-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P9px3AfCzworKDpPUTO7v1A5/1Zc+uajwSp9VlldAdfoHxPPvxlKhTYy72v71YjS udJ97yLyDcdqflC2tDI9MA== 0000898430-97-000821.txt : 19970305 0000898430-97-000821.hdr.sgml : 19970305 ACCESSION NUMBER: 0000898430-97-000821 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19970304 SROS: NASD GROUP MEMBERS: BRIAN P. MCDERMOTT GROUP MEMBERS: GREG FOURTICQ GROUP MEMBERS: HANCOCK PARK ASSOCIATES II LP ET AL GROUP MEMBERS: LIBERTY WEST PARTNERS GROUP MEMBERS: MICHAEL J. FOURTICQ GROUP MEMBERS: RICHARD H. HILLMAN GROUP MEMBERS: ROBERT D. OLSEN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LESLIES POOLMART CENTRAL INDEX KEY: 0000866048 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 930976447 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-42108 FILM NUMBER: 97550504 BUSINESS ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189934212 MAIL ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HANCOCK PARK ASSOCIATES II LP ET AL CENTRAL INDEX KEY: 0001027394 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 1925 CENTURY PARK E STREET 2: SUITE 810 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105535550 SC 13D/A 1 AMENDMENT NO. 1 TO SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D/A Under the Securities Exchange Act of 1934 (Amendment No. 1)* LESLIE'S POOLMART ----------------- (Name of Issuer) Common Stock, no par value ------------------------------ (Title of Class of Securities) 527069 10 8 ----------------------------- (CUSIP Number) Alan J. Barton, Esq., Paul, Hastings, Janofsky & Walker, 555 S. Flower Street, 23rd Floor, Los Angeles, CA 90071-2371, (213) 683-6140 ------------------------------------------ (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) February 26, 1997 ----------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box . NOTE: Six copies of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 2 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS HANCOCK PARK ASSOCIATES II, L.P. - -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * OO - -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) - -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY -0- OWNED BY --------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- --------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER -0- --------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON -0- - -------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] - -------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0% - -------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * PN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 3 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS LIBERTY WEST PARTNERS - -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) - -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * WC, OO - -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION California - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 334,141 OWNED BY --------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- --------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 334,141 --------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 334,141 - -------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] - -------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.1% - -------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * PN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - ------------------------------------------------------------------------------------------------------------------- Page 4 of 14 Pages - ------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS MICHAEL J. FOURTICQ - ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) - ------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY - ------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * PF, OO - ------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] - ------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 507,574 OWNED BY --------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- --------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 507,574 --------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 507,574 - ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] - ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 7.7% - -------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 5 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS BRIAN P. MCDERMOTT - ------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] ------------------------------------------------------------------------------------------------------------------ 3 SEC USE ONLY ------------------------------------------------------------------------------------------------------------------ 4 SOURCE OF FUNDS * PF, OO ------------------------------------------------------------------------------------------------------------------ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) ------------------------------------------------------------------------------------------------------------------ 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 367,549 OWNED BY -------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- -------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 367,549 -------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 367,549 ------------------------------------------------------------------------------------------------------------------ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] ------------------------------------------------------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 5.5% - ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 6 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS GREG FOURTICQ - -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) - -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * OO -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 112,455 OWNED BY -------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- -------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 112,455 -------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 112,455 - ------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] - ------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.7% - ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 7 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS RICHARD H. HILLMAN -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] - -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * PF, OO -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 324,348 OWNED BY -------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- -------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 324,348 --------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 324,348 ------------------------------------------------------------------------------------------------------------------ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] ------------------------------------------------------------------------------------------------------------------ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 4.9% - ------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - --------------------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D
CUSIP No. 527069 10 8 - -------------------------------------------------------------------------------------------------------------------- Page 8 of 14 Pages - -------------------------------------------------------------------------------------------------------------------- 1 NAMES OF REPORTING PERSONS S.S. or I.R.S. IDENTIFICATION NO. OF ABOVE PERSONS ROBERT D. OLSEN - -------------------------------------------------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP * (a) [X] (b) [ ] -------------------------------------------------------------------------------------------------------------------- 3 SEC USE ONLY -------------------------------------------------------------------------------------------------------------------- 4 SOURCE OF FUNDS * OO -------------------------------------------------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) -------------------------------------------------------------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - -------------------------------------------------------------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 124,363 OWNED BY --------------------------------------------------------------------- EACH 8 SHARED VOTING POWER REPORTING PERSON WITH -0- --------------------------------------------------------------------- 9 SOLE DISPOSITIVE POWER 124,363 --------------------------------------------------------------------- 10 SHARED DISPOSITIVE POWER -0- - -------------------------------------------------------------------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 124,363 - -------------------------------------------------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES * [X] - -------------------------------------------------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 1.9% - -------------------------------------------------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON * IN - --------------------------------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. Items 1, 2, 3, and 4 of the Schedule 13D of the HPA Group filed with the Commission on November 21, 1996 are hereby amended as follows: ITEM 1. SECURITY AND ISSUER. This statement on Schedule 13D relates to shares of the common stock, no par value (the "Issuer Common Stock"), of Leslie's Poolmart, a California corporation (the "Issuer"). The address of the principal executive offices of the Issuer is 20630 Plummer Street, Chatsworth, California 91311. The Information set forth in the Exhibits attached hereto is expressly incorporated herein by reference and the response to each item of this statement is qualified in its entirety by the provisions of such Exhibits. ITEM 2. IDENTITY AND BACKGROUND. This statement is being filed jointly on behalf of Hancock Park Associates II, L.P. ("HPA II"), Liberty West Partners ("Liberty"), Michael J. Fourticq individually, Brian P. McDermott individually, Greg Fourticq individually, Richard H. Hillman individually and Robert D. Olsen individually (collectively, the "Reporting Persons" or the "HPA Group") on the basis that the Reporting Persons may be deemed to constitute a "group" within the meaning of Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended, due to the desire of the Reporting Persons to effect a business combination transaction whereby the Reporting Persons would acquire the outstanding Issuer Common Stock in a cash merger (described in Item 4 as the "Merger Transaction"). Information in this statement is also being disclosed by Michael J. Fourticq and Brian P. McDermott in their capacity as the general partners of HPA II and is being disclosed by Michael J. Fourticq and Greg Fourticq in their capacity as the general partners of Liberty. The HPA Group and Green Equity Investors II, L.P. ("Green"), which is an affiliate of Leonard Green & Partners, L.P. ("LGP"), a merchant banking firm, may be deemed to constitute a "group" within the meaning of Rule 13d-5 by virtue of the matters described in Items 3 and 4. The Reporting Persons have been informed by Green and LGP that information with respect to such entities will be provided by them in a separate filing and no information regarding such persons is included either expressly or by incorporation, in this Filing. HPA II ------ HPA II is a Delaware limited partnership with its principal office and place of business at 1925 Century Park East, Suite 810, Los Angeles, California, 90067. The principal business of HPA II is investing. The General Partners of HPA II are Michael J. Fourticq and Brian P. McDermott. Mr. Fourticq's principal occupation is acting as a general partner of HPA II, as chairman of the board of various companies owned or controlled by various investment partnerships, and as Chairman of the Board of the Issuer. Mr. McDermott's principal occupation is acting as President and Chief Executive Officer of the Issuer and as a general partner of HPA II. Mr. Fourticq's principal business office is located at 1925 Century Park East, Suite 810, Los Angeles, California, 90067. Mr. McDermott's principal business office is located at 20630 Plummer Street, Chatsworth, California, 91311. Both Mr. Fourticq and Mr. McDermott are United States citizens. Liberty ------- Liberty is a California general partnership with its principal place of business at 1925 Century Park East, Suite 810, Los Angeles, California, 90067. The principal business of Liberty is investing. The General Partners of Liberty are Michael J. Fourticq and Greg Fourticq. Michael J. Fourticq's principal occupation, business address and citizenship are as discussed above. Greg Fourticq's principal occupation is acting as President of Cascade Sawing and Drilling. Greg Fourticq's principal business office is located at P.O. Box 3157, Kent, Washington 98032. Greg Fourticq is a United States citizen. Page 9 of 14 Michael J. Fourticq ------------------- Michael J. Fourticq's principal occupation, business address and citizenship are as discussed above. Brian P. McDermott ------------------ Brian P. McDermott's principal occupation, business address and citizenship are as discussed above. Greg Fourticq ------------- Greg Fourticq's principal occupation, business address and citizenship are as discussed above. Richard H. Hillman ------------------ Richard H. Hillman's principal occupation is acting as President of Hillman Capital Partners and as a director of the Issuer. His principal business address is 2665 Main Street, #260, Santa Monica, California 90405. Richard H. Hillman is a United States citizen. Robert D. Olsen --------------- Robert D. Olsen's principal occupation is acting as Chief Financial Officer of the Issuer. His principal business address is 20630 Plummer Street, Chatsworth, California 91311. Robert D. Olsen is a United States citizen. None of the Reporting Persons nor any other person disclosed in response to this Item 2 has during the last five years, been (a) convicted in a criminal proceeding, or (b) a party to any civil proceeding as a result of which it has been subject to a judgment, decree, final order enjoining further violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violation in respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Liberty, Michael J. Fourticq, Brian P. McDermott and Greg Fourticq initially acquired the shares of Issuer Common Stock held by such persons when the Issuer was purchased in a highly leveraged transaction on September 1, 1988 by an investment group led by Hancock Park Associates, an affiliate of HPA II. Liberty used working capital to acquire its initial Issuer Common Stock. Shares of Issuer Common Stock have subsequently been acquired as stock dividends made by the Issuer. Michael J. Fourticq used personal funds to acquire his initial Issuer Common Stock. Shares of Issuer Common Stock have subsequently been acquired as stock dividends made by the Issuer and from distribution by various partnerships owning shares of the Issuer. Mr. Fourticq also holds options to purchase Issuer Common Stock granted in connection with his position with the Issuer. Brian P. McDermott used personal funds to acquire his initial Issuer Common Stock. Mr. McDermott also holds options to purchase Issuer Common Stock granted in connection with his position with the Issuer. Greg Fourticq is the trustee of three trusts for the benefit of Michael J. Fourticq's children, which trusts contain shares of Issuer Common Stock as part of their corpus. Shares of Issuer Common Stock have subsequently been acquired as stock dividends made by the Issuer. Page 10 of 14 Richard H. Hillman used personal funds to acquire his Issuer Common Stock. Mr. Hillman also holds options to purchase Issuer Common Stock granted in connection with his position with the Issuer. Robert D. Olsen holds options to purchase Issuer Common Stock granted in connection with his position with the Issuer. Financing for the Merger Transaction described in Item 4 is expected to be supplied by issuance of debt or equity securities or bank or other commercial borrowings or some combination of securities issuances and borrowings. Occidental Petroleum Corporation ("Occidental") has expressed its willingness to provide a portion of the equity capital to finance the Merger Transaction, as described in the Letter dated December 27, 1996 from Occidental to Michael J. Fourticq (attached hereto as Exhibit 9). Occidental is currently a holder of $10 million principal amount of the Issuer's 8% Convertible Subordinated Debenture due 2001 (but redeemable earlier upon the occurrence of specified change of control events including certain consolidations, mergers and similar transactions). A subsidiary of Occidental is the Issuer's principal supplier of chemicals. Dr. Dale R. Laurance, a director of the Issuer, is the President of Occidental. Additional equity capital would be provided (i) by certain members of the HPA Group, as described in the Letter dated February 19, 1997 from Hancock Park Associates to the Issuer (attached hereto as Exhibit 10) and (ii) by Green, as described in the Letter dated February 20, 1997 from LGP to the Issuer (attached hereto as Exhibit 11). Additional financing for the Merger Transaction is expected to be provided by the issuance of debt securities, as described in the Letters dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates (attached hereto as Exhibits 12 and 13) and by a revolving credit facility of the type described in Letters to the Issuer from Wells Fargo Bank, National Association, ("Wells Fargo") dated January 14, 1997 and February 21, 1997 (attached hereto as Exhibits 19A and 19B). No final definitive determination has been made, or agreement entered into, with respect to the terms of the financing for the Merger Transaction. In addition, as of the date of this Amendment No. 1 to Schedule 13D, neither the Issuer nor any Reporting Person has received any legally binding commitment to finance the Merger Transaction. ITEM 4. PURPOSE OF TRANSACTION. The Reporting Persons and any other person disclosed in response to Item 2 acquired the shares beneficially owned by each of them, pursuant to the transactions described in Item 3, for investment. However, as described in the Letter, dated November 11, 1996 from HPA II to the Issuer (the "Offer Letter") (attached hereto as Exhibit 1), in the press release issued by the Issuer on November 12, 1996 (attached hereto as Exhibit 2) and in the press release issued by the Issuer on February 27, 1997 (attached hereto as Exhibit 14), on February 26, 1997, the Issuer entered into an Agreement and Plan of Merger dated February 26, 1997 ("Agreement") (attached hereto as Exhibit 16) under which the Issuer agreed to be acquired in a cash merger at the previously announced offer price of $14.50 per share. The Agreement was approved by the board of directors of the Issuer after receiving a recommendation from the special committee (the "Special Committee") of two directors of the Issuer who were elected to the board of directors in November, 1996 after the Issuer received the Offer Letter. The Special Committee was established to consider the proposed transaction and any and all other indications of interest or proposals to acquire the Issuer. The board of directors of the Issuer and the Special Committee received fairness opinions from Donaldson, Lufkin & Jenrette Securities Corporation and Dillon, Read & Co. The parties to the Agreement are the Issuer, LPM Holdings, Inc., a wholly owned Delaware subsidiary of the Issuer ("Leslie's Delaware") and Poolmart USA Inc. ("Poolmart"), a Delaware corporation that is wholly-owned by Green. The board of directors of the Issuer also approved, pursuant to the Agreement, an Agreement of Merger dated February 26, 1997 with Leslie's Delaware ("Merger Agreement") (attached hereto as Exhibit 15). Under the Agreement, subject to appropriate shareholder approval, the Issuer would effect a two-step merger transaction. In the first step, pursuant to the Agreement and the Merger Agreement, the Issuer would reincorporate in Delaware by merging with and into Leslie's Delaware, and each share of the Issuer (other than shares entitled to exercise dissenters' rights under California law) would be exchanged for one share of Leslie's Delaware. Immediately thereafter, pursuant to the Agreement, Leslie's Delaware would effect a merger ("Merger") with Poolmart in which Leslie's Delaware would be the surviving corporation. Page 11 of 14 In the Merger, a total of 359,505 shares of Leslie's Delaware ("Continuing Shares") presently held by certain members of the HPA Group would remain outstanding, and each of the remaining outstanding shares of Leslie's Delaware (including a substantial portion of the holdings of the HPA Group) would be converted into the right to receive $14.50 in cash. In addition, certain members of the Issuer's management would receive new options to purchase common stock of Leslie's Delaware. The transactions contemplated by the Agreement and the Merger Agreement, including the Merger, are herein referred to as the "Merger Transaction". Certain members of the HPA Group have agreed to vote their shares of Issuer Common Stock in favor of the Merger Transaction, as described in the Letter dated February 26, 1997 from Michael J. Fourticq and Brian P. McDermott to the Issuer (attached hereto as Exhibit 17) and have agreed to enter into a Stockholders Agreement and Subscription Agreement with respect to Continuing Shares and other matters, as described in the Letter dated February 26, 1997 from LGP to Michael J. Fourticq and Brian P. McDermott (attached hereto as Exhibit 18). Completion of the Merger Transaction is subject to a number of conditions including (i) approval of the Merger Transaction by the holders of the Issuer Common Stock, (ii) obtaining sufficient financing on satisfactory terms to complete the Merger Transaction, and (iii) compliance with all applicable regulatory requirements. It is also anticipated that the Issuer Common Stock would be delisted from the NASD National Market System. The description of the Merger Transaction disclosed in this Item 4 is qualified in its entirety by reference to the filed exhibits. Except as disclosed in this Item 4, no Reporting Person nor any other person disclosed in response to Item 2 has any current plans or proposals which relate to or would result in any of the events described in clauses (a) through (j) of the instructions to Item 4 of Schedule 13D. Page 12 of 14 SIGNATURES After reasonable inquiry and to the best of the undersigned's knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. Dated: March 3, 1997 HANCOCK PARK ASSOCIATES II, L.P. By: /s/ BRIAN P. MCDERMOTT ----------------------------------------- Name: Brian P. McDermott Title: General Partner /s/ BRIAN P. MCDERMOTT ---------------------------------------------- Brian P. McDermott LIBERTY WEST PARTNERS* ---------------------- Michael J. Fourticq* Greg Fourticq* Richard H. Hillman* Robert D. Olsen* /s/ BRIAN P. MCDERMOTT --------------------------------------------- * By Brian P. McDermott, Attorney-in-fact Page 13 of 14 Exhibit Index * 1. Letter, dated November 11, 1996 from HPA II to Issuer. * 2. Press release issued by the Issuer, dated November 12, 1996. * 3. Joint Filing Agreement, dated November 20, 1996, by and among HPA II, Liberty, Michael J. Fourticq, Brian P. McDermott, Greg Fourticq, Richard H. Hillman, Robert D. Olsen and Murray H. Dashe. * 4. Power of Attorney of Michael J. Fourticq, dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. * 5. Power of Attorney of Greg Fourticq, dated November 20, 1996, naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact. * 6. Power of Attorney of Liberty, dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. * 7. Power of Attorney of Richard H. Hillman, dated November 20, 1996, naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact. * 8. Power of Attorney of Robert D. Olsen, dated November 18, 1996, naming Michael J. Fourticq and Brian P. McDermott as attorney-in-fact. 9. Letter dated December 27, 1996 from Occidental to Michael J. Fourticq. 10. Letter dated February 19, 1997 from Hancock Park Associates to the Issuer. 11. Letter dated February 20, 1997 from LGP to the Issuer. 12. Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates. 13. Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates. 14. Press release issued by the Issuer on February 27, 1997. 15. Agreement of Merger dated February 26, 1997 between Leslie's Delaware and the Issuer. 16. Agreement and Plan of Merger dated February 26, 1997 among the Issuer, Leslie's Delaware and Poolmart. 17. Letter dated February 26, 1997 from Michael J. Fourticq and Brian P. McDermott to the Issuer. 18. Letter dated February 26, 1997 from LGP to Michael J. Fourticq and Brian P. McDermott. 19A Letter dated January 14, 1997 from Wells Fargo to the Issuer. 19B Letter dated February 21, 1997 from Wells Fargo to the Issuer. __________ * Exhibits to the Schedule 13D of the HPA Group filed with the Commission on November 21, 1996 are incorporated herein by reference. Page 14 of 14 EX-9 2 LETTER DATED 12-27-97 TO MICHAEL FOURTICQ EXHIBIT 9 [LETTERHEAD FOR OCCIDENTAL PETROLEUM CORPORATION APPEARS HERE] STEPHEN I. CHAZEN EXECUTIVE VICE PRESIDENT CORPORATE DEVELOPMENT Direct Telephone (310) 443-6311 Direct Fax (310) 443-6812 December 27, 1996 Mr. Michael J. Fourticq Hancock Park Associates 1925 Century Park East, Suite 810 Los Angeles, California 90067 Dear Michael: This letter is intended to clarify the terms and conditions under which we would participate in the buyout of Leslie's. Occidental is prepared to invest up to $30 million in the proposed deal, as I understand it to be, under the conditions detailed in this letter. As you know, we have not performed any due diligence on the company. We will focus our efforts on assuring that the 1996 numbers are as stated, and that the 1997 forecast would at least be achieved under reasonably adverse conditions. We will also want to better understand your model. We, of course, have no idea what the terms of senior financing will be, and so we will reserve any commitments until that becomes clearer. An outline of the preferred stock term sheet is attached. We reserve the right to alter this term sheet and tighten the restrictions listed. Occidental would receive 15% of the fully diluted equity in Leslie's in the form of warrants convertible over a 10 year period at a strike price of $.01 per share. By fully diluted, I mean to include any other warrants or employee options issued as a result of this transaction. If we are required to invest less than $25 million, we will reduce the 15% in proportion to that reduction using $25 million as a base. (i.e. $20 million investment is 20/25 of 15% or 12% - fully diluted). The attached term sheet gives the company the option to pay dividends to us in cash, new preferred stock or to allow the dividends to accrue on the existing preferred, for a period of 5 years. For the next two years cash payments of dividends are required. In years 8, 9 and 10 the preferred will be retired. Mr. Michael Fourticq Hancock Park Associates December 27, 1996 Page 2 I believe that this proposal represents very cost effective financing compared with any third party sources. If you have any questions, please call me. Very truly yours, /s/ STEPHEN I. CHAZEN SIC:jk Attachment cc: Marty Murrer Donaldson, Lufkin, Jenrette EXCHANGEABLE CUMULATIVE SINKING FUND PREFERRED ---------------------------------------------- NUMBER OF SHARES - Up to 30,000 PAR VALUE PER SHARE - $1,000 PURCHASER - Occidental Petroleum Corporation ISSUER - Leslie's Poolmart Inc. DIVIDEND RATE - 50 BP greater than the implied coupon on the publicly or 144A sold company debentures. If the bonds are sold at par, it will be the interest rate plus 50 BP times $1,000. If the bonds are sold at a premium or discount to par, the dividend rate will be the bond equivalent YTM of the security plus 50 BP times $1,000. DIVIDEND PAYMENTS - The dividends will be paid quarterly at the dividend rate divided by four. CALL FEATURES - Callable in whole or part at any time at the option of the company at 101% of par plus accrued and unpaid dividends. EXCHANGEABILITY - Exchangeable at the option of the company into subordinated debt having the same coupon and maturity characteristics as the preferred. If the company elects to exchange, its right to pay dividends (or interest) in kind is terminated. The subordinated debt will have standard subordinated debt covenants which will require the company to make interest payments. UNPAID DIVIDENDS - Dividends which are due but are not paid by the company will accrue interest at the dividend rate plus 500 BP. Such dividends will be cumulative. RIGHT TO PAY IN KIND - The company at its option may issue new preferred stock to the holders in lieu of making the first 20 payments. MANDATORY REDEMPTION - The company will redeem 1/3 of the preferred stock each year beginning in the 8th year and ending in the 10th year. RIGHTS OF PREFERRED SHAREHOLDERS - Preferred shareholders shall, voting as a class, elect 20% of the Board of Directors. If the company over a continuous 4 quarter period fails the coverage test, the preferred shareholders will elect 40% of the Board of Directors. DECEMBER 27, 1996 If the company over a continuous 8 quarter period fails the coverage test, the preferred shareholders will elect a majority of the Board of Directors. If the company fails to pay 4 consecutive dividends, the preferred shareholders will elect a majority of the Board of Directors. If the mandatory redemption provisions are not met, the preferred shareholders will elect 100% of the Board of Directors. In the event of insolvency, the entire board will be elected by the preferred shareholders. The right to elect directors is not lost once obtained. COVERAGE TEST - The cumulative EBITDA over 4 quarters or 8 quarters less all fixed charges (whether paid or accrued) must be greater than zero. PROHIBITIONS WITHOUT THE CONSENT OF A MAJORITY PREFERRED SHAREHOLDERS . No issuance of debt or preferred stock (except in DE MINIMIS amounts) that was not anticipated in the original financing. . No cash dividends on any common or preferred stock. . No repurchase of any common or preferred stock. . No consulting or other arrangements with related parties. . Any employment contracts. . Any change in executive benefits or pay. DECEMBER 27, 1996 EX-10 3 LETTER DATED 2-19-97 FROM HANCOCK PARK ASSOCIATES EXHIBIT 10 HANCOCK PARK ASSOCIATES 1925 Century Park East, Suite No. 810, Los Angeles, CA 90067 (310) 553-5550 Fax (310) 201-0403 February 19, 1997 Board of Directors of Leslie's Poolmart 20222 Plummer Street Chatsworth, California 91311 Attention: Special Committee Gentlemen: Reference is made to the Agreement and Plan of Merger among Leslie's Poolmart, LPM Holdings, Inc. and Green LPM Investors dated as of February __, 1997, in the draft form dated February 17, 1997 that has been distributed to you ("Agreement"). Unless the context otherwise requires, capitalized terms herein will have the same meaning as in the Agreement. We are prepared to proceed with the Merger Transaction and acknowledge the participation in the Merger Transaction by Green Equity Partners II, L.P. ("GEI"). Enclosed is a schedule of equity participation in the Merger Transaction by Leslie's California's management. We personally undertake to continue our ownership in the Surviving Corporation to the extent shown on this Schedule. The possibility exists that holders of Leslie's California stock options will cancel all or a portion of their existing options and will receive new options of the Surviving Corporation. This letter will also confirm our discussions with Occidental Petroleum Corporation in which Occidental confirmed its agreement to provide up to $30 million of preferred stock financing for the Merger Transaction on terms that are mutually acceptable to Occidental, GEI and Hancock Park Associates II, L.P. We also understand that you have received or shortly will receive a letter from GEI confirming its equity participation in the Merger Transaction. We have previously delivered to you (or counsel for the Special Committee) a highly confident letter from BT Securities Corporation with respect to $85 million of high-rate Senior Note financing for the Merger Transaction and a letter from BT Commercial Corporation for a Senior Revolving Credit Financing Facility for Leslie's Delaware. In light of the information provided as described in the immediately preceding four paragraphs, we believe that the Special Committee and the Board of Directors has been provided with adequate assurances as to our ability to finance the Merger Transaction. Board of Directors of Leslie's Poolmart 2 We wish to have the Special Committee's counsel meet with our counsel to finalize the Agreement and to have the Agreement submitted to the Special Committee and the Board of Directors at a meeting to be held on February 21. Please contact either of us if you have any questions about the matters described or referred to in this letter. We are anxious to proceed with the Merger Transaction and look forward to positive action by the Special Committee and the Board of Directors this coming Friday. Very truly yours, HANCOCK PARK ASSOCIATES II, L.P. /s/ MICHAEL J. FOURTICQ - ----------------------- Michael J. Fourticq /s/ BRIAN P. MCDERMOTT - ----------------------- Brian P. McDermott EQUITY PARTICIPANTS Michael J. Fourticq $2,700,000* Brian P. McDermott 2,500,000 Richard H. Hillman 300,000 Robert D. Olsen 825,000 Other Management 375,000 ---------- $6,700,000 Leonard Green 15,300,000 ---------- Total Common $22,000,000 Occidental Preferred 28,000,000 ---------- Total Equity $50,000,000 =========== *Michael J. Fourticq may allocate a portion of his investment to his brother, Gregory Fourticq, who is a current shareholder through their partnership, Liberty West Partners. EX-11 4 LETTER DATED 2-20-97 FROM LGP TO THE ISSUER EXHIBIT 11 [LETTERHEAD OF LEONARD, GREEN & PARTNERS, L.P.] February 20, 1997 Board of Directors of Leslie's Poolmart LESLIE'S SWIMMING POOL SUPPLIES 20222 Plummer Street Chatsworth, CA 91311 Gentlemen: This letter will confirm that Leonard Green & Partners, L.P. ("LGP") on behalf of Green Equity Investors II, L.P. ("GEI II"), will commit to provide up to $17 million but not less than $15.3 million out of total of up to $22 million in value, of common stock equity financing for the previously announced transaction by Hancock Park Associates II, L.P. and its affiliates and associates to acquire Leslie's Poolmart. LGP is satisfied with the terms of the $28 million of preferred stock financing to be provided by Occidental Petroleum Corporation, as they have been modified, and the general terms of the $85 million of senior note financing described in BT Securities Corporation's highly confident letter dated February 4, 1997 and the revolving line of credit facilities proposed by Wells Fargo Bank and Bankers Trust Company. Morever, I advise you that LGP has substantially completed its due diligence for this transaction. LGP's investment will be provided immediately prior to the closing of the sale of the preferred stock, senior note financing and revolving line of credit. It is subject to fully diluted ownership by GEI II greater than 50%, no material adverse change in the condition or prospects for Leslie's, sufficient and satisfactory financing to complete the transaction and satisfactory documentation among all parties. LGP is delighted to be part of a transaction that will bring substantial value to the public shareholders of Leslie's. Very truly yours, LEONARD GREEN & PARTNERS, L.P. By: LGP Management, Inc. By: /s/ Gregory J. Annick ------------------------------ Gregory J. Annick EX-12 5 LETTER DATED 2-4-97 FROM BT SECURITIES EXHIBIT 12 BT SECURITIES CORPORATION ONE BANKERS TRUST PLAZA NEW YORK, NEW YORK, 10006 February 4, 1997 Hancock Park Associates 1925 Century Park East Suite 810 Los Angeles, CA 90067 Attention: Michael Fourticq Brian McDermott Gentlemen: You have advised BT Securities Corporation ("BTSC") of your intention to enter into a transaction (the "Transaction") in which a company ("Newco") formed by you and other third party investors would acquire all of the outstanding capital stock of Leslie's Poolmart (the "Acquired Business"). You have asked us to assist you in raising a portion of the funds required to consummate the Transaction through the sale or placement of $85 million aggregate principal amount of senior debt securities (the "Securities") to be issued by the Acquired Business. We understand that the cash proceeds to be paid to the shareholders of the Acquired Business in connection with the Transaction will be approximately $101.5 million and the total amount of funds necessary to effect the Transaction, to refinance existing debt of the Acquired Business, to pay all fees and expenses incurred in connection therewith and to provide for ongoing working capital of the Acquired Business will be provided through (i) a revolving credit facility pursuant to which the Acquired Business may borrow amounts based a borrowing base of receivables and inventory (the "Revolving Credit Facility"), of which $18 million will be drawn upon closing of the Transaction (assuming the Transaction closes in March 1997), (ii) at least $28 million from the issuance of pay-in-kind preferred stock of Newco (the "PIK Preferred Financing"), (iii) at least $13 million from the issuance of common stock of Newco (the "Common Stock Financing"); provided that the aggregate of proceeds raised by Newco from the PIK Preferred Financing and the Common Stock Financing shall not be -2- less than $50 million, and (iv) the Securities. It is our understanding that other than indebtedness under the Revolving Credit Facility and the Securities, neither Newco nor the Acquired Business will have other indebtedness for money borrowed after giving affect to the consummation of the Transaction. We are pleased to inform you that, based upon our understanding of the Transaction as summarized above and current market conditions and subject to the conditions set forth below, we are highly confident of our ability to sell or place the Securities in connection with the Transaction. The structure, covenants and terms of the Securities thereof will be as determined by BTSC in consultation with you, on terms mutually acceptable to both parties based on market conditions at the time of the sale or placement and on the structure and documentation of the Transaction. Our confidence in our ability to consummate the sale or placement of the Securities is subject to (i) there not having occurred any material adverse change in the financial condition, results of operations, business or prospects of the Acquired Business since December 31, 1995, (ii) there not existing any pending or threatened claim, suit or proceeding by any governmental or regulatory authority which BTSC shall reasonably determine could have a materially adverse effect on the business, property, assets, liabilities, condition (financial or otherwise) or prospects of Newco or the Acquired Business, (iii) the receipt of all necessary governmental, regulatory or third party approvals or consents in connection with the Transaction, (iv) the execution and delivery of documentation for the Transaction and related transactions in form and substance reasonably satisfactory to BTSC and such documentation being in full force and effect, (v) agreement on the terms of the Securities consistent with the term sheet attached hereto and negotiation and execution of satisfactory documentation with respect to the Securities and the offering and sale thereof, (vi) the terms and structure of the Revolving Credit Facility being reasonably acceptable to BTSC and the execution of documentation relating thereto reasonably satisfactory in form and substance to BTSC, (vii) the terms and provisions of the PIK Preferred Financing and the Common Stock Financing being reasonably acceptable to BTSC and the entities that own the securities comprising the PIK Preferred Financing and the Common Stock Financing, and the level of ownership, shall be reasonably acceptable to BTSC, (viii) BTSC and its representatives shall have completed and be satisfied with the results of its continuing financial, business, environmental and legal due diligence, (ix) the receipt and review (to our -3- reasonable satisfaction) of independent third party reports as to certain matters customarily so reported upon in transactions of this type, including, without limitation, solvency, (x) the availability of audited and unaudited historical financial statements of Newco and the Acquired Business and pro forma financial statements of Newco and the Acquired Business after giving effect to the Transaction, in each case reasonably acceptable to BTSC and in form and presentation as required by the Securities Act of 1933, as amended, and the rules and regulations thereunder applicable to registration statements filed thereunder, (xi) there not having been any disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general, in the judgment of BTSC and (xii) BTSC having a reasonable time to market the Securities based on BTSC's experience in comparable transactions. This letter is not intended to be and should not be construed as a commitment with respect to the underwriting, sale or placement of the Securities. -4- Except as otherwise required by law or unless BTSC has otherwise consented in writing, you are not authorized to show or circulate this letter to any other person or entity (other than your legal or financial advisors in connection with your evaluation hereof and Leslie's Poolmart, its' Board of Directors and its legal and financial advisors); provided that BTSC agrees that this letter may be referred to in Leslie's Poolmart's proxy statement relating to the Transaction in such a manner as Leslie's Poolmart and BTSC shall agree in their reasonable discretion. If this letter is not accepted by you by 3:00 p.m. on February 28, 1997, you are to immediately return this letter (and any copies hereof) to the undersigned. Very truly yours, BT SECURITIES CORPORATION By: /s/ Kate W. Cook --------------------------- Name: Kate W. Cook Title: Managing Director AGREED TO AND ACCEPTED as of the date first written above: HANCOCK PARK ASSOCIATES By: ------------------------------- Name: Title: EX-13 6 LETTER DATED 2-4-97 FROM BT SECURITIES EXHIBIT 13 BT SECURITIES CORPORATION ONE BANKERS TRUST PLAZA NEW YORK, NEW YORK 10006 February 4, 1997 Hancock Park Associates 1925 Century Park East Suite 810 Los Angeles, CA 90067 Attention: Michael Fourticq Brian McDermott Re: Leslie's Poolmart Financing --------------------------- Gentlemen: You have advised BT Securities Corporation ("BTSC") that you intend to consummate a transaction (the "Transaction") whereby a company formed by you ("Newco") would acquire all of the outstanding capital stock of Leslie's Poolmart (the "Acquired Business"). You have asked us to assist Newco in raising a portion of the funds required to consummate the Transaction through the sale or placement of up to $85 million aggregate principal amount of senior debt securities of Newco (the "Securities"). The purpose of this letter agreement (this "Agreement") is to confirm the engagement of BTSC by you and Newco (together, the "Company") in connection with the issuance or sale (whether pursuant to a public offering or a private placement) of debt securities of the Company in connection with the Transaction, which is likely to be in the form of, but not limited to, the issuance of the Securities. Section 1. Engagement of BTSC in Connection with Proposed Issuance. The Company hereby retains BTSC on an exclusive basis, and BTSC agrees to act as exclusive representative and underwriter or placement agent in connection with any public or private debt financing or issuance by the Company -2- or any of its subsidiaries to finance the Transaction during the term of this Agreement. The Company will not, directly or indirectly (except through BTSC or as otherwise approved by BTSC), sell or offer to sell any of the Securities or debt instrument (other than a revolving credit facility, the amount of which shall be determined by customary borrowing bases) during the term of this Agreement or for 180 days thereafter. Any such offer, sale or other disposition of the Securities or any debt instrument during the term of this Agreement, or for 180 days thereafter, will be treated for purposes of Section 2 as if such sale or disposition were undertaken by BTSC directly. Section 2. Fees. As compensation for BTSC's services in connection with the issuance of the Securities, the Company shall pay BTSC the following non-refundable fees: (a) an underwriting or placement fee of 3.25% of the gross proceeds received by the Company from the issuance of the Securities, payable at the closing of such issuance; and (b) in the event that either (i) the Transaction does not close and the Securities are not issued or (ii) the Securities are issued other than pursuant to a registered public offering or an offering under Rule 144A of the Securities Act of 1933, as amended, all reasonable out-of-pocket expenses (including reasonable legal fees and expenses) incurred in connection with the Transaction. Section 3. Other Agreements. (a) Term. BTSC's engagement hereunder may be terminated by BTSC at any time or, after the date which is 180 days from the execution of this letter, by the Company by prior written notice thereof to the other party; provided, however, that the provisions of the last sentence of Section 1 and Sections 2, 3(c), 3(d) and 3(f) shall survive such termination. (b) Information. During the course of the term, the Company agrees to furnish BTSC with such information about the Company as BTSC reasonably requests, including information to be included in a private placement memorandum or other disclosure document ("Company Information"). The Company represents and -3- warrants to BTSC that all Company Information will be accurate and complete in all material respects at the time it is furnished and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements are made, and agrees to advise BTSC during the period of the engagement of all developments materially affecting the Company or the accuracy of Company Information previously furnished to BTSC or prospective purchasers of the Securities. The Company recognizes and confirms that BTSC (i) will be relying solely on such information and other information available from generally recognized public sources in performing the services contemplated hereunder, (ii) will not independently verify the accuracy or completeness of such information, (iii) does not assume responsibility for the accuracy or completeness thereof, and (iv) will make appropriate disclaimers consistent with the foregoing. In addition, any representations and warranties made by the Company to purchasers of the Securities shall be deemed to be incorporated into this Agreement and any opinions delivered by or on behalf of the Company to the purchasers of the Securities shall expressly provide that BTSC may rely upon such opinions. (c) Indemnification. The Company agrees to indemnify BTSC and its affiliates and each person in control of BTSC and its affiliates and their respective officers, directors, employees, agents and representatives as provided in the indemnity letter dated the date hereof and attached hereto. (d) No Shareholder Rights. The Company acknowledges and agrees that BTSC has been retained only by the Company and that the Company's engagement of BTSC is not deemed to be on behalf of and is not intended to confer rights upon any shareholder, owner or partner of the Company or any other person not a party hereto as against BTSC or any of its affiliates or the respective directors, officers, employees, agents and representatives of BTSC or its affiliates. Unless otherwise expressly agreed, no one other than the Company is authorized to rely upon the Company's engagement of BTSC or any statements, advice, opinions, or conduct by BTSC. -4- (e) Miscellaneous. This Agreement may be executed in two or more counterparts, all of which together shall be considered a single instrument. The term "affiliate" as used herein shall have the meaning ascribed to such term in the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. The Company confirms that it will rely on its own counsel, accountants and other similar expert advisors for legal, accounting, tax and other similar expert advice. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof and cannot be amended or otherwise modified except in writing executed by the parties hereto. BTSC may transfer or assign, in whole or from time to time in part, to one or more of its affiliates its rights and obligations hereunder, but no such transfer or assignment will relieve BTSC of its obligations hereunder without the prior written consent of the Company. The provisions hereof shall inure to the benefit of and be binding upon the successors and assignees of the Company and BTSC. This letter is not intended to be and should not be construed as a commitment with respect to the underwriting, sale or placement of the Securities and creates no obligation or liability on our part in connection therewith. (f) Confidentiality. Except as required by law and except with respect to any information that otherwise becomes publicly available, BTSC agrees that its officers, employees, affiliates and agents will treat confidentially any and all information furnished to BTSC pursuant to the terms of this Agreement and consistent with industry practices and will not use any of such information for any purpose other than as set forth herein. In connection with the services to be provided hereunder, BTSC may employ the services of its affiliates. Subject to compliance with applicable law, the first sentence of this Section 3(f) and any other confidentiality agreements which BTSC or its affiliates may be subject to, the Company hereby consents to BTSC and its affiliates sharing amongst each other any information related to the Company and its subsidiaries (including information relating to the creditworthiness of the Company and -5- its subsidiaries and the Acquired Business) or any matters contemplated hereby. (g) Use of Name; Disclosure; BTSC Advice, Role, etc. The Company agrees that any references to BTSC and/or its affiliates made in connection with the Transaction are subject to (i) restrictions set forth in documents delivered by BTSC and/or its affiliates to the Company relating to the Transaction and (ii) BTSC's prior approval, which approval shall not be unreasonably withheld. The Company acknowledges that all analyses, evaluation and advice (whether written or oral, formal or informal) given by BTSC to the Company in connection with its engagement hereunder are intended solely for the benefit and use of the Company (including its management, directors and attorneys) in considering the transaction to which they relate and the Company agrees that no such opinion or advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, without BTSC's prior written consent. BTSC may also publicize its services in connection with the Transaction contemplated hereby, including, without limitation, granting interviews with an providing information to the financial press; and other media. BTSC is authorized upon consummation of the Transaction contemplated hereby to place the customary "tombstone" advertisement in publications of its choice at BTSC's expense. Nothing in this Agreement is intended to obligate or commit BTSC or any of its affiliates to provide any services other than as set out herein. (h) GOVERNING LAW, ETC. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF). ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THE TRANSACTION, AND BTSC'S ACTIVITIES PURSUANT TO, OR THE PERFORMANCE BY BTSC OF THE SERVICES CONTEMPLATED BY, THIS AGREEMENT IS HEREBY WAIVED. THE COMPANY HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY. THE COMPANY AGREES THAT ANY LEGAL SUIT, ACTION OR PROCEEDING BROUGHT BY -6- BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO ENFORCE ANY RIGHTS UNDER OR WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTION MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK, WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS SECTION 3(h) SHALL AFFECT THE RIGHT OF BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY JURISDICTION OR JURISDICTIONS. SECTION 4. Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be mailed or delivered or faxed (a) to the Company, at the address listed on the front of this Agreement and (b) to BTSC, at the offices of BT Securities Corporation, One Bankers Trust Plaza, New York, New York 10006, (212) 669-0021, Attention: Christine Barbella-Foggia. -7- We are delighted to accept this engagement and look forward to working with you on this assignment. Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the enclosed duplicate of this letter. Very truly yours, BT SECURITIES CORPORATION By: /s/ Kate W. Cook ---------------------------- Name: Kate W. Cook Title: Managing Director AGREED TO AND ACCEPTED as of the date first written above: HANCOCK PARK ASSOCIATES By: ----------------------------- Name: Title: Leslies's Poolmart CONFIDENTIAL - -------------------------------------------------------------------------------- For Discussion Purposes Only INDICATIVE TERM SHEET Senior Notes Issuer: Leslie's Poolmart (the "Company") Issue: Senior Notes (the "Notes") Amount: $85,000,000 Maturity: 7 years Indicative Coupon: [ %] Use of Proceeds: To finance a portion of the management acquisition of the Company. Ranking: The Notes will be senior unsecured general obligations of the Company and will rank pari passu in right of payment to all other senior indebtedness of the Company, including borrowings under the credit facility, and senior to all subordinated debt of the Company. The Notes will be effectively subordinated to any secured indebtedness of the Company. Security: None Optional Redemption: Non-callable for 4 years. Thereafter, callable at the Company's option, in whole or in part, at redemption prices to be determined. Optional redemption of 25% of the Notes based on an initial public offering of the common stock or issuances of Qualified Capital Stock to Strategic Investors by the Company or Holdco for up to 3 years after the closing of the offering. Redemption prices to be determined. Change of Control: In event of a change of control (as defined), the Company shall be obligated to make an offer to purchase all outstanding Notes at a repurchase price of 101% of the principal amount thereof plus accrued interest to the date of purchase. Covenants: Customary and appropriate for financings of this type, including, but not limited to: (i) limitations of restricted - -------------------------------------------------------------------------------- -7- Leslies's Poolmart CONFIDENTIAL - -------------------------------------------------------------------------------- payments, (ii) limitation on liens, (iii) limitation on incurrence of additional indebtedness, (iv) limitation on sale of assets, (v) limitation on transactions with affiliates, (vi) limitation on dividends and other payment restrictions affecting subsidiaries, (vii) limitation on mergers, sale or consolidation, (viii) restrictions on sale and issuance of certain restricted subsidiary stock. Events of Default and Remedies: Customary and appropriate for financings of this type. - -------------------------------------------------------------------------------- -8- EX-14 7 PRESS RELEASE ISSUED ON 2-27-97 EXHIBIT 14 CONTACT: Brian P. McDermott President & C.E.O. 818/993-4212 Robert D. Olsen John G. Danhakl Chief Financial Officer Leonard Green & Partners, L.P. 818/993-4212 213/253-1435 FOR IMMEDIATE RELEASE --------------------- LESLIE'S POOLMART ANNOUNCES AGREEMENT ON MERGER TRANSACTION CHATSWORTH, California, (February 27, 1997), LESLIE'S POOLMART (NASDAQ - LESL) announced that its Board of Directors has approved an Agreement and Plan of Merger pursuant to the previously announced offer to acquire the Company for $14.50 per share in cash. The merger transaction is being led by Hancock Park Associates and Leonard Green & Partners. Certain members of the Company's Board of Directors and officers will retain a portion of their stockholdings in the surviving corporation, although a substantial amount of their shares will be acquired in the transaction along with, and at the same price as, all other outstanding shares. The transaction also contemplates that a portion of the equity financing will be provided by Occidental Petroleum, one of whose officers is a member of Leslie's Board of Directors. The Board of Directors acted after receiving a recommendation from the Special Committee of Directors previously established to consider the transaction. In arriving at its decision, the Committee evaluated a number of factors, including the likelihood that the transaction will be consummated. The Board and Special Committee received fairness opinions from Donaldson, Lufkin & Jenrette Securities Corporation and Dillon, Read & Co. Completion of the transaction is subject to the satisfaction of a number of conditions, including approval by the Company's shareholders, compliance with certain regulatory requirements and the completion of financing. The Company intends to hold a special meeting of its shareholders to approve the transaction within the next three months. Brian McDermott, President and Chief Executive Officer of Leslie's Poolmart stated, "We believe the Special Committee has engaged in a careful review of the proposal, and we are pleased that the Board has determined to proceed with a transaction designed to bring significant value to our shareholders." Hancock Park Associates is an investment partnership whose general partners are Michael J. Fourticq and Brian P. McDermott, the Chairman and the CEO of Leslie's, respectively. Leonard Green & Partners, L.P. is a Los Angeles-based private merchant banking firm that specializes in purchases of established companies. LGP has completed a number of transactions involving retail companies and manages in excess of $500 million of private equity capital. Founded in 1963, Leslie's Poolmart is the country's leading specialty retailer of swimming pool supplies and related products. During 1997, the Company will market its products through approximately 280 retail stores in 27 states and a nationwide mail order catalog. EX-15 8 AGREEMENT OF MERGER DATED 2-26-97 EXHIBIT 15 CONFORMED COPY AGREEMENT OF MERGER AGREEMENT OF MERGER (this "Merger Agreement") made and entered into this ---------------- 26th day of February, 1997 by and between LESLIE'S POOLMART a California corporation ("Leslie's California"), and LPM HOLDINGS, INC., a Delaware ------------------- corporation ("Leslie's Delaware"); ----------------- WITNESSETH: WHEREAS, Leslie's Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, Leslie's California is a corporation duly organized and existing under the laws of the State of California; WHEREAS, on the date of this Merger Agreement, Leslie's Delaware has authority to issue 5,000,000 shares of Common Stock, par value $.001 per share (which class of shares is herein called the "Delaware Common Stock") of which --------------------- 10,000 shares are issued and outstanding and owned by Leslie's California, and 2,000,000 shares of Preferred Stock, par value $.001 per share, of which no shares are issued and outstanding; and prior to the Effective Date, the authorized number of shares of Delaware Common Stock will be increased to 12,000,000; WHEREAS, on the date of this Merger Agreement, Leslie's California has authority to issue 40,000,000 shares of Common Stock, (the "California Common ----------------- Stock") of which 6,550,966 shares are issued and outstanding, and 1,000,000 - ----- shares of Preferred Stock, of which no shares are issued and outstanding; WHEREAS, the respective boards of directors of Leslie's Delaware and Leslie's California have determined that, for the purpose of effecting the reincorporation of Leslie's California in the State of Delaware, it is advisable and to the advantage of said two corporations and their shareholders and sole stockholder, respectively, that Leslie's California merge with and into Leslie's Delaware upon the terms and conditions herein provided; and WHEREAS, the respective boards of directors of Leslie's Delaware and Leslie's California have approved this Merger Agreement and the board of directors of Leslie's California and Leslie's Delaware have directed that this Merger Agreement be submitted to a vote of their shareholders and sole stockholder, respectively; NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Leslie's California and Leslie's Delaware hereby agree to merge as follows: (1) Merger. Leslie's California shall be merged with and into Leslie's Delaware, and Leslie's Delaware shall survive the merger ("Merger"), effective upon the date when this Merger Agreement is made ------ effective in accordance with applicable law (the "Effective Date"). -------------- (2) Directors and Officers and Governing Documents. The directors and officers of Leslie's Delaware shall be the same upon the Effective Date as they are immediately prior thereto. The certificate of incorporation of Leslie's Delaware, as amended and in effect on the Effective Date, shall continue to be the certificate of incorporation of Leslie's Delaware as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws, except that on the Effective Date Article I of said certificate of incorporation shall be amended to read in its entirety as follows: "The name of this Corporation shall be: Leslie's Poolmart, Inc." The bylaws of Leslie's Delaware, as amended and in effect on the Effective Date, shall continue to be the bylaws of Leslie's Delaware as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. (3) Succession. On the Effective Date, Leslie's Delaware shall succeed to Leslie's California in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware and Section 1107 of the General Corporation Law of the State of California. (4) Further Assurances. From time to time, as and when required by Leslie's Delaware or by its successors and assigns, there shall be executed and delivered on behalf of Leslie's California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Leslie's Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Leslie's California, and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of Leslie's Delaware are fully authorized in the name and on behalf of Leslie's California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. (5) Common Stock of Leslie's California. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of the California Common Stock outstanding immediately prior thereto shall be changed and converted into one fully paid and nonassessable share of Delaware Common Stock. (6) Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of California Common Stock shall for all purposes evidence ownership of and represent the shares of Delaware Common Stock into which the shares of California Common Stock represented by such certificates have been converted as herein provided. The registered owner on the books and records of Leslie's Delaware or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to Leslie's Delaware or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Delaware Common Stock evidenced by such outstanding certificate as above provided. (7) Stock Options. Forthwith upon the Effective Date, each (i) outstanding option to purchase shares of California Common Stock granted under the Leslie's California 1990 Stock Option Plan and the Leslie's California 1992 Directors' Stock Incentive Plan (collectively, the "Plans") ----- and (ii) outstanding option to purchase California Common Stock not granted under the Plans, shall be converted into and become an option 2 to purchase the same number of shares of Delaware Common Stock at the same option price per share as in effect on the Effective Date and, in the case of options granted under the Plans (collectively, the "Plan Options"), upon ------------ the same terms and subject to the same conditions as set forth in the Plans, and, in the case of all options not granted under the Plans (collectively, the "Non-Plan Options"), upon the same terms and subject to ---------------- the same conditions as set forth in the agreements or instruments that govern the Non-Plan Options. A number of shares of Delaware Common Stock shall be reserved for purposes of the Plans equal to the number of shares of California Common Stock so reserved as of the Effective Date. As of the Effective Date, Leslie's Delaware hereby assumes all obligations of Leslie's California under the Plans, the outstanding Plan Options or portions thereof granted pursuant to the Plans and all Non-Plan Options. (8) Other Employee Benefit Plans. As of the Effective Date, Leslie's Delaware hereby assumes all obligations of Leslie's California under any and all employee benefit plans in effect as of said date or with respect to which employee rights or accrued benefits are outstanding as of said date. (9) Common Stock of Leslie's Delaware. Forthwith upon the Effective Date, the 10,000 shares of Delaware Common Stock presently issued and outstanding in the name of Leslie's California shall be cancelled and retired and resume the status of authorized and unissued shares of Delaware Common Stock, and no shares of Delaware Common Stock or other securities of Leslie's Delaware shall be issued in respect thereof. (10) Covenants of Leslie's Delaware. Leslie's Delaware covenants and agrees that it will, on or before the Effective Date: (a) Qualify to do business as a foreign corporation in the State of California, and in connection therewith irrevocably appoint an agent for service of process as required under the provisions of Section 2105 of the California Corporations Code. (b) File any and all documents with the California Franchise Tax Board necessary to the assumption by Leslie's Delaware of all of the franchise tax liabilities of Leslie's California. (11) Book Entries. As of the Effective Date, entries shall be made upon the books of Leslie's Delaware in accordance with the following: (a) The assets and liabilities of Leslie's California shall be recorded at the amounts at which they were carried on the books of Leslie's California immediately prior to the Effective Date, with appropriate adjustments to reflect the retirement of the 10,000 shares of Delaware Common Stock presently issued and outstanding. (b) There shall be credited to the common stock account of Leslie's Delaware the aggregate amount of the par value of all shares of Delaware Common Stock resulting from the conversion of the outstanding California Common Stock pursuant to the Merger. (c) There shall be credited to the capital surplus account of Leslie's Delaware the aggregate of the amounts shown in the common stock and capital 3 surplus accounts of Leslie's California immediately prior to the Effective Date, less the amount credited to the common stock account of Leslie's Delaware pursuant to Paragraph (b) above. (d) There shall be credited to the retained earnings account of Leslie's Delaware an amount equal to that carried in the retained earnings account of Leslie's California immediately prior to the Effective Date. (12) Amendment. At any time before or after approval and adoption by the shareholders of Leslie's California, this Merger Agreement may be amended in any manner (except that Paragraph (5) may not be amended without the approval of the shareholders of Leslie's California), as may be determined in the judgment of the respective boards of directors of Leslie's Delaware and Leslie's California to be necessary, desirable or expedient in order to clarify the intention of the parties hereto or to effect or facilitate the purposes and intent of this Merger Agreement. (13) Abandonment. At any time before the Effective Date, this Merger Agreement may be terminated and the Merger may be abandoned by the board of directors of either Leslie's California or Leslie's Delaware with the approval of the board of directors of the other corporation, notwithstanding approval of this Merger Agreement by the stockholders of Leslie's Delaware or the shareholders of Leslie's California or both. (14) Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. [SIGNATURE PAGE FOLLOWS] 4 IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by resolution of the boards of directors of Leslie's California and Leslie's Delaware, is hereby executed on behalf of each said two corporations by their respective officers thereunto duly authorized. LPM HOLDINGS, INC., a Delaware corporation By:/s/ BRIAN P. MCDERMOTT --------------------------- Brian P. McDermott, President By:/s/ ROBERT D. OLSEN --------------------------- Robert D. Olsen, Secretary LESLIE'S POOLMART a California corporation By:/s/ BRIAN P. MCDERMOTT --------------------------- Brian P. McDermott, President and Chief Executive Officer By:/s/ CYNTHIA G. WATTS --------------------------- Cynthia G. Watts, Secretary 5 CERTIFICATE OF THE SECRETARY OF LPM HOLDINGS, INC. I, Robert D. Olsen, Secretary of LPM HOLDINGS, INC., a Delaware corporation, ("Leslie's Delaware"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly adopted and executed by Leslie's Delaware and Leslie's Poolmart, a California corporation, was duly submitted to the sole stockholder of Leslie's Delaware at a special meeting of stockholders called for the purpose of acting on said Agreement of Merger, notice of the time, place and purpose of said meeting having been waived by the sole stockholder of Leslie's Delaware, and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting all of the outstanding stock of Leslie's Delaware entitled to vote thereon was voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the stockholders of Leslie's Delaware and as the agreement and act of Leslie's Delaware. IN WITNESS WHEREOF, the undersigned has executed this certificate this ______ day of ___________________, 1997. ________________________________ Robert D. Olsen, Secretary 6 CERTIFICATE OF THE SECRETARY OF LESLIE'S POOLMART I, Cynthia G. Watts, Secretary of LESLIE'S POOLMART, a California corporation ("Leslie's California"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly adopted and executed by Leslie's California and LPM Holdings, Inc., a Delaware corporation, was duly submitted to the shareholders at a meeting of shareholders called for the purpose of acting on said Agreement of Merger after due notice of the time, place and purpose of said meeting was mailed to each holder of Common Stock of Leslie's California at his, her or its address as it appears on the records of Leslie's California in the manner provided under the provisions of Section 601 of the California Corporations Code and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting a majority of the outstanding Common Stock of Leslie's California entitled to vote thereon was voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the shareholders of Leslie's California and as the agreement and act of Leslie's California. IN WITNESS WHEREOF, the undersigned has executed this certificate this _____ day of ______________________, 1997. ________________________________ Cynthia G. Watts, Secretary 7 EX-16 9 AGREEMENT & PLAN OF MERGER DATED 2-26-97 EXHIBIT 16 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of February 26, --------- 1997 by and among LESLIE'S POOLMART, a California corporation ("Leslie's -------- California"), LPM HOLDINGS, INC., a Delaware corporation and wholly owned - ---------- subsidiary of Leslie's California ("Leslie's Delaware"), and POOLMART USA INC., ----------------- a Delaware corporation ("Poolmart"). -------- RECITALS The respective boards of directors of Leslie's California and Leslie's Delaware deem it advisable for the mutual benefit of Leslie's California and Leslie's Delaware and their shareholders and stockholder, respectively, that Leslie's California be merged with and into Leslie's Delaware (the "Reincorporation Merger") upon the terms and subject to the conditions set forth - ----------------------- in the Agreement of Merger substantially in the form attached hereto as Exhibit A (the "Reincorporation Merger Agreement") and in accordance with the General -------------------------------- Corporation Law of the State of California (the "California Law") and the -------------- Delaware General Corporation Law (the "Delaware Law"). The board of directors ------------ and sole stockholder of Leslie's Delaware have approved and adopted the Reincorporation Merger Agreement. The board of directors of Leslie's California has approved the Reincorporation Merger Agreement and has resolved to recommend to the shareholders of Leslie's California to vote to approve the principal terms of the Reincorporation Merger Agreement. The respective boards of directors of Leslie's Delaware and Poolmart deem it advisable for the mutual benefit of Leslie's Delaware and Poolmart, and their stockholder and stockholders, respectively, that Poolmart be merged with and into Leslie's Delaware (the "Recapitalization Merger") upon the terms and ----------------------- subject to the conditions set forth herein and in accordance with the Delaware Law. The board of directors and sole stockholder of Leslie's Delaware have approved and adopted this Agreement. The board of directors and sole stockholder of Poolmart have approved and adopted this Agreement. The board of directors of Leslie's California has approved this Agreement and has resolved to recommend to the shareholders of Leslie's California to vote to approve the principal terms of this Agreement in conjunction with their approval of the principal terms of the Reincorporation Merger Agreement and the Reincorporation Merger. The Reincorporation Merger and the Recapitalization Merger are sometimes collectively referred to herein as the "Merger Transaction." ------------------ In consideration of the mutual covenants, agreements, representations and warranties contained herein, and for the purpose of setting forth certain terms and conditions of the Recapitalization Merger, and the mode of carrying the same into effect, Leslie's Delaware, Leslie's California and Poolmart hereby agree as follows: ARTICLE 1 MERGER AND ORGANIZATION The Recapitalization Merger. Poolmart shall be merged with and into --------------------------- Leslie's Delaware as soon as practicable following the execution of this Agreement, upon the terms and subject to the conditions hereinafter set forth, as permitted by and in accordance with the Delaware 1 Law. Leslie's Delaware and Poolmart are herein sometimes referred to as the "Constituent Corporations." Leslie's Delaware shall be the surviving corporation ------------------------ following the effectiveness of the Recapitalization Merger (sometimes referred to herein as the "Surviving Corporation"). --------------------- Section 1.2 Effect of Recapitalization Merger. The parties agree to the --------------------------------- following provisions with respect to the Recapitalization Merger: (a) Name of Surviving Corporation. The name of the Surviving ----------------------------- Corporation shall from and after the Effective Date (as hereinafter defined) be and continue to be "Leslie's Poolmart, Inc." until changed in accordance with applicable law. (b) Certificate of Incorporation. The certificate of incorporation ---------------------------- of Leslie's Delaware as in effect immediately prior to the Effective Date shall from and after the Effective Date be and continue to be the certificate of incorporation of the Surviving Corporation until changed or amended in accordance with the provisions of applicable law. (c) Bylaws. The bylaws of Leslie's Delaware as in effect immediately ------ prior to the Effective Date shall from and after the Effective Date be and continue to be the bylaws of the Surviving Corporation until changed or amended in accordance with the provisions of applicable law. (d) Corporate Organization. On the Effective Date, the separate ---------------------- corporate existence of Poolmart shall cease, and Leslie's Delaware as the surviving corporation and successor and shall succeed to Poolmart in the manner of and as more fully set forth in Section 259 of the Delaware Law. (e) Directors and Officers. The directors of Leslie's Delaware ---------------------- immediately prior to the Effective Date will be the initial directors of the Surviving Corporation, and the officers of Leslie's Delaware immediately prior to the Effective Date will be the initial officers of the Surviving Corporation, in each case until their successors are elected and qualified. However, it is expected that immediately after the Effective Date, all of the directors of the Surviving Corporation other than Michael J. Fourticq and Brian P. McDermott will resign. (f) Filing of Certificate of Merger. If this Agreement is not ------------------------------- terminated pursuant to Article 7 hereof, as soon as practicable after all conditions to the Recapitalization Merger set forth in Article 6 hereof shall have been satisfied or waived, Leslie's Delaware and Poolmart shall cause the Certificate of Merger attached hereto as Exhibit B ("Certificate ----------- of Merger") to be executed and acknowledged and, as required by the --------- Delaware Law, filed with the Secretary of State of the State of Delaware as provided in the Delaware Law. The Recapitalization Merger shall be consummated and the closing of the transactions contemplated by this Agreement (the "Closing") shall occur immediately upon the filing of the ------- Certificate of Merger with the Secretary of State of the State of Delaware (the date and time of such filing and Closing being referred to herein as the "Effective Date"). The Recapitalization Merger shall occur immediately -------------- following the effective time of the Reincorporation Merger. The Closing shall take place at the offices of Paul, Hastings, Janofsky & Walker, 555 South Flower Street, Los Angeles, California 90071, or at such other place as the parties may mutually agree. (g) Further Assurances. If at any time after the Effective Date, the ------------------ Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or 2 assurances or any other acts or things are necessary, desirable or proper (i) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in, to or under any of the rights, properties or assets of the Constituent Corporations acquired or to be acquired as a result of the Recapitalization Merger, or (ii) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized to execute and deliver, in the name and on behalf of the Constituent Corporations, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of the Constituent Corporations, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, properties or assets of the Constituent Corporations acquired or to be acquired as a result of the Recapitalization Merger and otherwise to carry out the purposes of this Agreement. ARTICLE 2 CONVERSION OF SECURITIES ON THE EFFECTIVE DATE Conversion of Securities of Leslie's Delaware and Poolmart. At the ---------------------------------------------------------- Effective Date, pursuant to this Agreement and by virtue of the Recapitalization Merger and without any action on the part of Leslie's Delaware, Poolmart or the holders of any of the following securities: (a) Each share of common stock, par value $.001 per share, of Leslie's Delaware ("Leslie's Common Stock") (shares of Leslie's Common --------------------- Stock being hereinafter collectively referred to as "Leslie's Shares" and --------------- individually as a "Leslie's Share") issued and outstanding immediately -------------- prior to the Effective Date (other than any Leslie's Shares to be cancelled pursuant to Section 2.1(b) and each Leslie's Share to remain outstanding pursuant to Section 2.1(c)) shall be cancelled and shall be converted automatically into the right to receive an amount equal to $14.50 in cash, without interest (the "Cash Merger Consideration"), payable to the holder ------------------------- thereof upon surrender of the certificate formerly representing such Other Common Stock in the manner provided in Section 2.2; the Leslie's Shares being converted into the right to receive the Cash Merger Consideration are hereinafter referred to as "Other Common Stock"; ------------------ (b) Each Leslie's Share held in the treasury of Leslie's Delaware and each Leslie's Share owned by Poolmart, if any, immediately prior to the Effective Date shall be cancelled without any conversion thereof and no payment or distribution shall be made with respect thereto; (c) 160,539 Leslie's Shares registered in the name of Michael J. Fourticq, 166,552 Leslie's Shares registered in the name of Brian P. McDermott and Manette J. McDermott TR UA dated March 15, 1990 The McDermott Family Trust, 10,000 Leslie's Shares registered in the name of Greg Fourticq and 22,414 Leslie's Shares registered in the name of Richard H. Hillman (such persons are collectively referred to herein as the "Continuing Stockholders" and such shares are collectively referred to ------------------------ herein as the "Continuing Shares") shall not be converted, exchanged or ----------------- cancelled as provided above but shall remain outstanding as required by the letter addressed from Hancock Park Associates II, L.P. ("Hancock") to the ------- board of directors of Leslie's California dated February 19, 1997 referenced in Section 3.5; and 3 (d) Each share of Poolmart Common Stock (as hereinafter defined) that is issued and outstanding immediately prior to the Effective Date shall be converted into one newly issued, fully paid and nonassessable share of Leslie's Common Stock (the "Share Exchange Ratio"). -------------------- (e) If between the date of this Agreement and the Effective Date the number of outstanding shares of Leslie's Common Stock or of the common stock of Leslie's California (which common stock will automatically be converted into Leslie's Common Stock upon the effectiveness of the Reincorporation Merger) ("California Common Stock") shall have been changed ----------------------- into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split-up, combination, exchange of shares or the like other than pursuant to the Reincorporation Merger, the amount of the Cash Merger Consideration and the Share Exchange Ratio shall be correspondingly adjusted. Section 2.2 Payment of Cash for Other Common Stock. -------------------------------------- (a) On the Effective Date, the Surviving Corporation shall irrevocably deposit or cause to be deposited with a bank or trust company to be designated by the Surviving Corporation which is organized and doing business under the laws of the United States or any state thereof and has a combined capital and surplus of at least $100,000,000 (the "Disbursing Agent"), as agent ---------------- for the holders of shares of Other Common Stock, cash in the aggregate amount required with respect to the conversion of shares of Other Common Stock at the Effective Date pursuant to Section 2.1(a) hereof. Pending distribution pursuant to Section 2.2(b) hereof of the cash deposited with the Disbursing Agent, such cash shall be held in trust for the benefit of the holders of Other Common Stock and the fund shall not be used for any other purposes, and the Surviving Corporation may direct the Disbursing Agent to invest such cash, provided that such investments (i) shall be obligations of or guaranteed by the United States of America, in commercial paper obligations receiving the highest rating from either Moody's Investors Services, Inc. or Standard & Poor's Corporation, or in certificates of deposit, bank repurchase agreements or bankers acceptances of domestic commercial banks with capital exceeding $250,000,000 (collectively "Permitted Investments") or in money market funds which are invested solely in - ---------------------- Permitted Investments and (ii) shall have maturities that will not prevent or delay payments to be made pursuant to Section 2.2(b) hereof. Each holder of a certificate or certificates representing shares of Other Common Stock cancelled and extinguished on the Effective Date pursuant to Section 2.1(a) hereof may thereafter surrender such certificate or certificates to the Disbursing Agent, as agent for such holder of shares of Other Common Stock, to effect the exchange of such certificate or certificates on such holder's behalf for a period ending one year after the Effective Date. (b) After surrender to the Disbursing Agent of any certificate which prior to the Effective Date shall have represented any shares of Other Common Stock, the Disbursing Agent shall promptly distribute to the person in whose name such certificate shall have been registered, a check representing the amount of cash into which such shares of Other Common Stock shall have been converted at the Effective Date pursuant to Section 2.1(a) hereof. Until so surrendered and exchanged, each such certificate shall, after the Effective Date, be deemed to represent only the right to receive such cash, and until such surrender and exchange, no cash shall be paid to the holder of such outstanding certificate in respect thereof. The Surviving Corporation shall promptly after the Effective Date cause to be distributed to such holders appropriate materials to facilitate such surrender. 4 (c) If any cash deposited with the Disbursing Agent for purposes of payment in exchange for shares of Other Common Stock remains unclaimed following the expiration of one year after the Effective Date, such cash shall be delivered to the Surviving Corporation by the Disbursing Agent, and thereafter the Disbursing Agent shall not be liable to any persons claiming any amount of such cash, and the surrender and exchange shall be effected directly with the Surviving Corporation (subject to applicable abandoned property, escheat and similar laws). No interest shall accrue or be payable with respect to any amounts which any such holder shall be so entitled to receive. The Surviving Corporation or the Disbursing Agent shall be authorized to pay the cash attributable to any certificate theretofore issued which has been lost or destroyed, upon receipt of satisfactory evidence of ownership of the shares of Other Common Stock represented thereby and of appropriate indemnification. (d) If payment is to be made to a person other than the person in whose name a surrendered certificate, which prior to the Effective Date shall have represented any shares of Other Common Stock, is registered, it shall be a condition to such payment that the certificate so surrendered shall be endorsed or shall otherwise be in proper form for transfer, and that the person requesting such payment shall have paid any transfer and other taxes required by reason of such payment in a name other than that of the registered holder of the certificate surrendered or shall have established to the satisfaction of the Surviving Corporation or the Disbursing Agent that such tax either has been paid or is not payable . (e) From and after the Effective Date, the holders of shares of Other Common Stock outstanding immediately prior to the Effective Date shall cease to have any rights with respect to such shares of Other Common Stock except as otherwise provided herein or by law. (f) After the Effective Date, there shall be no transfers on the stock transfer books of the Surviving Corporation of any shares of Other Common Stock which were outstanding immediately prior to the Effective Date. If, after the Effective Date, certificates for shares of Other Common Stock are presented to the Surviving Corporation, they shall be cancelled and promptly exchanged for cash as provided in this Section 2.2. Section 2.3 Exchange of Stock Certificates. Immediately after the ------------------------------ Effective Date, the Surviving Corporation shall deliver to the record holder of the certificate which immediately prior to the Effective Date represented all the outstanding shares of Poolmart Common Stock that were converted into the right to receive shares of Leslie's Common Stock in accordance with Section 2.1(d), in exchange for such certificate, duly endorsed in blank, a share certificate, registered in the name of such record holder, representing the number of shares of Leslie's Common Stock to which such record holder is so entitled by virtue of Section 2.1(d). Such certificate will bear a legend restricting the transferability of such shares of Leslie's Common Stock to the extent contemplated by the Stockholders Agreement referred to in Section 6.3(e), which restrictions include restrictions designed to assure the Surviving Corporation that these shares will not be offered or sold in contravention of any federal or state securities laws. ARTICLE 3 ADDITIONAL AGREEMENTS IN CONNECTION WITH THE MERGER TRANSACTION Section 3.1 Shareholders' Approval. Leslie's California shall take all ---------------------- actions reasonably necessary in accordance with applicable law and its articles of incorporation and bylaws to convene 5 a meeting of its shareholders as soon as reasonably practicable for the purpose of considering and approving the principal terms of the Reincorporation Merger Agreement, this Agreement and the Merger Transaction (the "Special Meeting"). In --------------- connection with the Special Meeting, the board of directors of Leslie's California shall recommend that the shareholders of Leslie's California vote to approve the principal terms of the Reincorporation Merger Agreement, this Agreement and the Merger Transaction. Proxy Materials and Schedule 13E-3. ---------------------------------- (a) In connection with the Special Meeting, Leslie's California shall prepare and file a preliminary proxy statement relating to the transactions contemplated by the Reincorporation Merger Agreement, this Agreement and the Merger Transaction (the "Preliminary Proxy Statement") with --------------------------- the Securities and Exchange Commission (the "SEC") and shall use its reasonable --- best efforts to respond to the comments of the SEC and to cause a definitive proxy statement to be mailed to Leslie's California's shareholders (the "Definitive Proxy Statement"), all as soon as reasonably practicable; provided, -------------------------- that prior to the filing of each of the Preliminary Proxy Statement and the Definitive Proxy Statement, Leslie's California shall consult with Poolmart with respect to such filings and shall afford Poolmart reasonable opportunity to comment thereon. Poolmart shall provide Leslie's California with any information for inclusion in the Preliminary Proxy Statement and the Definitive Proxy Statement which may be required under applicable law and which is reasonably requested by Leslie's California. Leslie's California shall promptly notify Poolmart of the receipt of the comments of the SEC and of any request from the SEC for amendments or supplements to the Preliminary Proxy Statement or the Definitive Proxy Statement or for additional information, and will promptly supply Poolmart with copies of all correspondence between Leslie's California or its representatives, on the one hand, and the SEC or members of its staff, on the other hand, with respect to the Preliminary Proxy Statement, the Definitive Proxy Statement or the Merger Transaction. If at any time prior to the Special Meeting any event should occur which is required by applicable law to be set forth in an amendment of, or a supplement to, the Definitive Proxy Statement, Leslie's California will promptly inform Poolmart. In such case, Leslie's California, with the cooperation of Poolmart, will, upon learning of such event, promptly prepare and mail such amendment or supplement; provided, that prior to such mailing, Leslie's California shall consult with Poolmart with respect to such amendment or supplement and shall afford Poolmart reasonable opportunity to comment thereon. Leslie's California will notify Poolmart at least 24 hours prior to the mailing of the Definitive Proxy Statement, or any amendment or supplement thereto, to the shareholders of Leslie's California. (b) Leslie's California shall prepare and file concurrently with the filing of the Preliminary Proxy Statement, a Statement on Schedule 13E-3 ("Schedule 13E-3") with the SEC. If at any time prior to the Special Meeting - ---------------- any event should occur which is required by applicable law to be set forth in an amendment of, or supplement to, the Schedule 13E-3, Leslie's California shall file such amendments or supplements. Section 3.3 Termination of Leslie's California Stock Option Plans. Leslie's ----------------------------------------------------- California shall (i) take all steps necessary to cause Leslie's California's 1990 Stock Option Plan and Leslie's California's 1992 Directors' Stock Incentive Plan (collectively, the "Stock Option Plans") to be terminated on or prior to ------------------ the Effective Date and (ii) if not otherwise terminated by their terms upon the effectiveness of the Recapitalization Merger, obtain at the earliest practicable date and prior to the Effective Date the written consent of each holder of an issued and outstanding stock option issued pursuant to the Stock Option Plans as well as the written consent of each holder of all other options to purchase California Common Stock not granted under the Stock Option Plans 6 (collectively, the "Stock Options") to the cancellation of such holders' Stock ------------- Options (irrespective of their exercise price and whether or not then currently exercisable) to take effect on the Effective Date. On the Effective Date, the Surviving Corporation shall pay each holder of Stock Options, to the extent such Stock Options have not been previously exercised or cancelled, (x) cash in an amount equal to the product of (i) the difference between $14.50 and the exercise price of such Stock Options, multiplied by (ii) the number of shares of Leslie's Common Stock subject to such Stock Options, less, (y) the amount of all applicable withholding taxes; provided, that those holders of Stock Options that have agreed to accept options to purchase common stock of the Surviving Corporation shall not receive any cash payment with respect to cancelled Stock Options. From and after the effective time of the Reincorporation Merger, "Stock Option Plans" and "Stock Options" shall refer to the Stock Option Plans and Stock Options as the same shall have been assumed by Leslie's Delaware pursuant to the Reincorporation Merger. Section 3.4 Reasonable Best Efforts. Upon the terms and subject to the ----------------------- conditions herein provided, and subject to the fiduciary duties of the board of directors of Leslie's California, as it, or a special committee thereof that has been established to, among other things, consider the Reincorporation Merger Agreement, this Agreement and the Merger Transaction (the "Special Committee"), ----------------- may be advised in writing by counsel, each party hereto shall use its reasonable best efforts to take, or cause to be taken, all reasonable action and to do, or cause to be done and to assist and cooperate with the other parties hereto in doing, all things necessary, proper or advisable under applicable laws and regulations and their respective articles or certificates of incorporation and bylaws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by the Reincorporation Merger Agreement or this Agreement, subject, however, to the requisite vote of shareholders of Leslie's California. Such actions shall include, without limitation, using its reasonable best efforts to (a) obtain all consents, amendments to or waivers from other parties under the terms of all leases and other agreements between Leslie's California and such parties required as a result of the transactions contemplated by the Reincorporation Merger Agreement or this Agreement, if any, (b) obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal or state law or regulation, (c) defend any lawsuits or other legal proceedings, whether judicial or administrative and whether brought derivatively or on behalf of third parties (including governmental agencies or officials), challenging the Reincorporation Merger Agreement or this Agreement, or the consummation of the transactions contemplated thereby or hereby and (d) effect all necessary registrations and filings, including but not limited to any filings required under the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act"), and submissions of ------- information requested by governmental authorities. Upon the terms and subject to the conditions hereof, and subject to the fiduciary duties of the board of directors of Leslie's California, as it, or the Special Committee, may be advised in writing by counsel, each of the parties hereto shall use its reasonable best efforts to take, or cause to be taken, all reasonable actions and to do, or cause to be done, all things necessary to satisfy the other conditions of Closing set forth herein. Section 3.5 Financing. Poolmart shall use its reasonable best efforts to --------- obtain the financing on terms and conditions satisfactory to it to (a) effect the Merger Transaction, (b) refinance outstanding debt of the Surviving Corporation (c) provide adequate ongoing working capital to the Surviving Corporation and (d) pay the expenses related to the Merger Transaction and obtaining the financing and refinancing (the "Financing"). Leslie's California --------- shall use its reasonable best efforts to cooperate with and assist Poolmart in obtaining the Financing. The parties acknowledge that the following letters regarding the Financing have been delivered to the Special Committee: Occidental Petroleum Corporation, dated December 27, 1996; BT Securities Corporation, dated February 4, 1997; Hancock Park Associates II, L.P., dated February 19, 1997; 7 Leonard Green & Partners, L.P., dated February 20, 1997; and BT Commercial Corporation, dated February 21, 1997 (collectively, the "Financing Letters"). ----------------- Section 3.6 Conduct of Business by Leslie's California Pending the ------------------------------------------------------ Recapitalization Merger. Leslie's California covenants and agrees that, prior to - ----------------------- the Effective Date, unless Poolmart shall otherwise agree in writing and except as contemplated by the Reincorporation Merger Agreement or this Agreement: (a) the business of Leslie's California and its subsidiaries shall be conducted only in the ordinary and usual course and consistent with past practice; Leslie's California and its subsidiaries shall not, without the prior written consent of Poolmart, (i) except in the ordinary course of its business, enter into any agreement which would be material to the condition (financial or otherwise), results of operations, properties, assets, liabilities or business of Leslie's California, (ii) purchase, sell or encumber (or enter into any agreement to purchase, sell or encumber), or enter into a merger or consolidation which would affect, any material properties or assets of Leslie's California, or (iii) except in the ordinary course of its business, enter into any other agreement or arrangement involving payments in excess of $100,000 in the aggregate with respect to the business or operations of Leslie's California; (b) Leslie's California shall not (i) amend its articles of incorporation or bylaws or the articles or certificates of incorporation or bylaws of any of its subsidiaries, (ii) change the number of authorized or outstanding shares of its capital stock (except for shares of California Common Stock issued upon the exercise of Stock Options outstanding on the date hereof), or (iii) declare, set aside or pay any dividend or other distribution or payment in cash, stock or property in respect of any of its shares of capital stock; (c) neither Leslie's California nor any of its subsidiaries shall (i) issue, grant, sell, pledge or transfer or agree or propose to issue, grant, sell, pledge or transfer any shares of capital stock, stock options, warrants, securities or rights of any kind or rights to acquire any such shares, securities or rights of Leslie's California, any of its subsidiaries or any successor thereto (except for shares of California Common Stock issued upon the exercise of Stock Options outstanding on the date hereof), (ii) incur any indebtedness (other than borrowings under Leslie's California's existing credit facilities incurred to finance current operations in the ordinary course of business and short term indebtedness to trade creditors incurred in the ordinary course of business), (iii) acquire directly or indirectly by redemption or otherwise any shares of the capital stock of Leslie's California of any class or any options, warrants or other rights to purchase any such shares, or (iv) enter into or modify any contract, agreement, commitment or arrangement with respect to any of the foregoing; (d) Leslie's California and its subsidiaries shall use their reasonable best efforts to conduct their relations with employees, including termination and hiring practices, and their employee benefit plans only in the ordinary and usual course and consistent with the past practices and policies of Leslie's California, shall not amend, or enter into any additional, employment agreements with officers or directors of Leslie's California, shall make no increases in employee compensation or benefits (including severance arrangements) except regularly scheduled periodic increases and customary bonuses for the fiscal year ended December 28, 1996 under Leslie's California's existing bonus plan, and shall not enter into any employment or termination agreements or other material arrangements relating to employment benefits; 8 (e) each of Leslie's California and its subsidiaries shall use its reasonable best efforts to keep in place its current insurance policies which are material (either individually or in the aggregate); and notwithstanding such efforts, if any such policy is cancelled, Leslie's California shall use its reasonable best efforts to replace such policy or policies; (f) neither Leslie's California nor its subsidiaries shall assume, guarantee, endorse or otherwise become responsible for the obligations of any other individual, firm or corporation, except in the ordinary and usual course of its business; (g) except in the ordinary and usual course of business, neither Leslie's California nor its subsidiaries shall make any investment of a capital nature either by purchase of stock or securities, contributions to capital, property transfers or otherwise, or by the purchase of any property or assets of any individual, firm or corporation, or otherwise enter into any material transaction; (h) neither Leslie's California nor any of its subsidiaries shall make any material tax election or settle or compromise any material federal, state, local or foreign income tax liability; (i) neither Leslie's California nor any of its subsidiaries shall make any change in its accounting principles or methods except insofar as may be required by a change in generally accepted accounting principles; and (j) neither Leslie's California nor any of its subsidiaries shall enter into an agreement or otherwise agree to do any of the things described in clauses (a) through (i) or anything which, to Leslie's California's best knowledge at the time of such action, would make any representation or warranty of Leslie's California in this Agreement untrue or incorrect in any material respect as of the date hereof and as of the Effective Date, as if made on such date, except to the extent such representations and warranties expressly relate to a specific date (in which case such representations and warranties shall be true and correct as of such date). Section 3.7 Leslie's California's Notification of Certain Matters. ----------------------------------------------------- Leslie's California shall, promptly upon obtaining knowledge of any of the following occurring subsequent to the date of this Agreement and prior to the Effective Date, notify Poolmart of: (a) any material claims, actions, proceedings, tax audits or investigations commenced or, to its knowledge, threatened, involving or affecting Leslie's California or any of its subsidiaries or any of their properties or assets, or, to its knowledge, against any employee, consultant, director, officer or shareholder of Leslie's California or any of its subsidiaries, in his, her or its capacity as such, (b) any notice of, or other communication relating to, a default or event which, with notice or lapse of time or both, would become a default, received by Leslie's California or any of its subsidiaries, under any agreement, lease, indenture or instrument to which Leslie's California or any of its subsidiaries is a party or is subject where such a default would have a material adverse effect on Leslie's California and its subsidiaries, taken as a whole, (c) any notice or other communication from any third party alleging that the consent of such third party is or may be required in connection with the transactions contemplated by the Reincorporation Merger Agreement or this Agreement, and (d) any material adverse change in the condition (financial or otherwise), results of operations, properties, assets, liabilities or business of Leslie's California and its subsidiaries, taken as a whole, or the occurrence of an event known to Leslie's California which, so far as reasonably can be foreseen at the time of its occurrence, could result in any such change. 9 Section 3.8 Access to Leslie's California's Books and Records. Upon ------------------------------------------------- reasonable notice, Leslie's California shall afford Poolmart and its representatives and representatives of all prospective sources of Financing reasonable access during normal business hours to the properties, books and records of Leslie's California and its subsidiaries and such additional information concerning the business and properties of Leslie's California and its subsidiaries as Poolmart and its representatives may reasonably request, including the permission of Leslie's California for Poolmart to contact key suppliers and customers of Leslie's California. Unless and until Leslie's California otherwise agrees, Poolmart will, and will cause their representatives, and will obtain appropriate undertakings from the representatives of all prospective sources of Financing to, hold in confidence all confidential information and not use any confidential information except in connection with the transactions contemplated hereby and the Financing, until such time as (i) such information is otherwise publicly available or (ii) as it is advised by counsel that any such information or document is required by law to be disclosed, provided that in such event it shall promptly notify Leslie's California of such requirement and cooperate in any effort Leslie's California makes to seek a reasonable protective order to limit the disclosure and use of such information. In the event of the termination of this Agreement, Poolmart will, and will cause its representatives and the representatives of all prospective sources of Financing to, either, at Leslie's California's option, (a) deliver to Leslie's California all documents, work papers and other material, and all copies thereof, obtained by it or on its behalf from Leslie's California as a result of this Agreement or in connection herewith, whether so obtained before or after the execution hereof, or (b) destroy all such documents, work papers and other material, and all copies thereof, and deliver an appropriate certificate of such destruction to Leslie's California; provided, that in each case Poolmart may retain a single set of copies for file purposes. Section 3.9 Acquisition Proposals. Leslie's California shall, and shall --------------------- use its reasonable best efforts to cause each of its officers, directors or affiliates to, notify Poolmart promptly of any direct or indirect contact by any corporation, partnership, person or other entity or group concerning any tender or exchange offer, proposal for a merger or consolidation or other business combination involving Leslie's California or any of its subsidiaries or divisions, or any proposal or offer (in each case, whether or not in writing and whether or not communicated to the shareholders of Leslie's California generally) to acquire in any manner, directly or indirectly, a substantial equity interest in, or a substantial portion of the assets of, Leslie's California or any of its subsidiaries or divisions, other than pursuant to the transactions contemplated by this Agreement (an "Acquisition Proposal") and -------------------- shall promptly provide Poolmart with a summary of all material terms and conditions of such Acquisition Proposal. In addition, Leslie's California shall give Poolmart not less than three business days' written notice prior to providing any confidential information to any person (other than Poolmart, prospective sources of the Financing and their respective representatives) concerning the business and properties of Leslie's California or affording any other person access to the properties, books or records of Leslie's California in connection with any Acquisition Proposal. Leslie's California shall not, nor shall it permit any of its officers, directors, affiliates, representatives or agents to, directly or indirectly, (i) take any action to solicit, initiate or, subject to the rights of Leslie's California to provide confidential information as provided in the immediately preceding sentence, knowingly encourage any Acquisition Proposal, or (ii) participate in any negotiations with respect to an Acquisition Proposal, except that Leslie's California or any such persons may participate in such negotiations with respect to any unsolicited Acquisition Proposal from a third party to the extent that the board of directors of Leslie's California or the Special Committee concludes (A) that such Acquisition Proposal is superior to the Merger Transaction and (B) based upon the advice of counsel, that such negotiations are necessary to discharge its fiduciary duty under applicable law. 10 Section 3.10 Financial Statements; Communications with Governmental ------------------------------------------------------ Authorities. Leslie's California shall deliver to Poolmart, as soon as - ----------- practicable (a) Leslie's California's financial statements for the year ended December 28, 1996 (which statements may be unaudited), and (b) copies of all filings and submissions by Leslie's California with, and all written and material oral communications to, and all written and material oral communications from, the SEC and each other federal, state and local government agency with respect to the transactions and events contemplated by the Reincorporation Merger Agreement or this Agreement. Leslie's California shall deliver to Poolmart, as soon as available but in no event later than March 31, 1997, Leslie's California's audited financial statements for the year ended December 28, 1996; such audited financial statements (a) shall be in accordance with the books and records of Leslie's California and its subsidiaries, (b) shall present fairly the consolidated financial position, results of operations, changes in shareholders' equity, and cash flow (as applicable) of Leslie's California and its subsidiaries for the year ended December 28, 1996, and (c) shall have been prepared in conformity with generally accepted accounting principles applied in all material respects on a consistent basis through the year ended December 28, 1996. ARTICLE 4A REPRESENTATIONS AND WARRANTIES OF LESLIE'S CALIFORNIA Except as disclosed in writing to Poolmart by Leslie's California, Leslie's California represents and warrants to Poolmart as follows: Section 4A.1 Organization and Good Standing. Each of Leslie's California ------------------------------ and its subsidiaries is a duly organized and validly existing corporation in good standing under the laws of the state of its incorporation, with all requisite power and authority (corporate and other) to own, lease and operate its properties and conduct its business and is duly qualified and in good standing as a foreign corporation authorized to do business in each of the jurisdictions in which the character of the properties owned or held under lease by it or the nature of the business transacted by it makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on Leslie's California and its subsidiaries, taken as a whole. Leslie's California has heretofore delivered to Poolmart accurate and complete copies of its and its subsidiaries' certificates or articles of incorporation and bylaws, as currently in effect. Section 4A.2 Authorization; Binding Agreement. Leslie's California has -------------------------------- all requisite corporate power and authority to execute and deliver the Reincorporation Merger Agreement and this Agreement and to consummate the transactions contemplated thereby and hereby. The execution and delivery of the Reincorporation Merger Agreement and this Agreement and the consummation of the transactions contemplated thereby and hereby have been duly and validly authorized by Leslie's California's board of directors and, except for the approval of the principal terms of the Reincorporation Merger Agreement, this Agreement and the Merger Transaction by the shareholders of Leslie's California in accordance with the California Law and the articles of incorporation and bylaws of Leslie's California, no other corporate proceedings on the part of Leslie's California are necessary to authorize the Reincorporation Merger Agreement, this Agreement and the transactions contemplated thereby or hereby. The Reincorporation Merger Agreement and this Agreement have been duly and validly executed and delivered by Leslie's California, and subject to the requisite approval of the shareholders of Leslie's California, constitute legal, valid and binding agreements of Leslie's California, enforceable against Leslie's California in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other laws, now or hereafter in 11 effect, relating to or limiting creditors' rights generally, and (b) general principles of equity (whether considered in an action in equity or at law) which provide, among other things, that the remedies of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. Section 4A.3 Capitalization. The authorized capital stock of Leslie's -------------- California consists of 40,000,000 shares of California Common Stock, and 1,000,000 shares of Preferred Stock ("California Preferred Stock"). As of the -------------------------- date hereof, 6,550,966 shares of California Common Stock and no shares of California Preferred Stock were outstanding. As of the date hereof, 988,185 shares of California Common Stock were reserved for issuance upon exercise of outstanding Stock Options. All of the outstanding shares of capital stock of Leslie's California and the subsidiaries of Leslie's California have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. All issued and outstanding shares of capital stock of the subsidiaries of Leslie's California are owned by Leslie's California or a wholly-owned subsidiary of Leslie's California free and clear of all liens, charges, encumbrances, claims and options of any nature. Except as contemplated by the Reincorporation Merger Agreement and this Agreement and except for the Stock Options, neither Leslie's California nor any subsidiary of Leslie's California has granted any outstanding option, warrant, subscription or other right, or entered into any agreement or commitment which either (a) obligates Leslie's California or any of its subsidiaries to issue, sell or transfer any shares of the capital stock of Leslie's California or any subsidiary of Leslie's California or (b) restricts the transfer of, or otherwise encumbers, shares of California Common Stock. Section 4A.4 Financial Statements. All consolidated financial statements -------------------- of Leslie's California and its subsidiaries (including the notes to such financial statements) included in Leslie's California's Annual Report on Form 10-K for the year ended December 30, 1995 (the "Year End Financial Statements") ----------------------------- filed pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange -------- Act"), and the unaudited financial statements of Leslie's California and its - --- subsidiaries included in Leslie's California's Quarterly Reports on Form 10-Q for the quarters ended March 30, June 29, and September 28, 1996 (the "Interim ------- Financial Statements") filed pursuant to the Exchange Act (a) are in accordance - -------------------- with the books and records of Leslie's California and its subsidiaries, (b) present fairly the consolidated financial position, results of operations, changes in shareholders' equity, and cash flow (as applicable) of Leslie's California and its subsidiaries as of the respective dates and for the respective periods indicated, except, in the case of the Interim Financial Statements, for normal year-end audit adjustments, and (c) except for the absence of footnotes in the Interim Financial Statements, have been prepared in conformity with generally accepted accounting principles applied in all material respects on a consistent basis through all the periods involved. Leslie's California has no material liabilities that are required by generally accepted accounting principles to be disclosed on a balance sheet other than (i) those disclosed in the Year End Financial Statements or the Interim Financial Statements, and (ii) those arising in the ordinary course of business since September 28, 1996. Section 4A.5 Absence of Certain Changes or Events. Since September 28, ------------------------------------ 1996, (a) there has not been any change or any development which has had, or, to Leslie's California's knowledge, would be likely to have, a material adverse effect on Leslie's California and its subsidiaries, taken as a whole, except for changes generally affecting the market for securities of publicly traded companies and changes in general economic conditions, (b) there has not been any damage, destruction or loss, whether covered by insurance or not, having a material adverse effect upon Leslie's California and its subsidiaries, taken as a whole, (c) Leslie's California and its subsidiaries have conducted their respective businesses only in the ordinary course, (d) Leslie's 12 California and its subsidiaries have not entered into any material transactions other than as approved by the board of directors of Leslie's California or as expressly permitted by this Agreement, (e) Leslie's California has not changed its accounting principles or methods except insofar as may be required by a change in generally accepted accounting principles, (f) Leslie's California has not declared, paid or set aside for payment any dividends, and (g) except for customary periodic salary increases, automatic annual option grants to directors of Leslie's California, and other increases expressly approved by the Chief Executive Officer of Leslie's California, there have not been any changes in executive compensation levels or in the manner in which other employees of Leslie's California are compensated or the supplemental benefits provided to such employees. Section 4A.6 SEC Reports and Other Documents. Each registration ------------------------------- statement, proxy statement or report filed with the SEC and not withdrawn by Leslie's California since January 1, 1994 did not, on the date of effectiveness in the case of such registration statements, or on the date of filing in the case of such reports, or on the date of mailing in the case of such proxy statements, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Since January 1, 1994, Leslie's California has filed all reports required to be filed by it with the SEC and all such reports complied as to form in all material respects with the applicable requirements of law. All financial statements and schedules included in the documents referred to in the preceding sentence were prepared in accordance with generally accepted accounting principles (except for the absence of footnotes in the Interim Financial Statements included in such documents), applied in all material respects on a consistent basis except as noted therein, and fairly present the information purported to be shown therein. Section 4A.7 Governmental and Other Consents and Approvals. Subject to --------------------------------------------- the approval of the Reincorporation Merger Agreement, this Agreement and the Merger Transaction by the shareholders of Leslie's California, to Leslie's California's knowledge, no consent, waiver, approval, license or authorization of or designation, declaration or filing with any governmental agency or authority or other public persons or entities in the United States is required in connection with the execution or delivery by Leslie's California of the Reincorporation Merger Agreement or this Agreement or the consummation by Leslie's California of the transactions contemplated thereby or hereby, other than (a) filings in the States of California and Delaware in accordance with the California Law and the Delaware Law, respectively, (b) filings required under the HSR Act, (c) filings required under the Exchange Act and (d) such other consents, waivers, approvals, licenses or authorizations, the failure of which to be obtained will not have a material adverse effect on Leslie's California and its subsidiaries, taken as a whole, or on the ability of Leslie's California to consummate the transactions contemplated thereby or hereby. Section 4A.8 No Violation. The execution and delivery of the ------------ Reincorporation Merger Agreement and this Agreement, the filing by Leslie's California of a certificate of ownership in connection with the Reincorporation Merger in the States of California and Delaware in accordance with the California Law and the Delaware Law, respectively, the consummation by Leslie's California of the transactions contemplated thereby or hereby, or compliance by Leslie's California with any of the provisions thereof or hereof, will not: (a) violate any provision of the charter documents of Leslie's California or any of its subsidiaries; (b) cause Leslie's California to violate in any material respect (i) any statute or law or any judgment, decree, order, regulation or rule of any court or governmental 13 authority applicable to Leslie's California or any of its subsidiaries or any of their respective properties or (ii) the award of any arbitrator or panel of arbitrators; (c) cause the acceleration of the maturity of any material debt or obligation of Leslie's California or any of its subsidiaries; or (d) violate, or be in conflict with, or constitute a material default under, or permit the termination of, or, except as contemplated by the Reincorporation Merger Agreement or this Agreement, require the consent of any person under, or result in the creation of any material lien upon any property of Leslie's California or any of its subsidiaries under, any agreement, indenture, lease or instrument to which Leslie's California or any of its subsidiaries is a party or by which Leslie's California or any of its subsidiaries (or their respective properties) may be bound, which individually or in the aggregate would have a material adverse effect on Leslie's California and its subsidiaries, taken as a whole. Leslie's California is not in material noncompliance or default (without giving effect to any grace or cure period or notice requirement) under any agreement, indenture or instrument creating or evidencing indebtedness for borrowed money or under any capital lease or under any agreement pursuant to which any of its securities were sold. Leslie's California has valid leasehold interests in all material real and personal property held under lease and is not in default of any of its material obligations under any lease or sublease establishing such leasehold interests, except in those instances in which such default, individually or in the aggregate, would not materially and adversely affect Leslie's California and its subsidiaries taken as a whole. Section 4A.9 Litigation. There is no legal action, suit, arbitration or ---------- other legal, administrative or other governmental investigation, inquiry or proceeding (whether federal, state, local or foreign) pending or, to the knowledge of Leslie's California, threatened against or affecting Leslie's California or any of its properties, assets, business, franchises or governmental approvals before any court or governmental department, commission, board, bureau, agency, instrumentality or arbitrator, which, individually or in the aggregate, could reasonably be expected (a) to have a material adverse effect upon Leslie's California and its subsidiaries, taken as a whole, or (b) to materially and adversely affect the ability of Leslie's California to carry out, or prevent or make unduly burdensome, the Merger Transaction or the transactions contemplated by the Reincorporation Merger Agreement or this Agreement. Section 4A.10 Governmental Approvals; Compliance with Law. Leslie's ------------------------------------------- California possesses from the appropriate agency, commission, board or governmental authority, whether federal, state or local, all licenses, permits, authorizations, approvals, franchises and rights ("Government Approvals") that -------------------- are necessary for Leslie's California to engage in the business currently conducted by it, except in those instances in which failure to possess Government Approvals, individually or in the aggregate, would not materially and adversely affect Leslie's California and its subsidiaries, taken as a whole; to the knowledge of Leslie's California, all Government Approvals possessed by Leslie's California have been validly issued, are in full force and effect and Leslie's California has no reason to believe such Government Approvals are subject to revocation, cancellation, suspension or termination. Leslie's California is in compliance with all applicable federal, state and local laws, statutes, ordinances, rules and regulations, except in those instances in which non-compliance, individually or in the aggregate, would not materially and adversely affect Leslie's California and its subsidiaries, taken as a whole. 14 Section 4A.11 Brokers and Finders. Except for (i) Dillon, Read Co. Inc. ------------------- ("Dillon Read"), which has been engaged, pursuant to an engagement letter dated ----------- December 17, 1996, a true and complete copy of which has been delivered to Poolmart, to provide advice to the board of directors of Leslie's California with respect to whether the consideration to be received by the holders of Other Common Stock who are not Continuing Stockholders (the "Public Stockholders") is ------------------- fair to the Public Stockholders from a financial point of view, and (ii) Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") which has been --- engaged by Leslie's California and the Special Committee to provide financial advisory services to the Special Committee pursuant to an engagement letter dated December 17, 1996, a true and complete copy of which has been delivered to Poolmart, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger Transaction or in connection with any transaction involving Leslie's California based upon arrangements made by or on behalf of Leslie's California. Section 4A.12 Fairness Opinions and Approval by Special Committee. On or --------------------------------------------------- prior to the date hereof, the Special Committee approved the terms of the Reincorporation Merger Agreement and this Agreement and received written opinions from Dillon Read and DLJ as of such date, substantially to the effect that, from a financial point of view, the consideration to be received by the Public Stockholders in the Merger Transaction is fair to the Public Stockholders (which opinions shall be updated on the date the Definitive Proxy Statement is mailed to Leslie's California's shareholders), a true and complete copy of which opinions have been or will promptly be delivered to Poolmart. Section 4A.13 Proxy and Schedule 13E-3 Information. The information ------------------------------------ contained in the Definitive Proxy Statement and the Schedule 13E-3, or any amendment or supplement thereto, or any other documents filed with the SEC by Leslie's California in connection with the Merger Transaction, shall, with respect to the Definitive Proxy Statement at the time the Definitive Proxy Statement is mailed and at the time of the Special Meeting, and, with respect to the Schedule 13E-3 and such other documents, at the time of filing with the SEC and at the time of such Special Meeting, not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that Leslie's California makes no representation or warranty, with respect to any information contained in the Definitive Proxy Statement, the Schedule 13E-3 or any such other document, which was furnished to Leslie's California by Poolmart. Section 4A.14 Taxes. All Returns (as hereinafter defined) required to be ----- filed by or with respect to Leslie's California and Tax Affiliates (as hereinafter defined) have been properly and accurately prepared in all material respects and filed on a timely basis. With respect to taxable periods for which the statute of limitations on the assessment of Tax (as hereinafter defined) remains open, the United States federal income tax Returns that have been examined by the Internal Revenue Service ("IRS"), and any other Returns that --- currently are the subject of an examination, or with respect to which notice of a pending or threatened examination has been received, or for which an examination has been conducted but not finally settled with all Taxes in dispute paid, have been disclosed in writing to Poolmart. There are no deficiencies for Taxes that have been proposed, asserted or assessed against Leslie's California or Tax Affiliates that remain unpaid. No material liability for Taxes has been incurred by Leslie's California or Tax Affiliates since September 28, 1996 other than in the ordinary course of their business. No director, officer or employee of Leslie's California or any of its subsidiaries having responsibility for Tax matters has reason to believe that any Tax authority has a valid basis to claim or assess any additional Tax with respect to Leslie's California or any Tax Affiliate in amounts materially in excess of the amounts shown on the balance sheet dated September 28, 1996 for the period ending on such date 15 and amounts incurred in the ordinary course of business since that date. Neither Leslie's California nor any of its subsidiaries is party to a closing agreement or similar agreement with any Tax authority or is required to include in income any material adjustment pursuant to Sections 263A or 481 of the Internal Revenue Code of 1986, as amended (the "Code"), or comparable state or local tax law. The ---- transactions contemplated by this Agreement will not give rise to an "excess parachute payment" within the meaning of Section 280G of the Code. As used in this Section 4A.14, the term "Tax" or "Taxes" means (i) all federal, state, --- ----- local, foreign and other net income, gross income, gross receipts, franchise, sales, use, withholding, employment, property or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, (ii) any liability for payment of amounts described in clause (i) whether as a result of transferee liability, of being a member of an affiliated, consolidated, combined or unitary or other similar group for any period, or otherwise through operation of law and (iii) any liability for the payment of amounts described in clauses (i) or (ii) as a result of any tax sharing, tax indemnity or tax allocation agreement or any other express or implied agreement to indemnify any other person; the term "Returns" means all returns, declarations, reports, statements and other ------- documents required to be filed in respect of Taxes; and the term "Tax Affiliate" ------------- means any subsidiaries of Leslie's California and any individual or entity for whose Taxes Leslie's California or any of its subsidiaries is or could be held liable (whether by reason of being a member of an affiliated, consolidated, combined, unitary, or other similar group for Tax purposes, by reason of being a successor, by agreement, or otherwise) (but only with respect to the Taxes and taxable periods(s) or portions thereof with respect to which Leslie's California or such subsidiaries is or could be held liable for such Taxes). Section 4A.15 Employee Benefits. A list of all employee benefit plans ----------------- (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which are maintained or contributed to by ----- Leslie's California or any of Leslie's California's subsidiaries (the "Company ------- Benefit Plans") has been disclosed in writing to Poolmart. Leslie's California - ------------- has provided to Poolmart (i) true and complete copies of all Company Benefit Plans; (ii) the most recent annual actuarial evaluation, if any, prepared for each Company Benefit Plan; (iii) the two most recent annual reports (series 5500), if any, required under ERISA with respect to each Company Benefit Plan, including audited financial statements; (iv) the most recent determination letter received from the IRS, if any, for each Company Benefit Plan, and (v) the most recent Summary Plan Description, if any, required under ERISA with respect to each Company Benefit Plan. Except as disclosed in writing to Poolmart, (i) with respect to each Company Benefit Plan that is intended to be qualified under Section 401(a) of the Code and is maintained by Leslie's California or any of Leslie's California's subsidiaries for any of their employees, (x) Leslie's California or such subsidiary has obtained a favorable determination letter from the IRS and nothing has happened since such letter that would adversely affect the tax qualification of such plan and (y) such plan has been operated in compliance with ERISA and in accordance with the provisions of, and the rules and regulations covering, such plan except where the failure to so comply does not individually or in the aggregate, have a material adverse effect upon Leslie's California and its subsidiaries, taken as a whole, (ii) with respect to each Company Benefit Plan, Leslie's California and Leslie's California's subsidiaries are not, and to Leslie's California's knowledge no other person is, engaged in a transaction prohibited by Section 4975 of the Code or Section 406 of ERISA which could result in a liability to Leslie's California and Leslie's California's subsidiaries which would individually or in the aggregate, have a material adverse effect upon Leslie's California and its subsidiaries, taken as a whole, (iii) each Company Benefit Plan which is subject to Part III of Subtitle B of Title I of ERISA or Section 412 of the Code has been maintained in compliance with the minimum funding standards of ERISA and the Code, and no reportable event, within the meaning of Section 4043 of ERISA has occurred with respect to any Company Benefit Plan which is subject to Title IV of ERISA, other than reportable 16 events with respect to which notice has been waived by the Pension Benefit Guaranty Corporation or which would not, individually or in the aggregate, have a material adverse effect upon Leslie's California and its subsidiaries, taken as a whole, and (iv) no benefit is provided pursuant to a welfare benefit plan (as defined in ERISA Section 3(1)) to a former employee of Leslie's California or any Leslie's California subsidiaries other than for continuation health coverage benefits provided under Code Section 4980B. Section 4A.16 Environmental Matters. Except as disclosed in filings with --------------------- the SEC under the Exchange Act since January 1, 1994, to the knowledge of Leslie's California, (i) neither Leslie's California nor any of its subsidiaries has generated, used, transported, treated, stored, released or disposed of, or has permitted anyone else to generate, use, transport, treat, store, release or dispose of any Hazardous Substance (as hereinafter defined), in violation of any Laws (as hereinafter defined), (ii) there has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the business of Leslie's California or any of its subsidiaries or the use of any property or facility of Leslie's California or any of its subsidiaries which has created or could reasonably be expected to create any material liability under any Laws that would require reporting to or notification of any federal or state governmental agency or authority, (iii) no asbestos or polychlorinated biphenyl is contained in or located at any facility of Leslie's California or any of its subsidiaries, and (iv) any Hazardous Substance handled or dealt with in any way in connection with the businesses of Leslie's California and its subsidiaries, whether before or during Leslie's California's ownership, has been and is being handled or dealt with in all material respects in compliance with applicable Laws; excepting, however, in each case any acts or omissions referred to in any of the preceding clauses (i) through (iv) to the extent that such acts or omissions, taken in the aggregate, would not have a material adverse effect on Leslie's California and its subsidiaries, taken as a whole. As used in this Section 4A.16, the term "Hazardous Substance" means substances that are defined or listed in, or - -------------------- otherwise classified pursuant to, any applicable Laws as "hazardous substances," "hazardous materials," "hazardous wastes" or "toxic substances," or any other formulation intended to define, list or classify substances by reason of deleterious properties such as ignitibility, corrosivity, reactivity, carcinogenicity, reproductive toxicity or "EP toxicity," and petroleum and drilling fluids, produced waters and other wastes associated with the exploration, development, or production of crude oil, natural gas or geothermal energy. As used in this Section 4A.16, the term "Laws" means any constitutional ---- provision, statute or other law, rule, regulation, or published interpretation of any thereof and any decree, injunction, judgment, order, ruling, or writ. Notwithstanding this Article 4A, neither Leslie's California nor any of its officers, directors, employees or representatives shall have any liability to Poolmart, nor shall Poolmart have any claim for damages, whether under this Agreement or otherwise, as a result of any breach of any of the representations or warranties contained in this Article 4A. For the avoidance of doubt, the parties agree that the preceding sentence shall not affect the rights of Poolmart under Section 6.3(a). 17 ARTICLE 4B REPRESENTATIONS AND WARRANTIES OF LESLIE'S DELAWARE Except as disclosed in writing to Poolmart by Leslie's California, Leslie's Delaware hereby represents and warrants to Poolmart as follows: Section 4B.1 Organization and Good Standing. Leslie's Delaware is a duly ------------------------------ organized and validly existing corporation in good standing under the laws of the state of Delaware. Leslie's Delaware has heretofore delivered to Poolmart accurate and complete copies of its certificate of incorporation and bylaws as currently in effect. Section 4B.2 Authorization; Binding Agreement. Leslie's Delaware has -------------------------------- all requisite corporate power and authority to execute and deliver the Reincorporation Merger Agreement and this Agreement and to consummate the transactions contemplated thereby and hereby. The execution and delivery of the Reincorporation Merger Agreement and this Agreement and the consummation of the transactions contemplated thereby and hereby have been duly and validly authorized by Leslie's Delaware's board of directors, and the Reincorporation Merger Agreement and this Agreement have been adopted by the sole stockholder of Leslie's Delaware in accordance with the Delaware Law and its certificate of incorporation and bylaws. No other corporate proceedings on the part of Leslie's Delaware are necessary to authorize the Reincorporation Merger Agreement and this Agreement and the transactions contemplated thereby and hereby. The Reincorporation Merger Agreement and this Agreement have been duly and validly executed and delivered by Leslie's Delaware and constitute legal, valid and binding agreements of Leslie's Delaware, enforceable against Leslie's Delaware in accordance with their terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (b) general principles of equity (whether considered in an action in equity or at law) which provide, among other things, that the remedies of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. Section 4B.3 Capitalization. The authorized capital stock of Leslie's -------------- Delaware consists of 5,000,000 shares of Leslie's Common Stock, and 2,000,000 shares of preferred stock, par value $.001 per share ("Delaware Preferred ------------------ Stock"). As of the date hereof, 10,000 shares of Leslie's Common Stock and no - ----- shares of Delaware Preferred Stock were outstanding. All of the outstanding shares of capital stock of Leslie's Delaware are owned by Leslie's California and have been duly authorized and validly issued and are fully paid and nonassessable and free of preemptive rights. Except as contemplated by the Reincorporation Merger Agreement and this Agreement, Leslie's Delaware has not granted any outstanding option, warrant, subscription or other right, or entered into any agreement or commitment which either (a) obligates Leslie's Delaware to issue, sell or transfer any shares of the capital stock of Leslie's Delaware or (b) restricts the transfer of, or otherwise encumbers, shares of Leslie's Common Stock. Prior to the Effective Date, the certificate of incorporation of Leslie's Delaware shall be amended to increase the authorized number of shares of Leslie's Common Stock to the number of shares necessary to carry out the terms of the Reincorporation Merger Agreement. Section 4B.4 No Violation. The execution and delivery of the ------------ Reincorporation Merger Agreement and this Agreement, the filing by Leslie's Delaware of both a certificate of ownership and merger in connection with the Reincorporation Merger and the Certificate of Merger in 18 connection with the Recapitalization Merger in the State of Delaware in accordance with the Delaware Law, the consummation by Leslie's Delaware of the transactions contemplated thereby or hereby, or compliance by Leslie's Delaware with any of the provisions thereof or hereof, will not: (a) violate any provision of the charter documents of Leslie's Delaware or any of its subsidiaries; (b) violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to Leslie's Delaware or any of its properties; (c) cause the acceleration of the maturity of any debt or obligation of Leslie's Delaware; or (d) violate, or be in conflict with, or constitute a default under, or permit the termination of, or, except as contemplated by the Reincorporation Merger Agreement or this Agreement, require the consent of any person under, or result in the creation of any material lien upon any property of Leslie's Delaware under, any agreement, indenture, lease or instrument to which Leslie's Delaware is a party or by which Leslie's Delaware (or its properties) may be bound, which in the aggregate would have a material adverse effect on Leslie's Delaware. Leslie's Delaware is not in material default (without giving effect to any grace or cure period or notice requirement) under any agreement for borrowed money or under any agreement pursuant to which any of its securities were sold. Section 4B.5 Governmental and Other Consents and Approvals. To the --------------------------------------------- knowledge of Leslie's Delaware, no consent, waiver, approval, license or authorization of or designation, declaration or filing with any governmental agency or authority or other public persons or entities in the United States is required in connection with the execution or delivery by Leslie's Delaware of the Reincorporation Merger Agreement or this Agreement or the consummation by Leslie's Delaware of the transactions contemplated thereby or hereby, other than (a) filings in the States of California and Delaware in accordance with the California Law and the Delaware Law, respectively, (b) filings required under the HSR Act, (c) filings required under the Exchange Act, and (d) such other consents, waivers, approvals, licenses or authorizations, the failure of which to be obtained will not have a material adverse effect on Leslie's Delaware or on the ability of Leslie's Delaware to consummate the transactions contemplated hereby. Section 4B.6 No Prior Activities. Leslie's Delaware has not incurred, and ------------------- will not incur, directly or through any subsidiary, any liabilities or obligations, except those incurred in connection with its organization or with the negotiation of the Reincorporation Merger Agreement or this Agreement. Except as contemplated by the Reincorporation Merger Agreement, this Agreement and the Financing Letters, Leslie's Delaware has not engaged in any business activities of any type or kind whatsoever, or entered into any agreements or arrangements with any person or entity, or become subject to or bound by any obligation or undertaking. Section 4B.7 Litigation. There is no legal action, suit, arbitration or ---------- other legal, administrative or other governmental investigation, inquiry or proceeding (whether federal, state, local or foreign) pending or, to the knowledge of Leslie's Delaware, threatened against or affecting Leslie's Delaware or any of its properties, assets, business, franchises or governmental approvals 19 before any court or governmental department, commission, board, bureau, agency, instrumentality or arbitrator, which, individually or in the aggregate, could reasonably be expected (a) to have a material adverse effect upon Leslie's Delaware or (b) to materially and adversely affect the ability of Leslie's Delaware to carry out, or prevent or make unduly burdensome, the Merger Transaction or the transactions contemplated by the Reincorporation Merger Agreement or this Agreement. Notwithstanding this Article 4B, neither Leslie's Delaware nor any of its officers, directors, employees or representatives shall have any liability to Poolmart, nor shall Poolmart have any claim for damages, whether under this Agreement or otherwise, as a result of any breach of any of the representations or warranties contained in this Article 4B. For the avoidance of doubt, the parties agree that the preceding sentence shall not affect the rights of Poolmart under Section 6.3(a). ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF POOLMART Except as disclosed in writing by Poolmart to Leslie's California and Leslie's Delaware immediately prior to their execution and delivery of this Agreement, Poolmart hereby represents and warrants to Leslie's California and Leslie's Delaware as follows: Section 5.1 Organization and Good Standing. Poolmart is a duly organized ------------------------------ and validly existing corporation in good standing under the laws of the state of Delaware. Poolmart has heretofore delivered to Leslie's California accurate and complete copies of its certificate of incorporation and bylaws as currently in effect. Poolmart does not own or have any subsidiary or own or hold any capital stock, security or investment in any other person or entity, other than bank accounts, certificates of deposit, money market or similar short-term investments. Section 5.2 Authorization; Binding Agreement. Poolmart has all -------------------------------- requisite corporate power and authority to execute and deliver this Agreement and to consummate the Recapitalization Merger and the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the Recapitalization Merger and the transactions contemplated hereby have been duly and validly authorized by its board of directors, and this Agreement has been adopted by the sole stockholder of Poolmart in accordance with Delaware Law and its certificate of incorporation and bylaws. No other corporate proceedings on the part of Poolmart are necessary to authorize this Agreement, the Recapitalization Merger and the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Poolmart and constitutes a legal, valid and binding agreement of Poolmart, enforceable against Poolmart in accordance with its terms except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to or limiting creditors' rights generally, and (b) general principles of equity (whether considered in an action in equity or at law) which provide, among other things, that the remedies of specific performance and injunctive and other forms of equitable relief are subject to equitable defenses and to the discretion of the court before which any proceedings therefor may be brought. Section 5.3 Capitalization. The authorized capital stock of Poolmart -------------- consists of a single class of 1,000 shares of common stock, par value $.001 per share, (which class of stock is herein called "Poolmart Common Stock"). Prior --------------------- to the Effective Date the certificate of incorporation of Poolmart shall be amended to increase the authorized number of shares of 20 Poolmart Common Stock to 1,055,172, all of which will be outstanding immediately prior to the Effective Date. All of the shares of Poolmart Common Stock outstanding on the Effective Date (i) will have been duly authorized and will be, validly issued, fully paid and nonassessable and free of preemptive rights, and (ii) will be beneficially owned, by Green Equity Investors II, L.P. Poolmart has not granted any outstanding option, warrant, subscription or other right, or entered into any agreement or commitment which either (a) obligates Poolmart to issue, sell, repurchase or transfer any shares of the capital stock of Poolmart or (b) restricts the transfer of, or otherwise encumbers, shares of Poolmart Common Stock. Poolmart has no treasury stock. Section 5.4 No Violation. Neither the execution and delivery of this ------------ Agreement, the filing of the Certificate of Merger or the consummation by Poolmart of the transactions contemplated hereby and thereby, nor compliance by Poolmart with any of the provisions hereof or thereof, will: (a) violate any provision of the charter documents of Poolmart; (b) violate any statute or law or any judgment, decree, order, regulation or rule of any court or governmental authority applicable to Poolmart or any of its properties; (c) cause the acceleration of the maturity of any debt or obligation of Poolmart; or (d) violate, or be in conflict with, or constitute a default under, or permit the termination of, or except as contemplated by this Agreement, require the consent of any person under, or result in the creation of any lien upon any property of Poolmart under, any agreement, indenture, lease or instrument to which Poolmart is a party or by which Poolmart (or its properties) may be bound, which in the aggregate would have a material adverse effect on Poolmart. Poolmart is not in material default (without giving effect to any grace or cure period or notice requirement) under any agreement for borrowed money or under any agreement pursuant to which any of its securities were sold. Section 5.5 Governmental and Other Consents and Approvals. To the --------------------------------------------- knowledge of Poolmart, no consent, waiver, approval, license or authorization of or designation, declaration or filing with any governmental agency or authority or other public persons or entities in the United States is required in connection with the execution or delivery by Poolmart of this Agreement or the consummation by Poolmart of the Recapitalization Merger or the transactions contemplated hereby, other than (a) filings in the State of Delaware in accordance with the Delaware Law, (b) filings required under the HSR Act, (c) filings required under the Exchange Act and (d) such other consents, waivers, approvals, licenses or authorizations, the failure of which to be obtained will not have a material adverse effect on Poolmart or on the ability of Poolmart to consummate the transactions contemplated hereby. Section 5.6 Proxy and Schedule 13E-3 Information. The information ------------------------------------ furnished to Leslie's California by Poolmart specifically for inclusion in the Definitive Proxy Statement and the Schedule 13E-3, or any amendment or supplement thereto, or specifically for inclusion in any other documents filed with the SEC by Leslie's California in connection with the Merger Transaction, shall, with respect to the Definitive Proxy Statement at the time the Definitive Proxy Statement is mailed and at the time of the Special Meeting, and, with respect to the Schedule 13E-3 and such other documents, at the time of filing with the SEC and at the time of such Special Meeting, not contain any untrue statement of a material fact or omit to state a material fact required 21 to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 5.7 Financing Letters. If the funds were provided pursuant to or ----------------- as described in the Financing Letters, there would be sufficient financing to satisfy the condition set forth in Section 6.3(c) hereof. Section 5.8 Brokers and Finders. Except to the extent contemplated by the ------------------- Financing Letters, Poolmart has not engaged any broker, finder or investment banker which engagement would require the payment of any brokerage, finder's or other fees by Leslie's California or Leslie's Delaware in connection with the transaction contemplated hereby. Section 5.9 No Prior Activities. Poolmart has not incurred, and will not ------------------- incur, directly or through any subsidiary, any liabilities or obligations, except those incurred in connection with its organization or with the negotiation of this Agreement and the Financing. Except as contemplated by this Agreement and the Financing Letters, Poolmart has not engaged in any business activities of any type or kind whatsoever, or entered into any agreements or arrangements with any person or entity, or become subject to or bound by any obligation or undertaking. Section 5.10 Litigation. There is no legal action, suit, arbitration or ---------- other legal, administrative or other governmental investigation, inquiry or proceeding (whether federal, state, local or foreign) pending or, to the knowledge of Poolmart, threatened against or affecting Poolmart or any of its properties, assets, business, franchises or governmental approvals before any court or governmental department, commission, board, bureau, agency, instrumentality or arbitrator, which, individually or in the aggregate, could reasonably be expected (a) to have a material adverse effect upon Poolmart or (b) to materially and adversely affect the ability of Poolmart to carry out, or prevent or make unduly burdensome, the Recapitalization Merger or the transactions contemplated by this Agreement. ARTICLE 6 CONDITIONS Section 6.1 Conditions to Each Party's Obligation to Effect the --------------------------------------------------- Recapitalization Merger. The respective obligations of each party to effect the - ----------------------- Recapitalization Merger shall be subject to the satisfaction at or prior to the Effective Date of the following conditions: (a) Shareholder Approval. This Agreement, the Reincorporation Merger -------------------- Agreement and the Merger Transaction shall have been approved at or prior to the Effective Date by the holders of a majority of (i) the outstanding shares of California Common Stock entitled to vote thereon and (ii) the shares of California Common Stock voting thereon and owned by persons other than persons who, upon consummation of the Recapitalization Merger, will be the Continuing Stockholders; (b) Litigation. No action, suit or proceeding shall be pending before ---------- any court or governmental body in which an unfavorable judgment or decree would prevent or substantially delay the consummation of the Reincorporation Merger or the Recapitalization Merger, cause either such transaction to be rescinded or, with respect to any litigation in connection with the Reincorporation Merger or the Recapitalization Merger, result in an award of damages that would have a material adverse effect on the 22 condition (financial or otherwise), results of operations, properties, assets, liabilities, business or prospects of Leslie's California and its subsidiaries, taken as a whole; (c) Consents. Leslie's California and Poolmart shall have been -------- furnished with evidence satisfactory to them of the timely consent or approval of, or notice to, each governmental authority or other person or entity whose consent or approval, or to whom notice, is required in connection with the execution or delivery by Leslie's California, Leslie's Delaware or Poolmart of the Reincorporation Merger Agreement or this Agreement or consummation of the transactions contemplated thereby or hereby; (d) HSR Act. Any applicable waiting period under the HSR Act shall ------- have expired or early termination shall have been granted; (e) Fairness Opinions. The fairness opinions delivered by Dillon Read ----------------- and DLJ pursuant to Section 4A.12 hereof shall not have been withdrawn or materially and adversely modified; and (f) Effectiveness of Reincorporation Merger. The Reincorporation --------------------------------------- Merger shall have become effective in accordance with the California Law and the Delaware Law. Section 6.2 Conditions to Obligation of Leslie's California and Leslie's ------------------------------------------------------------ Delaware to Effect the Recapitalization Merger. The obligations of Leslie's - ---------------------------------------------- California and Leslie's Delaware to effect the Reincorporation Merger and the obligations of Leslie's Delaware to effect the Recapitalization Merger shall be subject to the satisfaction at or prior to the Effective Date of the following additional conditions, unless waived by Leslie's California or, after the effective time of the Reincorporation Merger, Leslie's Delaware: (a) Representations and Warranties. The representations and ------------------------------ warranties of Poolmart set forth in Article 5 hereof shall be true and correct in all material respects as 23 of the date of this Agreement and as of the Effective Date as though made on and as of the Effective Date, except as otherwise contemplated by this Agreement, and Leslie's Delaware shall have received a certificate from Poolmart signed by its President and a Vice President to that effect; and (b) Performance of Obligations of Poolmart. Poolmart shall have -------------------------------------- performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Date, and Leslie's Delaware shall have received a certificate from Poolmart signed by its President and a Vice President to that effect. Section 6.3 Conditions to Obligations of Poolmart to Effect the --------------------------------------------------- Recapitalization Merger. The obligations of Poolmart to effect the - ----------------------- Recapitalization Merger shall be subject to the satisfaction at or prior to the Effective Date of the following additional conditions, unless waived by Poolmart: (a) Representations and Warranties. The representations and ------------------------------ warranties of Leslie's California set forth in Article 4A hereof and of Leslie's Delaware set forth in Article 4B hereof shall be true and correct in all material respects as of the date of this Agreement and, except as contemplated by the Reincorporation Merger or as otherwise contemplated by this Agreement, as of the Effective Date as though all of such representations were made on and as of the Effective Date by Leslie's Delaware, and Poolmart shall have received certificates of Leslie's California and Leslie's Delaware signed by the President and a Vice President of Leslie's California and Leslie's Delaware, respectively, to that effect; (b) Performance of Obligations of Leslie's California and Leslie's -------------------------------------------------------------- Delaware. Each of Leslie's California and Leslie's Delaware shall have -------- performed in all material respects all obligations required to be performed by it under this Agreement prior to the Effective Date, and Poolmart shall have received certificates of Leslie's California and Leslie's Delaware signed by the President and a Vice President of Leslie's California and Leslie's Delaware, respectively, to that effect; (c) Financing. Poolmart shall have obtained the Financing pursuant to --------- Section 3.5; (d) Dissenters' Rights. The aggregate number of shares of California ------------------ Common Stock on the effective time of the Reincorporation Merger, the holders of which have demanded purchase of their shares from Leslie's Delaware in accordance with the provisions of Chapter 13 of the California Law, shall not equal 5% or more of the shares of California Common Stock outstanding as of the record date for the Special Meeting; (e) Environmental Due Diligence. Poolmart shall have completed its --------------------------- environmental due diligence and shall be reasonably satisfied with the results of such due diligence; provided, however, that this condition shall be deemed to have been satisfied in full by March 31, 1997 unless prior thereto Poolmart shall have delivered a written 24 notice to Leslie's California specifying in reasonable detail the respects in which it has not been satisfied; (f) Audited Financial Statements. When Leslie's California's ---------------------------- audited financial statements for the fiscal year ended December 28, 1996 have been prepared, a copy thereof shall have been delivered to Poolmart; (g) Accounting Treatment. The Definitive Proxy Statement shall -------------------- contain a statement to the effect that the Recapitalization Merger shall be treated as a recapitalization for accounting purposes and the Securities and Exchange Commission shall not have disapproved such statement in the Definitive Proxy Statement; and (h) Certification of Non-U.S. Real Property Holding Corporation ----------------------------------------------------------- Status. Poolmart shall have received from Leslie's California and Leslie's Delaware a certification described in Treasury Regulation Section 1.1445- 2(c)(3), in form and substance reasonably acceptable to Poolmart, to the effect that neither Leslie's Delaware nor Leslie's California was a U.S. real property holding corporation during the period specified in Section 897(c)(1)(ii) of the Code, and shall have been provided evidence reasonably satisfactory to Poolmart of compliance with the terms of Treasury Regulation Section 1.897-2(h) with respect to such certificate. ARTICLE 7 TERMINATION; NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT Section 7.1 Termination. This Agreement may be terminated, and the ----------- Recapitalization Merger abandoned, at any time prior to the Effective Date, by: (a) mutual written consents of the boards of directors of the Constituent Corporations; (b) any of the parties, by written notice to the other parties, if the Recapitalization Merger shall not have been consummated by June 30, 1997; provided, however, that the right to terminate this Agreement under this clause (b) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Date to occur on or before this date; provided further, however, that the passage of such period shall be tolled (and the date for such consummation shall be correspondingly extended) for any part thereof (but not exceeding 60 days in the aggregate) during which any party shall be subject to a nonfinal order, decree, ruling or action restraining, enjoining or otherwise prohibiting the consummation of the Reincorporation Merger or the Recapitalization Merger or the calling or holding of the Special Meeting; (c) Poolmart, by written notice to Leslie's California, if prior to the Special Meeting the board of directors of Leslie's California or the Special Committee (i) shall withdraw or modify in any manner adverse to Poolmart its approval or recommendation of this Agreement, the Reincorporation Merger Agreement, the Recapitalization Merger or the Reincorporation Merger, (ii) shall approve or recommend any Acquisition Proposal 25 by a party other than Poolmart, or (iii) shall resolve to take any of the actions specified in clause (i) or (ii); (d) Poolmart, by written notice to Leslie's California, if after the date hereof there shall have been a material adverse change in the condition (financial or otherwise), results of operations, properties, assets, liabilities or business of Leslie's California and its subsidiaries, taken as a whole, whether by reason of operations in the ordinary course of business, changes in general economic conditions, or otherwise; (e) Leslie's California, by written notice to Poolmart, if the board of directors of Leslie's California or the Special Committee, in its good faith exercise of its business judgment (based on the written advice of counsel), has determined that the board of directors of Leslie's California continuing to recommend to the shareholders the approval of this Agreement or the Reincorporation Merger Agreement would be reasonably likely to be a breach of the fiduciary duties of the board of directors of Leslie's California to the shareholders of Leslie's California under California law; (f) Leslie's California or Poolmart, by written notice to the other, if upon a vote at the Special Meeting, any approval of the shareholders of Leslie's California necessary to consummate the Reincorporation Merger or the Recapitalization Merger and the transactions contemplated thereby or hereby shall not have been obtained, or by Poolmart if the vote at such Special Meeting does not satisfy the condition in Section 6.1(a) and such condition is not waived by Leslie's California; (g) any of the parties, by written notice, if any court of competent jurisdiction or other governmental entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Reincorporation Merger or the Recapitalization Merger and such order, decree, ruling or other action shall have become final and nonappealable; (h) Poolmart, in the event that there shall have been a material breach of Section 3.9.; or (i) Poolmart, if Leslie's California shall have failed to hold the Special Meeting by June 16, 1997 and either of the following shall have occurred prior to such date: (A) any corporation (including Leslie's California or any of its subsidiaries or affiliates), partnership, person, other entity or "group" (as referred to in Section 13(d)(3) of the Exchange Act) other than Poolmart or any of its affiliates (collectively, "Third ----- Persons") shall have become the beneficial owner (as defined in Rule 13d-3 ------- promulgated under the Exchange Act) of more than 15% of the outstanding California Common Stock; or (B) any Third Person shall have made, proposed, communicated or disclosed in a manner which is or becomes known by stockholders beneficially owning at least 5% of the outstanding California Common Stock or by any director or officer of Leslie's California an intention to make a bona fide Acquisition Proposal, unless in the case of the condition in clause (B) Leslie's California is able to sustain the burden of showing that the failure to hold the Special Meeting was caused primarily by factors other than knowledge of such intention to make an Acquisition Proposal. 26 Any action to be taken to terminate this Agreement under this Section shall be taken by, or pursuant to authority granted by, the Boards of Directors of Leslie's California or Poolmart as applicable. After the effectiveness of the Reincorporation Merger, all references in this Section 7.1 to "Leslie's California" shall be deemed to be a reference to Leslie's Delaware. Section 7.2 Non-Survival of Representations, Warranties and Covenants. --------------------------------------------------------- The respective representations and warranties of Leslie's California, Leslie's Delaware and Poolmart contained herein or in any certificate delivered pursuant hereto shall expire with, and be terminated and extinguished upon, consummation of the Recapitalization Merger, and thereafter none of Leslie's California, Leslie's Delaware or Poolmart or any officer, director or principal thereof shall be under any liability whatsoever with respect to any such representation or warranty. This Section 7.2 shall have no effect upon any other obligation of the parties hereto, whether to be performed before or after the consummation of the Recapitalization Merger. Section 7.3 Amendment. This Agreement may not be amended except by an --------- instrument in writing signed on behalf of each of the parties hereto; provided, however, that (i) after approval of this Agreement by the shareholders of Leslie's California, no amendment may be made which reduces the amount or changes the form of consideration to be received in the Recapitalization Merger or otherwise changes or effects any change which would adversely affect either the shareholders of Leslie's California prior to the effectiveness of the Reincorporation Merger or the stockholders of Leslie's Delaware immediately after such effectiveness without the further approval of the shareholders of Leslie's California, and (ii) after the Effective Date, no amendment may be made to the indemnification and insurance provisions contained in Section 8.3. Section 7.4 Waiver. At any time prior to the Effective Date, whether ------ before or after the Special Meeting, any party hereto, by action taken by its board of directors, may (i) extend the time for the performance of any of the obligations or other acts of any other party hereto or (ii) subject to the proviso contained in Section 7.3, waive compliance with any of the agreements of any other party or with any conditions (other than those appearing in Section 6.1(a), (e) or (f)) to its own obligations. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if (i) set forth in an instrument in writing signed on behalf of such party by a duly authorized officer, and (ii) if signed by Poolmart. Section 7.5 Effect of Termination. In the event of the termination of --------------------- this Agreement under Section 7.1, this Agreement shall thereafter become void and have no effect and no party hereto shall have any liability to any other party hereto or its shareholders or directors or officers in respect thereof, except that the provisions of Section 3.8 (with respect to documents and confidential information), Section 7.6 (with respect to a break fee under certain circumstances), Section 8.3 (with respect to indemnification), and Section 8.12 (with respect to expenses) shall survive any such termination if such obligations arose at or before the time of such termination. Section 7.6 Additional Payments in Respect of Certain Terminations. In ------------------------------------------------------ the event that (i) this Agreement is terminated by Leslie's California pursuant to Section 7.1(e) or (f); or (ii) this Agreement is terminated by Poolmart pursuant to Section 7.1(c), (f), (h) or (i), then in addition to the expense reimbursement provided for in Section 8.12, Leslie's California or Leslie's Delaware (assuming the Reincorporation Merger has occurred) shall promptly (and in any event within five business days of written notice that such amount is due) pay to Leonard Green & Partners, L.P., in immediately available funds, the amount of $1,750,000 as a termination fee. In addition, in the event that within twelve months of any termination described in the immediately preceding sentence Leslie's California or Leslie's Delaware, as the case may be, consummates a transaction 27 that falls within the definition of an Acquisition Proposal, Leslie's California or Leslie's Delaware, as the case may be, shall promptly and in no event later than five business days after the closing of such transaction, pay to Leonard Green & Partners, L.P., in immediately available funds, an additional $750,000. ARTICLE 8 GENERAL AGREEMENTS Section 8.1 Notice. All notices, requests and other communications to any ------ party shall be in writing (including telecopy or similar writing) and shall be given, (a) If to Poolmart: c/o Hancock Park Associates II, L.P. 1925 Century Park East, Suite 810 Los Angeles, California 90067 Attention: Mr. Michael J. Fourticq Facsimile No.: (310) 201-0403 and Leonard Green & Partners, L.P. 333 South Grand Avenue Suite 5400 Los Angeles, California 90071 Attention: Mr. Gregory J. Annick Facsimile No.: (213) 625-2043 with copies to: Paul, Hastings, Janofsky & Walker LLP 555 South Flower Street, 23rd Floor Los Angeles, California 90071-2371 Attention: Alan J. Barton, Esq. Facsimile No.: (213) 627-0705 and Gibson, Dunn & Crutcher LLP 333 South Grand Avenue Los Angeles, California 90071-3197 Attention: Jennifer Bellah, Esq. Facsimile No.: (213) 229-7520 28 (b) If to Leslie's California or Leslie's Delaware, to: Leslie's Poolmart 20630 Plummer Street Chatsworth, California 91311 Attention: General Counsel Facsimile No.: (818) 993-1930 with a copy to: Heller Ehrman White & McAuliffe 601 South Figueroa Street, 40th Floor Los Angeles, California 90017-5704 Attention: Neal H. Brockmeyer, Esq. Facsimile No.: (213) 614-1868 or to such other address or telecopier number as such party may hereafter specify for the purpose of notice to the other parties. Any such notice, request or other communication shall be deemed to have been given and received on the day on which it is delivered or telecopied (or, if such day is not a business day in California or if the notice or other communication is not telecopied during business hours, at the place of receipt, on the next following business day); provided that if notice or other communication is given by telecopy, such notice or communication shall also be given by certified mail or by overnight courier. Section 8.2 Entire Agreement. This Agreement (including the documents and ---------------- instruments referred to herein) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof. Section 8.3 Indemnification. --------------- (a) Indemnification by the Surviving Corporation. It is understood and -------------------------------------------- agreed that Leslie's California may, to the fullest extent permitted under applicable law, indemnify and hold harmless, and after the effective time of the Reincorporation Merger, Leslie's Delaware may, and after the Effective Date the Surviving Corporation shall, indemnify and hold harmless, to the fullest extent permitted under applicable law (and Leslie's California, Leslie's Delaware and the Surviving Corporation, as the case may be, will advance expenses to the full extent so permitted), each present and former director and officer of Leslie's California or any of its subsidiaries and each director and officer of Leslie's Delaware upon the effectiveness of the Reincorporation Merger, and their respective heirs and personal and legal representatives (collectively the "Indemnified Parties"), against any costs or expenses (including attorneys' - -------------------- fees), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any pending, threatened or completed claim, action, suit, proceeding or investigation (whether civil, criminal, administrative or investigative) arising out of or pertaining to this Agreement or the Reincorporation Merger Agreement or the approval and consummation of the transactions contemplated hereby and thereby in his or her capacity as such or in any other capacity on behalf of a subsidiary, joint venture or any other entity in which he or she served at the request of Leslie's California or Leslie's Delaware, and in the event of any such claim, action, suit, proceeding or investigation (whether arising before or after the Effective Date), (i) Leslie's California may prior to the effective time of the Reincorporation Merger and thereafter Leslie's Delaware may prior to the Effective Date, and after the Effective Date the Surviving Corporation shall, pay the reasonable fees and expenses of counsel selected by the Indemnified Parties, which counsel shall be reasonably 29 satisfactory to Leslie's California, Leslie's Delaware or the Surviving Corporation, as the case may be, promptly after statements therefor are received and (ii) Leslie's California, Leslie's Delaware and the Surviving Corporation will cooperate in the defense of any such matter; provided, however, that none of Leslie's California, Leslie's Delaware or the Surviving Corporation shall be liable for any settlement effected without its written consent (which consent shall not be unreasonably withheld) and provided further that none of Leslie's California, Leslie's Delaware or the Surviving Corporation shall have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, after exhaustion of all avenues of appeal, that such Indemnified Party is not entitled to indemnification hereunder (it being agreed, however, that none of Leslie's California, Leslie's Delaware or the Surviving Corporation shall challenge a determination by any court which is favorable to an Indemnified Party). (b) Notice; Undertaking; Representations. Any Indemnified Party wishing to ------------------------------------ claim indemnification under this Section 8.3 upon learning of any such claim, action, suit, proceeding or investigation, shall notify the indemnifying party thereof and shall, if required by applicable law, deliver to the indemnifying party an undertaking to repay any amounts advanced pursuant hereto when and if a court of competent jurisdiction shall ultimately determine, after exhaustion of all avenues of appeal, that such Indemnified Party is not entitled to indemnification hereunder. The Indemnified Parties shall as a group retain only one law firm pursuant to this Section 8.3 to represent them with respect to any such matter unless there is, in the opinion of counsel to the Indemnified Parties, a conflict on any significant issue between the positions of any two or more Indemnified Parties, in which case the Indemnified Parties may retain, at the expense of Leslie's California, Leslie's Delaware or the Surviving Corporation, as the case may be, but in each such case subject to the terms of the undertaking referred to in this Section 8.3(b) such number of additional counsel as are necessary to eliminate all conflicts of the type referred to above. (c) Assumption by Successors. In the event Leslie's Delaware or the ------------------------ Surviving Corporation or any of their respective successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) liquidates, dissolves or transfers all or substantially all of its properties and assets to any person, then, and in each such case, proper provisions shall be made so that the successors and assigns of Leslie's Delaware or the Surviving Corporation, as the case may be, assume the obligations set forth in this Section 8.3 to the maximum extent permitted under the laws of such person's jurisdiction of incorporation, if such person is a corporation, or under other applicable law. (d) Survival; Third-Party Rights. The terms of this Section 8.3 shall ---------------------------- survive the consummation of the Recapitalization Merger at the Effective Date and shall continue without time limit. This Section 8.3 is intended to be for the benefit of, and to grant third-party rights to, the Indemnified Parties whether or not parties to this Agreement, and each of the Indemnified Parties shall be entitled to enforce the covenants contained herein. (e) Adverse Amendments. Subject to applicable law, the certificate of ------------------ incorporation and bylaws of the Surviving Corporation shall not be amended in a manner which adversely affects the rights of the Indemnified Parties under this Section 8.3. (f) Directors' and Officers' Liability Insurance. For a period of eighteen -------------------------------------------- months after the Effective Date, the Surviving Corporation shall use its reasonable commercial efforts to maintain in effect the current policies of directors' and officers' liability insurance maintained 30 by Leslie's California (provided that the Surviving Corporation may substitute therefor policies of at least the same amounts and comparable coverage containing terms and conditions which are comparable thereto; provided further that such policies may have higher deductibles than the current policy) with respect to claims arising from fact or events which occurred at or before the Effective Date; provided, however, that the Surviving Corporation shall not be obligated to make annual premium payments for such insurance to the extent such premiums exceed 150% of the premiums paid as of the date of this Agreement by Leslie's California for such insurance but in such event shall use reasonable commercial efforts to provide the maximum coverage available at 150% of such premiums. Notwithstanding anything to the contrary contained elsewhere in this Agreement, the Surviving Corporation's and Leslie's Delaware's agreement set forth in Section 8.3(a) shall be limited to cover claims only to the extent that those claims are not covered, paid and extinguished pursuant to Leslie's California's directors' and officers' insurance policies (or any substitute policies permitted by this Section 8.3(f)). Section 8.4 Parties in Interest. Except as otherwise provided in Section ------------------- 8.3 and, with respect to Hancock, in Section 8.12, and, with respect to Leonard Green & Partners, L.P., in Section 7.6, this Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 8.5 Material Events. At all times prior to the Effective Date, --------------- each party shall promptly notify the other party or parties in writing of the occurrence of any event of which it obtains knowledge which will or may reasonably be expected to result in a failure to satisfy any of the conditions specified in Article 6 hereof. Section 8.6 Publicity. The written release to the public by any party of --------- any information relating to the Recapitalization Merger shall be approved in advance by the other parties, which approval shall not be unreasonably withheld or delayed. Section 8.7 Headings. The headings contained in this Agreement are for -------- reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 8.8 Interpretation. As used herein, "knowledge" of Leslie's -------------- --------- California or Leslie's Delaware shall mean actual knowledge of the officers of Leslie's California or Leslie's Delaware, as the case may be, and "knowledge" of Poolmart shall mean the actual knowledge of its officers or actual knowledge of any partner, managing director or employee of Leonard Green & Partners, L.P. ("LGP"). Any agreement or consent given or made by LGP shall be considered to be --- an agreement or consent, as the case may be, of Poolmart. Section 8.9 Subsidiaries. When a reference is made in this Agreement to ------------ subsidiaries of Leslie's California, the word "subsidiaries" means any ------------ corporation more than 50% of whose outstanding voting securities are directly or indirectly owned by Leslie's California. Section 8.10 Successors and Assigns. This Agreement shall be binding upon ---------------------- and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto and, without limitation, shall be binding upon and inure to the benefit of Leslie's Delaware as the successor to Leslie's California by reason of the Reincorporation Merger. Section 8.11 Governing Law. This Agreement shall be governed in all ------------- respects, including validity, interpretation and effect, by the internal laws of the State of California, without giving effect to the principles of conflict of laws thereof, except (i) the laws of the state 31 of incorporation of a party shall govern its internal corporate affairs, and (ii) to the extent that the Delaware Law would govern the validity, interpretation and effect of this Agreement and the legal effect of the Recapitalization Merger in the absence of this Section 8.11. Section 8.12 Costs and Expenses. ------------------ (a) Subject to Section 8.12(b) and (c), all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such expenses. (b) Leslie's California hereby agrees to pay, or reimburse Hancock for, as incurred, all Expenses (as hereinafter defined) incurred by or on behalf of Hancock arising out of, in connection with or related to this Agreement, the Reincorporation Merger Agreement, the Recapitalization Merger and the Reincorporation Merger and the transactions contemplated herein and therein; provided, that Leslie's California shall not be obligated to pay or reimburse Hancock in excess of $1,000,000 in the aggregate. (c) If the Recapitalization Merger is not consummated in accordance with this Agreement, Leslie's California hereby agrees to reimburse Poolmart for all Expenses incurred by or on behalf of Poolmart arising out of, in connection with or related to this Agreement, the Reincorporation Agreement, the Recapitalization Merger and the Reincorporation Merger and the transactions contemplated herein and therein; provided, that Leslie's California shall not be obligated to pay or reimburse Poolmart in excess of $750,000 in the aggregate; and provided further, that Leslie's California shall not be required to pay or reimburse Poolmart for Expenses if either (x) Poolmart fails in any material respect to perform any of its material obligations under this Agreement and has not cured such non-performance within 20 days after Poolmart has received written notice from Leslie's California specifying the nature of such non- performance, or (y) Poolmart has materially breached any of the material representations or warranties made by it in Article 5, such breach occurred with the knowledge of Poolmart, and such breach is not cured (if the same is susceptible of being cured) within 20 days after Poolmart has received written notice from Leslie's California specifying the nature of such breach. (d) For purposes of Section 8.12(b) and (c), "Expenses" means all -------- reasonable out-of-pocket expenses actually incurred by or on behalf of Hancock or Poolmart, as the case may be, supported by invoices, including, without limitation, fees and expenses of accountants, financial advisors, attorneys, consultants and appraisers engaged by Poolmart or Hancock, as the case may be, or any person providing or proposing to provide Financing for the Recapitalization Merger as well as commitment and other fees, charges and expenses of any such person; provided, that "Expenses" shall not include compensation paid or payable to any individual who is an officer or director of Leslie's California. Section 8.13 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be an original, but all of which together shall constitute one and the same agreement. [SIGNATURE PAGE FOLLOWS] 32 IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as of the date first above written. LPM HOLDINGS, INC. By:/s/ BRIAN P. MCDERMOTT ---------------------- Brian P. McDermott, President LESLIE'S POOLMART By:/s/ BRIAN P. MCDERMOTT ---------------------- Brian P. McDermott, President and Chief Executive Officer By:/s/ CYNTHIA G. WATTS -------------------- Cynthia G. Watts, Vice President, General Counsel and Secretary POOLMART USA INC. By:/s/ JOHN G. DANHAKL ------------------- Name: John G. Danhakl ------------------- Title: President ---------- 33 EXHIBIT A AGREEMENT OF MERGER AGREEMENT OF MERGER (this "Merger Agreement") made and entered into this ---------------- _____ day of February, 1997 by and between LESLIE'S POOLMART a California corporation ("Leslie's California"), and LPM HOLDINGS, INC., a Delaware ------------------- corporation ("Leslie's Delaware"); ----------------- WITNESSETH: WHEREAS, Leslie's Delaware is a corporation duly organized and existing under the laws of the State of Delaware; WHEREAS, Leslie's California is a corporation duly organized and existing under the laws of the State of California; WHEREAS, on the date of this Merger Agreement, Leslie's Delaware has authority to issue 5,000,000 shares of Common Stock, par value $.001 per share (which class of shares is herein called the "Delaware Common Stock") of which --------------------- 10,000 shares are issued and outstanding and owned by Leslie's California, and 2,000,000 shares of Preferred Stock, par value $.001 per share, of which no shares are issued and outstanding; and prior to the Effective Date, the authorized number of shares of Delaware Common Stock will be increased to 12,000,000; WHEREAS, on the date of this Merger Agreement, Leslie's California has authority to issue 40,000,000 shares of Common Stock, (the "California Common ----------------- Stock") of which 6,550,966 shares are issued and outstanding, and 1,000,000 - ----- shares of Preferred Stock, of which no shares are issued and outstanding; WHEREAS, the respective boards of directors of Leslie's Delaware and Leslie's California have determined that, for the purpose of effecting the reincorporation of Leslie's California in the State of Delaware, it is advisable and to the advantage of said two corporations and their shareholders and sole stockholder, respectively, that Leslie's California merge with and into Leslie's Delaware upon the terms and conditions herein provided; and WHEREAS, the respective boards of directors of Leslie's Delaware and Leslie's California have approved this Merger Agreement and the board of directors of Leslie's California and Leslie's Delaware have directed that this Merger Agreement be submitted to a vote of their shareholders and sole stockholder, respectively; NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, Leslie's California and Leslie's Delaware hereby agree to merge as follows: (1) Merger. Leslie's California shall be merged with and into Leslie's Delaware, and Leslie's Delaware shall survive the merger ("Merger"), effective upon ------ A-1 the date when this Merger Agreement is made effective in accordance with applicable law (the "Effective Date"). -------------- (2) Directors and Officers and Governing Documents. The directors and officers of Leslie's Delaware shall be the same upon the Effective Date as they are immediately prior thereto. The certificate of incorporation of Leslie's Delaware, as amended and in effect on the Effective Date, shall continue to be the certificate of incorporation of Leslie's Delaware as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws, except that on the Effective Date Article I of said certificate of incorporation shall be amended to read in its entirety as follows: "The name of this Corporation shall be: Leslie's Poolmart, Inc." The bylaws of Leslie's Delaware, as amended and in effect on the Effective Date, shall continue to be the bylaws of Leslie's Delaware as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. (3) Succession. On the Effective Date, Leslie's Delaware shall succeed to Leslie's California in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware and Section 1107 of the General Corporation Law of the State of California. (4) Further Assurances. From time to time, as and when required by Leslie's Delaware or by its successors and assigns, there shall be executed and delivered on behalf of Leslie's California such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other action, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Leslie's Delaware the title to and possession of all the property, interests, assets, rights, privileges, immunities, powers, franchises and authority of Leslie's California, and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of Leslie's Delaware are fully authorized in the name and on behalf of Leslie's California or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. (5) Common Stock of Leslie's California. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of the California Common Stock outstanding immediately prior thereto shall be changed and converted into one fully paid and nonassessable share of Delaware Common Stock. (6) Stock Certificates. On and after the Effective Date, all of the outstanding certificates which prior to that time represented shares of California Common Stock shall for all purposes evidence ownership of and represent the shares of Delaware Common Stock into which the shares of California Common Stock represented by such certificates have been converted as herein provided. The registered owner on the books and records of Leslie's Delaware or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to Leslie's Delaware or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and A-2 to receive any dividend and other distributions upon the shares of Delaware Common Stock evidenced by such outstanding certificate as above provided. (7) Stock Options. Forthwith upon the Effective Date, each (i) outstanding option to purchase shares of California Common Stock granted under the Leslie's California 1990 Stock Option Plan and the Leslie's California 1992 Directors' Stock Incentive Plan (collectively, the "Plans") ----- and (ii) outstanding option to purchase California Common Stock not granted under the Plans, shall be converted into and become an option to purchase the same number of shares of Delaware Common Stock at the same option price per share as in effect on the Effective Date and, in the case of options granted under the Plans (collectively, the "Plan Options"), upon the same ------------ terms and subject to the same conditions as set forth in the Plans, and, in the case of all options not granted under the Plans (collectively, the "Non-Plan Options"), upon the same terms and subject to the same conditions ---------------- as set forth in the agreements or instruments that govern the Non-Plan Options. A number of shares of Delaware Common Stock shall be reserved for purposes of the Plans equal to the number of shares of California Common Stock so reserved as of the Effective Date. As of the Effective Date, Leslie's Delaware hereby assumes all obligations of Leslie's California under the Plans, the outstanding Plan Options or portions thereof granted pursuant to the Plans and all Non-Plan Options. (8) Other Employee Benefit Plans. As of the Effective Date, Leslie's Delaware hereby assumes all obligations of Leslie's California under any and all employee benefit plans in effect as of said date or with respect to which employee rights or accrued benefits are outstanding as of said date. (9) Common Stock of Leslie's Delaware. Forthwith upon the Effective Date, the 10,000 shares of Delaware Common Stock presently issued and outstanding in the name of Leslie's California shall be cancelled and retired and resume the status of authorized and unissued shares of Delaware Common Stock, and no shares of Delaware Common Stock or other securities of Leslie's Delaware shall be issued in respect thereof. (10) Covenants of Leslie's Delaware. Leslie's Delaware covenants and agrees that it will, on or before the Effective Date: (a) Qualify to do business as a foreign corporation in the State of California, and in connection therewith irrevocably appoint an agent for service of process as required under the provisions of Section 2105 of the California Corporations Code. (b) File any and all documents with the California Franchise Tax Board necessary to the assumption by Leslie's Delaware of all of the franchise tax liabilities of Leslie's California. (11) Book Entries. As of the Effective Date, entries shall be made upon the books of Leslie's Delaware in accordance with the following: A-3 (a) The assets and liabilities of Leslie's California shall be recorded at the amounts at which they were carried on the books of Leslie's California immediately prior to the Effective Date, with appropriate adjustments to reflect the retirement of the 10,000 shares of Delaware Common Stock presently issued and outstanding. (b) There shall be credited to the common stock account of Leslie's Delaware the aggregate amount of the par value of all shares of Delaware Common Stock resulting from the conversion of the outstanding California Common Stock pursuant to the Merger. (c) There shall be credited to the capital surplus account of Leslie's Delaware the aggregate of the amounts shown in the common stock and capital surplus accounts of Leslie's California immediately prior to the Effective Date, less the amount credited to the common stock account of Leslie's Delaware pursuant to Paragraph (b) above. (d) There shall be credited to the retained earnings account of Leslie's Delaware an amount equal to that carried in the retained earnings account of Leslie's California immediately prior to the Effective Date. (12) Amendment. At any time before or after approval and adoption by the shareholders of Leslie's California, this Merger Agreement may be amended in any manner (except that Paragraph (5) may not be amended without the approval of the shareholders of Leslie's California), as may be determined in the judgment of the respective boards of directors of Leslie's Delaware and Leslie's California to be necessary, desirable or expedient in order to clarify the intention of the parties hereto or to effect or facilitate the purposes and intent of this Merger Agreement. (13) Abandonment. At any time before the Effective Date, this Merger Agreement may be terminated and the Merger may be abandoned by the board of directors of either Leslie's California or Leslie's Delaware with the approval of the board of directors of the other corporation, notwithstanding approval of this Merger Agreement by the stockholders of Leslie's Delaware or the shareholders of Leslie's California or both. (4) Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. [SIGNATURE PAGE FOLLOWS] A-4 IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by resolution of the boards of directors of Leslie's California and Leslie's Delaware, is hereby executed on behalf of each said two corporations by their respective officers thereunto duly authorized. LPM HOLDINGS, INC., a Delaware corporation By:______________________________ Brian P. McDermott, President By: _____________________________ Robert D. Olsen, Secretary LESLIE'S POOLMART a California corporation By:______________________________ Brian P. McDermott, President and Chief Executive Officer By:______________________________ Cynthia G. Watts, Secretary A-5 CERTIFICATE OF THE SECRETARY OF LPM HOLDINGS, INC. I, Robert D. Olsen, Secretary of LPM HOLDINGS, INC., a Delaware corporation, ("Leslie's Delaware"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly adopted and executed by Leslie's Delaware and Leslie's Poolmart, a California corporation, was duly submitted to the sole stockholder of Leslie's Delaware at a special meeting of stockholders called for the purpose of acting on said Agreement of Merger, notice of the time, place and purpose of said meeting having been waived by the sole stockholder of Leslie's Delaware, and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting all of the outstanding stock of Leslie's Delaware entitled to vote thereon was voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the stockholders of Leslie's Delaware and as the agreement and act of Leslie's Delaware. IN WITNESS WHEREOF, the undersigned has executed this certificate this ______ day of ___________________, 1997. ________________________________ Robert D. Olsen, Secretary A-6 CERTIFICATE OF THE SECRETARY OF LESLIE'S POOLMART I, Cynthia G. Watts, Secretary of LESLIE'S POOLMART, a California corporation ("Leslie's California"), do hereby certify, as such Secretary, in accordance with the General Corporation Law of the State of Delaware, that the Agreement of Merger to which this Certificate is attached, after having been first duly adopted and executed by Leslie's California and LPM Holdings, Inc., a Delaware corporation, was duly submitted to the shareholders at a meeting of shareholders called for the purpose of acting on said Agreement of Merger after due notice of the time, place and purpose of said meeting was mailed to each holder of Common Stock of Leslie's California at his, her or its address as it appears on the records of Leslie's California in the manner provided under the provisions of Section 601 of the California Corporations Code and that at said meeting the Agreement of Merger was considered and a vote taken for its adoption or rejection and that at said meeting a majority of the outstanding Common Stock of Leslie's California entitled to vote thereon was voted for the adoption of said Agreement of Merger and that thereby said Agreement of Merger was at said meeting duly adopted as the act of the shareholders of Leslie's California and as the agreement and act of Leslie's California. IN WITNESS WHEREOF, the undersigned has executed this certificate this _____ day of ______________________, 1997. ________________________________ Cynthia G. Watts, Secretary A-7 EXHIBIT B --------- CERTIFICATE OF MERGER OF POOLMART USA INC. INTO LESLIE'S POOLMART, INC. (Pursuant to 8 Del. C. (S) 251) LESLIE'S POOLMART, INC., a Delaware corporation, hereby certifies that: 1. The name and state of incorporation of each of the constituent corporations are: (a) Poolmart USA Inc., a Delaware corporation; and (b) Leslie's Poolmart, Inc., a Delaware corporation. 2. An Agreement and Plan of Merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the provisions of Section 251 of the General Corporation Law of the State of Delaware. 3. The surviving corporation shall be Leslie's Poolmart, Inc. 4. The Certificate of Incorporation of Leslie's Poolmart, Inc., as in effect on the date on which the merger is effective, shall be the Certificate of Incorporation of Leslie's Poolmart, Inc. as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable law. 5. The executed Agreement and Plan of Merger is on file at the principal place of business of Leslie's Poolmart, Inc. located at: 20630 Plummer St. Chatsworth, California 91311 6. A copy of the Agreement and Plan of Merger will be furnished by Leslie's Poolmart, Inc., on request and without cost, to any stockholder of any of the constituent corporations. B-1 IN WITNESS WHEREOF, LESLIE'S POOLMART, INC. has caused this certificate to be executed by a duly authorized officer as of this ___ day of __________, 1997. LESLIE'S POOLMART, INC., a Delaware corporation By: _____________________ Brian P. McDermott President and Chief Executive Officer B-2 EX-17 10 LETTER DATED 2-26-97 FROM MICHAEL FOURTICQ EXHIBIT 17 MICHAEL J. FOURTICQ BRIAN P. MCDERMOTT February 26, 1997 Board of Directors of Leslie's Poolmart 20630 Plummer Street Chatsworth, California 91311 Attention: Special Committee Re: Proposed Reincorporation and Recapitalization Merger Involving Leslie's Poolmart Gentlemen: Reference is made to the Agreement of Merger entered into as of February 26, 1997 between Leslie's Poolmart, a California corporation ("Leslie's -------- California") and LPM Holdings, Inc., a Delaware corporation ("Leslie's - ---------- -------- Delaware") (the "Reincorporation Merger Agreement") and the Agreement and Plan - -------- -------------------------------- of Merger entered into as of February 26, 1997 among Leslie's California, Leslie's Delaware and Poolmart USA, Inc., a Delaware corporation ("Poolmart") -------- (the "Recapitalization Merger Agreement"). --------------------------------- Each of the undersigned agrees to vote all shares of Leslie's California common stock ("California Shares") held by the undersigned, as well ----------------- as all California Shares over which either of the undersigned has voting power, in favor of (i) the Reincorporation Merger Agreement and the Recapitalization Merger Agreement, and (ii) the respective merger transactions contemplated by the Reincorporation Merger Agreement and the Recapitalization Merger Agreement; provided, that the undersigned shall not be obligated by this letter to vote California Shares in its capacity as a named proxy in any proxy solicited by the board of directors of Leslie's California from its shareholders generally in connection with seeking approval of the matters referred to in the preceding clauses (i) and (ii). Board of Directors of Leslie's Poolmart February 26, 1997 Page 2 This agreement shall (i) not require the undersigned to vote California Shares if either the Reincorporation Merger Agreement or the Recapitalization Merger Agreement is amended without the written approval of the undersigned, and (ii) terminate automatically upon any termination of either the Reincorporation Merger Agreement or the Recapitalization Merger Agreement. This agreement is not intended to be for the benefit of any entity or person other than Leslie's California. Very truly yours, /s/ BRIAN P. MCDERMOTT ----------------------------- Brian P. McDermott MICHAEL J. FOURTICQ By:/s/ BRIAN P. MCDERMOTT -------------------------- Brian P. McDermott Attorney-in-Fact EX-18 11 LETTER DATED 2-26-97 FROM LGP TO MICHAEL FOURTICQ EXHIBIT 18 LEONARD GREEN OF PARTNERS L.P. ------------------------- February 26, 1997 Mr. Michael J. Fourticq Mr. Brian P. McDermott c/o Hancock Park Associates 1925 Century Park East, Suite No. 810 Los Angeles, CA 90067 Re: Stockholders Agreement and Subscription Agreement Dear Brian and Mike: The purpose of this letter is to evidence the agreement between us to the following effect: 1. Each of you agrees, and the undersigned agrees on behalf of GEI (as defined in the below-defined Agreement) to enter into an agreement in substantially the form of the attached draft dated February 26, 1997 of a Stockholders Agreement and Subscription Agreement (the "Agreement") contingent upon the Closing of the Merger Transaction contemplated by the Agreement and Plan of Merger by and among Leslie's Poolmart, LPM Holdings, Inc. and Poolmart USA, Inc. of even date herewith (the "Merger Agreement"). 2. Each of you agrees that your obligations in this letter agreement extend to those shares and shareholders over which you exercise control who are included in the definition of the HPA Group in the Agreement. Very truly yours, LEONARD GREEN & PARTNERS, L.P. By: LGP Management, Inc. its General Partner By: /s/ John G. Danhakl ACCEPTED AND AGREED: ------------------- John G. Danhakl Vice President /s/ Brian P. McDermott ---------------------- Brian P. McDermott MICHAEL J. FOURTICQ By: /s/ Brian P. McDermott ---------------------- Brian P. McDermott Attorney-in-Fact TABLE OF CONTENTS
Page ---- 1. REPRESENTATIONS AND WARRANTIES................................................ 1 (a) Company Representations................................................... 1 (b) Stockholder Representations and Warranties................................ 2 2. SUBSCRIPTION FOR COMMON STOCK; CALL OPTION.................................... 3 (a) Common Stock Subscription................................................. 3 (b) Call Option............................................................... 3 3. COMPLIANCE WITH SECURITIES LAW................................................ 4 4. TRANSFERS OF SECURITIES....................................................... 4 (a) Prohibition on Transfers.................................................. 4 (b) Transfer Procedure; Right of First Refusal................................ 4 (c) Transfers to Related Transferees.......................................... 5 (d) Legend on Certificates.................................................... 6 (e) Transfers in Violation of this Agreement.................................. 6 5. COMPANY CALL OPTION........................................................... 6 (a) Call Purchase Event and Purchase Price.................................... 6 (b) Exercise of Call Option................................................... 7 6. REGISTRATION RIGHTS........................................................... 8 (a) Demand Registration Rights................................................ 8 (b) Piggyback Registration Rights; Cutbacks................................... 9 (c) Expenses of Registration.................................................. 10 (d) Registration Procedures................................................... 11 (e) Indemnification........................................................... 14 (f) Holdback Amount........................................................... 16 (g) Assignment and Assumption................................................. 16 (h) Stock Option Plans........................................................ 17 7. DRAG-ALONG SALES AND TAG-ALONG SALES.......................................... 17 (a) Drag-Along Sales.......................................................... 17 (b) Optional Participation in Sales of Common Stock (Tag-Along Sales)......... 18 (c) Obligations of Drag-Along Sellers......................................... 19 8. TERMINATION AND LAPSE OF RIGHTS AND RESTRICTIONS; APPLICATIONS TO OTHER STOCK AND ADJUSTMENTS........................................................ 19 9. ELECTION OF DIRECTORS......................................................... 19 10. CERTAIN ADDITIONAL AGREEMENTS................................................ 20 (a) Right to Participate in Equity Issuances.................................. 20 (b) Right to Participate in Equity Repurchases................................ 20 (c) Affiliate Transactions.................................................... 20 (d) Change of Control Transactions............................................ 21 (e) Information............................................................... 21
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Page ---- 11. NOTICES...................................................................... 21 12. GENERAL...................................................................... 21 13. ADDITIONAL CLASS II STOCKHOLDERS............................................. 24 14. ARBITRATION.................................................................. 24 (a) General................................................................... 24 (b) Scope..................................................................... 24 (c) Deposition................................................................ 24 (d) JAMS...................................................................... 25 (e) Selection of Arbitrators.................................................. 25 (f) Governing Law............................................................. 25 (g) Procedures................................................................ 26 (h) Award..................................................................... 26 15. DEFINITIONS.................................................................. 26 ANNEX A CAPITAL STRUCTURE........................................................ 1 ANNEX B TERMS OF INCENTIVE STOCK OPTION PLAN..................................... 1 ANNEX C TERMS OF NQ OPTIONS...................................................... 1
ii STOCKHOLDERS AGREEMENT This Stockholders Agreement (this "AGREEMENT") is entered into as of __________, 1997, by and among (i) Leslie's Poolmart, Inc., a Delaware corporation (the "COMPANY"), (ii) Green Equity Investors II, L.P., a Delaware limited partnership ("GEI"), (iii) Michael J. Fourticq, Greg Fourticq, Richard H. Hillman, Brian P. McDermott and Manette J. McDermott, T.R.U.A. DTD 3/15/90 The McDermott Family Trust (collectively referred to as the "HPA GROUP") and (iv) Occidental Petroleum Corporation, a Delaware corporation ("OCCIDENTAL," and together with GEI and the HPA Group, the "CLASS I STOCKHOLDERS") and the individual stockholders named on the signature pages hereto (the "CLASS II STOCKHOLDERS"). WHEREAS, on the date hereof the Company has consummated a merger (the "MERGER") with Poolmart USA Inc., a Delaware corporation ("POOLMART"), pursuant to which certain of the outstanding shares of common stock of the Company, $.001 par value per share (which authorized class of stock is hereinafter called "COMMON STOCK"), remained outstanding and the shares of capital stock of Poolmart were converted into capital stock of the Company; and WHEREAS, concurrently with the Merger, GEI acquired ______ shares of Common Stock, the HPA Group collectively retained _________ shares of Common Stock, Occidental acquired ______ shares of preferred stock of the Company (the "PREFERRED STOCK") and warrants (the "WARRANTS") to purchase ________ shares of Common Stock, subject to adjustment (the "WARRANT SHARES") certain of the Class II Stockholders are subscribing for Common Stock and certain of the Class II Stockholders will acquire certain nonqualified options and incentive stock options, as described on Annex B and Annex C, respectively (collectively, the "OPTIONS" and the Common Stock issuable upon exercise thereof, the "OPTION SHARES"); and WHEREAS, the Company and the Class I and Class II Stockholders (collectively, the "STOCKHOLDERS") desire to enter into certain agreements concerning their holdings of Common Stock, Warrants, Warrant Shares, Options and Option Shares (collectively, the "SECURITIES"); NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Representations and Warranties. ------------------------------ (a) Company Representations. The Company hereby represents and ----------------------- warrants to the Class I and Class II Stockholders as follows: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full corporate power and authority to carry on its business as and where it is now being conducted. The Company has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (ii) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate or conflict with (A) any provision of the Certificate of Incorporation or Bylaws of the Company, or (B) any agreement, indenture, undertaking, permit, license or other instrument to which the Company is a party or by which it or any of its properties may be bound or affected, other than such violations and conflicts which are not reasonably likely to (1) prevent or materially delay consummation of the transactions contemplated by this Agreement or (2) prevent the Company from performing its obligations under this Agreement. (iii) The Company has no outstanding capital stock or securities convertible into or exchangeable or exercisable for any shares of its capital stock, nor any outstanding rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock, other than the Preferred Stock and the Securities. (b) Stockholder Representations and Warranties. Each Stockholder ------------------------------------------ hereby severally represents and warrants as follows: (i) If it is an entity, it is a corporation, limited partnership, trust or other entity duly organized and validly existing under the laws of its state of organization. (ii) It has full power and authority and, in the case of an individual, legal and fiduciary capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement constitutes a legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (iii) Each of the Class II Stockholders (A) as a result of his relationship with the Company and experience in financial matters, is able to evaluate the acquisition of Common Stock and Options, the business and proposed capital structure of the Company and the risks inherent therein; (B) has been given the opportunity to obtain any additional information or documents, and to ask questions and receive answers, from the officers and representatives of the Company to the extent necessary to evaluate the risks and merits of an investment in the Company; (C) has determined that the acquisition of Common Stock 2 and Options is consistent both in nature and amount, with his overall investment program and financial condition, and that his financial condition is such that he can afford to bear the economic risk of holding unregistered Securities for which there is no market and acknowledges that he may suffer a complete loss of such investment. (iv) (A) the Securities acquired by him are being acquired for his own account for investment, without any present intention of selling or further distributing the same, (B) acknowledges that no liquid trading market currently exists or is expected to exist in the foreseeable future and as a result, such Stockholder may be unable to sell any of the Securities for an indefinite period of time and (C) acknowledges that the Company has no obligation, except as set forth in Section 6 hereof, to register any of the Securities. (v) Each member of the HPA Group represents and warrants that he or it is an accredited investor within the meaning of Regulation D under the Act. Each Stockholder acknowledges that the Company is relying upon the truth and accuracy of the above representations to a material degree in effectuating the transactions contemplated hereby. 2. Subscription for Common Stock; Call Option. ------------------------------------------ (a) Common Stock Subscription. Each Class II Stockholder reflected ------------------------- as a purchaser of Common Stock on Annex A hereto (a "PURCHASER") severally agrees to purchase, and the Company agrees to sell to such Purchaser, the number of shares of Common Stock set forth opposite his name on Annex A hereto, at the purchase price shown thereon. Each Purchaser severally agrees to make payment for the Subscription Shares by delivery to the Company of a certified check or wire transfer in the amount of the purchase price therefore. (b) Call Option. Each Class II Stockholder agrees that the Company ----------- and certain other Stockholders shall have a call ("Call Option") in respect of certain shares of Common Stock acquired pursuant to Section 2(a) above ("SUBSCRIPTION STOCK"), as well as in respect of the Non-Qualified Options described on Annex B hereto (the "NQ OPTIONS") and shares issued upon the exercise thereof. As to each holder of Subscription Stock, of an NQ Option or of shares issued upon the exercise thereof, the Call Option shall apply only to (i) two-thirds of all of such holder's shares of Subscription Stock, NQ Options and shares issued upon exercise of such NQ Options (collectively, "Callable Securities") if the Call Option is exercised on or before the first anniversary of the date hereof, and (ii) one-third of the holder's Callable Securities of each category if the Call Option is exercised on or after the first anniversary of the date hereof but before the second anniversary of the date hereof. Except as expressly provided in this Section 2(b), the Call Option shall not otherwise apply to Subscription Stock, NQ Options or shares issued upon the exercise thereof. Subscription Stock NQ Options and shares issuable upon the exercise thereof that are Callable Securities are respectively hereinafter referred to as "Call Option Stock," "Call NQ Options" and "Call Option Shares." 3 3. Notice of Transfer; Compliance with Securities Law. In addition to the -------------------------------------------------- other applicable restrictions provided in this Agreement, each Stockholder agrees that prior to effecting any Transfer of any Securities (other than a Transfer to the Company) such Stockholder will give not less than 15 days' advance written notice to the Company describing the manner of such proposed Transfer. Each Stockholder further agrees that he or it will not effect such proposed Transfer until either (A) such Stockholder has provided to the Company, if so requested by the Company, an opinion of counsel reasonably satisfactory in form and substance to the Company that such proposed Transfer is exempt from registration under the Act and any applicable state securities laws, or (B) a registration statement under the Act covering such proposed Transfer has been filed by the Company and become effective under the Act and compliance with applicable state securities laws has been effected and in each case, the Company's independent public accountants have advised the Company that it is not reasonably likely that such Transfer will necessitate a new basis for accounting for the Company. Each Stockholder also agrees that he or it will not Transfer any Securities except in compliance with the registration requirements of the Act, the rules and regulations of the SEC thereunder, the relevant state securities laws applicable to the Stockholder's actions, and the applicable terms of this Agreement. The restrictions in this Section 3 shall remain in effect until, the opinion of counsel for the Company, Securities held by the Stockholder are no longer subject to restrictions pursuant to the Act or applicable state securities law. 4. Transfers of Securities. ----------------------- (a) Prohibition on Transfers. Each of the members of the HPA Group, ------------------------ Occidental and each of the Class II Stockholders hereby agrees that such Stockholder will not Transfer any Securities (or any interest therein) now or hereafter at any time owned by such Stockholder, except for Transfers permitted pursuant to this Section 4, Section 5 or Section 7 of this Agreement (each such Transfer being a "PERMITTED TRANSFER"). (b) Transfer Procedure; Right of First Refusal. If any member of the ------------------------------------------ HPA Group, Occidental or any of the Class II Stockholders hereby shall have received a bona fide arm's-length written offer (a "BONA FIDE OFFER") which such Stockholder desires to accept from an independent party unrelated to such Stockholder (the "OUTSIDE PARTY") for the purchase of Securities for consideration consisting entirely of cash (it being understood that no sale for any other consideration would be a Permitted Transfer), then such Stockholder shall give a notice in writing (the "OPTION NOTICE") to each Class I Stockholder and the Company setting forth such desire, which notice shall set forth at least the name and address of the Outside Party and the price and terms of the Bona Fide Offer and be accompanied by a copy of the Bona Fide Offer. Upon the giving of such Option Notice, the Company, and to the extent the Company elects not to do so, the respective Stockholders set forth in the following sentence (each an "ELECTING STOCKHOLDER") shall have an option to purchase all, but no less than all, of the Securities specified in the Option Notice, such option to be exercised within 30 days after the giving of such Option Notice by giving a counter-notice (the "ELECTION NOTICE") to the Stockholder. If the Stockholder sending an Option Notice is (i) Occidental or a Class II Stockholder, then GEI and the HPA Group shall be entitled to be Electing Stockholders; or (ii) a member of the HPA Group, then GEI and the other members of the HPA Group shall be entitled to be Electing Stockholders. Where more than one Electing Stockholder desires to participate in a purchase pursuant to an 4 Option Notice, such Stockholders shall participate, pro rata based upon their --- ---- respective Equity Ownership in the Company, with the portion attributable to Stockholders declining to be Electing Stockholders being redistributed to the remaining Stockholders pro rata based upon their respective Equity Ownership in --- ---- the Company, it being understood that the Company may elect to purchase up to all of the Securities and any remainder shall be prorated as aforesaid. The Company and, if applicable, the Electing Stockholders shall be severally obligated to purchase, and the Stockholder shall be obligated to sell, the Securities covered by such Election Notice at the cash price and terms indicated in the Bona Fide Offer, provided that the closing of the purchase by the Electing Stockholder shall be held on a business day within 30 days after the giving of the Election Notice at 10:30 a.m., California time, at the principal executive office of the Company, or at such other time and place as may be mutually agreed to by the Stockholder, the Company and, if applicable, the Electing Stockholders. If an Election Notice is not timely given by the Company and/or one or more Electing Stockholders within the period specified above after an Option Notice has been given, the Stockholder thereafter, at any time within a period of four months from the giving of such Option Notice, may Transfer all (but not less than all) of the Securities covered by such Option Notice to the Outside Party at the cash price and terms contained in the Bona Fide Offer; provided, however, that such Outside Party and such Securities shall thereafter - --------- -------- be subject to and bound by all of the provisions of this Agreement as if such party were a Class II Stockholder except as otherwise provided in Section 6(g) and, as a condition precedent to the completion of such Transfer of Securities to such Outside Party, shall execute and deliver to the Company a written consent to such effect in form and substance satisfactory to the Company; and provided, further, however, that to the extent that the Stockholder has not so Transferred such Securities to the Outside Party within such four-month period, then such Securities thereafter shall continue to be subject to all of the restrictions contained in this Agreement. Any election in any instance by the Company or any Stockholder entitled to be Electing Stockholders not to exercise its rights under this clause (b) shall not constitute a waiver of such rights with respect to any other actual or proposed Transfer of Securities. (c) Transfers to Related Transferees. Notwithstanding anything to ------------------------------- the contrary contained in clauses (a) and (b) of this Section 4, any Stockholder may Transfer Securities to a Related Transferee provided that such Related -------- Transferee shall first (i) execute a written consent in form and substance satisfactory to the Company to be bound by all of the provisions of this Agreement and (ii) give a duplicate original of such consent to the Company. In the event of any Transfer by a Stockholder to a Related Transferee of all or any part of his or its Securities (or in the event of any subsequent Transfer by any such Related Transferee to another Related Transferee of the Stockholder), such Related Transferee shall receive and hold such Securities subject to the terms of this Agreement and the rights and obligations hereunder of a Stockholder as though such Securities were still owned by the Stockholder, and such Related Transferee shall be deemed the Stockholder for the purposes of this Agreement. If the Related Transferee acquired Securities from a Stockholder, such Related Transferee shall be entitled to participate, collectively with the Stockholders of the same group, in the registration rights provided for in Section 6 hereof. There shall be no further Transfer of such Securities by a Related Transferee except between and among such Related Transferee, the original Stockholder and other Related Transferees, or except as otherwise permitted by this Agreement. 5 (d) Legend on Certificates. Each certificate of the Company issued to ---------------------- represent any of the Securities shall bear the following (or substantially equivalent) legends on the face or reverse side thereof: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED AN OPINION OF COUNSEL IS FURNISHED TO THE COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF THE STOCKHOLDERS AGREEMENT DATED AS OF _____________, 1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY. Any stock certificate issued at any time in exchange or substitution for any certificate bearing such legends (except a new certificate issued upon the completion of a public offering) shall also bear such (or substantially equivalent) legends, unless the Security represented by such certificate is no longer subject to the provisions of this Agreement and, in the opinion of counsel for the Company, the Security represented thereby need no longer be subject to restrictions pursuant to the Act or applicable state securities law. (e) Transfers in Violation of this Agreement. The Company shall not ---------------------------------------- be required to record on its books and records, or otherwise to recognize or facilitate, any Transfer of Securities in violation of this Agreement, nor shall the Company be required to issue any certificate for Securities Transferred in violation of this Agreement. 5. Company "Call" Option. --------------------- (a) Call Purchase Event and Purchase Price. Upon the termination of a -------------------------------------- Class II Stockholder's employment with the Company or its subsidiaries for any reason (including, without limitation, the voluntary termination, dismissal, involuntary termination, Retirement, death or Permanent Disability of the Stockholder) (a "CALL PURCHASE EVENT"), the Company, and 6 to the extent the Company elects not to do so and, in the case of the NQ Options, such purchase may otherwise be made pursuant to the NQ Option Plan, GEI, Michael J. Fourticq and Brian P. McDermott (or any Related Transferee of the latter) (collectively the "PURCHASING GROUP") may, collectively and pro --- rata based upon their respective Equity Ownership in the Company, exercise the - ---- Call Option by written notice (a "PURCHASE NOTICE") delivered to the Class II Stockholder within 90 days after such Call Purchase Event, elect to purchase, and, upon the giving of such notice, the Company, and if applicable, the Purchasing Group shall be severally obligated to purchase and the Class II Stockholder (and the Related Transferees, if any, of the Class II Stockholder) (in each case, the "SELLER") shall be obligated to sell all, or any lesser portion indicated in the Purchase Notice, of the Callable Securities owned at the time of the Call Purchase Event by the Seller; for consideration calculated as to each share of Call Option Stock and each Call Option Share or Call NQ Option, as the case may be, as follows: (i) in the case of voluntary termination by a Class II Stockholder holding Call NQ Options, an amount equal to the difference between the cash consideration per share paid in the Merger and the exercise price of the Call NQ Option; or (ii) in the case of any other termination (including without limitation dismissal, involuntary termination, death, Retirement or Permanent Disability of a Class II Stockholder holding Option Shares) ("OTHER TERMINATION"), of a Class II Stockholder holding Call NQ Options, the difference between the higher of (A) the cash consideration per share paid in the Merger and (B) the Fair Market Value of the underlying shares on the date of the Call Purchase Event, and the exercise price of the Call NQ Option; or (iii) in the case of voluntary termination by a Class II Stockholder holding Call Option Stock, the purchase price therefor; or (iv) in the case of Other Termination of a Class II Stockholder holding Call Option Stock, the higher of the Fair Market Value thereof on the date of the Call Purchase Event and the purchase price paid by the holder therefor; or (v) in the case of voluntary termination by a Class II Stockholder holding Call Option Shares, an amount equal to the cash consideration per share paid in the Merger; or (vi) in the case of Other Termination of a Class II Stockholder holding Call Option shares, the higher of the Fair Market Value of such shares on the date of the Call Purchase Event and the amount payable pursuant to clause (v) above. (b) Exercise of Call Option. In the event the Company and/or any ----------------------- Class I Stockholder elects not to participate in the purchase of Callable Securities pursuant to the Call Option, all remaining Purchasing Group Stockholders desiring so to participate may do so, pro rata amongst such --- ---- remaining Purchasing Group Stockholders based upon their respective Equity Ownership in the Company, or in any other proportion as they may agree. The closing for all purchases and sales of Callable Securities pursuant to this Section 5 shall be at the principal executive offices of the Company at 10:30 a.m., California time, on the 60th day after the giving 7 of the applicable Purchase Notice. The purchase price for the purchase and sale of Callable Securities shall be paid in cash, by certified or official bank check. The Seller(s) of Callable Securities sold pursuant to this Section 5 shall cause such Securities to be delivered to the Purchasing Group or the Company at the relevant closing free and clear of all liens, charges or encumbrances of any kind. Such Seller(s) shall take all actions as the Purchasing Group or the Company shall request as necessary to vest in the members of the Purchasing Group and/or the Company at such closing such Callable Securities, free and clear of all liens, charges and encumbrances incurred, voluntarily or involuntarily, by or through Seller(s). 6. Registration Rights. ------------------- (a) Demand Registration Rights. At any time on or after January 31, -------------------------- 1998, each of (i) GEI, (ii) the HPA Group collectively, and (iii) Occidental shall be entitled, respectively, to request a registration (a "DEMAND REGISTRATION") of no less than 50% of its Registrable Securities held by such Class I Stockholder, and at such time as the Company qualifies for registration of securities on Form S-3 or any successor short-form, one additional registration for a period not to exceed 180 days on such form. In such event, the Company shall: (i) as soon as reasonably practicable, and at its expense as set forth in Section 6 hereof, 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 the Class I Stockholder's Registrable Securities as are specified in such request on the form specified in such request covering the Registrable Securities; (ii) use its best efforts to cause such registration to become and remain effective, as soon as practicable after receipt of the request of the Class I Stockholder, for the period necessary to effectuate the distribution contemplated by the Class I Stockholder; and (iii) at the request of the Class I Stockholder or the Manager, enter into and perform its obligations under an underwriting or purchase agreement (the "UNDERWRITING AGREEMENT") in customary form for secondary offerings of common stock, and otherwise reasonably acceptable to the parties, with the Manager (acting for itself and/or a group of syndicate of underwriters) and the Class I Stockholder. Notwithstanding the foregoing, the Company shall be entitled to delay any such Demand Registration if (i) the Company has determined in good faith that in view of pending negotiations or other material developments regarding the Company not otherwise required to be made public, disclosure of such information is not in the best interest of the Company (in which case the delay in filing a Demand Registration may not exceed 90 days); (ii) the Company has initiated discussions with an underwriter regarding the sale of securities of the same class or convertible into the same class as the Registrable Securities in a registered primary public offering, in which case the Demand Registration may be delayed for up to 180 days from the effectiveness of such primary public offering, provided that the Company may not invoke the provision of clause (i) for more than an aggregate of 120 days in any twelve-month period, and may not invoke the delay in clause (ii) more than once in any such period. In addition, to the extent a Demand Registration is 8 a "shelf" registration, the Company may interrupt such registration for the reasons set forth above, provided that sales under such shelf registration shall in all events be permitted for an aggregate of 180 days if requested. (b) Piggyback Registration Rights; Cutbacks. Each time the Company --------------------------------------- proposes to register under the Act (other than registration (A) on Forms S-4 or S-8 or any successor forms thereto, or (E) filed in connection with an exchange offer) securities of the same class as any of the Registrable Securities, the Company shall give written notice of such proposed registration (a "REGISTRATION NOTICE") to each Class I Stockholder and Class II Stockholder at least 20 days prior to the filing thereof. Each Registration Notice shall indicate that the recipient has the right (subject to the provisions of this Section 6) to propose that its Registrable Securities be included in such registration. Each Class I Stockholder and Class II Stockholder shall have the right to propose that a number of its Registrable Securities be included in such registration by written notice given to the Company within fifteen (15) days after the giving of such Registration Notice. Subject to the provisions of this Section 6, the Company shall include all such Registrable Securities in such registration provided, -------- however, that: - ------- (i) if the registration is in whole or part an underwritten primary registration on behalf of the Company (whether or not it is also in part a Demand Registration or other secondary registration on behalf of any Company securityholders) and the managing underwriters of such offering determine that the aggregate amount of securities of the Company which all Stockholders and all other Company securityholders pursuant to future contractual rights to participate in such registration (such other Company securityholders, "FUTURE PARTICIPANTS") propose to include in such registration exceeds the maximum amount of securities that should be included therein, the Company will include in such registration, first, ----- the shares which the Company proposes to sell and second, securities to be ------ sold for the account of any Class I Stockholder pro rata among the Class I --- ---- Stockholders, and third, securities to be sold for the account of the Class ----- II Stockholders, pro rata among the Class II Stockholders and fourth, the --- ---- ------ other securities to be sold for the account of Future Participants, pro --- rata among such Future Participants, in each case on the basis of the ---- relative Equity Ownership of the parties who have requested that securities owned by them be so included (it being agreed and understood, however, that such underwriters shall have the right to eliminate entirely the participation in such registration of all Stockholders and Future Participants); (ii) if the registration is pursuant to an underwritten Demand Registration and the managing underwriters determine that the aggregate amount of securities which all Stockholders and all Future Participants propose to include in such registration exceeds the maximum amount of securities that should be included therein, the Company will include in such registration, first, the securities to be sold for the account of the ----- Class I Stockholders, pro rata among the Class I Stockholders, second, --- ---- ------ securities to be sold for the account of the Company, if any, third, ----- securities to be sold for the account of the Class II Stockholders, pro --- rata among the Class II Stockholders and fourth, securities to be sold for ---- ------ the account of the Future Participants electing to include securities in such registration, pro rata among such Future Participants, in each case, --- ---- on the basis of their relative Equity Ownership (it being agreed and understood, however, that such 9 underwriters shall have the right to eliminate entirely the participation therein of the Company and all such Future Participants not entitled to demand inclusion of securities in such registration); (iii) if the registration is pursuant to an underwritten secondary registration other than as described in clause (ii) above on behalf of Future Participants and the managing underwriters determine that the aggregate amount of securities which all Future Participants and Stockholders propose to include in such registration exceeds the maximum number of securities that should be included therein, the Company will include in such registration first, the securities to be sold for the ----- account of the Future Participants, pro rata among the Future Participants, --- ---- second, securities to be sold for the account of the Company, if any, ------ third, securities to be sold for the account of the Class I Stockholders, ----- pro rata among such Stockholders and fourth, securities to be sold for the --- ---- ------ account of the Class II Stockholders, in each case, on the basis of their relative Equity Ownership (it being agreed and understood, however, that such underwriters shall have the right to eliminate the participation therein of the Company and the Stockholders entirely unless, on the date of such secondary registration, any Class I Stockholder electing to participate in such registration shall not theretofore have completed one Demand Registration in which all of the Registrable Securities it sought to include were sold, in which case any such Class I Stockholder may convert such registration into one governed by clause (ii) above); (iv) in the event that, as a result of the provisions of Section 6(b)(i) or (ii), a group of Stockholders which has exercised its rights to request a Demand Registration is unable to register all of the Registrable Securities as to which the request was made, such Stockholder shall not be considered to have utilized a Demand Registration under Section 6(a); and (v) in exercising the rights of Stockholders in respect of Registrable Securities in this Section 6, Stockholders comprising the holders of the Demand Registrations enumerated in clauses (i) through (iii) of Section 6(a) shall, if more than one Stockholder has or succeeds to such rights, exercise such rights and make all determinations hereunder acting by majority-in-interests based upon their respective ownership of Registrable Securities. (c) Expenses of Registration. Whether or not any registration ------------------------ statement prepared and filed pursuant to Section 6(a) or (b) hereof is declared effective by the SEC (except where a Demand Registration is terminated, withdrawn or abandoned at the written request of a Class I Stockholder solely due to market conditions), the Company shall pay all expenses incident to Company's performance of or compliance with the registration requirements of this Agreement, including, without limitation, the following: (A) all SEC registration and filing fees and expenses; (B) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Registrable Securities; (C) any and all expenses incident to its performance of, or compliance with, this Agreement, including, without limitation, any allocation of salaries and expenses of Company personnel or other general overhead expenses of Company, or other expenses for the preparation of historical and pro forma financial 10 statements; (D) fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange or the NASDAQ Stock Market, as applicable, on which securities of the same class are then listed; (E) all transfer and/or exchange agent and registrar fees; (F) fees and expenses in connection with the qualification of the Registrable Securities under securities or "blue sky" laws including reasonable fees and disbursements of counsel for the underwriters in connection therewith; (G) mailing and printing expenses relating to the registration and distribution of Registrable Securities; (H) messenger and delivery expenses relating to the registration and distribution of Registrable Securities; (I) fees and out-of-pocket expenses of a single counsel for the selling Stockholders and (J) fees and out-of-pocket expenses of counsel for Company and its independent certified public accountants (including the expenses of any audit, review and/or "cold comfort" letters) and other persons, including special experts, retained by Company (collectively, clauses (A) through (J), "REGISTRATION EXPENSES"); provided, however, that Company shall not -------- ------- be required to pay, and the Stockholder shall pay, any discounts, commissions or fees of underwriters, selling brokers and dealers relating to the distribution of the Registrable Securities. (d) Registration Procedures. In the case of each registration ----------------------- effected by Company pursuant to this Agreement, Company shall keep the participating Stockholders advised in writing as to the initiation of each registration and as to the completion thereof. The Company shall (i) permit the Stockholder, the Manager, if any, and their respective counsel to make such investigation of Company as they may reasonably request, (ii) furnish to the participating Stockholders, the Manager and their respective counsel drafts of the registration statement and all amendments thereto, all prospectuses and supplements thereof prior to filing with the SEC and consider their comments and suggestions with respect to such documents, and (iii) not file any such registration statement, amendment, prospectus or supplement to which the participating Stockholders or the Manager shall reasonably object. At its expenses, Company shall: (i) keep such registration effective and current as required by law for such period necessary to permit the Stockholder to complete the distribution described in the registration statement relating thereto, or for such period as may be agreed to in the Underwriting Agreement; (ii) prepare and file with the SEC such amendments, post- effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act and the Underwriting Agreement and to keep such registration statement effective and current as required by law for that period of time specified above, in each case exclusive of any period during which the prospectus used in connection with such registration shall not comply with the requirements of Section 10 of the Securities Act, and respond as promptly as practicable to any comments received from the SEC with respect to such registration statement or any amendment thereto; (iii) furnish such number of copies of the registration statement, each amendment thereto, each preliminary prospectus, prospectuses, supplements and incorporated documents and other documents incident thereto as the Stockholder or the Manager from time to time may reasonably request; 11 (iv) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Stockholder and the Manager shall reasonably request, and do any and all other acts and things which may be necessary or desirable to enable the Stockholder and the Manager to consummate the offering and disposition of Registrable Securities in such jurisdictions; provided, however, that the Company shall not, by virtue of this -------- ------- Agreement, be required to qualify generally to do business as a foreign corporation, subject itself to taxation, or consent to general service of process, in any jurisdiction wherein it would not, but for the requirements of this clause (iv), be obligated to be qualified; (v) notify the Stockholder and the Manager promptly and, if requested by any such person, confirm such notification in writing, (A) when a prospectus or any prospectus supplement has been filed with the SEC, and, with respect to a registration statement or any post-effective amendment thereto, when the same has been declared effective by the SEC, (B) of any request by the SEC for amendments or supplements to a registration statement or related prospectus, or for additional information, (C) of the issuance by the SEC of any stop order or the initiation of any proceedings for such or a similar purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such order at the earliest practicable time), (D) of the receipt by Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such suspension at the earliest practicable time), (E) of the occurrence of any event with requires the making of any changes to a registration statement or related prospectus so that such documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the Stockholder and the Manager a reasonable number of copies of a supplemented or amended prospectus such that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not statements therein, in light of the circumstances under which they are made, not misleading), and (F) of the Company's determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate. Each Stockholder agrees that it shall, as expeditiously as possible, notify the Company at any time when a prospectus relating to a registration statement covering such Stockhloder's Registrable Securities is required to be delivered under the Securities Act, of the happening of any event of the kind described in this clause (v) as a result of any information provided by such Stockholder in writing expressly for inclusion in such prospectus included in such registration statement and at the request of the Company, promptly prepare and furnish to it such information as may be necessary so that, after incorporation into a supplement or amendment of such prospectus as thereafter delivered to the purchasers of such securities, the information so provided by the Stockholder shall 12 not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each Stockholder shall be deemed to have agreed by acquisition of such Registrable Securities that upon the receipt of any notice from the Company of the occurrence of any event of the kind described in clause (E) of this clause (v), such Stockholder shall forthwith discontinue its offer and disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder shall have received copies of a supplemented or amended prospectus which is no longer defective as contemplated by clause (E) of this clause (v) and, if so directed by the Company, shall deliver to the Company, at the Company's expense, all copies (other than permanent file copies) of the defective prospectus covering such Registrable Securities which are then in such Stockholder's possession; (vi) use its best efforts to cause all such Registrable Securities covered by such registration statement to be listed on each securities exchange or the Nasdaq Stock Market, as applicable, on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules and regulations of such exchange or the Nasdaq Stock Market, as applicable; (vii) engage and provide a transfer agent for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (viii) whether or not the Underwriting Agreement is entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the underwriters, if any, in form, substance and scope as are customarily made in connection with an offering of common stock or other equity securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to such registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such opinions, as the Manager, if any, and as the Stockholder may reasonable request; (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of Company addressed to the underwriters, if any, thereof, dated (i) the effective date of such registration statement and (ii) the date of the closing under the underwriting agreement relating thereto, such letter or letters to be in customary form and covering such matters of the type customarily covered, from time to time, by letters of such type and such other financial matters as the Manager, if any, may reasonably request; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by the underwriters, if any, therefor and the Manager, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by Company, and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in this Agreement; 13 (ix) permit the Stockholder to participate in the preparation of such registration statement and include therein material acceptable to the Company and its counsel, furnished to Company in writing which in the reasonable judgement of the Stockholder and its counsel is required to be included therein: (x) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement by the SEC or any state securities authority as promptly as possible; and (xi) cooperate with the Stockholder to facilitate the timely preparation and delivery certificate representing Registrable Securities to be sold and enable certificates for such Registrable Securities to be issued for such number of shares of Company Common Stock and registered in such names as Stockholder may reasonably request. (e) Indemnification --------------- (i) The Company shall indemnify and hold harmless each Stockholder, each of its directors, officers and agents, each underwriter (as defined in the Securities Act) of such Registrable Securities, if any, and each person who controls (within the meaning of Section 15 of the Securities Act) such Stockholder or any underwriter of the Registrable Securities held by or issuable to such Stockholder, against all claims, losses, expenses, damages and liabilities, joint or several, including any of the foregoing incurred in settlement of any proceeding, commenced or threatened, (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Act of any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and shall reimburse each Stockholder each of its directors, officers and agents, each such underwriter and each person who controls such Stockholder or any such underwriter for any reasonable legal and any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action, provided, however, that the Company shall not -------- ------- be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Stockholder or such underwriter specifically for use therein. The indemnity provided by this Section (6)(e) shall be in addition to any liability which Company may otherwise have. (ii) Each Stockholder shall indemnity and hold harmless Company, each of its directors and officers, each underwriter, if any, and each person who controls Company or any of the underwriters within the meaning of the Act, against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) arising out of or 14 based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company or underwriters for any reasonable legal or any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information pertaining to such Stockholder, which is furnished in writing to Company by such Stockholder specifically for use therein. (iii) If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an Indemnified Party (as defined below) in respect of any losses, claims, damages or liabilities (or action in respect thereof) referred to therein, then Company and the Stockholder shall contribute to the amount paid or payable as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of Company on the one hand and the Stockholder on the other in connection with the statements or omission which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. Relative fault 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 on the one hand or the Stockholder on the other and such persons's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 6(e) were determined pro --- rata allocation or by any other method of allocation which does not take ---- account of the equitable considerations referred to above in this Section 6(e). The amount paid or payable by a party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 6(e) shall include any legal or other expenses reasonably incurred by such party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. No person shall be required to contribute to any settlement effected without its consent, which consent shall not be unreasonably withheld. If, however, indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the fullest extent provided here without regard to the relative fault of such indemnifying party or indemnified party or any other equitable considerations. (iv) Each party entitled to indemnification under this Section 6(e) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that 15 counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld, and the Indemnified Party may participate in such defense at such party's expense, unless the Indemnified Party in its reasonable judgment determines that joint representation by counsel for the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnifying Party and the Indemnified Party in the conduct of the defense of such action, in which case the Indemnified Party shall be entitled to be represented by separate counsel selected by it, the reasonable fees and expenses of which shall be borne by the Indemnifying Party, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in actual detriment to the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification of the underwriters and their controlling persons contained in the Underwriting Agreement in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the Underwriting Agreement shall control as to indemnification of the underwriters and their controlling persons in the public offering. (vi) Notwithstanding the foregoing, in no event shall any Stockholder be liable under this Section 6(e) for an amount exceeding the net proceeds received by Stockholder from the sale of its Registrable Securities pursuant to the registration rights granted to Stockholder hereunder. (f) Holdback Amount. Each Stockholder agrees that in the event of an --------------- underwritten public offering of Registrable Securities for the account of any Stockholder, such Stockholder and any Related Transferee thereof will not, without the written consent of the underwriters, offer for public sale (other than as part of such underwritten public offering) any Securities during the ten (10) days prior to and such number of days (not to exceed 180 days in the case of an initial public offering and 90 days in all other cases) after the effective date of the registration statement in connection with such public offering as the underwriters may reasonably request in writing. (g) Assignment and Assumption. For avoidance of doubt, the parties ------------------------- acknowledge that each Stockholder may assign its rights under this Section 6 as an incident to any permitted Transfer of Securities held by it to the Transferee of such Securities, and if the Stockholder retains any Securities, the rights under this Section 6 shall remain applicable to the retained Securities. If Securities are acquired from a Class I Stockholder, such Securities shall be entitled to participate in any Demand Registration as a member of the group enumerated in clauses (i) through (iii) of Section 6(a), without thereby increasing the aggregate number of Demand Registrations the Company may be required to effect. Each Stockholder shall promptly 16 notify the Company in writing of each such assignment of rights, and the assignee shall execute such documentation as the Company may reasonably request to evidence its agreement to be bound by this Section 6. Registration rights shall not be assignable to any purchaser of Securities sold under Rule 144 or in any public securities sale. If the Company effects a business combination in which Stockholders receive securities of another issuer and such securities cannot be resold by the Stockholders without registration under the Securities Act, as a condition to the consummation of such business combination, the Company shall cause such issuer to assume the Company's obligations under this Section 6. (h) Stock Option Plans. After the IPO, the Company shall use its ------------------ reasonable efforts to register, on Form S-3 or any similar or successor form, the ISOs and NQ Options so as to permit the non-Affiliate Stockholders to dispose of Common Stock issuable upon the exercise thereof pursuant to Rule 144. 7. Drag-Along Sales and Tag-Along Sales. ------------------------------------ (a) Drag-Along Sales. ---------------- (i) Notwithstanding any other provision hereof, if GEI agrees to sell Securities held by it pursuant to a transaction in which more than 75% of the then-outstanding Common Stock of the Company will be sold to or acquired by a Third Party (either of such sales, a "DRAG-ALONG SALE"), then upon the demand of GEI, (i) in the case of Occidental and the Class II Stockholders, made at any time after the Closing Date and (ii) in the case of the HPA Group, made at any time after the fourth anniversary of the Closing Date (the HPA Group and the Class II Stockholders being collectively referred to for this purpose as "DRAG-ALONG SELLERS"), each Drag-Along Seller hereby agrees to sell to such Third Party the same percentage of the total number of Securities held by such Drag-Along Seller on the date of the Drag-Along Notice, as the number of Securities GEI is selling in the Drag-Along Sale bears to the total number of shares held by GEI as of the date of the Drag-Along Notice (the "SALE PERCENTAGE"), at the same price and form of consideration and on the same terms and conditions as GEI has agreed to with such Third Party. If the Drag-Along Sale is in the form of a merger transaction, the Drag-Along Seller agrees to vote his or her Securities in favor of such merger and not to exercise any rights of appraisal or dissent afforded under applicable law. The provisions of this Section 7 shall apply regardless of the form of consideration received in the Drag-Along Sale. For purposes of Drag-Along Sales, the number of shares owned by each Drag-Along Seller shall include all shares underlying NQ Options, which NQ Options will be exercised by the Drag-Along Sellers immediately prior to and contingent upon consummation of the Drag-Along Sale. (ii) Prior to making any Drag-Along Sale, if GEI elects to exercise the option described in this Section 7, GEI shall provide the Drag-Along Seller to whom this Section 7 then applies with written notice (the "DRAG-ALONG NOTICE") not more than 60 nor less than 15 days prior to the proposed date of the Drag-Along Sale (the "DRAG-ALONG SALE DATE"). The Drag-Along Notice shall set forth: (i) a general description of the transaction and the proposed amount and form of consideration to be 17 paid per share offered by the Third Party; (ii) the aggregate number of Securities held by GEI as of the date that the Drag-Along Notice is first given to a Drag-Along Seller; (iii) the Sale Percentage; and (iv) the Drag- Along Sale Date. (iii) On the Drag-Along Sale Date, each Drag-Along Seller shall deliver a certificate or certificates for the Sale Percentage of its Securities, duly endorsed for transfer with signatures guaranteed, to such Third Party in the manner and at the address indicated in the Drag-Along Notice against delivery of the purchase price therefor, provided, however, -------- ------- that in the eventthe Company has possession of any such certificates pursuant to this Agreement, upon the written request of the Drag-Along Seller at least five (5) business days in advance of-the Drag-Along Sale Date, the Company shall deliver such certificates to the purchaser at the time and in the manner described above. (b) Optional Participation in Sales of Common Stock (Tag-Along ---------------------------------------------------------- Sales). ------ (i) If GEI shall at any time desire to Transfer shares of Common Stock to a third party, other than ratably to its partners, then each of the HPA Group and the Class II Stockholders and their Related Transferees (collectively, a "TAG-ALONG SELLER") shall be entitled, to participate pro rata in such Transfer at the same price and on the same --- ---- terms and conditions applicable to GEI, based upon their respective Fully Diluted Ownership in the Company. (ii) Each Tag-Along Seller shall have the right to Transfer up to a percentage of the number of shares specified in the Transfer Notice delivered pursuant to the following sentence by the aggregate number of shares of Common Stock then owned by GEI. GEI shall deliver or cause to be delivered to each Tag-Along Seller a written notice (a "TRANSFER NOTICE") of a proposed tag-along sale no later than 30 days prior to the proposed closing thereof. Such notice shall make reference to the Tag-Along Sellers' rights under this Section 7(b) and shall describe in reasonable detail (A) the aggregate number of shares of Common Stock to be Transferred by GEI if none of the HPA Group or Class II Stockholders participates, (B) the aggregate number of shares of Common Stock then owned by GEI, (C) the person or entity to whom or which such shares of Common Stock are proposed to be Transferred, (D) the terms and conditions of the Transfer, including the consideration to be paid therefor, (E) the maximum percentage of its shares such Tag-Along Seller is entitled to include in the Transfer and (F) the proposed date, time and location of the closing of the Transfer. Each Stockholder receiving a Transfer Notice shall exercise its right to participate in a Transfer of Common Stock pursuant to this Section 7 by delivering to GEI a written notice (a "TAG-ALONG NOTICE") stating its election to do so and specifying the number of shares (which shall not exceed the number of shares determined for such Tag-Along Seller in the Transfer Notice) of Common Stock held by it to be Transferred no later than fifteen days after receipt of the Transfer Notice. Failure to provide a Tag-Along Notice within such fifteen-day period shall be deemed to constitute an election by such Stockholder not to exercise its rights pursuant to this Section 7, and GEI shall have 90 days following the expiration of such fifteen-day period in which to Transfer the number of shares equal to the difference between the number set forth in the Transfer Notice and the aggregate number of shares 18 as to which GEI has received a Tag-Along Notice, on terms not more favourable to GEI than those set forth in the Transfer Notice. (iii) Each Tag-Along Seller shall be required to deliver at such closing the certificate or certificates representing the shares to be Transferred, duly endorsed for transfer, and shall be entitled to receive the net proceeds allocable to the Transfer thereof, after deduction of such Tag-Along Seller's proportionate share of the expenses of Transfer, which share shall not exceed an amount proportionate to the amount of such expenses allocated to GEI. If, at the end of the 90-day period following the expiration of such fifteen-day period, GEI has not completed the Transfer of shares of Common Stock, GEI may not sell the shares of Common Stock without again fully providing a Transfer Notice. (c) Obligations of Drag-Along Sellers. In connection with any --------------------------------- Drag-Along Sale, Drag-Along Sellers shall not be required to make any representation or warranty to the purchaser other than to the effect that they hold title to the Securities they are selling in the Drag-Along Sale, free and clear of liens and the like, and as to their right, power and authority to sell such Securities. Except as to such representations, Drag-Along Sellers shall not be liable beyond the net proceeds of the Drag-Along Sale for any other breach of representations or warranties. In addition, unless expressly agreed to by a Drag-Along Seller, no Drag-Along Seller shall be required to enter into any covenant not to compete or similar agreement restricting their business activities. 8. Termination and Lapse of Rights and Restrictions; Applications of ----------------------------------------------------------------- Other Stock and Adjustments. The provisions of Sections 4, 5, 7, 9, and 10 - --------------------------- shall lapse and be of no further effect immediately following the earlier to occur of a Change in Control or an IPO. In the event any capital stock of the Company or any other corporation shall be distributed on, with respect to, or in exchange for Securities as a stock dividend, stock split, reverse stock split, reclassification or recapitalization, or in connection with any merger or reorganization, the restrictions, rights and options and prices set forth herein shall apply with respect to such other capital stock to the same extent as they are, or would have been applicable, to the Securities on or with respect to which such other capital stock was distributed and shall continue to apply to the Securities or such other securities outstanding thereafter, in each case with such adjustments as are necessary or appropriate. 9. Election of Directors. So long as such individuals respectively own ---------------------- the requisite amount of Common Stock set forth herein, each of the other Stockholders agrees to vote his or its Common Stock, and cause his Related Transferees to vote their Common Stock, in favor of Michael J. Fourticq and Brian P. McDermott ("FOURTICQ" and MCDERMOTT") in all elections of the directors of the Company whether by meeting or action in writing. Such agreement to vote shall be effective as to each such individual so long as such individual continues to own (directly or, in the case of Mr. McDermott, through a family trust and in either case, through Related Transferees after the date hereof) at least two-thirds (2/3) of the Common Stock owned by him on the date hereof. Such agreement to vote shall cease to be effective upon the first to occur of: (i) such individual ceasing to own (directly or indirectly, as aforesaid) in excess of one-third (1/3) of the Common Stock owned by him on the date hereof and (ii) a Disproportionate Sale after 19 which such individual and his Related Transferees own less than two-thirds (2/3) of the Common Stock owned by him and such Related Transferees on the date hereof. A "DISPROPORTIONATE SALE" as to either individual occurs on the date of a Transfer of Common Stock as a result of which the Common Stock owned by such individual and Related Transferees has decreased by a percentage that is greater, by at least five percent (5%), than the corresponding decrease in ownership of Common Stock of GEI to date. Each of the Stockholders further agrees the he or it shall vote its Common Stock and cause its Related Transferees to vote their Common Stock, in all elections of directors of the Company, whether by meeting or action in writing, in favour of all nominees for the board of directors proposed by GEI. For purposes of this Section 9 and the effectiveness of the voting agreements herein, ownership of Common Stock shall be calculated based upon the Fully Diluted Ownership of the individual and his Related Transferees, in the aggregate. 10. Certain Additional Agreements. ----------------------------- (a) Right to Participate in Equity Issuances. If the Company shall ---------------------------------------- issue, sell or distribute to GEI or any of its Affiliates any equity or debt securities of the Company, or any option warrant, or right to acquire, or any security convertible into or exchangeable for, any of the foregoing (other than pursuant to an underwritten public offering, a stock dividend, stock split or other pro rata distribution of securities to stockholders of the Company --- ---- generally in which the HPA Group participates on an equal basis, including any Related Transferees), the HPA Group shall be entitled, provided that they collectively maintain two-thirds (2/3) of the Fully Diluted Ownership held by them on the date hereof, to participate in such issuance, sale or distribution, at the same price and on the same terms and conditions applicable to GEI, pro --- rata, based upon their respective Fully Diluted Ownership in the Company. - ---- (b) Right to Participate in Equity Repurchases. GEI agrees that the ------------------------------------------ Company will not purchase any Securities from GEI or any of its Affiliates unless the Company offers to simultaneously purchase a proportionately equal number of Securities of the same class from each member of the HPA Group at the same price and on the same terms and conditions applicable to GEI and its Affiliates, based upon their respective Fully Diluted Ownership. (c) Affiliate Transactions. No material transaction or series or ---------------------- related transactions (including any issuance of securities, profits interests, stock appreciation rights, or similar rights or interests of the Company) between the Company and GEI or any of its Affiliates involving value in excess of $1,000,000 may be consummated unless approved (i) if one of Fourticq or McDermott then holds at least one-third of his Fully Diluted Ownership as of the date hereof, by such individual, and otherwise by a majority of the disinterested directors of the Company, or (ii) by the board of directors of the Company after it is presented with a fairness opinion of a nationally recognized investment bank to the effect that the transaction is fair to the Company and its stockholders. Notwithstanding the foregoing, other than the Management Agreement of even date herewith between the Company and Leonard Green & Partners, L.P. (the "Management Agreement"), GEI and its Affiliates will not enter into any consulting management or similar agreement or arrangement with the Company or increase the fees provided for in the Management Agreement as of the date hereof, except that such fees may be proportionately increase provided such increase is calculated on the same basis (1.6% of invested capital) as the 20 fee currently provided for therein and such increase reflects further investment by GEI consistent with the terms of this Section 10. (d) Change of Control Transactions. Each of GEI, Fourticq and ------------------------------ McDermott agrees that no such Stockholder shall, without the prior consent of the other two Stockholders, pursue, advocate or enter into an agreement in respect of any recapitalization, reclassification, share exchange, reorganization, merger, consolidation or similar transaction involving the Company unless all holders of Common Stock of the Company will be treated identically in such transaction, but ratably in proportion to their respective Equity Ownership. (e) Information. The Company shall provide each Class I Stockholder ----------- with the following information, all of which each Class I Stockholder agrees to hold in confidence: (i) For each fiscal quarter of the Company, as and when submitted to Green, unaudited consolidated financial statements of the Company (consisting of balance sheet and statements of operations, stockholders' equity and cash flows for such fiscal quarter, in the form submitted to GEI; (ii) For each fiscal year of the Company, as and when submitted to Green audited financial statements of the Company for such fiscal year, certified by the Company's independent certified public accounting firm, in the form submitted to GEI; (iii) Such additional information about the Company as such Class I Stockholder may reasonably request from time to time. 11. Notices. All notices or other communications under this Agreement ------- shall be given in writing and shall be deemed duly given and received on the third full business day following the day of the mailing thereof by registered or certified mail or the next Business Day if sent by overnight courier or when delivered personally or sent by facsimile transmission as follows: (a) if to the Company, at its principal executive offices at the time of the giving of such notice, or at such other place as the Company shall have designated by notice as herein provided to the Purchaser; (b) if to a Class I Stockholder, at its principal executive offices at the time of the giving of such notice, or at such other place as such Stockholder shall have designated by notice as herein provided to the Company. (c) if to any Class II Stockholder, at his address as it appears on Annex A or at such other place as he shall have designated by notice as herein provided to the Company. 12. General. ------- (a) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except by a written agreement signed by each of the Company and the Class I Stockholders and, to the extent their interests are affected, by the Class II Stockholders, provided, however, that Class II Stockholders having a -------- ------- 21 majority of Equity Ownership as amongst such Stockholders may bind all of such Stockholders as to any matter adversely affecting them if such adverse effect is equal, on a proportionate basis, as to all such Stockholders and the consent of each adversely affected Class II Stockholders shall otherwise be required. (b) No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. (c) Except as otherwise expressly provided herein, this Agreement shall be binding upon and inure to the benefit of each of the Company, the Stockholders and their respective heirs, personal representatives, successors and assigns; provided, however, that nothing contained herein shall be construed -------- ------- as granting any Stockholder the right to Transfer any of the Securities except in accordance with this Agreement and any Transferee shall hold such Securities having only those rights and being subject to the restrictions provided for in this Agreement. (d) If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. (e) Each Class II Stockholder agrees that nothing herein shall be deemed to create any implication concerning the adequacy of his services to the Company, or shall be construed as an agreement by the Company, express or implied, to employ him or contract for his services, to restrict the right of the Company to discharge him or cease contracting for his services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between him and the Company or its subsidiaries. Each Class II Stockholder represents that he has been advised, to the extent he deemed necessary, by legal counsel and tax advisors of his choice in connection with this Agreement. Each Class II Stockholder further represents that, if he is married, his spouse has executed and delivered to the Company the Acknowledgment and Agreement of Spouse set forth at the end of this Agreement. (f) In the event any day upon which a sale, notice or other matter is required to occur hereunder is not a Business Day, such matter shall be deferred until the next Business Day. (g) The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of such sections. The masculine pronoun shall be deemed to include and incorporate the feminine pronoun. (h) Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 22 (i) Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. (j) This Agreement may be executed in one or more counterparts, all of which taken together shall be deemed one original. (k) Due to the fact the securities of the Company cannot be readily purchased or sold in the open market, and for other reasons, the parties will be irreparably damaged in the event that this Agreement is not specifically enforced. In the event of a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any of the parties hereto, the other parties shall, subject to Section 13, in addition to all other remedies, be entitled to a temporary and/or permanent injunction, without showing any actual damage or that monetary damages would not provide an adequate remedy, and/or a decree for specific performance, in accordance with the provisions hereof. Each Stockholder hereby irrevocably and unconditionally consents to the jurisdiction of any California State court or federal court of the United States sitting in the State of California in any action or proceeding relating to this Agreement and consents to service of process in connection therewith by the delivery of notice to such Stockholder's address set forth in the Agreement. (l) This Agreement shall be deemed to be a contract under the laws of the State of Delaware and for all purposes shall be construed and enforced in accordance with the internal laws of such state without regard to the principles of conflicts of law. 13. Additional Class II Stockholders. Prior to issuing any Options, Common -------------------------------- Stock or other right exercisable for or convertible into Common Stock, and as a condition to the receipt thereof, the Company shall require the recipient to execute and deliver a duplicate counterpart of this Agreement, and such recipient shall become a Class II Stockholder for all purposes hereof. 14. Arbitration. ----------- (a) General. Except as provided in this Section 14, the Federal ------- Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Section 14. To the extent that the Federal Arbitration Act is inapplicable, Delaware law pertaining to agreements to arbitrate shall apply. (b) Scope. ----- (i) The parties mutually consent to the resolution by arbitration of all claims or controversies ("CLAIMS"), past, present, or future, whether or not arising out of matters related to this Agreement or that any party may have against another party or against its partners, officers, directors, employees, agents or trustees in their capacity as such or otherwise. The only claims that are arbitrable are those that, in the absence of this Section 14, would have been justifiable under applicable state or federal law. Except as otherwise provided in this Section 14, no party shall initiate or prosecute any lawsuit or 23 administrative action (other than an administrative charge of discrimination) in any way related to any claim covered by this Section 14. (ii) Claims for workers' compensation or unemployment compensation benefits are not covered by this Section 14. Also not covered are claims by any of the parties for injunctive and/or other equitable relief including but not limited to claims for specific performance. (c) Deposition. Each party to a dispute shall have the right to take ---------- the deposition of up to [two] individuals and any expert witness designated by each other party. Each party also shall have the right to make requests for production of documents to any party. The subpoena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the arbitrator selected pursuant to this Section 14 so orders, upon a showing of reasonable and substantial need. At least 30 days before the arbitration, the parties must exchange lists of witnesses, including any expert, and copies of all exhibits intended to be used at the arbitration. Each party shall have the right to subpoena witnesses and documents for the arbitration. (d) JAMS. The Arbitration will be held under the auspices of either ---- the American Arbitration Association ("AAA") or Judicial Arbitration & Mediation Services, Inc. ("J.A.M.S"), with the designation of the sponsoring organization to be made by the party who did not initiate the claim. The parties agree that, except as provided in this Agreement, the arbitration shall be in accordance with the AAA's then-current arbitration procedures (if AAA is designated) or the then-current J.A.M.S arbitration rules (if J.A.M.S is designated). The arbitration shall be conducted by a panel of three arbitrators each of whom shall be either a retired judge, or an attorney licensed to practice law in the state in which the arbitration is convened (the "ARBITRATORS"). The arbitration shall take place in Los Angeles, California. (e) Selection of Arbitrators. The Arbitrators shall be selected as ------------------------ follows: (i) If the dispute to be resolved is between the Company and another party, shall each select an arbitrator from a list of arbitrators provided by the sponsoring organization and meeting the criteria set forth above. If the dispute is between two Stockholders, each shall select an arbitrator from such list. If the dispute involves more than two parties and if the parties to the dispute agree to being separated into two groups, each group may select one arbitrator from such list. If the parties to a dispute cannot agree on a third arbitrator, the arbitrators so selected shall select a third arbitrator who also meets the above criteria. If the two named arbitrators are unable to agree upon the third arbitrator, or fail to designate such arbitrator within 30 days from the day the matter is submitted to arbitration, then, on application of any party, the third arbitrator shall be designated by the sponsoring organization. (ii) If two arbitrators cannot be selected by the process described in subparagraph (i) within 30 days from the day the matter is submitted to arbitration, then, on application of any party, the three arbitrators shall be designated by the sponsoring organization. 24 (iii) The decision of any two (2) Arbitrators shall constitute a final decision and award hereunder. (f) Governing Law. The Arbitrators shall apply the substantive law ------------- (and the law of remedies, if applicable) of the state of Delaware or federal law, or both, as applicable to the claim(s) asserted. The Arbitrators are without jurisdiction to apply any different substantive law, or law of remedies. The Federal Rules of Evidence shall apply. The Arbitrators, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including but not limited to any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties, except as provided in this Agreement. (g) Procedures. The Arbitrators shall have jurisdiction to hear and ---------- rule on pre-hearing disputes and are authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrators deem necessary. The Arbitrators shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. Any party to a dispute, at its expense, may arrange for and pay the cost of a court reporter to provide a stenographic record of proceedings. Any party to a dispute, upon request at the close of hearing, shall be given leave to file a post-hearing brief. The time for filing such a brief shall be set by the Arbitrators. (h) Award. The Arbitrators shall render an award and opinion ----- outlining in reasonable detail the findings of fact and conclusions of law upon which the award is based. The award of the Arbitrators shall be final, binding and conclusive on the parties. If the Company is a party to the dispute, the Company shall bear the fees and costs of the Arbitrators. If Company is not a party to the dispute, the parties to the dispute shall equally share the fees and costs of the Arbitrators. Each party shall pay for its own costs and attorneys' fees. 15. Definitions. As used in this Agreement, unless the context requires ----------- otherwise, the capitalized terms described in this Section 15 shall have the meanings indicated herein. (a) Each of the following capitalized terms shall have the meaning ascribed to such term in the section of this Agreement indicated:
Term Section ---------------------------------------------- ---------------- Act.......................................... 15(b) Affiliate.................................... 15(b) Agreement.................................... Introduction Bona Fide Offer.............................. 4(b) Business Day................................. 15(b) Callable Securities.......................... 2(b) Call Purchase Event.......................... 5(a) Call Option.................................. 2(b) Change in Control............................ 15(b) Class I Stockholder.......................... Introduction
25
Term Section ---------------------------------------------- ---------------- Class II Stockholder......................... Introduction Common Stock................................. Recitals Company...................................... Introduction Control...................................... 13(b) Demand Registration.......................... 6(a) Demand Seller................................ 6(b) Disproportionate Disposition................. 9 Drag-Along Notice............................ 7(b) Drag-Along Sale.............................. 7(a) Drag-Along Sale Date......................... 7(b) Drag-Along Seller............................ 15(b) Electing Stockholder......................... 4(b) Equity Ownership............................. 15(b) Fair Market Value............................ 15(b) Fully Diluted Ownership...................... 15(b) Future Stockholder........................... 6(b) Future Participants.......................... 6(a) GEI.......................................... Introduction GEI Distribution............................. 12 Stockholder.................................. 6(a) IPO.......................................... 15(b) Living Trust................................. 15(b) Manager...................................... 15(b) NQ Option.................................... 2(b) Option Notice................................ 4(b) Other Termination............................ 5(a) Outside Party................................ 4(b) Permanent Disability......................... 15(b) Permitted Transfer........................... 4(a) Purchase Notice.............................. 5(a) Purchaser.................................... 2(b) Purchasing Group............................. 5(a) Registrable Securities....................... 15(b) Registration Notice.......................... 6(a) Related Transferee........................... 15(b) Retirement................................... 15(b) Rule 144..................................... 15(b) Sale Percentage.............................. 7(a) SEC.......................................... 15(b) Securities................................... Introduction Seller....................................... 5(a) Subscription Stock........................... 2(b) Tag-Along Notice............................. 7(e)
26
Term Section ---------------------------------------------- ---------------- Tag-Along Seller............................. 7(d) Third Party.................................. 7(a) Transfer..................................... 15(b) Transfer Notice.............................. 7(e)
(b) Each of the following capitalized terms shall have the meanings indicated in this clause (b): "ACT" means the Securities Act of 1933, as amended from time to time. "AFFILIATE" has the meaning set forth in Rule 405 under the Act. "BUSINESS DAY" means a day on which banks are open for business in the State of California. "CHANGE IN CONTROL" means any of (i) a sale or other disposition by the Company of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, or (ii) a merger or consolidation of the Company if, immediately following such merger or consolidation, there is not Control of the surviving entity of such merger or consolidation, or (iii) a sale of capital stock of the Company (by any holder thereof or by the Company) if, immediately following such sale, there is not Control of the Company. "CONTROL" means that the holders of the capital stock of the Company immediately following the Merger (including the Class I Stockholders) hold, in the aggregate, directly and indirectly, the power to elect a majority of the directors of the Company that are not elected pursuant to the provisions of the Preferred Stock (or, as the case may be, the surviving entity of a merger or consolidation of the Company). "EQUITY OWNERSHIP" means the relative interests of the holders of the Company's outstanding Common Stock as of the date of determination. "FAIR MARKET VALUE" of Securities means the fair market value of Securities as determined as of the time of the Call Purchase Event by the Company's Board of Directors in the exercise of its reasonable discretion; provided, however, -------- ------- that in the event that the Common Stock is traded publicly on any national securities exchanges) (including without limitation NASDAQ National Market System or the NASDAQ "Small-Cap" Issues System), such fair market value shall be based upon the closing price for such Common Stock on such Exchange(s) on the date preceding the Call Purchase Event. "FULLY DILUTED OWNERSHIP" means, as to any Stockholder, his or its aggregate ownership of all equity interests in the Company, including all Options and all other securities exercisable convertible or exchangeable for Common Stock. 27 "IPO" means the completion of the first underwritten public offering of the Company's shares of Common Stock registered under the Act. "LIVING TRUST" means a revocable living trust established by the Purchaser for estate planning purposes and pursuant to which no one other than the Purchaser and/or the Purchaser's spouse is the beneficiary during the Purchaser's lifetime. "MANAGER" means the investment banking firm or firms designated by the Stockholder as the managing underwriter(s) of an offering registered pursuant to this Agreement, which firm or firms shall be the existing investment bankers for or other nationally recognized investment bankers reasonably acceptable to the Company. "PERMANENT DISABILITY" of a Class II Stockholder means that (i) the Class II Stockholder becomes physically or mentally incapacitated or disabled so that he is unable to perform for the Company substantially the same services as he performed prior to incurring such incapacity or disability, and (ii) such incapacity or disability continues for a period of 120 days, whether or not consecutive, over a period of six consecutive months; provided, however, that -------- ------- (x) the Company, at its option and expense, shall be entitled to retain a physician to confirm the existence of such incapacity or disability, and the determination of such physician shall be binding upon the Company and the Class II Stockholder. "REGISTRABLE SECURITIES" means the Common Stock and the Warrant Shares, subject to adjustment pursuant to Section 8 hereof. "RELATED TRANSFEREE" means (i) in the case of any individual, any of the Stockholder's spouse, adult lineal descendants, adult spouses of such lineal descendants, a Living Trust, trusts solely for the benefit of the Stockholder's spouse or the Stockholder's minor or adult lineal descendants, and (in the event of the Stockholder's death) the Stockholder's personal representatives (in their capacities as such), estate or named beneficiaries and (ii) in the case of a business organization, any individual or other business organization controlled by or under common control with such business organization, as such terms but defined within the meaning of Rule 405 under the Act. "RETIREMENT" means retirement pursuant to the Company's standard retirement policy in effect from time to time but in no event prior to the age of 65, unless pursuant to a specific determination by the Board of Directors of the Company. "RULE 144" means Rule 144 under the Act, as amended from time to time, or any successor or similar rule. "SEC" means the Securities Exchange Commission. "TRANSFER," used as a noun, means any sale, pledge, gift, bequest, transfer, assignment or any other encumbrance or disposition, whether direct or indirect, conditional or unconditional. "TRANSFER," used as a verb means to make a Transfer. 28 IN WITNESS WHEREOF, the parties have executed this Agreement as of the first date written above. LESLIE'S POOLMART, INC. By___________________________________ Its__________________________________ GREEN EQUITY INVESTORS II, L.P. By: Grand Avenue Capital Partners, L.P., its sole general partner By: Grand Avenue Capital Corporation, its sole general partner By:__________________________________ Name_________________________________ Title________________________________ _____________________________________ Richard H. Hillman _____________________________________ Michael J. Fourticq _____________________________________ Greg Fourticq _____________________________________ Brian P. McDermott _____________________________________ Brian P. McDermott and Manette J. McDermott, T.R.U.A. DTD 3/15/90 The McDermott Family Trust OCCIDENTAL PETROLEUM CORPORATION By___________________________________ Name_________________________________ Title________________________________ 29 ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE -------------------------------------- The undersigned, being the spouse of a Purchaser listed on Annex A hereto, hereby agrees to be bound by the provision of this Agreement and consents to the Purchaser's subscription for the Common Stock pursuant hereto. _____________________________________ Name_________________________________ 30 ANNEX A CAPITAL STRUCTURE -----------------
Fully Diluted Shares ------------- Michael J. Fouricq 160,539 Brian McDermott 166,552 Richard H. Hillman 22,414 Greg Fourticq 10,000 ------------- Total Stock Remaining Outstanding 359,505 Michael J. Fourticq 4,976 Robert Olsen 52,761 Other Management 25,862 ------------- Total Options 83,599 Robert Olsen-Cash 14,768 Other Management Cash 4,198 Green Equity Investors II, L.P. 1,055,172 Occidental Warrants 316,092 Management Incentive Stock Options 273,946 Total 2,107,280 =============
A-1 ANNEX B. TERMS OF INCENTIVE STOCK OPTION PLAN ------------------------------------ Number of Shares............ 83,599 total. The number of shares covered by each individual grant will be the quotient of (i) the product of (x) the number of shares subject to the corresponding cancelled option multiplied by (y) the difference between $14.50 and such cancelled option's exercise price, divided by (ii) $9.50. In the case of Messrs. Fourtiqc and Olson, the foregoing formula results in the issuance of options for a maximum of 4,976 and 52,761 shares, respectively, with the balance to be allocated to management as heretofore agreed. Exercise Price.............. $5.00 Type of Options............. Non-Qualified, ten year options Termination of Employment.................. A portion of options and shares are subject to repurchase upon termination of employment prior to the second anniversary of the Closing Date as set forth in the Agreement, all other options remain exercisable notwithstanding employment status of optionee Adjustment.................. The number of shares subject to Options, and the exercise price, will be proportionately adjusted for each subdivision and combination of Company common stock. B-1 ANNEX C TERMS OF ISO OPTIONS -------------------- Number of Shares......... 13% of the Company's fully-diluted Common Stock on the Closing Date Exercise Price........... Fair Market Value (opening equity price) Type of Options.......... Incentive, ten-year options Vesting.................. One-third (1/3) on the first, second and third anniversaries of the Closing Date, except in respect of performance portion Performance Portion ..... Options equivalent to 3% of the fully-diluted Common Stock outstanding on the Closing Date vest upon achievement (assuming continued employment) of performance targets as follows: EBITDA for Year Ended: Number of Stores Opened by: --------------------- -------------------------- $18M............. 1997 30...........March 31, 1998 $22M............. 1998 30...........March 31, 1999 $26M............. 1999 30...........March 31, 2000 Note: Vesting also occurs if the store opening ---- target is met in each prior year and the Company achieves 95% of a year's EBITDA target and the sum of that year and the following year's EBITDA equals 100% of the combined targets Termination of Employment .............. Vested options may be exercised for 90 days post- termination; unvested options are forfeited and become eligible for future grant at Fair Market Value Adjustment............... The number of shares subject to Options, and the exercise price, will be proportionately adjusted for each subdivision and combination of Company common stock. C-1 EX-19.A 12 LETTER DATED 1-14-97 FROM WELLS FARGO TO ISSUER EXHIBIT 19-A [LETTERHEAD OF WELLS FARGO] January 14, 1997 Mr. Robert Olsen Chief Financial Officer Leslie's Poolmart 20222 Plummer Street Chatsworth, CA 91311 Dear Bob: This letter is to confirm that Wells Fargo Bank, National Association ("Bank"), subject to all terms and conditions contained herein, has agreed to make available to Leslie's Poolmart, a California Corporation ("Borrower") a revolving line of credit under which Bank will make advances to Borrower from time to time up to and including March 31, 2000 not to exceed at any time the maximum principal of $30,000,000 during 1997, $32,000,000 during 1998 and $35,000,000 thereafter ("Line of Credit"), the proceeds of which shall be used for working capital. Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank - --------------------------- agrees from time to time during the term thereof to issue sight commercial or standby letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion; and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed Three Million Dollars ($3,000,000.00). Each Letter of Credit shall be issued for a term not to exceed 365 days, as designated by Borrower; provided however, that no Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of Credit. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Borrowing and Repayment. Borrower may from time to time during the term of the - ----------------------- Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow; provided however, that the total outstanding borrowings under the Line of Credit shall 1 not at any time exceed the maximum principal amount available thereunder, as set forth above. COLLATERAL: As security for all indebtedness of Borrower to Bank, Borrower shall grant to Bank security interests of first priority in all Borrower's accounts, accounts receivable, equipment, general intangibles, deposit accounts, chattel paper, documents, instruments, rights to payment and inventory. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. INTEREST/FEES: Interest. The outstanding principal balance of the Line of Credit shall bear - -------- interest in accordance with the following interest rate options, as designated by Borrower: (a) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time plus the Applicable Prime Rate Margin*, or ---- (b) at a fixed rate per annum equal to the Base LIBOR Rate plus the ---- Applicable LIBOR Rate Margin*; provided, however, that each LIBOR interest -------- ------- selection must be for a minimum amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000). * The EBITDA Covorage Ratio tests below, used to determine the applicable margins are based upon a March 31, 1997 transaction closing date. Any material change in transaction closing date may require a change in the Coverage Ratio tests. Applicable LIBOR and Prime Rate Margins: - --------------------------------------- At Closing Date LIBOR plus 1.75% or Prime plus .25% thereafter: EBITDA Coverage Ratio Applicable LIBOR and Prime Rate Margins - --------------------- --------------------------------------- Upon Bank's receipt of the designated financial statement of Borrower, if Borrower's EBITDA Coverage Ratio, as 2 described below, is: (based upon Borrower's September 30, 1997 financial statement) (a) greater than or equal to 6.10:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 6.10:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's December 31, 1997 financial statement) (a) greater than or equal to 3.50:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 3.50:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's March 31, 1998 financial statement) (a) greater than or equal to 1.70:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 1.70:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's June 30, 1998 financial statement and each quarterly statement thereafter) (a) greater than or equal to 2.25:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.25% or Prime plus 0% or (b) greater than or equal to 1.90:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.50% or Prime plus 0% or (c) less than 1.90:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.75% or Prime plus .25%
The Applicable LIBOR and Prime Rate Margins shall be based upon the Borrower's EBITDA Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of Borrower based upon the two (2) and three (3) immediately preceding fiscal quarters, including the quarter then ended, for the quarters ending September 30, 1997 and December 31, 1997, respectively. Beginning with the Bank's receipt of the Borrower's March 31, 1998 financial statement, the Applicable LIBOR and Prime Rate Margins shall be based upon the Borrower's EBITDA Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of Borrower based upon the four (4) immediately preceding fiscal quarters, including the quarter then ended. The applicable margins shall be redetermined quarterly on the date Bank receives quarterly financial 3 statements. Base LIBOR Rate "The Base LIBOR Rate" means the average of the rate per annum at - --------------- which U.S. dollar deposits are offered to Bank in the London interbank eurocurrency market on the second LIBOR Business Day prior to the commencement of a LIBOR interest period at or about 11:00 a.m. (London time), for delivery on the first day of such interest period, for a term comparable to the number of days in such interest period and in an amount approximately equal to the principle amount to which such interest period shall apply. Prime Rate. The "Prime Rate" is a base rate that Bank from time to time - ---------- establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within Bank. Computation and Payment. Interest shall be computed on the basis of a 360-day - ----------------------- year, actual days elapsed, and shall be payable at the times and place set forth in any promissory note of other document executed by Borrower to evidence any extension of credit by Bank. Unused Commitment Fee. Borrower shall pay to bank a fee equal to one quarter - --------------------- percent (1/4%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank. Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of each - --------------------- Letter of Credit, upon the payment of negotiation by Bank of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity. CONDITIONS PRECEDENT: Prior to Bank's extension to Borrower of any credit contemplated by this letter, all of the following shall have occurred: Loan Documents. Borrower shall have executed, or caused to be executed by any - -------------- guarantor or other party required hereby, and delivered to Bank, any and all promissory notes, contracts, instruments and other documents, including without limitation a comprehensive loan agreement, required by Bank to evidence Bank's extension of credit pursuant to the terms and conditions of this letter, all of which shall be in form and substance satisfactory to Bank and shall include, in addition to the terms and 4 conditions of this letter, such representations, warranties, conditions, covenants, events of default and other provisions as Bank deems appropriate. Financial Condition. There shall have been no material adverse change, as - ------------------- determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. Credit Checks. Bank shall have conducted and shall be satisfied with the results - ------------- of credit checks on Borrower and all other persons and entities which directly or indirectly own or control Borrower. Insurance. Borrower shall have delivered to Bank evidence of insurance coverage - --------- on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. Senior Unsecured Debt Securities. Borrower shall have delivered to Bank the - -------------------------------- proposed Bond Indenture Agreement and all related documents to be entered into by Borrower in connection with BT Securities Corporation's proposed $85 Million Senior Unsecured Debt Securities underwriting for Borrower. All of said documents shall be in form and substance satisfactory to Bank, including all proposed covenants included in said documents. Preferred and Common Stock Issuance. Borrower shall have a minimum of $50 - ----------------------------------- Million, in aggregate, in common and payment-in-kind preferred stock on its opening balance sheet, as of the transaction closing date. COVENANTS: The loan agreement required by Bank shall include such covenants as Bank may require, which may include, without limitation, (a) covenants obligating Borrower, and any guarantor or other party as required by Bank, to: provide financial statements; preserve and maintain its facilities; maintain insurance; pay taxes and other indebtedness when due; notify Bank of litigation; and maintain Borrower's financial condition at all levels and in accordance with standards acceptable to Bank; and (b) covenants restricting the ability of Borrower, or any such guarantor or other party, to: invest in fixed assets; incur lease obligations; borrow from others; create or permit liens on assets; merge; change the nature of Borrower's business; sell a substantial part of Borrower's assets; make loans or investments; pay dividends or redeem stock; or guaranty debts of others. 5 Without limiting the covenants which Bank may require in the loan agreement with Borrower, Bank has determined that such document will include Borrower's agreement: Financial Statements. To provide to Bank all of the following, in form and - -------------------- detail satisfactory to Bank: (a) not later than 90 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a Certified Public Account acceptable to Bank to include a Balance Sheet, Income Statement and Statement of Cash Flow. (b) not later than 45 days after and as of the end of each quarter, a financial statement of Borrower, prepared by Borrower, to include a Balance Sheet, Income Statement and Statement of Cash Flow. (c) from time to time such other information as Bank shall reasonably request. Litigation. To promptly give notice in writing to Bank of any litigation - ---------- pending or threatened against Borrower with a claim in excess of $1,000,000. Financial Condition. To maintain Borrower's financial condition as follows using - ------------------- generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending June 30, 1997. (a) Net Worth not less than the following amounts shown below, determined as of the end of each corresponding fiscal quarter (based upon a transaction closing date of March 31, 1997):
Fiscal Quarter Ended Amount - -------------------- ------ June 30, 1997 $49,000,000 September 30, 1997 $56,000,000 December 31, 1997 $46,000,000 March 31, 1998 $32,000,000 June 30, 1998 $50,500,000 September 30, 1998 $59,500,000 December 31, 1998 $49,000,000 March 31, 1999 $33,500,000 June 30, 1999 $55,000,000 September 30, 1999 $66,500,000 December 31, 1999 $55,000,000
(b) Net Income (net loss) after taxes not less than (not greater than) the amount set 6 forth below, determined as of the corresponding fiscal quarter for the then current fiscal year-end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended:
Fiscal Quarter Ended Amount - -------------------- ------ March 31, 1998 ($5,000,000) June 30, 1998 ($2,500,000) September 30, 1998 ($500,000) December 31, 1998 ($1,000,000) March 31, 1999 ($2,500,000) June 30, 1999 $0 September 30, 1999 $2,500,000 December 31, 1999 $1,500,000
(c) EBITDA Coverage Ratio not less than the ratio set forth below, determined as of the end of the corresponding fiscal quarter for the then current fiscal year end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt:
Quarter Ended Minimum EBITDA Coverage Ratio - ------------- ----------------------------- September 30, 1997 5.75:1.00* December 31, 1997 3.20:1.00* March 31, 1998 1.50:1.00 Each fiscal quarter thereafter 1.75:1.00
* The EBITDA Coverage Ratios calculated for the quarters ending September 30, 1997 and December 31, 1997 are based upon the two (2) and three (3) immediate preceding fiscal quarters, including the fiscal quarter then ended, respectively. (d) The sum of the aggregate amount of all outstanding borrowings under the Line of Credit (including advances and Letters of Credit) shall not, as of the end of any quarter, exceed a borrowing base ("Borrowing Base") which is: (i) eighty percent (80%) of Borrower's outstanding accounts receivable, plus (ii) (A) for each quarter ending March 31, sixty percent (60%) of the value of Borrower's inventory, or (B) for each remaining quarter end, fifty percent (50%) of the value of Borrow's inventory, with "value" defined as the lower of cost or market value; provided however, that in the event such borrowings exceed the Borrowing -------- ------- Base at the end of any quarter, an Event 7 of Default shall not exist unless Borrower fails to cure such default within twenty (20) days after Borrower receives written notice from Bank that borrowings exceeded the Borrowing Base. Bank shall have no obligation to make new advances under the Line of Credit or issue new Letters of Credit during such cure period. (e) Funded Debt Ratio not greater than the ratio set forth below, determined as of the end of the corresponding fiscal quarter for the then current fiscal year end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended, with "Funded Debt" defined as all indebtedness or obligations of Borrower for borrowed money, all obligations evidenced by notes, bonds, debentures or similar instruments, all obligations under capital leases, and all reimbursement or other obligations of Borrower under or in respect of letters of credit, and "Funded Debt Ratio" defined as Funded Debt divided by EBITDA:
Fiscal Quarter Ended Maximum Funded Debt Ratio - -------------------- ------------------------- September 30, 1997 3.00:1.00* December 31, 1997 4.15:1.00* March 31, 1998 7.25:1.00 Each fiscal quarter thereafter 5.00:1.00**
* The Funded Debt Ratios calculated for the quarters ending September 30, 1997 and December 31, 1997 are based upon the two (2) and three (3) immediate preceding fiscal quarters, including the fiscal quarter then ended, respectively. ** Except for the quarter ending March 31, 1999, at which time the Maximum Funded Debt Ratio shall be 5.75:1.00. Capital Expeditures. Not to mako any additional investment in fixed assets in - ------------------- excess of an aggregate of $4,000,000 for the nine months ended December 31, 1997, $9,000,000 for 1998 and $10,500,000 for 1999. Other Indebtedness. Not to create, incur, assume or permit to exist any - ------------------ indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other existing liabilities disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to borrower, including but not limited to an $85,000,000 Senior Unsecured bond issuance to be underwritten by BT Securities Corporation. Merger Consolidation Transfer of Assets. Not to merge into or consolidate with - --------------------------------------- any other entity; nor to make any substantial change in the nature of Borrower's business as presently conducted; nor to acquire all or substantially all of the assets or any other 8 entity; nor to sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. Guaranties. Not to guarantee or become liable in any way as surety, endorser - ---------- (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor to pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. Loans, Advances, Investments. Not to make any loans or advances to or - ---------------------------- investments in any person or entity, except any of the foregoing disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to Borrower and additional loans or advances to employees in amounts not to exceed an aggregate of $250,000 outstanding at any one time. Dividends, Distributions. Not to declare or pay any dividend or distribution - ------------------------ either in cash, stock or any other property on Borrower's stock now or hereafter outstanding; nor to redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. Pledge of Assets. Not to mortgage, pledge, grant or permit to exist a security - ---------------- interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to Borrower. ADDITIONAL TERMS AND PROVISIONS: Whether or not any credit is extended to Borrower or a loan agreement or any other documents are agreed to and executed, Borrower shall be liable for and shall pay to Bank, immediately upon demand, the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with the negotiation and/or preparation of this letter, any such loan agreement, and any other contracts, instruments and documents required hereunder or thereunder, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. This letter shall be governed by and construed in accordance with the laws of the State 9 of California. Upon demand of any party, any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, arising under or in any way pertaining to this letter or any extensions of credit or other activities, transactions or obligations of any kind related hereto, shall be resolved by binding arbitration administered by the American Arbitration Association ("AAA") in accordance with the AAA Commercial Arbitration Rules and the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision herein. Bank's current standard provision governing arbitration of disputes is deemed incorporated herein as though set forth in full and shall be included in full in the loan agreement and/or other contracts, instruments and documents required hereby. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration. The commitment set forth herein is personal to Borrower and may not be transferred or assigned without the prior written consent of Bank. Neither this letter, nor any portions hereof, may be disclosed or exhibited to any person or entity without the prior written consent of the Bank. Bank reserves the right to terminate this commitment at any time prior to receipt by Bank of a copy of this letter executed below by Borrower. Your acknowledgment of this letter shall constitute acceptance of the foregoing terms and conditions. Unless accepted or terminated, this commitment shall expire on February 15, 1997. If the loan documentation required by Bank hereunder is not completed and the credit contemplated hereby has not been extended by Bank to Borrower for any reason by April 30, 1997, then this commitment shall expire on said date. Sincerely, WELLS FARGO BANK NATIONAL ASSOCIATION By: /s/ Brian Carrico ----------------------- Title: Vice President -------------------- 10 Acknowledged and accepted as of _________________. - ----------------------------- By: -------------------------- Title: ----------------------- By: -------------------------- Title: ----------------------- 11 EX-19.B 13 LETTER DATED 2-21-97 FROM WELLS FARGO TO ISSUER EXHIBIT 19-B [LETTERHEAD OF WELLS FARGO BANK] February 21, 1997 Robert Olsen Chief Financial Officer Leslie's Poolmart 20222 Plummer Street Chatsworth, CA 91311 Dear Bob: This letter is to confirm that Wells Fargo Bank, National Association ("Bank"), subject to all terms and conditions contained herein, has agreed to extend from February 15, 1997 until March 15, 1997 the date on which Bank's commitment letter from Bank to Leslie's Poolmart, a California Corporation ("Borrower") date January 14, 1997 will expire. As an additional condition precedent to the credit accommodation described therein, not less than 95% of Borrower's common equity ownership, at closing, shall be held by the following parties: Leonard Green Partners, Existing Management and Directors; and Occidental Petroleum Corporation. Except as expressly provided herein, all terms and conditions of said commitment letter shall continue in full force and effect without waiver or modification. Without limiting the forgoing, Bank reserves the right to terminate its commitment at any time prior to receipt by Bank of a copy of the commitment letter executed by Borrower. Your acknowledgment of this letter shall constitute acceptance of the foregoing terms and conditions. Sincerely, WELLS FARGO BANK, N.A. /s/ Brian Carrico Brian Carrico Vice President Accepted and Agreed to: LESLIE'S POOLMART By: -------------------- Title: ----------------- Date: , 1997 ------------------ -----END PRIVACY-ENHANCED MESSAGE-----