the last day of the most recent Fiscal Quarter for which financial statements have been delivered pursuant to Section 5.1 (after giving pro forma effect to such additional Investments and any Indebtedness incurred in connection therewith) is equal to or less than the Required Consolidated Senior Secured Debt Ratio, other Investments in an aggregate amount (valued at cost) not to exceed the Applicable Amount; and

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(q) so long as immediately after giving effect to any such Investment, no Default has occurred and is continuing or would result therefrom, other Investments in an aggregate amount (valued at cost) not to exceed $5,000,000 in any Fiscal Year.

Notwithstanding the foregoing, in no event shall any Group Member make any Investment which results in or facilitates any Restricted Payment not otherwise permitted under the terms of Section 6.5.

6.7 Optional Payments and Modifications of Certain Debt Instruments.

(a) Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Permitted Subordinated Debt or any Permitted Refinancing Indebtedness incurred in respect of any of the foregoing; provided that the Borrower may pay, prepay, repurchase or redeem any of the foregoing Indebtedness, (I) pursuant to a refinancing thereof with Permitted Refinancing Indebtedness (to the extent permitted by Section 6.1), or (II) if the Consolidated Senior Secured Debt Ratio as of the last day of the most recent Fiscal Quarter for which financial statements have been delivered pursuant to Section 5.1 (after giving pro forma effect to such Indebtedness) is equal to or less than the Required Consolidated Senior Secured Debt Ratio; (b) amend, modify, waive or otherwise change, or consent or agree to any material amendment, modification, waiver or other change to, any of the terms of any Indebtedness described in clause (i) above or any preferred stock that is materially adverse to the interests of the Lenders; or (c) designate any Indebtedness (other than obligations of the Group Members pursuant to the Loan Documents and the Revolving Facility Documents) as “Designated Senior Indebtedness” (or any other defined term having a similar purpose) for the purposes of any Indebtedness described in clause (i) above that is subordinated to the Obligations;

6.8 Transactions with Affiliates.

Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the relevant Group Member, (c) any transaction between the Borrower and any Guarantor or between Guarantors, (d) transactions described in Schedule 6.8 and (e) upon fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.

6.9 Swap Agreements.

Enter into any Swap Agreement, other than Swap Agreements entered into in the ordinary course of business and not for speculative purposes, to protect against changes in interest rates, commodity prices or foreign exchange rates.

6.10 Negative Pledge Clauses.

Enter into or become effective any agreement that prohibits or limits the ability of any Group Member to create, incur or assume any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) the Revolving Facility Agreement and the other Revolving Facility Documents, (c) agreements evidencing Indebtedness of any Foreign Subsidiary of the Borrower permitted hereunder (provided that any prohibition or limitation thereunder is limited to the property or assets of such Foreign Subsidiary), (d) leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business (provided that any prohibition or

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limitation thereunder relates to customary provisions restricting assignments, subletting or other transfers and is limited to the property or assets subject to such agreement or arrangement), and (e) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby).

6.11 Clauses Restricting Subsidiary Distributions.

Enter into or permit to become effective any consensual encumbrance or restriction on the ability of any Group Member to (a) make Restricted Payments in respect of any Capital Stock of such Group Member held by, or pay any Indebtedness owed to, any Group Member, (b) make loans or advances to, or other Investments in, the Borrower or any Restricted Subsidiary or (c) transfer any of its assets to the Borrower or any Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary.

6.12 Lines of Business.

Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Group Members are engaged on the date of this Agreement, that are reasonably related or complementary thereto or that are an extension thereof.

SECTION 7. EVENTS OF DEFAULT

If any of the following events shall occur and be continuing:

(a) the Borrower shall fail to pay any principal of any Loan when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or any other amount payable by it hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or

(b) any representation or warranty made or deemed made by the Borrower or any Guarantor herein or in any other Loan Document to which it is a party or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or

(c) the Borrower or any Guarantor shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 5.4(a) (with respect to the Borrower only), Section 5.7(a) or 5.7(j) or Section 6 of this Agreement; or

(d) the Borrower or any Guarantor shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document to which it is a party (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days after written notice to the Borrower from the Administrative Agent or the Required Lenders; or

(e) any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) within five days after the scheduled or original due date of any such amount; or (ii) default in making any payment of any interest on any such Indebtedness or fees beyond the period of grace, if any, provided in

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the instrument or agreement under which such Indebtedness was created; provided, that a default, event or condition described in clause (i) or (ii) of this paragraph (e) shall not at any time constitute an Event of Default unless, within five days after the due date, one or more defaults, events or conditions of the type described in clauses (i) or (ii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness then due in the outstanding principal amount of at least $10,000,000 in the aggregate, or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, in each case if such default or event causes such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; or

(f) (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or undischarged for a period of 60 days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or

(g) (i) any Group Member or Commonly Controlled Entity shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA) or, on and after the effectiveness of the Pension Act, any failure by any Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Group Member or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) on and after the effectiveness of the Pension Act, there is a determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA); or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, would, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or

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(h) one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (to the extent not paid or covered by insurance as to which the relevant insurance company has acknowledged coverage) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or

(i) any material provision of the Security Documents shall cease to be in full force and effect, or any Group Member shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby, in each case for any reason other than the failure of the Administrative Agent or any Lender having due knowledge or notice of the event causing such invalidity or unenforceability to take any action within its control; or

(j) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Group Member shall so assert; or

(k) a Change of Control shall occur; or

(l) an “Event of Default” under and as defined in the Revolving Facility Agreement shall occur and either (i) such “Event of Default” shall continue for a period of at least 30 consecutive days without being cured or waived in accordance with the Revolving Facility Agreement or (ii) the lenders under the Revolving Facility Agreement accelerate their loans, terminate their commitments (unless such commitments are concurrently replaced or refinanced) or foreclose upon their collateral as a result thereof;

then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents shall immediately become due and payable, and (B) if such event is any other Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.

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SECTION 8. THE AGENTS

8.1 Appointment.

Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.

8.2 Delegation of Duties.

The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care.

8.3 Exculpatory Provisions.

Neither any Agent nor any of their respective officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Group Member or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Group Member a party thereto to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Group Member.

8.4 Reliance by Administrative Agent.

The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or email message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be

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fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.

8.5 Notice of Default.

The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

8.6 Non-Reliance on Agents and Other Lenders.

Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Group Member or any affiliate of a Group Member, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Group Members and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Group Members and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Group Member or any affiliate of a Group Member that may come into the possession of the Administrative Agent or any of its officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates.

8.7 Indemnification.

The Lenders agree to indemnify each Agent and its officers, directors, partners, employees, affiliates, agents, advisors and controlling persons (each, an “Agent Indemnitee”) (to the

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extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent Indemnitee in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent Indemnitee under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Agent Indemnitee or its Related Persons (if any). The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

8.8 Agent in Its Individual Capacity.

Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Group Member as though such Agent were not an Agent. With respect to its Loans made or renewed by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity.

8.9 Successor Administrative Agent.

The Administrative Agent may resign as Administrative Agent upon 10 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 7(a) or Section 7(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 8 and of Section 9.5 shall continue to inure to its benefit.

8.10 Syndication Agent.

The Syndication Agent shall not have any duties or responsibilities hereunder in its capacity as such.

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SECTION 9. MISCELLANEOUS

9.1 Amendments and Waivers.

Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 9.1. The Required Lenders and each Group Member party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Group Member party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Group Members hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date or reduce the amount of any amortization payment in respect of any Loan, reduce the stated rate of any interest or fee payable hereunder (except (x) in connection with the waiver of applicability of any post-default increase in interest rates (which waiver shall be effective with the consent of the Required Lenders) and (y) that any amendment or modification of defined terms used in the financial covenants in this Agreement shall not constitute a reduction in the rate of interest or fees for purposes of this clause (i)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Commitment, in each case without the written consent of each Lender directly affected thereby; (ii) eliminate or reduce the voting rights of any Lender under this Section 9.1 without the written consent of such Lender; (iii) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; or (iv) amend, modify or waive any provision of Section 8 or any other provision of any Loan Document that affects the Administrative Agent without the written consent of the Administrative Agent. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Group Members, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Group Members, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.

Notwithstanding the foregoing, this Agreement may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and the Borrower (a) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Loans and the accrued interest and fees in respect thereof and (b) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders.

In addition, notwithstanding the foregoing, this Agreement may be amended with the written consent of the Administrative Agent, the Borrower and the Lenders providing the relevant Replacement Loans (as defined below) to permit the refinancing, replacement or modification of all outstanding Loans (“Replaced Loans”) with a replacement term loan hereunder (“Replacement Loans”),

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provided that (a) the aggregate principal amount of such Replacement Loans shall not exceed the aggregate principal amount of such Replaced Loans, (b) the Applicable Margin for such Replacement Loans shall not be higher than the Applicable Margin for such Replaced Loans and (c) the weighted average life to maturity of such Replacement Loans shall not be shorter than the weighted average life to maturity of such Replaced Loans at the time of such refinancing.

Furthermore, notwithstanding the foregoing, this Agreement, including this Section 9.1, and the other Loan Documents may be amended pursuant to Section 2.17 in order to add any tranche of Incremental Loans to this Agreement and (i) to permit the Incremental Loans and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement (including the rights of the Additional Lenders in respect of such tranche of Incremental Loans to share ratably with the Initial Loans in prepayments pursuant to Section 2.5) and the other Loan Documents with the Initial Loans, (ii) to include appropriately such Additional Lenders in any determination of the Required Lenders and (iii) to amend other provisions of the Loan Documents so that such tranche of Incremental Loans is appropriately incorporated (including this Section 9.1).

9.2 Notices.

All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto:

Borrower:	Fender Musical Instruments Corporation 8860 E. Chaparral Road, Suite 100 Scottsdale, AZ 85250
	Attention:	Richard A. Kerley, Chief Financial Officer Mark Van Vleet, General Counsel
	Telecopy:	(480) 368-5460
	Telephone:	(480) 596-7105
with a copy to:	Sullivan & Cromwell LLP 1888 Century Park East, Suite 2100 Los Angeles, CA 90067
	Attention:	Hydee R. Feldstein, Esq.
	Telecopy:	(310) 712-8800
	Telephone:	(310) 712-6690
Administrative Agent:	JPMorgan Chase Bank, N.A. Loan & Agency Services 10 South Dearborn, Floor 7 Chicago, IL 60603
	Attention:	Kathleen Blomquist
	Telecopy:	(312) 732-1158
	Telephone:	(312) 732-2683
	email:	kathleen.blomquist@jpmchase.com

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provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.

Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

9.3 No Waiver; Cumulative Remedies.

No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

9.4 Survival of Representations and Warranties.

All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder.

9.5 Payment of Expenses and Taxes.

The Borrower agrees (a) to pay or reimburse the Administrative Agent and the Arrangers for all their reasonable out-of-pocket and documented costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable, documented fees and disbursements of counsel to the Administrative Agent and the Arrangers and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to the Borrower prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Administrative Agent shall deem appropriate, (b) to pay or reimburse each Lender and the Administrative Agent for all reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of one counsel in each relevant jurisdiction in which property is located and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender, the Arrangers and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents to the extent, in the case of this clause (c), payable under and in accordance with Section 2.13, and (d) to pay, indemnify, and hold each Lender, the Arrangers and the Agents and their respective officers, directors, partners, employees,

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affiliates, agents, advisors, trustees and controlling persons (each, an “Indemnitee”) harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Group Member or any of the Properties and the reasonable fees and expenses of legal counsel in connection with claims, actions or proceedings by any Indemnitee against any Group Member under any Loan Document (all the foregoing in this clause (d), collectively, the “Indemnified Liabilities”), provided, that the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee or its Related Persons (if any). Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause the Restricted Subsidiaries not to assert, and hereby waives and agrees to cause the Restricted Subsidiaries to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section 9.5 shall be payable not later than 10 days after written demand therefor. Statements payable by the Borrower pursuant to this Section 9.5 shall be submitted to Richard A. Kerley, Chief Financial Officer (Telephone No. (480) 596-7105) (Telecopy No. (480) 368-5460), at the address of the Borrower set forth in Section 9.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent. The agreements in this Section 9.5 shall survive repayment of the Loans and all other amounts payable hereunder.

9.6 Successors and Assigns; Participations and Assignments.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section.

(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees (each, an “Assignee”) all or a portion of its rights and obligations under this Agreement (including all or a portion of the Loans at the time owing to it) with the prior written consent of:

(A) the Borrower (such consent not to be unreasonably withheld), provided that no consent of the Borrower shall be required for an assignment to a Lender, an affiliate of a Lender, an Approved Fund (as defined below) or, if an Event of Default has occurred and is continuing, any other Person; and

(B) the Administrative Agent, provided that no consent of the Administrative Agent shall be required for an assignment of all or any portion of a Loan to a Lender, an affiliate of a Lender or an Approved Fund.

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(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Loans, the amount of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $1,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that (1) no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any;

(B) (1) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 and (2) the assigning Lender shall have paid in full any amounts owing by it to the Administrative Agent; and

(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

For the purposes of this Section 9.6, “Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an affiliate of a Lender or (c) an entity or an affiliate of an entity that administers or manages a Lender.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Assumption the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.12, 2.13, 2.14 and 9.5). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.6 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.

(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an Assignee, the Assignee’s completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in

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paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly affected thereby pursuant to the proviso to the second sentence of Section 9.1 and (2) directly affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.12, 2.13 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7(b) as though it were a Lender, provided such Participant shall be subject to Section 9.7(a) as though it were a Lender.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.12 or 2.13 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.13 unless such Participant is able to comply and in fact complies with Section 2.13(d).

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto.

(e) The Borrower, upon receipt of written notice from the relevant Lender, agrees to issue Notes to any Lender requiring Notes to facilitate transactions of the type described in paragraph (d) above.

(f) Notwithstanding the foregoing, any Conduit Lender may assign any or all of the Loans it may have funded hereunder to its designating Lender without the consent of the Borrower or the Administrative Agent and without regard to the limitations set forth in Section 9.6(b). Each of the Borrower, each Lender and the Administrative Agent hereby confirms that it will not institute against a Conduit Lender or join any other Person in instituting against a Conduit Lender any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding under any state bankruptcy or similar law, for one year and one day after the payment in full of the latest maturing commercial paper note issued by such Conduit Lender; provided, however, that each Lender designating any Conduit Lender hereby agrees to indemnify, save and hold harmless each other party hereto for any loss, cost, damage or expense arising out of its inability to institute such a proceeding against such Conduit Lender during such period of forbearance.

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9.7 Adjustments; Set-off.

(a) Except to the extent that this Agreement, any other Loan Document or a court order expressly provides for payments to be allocated to a particular Lender, if any Lender (a “Benefitted Lender”) shall receive any payment of all or part of the Obligations owing to it (other than in connection with an assignment made pursuant to Section 9.6), or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 7(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of the Obligations owing to such other Lender, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of the Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest.

(b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, upon any Obligations becoming due and payable by the Borrower (whether at the stated maturity, by acceleration or otherwise), to apply to the payment of such Obligations, by setoff or otherwise, any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender, any affiliate thereof or any of their respective branches or agencies to or for the credit or the account of the Borrower. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such application made by such Lender, provided that the failure to give such notice shall not affect the validity of such application.

(c) NOTWITHSTANDING THE FOREGOING, AT ANY TIME THAT ANY OF THE OBLIGATIONS SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, LENDER’S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY LOAN DOCUMENT UNLESS IT IS TAKEN WITH THE CONSENT OF THE LENDERS REQUIRED BY SECTION 9.1 OF THIS AGREEMENT, IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO THE ADMINISTRATIVE AGENT PURSUANT TO THE SECURITY DOCUMENTS OR THE ENFORCEABILITY OF THE OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE PARTIES AS REQUIRED ABOVE, SHALL BE NULL AND VOID. THIS PARAGRAPH SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS.

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9.8 Counterparts.

This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.

9.9 Severability.

Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.10 Integration.

This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.

9.11 GOVERNING LAW.

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

9.12 Submission To Jurisdiction; Waivers.

Each of the Borrower, the Agents and the Lenders hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower, as the case may be at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

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(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

9.13 Acknowledgements.

The Borrower hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents;

(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders.

9.14 Releases of Guarantees and Liens.

(a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each Lender (without requirement of notice to or consent of any Lender except as expressly required by Section 9.1) to take any action requested by the Borrower having the effect of releasing any Collateral or guarantee obligations (i) to the extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 9.1 or (ii) under the circumstances described in paragraph (b) below.

(b) At such time as the Loans and the other obligations under the Loan Documents (other than obligations under or in respect of Swap Agreements) shall have been paid in full, the Collateral shall be released from the Liens created by the Security Documents, and the Security Documents and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each of the Borrower and the Guarantors under the Security Documents shall terminate, all without delivery of any instrument or performance of any act by any Person.

9.15 Confidentiality.

(a) Each of the Agents and each Lender agrees to keep confidential all non-public information provided to it by the Borrower or any Guarantor, any Agent or any Lender pursuant to or in connection with this Agreement that is designated by the provider thereof as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to any Agent, any other Lender or any affiliate thereof, (b) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Transferee or any pledgee referred to in Section 9.6(d) or any direct or indirect counterparty to any Swap Agreement (or any professional advisor to such counterparty), (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of or request from any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar

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proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document.

(b) Each Lender acknowledges that information furnished to it pursuant to this Agreement or the other Loan Documents may include material non-public information concerning the Borrower and its Affiliates and their related parties or their respective securities, and confirms that it has developed compliance procedures regarding the use of material non-public information and that it will handle such material non-public information in accordance with those procedures and applicable law, including Federal and state securities laws.

(c) All information, including requests for waivers and amendments, furnished by the Borrower or the Administrative Agent pursuant to, or in the course of administering, this Agreement or the other Loan Documents will be syndicate-level information, which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities. Accordingly, each Lender represents to the Borrower and the Administrative Agent that it has identified in its administrative questionnaire a credit contact who may receive information that may contain material non-public information in accordance with its compliance procedures and applicable law, including Federal and state securities laws.

9.16 WAIVERS OF JURY TRIAL.

THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

9.17 Delivery of Addenda.

Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent an Addendum duly executed by such Lender.

9.18 Intercreditor Agreement.

The terms of this Agreement, any lien and security interest granted to the Administrative Agent pursuant to the Security Documents and the exercise of any right or remedy by the Administrative Agent under the Loan Documents are subject to the provisions of the Intercreditor Agreement. In the event of any inconsistency between the provisions of this Agreement and the other Loan Documents and the Intercreditor Agreement, the provisions of the Intercreditor Agreement shall supersede the provisions of this Agreement and the other Loan Documents.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:	/s/ William L. Mendello
	Name: William L. Mendello
	Title:   Chairman and Chief Executive Officer
JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender
By:	/s/ John C. Riordan
	Name: John C. Riordan
	Title:   Vice President
GOLDMAN SACHS CREDIT PARTNERS L.P., as Syndication Agent and as a Lender
By:	/s/ Bruce H. Mendelsohn
	Name: Bruce H. Mendelsohn
	Title:   Authorized Signatory

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EX-10.34

Exhibit 10.34

EXECUTION VERSION

REVOLVING FACILITY CREDIT AGREEMENT

among

FENDER MUSICAL INSTRUMENTS CORPORATION,

as Borrower,

The Several Lenders from Time to Time Parties Hereto,

THE CIT GROUP/COMMERCIAL SERVICES, INC. and

WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN),

as Co-Documentation Agents,

WELLS FARGO FOOTHILL, LLC,

as Syndication Agent,

and

JPMORGAN CHASE BANK, N.A.,

as Administrative Agent

Dated as of June 7, 2007

J.P. Morgan Securities Inc., as Sole Lead Arranger and Sole Bookrunner

TABLE OF CONTENTS

			Page
SECTION 1.		DEFINITIONS		6
	1.1	Defined Terms		6
	1.2	Other Definitional Provisions		33
SECTION 2.		AMOUNT AND TERMS OF COMMITMENTS		34
	2.1	Commitments		34
	2.2	Loans and Borrowings		34
	2.3	Requests for Revolving Borrowings		34
	2.4	Protective Advances		35
	2.5	Swingline Loans and Overadvances		36
	2.6	Letters of Credit		37
	2.7	Funding of Borrowings		41
	2.8	Interest Elections		41
	2.9	Termination of Commitments		42
	2.10	Repayment of Loans; Evidence of Debt		43
	2.11	Prepayments		43
	2.12	Fees		44
	2.13	Interest		45
	2.14	Inability to Determine Interest Rate		46
	2.15	Requirements of Law		46
	2.16	Indemnity		47
	2.17	Taxes		47
	2.18	Payments Generally; Allocation of Proceeds; Sharing of Set-offs		49
	2.19	Change of Lending Office		51
	2.20	Replacement of Lenders		51
	2.21	Returned Payments		52
	2.22	Incremental Facility		52
SECTION 3.		REPRESENTATIONS AND WARRANTIES		53
	3.1	Financial Condition		53
	3.2	No Change		54
	3.3	Existence; Compliance with Law		54
	3.4	Power; Authorization; Enforceable Obligations		54
	3.5	No Legal Bar		54
	3.6	Litigation		54
	3.7	No Default		55
	3.8	Ownership of Property; Liens		55
	3.9	Intellectual Property		55
	3.10	Taxes		55
	3.11	Federal Regulations		55
	3.12	Labor Matters		56
	3.13	ERISA		56
	3.14	Investment Company Act; Other Regulations		56
	3.15	Subsidiaries		56

	3.16	Use of Proceeds	56
	3.17	Environmental Matters	57
	3.18	Accuracy of Information, etc	57
	3.19	Security Documents	58
	3.20	Solvency	58
	3.21	Regulation H	59
	3.22	Insurance	59
SECTION 4.		CONDITIONS PRECEDENT	59
	4.1	Conditions to Revolving Loans	59
	4.2	Conditions to Each Extension of Credit	62
SECTION 5.		AFFIRMATIVE COVENANTS	63
	5.1	Financial Statements	63
	5.2	Certificates; Other Information	63
	5.3	Payment of Taxes	65
	5.4	Maintenance of Existence; Compliance	65
	5.5	Maintenance of Property; Insurance	65
	5.6	Inspection; Books and Records; Discussions; Field Examinations and Appraisals	66
	5.7	Notices	66
	5.8	Environmental Laws	68
	5.9	Additional Collateral, etc	68
	5.10	Casualty and Condemntation	69
SECTION 6.		NEGATIVE COVENANTS	69
	6.1	Indebtedness	69
	6.2	Liens	71
	6.3	Fundamental Changes	72
	6.4	Disposition of Property	73
	6.5	Restricted Payments	73
	6.6	Investments	74
	6.7	Optional Payments and Modifications of Certain Debt Instruments	75
	6.8	Transactions with Affiliates	76
	6.9	Swap Agreements	76
	6.10	Negative Pledge Clauses	76
	6.11	Clauses Restricting Subsidiary Distributions	76
	6.12	Lines of Business	77
	6.13	Consolidated Fixed Charge Coverage Ratio	77
	6.14	Amendment of Organizational Documents	77
SECTION 7.		EVENTS OF DEFAULT	77
SECTION 8.		THE AGENTS	80
	8.1	Appointment	80
	8.2	Delegation of Duties	80
	8.3	Exculpatory Provisions	80
	8.4	Reliance by Administrative Agent	80

	8.5	Notice of Default	81
	8.6	Non-Reliance on Agents and Other Lenders	81
	8.7	Indemnification	82
	8.8	Agent in Its Individual Capacity	82
	8.9	Successor Administrative Agent	82
	8.10	Documentation Agents and Syndication Agent	83
SECTION 9.		MISCELLANEOUS	83
	9.1	Amendments and Waivers	83
	9.2	Notices	85
	9.3	No Waiver; Cumulative Remedies	85
	9.4	Survival of Representations and Warranties	86
	9.5	Payment of Expenses and Taxes	86
	9.6	Successors and Assigns; Participations and Assignments	87
	9.7	Adjustments; Set-off	89
	9.8	Counterparts	90
	9.9	Severability	90
	9.10	Integration	90
	9.11	GOVERNING LAW	91
	9.12	Submission To Jurisdiction; Waivers	91
	9.13	Acknowledgements	91
	9.14	Releases of Guarantees and Liens	92
	9.15	Confidentiality	92
	9.16	Appointment for Perfection	93
	9.17	WAIVERS OF JURY TRIAL	93
	9.18	Several Obligations; Nonreliance; Violation of Law	93
	9.19	USA PATRIOT Act	93
	9.20	Survival	93
	9.21	Delivery of Addenda	94
	9.22	Intercreditor Agreement	94

SCHEDULES:
1.1A	Commitments
1.1B	Mortgaged Property
1.1C	Existing Letters of Credit
3.4	Consents, Authorizations, Filings and Notices
3.9	Intellectual Property
3.13	ERISA
3.15	Subsidiaries
3.19(a)	UCC Filing Jurisdictions
3.19(b)	Mortgage Filing Jurisdictions
6.1(e)	Existing Indebtedness
6.2(f)	Existing Liens
6.6(l)	Existing Investments
6.8	Affiliate Transactions
EXHIBITS:
A	Form of Guarantee and Collateral Agreement
B	Form of Compliance Certificate
C	Form of Closing Certificate
D	Form of Mortgage
E	Form of Assignment and Assumption
F-1	Form of Legal Opinion of Sullivan & Cromwell LLP
F-2	Form of Legal Opinion of Sullivan & Cromwell LLP (Real Property)
F-3	Form of Legal Opinion of the General Counsel of the Borrower
F-4	Form of Legal Opinion of De Brauw Blackstone Westbroek New York
G	Form of Exemption Certificate
H	Form of Addendum
I	Form of Intercreditor Agreement
J	Form of Solvency Certificate
K	Form of Borrowing Base Certificate

CREDIT AGREEMENT (this “Agreement”), dated as of June 7, 2007, among FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (the “Borrower”), the several banks and other financial institutions or entities from time to time parties to this Agreement (the “Lenders”), THE CIT GROUP/COMMERCIAL SERVICES, INC. and WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), as co-documentation agents (in such capacity, the “Documentation Agents”), WELLS FARGO FOOTHILL, LLC, as syndication agent (in such capacity, the “Syndication Agent”), and JPMORGAN CHASE BANK, N.A., as administrative agent.

The parties hereto hereby agree as follows:

SECTION 1. DEFINITIONS

1.1 Defined Terms.

As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1.

“ABR”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Alternate Base Rate.

“Account”: as defined in the Guarantee and Collateral Agreement.

“Account Debtor”: any Person obligated on an Account.

“Acquired Entity”: as defined in the definition of “Permitted Acquisitions”.

“Addendum”: an instrument, substantially in the form of Exhibit H, by which a Lender becomes a party to this Agreement as of the Closing Date.

“Additional Lender”: as defined in Section 2.22.

“Administrative Agent”: JPMorgan Chase Bank, N.A., together with its affiliates, as the arranger of the Commitments and as the administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors.

“Affiliate”: as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, “control” of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.

“Agents”: the collective reference to the Syndication Agent, the Documentation Agents and the Administrative Agent.

“Aggregate Credit Exposure” means, at any time, the aggregate Credit Exposure of all the Lenders.

“Agreement”: as defined in the preamble hereto.

“Alternate Base Rate”: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus  ¹/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.

“Applicable Margin”: for any day, (i) with respect to any ABR Loan, 0%, and (ii) with respect to any Eurodollar Revolving Loan, (x) from and including the Closing Date to but not including the date that is six months after the Closing Date, 1.25% per annum and (y) thereafter, the applicable rate per annum set forth below under the caption “Eurodollar Spread” based upon the Commitment Utilization Percentage:

Commitment Utilization Percentage	Eurodollar Spread
< 50%	1.25%
³ 50%	1.50%

“Applicable Percentage”: with respect to any Lender, (a) with respect to Revolving Loans, LC Exposure, Swingline Loans or Overadvances, a percentage equal to a fraction the numerator of which is such Lender’s Revolving Commitment and the denominator of which is the aggregate Revolving Commitment of all Revolving Lenders (if the Revolving Commitments have terminated or expired, the Applicable Percentages shall be determined based upon such Lender’s share of the aggregate Revolving Exposures at that time), and (b) with respect to Protective Advances or with respect to the Aggregate Credit Exposure, a percentage based upon its share of the Aggregate Credit Exposure and the unused Commitments.

“Approved Fund”: as defined in Section 9.6(b).

“Arranger”: J.P. Morgan Securities Inc.

“Asset Sale”: any Disposition of assets by the Borrower or any Restricted Subsidiary provided that the term “Asset Sale” shall not include any Dispositions (a) of Inventory (as such term is defined in the UCC) Disposed of in the ordinary course of business, (b) of obsolete, surplus or worn out assets, assets that are no longer useful or used in the business of the Borrower and any Restricted Subsidiary (including, without limitation, Intellectual Property) or scrap, in each case Disposed of in the ordinary course of business or by operations or divisions discontinued or to be discontinued, (c) without recourse and in the ordinary course of business of overdue accounts receivable in connection with the compromise or collection thereof, (d) constituting the licensing of Intellectual Property in the ordinary course of business and other licensing or leasing arrangements, (e) constituting the settlement, release or surrender of tort or other litigation claims, (f) constituting asset contributions made in connection with Investments otherwise permitted under Section 6.6, (g) among the Borrower and the Guarantors, and (h) that results in cash consideration of less than $500,000.

“Assignee”: as defined in Section 9.6(b).

“Assignment and Assumption”: an Assignment and Assumption, substantially in the form of Exhibit E.

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“Availability”: at any time, an amount equal to (a) the lesser of the Revolving Commitment and the Borrowing Base minus (b) the Revolving Exposure of all Revolving Lenders minus (c) Reserves.

“Availability Period”: the period from and including the Closing Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitments.

“Available Revolving Commitment”: at any time, the Revolving Commitment then in effect minus the Revolving Exposure of all Revolving Lenders at such time.

“Board”: the Board of Governors of the Federal Reserve System of the United States (or any successor).

“Borrower”: as defined in the preamble hereto.

“Borrowing”: (a) Revolving Loans of the same Type, made, converted or continued on the same date and, in the case of Eurodollar Loans, as to which a single Interest Period is in effect, (b) a Swingline Loan, (c) a Protective Advance and (d) an Overadvance.

“Borrowing Base”: at any time, the sum of (a) 85% of the Borrower’s Eligible Domestic Accounts at such time, plus (b) the lesser of (i) 50% of the Borrower’s Eligible Foreign Accounts and (ii) $5,000,000 plus (c) the product of 85% multiplied by the Net Orderly Liquidation Value Percentage multiplied by the Borrower’s Eligible Raw Materials at such time, plus (d) the product of 85% multiplied by the Net Orderly Liquidation Value Percentage multiplied by the Borrower’s Eligible Finished Goods at such time, minus (e) Reserves.

“Borrowing Base Certificate”: a certificate, signed and certified as accurate and complete by a Financial Officer of the Borrower, in substantially the form of Exhibit K or another form which is acceptable to the Administrative Agent in its sole discretion.

“Borrowing Request”: a request by the Borrower for a Revolving Borrowing in accordance with Section 2.2.

“Business”: as defined in Section 3.17(b).

“Business Day”: a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close, provided, that with respect to notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, such day is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market.

“Capital Expenditures”: for any period, the aggregate of all expenditures by the Borrower and its Restricted Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) that are capitalized under GAAP on a consolidated balance sheet of the Borrower and the Restricted Subsidiaries.

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

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“Capital Stock”: any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing.

“Cash Equivalent Investment”: (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of nine months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $250,000,000; (c) commercial paper of an issuer rated at least A-1 by Standard & Poor’s Ratings Services (“S&P”) or P-1 by Moody’s Investors Service, Inc. (“Moody’s”), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s; (f) securities with maturities of nine months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; (g) money market mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition; or (h) money market funds that (i) comply with the criteria set forth in SEC Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moody’s and (iii) have portfolio assets of at least $5,000,000,000.

“Change of Control”: at any time, any Person or “group” (within the meaning of Rules 13d 3 and 13d 5 under the Exchange Act) other than the Permitted Investors shall have acquired beneficial ownership of 50.1% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of the Borrower or shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of the Borrower.

“Change in Law” shall mean (a) the adoption of any law, treaty, order, policy, rule or regulation after the date of this Agreement, (b) any change in any law, treaty, order, policy, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by the Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law).

“Class”: when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans, Swingline Loans, Protective Advances or Overadvances.

“Class C Shares”: the Class C shares of the Borrower.

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“Closing Date”: the date on which the conditions precedent set forth in Section 4.1 shall have been satisfied, which date is June 7, 2007.

“Code”: the Internal Revenue Code of 1986, as amended from time to time.

“Collateral”: all property of the Group Members, now owned or hereafter acquired, upon which a Lien is purported to be granted under any Security Document, provided, that Collateral shall not include any Excluded Property (as defined in the Guarantee and Collateral Agreement).

“Collateral Access Agreement”: as defined in the Guarantee and Collateral Agreement.

“Collection Account”: as defined in the Guarantee and Collateral Agreement.

“Commitment”: with respect to each Lender, the sum of such Lender’s Revolving Commitment.

“Commitment Utilization Percentage”: on any day, the percentage equivalent of a fraction (a) the numerator of which shall equal the average daily Aggregate Credit Exposure for the Fiscal Quarter most recently ended prior to such day and (b) the denominator of which shall equal the Total Commitments in effect on such day (or, on any day after termination of the Total Commitments, the Total Commitments in effect immediately preceding such termination).

“Commonly Controlled Entity”: an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code.

“Compliance Certificate”: a certificate duly executed by a Responsible Officer substantially in the form of Exhibit B.

“Confidential Information Memorandum”: the Confidential Information Memorandum dated May, 2007 and furnished to certain Lenders.

“Consolidated EBITDA”: with respect to the Borrower and the Restricted Subsidiaries for any period, Consolidated Net Income for such period, plus (a) the sum of the following, without duplication and, in each case, to the extent deducted in determining such Consolidated Net Income: (i) any provision for income taxes, (ii) all interest expense, (iii) depreciation and amortization expense, (iv) loss from extraordinary or non-recurring items for such period, (v) the amount of deferred compensation and severance charges and fees, losses or charges resulting from hedging activities, including but not limited to any decrease in fair value of interest rate swap agreements and any losses on foreign currency contracts not entered into for speculative purposes, (vi) the amount of all non-cash charges for such period (including any impairment or writeoff of goodwill or other intangible assets), (vii) the amortization of any financing costs or fees or original issue discount incurred in connection with any Indebtedness, (viii) the amount of any commissions, fees and charges for the issuance, renewal or maintenance of any letters of credit, bankers’ acceptances or other credit enhancements and guarantees, (ix) any non-cash compensation charge or expense arising from any grant of stock, stock options or other equity based awards and any non-cash deemed finance charges, (x) costs, fees, charges and expenses (including legal and consulting fees) incurred in connection with or written off as a result of: (1) this Agreement, (2) Permitted Acquisitions and other investments permitted under this Agreement (including one-time amounts paid in connection with the acquisition or retention of one or more individuals comprising part of a management team retained to manage the acquired business; provided that such payments are made in connection with such acquisition and are consistent with the customary practice in the industry at the

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time of such acquisition), (3) issuances of Capital Stock, (4) disposition, incurrence or refinancing of any Indebtedness (including Capital Lease Obligations, Sale and Leaseback transactions and other items included in the definition of Indebtedness), including in each case, all deferred financing costs written off and premiums paid or other expenses incurred directly in connection with any early extinguishment of Indebtedness and any net gain (loss) from any write-off or forgiveness of Indebtedness, and (5) the Borrower’s remediation effort in connection with the implementation of the SAP ERP Software System; (xi) fees, expenses and any indemnification payments made under any acquisition, (xii) expenses and fees incurred in connection with the registration and protection of trademarks or trade names and in connection with the prosecution or defense of intellectual property rights and infringement actions, (xiii) the amount of cost savings projected by the Borrower in good faith to be realized during such period (calculated on a pro forma basis as though such cost savings had been realized on the first day of such period) in connection with an acquisition; provided that (A) such cost savings are reasonably identifiable and factually supportable, (B) such actions are taken within 18 months after the date of such acquisition and (C) the aggregate amount of cost savings added pursuant to this clause shall not exceed an amount equal to 15% of the Consolidated EBITDA of the Borrower and the Restricted Subsidiaries (on a pro forma basis after giving effect to such acquisition and any previous acquisition in the relevant period) for the period of four consecutive Fiscal Quarters most recently ended prior to the determination date, (xiv) net payments, if any, of obligations under any Swap Agreement, (xv) the effect of any discontinued operations or assets held for sale in accordance with GAAP, and (xvi) for the periods prior to the Closing Date, the amount of reserves taken for the bankruptcy of certain customers, including without limitation Brook Mays Music Company and Dennis Bamber Inc. in an aggregate amount not to exceed $2,000,000; less (b) the sum of the following to the extent included in determining Consolidated Net Income (i) income tax benefits for such period, (ii) gain from extraordinary or non-recurring items for such period, and (iii) any increase in fair value of interest rate swap agreements.

“Consolidated Fixed Charge Coverage Ratio”: for any twelve month period, determined as of the last day of the last fiscal quarter for which financial statements are required to be delivered by the Borrower, means the ratio of (a) Consolidated EBITDA for such period minus the amount of cash Capital Expenditures during such period to (b) the sum of the following during such period: (i) cash income taxes paid by the Borrower and the Restricted Subsidiaries during such period; (ii) cash dividends, cash redemptions and other cash distributions in respect of equity interests in the Borrower (excluding any redemptions of Class C Shares) during such period; (iii) cash interest paid on Consolidated Funded Indebtedness during such period; and (iv) all scheduled principal payments made in cash on Consolidated Funded Indebtedness during such period. For purposes of determining whether the Consolidated Fixed Charge Coverage Ratio has been met in connection with any Permitted Acquisition, the Consolidated EBITDA and the amounts of fixed charges of the Borrower and the Acquired Entity shall be combined and determined on a pro forma basis.

“Consolidated Funded Indebtedness”: for any date of determination, the sum of (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, and (c) all Capital Lease Obligations of such Person.

“Consolidated Net Income”: for any period, the net income (or loss) of the Borrower and the Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded from the calculation of Consolidated Net Income (a) except as otherwise provided in this Agreement with respect to calculations to be made on a pro forma basis, the net income (or loss) of any Restricted Subsidiary accrued prior to the date it became a Restricted Subsidiary of, or was merged or consolidated into, such Subsidiary or any of such Subsidiary’s Subsidiaries, (b) the net income (or loss) of any Person (other than a Restricted Subsidiary) in which the Borrower or any Restricted Subsidiary has an ownership interest, except to the extent any such income has actually been received by the Borrower or such Restricted Subsidiary in the form of cash dividends or distributions, (c)

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the undistributed earnings of any Restricted Subsidiary (other than a Guarantor) to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any contractual obligation or requirement of law applicable to such Subsidiary, (d) any gain or loss resulting from the write-up or write-down of any asset for which the offsetting entry would be an adjustment to net income, (e) any net gain or loss arising from the acquisition of any securities, or the extinguishment of any Indebtedness of the Borrower or any Restricted Subsidiary under GAAP, (f) any non-cash impact attributable to the application of the purchase method of accounting in accordance with GAAP in connection with any Permitted Acquisition (including, without limitation, the total amount of depreciation and amortization, cost of sales and other non-cash expense resulting from the write-up of assets for such period on a consolidated basis in accordance with GAAP to the extent such non-cash expense results from such purchase accounting adjustments) will be disregarded, and (g) the cumulative effect of a change in accounting principles.

“Contractual Obligation”: as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control”: as defined in the Guarantee and Collateral Agreement.

“Control Investment Affiliate”: as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, “control” of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

“Controlled Disbursement Account”: collectively, the following accounts at Wells Fargo Bank, National Association: USD account #9600033256 (AZ), and any replacement or additional accounts of the Borrower maintained with the Administrative Agent as a zero balance, cash management account pursuant to and under any agreement between the Borrower and the Administrative Agent, as modified and amended from time to time, and through which all disbursements of the Borrower, any Group Member and any designated Subsidiary of the Borrower are made and settled on a daily basis with no uninvested balance remaining overnight.

“Credit Exposure”: as to any Lender at any time, such Lender’s Revolving Exposure at such time.

“Default”: any of the events specified in Section 7, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Deposit Accounts”: as defined in the Guarantee and Collateral Agreement.

“Deposit Account Control Agreement”: as defined in the Guarantee and Collateral Agreement.

“Disposition”: with respect to any property owned by any Group Member, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof. The terms “Dispose” and “Disposed of” shall have correlative meanings.

“Documentation Agents”: as defined in the preamble hereto.

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“Dollars” and “$”: dollars in lawful currency of the United States.

“Domestic Subsidiary”: any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States.

“Eligible Accounts”: at any time, the Accounts of the Borrower which the Administrative Agent determines in its Permitted Discretion are eligible as the basis for the extension of Revolving Loans, Swingline Loans and the issuance of Letters of Credit hereunder. Without limiting the Administrative Agent’s discretion provided herein, Eligible Accounts shall not include any Account:

(a) which is not subject to a first priority perfected security interest in favor of the Administrative Agent;

(b) which is subject to any Lien other than (i) a Lien in favor of the Administrative Agent and (ii) a Permitted Encumbrance which does not have priority over the Lien in favor of the Administrative Agent;

(c) with respect to any Eligible Domestic Account, if such Account is unpaid more than 90 days after the date of the original invoice therefor, and with respect to Eligible Foreign Account, if such Account is unpaid more than 120 days after the date of the original invoice therefor, or in each case, which has been written off the books of the Borrower or otherwise designated as uncollectible;

(d) which is owing by an Account Debtor for which more than 50% of the Accounts owing from such Account Debtor and its Affiliates are ineligible hereunder;

(e) which is owing by an Account Debtor to the extent the aggregate amount of Eligible Accounts owing from such Account Debtor and its Affiliates to the Borrower exceeds 15% of the aggregate Eligible Accounts; provided that the customer concentration ratio shall be 35% for Eligible Accounts of Guitar Center;

(f) with respect to which any covenant, representation, or warranty contained in this Agreement or in the Guarantee and Collateral Agreement has been breached or is not true;

(g) which (i) does not arise from the sale of goods or performance of services in the ordinary course of business, (ii) is not evidenced by an invoice or other documentation satisfactory to the Administrative Agent which has been sent to the Account Debtor, (iii) represents a progress billing, (iv) is contingent upon the Borrower’s completion of any further performance or (v) represents a sale on a bill-and-hold, guaranteed sale, sale-and-return, sale on approval, consignment, cash-on-delivery or any other repurchase or return basis;

(h) for which the goods giving rise to such Account have not been shipped to the Account Debtor or for which the services giving rise to such Account have not been performed by the Borrower or if such Account was invoiced more than once;

(i) with respect to which any check or other instrument of payment has been returned uncollected for any reason other than any check or other instrument of payment that is not material to the credit of the Account Debtor as determined by the Administrative Agent in its Permitted Discretion;

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(j) which is owed by an Account Debtor which has (i) applied for, suffered, or consented to the appointment of any receiver, custodian, trustee, or liquidator of its assets, (ii) has had possession of all or a material part of its property taken by any receiver, custodian, trustee or liquidator, (iii) filed, or had filed against it, any request or petition for liquidation, reorganization, arrangement, adjustment of debts, adjudication as bankrupt, winding-up, or voluntary or involuntary case under any state or federal bankruptcy laws, (iv) has admitted in writing its inability, or is generally unable to, pay its debts as they become due, (v) become insolvent, or (vi) ceased operation of its business;

(k) which is owed by any Account Debtor which has sold all or a substantially all of its assets;

(l) which is owed by (i) the government (or any department, agency, public corporation, or instrumentality thereof) of any country other than the U.S. unless such Account is backed by a Letter of Credit acceptable to the Administrative Agent which is in the possession of the Administrative Agent, or (ii) the government of the U.S., or any department, agency, public corporation, or instrumentality thereof, unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. § 3727 et seq. and 41 U.S.C. § 15 et seq.), and any other steps necessary to perfect the Lien of the Administrative Agent in such Account have been complied with to the Administrative Agent’s satisfaction;

(m) which is owed by any Affiliate (other than the Japanese Affiliates), employee, officer or director of any Group Member;

(n) which is owed by an Account Debtor or any Affiliate (other than the Japanese Affiliates) of such Account Debtor to which any Group Member is indebted, but only to the extent of such indebtedness;

(o) which is subject to any security, deposit, progress payment, retainage or other similar advance made by or for the benefit of an Account Debtor, in each case to the extent thereof or is subject to any counterclaim, deduction, defense, setoff or dispute but only to the extent of any such counterclaim, deduction, defense, setoff or dispute; provided that any contra-account exception to eligibility or other criteria constituting an offset for accounts payable of the Borrower to any Account Debtor shall not include (nor shall the Borrower be required to track for Borrowing Base purposes) “FOB destination” sales not yet received by such Account Debtor;

(p) which is evidenced by any promissory note, chattel paper, or instrument;

(q) which is owed by an Account Debtor located in Minnesota, New Jersey or West Virginia which are as of the date hereof the jurisdictions that require filing of a “Notice of Business Activities Report” or other similar report in order to permit the Borrower to seek judicial enforcement in such jurisdiction of payment of such Account or located in any other jurisdiction that the Administrative Agent may add in its Permitted Discretion as a result of a similar requirement, unless the Borrower has filed such report or qualified to do business in such jurisdiction;

(r) with respect to which the Borrower has made any agreement with the Account Debtor for any reduction thereof to the extent of such reduction, other than discounts and adjustments given in the ordinary course of business, or any Account which was partially paid and the Borrower created a new receivable for the unpaid portion of such Account;

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(s) which does not comply in all material respects with the requirements of all applicable laws and regulations, whether Federal, state or local, including without limitation the Federal Consumer Credit Protection Act, the Federal Truth in Lending Act and Regulation Z of the Board;

(t) which is for goods that have been sold under a purchase order or pursuant to the terms of a contract or other agreement or understanding (written or oral) that indicates or purports that any Person other than the Borrower has or has had an ownership interest in such goods, or which indicates any party other than the Borrower as payee or remittance party;

(u) which was created on cash on delivery terms; or

(v) which the Administrative Agent, using its Permitted Discretion, otherwise determines is not an Eligible Account.

“Eligible Currency”: Dollars, Canadian Dollars, Japanese Yen, Pounds Sterling, Mexican Pesos or Eurodollars.

“Eligible Domestic Accounts”: Eligible Accounts which are (i) owed by an Account Debtor which (x) maintains its chief executive office in the United States or Canada and (y) is organized under applicable law of the United States, any state of the United States, Canada or any province of Canada and (ii) owed in U.S. dollars.

“Eligible Finished Goods”: on any date, Eligible Inventory defined as Finished Goods by the Borrower on such date as shown on the Borrower perpetual inventory records in accordance with its current and historical accounting practices.

“Eligible Foreign Accounts”: Eligible Accounts other than Eligible Domestic Accounts which are payable in the United States and in an Eligible Currency.

“Eligible Inventory”: at any time, the Inventory of the Borrower which the Administrative Agent determines in its Permitted Discretion is eligible as the basis for the extension of Revolving Loans, Swingline Loans and the issuance of Letters of Credit hereunder. Without limiting the Administrative Agent’s discretion provided herein, Eligible Inventory shall not include any Inventory:

(a) which is not subject to a first priority perfected Lien in favor of the Administrative Agent with such priority and perfection determined based on the applicable law where such Inventory is located, but subject (with respect to priority) to carriers’, warehousemen’s or other like Liens arising in the ordinary course of business and for which appropriate reserves have been established in accordance with clause (g) or (h) below;

(b) which is subject to any Lien other than (i) a Lien in favor of the Administrative Agent and (ii) a Permitted Encumbrance which does not have priority over the Lien in favor of the Administrative Agent;

(c) which is, in the Administrative Agent’s Permitted Discretion, slow moving, obsolete, unmerchantable, defective, used, unfit for sale, not salable at prices approximating at least the cost of such Inventory in the ordinary course of business or unacceptable due to age, type, category and/or quantity;

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(c) with respect to which any covenant, representation, or warranty contained in this Agreement or the Guarantee and Collateral Agreement has been breached or is not true and which does not conform to all standards imposed by any Governmental Authority;

(d) in which any Person other than the Borrower shall (i) have any ownership, interest or title to such Inventory or (ii) be indicated on any purchase order or invoice with respect to such Inventory as having or purporting to have an interest therein;

(e) which is not Raw Materials or Finished Goods or which constitutes work-in-process, spare or replacement parts, subassemblies, packaging and shipping material, manufacturing supplies, samples, prototypes, displays or display items, bill-and-hold goods, goods that are returned or marked for return, repossessed goods, defective or damaged goods, goods held on consignment, or goods (other than Raw Materials) which are not of a type held for sale in the ordinary course of business;

(f) which is not located in the U.S. or The Netherlands or in transit to the U.S. or The Netherlands between locations owned or leased by the Borrower or any of the Restricted Subsidiaries;

(g) which is located in any location leased by the Borrower unless (i) the lessor has delivered to the Administrative Agent a Collateral Access Agreement or (ii) a Reserve equal to the lesser of the market value of the Inventory in such location and three-months’ rent, charges, and other amounts due or to become due with respect to such facility has been established by the Administrative Agent in its Permitted Discretion;

(h) which is located in any third party warehouse or is in the possession of a bailee (other than a third party processor) and is not evidenced by a Document, unless (i) such warehouseman or bailee has delivered to the Administrative Agent a Collateral Access Agreement and such other documentation as the Administrative Agent may require or (ii) an appropriate Reserve has been established by the Administrative Agent in its Permitted Discretion;

(i) which is being processed offsite at a third party location or outside processor, or is in-transit to or from said third party location or outside processor;

(j) which is the subject of a consignment by the Borrower as consignor;

(k) which contains or bears any intellectual property rights licensed to the Borrower unless the Administrative Agent, in its Permitted Discretion, is satisfied that it may sell or otherwise dispose of such Inventory without (i) infringing the rights of such licensor; (ii) violating any contract with such licensor or (iii) incurring any liability with respect to payment of royalties other than royalties incurred pursuant to the sale of such Inventory under the current licensing agreement;

(l) which is not reflected in a current perpetual inventory report of the Borrower (unless such Inventory is reflected in a report to the Administrative Agent as “in transit” Inventory); or

(m) which the Administrative Agent, using its Permitted Discretion, otherwise determines is not Eligible Inventory.

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“Eligible Raw Materials”: on any date, Eligible Inventory defined as Raw Materials by the Borrower on such date as shown on the Borrower’s perpetual inventory records in accordance with its current and historical accounting practices.

“Environmental Laws”: any and all foreign, Federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health from exposure to any Hazardous Materials or the environment and applicable to the Group Members, as now or may at any time hereafter be in effect.

“Environmental Liability”: any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of a Group Member resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“ERISA”: the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurocurrency Reserve Requirements”: for any day as applied to a Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as “Eurocurrency Liabilities” in Regulation D of the Board) maintained by a member bank of the Federal Reserve System.

“Eurodollar”: when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are bearing interest at a rate determined by reference to the Eurodollar Rate.

“Eurodollar Base Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on the Reuters Screen LIBOR01 Page (or otherwise on such screen), the “Eurodollar Base Rate” shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be reasonably selected by the Administrative Agent or, in the absence of such availability, by reference to the rate at which the Administrative Agent is offered Dollar deposits at or about 11:00 A.M., Chicago time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where its eurodollar and foreign currency and exchange operations are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein.

“Eurodollar Rate”: with respect to each day during each Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%):

Eurodollar Base Rate

1.00  -  Eurocurrency Reserve Requirements

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“Event of Default”: any of the events specified in Section 7, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied.

“Excluded Taxes”: with respect to the Administrative Agent or any Lender or any other recipient of any payment hereunder or under any other Loan Document, Taxes to the extent constituting or relating to:

(a) income or franchise taxes imposed on (or measured by) such recipient’s net income by any Governmental Authority of the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or in which it is doing business for tax purposes or in the case of the Administrative Agent or any Lender, in which its applicable lending office is located or in which it is doing business for tax purposes;

(b) any branch profits taxes imposed by any jurisdiction described in clause (a) above;

(c) any Tax that is attributable to the Administrative Agent’s or a Lender’s failure or inability to deliver the forms required by Section 2.17(d) or Section 2.17(e);

(d) any withholding Tax imposed by a Governmental Authority that is in effect and would apply to amounts payable to the Administrative Agent or such Lender at the time the Lender becomes a party to this Agreement; provided that with respect to a Lender that is not a party to this Agreement at the Closing Date this clause (d) shall not apply to the extent (i) the indemnity payments or additional amounts such Lender (or Participant) would be entitled to receive (without regard to this clause (d)) do not exceed the indemnity payment or additional amounts that the person making such assignment, participation or transfer to such Lender (or Participant) would have been entitled to receive in the absence of such assignment, participation or transfer, or (ii) any Tax is imposed on a Lender in connection with an interest or participation in any Loan or other obligation that such Lender was required to acquire pursuant to Section 9.7(a) or that such Lender acquired pursuant to Section 2.19 (it being understood and agreed, for the avoidance of doubt, that any withholding Tax imposed on a Lender as a result of a Change in Law occurring after such time such Lender became a party to this Agreement (or designates a new lending office) shall not be an Excluded Tax).

“Existing Credit Agreements”: the collective reference to (a) the $220,000,000 Credit and Guaranty Agreement, dated as of March 30, 2005, among the Borrower, the domestic Subsidiaries of the Borrower, the lenders parties thereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and co-syndication agent, Wells Fargo Bank, National Association, as administrative agent, collateral agent and co-syndication agent, JPMorgan Chase Bank, N.A., as co-documentation agent, and City National Bank, as co-documentation agent, as amended by the First Amendment to the Credit and Guaranty Agreement dated as of August 15, 2005 and the Second Amendment and Waiver to Credit and Guaranty Agreement (First Lien) dated as of June 5, 2006, and (b) the $100,000,000 Credit and Guaranty Agreement, dated as of March 30, 2005, among the Borrower, the domestic Subsidiaries of the Borrower, the lenders parties thereto from time to time, Goldman Sachs Credit Partners L.P., as sole lead arranger, sole bookrunner and co-syndication agent, administrative agent and collateral agent, and Wells Fargo Bank, National Association, as co-syndication agent, JPMorgan Chase Bank, N.A., as co-documentation agent, as amended by the First Amendment to the Credit and Guaranty Agreement dated as of August 15, 2005 and the Second Amendment and Waiver to Credit and Guaranty Agreement (Second Lien) dated as of June 5, 2006.

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“Existing Issuing Bank”: Wells Fargo Bank, National Association, in its capacity as issuer of the Existing Letters of Credit.

“Existing Letters of Credit”: the letters of credit issued under the Existing Credit Agreements described on Schedule 1.1C.

“Federal Funds Effective Rate”: for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day of such transactions received by JPMorgan Chase Bank, N.A. from three federal funds brokers of recognized standing selected by it.

“Financial Officer”: the chief financial officer, principal accounting officer, director of treasury, treasurer or controller of the Borrower.

“Finished Goods”: completed goods which require no additional processing or manufacturing.

“Fiscal Month”: each period of four or five consecutive weeks ending on or about the last Sunday immediately prior to or immediately following the last day of the calendar month.

“Fiscal Quarter”: each period of three consecutive months of four, four and five weeks ending on or about the last Sunday immediately prior to or immediately following March 31, June 30, September 30 and December 31 of each year.

“Fiscal Week”: each period of seven consecutive days ending on a Sunday.

“Fiscal Year”: each period of 52 or 53 consecutive weeks ending on or about the last Sunday immediately prior to or immediately following December 31.

“Flooring Arrangements”: any arrangements whereby a third party makes payments to the Borrower, as trade creditor, for the account of one or more customers of the Borrower in respect of certain accounts receivable or other monetary obligations owing from such customers to the Borrower and arising in the ordinary course of business in connection with the acquisition of goods or services by such customers.

“Foreign Subsidiary”: any Subsidiary of the Borrower that is not a Domestic Subsidiary.

“Funding Account”: as defined in Section 4.1(p).

“GAAP”: generally accepted accounting principles in the United States as in effect from time to time.

“Governmental Authority”: any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization (including the National Association of Insurance Commissioners).

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“Governmental Authorization”: any permit, license, authorization, plan, directive, consent order, consent decree or other approval of or from any Governmental Authority.

“Group Members”: the collective reference to the Borrower, the Guarantors and the Restricted Subsidiaries that are not Guarantors.

“Guarantee and Collateral Agreement”: the Guarantee and Collateral Agreement to be executed and delivered by the Borrower and each Subsidiary Guarantor, substantially in the form of Exhibit A.

“Guarantee Obligation”: as to any Person (the “guaranteeing person”), any obligation, including a reimbursement, counterindemnity or similar obligation, of the guaranteeing Person that guarantees or in effect guarantees, or which is given to induce the creation of a separate obligation by another Person (including any bank under any letter of credit) that guarantees or in effect guarantees, any Indebtedness, leases, dividends or other obligations (the “primary obligations”) of any other third Person (the “primary obligor”), including any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith.

“Guarantors”: the collective reference to the Subsidiary Guarantors.

“Guitar Center”: Guitar Center, Inc., a Delaware corporation.

“Hazardous Materials”: all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Incremental Amendment”: as defined in Section 2.22.

“Incremental Facility Closing Date”: as defined in Section 2.22.

“Incremental Revolving Commitments”: as defined in Section 2.22.

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“Incremental Revolving Loans”: as defined in Section 2.22.

“Indebtedness”: of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person’s business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under or in respect of acceptances, letters of credit, surety bonds or similar arrangements, (g) the liquidation value of all mandatorily redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above, (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on property (including accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation, and (j) for the purposes of Section 7(e) only, all obligations of such Person in respect of Swap Agreements. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness expressly provide that such Person is not liable therefor.

“Intellectual Property”: the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom.

“Intercreditor Agreement”: the Intercreditor Agreement, dated as of the date hereof, among the Group Members, JPMorgan Chase Bank, N.A., as Administrative Agent for the Lenders and as administrative agent for the lenders under the Term Facility Agreement, substantially in the form of Exhibit I.

“Interest Election Request”: a request by the Borrower to convert or continue a Revolving Borrowing in accordance with Section 2.7.

“Interest Payment Date”: (a) as to any ABR Loan (other than a Swingline Loan), the first Business Day of each calendar month and the Maturity Date, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period and the Maturity Date, and (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and the Maturity Date.

“Interest Period”: as to any Eurodollar Borrowing, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Borrowing and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the

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Administrative Agent no later than 10:00 A.M., Chicago time, on the date that is three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following:

(i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;

(ii) the Borrower may not select an Interest Period that would extend beyond the date final payment is due on the Loans;

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

(iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan.

“Inventory”: as defined in the Guarantee and Collateral Agreement.

“Investments”: as defined in Section 6.6.

“Issuing Bank”: JPMorgan Chase Bank, N.A. or Wells Fargo Bank, National Association (“WFBNA”) or Wells Fargo Foothill, LLC, acting through and as the agent for WFBNA, in its capacity as an issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.6(i). Any Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of such Issuing Bank, in which case the term “Issuing Bank” shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate.

“Japanese Affiliates”: the collective reference to Kanda Shokai Corporation and Yamano Music Co. Ltd.

“LC Collateral Account”: as defined in Section 2.6(j).

“LC Disbursement”: a payment made by the Issuing Bank pursuant to a Letter of Credit.

“LC Exposure”: at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Revolving Lender at any time shall be its Applicable Percentage of the total LC Exposure at such time.

“Lenders”: as defined in the preamble hereto; provided, that unless the context otherwise requires, each reference herein to the Lenders shall be deemed to include any Additional Lender. Unless the context otherwise requires, the term “Lenders” includes the Swingline Lender.

“Letter of Credit”: any letter of credit issued pursuant to this Agreement.

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

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“Loan Documents”: this Agreement, the Security Documents, the Notes, the Intercreditor Agreement, any Letter of Credit applications, and all other agreements, instruments, documents and certificates identified in Section 4.1 executed and delivered to, or in favor of, the Administrative Agent or any Lenders and including all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of the Borrower or any Guarantor, or any employee of the Borrower or any Guarantor, and delivered to the Administrative Agent or any Lender in connection with the Agreement or the transactions contemplated thereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to the Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

“Loans”: the loans and advances made by the Lenders pursuant to this Agreement, including Swingline Loans, Overadvances and Protective Advances.

“Material Adverse Effect”: a material adverse effect on (a) the business, assets, operations or financial condition of the Borrower and the Restricted Subsidiaries taken as a whole, (b) the ability of the Borrower or any Guarantor to perform any of its obligations under the Loan Documents to which it is a party, (c) the Collateral, or the Administrative Agent’s Lien (on behalf of itself and the Lenders) on the Collateral or the priority of such Lien, or (d) the rights of or benefits available to the Administrative Agent or the Lenders thereunder.

“Materials of Environmental Concern”: any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.

“Maturity Date”: June 7, 2012 or any earlier date on which the Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof.

“Mortgaged Properties”: the real properties listed on Schedule 1.1B, as to which the Administrative Agent for the benefit of the Lenders shall be granted a Lien pursuant to the Mortgages.

“Mortgages”: each of the mortgages and deeds of trust made by the Borrower or any Guarantor in favor of, or for the benefit of, the Administrative Agent for the benefit of the Lenders, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded).

“Multiemployer Plan”: a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.

“Net Cash Proceeds”: (a) with respect to any Asset Sale or Recovery Event, the proceeds thereof received by the Borrower or any of the Restricted Subsidiaries in the form of cash and Cash Equivalent Investment (including any such proceeds subsequently received (as and when received) in respect of non-cash consideration initially received), net of (i) selling, recovery or other transactional expenses payable by the Borrower or any of the Restricted Subsidiaries in connection with obtaining such proceeds (including reasonable and customary broker’s or investment banker’s fees or commissions, legal

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fees, transfer and similar taxes incurred in connection therewith and the Borrower’s good faith estimate of income taxes paid or payable in connection with such sale or other transaction), (ii) amounts provided as a reserve, in accordance with GAAP, against any liabilities under any indemnification obligations or purchase price adjustment associated with such Asset Sale or Recovery Event (provided that, to the extent and at the time any such amounts are released from such reserve, such amounts shall constitute Net Cash Proceeds) and (iii) the principal amount, premium or penalty, if any, interest and other amounts on any Indebtedness for borrowed money which is secured by the asset sold in such Asset Sale or involved in such Recovery Event and which is repaid with such proceeds (other than, in connection with an Asset Sale, any such Indebtedness assumed by the purchaser of such asset); provided, however; that, with respect to proceeds other than from Revolving Facility Priority Collateral, if (x) the Borrower shall deliver a Reinvestment Notice to the Administrative Agent within ten Business Days of receipt of the cash proceeds and (y) no Default or Event of Default shall have occurred and be continuing at the time of receipt by the Administrative Agent of the Reinvestment Notice, such proceeds shall not constitute Net Cash Proceeds except to the extent not so used at the end of the 365-day period from the date of the Asset Sale or Recovery Event, at which time such proceeds shall be deemed to be Net Cash Proceeds, and (b) with respect to any issuance of Indebtedness by the Borrower or any of the Restricted Subsidiaries other than Indebtedness permitted to be incurred under the Loan Documents, the proceeds thereof received by the Borrower or any of the Restricted Subsidiaries in the form of cash and Cash Equivalent Investment, net of all taxes and all fees (including legal fees), commissions, underwriting discounts, costs and other expenses incurred or paid in connection therewith.

“Net Orderly Liquidation Value”: with respect to Inventory of any Person, the orderly liquidation value thereof as determined by an appraiser in a manner reasonably acceptable to the Administrative Agent in its Permitted Discretion, net of all costs of liquidation thereof.

“Net Orderly Liquidation Value Percentage”: with respect to Inventory of any Person, the percentage of Net Orderly Liquidation Value with respect to Inventory of such Person identified in the most recent inventory appraisal ordered by the Administrative Agent.

“Non-Excluded Taxes”: Taxes other than Excluded Taxes and Other Taxes.

“Non-U.S. Lender”: as defined in Section 2.17(d).

“Notes”: the collective reference to any promissory note evidencing Loans.

“Obligations”: the unpaid principal of and interest on (including interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, all LC Exposure and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including all fees, charges and disbursements of counsel to the Administrative Agent, the Issuing Bank or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise.

“Other Taxes”: any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

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“Overadvance” has the meaning assigned to such term in Section 2.5(b).

“Participant”: as defined in Section 9.6(c).

“PBGC”: the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor).

“Pension Act”: the Pension Protection Act of 2006, as it presently exists or as it may be amended from time to time.

“Perfected Cash”: cash of the Borrower held in a blocked account and as to which the Administrative Agent has a first priority perfected security interest.

“Permitted Acquisition”: any acquisition by any Group Member, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person (the “Acquired Entity”); provided, that:

(i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;

(ii) all transactions in connection therewith shall be consummated in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations, except where the failure to so comply would not reasonably be expected to have a Material Adverse Effect;

(iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such securities in the nature of directors’ qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of the Borrower in connection with such acquisition shall be directly and beneficially owned 100% by a Group Member, and the Borrower shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of the Borrower, each of the actions set forth in Section 5.9, as applicable to such Subsidiary;

(iv) the sum of Availability plus Perfected Cash is at least $20,000,000, and the Consolidated Fixed Charge Coverage Ratio, determined on a pro forma basis after giving effect to the acquisition and any other transaction in connection therewith (including assumed Consolidated Funded Indebtedness) as of the last day of the most recent Fiscal Quarter for which financial statements are available is at least 1.10 to 1.00;

(v) the Borrower shall have delivered to Administrative Agent at least five Business Days prior to such proposed acquisition, a certificate evidencing compliance with clause (iv) above, together with all relevant financial information with respect to such acquired assets, including the aggregate consideration for such acquisition and any other information required to demonstrate compliance with clause (iv) above;

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(vi) such acquisition shall be consensual;

(vii) any Person or assets or division acquired in accordance herewith shall be in the same or a related or complementary business or lines of business in which the Borrower and/or the Restricted Subsidiaries are engaged as of the Closing Date; and

(viii) if the assets acquired are to be included in the Borrowing Base, the Borrower shall have delivered all information reasonably requested by the Administrative Agent (including a field examination by the Administrative Agent or by firms acceptable to it) to include the acquired assets within the Borrowing Base.

“Permitted Discretion”: a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment, based upon any change in circumstances or information after the Closing Date.

“Permitted Encumbrances”: any Lien permitted under Section 6.2; provided that the term “Permitted Encumbrances” shall not include any Lien securing Consolidated Funded Indebtedness.

“Permitted Investors”: the collective reference to the Sponsor and its Control Investment Affiliates.

“Permitted Refinancing Indebtedness”: Indebtedness of the Borrower or any Restricted Subsidiary issued or incurred (including by means of the extension or renewal of existing Indebtedness) to refinance, refund, extend or renew existing Indebtedness (“Refinanced Indebtedness”); provided, that (a) the principal amount (or accreted value, if applicable) of such refinancing, refunding, extending or renewing Indebtedness is not greater than the sum of (i) the principal amount (or accreted value, if applicable) of such Refinanced Indebtedness plus (ii) an amount equal to unpaid accrued interest and penalties, premium thereon and fees and expenses reasonably incurred in connection with such refinancing, refunding, extension or renewal, plus (iii) if the Refinanced Indebtedness was extended under a committed financing arrangement and any such commitments remain unutilized at the time, the amount of such unutilized commitments; provided that with respect to this clause (iii), both immediately prior to and after giving effect to such Refinanced Indebtedness, no Default or Event of Default shall exist or result therefrom, (b) such refinancing, refunding, extending or renewing Indebtedness has a final maturity that is no sooner than the final maturity of, and a weighted average life to maturity that is no shorter than the then remaining weighted average life of, such Refinanced Indebtedness, (c) if such Refinanced Indebtedness or any guarantees thereof are subordinated to the Obligations, such refinancing, refunding, extending or renewing Indebtedness and any guarantees thereof remain so subordinated on terms no less favorable to the Lenders, and (d) the obligors in respect of such Refinanced Indebtedness immediately prior to such refinancing, refunding, extending or renewing are the only obligors on such refinancing, refunding, extending or renewing Indebtedness plus any entity acquired in connection with a substantially contemporaneous acquisition that was required to become an obligor under such Refinanced Indebtedness; provided, further, however, that Permitted Refinancing Indebtedness shall not include (i) Indebtedness of a Restricted Subsidiary (other than the Borrower) that refinances Indebtedness of the Borrower or (ii) Indebtedness of the Borrower or a Subsidiary Guarantor that refinances Indebtedness of a Restricted Subsidiary that is not a Subsidiary Guarantor.

“Permitted Subordinated Debt”: Indebtedness incurred in reliance upon clause (n) of Section 6.1 that is contractually subordinated to Indebtedness of the obligor under the Loan Documents to which it is a party.

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“Person”: an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature.

“Plan”: at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

“Post-Closing Agreement”: the Post-Closing Agreement, dated as of the date hereof, between the Borrower and the Administrative Agent in form and substance reasonably acceptable to the Administrative Agent.

“Prepayment Event”: any of the following:

(a) an Asset Sale; provided that (i) prior to the Term Facility Obligations Payment Date, Asset Sale for purposes of the definition of “Prepayment Event” shall include only such assets that constitute Revolving Facility Priority Collateral, and (ii) after the Term Facility Obligations Payment Date, Asset Sale shall include all assets constituting Collateral; or

(b) a Recovery Event; provided that (i) prior to the Term Facility Obligations Payment Date, Recovery Event for purposes of the definition of “Prepayment Event” shall include only such assets that constitute Revolving Facility Priority Collateral, and (ii) after the Term Facility Obligations Payment Date, Recovery Event shall include all assets constituting Collateral; or

(c) subject to the Intercreditor Agreement, the incurrence by the Borrower or any Guarantor of any Indebtedness, other than Indebtedness permitted under Section 6.1.

“Prime Rate”: the rate of interest per annum publicly announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by JPMorgan Chase Bank, N.A. in connection with extensions of credit to debtors); each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective.

“Pro Forma Balance Sheet”: as defined in Section 3.1(a).

“Projections”: as defined in Section 5.2(b).

“Properties”: as defined in Section 3.17(a).

“Protective Advance”: as defined in Section 2.4.

“Purchase Money Indebtedness”: Indebtedness (other than the Obligations, but including Capital Lease Obligations), incurred at the time, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof.

“Raw Materials”: items/materials used or consumed in the manufacturing of goods to be sold by the Borrower in the ordinary course of business.

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“Recovery Event”: any settlement of or payment in respect of (other than any settlement or payment that results in cash consideration of less than $500,000) any property or casualty insurance claim or any taking under power of eminent domain or by condemnation or similar proceeding of or relating to any property or asset of a Group Member.

“Refinancing”: the refinancing of the extensions of credit under the Existing Credit Agreements.

“Register”: as defined in Section 9.6(b).

“Registered Intellectual Property”: as defined in the Guarantee and Collateral Agreement.

“Regulation U”: Regulation U of the Board as in effect from time to time.

“Reimbursement Obligation”: the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 2.6(e) for amounts drawn under Letters of Credit.

“Reinvestment Notice”: a written notice executed by a Responsible Officer stating that no Default or Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Restricted Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire or repair assets useful in the business of the Borrower or any Restricted Subsidiary.

“Related Persons”: with respect to any Person, such Person’s Affiliates and the respective officers, directors, partners and employees of such Person and its Affiliates.

“Report”: reports prepared by the Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Borrower’s assets from information furnished by or on behalf of the Borrower, after the Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent.

“Reportable Event”: any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. § 4043.

“Required Lenders”: at any time, Lenders having Credit Exposure and unused Commitments representing more than 50% of the sum of the total Credit Exposure and unused Commitments at such time.

“Requirement of Law”: as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

“Reserves”: any and all reserves which the Administrative Agent deems necessary, in its Permitted Discretion, to maintain (including, Specified Cash Management Reserves, reserves for the lesser of three-months rent or the amount of Availability from Inventory maintained at locations leased by the Borrower or any Guarantor and for consignee’s, warehousemen’s and bailee’s charges, reserves for dilution of Accounts, reserves for customs charges and carrier and shipping charges related to Eligible Inventory in transit, reserves for Specified Swap Obligations and reserves for warranty, flooring, rebate and royalty) with respect to the Collateral or the Borrower or any Guarantor.

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“Responsible Officer”: the chief executive officer, president, chief financial officer or general counsel of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower.

“Restricted Payments”: as defined in Section 6.5.

“Restricted Subsidiary”: any Subsidiary of the Borrower that is not an Unrestricted Subsidiary.

“Revolving Borrowing”: a Borrowing of Revolving Loans.

“Revolving Commitment”: with respect to each Lender, the commitment, if any, of such Lender to make Revolving Loans and to acquire participations in Letters of Credit, Overadvances, Protective Advances and Swingline Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Lender’s Revolving Exposure hereunder, as such commitment may be reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 9.6. The initial amount of each Lender’s Revolving Commitment is set forth on Schedule 1.1A, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable. The aggregate amount of the Lenders’ Revolving Commitments as of the Closing Date is $100,000,000.

“Revolving Exposure”: with respect to any Lender at any time, the sum of (a) the outstanding principal amount of such Lender’s Revolving Loans and its LC Exposure plus (b) an amount equal to its Applicable Percentage of the aggregate principal amount of Swingline Loans at such time plus (c) an amount equal to its Applicable Percentage of the aggregate principal amount of Overadvances outstanding at such time plus (d) an amount equal to its Applicable Percentage of the aggregate principal amount of Protective Advances outstanding at such time.

“Revolving Facility Priority Collateral”: as defined in the Intercreditor Agreement.

“Revolving Lender”: as of any date of determination, a Lender with a Revolving Commitment or, if the Revolving Commitments have terminated or expired, a Lender with Revolving Exposure.

“Revolving Loan”: a Loan made pursuant to Section 2.1(a).

“Sale and Leaseback”: any arrangement with any Person providing for the leasing by any Group Member of real or personal property that has been or is to be sold or transferred by such Group Member to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of such Group Member.

“SAP ERP Software System”: the enterprise resource planning software package utilized by certain Group Members in the United States.

“Schultz Repurchase”: the repurchase by the Borrower of its Capital Stock from the estate of William C. Schultz, the former chairman and chief executive officer of the Borrower.

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“SEC”: the Securities and Exchange Commission, any successor thereto and any analogous Governmental Authority.

“Secured Obligations”: all Obligations, together with all (i) obligations with respect to Specified Cash Management Services and (ii) Swap Obligations owing to one or more Lenders or their respective Affiliates.

“Security Documents”: the collective reference to the Guarantee and Collateral Agreement, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any property of any Person to secure the obligations and liabilities of the Borrower or any Guarantor under any Loan Document.

“Settlement”: as defined in Section 2.5(c).

“Settlement Date”: as defined in Section 2.5(c).

“Showcase Arrangements”: any arrangements whereby certain rebates are earned by the Borrower’s dealers, in the ordinary course of business.

“Solvent”: when used with respect to any Person, means that, as of any date of determination, (a) the amount of the “present fair saleable value” of the assets of such Person will, as of such date, exceed the amount of all “liabilities of such Person, contingent or otherwise”, as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) “debt” means liability on a “claim”, and (ii) “claim” means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

“Specified Cash Management Obligations”: with respect to the Borrower or any Guarantor, any and all obligations of the Borrower or such Guarantor, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor) in connection with Specified Cash Management Services.

“Specified Cash Management Reserves”: all Reserves which the Administrative Agent from time to time establishes in its Permitted Discretion for Specified Cash Management Services then provided or outstanding.

“Specified Cash Management Services”: each and any of the following services provided to the Borrower or any Guarantor by the Administrative Agent or any of its Affiliates: (a) commercial credit cards, (b) stored value cards and (c) treasury management services (including, without limitation, controlled disbursement, automated clearinghouse transactions, return items, overdrafts and interstate depository network services).

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“Specified Swap Agreement”: any Swap Agreement in respect of interest rates, currency exchange rates or commodity prices entered into by the Borrower or any Guarantor and any Person that is a Lender or an affiliate of a Lender at the time such Swap Agreement is entered into, which, in the case of any Swap Agreement entered into by a Lender or an affiliate thereof (other than the Administrative Agent or an affiliate thereof), has been designated by such Lender and the Borrower as secured and the Administrative Agent is notified of such designation by such Lender not later than 30 days after the execution and delivery by the Borrower or such Guarantor, as a “Specified Swap Agreement”.

“Sponsor”: Weston Presidio.

“Subsidiary”: as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a “Subsidiary” or to “Subsidiaries” in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower.

“Subsidiary Guarantor”: each Domestic Subsidiary of the Borrower that is a Wholly Owned Subsidiary thereof.

“Supermajority Lenders”: at any time, Lenders having Credit Exposure and unused Commitments representing more than 66-2/3% of the sum of the total Credit Exposure and unused Commitments at such time.

“Swap Agreement”: any agreement with respect to any swap, forward, future or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services provided by current or former directors, officers, employees or consultants of the Borrower or any of its Subsidiaries shall be a “Swap Agreement”.

“Swap Obligations”: with respect to any Person, any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all Specified Swap Agreements, and (b) any and all cancellations, buy backs, reversals, terminations or assignments of any Specified Swap Agreement transaction.

“Swingline Lender”: JPMorgan Chase Bank, N.A., in its capacity as lender of Swingline Loans hereunder.

“Swingline Loan”: as defined in Section 2.5(a).

“Syndication Agent”: as defined in the preamble hereto.

“Taxes”: any present or future taxes, levies, imposts, duties, changes or withholdings now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority.

“Term Facility Agreement”: as defined in the Intercreditor Agreement.

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“Term Facility Documents”: as defined in the Intercreditor Agreement.

“Term Facility Obligations Payment Date”: as defined in the Intercreditor Agreement.

“Term Facility Security Documents”: as defined in the Intercreditor Agreement.

“Threshold Transaction Date”: any date on which (a) the sum of Availability plus Perfected Cash is at least $20,000,000 after giving effect to the relevant transaction, (b) the Consolidated Fixed Charge Coverage Ratio, determined on a pro forma basis after giving effect to the relevant transaction and any other Indebtedness, Restricted Payment, Investment or prepayment of Permitted Subordinated Debt or Permitted Refinancing Indebtedness incurred or made in the relevant period, is at least 1.10 to 1.00 and (c) no Default or Event of Default has occurred and is continuing or would result therefrom.

“Total Commitments”: at any time, the aggregate amount of the Commitments then in effect.

“Transferee”: any Assignee or Participant.

“Type”: when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Eurodollar Rate or the Alternate Base Rate.

“UCC”: as defined in the Guarantee and Collateral Agreement.

“UCC Collateral”: as defined in the Guarantee and Collateral Agreement.

“United States”: the United States of America.

“Unliquidated Obligations”: at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.

“Unrestricted Subsidiary”: (a) any Subsidiary formed or acquired after the Closing Date; provided that at such time (or promptly thereafter) the Borrower designates such Subsidiary as an Unrestricted Subsidiary in a written notice to the Administrative Agent, (b) any Restricted Subsidiary subsequently re-designated as an Unrestricted Subsidiary by the Borrower in a written notice to the Administrative Agent, provided that in the case of (a) and (b), (x) such designation or re-designation shall be deemed to be an Investment by the Borrower on the date of such designation or re-designation in an Unrestricted Subsidiary in an amount equal to the net book value of the Borrower’s investment therein, (y) no Default or Event of Default has occurred or is continuing or would result from such designation or re-designation, and (z) immediately after giving effect to such designation or re-designation, the sum of Availability plus Perfected Cash is at least $20,000,000, and the Consolidated Fixed Charge Coverage Ratio is at least 1.10 to 1.00, calculated on a pro forma basis as of the end of the quarter most recently ended prior to the date of such designation or re-designation for which financial statements have been delivered pursuant to Section 5.1, and (c) each Subsidiary of an Unrestricted Subsidiary; provided, further, however, that at the time of any written designation or re-designation by the Borrower to the Administrative Agent that any Unrestricted Subsidiary shall no longer constitute an Unrestricted Subsidiary, such Unrestricted Subsidiary shall cease to be an Unrestricted Subsidiary to the extent no Default or Event of Default would result from such designation or re-designation.

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“Wholly Owned Subsidiary”: as to any Person, any other Person all of the Capital Stock of which (other than directors’ qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries.

1.2 Other Definitional Provisions.

(a) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, (i) accounting terms relating to any Group Member not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP, (ii) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (iii) the word “incur” shall be construed to mean incur, create, issue, assume or become liable in respect of (and the words “incurred” and “incurrence” shall have correlative meanings), (iv) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, Capital Stock, securities, revenues, accounts, leasehold interests and contract rights, and (v) references to agreements or other Contractual Obligations shall, unless otherwise specified, be deemed to refer to such agreements or Contractual Obligations as amended, supplemented, restated or otherwise modified from time to time.

(b) The words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified.

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

(d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.

(e) In the event that any “Accounting Change” (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to reflect equitably such Accounting Changes with the desired result that the criteria for evaluating the Borrower’s financial condition and the cost of the Loans under this Agreement shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. “Accounting Changes” refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board or, if applicable, the SEC.

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SECTION 2. AMOUNT AND TERMS OF COMMITMENTS

2.1 Commitments. (a) Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result in (i) such Lender’s Revolving Exposure exceeding such Lender’s Revolving Commitment or (ii) the total Revolving Exposures exceeding the lesser of (x) the sum of the total Revolving Commitments or (y) the Borrowing Base, subject to the Administrative Agent’s authority, in its sole discretion, to make Protective Advances and Overadvances pursuant to the terms of Section 2.4. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.

(b) For purposes of determining the Borrowing Base: (i) the Administrative Agent may, in its Permitted Discretion, establish additional standards of eligibility and Reserves against eligibility, adjust Reserves and after the occurrence and during the continuance of a Default or an Event of Default, reduce advance rates or reduce one or more of the sub-limits used, (ii) in the event that an Account which was previously an Eligible Account ceases to be an Eligible Account, the Borrower shall notify the Administrative Agent thereof on and at the time of submission to the Administrative Agent of the next Borrowing Base Certificate as required in Section 5.2(c); provided that if such Account is a material Account, the Borrower shall notify the Administrative Agent promptly upon its knowledge of such cessation, and (iii) in the event that Inventory which was previously Eligible Inventory ceases to be Eligible Inventory, the Borrower shall notify the Administrative Agent thereof on and at the time of submission to the Administrative Agent of the next Borrowing Base Certificate as required in Section 5.2(c); provided that if such Inventory is material Inventory, the Borrower shall notify the Administrative Agent promptly upon its knowledge of such cessation.

2.2 Loans and Borrowings. (a) Each Loan (other than a Swingline Loan) shall be made as part of a Borrowing consisting of Loans of the same Class and Type made by the Lenders ratably in accordance with their respective Commitments of the applicable Class. Any Protective Advance, any Overadvance and any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.4 and 2.5.

(b) Subject to Section 2.14, each Revolving Borrowing shall be comprised entirely of ABR Loans or Eurodollar Loans as the Borrower may request in accordance herewith, provided that all Borrowings made on the Closing Date must be made as ABR Borrowings but may be converted into Eurodollar Borrowings in accordance with Section 2.8. Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan; provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement.

(c) At the commencement of each Interest Period for any Eurodollar Revolving Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $500,000 and not less than $1,000,000. ABR Revolving Borrowings may be in any amount. Borrowings of more than one Type and Class may be outstanding at the same time; provided that there shall not at any time be more than a total of five Eurodollar Borrowings outstanding.

(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Maturity Date.

2.3 Requests for Revolving Borrowings. To request a Revolving Borrowing, the Borrower shall notify the Administrative Agent of such request either in writing (delivered by hand or

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facsimile) in a form approved by the Administrative Agent and signed by the Borrower or by telephone (a) in the case of a Eurodollar Borrowing, not later than 2:00 p.m., Chicago time, three Business Days before the date of the proposed Borrowing or (b) in the case of an ABR Borrowing, not later than 1:00 p.m., Chicago time, on the date of the proposed Borrowing; provided that any such notice of an ABR Revolving Borrowing to finance the reimbursement of an LC Disbursement as contemplated by Section 2.6(e) may be given not later than 1:00 p.m., Chicago time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Borrowing Request in a form approved by the Administrative Agent and signed by the Borrower. Each such telephonic and written Borrowing Request shall specify the following information in compliance with Section 2.1:

(i) the aggregate amount of the requested Borrowing and a breakdown of the separate wires comprising such Borrowing;

(ii) the date of such Borrowing, which shall be a Business Day;

(iii) whether such Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

(iv) in the case of a Eurodollar Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period.”

If no election as to the Type of Revolving Borrowing is specified, then the requested Revolving Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Eurodollar Revolving Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Loan to be made as part of the requested Borrowing.

2.4 Protective Advances. (a) Subject to the limitations set forth below, the Administrative Agent is authorized by the Borrower and the Lenders, from time to time in the Administrative Agent’s sole discretion (but shall have absolutely no obligation to), to make Loans to the Borrower, on behalf of all Lenders, which the Administrative Agent, in its Permitted Discretion, deems necessary or desirable (i) to preserve or protect the Collateral, or any portion thereof, (ii) to enhance the likelihood of, or maximize the amount of, repayment of the Loans and other Obligations, or (iii) to pay any other amount chargeable to or required to be paid by the Borrower pursuant to the terms of this Agreement, including payments of reimbursable expenses (including costs, fees, and expenses as described in Section 9.5) and other sums payable under the Loan Documents (any of such Loans are herein referred to as “Protective Advances”); provided that, the aggregate amount of Protective Advances and Overadvances outstanding at any time shall not exceed 10% of the aggregate Revolving Commitments of all the Lenders; provided further that, the aggregate Revolving Exposure shall not exceed the aggregate Commitments. Protective Advances may be made even if the conditions precedent set forth in Section 4.2 have not been satisfied. The Protective Advances shall be secured by the Liens in favor of the Administrative Agent in and to the Collateral and shall constitute Obligations hereunder. All Protective Advances shall be ABR Borrowings. The Administrative Agent’s authorization to make Protective Advances may be revoked at any time by the Supermajority Lenders, unless the Administrative Agent (together with any Affiliate thereof) hold more than 33-1/3% of the Total Commitments in which case all Lenders (other than the Administrative Agent and any Affiliate thereof). Any such revocation must be in writing and shall become effective prospectively upon the Administrative Agent’s receipt thereof. At any time that there is sufficient Availability and the conditions precedent set forth in Section

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4.2 have been satisfied, the Administrative Agent may request the Revolving Lenders to make a Revolving Loan to repay a Protective Advance. At any other time the Administrative Agent may require the Lenders to fund their risk participations described in Section 2.4(b).

(b) Upon the making of a Protective Advance by the Administrative Agent (whether before or after the occurrence of a Default), each Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the Administrative Agent without recourse or warranty, an undivided interest and participation in such Protective Advance in proportion to its Applicable Percentage. From and after the date, if any, on which any Lender is required to fund its participation in any Protective Advance purchased hereunder, the Administrative Agent shall promptly distribute to such Lender, such Lender’s Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the Administrative Agent in respect of such Protective Advance.

2.5 Swingline Loans and Overadvances. (a) The Administrative Agent, the Swingline Lender and the Revolving Lenders agree that in order to facilitate the administration of this Agreement and the other Loan Documents, promptly after the Borrower requests an ABR Borrowing, the Swingline Lender or the Administrative Agent, as the case may be, may elect to have the terms of this Section 2.5(a) apply to such Borrowing Request by advancing, on behalf of the Revolving Lenders and in the amount requested, same day funds to the Borrower on the applicable Borrowing date to the Funding Account (each such Loan made solely by the Swingline Lender or the Administrative Agent, as the case may be, pursuant to this Section 2.5(a) is referred to in this Agreement as a “Swingline Loan”), with settlement among them as to the Swingline Loans to take place on a periodic basis as set forth in Section 2.5(c). Each Swingline Loan shall be subject to all the terms and conditions applicable to other ABR Loans funded by the Revolving Lenders, except that all payments thereon shall be payable to the Swingline Lender solely for its own account. In addition, the Borrower hereby authorizes the Swingline Lender to, and the Swingline Lender shall, subject to the terms and conditions set forth herein (but without any further written notice required), not later than 2:00 p.m., Chicago time, on each Business Day, make available to the Borrower by means of a credit to the Funding Account, the proceeds of a Swingline Loan to the extent necessary to pay items to be drawn on any Controlled Disbursement Account that day (as determined based on notice from the Administrative Agent). The aggregate amount of Swingline Loans outstanding at any time shall not exceed $15,000,000. The Swingline Lender shall not make any Swingline Loan if the requested Swingline Loan exceeds Availability (before giving effect to such Swingline Loan). All Swingline Loans shall be ABR Borrowings.

(b) Any provision of this Agreement to the contrary notwithstanding, at the request of the Borrower, the Administrative Agent may in its sole discretion (but with absolutely no obligation), make Revolving Loans to the Borrower, on behalf of the Revolving Lenders, in amounts that exceed Availability (any such excess Revolving Loans are herein referred to collectively as “Overadvances”); provided that, no Overadvance shall result in a Default due to Borrower’s failure to comply with Section 2.1 for so long as such Overadvance remains outstanding in accordance with the terms of this paragraph, but solely with respect to the amount of such Overadvance. In addition, Overadvances may be made even if the condition precedent set forth in Section 4.2(c) has not been satisfied. All Overadvances shall constitute ABR Borrowings. The authority of the Administrative Agent to make Overadvances is limited to an aggregate amount not to exceed $5,000,000 at any time, and, when combined with any outstanding Protective Advances, shall not exceed 10% of the aggregate Revolving Commitments of all the Lenders, no Overadvance may remain outstanding for more than thirty days and no Overadvance shall cause any Revolving Lender’s Revolving Exposure to exceed its Revolving Commitment; provided that, the Supermajority Lenders, unless the Administrative Agent (together with any Affiliate thereof) hold more than 33-1/3% of the Total Commitments in which case all Lenders (other than the Administrative Agent and any Affiliate thereof), may at any time revoke the Administrative Agent’s authorization to make Overadvances. Any such revocation must be in writing and shall become effective prospectively upon the Administrative Agent’s receipt thereof.

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(c) Upon the making of a Swingline Loan or an Overadvance (whether before or after the occurrence of a Default and regardless of whether a Settlement has been requested with respect to such Swingline Loan or Overadvance), each Revolving Lender shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the Swingline Lender or the Administrative Agent, as the case may be, without recourse or warranty, an undivided interest and participation in such Swingline Loan or Overadvance in proportion to its Applicable Percentage of the Revolving Commitment. The Swingline Lender or the Administrative Agent may, at any time, require the Revolving Lenders to fund their participations. From and after the date, if any, on which any Revolving Lender is required to fund its participation in any Swingline Loan or Overadvance purchased hereunder, the Administrative Agent shall promptly distribute to such Lender, such Lender’s Applicable Percentage of all payments of principal and interest and all proceeds of Collateral received by the Administrative Agent in respect of such Loan.

(d) The Administrative Agent, on behalf of the Swingline Lender, shall request settlement (a “Settlement”) with the Revolving Lenders on at least a weekly basis or on any date that the Administrative Agent elects, by notifying the Revolving Lenders of such requested Settlement by facsimile, telephone, or e-mail no later than 1:00 p.m. Chicago time on the date of such requested Settlement (the “Settlement Date”). Each Revolving Lender (other than the Swingline Lender, in the case of the Swingline Loans) shall transfer the amount of such Revolving Lender’s Applicable Percentage of the outstanding principal amount of the applicable Loan with respect to which Settlement is requested to the Administrative Agent, to such account of the Administrative Agent as the Administrative Agent may designate, not later than 2:00 p.m., Chicago time, on such Settlement Date. Settlements may occur during the existence of a Default and whether or not the applicable conditions precedent set forth in Section 4.2 have then been satisfied. Such amounts transferred to the Administrative Agent shall be applied against the amounts of the Swingline Lender’s Swingline Loans and, together with Swingline Lender’s Applicable Percentage of such Swingline Loan, shall constitute Revolving Loans of such Revolving Lenders, respectively. If any such amount is not transferred to the Administrative Agent by any Revolving Lender on such Settlement Date, the Swingline Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon as specified in Section 2.7.

2.6 Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Administrative Agent and the Issuing Bank, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control.

(b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Administrative Agent (prior to 2:00 p.m., Chicago time, at least three Business Days prior to the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be

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necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank’s standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $25,000,000 and (ii) the total Revolving Exposures shall not exceed the lesser of the total Revolving Commitments and the Borrowing Base.

(c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date.

(d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Revolving Lenders, the Issuing Bank hereby grants to each Revolving Lender, and each Revolving Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender’s Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the Issuing Bank, such Lender’s Applicable Percentage of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Revolving Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of a Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever.

(e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Administrative Agent an amount equal to such LC Disbursement not later than 1:00 p.m., Chicago time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to noon, Chicago time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 1:00 p.m., Chicago time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to noon, Chicago time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.3 that such payment be financed with an ABR Revolving Borrowing or Swingline Loan in an equivalent amount and, to the extent so financed, the Borrower’s obligation to make such payment shall be discharged and replaced by the resulting ABR Revolving Borrowing or Swingline Loan. If the Borrower fails to make such payment when due, the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender’s Applicable Percentage thereof. Promptly following receipt of such notice, each Revolving Lender shall pay to the Administrative Agent its Applicable Percentage of the payment then due from the Borrower, in the same manner as provided in Section 2.7 with respect to Loans made by such Lender (and Section 2.7 shall apply, mutatis mutandis, to the payment obligations of the Revolving Lenders), and the Administrative Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Revolving Lenders. Promptly following receipt by the Administrative Agent of any payment from the Borrower pursuant to this paragraph, the Administrative Agent shall distribute such payment to the

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Issuing Bank or, to the extent that Revolving Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Revolving Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of ABR Revolving Loans or a Swingline Loan as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement.

(f) Obligations Absolute. The Borrower’s obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower’s obligations hereunder. Neither the Administrative Agent, the Revolving Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that the foregoing shall not be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Bank’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.

(g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Administrative Agent and the Borrower by telephone (confirmed by facsimile) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Revolving Lenders with respect to any such LC Disbursement.

(h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at

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the rate per annum then applicable to ABR Revolving Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.13(d) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment.

(i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Administrative Agent, the replaced Issuing Bank and the successor Issuing Bank. The Administrative Agent shall notify the Revolving Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.12(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “Issuing Bank” shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.

(j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 66-2/3% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Administrative Agent, in the name of the Administrative Agent and for the benefit of the Revolving Lenders (the “LC Collateral Account”), an amount in cash equal to 103% of the LC Exposure as of such date plus accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Administrative Agent as collateral for the payment and performance of the Secured Obligations. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account and the Borrower hereby grants the Administrative Agent a security interest in the LC Collateral Account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrower’s risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Administrative Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated (but subject to the consent of Revolving Lenders with LC Exposure representing greater than 66-2/3% of the total LC Exposure), be applied to satisfy other Secured Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all such Defaults have been cured or waived.

(k) Existing Letters of Credit. Prior to the Closing Date, the Existing Issuing Bank has issued the Existing Letters of Credit which from and after the Closing Date shall constitute Letters of Credit hereunder.

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2.7 Funding of Borrowings. (a) Each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds by 2:00 p.m., Chicago time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders in an amount equal to such Lender’s Applicable Percentage; provided that, Swingline Loans shall be made as provided in Section 2.5. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts so received, in like funds, to the Funding Account; provided that ABR Revolving Loans made to finance the reimbursement of (i) an LC Disbursement as provided in Section 2.6(e) shall be remitted by the Administrative Agent to the Issuing Bank and (ii) a Protective Advance or an Overadvance shall be retained by the Administrative Agent.

(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation or (ii) in the case of the Borrower, the interest rate applicable to ABR Loans. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Loan included in such Borrowing.

2.8 Interest Elections. (a) Each Revolving Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Eurodollar Revolving Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Eurodollar Revolving Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, Overadvances or Protective Advances, which may not be converted or continued.

(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election by telephone by the time that a Borrowing Request would be required under Section 2.3 if the Borrower were requesting a Revolving Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such telephonic Interest Election Request shall be irrevocable and shall be confirmed promptly by hand delivery or facsimile to the Administrative Agent of a written Interest Election Request in a form approved by the Administrative Agent and signed by the Borrower.

(c) Each telephonic and written Interest Election Request shall specify the following information in compliance with Section 2.2:

(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) below shall be specified for each resulting Borrowing);

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(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;

(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Eurodollar Borrowing; and

(iv) if the resulting Borrowing is a Eurodollar Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.

If any such Interest Election Request requests a Eurodollar Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.

(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.

(e) If the Borrower fails to deliver a timely Interest Election Request with respect to a Eurodollar Revolving Borrowing prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period such Borrowing shall be converted to an ABR Borrowing. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Revolving Borrowing may be converted to or continued as a Eurodollar Borrowing and (ii) unless repaid, each Eurodollar Revolving Borrowing shall be converted to an ABR Borrowing at the end of the Interest Period applicable thereto.

2.9 Termination of Commitments. (a) Unless previously terminated, all Commitments shall terminate on the Maturity Date.

(b) The Borrower may at any time terminate the Commitments upon (i) the payment in full of all outstanding Loans, together with accrued and unpaid interest thereon and on any Letters of Credit, (ii) the cancellation and return of all outstanding Letters of Credit (or alternatively, with respect to each such Letter of Credit, the furnishing to the Administrative Agent of a cash deposit (or at the discretion of the Administrative Agent a back up standby letter of credit satisfactory to the Administrative Agent) equal to 105% of the LC Exposure as of such date), (iii) the payment in full of the accrued and unpaid fees, and (iv) the payment in full of all reimbursable expenses and other Obligations together with accrued and unpaid interest thereon.

(c) The Borrower shall notify the Administrative Agent of any election to terminate the Commitments under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination of the Commitments shall be permanent.

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2.10 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date, (ii) to the Administrative Agent the then unpaid amount of each Protective Advance on the earlier of the Maturity Date and demand by the Administrative Agent and (iii) to the Administrative Agent the then unpaid principal amount of each Overadvance on the earlier of the Maturity Date and the 30^th day after such Overadvance is made.

(b) At any time that Availability plus Perfected Cash is less than $15,000,000 for a period of two consecutive Business Days or less than $12,500,000 on any Business Day, on each Business Day, the Administrative Agent shall apply all funds credited to the Collection Account the previous Business Day (whether or not immediately available) first to prepay any Protective Advances and Overadvances that may be outstanding and second to prepay the Revolving Loans (including Swingline Loans) and to cash collateralize outstanding LC Exposure.

(c) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.

(d) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Class and Type thereof and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.

(e) The entries made in the accounts maintained pursuant to paragraph (c) or (d) of this Section shall be prima facie evidence of the existence and amounts of the obligations recorded therein; provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement.

(f) Any Lender may request that Loans made by it be evidenced by a promissory note. In such event, the Borrower shall prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment pursuant to Section 9.6) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).

2.11 Prepayments. (a) The Borrower may at any time and from time to time prepay any Borrowing in whole or in part, without premium or penalty, subject to prior notice in accordance with paragraph (e) of this Section 2.11; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.16.

(b) Except for Overadvances permitted under Section 2.5, in the event and on such occasion that the total Revolving Exposure exceeds the lesser of (A) the aggregate Revolving Commitments or (B) the Borrowing Base, the Borrower shall prepay the Revolving Loans, LC Exposure and/or Swingline Loans in an aggregate amount equal to such excess.

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(c) In the event and on each occasion that any Net Cash Proceeds are received by or on behalf of the Borrower or any Guarantor in respect of any Prepayment Event, the Borrower shall, five Business Days after such Net Cash Proceeds are received by the Borrower or any Guarantor, prepay the Obligations as set forth in Section 2.11(d) below in an aggregate amount equal to 100% of such Net Cash Proceeds; provided, however, if on any date the Borrower or any Subsidiary Guarantor shall receive Net Cash Proceeds from any Asset Sale or Recovery Event other than proceeds from Revolving Facility Priority Collateral, then, unless a Reinvestment Notice shall be delivered in respect thereof within five Business Days after receipt of such proceeds, such Net Cash Proceeds shall be applied at the end of such five-Business Day period toward the prepayment of the Loans as set forth in Section 2.11(d).

(d) All such amounts pursuant to Section 2.11(c) (as to any insurance or condemnation proceeds, to the extent they arise from casualties or losses to cash or Inventory) shall be applied, first to prepay any Protective Advances and Overadvances that may be outstanding, pro rata, and second to prepay the Revolving Loans (including Swingline Loans) without a corresponding reduction in the Revolving Commitment and, after the occurrence and during the continuance of a Default or Event of Default, to cash collateralize outstanding LC Exposure. If the precise amount of insurance or condemnation proceeds allocable to Inventory as compared to equipment, fixtures and real property is not otherwise determined, the allocation and application of those proceeds shall be determined by the Administrative Agent, in its Permitted Discretion. Prepayments of any Eurodollar Loan in the case of any event described in clause (c) of the definition of the term “Prepayment Event” on any day other than the last day of the Interest Period applicable thereto shall be accompanied by any amounts owing pursuant to Section 2.16.

(e) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by telephone (confirmed by facsimile) of any prepayment hereunder (i) in the case of prepayment of a Eurodollar Revolving Borrowing, not later than 2:00 p.m., Chicago time, three Business Days before the date of prepayment or (ii) in the case of prepayment of an ABR Revolving Borrowing, not later than 2:00 p.m., Chicago time, one Business Day before the date of prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided that, if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments as contemplated by Section 2.9, then such notice of prepayment may be revoked if such notice of termination is revoked in accordance with Section 2.9. Promptly following receipt of any such notice relating to a Revolving Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Revolving Borrowing shall be in an aggregate principal amount of $500,000 or a whole multiple thereof. Each prepayment of a Revolving Borrowing shall be applied ratably to the Revolving Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest to the extent required by Section 2.13.

2.12 Fees. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee, which shall accrue at 0.25% per annum on the average daily amount of the Available Revolving Commitment of such Lender during the period from and including the Closing Date to but excluding the date on which the Lenders’ Revolving Commitments terminate. Accrued commitment fees shall be payable in arrears on the first Business Day of each calendar month and on the date on which the Revolving Commitments terminate, commencing on the first such date to occur after the date hereof. All commitment fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.

(b) The Borrower agrees to pay (i) to the Administrative Agent for the account of each Revolving Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at the same Applicable Margin used to determine the interest rate applicable to Eurodollar

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Revolving Loans on the average daily amount of such Lender’s LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date on which such Lender’s Revolving Commitment terminates and the date on which such Revolving Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Closing Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank’s standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of each calendar month shall be payable on the first Business Day of each calendar month following such last day, commencing on the first such date to occur after the Closing Date; provided that all such fees shall be payable on the date on which the Revolving Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. All participation fees and fronting fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed.

(c) The Borrower agrees to pay to the Administrative Agent, for its own account, such other fees payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.

(d) All fees payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent (or to the Issuing Bank, in the case of fees payable to it) for distribution, in the case of commitment fees and participation fees, to the Lenders. Fees paid shall not be refundable under any circumstances.

2.13 Interest. (a) The Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Margin.

(b) The Loans comprising each Eurodollar Borrowing shall bear interest at the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.

(c) Each Protective Advance and each Overadvance shall bear interest at the Alternate Base Rate plus the Applicable Margin for Revolving Loans plus 2%.

(d) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrower hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to 2% plus the rate otherwise applicable to such Loan as provided in paragraphs (a) and (b) of this Section.

(e) Accrued interest on each Loan (for ABR Loans, accrued through the last day of the prior calendar month) shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitments; provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan (other than a prepayment of an ABR Revolving Loan prior to the end of the Availability Period), accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.

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(f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year), and in each case shall be payable for the actual number of days elapsed. The applicable Alternate Base Rate, Eurodollar Rate or Eurodollar Base Rate shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error.

2.14 Inability to Determine Interest Rate . If prior to the first day of any Interest Period:

(a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or

(b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period,

the Administrative Agent shall give telecopy or telephonic notice thereof and confirmed in writing to the Borrower and the relevant Lenders promptly thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then-current Interest Period, to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert ABR Loans to Eurodollar Loans.

2.15 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof:

(i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letters of Credit or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.17 and changes in the rate of tax on the overall net income of such Lender);

(ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate; or

(iii) shall impose on such Lender any other condition;

and the result of any of the foregoing is to increase the cost to such Lender, by an amount that such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any

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additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this paragraph, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled.

(b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the later of (i) the date hereof or (ii) the date such Lender became a party hereto, shall have the effect of reducing the rate of return on such Lender’s or such corporation’s capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation would have achieved but for such adoption, change or compliance (taking into consideration such Lender’s or such corporation’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, upon at least 60 days’ prior written notice, such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written request therefor setting forth in reasonable detail the amount payable and the basis for calculating the additional amounts owed to such Lender under this Section 2.15(b) and including reasonable supporting documentation authenticating the claim, which written statement shall be made within 270 days of the date such Lender became aware of such additional amount or amounts. The Borrower shall not be liable for any additional amount or amounts prior to such notice. The Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction.

(c) A written statement as to any additional amounts payable pursuant to this Section and delivered pursuant to Section 2.15(b) submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. Notwithstanding anything to the contrary in this Section, the Borrower shall not be required to compensate a Lender pursuant to this Section for any amounts incurred more than nine months prior to the date that such Lender notifies the Borrower of such Lender’s intention to claim compensation therefor; provided that, if the circumstances giving rise to such claim have a retroactive effect, then such nine-month period shall be extended to include the period of such retroactive effect. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.16 Indemnity. The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any actual loss or out-of-pocket expense that such Lender may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment of or conversion from Eurodollar Loans after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. A calculation as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.17 Taxes. (a) Subject to the other provisions of Section 2.17, all payments made by the Borrower under this Agreement shall, except as required by law, be made free and clear of, and without deduction or withholding for or on account of, any Taxes; provided, that, if any Non-Excluded Taxes are required to be withheld from any amounts payable to the Administrative Agent or any Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the

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extent necessary to provide to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) an amounts equal to the sum the Administrative Agent or such Lender would have received had no such withholding or deductions for Non-Excluded Taxes been made. With respect to any Other Taxes for which the Borrower fails to make a payment pursuant to the first sentence of this Section 2.17(a), the Lender or Administrative Agent entitled to such amounts shall deliver to the Borrower (in the case of a Lender, with a copy to the Administrative Agent) a written request therefor setting forth in reasonable detail the amount payable and the basis for calculating the additional amounts owed to such Lender or Administrative Agent under this Section 2.17(a) and including reasonable supporting documentation authenticating the claim (provided, however, the Lender or Administrative Agent shall not be required to provide any documentation or make any disclosures that it considers to be confidential), which written statement shall be made within 180 days of the date such Lender or Administrative Agent became aware of such additional amount or amounts.

(b) The Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of the relevant Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure.

(d) Each Lender (or Transferee) that is not a “U.S. Person” as defined in Section 7701(a)(30) of the Code (a “Non-U.S. Lender”) shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a statement substantially in the form of Exhibit G and a Form W-8BEN, or any subsequent versions thereof or successors thereto, properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. If any Lender fails to provide the certifications described in this paragraph, such Lender acknowledges and agrees that the Borrower and/or the Administrative Agent shall be entitled to withhold and deduct from any payment otherwise due to such Lender the amount of any Taxes imposed by any Governmental Authority to the extent required by law.

(e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower

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(with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

(f) If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund or credit in lieu of a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section 2.17, it shall pay over an amount equal to such refund or credit to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section 2.17 with respect to the Non-Excluded Taxes or Other Taxes giving rise to such refund or credit), net of all out-of-pocket expenses of the Administrative Agent or any Lender that are attributable to the receipt of such refund or credit, without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrower, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower to the Administrative Agent or such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrower or any other Person.

(g) The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder.

2.18 Payments Generally; Allocation of Proceeds; Sharing of Set-offs. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.15, 2.16 or 2.17, or otherwise) prior to 2:00 p.m., Chicago time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its offices at 120 South LaSalle Street, Chicago, Illinois, except payments to be made directly to the Issuing Bank or Swingline Lender as expressly provided herein and except that payments pursuant to Sections 2.15, 2.16, 2.17 and 9.5 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. At all times that full cash dominion is in effect pursuant to Section 8.3 of the Guarantee and Collateral Agreement, solely for purposes of determining the amount of Loans available for borrowing purposes, checks (in addition to immediately available funds applied pursuant to Section 2.10(b)) from collections of items of payment and proceeds of any Collateral shall be applied in whole or in part against the Obligations, on the Business Day after receipt, subject to actual collection.

(b) Any proceeds of Collateral received by the Administrative Agent (i) not constituting either (A) a specific payment of principal, interest, fees or other sum payable under the Loan Documents (which shall be applied as specified by the Borrower), (B) a mandatory prepayment (which shall be applied in accordance with Section 2.11) or (C) amounts to be applied from the Collection Account when full cash dominion is in effect (which shall be applied in accordance with Section 2.10(b))

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or (ii) after an Event of Default has occurred and is continuing and the Administrative Agent so elects or the Required Lenders so direct, such funds shall be applied ratably first, to pay any fees, indemnities, or expense reimbursements including amounts then due to the Administrative Agent and the Issuing Bank from the Borrower (other than in connection with Specified Cash Management Services or Swap Obligations), second, to pay any fees or expense reimbursements then due to the Lenders from the Borrower (other than in connection with Specified Cash Management Services or Swap Obligations), third, to pay interest due in respect of the Overadvances and Protective Advances, fourth, to pay the principal of the Overadvances and Protective Advances, fifth, to pay interest then due and payable on the Loans (other than Overadvances and the Protective Advances) ratably, sixth, to prepay principal on the Loans (other than Overadvances and the Protective Advances) and unreimbursed LC Disbursements ratably, seventh, to pay an amount to the Administrative Agent equal to one hundred five percent (105%) of the aggregate undrawn face amount of all outstanding Letters of Credit and the aggregate amount of any unpaid LC Disbursements, to be held as cash collateral for such Obligations, eighth, to payment of any amounts owing with respect to Specified Cash Management Services and Swap Obligations, and ninth, to the payment of any other Secured Obligation due to the Administrative Agent or any Lender by the Borrower. Notwithstanding anything to the contrary contained in this Agreement, unless so directed by the Borrower, or unless a Default is in existence, neither the Administrative Agent nor any Lender shall apply any payment which it receives to any Eurodollar Loan of a Class, except (a) on the expiration date of the Interest Period applicable to any such Eurodollar Loan or (b) in the event, and only to the extent, that there are no outstanding ABR Loans of the same Class and, in any such event, the Borrower shall pay the break funding payment required in accordance with Section 2.16. The Administrative Agent and the Lenders shall have the continuing and exclusive right to apply and reverse and reapply any and all such proceeds and payments to any portion of the Secured Obligations.

(c) At the election of the Administrative Agent, all payments of principal, interest, LC Disbursements, fees, premiums, reimbursable expenses (including, without limitation, all reimbursement for fees and expenses pursuant to Section 9.5), and other sums payable under the Loan Documents, may be paid from the proceeds of Borrowings made hereunder whether made following a request by the Borrower pursuant to Section 2.3 or a deemed request as provided in this Section or may be deducted from any deposit account of the Borrower maintained with the Administrative Agent. The Borrower hereby irrevocably authorizes (i) the Administrative Agent to make a Borrowing for the purpose of paying each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents and agrees that all such amounts charged shall constitute Loans (including Swingline Loans and Overadvances, but such a Borrowing may only constitute a Protective Advance if it is to reimburse costs, fees and expenses as described in Section 9.5) and that all such Borrowings shall be deemed to have been requested pursuant to Sections 2.3, 2.4 or 2.5, as applicable and (ii) the Administrative Agent to charge any deposit account of the Borrower maintained with the Administrative Agent for each payment of principal, interest and fees as it becomes due hereunder or any other amount due under the Loan Documents.

(d) If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or participations in LC Disbursements resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and participations in LC Disbursements and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans and participations in LC Disbursements of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and participations in LC Disbursements; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the

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provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or participations in LC Disbursements to any assignee or participant, other than to the Borrower or any Restricted Subsidiary or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.

(e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Bank hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Bank, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders or the Issuing Bank, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or Issuing Bank with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

(f) If any Lender shall fail to make any payment required to be made by it hereunder, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender’s obligations hereunder until all such unsatisfied obligations are fully paid.

2.19 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.15 or 2.17(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no material economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of the Borrower or the rights of any Lender pursuant to Section 2.15 or 2.17(a).

2.20 Replacement of Lenders. The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.15 or 2.17(a), (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution or (c) does not consent to any proposed amendment, supplement, modification, consent or waiver of any provision of this Agreement or any other Loan Document that requires the consent of each of the Lenders or each of the Lenders affected thereby (so long as the consent of the Required Lenders has been obtained); provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.19 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.15 or 2.17(a), (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender for actual losses and out-of-pocket expenses, if any, due under Section 2.16 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial

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institution shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 9.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.15 or 2.17(a), as the case may be, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender.

2.21 Returned Payments. If after receipt of any payment which is applied to the payment of all or any part of the Obligations, the Administrative Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Administrative Agent or such Lender. The provisions of this Section 2.21 shall be and remain effective notwithstanding any contrary action which may have been taken by the Administrative Agent or any Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.21 shall survive the termination of this Agreement.

2.22 Incremental Facility. The Borrower may at any time on not more than four occasions after the Closing Date but prior to the Maturity Date, by notice to the Administrative Agent (whereupon the Administrative Agent shall promptly deliver a copy to each of the Lenders), without having to seek consent from the Lenders, request an increase to the existing Revolving Commitments (such increase, the “Incremental Revolving Commitments,” and the loans thereunder, the “Incremental Revolving Loans”); provided that both at the time of any such request and upon the effectiveness of any Incremental Revolving Commitment referred to below, no Default or Event of Default shall exist and at the time that any Incremental Revolving Loan is made (and immediately after giving effect thereto) no Default or Event of Default shall exist. The aggregate amount of all Incremental Revolving Commitments shall not exceed $50,000,000. Each notice from the Borrower pursuant to this Section shall set forth the requested amount of the Incremental Revolving Commitments. Incremental Revolving Commitments may be provided by any existing Lender or by any other bank or other financial institution (such existing Lender or other bank or other financial institution providing an Incremental Revolving Commitment, an “Additional Lender”), provided that such Additional Lender shall be reasonably acceptable to the Borrower and the Administrative Agent shall have consented (such consent not to be unreasonably withheld or delayed) to such Additional Lender’s providing such Incremental Revolving Commitment, if such consent would be required under Section 9.6 for an assignment of Commitments to such Additional Lender. Incremental Revolving Commitments shall become Revolving Commitments under this Agreement, Incremental Revolving Loans shall become Revolving Loans under this Agreement and each Additional Lender shall become a Revolving Lender and a Lender with respect to the Additional Revolving Commitment and all matters relating thereto pursuant to an amendment (an “Incremental Amendment”) to this Agreement and such other Loan Documents as are necessary, executed by the Borrower, each Additional Lender agreeing to provide such Commitment and the Administrative Agent. An Incremental Amendment may, without the consent of any other Lenders, effect such amendments to this Agreement and the other Loan Documents as may be necessary, in the reasonable opinion of the Administrative Agent and the Borrower, to effect the provisions and intent of this Section and the application of the proceeds thereof. The effectiveness of any Incremental Amendment shall be subject to the satisfaction on the date thereof (each, an “Incremental Facility Closing Date”) of each of the conditions set forth in Section 4.2. No Lender shall be obligated to provide any Incremental Revolving Loans, unless it so agrees. The Borrower may use the proceeds of Incremental Revolving Loans for any purpose not prohibited by this Agreement unless otherwise agreed in connection with such Incremental

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Revolving Loans. On any Incremental Facility Closing Date on which Incremental Revolving Commitments are effected, subject to the satisfaction of the foregoing terms and conditions, each of the Revolving Lenders shall assign to each of the Additional Lenders, and each of the Additional Lenders shall purchase from each of the Revolving Lenders, at the principal amount thereof (together with accrued interest), such interests in the Revolving Loans outstanding on such Incremental Facility Closing Date as shall be necessary in order that, after giving effect to all such assignments and purchases, such Revolving Loans will be held by the existing Revolving Lenders and Additional Lenders ratably in accordance with their Revolving Commitments after giving effect to the addition of such Incremental Revolving Commitments to the Revolving Commitments.

SECTION 3. REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that:

3.1 Financial Condition.

(a) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at April 1, 2007 (the “Pro Forma Balance Sheet”), a copy of which has heretofore been furnished to the Administrative Agent, has been prepared giving effect (as if such events had occurred on such date) to (i) the consummation of the Refinancing, (ii) the Revolving Loans to be made on the Closing Date and the use of proceeds thereof and (iii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Restricted Subsidiaries as at April 1, 2007, assuming that the events specified in the preceding sentence had actually occurred at such date.

(b) The audited consolidated balance sheets of the Borrower as at December 31, 2006, and the related consolidated statements of income and of cash flows for the Fiscal Year ended on such date, reported on by and accompanied by an unqualified report from KPMG LLP, present fairly the consolidated financial condition of the Borrower and the Restricted Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the Fiscal Year then ended. The unaudited consolidated balance sheet of the Borrower as at April 1, 2007, and the related unaudited consolidated statements of income and cash flows for the thirteen-week period ended on such date, present fairly the consolidated financial condition of the Borrower and the Restricted Subsidiaries as at such date, and the consolidated results of its operations and its consolidated cash flows for the thirteen-week period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). As of the Closing Date, neither the Borrower nor any Group Member has any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that should be and are not reflected under GAAP in the most recent financial statements referred to in this paragraph. During the period from December 31, 2006 to and including the date hereof there has been no Asset Sale by the Borrower or any Group Member of any material part of its business or property.

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3.2 No Change.

Since December 31, 2006, there has been no development or event that has had or would reasonably be expected to have a Material Adverse Effect.

3.3 Existence; Compliance with Law.

Each Group Member (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the power and authority, and the legal right, to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation or other organization and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except, in each case, to the extent that the failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

3.4 Power; Authorization; Enforceable Obligations.

Each of the Borrower and the Guarantors has the power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to obtain extensions of credit hereunder. Each of the Borrower and the Guarantors has taken all necessary organizational action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the extensions of credit on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Refinancing and the extensions of credit hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 3.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 3.19. Each Loan Document has been duly executed and delivered on behalf of each of the Borrower and the Guarantors party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each of the Borrower and the Guarantors party thereto, enforceable against each of the Borrower and the Guarantors in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

3.5 No Legal Bar.

The execution, delivery and performance of this Agreement and the other Loan Documents, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of any Group Member except as would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents and the Revolving Facility Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries would reasonably be expected to have a Material Adverse Effect.

3.6 Litigation.

No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Borrower, threatened by or against any Group Member or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or (b) that would reasonably be expected to have a Material Adverse Effect.

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3.7 No Default.

No Group Member is in default under or with respect to any of its Contractual Obligations in any respect that would reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing.

3.8 Ownership of Property; Liens.

Each Group Member has title in fee simple to all its owned real property, and good title to, or a valid leasehold interest in, all its other property, and none of such property is subject to any Lien except as permitted by Section 6.2 and except for such defects of title as would not in whole or in part reasonably be expected to have a Material Adverse Effect.

3.9 Intellectual Property.

Each Group Member owns, or is licensed to use, all Intellectual Property material to the conduct of its business as currently conducted, except as would not in whole or in part reasonably be expected to have a Material Adverse Effect. Except as set forth on Schedule 3.9, no material claim has been asserted and is pending against any Group Member by any Person challenging or questioning (i) the use by any Group Member of any of their material Intellectual Property or (ii) the validity of any Registered Intellectual Property owned by such Group Member. To the knowledge of the Borrower, the use of Registered Intellectual Property owned by any Group Member does not infringe on the rights of any Person in any material respect.

3.10 Taxes.

Each Group Member has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all material taxes shown to be due and payable on said returns or on any assessments made against it or any of its property and all other material taxes, fees or other charges imposed on it or any of its property by any Governmental Authority (other than any of which the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the relevant Group Member); no tax Lien has been filed, and, to the knowledge of the Borrower, no claim is being asserted, with respect to any such material tax, fee or other charge.

3.11 Federal Regulations.

No part of the proceeds of any Loans, and no other extensions of credit hereunder, will be used (a) for “buying” or “carrying” any “margin stock” within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect for any purpose that violates the provisions of the Regulations of the Board or (b) for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1, as applicable, referred to in Regulation U.

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3.12 Labor Matters.

Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect: (a) there are no strikes or other labor disputes against any Group Member pending or, to the knowledge of the Borrower, threatened; (b) hours worked by and payment made to employees of each Group Member have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters; and (c) all payments due from any Group Member on account of employee health and welfare insurance have been paid or accrued as a liability on the books of the relevant Group Member.

3.13 ERISA.

Neither a Reportable Event nor an “accumulated funding deficiency” (within the meaning of Section 412 of the Code or Section 302 of ERISA), and, on and after the effectiveness of the Pension Act, no failure by any Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code, in each case other than as described in Schedule 3.13. On and after the effectiveness of the Pension Act, there has been no determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA) during such five-year period. Except as set forth on Schedule 3.13, the present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period, in each case other than as described on Schedule 3.13. Neither the Borrower nor any Commonly Controlled Entity is party to a Multiemployer Plan.

3.14 Investment Company Act; Other Regulations.

None of the Borrower or any Guarantor is an “investment company”, or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended. None of the Borrower or any Guarantor is subject to regulation under any Requirement of Law (other than Regulation X of the Board) that limits its ability to incur Indebtedness.

3.15 Subsidiaries.

Except as disclosed to the Administrative Agent by the Borrower in writing from time to time after the Closing Date or as set forth on Schedule 3.15, (a) Schedule 3.15 sets forth the name and jurisdiction of incorporation of each Subsidiary and, as to each such Subsidiary, the percentage of each class of Capital Stock owned by each of the Borrower and the Guarantors and (b) there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors’ qualifying shares) of any nature relating to any Capital Stock of the Borrower or any Subsidiary, except as created by the Loan Documents.

3.16 Use of Proceeds.

The proceeds of the Loans shall be used to finance the working capital needs of the Borrower and the Restricted Subsidiaries in the ordinary course of business and/or to refinance a portion of the extensions of credit under the Existing Credit Agreements.

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3.17 Environmental Matters.

Except as, in the aggregate, would not reasonably be expected to have a Material Adverse Effect:

(a) the facilities and properties owned, leased or operated by any Group Member (the “Properties”) do not contain, and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances that constitute or constituted a violation of, or would give rise to liability under, any Environmental Law;

(b) no Group Member has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Properties or the business operated by any Group Member (the “Business”), nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened;

(c) Materials of Environmental Concern have not been transported or disposed of from the Properties in violation of, or in a manner or to a location that would reasonably be expected to give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Properties in violation of, or in a manner that would reasonably be expected to give rise to liability under, any applicable Environmental Law;

(d) no judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Borrower, threatened, under any Environmental Law to which any Group Member is or will be named as a party with respect to the Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Properties or the Business;

(e) there has been no release or threat of release of Materials of Environmental Concern at or from the Properties, or arising from or related to the operations of any Group Member in connection with the Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that would give rise to liability under Environmental Laws;

(f) the Properties and all operations at the Properties are in compliance, and have in the last five years been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Properties or violation of any Environmental Law with respect to the Properties or the Business; and

(g) no Group Member has incurred any liability of any other Person under Environmental Laws.

3.18 Accuracy of Information, etc.

No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished by or on behalf of any of the Borrower or any Guarantor to the Administrative Agent or the Lenders, or any of them, for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary to make the statements contained herein or therein not misleading. The projections and pro forma financial information

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contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. There is no fact known to the Borrower or any Guarantor that would reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents.

3.19 Security Documents.

(a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral as defined therein and proceeds thereof. In the case of (i) the Pledged Collateral described in the Guarantee and Collateral Agreement, when stock certificates representing such Pledged Collateral are delivered to the Administrative Agent, (ii) the UCC Collateral, when financing statements specified on Schedule 3.19(a) in appropriate form are filed in the offices specified on Schedule 3.19(a), (iii) in the case of Collateral Deposit Accounts and Lock Boxes (as such terms are defined in the Guarantee and Collateral Agreement), upon the depository in which such accounts or lock boxes are maintained agreeing that it will comply with the instructions originated by the Administrative Agent directing disposition of the funds or items in such accounts or lock boxes without further consent from the owner of such accounts or lock boxes, and (iv) the Registered Intellectual Property described in the Guarantee and Collateral Agreement, when (A) the security interests granted in the Guarantee and Collateral Agreement in Patents, Trademarks and Copyrights are recorded in the applicable Intellectual Property registries, including United States Patent and Trademark Office and the United States Copyright Office and (B) when financing statements are filed in such Borrower or Guarantor’s jurisdiction of organization, the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower and the Guarantors in such Pledged Collateral, UCC Collateral, Collateral Deposit Accounts, Lock Boxes, Registered Intellectual Property and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Collateral, Liens permitted by Section 6.2) subject to the Intercreditor Agreement.

(b) Each of the Mortgages is effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgages are filed in the offices specified on Schedule 3.19(b), each such Mortgage shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Borrower and the Guarantors in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person, subject to the Intercreditor Agreement. Schedule 1.1B lists, as of the Closing Date, each parcel of owned real property located in the United States and held by the Borrower or any Subsidiary Guarantor that has a value, in the reasonable opinion of the Borrower, in excess of $1,000,000.

3.20 Solvency.

Each of the Borrower and the Guarantors is, and after giving effect to the Refinancing and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent.

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3.21 Regulation H.

No Mortgage encumbers improved real property that is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968.

3.22 Insurance.

As of the Closing Date, all insurance premiums have been paid. The Borrower believes that the insurance maintained by or on behalf of the Borrower and the Restricted Subsidiaries is adequate.

SECTION 4. CONDITIONS PRECEDENT

4.1 Conditions to Revolving Loans.

The agreement of each Lender to make the Revolving Loan requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such Loan on the Closing Date, of the following conditions precedent:

(a) Credit Agreement; Guarantee and Collateral Agreement; Intercreditor Agreement. The Administrative Agent shall have received (i) this Agreement or, in the case of the Lenders, an Addendum, executed and delivered by the Administrative Agent, the Borrower and each Person listed on Schedule 1.1A, (ii) the Guarantee and Collateral Agreement, executed and delivered by the Borrower and each Subsidiary Guarantor, and (iii) the Intercreditor Agreement executed and delivered by the Borrower, the Guarantors, the Administrative Agent and the administrative agent for the lenders under the Term Facility Agreement.

(b) Refinancing, etc. The Administrative Agent shall have received satisfactory evidence that (i) the Borrower shall have received gross proceeds of at least $200,000,000 from the borrowing of term loans under Term Facility Agreement, (ii) all outstanding extensions of credit under the Existing Credit Agreements shall have been terminated and all amounts thereunder shall have been paid in full and (iii) satisfactory arrangements shall have been made for the termination of all Liens granted in connection therewith.

(c) Pro Forma Balance Sheet; Financial Statements. The Administrative Agent shall have received (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Borrower for the 2006 Fiscal Year and (iii) unaudited interim consolidated financial statements of the Borrower for each Fiscal Quarter ended after the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Borrower and its Subsidiaries, as reflected in the financial statements or projections contained in the Confidential Information Memorandum.

(d) Projections. The Lenders shall have received satisfactory projections through 2012.

(e) Approvals. All governmental approvals necessary in connection with the Refinancing, the continuing operations of the Group Members and the transactions contemplated hereby shall have been obtained and be in full force and effect, and all applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose materially adverse conditions on the Refinancing or the financing contemplated hereby.

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(f) Lien Searches. The Administrative Agent shall have received the results of a recent lien search in each of the jurisdictions where the filing of financing statements is indicated by Article 9 of the UCC, and such search shall reveal no liens on any of the assets of the Group Members except for liens permitted by Section 6.2 or discharged on or prior to the Closing Date pursuant to documentation satisfactory to the Administrative Agent.

(g) Fees. The Lenders, the Arranger and the Administrative Agent shall have received all fees required to be paid pursuant to the Fee Letter executed by the Borrower and the Arranger including all reasonable out-of-pocket expenses for which invoices have been presented (including the reasonable fees and expenses of legal counsel) on or before the Closing Date. All such amounts will be paid on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date.

(h) Closing Certificate; Certified Certificate of Incorporation; Good Standing Certificates. The Administrative Agent shall have received (i) a certificate of the Borrower and each Guarantor, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments, including the certificate of incorporation of the Borrower and each Guarantor that is a corporation certified by the relevant authority of the jurisdiction of organization thereof, and (ii) a long form good standing certificate for the Borrower and each Guarantor from its jurisdiction of organization.

(i) Legal Opinions. The Administrative Agent shall have received the following executed legal opinions:

(i) the legal opinion of Sullivan & Cromwell LLP, special counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-1;

(ii) the legal opinion of Sullivan & Cromwell LLP, special California real estate counsel to the Borrower and its Subsidiaries, substantially in the form of Exhibit F-2;

(iii) the legal opinion of the General Counsel of the Borrower and its Subsidiaries, substantially in the form of Exhibit F-3; and

(iv) the legal opinion of De Brauw Blackstone Westbroek New York, special Dutch counsel to the Administrative Agent, substantially in the form of Exhibit F-4.

Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require.

(j) Pledged Stock; Stock Powers; Pledged Notes. The Administrative Agent shall have received (i) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (ii) each promissory note (if any) pledged to the Administrative Agent pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank) by the pledgor thereof.

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(k) Filings, Registrations and Recordings. Each document (including any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 6.2 and subject to the Intercreditor Agreement), shall be in proper form for filing, registration or recordation.

(l) Mortgages, etc. (i) The Administrative Agent shall have received a Mortgage with respect to each Mortgaged Property, executed and delivered by a duly authorized officer of each party thereto.

(ii) The Administrative Agent shall have received in respect of each Mortgaged Property a mortgagee’s title insurance policy (or policies) or marked up unconditional binder for such insurance, in each case in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall have received evidence satisfactory to it that all premiums in respect of each such policy, all charges for mortgage recording tax, and all related expenses, if any, have been paid.

(iii) If requested by the Administrative Agent, the Administrative Agent shall have received (A) a policy of flood insurance that (1) covers any parcel of improved real property that is encumbered by any Mortgage, (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage that is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) has a term ending not later than the maturity of the Indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board.

(iv) The Administrative Agent shall have received a copy of all recorded documents referred to, or listed as exceptions to title in, the title policy or policies referred to in clause (ii) above and a copy of all other material documents affecting the Mortgaged Properties.

(m) Solvency Certificate. The Administrative Agent shall have received a solvency certificate from the chief financial officer of the Borrower, substantially in the form of Exhibit J.

(n) Insurance. The Administrative Agent shall have received such insurance certificates as reasonably requested evidencing the Borrower’s compliance with the requirements of Section 5.10(b) of the Guarantee and Collateral Agreement.

(o) USA Patriot Act. Each Lender shall have received all information necessary to enable such Lender to identify the Borrower and each Guarantor in accordance with the USA Patriot Act, Title III of Pub. L. 107-56 (signed into law on October 26, 2001).

(p) Funding Account. The Administrative Agent shall have received a notice setting forth the deposit account of the Borrower (the “Funding Account”) to which the Lender is authorized by the Borrower to transfer the proceeds of any Borrowings requested or authorized pursuant to this Agreement.

(q) Collateral Access and Control Agreements. The Administrative Agent shall have received each (i) Collateral Access Agreement required to be provided pursuant to Section 5.12 of the Guarantee and Collateral Agreement and (ii) Deposit Account Control Agreement required to be provided pursuant to Section 5.10 of the Guarantee and Collateral Agreement.

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(r) Borrowing Base Certificate. The Administrative Agent shall have received a Borrowing Base Certificate which calculates the Borrowing Base as of the end of the Business Day of April 1, 2007, with customary supporting documentation and supplemental reporting to be agreed upon between the Administrative Agent and the Borrower.

(s) Closing Availability. After giving effect to all Borrowings to be made on the Closing Date and the issuance of any Letters of Credit on the Closing Date and payment of all fees and expenses due hereunder, and with all of the Borrower and the Guarantors’ indebtedness, liabilities, and obligations current, the Borrower’s Availability plus Perfected Cash shall not be less than $20,000,000.

(t) Letter of Credit Application. The Administrative Agent shall have received a properly completed letter of credit application if the issuance of a Letter of Credit will be required on the Closing Date.

(u) Post-Closing Agreement. The Administrative Agent shall have received the Post-Closing Agreement, executed and delivered by the Borrower.

For the purpose of determining compliance with the conditions specified in this Section 4.1, each Lender that has signed an Addendum shall be deemed to have accepted, and to be satisfied with, each document or other matter required under this Section 4.1 unless the Administrative Agent shall have received written notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

4.2 Conditions to Each Extension of Credit.

The agreement of each Lender to make any extension of credit requested to be made by it on any date (including its initial extension of credit) is subject to the satisfaction of the following conditions precedent:

(a) Representations and Warranties. Each of the representations and warranties made by the Borrower and the Guarantors in or pursuant to the Loan Documents shall be true and correct in all material respects on and as of such date as if made on and as of such date.

(b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date.

(c) Availability. After giving effect to any Borrowing or the issuance of any Letter of Credit, Availability is not less than zero.

Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 4.2 have been satisfied.

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SECTION 5. AFFIRMATIVE COVENANTS

The Borrower hereby agrees that, so long as the Commitments remain in effect or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower shall and shall cause each of the Restricted Subsidiaries to:

5.1 Financial Statements.

Furnish to the Administrative Agent (and upon receipt, the Administrative Agent shall furnish to each Lender):

(a) as soon as available, but in any event within 120 days after the end of each Fiscal Year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a “going concern” or like qualification or exception, or qualification arising out of the scope of the audit, by KPMG LLP or other independent certified public accountants of nationally recognized standing;

(b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each Fiscal Year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Restricted Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the Fiscal Year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, in each case, in management format and certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); and

(c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each Fiscal Year of the Borrower (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income for such month and the portion of the Fiscal Year through the end of such month, setting forth in each case in comparative form the figures for the previous year, in each case, in management format and certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments).

All such financial statements shall be complete and correct in all material respects, does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein not materially misleading in light of the circumstances under which such statements were made and shall be prepared in reasonable detail and in accordance with GAAP applied (except as approved by such accountants or officer, as the case may be, and disclosed in reasonable detail therein) consistently throughout the periods reflected therein and with prior periods.

5.2 Certificates; Other Information.

Furnish to the Administrative Agent (and upon receipt, the Administrative Agent shall furnish to each Lender):

(a) concurrently with the delivery of any financial statements pursuant to Section 5.1, (i) a certificate of a Responsible Officer stating that, to the best of such Responsible Officer’s knowledge, each Group Member during such period has observed or performed all of its covenants and other agreements, and satisfied every condition contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) subject to the proviso of Section 6.13, a Compliance Certificate with respect to

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each Group Member substantially in the form attached hereto as Exhibit B, and (y) to the extent not previously disclosed to the Administrative Agent, (1) a description of any change in the jurisdiction of organization of any Group Member, and (2) a description of any Person that has become a Group Member or that has been designated as an Unrestricted Subsidiary, in each case since the date of the most recent report delivered pursuant to this clause (y) (or, in the case of the first such report so delivered, since the Closing Date);

(b) as soon as available, and in any event no later than 45 days after the end of each Fiscal Year of the Borrower, a detailed consolidated budget for the following Fiscal Year (including a projected consolidated balance sheet of the Borrower and its Restricted Subsidiaries as of the end of the following Fiscal Year, the related consolidated statements of projected cash flow and projected statements of income and a description of the underlying assumptions applicable thereto), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such Fiscal Year (collectively, the “Projections”), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect;

(c) (i) on or prior to June 15, 2007 the Borrowing Base Certificate for the period ended April 29, 2007 and (ii) with respect to any Borrowing Base Certificate thereafter, as soon as available but in any event within 30 days after the end of each Fiscal Month, as of the period then ended, a Borrowing Base Certificate and supporting information in connection therewith, together with any additional reports with respect to the Borrowing Base as the Administrative Agent may reasonably request; provided that if the sum of Availability plus Perfected Cash is less than $15,000,000, such Borrowing Base Certificate and the other documents set forth above will be delivered within five Business Days after the end of each Fiscal Week; provided further that, at any time that Availability is at least $15,000,000 for a period of 60 consecutive days, the monthly delivery of the Borrowing Base Certificate and the other documents as set forth above shall again become applicable;

(d) as soon as available but in any event within 30 days (or in the case of (iv) below, 45 days) of the end of each calendar month and at such other times as may be requested by the Administrative Agent, as of the period then ended, all delivered electronically in a text formatted file acceptable to the Administrative Agent:

(i) a detailed aging of the Borrower’s Accounts (1) including all invoices aged by invoice date (with terms offered) and (2) reconciled to the Borrowing Base Certificate delivered as of such date prepared in a manner reasonably acceptable to the Administrative Agent, together with a summary specifying the names and balance due for each Account Debtor;

(ii) a schedule detailing the Borrower’s Inventory, in form satisfactory to the Administrative Agent, (1) by location (showing Inventory in transit, any Inventory located with a third party under any consignment, bailee arrangement, or warehouse agreement), by class (raw material, work-in-process and finished goods), by product type, and by volume on hand, which Inventory shall be valued at the lower of cost (determined on a first in, first out basis) or market, and adjusted for Reserves as the Administrative Agent has previously indicated to the Borrower, and (2) reconciled to the Borrowing Base Certificate delivered as of such date;

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(iii) a worksheet of calculations prepared by the Borrower to determine Eligible Accounts and Eligible Inventory, such worksheets detailing the Accounts and Inventory excluded from Eligible Accounts and Eligible Inventory and the reason for such exclusion;

(iv) a reconciliation of the Borrower’s Accounts and Inventory between the amounts shown in the Borrower’s general ledger and financial statements and the reports delivered pursuant to clauses (i) and (ii) above; and

(v) a reconciliation of the loan balance per the Borrower’s general ledger to the loan balance under this Agreement;

(e) as soon as available but in any event within 30 days of the end of each calendar month and at such other times as may be requested by the Administrative Agent, as of the month then ended, a schedule and aging of the Borrower’s accounts payable, delivered electronically in a text formatted file acceptable to the Administrative Agent;

(f) within 120 days after the end of each Fiscal Year, an updated customer list for the Borrower and the Restricted Subsidiaries setting forth all customers during such Fiscal Year, which list shall state the customer’s name, mailing address and phone number; and

(g) promptly, such additional financial and other information as the Administrative Agent may from time to time reasonably request.

provided, however, that any document required to be filed publicly under the Federal securities laws, if any, will be sufficient to constitute delivery to the Administrative Agent upon filing.

5.3 Payment of Taxes.

Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material taxes of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the relevant Group Member.

5.4 Maintenance of Existence; Compliance.

(a) (i) Preserve, renew and keep in full force and effect its organizational existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary in the normal conduct of its business, except, in each case, as otherwise not prohibited by Section 6.3 and except, in the case of clause (ii) above, to the extent that failure to do so would not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.

5.5 Maintenance of Property; Insurance.

(a) Keep all property necessary in its business in good working order and condition, ordinary wear and tear excepted to the extent that failure to do so, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, and (b) maintain with financially sound and reputable carriers (x) insurance in such amounts (with no greater risk retention) and against such risks

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(including loss or damage by fire and loss in transit; theft, burglary, pilferage, larceny, embezzlement, and other criminal activities; business interruption; and general liability) and such other hazards, as is customarily maintained by companies of established repute engaged in the same or similar businesses operating in the same or similar locations and (y) all insurance required pursuant to the Security Documents, and (c) furnish to the Lenders, upon request of the Administrative Agent, information in reasonable detail as to the insurance so maintained.

5.6 Inspection; Books and Records; Discussions; Field Examinations and Appraisals.

(a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP shall be made of all material dealings and transactions in relation to its business and activities that are required to be made in accordance with GAAP and which shall be in material conformance with all applicable Requirements of Law, except as would not reasonably be expected to have a Material Adverse Effect, and (b) permit representatives of the Administrative Agent and the Lenders upon reasonable notice to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time during regular business hours and as often as may reasonably be necessary and to discuss the business, operations, properties and financial and other condition of the Group Members with officers and employees of the Borrower and with its independent certified public accountants; provided that so long as no Event of Default has occurred and is continuing only one such visit shall be permitted during any Fiscal Year, such visit to be coordinated by the Administrative Agent with reasonable notice to the Lenders providing each Lender the opportunity to be included in such visit. Notwithstanding the foregoing, at any time that the Administrative Agent requests (and at the sole expense of the Borrower and the Guarantors), the Borrower shall and shall cause each of the Restricted Subsidiaries to (a) permit, no more frequently than twice in any calendar year, the Administrative Agent to conduct field examinations to ensure the adequacy of Collateral and related reporting and control systems and (b) provide, not more than once in any calendar year, the Administrative Agent with appraisals or updates thereof of their Inventory from an appraiser selected and engaged by the Administrative Agent, and prepared on a basis satisfactory to the Administrative Agent, such appraisals and updates to include, without limitation, information required by applicable law and regulations; provided, however, that if a Default has occurred and is continuing, there shall be no limitation on the number or frequency of field examinations or Inventory appraisals.

5.7 Notices.

Promptly give notice (to the extent legally permitted to do so) to the Administrative Agent and each Lender of:

(a) the occurrence of any Default or Event of Default;

(b) any (i) default or event of default under any Contractual Obligation of any Group Member or (ii) litigation, investigation or proceeding that may exist at any time between any Group Member and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, would reasonably be expected to have a Material Adverse Effect;

(c) any litigation or proceeding affecting any Group Member in which the amount involved is $5,000,000 or more and not covered by insurance, (ii) in which injunctive or similar relief is sought or (iii) which questions the validity or enforceability of any Loan Document;

(d) the following events, as soon as possible and in any event within 30 days after a Responsible Officer of the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, or the creation of any Lien in favor of the PBGC or a Plan, (ii) on and after the effectiveness of the Pension Act, a determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA), or (iii) the institution of proceedings or the taking of any other action by the

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PBGC or the Borrower or any Commonly Controlled Entity with respect to the withdrawal from, or the termination, or insolvency of, any Plan;

(e) any loss, damage, or destruction to the Collateral in the amount of $1,000,000 or more, whether or not covered by insurance;

(f) any and all default notices received under or with respect to any leased location or public warehouse where Eligible Inventory is located (which shall be delivered within two Business Days after receipt thereof);

(g) any electronic chattel paper and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act which individually has a face amount of more than $500,000 or in the aggregate more than $2,000,000 promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;

(h) upon knowledge that any application or registration relating to any Registered Patent, Trademark or Copyright (now or hereafter existing) owned by the Borrower or any Guarantor and material to the conduct of the business or operations of the Borrower or any Guarantor is reasonably likely to become abandoned or dedicated to the public, or of any adverse determination or development (including the institution of any non-routine, or any such determination or development in, any non-routine proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any similar office, agency or tribunal in any country or any court) against the Borrower or any Guarantor regarding such Borrower or Guarantor’s right’s in, or the validity, enforceability, ownership or use of, any material Registered Intellectual Property owned by the Borrower or any Guarantor, including, without limitation, the right of the Borrower or any Guarantor to register or to maintain same;

(i) upon filing of an application for the registration, acquisition, or becoming the exclusive licensee of any Patent, Trademark or Copyright, or upon adopting or using any new mark or any mark which is confusingly similar to or a colorable imitation of any Trademark, in each case either directly or through any agent, employee, licensee or designee, promptly and in any event within 15 Business Days after such event;

(j) any Commercial Tort Claim acquired by it or any Guarantor with respect to which an action has been filed in court or any other Governmental Authority with potential value in excess of $100,000 promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;

(k) any letter of credit with a stated amount in excess of $100,000 promptly and in any event within 15 Business Days after the Borrower or any Guarantor becomes a beneficiary thereof;

(l) at least 10 days prior to changing its, or permitting the Guarantors to change their, (a) name as it appears in official filings in the state of its incorporation or organization, (b) change the type of entity that it is, (c) organization identification number, if any, issued by its state of incorporation or other organization, or (d) state of incorporation or organization, and at least 5 days prior to changing or adding any location to the locations where its Collateral is held or stored as disclosed to the Administrative Agent on the Closing Date; and

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(m) any development or event that has had or would reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to this Section 5.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the relevant Group Member proposes to take with respect thereto.

5.8 Environmental Laws.

(a) Comply in all material respects with, and take commercially reasonable actions to ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and take commercially reasonable actions to ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws.

(b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect, and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws.

5.9 Additional Collateral, etc.

(a) With respect to any property acquired after the Closing Date by any Group Member (other than (x) real property, (y) any property described in paragraph (b) or (c) below, and (z) any property subject to a Lien expressly permitted by Section 6.2(g)) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent reasonably deems necessary to grant to the Administrative Agent, for the benefit of the Lenders, a security interest in such property and (ii) take all actions reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such property, other than Excluded Property as defined in the Guarantee and Collateral Agreement and subject to Liens expressly permitted by Section 6.2, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the Administrative Agent.

(b) With respect to any new Domestic Subsidiary created or acquired after the Closing Date by any Group Member that is or becomes a Wholly Owned Subsidiary thereof, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by any Group Member, (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, (iii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement, (B) to take such actions reasonably necessary to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement, other than Excluded Property as defined

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in the Guarantee and Collateral Agreement, with respect to such new Subsidiary, including the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be reasonably requested by the Administrative Agent and (C) to deliver to the Administrative Agent a certificate of such Subsidiary, substantially in the form of Exhibit C, with appropriate insertions and attachments, and (iv) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

(c) With respect to any new first-tier Foreign Subsidiary created or acquired after the Closing Date by any Group Member (other than any such new Subsidiary designated as an Unrestricted Subsidiary), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by any such Group Member (provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any such new Subsidiary be required to be so pledged), and (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of the relevant Group Member, and take such other action as may be reasonably necessary to perfect the Administrative Agent’s security interest therein, and (iii) if reasonably requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent.

5.10 Casualty and Condemntation.

(a) Furnish to the Administrative Agent and the Lenders prompt written notice of any casualty or other insured damage to any portion of the Collateral having an aggregate book value of at least $3,000,000 or the commencement of any action or proceeding for the taking of any such portion of the Collateral or interest therein under power of eminent domain or by condemnation or similar proceeding and (b) will ensure that the Net Cash Proceeds of any such event (whether in the form of insurance proceeds, condemnation awards or otherwise) are collected and applied in accordance with Section 2.11(c).

SECTION 6. NEGATIVE COVENANTS

The Borrower hereby agrees that, so long as the Commitments remain in effect or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, the Borrower shall not, and shall not permit any other Group Member to, directly or indirectly:

6.1 Indebtedness.

Create, issue, incur, assume or become liable in respect of any Indebtedness except:

(a) Indebtedness of any Group Member pursuant to any Loan Document;

(b) Indebtedness of any Group Member pursuant to the Term Facility Agreement or any other Term Facility Document and Permitted Refinancing Indebtedness in respect of any thereof;

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(c) Indebtedness (i) among Group Members, (ii) among Foreign Subsidiaries or (iii) among Group Members and their Subsidiaries; provided that the sum of Indebtedness owed by Subsidiaries that are not Guarantors to the Borrower or any Guarantor and Indebtedness owed by Unrestricted Subsidiaries to the Borrower or any Restricted Subsidiary shall not exceed an aggregate principal amount of $5,000,000 at any one time outstanding; provided that any such Indebtedness of the Borrower or any Guarantor shall be subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent;

(d) Guarantee Obligations incurred in the ordinary course of business by (i) the Borrower or any of its Subsidiaries of obligations of any Guarantor and (ii) any Restricted Subsidiary that is not a Guarantor of obligations of any other Restricted Subsidiary;

(e) Indebtedness outstanding on the date hereof and listed on Schedule 6.1(e) and any Permitted Refinancing Indebtedness in respect thereof;

(f) Indebtedness with respect to Capital Lease Obligations (including Sale and Leaseback transactions) in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding;

(g) Purchase Money Indebtedness in an aggregate principal amount not to exceed $10,000,000 at any one time outstanding; provided that any such Indebtedness (i) shall be secured only by the asset acquired in connection with the incurrence of such Indebtedness, (ii) shall constitute not less than 100% of the aggregate consideration paid with respect to such asset and (iii) shall be incurred within 180 days after the date of acquisition of such asset;

(h) Indebtedness incurred by the Borrower or any of the Restricted Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guarantees or letters of credit, surety bonds or performance bonds securing the performance of the Borrower or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of the Borrower or any of its Subsidiaries;

(i) Indebtedness which may be deemed to exist pursuant to any guarantees, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business;

(j) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts, securities accounts or cash management service;

(k) Guarantee Obligations incurred in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of the Borrower and the Restricted Subsidiaries;

(l) Indebtedness of any Foreign Subsidiary incurred in respect of bank guarantees, letters or credit or similar instruments to support local, legal, regulatory, solvency or consumer requirements or tax disputes;

(m) (i) Indebtedness in respect of (i) Flooring Arrangements in an aggregate amount not to exceed $20,000,000 at any time outstanding and (ii) Showcase Arrangements;

(n) Indebtedness incurred by Foreign Subsidiaries under working capital facilities in an aggregate principal amount not to exceed Euro 10,000,000 at any time outstanding;

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(o) Indebtedness assumed in connection with a Permitted Acquisition so long as such Indebtedness is in existence at the time of the consummation of the Permitted Acquisition and is not created in anticipation thereof and Permitted Refinancing Indebtedness in respect thereof;

(p) additional Indebtedness of the Borrower or any of the Restricted Subsidiaries in an aggregate principal amount (for the Borrower and all Restricted Subsidiaries) not to exceed $25,000,000 at any one time outstanding;

(q) Indebtedness of the Borrower or any of the Restricted Subsidiaries incurred in connection with the financing of insurance premiums that is secured solely by the insurance financed not to exceed $3,000,000 in the aggregate at any time outstanding; and

(r) Indebtedness incurred on a Threshold Transaction Date.

6.2 Liens.

Create, incur, assume or become subject to any Lien upon any of its property, whether now owned or hereafter acquired, except:

(a) Liens for taxes not yet due or that are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or the Restricted Subsidiaries, as the case may be, in conformity with GAAP;

(b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business that are not overdue for a period of more than 60 days or that are being contested in good faith by appropriate proceedings;

(c) Liens imposed by law and pledges or deposits made in connection with workers’ compensation, unemployment insurance, social security legislation or arising by virtue of deposits made in the ordinary course of business to secure liability for premiums to insurance carriers;

(d) Liens, pledges and deposits to secure the performance of tenders, bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety, customs, stay and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of the Restricted Subsidiaries;

(f) Liens in existence on the date hereof listed on Schedule 6.2(f), securing Indebtedness permitted by Section 6.1(e), provided that no such Lien is used to cover any additional property after the Closing Date and that the amount of Indebtedness secured thereby is not increased;

(g) Liens securing Indebtedness of the Borrower or any Restricted Subsidiary incurred pursuant to Section 6.1(f) or 6.1(g), provided that (i) such Liens shall be created substantially simultaneously within 180 days of the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased;

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(h) Liens created pursuant to the Security Documents;

(i) Liens created pursuant to the Term Facility Security Documents;

(j) any interest or title of a lessor under any lease entered into by the Borrower or any Restricted Subsidiary in the ordinary course of its business and covering only the assets so leased;

(k) Liens arising out of judgments or awards not constituting an Event of Default under Section 7(h);

(l) Liens solely on any cash earnest money deposits made by the Borrower or any of the Restricted Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;

(m) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business;

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

(o) any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property so long as consistent with the use of such real property;

(p) licenses of or other agreements relating to Intellectual Property granted by the Borrower or any of the Restricted Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of the Borrower or such Subsidiary;

(q) Liens on insurance policies securing any premium financing thereof; and

(r) Liens not otherwise permitted by this Section so long as neither (i) the aggregate outstanding principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Restricted Subsidiaries) $10,000,000 at any one time.

Notwithstanding the foregoing, none of the Liens permitted pursuant to this Section 6.2 may at any time attach to the Borrower or any Guarantor’s (1) Accounts, other than those permitted under clauses (a), (b), (h), (i) and (n) of this Section 6.2 and (2) Inventory or proceeds thereof, other than those permitted under clauses (a), (b), (h), (i) and (n) of this Section 6.2.

6.3 Fundamental Changes.

Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its property or business, except that:

(a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Restricted Subsidiary (provided that when the Subsidiary that is not a Subsidiary

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Guarantor is merging or consolidating with a Subsidiary Guarantor, the Subsidiary Guarantor shall be the continuing or surviving corporation);

(b) any Foreign Subsidiary may be merged with or into another Foreign Subsidiary and the Capital Stock of a Foreign Subsidiary may be transferred from one Group Member to another Group Member, including the formation of a new first-tier Foreign Subsidiary holding company;

(c) any Subsidiary of the Borrower may Dispose of all or substantially all of its assets (i) to the Borrower or any Restricted Subsidiary (upon voluntary liquidation or otherwise) (provided that when a Subsidiary that is a Subsidiary Guarantor is so Disposing of all or substantially all of its assets to another Subsidiary, such other Subsidiary must be a Subsidiary Guarantor) or (ii) pursuant to a Disposition permitted by Section 6.4;

(d) any Subsidiary of the Borrower may liquidate or dissolve or change its legal form if the Borrower determines in good faith that such action is in the best interests of the Borrower and the Restricted Subsidiaries and is not disadvantageous to the Lenders in any material respect; and

(e) any Investment expressly permitted by Section 6.6 may be structured as a merger, consolidation or amalgamation.

6.4 Disposition of Property.

Dispose of any of its property, whether now owned or hereafter acquired, or, in the case of any Restricted Subsidiary, issue or sell any shares of such Restricted Subsidiary’s Capital Stock to any Person, except:

(a) To the extent constituting a Disposition, Indebtedness, Liens, mergers, consolidations, amalgamations, Restricted Payments, Investments and Swap Agreements expressly permitted by Section 6.1, 6.2, 6.3, 6.5, 6.6 or 6.9;

(b) Dispositions that do not constitute Asset Sales; provided that nothing in this clause (b) shall be construed as permitting the Disposition or issuance of Capital Stock of any Subsidiary Guarantor to any Person other than to the Borrower or another Subsidiary Guarantor; and

(c) Asset Sales, the proceeds of which (valued at the principal amount thereof in the case of non-cash proceeds consisting of notes of other debt securities and valued at fair market value in the case of other non-cash proceeds) (i) are less than $1,000,000 with respect to any single Asset Sale or series of related Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $10,000,000; provided that (x) the consideration received for all such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of the Borrower (or any similar governing body)), (y) no less than 75% thereof shall be paid in cash, and (z) the Net Cash Proceeds thereof shall be applied as required by Section 2.11(c); provided that nothing in this clause (c) shall be construed as permitting the Disposition or issuance of Capital Stock of any Subsidiary Guarantor to any Person other than to the Borrower or another Subsidiary Guarantor.

6.5 Restricted Payments.

Declare or pay any dividend (other than dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any

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Capital Stock of any Group Member, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “Restricted Payments”) except that:

(a) any Subsidiary may make Restricted Payments to (i) the Borrower, (ii) any Subsidiary Guarantor or (iii) any other Restricted Subsidiary (pro rata to the ownership interest of such other Restricted Subsidiary);

(b) any Foreign Subsidiary of the Borrower may make Restricted Payments to another Foreign Subsidiary thereof;

(c) so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Borrower may purchase Capital Stock of Borrower from present or former directors, officers or employees of any Group Member, their estates, spouses, former spouses and their heirs upon and after the death, disability or termination of employment of such officer or employee; provided, that the aggregate amount of payments under this clause after the date hereof (net of any proceeds received by the Borrower after the date hereof in connection with resales of any such Capital Stock) shall not exceed in the aggregate during any Fiscal Year $5,000,000 plus the proceeds of any key man life insurance policy; provided, further, that so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Schultz Repurchase shall be permitted in an aggregate amount not to exceed $15,000,000 which repurchase amount shall not be counted against the threshold set forth in the preceding proviso; and

(d) the Borrower may make additional Restricted Payments on a Threshold Transaction Date.

6.6 Investments.

Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting a business unit of, or make any other investment in, any Person (all of the foregoing, “Investments”), except:

(a) accounts receivable and other extensions of trade credit by the Borrower and any Restricted Subsidiary in the ordinary course of business;

(b) cash and Cash Equivalent Investment;

(c) with respect to any Foreign Subsidiary, (i) investment-grade instruments and securities, (ii) deposit accounts, certificates of deposit, time deposits or overnight bank deposits with a bank or other depository institution, and (iii) such other securities and investments as the Borrower and the Administrative Agent may agree;

(d) Guarantee Obligations permitted by Section 6.1 and intercompany Indebtedness permitted by Section 6.1(c);

(e) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in any Subsidiary Guarantors;

(f) Investments (i) in any securities received in satisfaction or partial satisfaction thereof from financially troubled debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with past practices of the Borrower and the Restricted Subsidiaries;

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(g) loans and advances to officers, directors and employees of any Group Member (i) in the ordinary course of business (including for travel, entertainment and relocation expenses) consistent with past practices in an aggregate amount for all Group Members not to exceed $5,000,000 at any one time outstanding and (ii) for the purpose of funding the purchase of Capital Stock (including any director’s qualifying shares) or other equity interests in a Group Member in an aggregate amount for all Group Members not to exceed $3,000,000 at any one time outstanding;

(h) intercompany Investments by any Group Member in the Borrower or any Person that is or thereby becomes a Subsidiary Guarantor;

(i) Permitted Acquisitions;

(j) Investments (i) by any Foreign Subsidiary in another Foreign Subsidiary and (ii) by a Group Member in any Subsidiary including a Foreign Subsidiary or an Unrestricted Subsidiary; provided, that Investments permitted under this Section 6.6(j)(ii) are contemporaneously or within five Business Days remitted to a Borrower or any Guarantor and such Investments are made to facilitate repatriation of monies to the United States;

(k) to the extent constituting Investments, Indebtedness permitted under Section 6.1(m);

(l) Investments described in Schedule 6.6(l) and existing on the Closing Date;

(m) Capital Expenditures;

(n) the Borrower may enter into Swap Agreements that are not speculative in nature to the extent not prohibited under this Agreement;

(o) Investments made by any Group Member as a result of consideration received in connection with an Asset Sale or other transaction effected in compliance with Section 6.4(c); and

(p) Investments made on a Threshold Transaction Date.

Notwithstanding the foregoing, in no event shall the Borrower or any Guarantor make any Investment which results in or facilitates any Restricted Payment not otherwise permitted under the terms of Section 6.5.

6.7 Optional Payments and Modifications of Certain Debt Instruments.

(a) Make or offer to make any optional or voluntary payment, prepayment, repurchase or redemption of or otherwise optionally or voluntarily defease or segregate funds with respect to any Permitted Subordinated Debt or any Permitted Refinancing Indebtedness incurred in respect of any of the foregoing; provided that the Borrower may pay, prepay, repurchase or redeem any of the foregoing Indebtedness on any Threshold Transaction Date; provided, further, that the Borrower may pay, prepay, repurchase or redeem any of the foregoing Indebtedness, pursuant to a refinancing thereof with Permitted Refinancing Indebtedness (to the extent permitted by Section 6.1); (b) amend, modify, waive or otherwise change, or consent or agree to any material amendment, modification, waiver or other change to, any of

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the terms of any Indebtedness described in clause (i) above or any preferred stock that is materially adverse to the interests of the Lenders; or (c) designate any Indebtedness (other than obligations of the Group Members pursuant to the Loan Documents and the Term Facility Documents) as “Designated Senior Indebtedness” (or any other defined term having a similar purpose) for the purposes of any Indebtedness described in clause (i) above that is subordinated to the Obligations.

6.8 Transactions with Affiliates.

Enter into any transaction, including any purchase, sale, lease or exchange of property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of the relevant Group Member, (c) any transaction between the Borrower and any Guarantor or between Guarantors, (d) transactions described in Schedule 6.8 and (e) upon fair and reasonable terms no less favorable to the relevant Group Member than it would obtain in a comparable arm’s length transaction with a Person that is not an Affiliate.

6.9 Swap Agreements.

Enter into any Swap Agreement, other than Swap Agreements entered into in the ordinary course of business and not for speculative purposes, to protect against changes in interest rates, commodity prices or foreign exchange rates.

6.10 Negative Pledge Clauses.

Enter into any agreement that prohibits or limits the ability of any Group Member to create, incur or assume any Lien upon any of its property or revenues, whether now owned or hereafter acquired, to secure its obligations under the Loan Documents to which it is a party other than (a) this Agreement and the other Loan Documents, (b) the Term Facility Agreement and the other Term Facility Documents, (c) agreements evidencing Indebtedness of any Foreign Subsidiary of the Borrower permitted hereunder (provided that any prohibition or limitation thereunder is limited to the property or assets of such Foreign Subsidiary), (d) leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business (provided that any prohibition or limitation thereunder relates to customary provisions restricting assignments, subletting or other transfers and is limited to the property or assets subject to such agreement or arrangement) and (e) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby).

6.11 Clauses Restricting Subsidiary Distributions.

Enter into or permit to become effective any consensual encumbrance or restriction on the ability of any Group Member to (a) make Restricted Payments in respect of any Capital Stock of such Group Member held by, or pay any Indebtedness owed to, any Group Member, (b) make loans or advances to, or other Investments in, the Borrower or any Restricted Subsidiary or (c) transfer any of its assets to the Borrower or any Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary.

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6.12 Lines of Business.

Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Group Members are engaged on the date of this Agreement, that are reasonably related or complementary thereto or that are an extension thereof.

6.13 Consolidated Fixed Charge Coverage Ratio.

(a) At any time that the sum of Availability plus Perfected Cash is less than $15,000,000, permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive Fiscal Quarters of the Borrower to be less than 1.00 to 1.00; provided that each time that the Borrower transitions from not being subject to the covenant set forth in this Section 6.13 to being subject thereto, the first such determination shall be made in respect of the most recent twelve-month period ending on the last day of the latest month for which financial statements were delivered pursuant to Section 5.1(c) and the Borrower shall deliver a Compliance Certificate together with such monthly financial statements.

6.14 Amendment of Organizational Documents. Amend, modify or waive any of its rights under its certificate of incorporation, by-laws, operating, management or partnership agreement or other organizational documents, to the extent any such amendment, modification or waiver would be adverse to the Lenders.

SECTION 7. EVENTS OF DEFAULT

If any of the following events shall occur and be continuing:

(a) the Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable by it hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof; or

(b) any representation or warranty made or deemed made by the Borrower or any Guarantor herein or in any other Loan Document to which it is a party or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or

(c) the Borrower or any Guarantor shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 5.4(a) (with respect to the Borrower only), Section 5.7(a) or 5.7 (l) or Section 6 of this Agreement; or

(d) the Borrower or any Guarantor shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document to which it is a party (other than as provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of (i) 15 days after the earlier of knowledge of such breach or written notice thereof from the Administrative Agent (which notice will be given at the request of any Lender) if such breach relates to terms or provisions of Section 5.1 through 5.6, 5.7 (other than 5.7(a)), 5.10 or 5.12 of this Agreement or (ii) 30 days after the earlier of knowledge of such breach or written notice thereof from the Administrative Agent (which notice will be given at the request of any Lender) if such breach relates to terms or provisions of any Section of this Agreement or any other Loan Document (other than as provided in clauses (a), (b), (c) and (d)(i) of this Section 7); or

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(e) any Group Member shall (i) default in making any payment of any principal of any Indebtedness (including any Guarantee Obligation, but excluding the Loans) within five days after the scheduled or original due date of any such amount; or (ii) default in making any payment of any interest on any such Indebtedness or fees beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, within five days after the due date, one or more defaults, events or conditions of the type described in clauses (i), (ii) or (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness then due in the outstanding principal amount of at least $10,000,000 in the aggregate; or

(f) (i) any Group Member shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or any Group Member shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against any Group Member any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed or undischarged for a period of 60 days; or (iii) there shall be commenced against any Group Member any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) any Group Member shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) any Group Member shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or

(g) (i) any Group Member or Commonly Controlled Entity shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA) or, on and after the effectiveness of the Pension Act, any failure by any Plan to satisfy the minimum funding standards (within the meaning of Section 412 of the Code or Section 302 of ERISA) applicable to such Plan, whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of any Group Member or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) on

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and after the effectiveness of the Pension Act, there is a determination that any Plan is, or is expected to be, in “at risk” status (within the meaning of Title IV of ERISA); or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, would, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or

(h) one or more judgments or decrees shall be entered against any Group Member involving in the aggregate a liability (to the extent not paid or covered by insurance as to which the relevant insurance company has acknowledged coverage) of $10,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of the Borrower or any Guarantor to enforce any such judgment or the Borrower or any Guarantor shall fail within 30 days to discharge one or more non-monetary judgments or orders, in each case, which, individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, which judgments or orders, in any such case, are not stayed on appeal or otherwise being appropriately contested in good faith by proper proceedings diligently pursued; or

(i) any material provision of the Security Documents shall cease to be in full force and effect, or the Borrower or any Guarantor or any Affiliate of the Borrower or any Guarantor shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby, in each case for any reason other than the failure of the Administrative Agent or any Secured Party having due knowledge or notice of the event causing such invalidity or unenforceability to take any action within its control; or

(j) the guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or the Borrower or any Guarantor or any Affiliate of the Borrower or any Guarantor shall so assert; or

(k) a Change of Control shall occur;

then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of LC Exposure, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Commitments to be terminated forthwith, whereupon the Revolving Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including all amounts of LC Exposure, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. Upon any Event of Default, the requirements under Section 2.6(j) shall be complied with in respect to all outstanding Letters of Credit. Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower.

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Upon the occurrence and the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the UCC.

SECTION 8. THE AGENTS

8.1 Appointment.

Each Lender hereby irrevocably designates and appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent.

8.2 Delegation of Duties.

The Administrative Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care.

8.3 Exculpatory Provisions.

Neither any Agent nor any of their respective officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person’s own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Group Member or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Group Member a party thereto to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Group Member.

8.4 Reliance by Administrative Agent.

The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy or email message, statement, order or other document or conversation believed by it to be genuine and

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correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.

8.5 Notice of Default.

The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a “notice of default”. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders.

8.6 Non-Reliance on Agents and Other Lenders.

Each Lender expressly acknowledges that neither the Agents nor any of their respective officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Group Member or any affiliate of a Group Member, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and the Guarantors and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and the Guarantors and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Group Member or any affiliate of a Group Member that may come into the possession of the Administrative Agent or any of its officers, directors, partners, employees, agents, advisors, attorneys-in-fact or affiliates.

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Each Lender hereby agrees that (a) it has requested a copy of each Report prepared by or on behalf of the Administrative Agent; (b) the Administrative Agent (i) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (ii) shall not be liable for any information contained in any Report; (c) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Borrower and the Guarantors and will rely significantly upon the Borrower and the Guarantors’ books and records, as well as on representations of the Borrower and the Guarantors’ personnel and that the Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (d) it will keep all Reports confidential and strictly for its internal use, not share the Report with any Group Member or any other Person except as otherwise permitted pursuant to this Agreement; and (e) without limiting the generality of any other indemnification provision contained in this Agreement, it will pay and protect, and indemnify, defend, and hold the Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorney fees) incurred by as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

8.7 Indemnification.

The Lenders agree to indemnify each Agent and its officers, directors, partners, employees, affiliates, agents, advisors and controlling persons (each, an “Agent Indemnitee”) (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to their respective Applicable Percentages in effect on the date on which indemnification is sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Applicable Percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (whether before or after the payment of the Loans) be imposed on, incurred by or asserted against such Agent Indemnitee in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent Indemnitee under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Agent Indemnitee or its Related Persons (if any). The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder.

8.8 Agent in Its Individual Capacity.

Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Group Member as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms “Lender” and “Lenders” shall include each Agent in its individual capacity.

8.9 Successor Administrative Agent.

The Administrative Agent may resign as Administrative Agent upon 10 days’ notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under

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this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 7(a) or Section 7(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term “Administrative Agent” shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent’s rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent’s notice of resignation, the retiring Administrative Agent’s resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent’s resignation as Administrative Agent, the provisions of this Section 8 and of Section 9.5 shall continue to inure to its benefit.

8.10 Documentation Agents and Syndication Agent.

Neither the Documentation Agents nor the Syndication Agent shall have any duties or responsibilities hereunder in its capacity as such.

SECTION 9. MISCELLANEOUS

9.1 Amendments and Waivers.

(a) Neither this Agreement, any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 9.1. The Required Lenders and each Group Member party to the relevant Loan Document may, or, with the written consent of the Required Lenders, the Administrative Agent and each Group Member party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Borrower and the Guarantors hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan, reduce the stated rate of any interest or fee payable hereunder (except in connection with the waiver of applicability of any post-default increase in interest rates (which waiver shall be effective with the consent of the Required Lenders)) or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender’s Revolving Commitment, in each case without the written consent of each Lender directly affected thereby (provided that the Administrative Agent may make Protective Advances as set forth in Section 2.4); (ii) eliminate or reduce the voting rights of any Lender under this Section 9.1 without the written consent of such Lender; (iii) reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Subsidiary Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (iv) change Section 2.18(b) or (d) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender; (v) increase the advance rates set forth in the definition of Borrowing Base, add new categories of eligible assets or modify the definitions applicable to

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existing categories of eligible assets in a manner that would have the effect of increasing Availability, without the written consent of Lenders having Credit Exposure and unused Commitments representing more than 75% of the sum of the total Credit Exposure and unused Commitments at such time; (vi) amend, modify or waive any provision of Section 8 or any other provision of any Loan Document that affects the Administrative Agent without the written consent of the Administrative Agent; (vii) amend, modify or waive any provision of Section 2.5 without the written consent of the Swingline Lender; or (viii) amend, modify or waive any provision of Section 2.6 without the written consent of the Issuing Bank. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Borrower and the Guarantors, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Borrower and the Guarantors, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon.

(b) If, in connection with any proposed amendment, waiver or consent requiring the consent of “each Lender” or “each Lender affected thereby,” the consent of the Required Lenders is obtained, but the consent of other necessary Lenders is not obtained (any such Lender whose consent is necessary but not obtained being referred to herein as a “Non-Consenting Lender”), then the Borrower may elect to replace a Non-Consenting Lender as a Lender party to this Agreement, provided that, concurrently with such replacement, (i) another bank or other entity which is reasonably satisfactory to the Borrower and the Administrative Agent shall agree, as of such date, to purchase for cash the Loans and other Obligations due to the Non-Consenting Lender pursuant to an Assignment and Assumption and to become a Lender for all purposes under this Agreement and to assume all obligations of the Non-Consenting Lender to be terminated as of such date and to comply with the requirements of clause (b) of Section 9.6, and (ii) the Borrower shall pay to such Non-Consenting Lender in same day funds on the day of such replacement (1) all interest, fees and other amounts then accrued but unpaid to such Non-Consenting Lender by the Borrower hereunder to and including the date of termination, including without limitation payments due to such Non-Consenting Lender under Sections 2.15 and 2.17, and (2) an amount, if any, equal to the payment which would have been due to such Lender on the day of such replacement under Section 2.16 had the Loans of such Non-Consenting Lender been prepaid on such date rather than sold to the replacement Lender.

(c) Notwithstanding the foregoing, this Agreement, including this Section 9.1, and the other Loan Documents may be amended pursuant to Section 2.22 in order to incorporate any Incremental Revolving Commitments and to permit the extensions of credit from time to time outstanding thereunder and the accrued interest and fees in respect thereof to share ratably in the benefits of this Agreement and the other Loan Documents with the Revolving Commitments and the Revolving Loans and the accrued interest and fees in respect thereof and to include appropriately the Additional Lenders in any determination of the Required Lenders.

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9.2 Notices.

(a) All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Borrower and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto:

Borrower:	Fender Musical Instruments Corporation 8860 E. Chaparral Road, Suite 100 Scottsdale, AZ 85250
	Attention: Richard A. Kerley, Chief Financial Officer                    Mark Van Vleet, General Counsel
	Telecopy: (480) 368-5460
	Telephone: (480) 596-7105
with a copy to:	Sullivan & Cromwell LLP 1888 Century Park East, Suite 2100 Los Angeles, CA 90067
	Attention: Hydee R. Feldstein, Esq.
	Telecopy: (310) 712-8800
	Telephone: (310) 712-6690
Administrative Agent:	JPMorgan Chase Bank, N.A. 2200 Ross Avenue, Floor 6 Dallas, TX 75201
	Attention: Kevin Padgett
	Telecopy: (214) 965-2594
	Telephone: (214) 965-3700

provided that any notice, request or demand to or upon the Administrative Agent or the Lenders shall not be effective until received.

(b) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communications (including e-mail and internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Section 2 or to compliance and no Event of Default certificates delivered pursuant to Sections 5.2 and 5.7 unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower (on behalf of the Borrower and the Guarantors) may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. All such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (b)(i) of notification that such notice or communication is available and identifying the website address therefor.

(c) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

9.3 No Waiver; Cumulative Remedies.

No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or

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privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

9.4 Survival of Representations and Warranties.

All representations and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder.

9.5 Payment of Expenses and Taxes.

(a) The Borrower agrees (i) to pay or reimburse the Administrative Agent and the Arranger for all their reasonable out-of-pocket and documented costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including the reasonable, documented fees and disbursements of counsel to the Administrative Agent and the Arranger and filing and recording fees and expenses, with statements with respect to the foregoing to be submitted to the Borrower prior to the Closing Date (in the case of amounts to be paid on the Closing Date) and from time to time thereafter on a quarterly basis or such other periodic basis as the Administrative Agent shall deem appropriate, (ii) to pay or reimburse each Lender and the Administrative Agent for all reasonable out-of-pocket costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including the fees and disbursements of one counsel in each relevant jurisdiction in which property is located and of counsel to the Administrative Agent, and (iii) to pay, indemnify, and hold each Lender, the Arranger and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, that may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents to the extent, in the case of this clause (iii), payable under and in accordance with Section 2.17, subject to the limitations of Section 2.13.

(b) The Borrower shall indemnify the Agents, the Issuing Bank and each Lender, and each Related Person of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of the Loan Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Refinancing or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Issuing Bank to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of the Restricted Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of the Restricted Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such

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losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee.

(c) To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent, the Issuing Bank or the Swingline Lender under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent, the Issuing Bank or the Swingline Lender, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent, the Issuing Bank or the Swingline Lender in its capacity as such.

(d) Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause the Restricted Subsidiaries not to assert, and hereby waives and agrees to cause the Restricted Subsidiaries to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee.

(e) All amounts due under this Section 9.5 shall be payable not later than 10 days after written demand therefor. Statements payable by the Borrower pursuant to this Section 9.5 shall be submitted to Richard A. Kerley, Chief Financial Officer (Telephone No. (480) 596-7105) (Telecopy No. (480) 368-5460), at the address of the Borrower set forth in Section 9.2, or to such other Person or address as may be hereafter designated by the Borrower in a written notice to the Administrative Agent. The agreements in this Section 9.5 shall survive repayment of the Loans and all other amounts payable hereunder.

9.6 Successors and Assigns; Participations and Assignments.

(a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section.

(b) (i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more assignees (each, an “Assignee”) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans at the time owing to it) with the prior written consent of:

(A) the Borrower (such consent not to be unreasonably withheld), provided that no consent of the Borrower shall be required for an assignment to any Person if an Event of Default has occurred and is continuing;

(B) the Administrative Agent; and

(C) the Issuing Bank;

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provided that no consent of the Borrower, the Administrative Agent or the Issuing Bank shall be required for an assignment to a Lender, an affiliate of a Lender or an Approved Fund (as defined below).

(ii) Assignments shall be subject to the following additional conditions:

(A) except in the case of an assignment to a Lender, an affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender’s Commitments or Loans, the amount of the Commitments or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that (1) no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing and (2) such amounts shall be aggregated in respect of each Lender and its affiliates or Approved Funds, if any;

(B) (1) the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500 and (2) the assigning Lender shall have paid in full any amounts owing by it to the Administrative Agent; and

(C) the Assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an administrative questionnaire in which the Assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities) will be made available and who may receive such information in accordance with the assignee’s compliance procedures and applicable laws, including Federal and state securities laws.

For the purposes of this Section 9.6, “Approved Fund” means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an affiliate of a Lender or (c) an entity or an affiliate of an entity that administers or manages a Lender.

(iii) Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) below, from and after the effective date specified in each Assignment and Assumption the Assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.15, 2.16, 2.17 and 9.5). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 9.6 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.

(iv) The Administrative Agent, acting for this purpose as an agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and LC Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.

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(v) Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an Assignee, the Assignee’s completed administrative questionnaire (unless the Assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.

(c) (i) Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a “Participant”) in all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitments and the Loans owing to it); provided that (A) such Lender’s obligations under this Agreement shall remain unchanged, (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (C) the Borrower, the Administrative Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. Any agreement pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver that (1) requires the consent of each Lender directly affected thereby pursuant to the proviso to the second sentence of Section 9.1 and (2) directly affects such Participant. Subject to paragraph (c)(ii) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.15, 2.16 and 2.17 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7(b) as though it were a Lender, provided such Participant shall be subject to Section 9.7(a) as though it were a Lender.

(ii) A Participant shall not be entitled to receive any greater payment under Section 2.15 or 2.17 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. Any Participant that is a Non-U.S. Lender shall not be entitled to the benefits of Section 2.17 unless such Participant is able to comply and in fact complies with Section 2.17(d).

(d) Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or Assignee for such Lender as a party hereto.

9.7 Adjustments; Set-off.

(a) If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the Secured Obligations held by such Lender,

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irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender shall notify the Borrower and the Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.

(b) NOTWITHSTANDING THE FOREGOING, AT ANY TIME THAT ANY OF THE SECURED OBLIGATIONS SHALL BE SECURED BY REAL PROPERTY LOCATED IN CALIFORNIA, NO LENDER SHALL EXERCISE A RIGHT OF SETOFF, LENDER’S LIEN OR COUNTERCLAIM OR TAKE ANY COURT OR ADMINISTRATIVE ACTION OR INSTITUTE ANY PROCEEDING TO ENFORCE ANY PROVISION OF THIS AGREEMENT OR ANY LOAN DOCUMENT UNLESS IT IS TAKEN WITH THE CONSENT OF THE LENDERS REQUIRED BY SECTION 9.1 OF THIS AGREEMENT, IF SUCH SETOFF OR ACTION OR PROCEEDING WOULD OR MIGHT (PURSUANT TO SECTIONS 580a, 580b, 580d AND 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR SECTION 2924 OF THE CALIFORNIA CIVIL CODE, IF APPLICABLE, OR OTHERWISE) AFFECT OR IMPAIR THE VALIDITY, PRIORITY, OR ENFORCEABILITY OF THE LIENS GRANTED TO THE ADMINISTRATIVE AGENT PURSUANT TO THE SECURITY DOCUMENTS OR THE ENFORCEABILITY OF THE OBLIGATIONS HEREUNDER, AND ANY ATTEMPTED EXERCISE BY ANY LENDER OR ANY SUCH RIGHT WITHOUT OBTAINING SUCH CONSENT OF THE PARTIES AS REQUIRED ABOVE, SHALL BE NULL AND VOID. THIS PARAGRAPH SHALL BE SOLELY FOR THE BENEFIT OF EACH OF THE LENDERS.

9.8 Counterparts.

This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement by email or facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent.

9.9 Severability.

Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

9.10 Integration.

This Agreement and the other Loan Documents represent the entire agreement of the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents.

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9.11 GOVERNING LAW.

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

9.12 Submission To Jurisdiction; Waivers.

Each of the Borrower, the Agents and the Lenders hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

(c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower, as the case may be at its address set forth in Section 9.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

9.13 Acknowledgements.

The Borrower hereby acknowledges that:

(a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents;

(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

(c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Borrower and the Lenders.

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9.14 Releases of Guarantees and Liens.

(a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the Administrative Agent is hereby irrevocably authorized by each Lender (without requirement of notice to or consent of any Lender except as expressly required by Section 9.1) to take any action requested by the Borrower having the effect of releasing any Collateral or guarantee obligations (i) to the extent necessary to permit consummation of any transaction not prohibited by any Loan Document or that has been consented to in accordance with Section 9.1 or (ii) under the circumstances described in paragraph (b) below.

(b) At such time as the Loans and the other obligations under the Loan Documents (other than obligations under or in respect of Swap Agreements) shall have been paid in full, the Collateral shall be released from the Liens created by the Security Documents, and the Security Documents and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each of the Borrower and the Guarantors under the Security Documents shall terminate, all without delivery of any instrument or performance of any act by any Person.

(c) Except as provided above in this Section 9.14, the Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Lenders; provided that, the Administrative Agent may in its discretion, release its Liens on Collateral valued in the aggregate not in excess of $10,000,000 during any calendar year without the prior written authorization of the Required Lenders. Any such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released) upon (or obligations of the Borrower and the Guarantors in respect of) all interests retained by the Borrower and the Guarantors, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

9.15 Confidentiality.

(a) Each of the Agents and each Lender agrees to keep confidential all non-public information provided to it by the Borrower or any Guarantor, any Agent or any Lender pursuant to or in connection with this Agreement that is designated by the provider thereof as confidential; provided that nothing herein shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to any Agent, any other Lender or any affiliate thereof, (b) subject to an agreement to comply with the provisions of this Section, to any actual or prospective Transferee or any pledgee referred to in Section 9.6(d) or any direct or indirect counterparty to any Swap Agreement (or any professional advisor to such counterparty), (c) to its employees, directors, agents, attorneys, accountants and other professional advisors or those of any of its affiliates, (d) upon the request or demand of any Governmental Authority, (e) in response to any order of or request from any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) that has been publicly disclosed, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender’s investment portfolio in connection with ratings issued with respect to such Lender, (i) in connection with the exercise of any remedy hereunder or under any other Loan Document or (j) if consented to in writing by the Borrower.

(b) Each Lender acknowledges that information furnished to it pursuant to this Agreement or the other Loan Documents may include material non-public information concerning the Borrower and its Affiliates and their related parties or their respective securities, and confirms that it has developed compliance procedures regarding the use of material non-public information and that it will handle such material non-public information in accordance with those procedures and applicable law, including Federal and state securities laws.

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(c) All information, including requests for waivers and amendments, furnished by the Borrower or the Administrative Agent pursuant to, or in the course of administering, this Agreement or the other Loan Documents will be syndicate-level information, which may contain material non-public information about the Borrower and its Affiliates and their related parties or their respective securities. Accordingly, each Lender represents to the Borrower and the Administrative Agent that it has identified in its administrative questionnaire a credit contact who may receive information that may contain material non-public information in accordance with its compliance procedures and applicable law, including Federal and state securities laws.

9.16 Appointment for Perfection.

Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the Lenders, in assets which, in accordance with Article 9 of the UCC or any other applicable law can be perfected only by possession. Should any Lender (other than the Administrative Agent) obtain possession of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent’s request therefor shall deliver such Collateral to the Administrative Agent or otherwise deal with such Collateral in accordance with the Administrative Agent’s instructions.

9.17 WAIVERS OF JURY TRIAL.

THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

9.18 Several Obligations; Nonreliance; Violation of Law. The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any margin stock for the repayment of the Borrowings provided for herein. Anything contained in this Agreement to the contrary notwithstanding, neither the Issuing Bank nor any Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.

9.19 USA PATRIOT Act. Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”) hereby notifies the Borrower that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the Act.

9.20 Survival. All covenants, agreements, representations and warranties made by the Borrower and the Guarantors in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans and issuance of any Letters of Credit, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent, the Issuing Bank or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding

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and so long as the Commitments have not expired or terminated. The provisions of Sections 2.15, 2.16, 2.17 and 9.5 and Section 8 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Agreement or any provision hereof.

9.21 Delivery of Addenda.

Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent an Addendum duly executed by such Lender.

9.22 Intercreditor Agreement.

The terms of this Agreement, any lien and security interest granted to the Administrative Agent pursuant to the Security Documents and the exercise of any right or remedy by the Administrative Agent under the Loan Documents are subject to the provisions of the Intercreditor Agreement. In the event of any inconsistency between the provisions of this Agreement and the other Loan Documents and the Intercreditor Agreement, the provisions of the Intercreditor Agreement shall supersede the provisions of this Agreement and the other Loan Documents.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

FENDER MUSICAL INSTRUMENTS CORPORATION
By:	/s/ William L. Mendello
	Name: William L. Mendello
	Title: Chairman and Chief Executive Officer
JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender
By:	/s/ Dan Lane
	Name: Dan Lane
	Title: SVP
WELLS FARGO FOOTHILL, LLC, as Syndication Agent and as a Lender
By:	/s/ Samat Amladi
	Name: Samat Amladi
	Title: Vice President
THE CIT GROUP/COMMERCIAL SERVICES, INC., as Documentation Agent and as a Lender
By:	/s/ Brent Phillips
	Name: Brent Phillips
	Title: Vice President
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), as Documentation Agent and as a Lender
By:	/s/ Vicki Balmot
	Name: Vicki Balmot
	Title: Managing Director

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EX-10.35

Exhibit 10.35

FIRST AMENDMENT TO REVOLVING FACILITY CREDIT AGREEMENT

THIS FIRST AMENDMENT TO REVOLVING FACILITY CREDIT AGREEMENT (this “Amendment”), dated as of April 27, 2011, is entered into by and among FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation (“Borrower”), the several banks and other financial institutions or entities parties hereto as lenders (each individually, a “Lender” and collectively, the “Lenders”), JPMORGAN CHASE BANK, N.A., as administrative agent for the Lenders (in such capacity, “Administrative Agent”), J.P. MORGAN SECURITIES LLC and WELLS FARGO CAPITAL FINANCE, LLC, as Co-Lead Arrangers, J.P. MORGAN SECURITIES LLC, WELLS FARGO CAPITAL FINANCE, LLC and BARCLAYS CAPITAL, the investment banking division of Barclays Bank PLC, as Joint Bookrunners, and BARCLAYS CAPITAL, the investment banking division of Barclays Bank PLC, as Syndication Agent.

RECITALS

A. Borrower, Administrative Agent, the several banks and other financial institutions or entities parties thereto as lenders (each an “Existing Lender”), and certain other Agents have previously entered into that certain Revolving Facility Credit Agreement, dated as of June 7, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), pursuant to which certain loans and financial accommodations have been made available to Borrower. Terms used herein without definition shall have the meanings ascribed to them in the Credit Agreement.

B. Immediately prior to giving effect to this Amendment, The CIT Group/Commercial Services, Inc. shall execute a payoff letter pursuant to which, among other things, it shall acknowledge it is no longer an Existing Lender under the Credit Agreement.

C. Prior to the date hereof: (i) Wells Fargo Foothill, LLC (an Existing Lender) changed its name to Wells Fargo Capital Finance, LLC (“WFCF”), and (ii) Wachovia Capital Finance Corporation (Western) (an Existing Lender) merged with and into WFCF.

D. Borrower has requested that Administrative Agent and the Lenders amend the Credit Agreement, and Administrative Agent and the Lenders are willing to amend the Credit Agreement, pursuant to the terms and conditions set forth herein.

E. Borrower is entering into this Amendment with the understanding and agreement that, except as specifically provided herein, none of Administrative Agent’s or any Lender’s rights or remedies as set forth in the Credit Agreement and the other Loan Documents are being waived or modified by the terms of this Amendment.

AGREEMENT

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

1. Amendments to Credit Agreement.

(a) The following definitions are hereby added to Section 1.1 of the Credit Agreement in their proper alphabetical order:

“Approved Jurisdiction”: the United Kingdom and any jurisdiction that is not a Non-Approved Jurisdiction.

“Confidential Information”: information that is furnished to the Administrative Agent or any Lender by or on behalf of the Borrower or any Guarantor, but does not include any such information that is or becomes generally available to the public (other than as a result of a violation of this Agreement).

“Eligible Credit Party”: each of the Borrower, FIC, and KMC.

“Eligible Work-in-Process Inventory”: on any date, without duplication of other Eligible Inventory, Inventory (a) identified as “work-in-process,” or an equivalent thereof, on such date as shown on the applicable Eligible Credit Party’s perpetual inventory records in accordance with its current and historical accounting practices, (b) that the Administrative Agent deems eligible based on (i) an appraisal of such Inventory from an appraiser acceptable to Administrative Agent and prepared on a basis satisfactory to the Administrative Agent, and (ii) the results of its satisfactory business and legal due diligence, including a satisfactory field examination, and (c) which otherwise constitutes Eligible Inventory.

“Exchange Act”: the Securities Exchange Act of 1934, as in effect from time to time.

“FIC”: Fender International Corporation, a Delaware corporation.

“Formula Amount”: as of any date of determination, the amount derived from the result of: (i) the sum of the amounts derived under clauses (a), (b), (c), (d) and (e) of the definition of “Borrowing Base”, minus (ii) the amount derived under clause (g) of the definition of “Borrowing Base”, and minus (iii) the LC Exposure on such date.

“KMC”: KMC Music, Inc., a Connecticut corporation.

“Lender Party”: each of the Issuing Bank, each Agent, and each Lender.

“Maximum Structured Overformula Amount”: (a) for no longer than 150 consecutive days (beginning on the day Borrower elects by delivering prior written notice to the Administrative Agent (the “SOFA Election Date”)) during the period commencing on June 1 of each year and ending on December 31 of such year, so long as the Consolidated Fixed Charge Coverage Ratio, determined on a pro forma basis after giving effect to any Loans in excess of the Formula Amount as of (i) the last day of the most recent Fiscal Month (calculated on a trailing twelve month basis) prior to the SOFA Election Date for which financial statements are available, and (ii) the last day of each Fiscal Quarter thereafter (calculated on a trailing four Fiscal Quarter basis) during such 150 consecutive days for which financial statements are available, is at least 1.0 to 1.0, ten million dollars ($10,000,000); and (b) at all other times, zero dollars ($0).

“Non-Approved Jurisdiction”: (a) any of the following jurisdictions: The Balkans, Belarus, Burma, Columbia, Cote d’Ivoire (Ivory Coast), Cuba, Democratic Republic of Congo, Iran, Iraq, Liberia, Libya, North Korea, Somalia, Sudan, Syria, Venezuela, Yugoslavia and Zimbabwe, (b) any jurisdiction that is on OFAC’s list of targeted countries against which OFAC administers and enforces economic or trade sanctions, or

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(c) any other jurisdiction that Administrative Agent, for policy or reasonable credit or legal determinations, otherwise does not approve; provided, that such policy, credit or legal determinations shall not be inconsistent with Administrative Agent’s general lending practices for asset-based loan transactions; provided, further, that in no event shall the United Kingdom be a Non-Approved Jurisdiction.

“OFAC”: The Office of Foreign Assets Control of the U.S. Department of the Treasury.

“Preferred Stock”: as applied to the Capital Stock of any Person, the Capital Stock of any class or classes (however designated) that is preferred with respect to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.

“Prohibited Preferred Stock”: any Preferred Stock that by its terms is mandatorily redeemable or subject to any other payment obligation (including any obligation to pay dividends, other than dividends of shares of Preferred Stock of the same class and series payable in kind or dividends of shares of common stock) on or before a date that is less than 1 year after the Maturity Date, or, on or before the date that is less than 1 year after the Maturity Date, is redeemable at the option of the holder thereof for cash or assets or securities (other than distributions in kind of shares of Preferred Stock of the same class and series or of shares of common stock).

“SEC”: the United States Securities and Exchange Commission and any successor thereto.

“Structured Overformula Rate”: for any day, (i) with respect to any ABR Loan, 0.25%, and (ii) with respect to any Eurodollar Revolving Loan, the applicable rate per annum set forth below under the caption “Eurodollar Spread” based upon the Commitment Utilization Percentage:

Commitment Utilization Percentage	Eurodollar Spread
< 50%	2.50%
³ 50%	2.75%

“WIP Sublimit”: an amount equal to $20,000,000.

(b) The grid contained in the definition of “Applicable Margin” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Commitment Utilization Percentage	Eurodollar Spread
< 50%	2.00%
³ 50%	2.25%

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(c) Clause (h) of the definition of “Asset Sale” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(h) that results in cash consideration of less than $1,000,000 (or, if less, the corresponding threshold set forth in the Term Facility Agreement).”

(d) The definition of “Borrowing Base” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Borrowing Base’: at any time, the sum of (a) 85% of the Eligible Domestic Accounts at such time, plus (b) the lesser of (i) 85% of Eligible Foreign Accounts owed by Account Debtors in Approved Jurisdictions, and (ii) $10,000,000, plus (c) the product of 85% multiplied by the Net Orderly Liquidation Value Percentage multiplied by the Eligible Raw Materials at such time, plus (d) the product of 85% multiplied by the Net Orderly Liquidation Value Percentage multiplied by the Eligible Finished Goods at such time, plus (e) the lesser of (i) the WIP Sublimit and (ii) the product of 85% multiplied by the Net Orderly Liquidation Value Percentage multiplied by Eligible Work-in-Process Inventory at such time, plus (f) the lesser of the (i) Maximum Structured Overformula Amount and (ii) the product of 10% multiplied by the Net Orderly Liquidation Value Percentage multiplied by Eligible Inventory at such time, minus (g) Reserves.”

(e) The definition of “Capital Lease Obligations” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Capital Lease Obligations’: as to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP; provided that, notwithstanding any change in GAAP, no obligation for any existing lease classified as an operating lease, or any future lease that would have been classified as an operating lease had such lease been in existence as of the Closing Date, in accordance with GAAP as of the Closing Date shall be a Capital Lease Obligation for purposes of this Agreement.”

(f) Clause (a)(iii) of the definition of “Consolidated EBITDA” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(iii) depreciation and amortization expense (other than depreciation expense on account of existing leases classified as operating leases, or future leases that would have been classified as operating leases had such leases been in existence as of the Closing Date, in accordance with GAAP as of the Closing Date, and that are excluded from the definition of Capital Lease Obligations solely because of a change in GAAP after the Closing Date requiring such leases to be capitalized),”

(g) The first sentence of the definition of “Eligible Accounts” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“at any time, the Accounts of the Eligible Credit Parties which the Administrative Agent determines in its Permitted Discretion are eligible as the basis for the extension of Revolving Loans, Swingline Loans and the issuance of Letters of Credit hereunder.”

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(h) The phrase “the Borrower” contained in each of clauses (c), (g), (h), (q), (r), and (t) of the definition of “Eligible Accounts” in Section 1.1 of the Credit Agreement is hereby amended and replaced, in each case, in its entirety with the phrase “the applicable Eligible Credit Party”.

(i) The phrase “the Borrower” contained in each of clauses (e) and (o) of the definition of “Eligible Accounts” in Section 1.1 of the Credit Agreement is hereby amended and replaced, in each case, in its entirety with the phrase “the Eligible Credit Parties”.

(j) The definition of “Eligible Finished Goods” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Eligible Finished Goods’: on any date, the aggregate of each Eligible Credit Party’s Eligible Inventory defined as Finished Goods by the applicable Eligible Credit Party on such date as shown on such Eligible Credit Party’s perpetual inventory records in accordance with its current and historical accounting practices.”

(k) The first sentence of the definition of “Eligible Inventory” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“at any time, the Inventory of the Eligible Credit Parties which the Administrative Agent determines in its Permitted Discretion are eligible as the basis for the extension of Revolving Loans, Swingline Loans and the issuance of Letters of Credit hereunder.”

(l) The phrase “the Borrower” contained in each of clauses (d), (g), (j), (k), and (l) of the definition of “Eligible Inventory” in Section 1.1 of the Credit Agreement is hereby amended and replaced, in each case, in its entirety with the phrase “an Eligible Credit Party”.

(m) Clause (e) of the definition of “Eligible Inventory” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“(e) which is not Eligible Work-in-Process Inventory, Raw Materials or Finished Goods or which constitutes work-in-process (other than Eligible Work-in-Process Inventory), spare or replacement parts, subassemblies, packaging and shipping material, manufacturing supplies, samples, prototypes, displays or display items, bill-and-hold goods, goods that are returned or marked for return, repossessed goods, defective or damaged goods, goods held on consignment, or goods (other than Raw Materials) which are not of a type held for sale in the ordinary course of business;”

(n) The definition of “Eligible Raw Materials” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Eligible Raw Materials’: on any date, the aggregate of each Eligible Credit Party’s Eligible Inventory defined as Raw Materials by the applicable Eligible Credit Party on such date as shown on such Eligible Credit Party’s perpetual inventory records in accordance with its current and historical accounting practices.”

(o) The definition of “Maturity Date” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Maturity Date’: (a) if the obligations of Borrower and Guarantors under the Term Facility Documents have been refinanced or extended on terms satisfactory to the

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Administrative Agent and the Required Lenders or repaid in full by March 9, 2014, then April 27, 2016, and (b) if the obligations of Borrower and Guarantors under the Term Facility Documents have not been refinanced or extended on terms satisfactory to the Administrative Agent and the Required Lenders or repaid in full by March 9, 2014, then March 9, 2014; or, in either case, any earlier date on which the Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof.”

(p) The definition of “Raw Materials” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Raw Materials’: items/materials used or consumed in the manufacturing of goods to be sold by the Eligible Credit Parties in the ordinary course of business.”

(q) The definition of “Report” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Report’: reports prepared by the Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the Eligible Credit Parties’ assets from information furnished by or on behalf of the Eligible Credit Parties, after the Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent.”

(r) The definition of “Reserves” in Section 1.1 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“ ‘Reserves’: any and all reserves which the Administrative Agent deems necessary, in its Permitted Discretion, to maintain (including, Specified Cash Management Reserves, reserves for the lesser of three-months rent or the amount of Availability from Inventory maintained at locations leased by the Borrower or any Guarantor and for consignee’s, warehousemen’s and bailee’s charges, reserves for dilution of Accounts, reserves for customs charges and carrier and shipping charges related to Eligible Inventory in transit, reserves for Specified Swap Obligations and reserves for warranty, flooring, rebate and royalty) with respect to the Collateral or the Borrower or any Guarantor; provided, that the Administrative Agent shall give Borrower two (2) days’ notice prior to establishing any reserves relating to the valuation or realization of the Collateral.”

(s) Sections 2.13(a) and (b) of the Credit Agreement are hereby amended and restated to read in their entirety as follows:

“(a) With respect to all Loans in an aggregate amount up to the Formula Amount:

(i) such Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Applicable Margin, and

(ii) such Loans comprising each Eurodollar Borrowing shall bear interest at the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Applicable Rate.

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(b) With respect to the portion of all Loans in excess of the Formula Amount:

(i) such Loans comprising each ABR Borrowing (including each Swingline Loan) shall bear interest at the Alternate Base Rate plus the Structured Overformula Rate, and

(ii) such Loans comprising each Eurodollar Borrowing shall bear interest at the Eurodollar Rate for the Interest Period in effect for such Borrowing plus the Structured Overformula Rate.

In determining which Loans are in excess of the Formula Amount solely as between outstanding Eurodollar Borrowings and ABR Borrowings, any outstanding ABR Borrowings shall be allocated to such category of Loans before any outstanding Eurodollar Borrowings are allocated to such category of Loans.”

(t) The following is hereby added to the Credit Agreement as Section 2.23:

“2.23 Extension of Maturity Date.

(a) Requests for Extension. The Borrower may, by notice to the Administrative Agent (each, an “Extension Request”) not later than 90 days prior to the Maturity Date then in effect hereunder (the “Existing Maturity Date”), request that each Lender extend the Existing Maturity Date and, as part of such Extension Request, propose amendments to the terms hereunder and the requested deadline for responding to such Extension Request (the “Extension Request Deadline”).

(b) Lender Elections to Extend. Each Lender, acting in its sole and individual discretion, shall, by notice to the Administrative Agent advise the Administrative Agent as to whether or not such Lender agrees to the applicable Extension Request (each Lender that agrees to such Extension Request an “Extending Lender” and each Lender that determines not to agree to such Extension Request, a “Non-Extending Lender”) promptly after making such determination (but in any event no later than the Extension Request Deadline) and any Lender that does not so advise the Administrative Agent on or before the Extension Request Deadline shall be deemed to be a Non-Extending Lender. The election of any Lender to agree to an Extension Request shall not obligate any other Lender to so agree.

(c) Additional Commitment Lenders. On the effective date of the Extension Amendment (as defined below), the Borrower shall have the right to replace each Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more assignees subject to the consent (such consent not to be unreasonably withheld) of the Administrative Agent and the Issuing Bank (each, an “Additional Commitment Lender”) in order to obtain sufficient commitments with respect to any Extension Request.

(d) Extension Documentation. The Existing Maturity Date shall be extended with respect to the Extending Lenders and Additional Commitment Lenders, each Additional Commitment Lender, if any, shall become a “Lender” for all purposes of this Agreement, and any other proposed amendments to the terms hereunder (such other proposed amendments, the “Other Extended Loan Amendments”) shall (as to the Extending Lenders and the Additional Commitment Lenders only) become effective (subject to clause (f) below) on the effective date of, and pursuant to, an amendment (an “Extension Amendment”) to this Agreement and, as appropriate, the other Loan Documents,

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executed by the Borrower, the other Guarantors, each Extending Lender, each Additional Commitment Lender and the Administrative Agent; provided that, except for Other Extended Loan Amendments (i) with respect to the Applicable Margins, (ii) with respect to the available Interest Periods for the Loans made by Extending Lenders and Additional Commitment Lenders, (iii) amending Sections 2.18(b) or (d) to alter the pro rata sharing of payments to the Lenders by Borrower, (iv) approved by the Required Lenders (or such greater percentage required by Section 9.1(a)) or (v) that are less favorable to the Extending Lenders and the Additional Commitment Lenders than the terms applicable to Loans made by Non-Extending Lenders, such Other Extended Loan Amendments shall only apply to periods after the date on which all Non-Extending Lenders cease to be Lenders. An Extension Amendment may, without the consent of any Non-Extending Lenders, effect such amendments to any Loan Documents as may be necessary or appropriate, in the opinion of the Administrative Agent, to effect the provisions of this Section, including, for the avoidance of doubt, by amending Sections 2.18(b) or (d) to alter the pro rata sharing of payments to the Lenders by Borrower. Upon the effectiveness thereof, the Administrative Agent shall provide a copy of any Extension Amendment to all Lenders.

(e) Repayment for Non-Extending Lenders. On the effective date of the Extension Amendment, the Borrower shall prepay in full, to the extent that any Non-Extending Lenders are to be replaced on such date by one or more Additional Commitment Lenders, any Obligations owing to such Non-Extending Lenders on a pro rata basis, and shall also prepay any Loans outstanding on such date to the extent necessary to keep outstanding Loans ratable with any revised Applicable Percentages of the respective Lenders effective as of such date. To the extent any Non-Extending Lenders are not replaced on the effective date of the Extension Amendment, the Borrower shall repay in full any Obligations owing to such Non-Extending Lenders on the Existing Maturity Date.

(f) Administrative Agent. If the Administrative Agent is not also an Extending Lender, and the Administrative Agent desires to resign, the Extension Amendment shall not become effective until: (i) the Extending Lenders and Additional Commitment Lenders have appointed a replacement administrative agent and such replacement administrative agent has agreed in writing to assume the rights and duties of the resigning Administrative Agent, (ii) such replacement agent executes such documents as reasonably requested by the resigning Administrative Agent to effect such replacement, (iii) the Borrower, Extending Lenders, and Additional Commitment Lenders agree in writing that the indemnification and reimbursement provisions set forth herein for the benefit of any Agent or any Lender shall continue in full force effect for such resigning Administrative Agent, and (iv) all Obligations owing to such resigning Administrative Agent are repaid in full by Borrower or cash collateralized on terms and conditions reasonably satisfactory to such resigning Administrative Agent.

(g) For the avoidance of doubt, the provisions of Section 2.18(d) shall not apply to any payments made by Borrower pursuant to clause (e) of this Section 2.23 or to any upfront fees paid by Borrower to any Extending Lender or Additional Commitment Lender as part of such Extending Lender’s or Additional Commitment Lender’s commitment with respect to an Extension Request.

(h) Conflicting Provisions. This Section 2.23 shall supersede any provisions in Section 9.1(a) to the contrary.”

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(u) The following is hereby added to the Credit Agreement as Section 2.24:

“2.24 Additional Eligible Credit Parties. Upon the written request of Borrower, the Administrative Agent and the Lenders hereby agree to amend this Agreement to allow Accounts of a specified Foreign Subsidiary of Borrower to be included in Eligible Accounts provided that:

(a) such Foreign Subsidiary is organized under the laws of one of the member states of the European Union or Canada;

(b) prior to inclusion of such Accounts, such Foreign Subsidiary shall: (i) execute and deliver to the Administrative Agent a guaranty and security agreement in form and substance reasonably satisfactory to the Administrative Agent in its Permitted Discretion, (ii) take such actions as required by the Administrative Agent in its Permitted Discretion and reasonably necessary to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such Accounts and all proceeds thereof, (iii) deliver to the Administrative Agent a certificate of such Foreign Subsidiary, substantially in the form of Exhibit C, with appropriate insertions and attachments, and (iv) deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent;

(c) prior to inclusion of such Accounts: (i) the Administrative Agent shall have been granted, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such Foreign Subsidiary (provided that in no event shall more than 65% of the total outstanding voting Capital Stock of any Foreign Subsidiary that does not also guarantee the complete payment and performance by the Borrower when due of the Obligations be required to be so pledged), (ii) the certificates representing the Capital Stock of such Foreign Subsidiary, together with undated stock powers, executed in blank, shall have been delivered to the Administrative Agent, and (iii) the Borrower and its Subsidiaries shall have taken such other action as required by the Administrative Agent in its Permitted Discretion and reasonably necessary to perfect the Administrative Agent’s security interest in such Capital Stock of such Foreign Subsidiary;

(d) prior to inclusion of such Accounts, the Administrative Agent shall have completed its business and legal due diligence (including the completion of a satisfactory field examination) on such Foreign Subsidiary and such Accounts, the results of which must be satisfactory to the Administrative Agent; and

(e) the amount of Accounts of Foreign Subsidiaries of Borrower included as Eligible Accounts shall not exceed: (i) $5,000,000 in the aggregate in the case of all Foreign Subsidiaries organized under the laws of Canada; (ii) $5,000,000 in the aggregate in the case of all Foreign Subsidiaries organized under the laws of the United Kingdom; and (iii) $20,000,000 in the aggregate in the case of all Foreign Subsidiaries organized under all other member states of the European Union.”

(v) Section 5.1(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(c) as soon as available, but in any event not later than 45 days after the end of each month occurring during each Fiscal Year of the Borrower (other than the third, sixth,

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ninth and twelfth such month), the unaudited consolidated balance sheets of the Borrower and its Subsidiaries as at the end of such month and the related unaudited consolidated statements of income for such month and the portion of the Fiscal Year through the end of such month, setting forth in each case in comparative form the figures for the previous year, in each case, in management format and certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); provided, however, that if the Borrower or any parent entity of Borrower sells its common stock through an initial public offering and thereafter becomes subject to the mandatory reporting requirements set forth in Section 13 of the Exchange Act, then commencing on the date that Borrower or such parent entity of Borrower is required pursuant to Section 13 of the Exchange Act to file its first quarterly report with the SEC and ending on the date that Borrower or such parent entity of Borrower is no longer subject to the mandatory reporting requirements set forth in Section 13 of the Exchange Act, Borrower shall only be required to furnish to the Administrative Agent such financial statements quarterly as described in clause (b) of this Section rather than monthly; and”

(w) Section 5.1 of the Credit Agreement is hereby amended by deleting the “and” at the end of clause (b) thereof, and by adding the following as clause (d) thereof:

“(d) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by the Borrower or any Subsidiary with the SEC, or any Governmental Authority succeeding to any or all of the functions of the SEC, or with any national securities exchange; provided, that the delivery obligations of this clause (d) shall be deemed satisfied at the time such materials are posted on the SEC’s website at www.sec.gov or Borrower provides a link thereto on its website at www.fender.com.”

(x) The phrase “the Borrower’s” contained in Section 5.2(d)(i), (ii), and (iv) and Section 5.1(e) of the Credit Agreement is hereby amended and replaced, in each case, in its entirety with the phrase “each Eligible Credit Party’s”.

(y) The number “$15,000,000” contained in Section 5.2(c) of the Credit Agreement is hereby amended and replaced, in each case, with “$12,500,000”.

(z) The last sentence of Section 5.6 of the Credit Agreement is hereby amended and restated to read in its entirety as follows:

“Notwithstanding the foregoing, at any time that the Administrative Agent requests (and at the sole expense of the Borrower and the Guarantors), the Borrower shall and shall cause each of the Restricted Subsidiaries to (a) permit, no more frequently than once in any calendar year, the Administrative Agent to conduct a field examination to ensure the adequacy of Collateral and related reporting and control systems and (b) provide, not more than once in any calendar year, the Administrative Agent with appraisals or updates thereof of their Inventory from an appraiser selected and engaged by the Administrative Agent, and prepared on a basis satisfactory to the Administrative Agent, such appraisals and updates to include, without limitation, information required by applicable law and regulations; provided, however, that: (x) if the sum of Availability plus Perfected Cash is less than an amount equal to 40% of the Total Commitments at any time during any calendar year, the Administrative Agent shall be permitted to conduct one additional field examination in such calendar year, and (y) if a Default has occurred and is continuing, there shall be no limitation on the number or frequency of field examinations or Inventory appraisals.”

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(aa) Section 5.7(c)(ii) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(ii) in which injunctive or similar relief is sought that either (A) would reasonably be expected to have a Material Adverse Effect, or (B) is required to be disclosed to the administrative agent under the Term Facility Agreement or”

(bb) Section 5.7(g) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(g) any electronic chattel paper and all “transferable records” as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act which individually has a face amount of more than $1,000,000 (or, to the extent lower, the amount required under the Term Facility Agreement) or in the aggregate more than $4,000,000 (or, to the extent lower, the amount required under the Term Facility Agreement) promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;”

(cc) Section 5.7(j) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(j) any Commercial Tort Claim acquired by it or any Guarantor with respect to which an action has been filed in court or any other Governmental Authority with potential value in excess of $200,000 (or, to the extent lower, the amount required under the Term Facility Agreement) promptly and in any event within 15 Business Days after the same is acquired by it or any Guarantor;”

(dd) Section 5.7(k) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(k) any letter of credit with a stated amount in excess of $200,000 (or, to the extent lower, the amount required under the Term Facility Agreement) promptly and in any event within 15 Business Days after the Borrower or any Guarantor becomes a beneficiary thereof;”

(ee) Section 6.1(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(c) Indebtedness (i) among Group Members, (ii) among Foreign Subsidiaries or (iii) among Group Members and their Subsidiaries; provided that the sum of Indebtedness owed by Subsidiaries that are not Guarantors to the Borrower or any Guarantor and Indebtedness owed by Unrestricted Subsidiaries to the Borrower or any Restricted Subsidiary shall not exceed an aggregate principal amount of $10,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) at any one time outstanding; provided that any such Indebtedness of the Borrower or any Guarantor shall be subordinated to the Obligations on terms reasonably satisfactory to the Administrative Agent;”

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(ff) Section 6.1(f) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(f) Indebtedness with respect to Capital Lease Obligations (including Sale and Leaseback transactions) in an aggregate principal amount not to exceed $20,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) at any one time outstanding;”

(gg) Section 6.1(n) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(n) Indebtedness incurred by Foreign Subsidiaries under working capital facilities in an aggregate principal amount not to exceed Euro 20,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) at any time outstanding; provided, that, to the extent permitted under the Term Facility Agreement, Foreign Subsidiaries shall not be prohibited from having such Indebtedness outstanding in currencies other than Euros;”

(hh) Section 6.1(p) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(p) additional Indebtedness of the Borrower or any of the Restricted Subsidiaries in an aggregate principal amount (for the Borrower and all Restricted Subsidiaries) not to exceed $40,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) at any one time outstanding;”

(ii) Section 6.4(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(c) Asset Sales, the proceeds of which (valued at the principal amount thereof in the case of non-cash proceeds consisting of notes of other debt securities and valued at fair market value in the case of other non-cash proceeds) (i) are less than $2,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) with respect to any single Asset Sale or series of related Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $20,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement); provided that (x) the consideration received for all such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of the Borrower (or any similar governing body)), (y) no less than 75% thereof shall be paid in cash, and (z) the Net Cash Proceeds thereof shall be applied as required by Section 2.11(c); provided that nothing in this clause (c) shall be construed as permitting the Disposition or issuance of Capital Stock of any Subsidiary Guarantor to any Person other than to the Borrower or another Subsidiary Guarantor.”

(jj) The lead in to Section 6.5 of the Credit Agreement up to (but not including) clause (a) thereof is hereby amended and restated in its entirety to read:

“Declare or pay any dividend (other than dividends payable solely in Capital Stock (other than Prohibited Preferred Stock) of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of

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any Group Member (other than any such purchase, redemption, defeasance, retirement, substitution, replacement, acquisition or other transfer of the Capital Stock of a Group Member which is paid for using, or exchanged for, other Capital Stock of such Group Member (other than Prohibited Preferred Stock)), whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of any Group Member (collectively, “Restricted Payments”) except that:”

(kk) Section 6.5(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(c) so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Borrower may purchase Capital Stock of Borrower from present or former directors, officers or employees of any Group Member, their estates, spouses, former spouses and their heirs upon and after the death, disability or termination of employment of such officer or employee; provided, that the aggregate amount of payments under this clause after the date hereof (net of any proceeds received by the Borrower after the date hereof in connection with resales of any such Capital Stock) shall not exceed in the aggregate during any Fiscal Year the lesser of (i) $5,000,000, plus the proceeds of any key man life insurance policy, plus, so long as no Obligations are outstanding both before and after giving effect to such payment, an additional $5,000,000, and (ii) the amount permitted under the Term Facility Agreement; provided, further, that so long as no Event of Default shall have occurred or be continuing or would result therefrom, the Schultz Repurchase shall be permitted in an aggregate amount not to exceed $15,000,000 which repurchase amount shall not be counted against the threshold set forth in the preceding proviso; and”

(ll) Section 6.6 of the Credit Agreement is hereby amended by deleting the “and” at the end of clause (o) thereof, by amending and replacing the “.” at the end of clause (p) thereof with “; and”, and by adding the following as clause (q) thereof:

“(q) Investments in an aggregate amount (valued at cost) for all Group Members not to exceed $10,000,000 (or, to the extent lower, the amount permitted under the Term Facility Agreement) in any Fiscal Year, so long as immediately after giving effect to any such Investment, no Default has occurred and is continuing or would result therefrom.”

(mm) The number “$15,000,000” contained in Section 6.13 of the Credit Agreement is hereby amended and replaced with “$12,500,000”.

(nn) Section 9.15(a) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“(a) Neither the Administrative Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Borrower, other than (i) to their respective officers, directors, employees, agents and advisors and to their respective Affiliates, and the officers, directors and employees of such Affiliates, agents and advisors, in each case, on a “need to know” basis, provided that such Affiliates, agents and advisors, and their respective officers, directors, and employees, shall have agreed to receive such information subject to the terms of this Section 9.15(a), it being understood that the disclosing Lender Party shall be liable for the breach by its Affiliates and by its and its Affiliates’ respective officers, directors, employees, agents and advisors of the

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terms of this Section 9.15(a), (ii) to any actual or prospective Transferee or any pledgee referred to in Section 9.6(d) or any direct or indirect counterparty to any Swap Agreement (or any professional advisor to such counterparty), subject to such Transferee, pledgee or direct or indirect counterparty entering into a binding agreement enforceable by the Borrower to comply with the provisions of this Section 9.15(a), (iii) as required by any statute, decision, rule or regulation or judicial or administrative process, (iv) as requested or required by any Governmental Authority, or (v) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or under any other Loan Document. In the case of a disclosure pursuant to clause (iii) or (iv) above, the disclosing party agrees, to the extent that it is that it is practicable to do so and to the extent permitted by applicable law, to (A) promptly notify the Borrower prior to such disclosure and (B) request confidential treatment.”

(oo) Schedule 1.1A attached to the Credit Agreement is hereby amended and replaced in its entirety with Schedule 1.1A attached to this Amendment.

2. Conditions Precedent to Effectiveness of this Amendment. The following shall have occurred before or concurrently with this Amendment becoming effective:

a. Amendment. Administrative Agent shall have received this Amendment, and the attached Acknowledgement by Guarantors, fully executed in a sufficient number of counterparts for distribution to all parties.

b. Amendment Fee Letter. Administrative Agent shall have received an Amendment Fee Letter, in form and substance satisfactory to Administrative Agent, executed by Borrower (the “Amendment Fee Letter”), and Administrative Agent shall have received from Borrower all fees due and payable pursuant to the Amendment Fee Letter.

c. CIT Payoff Letter. Administrative Agent shall have received a payoff letter, in form and substance satisfactory to Administrative Agent, executed by The CIT Group/Commercial Services, Inc.

d. Representations and Warranties. The representations and warranties set forth herein, and in the Credit Agreement (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof), must be true and correct.

e. Other Required Documentation. Administrative Agent shall have received all other documents and legal matters in connection with the transactions contemplated by this Amendment and such documents shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Administrative Agent.

3. Amendments to Guarantee and Collateral Agreement. Each Lender hereby consents to the amendments contained in that certain First Amendment to Guarantee and Collateral Agreement, dated as of the date hereof, by and among Administrative Agent, Borrower, and Guarantors, a copy of which is attached hereto as Exhibit A.

4. Joining Lender. By its execution of this Amendment, Barclays Bank PLC hereby confirms and agrees that, on and after the date hereof, it shall be and become a party to the Credit

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Agreement as a Lender, and shall have all of the rights and be obligated to perform all of the obligations of a Lender thereunder with the Revolving Commitment applicable to it identified on Schedule 1.1A attached hereto. Barclays Bank PLC further (i) represents and warrants that it is legally authorized to enter into this Amendment; (ii) confirms that it has received copies of the Credit Agreement and such other Loan Documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Amendment; (iii) agrees that it shall, independently and without reliance upon Administrative Agent, any other Agent, or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents; (iv) appoints and authorizes Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as are delegated to Administrative Agent by the terms thereof, together with such powers as are incidental thereto; and (v) agrees that it will observe and perform all obligations that are required to be performed by it as a “Lender” under the Loan Documents. For the avoidance of doubt, Borrower hereby consents to Barclays Bank PLC becoming a Lender under the Credit Agreement.

5. Ratable Commitments. Concurrently with the effectiveness of this Amendment, each Lender shall assign to the other Lenders, and such other Lenders shall purchase from such Lender, at the principal amount thereof, such interests in the Revolving Loans and participation interests in Letters of Credit on such date as shall be necessary in order that, after giving effect to all such assignments and purchases, such Revolving Loans and participation interests in Letters of Credit will be held by all Lenders ratably in accordance with their Revolving Commitments after giving effect to the provisions of this Amendment.

6. Representations and Warranties. Borrower represents and warrants as follows:

a. Authority. Each of the Borrower and the Guarantors has the requisite corporate power and authority to execute and deliver this Amendment, and to perform its obligations hereunder and under the Loan Documents (as amended or modified hereby) to which it is a party. The execution, delivery, and performance by Borrower of this Amendment have been duly approved by all necessary corporate action, have received all necessary governmental approval, if any, and do not contravene any law or any contractual restriction binding on Borrower or any Group Member.

b. Enforceability. This Amendment has been duly executed and delivered by Borrower. This Amendment and each Loan Document (as amended or modified hereby) is the legal, valid, and binding obligation of Borrower and each Guarantor, enforceable against Borrower and each Guarantor in accordance with its terms, and is in full force and effect.

c. Representations and Warranties. The representations and warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof.

d. No Default. No event has occurred and is continuing that constitutes a Default or Event of Default.

7. Choice of Law. The validity of this Amendment, its construction, interpretation and enforcement, the rights of the parties hereunder, shall be determined under, governed by, and construed in accordance with the laws of the State of New York, but without giving effect to any federal laws applicable to national banks.

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8. Counterparts. This Amendment may be executed in any number of counterparts and by different parties and separate counterparts, each of which when so executed and delivered, shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telefacsimile or electronic mail shall be effective as delivery of a manually executed counterpart of the Amendment.

9. Reference to and Effect on the Loan Documents.

a. Upon and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to “the Credit Agreement”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified and amended hereby.

b. Except as specifically set forth in this Amendment, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified, and confirmed and shall constitute the legal, valid, binding, and enforceable obligations of Borrower and the Guarantors to Administrative Agent and the Lenders without defense, offset, claim, or contribution.

c. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power, or remedy of Administrative Agent or any Lender under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

10. Ratification. Borrower hereby restates, ratifies and reaffirms each and every term and condition set forth in the Credit Agreement, as amended hereby, and the Loan Documents effective as of the date hereof. For the avoidance of doubt, this Amendment shall be deemed a Loan Document.

11. Estoppel. To induce Administrative Agent and Lenders to enter into this Amendment and to induce Administrative Agent and the Lenders to continue to make advances to Borrower under the Credit Agreement, Borrower hereby acknowledges and agrees that, after giving effect to this Amendment, as of the date hereof, there exists no Default or Event of Default and no right of offset, defense, counterclaim, or objection in favor of Borrower or any Guarantor as against Administrative Agent or any Lender with respect to the Obligations.

12. Integration. This Amendment, together with the other Loan Documents, incorporates all negotiations of the parties hereto with respect to the subject matter hereof and is the final expression and agreement of the parties hereto with respect to the subject matter hereof.

13. Severability. In case any provision in this Amendment shall be invalid, illegal, or unenforceable, such provision shall be severable from the remainder of this Amendment and the validity, legality , and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

14. Submission of Amendment. The submission of this Amendment to the parties or their agents or attorneys for review or signature does not constitute a commitment by Administrative Agent or any Lender to waive any of their respective rights and remedies under the Loan Documents, and this Amendment shall have no binding force or effect until all of the conditions to the effectiveness of this Amendment have been satisfied as set forth herein.

[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their duly authorized officers as of the day and year first above written.

BORROWER:
FENDER MUSICAL INSTRUMENTS CORPORATION, a Delaware corporation
By:	/s/ James Broenen
	Name: James Broenen
	Title: CFO/Treasurer
ADMINISTRATIVE AGENT AND LENDERS
JPMORGAN CHASE BANK, N.A., as Administrative Agent and a Lender
By:	/s/ Annaliese Fisher
	Name: Annaliese Fisher
	Title: Vice President
WELLS FARGO CAPITAL FINANCE, LLC, a Delaware limited liability company, as a Lender
By:	/s/ Krista Wade
	Name: Krista Wade
	Title: Vice President
BARCLAYS BANK PLC, as a Lender
By:	/s/ Ritam Bhalla
	Name: Ritam Bhalla
	Title: Vice President

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ACKNOWLEDGEMENT BY GUARANTORS

Dated as of April 27, 2011

Each of the undersigned, being a Guarantor under that certain Guarantee and Collateral Agreement, dated as of June 7, 2007, and made in favor of Administrative Agent for the benefit of the Secured Parties, hereby acknowledges and agrees to the foregoing First Amendment to Revolving Facility Credit Agreement (the “Amendment”) and confirms and agrees that the Guarantee and Collateral Agreement is and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of the Amendment, each reference in the Guarantee and Collateral Agreement to the Credit Agreement, “thereunder”, “thereof” or words of like import referring to the “Credit Agreement”, shall mean and be a reference to the Credit Agreement as amended or modified by the Amendment. Although Administrative Agent has informed each Guarantor of the matters set forth above, and each Guarantor has acknowledged the same, such Guarantor understands and agrees neither Administrative Agent nor any Lender has any duty under the Credit Agreement, the Guarantee and Collateral Agreement or any other agreement with any Guarantor to so notify any Guarantor or to seek such an acknowledgement, and nothing contained herein is intended to or shall create such a duty as to any advances or transaction hereafter.

FENDER ASIA PACIFIC CORP., a Delaware corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer
FENDER INTERNATIONAL CORPORATION, a Delaware corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer
JACKSON/CHARVEL MANUFACTURING, INC., a Delaware corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer
KMC MUSIC, INC., a Connecticut corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer
KMI EUROPE, INC., a Delaware corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer
ROKR VENTURES, INC., a Delaware corporation
By:	/s/ James Broenen
Name:	James Broenen
Title:	CFO/Treasurer

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EXHIBIT A

See attached.

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SCHEDULE 1.1A

REVOLVING COMMITMENTS

Lender	Revolving Commitment
JPMorgan Chase Bank, N.A.	$	37,500,000
Wells Fargo Capital Finance, LLC	$	37,500,000
Barclays Bank PLC	$	25,000,000
Total	$	100,000,000

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EX-21.1

Exhibit 21.1

Company Name	State/Country of Incorporation
Fender Musical Instruments Corporation	DE
•   Fender Asia Pacific Corp.	DE
•   Fender International Corporation	DE
•   Fender (EDC) B.V.	The Netherlands
•   Fender Musical Instruments France	France
•   Fender Iberica S. L.	Spain
•   Fender Musical Instruments Europe Limited	United Kingdom
•   Fender Musical Instruments GmbH	Germany
•   Fender Scandinavia A.B.	Sweden
•   Instrumentos Musicales Fender, S.A. de C.V. (99.9% FMIC, .01% FIC)	Mexico
•   Jackson/Charvel Manufacturing, Inc.	DE
•   K. K. Fender Promotion (50% FMIC)	Japan
•   ROKR Ventures, Inc.	DE
•   KMC Music, Inc. dba KMC Musicorp.	CT
•   KMI Europe, Inc.	DE
•   B & Music Ltd.	Canada
•   Takamine Gakki Co., Ltd. (12% KMC Music, Inc.)	Japan

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Fender Musical Instruments Corporation

We consent to the use of our report dated March 7, 2012, with respect to the consolidated balance sheets of Fender Musical Instruments Corporation as of January 2, 2011 and January 1, 2012, and the related consolidated statements of operations and comprehensive income (loss), redeemable common stock and stockholders’ (deficit) equity, and cash flows for each of the years in the three-year period ended January 1, 2012, included herein and to the reference to our firm under the heading “Experts” in the prospectus.

/s/ KPMG LLP

Phoenix, Arizona

March 7, 2012