10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended: October 3, 2009

or

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

For the transition period from              to             .

Commission file number: 0-18741

LESLIE’S POOLMART, INC.

(Exact name of registrant as specified in its charter)

Delaware	95-4620298
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

3925 E. Broadway Road, Suite 100

Phoenix, Arizona 85040

(Address of principal executive offices)

Registrant’s telephone number, including area code: (602) 366-3999

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to section 13 or Section 15(d).    Yes  x    No  ¨

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K.  x

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

Large Accelerated Filer  ¨     Accelerated Filer  ¨     Non-Accelerated Filer  x     Smaller reporting company  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)    Yes  ¨    No  x

APPLICABLE ONLY TO CORPORATE REGISTRANTS:

The number of shares of common stock outstanding as of December 23, 2009 was 100.

TABLE OF CONTENTS

For the Fiscal Year Ended October 3, 2009

		Page
	PART I
Item 1.	Business	3
Item 1A.	Risk Factors	7
Item 1B.	Unresolved Staff Comments	9
Item 2.	Properties	10
Item 3.	Legal Proceedings	11
Item 4.	Submission of Matters to a Vote of Security Holders	11
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities	12
Item 6.	Selected Financial Data	13
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	22
Item 8.	Financial Statements and Supplementary Data	23
Item 9.	Changes in and Disagreements with Accountants On Accounting and Financial Disclosure	43
Item 9A.	Controls and Procedures	43
Item 9B.	Other Information	44
	PART III
Item 10.	Directors and Executive Officers of the Registrant	45
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	60
Item 13.	Certain Relationships and Related Transactions	60
Item 14.	Principal Accountant Fees and Services	61
	PART IV
Item 15.	Exhibits and Financial Statement Schedules	63

2

PART I

ITEM 1. BUSINESS

Leslie’s Poolmart, Inc. (“Leslie’s” or the “Company”) is the leading national specialty retailer of swimming pool supplies and related products. These products primarily consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company currently markets its products under the trade name Leslie’s Swimming Pool Supplies through 622 company-owned retail stores in 35 states, mail order catalogs sent to selected pool owners nationwide, and an internet web store.

The Company provides its customers a comprehensive selection of high quality products, competitive every day low prices and superior customer service through knowledgeable and responsive sales personnel who offer a high level of technical assistance at convenient store locations. The typical Leslie’s store is located in an area with high concentrations of swimming pools and approximates 3,800 square feet of space. The typical store is located either in a strip center or on a freestanding site in an area of heavy retail activity, and draws its customers primarily from an approximately five-mile trade area. The Company maintains a proprietary mailing list of approximately 7.8 million addresses, including over 90% of the residential in-ground pools in the U.S. This highly focused list of target customers is central to the Company’s direct mail marketing efforts, which supports its retail stores, mail order operations and web store.

The Company is a wholly-owned subsidiary of Leslie’s Holdings, Inc. (“Holdings”) and was incorporated as a Delaware corporation in 1997. The Company’s principal executive offices are located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the telephone number at that address is (602) 366-3999. Leslie’s corporate website address is www.lesliespool.com.

See Item 8, Financial Statements and Supplementary Data, for financial information.

Swimming Pool Supply Industry

We market our products and services in the estimated $5.0 billion U.S. swimming pool and spa supply industry, which can be divided into four major segments: residential in-ground swimming pools, residential above-ground pools (usually 12 to 24 feet in diameter), commercial swimming pools and spas or hot tubs. According to market research firm P.K. Data, the installed base of residential in-ground pools, above-ground pools and spas and hot tubs in the United States has grown from just under 9.8 million in 1995 to over 14.8 million in 2008, and is projected to grow to over 16.5 million by 2012. Both historic and new pool unit growth is highly correlated to macroeconomic housing trends, as approximately 60% of all in-ground swimming pools are built as part of new home construction.

Regardless of the type or size of a swimming pool, there are numerous ongoing maintenance and repair requirements associated with pool ownership. In order to keep a pool safe and sanitized, chemical treatment is required to maintain proper chemical balance, particularly in response to variables such as pool usage, precipitation and temperature. A swimming pool is chemically balanced when the disinfectant, pH, alkalinity, hardness and dissolved solids are at the desired levels. The majority of swimming pool owners use chlorine to disinfect their pools. When the pool is chemically balanced, problems such as algae, mineral and salt saturation, corrosive water, staining, eye irritation and strong chlorine smell are less likely to occur. A regular testing and maintenance routine will result in a stable and more easily maintained pool. However, regardless of how well appropriate levels of chlorine are maintained, “shocking” is periodically required to break up the contaminants which invariably build up in the pool water. To accomplish this, the pool owner can either super-chlorinate the pool or use a nonchlorinated oxidizing compound. The maintenance of proper chemical balance and the related upkeep and repair of swimming pool equipment, such as pumps, heaters, and filters, as well as safety equipment, create a non-discretionary demand for pool chemicals and other swimming pool supplies and services. Further,

3

non-usage considerations such as a pool’s appearance and the overall look of a household and yard create an ongoing demand for these maintenance related supplies. In addition, pool usage creates demand for discretionary items such as floats, games and accessories.

The Company’s historical strategy has been to focus primarily on the residential in-ground pool owner. In recent years, the Company has expanded its activities to more aggressively address the commercial, above-ground and spa markets as well. In the residential categories, the Company markets its products primarily to the “do-it-yourself” market as opposed to those pool owners who hire pool servicers. Through its commercial business, products and services are offered to commercial property managers, non-residential pool installers, as well as to pool service companies which maintain either residential or commercial pools.

Seasonality

The Company’s business exhibits substantial seasonality, which the Company believes is typical of the swimming pool supply industry. In general, sales and net income are highest during the quarters ended June and September that represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the Company typically incurs net losses. The principal external factor affecting the Company’s business is weather. Hot weather and the higher frequency of pool usage in such weather create a need for more pool chemicals and supplies. Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season will tend to decrease swimming pool use. The likelihood that unusual weather patterns will severely impact the Company’s results is lessened by the geographical diversification of the Company’s store locations.

The Company also expects that its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending March in order to position itself for the following peak season.

Products

Leslie’s offers its customers a comprehensive selection of products necessary to satisfy their swimming pool supply needs. During 2009, the Company stocked approximately 700 items in each store, with more than 30,000 additional items available through its other channels of distribution and special order processes. In 2009, approximately 800 items were displayed in the Company’s residential mail order catalogs, approximately 2,400 items were offered through the Company’s web store and 1,200 items were in the commercial catalog, although special order procedures make nearly all Leslie’s products available to these customers as well. In fiscal year 2009, Leslie’s brand name products accounted for 53% of the Company’s total sales.

The Company’s major product categories are pool chemicals; major equipment; cleaning and testing equipment; safety equipment; pool covers, reels and liners; above-ground pools in a limited number of stores; and recreational items (which include swimming pool floats, games, lounges, masks, fins, snorkels and other “impulse purchase” items).

Non-discretionary and regularly consumed products such as pool chemicals, major equipment and parts represented 85% of total sales in fiscal year 2009. The Company’s non-discretionary products typically have long shelf lives and are generally not prone to either obsolescence or shrinkage which could occur from changing technology or consumer buying patterns.

Channels of Distribution

Retail Store Operations. At the end of fiscal year 2009, Leslie’s marketed its products through 622 retail stores in 35 states under the trade name Leslie’s Swimming Pool Supplies. California represents its single largest

4

concentration of stores with 137 stores, while 112 stores are located in Texas, and over 110 stores are in the northeast/mid-Atlantic states. Leslie’s retail stores are located in areas with high concentrations of swimming pools and typically are approximately 3,800 square feet in size. In addition to the store manager, the typical Leslie’s store employs one assistant manager, who is generally a full-time employee. Additionally, Leslie’s makes frequent use of part-time and temporary employees to support its full-time employees during peak seasons. During 2009, the Company had 6 regional vice presidents and 41 district managers. Each district manager was responsible for approximately 15 stores.

Mail Order Catalog and Internet Web Store. Leslie’s mail order catalogs provide an extension of its service philosophies and products to those areas not currently served by a retail store and allow the scope of the Company’s business to be truly nationwide. The Company also operates a web store (www.lesliespool.com) providing online customers with thousands of products available for ordering and important information on pool cleaning, equipment, sanitation, and safety advice. The virtual store allows customers an opportunity to shop online and the ability to retrieve relevant information, 24 hours a day, seven days a week. The Company believes that its mail order catalogs and web store build awareness of the Leslie’s name, provide it with buying and direct marketing efficiencies and, when coupled with information from its retail stores, are instrumental in determining site selection for new stores.

Customer Service

Due to the complicated nature of pool chemistry and equipment maintenance and consistent with its philosophy of being a full service swimming pool supply retailer, Leslie’s offers a high level of technical assistance to support its customers. The Company considers its training of store personnel to be an integral part of its service philosophy. Leslie’s extensive training program for all full-time and part-time store employees includes courses in water chemistry, water testing, trouble shooting on equipment, equipment sizing and parts replacement.

A significant number of Leslie’s stores are supported by the Leslie’s Service Department, which offers poolside equipment installation and repair, leak detection and repair, and seasonal opening and closing services. The Service Department utilizes both Company employees and subcontractors to perform these services.

Marketing

The majority of the Company’s marketing is done on a direct mail basis through its proprietary mailing list of approximately 7.8 million addresses at which, primarily, residential pools are located. Leslie’s has found that its ability to mail directly to this highly targeted group is an effective and efficient way to conduct its marketing activities to both retail store and mail order customers. The Company constantly updates its address list through proprietary research techniques and in-store customer sign-ups.

Addresses on the Company’s proprietary list that are located within a specified service area of a retail store receive circulars once or twice per month from late March or early April through September or, selectively, through October. As a regular part of Leslie’s promotional activities, each mailer highlights specific items which are intended to increase store traffic, and reinforces to the customer the advantages of shopping at Leslie’s, which include everyday low pricing, knowledgeable employees, a high level of customer service, and a broad selection of high quality products. Addresses outside the Company’s store service areas, and recently active mail order customers within those service areas, receive the Company’s mail order catalogs. The Company also markets through online channels using its proprietary database, search engines and other online media. The Company utilizes local print media when it enters a new market, and does so regularly in connection with its above-ground pool sales markets. New store openings typically involve additional advertising in the first two to three months of operation.

5

Purchasing

Leslie’s management believes that because it is one of the largest purchasers of swimming pool supplies for retail sales in the United States, the Company is able to obtain very favorable pricing on its purchases from outside suppliers. Most raw materials and those products not repackaged by the Company are purchased directly from manufacturers. It is common in the swimming pool supply industry for certain manufacturers to offer extended dating terms on certain products to quantity purchasers such as Leslie’s. These dating terms are typically available to the Company for pre-season or early season purchases.

The Company’s principal chemical raw materials and granular chlorine compounds are purchased primarily from three suppliers. At the beginning of the 2009 fiscal year, the Company extended a multi-year product purchase agreement with a major producer of one of the principal chlorine compounds, the chlorinated isocyanurates. The Company believes there are several other reliable suppliers of chlorine products in the marketplace today and termination of supply would not pose any significant problems because substitute chemicals and alternate shocking techniques are available. The Company believes that reliable alternative sources of supply are available for all of its raw materials and finished products.

Vertical Integration

Leslie’s operates a plant in Ontario, California where it converts dry granular chlorine into tablet form and repackages a variety of bulk chemicals into various sized containers suitable for retail sales. Leslie’s also formulates a variety of specialty liquids, including water clarifiers, tile cleaners, algaecides and stain preventives. The chemicals the Company processes have a relatively long shelf life. Leslie’s believes that supplying its stores with chemicals from its own repackaging plant provides it with cost savings, as well as greater control over product availability and quality, as compared to non-integrated pool supply retailers. It also offers the Company greater flexibility of product sourcing and vital information when negotiating with third-party repackagers and chemical providers. The Leslie’s branded product names appear on all products processed at its repackaging plant, and on the majority of its chemical products. The Company believes it is among the largest processors of chlorine products for the swimming pool supply industry.

In connection with the operation of its four distribution centers outside of California, the Company has expanded its use of third-party chemical repackagers and its purchase of products already in end-use configurations. These products are also generally packaged under the Leslie’s brand name. The Company continually evaluates the cost effectiveness of third-party sourcing versus internal manufacturing in order to minimize its cost of goods. The Company also operates a packaging operation of specialty items at its Hebron, Kentucky distribution facility. In addition to chemicals, a variety of the Company’s other products are packaged under the Leslie’s brand name.

Distribution

In 2009, the Company distributed its products to its retail stores and to its catalog customers through its leased distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Hebron, Kentucky; and Orlando, Florida.

The Company purchases the majority of the chemicals to be distributed from the Dallas, Swedesboro and Hebron distribution centers from outside manufacturers rather than obtaining them through its repackaging facility in Southern California. During the height of its seasonal activities, each of the Company’s retail store’s inventory is generally replenished every 5 to 7 days.

The Company utilizes a variety of leased and owned equipment, supplemented by additional equipment leased during the busy season, to transport its goods to stores.

6

Competition

Competition within the pool supply industry is highly fragmented and largely populated by local “mom and pop” stores and regional chains. Based on the number of stores, the Company estimates that the next largest specialty pool supply retailer is less than one-third of its size. Mass merchant and home improvement chains participate in the category on a seasonal basis. While the ability of these merchants to accept low margins on the limited number of items they offer makes them aggressive price competitors of the Company, they are not generally priced significantly below Leslie’s and do not offer the level of customer service or wide selection of swimming pool supplies available at Leslie’s.

Employees

As of October 3, 2009, Leslie’s employed approximately 2,280 persons. During the height of the Company’s seasonal activities in 2009, it employed approximately 3,100 persons, including seasonal and part-time store employees who generally are not employed during the off season. The Company is not subject to any collective bargaining agreements and believes its overall relationship with its employees is good.

Trademarks

In the course of its business, Leslie’s employs various trademarks, trade names and service marks as well as its logo in packaging and advertising its products. The Company has registered trademarks and trade names for several of its major products on the Principal Register of the United States Patent and Trademark Office. The Company distinguishes the products produced in its chemical repackaging operation or by third party repackagers at its direction through the use of the Leslie’s brand name and logo and the trademarks and trade names of the individual items, none of which is patented, licensed, or otherwise restricted to or by the Company. The Company believes the strength of its trademarks and trade names has been beneficial to its business and intends to continue to protect and promote its trademarks in appropriate circumstances.

Environmental Compliance

In the course of its business, Leslie’s operates chemical repackaging facilities and stores chemicals in our retail stores and distribution facilities. Because some of the chemicals we repackage and store are flammable or combustible compounds, we must comply with various regulations under federal, state and local environmental, health, transportation and safety requirements. Leslie’s believes that its internal training curriculum and compliance programs ensure that its employees follow the applicable operating procedures and regulations.

ITEM 1A. RISK FACTORS

Certain factors that may affect our business and could cause actual results to differ materially from those expressed in any forward-looking statements include the following:

A small group of stockholders in the holding company are able to exercise control over our business.

The Company is a wholly-owned subsidiary of Holdings. The principal stockholders of Holdings are GCP California Fund, L.P. (“GCP”) and additional affiliates of Leonard Green & Partners, L.P. (“LGP”). Through their ownership or control of over 75% of the outstanding shares of the Company’s common stock, these stockholders have the power to elect a majority of the Leslie’s Board of Directors. Accordingly, those stockholders have the power to approve all amendments to the Company’s certificate of incorporation and bylaws and to effect fundamental corporate transactions such as mergers, asset sales and public offerings.

Our continued success depends on our successful expansion in new and existing markets.

The Company’s continued growth depends to a significant degree on its ability to open new stores in existing and new markets and to operate these stores on a profitable basis. To a lesser extent, the Company’s

7

continued growth depends on increasing comparable store sales. The Company opened 36 net new stores in 2007, 27 net new stores in 2008 and 18 net new stores in 2009. We cannot assure that we will be able to open new stores in a timely manner; hire, train and integrate employees; continue locating and obtaining favorable store sites; and adapt distribution, management information and other operating systems to the extent necessary to grow in a successful and profitable manner. Further, we cannot assure that the Company’s new stores will achieve historical levels of sales or profitability. Because the Company’s new stores generally have lower operating margins following their opening than mature stores, the opening of a large number of stores could have an adverse effect on total operating margins. Additionally, the Company’s expansion plans could be adversely affected by a significant downturn in the economy and resulting decrease in new home and swimming pool construction. We expect that the Company’s quarterly results of operations will fluctuate depending on the timing and the amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores.

Our business is highly seasonal and results of operations fluctuate as a result of weather conditions.

Our business exhibits substantial seasonality which we believe is typical of the swimming pool supply industry. In general, sales and earnings are highest during the quarters ending in June and September, which represent the peak months of swimming pool use. Typically, all of the Company’s operating income is generated in these two quarters which offsets the operating losses incurred in each of the other two quarters. Our business is significantly affected by weather patterns. For example, unseasonably late warming trends can decrease the length of the pool season, and unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season may decrease swimming pool use, resulting in lower maintenance needs and decreased sales.

We may not be able to successfully compete with large volume mass merchants.

Most of the Company’s competition comes from local stores or regional chains which do not typically repackage products and which generally buy products in smaller quantities. The chain store competitors include a large franchise operator of approximately 200 retail outlets in the Florida market and a limited number of other retail chains of approximately 15 to 30 stores. We compete on selected principal products with large-volume mass merchants and home centers which offer a limited selection of pool supplies as compared to us. Should mass merchants increase the breadth of their pool related product offerings, it would likely have an adverse effect on our business. There are no proprietary technologies or other significant barriers to prevent other firms from entering the swimming pool supply retail market in the future. Competition could adversely impact the Company’s sales and operating margins.

Our business may be adversely affected by an economic downturn.

Consumer demand for swimming pool related products may decline if discretionary spending declines as a result of a downturn in the economy. While spending for maintenance, repairs and replacement by existing pool owners must occur to maintain existing swimming pools, a portion of the Company’s growth depends on the continued expansion of the installed swimming pool base, which may be considered a discretionary expenditure and could be negatively affected by a difficult economy.

Our business includes the packaging and storage of chemicals and an accident related to those chemicals could subject us to liability and increased costs.

We operate chemical repackaging facilities in Ontario, California and Hebron, Kentucky and we store chemicals in our retail stores and in distribution facilities in Ontario, California; Dallas, Texas; Swedesboro, New Jersey; Orlando, Florida; and Hebron, Kentucky. Because some of the chemicals we repackage and store are flammable or combustible compounds, we must comply with various fire and safety ordinances. However, a release at a retail store or a fire at one of the Company’s facilities could give rise to liability claims against us. In addition, if an incident involves a repackaging or distribution facility, we might be required temporarily to use

8

alternate sources of supply that could increase the Company’s cost of sales. We believe that we maintain adequate insurance coverage. However, due to changes in the insurance industry that have led to higher costs, we can not guarantee that we will be able to maintain adequate insurance at reasonable rates or that the Company’s insurance coverage will be adequate to cover future claims that may arise.

Our business is subject to compliance with environmental, health, transportation and safety regulations.

We are subject to various regulations under federal, state and local environmental, health, transportation and safety requirements. These regulations govern the storage and sale of pool chemicals, as well as packaging, labeling, handling, and transportation of those products. Failure to comply with these laws may result in the assessment of civil and criminal penalties. Compliance with such laws in the future may be costly, as the trend in such regulations has been increasingly restrictive on activities that impact the environment.

We are dependent on key personnel and the loss of their services could adversely affect us.

We believe that the Company’s success is largely dependent upon the abilities and experience of its senior management team. The loss of services of one or more of these senior executives could adversely affect the Company’s results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

9

ITEM 2. PROPERTIES

As of October 3, 2009, the Company operated 622 stores in 35 states. The following table sets forth information concerning the Company’s stores:

State	Number of Stores
Alabama	6
Arizona	69
Arkansas	2
California	137
Connecticut	9
Delaware	2
Florida	66
Georgia	26
Illinois	6
Indiana	8
Iowa	1
Kansas	3
Kentucky	4
Louisiana	7
Maryland	6
Massachusetts	7
Michigan	7
Mississippi	1
Missouri	9
Nebraska	1
Nevada	17
New Hampshire	2
New Jersey	22
New Mexico	2
New York	22
North Carolina	6
Ohio	13
Oklahoma	9
Pennsylvania	19
Rhode Island	1
South Carolina	5
Tennessee	7
Texas	112
Utah	1
Virginia	7
Total Stores	622

Except for 25 owned stores, the Company has leases on the remaining retail stores with lease terms expiring between 2009 and 2020. The Company’s typical lease term is five years, and in many instances, the Company has renewal options at increased rents. Three leases provide for rent contingent on sales exceeding specific amounts. No other leases require payment based on a percentage rent.

The Company’s corporate office is located in Phoenix, Arizona. The 54,000 square foot office space is leased until June 2014.

10

The Company’s Southern California distribution center is located in a 183,000 square foot facility in Ontario, California. The Ontario facility is leased, expiring in 2014 and the lease has one five-year renewal option.

The Company’s distribution facility in Dallas, Texas contains 126,000 square feet of space. The lease of this facility was renewed in 2005 and is scheduled to expire in 2015, with one five-year option thereafter. The 130,500 square foot distribution facility in Swedesboro, New Jersey is leased for a 5-year term, expiring in 2013. The lease includes options to renew for two five-year periods. The 146,000 square foot distribution center in Hebron, Kentucky is leased for a 12-year term, expiring in 2010 and provides for three five-year renewal options. The 20,500 square foot distribution center in Orlando, Florida is leased for a 5-year term and expires in 2009. The Company will not be exercising its renewal option at this location and has instead entered into an 8 year lease in a nearby 30,300 square foot facility. The lease expires in 2017 and includes options to renew for two five-year periods thereafter.

ITEM 3. LEGAL PROCEEDINGS

The Company is routinely involved in legal proceedings involving claims related to the ordinary course of its business. While the outcome of any litigation is inherently unpredictable, the Company does not believe that the ultimate resolution of any of these matters will have a material adverse impact on the Company’s financial condition, results of operations or cash flows. The Company is currently not party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

11

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company became a subsidiary of Holdings during February 2007, pursuant to a tax-free reorganization in which the Company’s shareholders became shareholders of Holdings in the same proportions (the “2007 Reorganization”). As a result of the 2007 Reorganization, each share of outstanding common stock of the Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation.

There is no public trading market for the Company’s common stock. As of December 23, 2009, all common stock was owned by Holdings.

On July 16, 2007, the Company’s board of directors declared a cash dividend of $15.0 million on the Company’s common stock, par value $0.001 per share, to Holdings as its sole common stockholder of record on that date, in an aggregate amount. The cash dividend was paid on August 1, 2007. On January 28, 2008, the Company’s board of directors declared a cash dividend of $7.5 million on the Company’s common stock which was paid on February 1, 2008. On July 30, 2008, the Company’s board of directors declared a cash dividend of $8.8 million on the Company’s common stock which was paid on August 1, 2008. On January 29, 2009, the Company’s board of directors declared a cash dividend of $3.9 million on the Company’s common stock which was paid on February 2, 2009. On July 29, 2009, the Company’s board of directors declared a cash dividend of $5.5 million on the Company’s common stock which was paid on August 3, 2009. The payment of dividends is restricted, but not prohibited, by the agreements and instruments governing the Company’s indebtedness. The Company contemplates that dividends may be declared in future periods based upon the liquidity position of the Company.

Equity Compensation Plan Information:

Holdings, the parent of the Company, has reserved 1.3 million shares of nonvoting common stock for issuance under its 2005 Incentive Stock Option Plan (the “2005 Plan”) and reserved an additional 1.0 million shares of nonvoting common stock for issuance in November 2007. As of October 3, 2009, there were 834 thousand equity awards outstanding under the 2005 Plan, of which the majority were issued to employees of the Company.

12

ITEM 6. SELECTED FINANCIAL DATA

SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected consolidated financial data of the Company as of and for the fiscal years ended October 3, 2009, September 27, 2008, September 29, 2007, September 30, 2006 and October 1, 2005. The fiscal year ended October 3, 2009 consists of 53 weeks, and all other fiscal years presented consist of 52 weeks. This financial data was derived from the audited historical consolidated financial statements of the Company and should be read in conjunction with the consolidated financial statements of the Company and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

	Fiscal Years Ended
(Dollar Amounts in Thousands)	October 3, 2009			September 27, 2008			September 29, 2007			September 30, 2006			October 1, 2005
Operating Results:
Sales	$	509,642		$	488,818		$	468,882		$	440,565		$	388,506
Gross profit		210,173			193,091			179,880			166,109			139,944
Gross margin		41.2	%		39.5	%		38.4	%		37.7	%		36.0	%
Loss on disposition of fixed assets		626			385			186			600			703
Depreciation and amortization		13,183			12,385			12,619			11,789			11,881
Operating income(1)		87,803			79,461			69,673			56,800			23,905
Interest expense, net		13,804			13,058			14,712			19,397			18,834
Net income (loss)(1)		46,234			40,476			32,226			20,505			(4,422	)
Balance Sheet Data:
Working capital		108,818			84,459			66,657			43,213			23,657
Total assets		258,262			232,993			199,639			178,727			142,405
Long-term debt(2)		163,243			167,000			169,080			168,946			175,954
Redeemable preferred stock(2)		—			—			—			41,000			41,000
Stockholder’s equity (deficit)(2)		8,653			(28,358	)		(52,611	)		(122,224	)		(142,557	)
Selected Operating Data:
Capital expenditures		20,411			17,070			13,122			11,180			12,305
Recapitalization and restructuring charges(1,3)		—			—			—			—			26,869
Adjusted EBITDA(1,3)		101,789			92,308			82,788			69,189			54,477
Adjusted EBITDA margin(1,2,4)		20.0	%		18.9	%		17.7	%		15.7	%		14.0	%
Cash flow from operating activities		65,413			41,128			46,321			55,058			26,747
Cash flow used in investing activities		(503	)		(36,831	)		(12,626	)		(10,950	)		(12,168	)
Cash flow used in financing activities(1)		(13,577	)		(18,480	)		(12,918	)		(7,276	)		(29,174	)
Number of employees		2,268			2,289			2,235			2,201			2,026
Number of stores		622			604			577			541			541
Comparable store sales growth(5)		1.3	%		1.7	%		3.1	%		9.2	%		6.4	%

(1) During 2005 and as part of the 2005 Recapitalization described in Note 1 to the consolidated financial statements, the Company recognized $26.9 million in unusual charges for the following costs associated with the transaction:

(in thousands)	2005
Unusual operating charges (included in sales, general and administrative expense):
Stock and other compensation expense	$	17,988
Other unusual operating charges (included in other expense as “Recapitalization expense”):
Bond tender consideration and premium		3,246
Preferred stock premium		470
Miscellaneous, legal and advisory fees		2,904
Unamortized discount on preferred stock		571
Write-off debt issuance costs		1,690
Total		8,881
Total unusual charges	$	26,869

13

(2) In the first quarter of 2005 and as part of the 2005 Recapitalization, the Company issued an aggregate of $170.0 million principal amount of its 7.75% Senior Notes due 2013. Further, $41.0 million of a new series of 10% senior redeemable exchangeable cumulative preferred stock was issued as part of the 2005 Recapitalization.

(3) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense, write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (“GAAP”), but is used by some investors to determine a Company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Loss/(gain) on disposition of fixed assets and stock compensation expense are eliminated because we believe it enhances investors understanding of the company’s results, net of these non-cash charges. Adjusted EBITDA should not be construed as an indicator of a Company’s operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data which are all prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.

The calculation of Adjusted EBITDA is shown as follows:

	Fiscal Years Ended
(Amounts in Thousands)	October 3, 2009			September 27, 2008			September 29, 2007		September 30, 2006		October 1, 2005
Net income (loss)	$	46,234		$	40,476		$	32,226	$	20,505	$	(4,422	)
Depreciation and amortization		13,183			12,385			12,619		11,789		11,881
Stock compensation expense		177			77			139		—		17,988
Recapitalization expenses		—			—			171		—		7,191
Gain on debt extinguishment		(357	)		(102	)		—		—		—
Interest expense, net		13,804			13,058			14,712		19,397		18,834
Write-off of debt issuance costs		—			—			—		—		1,690
Loss on disposition of assets		626			385			186		600		703
Income tax expense		28,122			26,029			22,735		16,898		612
Adjusted EBITDA	$	101,789		$	92,308		$	82,788	$	69,189	$	54,477

(4) Adjusted EBITDA Margin represents Adjusted EBITDA as a percentage of sales.

(5) The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

14

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information included in this document (as well as information included in oral statements or other written statements made or to be made by the Company) contains statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to the Company’s capital structure, weather conditions, domestic economic conditions, activities of competitors, seasonality, changes in federal or state tax laws and the administration of such laws.

OVERVIEW

Leslie’s is the leading national specialty retailer of swimming pool supplies and related products. The Company offers a broad range of products that consist of regularly purchased, non-discretionary pool maintenance items such as chemicals, equipment, cleaning accessories and parts, and also include fun, safety and fitness-oriented recreational items. The Company markets its products through 622 company-owned retail stores in 35 states and through catalogs and other offerings made available to select residential and commercial pool owners nationwide via mail order and Internet channels.

The typical Leslie’s store approximates 3,800 square feet of space, is located either in a strip center or on a freestanding site in an area of heavy retail activity, and draws its customers primarily from an approximately five-mile trade area. Of the 622 stores, the Company operates 20 commercial service center formats that average approximately 11,000 square feet of space and are located primarily in industrial type real estate space. These centers are designed to cater to the Company’s existing non-residential commercial and service customers and provide more customized service than is typically available at the other retail locations.

Results of Operations

As is described in Note 2 to the financial statements, the Company presents store occupancy costs in cost of sales and such classification is presented below for all periods.

The following table sets forth certain statements of income data expressed as a percentage of sales for the periods indicated.

	Fiscal Years Ended
	October 3, 2009		September 27, 2008		September 29, 2007
Sales	100.0	%	100.0	%	100.0	%
Cost of sales	58.8		60.5		61.6
Gross margin	41.2		39.5		38.4
Selling, general and administrative expense	23.9		23.2		23.5
Loss on disposal of fixed assets	0.1		0.1		0.0
Operating income	17.2		16.2		14.9
Other expense	2.6		2.6		3.2
Income tax expense	5.5		5.3		4.8
Net income	9.1	%	8.3	%	6.9	%

Fiscal year 2009 compared to fiscal year 2008:

For the 53 weeks ended October 3, 2009, sales increased 4.3% to $509.6 million from $488.8 million in the 52 weeks of 2008. Of the 4.3% increase in sales, approximately 26% is attributable to an increase in comparable store sales and approximately 37% was due to the addition of 18 new store locations. The remaining increase is attributed to sales in the 53^rd week in 2009.

15

Comparable store sales increased 1.3% on a 52 week basis, as compared to the prior year. The comparable store sales increase was primarily attributable to favorable weather conditions in many of the Company’s markets. For definition purposes, a store is considered a comparable store in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.

Gross profit for the fiscal year ended October 3, 2009 improved to $210.2 million or 41.2% of sales, as compared to $193.1 million or 39.5% in 2008. Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs, related distribution costs and retail occupancy costs. Gross profit dollars improved by $17.1 million due to the increase in sales. Other significant factors contributing to the increase in gross profit include additional rebates from suppliers, as well as increases due to sales from higher margin products.

In 2009, total operating expenses were $122.4 million, versus $113.6 million during the 52 weeks of 2008, an increase of 7.7%. Operating expenses as a percentage of sales were 24.0% for the 53 weeks of fiscal year 2009 compared to 23.2% for the 52 weeks of fiscal year 2008. The increase in operating expense dollars during fiscal year 2009 was due primarily to increased expenses associated with the increase in store count, as compared to the prior year.

For the fiscal year ended October 3, 2009, the Company recognized losses on the disposition of fixed assets totaling approximately $0.6 million as compared to $0.4 million in the prior year. These losses were primarily associated with the Company’s decision to close or relocate stores that were unproductive or not meeting expectations. In fiscal year 2009 a $0.1 million charge was recognized for impaired assets compared to a $0.4 million charge in fiscal year 2008.

Adjusted EBITDA in 2009 increased 10.3% to $101.8 million from $92.3 million in fiscal year 2008. Approximately $3.7 million of the increase was the result of increased sales, with the remaining increase due to improved expense control and continued leveraging of fixed expenses during the year.

Operating income for 2009 increased 10.5% to $87.8 million from $79.5 million in 2008 as a result of previously noted sales and gross profit improvements.

Net interest expense was $13.8 million in 2009, as compared to $13.1 million in 2008. The increase in net interest expense was due to decreased interest income offset by a decrease in average debt balances.

The Company recorded income tax expense of $28.1 million in 2009, or an effective tax rate of 37.8%, versus $26.0 million in the prior year, or an effective tax rate of 39.1%. The decrease in the effective rate is attributed to the $1.2 million benefit for a reduction in estimated taxes payable based upon information received during the year which indicated that the amount would not be payable.

Fiscal year 2008 compared to fiscal year 2007:

For the 52 weeks ended September 27, 2008, sales increased 4.3% to $488.8 million from $468.9 million in the 52 weeks of 2007. Of the 4.3% increase in sales, approximately 47% is attributable to an increase in comparable store sales and approximately 53% was due to the addition of 27 new store locations.

Comparable store sales increased 1.7% on a 52 week basis, as compared to the prior year. The comparable store sales increase was primarily attributable to favorable weather conditions in many of the Company’s markets. For definition purposes, a store is considered a comparable store in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed.

16

Gross profit for the fiscal year ended September 27, 2008 improved to $193.1 million or 39.5% of sales, as compared to $179.9 million or 38.4% in 2007. Gross profit represents sales less the cost of services and purchased goods, chemical repackaging costs and related distribution costs. Gross profit dollars improved by $10.1 million due to the increase in sales. Other significant factors contributing to the increase in gross profit include additional rebates from suppliers, as well as increases due to sales from higher margin products.

In 2008, total operating expenses were $113.6 million, versus $110.2 million during the 52 weeks of 2007, an increase of 3.1%. Operating expenses as a percentage of sales were 23.2% for the 52 weeks of fiscal year 2008 compared to 23.5% for the 52 weeks of fiscal year 2007. The increase in operating expense dollars during fiscal year 2008 was due primarily to increased expenses associated with the increase in store count, as compared to the prior year.

For the fiscal year ended September 27, 2008, the Company recognized losses on the disposition of fixed assets totaling approximately $0.4 million as compared to $0.2 million in the prior year. These losses were primarily associated with the Company’s decision to close or relocate stores that were unproductive or not meeting expectations. In fiscal year 2008 a $0.4 million charge was recognized for impaired assets compared to a $0.3 million charge in fiscal year 2007.

Adjusted EBITDA in 2008 increased 11.5% to $92.3 million from $82.8 million in fiscal year 2007. Approximately $3.5 million of the increase was the result of increased sales, with the remaining increase due to improved expense control and continued leveraging of fixed expenses during the year.

Operating income for 2008 increased 14.0% to $79.5 million from $69.7 million in 2007 as a result of previously noted sales and gross profit improvements.

Net interest expense was $13.1 million in 2008, as compared to $14.7 million in 2007. The decrease was primarily due to the decrease in average debt balances throughout the year and the elimination of interest on the Company’s preferred stock, which was assumed by Holdings.

The Company recorded income tax expense of $26.0 million in 2008, or an effective tax rate of 39.1%, versus $22.7 million in the prior year, or an effective tax rate of 41.4%. The effective rate decrease in 2008 was primarily due to nondeductibility of certain elements of the Company’s interest expense that were present during the first four months of fiscal 2007 but were eliminated in February 2007.

Liquidity and Capital Resources

Overview

The following table highlights selected cash flow components for fiscal year 2009 and fiscal year 2008, and selected balance sheet components as of October 3, 2009 and September 27, 2008.

	Fiscal Years Ended
(Dollar amounts in thousands)	October 3, 2009			September 27, 2008			Dollar Change			Percent Change
Cash provided by (used in):
Operating activities	$	65,413		$	41,128		$	24,285		59.0	%
Investing activities		(503	)		(36,831	)		36,328		98.6
Financing activities		(13,577	)		(18,430	)		4,853		26.3
Cash and cash equivalents	$	96,981		$	45,648		$	51,333		112.5	%
Working capital		108,818			84,459			24,359		28.8
Other long term liabilities		5,581			7,556			(1,975	)	(26.1	)
Senior notes		163,243			167,000			(3,757	)	(2.2	)

17

Working capital

Working capital as of October 3, 2009 and September 27, 2008 consisted of the following:

	Fiscal Years Ended
(Dollar amounts in thousands)	October 3, 2009		September 27, 2008		Dollar Change			Percent Change
Cash and cash equivalents	$	96,981	$	45,648	$	51,333		112.5	%
Short term investments		—		19,899		(19,899	)	(100.0	)
Accounts and other receivables, net		12,688		11,796		892		7.6
Inventories, net		68,934		86,584		(17,650	)	(20.4	)
Prepaid expenses and other current assets		6,763		2,773		3,990		143.9
Deferred tax assets		4,237		4,554		(317	)	(7.0	)
Total current assets		189,603		171,254		18,349		10.7
Accounts payable		31,307		42,117		(10,810	)	(25.7	)
Accrued expenses		40,515		36,981		3,534		9.6
Income taxes payable		8,963		7,697		1,266		16.4
Total current liabilities		80,785		86,795		(6,010	)	(6.9	)
Working capital	$	108,818	$	84,459	$	24,359		28.8	%

From September 27, 2008 to October 3, 2009, total current assets increased $18.3 million from $171.3 million to $189.6 million. Approximately $51.3 million of the increase in current assets was the result of the increase in cash and cash equivalents.

From September 27, 2008 to October 3, 2009, total current liabilities decreased $6.0 million from $86.8 million to $80.8 million, primarily due to the decrease in accounts payable, offset by increases in accrued expenses and income taxes payable.

For the fiscal year ended October 3, 2009, cash provided by operating activities was $65.4 million compared to cash provided by operating activities of $41.1 million in the prior year. The increase was due primarily to the decrease in inventory as compared to the prior year, offset by a decrease in accounts payable as compared to the prior year.

In 2009, cash used in investing activities was $.5 million compared with cash used in investing activities of $36.8 million in the prior year, primarily due to the sale of short term investments in 2009.

Cash used in financing activities was $13.6 million in fiscal year 2009 compared with cash used in financing activities of $18.4 million in 2008. The decrease in financing activities was due to a decrease in the cash dividend paid to Holdings in 2009.

The Company had no outstanding borrowings under its secured loan agreement at October 3, 2009 and September 27, 2008. At October 3, 2009 the Company had $75.0 million of borrowing capacity. Funds borrowed under this agreement are used primarily to fund working capital and other general corporate purposes.

From September 27, 2008 to October 3, 2009, other long term liabilities decreased by $2.0 million from $7.6 million to $5.6 million primarily due to the reduction in estimated taxes payable based upon information received during the year which indicated that the amount would not be payable.

During February of 2007, the Company’s parent, Holdings consummated a privately placed financing transaction. The Company did not guarantee or pledge support for this financing, nor were any of the proceeds made available to the Company. Holdings issued $310 million in senior notes due in 2017 and $100 million of preferred equity. The interest rate on the senior notes is 10.5% cash or 11.5% PIK, at Holdings’ option. The notes

18

are non-callable for two years and have other covenants and terms that are customary for high yield issues. The preferred shares had a dividend rate of 11% and were exchangeable into debt under certain circumstances. In fiscal 2009, the preferred shares were exchanged into junior subordinated notes with an 11% interest rate, due in 2019. The Company does not expect that Holdings’ servicing of its debt will affect the Company’s liquidity.

The Company believes its internally generated funds, as well as its borrowing capacity, are adequate to meet its working capital needs, maturing obligations and capital expenditure requirements, including those relating to the opening of new stores.

Seasonality and Quarterly Fluctuations

The Company’s business exhibits substantial seasonality which the Company believes is typical of the swimming pool supply industry. In general, sales and net income are highest during the quarters ended June and September, which represent the peak months of swimming pool use. Sales are substantially lower during the quarters ended December and March when the Company will typically incur net losses. The principal external factor affecting the Company’s business is weather. Hot weather and the higher frequency of pool usage in such weather create a greater demand for more pool chemicals and supplies. Unseasonably early or late warming trends can increase or decrease the length of the pool season. In addition, unseasonably cool weather and/or extraordinary amounts of rainfall in the peak season decrease swimming pool use.

The Company expects its quarterly results of operations will fluctuate depending on the timing and amount of revenue contributed by new stores and, to a lesser degree, the timing of costs associated with the opening of new stores. The Company attempts to open its new stores primarily in the quarter ending in March in order to position itself for the following peak season.

Contractual Obligations and Commercial Commitments

The following table summarizes the Company’s significant contractual obligations as of October 3, 2009, and the effect such obligations are expected to have on the Company’s liquidity and cash flows in future periods. This table excludes amounts already recorded on the Company’s balance sheet as current liabilities at October 3, 2009 and certain other purchase obligations as discussed below.

(in thousands)	Payments Due By Period
Contractual Obligations	Total		Less than 1 Year		1 – 3 years		3 – 5 years		After 5 years
Senior notes*	$	208,279	$	12,697	$	25,395	$	182,884	$	—
Operating leases		139,957		41,720		62,609		57,894		5,536
Total contractual obligations	$	348,236	$	54,417	$	88,004	$	240,778	$	5,536

* Amounts include estimated interest and dividend payments

(in thousands)	Amounts of Commitment Expiration Per Period
Commercial Commitments	Total Amounts Committed		Less than 1 Year		1 – 3 years		3 – 5 years		After 5 years
Standby letters of credit	$	4,298	$	4,298	$	—	$	—	$	—
Financial responsibility bonds	$	106	$	106	$	—	$	—	$	—

Purchase orders for raw materials, finished goods and other goods and services are not included in the above table. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. For the purpose of this table, contractual obligations for purchase of goods or services are defined as agreements that are

19

enforceable and legally binding on us and that specify all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. The Company’s purchase orders are based on the Company’s current manufacturing needs and are fulfilled by the Company’s vendors with relatively short timetables. We do not have significant agreements for the purchase of raw materials or finished goods specifying minimum quantities or set prices that exceed the Company’s short-term expected requirements.

The expected timing of payment of the obligations discussed above is estimated based on current information. Timing of payments and actual amounts paid may be different depending on the time of receipt of goods or services or changes to agreed-upon amounts for some obligations.

Critical Accounting Policies and Estimates

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses. On an ongoing basis, the Company evaluates its estimates, including those related to inventory reserves, allowance for doubtful accounts, valuation allowance for the net deferred income tax asset, contingencies and litigation liabilities. The Company bases its estimates on historical experience, independent valuations, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue Recognition

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services, is recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are deemed to be immaterial.

Inventories

Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average cost method. Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs and related distribution costs. The Company establishes a reserve for inventory obsolescence and shrinkage, which is analyzed and reviewed periodically and may require adjustments based on physical inventory counts, the relationship and fluctuation of historical product sales versus inventory on hand and changes in customer preferences. The reserve is intended to reflect the value of inventory in excess of expected realizable value.

Income Taxes

The Company records deferred tax assets or liabilities based on differences between financial reporting and tax basis of assets and liabilities using currently enacted rates and laws that will be in effect when the Company expects the differences to reverse. Effective September 30, 2007, we adopted the Financial Accounting Standards Board (“FASB”) authoritative guidance for the financial statement recognition, measurement, and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. The guidance establishes financial accounting and reporting standards for the effects of income taxes that result from an enterprise’s activities during the current and preceding years. Income tax positions must meet a more-likely-than-not recognition

20

threshold at the effective date to be recognized. We recognize potential accrued interest and penalties related to unrecognized tax benefits within operations as income tax expense.

Due to changing tax laws and state income tax rates, judgment is required to estimate the effective tax rate expected to apply to tax differences which are expected to reverse in future periods. The Company and its subsidiaries will be included in the consolidated federal income tax return and certain state income tax returns of Holdings. The Company’s financial statements recognize the current and deferred income tax consequences that result from the Company’s activities during the current and preceding, as if the Company were a separate taxpayer rather than a member of Holding’s consolidated income tax return group.

Self Insurance

The Company retains self insurance risks for workers compensation, general liability, property and health insurance programs. The Company has limited its exposure by maintaining excess liability coverage. The Company establishes self insurance reserves based on claims filed and estimates of claims incurred but not reported. The estimates are based upon information provided to the Company by the claims administrators and are periodically revised to reflect changes in loss trends.

Quarterly Financial Data

Summarized Quarterly Financial Data (Unaudited)

(Dollar Amounts In Thousands)

	13 Weeks									14 Weeks
Fiscal 2009	Dec. 29			March 29			June 28			Oct. 3
Sales	$	60,263		$	57,008		$	213,765		$	178,606
Gross profit		15,529			17,099			99,418			78,127
Operating income (loss)		(7,810	)		(6,875	)		62,191			40,297
Net income (loss)		(5,271	)		(6,329	)		35,746			22,088
Adjusted EBITDA(1)		(4,456	)		(3,599	)		65,429			44,414
Comparable store sales growth(2)		1.1	%		(0.6	)%		(1.3	)%		5.6	%
	13 Weeks Ended
Fiscal 2008	Dec. 29			March 29			June 28			Sept. 27
Sales	$	58,306		$	56,656		$	212,929		$	160,927
Gross profit		13,903			16,015			96,408			66,765
Operating income (loss)		(7,965	)		(7,179	)		59,628			34,977
Net income (loss)		(6,872	)		(6,373	)		33,589			20,132
Adjusted EBITDA(1)		(4,684	)		(3,662	)		62,688			37,966
Comparable store sales growth(2)		8.0	%		(5.9	)%		2.1	%		1.9	%

(1) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, loss/(gain) on disposition of fixed assets, stock compensation expense, write-off of debt issuance costs and unusual charges. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (“GAAP”), but is used by some investors to determine a company’s ability to service or incur indebtedness. Adjusted EBITDA is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies. Loss/(gain) on disposition of fixed assets and stock compensation expense are eliminated because we believe it enhances investors understanding of the company’s results, net of these non-cash charges. Adjusted EBITDA should not be construed as an indicator of a company’s operating performance or liquidity, and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data, all of

21

which are prepared in accordance with GAAP. We have presented Adjusted EBITDA solely as supplemental disclosure because we believe it allows for a more complete analysis of results of operations. Adjusted EBITDA is not intended to represent and should not be considered more meaningful than, or as an alternative to, measures of operating performance as determined in accordance with GAAP.

(2) The Company considers a store to be comparable in the first full month after it has completed 52 weeks of sales. Closed stores become non-comparable during their last partial month of operation. Stores that are relocated are considered comparable stores at the time the relocation is completed. Comparable store sales is not a measure of financial performance under GAAP. Comparable store sales is not calculated in the same manner by all companies and accordingly is not necessarily comparable to similarly entitled measures of other companies and may not be an appropriate measure for performance relative to other companies.

The Company expects that the quarterly results of operations will continue to fluctuate depending on the season, weather conditions, and the timing and amount of revenue contributed by new stores. Due to the seasonal nature of the swimming pool industry, the results of any one or more quarters are not necessarily a good indication of results for an entire year, or of continuing trends.

Recent Accounting Pronouncements

In December 2007, the FASB issued guidance relating to business combinations and requires the acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. This guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company must adopt this standard for its 2010 fiscal year. The Company is currently evaluating the impact that adopting this standard will have on its consolidated financial statements.

In May 2009, the FASB issued general standards of accounting for and disclosure of subsequent events that occur after the balance sheet date. Entities are also required to disclose the date through which subsequent events have been evaluated and the basis for that date.

In June 2009, the FASB issued guidance related to the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in accordance with generally accepted accounting principles. This topic is effective for interim and annual reporting periods ending after September 15, 2009.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company’s Amended Loan and Security Agreement described in Note 7 to the consolidated financial statements as well as in Management’s Discussion and Analysis, carries interest rate risk. Amounts borrowed under this agreement bear interest at either LIBOR plus a margin that is currently 3.25%, or at the Company’s choice, the lender’s base rate plus a margin that is currently 2.25%. Should the lenders’ base rate change, the Company’s interest expense will increase or decrease accordingly. As of October 3, 2009, there was no borrowing under this facility.

At October 3, 2009, our cash equivalent investments are primarily in money market accounts and are reflected as cash equivalents because all maturities are within 90 days from date of purchase. Our interest rate risk with respect to existing investments is limited due to the short-term duration of these arrangements and the yields earned, which approximate current interest rates for similar investments.

22

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	24
Consolidated Balance Sheets—October 3, 2009 and September 27, 2008	25
Consolidated Statements of Operations—Fiscal Years Ended October 3, 2009,  September 27, 2008 and September 29, 2007	26
Consolidated Statements of Stockholder’s Equity (Deficit)—Fiscal  Years Ended October 3, 2009, September 27, 2008 and September 29, 2007	27
Consolidated Statements of Cash Flows—Fiscal Years Ended October 3, 2009,  September 27, 2008 and September 29, 2007	28
Notes to Consolidated Financial Statements	29

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholder of Leslie’s Poolmart, Inc.:

We have audited the accompanying consolidated balance sheets of Leslie’s Poolmart, Inc. as of October 3, 2009 and September 27, 2008 and the related consolidated statements of operations, stockholder’s equity (deficit) and cash flows for each of the three years in the period ended October 3, 2009. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Leslie’s Poolmart, Inc. at October 3, 2009 and September 27, 2008, and the consolidated results of its operations and its cash flows for each of the three years in the period ended October 3, 2009, in conformity with U.S. generally accepted accounting principles.

/s/ ERNST & YOUNG LLP

Phoenix, Arizona

December 23, 2009

24

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Information)

	October 3, 2009			September 27, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	96,981		$	45,648
Short term investments		—			19,899
Accounts and other receivables, net		12,688			11,796
Inventories, net		68,934			86,584
Deferred tax assets		4,237			4,554
Prepaid expenses and other current assets		6,763			2,773
Total current assets		189,603			171,254
Property, plant and equipment, net		48,711			42,074
Intangible assets		8,074			8,117
Deferred financing costs, net		4,092			4,613
Deferred tax assets		7,305			6,593
Other assets		477			342
Total assets	$	258,262		$	232,993
LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	31,307		$	42,117
Accrued expenses		40,515			36,981
Income taxes payable		8,963			7,697
Total current liabilities		80,785			86,795
Senior notes, net		163,243			167,000
Other long term liabilities		5,581			7,556
Total liabilities		249,609			261,351
Commitments and contingencies
Stockholder’s equity (deficit):
Common stock, $0.001 par value, authorized 100 shares, issued and outstanding 100 shares at October 3, 2009 and September 27, 2008		—			—
Capital deficit		(91,730	)		(91,907	)
Retained earnings		100,383			63,549
Total stockholder’s equity (deficit)		8,653			(28,358	)
Total liabilities and stockholder’s equity (deficit)	$	258,262		$	232,993

See accompanying notes which are an integral part of these consolidated financial statements.

25

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Consolidated Statements of Operations

(Dollar Amounts in Thousands)

	Fiscal Years Ended
	October 3, 2009			September 27, 2008			September 29, 2007
Sales	$	509,642		$	488,818		$	468,882
Cost of merchandise and services sold, including warehousing and transportation expenses, and store occupancy costs		299,469			295,727			289,002
Gross profit		210,173			193,091			179,880
Selling, general and administrative expenses		121,744			113,245			110,021
Loss on disposition of fixed assets		626			385			186
Operating income		87,803			79,461			69,673
Other expense (income):
Interest expense		14,083			14,553			16,102
Interest income		(279	)		(1,495	)		(1,390	)
Gain on debt extinguishment		(357	)		(102	)		—
Total other expense		13,447			12,956			14,712
Income before taxes		74,356			66,505			54,961
Income tax expense		28,122			26,029			22,735
Net income	$	46,234		$	40,476		$	32,226

See accompanying notes which are an integral part of these consolidated financial statements.

26

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Consolidated Statements of Stockholder’s Equity (Deficit)

(Amounts in Thousands, Except Share Amounts)

	Common Stock					Capital Deficit			Treasury Stock			Retained Earnings			Total Stockholder’s Equity/(Deficit)
	Number of Shares		Amount
Balance, at September 30, 2006	40,045,000		$	40		$	(144,081	)	$	(332	)	$	22,149		$	(122,224	)
Issuance of common stock	100			0			—			—			—			0
Converted common stock in Reorganization	(40,045,000	)		(40	)		40			—			—			0
Contributed redeemable preferred stock in Reorganization	—			—			50,305			—			—			50,305
Excess tax benefit from stock-based compensation	—			—			2,084			—			—			2,084
Payment of dividend	—			—			—			—			(15,002	)		(15,002	)
Repurchase and converted treasury stock in Reorganization	—			—			(332	)		332			—			0
Net income	—			—			—			—			32,226			32,226
Balance, at September 29, 2007	100			—			(91,984	)		0			39,373			(52,611	)
Stock option compensation	—			—			77			—			—			77
Payment of dividend	—			—			—			—			(16,300	)		(16,300	)
Net income	—			—			—			—			40,476			40,476
Balance, at September 27, 2008	100			—			(91,907	)		0			63,549			(28,358	)
Stock option compensation	—			—			177			—			—			177
Payment of dividend	—			—			—			—			(9,400	)		(9,400	)
Net income	—			—			—			—			46,234			46,234
Balance, at October 3, 2009	100		$	—		$	(91,730	)	$	0		$	100,383		$	8,653

See accompanying notes which are an integral part of these consolidated financial statements.

27

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Consolidated Statements of Cash Flows

(Dollar Amounts in Thousands)

	Fiscal Years Ended
	October 3, 2009			September 27, 2008			September 29, 2007
OPERATING ACTIVITIES:
Net income	$	46,234		$	40,476		$	32,226
Adjustments to reconcile net income to net cash provided by operating activities:
Dividends and accretion on preferred stock		—			—			1,886
Depreciation and amortization		13,183			12,385			12,619
Stock option compensation		177			77			—
Amortization of loan fees		1,125			1,040			515
Amortization of loan discounts		173			152			134
Provision for doubtful accounts		185			97			2
Deferred income taxes		(395	)		(374	)		1,873
Loss on disposition of fixed assets		626			385			186
Gain on extinguishment of debt		(357	)		(102	)		—
Changes in operating assets and liabilities:
Accounts and other receivables		(1,077	)		(3,103	)		(1,477	)
Inventories		17,650			(20,860	)		(1,180	)
Prepaid expenses and other current assets		(3,990	)		(211	)		(40	)
Other assets		(135	)		(15	)		(7	)
Accounts payable and accrued expenses		(9,252	)		12,767			1,341
Income taxes payable		1,266			(1,586	)		(1,757	)
Net cash provided by operating activities		65,413			41,128			46,321
INVESTING ACTIVITIES:
Purchase of short term investments		—			(19,899	)		—
Sale of short term investments		19,899			—			—
Purchases of property, plant and equipment		(20,383	)		(16,985	)		(13,038	)
Purchases of intangible assets		(28	)		(85	)		(84	)
Proceeds from disposition of fixed assets		9			138			496
Net cash used in investing activities		(503	)		(36,831	)		(12,626	)
FINANCING ACTIVITIES:
Revolving commitment borrowing		4,988			—			18,400
Revolving commitment repayment		(4,988	)		—			(18,400	)
Excess tax benefit from stock-based compensation		—			—			2,084
Payment of dividend		(9,400	)		(16,300	)		(15,002	)
Payments of deferred financing costs		(604	)		—			—
Repurchase of long-term debt		(3,573	)		(2,130	)		—
Net cash used in financing activities		(13,577	)		(18,430	)		(12,918	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		51,333			(14,133	)		20,777
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		45,648			59,781			39,004
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	96,981		$	45,648		$	59,781

See accompanying notes which are an integral part of these consolidated financial statements.

28

Leslie’s Poolmart, Inc.

(A Wholly-Owned Subsidiary of Leslie’s Holdings, Inc.)

Notes to Consolidated Financial Statements

1. Business and Operations

Leslie’s Poolmart, Inc. (“Leslie’s” or the “Company”) is a specialty retailer of swimming pool supplies and related products. As of October 3, 2009, the Company markets its products under the trade name Leslie’s Swimming Pool Supplies through 622 retail stores in 35 states and through mail order catalogs sent to select swimming pool owners nationwide. The Company also repackages certain bulk chemical products for retail sale. The Company’s business is highly seasonal as the majority of its sales and all of its operating profits are generated in the quarters ending in June and September.

Holding Company Formation

In February 2007 the Company became a subsidiary of Leslie’s Holdings, Inc. (“Holdings”) pursuant to a tax-free reorganization in which the Company’s shareholders became shareholders of Holdings in the same proportions (the “2007 Reorganization”). As a result of the 2007 Reorganization, each share of outstanding common stock of the Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation. The conversion of the 10% senior redeemable exchangeable cumulative preferred stock of the Company for similar stock of Holdings was accounted for as contributed capital to the Company, given that the assumption of the obligation by Holdings without recourse to the Company had the effect of extinguishing the rights of the preferred stockholders and the resulting obligation.

2005 Recapitalization:

During the fiscal year ended October 1, 2005 the Company consummated the following transactions, which the Company refers to collectively as the “2005 Recapitalization”:

The Merger

LPM Acquisition LLC (“LPM Acquisition”), a newly-formed entity controlled by GCP California Fund, L.P. (“GCP”), and affiliates of Leonard Green & Partners, L.P. (“LGP”), merged with and into Leslie’s on January 25, 2005, with Leslie’s continuing as the surviving entity in the merger.

The Tender Offer and Consent Solicitation

On December 23, 2004, the Company commenced a tender offer and solicitation of consents, or the “Tender Offer”, to purchase all of the $59.5 million outstanding principal amount of the Company’s 10 ³/8% Senior Notes due 2008, and to amend the indenture governing the 10 ³/8% notes to eliminate most of the covenants and certain events of default. On January 11, 2005, the Company entered into a supplemental indenture with The Bank of New York Trust Company, N.A., as the trustee, supplementing the indenture dated as of May 21, 2003 as contemplated by the terms of the tender offer.

Note Offering

On January 25, 2005, the Company issued an aggregate of $170.0 million principal amount of the Senior Notes. The net proceeds from the offering of the 7 ³/4% notes, together with borrowings under an amended credit facility, proceeds from the issuance of equity securities and cash on hand, were used to complete the 2005 Recapitalization and repurchase the outstanding 10 ³/8% notes that were tendered in the Tender Offer. Subsequent to the initial private placement of the 7 ³/4% notes, the notes were exchanged for new registered 7 ³/4% Senior Notes, Series B, in June 2005, pursuant to an exchange offer.

29

Notes to Consolidated Financial Statements (continued)

The 2005 Recapitalization was accounted for as a series of equity transactions and there was no change in the accounting basis for the Company’s recorded assets and liabilities. Accordingly, no goodwill or other intangible assets were recorded related to the 2005 Recapitalization.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements of the Company include Leslie’s Poolmart, Inc., and its wholly owned subsidiaries, LPM Manufacturing Inc., Sandy’s Pool Supply, Inc. and Blackwood & Simmons, Inc. All significant inter-company transactions and accounts have been eliminated.

Operating Segments

FASB establishes standards for the way that public companies report information about operating segments in annual financial statements and establishes standards for related disclosures about product and services, geographic areas and major customers. The Company has reviewed the standard and determined that we have a single reportable segment.

Fiscal Periods

The Company’s fiscal year ends on the Saturday closest to September 30. The fiscal year ended on October 3, 2009, included 53 weeks and the fiscal years ended September 27, 2008 and September 29, 2007 each included 52 weeks.

Cash and Cash Equivalents

The Company considers all investments with a remaining maturity of three months or less when purchased to be cash equivalents.

Short-term Investments

Management determines the appropriate classification of its investments in marketable debt and equity securities at the time of purchase. Securities for which the Company does not have the intent or ability to hold to maturity are classified as available for sale and are carried at fair value, with the unrealized holding gains and losses, net of tax, reported in a separate component of stockholder’s equity, if material. On an ongoing basis, the Company evaluates its debt securities to determine if a decline in fair value is other-than-temporary. When a decline in fair value is determined to be other-than-temporary, an impairment charge would be recorded and a new cost basis in the investment is established. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization or accretion is included in interest income. Realized gains and losses and interest and dividends on securities are included in interest income. The cost of securities sold is based upon the specific identification method. Securities classified as available for sale include both securities due within one year and securities with maturity dates beyond one year.

Fair Value of Financial Instruments

The Company’s carrying amounts of cash and cash equivalents approximate fair value due to the short maturity of those instruments. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the established fair value hierarchy that ranks the quality and reliability of the information used to determine fair values. The fair value of marketable securities is determined based on quoted market prices, which approximate fair value.

30

Notes to Consolidated Financial Statements (continued)

The fair value of the Senior Notes due 2013 (“the Notes”) using quoted market prices as of October 3, 2009 was $156.7 million and as of September 27, 2008 was $147.2 million. The carrying amounts of other long-term debt approximate fair value because either the interest rate fluctuates based on market rates or interest rates appear to approximate market rates for similar instruments. The fair value estimates are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

Accounts and other receivables, net

Accounts and other receivables include vendor rebate receivables of $6.8 million and $5.7 million as of October 3, 2009 and September 27, 2008, respectively. The Company recognizes consideration received from vendors at the time its obligations to purchase products or perform services have been completed. These items are recorded as a reduction of inventory until we sell the product, at which time such rebates reduce cost of goods sold in the statement of operations.

Allowance for Doubtful Accounts

Payment terms for trade receivables generally range from 30 to 90 days depending on the circumstances of each transaction or billing contract. Any payments not received within the agreed upon due date are considered past due.

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Such allowance is computed based upon a specific customer account review of larger customers and balances past due. The Company’s assessment of its customers’ ability to pay generally includes direct contact with the customer, investigation into customers’ financial status, as well as consideration of customers’ payment history with the Company. If the Company determines, based on its assessment, that the Company’s customers will be unable to pay, the Company will charge off the account receivables to the allowance for doubtful accounts.

Accounts and other receivables include allowances for doubtful accounts, which consists of the following:

(Dollar amounts in thousands)	Balance at beginning of period		Additions	Deductions		Balance at end of period
			Charged to costs and expenses	Write-off of bad debts
Balance at September 29, 2007	$	776	2	(188	)	$	590
Balance at September 27, 2008	$	590	97	(119	)	$	568
Balance at October 3, 2009	$	568	185	(105	)	$	648

Inventories, Net

Inventories are stated at the lower of cost or market. The Company values inventory using the weighted average method. The Company tests for obsolete inventory and records appropriate reserves. When an inventory item is sold or disposed, the associated reserve is adjusted at that time.

Inventory reserves consist of the following:

(Dollar amounts in thousands)	Balance at beginning of period		Additions	Deductions		Balance at end of period
			Charged to costs and expenses	Sale and disposal of inventories
Balance at September 29, 2007	$	2,930	159	(243	)	$	3,332
Balance at September 27, 2008	$	3,332	256	(456	)	$	3,132
Balance at October 3, 2009	$	3,132	14	(564	)	$	2,582

31

Notes to Consolidated Financial Statements (continued)

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Costs of normal maintenance and repairs are charged to expense as incurred.

Major replacements or improvements of property, plant and equipment are capitalized. When items are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is included in the statements of operations.

Depreciation and amortization are computed using the straight-line method (considering appropriate salvage values) and leasehold improvements are amortized over the life of the initial lease term. These charges are based on the following estimated average useful lives:

Buildings and improvements	5-39 years
Vehicles, machinery and equipment	3-10 years
Aircraft	5-10 years
Office furniture and equipment	3-7 years
Leasehold improvements	5-10 years, not to exceed the lease life, including expected renewals

The Company reviews its long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets.

Goodwill and Other Intangibles

Goodwill represents the excess of the cost of an acquired business over the estimated fair market value of the acquired net assets. The goodwill balance is $7.5 million at October 3, 2009 and September 27, 2008. The Company tests goodwill for impairment on an annual basis. The Company completed its goodwill impairment test during the fourth quarter of fiscal 2009 and fiscal 2008 and determined there was no impairment in either year. Other intangibles are comprised of costs associated with acquiring the mailing addresses for the Company’s customer database, which is used for purposes of market research, new store location decisions, customer research and in the Company’s ongoing advertising efforts. For the years ending October 3, 2009 and September 27, 2008, the gross amount capitalized on the balance sheet for mailing addresses was $1.2 million and $1.1 million, respectively and the accumulated amortization was $0.5 million and $0.5 million, respectively. These other intangibles are amortized over a 15 year period and the annual amortization for the next five years is expected to be approximately $60,000 each year.

Deferred Financing Costs

In connection with issuing the Senior Notes due 2013 (see Note 8) and entering into a credit agreement in in 2005, as further amended in 2009, the Company paid an aggregate of $8.3 million in financing costs that are being deferred and amortized over the lives of the corresponding agreements. The deferred finance cost balance recorded at October 3, 2009 and September 27, 2008 was net of accumulated amortization of $4.2 million and $3.2 million, respectively.

Income Taxes

The Company provides for deferred income taxes relating to temporary timing differences in the recognition of income and expense items for financial and tax reporting purposes. The Company and its subsidiaries are included in the consolidated federal income tax return and certain state income tax returns of Holdings. The Company’s financial statements recognize the current and deferred income tax consequences that result from the

32

Notes to Consolidated Financial Statements (continued)

Company’s activities during the current and preceding periods, as if the Company were a separate taxpayer rather than a member of Holding’s consolidated income tax return group.

In 2007, the Company adopted the authoritative accounting guidance related to the financial statement recognition, measurement, and disclosure of uncertain tax positions recognized in an enterprise’s financial statements. Income tax positions must meet a more-likely-than-not recognition threshold at the effective date to be recognized.

Sales

Revenue on retail sales is recognized upon purchase by the customer. Revenue on services is recognized as services are performed and the fee is fixed or determinable and collection is probable. Terms are customarily FOB shipping point or point of sale, net of related discounts. The Company does not provide an estimated allowance for sales returns as they are immaterial.

Cost of Sales

Included in cost of sales are the costs of services and purchased goods, chemical repackaging costs, related distribution costs and occupancy costs related to retail locations. The Company recognizes consideration received from vendors at the time the obligations to purchase products or perform services have been completed. These items are recorded as a reduction in cost of goods sold in the statement of operations.

Shipping and Handing Costs

The Company records shipping and handling costs paid by customers as revenue. The costs for shipping and handling are charged to cost of sales.

Advertising

The Company expenses advertising costs as incurred. Advertising expense for the years ended October 3, 2009, September 27, 2008 and September 29, 2007, was approximately $8.5 million, $8.4 million, and $8.7 million, respectively. For the years ending October 3, 2009, September 27, 2008 and September 29, 2007, the Company’s recorded advertising expense was shown net of cooperative advertising of $0.9 million, $0.8 million and $0.7 million, respectively.

Stock Based Compensation

Holdings, and prior to the 2007 Reorganization, the Company, may grant stock options for a fixed number of shares of Holdings to the Company’s employees and directors with an exercise price equal to the fair market value of the shares at the date of grant. In 2007, the Company adopted the authoritative accounting guidance related to new awards and to awards modified, repurchased or cancelled after September 29, 2007. Awards granted after September 29, 2007 are valued at fair value and are recognized on a straight line basis over the service periods of each award. Compensation cost for the unvested portion of awards outstanding is recognized as the requisite service is rendered.

As of the 2007 Reorganization, the 2005 Plan and related agreements were assumed by Holdings. All grants from and after the 2007 Reorganization of options under the 2005 Plan are for equity of Holdings and not the Company, but will be recorded as an expense by the Company. During the second quarter of 2007 and pursuant to the 2005 Plan, Holdings’ board of directors approved the acceleration of the vesting of all outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the modification took effect. Accordingly,

33

Notes to Consolidated Financial Statements (continued)

no compensation expense was recorded related to the acceleration of the options. All of the options granted prior to 2008 were exercised in February of 2007 after the 2007 Reorganization.

In fiscal 2009, the board of directors of Holdings approved grants of options to a number of key individuals of the Company. These options to purchase approximately 405,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

For the years ending October 3, 2009 and September 27, 2008, the Company’s recognized share-based compensation expense of $177,000 and $77,000, respectively. No share-based compensation expense was recorded during fiscal year 2007.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Reclassification of Accounts

Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassification had no effect on net income as previously reported.

Classification of Cost of merchandise and services sold

During fiscal 2009, management reviewed its classification of certain expenses on its Consolidated Statement of Operations. Previously, the Company reported occupancy costs attributed to its retail locations in selling, general and administrative expenses. The Company now reports occupancy costs attributed to its retail locations in cost of merchandise and services sold and has made conforming reclassification adjustments to previous periods presented.

For fiscal 2008 and 2007, the change in classification results in an increase of cost of merchandise and services sold of approximately $60.0 million and $56.3 million, respectively, with a corresponding decrease in gross profit and selling, general and administrative expenses.

Classification of occupancy costs attributed to retail locations varies within the Company’s industry and management believes the new classification more closely reflects the nature of these expenses and will result in an improved financial statement presentation. The reclassifications had no effect on net income and are presented below for the periods affected (in thousands):

	Fiscal 2008
(Dollar amounts in thousands)	Before reclassification		Reclassification			After reclassification
Cost of merchandise and services sold	$	235,678	$	60,049		$	295,727
Gross profit		253,140		(60,049	)		193,091
Selling, general and administrative expense		173,294		(60,049	)		113,245

	Fiscal 2007
(Dollar amounts in thousands)	Before reclassification		Reclassification			After reclassification
Cost of merchandise and services sold	$	232,749	$	56,253		$	289,002
Gross profit		236,133		(56,253	)		179,880
Selling, general and administrative expense		166,274		(56,253	)		110,021

34

Notes to Consolidated Financial Statements (continued)

Recent Accounting Pronouncements

In December 2007, the FASB issued guidance relating to business combinations and requires the acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. The new accounting guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The Company must adopt this standard for its 2010 fiscal year. The effects of the adoption of this standard will have an impact on all future acquisitions beginning in 2010.

In May 2009, the FASB issued general standards of accounting for and disclosure of subsequent events that occur after the balance sheet date. Entities are also required to disclose the date through which subsequent events have been evaluated and the basis for that date. The Company has evaluated subsequent events through the date of issuance, December 23, 2009 and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements.

In June 2009, the FASB issued guidance related to the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in accordance with generally accepted accounting principles. This topic is effective for interim and annual reporting periods ending after September 15, 2009. The implementation of this standard did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

3. Short-term Investments

The Company’s short-term investments are classified as available-for-sale and recorded at fair value. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Fair values determined by quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2: Fair values utilize inputs other than quoted prices that are observable for the asset or liability, and may include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability.

Level 3: Unobservable inputs that are not corroborated by market data and may reflect the reporting entity’s own assumptions market participants would use in pricing the asset or liability.

The fair value of short-term investments was determined using quoted prices in active markets for identical assets (Level 1). As of October 3, 2009 and September 27, 2008, amortized cost of the Company’s short-term investments equaled fair value. Accordingly, there were no unrealized gains and losses as of October 3, 2009 and September 27, 2008.

There were no sale of available-for-sale securities for the years ended October 3, 2009, September 27, 2008 and September 29, 2007.

The Company’s short-term investments consisted of the following October 3, 2009 and September 27, 2008:

(Dollar amounts in thousands)	October 3, 2009		September 27, 2008
U.S. government and agency debt securities	$	—	$	19,899
Total short-term investments	$	—	$	19,899

At October 3, 2009, all of the Company’s U.S. government and agency debt securities mature within fiscal year 2010.

35

Notes to Consolidated Financial Statements (continued)

4. Inventories

Inventories consist of the following:

(Dollar amounts in thousands)	October 3, 2009		September 27, 2008
Raw materials and supplies	$	1,411	$	4,579
Finished goods		67,523		82,005
Total inventories	$	68,934	$	86,584

5. Property, Plant and Equipment

Property, plant and equipment consists of the following:

(Dollar amounts in thousands)	October 3, 2009			September 27, 2008
Land	$	5,865		$	5,865
Buildings		8,313			8,058
Vehicles, machinery and equipment		8,405			7,510
Aircraft		13,200			4,876
Leasehold improvements		74,006			69,634
Office furniture, equipment and other		49,905			48,209
Construction-in-process		645			531
		160,339			144,683
Less—accumulated deprecation and amortization		(111,628	)		(102,609	)
Total property, plant and equipment	$	48,711		$	42,074

6. Accrued expenses

Accrued expenses consist of the following:

(Dollar amounts in thousands)	October 3, 2009		September 27, 2008
Accrued payroll and employee benefits	$	10,426	$	8,494
Self insurance reserves		8,569		8,350
All other current liabilities		21,520		20,137
Total accrued expenses	$	40,515	$	36,981

7. Loan and Security Agreement/Assets Subject to Lien

On September 30, 2009 the Company entered into an Amended and Restated Loan and Security Agreement (the “Loan Agreement”) with the lenders noted therein and Wells Fargo Retail Finance LLC as agent for the lenders. The Loan Agreement provides for the extension by the lenders of revolving loans and other financial accommodations in an aggregate principal amount of $50.0 million, which may be increased to a maximum of $75.0 million upon request of the borrowers and subject to agreement by existing or new lenders to undertake the incremental lending commitment. The Loan Agreement was and will be used to refinance the existing credit facility and for general corporate purposes. A portion of the Loan Agreement is available for letters of credit. The obligations under the Loan Agreement are secured by a lien on substantially all of the Company’s assets.

36

Notes to Consolidated Financial Statements (continued)

Borrowings under the Loan Agreement bear interest at the lender’s Base Rate (as defined in the Loan Agreement) or at the Eurodollar Rate (as defined in the Loan Agreement), in each case plus the applicable margin rate. The applicable margin rate will be adjusted quarterly based on the Company’s Leverage Ratio (as defined in the Loan Agreement). The applicable margin for the Loan Agreement is initially 2.25% with respect to Base Rate loans and 3.25% with respect to Eurodollar Rate loans.

In addition, the Company is obligated to pay the lender a commitment fee equal to 0.50% per annum of the average availability for any quarter in which the average availability was less than 50%, and equal to 0.75% per annum for any quarter where the average availability was 50% or more, payable quarterly in arrears; the fee currently applicable is 0.75% per annum. The Company is also obligated to pay a commission on all outstanding letters of credit as well as customary administrative, issuance, fronting, amendment, payment and negotiation fees.

The Loan Agreement contains customary representations and warranties, covenants and conditions to borrowing. There can be no assurance that the conditions to borrowing under the Loan Agreement will be satisfied.

The Loan Agreement requires the maintenance of certain quarterly financial and operating ratios and covenants, including minimum calculated EBITDA levels, fixed charge coverage ratio, and leverage ratio. Also, the Loan Agreement contains customary events of default, including default upon the nonpayment of principal, interest, fees or other amounts or the occurrence of a change of control.

No amounts are outstanding on the Loan Agreement as of October 3, 2009 and September 27, 2008.

To the Company’s knowledge, no event of default has occurred under the Loan Agreement.

8. Senior Notes

On January 25, 2005, the Company sold, through a private placement exempt from the registration requirements under the Securities Act of 1933, as amended, $170 million in aggregate principal amount of its 7.75% Senior Notes due 2013 (the “Notes”). Interest-only payments on the Notes are payable semi-annually on February 1 and August 1 of each year, beginning with August 1, 2005. The Notes were sold in the United States only to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S under the Securities Act. The Notes were not registered under the Securities Act and can not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company used the net proceeds of this offering to finance the 2005 Recapitalization and to redeem $59.5 million of its 10.375% Senior Notes due 2008. In connection with the closing of the private placement, the Company entered into (i) an indenture, dated January 25, 2005 with The Bank of New York Trust Company, N.A., as the trustee, governing the terms and conditions of the Notes (the “Indenture”) and (ii) a registration rights agreement, dated January 25, 2005 with the initial purchasers of the Notes in the private placement (the “Registration Rights Agreement”). The Notes were issued at a discount which is being amortized to interest expense and consist of the following:

(Dollar amounts in thousands)	October 3, 2009			September 27, 2008
Senior notes	$	170,000		$	170,000
Unamortized discount		(595	)		(768	)
Notes redeemed		(6,162	)		(2,232	)
Total Senior notes, net	$	163,243		$	167,000

Under the Registration Rights Agreement, the Company agreed to use its best efforts to register notes having substantially identical terms as the Notes with the Securities and Exchange Commission as part of an

37

Notes to Consolidated Financial Statements (continued)

offer to exchange freely tradeable exchange notes for the Notes initially issued under the Indenture. The Company filed a registration statement for the exchange notes with the Commission on April 22, 2005 and caused such registration statement for the 7.75% Senior Notes, Series B, due 2013, to be declared effective June 16, 2005. The Indenture contains customary covenants, including those that will limit the Company’s ability to grant liens on assets to secure debt, enter into certain sale and lease-back transactions, and merge or consolidate with another company or sell substantially all assets. To the Company’s knowledge, no event of default has occurred under the Indenture.

9. Leases

The Company leases certain store, office, distribution and manufacturing facilities under operating leases which expire at various dates through 2018. Lease agreements generally provide for increases related to cost of living indices and require the Company to pay for property taxes, repairs and insurance. Future annual minimum lease payments at October 3, 2009 are as follows:

(Dollar amounts in thousands)
2010	$	41,720
2011		34,807
2012		27,802
2013		19,328
2014		10,764
Thereafter		5,536
	$	139,957

Certain leases are renewable at the option of the Company for periods of one to ten years. Rent expense charged against income totaled $40.2 million, $38.4 million, and $35.9 million in fiscal years 2009, 2008 and 2007 respectively. Only three leases provided for rent contingent on sales exceeding specific amounts.

10. Income Taxes

The provision for income taxes is comprised of the following:

(Dollar amounts in thousands)	Fiscal 2009			Fiscal 2008			Fiscal 2007
Federal:
Current	$	23,803		$	22,233		$	16,899
Deferred (benefit)		(330	)		(314	)		1,517
	$	23,473		$	21,919		$	18,416
State:
Current	$	4,714		$	4,170		$	3,963
Deferred (benefit)		(65	)		(60	)		356
		4,649			4,110			4,319
Total	$	28,122		$	26,029		$	22,735

38

Notes to Consolidated Financial Statements (continued)

A reconciliation of the provision for income taxes to the amount computed at the federal statutory rate is as follows:

(Dollar amounts in thousands)	Fiscal 2009			Fiscal 2008		Fiscal 2007
Federal income tax at statutory rate	$	26,025		$	23,277	$	19,236
Permanent differences		103			67		617
State taxes, net of federal benefit		3,142			2,662		2,898
Reversal of tax position		(1,255	)		—		—
Other		107			23		(16	)
	$	28,122		$	26,029	$	22,735

The tax effect of temporary differences, which give rise to significant portions of the deferred tax asset, are summarized below.

	Fiscal 2009				Fiscal 2008
(Dollar amounts in thousands)	Deferred Tax Assets		Deferred Tax Liabilities		Deferred Tax Assets		Deferred Tax Liabilities
Property, plant and equipment	$	6,073	$	—	$	5,234	$	—
Inventory		1,473		—		1,908		—
Reserves and other accruals		2,296		—		2,221		—
Deferred rent		1,232		—		1,359		—
Compensation accruals		468		—		425		—
	$	11,542	$	—	$	11,147	$	—

The Company, either through Holdings, or prior to the 2007 Reorganization, on its own files income tax returns in the United States federal jurisdiction and various state jurisdictions. Our income tax returns are audited by federal and state tax authorities. We are currently under examination by the Internal Revenue Service for the 2007 tax year. There are differing interpretations of tax laws and regulations, and as a result, significant disputes may arise with these tax authorities involving issues of the timing and amount of deductions and allocations of income among various tax jurisdictions. While we believe our positions comply with applicable laws, we periodically evaluate exposures associated with our tax filing positions. With few exceptions, the Company is no longer subject to U.S. federal and state examinations by taxing authorities for years before 2006.

In June 2006, authoritative guidance was issued prescribing a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements uncertain tax positions that the company has taken or expects to take in its tax returns. The Company adopted this guidance effective September 30, 2007. The gross amount of unrecognized tax benefit at October 3, 2009 is $213,000 of which approximately $8,000 would impact the Company’s effective tax rate were it to be recognized. The following table summarizes the activity related to the Company’s unrecognized tax benefits (dollars in thousands):

Balance at September 27, 2008	$	1,370
Reductions for positions of prior years		(1,147	)
Reductions due to lapse of statute of limitations		(10	)
Balance at October 3, 2009	$	213

The Company recognizes interest and penalties related to uncertain tax benefits in the income tax provision. The Company had approximately $35,000 and $210,000 of accrued interest and penalties at October 3, 2009 and September 27, 2008, respectively.

39

Notes to Consolidated Financial Statements (continued)

It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of our unrecognized tax positions will increase or decrease during the next 12 months, however, we do not expect any potential change to have a material effect on our results of operations or our financial position.

11. Contingencies

The Company is a defendant in lawsuits or potential claims encountered in the normal course of business; such matters are being vigorously defended. In the opinion of management, the resolutions of these matters will not have a material effect on the Company’s financial position or results of operations.

The Company’s workers’ compensation insurance program, general liability insurance program and employee group medical plan has self-insurance retention features of $0.3 million, $0.3 million and $0.2 million per incident, respectively. As of October 3, 2009 and September 27, 2008, the Company had standby letters of credit outstanding in the amounts of $4.3 million and $5.7 million, respectively, for the purpose of securing such obligations under its workers’ compensation self insurance programs.

12. 401(k) Plan

The Company provides for the benefit of its employees a voluntary retirement plan under Section 401(k) of the Internal Revenue Code. During 2009, the plan covered all eligible employees and provided for a matching contribution by the Company of 50% of each participant’s contribution up to 4% of the individual’s compensation as defined. The expenses related to this program were $0.6 million, $0.6 million and $0.6 million for fiscal years 2009, 2008 and 2007 respectively.

13. Equity Transactions

Preferred and Common Stock

The Company became a subsidiary of Holdings pursuant to the 2007 Reorganization. As a result of the 2007 Reorganization, each share of outstanding common stock of the Company was converted into one share of common stock of Holdings, and each share of outstanding 10% senior redeemable exchangeable cumulative preferred stock of the Company was converted into one share of 10% senior redeemable exchangeable cumulative preferred stock of Holdings with the same rights, privileges, and preferences, including as to liquidation. The conversion of the 10% senior redeemable exchangeable cumulative preferred stock of the Company for similar stock of Holdings was accounted for as contributed capital to the Company, given that the assumption of the obligation by Holdings without recourse to the Company had the effect of extinguishing the rights of the preferred stockholders and the resulting obligation. In fiscal 2009, the preferred shares were exchanged into junior subordinated notes with an 11% interest rate, due in 2019.

14. Related Party Transactions

The Company currently has a Management Services Agreement with Leonard Green & Partners, L.P. (“LGP”). The Management Services Agreement provides that the Company will pay LGP an annual fee of $1.0 million for ongoing management, consulting and financial services. In addition, the Management Services Agreement provides that LGP may provide the Company with financial advisory or investment banking services in connection with major financial transactions, and LGP will be paid a customary fee for such services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will automatically extend for one year periods thereafter unless either the Company or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less of the Company’s shares and (c) the consummation of a public offering of the Company’s common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Company’s shares of common stock is publicly traded. In the event of the Company’s bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and

40

Notes to Consolidated Financial Statements (continued)

unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of all amounts due and owing under the indenture governing the notes.

During the fiscal years ended October 3, 2009, September 27, 2008 and September 29, 2007, the Company paid management fees to LGP in the amount of $1.0 million, $1.0 million and $1.0 million respectively.

During February of 2007, the Company’s parent, Holdings consummated a privately placed financing transaction. The Company does not guarantee or pledge support for this financing, nor were any of the proceeds made available to the Company, and therefore, the Company’s financial statements do not reflect the debt and its related costs. Holdings issued $310 million in senior notes due in 2017 and $100 million of preferred equity. The interest rate on the senior notes is 10.5% cash or 11.5% PIK, at Holdings’ option. The notes are non-callable for two years and have other covenants and terms that are customary for high yield issues. The preferred shares had a dividend rate of 11% and were exchangeable into debt under certain circumstances. In fiscal 2009, the preferred shares were exchanged into junior subordinated notes with an 11% interest rate, due in 2019. The Company is not required to service any obligation of Holdings and the sole source of funds that might be provided by the Company would be in the form of dividends to Holdings.

15. Stock Based Compensation Plans

In August 2005, Leslie’s board of directors adopted its 2005 Incentive Stock Option Plan (the “2005 Plan”), and reserved 1,300,000 shares of nonvoting common stock for issuance thereunder. As of the 2007 Reorganization, the 2005 Plan and related agreements were assumed by Holdings. Any future grants of options subsequent to the 2007 Reorganization will be for equity of Holdings and not the Company. During the second quarter of 2007 and pursuant to the 2005 Plan, Holdings’ board of directors approved the acceleration of the vesting of all of the then outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the modification took effect. Accordingly, no compensation expense was recorded under accounting guidance related to the acceleration of the options.

All outstanding options were exercised in February of 2007 after the 2007 Reorganization, which gave rise to a tax benefit of approximately $2.1 million attributed to the Company. Given that the tax benefit meets the realization criteria of the applicable accounting guidance, the benefit has been recorded as a credit to equity since the entire benefit exceeded the recorded expense of zero. The Company did not otherwise grant or modify any share-based compensation during the 52 weeks ended September 29, 2007.

In fiscal 2008, the board of directors of Holdings approved grants of options to a number of key individuals of the Company. These options to purchase approximately 438,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

In fiscal 2009, the board of directors of Holdings approved grants of options to a number of key individuals of the Company. These options to purchase approximately 405,000 shares of Holdings common stock vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model which requires the use of a number of assumptions including expected volatility, risk-free interest rate, expected dividends, and expected term. Expected volatility is based on the historical volatility of our stock. The expected term of the options represents the estimated period of time until exercise and is based on historical experience of similar awards, giving consideration to the contractual terms and vesting schedules. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. We have not paid dividends in the past and do not plan to pay any dividends in the near future to ultimate shareholder who hold the type of security subject to the option arrangement. The accounting guidance also

41

Notes to Consolidated Financial Statements (continued)

requires us to estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate forfeitures based on our historical experience. The fair value of stock options granted was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

	Fiscal 2009			Fiscal 2008			Fiscal 2007
Expected volatility		45.5	%		47.8	%	N/A
Risk-free interest rate		2.6	%		3.4	%	N/A
Dividend yield		0.0	%		0.0	%	N/A
Expected life (in years)		5.0			5.0		N/A
Weighted average fair value per option granted	$	1.25		$	1.05		N/A

As there were no grants in fiscal 2007, the valuation assumptions are not applicable.

A summary of option activities for all plans is as follows:

	Fiscal 2009				Fiscal 2008			Fiscal 2007
	Shares		Weighted Average Exercise Price		Shares	Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of year	438,000		$	2.30	—	$	—	1,233,500		$	1.91
Granted	405,000			2.90	438,000		2.30	—			—
Exercised	—			—	—		—	—			—
Cancelled	(9,000	)		2.30	—		—	—			—
Assigned to Leslie’s Holdings, Inc.	—			—	—		—	(1,233,500	)		1.91
Outstanding at end of year	834,000		$	2.59	438,000	$	2.30	—		$	—
Exercisable at end of year	86,300		$	2.30	—	$	—	—		$	—

In fiscal year 2009 and 2008, the fair value of the common stock underlying the 2005 Incentive Stock Option Plan options granted was determined to be $2.90 and $2.30, respectively, based on management’s estimate of an enterprise value of Holdings at the time of grant. No options were granted in fiscal 2007.

The total fair value of shares vested during fiscal 2009, 2008, and 2007 was approximately $91,000, $0 and $0, respectively.

The weighted average remaining contractual term of options outstanding and exercisable as of October 3, 2009 was 3.6 years and 3.1 years, respectively. The aggregate intrinsic value of options outstanding and exercisable as of October 3, 2009 was $0.3 million and less than $0.1 million, respectively. As of October 3, 2009, there was approximately $697,000 of total unrecognized stock-based compensation expense related to unvested share-based compensation arrangements, which is expected to be recognized over a weighted average period of 3.6 years.

16. Supplemental Cash Flow Disclosures

The Company paid interest charges of $13.0 million, $13.4 million and $13.6 million in fiscal 2009, fiscal 2008 and fiscal 2007, respectively. The Company paid income taxes of $28.6 million, $26.4 million and $20.5 million in fiscal 2009, fiscal 2008 and fiscal 2007, respectively. Income tax payments made subsequent to the 2007 Reorganization are made to Holdings given that the Company is included in the consolidated tax return for Holdings.

42

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the “Evaluation Date”). Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded as of the Evaluation Date that the Company’s disclosure controls and procedures were effective such that the material information relating to the Company, including its consolidated subsidiaries, required to be disclosed in the Company’s Securities and Exchange Commission (“SEC”) reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and was made known to the Company’s principal executive officer and principal accounting officer during the period when this report was being prepared to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting. As defined in the securities laws, internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our Board of Directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of October 3, 2009 based on the criteria in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, we concluded that our internal control over financial reporting was effective as of October 3, 2009.

The annual report on internal control over financial reporting does not include an attestation report of our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in our annual report on Form 10-K for the year ended October 3, 2009.

43

Changes in Internal Control over Financial Reporting

In addition, there were no changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date. We have not identified any significant deficiencies or material weaknesses in the Company’s internal controls, and therefore there were no corrective actions taken.

ITEM 9B. OTHER INFORMATION

Not applicable.

44

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors, executive officers and significant employees of the Company are as follows:

Name	Age	Positions
Lawrence H. Hayward	55	Chairman of the Board and Chief Executive Officer
Steven L. Ortega	48	Executive Vice President, Chief Financial Officer and Director
Michael L. Hatch	56	President, Chief Operating Officer and Director
Edward C. Agnew	70	Director
John M. Baumer	42	Director
John G. Danhakl	53	Director
Michael J. Fourticq	65	Director
Rick D. Carlson	45	Senior Vice President, Commercial, Service and Logistics
Brian P. Agnew	44	Senior Vice President, Store Operations
Craig A. Wright	46	Senior Vice President, Chief Information Officer

Lawrence H. Hayward is Chairman of the Board of Directors and Chief Executive Officer. He joined the Company in January 2000 as President and Chief Executive Officer and assumed the additional role of Chairman of the Board in September 2000. Most recently, Mr. Hayward was the President of ABCO Desert Markets located in Phoenix, Arizona. From 1995 until 1999, he served as President and Chief Executive Officer of Carr Gottstein Foods Co., Alaska’s largest food and drug retailer and wholesale provider. From 1990 to 1995, Mr. Hayward held other senior level positions at Buttrey Food and Drug Store Company. From 1981 until 1990 he served in various corporate positions at American Stores Company headquartered in Salt Lake City, Utah. Mr. Hayward is also a director of Petco Animal Supplies, Inc.

Steven L. Ortega is Executive Vice President, Chief Financial Officer and Director of the Company and joined the Company in August, 2005. Mr. Ortega served as Executive Vice President and Chief Financial Officer for BI-LO LLC from 1999 to 2005. Prior to joining BI-LO, Mr. Ortega was with American Stores Company, where he held various positions within their supermarket and drug store subsidiaries, including Vice President—Finance and Administration, and Vice President—Logistics. Prior to this period at American Stores, Mr. Ortega held various management positions in finance, accounting, audit and store operations at Lucky Stores, Inc., where he last held the position of Director of Finance and Accounting.

Michael L. Hatch has been President, Chief Operating Officer and Director of the Company since September 2006. Prior to that, Mr. Hatch served as Senior Vice President, Merchandising and Marketing of the Company since November 2000. Mr. Hatch has more than 30 years of experience in the retail industry. Most recently, Mr. Hatch was the President of ABCO Desert Markets, located in Phoenix, Arizona. From 1996 to 1999 he was employed by Smiths Food and Drug where he held various positions including Senior Vice President and Southwest Manager and Vice President of Sales, Merchandising and Marketing. From 1970 to 1996, Mr. Hatch held various senior management positions at Smitty’s Super Valu, Inc. located in Phoenix, Arizona, which later merged with Smith’s Food and Drug.

Edward C. Agnew became a director in December 2002. He is a former retail executive with over 36 years of retail experience. Mr. Agnew held various officer level assignments with Jewel Companies, Inc., Buttrey Food and Drug, Inc., and American Stores/Albertsons, Inc. Mr. Agnew began his career in 1963 with Jewel Food & Drug Stores where he served in various capacities including General Manager of its Midwest Division. In 1987, Mr. Agnew was appointed President and Chief Executive Officer of Buttrey Food and Drug, Inc. In 1990, Mr. Agnew successfully led a leveraged buyout of Buttrey Food and Drug Store Company and successfully completed an initial public offering of the Company in early 1993. In 1994, Mr. Agnew returned to American Stores, Inc., where he served as a Senior Vice President and member of the Company’s Executive Committee until his retirement in 1999.

45

John M. Baumer became a director of the Company in November 2001. He has been an executive officer and equity owner of LGP, the firm that manages Green Equity Investors II, L.P. (“GEI”), since 1999. Mr. Baumer had previously been a Vice President at Donaldson, Lufkin & Jenrette Securities Corporation (“DLJ”), and had been with DLJ since 1995. Prior to joining DLJ, Mr. Baumer was at Fidelity Investments and Arthur Andersen. Mr. Baumer is also a director of Intercontinental Art, Inc., VCA Antech, Inc., The Brickman Group, Ltd. and Petco Animal Supplies, Inc.

John G. Danhakl became a director of the Company in June 1997. He has been an executive officer and an equity owner of LGP, the firm that manages GEI, since 1995. Mr. Danhakl had previously been a Managing Director at DLJ and had been with DLJ since 1990. Prior to joining DLJ, Mr. Danhakl was a Vice President at Drexel Burnham Lambert Incorporated. Mr. Danhakl is also a director of Arden Group, Inc., Petco Animal Supplies, Inc., The Neiman Marcus Group, Inc., Sagittarius Brands, The Tire Rack, Inc. and Horseshows In The Sun.

Michael J. Fourticq became a director of the Company in June 1997. He also served as Chairman of the Board of Directors from May 1988 until January 2000. Between May 1988 and August 1992, he served as the Company’s Chief Executive Officer. From 1995 to 2001, Mr. Fourticq had been the Chairman and Chief Executive Officer of Brown Jordan International, a leading manufacturer of outdoor and casual furniture products. Since 1985 he has been the general partner of Hancock Park Associates, which is the general partner and affiliate of several investment partnerships. Mr. Fourticq is also on the board of directors of Gordon Biersch.

Rick D. Carlson is Senior Vice President of Commercial, Service and Logistics of the Company. Mr. Carlson has over 18 years of retail experience and has been with the Company since February of 2000 when he joined the team as Vice President of Logistics. Most recently Mr. Carlson was the General Manager of the Alaska Division of Totem Ocean Trailer Express. From 1995 until 1999, he was the Director of Transportation and Freight Operations of Carr Gottstein Foods Co., Alaska’s largest food and drug retailer and wholesale provider. Prior to that time he held several management positions at Buttrey Food and Drug Co.

Brian P. Agnew became Senior Vice President, Store Operations on September 29, 2005. Brian Agnew is a 20 year retail veteran and was previously the regional Vice President of Operations in the Company’s Southeast Region from September 2003 through October 2005. From May 2003 through September 2003 he held the position of District Manager with the Company. Prior to joining Leslie’s, Brian Agnew held several management positions in the retail grocery industry with Jewel Foods, American Stores Company and Albertson’s, Inc. Brian Agnew is the son of Edward C. Agnew, who has served as a director of the Company since December 2002.

Craig A. Wright is Senior Vice President, Chief Information Officer of the Company. Mr. Wright joined the Company in April of 2008 as Vice President Direct Marketing and assumed the role of SVP and CIO in March of 2009. Prior to joining the Company, Mr. Wright was the Senior Vice President of National Sales and Logistics for Millard Refrigerated Services, one of the largest third-party providers of refrigerated warehouse and distribution in the United States. From 1981 to 1998, Mr. Wright held progressive management roles with Buttrey Food and Drug Co., including Vice President of Merchandising & Distribution.

All executive officers of the Company are chosen by the Board of Directors and serve at the Board’s discretion except as provided in the employment agreements described below under “Executive Compensation—Employment Agreements”.

No Audit Committee

The Company does not have an audit committee, nor is any member of the Board a “financial expert” within the meaning of the regulations of the Securities and Exchange Commission. As a voluntary filer without a public market for our equity securities, we are not required to have an audit committee or a financial expert. We do not believe that we could recruit a financial expert without unwarranted expense and difficulty.

46

Code of Ethics

The Company has adopted a Code of Ethics and a copy may be obtained, without charge, by written request to the Company Attention: Corporate Secretary.

Section 16(a) is Not Applicable

The Company is a voluntary filer without a public market for its equity securities. Consequently, the executive officers and directors are not required to comply with Section 16(a) of the Exchange Act.

47

ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION, DISCUSSION AND ANALYSIS

The Board of Directors of the Company does not maintain a compensation committee. Our Board of Directors reviews and approves our compensation practices for attracting, retaining and motivating our Named Executive Officers (or NEOs).

The following Compensation Discussion and Analysis details the Company’s strategy and practices for compensating our NEOs, who in fiscal 2009 were:

Name	Title
Lawrence H. Hayward	Chief Executive Officer and Chairman of the Board
Steven L. Ortega	Chief Financial Officer, EVP and Director
Michael L. Hatch	President, Chief Operating Officer and Director
Craig A. Wright	Senior Vice President, Chief Information Officer
Rick D. Carlson	Senior Vice President, Commercial, Service and Logistics

Objectives of the Executive Compensation Program

Our compensation programs are designed to provide a competitive level of total compensation (base salary, variable pay, and benefits) to attract and retain talented executives and to motivate our Named Executive Officers to achieve the Company’s business objectives, as approved by the Board of Directors. The Board of Directors uses published surveys to determine whether the compensation provided to NEOs and other executives is competitive. However, the Board does not benchmark against any specific companies. Total compensation is reviewed when the Board of Directors deems it necessary but such review does not typically occur on an annual basis.

Elements of Executive Compensation

The elements of the Company’s compensation are comprised of:

• Base salary;

• At risk variable bonuses tied to the Company’s performance;

• Benefits and other perquisites; and

• Severance and other post-termination payments as defined in certain of the NEOs’ employment agreements.

48

What the Compensation Element is Designed to Reward and How It Relates to the Objectives

Each pay element is designed to reward different results as shown below:

Compensation Element	Designed to Reward	Relationship to the Objectives
Base Salary	Experience, knowledge of the Company and industry, dedication to assigned job, and performance by the executive on behalf of the Company	Provides competitive pay to attract and retain talented NEOs
Bonus	Success in achieving the Company’s financial and operational goals	Motivate and reward executives to achieve the Company’s annual business objectives Provide competitive pay to attract and retain talented NEOs
Benefits and Other Perquisites	Initial and continued employment by the NEOs	Provide competitive compensation to attract and retain talented executives
Severance and Other Post-Termination Payments	Initial and continued employment by the executive	Provide competitive compensation to attract and retain talented executives

Base Salary

Base salary is paid for on-going employment throughout the year. It is intended to compensate the NEOs for their basic services performed for the Company thorough the year. In setting base salary, the Board of Directors considers each NEO’s experience, role and job responsibilities. The Board or Directors reviews base salary when it deems necessary and such review does not always occur on an annual basis.

Bonus

In the first quarter of each fiscal year, the Board of Directors meets to review the Company’s budget and targeted EBITDA goals for the fiscal year. At that meeting, the Board approves a threshold EBITDA target for the Company before bonuses will be paid to NEOs. If the EBITDA target is not achieved, bonuses will not be paid. Consequently, all bonuses are at risk.

In fiscal 2009, the Board of Directors set $101.5 million as the annual EBITDA threshold before bonuses would be paid. Bonuses for NEOs were subject to a cap of 150% of the target bonus and bonuses were targeted in the following amounts:

Name	Target Bonus
Lawrence H. Hayward	70% of base salary
Steven L. Ortega	60% of base salary
Michael L. Hatch	60% of base salary
Craig A. Wright	35% of base salary
Rick D. Carlson	35% of base salary

The Company exceeded the EBITDA threshold and, consequently, each of the NEOs received more than their target bonus, as set forth in detail in the Summary Compensation Table below.

49

Benefits and Other Perquisites

401(k) Plan

The Company maintains a 401(k) plan that is available for all eligible employees, including the NEOs. Participants may elect to defer up to 25% of their compensation as pre-tax contributions through regular payroll deductions, subject to the limitations set forth in the Internal Revenue Code. Participants who have attained age 50 before the end of the year are also eligible to make catch-up contributions. The Company currently provides a discretionary matching contribution to each eligible participant’s account, equal to 50% of an eligible employee’s elective contributions, up to 4% of their total compensation.

Welfare Benefits

The NEOs are eligible to participate in any medical, dental, life insurance, disability, 401k or stock option plan made generally available by the Company to executives.

Cash Allowance

Messrs. Hayward and Ortega’s employment agreements provide for the payment by the Company of an annual cash allowance for expenses, including those which may be considered partially or wholly personal in nature. The annual cash allowance is automatically increased annually by 5% from that paid in the prior year. In addition, Messrs. Hayward and Ortega are each entitled to a tax gross-up for any taxes related to his receipt of the cash allowance. In fiscal 2009, Mr. Hayward’s annual cash allowance was $60,775 and his gross-up amount was $34,268. In fiscal 2009, Mr. Ortega’s annual cash allowance was $18,191 and his gross-up amount was $11,396.

Personal Use of Corporate Aircraft

Pursuant to the terms of his employment agreement, Mr. Hayward is permitted to use the corporate aircraft for personal use at the Company’s expense. Further, he is entitled to a gross-up for any tax liability incurred in connection with this benefit up to a maximum reimbursement of $100,000 per year, subject to an annual increase of 5% per year. Mr. Hayward is authorized to permit use of the corporate aircraft, at his discretion, for Messrs. Ortega and Hatch. Messrs. Ortega and Hatch are entitled to a gross-up for any tax liabilities incurred in connection with this benefit.

Separation Arrangements

As described in detail below, employment agreements for three of the NEOs specify certain severance benefits to be paid in the event of an involuntary termination of such executive’s employment. The Company provides such separation benefits in order to remain competitive in attracting and retaining executives.

Mr. Hayward’s employment agreement also provides for severance payment if he elects to terminate his employment following a change in control of the Company, as the Board of Directors believes that it is critical to maintain management’s business focus in the event of a potential transaction.

For further details, please refer to the section “Severance, Termination and Change in Control Payments” below.

50

Stock Option Awards

During fiscal 2009, the Board of Directors of Holdings approved grants of time-based options to a number of employees of the Company, including the NEO’s as follows:

Name	Number of Options Granted for Fiscal 2009
Lawrence H. Hayward	60,000
Steven L. Ortega	30,000
Michael L. Hatch	30,000
Craig A. Wright	22,500
Rick D. Carlson	10,000

The options vest over a five year period at a rate of 20% annually on each anniversary of the date of grant and have an exercise price of $2.90 per share. The fair value of the options granted was determined to be $2.90 based on management’s estimate of an enterprise value of Holdings at the time of grant. These option grants are included in the compensation tables below.

Additionally, in fiscal 2010, the Board of Directors of Holdings approved grants of time based options to a number of employees of the Company, including the NEOs as follows:

Name	Number of Options Granted for Fiscal 2010
Lawrence H. Hayward	80,000
Steven L. Ortega	30,000
Michael L. Hatch	100,000
Craig A. Wright	17,500
Rick D. Carlson	10,000

The options vest over a five year period at a rate of 20% annually on each anniversary of the date of grant and have an exercise price of $2.90 per share. The fair value of the options granted was determined to be $2.90 based on management’s estimate of an enterprise value of Holdings at the time of grant. These option grants are not included in the compensation tables below because they do not relate to compensation for fiscal 2009.

The Board of Directors determined to issue options to purchase shares of Holdings’ common stock in order to provide an incentive to the NEOs to remain in the employ of the Company and to align the NEOs interests with the shareholders of Holdings in order to maximize long-term value.

51

Compensation of the Named Executive Officers

The following tables show, for fiscal year 2009, compensation awarded or paid to, or earned by, our CEO, CFO, and three most highly compensated executive officers other than the CEO and CFO. We refer to these executives collectively herein as the Named Executive Officers or NEOs.

SUMMARY COMPENSATION TABLE

Name and Principal Position	Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Grants ($)	Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)		Total ($)
(a)	(b)	(c)	(d)	(e)	(f)(1)	(g)(2)	(h)	(i)		(j)
Lawrence H. Hayward	2009	517,000	—	—	74,910	363,710	—	122,452	(3)	1,078,072
Chief Executive Officer and Chairman of the Board	2008 2007	517,000 517,000	—   —	—   —	42,034 —	373,480 496,521	—   —	106,993 94,558		1,039,507 1,108,079
Steven L. Ortega	2009	330,750	—	—	37,455	199,442	—	52,631	(4)	620,278
Chief Financial Officer, EVP and Director	2008 2007	330,750 330,750	—   —	—   —	21,017 —	204,800 272,270	—   —	33,405 31,754		589,972 634,774
Michael L. Hatch	2009	320,000	—	—	37,455	192,960	—	5,116	(5)	555,532
President, Chief Operating Officer and Director	2008 2007	320,000 320,000	—   —	—   —	21,017 —	198,144 263,421	—   —	4,955 4,400		544,116 587,821
Craig A. Wright	2009	166,693	—	—	27,937	58,760	—	80,580	(5)	333,678
SVP, Chief Information Officer	2008	70,769	—	—	52,659	23,521	—	28		146,977
Rick D. Carlson	2009	170,000	—	—	12,485	61,092	—	4,182	(5)	237,857
SVP, Commercial, Service and Logistics	2008 2007	170,000 170,000	—   —	—   —	10,509 —	61,406 81,273	—   —	4,620 4,400		246,535 255,673

(1) The amounts reflect the dollar amount recognized for financial reporting purposes for the respective period of awards issued pursuant to the 2005 Stock Option Plan and includes amounts from awards granted in fiscal 2009 and in prior years. Pursuant to SEC rules, the amounts shown exclude the impact of estimated forfeitures related to service-based vesting conditions. Assumptions used in the calculation of these amounts for the fiscal years ended October 3, 2009 are included in footnote 15 to our consolidated financial statements.

(2) Bonuses are attributed to the year earned and are paid out after the conclusion of the fiscal year. For fiscal 2008, certain of the NEOs received their bonuses in November 2008 and others received their bonuses in January 2008. For Fiscal 2009, all of the NEOs received their bonuses in December 2009.

(3) Represents (i) a cash allowance of $60,775 for 2009 for all expenses, including those that may be personal in nature, (ii) a gross up payment of $34,268 for 2009 related to the cash allowance, (iii) the Company’s matching contributions to Mr. Hayward’s 401(k) account, and (iv) the incremental cost of the Company’s aircraft used for non-business flights, which was valued for Mr. Hayward at $22,348. The incremental cost of the Company’s aircraft used for a non-business flight is calculated by multiplying the aircraft’s hourly variable operating cost by a trip’s flight time. The aircraft’s variable operating costs include: (1) Aircraft fuel and oil; (2) maintenance, parts and external labor; (3) landing, parking, passenger ground transportation, crew travel and flight planning expenses; and (4) supplies and catering expenses. Fixed costs that do not vary based upon usage are not included in the calculation of variable operating cost. On certain occasions, an NEO’s spouse, family member or guest may accompany the NEO on a flight. There are normally no incremental costs associated with such situations; however if there were incremental costs such costs would be reflected in the table above.

(4) Represents (i) a cash allowance of $18,191 for 2009 for all expenses, including those that may be personal in nature, (ii) a gross up payment of $11,396 for 2009 related to the cash allowance, (iii) the Company’s matching contributions to Mr. Ortega’s 401(k) account, and (iv) the incremental cost of the Company’s aircraft used for non-business flights, which was valued for Mr. Ortega at $18,264. The incremental cost of the Company’s aircraft used for a non-business flight is calculated by multiplying the aircraft’s hourly variable operating cost by a trip’s flight time. The aircraft’s variable operating costs include: (1) Aircraft fuel and oil; (2) maintenance, parts and external labor; (3) landing, parking, passenger ground transportation, crew travel and flight planning expenses; and (4) supplies and catering expenses. Fixed costs that do not vary based upon usage are not included in the calculation of variable operating cost. On certain occasions, an NEO’s spouse, family member or guest may accompany the NEO on a flight. There are normally no incremental costs associated with such situations; however if there were incremental costs such costs would be reflected in the table above.

(5) Represents the Company’s matching contributions to each NEO’s 401(k) account.

52

GRANT OF PLAN-BASED AWARDS

Name	Grant Date	Estimated Future Payouts Under Non-Equity Incentive Plan Awards			All Other Option Awards: Number of Securities Underlying Options ($)	Exercise or Base Price of Option Awards ($)		Grant Date Fair Value of Option Awards ($)
		Threshold ($)	Target ($)	Maximum ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)(1)		(h)
Lawrence H. Hayward	N/A	180,950	361,900	542,850	N/A		N/A	N/A
	11/17/2008	N/A	N/A	N/A	60,000	$	2.90	74,910
Steven L. Ortega	N/A	99,225	198,450	297,675	N/A		N/A	N/A
	11/17/2008	N/A	N/A	N/A	30,000	$	2.90	37,455
Michael L. Hatch	N/A	96,000	192,000	288,000	N/A		N/A	N/A
	11/17/2008	N/A	N/A	N/A	30,000	$	2.90	37,455
Craig A. Wright	N/A	29,171	58,342	87,514	N/A		N/A	N/A
	11/17/2008	N/A	N/A	N/A	7,500	$	2.90	9,364
	3/2/2009	N/A	N/A	N/A	15,000	$	2.90	18,573
Rick D. Carlson	N/A	29,750	59,500	89,250	N/A		N/A	N/A
	11/17/2008	N/A	N/A	N/A	10,000	$	2.90	12,485

(1) In fiscal year 2009, the fair value of the common stock underlying the 2005 Incentive Stock Option Plan options granted was determined to be $2.90 based on management’s estimate of an enterprise value of the Company at the time of grant.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Employment Agreements

Lawrence H. Hayward

The Company entered into an amended and restated employment agreement with Lawrence Hayward on June 15, 2007, for his employment as Chief Executive Officer and Chairman of the Board of the Company. On February 8, 2008, the Company restated and supplemented the Amended and Restated Employment Agreement with Mr. Hayward. Certain modifications were made to the agreement, including changes related to compensation in the event of termination of employment. Mr. Hayward’s Amended and Restated Agreement was amended on January 28, 2009 to provide for use of the corporate aircraft. The employment agreement expires on February 7, 2013 but shall automatically extend for successive one-year periods unless notice is provided in accordance with the terms of the employment agreement.

Under the employment agreement, the Company shall pay Mr. Hayward a salary at an annual rate of $517,000. Mr. Hayward shall also be eligible to participate in the Company’s bonus plan, with a target bonus for each year of not less than 70% of his base salary in effect at the end of such year. Under the employment agreement, the Company shall pay Mr. Hayward an annual cash allowance for expenses, which was $60,775 for 2009 (increased annually by 5%), that relates to his employment which might be considered partially or wholly personal in nature, and he is entitled to a tax gross-up for any taxes related to his receipt of the cash allowance. Mr. Hayward is permitted to use the corporate aircraft for personal use at the Company’s expense. Further, he is entitled to a gross-up for any tax liability incurred in connection with this benefit up to a maximum reimbursement of $100,000 per year, subject to an annual increase of 5% per year. Mr. Hayward is entitled to receive other benefits such as four (4) weeks of vacation each year, personal and sick leave, insurance and other benefits consistent with the then-current policies of the Company and equal to those benefits extended to the most senior executives of the Company. Mr. Hayward’s employment agreement also contains non-solicitation and confidentiality covenants and provides that Mr. Hayward serves as a Director at the will of the Company’s Board of Directors.

53

Steven L. Ortega

The Company entered into an amended and restated employment agreement with Steven Ortega on June 15, 2007, for his employment as Executive Vice President and Chief Financial Officer of the Company. The employment agreement provides for a minimum base salary of no less than $330,750 annually. Mr. Ortega is also eligible to participate in the Company’s bonus plan with a target bonus of at least 60% of his base salary in effect for the fiscal year. The bonus plan shall provide for a minimum bonus of 50% of target upon achievement of threshold performance. Mr. Ortega is also entitled to receive prompt reimbursement for all expenses reasonably and necessarily incurred by him in performing his duties. Under the employment agreement, Mr. Ortega is paid an annual cash allowance for expenses, which was $18,191 for 2009 (increased annually by 5%), that relates to his employment which might be considered partially or wholly personal in nature, and he is entitled to a tax gross-up for any taxes related to his receipt of the cash allowance. Mr. Ortega is eligible to participate in any medical, dental, life insurance, disability, retirement, profit-sharing, savings, stock option plan or stock-based compensation plan made generally available by the Company to executives. Additionally, he is eligible to receive vacation (not less than 4 weeks paid vacation per year) and sick leave. The employment agreement contains non-solicitation and confidentiality covenants and provides that Mr. Ortega will serve as a Director at the will of the Company’s Board of Directors. The employment agreement expires on April 22, 2010 but shall automatically extend for successive one-year periods unless notice is given in accordance with the employment agreement.

Michael L. Hatch

The Company entered into an employment agreement with Michael L. Hatch on June 15, 2007, for his employment as the President and Chief Operating Officer of the Company. The employment agreement provides for an annual minimum base salary of $320,000, and provides that Mr. Hatch is eligible during each fiscal year for an annual bonus of 60% of his annual base salary. The employment agreement provides that Mr. Hatch is eligible to participate in the Company’s benefit plans consistent with the benefits generally available to executives. Such benefits include four (4) weeks of vacation each year, personal and sick leave, disability, and medical and life insurance. Under the employment agreement Mr. Hatch is also subject to non-solicitation and confidentiality covenants, and he serves at the will of the Company’s Board of Directors.

2005 Stock Option Plan

As of the 2007 Reorganization, all contractual rights and obligations relating to the Company’s 2005 Stock Option Plan (the “2005 Plan”) and related agreements were assumed by Holdings. During the second quarter of 2007 and pursuant to the 2005 Plan, Holdings’ board of directors approved the acceleration of the vesting of all outstanding stock options to purchase shares of common stock of Holdings. The fair value of the awards immediately before the modification of the vesting was the same value as the fair value after the modification took effect. All of the outstanding options were exercised in February of 2007 after the 2007 Reorganization and all exercises by the NEOs are reflected in the table below. During fiscal 2008, our Named Executive Officers did not receive any grants of stock options or other stock awards. In November 2008, the Board of Directors of Holdings approved grants of time based options to a number of employees of the Company, including the NEOs. The options vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

54

Option Holdings

The following table includes certain information with respect to all options previously awarded to the executive officers named above that were outstanding as of October 3, 2009.

OUTSTANDING EQUITY AWARDS AT OCTOBER 3, 2009

	Number of Securities Underlying Unexercised Options (#)(1)		Option Exercise Price ($)		Option Expiration Date
Name	Exercisable	Unexercisable
Lawrence H. Hayward	8,000	32,000	$	2.30	11/7/17
	—	60,000	$	2.90	11/17/18
Steven L. Ortega	4,000	16,000	$	2.30	11/7/17
	—	30,000	$	2.90	11/17/18
Michael L. Hatch	4,000	16,000	$	2.30	11/7/17
	4,000	30,000	$	2.90	11/17/18
Craig A. Wright	10,000	40,000	$	2.30	05/20/18
	—	7,500	$	2.90	11/17/18
	—	15,000	$	2.90	3/2/19
Rick D. Carlson	2,000	8,000	$	2.30	11/7/17
	—	10,000	$	2.90	11/17/18

(1) All of the options in the table were granted ten years prior to the expiration date and vest over a five year period at a rate of 20% annually on each anniversary of the date of grant.

Severance, Termination and Change in Control Payments

Lawrence H. Hayward

Pursuant to Mr. Hayward’s employment agreement, if the Company terminates Mr. Hayward’s employment for any reason other than his death, disability, Just Cause, or pursuant to the Company’s retirement policy or if Mr. Hayward terminates his employment for Good Reason, the Company shall pay him a lump sum cash amount equal to 200% of the sum of (i) his base salary in effect at the time of the termination, and (ii) the greater of his target bonus for such year and the average of his bonuses for the prior two years. Also, the Company shall continue to provide, and pay the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old. In addition, Mr. Hayward is entitled to a tax gross-up if excise taxes are imposed as a result of any payments made under the agreement. The amount of the gross-up will be sufficient to cover all such taxes, interests and penalties.

If Mr. Hayward’s employment is terminated by the Company or himself as a result of Mr. Hayward’s disability or in the case of his death, LPM shall pay Mr. Hayward or his estate a lump-sum cash amount equal to 200% of the sum of: (i) his base salary in effect at the time of termination plus (ii) the greater of (x) his target bonus for such year or (y) the average of his bonuses paid with respect to the prior five years. Additionally, upon such termination for disability, the Company shall continue to provide, and pay the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old. In addition, Mr. Hayward or his estate shall be entitled to (a) a pro rata portion of his cash allowance for the year in which his employment terminated, (b) any outstanding reimbursements to which he is entitled; (c) compensation for unused vacation and (d) any other amounts or benefits due after the termination of employment under the terms of any other applicable agreements, awards, plans, policies or programs of the Company.

In addition to the foregoing, in the event Mr. Hayward holds any options to purchase Holdings securities at time of termination of his employment for death or disability, such options shall accelerate and become fully vested. Moreover, the Companies and the Green Parties (as defined in the employment agreement) agree not to

55

exercise the Call Option (as defined in the employment agreement), to the extent such option is exercisable at the time of termination of Mr. Hayward’s employment for death or disability within the meaning of the Amended and Restated Stockholders Agreement dated as of February 20, 2007 among the Company, Holdings and certain stockholders of Holdings. The Company and Holdings further agree that in such event, at any time between the fourth and fifth anniversary of the date of such termination of employment, Mr. Hayward or his estate shall be entitled to notify the Company to repurchase, for cash, within 60 days of receipt of such notice, all of his shares of Holdings stock then held (whether by Mr. Hayward or any Individual Related Party, within the meaning of the Stockholders Agreement) at the Fair Market Value thereof (as defined in the Stockholders Agreement), provided that such repurchase, (i) would not result in a violation of any material agreement to which the Company is then party, (ii) complies with the applicable provisions of state law and (iii) would not result in a violation of the fiduciary duties of the Boards of Directors of the Company and Holdings.

“Just Cause” is defined in the employment agreement as termination of employment for any of the following reasons: (i) Mr. Hayward’s conviction of a felony, without the right of further appeal, which has an adverse impact on the Company or which involves the material misappropriation of the Company’s assets, (ii) an intentional or grossly negligent violation by Mr. Hayward of any reasonable policy of the Board of Directors of the Company that results in material damage to the Company and which, if such violation is curable, after notice to do so, Mr. Hayward fails to correct within a reasonable time, or (iii) the performance of services by Mr. Hayward for any other company, entity, or person which directly competes with the Company during the time Mr. Hayward is employed by the Company, without the written approval of the Company’s Board of Directors.

“Good Reason” is described in the employment agreement as (i) relocation of Mr. Hayward’s home due to the relocation of the corporate office beyond a 25-mile radius of the current office located in Phoenix, Arizona, or (ii) the consummation of a Change in Control.

“Change in Control” is defined as any of the following: (i) GCP California Fund, L.P. and its affiliates cease to beneficially own, directly or indirectly, a majority of the voting securities of the Company, (ii) a merger or consolidation of Holdings or the Company, or (iii) the sale of substantially all of the assets of the Company, in each case in a transaction or series of transactions as a result of which a majority of the voting securities of the Company cease to be beneficially owned, directly or indirectly, by GCP California Fund, L.P. or any of its affiliates.

Steven L. Ortega

Pursuant to Mr. Ortega’s employment agreement, if the Company terminates Mr. Ortega’s employment for any reason other than Cause or Mr. Ortega terminates his employment for Good Reason, Mr. Ortega will receive the following: (i) any unpaid base salary that has been earned at the time of such termination, (ii) a pro-rata portion of the cash allowance of the year less any amount previously disbursed in that year, (iii) any reimbursements to which he was entitled, (iv) compensation for accrued but unused vacation, (v) any other amounts or benefits due after the termination of employment under the terms of other agreements, (vi) 200% percent of (A) his base salary in effect at the time of the termination, plus (B) his target bonus for the year of termination to be paid in accordance with the Company’s normal payroll procedures, (vii) reimbursement for the premium payable by Mr. Ortega for health and medical-care insurance coverage under COBRA for a period of 18 months after termination, and (viii) independent, offsite, executive career transition and outplacement services. If Mr. Ortega’s employment is terminated due to death, his estate will receive an amount equal to his target bonus for the fiscal year.

“Cause” is defined in the employment agreement as any of the following: (i) Mr. Ortega’s breach of the employment agreement or a material Company policy, (ii) the engaging by Mr. Ortega in willful, reckless or grossly negligent misconduct, or (iii) Mr. Ortega failing or refusing to perform any material obligation or to carry out the reasonable directives of his supervisor consistent with his duties, and Mr. Ortega fails to cure the same within a period of 10 days after written notice of such failure is provided to him by the Company.

56

“Good Reason” is deemed to exists if (i) there is a material diminution in the title and/or duties, responsibilities or authority of Mr. Ortega, (ii) the Company requires Mr. Ortega to move to another location of the Company or any affiliate and the distance between the new job site is at least 50 miles away from metropolitan Phoenix, Arizona, (iii) there is a willful failure or refusal by the Company to perform any material obligation under the employment agreement, or (iv) there is a reduction in Mr. Ortega’s base salary or annual bonus target amount.

Michael L. Hatch

Pursuant to Mr. Hatch’s employment agreement, if the Company terminates Mr. Hatch’s employment for any reason other than under its retirement policy, upon Mr. Hatch’s death or disability, or for Just Cause, then the Company shall pay him a lump sum amount equal to his current annual salary and target bonus, less normal withholdings and will reimburse Mr. Hatch for a period of twelve (12) months after termination for his health and medical-care insurance coverage.

“Just Cause” is defined in the employment agreement as termination of employment for any of the following reasons: (i) Mr. Hatch’s breach of the employment agreement or of a material policy of the Board of Directors of the Company, (ii) the engaging by Mr. Hatch in willful, reckless or grossly negligent misconduct, (iii) Mr. Hatch’s indictment, charge, conviction or guilty pleas (or plea of nolo contendere) with respect of an offense involving moral turpitude or a felony, (iv) Mr. Hatch’s failing or refusing to perform any material obligation or to carry out the reasonable directives of Mr. Hatch’s supervisor consistent with his duties, and Mr. Hatch fails to cure the same within a period of 10 days after written notice of such failure is provided to Mr. Hatch, or (v) the performance of services by Mr. Hatch for any other company, entity, or person which directly competes with the Company during the time Mr. Hatch is employed by the Company, without the written approval of the Board of the Company.

We did not execute employment agreements with any other Named Executive Officers.

Potential Payments Upon Termination or Change in Control

The following table sets forth potential payments for each Named Executive Officer in the event of various termination circumstances. This presentation assumes termination has occurred on the last business day of fiscal 2009. Due to uncertainties inherent in this estimation process, it is possible actual payments may vary from these estimates.

Name	Termination by the Company other than for Death, Disability or Cause			Resignation by the NEO for Good Reason			Voluntary Resignation by the NEO	Retirement	Death			Disability			Termination by NEO after a Change in Control
Lawrence H. Hayward	$	2,218,000	(1)	$	2,218,000	(1)	—	—	$	2,293,000	(2)	$	2,516,000	(2)	$	2,218,000	(3)
Steven L. Ortega	$	1,093,900	(4)	$	1,093,900	(4)	—	—		198,450	(5)		—			—
Michael L. Hatch	$	524,000	(6)		—		—	—		—			—			—
Craig A. Wright		—			—		—	—		—			—			—
Rick D. Carlson		—			—		—	—		—			—			—

(1) Comprised of (i) 200% of (x) Mr. Hayward’s base salary in effect at the time of termination and (y) the greater of his target bonus for such year and the average of his bonuses for the prior five years, (ii) an amount equal to the corporate and individual premiums for, health and medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old.

(2) Comprised of (i) 200% of the sum of: (x) Mr. Hayward’s base salary in effect at the time of termination plus (y) the greater of his target bonus for such year or the average of his bonuses paid with respect to the prior five years and (ii) the aggregate value (based upon the spread) of Mr. Hayward’s outstanding options that would vest as a result of his termination. In the case of disability, this amount also includes the corporate and individual premiums for, health and

57

medical-care insurance coverage of Mr. Hayward and his spouse for the remainder of their respective lives and for Mr. Hayward’s dependents until they each reach the age of 21 years old.

(3) Comprised of all amounts set forth in footnote (1) above. In addition, Mr. Hayward is entitled to a tax gross-up if excise taxes are imposed as a result of any payment made under the agreement. If Mr. Hayward had been terminated following a Change in Control on the last day of fiscal year 2009, there would have been no gross-up payments.

(4) Comprised of (i) 200% of Mr. Ortega’s base salary in effect at the time of termination, (ii) 200% of his target bonus for such year, (iii) an amount equal to the monthly premium payable by Mr. Ortega for health and medical insurance coverage for him and his dependents for eighteen months, and (iv) an estimate of the costs of providing Mr. Ortega with the career transition and outplacement services set forth in his employment agreement.

(5) If Mr. Ortega’s employment terminates on account of death, he will receive his target bonus for the fiscal year in which he died.

(6) Comprised of (i) Mr. Hatch’s annual salary at the time of termination, (ii) his target bonus for such year, and (iii) an amount equal to the monthly premium payable by Mr. Hatch for health and medical insurance coverage for him and his dependents for twelve months.

Directors’ Compensation

The following table lists each of our directors, who is not also an NEO. Generally, Directors do not receive any compensation for their service on the Company’s Board of Directors other than reimbursement for reasonable out-of-pocket expenses incurred in connection with attending meetings. However, during fiscal 2009, Mr. Edward Agnew received $4,000 for each quarterly meeting of the Company’s Board of Directors.

Non-employee directors also are eligible to receive grants of stock options pursuant to the discretion of the Board of Directors. During 2009, Mr. Edward Agnew was granted an option to purchase 15,000 shares of Leslie’s Holding’s Inc. common stock at a price equal to the fair market value at the time of the award of $2.90 per share. This option award vests 20% each year over a period of five years.

DIRECTOR COMPENSATION

For Fiscal Year Ended 2009

Name (a)	Fees Earned or Paid in Cash ($) (b)	Stock Awards ($) (c)	Option Awards ($) (d)(1)	Non-Equity Incentive Plan Compensation ($) (e)	Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) (f)	All Other Compensation ($) (g)	Total ($) (h)
Edward C. Agnew	16,000	—	18,283	—	—	—	34,283
John M. Baumer	—	—	—	—	—	—	0
John G. Danhakl	—	—	—	—	—	—	0
Michael J. Fourticq	—	—	—	—	—	—	0

(1) On May 2, 2009, Mr. Agnew was granted an option to purchase 15,000 shares of Leslie’s Holding’s Inc. common stock. All 15,000 shares were outstanding and no shares were exercisable as of October 3, 2009. The amount reflects the dollar amount recognized for financial reporting purposes for the respective period pursuant to the 2005 Stock Option Plan and includes amounts from awards granted in fiscal 2009. Assumptions used in the calculation of these amounts for the fiscal years ended October 3, 2009 are included in footnote 15 to our consolidated financial statements. At the end of the 2009 fiscal year, Mr. Agnew had 30,000 shares of option awards outstanding.

Compensation Committee Interlocks and Insider Participation

The Board of Directors of the Company does not have a compensation committee. The independent members of the Company’s Board of Directors sets compensation in executive session. None of our Named Executive Officers participated in discussions of the Board of Directors related to executive compensation in fiscal 2009.

58

Compensation Committee Report

The Company’s Board of Directors does not have a compensation committee. The Board of Directors of the Company reviewed and discussed with management the Compensation Discussion and Analysis set forth above for the 2009 fiscal year. As a result of this review and discussion, the Board of Directors approved the Compensation Discussion and Analysis for inclusion in this annual report.

BOARD OF DIRECTORS:	Lawrence H. Hayward (Chairman)
	Steven L. Ortega
	Michael L. Hatch
	Edward C. Agnew
	John M. Baumer
	John G. Danhakl
	Michael J. Fourticq

59

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Holdings beneficially owned 100% of the Company’s common stock as of October 3, 2009. Accordingly, Holdings owned 100% of the economic and voting power in the Company. The following table sets forth information as of October 3, 2009 with respect to (i) all persons known by us to be the beneficial owner of more than 5% of Holdings’ common stock; (ii) all executive officers; (iii) all directors; and (iv) all directors and executive officers as a group.

Name and Address of Beneficial Owner(1)	Amount and Nature of Beneficial Ownership of Common Stock	Percentage of Shares Outstanding
Leslie’s Coinvestment, LLC(2)	9,152,403	21.0
John M. Baumer(2)(3)	33,867,730	77.6
John G. Danhakl(2)(3)	33,867,730	77.6
GCP California Fund, L.P.(3)	24,715,327	56.6
Michael J. Fourticq	732,270	1.7
Edward C. Agnew	—	—
Lawrence H. Hayward	3,050,000	7.0
Steven L. Ortega	920,000	2.1
Michael L. Hatch	420,000	1.0
Craig A. Wright	—	—
Rick D. Carlson	270,000	0.6
All executive officers and directors as a group (9 persons)	39,260,000	90.4

(1) The address of Messrs. Fourticq, Hayward, Ortega, Hatch, Wright and Carlson is 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040. The address of Leslie’s Coinvestment, LLC, GCP and Messrs. Baumer and Danhakl is 11111 Santa Monica Boulevard, Suite 2000, Los Angeles, California 90025. The address of Mr. Agnew is 22294 N. 79th Place Scottsdale, AZ 85255.

(2) Leslie’s Coinvestment, LLC is a Delaware limited liability company managed by LGP. Each of Messrs. Jonathan D. Sokoloff, Peter J. Nolan, John D. Danhakl, Jonathan A. Seiffer, John M. Baumer and Timothy J. Flynn, either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control LGP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn may be deemed to be beneficial owners of the shares of the Company’s common stock held or controlled by LGP. However, such individuals disclaim beneficial ownership of the securities held by LGP, except to the extent of their respective pecuniary interests therein.

(3) GCP is a Delaware limited partnership managed by an affiliate of LGP, which is an affiliate of the general partner of GCP. Each of Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn either directly (whether through ownership interest or position) or through one or more intermediaries, may be deemed to control the affiliate of LGP and such general partner. The affiliate of LGP and such general partner may be deemed to control the voting and disposition of the shares of the Company’s common stock owned by GCP. Accordingly, for certain purposes, Messrs. Sokoloff, Nolan, Danhakl, Seiffer, Baumer and Flynn may be deemed to be beneficial owners of the shares of the Company’s common stock held by GCP. However, such individuals disclaim beneficial ownership of the securities held by GCP, except to the extent of their respective pecuniary interests therein.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Management Services Agreement

We entered into a Management Services Agreement with LGP concurrent with the consummation of the 2005 Recapitalization. The Management Services Agreement provides that we will pay LGP an annual fee of $1.0 million for ongoing management, consulting and financial services. In addition, the Management Services

60

Agreement provides that LGP may provide us with financial advisory or investment banking services in connection with major financial transactions, and LGP will be paid a customary fee for such services. The Management Services Agreement will terminate on the earlier of (a) the tenth anniversary of its execution dated January 25, 2005; provided that the agreement will automatically extend for one year periods thereafter unless either we or LGP gives the other three months prior notice of termination, (b) the consummation of a change of control, including the date that LGP affiliates hold 40% or less of the Company’s shares and (c) the consummation of a public offering of the Company’s common stock in an aggregate offering amount of at least $50 million or as a result of which at least 15% of the Company’s shares of common stock is publicly traded. In the event of the Company’s bankruptcy, liquidation, insolvency or winding-up, the payment of all accrued and unpaid fees pursuant to the Management Services Agreement is subordinated to the prior payment in full of all amounts due and owing under the indenture governing the notes.

Stockholders Agreement

We entered into a Stockholders Agreement with GCP and each of the Company’s other stockholders concurrent with the consummation of the 2005 Recapitalization. The Stockholders Agreement generally restricts the transferability of the Company’s stock and gives GCP and its affiliates a right of first refusal in the event any other stockholder seeks to transfer any of the Company’s stock to a third party. In addition, GCP and its affiliates have certain “drag-along” rights and if GCP and its affiliates desire to sell any of the Company’s stock, other stockholders will have certain “tag-along” rights to participate in such sale. We and certain of the non-management stockholders have certain rights to repurchase a portion of the stock held by management upon their ceasing to provide services to us. The Stockholders Agreement also grants demand registration rights to the non-management stockholders and piggyback registration rights for all stockholders. Finally, Mr. Fourticq has certain rights to be elected as a director of Leslie’s.

On October 25, 2005, certain provisions of the Stockholders Agreement were amended dealing with termination of employment and in February 2007, the Stockholders Agreement was amended further reflecting the certain modifications related to the 2007 Reorganization.

Indemnification

We have agreed that we will indemnify all of the Company’s current and former directors and officers after the consummation of the 2005 Recapitalization for all costs and expenses incurred in proceedings arising out of or pertaining to the 2005 Recapitalization.

Director Independence

We are a corporation with public debt (not listed on any exchange) whose equity is privately held by Holdings, a private holding company. Although our Board has not made a formal determination on the matter, under current New York Stock Exchange listing standards (which we are not currently subject to) and taking into account any applicable committee standards, we believe that Messrs. Hayward, Ortega and Hatch would not be considered independent under any general listing standards or those applicable to any particular committee due to their employment relationship with the Company, Mr. Edward Agnew would not be considered independent under any general listing standards or those applicable to any particular committee due to his son’s employment with the Company as Senior Vice President of Operations, and Messrs. Danhakl and Baumer may not be considered independent under any general listing standards or those applicable to any particular committee, due to their direct relationship with LGP and GCP, our largest shareholders.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The firm of Ernst & Young LLP, an independent registered public accounting firm, has audited the financial statements of our company for the fiscal years 2008 and 2009. The Board of Directors of the Company approve all engagements and fees prior to any services being rendered by our principle accountants.

61

Aggregate fees billed to our company for the fiscal years ended October 3, 2009 and September 27, 2008 by Ernst & Young LLP, are as follows:

	Fiscal 2009		Fiscal 2008
Audit Fees(1)	$	397,145	$	398,300
Audit-Related Fees(2)		23,000		37,200
Tax Fees(2)		64,750		—
Total	$	484,895	$	435,500

(1) Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered.

(2) Includes fees and expenses for various services rendered from October through September of the fiscal year, notwithstanding when the fees and expenses were billed.

62

PART IV

ITEM  15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1), (2) The following financial statements and financial statement schedules are included herewith and are filed as part of this annual report.

Report of Independent Registered Public Accounting Firm	24
Consolidated Balance Sheets—October 3, 2009 and September 27, 2008	25
Consolidated Statements of Operations—Fiscal Years Ended October 3, 2009,  September 27, 2008 and September 29, 2007	26
Consolidated Statements of Stockholder’s Equity (Deficit)—Fiscal Years Ended October  3, 2009, September 27, 2008 and September 29, 2007	27
Consolidated Statements of Cash Flows—Fiscal Years Ended October 3, 2009,  September 27, 2008 and September 29, 2007	28
Notes to Consolidated Financial Statements	29

(a)(3) The following exhibits set forth below are filed as part of this annual report or are incorporated herein by reference.

Exhibit Number	Description
2.1*	Agreement and Plan of Merger dated as of January 7, 2005 between the Company and LPM Acquisition LLC (previously filed as Exhibit 2.1 to the Current Report on Form 8-K filed on January 11, 2005)
2.2*	Agreement and Plan of Merger to Form Holding Company (previously filed as Exhibit 2.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)
3.1*	Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on January 25, 2005 (previously filed as Exhibit 3.1 to the Registration Statement on Form S-4 filed on April 22, 2005)
3.2*	Bylaws of the Company (previously filed as Exhibit 3.5 to the Registration Statement on Form S-1 filed on June 27, 1997)
3.3*	Form of Certificate of Incorporation of Surviving Corporation (previously filed as Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)
4.1*	Indenture dated as of May 21, 2003 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 4.1 to the Registration Statement on Form S-4 filed on July 18, 2003)
4.2*	Supplemental Indenture dated as of January 11, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.01 to the Current Report on Form 8-K filed on January 25, 2005)
4.3*	Indenture dated as of January 25, 2005 between the Company and The Bank of New York Trust Company, N.A. (previously filed as Exhibit 10.2 to the Current Report on Form 8-K filed on January 28, 2005)
10.1*	Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslie’s Coinvestment, LLC and the stockholders identified on the signature pages thereto (previously filed as Exhibit 10.1 to the Registration Statement on Form S-4 filed on April 22, 2005)

63

Exhibit Number	Description
10.2*	Amendment dated as of October 25, 2005 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslie’s Coinvestment, LLC and the stockholders identified on the signature pages thereto (previously filed as Exhibit 10.3 to the Annual Report on Form 10-K filed on December 20, 2005)
10.3*	Management Services Agreement dated as of January 25, 2005 between the Company and Leonard Green & Partners, L.P. (previously filed as Exhibit 10.2 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.4*	Lease Agreement dated as of August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.7 to the Registration Statement on Form S-1/A filed on July 21, 1997)
10.5*	First Amendment dated as of June 21, 1996 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.4 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.6*	Second Amendment dated as of September 30, 1999 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.5 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.7*	Third Amendment dated as of April 14, 2000 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.6 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.8*	Fourth Amendment dated as of November 1, 2004 to the Lease Agreement dated August 30, 1990 by and between Adams Property Associates and the Company (previously filed as Exhibit 10.9 to the Annual Report on Form 10-K filed on December 20, 2005)
10.9*	Lease dated as of November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to Registration Statement on Form S-1/A filed on July 21, 1997)
10.10*	Addendum dated as of November 1996 to the Lease dated November 26, 1996 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.8 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.11*	Lease Agreement dated as of December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.8 to the Registration Statement on Form S-1/A filed on July 21, 1997)
10.12*	First Amendment dated as of June 3, 1999 to the Lease Agreement dated December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.10 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.13*	Lease dated as of April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.11 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.14*	First Addendum dated as of July 21, 1999 to the Lease dated April 30, 1998 by and between Paul Hemmer Development Co., III and the Company (previously filed as Exhibit 10.12 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.15*	Lease Agreement dated as of March 30, 2004 between ProLogis and the Company (previously filed as Exhibit 10.13 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.16*	Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.14 to the Registration Statement on Form S-4 filed on April 22, 2005)

64

Exhibit Number	Description
10.17*	First Amendment dated as of November 30, 2000 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.15 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.18*	Second Amendment dated as of June 26, 2001 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.16 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.19*	Third Amendment dated as of May 31, 2002 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.17 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.20*	Fourth Amendment dated as of April 9, 2004 to the Lease dated as of October 31, 2000 between Broadway Business Center LLC and the Company (previously filed as Exhibit 10.18 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.21*	Form of Director’s and Officer’s Indemnification Agreement dated as of January 1, 2000 between the Company and certain members of management (previously filed as Exhibit 10.19 to the Registration Statement on Form S-4 filed on April 22, 2005)
10.22*	2005 Stock Option Plan (previously filed as Exhibit 10.23 to the Annual Report on Form 10-K filed on December 20, 2005)
10.23*	Amended and Restated Employment Agreement dated February 8, 2008 between the Company and Lawrence H. Hayward (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on February 12, 2008)
10.24*	Amended and Restated Executive Employment Agreement dated as of June 15, 2007 between the Company and Steven L. Ortega (previously filed as Exhibit 10.24 to the Annual Report on Form 10-K filed on December 17, 2007)
10.25*	Employment Agreement dated as of June 15, 2007 between the Company and Michael L. Hatch (previously filed as Exhibit 10.1 to the Current Report on Form 8-K filed on June 19, 2007)
10.26*	Amended and Restated Loan and Security Agreement dated as of January 25, 2005 between the Company, LPM Manufacturing, Inc., Wells Fargo Retail Finance LLC and the other lenders parties thereto (previously filed as Exhibit 10.3 to the Current Report on Form 8-K filed on January 28, 2005)
10.27*	Registration Rights Agreement, dated as of January 25, 2005, between the Company and certain holders of the Company’s 7.75% Senior Notes due 2013 (previously filed as Exhibit 10.01 to the Current Report on Form 8-K filed on January 28, 2005)
10.28*	First Amendment dated as of July 26, 2007 to the Lease dated November 26, 2006 by and between Bedford Property Investors, Inc. and the Company (previously filed as Exhibit 10.28 to the Annual Report on Form 10-K filed on December 17, 2007)
10.29*	Amendment No. 2 dated as of June 15, 2006 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslie’s Coinvestment, LLC and the stockholders identified on the signature pages thereto (previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q filed on February 9, 2007)
10.30*	Amendment No. 3 dated as of February 7, 2007 to the Stockholders Agreement dated as of January 25, 2005 among the Company, GCP California Fund, L.P., Leslie’s Coinvestment, LLC and the stockholders identified on the signature pages thereto (previously filed as Exhibit 10.2 to the Quarterly Report on Form 10-Q filed on February 9, 2007)

65

Exhibit Number	Description
10.31*	Third Amendment dated as of January 15, 2008 to the Lease Agreement dated December 30, 1997 by and between Liberty Property Limited Partnership and the Company (previously filed as Exhibit 10.31 to the Annual Report on Form 10-K filed on December 22, 2008)
10.32	Lease Agreement dated as of June 30, 2009 by and between EastGroup Properties, LP and the Company.
10.33	Amended and Restated Loan and Security Agreement dated as of September 30, 2009 between the Company, LPM Manufacturing, Inc., Wells Fargo Retail Finance LLC and the other lenders parties thereto.
21.1*	Subsidiaries (previously filed as Exhibit 21.1 to the Annual Report on Form 10-K405 filed on December 22, 1999)
24.1	Power of Attorney (included on signature page)
31.1	Certification of Lawrence H. Hayward
31.2	Certification of Steven L. Ortega
32.1	Certification of Lawrence H. Hayward and Steven L. Ortega

* Previously filed

† Management contract or compensatory plan

66

COPIES OF THIS FORM 10-K MAY BE OBTAINED WITHOUT CHARGE UPON WRITTEN

REQUEST TO THE COMPANY AT THE FOLLOWING ADDRESS:

LESLIE’S POOLMART, INC.

3925 E. BROADWAY RD., SUITE #100

PHOENIX, ARIZONA 85040

ATTN: CORPORATE SECRETARY

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Phoenix, State of Arizona, on December 23, 2009.

LESLIE’S POOLMART, INC. (Registrant)
By:	/s/ STEVEN L. ORTEGA
	Steven L. Ortega Chief Financial Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Lawrence H. Hayward, Steven L. Ortega, and each of them, his true and lawful attorney or attorneys-in-fact and agent or agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including pre-or post-effective amendments) to this Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the date indicated.

Signature	Capacity	Date
/S/ LAWRENCE H. HAYWARD Lawrence H. Hayward	Chairman of the Board of Directors and Chief Executive Officer	December 23, 2009
/S/ EDWARD C. AGNEW Edward C. Agnew	Director	December 23, 2009
/S/ JOHN M. BAUMER John M. Baumer	Director	December 23, 2009
/S/ JOHN G. DANHAKL John G. Danhakl	Director	December 23, 2009

67

Signature	Capacity	Date
/S/ MICHAEL J. FOURTICQ Michael J. Fourticq	Director	December 23, 2009
/S/ MICHAEL L. HATCH Michael L. Hatch	President, Chief Operating Officer and Director	December 23, 2009
/S/ STEVEN L. ORTEGA Steven L. Ortega	Chief Financial Officer, Director and Principal Accounting Officer	December 23, 2009

68

EX-10.32

Exhibit 10.32

LEASE AGREEMENT

THIS AGREEMENT is made and entered into as of the 30 day of June, 2009, by and between EastGroup Properties, LP, a Delaware limited partnership (“Landlord”) and Leslie’s Poolmart, Inc., a Delaware corporation (“Tenant”).

WITNESSETH:

1. Premises. Landlord, in consideration of the payments to it by Tenant of the rents herein contained, while Tenant agrees to pay, and in consideration of the performance by Tenant of the covenants hereinafter provided, which Tenant agrees to fully and promptly perform, does hereby lease to Tenant approximately 30,300 square feet of space, hereinafter referred to as the “Premises,” as shown on the plan attached hereto as “Exhibit A” and incorporated herein by reference, located within Sunbelt Distribution Center II (the “Center”). The address of the Premises is 1260 LaQuinta Drive, Suite 400, Orlando, FL 32809. For purposes of calculating sums owed under this Lease, it is agreed that the Premises constitutes approximately 50% of the total leasable area within ¨ the Building, or x the Center in which it is located. Said percentage is hereinafter referred to as Tenant’s Share. If the size of the Premises, or Building/Center is for any reason adjusted, Tenant’s pro rata share shall be likewise adjusted accordingly.

2. Term. The term of this Lease shall be for a period of ninty-five (95) months beginning December 1, 2009 (the “Commencement Date”), and ending on October 31, 2017. This period (including any renewals), shall be referred to as the “Term”.

3. Rent. As “Rent” for the use and occupancy of the Premises, Tenant shall pay to Landlord, without demand, deduction or offset (except as expressly allowed in this Lease), as an independent covenant of all other covenants of this Lease, in lawful money of The United States of America, “Base Rent” as set forth in subparagraph (b) below, “Operating Expenses” (based on an initial estimated annual Operating Expense Factor of $42,723.00 described in Section 6, “Operating Expenses”), and State of Florida sales tax (“Sales Tax”) on all amounts due from Tenant to Landlord pursuant to this Lease, all sums payable in twelve (12) equal payments plus, in advance on the first day of each and every month.

With respect to rents, the parties also agree as follows:

(a) Tenant has deposited with Landlord simultaneously with Tenant’s execution of this Lease, the sum of $15,326.75 plus all applicable Sales Tax for a total of $16.322.99 which will be credited to Tenant for payment of the first month’s building operating expense and the second month’s Total Rent.

Rent Schedule: Base Rent shall be payable through the initial Term in accordance with the following schedule:

Lease Month	Base Rent Per SF		Annual Base Rent*		Monthly Base Rent *
1	$	0.00		N/A	$	0.00
2-13	$	3.25	$	98,475.00	$	8,206.25
14	$	0.00		N/A	$	0.00
15-26	$	3.32	$	100,596.00	$	8,383.00
27	$	0.00		N/A	$	0.00
28-39	$	3.38	$	102,414.00	$	8,534.50
40	$	0.00		N/A	$	0.00
41-52	$	3.47	$	105,141.00	$	8,761.75
53	$	0.00		N/A	$	0.00
54-65	$	3.75	$	113,625.00	$	9,468.75
66-77	$	4.00	$	121,200.00	$	10,100.00
78-89	$	4.25	$	128,775.00	$	10,731.25
90-95	$	4.25	$	64,387.50	$	10,731.25

* Amounts do not include applicable Sales Tax and Operating Expenses to be paid by Tenant.

(b) During Lease Month’s 1, 14, 27, 40, and 53 of the Term, Operating Expenses and sales taxes only will be paid.

(c) If the Commencement Date begins on a day other than the first day of the month, the second monthly installment of rent shall be adjusted and prorated so that Tenant shall only pay Rent for the actual number of days in the first month of said term, but for all other months Tenant shall pay the full monthly installment on the first day of each and every month.

(d) Rent shall be delivered by Tenant to Landlord at such place as Landlord may designate in writing and Rent shall be payable to EastGroup Properties - East Coast Lock Box- P.O.Box 534563, Atlanta, GA 30353.

(e) Tenant hereby agrees with Landlord that in the event that Rent is received after the fifth (5^th) day of the month in which it is due, Tenant shall pay to Landlord a late charge equal to the lesser of (1) $200.00; or (2) five percent (5%) of the total sum due.

4. Additional Rent. In addition to Rent set forth herein, all other payments (if any) to be made by Tenant to Landlord shall be deemed to be and shall become additional rent hereunder, whether or not the same be designated as such; and shall be due and payable with the next succeeding installment of monthly Base Rent, together with Sales Tax thereon. Landlord shall have the same remedies for failure to pay the same as for a non-payment of Rents. Following the second (2^nd) event of any returned check for any payment, Landlord may require that Tenant remit all payments thereafter either by Wire Transfer or Bank Official Check only. An administrative fee equal to $50.00 will be assessed for all dishonored checks.

5. Intentionally Omitted.

6. Operating Expenses. (a) Initially, the estimated “Operating Expense Factor” equals to $1.41 per square foot of the Premises, for the calendar year in which the Commencement Date occurs, to cover Tenant’s Share (see Section 1) of the projected Operating Expenses.

With respect to Operating Expenses, the parties agree to the following:

(i) The term “Operating Expenses” used in this Lease Agreement represents the total annualized cost of operating the Building/Center including, but is not limited to, Common Maintenance and Service Costs, Real Estate Taxes and Assessments, Insurance Premiums, accounting, property management fees and other reasonable costs associated with the management and operation of the Building/Center. Said term shall not include depreciation on any improvement, any capital expenses or improvements except all net expenses properly allocable for any capital improvement incurred which actually reduce or limit increases in Operating Expenses, which expenses shall be repaid in equal monthly installments together with interest at applicable rates over the useful capital life of the capital improvement not to exceed ten (10) years. Notwithstanding anything to the contrary contained herein, the Operating Expenses exclude (1) leasing costs, consulting fees, brokerage commissions, legal fees, vacancy costs, rent or other concessions, and/or refurbishment or improvement expenses which are incurred in connection with other tenants’ spaces or the enforcement and negotiation of leases; (2) to the extent not caused by the unique type and nature of Tenant’s operations and use of the Premises, the cost of compliance with laws, rules and regulations or orders of any governmental or quasi-governmental authority having jurisdiction over the Premises; (3) financing costs, debt service or ground lease payments for the Center; (4) acquisition costs or any depreciation of land and buildings of the Center or the common areas; (5) costs of repairing any portion of the Center due to defective construction; (6) costs, fees and compensation paid by or to Landlord for services in or to the Center, exceeding those charged by unaffiliated third parties on a competitive basis: (7) costs incurred because the Center or common areas violate any valid, applicable building code, regulation or law in effect and as interpreted by governmental authorities, including, without limitation, laws requiring sprinkler installation and requirements under the Americans With Disabilities Act of 1990, as may be amended, and regulations promulgated thereunder; (8) reserves maintained in connection with the Center; (9) any and all collection costs, including legal fees and/or bad debt losses or reserves therefor; (10) any otherwise permissible fees or costs to the extent in excess of prevailing and competitive rates; (11) costs incurred by Landlord to the extent that Landlord is reimbursed by insurance proceeds, governmental agencies or entities, or any tenant or other person (other than

2

reimbursement as part of Operating Expenses); (12) costs, including compensation paid to clerks, attendants or other persons, in connection with any commercial concession operated by Landlord, provided that if such costs relate to the operation of the parking areas, Landlord may include Landlord’s reasonable out-of-pocket costs thereof in Operating Expenses to the extent in excess of parking gross revenues; (13) advertising and promotional expenditures, and any acquisition or construction costs of signs in or on the Center identifying the owner of the Center; (14) costs arising from the negligence of Landlord or its contractors, agents or employees, including the payment of any claims or damages; (15) Landlord’s general corporate or partnership overhead and general administrative expenses; (16) costs arising from the presence of any hazardous materials in or about the Center, including the Premises; and (17) any costs or expenses resulting from Landlord’s violation of any agreement to which it is a party or any applicable law.

(ii) The term “Common Maintenance and Service Costs” shall include without limitation routine cleaning and maintenance of the exterior of the Premises to include periodic window cleaning; the cleaning, maintenance and sweeping of the parking lot and sidewalks; the care and maintenance of the landscaping and landscaped areas to include the retention pond areas, conduits, pumps and irrigation systems; common area lighting and other utility charges for utilities used in the common areas, if any; domestic and irrigation water, and sanitary sewer charges and assessments; rubbish collection, if any; painting; and any other costs customarily considered as common repair, maintenance and service costs.

(iii) The term “Real Estate Taxes and Assessments” shall include without limitation ad valorem and non ad valorem real and personal property taxes and assessments or any new and different taxes, and assessments levied or charged against the real property or personal property of the Center. All Sales Tax on rents and personal property taxes charged or levied against Tenant’s furniture, fixtures and equipment in the Premises shall be paid by Tenant when due.

(iv) The term “Insurance Premiums” shall include without limitation Landlord’s insurance as set forth in Section 9. In the event the cost of premiums on said fire and extended insurance increases due to the hazardous nature of the use and occupancy by Tenant of the Premises, then the entire increase in insurance cost shall be paid by Tenant in a lump sum within thirty (30) days following receipt of invoice from Landlord.

(b) On the first day of each calendar year falling after the Commencement Date throughout the Term, the Operating Expense Factor portion of the Rent set forth in Section 3 (and, as a result, the Rent) shall be adjusted to reflect Tenant’s Share of actual or estimated decreases or increases in Operating Expenses. Landlord shall provide the cost data upon which the determination of costs, and any decreases or increases, are based in a format it shall determine to be consistent with reasonable and customary business practice. In the event that actual Operating Expenses for a preceding period are less than the sum paid by Tenant under this provision, Landlord shall refund or credit such excess to the account of Tenant. If the sum collected is less than the actual Operating Expenses, Tenant shall reimburse Landlord for such variation upon invoice therefor accompanied by supporting data. The obligation to pay Tenant’s Share of Operating Expenses incurred during the Term shall survive the expiration or termination of this Lease.

(c) Tenant acknowledges that if the Building is part of a Center, the Center may include not only the Building but other buildings either already existing or to be constructed in the future. Tenant understands and agrees that, for the purposes of administering the provisions of this Section 6, so long as the Building is owned and/or managed in conjunction with other buildings, Operating Expenses and other costs reimbursable by Tenant may be paid, recorded and reported on a consolidated overall project basis, provided Tenant’s share of said costs shall be calculated by dividing the size of the Premises by the size of the overall project.

(d) Prior to the Commencement Date and each calendar year during the term, Landlord shall give Tenant written estimates (on a line item basis) of Tenant’s pro rata share of Operating Expenses for the next calendar year. Tenant shall pay such estimated amount to Landlord in equal monthly installments with Tenant’s payments of Rent hereunder. Within ninety (90) days after the end of each such calendar year, Landlord shall furnish Tenant a statement showing in reasonable detail the costs and expenses actually incurred by Landlord for the operation and maintenance of the common areas during such calendar year. Notwithstanding the foregoing, if Tenant has not received the statement described in the preceding sentence on or before December 31 of the year in which such statement is due, Landlord shall be deemed to have waived its right to collect such

3

actual amount from Tenant. Any deficiency in the payments made by Tenant shall be paid by Tenant to Landlord within thirty (30) days of receipt of demand therefor. Any surplus paid by Tenant during the preceding calendar year shall be applied against the next due monthly installments of Rent or, if at the end of the Term, shall be refunded to Tenant.

(e) Controllable Operating Expenses will not increase by more than six percent (6%) annually. Non controllable expenses are limited to Real Estate Taxes and Assessments, Building Insurance, and building common utilities and will not be capped.

(f) Tenant shall have the right to audit or inspect Landlord’s records (but not more than once in any lease year), with respect to operating expenses and real estate taxes, as well as any other additional rent payable by Tenant.

7. Construction. Tenant will be accepting the Premises as follows:

¨ “As Is”

¨ With the following improvements to be made by Landlord:                             

þ With improvements to be constructed in accordance with the attached Leasehold Improvement Addendum. The Commencement Date set forth herein is subject to the construction of tenant improvements, if any. Tenant acknowledges that neither Landlord nor its agents or employees have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant’s business or for any other purpose, nor has Landlord or its agents or employees agreed to undertake any alterations or construct any tenant improvements to the Premises except as expressly provided in this Lease, if any.

8. Utilities. Tenant shall pay when due electric power consumed at the Premises, which shall be separately metered. Tenant shall reimburse Landlord for water and sewer charges as part of the “Operating Expense Factor” pursuant to Section 6; provided that Tenant shall receive a separate meter for water and sewer charges should another occupant of the Center be a heavy water user. Landlord reserves the right to install, at Landlord’s discretion, separate meters (or submeters) for any utility, and may further require Tenant to place service in Tenant’s name, whereupon Tenant shall pay any necessary deposits to the applicable utility company, and thereafter pay for such utilities directly. Tenant shall arrange and pay for trash collection services at the Premises.

9. Insurance. (a) Landlord shall arrange to insure the Building of which the Premises form a part against loss or damage to the Building/Center with coverage for perils as set forth under the “Causes of Loss-Special Form” or equivalent property insurance policy in an amount equal to the full insurable replacement cost of the Building/Center (excluding coverage of Tenant’s personal property and any alterations by Tenant) and such other insurance, including rent loss coverage, as Landlord may reasonably deem appropriate. Tenant, at its expense, shall keep in effect commercial general liability insurance, including blanket contractual liability insurance, covering Tenant’s use of the Property, with such coverages and limits of liability as Landlord may reasonably require, but not less than a $1,000,000 combined single limit with a $1,750,000 general aggregate limit (which general aggregate limit may be satisfied by an umbrella liability policy) for bodily injury or property damage. These policies shall name Landlord and any other associated or affiliated entity as their interests may appear and at Landlord’s request, any mortgagee(s), as additional insureds, shall be written on an “occurrence” basis and not on a “claims made” basis and shall be endorsed to provide that it is primary to and not contributory to any policies carried by Landlord and to provide that it shall not be cancelable or reduced without at least 30 days prior notice to Landlord. The insurer shall be authorized to issue such insurance, licensed to do business and admitted in the State of Florida and rated at least A VII in the most current edition of Best’s Insurance Reports. Tenant shall deliver to Landlord on or before the Commencement Date or any earlier date on which Tenant accesses the Premises, and at least 30 days prior to the date of each policy renewal, a certificate of insurance evidencing such coverage.

(b) Landlord and Tenant each waive, and release each other from and against, all claims for recovery against the other for any loss or damage to the property of such party arising out of fire or other casualty covered by a standard “Causes of Loss-Special Form” property insurance policy, even if such loss or damage shall be brought about by the fault or negligence of the other party or its employees, agents or contractors provided, however, such waiver by Landlord shall not be effective with respect to Tenant’s liability described in Sections 13 and 32 below unless such loss by Landlord is actually covered by insurance. This waiver and release is effective regardless of whether the releasing party actually maintains the insurance described above in this Section 9. Each party shall have its insurance company that issues its property coverage waive any rights of subrogation, and shall have the insurance company include an endorsement acknowledging this waiver, if necessary.

4

Tenant assumes all risk of damage of Tenant’s property within the Property, including any loss or damage caused by water leakage, fire, windstorm, explosion, theft, act of any other tenant, or other cause.

10. Use of Premises, Parking and Loading. Tenant shall use and occupy the Premises only for use as administrative office, showroom and warehouse purposes consistent with those commonly found in the 1-3 zoning in Orange County, Florida, and for no other purpose without Landlord’s prior written consent. Landlord hereby grants to Tenant, its employees, guests and invitees the right to use the off-street auto parking lot and truck loading areas on the site upon which the Building is situated. Tenant shall have the right to access the Premises 24 hours per day and 7 days per week. The auto parking lot shall be used by Tenant, its employees, guests and invitees, in common with other tenants of said Building, their employees, guests and invitees, and in common with Landlord and its employees, guests and invitees. If Landlord designates a portion of the parking lot for tenant and employee parking, Tenant and employees of Tenant shall use that portion of the lot. At all times in the absence of designated parking, Tenant, its employees and guests, shall use those parking areas closest to the Premises to the extent possible. The exterior truck loading and trailer parking areas immediate to the Premises are reserved for the exclusive use of Tenant and Tenant shall have the right to fence in such area and the gate shall be locked and controlled solely by Tenant. Tenant shall not use, block or otherwise interfere with the loading areas of other occupants in the Building or Center. At no time will outside storage be permitted at the property without the express written consent of Landlord.

11. Interruption of Utility Service. Landlord does not warrant that any utilities or public services will be free from interruption or defect. In the event of interruption of such services, the same shall not be deemed an eviction or disturbance of Tenant’s use and possession of the Premises nor render Landlord liable to Tenant for damage by abatement of Rent or otherwise.

12. Waiver of Claim; Indemnification. Tenant waives and releases all claims against Landlord, its agents, employees, and servants, in respect of, and they shall not be liable for damage to property sustained by Tenant or by any occupant of the Premises, occurring in or about the Building/Center, or the Premises resulting directly, or indirectly, from any existing or future condition, defect, matter or thing in the Premises, or the Building or any part of it, or from equipment or appurtenance therein, or from accident, or from any occurrence, act, negligence or omission of any tenant or occupant of the Building, or of any other person, specifically excluding Landlord. This paragraph shall apply also to damage caused as aforesaid or by flooding, sprinkling devices, air conditioning apparatus, water, frost, steam, excessive heat or cold, falling objects, broken glass, sewage, gas, odors or noise, or the bursting or leaking of pipes or plumbing fixtures and shall apply equally whether any such damage results from the act or circumstance, whether of a like or wholly different nature. If any damage to the Building results from any act or omission or negligence of Tenant, its agents or employees, Tenant shall, within ten (10) days following demand by Landlord, reimburse Landlord forthwith for all cost of such repairs and damages to the Building in excess of the amount, if any, paid to Landlord under insurance covering such damages. All property in the Building or in the Premises belonging to Tenant, its agents or employees, or to any occupant of the Premises, shall be there at the risk of Tenant only, and Landlord shall not be liable for damage thereto or theft, misappropriation, or loss thereof. Tenant agrees to protect, defend, hold Landlord harmless and to indemnify it against claims and liability for injuries to all persons and for the damages due to any act or omission of Tenant, its agents and employees, guests, customers and invitees (but only while such are inside the Premises), and against any expense, cost and attorney’s fees incurred in connection with any claim for such loss or damage, including costs and attorney’s fees on appeal.

13. Care of Premises. (a) Tenant shall, throughout the Term, take good care of the Premises and all fixtures, appurtenances, doors and windows, locks, walls, ceilings, flooring and mechanical and plumbing equipment located therein and expressly serving the Premises, excepting that which may be covered by applicable warranty, and, at its sole cost and expense, make all non-structural repairs thereto and perform maintenance thereon as and when needed to preserve them in good working order and condition, reasonable wear and tear from use and damage from the elements, fire or other casualty excepted. Notwithstanding the foregoing, all damage or injury to the Premises or to any other part of the Building, or to its fixtures, equipment and appurtenances, whether requiring structural or non-structural repairs, caused by or resulting from carelessness, omission, neglect or conduct of Tenant, its servants, employees or licensees, shall be repaired by Tenant at its sole expense to the satisfaction of Landlord reasonably exercised. Tenant shall also be responsible for any repairs to the Premises or to any other part of the Building, or to its fixtures, equipment and appurtenances, whether requiring structural or non-structural repairs, directly attributable to Tenant’s chemicals stored on site. Tenant shall replace or repair, as needed, all lamps, bulbs, ballasts and other lighting fixtures and apparatus. Tenant shall also repair all damage to the Building and the

5

Premises caused by the moving of Tenant’s fixtures, furniture or equipment. All the aforesaid repairs shall be of quality or class equal to the original work or construction. If Tenant fails after thirty (30) days’ notice to proceed with due diligence to make repairs required to be made by it, the same may be made by Landlord at the expense of Tenant. Tenant shall give Landlord prompt notice of any defective condition in the Premises which Landlord is required to repair or replace. Landlord shall remedy the condition with due diligence but at the expense of Tenant if repairs are necessitated by damage or injury attributable to Tenant, Tenant’s servants, agents, employees, invitees, or licensees as aforesaid. All repair work and/or modifications made to the Premises must be made by licensed and bonded contractor(s) approved by Landlord.

(b) As of the Commencement Date, the heating, ventilating and air conditioning system(s) (“HVAC”) serving the Premises shall be in good working order. Thereafter, Tenant shall be responsible for the cost of all maintenance, repair and replacement thereof. Tenant shall, within thirty (30) days of occupancy, contract with a licensed HVAC maintenance company to maintain the system in proper working order with semi-annual inspections and maintenance services. Upon execution and renewal, Tenant agrees to supply a copy of the maintenance agreement to Landlord and shall at all times during the term of the Lease keep in full force such HVAC maintenance agreement. If Tenant fails to enter into a maintenance agreement as herein provided and such failure continues for thirty (30) days after Tenant’s receipt of notice of such failure, Landlord, at Landlord’s option, may elect to enter into a service contract and Tenant shall pay the cost thereof.

(c) Landlord agrees that during the Term it will keep the exterior and structural parts of the Building in good condition and repair, and that it will make such repairs promptly as they become necessary. If Tenant becomes aware of any condition that is Landlord’s responsibility to repair, Tenant shall promptly notify Landlord of the condition. Exterior parts of the Building shall be deemed to include exterior walls, foundations, pavement, roof replacement, gutters, downspouts, and plumbing which is a part of the structure or foundation. Landlord shall make such interior replacements as are necessitated by building equipment failure and repairs and replacements necessitated by fire or perils covered by extended coverage insurance for which damage or loss insurance is carried by Landlord and for which insurance proceeds are recovered, including interior reconstruction and/or redecorating necessitated by such fire or other perils.

14. Compliance with Laws and Regulations.

(a) Tenant shall comply with all federal, state, county and city laws, ordinances, rules and regulations affecting or respecting the use or occupancy of the Premises by Tenant or the business at any time thereon transacted by Tenant, and Tenant shall comply with all reasonable and non-discriminatory rules which may be hereafter adopted by Landlord for the protection, welfare and orderly management of the Building and its tenants or occupants. Landlord shall maintain the Center in full compliance with all codes, including but not limited to the Americans With Disabilities Act, provided, however, that Tenant shall be responsible for the costs of such compliance if necessitated by the Tenant’s actions or use of the Premises.

(b) Patriot Act. Each party hereby represents, warrants and certifies that: (i) neither it nor its officers, directors, or controlling owners is acting, directly or indirectly, for or on behalf of any person, group, entity, or nation named by any Executive Order, the United States Department of Justice, or the United States Treasury Department as a terrorist, “Specifically Designated National or Blocked Person,” or other banned or blocked person, entity, nation, or transaction pursuant to any law, order, rule or regulation that is enforced or administered by the Office of Foreign Assets Control (“SDN”); (ii) neither it nor its officers, directors or controlling owners is engaged in this transaction, directly or indirectly on behalf of, or instigating or facilitating this transaction, directly or indirectly on behalf of, any such person, group, entity, or nation; and (iii) neither it nor its officers, directors or controlling owners is in violation of Presidential Executive Order 13224, the USA PATRIOT Act, (Public Law 107-56), the Bank Secrecy Act, the Money Laundering Control Act or any regulations promulgated pursuant thereto. Each party hereby agrees to defend, indemnify and hold harmless the other party from and against any and all claims, damages, losses, risks, liabilities and expenses (including reasonable attorneys’ fees and costs) arising from or related to any breach of the foregoing representations, warranties and certifications by the indemnifying party. The provisions of this Paragraph shall survive the expiration or earlier termination of this Lease.

15. Holding Over. Tenant shall have the right to hold over beyond the expiration of either the primary or extended lease term for up to three (3) months without any increase above the rent paid during the last month of the proceeding term, provided Landlord is given a prior six (6) month written notice. If Tenant does not notify Landlord of Tenant’s intention to holdover or after the three (3) month holdover period, Tenant has no right to remain in possession of all or any part of the Premises after

6

the expiration of the Term or hold over period. If Tenant nevertheless remains in possession of all or any part of the Premises after the expiration of the Term or holdover period: (a) such tenancy will be deemed to be a periodic tenancy at sufferance from month-to-month only; (b) such tenancy will not constitute a renewal or extension of this Lease for any further term; and (c) such tenancy may be terminated by Landlord upon the later of thirty (30) days’ prior written notice or the earliest date otherwise permitted by law. Such month-to-month tenancy will be subject to every other term, condition, and covenant contained in this Lease, except for rights to renew and expand. If Tenant holds over in the Premises after receipt of such termination notice, Rent following the termination date will be increased to an amount equal to 200% of the Rent for the last month of occupancy, and any other sums due under this Lease will be payable in the amount and at the times specified in this Lease. In addition to such payment of Rent and other amounts as set forth in the previous sentence, Tenant shall also be liable to Landlord for any losses sustained by Landlord or claims by third parties arising out of and in connection with the holding over of the Premises by Tenant.

16. Signs. Subject to Landlord’s approval which will not be unreasonably withheld, Tenant may have signs installed with Tenant’s name and logo on an exterior front wall facing east and the exterior side wall facing south. Tenant shall not install or locate signs in the windows and doors of the Premises or any other part of the Building or grounds without first securing Landlord’s written consent, which consent shall not be unreasonably withheld. Any signs installed by Tenant with Landlord’s permission shall be at the sole cost of Tenant and maintained by Tenant in good repair and shall be removed and any building or grounds damaged there from restored by Tenant at the expiration or earlier termination of this Lease at Tenant’s expense.

17. Quiet Enjoyment; Imposition of “Reasonableness” Standard. Tenant, upon paying the rents and keeping and performing the covenants of this Lease to be performed by Tenant, shall peacefully and quietly hold, occupy, and enjoy the Premises during the Term without any hindrance or molestation by Landlord or any persons lawfully claiming under Landlord. Wherever the consent or approval of either party is required herein, it is understood and agreed that such consent or approval may not, unless expressly stated otherwise in this Lease, be unreasonably withheld or delayed. If either party withholds any consent or approval, such party shall on written request deliver to the other party a written statement giving the reasons therefore. A party’s sole remedy if the other party unreasonably withholds or delays consent or approval shall be an action for specific performance, and such party shall not be liable for damages. Whenever this Lease specifies that either party has the right of consent, said consent shall be effective only if in writing and signed by the consenting party.

18. Waste; Disturbance. Tenant shall not commit nor suffer any waste upon the Premises nor cause nor allow any nuisance, odor, noise, vibration or other act or thing which does or may disturb any other tenant in the Building/Center containing the Premises or any other building in the Center, including without limitation the parking, loading and landscaped areas. Tenant shall conduct its business and control its employees, agents, contractors, invitees and visitors in such manner as not to create any nuisance, or interfere with, annoy or disturb any other tenant or Landlord or the operation of the Building.

19. Assignment and Subletting. Tenant shall not assign this Lease nor sublet all or any part of the Premises, except to an affiliated entity of common ownership and business (“Affiliate”), without first securing Landlord’s written consent, which consent shall not be unreasonably withheld. In the event of an assignment or subletting, the assignee and/or subtenant shall first assume in writing all of the obligations of Tenant under this Lease and Tenant shall, for the full Term, continue to be jointly and severally liable with such assignee or subtenant for the payment of rents and the performance of all obligations required of Tenant under this Lease. Tenant hereby acknowledges that the use to which the Premises are put and the compatibility of any occupant of the Premises with other tenants, and the use, creditworthiness, and ability to pay rent when due are of prime importance and significance to Landlord in the operation and maintenance of the Building in which the Premises are located. The consent by Landlord to an assignment or sublease will not be construed to relieve Tenant from obtaining Landlord’s prior written consent in writing to any further assignment or sublease. No permitted subtenant may assign or encumber its sublease or further sublease all or any portion of its subleased space, or otherwise permit the subleased space or any part of its subleased space to be used or occupied by others, without Landlord’s prior written consent in each instance. Acceptance of payments from a person or entity other than Tenant shall not constitute a consent to the assignment or subletting of the Premises. If Landlord consents to a proposed assignment or sublease, then Landlord will have the right to require Tenant to pay to Landlord a sum equal to (a) any Rent or other consideration paid to Tenant by any proposed transferee that is in excess of the Rent allocable to the transferred space then being paid by Tenant to Landlord pursuant to this Lease; (b) any other profit or gain realized by Tenant from any such sublease or assignment: and (c) Landlord’s reasonable attorneys’ fees, consultant fees, and costs incurred in connection with negotiation, review, and processing of the transfer, not to exceed

7

$1,000.00. All such sums payable will be payable to Landlord at the time the next payment of Base Rent is due. Anything to the contrary in this Lease notwithstanding, except when the assignment or subletting is proposed to an Affiliate, at any time within twenty (20) days after Landlord’s receipt of all (but not less than all) of the information and documents reasonably requested by Landlord, Landlord may, at its option by written notice to Tenant, elect to: (a) sublease the Premises or the portion thereof proposed to be sublet by Tenant upon the same terms as those offered to the proposed subtenant; (b) take an assignment of the Lease upon the same terms as those offered to the proposed assignee; or (c) terminate the Lease in its entirety or as to the portion of the Premises proposed to be assigned or sublet, with a proportionate adjustment in the Rent payable hereunder if the Lease is terminated as to less than all of the Premises. If Landlord does not exercise any of the options described in the preceding sentence, then, during the above-described twenty (20) business day period, Landlord shall either consent or deny its consent to the proposed assignment or subletting.

Landlord shall have the right to assign or transfer, in whole or in part every feature of its rights and obligations hereunder and the Premises provided such assignee or transferee recognizes and agrees to be bound by the terms of this Lease. Such assignments or transfers may be made to a corporation, trust, trust company, individual or group of individuals, and howsoever made “shall be in all things respected and recognized by Tenant.

20. Fire or Other Casualty. In the event the Premises shall be destroyed or so damaged or injured by fire or other casualty during the Term, whereby the same shall be rendered untenantable, then Landlord shall have the right to render the Premises tenantable by repairs within two hundred twenty (220) days therefrom and this Lease shall not terminate. If the Premises can not be rendered tenantable within said time, it shall be optional by either party hereto to cancel this Lease, and in the event of such cancellation, the Rent shall be paid only to the date of such fire or casualty. The cancellation herein mentioned shall be evidenced in writing. During any time that the Premises remain untenantable due to causes set forth in this paragraph, the rents due hereunder or a just and fair proportion thereof shall abate. Notwithstanding the provisions of this Section 20, if the Premises or the Building are damaged by uninsured casualty, if the proceeds of insurance are insufficient to pay for the repair of any damage to the Premises or the Building, or if all or any portion of the proceeds of insurance are retained by Landlord’s mortgagee, Landlord will have the option to repair such damage or cancel this Lease as of the date of such casualty by written notice to Tenant on or before sixty (60) days following the casualty.

21. Eminent Domain. If the whole of the Premises shall be taken by any public authority under the power of eminent domain, or if so much of the Building or grounds shall be taken by any such authority under the power of eminent domain so that Tenant cannot continue to operate its business in the Premises, then the Term shall cease as of the day possession is taken by such public authority and Rents shall be paid up to that day with proportionate refund by Landlord of any such Rents as may have been paid in advance or deposited as security. The amount awarded for any taking under the power of eminent domain shall belong entirely to and be the property of Landlord. Nothing herein shall limit Tenant’s ability to make an independent claim for damages or awards to the extent Landlord’s claims for damages are not affected.

22. No Waiver or Accord and Satisfaction.

(a) Neither the waiver by Landlord of any agreement, breach, condition, default, provision, requirement, or term contained in this Lease nor the acquiescence of Landlord to any violation of any agreement, breach, condition, default, provision, requirement, or term contained in this Lease, shall be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition, provision, requirement, or term contained in this Lease, nor constitute a course of dealing regardless of the number of times Landlord may choose to make such a waiver or acquiesce to any violation of any agreement, breach, condition, default, provision, requirement, or term contained in this Lease; nor will any custom or practice that may come to exist between the parties in the administration of the terms of this Lease be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with the terms of this Lease.

(b) Acceptance by Landlord of Rent or other amounts due, in whole or in part, following a breach or default will not be deemed to be a waiver of any existing or preceding breach by Tenant of any agreement, condition, provision, requirement, or term of this Lease, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent or other payment. However, payment of the full amount due, including any late fees, administrative charges and other amounts due, shall constitute a waiver of default for the failure of Tenant to pay the particular Rent or other payment so accepted. The breach or default shall nevertheless remain unwaived for purposes of Section 28(f).

8

(c) No payment by Tenant or receipt by Landlord of a lesser amount than the full amount of any installment or payment of Rent or other amount due, shall be deemed to be anything other than a payment on account of the amount due, and no endorsement or statement on any check or payment of Rent or related to it shall be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such installment or payment of Rent, or pursue any other remedies available to Landlord.

23. Notices. All notices required under this Lease to be given to Tenant shall be given to it at 3925 East Broadway, Suite 100, Phoenix, AZ 85040 Attn: Real Estate Department, or at such other place as Tenant may designate in writing. Any such notice to be given to Landlord under this Lease shall be given to it at EastGroup Properties, 2966 Commerce Park Drive, Suite 450, Orlando, FL 32819, or at such other place as Landlord may designate in writing. All notices shall be in writing, require a receipt, and shall be sent by certified mail, postage prepaid, or by telecopy facsimile transmission, or by personal delivery, or by commercial courier or overnight delivery service. Notices shall be deemed to have been given (i) in the case of mailing, when postmarked, (ii) in the case of telecopy transmission, when received as evidenced by written transmission report, or (iii) in the case of hand delivery or delivery by commercial courier, when delivered or refused.

24. Subordination. This Lease is subject and subordinate to all mortgages which may now or hereafter affect the Premises or the Building of which it forms a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. Landlord will make commercially reasonable efforts to provide Tenant with a Subordination and Non-Disturbance Agreement from any mortgage holders of Landlord. The foregoing notwithstanding this clause shall be self-operative and no further instrument of subordination shall be required.

25. Fixtures and Alterations. Tenant shall not, without Landlord’s prior written consent, make additions costing in excess of $20,000.00 to the Premises or which affect the structure thereof, nor permit any annoying sound device, overload any floor, or deface the Premises. Additionally, at the end of the Term, the Tenant will (i) remove all trade fixtures and personal property and repair any damage caused by such removal at the end of the Lease Term; and (ii) remove all curbing and containment installations that are specific to the Tenant’s use at the end of the Term.

26. Redelivery of Premises. Tenant shall, on the expiration of this Lease, deliver up the Premises in good order and condition, reasonable use and ordinary wear and tear thereof and damage by fire or other unavoidable casualty, condemnation excepted. Additionally, Tenant shall promptly surrender all keys to the Premises to Landlord.

27. Examination and Exhibiting of Premises. Landlord or its duly authorized agent shall have the right to enter the Premises at all reasonable times during Tenant’s normal business hours to examine the condition of and to make repairs to the Premises or the Building. Within six (6) months prior to the date of the expiration of the Lease, Landlord or its authorized agent shall have the right to enter the Premises at all reasonable times during Tenant’s normal business hours for the purpose of exhibiting the same to prospective tenants.

28. Events of Default. Any of the following events or occurrences shall constitute a breach of this Lease by Tenant and shall constitute and “Event of Default” hereunder:

(a) The failure of Tenant to pay any Rents or other amounts due under this Lease, within five (5) days after receipt of notice of such failure, provided, however, Landlord shall not be required to give such notice more than two (2) times in any calendar year.

(b) The failure of Tenant to observe or perform any other covenant, agreement, condition or provision of the

Lease within thirty (30) days after receipt of such failure.

(c) If Tenant becomes insolvent or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors, or applies or consents to the appointment of a trustee or receiver for Tenant or for a major part of its property.

9

(d) The appointment of a trustee or a receiver to take possession of all or substantially all of Tenant’s property, or the attachment, execution or other judicial seizure of all or substantially all of Tenant’s assets located at the Premises, unless such appointment, attachment, execution or seizure is discharged within thirty (30) calendar days after the appointment, attachment, execution or seizure.

(e) The institution of bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or any other proceedings for relief under any bankruptcy or insolvency law or any other similar law for the relief of debtors, by or against Tenant, and if instituted against Tenant, the same are not dismissed within thirty (30) calendar days after the institution of such proceedings.

Any notice periods provided for under this Section 28 shall run concurrently with any statutory notice periods and any notice given hereunder may be given simultaneously with or incorporated into any such statutory notice.

29. Landlord’s Remedies. On the occurrence of any such Event of Default, Landlord shall, in addition to any other rights or remedies available to Landlord under this Lease and under the laws of the State of Florida, have the following rights and remedies:

(a) Re-Entry Without Termination. Landlord may re-enter the Premises without terminating this Lease, and remove all persons and property from the Premises, and relet the Premises or any part thereof for the account of Tenant, for such time (which may be for a term extending beyond the Term) and upon such terms as Landlord in Landlord’s sole discretion shall determine, and Landlord shall not be required to accept any Tenant offered by Tenant or to observe any instructions given by Tenant relative to such reletting. In the event of any such reletting, Landlord may make repairs, alterations and additions in or to the Premises and redecorate the same to the extent deemed necessary or desirable by Landlord and in connection therewith change the locks to the Premises, and Tenant shall upon demand pay the cost of putting the Premises into the condition required for redelivery as stated in Section 26 above, together with Landlord’s expenses of reletting. Landlord may collect the Rent from any such reletting and apply the same first to the payment of the expenses of re-entry, redecoration, repairs and alterations and the expenses of reletting and second to the payment of Rental herein provided to be paid by Tenant, and any excess or residue shall operate only as an offsetting credit against the amount of Rental as the same thereafter becomes due and payable hereunder. No such re-entry or repossession, repairs, alterations and additions or reletting shall be construed as an eviction or ouster of Tenant or as an election on Landlord’s part to terminate this Lease unless a written notice of such intention be given to Tenant, nor shall the same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, and Landlord may, at any time and, from time to time, sue and recover judgment for any deficiencies from time to time remaining after the application from time to time of the proceeds of any such reletting.

(b) Acceleration. On the occurrence of any such Event of Default, Landlord may declare the entire amount of Rent and any other sums or charges which would become due and payable from Tenant to Landlord during the remainder of the Term to be due and payable immediately, in which event, Tenant agrees to pay the sum at once, together with all Rent, including any other sum theretofore due; provided, however, that such payment shall not constitute a penalty or forfeiture or liquidated damages but shall merely constitute payment in advance of the Rent for the remainder of the Term.

(c) Other Enforcement. Landlord may enforce the provisions of this Lease and may enforce and protect the rights of Landlord hereunder by a suit or suits in equity or at law for specific performance of any covenant or agreement contained herein, or for the enforcement of any other legal or equitable remedy, including recovery of all monies due or to become due from Tenant under any of the provisions of this Lease.

(d) Remedies Cumulative. The rights, privileges, elections and remedies of Landlord under this Lease shall be cumulative, and Landlord shall have the right to exercise such remedies at any time and from time to time singularly or in combination. No termination of this Lease (whether upon an Event of Default or otherwise) shall be deemed to limit or negate Landlord’s rights hereunder to indemnification from Tenant (or Tenant’s insurance carriers) for any claim or liability asserted against or imposed upon Landlord, whether before or after the termination of this Lease, which is directly or indirectly based upon death, personal injury, property damage or other matters occurring prior to the termination hereof.

10

(e) Attorneys’ Fees and Collection Charges. In the event of any legal action or proceeding is brought by either party to enforce this Lease, the non-prevailing party shall pay all expenses of the prevailing party incurred in connection with such action or proceeding, including court costs and reasonable attorneys’ fees at or before the trial level and in any appellate or bankruptcy proceeding.

30. Construction Liens. The interest of Landlord in the Premises shall not be subject in any way to any liens, including but not limited to real estate sales commission liens and construction liens for improvements to or other work performed with respect to the Premises by or on behalf of Tenant. Tenant shall have no power or authority to create any lien or permit any lien to attach to the present estate, reversion, or other estate of Landlord (or the interest of any ground Landlord) in the Premises, Building or in the Project and all mechanics, materialmen, contractors, artisans, and other parties contracting with Tenant or its representatives or privies with respect to the Premises or any part of the Premises are hereby charged with notice that they must look to Tenant to secure payment of any bill for work done or material furnished or for any other purpose during the Term. The foregoing provisions are made with express reference to Section 713.10, Florida Statutes (1995). Notwithstanding the foregoing provisions, Tenant, at its expense, shall cause any lien filed against the Premises, Building or the Project for work or materials claimed to have been furnished to Tenant to be discharged of record or properly transferred to a bond pursuant to Section 713.24, Florida Statutes (1995), within ten (10) days after notice thereof to Tenant. Further, Tenant agrees to indemnify, protect, defend, and save Landlord harmless from and against any damage or loss, including reasonable attorneys’ fees, incurred by Landlord as a result of any such lien. Tenant shall notify every contractor making improvements to the Premises that the interest of Landlord in the Premises shall not be subject to liens for improvements to or other work performed with respect to the Premises by or on behalf of Tenant. Tenant shall execute, acknowledge, and deliver without charge a short form of lease or notice in recordable form containing a confirmation that the interest of Landlord in the Premises and the Building shall not be subject to liens for improvements or other work performed with respect to the Premises by or on behalf of Tenant. If such a short form of lease or notice is executed, it shall expressly provide that it shall be of no further force or effect after the last day of the Term or on the filing by Landlord of an affidavit that the Term has expired or the Lease has been terminated or that Tenant’s right to possession of the Premises has been terminated.

31. Estoppel Certificate. Tenant and Landlord, upon request, one from the other, shall give or exchange with, one with the other, estoppel certificates which shall confirm to others that this Lease is in full force and effect, that, to the actual knowledge of such party, neither party is in default and/or such other information regarding this Lease as may be reasonably appropriate and factual.

32. Hazardous Material. To the best of Landlord’s knowledge, there are no Hazardous Material problems in the Center. Throughout the term of this Lease, Tenant shall prevent the presence, use, generation, release, discharge, storage, disposal, or transportation of any Hazardous Materials (as hereinafter defined) on, under, in, above, to, or from the Premises except for activities which are part of the ordinary course of Tenant’s business and are conducted in strict compliance with all applicable federal, state, and local laws, rules, regulations, and orders. For purposes of this provision, the term “Hazardous Materials” shall mean and refer to any wastes, materials, or other substances of any kind or character that are or become regulated as hazardous or toxic waste or substances, or which require special handling or treatment, under any applicable local, state, or federal law, rule, regulation, or order. Tenant shall protect, defend, indemnify, and hold harmless from and against (a) any loss, cost, expense, claim, or liability arising out of any investigation, monitoring, clean-up, containment, removal, storage, or restoration work (herein referred to as “Remedial Work”) required by, or incurred by Landlord or any other person or party in a reasonable belief that such Remedial Work is required by any applicable federal, state or local law, rule, regulation or order, or by any governmental agency, authority, or political subdivision having jurisdiction over the Premises and caused by the action of Tenant, and (b) any claims of third parties for loss, injury, expense, or damage arising out of the presence, release, or discharge of any Hazardous Materials on, under, in, above, to, or from the Premises by Tenant. In the event any Remedial Work is so required under any applicable federal, state, or local law, rule, regulation or order due to the action of Tenant, Tenant shall promptly perform or cause to be performed such Remedial Work in compliance with such law, rule, regulation, or order. In the event Tenant shall fail to commence the Remedial Work required of Tenant as stated previously in a timely fashion, or shall fail to prosecute diligently the Remedial Work required of Tenant as stated previously to completion, such failure shall constitute an event of default on the part of Tenant under the terms of this Lease, and Landlord, in addition to any other rights or remedies afforded it hereunder, may, but shall not be obligated to, cause the Remedial Work to be performed, and Tenant shall promptly reimburse Landlord for the cost and expense thereof upon demand.

11

33. Intentionally Omitted.

34. Landlord’s Lien. Landlord acknowledges that Tenant has previously granted to its lending institution (which, together with its successors and assigns, are collectively referred to as “Bank”), a lien on, and security interest in, all of Tenant’s assets. Landlord agrees that Bank’s (and its successor’s and assign’s) liens are, and shall be during the existence of this Lease, and without the requirement of any other written document evidencing such agreement, first and superior to any liens or claims, if any, Landlord may have against Tenant for payment of rent or otherwise. Landlord additionally agrees to execute and deliver to Bank, its successors and assigns, a form of subordination agreement reasonably requested by the Bank to confirm the agreements contained herein.

35. Miscellaneous.

(a) All approvals required of and between Landlord and Tenant under the provisions of this Agreement shall be in writing and shall not be unreasonably withheld or delayed unless otherwise expressly provided.

(b) It is understood and agreed that in the event any provision of this Lease shall be adjudged, decreed, held or ruled to be invalid, such portion shall be deemed severable, and it shall not invalidate or impair the agreement as a whole or any other provision of the agreement.

(c) This Lease and all provisions, covenants and conditions thereof shall be binding upon and inure to the benefit of the heirs, legal representatives, and successors, and assigns of the parties hereto, except that no person, firm, corporation nor court officer holding under or through Tenant in violation of any of the terms, provisions or conditions of this Lease, shall have any right, interest or equity in or to this Lease, the terms of this Lease or the Premises.

(d) Landlord shall have the right, at any time without liability to Tenant to make, at Landlord’s own expense, repairs, alterations, additions and improvements, structural or otherwise, in or to the Premises, the Building or any part thereof, and to perform any acts related to the safety, protection and preservation thereof, and during such operations to take into and through the Premises or any part of the Building all material and equipment required and to close or temporarily suspend operation of entrances, doors, corridors or other facilities, provided that Landlord shall cause as little inconvenience or annoyance to Tenant as is reasonably necessary in the circumstances, and shall not do any act which permanently reduces the size of the Premises. Landlord may do any such work during ordinary business hours and Tenant shall pay Landlord for overtime and other expenses incurred if such work is done during other hours at Tenant’s request.

(e) Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit, pursuant to Section 404.056(8), Florida Statutes.

(f) This Lease and the addenda attached hereto constitute the entire agreement between the parties and supersedes all prior agreements. No waiver, modifications, additions or addenda to this Lease shall be valid unless in writing and signed by both Landlord and Tenant.

(g) This Lease shall be governed by and construed in accordance with the laws of the State of Florida.

(h) Time is of the essence of each and every provision of this Lease.

(i) No Offer: This Lease is submitted on the understanding that it will not be considered an offer and will not bind any party in any way until both parties have duly executed the Lease.

12

(j) No Construction Against Drafting Party: Landlord and Tenant acknowledge that each of them and their counsel have had an opportunity to review this Lease and that this Lease will not be construed against Landlord merely because Landlord has prepared it. This Lease is to be construed in such a manner as to give effect to the provisions herein.

(k) No Recording of Lease: This Lease MUST NOT BE RECORDED in any official Public Records, without Landlord’s written consent, which consent may be arbitrarily withheld. Tenant’s recording this Lease or any memorandum or short form of it will be void and shall constitute a default under this Lease.

(l) Waiver of jury trial. Landlord and Tenant by this subparagraph waive trial by jury in any action, proceeding, or counterclaim brought by either of the parties to this Lease against the other on any matters whatsoever arising out of or in any way connected with this Lease and other documents related to it or arising from it, the relationship of landlord and tenant, Tenant’s use or occupancy of the premises, or any other claims (including without limitation claims for personal injury or property damage), and any emergency statutory or any other statutory remedy. Landlord and Tenant are each entering into this waiver as they desire to avoid delays in the resolution of disputes arising out of the above referenced documents and their landlord and tenant relationship.

(m) Warranty of Authority: Landlord and Tenant and the party(ies) executing this Lease on behalf of Landlord and Tenant represent and warrant that such party(ies) is/are authorized to do so by requisite action of the board of directors or partners, as the case may be.

(n) Notwithstanding anything in this Lease to the contrary, Landlord shall never be liable to Tenant for any loss of business or profits or other special, incidental, indirect or consequential damages or for punitive or special damages of any kind. None of Landlord’s officers, employees, agents, directors, shareholders, or partners shall ever have any personal liability to Tenant under or in connection with this Lease. Tenant shall look solely to Landlord’s estate and interest in the Building for the satisfaction of any right or remedy of Tenant under this Lease, or for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord, and no other property or assets of Landlord or its principals shall be subject to levy, execution, or other enforcement procedure for the satisfaction of Tenant’s rights or remedies under this Lease, the relationship of Landlord and Tenant under this Lease, Tenant’s use and occupancy of the Premises, or any other liability of Landlord to Tenant of whatever kind or nature.

(o) Brokers: Landlord and Tenant respectively represent and warrant to each other that neither of them nor any of their representatives, employees or agents have consulted or negotiated with any broker or finder with regard to this Lease or the Premises except, Cushman and Wakefield of Arizona, LLC and Cushman and Wakefield of Florida, LLC, representing Tenant and EastGroup Property Services of Florida, LLC (“EastGroup”), representing Landlord. Landlord and Tenant each will indemnify the other against, and hold the other harmless from, any claims for fees or commissions from anyone with whom either of them has consulted or negotiated with regard to the Premises except the brokers named herein. Landlord will pay the fees or commissions due only to EastGroup, pursuant to a separate written agreement between Landlord and EastGroup, and EastGroup, will pay the fees or commissions due only to Cushman and Wakefield of Arizona, LLC and Cushman and Wakefield of Florida, LLC, pursuant to a separate written agreement between them. Tenant shall not be responsible for payment of any leasing commission fees to such brokers.

(p) No Easements for Air or Light: Any diminution or shutting off of light, air, or view, by any structure that may be erected on the Project or on lands adjacent to the Building will in no way affect this Lease or impose any liability on Landlord.

(q) Except for the payment of sums due under this Lease, each party hereto shall be excused for the period of any delay and shall not be deemed in default with respect to the performance of any of its obligations when prevented from so doing by a cause beyond such party’s reasonable control, including labor disputes, government regulations, fire or casualty, inability to obtain any materials or services, or Acts of God.

13

(r) Interlineation: Whenever in this Lease any printed portion has been stricken, whether or not any relative provision has been added, this Lease shall be construed as if the material so stricken was never included in this Lease and no inference shall be drawn from the stricken material which would be inconsistent in any way with the construction or interpretation which would be appropriate if such material were never contained in this Lease.

(s) Surrender. No act or thing done or omitted to be done by Landlord or Landlord’s agent during the Term of this Lease will constitute, nor will it be deemed an acceptance of surrender of the Premises, and no agreement to accept such termination or surrender will be valid unless in a writing signed by Landlord. The delivery of keys to any employee or agent of Landlord will not operate as a termination of this Lease or a surrender of the Premises unless such delivery of keys is done in connection with a written instrument executed by Landlord approving such termination or surrender.

(t) Survival of Obligations: Any obligations of Tenant accruing prior to the date of the expiration or earlier termination of this Lease, or if Tenant continues to occupy the Premises after the expiration or earlier termination of this Lease, on the date Tenant completely vacates the Premises shall survive the same, and Tenant shall promptly perform all such obligations whether or not this Lease has expired or been terminated.

36. Early Occupancy. Tenant may enter the Premises prior to the Commencement Date to complete Tenant Improvements and to install its furniture, special flooring or carpeting, trade fixtures, telephone, computers and other business equipment. Any such early entry shall be subject to the terms and conditions of the Lease, except the obligation to pay Rent, provided Tenant does not conduct its business in the Premises prior to the Commencement Date. If the Tenant completes the improvements early, Tenant will be allowed to occupy the space at no charge prior to December 1, 2009 but no earlier than November 1, 2009. If Tenant occupies the space prior to November 1, 2009, they will pay prorated rent at $3.25 per square foot plus applicable Operating Expenses and Sales Tax for that period.

37. Option to Renew. Tenant shall have two (2) - five (5) year options to renew its lease for all of the premises upon six (6) months prior written notice. The beginning rental rate for each renewal term shall be ninety five percent (95%) of the current fair market rate for the Premises and then it will increase by two and one half percent (2.5%) annually for the remainder of each renewal term. For purposes of this Lease, the fair market rate shall mean the amount of Base Rent determined by Landlord in its commercially reasonable discretion as the fair market rate for the Premises based on retail use in a building of similar size, configuration, quality, and location. If Tenant objects to Landlord’s determination of the fair market rate for the Premises, and Landlord and Tenant are unable to reach an agreement within ten (10) days after Landlord provides Tenant with written notice of its determination of fair market rate, Tenant, at its sole cost and expense, shall appoint a qualified MAI appraiser (“Tenant’s Appraisal”) for the purpose of determining the fair market rate. Tenant shall submit Tenant’s Appraisal to Landlord, together with a written summary of the methods used and data collected to make such determination within twenty (20) days after Tenant provides Landlord with Tenant’s written objection to Landlord’s determination of fair market rate. If Tenant does not make such objection and appoint such appraiser within twenty (20) days after receipt of written notice of Landlord’s determination, or deliver Tenant’s Appraisal to Landlord within such twenty (20) day period, then Landlord’s determination shall be deemed conclusive. If Landlord objects to Tenant’s Appraisal, Landlord, at Landlord’s sole cost and expense, shall appoint a qualified MAI appraiser (“Landlord’s Appraisal”) for the purpose of determining the fair market rate. Landlord shall submit Landlord’s Appraisal to Tenant, together with a written summary of the methods used and data collected within twenty (20) days after Landlord provides Tenant with Landlord’s written objection to Tenant’s determination of the fair market rate. If Landlord does not make such objection and appoint such appraiser within twenty (20) days after receipt of Tenant’s Appraisal, then Tenant’s Appraisal shall be deemed conclusive. If Landlord’s Appraisal and Tenant’s Appraisal differ by (x) less than ten percent (10%), the average of the two appraised amounts shall be the fair market rate for the Premises, or, if (y) ten percent (10%) or more. Landlord and Tenant shall promptly instruct their appraisers to jointly appoint a third MAI appraiser to determine the fair market rate for the Premises (“Third Appraisal”). Landlord and Tenant shall each pay one-half (1/2) of the expenses of the Third Appraisal. The appraisal among the three (3) that is farthest from the average of all the appraisals shall be disregarded and the average of the other two shall be the fair market rate for the Premises and binding upon Landlord and Tenant.

38. Satellite Dishes and or Antennaes. Tenant may install and maintain on roof any and all equipment and satellite dishes needed for Tenant’s communication and data transmission network. Location and installation to be approved by Landlord.

14

Under no circumstance will antennas or satellite dishes be affixed to the building in anyway or penetrate the Landlords roof. Any damage related to the installation or maintenance will be the responsibility of the Tenant.

39. Addenda/Exhibits. The additional Addenda and Exhibits (if any) listed below or attached hereto are hereby incorporated by reference and made a part of this Lease:

Exhibit “A” – Site Plan

Exhibit “B” – Space Plan

Exhibit “C” – Leasehold Improvement Addendum

Exhibit “D” – Rules and Regulations

IN WITNESS WHEREOF. Landlord and Tenant have hereunto executed this Lease as of the day and year first above written.

Signed, sealed and delivered		LANDLORD:
in the presence of:		EastGroup Property Services of Florida, LLC
		Agent for:
		EastGroup Properties, LP, a Delaware Limited Partnership
/s/ Kristina Preston		By:	/s/ Chris Segrest
Print Name:	Kristina Preston	Name:	CHRIS SEGREST
Megan Borling		Title:	Vice President
Print Name:	Megan Borling
/s/ Kristina Preston		By:	/s/ John Colemadi
Print Name:	Kristina Preston	Name:	JOHN COLEMADI
Megan Borling		Title:	SENIOR VP
Print Name:	Megan Borling
		TENANT
		Leslie’s Poolmart, Inc., a Delaware Corporation
/s/ Kory Klecker		By:	/s/ Steven L. Ortega
Print Name:	Kory Klecker	Name:	Steven L. Ortega
		Title:	EVP / CFO
/s/ Dave Backus
Print Name:	Dave Backus

15

Exhibit “A”

Site Plan

16

Exhibit “B”

Current Space Plan

17

Exhibit “C”

18

Leasehold Improvement Addendum

Landlord shall provide a Tenant Improvement Allowance of $150,000.00 for refurbishment and construction to be performed at 1260 LaQuinta Drive, Suite 400, Orlando, FL 32809. This Allowance is to be used by Tenant for all costs associated with refurbishment and construction in the Premises. Tenant shall be self performing this refurbishment and construction. Prior to the commencement of the refurbishment and construction the Tenant shall provide Landlord with plans and a scope of work for Landlord’s approval, which will not be unreasonably withheld. All improvements shall be governed by the provisions of paragraph 25 of the Lease. Prior to any work being performed, Tenant shall ensure that all contractors related to this work provide proper insurance coverage to Landlord. Tenant shall be responsible for complying with all Governmental rules and regulations. When refurbishment is completed the Tenant will provide to Landlord receipts indicating that all contractors have been paid in full and will also provide Landlord any applicable Lien Waivers from contractors who provide more than $5,000.00 in materials or services. Landlord shall reimburse to Tenant, on a monthly basis, the applicable portion of the Tenant Improvement Allowance after receipt of the applicable Lien Waivers and invoices for the refurbishment allowance to be reimbursed.

19

Exhibit “D”

Rules and Regulations

• Tenant shall faithfully observe and comply with the rules and regulations of the building as may be included in this Lease and modified or added to from time to time by the Landlord. Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by any other tenant or occupant of the building.

• No tenant shall install any radio or television antenna, loudspeaker, or other device on the roof, exterior walls of the Building, or on the property or permeter of property. No TV, radio or recorder shall be played in such a manner as to cause a nuisance to any other tenant.

• The sidewalks, entry passages, corridors, and stairways shall not be obstructed by Tenant or used by it for other than those of ingress and egress.

• Canvassing, soliciting, distribution of handbills or any other written material and peddling in the Center or on the site are prohibited, and each tenant shall cooperate to prevent the same.

• No cargo or delivery vans, trucks or other similar vehicles shall be permitted to park in front of the Center building other than temporary delivery. These approved vehicles should park directly behind the rear of the Premises, or in designated truck court/dock area. Materials stored or placed by Tenant visible from outside the building will not be permitted.

• Each tenant shall store all its trash and garbage within its premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage without being in violation of any law or ordinance governing such disposal.

• The auto parking lot shall be used in common with other tenants of the Center, their employees, guests and invitees, and in common with the Lessor and its employees, guests and invitees. All parking is free and unassigned. Tenants, their employees and guests, shall use those parking areas closest to their leased premises to the extent possible. The exterior truck loading and trailer parking areas immediate to the Premises are reserved for the exclusive use of each tenant. Tenants shall not use, block or otherwise interfere with the loading areas of other occupants in the Center.

• Tenant may not store or place rubbish, pallets or other by-products of shopping or manufacturing outside the Premises. All such items must be hauled away without delay and at the sole cost and expense of Tenant.

• No tenant shall use or keep in their premises or the Center, any kerosene, gasoline, or inflammable or combustible fluid or material other than limited quantities thereof reasonable necessary for the operation or maintenance of office equipment. No tenant shall use or keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Center by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business in the Center, nor shall any animals or birds be brought or kept in the Premises or the Center.

• These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the agreements, covenants, conditions and provisions of any Lease of the Premises or the Center. The terms, covenants and conditions set forth in the Lease shall govern in the event of any inconsistency or ambiguity between the Rules and Regulations and the Lease.

• Each tenant shall ensure that the doors of its Premises are closed and locked and that all water faucets and water apparatus are shut off before Tenant or Tenant’s employees leave the Premises so as to prevent waste or damage. For any default or carelessness in this regard Tenant shall make good all damages sustained by other tenants or occupants of the Center or Landlord.

Landlord reserves the right to make such other rules and regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building and for the preservation of good order therein. Notice of any such amendment or modification will be provided Tenant, and Tenant will comply with them provided they are reasonable.

20

EX-10.33

Exhibit 10.33

EXECUTION VERSION

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

among

LESLIE’S POOLMART, INC.,

and

LPM MANUFACTURING, INC.,

as Borrowers,

THE FINANCIAL INSTITUTIONS NAMED HEREIN,

as Lenders,

and

WELLS FARGO RETAIL FINANCE, LLC,

as Agent

Dated as of September 30, 2009

TABLE OF CONTENTS

1.	DEFINITIONS AND CONSTRUCTION		1
	1.1.	Definitions	1
	1.2.	Accounting Terms	28
	1.3.	Code	28
	1.4.	Construction	28
	1.5.	Schedules and Exhibits	29
2.	LOAN AND TERMS OF PAYMENT		29
	2.1.	Revolving Advances	29
	2.2.	Defaulting Lender	34
	2.3.	Letters of Credit	36
	2.4.	Intentionally Omitted	46
	2.5.	Intentionally Omitted	46
	2.6.	Payments	46
	2.7.	Overadvances	47
	2.8.	Interest and Letter of Credit Fees: Rates, Payments, and Calculations	47
	2.9.	Cash Management; Collection of Accounts	49
	2.10.	Crediting Payments; Application of Collections	49
	2.11.	Designated Account	50
	2.12.	Maintenance of Loan Account; Statements of Obligations	50
	2.13.	Fees	50
	2.14.	Eurodollar Rate Loans	51
	2.15.	Illegality	52
	2.16.	Requirements of Law	53
	2.17.	Indemnity	54
	2.18.	Increase in Commitments	55
3.	CONDITIONS; TERM OF AGREEMENT		57
	3.1.	Conditions Precedent to the Restatement Date	57
	3.2.	Conditions Precedent to all Advances and all Letters of Credit	59
	3.3.	Term; Automatic Renewal	59
	3.4.	Effect of Termination	59

i

	3.5.	Early Termination or Reduction of Commitments and Maximum Commitment Amount by Borrowers	59
	3.6.	Termination Upon Event of Default	60
4.	CREATION OF SECURITY INTEREST		60
	4.1.	Grant of Security Interest	60
	4.2.	Control of Collateral	60
	4.3.	Negotiable Collateral	60
	4.4.	Collection of Accounts, General Intangibles, and Negotiable Collateral	61
	4.5.	Delivery of Additional Documentation Required	61
	4.6.	Power of Attorney	61
	4.7.	Right to Inspect	62
5.	REPRESENTATIONS AND WARRANTIES		62
	5.1.	No Encumbrances	62
	5.2.	Accounts	63
	5.3.	Inventory	63
	5.4.	Equipment	63
	5.5.	Location of Inventory and Equipment	63
	5.6.	Inventory Records	63
	5.7.	Legal Status	63
	5.8.	Due Organization and Qualification; Subsidiaries	64
	5.9.	Due Authorization; No Conflict	64
	5.10.	Litigation	65
	5.11.	No Material Adverse Change	65
	5.12.	Solvency; Borrowers are Solvent	65
	5.13.	Employee Benefits	66
	5.14.	Environmental Condition	66
	5.15.	Taxes	66
	5.16.	Foreign Asset Control Regulations	67
	5.17.	Brokerage Fees	67
	5.18.	Intellectual Property	67
	5.19.	Leases	67
	5.20.	DDAs	67

ii

	5.21.	Credit Card Receipts	67
	5.22.	Indebtedness	68
	5.23.	Complete Disclosure	68
	5.24.	Insurance	68
	5.25.	Requirements of Law	68
	5.26.	Investment Company Status	68
	5.27.	No Margin Stock	68
	5.28.	Investments	69
	5.29.	In-Transit Inventory	69
6.	AFFIRMATIVE COVENANTS		69
	6.1.	Accounting System	69
	6.2.	Collateral Reporting	69
	6.3.	Financial Statements, Reports, Certificates	69
	6.4.	Intentionally Omitted	70
	6.5.	Intentionally Omitted	70
	6.6.	Returns	71
	6.7.	Title to Equipment	71
	6.8.	Maintenance	71
	6.9.	Taxes	71
	6.10.	Insurance	71
	6.11.	No Setoffs or Counterclaims	72
	6.12.	Location of Inventory and Equipment	72
	6.13.	Compliance with Laws	73
	6.14.	Employee Benefits	73
	6.15.	Leases	73
	6.16.	[Intentionally Omitted]	73
	6.17.	Existence	73
	6.18.	Environmental	73
	6.19.	Immediate Notice to Agent	74
	6.20.	Disclosure Updates	75
	6.21.	Solvency	75

iii

	6.22.	Line of Business	75
	6.23.	Additional Subsidiaries	75
	6.24.	In-Transit Inventory	75
	6.25.	Post-Restatement Date Deliveries	76
7.	NEGATIVE COVENANTS		76
	7.1.	Indebtedness	76
	7.2.	Liens	77
	7.3.	Restrictions on Fundamental Changes	78
	7.4.	Disposal of Assets	78
	7.5.	Change Name	78
	7.6.	Guarantee	78
	7.7.	Nature of Business	78
	7.8.	Prepayments and Amendments	78
	7.9.	Change of Control	79
	7.10.	Consignments	79
	7.11.	Distributions	79
	7.12.	Accounting Methods	80
	7.13.	Investments and Acquisitions	80
	7.14.	Transactions with Affiliates	80
	7.15.	Suspension	80
	7.16.	Intentionally Omitted	80
	7.17.	Use of Proceeds	80
	7.18.	Change in Location of Chief Executive Office; Inventory and Equipment with Bailees	80
	7.19.	No Prohibited Transactions Under ERISA	81
	7.20.	Financial Covenants	81
	7.21.	Store Closings	82
	7.22.	Securities Accounts	82
	7.22.	Fiscal Year	80
8.	EVENTS OF DEFAULT		82
	8.1.	Payment	82
	8.2.	Covenants, etc.	82

iv

	8.3.	Attachment	83
	8.4.	Insolvency	83
	8.5.	Involuntary Insolvency	83
	8.6.	Judgment	83
	8.7.	Levy	83
	8.8.	[Intentionally Omitted]	83
	8.9.	Material Agreements	83
	8.10.	Optional Redemption of Indebtedness	84
	8.11.	Misrepresentation	84
	8.12.	Cessation of Business	84
	8.13.	Change of Control	84
	8.14.	Liens	84
	8.15.	Loan Documents	84
	8.16.	Material Restraint	85
	8.17.	Indictment	85
9.	THE LENDER GROUP’S RIGHTS AND REMEDIES		85
	9.1.	Rights and Remedies	85
	9.2.	Remedies Cumulative	88
10.	TAXES AND EXPENSES; WITHHOLDINGS		89
	10.1.	Third Party Payments	89
	10.2.	Taxes	89
11.	WAIVERS; INDEMNIFICATION		91
	11.1.	Demand; Protest; etc.	91
	11.2.	The Lender Group’s Liability for Collateral	91
	11.3.	Indemnification	91
	11.4.	Joint Borrowers	92
	11.5.	Costs and Expenses of Agent and Lenders	97
12.	NOTICES		98
13.	CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER		99
14.	DESTRUCTION OF BORROWERS’ DOCUMENTS		99
15.	ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS		100

v

	15.1.	Assignments and Participations	100
	15.2.	Successors	102
16.	AMENDMENTS; WAIVERS		102
	16.1.	Amendments and Waivers	102
	16.2.	No Waivers; Cumulative Remedies	103
17.	AGENT; THE LENDER GROUP		104
	17.1.	Appointment and Authorization of Agent	104
	17.2.	Delegation of Duties	104
	17.3.	Liability of Agent-Related Persons	105
	17.4.	Reliance by Agent	105
	17.5.	Notice of Default or Event of Default	106
	17.6.	Credit Decision	106
	17.7.	Costs and Expenses; Indemnification	107
	17.8.	Agent in Individual Capacity	108
	17.9.	Successor Agent	108
	17.10.	Withholding Tax	108
	17.11.	Collateral Matters	109
	17.12.	Restrictions on Actions by Lenders; Sharing of Payments	110
	17.13.	Agency for Perfection	112
	17.14.	Payments by Agent to the Lenders	112
	17.15.	Concerning the Collateral and Related Loan Documents	112
	17.16.	Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information	112
	17.17.	Several Obligations; No Liability	113
	17.18.	Distributions	114
	17.19.	Agent’s Covering of Fundings	114
	17.20.	Bank Product Obligations	116
18.	ACCELERATION AND LIQUIDATION		116
	18.1.	Acceleration Notice	116
	18.2.	Acceleration of Duties	117
	18.3.	Actions At and Following Initiation of Liquidation	117
	18.4.	Agent’s Conduct of Liquidation	117

vi

	18.5.	Distribution of Liquidation Proceeds by Agent	118
	18.6.	Distributions of Liquidation Proceeds by Agent and Ordinary Loan Payments	118
19.	GENERAL PROVISIONS		119
	19.1.	Effectiveness	119
	19.2.	Section Headings	119
	19.3.	Interpretation	119
	19.4.	Severability of Provisions	119
	19.5.	Counterparts; Telefacsimile Execution	119
	19.6.	Revival and Reinstatement of Obligations	119
	19.7.	Integration	120
	19.8.	Existing Loan Agreement Superseded	120
	19.9.	U.S. Patriot Act	120
	19.10.	Replacement of Lenders	120
	19.11.	Right of Set-Off	121
	19.12.	Pledges To Federal Reserve Banks	121
	19.13.	Dispute Resolution	122
	19.14.	Press Releases	122

vii

SCHEDULES AND EXHIBITS

Schedule C-1	Commitments on Restatement Date
Schedule E-1	Inventory Locations
Schedule P-1	Permitted Liens
Schedule 2.1(a)	Form of Revolving Credit Note
Schedule 2.9	Cash Management Banks and Accounts
Schedule 5.7	Chief Executive Offices, FEINs
Schedule 5.8	Subsidiaries
Schedule 5.10(a)	Litigation
Schedule 5.10(b)	Commercial Tort Claims
Schedule 5.14	Environmental Condition
Schedule 5.21	Credit Card Processors
Schedule 5.22	Indebtedness
Schedule 5.24	Insurance
Schedule 6.12	Location of Inventory and Equipment
Schedule 7.4	Sale and Leaseback Properties
Exhibit A-1	Form of Assignment and Acceptance
Exhibit B-1	Form of Business Plan
Exhibit C-1	Form of Compliance Certificate
Exhibit C-2	Form of Credit Card Processor Agreement
Exhibit E-1	Eligible Transferees

viii

SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

THIS SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (as hereafter amended, restated, supplemented, or modified from time to time, this “Agreement”), is entered into as of September 30, 2009, among LESLIE’S POOLMART, INC., a Delaware corporation (“Poolmart”), LPM MANUFACTURING, INC., a California corporation (“LPM”; each of Poolmart and LPM, a “Borrower,” and collectively, “Borrowers”), with Borrowers’ chief executive office located at 3925 E. Broadway Road, Suite 100, Phoenix, Arizona 85040, and the financial institutions listed on the signature pages hereof (such financial institutions, together with their respective successors and assigns, are referred to hereinafter each individually as a “Lender” and collectively as the “Lenders”), and WELLS FARGO RETAIL FINANCE, LLC, as Agent.

RECITALS

WHEREAS, the Borrowers, Agent and certain of the Lenders have previously entered into the Existing Loan Agreement, as defined herein;

WHEREAS, the Borrowers have requested that the Existing Loan Agreement be amended and restated in its entirety by this Agreement in order to extend the Maturity Date and make certain other amendments and modifications to the Existing Loan Agreement as provided herein; and

WHEREAS, the Lenders are willing to amend and restate the Existing Loan Agreement as provided herein;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged (these recitals being an integral part of this Agreement), the Borrowers, the Agent and the Lenders hereby agree that, as of the Restatement Date (as defined below), the Existing Loan Agreement shall be amended and restated in its entirety and shall remain in full force and effect only as set forth herein and parties hereto hereby agree as follows:

The parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1. Definitions. As used in this Agreement, the following terms shall have the following definitions:

“ACH Transactions” means any cash management or related services (including the Automated Clearing House processing of electronic funds transfers through the direct Federal Reserve Fedline system) provided by WFRF or its Affiliates for the account of the Borrowers.

“Acceleration” means with respect to any Indebtedness, the making of a demand or declaration that it has become due and payable prior to its stated maturity as a consequence of the occurrence and continuation of a default or event of default with respect thereto. Derivations of the word “Acceleration” (such as “Accelerate”) are used with like meaning in this Agreement.

“Acceleration Notice” means a written notice as follows:

(a) From the Agent to the Lenders, as provided in Section 18.1(a).

(b) From the Required Lenders to the Agent, as provided in Section 18.1(b).

“Account Debtor” means any Person who is or who may become obligated under, with respect to, or on account of, an Account.

“Accounts” means all currently existing and hereafter arising accounts, contract rights, and all other forms of obligations owing to any Person arising out of the sale or lease of goods or the rendition of services by such Person, irrespective of whether earned by performance, and any and all credit insurance, guaranties, or security therefor.

“Additional Commitment Lender” has the meaning given such term in Section 2.18(c).

“Adjusted Eurodollar Rate” means, with respect to each Interest Period for any Eurodollar Rate Loan, the rate per annum determined by the Agent (rounded upwards, if necessary, to the next of 1/100th of one percent) determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a percentage equal to (i) 100% minus (ii) the Reserve Percentage. The Adjusted Eurodollar Rate shall be adjusted on and as of the effective day of any change in the Reserve Percentage.

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

“Affiliate” means, as applied to any Person, any other Person who directly or indirectly controls, is controlled by, is under common control with or is a director or executive officer of such Person. For purposes of this definition, “control” means the possession, directly or indirectly, of the power to vote 15% or more of the securities having ordinary voting power for the election of directors or the direct or indirect power to direct the management and policies of a Person.

“Agent” means WFRF, solely in its capacity as agent for the Lenders, and shall include any successor agent.

“Agent Loan” has the meaning set forth in Section 2.1(h).

“Agent-Related Persons” means Agent, together with its Affiliates, and the officers, directors, employees, and agents of Agent and such Affiliates.

“Agent Protective Advance” has the meaning set forth in Section 2.1(i).

“Agent’s Account” has the meaning set forth in Section 2.9.

2

“Agent’s Fee Letter” means that certain amended and restated fee letter, of even date herewith, by Agent addressed to Borrowers concerning certain fees payable to Agent.

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

“Applicable Law” means as to any Person: (i) all statutes, rules, regulations, orders, or other requirements having the force of law, and (ii) all court orders and injunctions, binding arbitrator’s decisions, and/or similar rulings having the force of law and binding on such Person, in each instance ((i) and (ii)) of or by any federal, state, municipal, and other Governmental Authority, or court, tribunal, panel, or other body which has or claims jurisdiction over such Person, or any material property of such Person.

“Applicable Margin” means, at any time, with respect to any Advance or L/C Fee: (a) from the Restatement Date through and including September 30, 2009, (i) 3.25% with respect to Eurodollar Rate Loans consisting of Advances or L/C Fees; and (ii) 2.25% with respect to Base Rate Loans consisting of Advances; and (b) commencing on the first day of the first calendar month following an adjustment as provided in the immediately succeeding sentence, the rate set forth below which corresponds to the Leverage Ratio of Borrowers for which Agent receives the financial statements and Compliance Certificate required below, determined and adjusted as provided herein. At all times after September 30, 2009, the Applicable Margin shall be adjusted quarterly after each delivery to Agent of the financial statements of the Borrowers required pursuant to Section 6.3 hereof, together with the corresponding Compliance Certificate (demonstrating, among other things, the Leverage Ratio for such quarter), each such adjustment to be effective on the first day of the first calendar month after each such delivery.

Applicable Margin For:

Level	Average Leverage Ratio	Base Rate Loans		Eurodollar Rate Loans		L/C Fee
I	less than 1.0:1.0	2.00	%	3.00	%	3.00	%
II	greater than or equal to 1.0:1.0 and less than 2.0:1.0	2.25	%	3.25	%	3.25	%
III	greater than or equal to 2.0:1.0	2.50	%	3.50	%	3.50	%

Notwithstanding anything in this definition to the contrary, in the event that Agent shall fail to receive any such financial statements and the related Compliance Certificate for any calendar month within 45 days following the end of such month, then the Applicable Margin shall, at the end of such 45th day, immediately and without notice or further action be the highest Applicable Margin provided herein (such Applicable Margin to be in effect until the Agent receives the monthly financial statements of Borrower required under Section 6.3 for the most recent month and the related Compliance Certificate).

“Assignee” has the meaning set forth in Section 15.1.

3

“Assignment and Acceptance” has the meaning set forth in Section 15.1(a) and shall be in the form of Exhibit A-1.

“Authorized Person” means any officer or other employee of Borrower.

“Auto-Extension Letter of Credit” has the meaning set forth in Section 2.3(b)(iii).

“Auto-Extension Notice Date” has the meaning set forth in Section 2.3(b)(iii).

“Availability” means, as of the date of determination, the result (so long as such result is a positive number) of (a) the Maximum Commitment Amount, less (b) the Revolving Facility Usage.

“Availability Condition” means, in connection with any of the events specified at Sections 7.8(a), 7.11 (other than 7.11(a) and (d)) and 7.13, (i) no Default or Event of Default shall have occurred or be continuing or would result from such event, (ii) immediately before and after giving effect to such event, Availability hereunder is not less than $20,000,000, (iii) prior to such event the Borrowers have delivered to the Agent reasonably satisfactory financial projections forecasting that Availability will not be less than $20,000,000 immediately before such event or at any time during the six (6) month period immediately following the next Parent Tax Distribution to occur after such event (after giving pro forma effect to such Parent Tax Distribution and all other Parent Tax Distributions and other events subject to the Availability Condition projected in good faith to be made in the six (6) month period following the next Parent Tax Distribution), and (iv) not less than five (5) Business Days prior to such event, the Borrowers have delivered a certificate of their chief financial officer certifying that the requirements set forth in clauses (i) through (iii) above are satisfied and the projections delivered to the Agent in connection with such transaction were prepared based on reasonable assumptions and reflect good faith estimates of the Borrowers’ future financial performance.

“Average Quarterly Availability” means, as of any date of determination, (a) average daily Availability for the preceding quarter, less (b) the sum of (i) the average daily amount of Advances that were outstanding during the immediately preceding quarter, plus (ii) the average daily amount of the undrawn Letters of Credit that were outstanding during the immediately preceding quarter.

“Bank Product Agreements” means any agreement between a Bank Product Provider with respect to Bank Products including, without limitation, those certain cash management service agreements entered into from time to time by a Borrower or its Subsidiaries.

“Bank Product Obligations” means, at any time, the outstanding amount of all obligations, liabilities, contingent reimbursement obligations, fees, and expenses owing by any Borrower or any of its Subsidiaries to a Bank Product Provider pursuant to or evidenced by a Bank Product Agreement and irrespective of whether for the payment of money, whether direct or indirect, absolute or contingent, due or to become due, and including all such amounts that a Borrower is obligated to reimburse to Agent as a result of Agent purchasing participations or executing indemnities or reimbursement obligations with respect to the Bank Products provided to a Borrower or any of its Subsidiaries pursuant to a Bank Product Agreement.

4

“Bank Products” means any service or facility extended to Borrowers by any Bank Product Provider including: (a) credit cards, (b) credit card processing services, (c) debit cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including controlled disbursement, accounts or services, (g) Hedge Agreements, or (h) Factored Receivables and other arrangements with respect to the factoring, sale, put, or other conditional sale or transfer of any Accounts of a Borrower or accounts payable of a Borrower.

“Bank Product Provider” means Wells Fargo or any Affiliate thereof and, if the requirements of Section 17.20 hereof have been satisfied, any Lender (other than WFRF) or its Affiliates provided that such Lender is a Lender hereunder on the date such Bank Products are extended to Borrowers.

“Base Rate” shall mean, for any day, a rate per annum (rounded upward, if necessary, to the next 1/100 of 1%) equal to the greatest of (a) the Reference Rate in effect on such day, (b) the one-month Adjusted Eurodollar Rate in effect on such day plus 1.00% and (c) the Federal Funds Effective Rate in effect on such day plus 0.50%. If the Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Agent to obtain sufficient quotations in accordance with the terms of the definition thereof, the Base Rate shall be determined without regard to clause (c) of the preceding sentence until the circumstances giving rise to such inability no longer exist. Any change in the Base Rate due to a change in the Reference Rate, the Adjusted Eurodollar Rate or the Federal Funds Effective Rate shall be effective on the date of such change.

“Base Rate Loans” means any Advance made or outstanding hereunder during any period when interest on such Advance is payable based on the Base Rate.

“Bankruptcy Code” means the United States Bankruptcy Code (11 U.S.C. § 101 et seq.), as amended, and any successor statute.

“Benefit Plan” means a “defined benefit plan” (as defined in Section 3(35) of ERISA) for which Borrower, any Subsidiary of Borrower, or any ERISA Affiliate has been an “employer” (as defined in Section 3(5) of ERISA) within the past six years.

“Board of Directors” means the board of directors (or comparable managers) of Poolmart or any committee thereof duly authorized to act on behalf of the board.

“Borrower” and “Borrowers” mean Poolmart and LPM, a Borrower and collectively, the Borrowers.

“Borrowers’ Books” means all of Borrowers’ and their respective Subsidiaries’ books and records including: ledgers; records indicating, summarizing, or evidencing Borrowers’ or their Subsidiaries’ properties or assets (including the Collateral) or liabilities; all information relating to Borrowers’ or their Subsidiaries’ business operations or financial condition or General Intangibles related to all such information; and all computer programs, disk or tape files, printouts, runs, or other computer prepared information.

5

“Borrowing” means a borrowing hereunder consisting of Advances or Letters of Credit made or issued on the same day by the Lenders (or by Agent in the case of an Agent Loan or any Agent Protective Advance) or Issuing Bank, as applicable.

“Business Day” means (a) any day that is not a Saturday, Sunday, or a day on which banks in Los Angeles, California are required or permitted to be closed, and (b) with respect to all notices, determinations, fundings and payments in connection with the Eurodollar Rate or Eurodollar Rate Loans, any day that is a Business Day pursuant to clause (a) above and that is also a day on which trading in Dollars is carried on by and between banks in the London interbank market.

“Business Plan” means, for any Fiscal year, the Business Plan delivered pursuant to Section 6.3(e).

“Capital Assets” means fixed assets, both tangible (such as land, buildings, fixtures, machinery and equipment) and intangible (such as patents, copyrights, trademarks, franchises and good will); provided that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with GAAP.

“Capital Expenditures” means amounts paid or Indebtedness incurred by the Borrowers or any of their Subsidiaries in connection with (i) the purchase or lease by the Borrowers or any of their Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with GAAP or (ii) the lease of any assets by the Borrowers or any of their Subsidiaries as lessee under any Synthetic Lease to the extent that such assets would have been Capital Assets had the Synthetic Lease been treated for accounting purposes as a Capital Lease; provided that Capital Expenditures shall not include the August 4, 2009 acquisition of a Falcon 20005N036 (with improvements) corporate aircraft consummated prior to the Restatement Date.

“Capital Lease” means, for any Person, any lease of property (whether personal, real or mixed) which, in accordance with GAAP, would, at the time a determination is made, be required to be recorded as a capital lease in respect of which such Person is liable as lessee.

“Capital Stock” of any person means any and all shares, interests, participation, or other equivalents (however designated) of or rights, warrants, or options to purchase, corporate stock or any other equity interest (however designated) of or in such Person.

“Cash Collateralize” has the meaning set forth in Section 2.3(i).

“Cash Dominion Event” shall occur when either (a) (i) an Event of Default has occurred and is continuing and (ii) the Revolving Facility Usage at any time during the continuation of such Event of Default is greater than thirty five percent (35%) of the Maximum Commitment Amount or (b) (i) an Event of Default has occurred and is continuing at any time

6

under any of Sections 8.1, 8.4, 8.5, 8.6, 8.12 or 8.13 (in each case subject to any applicable grace period provided herein), or as a result of a breach of Section 2.9 or 7.7 (subject to the grace period provided in Section 8.2(b)). For purposes of this Agreement, the first Cash Dominion Event to occur hereunder shall continue for six months from the date on which the Event(s) of Default which gave rise to such Cash Dominion Event has been cured or waived in accordance with the terms hereof (so long as no other Cash Dominion Event has occurred during such time and Borrowers have provided Agent with replacement Credit Card Notifications and DDA notifications pursuant to Section 2.9 hereof); the second Cash Dominion Event to occur hereunder shall continue for 12 months from the date on which the Event(s) of Default which gave rise to such second Cash Dominion Event has been cured or waived in accordance with the terms hereof (so long as no other Cash Dominion Event has occurred during such time and Borrowers have provided Agent with replacement Credit Card Notifications and DDA notifications pursuant to Section 2.9 hereof), and the third Cash Dominion Event to occur hereunder shall continue until the Revolving Credit Termination Date. The termination of the first or second Cash Dominion Event as provided herein shall in no way limit, waive or delay the occurrence of a subsequent Cash Dominion Event in the event that the conditions set forth in this definition again arise.

“Cash Equivalents” means (a) marketable direct obligations issued or unconditionally guaranteed by the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within 1 year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within 1 year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody’s, (c) commercial paper maturing no more than 1 year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-1 or P-1, or better, from S&P or Moody’s, and (d) certificates of deposit or bankers’ acceptances maturing within 1 year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the United States or any state thereof which bank has a rating of A or A2, or better, from S&P or Moody’s, or (ii) certificates of deposit less than or equal to $100,000 in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation.

“Cash Management Accounts” has the meaning set forth in Section 2.9 hereof.

“Cash Management Banks” has the meaning set forth in Section 2.9 hereof.

“Change of Control” means (a) any “person” or “group” (within the meaning of Sections 13(d) and 14(d) of the Exchange Act), other than Permitted Holder, becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of an amount equal to the greater of (x) 35% of, or (y) the percentage held by the Permitted Holder of, the Stock of Parent having the right to vote for the election of members of the Board of Directors, or (b) a majority of the members of the Board of Directors of Parent do not constitute Continuing Directors, or (c) Permitted Holder ceases to own at least 35% of the Stock of Parent having the right to vote for the election of the members of the Board of Directors, or (d) Parent ceases to directly or indirectly, own and control 100% of the outstanding capital Stock of each Borrower and its other Subsidiaries extant as of the Restatement Date.

7

“Chattel Paper” means all of any Person’s now owned or hereafter acquired right, title, and interest with respect to “chattel paper”, including, without limitation, “tangible chattel paper” and “electronic chattel paper”, as such terms are defined from time to time in the Code, and any and all supporting obligations in respect thereof.

“Closing Date” means January 25, 2005.

“Code” means the Uniform Commercial Code, as in effect from time to time in the State of California.

“Collateral,” means each Borrower’s now owned or hereafter acquired right, title and interest in and to and to all personal property, including, without limitation, each of the following:

(a) the Accounts,

(b) Borrowers’ Books,

(c) Goods (including, without limitation, Inventory and Equipment),

(d) General Intangibles,

(e) Chattel Paper,

(f) DDAs,

(g) Documents,

(h) Investment Property

(i) Instruments,

(j) Letter of Credit Rights and Payment Intangibles,

(k) Commercial Tort Claims as set forth on Schedule 5.10(b) hereof,

(l) Supporting Obligations,

(m) Negotiable Collateral,

(n) any money, or other assets of any Borrower that now or hereafter come into the possession, custody, or control of the Lender Group or any Bank Product Provider,

(o) All insurance policies proceeds, refunds, and premium rebates, including, without limitation, proceeds of fire and credit insurance, whether any of such proceeds, refunds and premium rebates arise out of any of the foregoing (subparagraphs (a) through (n) hereof) or otherwise,

8

(p) All liens, guarantees, rights, remedies and privileges pertaining to any of the foregoing (subparagraphs (a) through (o) hereof), and

(q) the proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the Collateral of any Borrower, and any and all Accounts, Borrowers’ Books, General Intangibles, Goods (including, without limitation, Equipment and Inventory) , Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, DDAs or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof.

“Collateral Access Agreement” means a landlord waiver, mortgagee waiver, bailee letter, or acknowledgement agreement with respect to each of the following locations: chief executive office of Poolmart, any location in a Landlord Lien State and any distribution center of a Borrower or warehouse where Collateral is located, each in form and substance satisfactory to Agent.

“Collections” means all cash, checks, notes, instruments, and other items of payment (including, insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds).

“Commercial Tort Claim” means any now existing or hereafter arising “commercial tort claim”, as such term is defined from time to time in the Code.

“Commitment” means, at any time with respect to a Lender, the principal amount set forth beside such Lender’s name under the heading “Commitment” on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 15.1, as such Commitment may be adjusted from time to time in accordance with the provisions of Sections 2.1(k), 2.18 and 15.1 and “Commitments” means, collectively, the aggregate amount of the commitments of all the Lenders.

“Compliance Certificate” means a certificate substantially in the form of Exhibit C-1 and delivered by the chief accounting officer of Borrowers to Agent.

“Consent” means actual consent given by a Lender from whom such consent is sought; or the passage of three (3) Business Days from receipt of written notice to a Lender from the Agent of a proposed course of action to be followed by the Agent without such Lender’s giving the Agent written notice of that Lender’s objection to such course of action, provided that the Agent may rely on such passage of time as consent by a Lender only if such written notice states that consent will be deemed effective if no objection is received within such time period.

9

“Consolidated Total Debt Service” means with respect to the Borrowers and their Subsidiaries and for any period, the sum, without duplication, of (a) Consolidated Total Interest Expense for such period plus (b) any and all mandatory or optional repayments of principal of Indebtedness (other than optional prepayments of revolving loans) during such period pursuant to any agreement or instrument to which any Borrower or any of their respective Subsidiaries is a party relating to (i) the borrowing of money or the obtaining of credit, including the issuance of notes or bonds, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) any Synthetic Lease or any Capital Lease, plus (c) Parent Debt Service Distributions for such period.

“Consolidated Total Interest Expense” means for any period, the aggregate amount of interest that is paid in cash by any Borrower or any of their respective Subsidiaries during such period on all Indebtedness of the Borrowers and their respective Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any Capital Lease or any Synthetic Lease, and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money.

“Continuing Director” means (a) any member of the Board of Directors who was a director (or comparable manager) of Parent on the Restatement Date, and (b) any individual who becomes a member of the Board of Directors after the Restatement Date if such individual was appointed or nominated for election to the Board of Directors by a majority of the Continuing Directors, but excluding any such individual originally proposed for election in opposition to the Board of Directors in office at the Restatement Date in an actual or threatened election contest relating to the election of the directors (or comparable managers) of Parent (as such terms are used in Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof.

“Credit Card Notifications” means those certain credit card receipts agreements, each substantially in the form attached as Exhibit C-2 hereto, and otherwise reasonably satisfactory to Agent and each of which is among Agent, the applicable Borrower and one of the Borrowers’ Credit Card Processors.

“Credit Card Processor” means any Person that acts as a credit card clearinghouse or processor of credit card payments accepted by any Borrower.

“Custom Brokers Agreement” means a tri-party agreement in form satisfactory to the Agent, in its Permitted Discretion, among the Borrowers, Agent and a customs broker or other carrier, in which the customs broker or such carrier acknowledges that it has control over and holds the Documents evidencing ownership of Inventory of a Borrower for the benefit of the Agent and the Lender Group and agrees, upon notice from the Agent, to hold and dispose of such Inventory solely as directed by Agent.

10

“Daily Balance” means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such day.

“DDA” means any checking or other Deposit Account maintained by a Borrower or any of its Subsidiaries.

“Default” means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means the applicable interest as set forth in Section 2.8(c).

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Advances or participations in Letters of Credit required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, (c) has failed, within three (3) Business Days after request by the Agent, to confirm that it will comply with the terms of this Agreement relating to its Commitments, provided that such Lender shall cease to be a Defaulting Lender under this clause (c) upon the Agent’s receipt of such confirmation, or (d) has been deemed insolvent by any Governmental Authority or become the subject of an Insolvency Proceeding.

“Defaulting Lenders Rate” means the Base Rate for the first three days from and after the date the relevant payment is due and thereafter at the interest rate then applicable to Advances.

“Deposit Account” has the meaning given that term in the Code and also includes all demand, time, savings, passbook, or similar accounts maintained with a bank.

“Designated Account” means account number 4801907023 of Borrowers maintained with Borrowers’ Designated Account Bank, or such other deposit account of Borrowers (located within the United States) which has been designated, in writing and from time to time, by Borrowers to Agent.

“Designated Account Bank” means Wells Fargo or its Affiliates.

“Deteriorating Lender” means any Defaulting Lender or any Lender as to which (a) the Issuing Bank or Agent has a good faith belief that such Lender has defaulted in fulfilling its obligations under one or more other syndicated credit facilities, or (b) such Lender or a Person that controls such Lender has been deemed insolvent by any Governmental Authority or become the subject of a bankruptcy, insolvency or similar proceeding; provided that a Lender shall not be a Deteriorating Lender solely by virtue of the ownership or acquisition of any equity interest in such Lender or the Person controlling such Lender by a Governmental Authority.

“Disbursement Letter” means an instructional letter executed and delivered by Borrowers to Agent regarding the extensions of credit to be made on the Restatement Date, the form and substance of which shall be satisfactory to Agent in its Permitted Discretion.

11

“Document” means all of any Person’s now owned or hereafter acquired right, title, and interest with respect to any “document” as such term is defined in the Code, and any and all supporting obligations in respect thereof.

“Documentary Letters of Credit” has the meaning set forth in Section 2.2.

“Dollars or $” means United States dollars.

“Early Termination Fee” has the meaning set forth in Section 3.5.

“EBITDA” means, for any Person at any time, the consolidated net earnings (or loss) of such Person and its Subsidiaries for the period of 12 consecutive calendar months most recently ended, minus extraordinary gains for such period, plus all interest expense (including without limitation amortization of capitalized financing costs), income tax expense, extraordinary or nonrecurring losses (but not including any write-down of Inventory or cash store closing costs), non-cash charges (including without limitation non-cash compensation, write-off of fixed assets, and accrued but unpaid Management Fees), employee termination charges incurred prior to the Closing Date, and depreciation and amortization for such period, determined in accordance with GAAP.

“Eligible Transferee” means those entities (and any Affiliate thereof) set forth on Exhibit E-1 hereto as the same may be amended from time to time by Agent, with the consent of Borrowers, which consent shall not be unreasonably withheld; provided, however, that notwithstanding the foregoing, no entity shall be an Eligible Transferee if it is a Non-Consenting Lender or a Deteriorating Lender.

“Environmental Actions” means any complaint, summons, citation, notice, directive, order, claim, litigation, investigation, judicial or administrative proceeding or judgment from any Governmental Authority, or any third party involving violations of Environmental Laws or releases of Hazardous Materials from any assets, properties, or businesses of any Borrower or any predecessor in interest.

“Environmental Law” means any applicable federal, state, provincial, foreign or local statute, law, rule, regulation, ordinance, code, binding and enforceable guideline, binding and enforceable written policy or rule of common law now or hereafter in effect and in each case as amended, or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment, to the extent binding on the Borrower, relating to the environment, employee health and safety, or Hazardous Materials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33 USC § 1251 et seq. the Toxic Substances Control Act, 15 USC, § 2601 et seq. the Clean Air Act, 42 USC § 7401 et seq.; the Safe Drinking Water Act, 42 USC. § 3803 et seq.; the Oil Pollution Act of 1990, 33 USC. § 2701 et seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42 USC. § 11001 et seq.; the Hazardous Material Transportation Act, 49 USC § 1801 et seq.; and the Occupational Safety and Health Act, 29 USC. § 651 et seq. (to the extent it regulates occupational exposure to Hazardous Materials); any state and local or foreign counterparts or equivalents, in each case as amended from time to time.

12

“Environmental Liabilities and Costs” means all liabilities, monetary obligations, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts, or consultants, and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand by any Governmental Authority or any third party, and which relate to any Environmental Action.

“Environmental Lien” means any Lien in favor of any Governmental Authority for Environmental Liabilities and Costs.

“Equipment” means all of any Person’s present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including, (a) any interest of such Borrower in any of the foregoing, and (b) all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing.

“ERISA” means the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1000 et seq., amendments thereto, successor statutes, and regulations or guidance promulgated thereunder.

“ERISA Affiliate” means (a) any corporation subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated service group of which Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any party subject to ERISA that is a party to an arrangement with Borrower and whose employees are aggregated with the employees of Borrower under IRC Section 414(o).

“ERISA Event” means (a) a Reportable Event with respect to any Benefit Plan or Multiemployer Plan, (b) the withdrawal of a Borrower, any of its Subsidiaries or ERISA Affiliates from a Benefit Plan during a plan year in which it was a “substantial employer” (as defined in Section 4001(a)(2) of ERISA), (c) the providing of notice of intent to terminate a Benefit Plan in a distress termination (as described in Section 4041(e) of ERISA), (d) the institution by the PBGC of proceedings to terminate a Benefit Plan or Multiemployer Plan, (e) any event or condition (i) that provides a basis under Section 4042(a)(1), (2), or (3) of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan or Multiemployer Plan, or (ii) that may result in termination of a Multiemployer Plan pursuant to Section 4041A of ERISA, (f) the partial or complete withdrawal within the meaning of Sections 4203 and 4205 of ER1SA, of a Borrower, any of its Subsidiaries or ER1SA Affiliates from a Multiemployer Plan, or (g) providing any security to any Plan under Section 401(a)(29) of the IRC by Borrower or its Subsidiaries or any of their ER1SA Affiliates.

“Event of Default” has the meaning set forth in Section 8.

13

“Eurodollar Rate” means, with respect to each Interest Period for a Eurodollar Rate Loan, the interest rate per annum (rounded upwards, if necessary, to the next 1/100th of one percent) at which United States dollar deposits are offered to WFRF (or its Affiliates) by major banks in the London interbank market (or other Eurodollar market selected by Agent) on or about 11:00 a.m. (California time) two Business Days prior to the commencement of such Interest Period in amounts comparable to the amount of the Eurodollar Rate Loans requested by and available to Borrowers in accordance with this Agreement and for the applicable Interest Period.

“Eurodollar Rate Loan” means any Advance made or outstanding hereunder during any period when interest on such Advance is payable based on the Adjusted Eurodollar Rate.

“Existing Letters of Credit” means each letter of credit issued by an Issuing Bank under the Existing Loan Agreement and outstanding on the Restatement Date.

“Existing Loan Agreement” means the Amended and Restated Loan and Security Agreement, dated as of January 25, 2005, among the Borrowers, the lenders from time to time parties thereto, and Wells Fargo Retail Finance, LLC, as Agent, as amended prior to the Restatement Date.

“Factored Receivables” means any accounts of any Borrower which have been factored, sold, transferred, conditionally sold or assigned by an Account Debtor of such Borrower to a Bank Product Provider pursuant to a factoring arrangement or otherwise.

“Federal Funds Effective Rate” means for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for the day for such transactions received by the Agent from three federal funds brokers of recognized standing selected by it.

“FEIN” means Federal Employer Identification Number.

“Fiscal” means, when followed by “month” or “quarter” or “year”, the relevant fiscal period based on the Borrowers’ fiscal year and accounting conventions (e.g. a reference to “July Fiscal 2009” is to the fiscal month of July of the Borrowers’ 2009 fiscal year) and when followed by reference to a specific year, the fiscal year which encompasses the majority of months in such fiscal year (e.g. if the Borrowers’ 2009 fiscal year ends in February 2010 reference to that year would be to the Borrowers’ “Fiscal 2009”).

“Fixed Charge Coverage Ratio” means, as of any date of determination, the ratio of (a) an amount equal to the result of (i) EBITDA, less (ii) Capital Expenditures made during the twelve (12) consecutive calendar months most recently ended less (iii) Parent Tax Distributions during the twelve (12) consecutive calendar months most recently ended, to (b) Consolidated Total Debt Service for the twelve (12) consecutive calendar months most recently ended.

14

“Freight Forwarders Agreement” means a tri-party agreement in form satisfactory to the Agent, in its Permitted Discretion, among the Agent, Borrowers and a freight forwarder, in which the freight forwarder acknowledges that it has control over and holds the Documents evidencing ownership of the Inventory of a Borrower for the benefit of Agent and the Lender Group and agrees, upon notice by the Agent, to hold and dispose of the subject Inventory solely as directed by Agent.

“Funded Debt” means (a) Indebtedness of the Borrowers and their Subsidiaries relating to (i) the borrowing of money or the obtaining of credit, including the issuance of notes or bonds, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) in respect of any Synthetic Leases or any Capitalized Leases, and (iv) the maximum drawing amount of all letters of credit outstanding and (b) Indebtedness of the type referred to in clause (a) of another Person guaranteed by the Borrowers or any of their Subsidiaries.

“Funding Date” means the date on which a Borrowing occurs.

“GAAP” means generally accepted accounting principles as in effect from time to time in the United States, consistently applied.

“General Intangibles” means all of any Person’s present and future general intangibles and other personal property (including contract rights, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names, trademarks, service marks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, deposit accounts, insurance premium rebates, tax refunds, and tax refund claims), other than goods, Accounts, and Negotiable Collateral.

“Goods” means all of any Person’s now owned or hereafter acquired right, title, and interest with respect to “goods”, as that term is defined from time to time in the Code, including, without limitation, any and all Inventory and Equipment.

“Governing Documents” means the certificate or articles of incorporation, by-laws, or other organizational or governing documents of any Person.

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

“Hazardous Materials” means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as “hazardous substances,” “hazardous materials,” “hazardous wastes,” “toxic substances,” or any other formulation intended to define, list, or classify substances by reason of deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or “EP toxicity”, (b) oil, petroleum, or petroleum derived substances, natural gas, natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development,

15

or production of crude oil, natural gas, or geothermal resources, (c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million.

“Hedge Agreement” means any and all transactions, agreements, or documents now existing or hereafter entered into between any Borrower and a Bank Product Provider, which provide for an interest rate, credit, commodity or equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross currency rate swap, currency option, or any combination of, or option with respect to, these or similar transactions, for the purpose of hedging Borrowers’ exposure to fluctuations in interest or exchange rates, loan, credit exchange, security or currency valuations or commodity prices.

“Increase Effective Date” has the meaning given such term in Section 2.18(d).

“Increased Commitment Amount” has the meaning given such term in Section 2.18(c).

“Increased Commitment Fee” means any fee payable to any Increased Commitment Lender as consideration for such Increased Commitment Lender to become an Increased Commitment Lender hereunder.

“Indebtedness” means: (a) all obligations of a Person for borrowed money, (b) all obligations of a Person evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of a Person in respect of letters of credit, bankers acceptances, interest rate swaps, or other similar financial products, (c) all obligations of a Person under capital leases, (d) all obligations or liabilities of others secured by a Lien on any property or asset of a Person, irrespective of whether such obligation or liability is assumed, to the extent, if such obligation or liability is non-recourse, of the lesser of (x) the value of such asset and (y) the amount of the obligation or liability so secured, and (e) any obligation of a Person guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to such Person) any indebtedness, lease, dividend, letter of credit, or other obligation of any other Person.

“Indemnified Liabilities” has the meaning set forth in Section 11.3.

“Indemnified Person” has the meaning set forth in Section 11.3.

“Indenture” means that certain Indenture, dated as of January 25, 2005 for Poolmart’s Senior Notes, between The Bank of New York, as trustee, and Poolmart, as issuer, as amended from time to time in accordance with the terms hereof.

“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

16

“Instruments” means all of any Person’s now owned or hereafter acquired right, title, and interest with respect to “instruments”, including, without limitation, any “promissory notes”, as such terms are defined from time to time in the Code, and any and all supporting obligations in respect thereof.

“Intangible Assets” means, with respect to any Person, that portion of the book value of all of such Person’s assets that would be treated as intangibles under GAAP.

“Intellectual Property Security Agreement” means that certain Intellectual Property Security Agreement, dated as of the Restatement Date, between Borrowers and the Agent, which agreement amends and restates in its entirety that certain Grant of Security Interest in Trademarks and Licenses, dated as of June 22, 2000, between Borrowers and the Agent.

“Interest Period” means, for any Eurodollar Rate Loan, the period commencing on the Business Day such Eurodollar Rate Loan is disbursed or continued, or on the Business Day on which a Base Rate Loan is converted to such Eurodollar Rate Loan, and ending on the date that is one, two, or three months thereafter, as selected by Borrowers and notified to Agent as provided in Sections 2.14(a) and 2.14(b).

“Inventory” means all present and future inventory in which a Person has any interest, including goods held for sale or lease or to be furnished under a contract of service and all of such Person’s present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located.

“Investment” means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of loans, guarantees, advances, transfers of property to, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business, and (b) bona fide Accounts arising in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness or Stock or other securities. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be deducted in respect of each such Investment any amount received as a return of capital; (c) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise; and (d) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof.

“Investment Property” means all of a Person’s presently existing and hereafter acquired or arising investment property (as that term is defined in Section 9-115 of the Code).

“IRC” means the Internal Revenue Code of 1986, as amended, and the regulations thereunder.

“IRS” means the Internal Revenue Service.

17

“Issuing Bank” means, individually and collectively, Wells Fargo or any other institution that, with the consent of Agent, in Agent’s sole discretion, agrees to become an Issuing Bank for the purpose of issuing L/Cs or L/C Undertakings pursuant to Section 2.2 hereof.

“Issuer Documents” means with respect to any Letter of Credit, the Letter Credit Application, and any other document, agreement and instrument entered into by, among or between the Issuing Bank, Agent and a Borrower or in favor of the Agent or Issuing Bank and relating to any such Letter of Credit.

“Landlord Lien State” means initially Washington, Virginia, and Pennsylvania and such other states in which a landlord’s claim for rent has priority over the Liens of the Agent in the Collateral as determined by Agent, in its sole discretion.

“L/C” has the meaning set forth in Section 2.3(a).

“L/C Advance” has the meaning set forth in Section 2.3(c)(iii).

“L/C Borrowing” has the meaning set forth in Section 2.3(c)(iii).

“L/C Commitment” means the commitment of the Issuing Bank to issue L/Cs from time to time in an aggregate face amount not to exceed the L/C Sublimit at any time.

“L/C Fee” means, as of any date of determination, the “L/C Fee” specified in the grid in the definition of Applicable Margin as adjusted from time to time as provided in such definition.

“L/C Sublimit” means $7,000,000.

“L/C Undertaking” has the meaning set forth in Section 2.3(a).

“L/C Usage” means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit plus 100% of the amount of outstanding time drafts accepted by an Underlying Issuer as a result of drawings under Underlying Letters of Credit.

“Leasehold Interests” means any Borrower’s leasehold estate or interest in each of the properties at or upon which any Borrower conducts business or maintains any of the Collateral, together with the Borrower’s interest in any of the improvements and fixtures located upon or appurtenant thereto, including without limitation, any rights of a Borrower to payments, proceeds of value of any kind or nature realized upon the sale or transfer of such estate or interest.

“Lender” and “Lenders” have the respective meanings set forth in the preamble to this Agreement, and shall include any other Person made a party to this Agreement as a Lender in accordance with the provisions of Section 15.1.

“Lender Group” means, individually and collectively, each of the individual Lenders, Issuing Bank and Agent.

18

“Lender Group Expenses” means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by a Borrower under any of the Loan Documents that are paid or incurred by the Lender Group, (b) reasonable and documented fees or charges actually paid or incurred by Agent in connection with the Lender Group’s transactions with Borrowers, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, real estate surveys, real estate title policies and endorsements, and environmental audits, (c) reasonable and documented costs and expenses incurred by Agent in the disbursement of funds to or for the account of Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by Agent or any Affiliate thereof resulting from the dishonor of checks, (e) reasonable and documented costs and expenses paid or incurred by the Agent to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) reasonable and documented audit fees and expenses of Agent related to audit examinations of the Borrowers’ Books to the extent of the fees and charges (and up to the amount of any limitation) contained in this Agreement, (g) reasonable and documented costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the transactions contemplated by the Loan Documents or the Lender Group’s relationship with any Borrower or any guarantor of the Obligations, (h) Agent’s reasonable and documented fees and expenses (including attorneys’ fees) incurred in advising, structuring, drafting, reviewing, syndicating, administering, amending or modifying the Loan Documents and any related document or instrument, and (i) Agent’s reasonable fees and expenses (including attorneys’ fees, consulting, accounting, investment banking and similar professional fees and charges) incurred in terminating, enforcing (including attorneys’ fees and expenses incurred in connection with a “workout”, a “restructuring”, or an Insolvency Proceeding concerning any Borrower or in exercising any rights or remedies under the Loan Documents), or defending the Loan Documents, irrespective of whether suit is brought, or in taking any remedial action concerning the Collateral.

“Letter of Credit” means an L/C or an L/C Undertaking, as the context requires.

“Letter of Credit Application” has the meaning set forth in Section 2.3(b)(i).

“Letter of Credit Expiration Date” has the meaning set forth in Section 2.3(a).

“Letter of Credit Rights” means all of any Borrower’s now owned or hereafter acquired right, title, and interest with respect to “letter of credit rights”, as that term is defined from time to time in the Code, and any and all supporting obligations in respect thereof.

“Leverage Ratio” means as at any date of determination, the ratio of (a) Total Debt outstanding on such date to (b) EBITDA.

19

“LGP” means Leonard Green & Partners, L.P.

“Lien” means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of the property, whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit arrangement, security agreement, adverse claim or charge, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes or from a sale of accounts receivable or chattel paper, or the interest of a lessor under a Capital Lease or other arrangement pursuant to which any Person is entitled to any preference or priority with respect to the property or assets of another Person and also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances affecting Real Property each of the foregoing whether consensual or non-consensual and whether arising by way of agreement, operation of law, legal process or otherwise.

“Liquidation” means the exercise, by the Agent, of those rights and remedies accorded to the Agent under the Loan Documents and applicable law as a creditor of the Borrowers following and on account of the occurrence and continuation of an Event of Default in respect of the realization on Collateral. Derivations of the word “Liquidation” (such as “Liquidate”) are used with like meaning in this Agreement. “Liquidation” shall include the conduct of sale or disposition of all or substantially all the Borrowers’ assets by the Borrowers, including without limitation, the conduct of “going out of business” or similar sales with the consent of the Agent.

“Loan Account” has the meaning set forth in Section 2.12.

“Loan Documents” means this Agreement, the Disbursement Letter, the Letters of Credit, the Restricted Account Agreements, the Securities Account Control Agreements, the Intellectual Property Security Agreement, the Revolving Credit Note, the Agent’s Fee Letter, any certificates (including without limitation, any Perfection Certificate, Solvency Certificate, and each Compliance Certificate) from time to time delivered in connection with this Agreement or any other Loan Document and any other agreement entered into, now or in the future, in connection with this Agreement or any other Loan Document.

“LPM” means LPM Manufacturing, Inc., a California corporation.

“Management Agreement” means that certain Management Agreement, dated January 25, 2005, between Poolmart and LGP, in the substantially the form delivered by Poolmart to Agent prior to the Restatement Date.

“Material Adverse Change” means (a) a material adverse change in the business, prospects, operations, results of operations, assets, liabilities or condition (financial or otherwise) of Poolmart on a consolidated basis, (b) the material impairment of the Borrowers’ ability to perform their obligations under the Loan Documents or of the Lender Group to enforce

20

the Secured Obligations or realize upon the Collateral, (c) a material adverse effect on the value of the Collateral or the amount that the Lender Group would be likely to receive (after giving consideration to delays in payment and costs of enforcement) in the Liquidation of such Collateral, or (d) a material impairment of the priority of the Lender Group’s Liens with respect to the Collateral.

“Maturity Date” has the meaning set forth in Section 3.3.

“Maximum Commitment Amount” means $50,000,000 (subject to increase pursuant to Section 2.18 hereof) less any reductions in the Maximum Commitment Amount made pursuant to Section 3.5.

“Multiemployer Plan” means a “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA) to which a Borrower, any of its Subsidiaries, or any ERISA Affiliate has contributed, or was obligated to contribute, within the past six years.

“Negotiable Collateral” means all of a Person’s present and future letters of credit, notes, drafts, Instruments, Goods covered by Documents, Investment Property, securities (including the shares of stock of Subsidiaries of such Person), Documents, Leasehold Interests, Chattel Paper and all supporting obligations of the foregoing.

“Net Book Value” means, at any time, the gross amount of any Borrower’s Inventory that is located in the United States, conforms to the representations and warranties contained in Section 5.3 hereof, less reserves required by GAAP, and is reflected on the most recent consolidated balance sheet of Poolmart delivered pursuant to Section 6.3 hereof.

“Nominee” means a business entity (such as a corporation or limited partnership) formed by the Agent or any Lender to own or manage any Post Foreclosure Asset.

“Non-consenting Lender” has the meaning given such term in Section 19.10.

“Obligations” means all Advances, including the principal thereof and interest thereon (including any interest that, but for the provisions of the Bankruptcy Code, would have accrued), contingent reimbursement obligations under any outstanding Letters of Credit, premiums (including Early Termination Fees), and all other obligations of the Borrowers arising under any of the Loan Documents, including without limitation fees and Lender Group Expenses that the Borrowers are required to perform, observe, pay or reimburse under any of the Loan Documents (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued or been so payable), whether absolute or contingent, due or to become due, or now existing or hereafter arising.

“Officer’s Closing Certificate” means that certain closing certificate, dated as of the date hereof, executed and delivered by the chief financial officer of each Borrower to the Agent.

“Originating Lender” has the meaning set forth in Section 15.1(e).

21

“Parent” means Leslie’s Holdings, Inc., a Delaware corporation.

“Parent Debt Service Distributions” has the meaning set forth in Section 7.11(a) hereof.

“Parent Debentures” means the Parent’s $128,072,179.62 aggregate amount of Series A Junior Subordinated Debentures dated June 1, 2009.

“Parent Note Purchase Documents” means the Note Purchase Agreement, dated as of February 20, 2007, by and among the Parent and GSMP 2006 Onshore US, Ltd., GSMP 2006 Offshore US, Ltd., GSMP 2006 Institutional US, Ltd., GSO Domestic Capital Funding LLC, GSO Origination Funding Partners LP and GSO Special Situations Fund LP and all documents, instruments, agreements and certificates delivered in connection therewith, as the same may be amended, supplemented or otherwise modified (and including the documents and instruments governing or evidencing any Indebtedness incurred to refinance, in whole or in part, the Indebtedness outstanding thereunder).

“Parent Tax Distributions” has the meaning set forth in Section 7.11(d).

“Participant” has the meaning set forth in Section 15.1(e).

“Payment Intangible” as defined in the Code and also includes any general intangible under which the Account Debtor’s primary obligation is a monetary obligation.

“Payoff Letters” means (i) a letter, in form and substance satisfactory to Agent in its Permitted Discretion, from PNC Bank, National Association to Agent respecting the amount necessary to repay in full all of the obligations of any Borrower and any other guarantors thereof owing to PNC Bank, National Association under the Existing Credit Agreement and (ii) a letter, in form and substance satisfactory to Agent in its Permitted Discretion, from Bank of America to Agent respecting the amount necessary to repay in full all of the obligations of any Borrower and any other guarantors thereof owing to Bank of America under the Existing Credit Agreement.

“PBGC” means the Pension Benefit Guaranty Corporation as defined in Title N of ERISA, or any successor thereto.

“Perfection Certificate” means the perfection certificate submitted by Borrowers to Agent in connection with the execution and delivery of this Agreement, together with Borrowers’ completed responses to the inquiries set forth therein, the form and substance of such responses to be satisfactory to Agent in its Permitted Discretion.

“Permitted Discretion” means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured lender) business judgment.

“Permitted Holder” means LGP and any Affiliate thereof.

22

“Permitted Investments” means (a) investments in Cash Equivalents, (b) investments in negotiable instruments for collection, and (c) advances made in connection with purchases of goods or services in the ordinary course of business.

“Permitted Liens” means (a) Liens held by the Lender Group securing the Secured Obligations, (b) Liens for unpaid taxes that either (i) are not yet due and payable or (ii) are the subject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) the interests of lessors under operating leases and purchase money security interests and Liens of lessors under capital leases to the extent that the acquisition or lease of the underlying asset is permitted under Section 7.20(c) and so long as the Lien only attaches to the asset purchased or acquired and only secures the purchase price of the asset, (e) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of Borrower and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet due and payable, or (ii) are the subject of Permitted Protests, (f) Liens arising from deposits made in connection with obtaining worker’s compensation or other unemployment insurance, (g) Liens or deposits to secure performance of bids, tenders, or leases (to the extent permitted under this Agreement), incurred in the ordinary course of business of a Borrower and not in connection with the borrowing of money, (h) Liens arising by reason of security for surety or appeal bonds in the ordinary course of business of a Borrower, (i) Liens of or resulting from any judgment or award that would not cause a Material Adverse Change and as to which the time for the appeal or petition for rehearing of which has not yet expired, or in respect of which a Borrower is in good faith prosecuting an appeal or proceeding for a review, and in respect of which a stay of execution pending such appeal or proceeding for review has been secured, and (j) easements, rights of way, zoning and similar covenants and restrictions, and similar encumbrances that do not materially interfere with or impair the use or operation of the Collateral by any Borrower, or materially interfere with the ordinary conduct of the business of a Borrower.

“Permitted Parent Debt” has the meaning given such term in Section 7.1(d).

“Permitted Protest” means the right of a Borrower to protest any Lien (other than any such Lien that secures the Secured Obligations) (other than payroll taxes or taxes that are subject of a United States federal tax lien) or rental payment, provided that (a) Borrowers establish any reserve required in respect of such obligation in accordance with GAAP, (b) any such protest is instituted and diligently prosecuted by such Borrower in good faith, and (c) Agent is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Liens of the Lender Group in and to the Collateral or, if Agent is not so satisfied, Agent shall have established such reserve against Availability as it deems appropriate in its Permitted Discretion.

“Person” means and includes natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political subdivisions thereof.

23

“Plan” means any employee benefit plan, program, or arrangement maintained or contributed to by a Borrower or with respect to which it may incur liability.

“Poolmart” has the meaning set forth in the preamble to this Agreement.

“Post Foreclosure Asset” means any asset of the Borrowers for which the Agent “credit bids” in the course of the exercise of its rights and remedies pursuant to any Loan Document.

“Projections” means Borrowers’ forecasted (a) balance sheets, (b) profit and loss statements, and (c) cash flow statements, all prepared on a basis consistent with Borrowers’ historical financial statements, together with appropriate supporting details and a statement of underlying assumptions.

“Pro-Rata Share” means, with respect to a Lender, a fraction (expressed as a percentage), the numerator of which is the amount of such Lender’s Commitment and the denominator of which is the aggregate amount of the Commitments.

“Real Property” means any estates or interests in real property now owned or hereafter acquired by a Borrower.

“Record” means information that is inscribed on a tangible medium or which is stored in an electronic or other medium and is retrievable in perceivable form.

“Reference Rate” means the rate of interest announced within Wells Fargo at its principal office in San Francisco as its “prime rate,” with the understanding that the “prime rate” is one of Wells Fargo’s base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto and is evidenced by the recording thereof after its announcement in such internal publication or publications as WFRF may designate.

“Remedial Action” means all actions taken to (a) clean up, remove, remediate, contain, treat, monitor, assess, evaluate, or in any way address Hazardous Materials in the indoor or outdoor environment, (b) prevent or minimize a release or threatened release of Hazardous Materials so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, (c) perform any pre-remedial studies, investigations, or post-remedial operation and maintenance activities, or (d) conduct any other actions authorized by 42 USC § 9601.

“Reportable Event” means any of the events described in Section 4043(c) of ERISA or the regulations thereunder other than a Reportable Event as to which the provision of 30 days notice to the PBGC is waived under applicable regulations.

“Requested Increased Commitment Amount” has the meaning given such term in Section 2.18(a).

“Required Lenders” means, at any time, Agent, together with such other Lenders (other than Delinquent Lenders) whose Pro Rata Shares together with Agent, aggregate

24

50.1% or more of the Commitments (without, for purposes of this definition, giving effect to the Pro Rata Shares of the Commitment of any Delinquent Lender); provided that, at any time there are two or more Lenders (other than Delinquent Lenders), “Required Lenders” shall be comprised of at least two Lenders (other than Delinquent Lenders).

“Requirement of Law” means, as to any Person: (a) (i) all statutes and regulations and (ii) court orders and injunctions, arbitrators’ decisions, and/or similar rulings, in each instance by any Governmental Authority or arbitrator applicable to or binding upon such Person or any of such Person’s property or to which such Person or any of such Person’s property is subject; and (b) that Person’s organizational documents, by-laws and/or other instruments which deal with corporate or similar governance, as applicable.

“Reserve Percentages” for any Interest Period means, as of the date of determination thereof, the maximum percentage (rounded upward, if necessary to the nearest 1/100th of 1%), that is in effect on such date as prescribed by the Board of Governors of the Federal Reserve System for determining the reserve requirements (including supplemental, marginal, and emergency reserve requirements) with respect to “Eurocurrency liabilities” (as defined in Federal Reserve Board Regulation D).

“Restatement Date” means the date on which all of the conditions precedent set forth at Section 3.1 are satisfied as determined by Agent in its Permitted Discretion.

“Restricted Account” shall mean any depository account, DDA, or Investment Property account designated by Agent as a “Restricted Account” and subject to a Restricted Account Agreement.

“Restricted Account Agreements” means an agreement, in form and substance satisfactory to Agent, in its Permitted Discretion, executed and delivered by the applicable Borrower, Agent, and the applicable Restricted Account Bank, which agreement is sufficient to give Agent “control” over the subject Restricted Account as provided in the Code.

“Restricted Account Bank” means Wells Fargo or such other bank(s) as may be agreed to by Agent and Borrowers from time to time.

“Restricted Payments Cap” means an aggregate amount of payments which Borrowers are permitted pursuant to Sections 7.8(a), 7.11(b), 7.11(c), and 7.13(d) not to exceed $50,000,000 in any Fiscal year; unless, after the Restatement Date, Parent pays “in kind” any accrued interest on any Indebtedness of Parent, in which case the annual “Restricted Payments Cap” shall increase after the first anniversary of the Restatement Date by the annual amount of interest accruing on such interest that was paid “in kind”; provided, however, that such cap shall not exceed $55,000,000 during the 365 day period from the first anniversary of the Restatement Date to the second anniversary, and shall not exceed, after the second anniversary of the Restatement Date, $60,000,000.

“Retiree Health Plan” means an “employee welfare benefit plan” within the meaning of Section 3(1) of ERISA that provides benefits to individuals after termination of their employment, other than as required by Section 601 of ERISA.

25

“Revolving Credit Note” as defined in Section 2.1(a) hereof.

“Revolving Facility Usage” means, as of any date of determination, the aggregate amount of Advances and undrawn Letters of Credit, and unpaid reimbursement obligations in respect of drawings under Letter of Credit, then outstanding.

“Revolving Credit Termination Date” shall mean the earliest to occur: (a) the Maturity Date; (b) termination of this Agreement pursuant to Section 3.5; or (c) termination of this Agreement by the Lenders upon the occurrence and during the continuation of an Event of Default (which termination shall be automatic upon the occurrence of an Event of Default under Sections 8.4 or 8.5).

“Secured Obligations” means collectively and individually all Obligations and all Bank Product Obligations of either or both Borrowers.

“Securities Account Control Agreement” means each Securities Account Control Agreement, in form and substance satisfactory to Agent, in its Permitted Discretion, executed and delivered by the applicable Borrower, Agent, and a securities intermediary, which agreement is sufficient to give Agent “control” over the subject Securities Account or Investment Property as provided in the Code.

“Senior Notes” means Poolmart’s 7.75% Senior Notes due February 1, 2013.

“Settlement” has the meaning set forth in Section 2.1(j)(i).

“Settlement Date” has the meaning set forth in Section 2.1(j)(i).

“Solvency Certificate” means a certificate signed by an Authorized Person of the Borrowers, dated as of the Restatement Date, demonstrating the Solvency of Poolmart on a consolidated basis.

“Solvent” means, with respect to any Person on a particular date, that on such date, on a consolidated basis, (a) at fair valuations, all of the properties and assets of such Person as an entirety on a going concern basis are greater than the sum of the debts, including contingent liabilities, of such Person, (b) the present fair salable value of the properties and assets of such Person as an entirety on a going concern basis is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person is able to pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (d) such Person does not intend to, and does not believe that it will, incur debts beyond such Person’s ability to pay as such debts mature, and (e) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s properties and assets would constitute unreasonably small capital after giving due consideration to the prevailing practices in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that reasonably can be expected to become an actual or matured liability.

26

“Standby L/C” means L/Cs issued pursuant to this Agreement, the drawing under which does not require the delivery of bills of lading, airway bills or other similar types of documents of title, or which are customarily referred to as “standby letters of credit”.

“Stock” means all shares, options, warrants, interests, participation, or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including common stock, preferred stock, or any other “equity security” (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities Exchange Commission under the Securities Exchange Act of 1934).

“Subsidiary” of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or indirectly owns or controls the shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership, limited liability company, or other entity.

“Subordinated Debt” means unsecured Indebtedness of a Borrower or any of its Subsidiaries that is expressly subordinated and made junior to the payment and performance in full of the Secured Obligations, and evidenced by a written instrument containing subordination provisions in form and substance approved by the Agent in writing.

“Supporting Obligation” has the meaning given such term in the Code and also refers to a Letter-of-Credit Right or secondary obligation which supports the payment or performance of an Account, Chattel Paper, a Document, a General Intangible, an Instrument, or Investment Property.

“Synthetic Lease” means any lease of goods or other property, whether real or personal, which is treated as an operating lease under GAAP and as a loan or financing for U.S. income tax purposes.

“Taxes” or “Tax” includes any taxes, duties, fees, premiums, assessments, levies, tariffs and any other charges whatsoever imposed, assessed, reassessed or collected by any Governmental Authority, including all fines, penalties, interest, additions to tax, installments on account of taxes, or other additional amounts imposed, assessed or collected by any Governmental Authority in respect thereof, and including those related to any tax-sharing agreement or any other contract relating to the sharing or payment of any such Taxes, or levied on, or measured by, or referred to as, gross income, net income, gross receipts, profits, royalty, capital, capital gains, transfer, land transfer, sales, goods and services, harmonized sales, use, alternative, net worth, value-added, severance, premium, real property, capital stock, personal property, ad valorem, windfall profits, environmental, excise, stamp, withholding, business, franchise, property development, occupancy, employer health, payroll, employment, health, social services, education and social security taxes, all surtaxes, all customs duties and import and export taxes, countervail and anti-dumping, all license, franchise and registration fees and all employment insurance, health insurance and other government pension plan premiums or contributions, all withholdings on amounts paid to or by the relevant Person, and any liability for any of the foregoing as a transferee, successor, guarantor or by contract or by operation of Applicable Law.

27

“Tax Returns” includes all returns, elections, filings, forms, and any other documents (whether in electronic, tangible or any other form whatsoever) made, prepared or filed, or to be made, prepared or filed in respect of Taxes under Applicable Law.

“Total Debt” means with respect to the Borrowers and its Subsidiaries, the result of, without duplication, of (a) the aggregate amount of Indebtedness of each Borrower and its Subsidiaries, on a consolidated basis, relating to (i) the borrowing of money or the obtaining of credit, including the issuance of notes or bonds, (ii) the deferred purchase price of assets (other than trade payables incurred in the ordinary course of business), (iii) in respect of any Synthetic Lease or any Capital Lease, and (iv) the maximum drawing amount of all letters of credit outstanding plus (b) Indebtedness of the type referred to in clause (a) of another Person guaranteed by any Borrower or any of their Subsidiaries.

“Underlying Issuer” means any Person who is the beneficiary of an L/C Undertaking.

“Underlying Letter of Credit” means a letter of credit that has been issued by an Underlying Issuer in consequence of which an Issuing Bank has agreed to issue an L/C Undertaking.

“Unreimbursed Amount” has the meaning set forth in Section 2.2.

“Unused Line Fee” has the meaning set forth in Section 2.13(b).

“Voidable Transfer” has the meaning set forth in Section 19.6.

“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.

“WFRF” means Wells Fargo Retail Finance, LLC, a Delaware limited liability company.

1.2. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term “financial statements” shall include the notes and schedules thereto. Whenever the term “Borrower” or “Borrowers” is used in respect of a financial covenant or a related definition, it shall be understood to mean Borrowers on a consolidated basis unless the context clearly requires otherwise.

1.3. Code. Any terms used in this Agreement that are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein.

1.4. Construction. Unless the context of this Agreement or, with respect to any other Loan Document, such Loan Document, clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term “including” is not limiting, and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or.” The words “hereof,” “herein,”

28

“hereby,” “hereunder,” and similar terms in this Agreement or any other Loan Document refer to this Agreement or such Loan Document as a whole and not to any particular provision of this Agreement or such Loan Document. An Event of Default shall “continue” or be “continuing” until such Event of Default has been cured or waived in writing by the requisite members of the Lender Group. Section, subsection, clause, schedule, and exhibit references are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, and supplements, thereto and thereof, as applicable. Any reference herein to any Person shall be construed to include such Person’s successors and assigns. Any requirement of a writing contained herein or in the other Loan Documents shall be satisfied by the transmission of a Record and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of the information contained therein.

1.5. Schedules and Exhibits. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference.

2. LOAN AND TERMS OF PAYMENT.

2.1. Revolving Advances.

(a) Amounts. Subject to the terms and conditions of this Agreement, each Lender agrees, severally and not jointly, during the term of this Agreement, to make cash advances (“Advances”) to Borrowers in an amount at any one time outstanding not to exceed such Lender’s Pro Rata Share of an amount equal to the Maximum Commitment less the outstanding balance of all undrawn or unreimbursed Letters of Credit. The obligation to repay each Lender’s Pro Rata Share of the Advances, with interest as provided herein, shall be further evidenced by a promissory note made by the Borrowers payable to the order of such Lender in the form of Schedule 2.1(a) annexed hereto (each, a “Revolving Credit Note”). Neither the original nor a copy of the Revolving Credit Notes shall be required, however, to establish or prove any Obligations. In the event that a Revolving Credit Note is ever lost, mutilated, or destroyed, the Borrowers shall execute a replacement thereof and deliver such replacement to the Agent upon receipt from the applicable Lender of a lost note affidavit and reasonably satisfactory indemnification from the applicable Lender.

(b) Revolving Nature. Amounts borrowed pursuant to this Section 2.1 may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this Agreement.

(c) Limits on Obligation. The Lenders shall have no obligation to make an Advance if: (i) a Default or an Event of Default has occurred and is continuing; (ii) a Default or Event of Default would be reasonably likely to result from the making of such Advance; or (iii) after giving effect to the making of such Advance, the Revolving Facility Usage would exceed the Maximum Commitment.

29

(d) Revolving Credit Termination Date. All amounts borrowed pursuant to this Section, together with all other Obligations, shall be due and payable on the Revolving Credit Termination Date.

(e) Procedure for Borrowing. Each Borrowing and election of an applicable interest rate shall be made by an irrevocable written request by an Authorized Person delivered to Agent, which notice must be received by Agent (i) no later than 11:00 a.m. (California time) on the date that is the requested Funding Date in the case of a request for an Advance bearing interest at the Base Rate or (ii) at least three (3) Business Days prior to the date that is the requested Funding Date in the case of a request for an Advance bearing interest at a Eurodollar Rate, in each case specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day. At Agent’s election, in lieu of delivering the above-described written request, any Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice.

(f) Agent’s Election. Promptly after receipt of a request for a Borrowing of an Advance pursuant to Section 2.1(e) in an amount equal to or less than $5,000,000, the Agent shall elect, in its discretion, (i) to have the terms of Section 2.1(g) apply to such requested Borrowing, or (ii) to make an Agent Loan pursuant to the terms of Section 2.1(h) in the amount of the requested Borrowing. Any requested Borrowing in an amount greater than $5,000,000 shall be made pursuant to the terms of Section 2.1(g).

(g) Making of Advances.

(i) Promptly after receipt of a request for a Borrowing pursuant to Section 2.1(g) in excess of $5,000,000 or otherwise at the Agent’s election in accordance with Section 2.1(f), the Agent shall notify the Lenders, not later than 10:00 a.m. (California time) on the Business Day immediately preceding the Funding Date applicable thereto, by telephone, and promptly followed by telecopy, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender’s Pro Rata Share of the requested Borrowing available to the Agent in same day funds, to such account of the Agent as the Agent may designate, not later than 12:00 p.m. (California time) on the Funding Date applicable thereto. After the Agent’s receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in Sections 3.1 and 3.2, the Agent shall make the proceeds of such Advances available to Borrower on the applicable Funding Date by transferring same day funds equal to the proceeds of such Advances received by the Agent to the Designated Account; provided, however, the Agent shall not request any Lender to make, and no Lender shall have the obligation to make, any Advance if the Agent has actual knowledge, that (A) one or more of the applicable conditions precedent set forth in Sections 3.1 or 3.2 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (B) the requested Borrowing would exceed the Availability on such Funding Date,

30

(ii) Unless Agent receives notice from a Lender on or prior to the Restatement Date or, with respect to any Borrowing after the Restatement Date, at least one Business Day prior to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender’s Pro Rata Share of the Borrowing, Agent may assume that each Lender has made or will make such Lender’s Pro Rata Share available to Agent in immediately available funds on the applicable Funding Date and Agent may (but shall not be so required), in reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent any Lender (including any Deteriorating Lender) shall not have made its Pro Rata Share of such Borrowing available to Agent in immediately available funds on such Funding Date and Agent in such circumstances has made available to Borrowers such amount, that Lender shall immediately following such Funding Date make its Pro Rata Share of such Borrowing available to Agent, together with interest at the Defaulting Lenders Rate for each day or portion thereof from such Funding Date to the day on which such Lender has so paid Agent. A notice from Agent submitted to any Lender with respect to amounts (including interest) owing under this subsection shall be conclusive, absent manifest error. If such Lender’s Pro Rata Share of such Borrowing, plus any accrued interest payable by such Lender to Agent thereon, is paid to Agent by such Lender such payment (excluding interest) to Agent shall constitute such Lender’s Advance on the Funding Date for such Borrowing for all purposes of this Agreement. If such amount is not paid to Agent on the Business Day following the Funding Date, Agent will notify Borrowers of such failure to fund and, upon demand by Agent, Borrowers shall pay such amount to Agent for Agent’s account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date.

(h) Making of Agent Loans.

(i) In the event of any requested Borrowing of an Advance in an amount less than or equal to $5,000,000, at the Agent’s election (it being expressly understood that the Agent has no commitment to make such Advance), Agent may make an Advance in the amount of such Borrowing (any such Advance made solely by the Agent pursuant to this Section 2.1(h) being referred to as an “Agent Loan” and such Advances being referred to collectively as “Agent Loans”) available to Borrowers on the Funding Date applicable thereto by transferring same day funds to Borrower Designated Account. Each Agent Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances, except that all payments thereon shall be payable to Agent solely for its own account (and for the account of the holder of any participation interest with respect to such Advance). The Agent shall not make any Agent Loan if the Agent has actual knowledge, that (i) one or more of the applicable conditions precedent set forth in Sections 3.1 or 3.2 will not be satisfied on the requested Funding Date for the applicable Borrowing, or (ii) the requested Borrowing would exceed the Availability on such Funding Date. Agent shall not otherwise be required to determine whether the applicable conditions precedent set forth in Sections 3.1 or 3.2 have been satisfied on the Funding Date applicable thereto prior to making, in its sole discretion, any Agent Loan.

31

(ii) The Agent Loans shall be secured by the Collateral and shall constitute Advances and Secured Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances pursuant to Section 2.8.

(i) Agent Protective Advances.

(i) Agent hereby is authorized by Borrowers and the Lenders, from time to time in Agent’s sole discretion, (1) after the occurrence of a Default or an Event of Default (but without constituting a waiver of such Default or Event of Default), or (2) at any time that any of the other applicable conditions precedent set forth in Section 3.1 or 3.2 have not been satisfied, to make Advances to Borrowers on behalf of the Lenders which Agent, in its Permitted Discretion, deems necessary or desirable (A) to preserve or protect the Collateral, or any portion thereof; (B) to enhance the likelihood of, or maximize the amount of repayment of the Secured Obligations, or (C) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including Lender Group Expenses and the costs, fees, and expenses described in Section 10 (any of the Advances described in this Section 2.1(i) being hereinafter referred to as “Agent Protective Advances”); provided, that Agent shall not make any Agent Protective Advances to Borrowers without the consent of the Required Lenders if the amount thereof would exceed $5,000,000 in the aggregate at any one time.

(ii) Agent Protective Advances shall be repayable on demand and secured by the Collateral, shall constitute Advances and Secured Obligations hereunder, and shall bear interest at the rate applicable from time to time to Advances pursuant to Section 2.8.

(j) Settlement. It is agreed that each Lender’s funded portion of the Advances is intended by the Lenders to be equal at all times to such Lender’s Pro Rata Share of the outstanding Advances. Such agreement notwithstanding, the Agent and the Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrowers) that in order to facilitate the administration of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Agent Loans, and the Agent Protective Advances shall take place on a periodic basis in accordance with the following provisions:

(i) The Agent shall request settlement (“Settlement”) with the Lenders on a weekly basis, or on a more frequent basis if so determined by the Agent, (1) for itself, with respect to each Agent Loan and Agent Protective Advance, and (2) with respect to Collections received, as to each by notifying the Lenders by telephone and promptly followed by telecopy, or other similar form of transmission, of such requested Settlement, no later than 10:00 a.m. (California time) on the Business Day immediately preceding the date of such requested Settlement (the “Settlement Date”). Such notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Agent Loans, and Agent Protective Advances for the period since the prior Settlement Date, the amount of repayments received in such period, and the amounts

32

allocated to each Lender of the principal, interest, fees, and other charges for such period. Subject to the terms and conditions contained herein (including Section 2.1(j)(ii)): (y) if a Lender’s balance of the Advances, Agent Loans, and Agent Protective Advances exceeds such Lender’s Pro Rata Share of the Advances, Agent Loans, and Agent Protective Advances as of a Settlement Date, then Agent shall by no later than 10:00 a.m. (California time) on the Settlement Date transfer in same day funds to the account of such Lender as Lender may designate, an amount such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Agent Loans, and Agent Protective Advances; and (z) if a Lender’s balance of the Advances, Agent Loans, and Agent Protective Advances is less than such Lender’s Pro Rata Share of the Advances, Agent Loans, and Agent Protective Advances as of a Settlement Date, such Lender shall no later than 10:00 a.m. (California time) on the Settlement Date transfer in same day funds to such account of the Agent as the Agent may designate, an amount such that each such Lender shall, upon transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Agent Loans, and Agent Protective Advances. Such amounts made available to the Agent under clause (z) of the immediately preceding sentence shall be applied against the amounts of the applicable Agent Loan or Agent Protective Advance and, together with the portion of such Agent Loan or Agent Protective Advance representing WFRF’s Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to the Agent by any Lender on the Settlement Date applicable thereto to the extent required by the terms hereof, the Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lenders Rate.

(ii) In determining whether a Lender’s balance of the Advances, Agent Loans, and Agent Protective Advances is less than, equal to, or greater than such Lender’s Pro Rata Share of the Advances, Agent Loans, and Agent Protective Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received by Agent with respect to principal, interest, fees payable by Borrower and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any such Lender after such application, such net amount shall be distributed by Agent to that Lender as part of such Settlement.

(iii) Between Settlement Dates, the Agent, to the extent no Agent Protective Advances or Agent Loans are outstanding, may pay over to WFRF any payments received by the Agent, which in accordance with the terms of the Agreement would be applied to the reduction of the Advances, for application to WFRF’s Pro Rata Share of the Advances. If, as of any Settlement Date, Collections received since the then immediately preceding Settlement Date have been applied to WFRF’s Pro Rata Share of the Advances other than to Agent Loans or Agent Protective Advances, as provided for in the previous sentence, WFRF shall pay to the Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, the Agent with respect to Agent Loans and Agent Protective Advances,

33

and each Lender with respect to the Advances other than Agent Loans and Agent Protective Advances, shall be entitled to interest at the applicable rate or rates payable under this Agreement on the daily amount of funds employed by the Agent or the Lenders, as applicable.

(k) Notation. The Agent shall record on its books the principal amount of the Advances owing to each Lender, including the Agent Loans and Agent Protective Advances owing to the Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such Lender’s option, to note the date and amount of each payment or prepayment of principal of such Lender’s Advances in its books and records, including computer records, such books and records constituting rebuttably presumptive evidence, absent manifest error, of the accuracy of the information contained therein.

(l) Lenders’ Failure to Perform. All Advances (other than Agent Loans and Agent Protective Advances) shall be made by the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its obligation to make any Advances hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any Advances hereunder, and (ii) no failure by any Lender to perform its obligation to make any Advances hereunder shall excuse any other Lender from its obligation to make any Advances hereunder.

(m) Effect of Bankruptcy. If a case is commenced by or against any Borrower under the Bankruptcy Code, or other statute providing for debtor relief, prior to the payment in full of the Obligations and the termination of the Commitments, or if any of the Agent or any Affiliate shall seek to provide a Borrower with, or consent to a third party’s providing , any financing under Section 364 of the Bankruptcy Code or consent to any order for the use of cash collateral, constituting Collateral under Section 363 of the Bankruptcy Code, or any similar provision of any state or foreign insolvency law (each, a “DIP Financing”), with such DIP Financing to be secured by all or any portion of Collateral (including assets that, but for the application of Section 552 of the Bankruptcy Code would be Collateral), then each of the Lenders agrees that it will not raise any objection and will not support any objection to such DIP Financing or use of cash collateral or to the Liens securing the same on any basis and not offer its support of any alternative debtor-in-possession financing which seeks to prime or be pari passu with the Secured Obligations.

2.2. Defaulting Lender.

(a) If a Lender becomes a Defaulting Lender, then, in addition to the rights and remedies that may be available to the other Lenders, Agent, the Borrowers or any other party at law or in equity, and not in limitation thereof, (i) such Defaulting Lender’s right to participate in the administration of, or decision-making rights related to, the Obligations in respect of Required Lender votes, this Agreement or the other Loan Documents shall be suspended for so long as such Lender remains a Defaulting Lender, (ii) such Defaulting Lender (on its own behalf and on behalf of any of its Affiliates that is a Bank Product Provider) shall be deemed to have permanently (unless reinstated as set forth below) assigned, without further consideration, any and all payments due to it from the Borrowers, whether on account of

34

outstanding Advances, interest, fees or otherwise, to the remaining non-Defaulting Lenders for application to, and reduction of, their proportionate shares of all outstanding Obligations until, as a result of application of such assigned payments the Lenders’ respective Pro Rata Shares of all outstanding Obligations shall have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency, and (iii) at the option of the Agent, any amount payable to such Defaulting Lender (or to any Affiliate of such Defaulting Lender which is a Bank Product Provider) hereunder (whether on account of principal, interest, fees, Bank Products or otherwise) shall, in lieu of being distributed to such Defaulting Lender (or its Affiliate), be retained by the Agent as cash collateral for, and applied by the Agent to, defaulted and future funding obligations of the Defaulting Lender in respect of any Advance or existing or future participating interest in any Letter of Credit. The Defaulting Lender’s (and its Affiliates) decision-making and participation rights and rights to payments as set forth in clauses (i), (ii) and (iii) hereinabove shall be restored only upon (a) the payment by the Defaulting Lender of its Pro Rata Share of any Obligations, any participation obligation, or expenses as to which it is delinquent, together with interest thereon at a rate equal to the Base Rate from time to time in effect from the date when originally due until the date upon which any such amounts are actually paid and (b) receipt by the Agent and the Borrowers of a certification by such Defaulting Lender of its ability and intent to comply with the provisions of this Agreement going forward. The operation of this section shall not be construed to increase or otherwise affect the Commitment of any non-Defaulting Lender, or relieve or excuse the performance by Borrowers of their duties and obligations hereunder.

(b) The Agent shall also have the right, but not the obligation, in its Permitted Discretion, to cause the assignment to a non-Defaulting Lender or Lenders or an Eligible Transferee, in accordance with the terms and conditions of Section 15.1, hereof, without any further action by the Defaulting Lender for no cash consideration, of the Defaulting Lender’s Commitment to fund future Advances and participate in Letters of Credit. Upon any such assignment of the Commitment of any Defaulting Lender, the Defaulting Lender’s share in future Advances, Letters of Credit, and any fees payable to the Lenders and its other rights under the Loan Documents with respect thereto (but not with respect to then outstanding Obligations owed to the Defaulting Lender) shall terminate on the date of such assignment, and the Defaulting Lender shall promptly execute all documents reasonably requested to surrender and transfer such interest, including, if so requested, an Assignment and Acceptance.

(c) In addition to the rights of the non-Defaulting Lenders set forth in Section 2.2(b) above, each Borrower shall have the right, at any time, upon at least five Business Days’ notice to a Defaulting Lender (with a copy to the Agent), to terminate in whole such Lender’s Commitments and to replace such Defaulting Lender in accordance with the provisions of Section 19.10 hereof.

(d) Each Defaulting Lender shall indemnify the Agent and each non-Defaulting Lender (and their respective Affiliates and their employees, agents, consultants, advisors, and attorneys) from and against any and all loss, damage or expenses, including but not limited to reasonable attorneys’ fees and funds advanced by the Agent or by any non-Defaulting Lender, on account of a Defaulting Lender’s failure to timely fund its Pro Rata Share of an Advance, participate in Letters of Credit, or to otherwise perform its obligations under the Loan Documents.

35

2.3. Letters of Credit.

(a) The Letter of Credit Commitment.

(i) Subject to the terms and conditions set forth herein, (A) the Agent, in reliance upon the agreements of the Lenders set forth in this Section 2.2 shall endeavor to cause the Issuing Bank from time to time on any Business Day during the period from the Restatement Date until the Letter of Credit Expiration Date, to issue letters of credit for the account of the Borrowers (each, an “L/C”) or to undertake to purchase participations or execute indemnities or reimbursement obligations (each such undertaking, an “L/C Undertaking”) with respect to letters of credit issued by an Underlying Issuer (as of the Restatement Date, the prospective Underlying Issuer is Wells Fargo) for the account of Borrowers, and to amend or extend Letters of Credit previously issued by the Issuing Bank, in accordance with Section 2.3(b) below and (B) the Lenders severally agree to participate in Letters of Credit issued for the account of the Borrowers and any drawings thereunder; provided that (w) after giving effect to the issuance of any requested Letter of Credit, Revolving Facility Usage shall not exceed the Maximum Commitment, (x) such Letter of Credit shall not be issued in an amount which would exceed Availability as in effect immediately prior to its issuance, (y) any Lender’s Pro Rata Share shall not exceed such Lender’s Commitment, (y) L/C Usage shall not exceed the L/C Sublimit, and (z) the expiry date of the proposed Letter of Credit is no later than thirty (30) days prior to the Maturity Date (the “Letter of Credit Expiration Date”). Each request by the Borrowers for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrowers that the issuance or amendment so requested complies with the conditions set forth in the proviso to the preceding sentence and with the succeeding clauses “ii” and “iii”. Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii) Without limitation of the foregoing clause “i” no Letter of Credit shall be issued, if:

(A) with respect to any Standby L/C, subject to Section 2.3(b)(iii), the expiry date of such requested Standby L/C would occur more than twelve months after the date of issuance or last extension, unless the Required Lenders have approved such expiry date; or

(B) with respect to Documentary Letters of Credit, subject to Section 2.3(b)(iii), the expiry date of such requested Documentary Letter of Credit would occur more than 180 days after the date of issuance or last extension, unless the Required Lenders have approved such expiry date.

36

(iii) Without limitation of the foregoing clauses “i” and “ii”, no Letter of Credit shall be issued without the prior consent of the Agent and Issuing Bank if:

(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any Applicable Law or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Restatement Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Restatement Date and which the Issuing Bank in good faith deems material to it;

(B) the issuance of such Letter of Credit would violate one or more policies of the Issuing Bank applicable to letters of credit generally;

(C) such Letter of Credit is to be denominated in a currency other than Dollars; provided that if the Issuing Bank, in its discretion and with the consent of the Agent, issues a Letter of Credit denominated in a currency other than Dollars, all reimbursements by the Borrowers of the honoring of any drawing under such Letter of Credit shall be paid in Dollars.

(D) any Lender is at such time a Deteriorating Lender hereunder, unless the Agent or the Issuing Bank has entered into satisfactory arrangements with the Borrower or such Deteriorating Lender to eliminate the Issuing Bank’s risk with respect to such Lender.

(iv) The Issuing Bank shall not amend any Letter of Credit if the Issuing Bank would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof or if the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(v) The Issuing Bank shall act on behalf of the Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the Issuing Bank shall have all of the benefits and immunities (A) provided to the Agent in Article 17 with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Agent” as used in Article 17 included the Issuing Bank with respect to such acts or omissions, and (B) as additionally provided herein with respect to the Issuing Bank.

37

(b) Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(i) Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrowers delivered to the Agent in the form of a Letter of Credit application in form and substance satisfactory to the Issuing Bank in its Permitted Discretion (the “Letter of Credit Application”), appropriately completed and signed by an Authorized Person. Any Letter of Credit Application or other document delivered hereunder that is signed by an Authorized Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action and such Authorized Person shall be conclusively presumed to have acted on behalf of the Borrowers. Such Letter of Credit Application must be received by the Agent not later than 11:00 a.m., California time, at least two Business Days (or such other date and time as the Agent may agree in a particular instance in its sole discretion) prior to the proposed issuance date or date of amendment, as the case may be. In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Agent and Issuing Bank in their Permitted Discretion: (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the name and address of the beneficiary thereof; (E) the documents to be presented by such beneficiary in case of any drawing thereunder; (F) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (G) such other matters as the Agent or Issuing Bank may reasonably require. In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the Agent and Issuing Bank in their Permitted Discretion: (A) the Letter of Credit to be amended; (B) the proposed date of amendment thereof (which shall be a Business Day); (C) the nature of the proposed amendment; and (D) such other matters as the Agent and Issuing Bank may require in their Permitted Discretion. Additionally, the Borrowers shall furnish to the Issuing Bank and the Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the Issuing Bank or the Agent may reasonably require.

(ii) Immediately upon the issuance or amendment of each Letter of Credit, each Lender shall be deemed to (without any further action), and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank, without recourse or warranty, a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Pro Rata Share times the amount of such Letter of Credit. Upon any change in the Commitments under this Agreement, it is hereby agreed that with respect to all L/C Usage, there shall be an automatic adjustment to the participations hereby created to reflect the new Pro Rata Shares of the assigning and assignee Lenders.

38

(iii) If the Borrowers so request in any applicable Letter of Credit Application, the Issuing Bank may, in its Permitted Discretion, issue a Standby Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the Issuing Bank to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Standby Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Standby Letter of Credit is issued. Unless otherwise directed by the Agent or Issuing Bank, the Borrowers shall not be required to make a specific request to the Agent or Issuing Bank for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the Issuing Bank to permit the extension of such Standby Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the Agent shall instruct the Issuing Bank not to permit any such extension if (A) the Agent has determined that it would not be permitted, or would have no obligation, at such time to cause the issuance of such Standby Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.3(a) or otherwise), or (B) the Issuing Bank has received notice (which may be by telephone or in writing) on or before the day that is thirty days before the Non-Extension Notice Date from the Agent or the Borrowers that one or more of the applicable conditions specified in Section 3.2 is not then satisfied, and directing the Issuing Bank not to permit such extension.

(iv) Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the Issuing Bank will make available to the Borrowers and the Agent a true and complete copy of such Letter of Credit or amendment.

(c) Drawings and Reimbursements; Funding of Participations.

(i) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Agent thereof and the Agent shall notify the Borrowers; provided, however, that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the Issuing Bank and the Lenders with respect to any such payment. Not later than 10:00 a.m. (California time) on the date of any payment made by the Issuing Bank under a Letter of Credit if such notice of a Letter of Credit drawing is received by the Borrowers before 9:00 a.m. (California time) on such date or 10:00 a.m. (California time) on the Business Day immediately following such date if such notice of a Letter of Credit drawing was received after 9:00 a.m. (California time) on such date (each such date, an “Honor Date”), the Borrowers shall reimburse the Issuing Bank through the Agent in an amount equal to the amount of such drawing. If the Borrowers fail to so reimburse the Issuing Bank by such time, the Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Lender’s Pro Rata Share thereof. In such event, the Borrowers shall be deemed to have requested a Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount subject to the amount of the unutilized Commitments and the conditions set forth in Section 3.2. Any notice given by the Issuing Bank or the Agent pursuant to this Section 2.3(c)(i) may be given by telephone or electronic means.

39

(ii) Each Lender shall upon any notice pursuant to Section 2.3(c)(i) make funds available to the Agent for the account of the Issuing Bank in an amount equal to its Pro Rata Share of the Unreimbursed Amount not later than 10:00 a.m., California time, on the Business Day specified in such notice by the Agent, whereupon, subject to the provisions of Section 2.3(c)(iii), each Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount. The Agent shall remit the funds so received to the Issuing Bank.

(iii) With respect to any Unreimbursed Amount that is not fully refinanced by a Borrowing of Base Rate Loans because the conditions set forth in Section 4.2 cannot be satisfied or for any other reason, the Borrowers shall be deemed to have incurred from the Issuing Bank a Borrowing in the amount of the Unreimbursed Amount that is not so refinanced (such Borrowing, an “L/C Borrowing”), which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate. In such event, each Lender’s payment to the Agent for the account of the Issuing Bank pursuant to Section 2.3(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an Advance from such Lender in satisfaction of its participation obligation under this Section 2.2 (each such Advance, an “L/C Advance”).

(iv) Until each Lender funds its Base Rate Loan or L/C Advance pursuant to this Section 2.3(c) to reimburse the Issuing Bank for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Pro Rata Share of such amount shall be solely for the account of the Issuing Bank.

(v) Each Lender’s obligation to make Base Rate Loans or L/C Advances to reimburse the Issuing Bank for amounts drawn under Letters of Credit, as contemplated by this Section 2.3(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Issuing Bank, the Borrowers or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default or Event of Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing. No such making of an L/C Advance shall relieve or otherwise impair the obligation of the Borrowers to reimburse the Issuing Bank for the amount of any payment made by the Issuing Bank under any Letter of Credit, together with interest as provided herein.

(vi) If any Lender fails to make available to the Agent for the account of the Issuing Bank any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.3(c) by the time specified in Section 2.3(c)(ii), the Issuing Bank shall be entitled to recover from such Lender (acting through the Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Issuing Bank at a rate per annum equal to the greater of the Base Rate and a rate

40

determined by the Issuing Bank in accordance with banking industry rules on interbank compensation plus any administrative, processing or similar fees customarily charged by the Issuing Bank in connection with the foregoing. If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Advance included in the relevant Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be. A certificate of the Issuing Bank submitted to any Lender (through the Agent) with respect to any amounts owing under this clause (vi) shall be conclusive absent manifest error.

(d) Repayment of Participations.

(i) At anytime after the Issuing Bank has made a payment under any Letter of Credit and has received from the Agent a Lender’s L/C Advance in respect of such payment in accordance with Section 2.3(c), if the Agent receives for the account of the Issuing Bank any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from the Borrowers or otherwise, including proceeds of Cash Collateral, in form and substance satisfactory to Agent, applied thereto by the Agent), the Agent will distribute to such Lender its Pro Rata Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Agent.

(ii) If any payment received by the Agent for the account of the Issuing Bank pursuant to Section 2.3(c)(i) is required to be returned under any of the circumstances described in Section 19.6 (including pursuant to any settlement entered into by the Issuing Bank in its discretion), each Lender shall pay to the Agent for the account of the Issuing Bank its Pro Rata Share thereof on demand of the Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Base Rate from time to time in effect. The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(e) Obligations Absolute. The obligation of the Borrowers to reimburse the Issuing Bank for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i) any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

(ii) the existence of any claim, counterclaim, setoff, defense or other right that the Borrowers or any Subsidiary may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

41

(iii) any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit, provided that the Issuing Bank has acted commercially reasonably;

(iv) any payment by the Issuing Bank under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit or any payment made by the Issuing Bank under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any Insolvency Proceeding;

(v) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrowers or any of their Subsidiaries; or

(vi) the fact that any Default or Event of Default shall have occurred and be continuing.

Borrowers shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrowers’ instructions or other irregularity, the Borrowers will immediately notify the Agent and the Issuing Bank. The Borrowers shall be conclusively deemed to have waived any such claim against the Issuing Bank and its correspondents unless such notice is given as aforesaid. Borrowers’ delivery of any such notice shall not relieve or waive Borrowers’ reimbursement obligations with respect to any such Letter of Credit in the event of any drawing thereunder.

(f) Role of Issuing Bank. Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. None of the Issuing Bank, the Agent or any of their respective Affiliates, officers, directors, employees, agents, attorneys, and attorneys-in-fact nor any correspondent, participant or assignee of the Issuing Bank shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Required Lenders, as applicable; (ii) any action taken or omitted in the absence of a breach of this Agreement, violation of Applicable Law, gross negligence or willful misconduct; (iii) any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit or any error in interpretation of technical terms; or (iv) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document. The Borrowers hereby assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit and the proceeds

42

thereof; provided, however, that this assumption is not intended to, and shall not, preclude the Borrowers’ pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. None of the Issuing Bank, the Agent, any of their respective officers, directors, employees, agents, attorneys, and attorneys-in-fact nor any correspondent, participant or assignee of the Issuing Bank shall be liable or responsible for any of the matters described in clauses (i) through (vi) of Section 2.3(e); provided, however, that anything in such clauses to the contrary notwithstanding, the Borrowers may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Borrowers, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Borrowers which the Borrowers prove were caused by the Issuing Bank’s breach of this Agreement, violation of Applicable Law, willful misconduct or gross negligence or the Issuing Bank’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary (or the Issuing Bank may refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit), and the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(g) Underlying L/Cs.

(i) Borrowers agree to be bound by the Underlying Issuer’s regulations and interpretations of any Underlying Letter of Credit. Borrowers understand that the L/C Undertakings may require Issuing Bank to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by Borrowers against such Underlying Issuer. Borrowers hereby agree to indemnify, save, defend, and hold the Issuing Bank harmless with respect to any loss, cost, expense (including reasonable attorneys’ fees), or liability incurred by the Issuing Bank under any L/C Undertaking as a result of the Issuing Bank’s indemnification of any Underlying Issuer; provided, however, that Borrowers shall not be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the gross negligence or willful misconduct of the Issuing Bank.

(ii) Borrowers hereby authorize and direct any Underlying Issuer to deliver to the Issuing Bank all instruments, documents, and other writings and property received by such Underlying Issuer pursuant to such Underlying Letter of Credit and to accept and rely upon the Issuing Bank’s instructions with respect to all matters arising in connection with such Underlying Letter of Credit and the related application.

(iii) Any and all charges, commissions, fees, and costs incurred by the Issuing Bank relating to Underlying Letters of Credit shall be Lender Group Expenses for purposes of this Agreement and immediately shall be reimbursable by Borrowers to Agent for the account of the Issuing Bank; it being acknowledged and agreed that the Underlying Issuer may impose charges for amendments, extensions, drawings, and renewals.

43

(h) Increased Cost.

If by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any Governmental Authority, or (ii) compliance by the Underlying Issuer, Issuing Bank, or the Agent with any direction, request, or requirement (irrespective of whether having the force of law) of any Governmental Authority or monetary authority including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect (and any successor thereto):

(A) any reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letter of Credit issued hereunder, or

(B) there shall be imposed on the Underlying Issuer, Issuing Bank or the Agent any other condition regarding any Underlying Letter of Credit or any Letter of Credit issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the cost to the Underlying Issuer, Issuing Bank, Agent or Lenders of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce the amount receivable in respect thereof by the Underlying Issuer, Issuing Bank, Agent or Lenders, then, and in any such case, Agent may, at any time within a reasonable period after the additional cost is incurred or the amount received is reduced, notify Borrowers, and Borrowers shall pay on demand such amounts as Agent may specify to be necessary to compensate for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Base Rate Loans hereunder. The determination by Underlying Issuer, Issuing Bank, Agent or any Lender, as the case may be, of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto.

(i) Cash Collateral. Upon the request of the Agent, (i) if the Issuing Bank has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash Collateralize the then extant L/C Usage. For purposes of this Section 2.2 “Cash Collateralize” means to pledge and deposit with or deliver to the Agent, for the benefit of the Issuing Bank and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances in an amount equal to 105% of the then extant L/C Usage, pursuant to documentation in form and substance satisfactory to the Agent and the Issuing Bank in their Permitted Discretion (which documents are hereby consented to by the Lenders). The Borrowers hereby grant to the Agent a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing. Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Wells Fargo or an account maintained by the Agent subject to a Restricted Account Agreement. If at any time the Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Agent or that the total amount of such funds is less than the aggregate L/C Usage, the Borrowers will, forthwith upon demand by

44

the Agent, pay to the Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate outstanding amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under Applicable Law, to reimburse the Issuing Bank and, to the extent not so applied, shall thereafter be applied to satisfy other Secured Obligations.

(j) Documentary and Processing Charges Payable to Issuing Bank. The Borrowers shall pay to the Agent on behalf of the Issuing Bank for the Issuing Bank’s own account the customary presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. It is acknowledged and agreed by Borrowers that such fees and charges may be changed from time to time. Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(k) Consignment of Bill of Lading. The Borrowers shall upon the request of the Agent consign to the Agent, or the Issuing Bank any bill of lading which Inventory which is supported by a Documentary Letter of Credit issued by the Issuing Bank.

(l) Conflict with Issuer Documents. In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

(m) The Borrowers hereby agree to indemnify, save, defend, and hold Agent, Issuing Bank and each Lender harmless from any loss, cost, expense, or liability, and reasonable attorneys fees incurred by Agent, Issuing Bank or any Lender arising out of or in connection with any Letter of Credit including any such loss or claim due to any action taken by any Issuing Bank; provided, however, that Borrowers shall not be obligated hereunder to indemnify the Agent, Issuing Bank or any Lender for any loss, cost, expense, or liability that is caused by the bad faith, gross negligence or willful misconduct of such Person. The Borrowers further agree to hold Agent and each Lender harmless from any errors or omission, negligence or misconduct by the Issuing Bank. The Borrowers agree to be bound by the Agent’s, Issuing Bank’s or Underlying Issuer’s regulations and interpretations of any Letter of Credit, even though this interpretation may be different from Borrowers’ own, and the Borrowers understand and agree that none of the Agent, the Lenders, or any Issuing Bank shall be liable for any error, negligence, or mistake, whether of omission or commission, in following the Borrowers’ instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto other than those caused by its own bad faith, gross negligence or willful misconduct. The Borrowers understand that L/C Undertakings may require Lenders to indemnify the Underlying Issuer for certain costs or liabilities arising out of claims by the Borrowers against such Underlying Issuer. The Borrowers hereby agree, severally each as to 100%, to indemnify, save, defend, and hold each Lender harmless with respect to any loss, cost, expense (including reasonable attorneys’ fees), or liability incurred by Lenders under any L/C Undertaking as a result of Lender’s indemnification of any Underlying Issuer; provided, however, that no Borrower shall be obligated hereunder to indemnify for any loss, cost, expense, or liability that is caused by the bad faith, gross negligence or willful misconduct of such Lender.

45

(n) On the Restatement Date, (i) Existing Letters of Credit shall be deemed to be Letters of Credit issued pursuant to and in compliance with this Agreement, (iii) the face amount of such Existing Letters of Credit shall be included in the calculation of the Availability, (iv) the provisions of this Agreement shall apply thereto, and the Borrowers and the Lenders hereunder hereby expressly assume all obligations with respect to such Letters of Credit that they would have if such Letters of Credit had been issued pursuant to this Agreement and (v) all liabilities of any Borrower with respect to such Existing Letters of Credit shall constitute obligations of the Borrower hereunder.

2.4. Intentionally Omitted.

2.5. Intentionally Omitted.

2.6. Payments.

(a) Payments by Borrowers.

(i) All payments to be made by Borrowers shall be made without set-off, recoupment, deduction, or counterclaim, except as otherwise required by law. Except as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent for the account of the Lenders, Issuing Bank or Agent, as the case may be, and shall be made in immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any payment received by Agent later than 11:00 am. (California time), at the option of Agent, shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day.

(ii) Whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

(iii) Unless Agent receives notice from Borrowers prior to the date on which any payment is due to the Lenders or Issuing Bank that Borrowers will not make such payment in full as and when required, Agent may assume that Borrowers have made such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Lender or Issuing Bank on such due date an amount equal to the amount then due such Lender or Issuing Bank. If and to the extent Borrowers have not made such payment in full to Agent, each Lender or Issuing Bank shall repay to Agent on demand such amount distributed to such Lender or Issuing Bank, together with interest thereon at the Base Rate for each day from the date such amount is distributed to such Lender or Issuing Bank until the date repaid.

(b) Apportionment and Application of Payments. Except as otherwise provided with respect to Defaulting Lenders, aggregate principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Advances to which such payments relate held by each Lender) and payments of the fees (other

46

than fees designated for Agent’s or Issuing Bank’s separate account) shall, as applicable, be apportioned ratably among the Lenders. All payments shall be remitted to Agent and all such payments not relating to principal or interest on specific Advances, or not constituting payment of specific fees and all proceeds of Collateral received by Agent, shall be applied, first, to pay any fees or expense reimbursements then due to Agent from Borrowers; second, to pay any fees or expense reimbursements then due to the Lenders and Issuing Bank from Borrowers; third, to pay interest due in respect of all Advances, including Agent Loans and Agent Protective Advances; fourth, to pay or prepay principal of Agent Loans and Agent Protective Advances; fifth, ratably to pay principal of the Advances (other than Agent Loans and Agent Protective Advances) and unreimbursed obligations in respect of Letters of Credit (and, if such payment occurs after the acceleration of the Obligations due to an Event of Default, to Cash Collateralize all outstanding Letters of Credit up to an amount equal to 105% of the aggregate extant value of all such Letters of Credit); and sixth, ratably to pay any other Secured Obligations due to Agent, any Lender or any Bank Product Providers by Borrowers. Agent shall promptly distribute to each Lender (for Lender’s own account and for the account of any Affiliate of such Lender which is a Bank Product Provider) and Issuing Bank, pursuant to the applicable wire transfer instructions received from each Lender in writing, such funds as it (or any of its Affiliates which is a Bank Product Provider) may be entitled to receive, subject to a Settlement delay as provided for in Section 2.1(j).

2.7. Overadvances. If, at any time or for any reason, the Revolving Credit Usage is greater than Maximum Commitment as then in effect, Borrowers immediately shall pay to Agent, in cash, the amount of such excess to be used by Agent to reduce the Obligations pursuant to the terms of Section 2.6(b).

2.8. Interest and Letter of Credit Fees: Rates, Payments, and Calculations.

(a) Interest Rate. Except as provided in Section 2.8(c), all Obligations (except for undrawn Letters of Credit) shall bear interest on the Daily Balance thereof as follows: (i) if the relevant Obligation is an Eurodollar Rate Loan, at a per annum rate equal to the Adjusted Eurodollar Rate plus the Applicable Margin for Eurodollar Rate Loans and (ii) if the relevant Obligation is an Base Rate Loan, at a per annum rate equal to the Base Rate plus the Applicable Margin for Base Rate Loans, and (iii) all other Obligations (except Letters of Credit) at a per annum rate equal to the Base Rate plus the Applicable Margin for Base Rate Loans.

(b) Letter of Credit Fee. As to each outstanding Letter of Credit, Borrowers shall pay Agent, for the benefit of the Lender Group, an L/C Fee (in addition to the charges, commissions, fees, and costs set forth in Section 2.3(g)) which shall accrue at a rate equal to the aggregate L/C Fees applicable to such Letters of Credit times the Daily Balance of the undrawn amount of all outstanding Letters of Credit.

(c) Default Rate. Upon the occurrence and during the continuation of an Event of Default,

(i) all Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof at a per annum rate equal to two percentage points above the sum of the Base Rate plus the Applicable Margin, and

47

(ii) the L/C Fees provided in Section 2.8(b) shall be increased to a per annum rate equal to two percentage points above the L/C Fee otherwise payable hereunder.

The interest rates and L/C Fees set forth in these subsections (i) and (ii) of this Section 2.8(c) shall be collectively referred to as the “Default Rate”.

(d) Intentionally Omitted.

(e) Payments. Interest in respect of Base Rate Loans and Letter of Credit fees payable hereunder shall be due and payable, in arrears, on the first day of each month during the term hereof. Interest in respect of each Eurodollar Rate Loan shall be due and payable, in arrears, on the last day of the applicable Interest Period or, if an Event of Default has occurred and is continuing, on the first day of each month during the Interest Period. Each Borrower hereby authorizes Agent, at its option, without prior notice to such Borrower, to charge such interest and Letter of Credit fees, all Lender Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.3(e) (as and when accrued or incurred), the fees and charges provided for in Section 2.13 (as and when accrued or incurred), and all installments or other payments due under any Loan Document to the applicable Borrowers’ Loan Account, which amounts thereafter shall constitute Advances hereunder and shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be compounded and shall thereafter constitute Advances hereunder and shall thereafter accrue interest at the rate then applicable to Advances hereunder.

(f) Computation. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a 360 day year for the actual number of days elapsed.

(g) Intent to Limit Charges to Maximum Lawful Rate. In no event shall the interest rate or rates payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any law that a court of competent jurisdiction shall, in a final determination, deem applicable. Borrowers and the Lender Group, in executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto, as of the date of this Agreement, Borrowers are and shall be liable only for the payment of such maximum as allowed by law, and payment received from Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the principal balance of the Obligations to the extent of such excess or held as Cash Collateral for the Secured Obligations in Agent’s Permitted Discretion.

48

2.9. Cash Management; Collection of Accounts.

(a) Borrowers shall (i) establish and maintain cash management services of a type and on terms reasonably satisfactory to Agent at one or more of the banks set forth on Schedule 2.9 (each a “Cash Management Bank”), and (ii) at all times maintain a Restricted Account. Immediately after the Restatement Date, Borrowers shall deposit all Collections in respect thereof to such Restricted Account or into one of the DDAs set forth on Schedule 2.9 (a “Cash Management Account”) subject to the requirements of this Section 2.9. Borrowers, Agent, and the Restricted Account Bank shall enter into the Restricted Account Agreement, in form and substance satisfactory to Agent in its Permitted Discretion, which among other things shall provide for the opening of the Restricted Account for the deposit of Collections at the Restricted Account Bank. Each Borrower agrees that all Collections and other amounts received by such Borrower from any Account Debtor or any other source immediately upon receipt shall be deposited (i) into the Restricted Account or (ii) into a Cash Management Account. Each Cash Management Bank shall be directed by the Borrowers via irrevocable written notice in form and substance satisfactory to the Agent in its Permitted Discretion to remit all such Collections and such other amounts no less frequently than once each day to, and only to, the Restricted Account. The Restricted Account Agreement and arrangement contemplated thereby shall not be modified by a Borrower without the prior written consent of Agent. Upon the terms and subject to the conditions set forth in the Restricted Account Agreement, so long as no Cash Dominion Event has occurred and is continuing, Borrowers shall have the right to have the entire collected balance in the Restricted Account transferred, on a daily basis, to the Operating Account (as defined in the Restricted Account Agreement), and upon the occurrence and during the continuation of Cash Dominion Event and direction by Agent to the Restricted Account Bank, amounts on deposit in the Restricted Account may be retained therein or transferred, all at the direction of the Agent, or, the Restricted Account may be transferred, at the direction of the Agent, into the name of Agent and all amounts received in the Restricted Account wired each Business Day into an account (the “Agent’s Account”) maintained by Agent at a depositary selected by Agent.

(b) Upon the occurrence and during the continuation of any Cash Dominion Event, Borrowers hereby authorize Agent to, without further notice to or consent from Borrowers, date the Credit Card Notifications and DDA notifications delivered to Agent by Borrowers pursuant to Section 6.25 hereof and deliver such Credit Card Notifications and DDA notifications to the applicable Credit Card Processors and DDA institutions. Borrowers shall not attempt to change any direction or designation set forth in any Credit Card Notification or DDA notification regarding payment of charges or funds on deposit without the prior written consent of Agent. As a condition to the termination of any Cash Dominion Period, Borrowers shall deliver replacement original executed and undated Credit Card Notifications and DDA notifications to Agent, to be used by the Agent pursuant to the first sentence of this Section 2.9(b) in the event a subsequent Cash Dominion Event occurs. Borrowers further agree to deliver such replacement Credit Card Notifications and DDA notifications to Agent in the event that the Agent notifies the Borrowers that any such notifications are lost, mutilated, or destroyed.

2.10. Crediting Payments; Application of Collections. The receipt of any Collections by Agent immediately shall be applied provisionally to reduce the Obligations outstanding under Section 2.1, but shall not be considered a payment on account unless such Collection item is a wire transfer of immediately available federal funds and is made to the Agent’s Account or unless and until such Collection item is honored when presented for payment. Should any Collection item not be honored when presented for payment, then Borrowers shall be deemed not to have made such payment,

49

and interest shall be recalculated accordingly. Anything to the contrary contained herein notwithstanding, any Collection item shall be deemed received by Agent only if it is received into the Agent’s Account on a Business Day on or before 11:00 a.m. California time. If any Collection item is received into the Agent’s Account on a non-Business Day or after 11:00 a.m. California time on a Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day.

2.11. Designated Account. Agent and the Lender Group are authorized to make the Advances and to issue the Letters of Credit under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to Section 2.8(e). Borrowers agree to establish and maintain a single Designated Account with the Designated Account Bank (which at all times shall be Restricted Account) for the purpose of receiving the proceeds of the Advances requested by Borrowers and made by the Lender Group hereunder. Unless otherwise agreed by Agent and Borrowers, any Advance requested by Borrowers and made by the Lender Group hereunder shall be made to the Designated Account.

2.12. Maintenance of Loan Account; Statements of Obligations. At the request of Borrowers, to facilitate and expedite the administration and accounting processes and procedures of their borrowings under this Agreement, Agent shall maintain a single account on its books in the names of Borrowers (the “Loan Account”) on which Borrowers will be charged with all Advances made by the Lender Group to Borrowers or for Borrowers’ account, including, accrued interest, Lender Group Expenses, and any other payment Obligations of Borrowers. In accordance with Section 2.10, the Loan Account will be credited with all payments received by Agent from any Borrowers or for any Borrowers’ account. Agent shall render one statement regarding the Loan Account to Poolmart on behalf of Borrowers, including principal, interest, fees, and including an itemization of all charges and expenses constituting the Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrowers and the Lender Group unless, within 30 days after receipt thereof by Borrowers, Borrowers shall deliver to Agent written objection thereto describing the error or errors contained in any such statements. Each Borrower hereby expressly agrees and acknowledges that Agent shall have no obligation to account separately to such Borrower.

2.13. Fees. Borrowers shall pay to Agent the following fees and charges, which fees and charges shall be non-refundable when paid (irrespective of whether this Agreement is terminated thereafter):

(a) Fee Letter. As and when due and payable under the terms of the Agent’s Fee Letter, Borrowers shall pay to Agent the fees set forth in the Agent’s Fee Letter.

(b) Unused Line Fee. On the first day of each calendar quarter during the term of this Agreement during which: (i) Average Quarterly Availability for the immediately preceding calendar quarter (or portion thereof during which this Agreement was in effect) was less than fifty percent (50%), an unused line fee in an amount equal to 0.50% per annum

50

multiplied by the Average Quarterly Availability during such quarter, and (ii) Average Quarterly Availability for the immediately preceding calendar quarter (or portion thereof during which this Agreement was in effect) was equal to or greater than fifty percent (50%), an unused line fee in an amount equal to seventy-five percent (0.75%) per annum multiplied by the Average Quarterly Availability during such quarter.

(c) Financial Examination and Appraisal Fees. For the separate account of Agent, Borrowers shall, to the extent provided in Section 4.7 hereof, pay all reasonable audit fees plus out-of-pocket expenses, for each audit of the Collateral performed by or at the request of Agent (excluding, in any event, the cost of appraisal of Inventory), or the actual reasonable charges paid or incurred by Agent if it elects to employ the services of one or more third Persons to perform financial audits of Borrowers (excluding, in any event, the cost of appraisal of Inventory).

2.14. Eurodollar Rate Loans. Any other provisions herein to the contrary notwithstanding, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered:

(a) Borrowing; Conversion; Continuation. Borrowers may from time to time, on or after the Restatement Date (and subject to the satisfaction of the requirements of Sections 3.1 and 3.2), request in a written or telephonic communication with Agent: (i) Advances made up of Eurodollar Rate Loans; (ii) that Base Rate Loans be converted into Eurodollar Rate Loans; or (iii) that existing Eurodollar Rate Loans continue for an additional Interest Period. Any such request shall specify the aggregate amount of the requested Eurodollar Rate Loans, the proposed Funding Date therefor (which shall be a Business Day, and with respect to continued Eurodollar Rate Loans shall be the last day of the Interest Period of the existing Eurodollar Rate Loans being continued), and the proposed Interest Period (in each case subject to the limitations set forth below). Eurodollar Rate Loans may only be made, continued, or extended if, as of the proposed Funding Date therefor, each of the following conditions is satisfied:

(i) no Event of Default exists;

(ii) no more than five Interest Periods would be in effect at any one time;

(iii) the amount of each Eurodollar Rate Loan borrowed, converted, or continued must be in an amount not less than $500,000 and integral multiples of $100,000 in excess thereof;

(iv) Agent shall have determined that the Interest Period or Adjusted Eurodollar Rate is available to it and can be readily determined as of the date of the request for such Eurodollar Rate Loan by Borrowers; and

(v) Agent shall have received such request at least two Business Days prior to the proposed Funding Date therefor.

Any request by Borrowers to borrow Eurodollar Rate Loans, to convert Base Rate Loans to Eurodollar Rate Loans, or to continue any existing Eurodollar Rate Loans shall be irrevocable, except to the extent that the Agent shall determine under Section 2.14(a), or as to any Lender that determines under Section 2.15, that such Eurodollar Rate Loans cannot be made or continued.

51

(b) Determination of Interest Period. By giving notice as set forth in Section 2.14(a), Borrowers shall select an Interest Period for such Eurodollar Rate Loan. The determination of the Interest Period shall be subject to the following provisions:

(i) in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires;

(ii) if any Interest Period would otherwise expire on a day which is not a Business Day, the Interest Period shall be extended to expire on the next succeeding Business Day; provided, however, that if the next succeeding Business Day occurs in the following calendar month, then such Interest Period shall expire on the immediately preceding Business Day;

(iii) if any Interest Period begins on the last Business Day of a month, or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period, then the Interest Period shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(iv) Borrowers may not select an Interest Period which expires later than the Maturity Date.

(c) Automatic Conversion. Any Eurodollar Rate Loan shall automatically convert to a Base Rate Loan upon the last day of the applicable interest Period, unless Agent has received a request to continue such Eurodollar Rate Loan at least two Business Days prior to the end of such Interest Period in accordance with the terms of Section 2.14(a).

2.15. Illegality. Any other provision herein to the contrary notwithstanding, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by a Governmental Authority made subsequent to the Closing Date shall make it unlawful for any Lender to make or maintain Eurodollar Rate Loans as contemplated by this Agreement, (a) the obligation of such Lender hereunder to make Eurodollar Rate Loans, continue Eurodollar Rate Loans as such, and convert Base Rate Loans to Eurodollar Rate Loans shall forthwith be suspended and (b) such Lender’s then outstanding Eurodollar Rate Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect thereto or within such earlier period as required by law; provided, however, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic, or regulatory manner) to designate a different lending office if the making of such a designation would allow such Lender or its lending office to continue to perform its obligations to make Eurodollar Rate Loans. If any such conversion of a Eurodollar Rate Loan occurs on a day

52

which is not the last day of the then current Interest Period with respect thereto, Borrowers shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.17. If circumstances subsequently change so that such Lender shall determine that it is no longer so affected, such Lender will promptly notify Agent and Borrowers, and upon receipt of such notice, the obligations of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans into Eurodollar Rate Loans shall be reinstated.

2.16. Requirements of Law.

(a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof by a Governmental Authority made subsequent to the Closing Date or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the Closing Date;

(i) shall subject such Lender to any tax, levy, charge, fee, reduction, or withholding of any kind whatsoever with respect to Eurodollar Rate Loans, or change the basis of taxation of payments to such Lender in respect thereof (except for (x) the establishment of a tax based on the net income of such Lender or changes in the rate of tax on the net income of such Lender and (y) United States withholding taxes in respect of payments made to any Lender that is organized under the law of any jurisdiction other than the United States or a political subdivision thereof);

(ii) shall in respect of Eurodollar Rate Loans impose, modify or hold applicable any reserve, special deposit, compulsory loan, or similar requirement against assets held by, deposits or other liabilities in or for the account of, Advances or other extensions of credit by, or any other acquisition of funds by, any office of such Lender; or

(iii) shall impose on such Lender any other condition with respect to Eurodollar Rate Loans;

and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing, or maintaining Eurodollar Rate Loans or to increase the cost to such Lender in respect of Eurodollar Rate Loans, by an amount which such Lender deems to be material, or to reduce any amount receivable hereunder in respect of Eurodollar Rate Loans, or to forego any other sum payable thereunder or make any payment on account thereof in respect of Eurodollar Rate Loans, then, in any such case, if such Lender is demanding payment of additional amounts in respect thereof by borrowers generally that are reasonably similarly situated with the Borrowers, Borrowers shall promptly pay to Agent (for the benefit of such Lender), upon such Lender’s demand, any additional amounts necessary (without duplication of any other amounts paid by Borrowers with respect thereto or reserved by Agent pursuant to the definition of Adjusted Euro-dollar Rate) to compensate such Lender for such increased cost or reduced amount receivable; provided, however, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic, or

53

regulatory manner) to designate a different Eurodollar lending office if the making of such designation would allow such Lender or its Eurodollar lending office to continue to perform its obligations to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans and avoid the need for, or materially reduce the amount of, such increased cost; provided, further, that the Lender shall not be entitled to demand payment of any such amount that is attributable to any period prior to 60 days before such demand is made. If a Lender becomes entitled to claim any additional amounts pursuant to this Section 2.16, such Lender shall promptly notify Agent and Borrowers of the event by reason of which it has become so entitled. A certificate as to any additional amounts payable pursuant to this Section 2.16 submitted in reasonable detail by such Lender to Agent and Borrowers shall be conclusive in the absence of manifest error. Within five Business Days after a Lender notifies Borrowers and Agent of any increased cost pursuant to the foregoing provisions of this Section 2.16, Borrowers may convert all Eurodollar Rate Loans then outstanding into Base Rate Loans in accordance with Section 2.14 and, additionally, reimburse such Lender for any cost in accordance with Section 2.17. This covenant shall survive the termination of this Agreement and the payment of the Advances and all other amounts payable hereunder for nine months following such termination and repayment.

(b) If a Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof by a Governmental Authority made subsequent to the Restatement Date or compliance by such Lender or any Person controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the Restatement Date does or shall have the effect of increasing the amount of capital required to be maintained or reducing the rate of return on such Lender’s or such Person’s capital as a consequence of its obligations hereunder to a level below that which such Lender or such Person could have achieved but for such change or compliance (taking into consideration such Lender’s or such Person’s policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to Agent and Borrowers of a prompt written request therefor accompanied by a certified calculation in reasonable detail, Borrowers shall pay to Agent (for the benefit of such Lender) such additional amount or amounts as will compensate such Lender or such Person for such reduction. This covenant shall survive the termination of this Agreement and the payment of the Advances and all other amounts payable hereunder for nine months following such termination and repayment.

2.17. Indemnity. Borrowers agree to indemnify Agent and each Lender and to hold Agent and Lenders harmless from any loss or expense which Agent or any Lender may sustain or incur as a consequence of (a) default by Borrowers in payment when due of the principal amount of or interest on any Eurodollar Rate Loan, (b) default by Borrowers in making a Borrowing of, conversion into, or continuation of Eurodollar Rate Loans after Borrowers have given a notice requesting the same in accordance with the provisions of this Agreement, (c) default by Borrowers in making any prepayment of a Eurodollar Rate Loan after Borrowers have given a notice thereof in accordance with the provisions of this Agreement, or (d) the making of a prepayment of Eurodollar Rate Loans on a day which is not the last day of an Interest Period with respect thereto (whether due to the termination of this Agreement, upon an Event of Default, or otherwise), including, in each case, any such loss or expense (but excluding loss of margin or anticipated profits)

54

arising from the reemployment of funds obtained by it or from fees payable to terminate the deposits from which such funds were obtained; provided, however, that Agent or any Lender, if requesting indemnification, shall have delivered to the Borrowers a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. Calculation of all amounts payable to any such Lender under this Section 2.17 shall be made as though such Lender had actually funded the relevant Eurodollar Rate Loan through the purchase of a deposit bearing interest at the Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period; provided, however, that each Lender may fund each of the Eurodollar Rate Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this Section 2.17. This covenant shall survive the termination of this Agreement and the payment of the Obligations hereunder.

2.18. Increase in Commitments.

(a) Request for Increase. The Borrowers may make a one time request by written notice to the Agent (which shall promptly notify the Lenders and Issuing Bank) that the Maximum Commitment Amount be increased by an aggregate amount of up to $25,000,000 (the “Requested Increased Commitment Amount”). At the time of sending such notice, the Borrowers (in consultation with the Agent) shall specify the time period within which each Lender is requested to respond (which shall in no event be less than thirty days from the date of delivery of such notice to the Agent).

(b) WFRF Right of First Refusal. Upon such request to increase the Maximum Commitment Amount, WFRF shall have the right (but not the obligation) to increase its Commitment by an amount equal to the lower of the Requested Increased Commitment Amount or an amount identified by WFRF in written notice to the Borrowers and Agent (it being understood that WFRF may or may not elect to increase its Commitment in its sole discretion). WFRF shall make its election within ten (10) days after receipt of Borrowers’ notice under Section 2.18(a) by written notice to Borrowers through Agent. In the event that WFRF does not so notify Borrowers on or before such tenth day, WFRF shall be deemed to have elected not to increase its Commitment.

(c) Additional Lenders. To achieve the full amount of any Requested Increased Commitment Amount, to the extent that WFRF declines to increase its Commitment, or declines to increase its Commitment by the full Requested Increased Commitment Amount, Agent may arrange, with Borrowers’ consent, for any Affiliate of Bank of America or PNC Bank, National Association or other Eligible Assignees (each an “Additional Commitment Lender”) to become a Lender hereunder and furnish a commitment equal to the Requested Increased Commitment Amount not accepted by WFRF, provided, however, that without the consent of the Agent, at no time shall the Commitment of any Additional Commitment Lender be less than $10,000,000. The aggregate increased commitment amounts agreed to by WFRF and, if any, each Additional Commitment Lender shall constitute the “Increased Commitment Amount”.

55

(d) Conditions to Effectiveness of Commitment Increase. As a condition precedent to the increase of the Maximum Commitment Amount by the Increased Commitment Amount, (i) the Borrowers shall deliver to the Agent a certificate of each Borrower dated as of the effective date of such increase (the “Increase Effective Date”) signed by an Authorized Officer of such Borrower (A) certifying and attaching the resolutions adopted by the board of directors (or other applicable governing body) of such Borrower approving or consenting to such increase in the Maximum Commitment Amount, and (B) certifying that, before and after giving effect to such increase in the Maximum Commitment Amount, the representations and warranties contained in Article 5 hereof and the other Loan Documents are true and correct in all material respects on and as of the Increase Effective Date, except to the extent such representations or warranties expressly relate to an earlier date (in which case such representations and warranties shall be true and correct in all material respects as of such earlier date); (ii) if applicable, the Borrowers, the Agent, and any Additional Commitment Lender shall have executed and delivered a joinder to the Loan Documents in such form as the Agent shall reasonably require; (iii) the Borrowers shall have paid the fees to Agent owing to the Agent under the Fee Letter, and any Increased Commitment Fee payable to the Additional Commitment Lenders (with the understanding that, whether or not WFRF is an Additional Commitment Lender it shall be entitled to receive for its own account a fee equal to the highest fee payable to any Additional Commitment Lender), as the Borrowers, the Agent, and the Additional Commitment Lenders may agree; and (iv) no Default or Event of Default shall exist or result from the increase to the Maximum Commitment Amount. The Borrowers shall prepay any Advances outstanding on the Increase Effective Date (and pay any additional amounts required pursuant to this Agreement) and may borrow on a non-ratable basis from any Lender or Additional Commitment Lender committed to a portion of the applicable Increased Commitment Amount, in each case to the extent necessary to keep the outstanding Advances ratable with any revised Pro Rata Share arising from any nonratable increase in the Commitments under this Section. Each of the parties hereto hereby agrees that the Agent may take any and all further action as may be reasonably necessary to ensure that all Advances in respect of Commitment Increases, when originally made, are included in each Borrowing of outstanding Advances on a pro rata basis.

(e) Effective Date and Allocations. If the Commitments are hereafter increased, the Agent (in consultation with the Borrowers) shall determine the Increase Effective Date of the Increased Commitment Amount and the final allocation thereof among the Additional Commitment Lenders. The Agent shall promptly notify the Borrowers and the Lenders of such final allocation and the Increase Effective Date, and on the Increase Effective Date (i) the Commitments under, and for all purposes of, this Agreement shall be increased by the aggregate amount of the Increased Commitment Amount, and (ii) the applicable Schedule to the Agreement shall be deemed modified, without further action, to reflect the revised Commitments of the Lenders.

56

3. CONDITIONS; TERM OF AGREEMENT.

3.1. Conditions Precedent to the Restatement Date. The occurrence of the Restatement Date is subject to the fulfillment, to the satisfaction of Agent and its counsel, of each of the following conditions on or before the Restatement Date:

(a) The Restatement Date shall occur on or before September 30, 2009;

(b) The Loan Documents shall be effective to create in favor of the Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and lien upon the Collateral for the benefit of the Agent and the Lenders. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected. The Agent shall have received evidence thereof in form and substance satisfactory to the Agent;

(c) Agent shall have received each of the following documents, duly executed, and each such document shall be in full force and effect:

a. this Agreement (with all exhibits and schedules attached);

b. Revolving Credit Note for each Lender;

c. Restricted Account Control Agreements;

e. Intellectual Property Security Agreement;

f. the Disbursement Letter;

h. the Agent’s Fee Letter;

i. the Payoff Letters;

j. the Perfection Certificate of the Borrowers; and

k. any other documents and agreements required by the Agent.

(d) Agent shall have received a certificate from the Secretary of each of the Borrowers attesting to the resolutions of each Borrower’s Board of Directors authorizing its execution, delivery, and performance of this Agreement, the other Loan Documents and the transactions contemplated hereby to which such Borrower is a party and authorizing specific officers of such Borrower to execute the same;

(e) Agent shall have received copies of each Borrower’s Governing Documents, as amended, modified, or supplemented to the Restatement Date, certified by the Secretary of such Borrower, each in form and substance satisfactory to Agent in its Permitted Discretion;

(f) Agent shall have received a certificate of status with respect to each Borrower, dated within 10 days of the Restatement Date, such certificate to be issued by the appropriate officer of the jurisdiction of organization of such Borrower, which certificate shall indicate that such Borrower is in good standing in such jurisdiction;

(g) Agent shall have received certificates of status with respect to each Borrower, each dated within 15 days of the Restatement Date, such certificates to be issued by the appropriate officer of the jurisdictions in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that such Borrower is in good standing in such jurisdictions;

57

(h) Agent shall have received a pro forma Compliance Certificate dated as of the Restatement Date;

(i) Agent shall have received the Solvency Certificate and Agent shall otherwise be satisfied, in its Permitted Discretion, with the capital structure of the Borrowers and their Affiliates;

(j) Agent shall have received a certificate of insurance, together with the endorsements thereto, as are required by Section 6.10, the form and substance of which shall be satisfactory to Agent and its counsel in their Permitted Discretion;

(k) Agent shall have received an opinion of Borrowers’ counsel with respect to this Agreement and the other Loan Documents, in form and substance satisfactory to Agent in its Permitted discretion;

(l) Borrower shall have paid all Lender Expenses incurred in connection with the transactions evidenced by this Agreement;

(m) Agent shall have received evidence satisfactory in Agent’s Permitted Discretion that the Borrowers have received all consents, licenses, approvals or evidence of other actions required by any Person, including any Governmental Authority, in connection with the execution and delivery by the Borrowers of this Agreement or any other Loan Document or with the consummation of the transactions contemplated hereby and thereby, (other than intellectual property security interest filings to be made on the Restatement Date);

(n) Agent shall have received an Officer’s Closing Certificate dated as of the Restatement Date, the form and substance of which shall be satisfactory to Agent in its Permitted Discretion;

(o) Agent shall have received copies of the Senior Notes, Indenture, Parent Note Purchase Documents, the form of Parent Debentures, and any other documents evidencing any Indebtedness of Borrowers or Parent, and the Management Agreement.

(p) No Material Adverse Change shall have occurred since the September 30, 2008 financial statements delivered to the Agent; and

(q) All other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall be in form and substance satisfactory to Agent.

58

3.2. Conditions Precedent to all Advances and all Letters of Credit. The following shall be conditions precedent to all Advances and all Letters of Credit hereunder:

(a) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all respects on and as of the date of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date);

(b) no Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof;

(c) no injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and remain in force by any Governmental Authority against any Borrower, the Lender Group or any of their Affiliates;

(d) the amount of any requested Advance or Letter of Credit shall not exceed the Availability at such time; and

(e) no Material Adverse Change shall have occurred.

3.3. Term; Automatic Renewal. This Agreement shall become effective upon the execution and delivery hereof by Borrowers and the Lender Group and shall continue in full force and effect for a term ending on September 30, 2012 (the “Maturity Date”) if not earlier terminated. The foregoing notwithstanding, the Lender Group, upon the election of the Required Lenders, shall have the right to terminate the Lender Group’s obligations under this Agreement immediately and without notice upon the occurrence and during the continuation of an Event of Default.

3.4. Effect of Termination. On the date of termination of this Agreement, all Obligations (including contingent reimbursement obligations of Borrowers with respect to any outstanding Letters of Credit) immediately shall become due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrowers or Borrowers’ duties, Obligations, or covenants hereunder, and the Lender Group’s continuing security interests in the Collateral shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group’s obligation to provide additional credit hereunder is terminated.

3.5. Early Termination or Reduction of Commitments and Maximum Commitment Amount by Borrowers. The provisions of Section 3.3 that allow termination of this Agreement by Borrowers only on the Maturity Date notwithstanding, Borrowers have the option: at any time upon at least 15 days prior written notice to Agent, to terminate this Agreement in full (but not in part) by paying to Agent (for the ratable benefit of the Lender Group), in cash, the Obligations (including depositing with Agent an amount equal to 105% of the undrawn amount of the Letters of Credit, which Cash Collateral shall be returned to Borrowers by Agent net of the amount of all drawings under such Letters of Credit and all costs and expenses associated therewith), in full, together with a fee (the “Early Termination Fee”) equal to the following amount:

Effective Date of Termination	Early Termination Fee
Prior to and including the second anniversary of the Restatement Date	0.50% of the Maximum Commitment Amount
Thereafter	0.0%

59

3.6. Termination Upon Event of Default. If the Lender Group terminates this Agreement upon the occurrence and during the continuation of an Event of Default which Agent has reasonably determined to be been caused intentionally by a Borrower, in view of the impracticability and extreme difficulty of ascertaining actual damages and by mutual agreement of the parties as to a reasonable calculation of the Lender Group’s lost profits as a result thereof, Borrowers shall pay to Agent (for the ratable benefit of the Lender Group) upon the effective date of such termination, a fee in an amount equal the Early Termination Fee. Such amount shall be presumed to be the amount of damages sustained by the Lender Group as the result of the early termination and Borrowers agree that it is reasonable under the circumstances currently existing. The fee provided for in this Section 3.6, shall be deemed included in the Obligations.

4. CREATION OF SECURITY INTEREST.

4.1. Grant of Security Interest. Each Borrower confirms that it has granted and, for the avoidance of doubt, hereby grants to Agent, for the benefit of the Lender Group and any Bank Product Provider to whom any Borrower owes Bank Product Obligations, a continuing security interest in all of its right, title and interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Secured Obligations and in order to secure prompt performance by such Borrower of each of its covenants and duties under the Loan Documents. The security interests granted to the Agent, for the benefit of the Lender Group and any Bank Product Provider, in the Collateral shall attach to all Collateral without further act on the part of the Agent, Lender Group or Borrowers.

4.2. Control of Collateral. If from time to time any Collateral, having a value of $250,000 or more, as determined by Agent, including proceeds or supporting obligations, consists of property or rights of a Borrower in which the perfection or priority of the Agent’s Liens is dependent upon or enhanced by Agent’s gaining control of such Collateral, Borrowers shall immediately notify Agent and, at Agent’s request, deliver the appropriate Restricted Account Control Agreements or take such actions as may be necessary to give Agent control over such Collateral as provided in the Code; provided, however, that the Borrowers shall not be required to deliver Restricted Account Control Agreements for any DDAs maintained and administered in compliance with Section 2.9 hereof.

4.3. Negotiable Collateral. In the event that any Collateral, including proceeds, of value in excess of $250,000 is evidenced by or consists of Negotiable Collateral, Borrowers, immediately upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent.

60

4.4. Collection of Accounts, General Intangibles, and Negotiable Collateral. At any time after the occurrence and during the continuation of an Event of Default, Agent or Agent’s designee may (a) notify customers or Account Debtors of any Borrower that the Accounts, General Intangibles, or Negotiable Collateral of such Borrower have been assigned to Agent for the benefit of the Lender Group or that Agent for the benefit of the Lender Group has a security interest therein, and (b) collect the Accounts, General Intangibles, and Negotiable Collateral of such Borrower directly and charge the collection costs and expenses to the Loan Account. After the occurrence and during the continuation of an Event of Default, each Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group’s trustee, any Collections that it receives and immediately will deliver said Collections to Agent in their original form as received by such Borrower.

4.5. Delivery of Additional Documentation Required. At any time upon the request of Agent, Borrowers shall execute and deliver to Agent all continuation financing statements, fixture filings, security agreements, pledges, assignments, control agreements, affidavits, reports, notices, schedules of accounts, letters of authority, and bailee acknowledgments, each in form and substance satisfactory to Agent and hereby authorizes Agent to file any financing statements, amendments to financing statements, continuation to financing statements as deemed necessary or desirable by Agent and, after the occurrence and during the continuation of an Event of Default, endorsements of certificates of title, applications for title, and, in any event (whether prior to or after the occurrence of an Event of Default), all other documents that Agent reasonably may request, each in form satisfactory to Agent, to perfect and continue perfected the Liens of the Lender Group (and their applicable Affiliates) in the Collateral, and in order to fully consummate all of the transactions contemplated hereby and under the other Loan Documents. To the maximum extent permitted by Applicable Law, each Borrower authorizes Agent to execute any such documents in such Borrower’s name and authorizes the Agent to file such documents in any appropriate filing office. Without limiting the foregoing, Borrowers shall (a) give the Agent prompt written notice of any Commercial Tort Claim of Borrowers not specifically identified on Schedule 5.10(b) and any Letter of Credit Right of Borrowers. Borrowers shall grant to the Agent, for the benefit of the Lender Group (and their applicable Affiliates), a security interest in any such Commercial Tort Claim or Letter of Credit Right and the proceeds thereof, and (b) on such periodic basis as the Agent shall require, (i) provide Agent with a report of all new patents, registered copyrights, registered trademarks and licenses with respect to any of the foregoing (ii) cause to be prepared, executed, and delivered to Agent supplemental schedules to the applicable Loan Documents to identify such patents, registered copyrights and registered trademarks as being subject to the security interests created thereunder, and (iii) execute and deliver to Agent at Agent’s request supplemental intellectual property security agreements with respect to such patents, registered trademarks or registered copyrights for filing with the appropriate filing office.

4.6. Power of Attorney. Each Borrower hereby irrevocably makes, constitutes, and appoints Agent (and any of Agent’s officers, employees, or agents designated by Agent) as such Borrower’s true and lawful attorney, with power to (a) if such Borrower refuses to, or fails timely to execute and deliver any of the documents described

61

in Section 4.5, sign the name of such Borrower on any of the documents described in Section 4.5, (b) at any time that an Event of Default has occurred and is continuing, sign such Borrower’s name on any invoice or bill of lading relating to any Account of such Borrower, drafts against Account Debtors, schedules and assignments of Accounts of such Borrower, verifications of Accounts of such Borrower, and notices to Account Debtors, (c) send requests for verification of Accounts, (d) endorse such Borrower’s name on any Collection item that may come into the Lender Group’s possession, (e) at any time that an Event of Default has occurred and is continuing, notify the post office authorities to change the address for delivery of such Borrower’s mail to an address designated by Agent, to receive and open all mail addressed to such Borrower, and to retain all mail relating to the Collateral of such Borrower and forward all other mail to such Borrower, (f) at any time that an Event of Default has occurred and is continuing, make, settle, and adjust all claims under such Borrower’s policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (g) at any time that an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts, Chattel Paper or General Intangibles of such Borrower directly with Account Debtors, for amounts and upon terms that Agent determines to be reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines to be necessary. The appointment of Agent as such Borrower’s attorney, and each and every one of Agent’s rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed and the Lender Group’s obligation to extend credit hereunder is terminated.

4.7. Right to Inspect. Unless an Event of Default shall have occurred and be continuing, Agent (through any of its officers, employees, or agents) shall have the right, (i) upon reasonable notice to the Borrowers, to inspect Borrowers’ Books and to conduct an audit and (ii) to conduct an appraisal and inventory of the Collateral in order to verify Borrowers’ financial condition or the amount, quality, value, condition of or any other matter relating to, the Collateral at Agent’s discretion (upon reasonable notice to the Borrowers). Following the occurrence and continuation of an Event of Default, the Agent (through any of its officers, employees, or agents) shall have the right to (i) conduct audits at Agent’s discretion and (ii) conduct appraisals and inventory of the Collateral at Agent’s discretion in order to verify Borrowers’ financial condition or the amount, quality, value, condition of or any other matter relating to, the Collateral. The Borrower shall reasonably cooperate with the Agent or its designees in the conduct of such inventories, appraisals and audits.

5. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into this Agreement, each Borrower makes the following representations and warranties which shall be true, correct, and complete in all respects as of the date hereof and shall be true, correct, and complete in all respects as of the Restatement Date, and at and as of the date of the making of each Advance or Letter of Credit made thereafter, and at and as of any Increase Effective Date as though made on and as of the date of such Advance or Letter of Credit and such Increase Effective Date (except to the extent that such representations and warranties relate solely to an earlier date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date) and such representations and warranties shall survive the execution and delivery of this Agreement:

5.1. No Encumbrances. Each Borrower has good and indefeasible title to all of such Borrower’s property comprising the Collateral, free and clear of Liens except for Permitted Liens.

62

5.2. Accounts. Unless otherwise indicated in writing to Agent reasonably promptly after the creation thereof, and except to the extent of reserves for returns and bad debts as reflected in the Borrowers’ Books and established in the ordinary course of Borrowers’ business, each Account of each Borrower is genuine and in all material respects what it purports to be and arises out of a completed, bona fide sale and delivery of Goods by such Borrower in the ordinary course of business.

5.3. Inventory. The Borrowers have established such reserves with respect to their Inventory as are adequate in accordance with GAAP, and such reserves are reflected on their most recent consolidated balance sheet delivered pursuant to Section 6.3; such Inventory is owned solely by a Borrower and such Borrower has good title thereto, subject to no Liens that are prohibited hereby; is located at one of the locations set forth on Schedule E-1, (as amended from time to time in accordance with Section 6.12) or in transit in the United States to such a location; such Inventory, if located at a distribution center or warehouse of a Borrower, is subject to a Collateral Access Agreement; and such Inventory is subject to a valid and perfected first priority security interest in favor of the Lender Group.

5.4. Equipment. All of the Equipment of Borrowers is used or held for use in Borrowers’ business and is fit for such purposes.

5.5. Location of Inventory and Equipment. The Inventory and Equipment of Borrowers are not stored with a bailee, warehouseman, or similar party (without delivery to Agent of a Collateral Access Agreement or Agent’s prior written consent) and are located only at the locations identified on Schedule 6.12 or otherwise permitted by Section 6.12.

5.6. Inventory Records. Consistent with past practices, each Borrower keeps records itemizing and describing the kind, type and quantity of its Inventory and the Net Book Value thereof.

5.7. Legal Status. As of the Restatement Date, (a) each Borrower’s exact legal name is that indicated on the signature page hereof; (b) such Borrower is an organization of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate; (c) the Perfection Certificate accurately sets forth such Borrower’s organizational identification number or accurately states that such Borrower has none; (d) the Perfection Certificate accurately sets forth such Borrower’s chief executive office, as well as such Borrower’s mailing address, if different; (e) all other information set forth on the Perfection Certificate pertaining to such Borrower is accurate and complete as of the Restatement Date; and (f) there has been no change in any of such information from the date on which the Perfection Certificate was signed by such Borrower to the Restatement Date.

63

5.8. Due Organization and Qualification; Subsidiaries.

(a) Each Borrower is duly organized and existing and in good standing under the laws of the jurisdiction of its incorporation and qualified and licensed to do business in, and in good standing in, any state where the failure to be so licensed or qualified reasonably could be expected to cause a Material Adverse Change.

(b) Set forth on Schedule 5.8 is a complete and accurate description of the authorized capital Stock of each Borrower, by class, and, as of the Restatement Date, a description of the number of shares of each such class that are issued and outstanding. Other than as described on Schedule 5.8, there are no subscriptions, options, warrants, or calls relating to any shares of such Borrower’s capital Stock, including any right of conversion or exchange under any outstanding security or other instrument. Poolmart is not subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. Set forth on Schedule 5.8 is a complete and accurate list of each Borrower’s direct and indirect Subsidiaries, showing: (i) the jurisdiction of their incorporation; (ii) the number of shares of each class of common and preferred stock authorized for each of such Subsidiaries; and (iii) the number and the percentage of the outstanding shares of each such class owned directly or indirectly by such Borrower.

(c) Except as set forth on Schedule 5.8, no capital stock (or any subscriptions, securities, instruments, warrants, options, purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible into or exercisable for capital stock) of any direct or indirect Subsidiary of any Borrower is subject to the issuance of any security, instrument, warrant, option, purchase right, conversion or exchange right, call, commitment or claim of any right, title, or interest therein or thereto.

5.9. Due Authorization; No Conflict.

(a) The execution, delivery, and performance by each Borrower of this Agreement and the Loan Documents to which it is a party have been duly authorized by all necessary corporate action.

(b) The execution, delivery, and performance by each Borrower of this Agreement and the Loan Documents to which it is a party do not and will not (i) violate any provision of federal, state, or local law or regulation (including Regulations T, U, and X of the Federal Reserve Board) applicable to such Borrower, the Governing Documents of such Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on such Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under the Indenture, any other material contractual obligation or material lease of such Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of such Borrower, other than Permitted Liens, or (iv) require any approval of stockholders or any approval or consent of any Person under any material contractual obligation of such Borrower.

64

(c) Other than the filing of appropriate financing statements, fixture filings, and mortgages, the execution, delivery, and performance by each Borrower of this Agreement and the Loan Documents to which such Borrower is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any federal, state, foreign, or other Governmental Authority or other Person.

(d) This Agreement and the Loan Documents to which any Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Borrower will be the legally valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally.

(e) The Liens granted by each Borrower to Agent (for the benefit of the Lender Group) in and to its properties and assets pursuant to this Agreement and the other Loan Documents are validly created, perfected, and first priority Liens, subject only to Permitted Liens.

5.10. Litigation.

(a) There are no actions or proceedings pending by or against any Borrower before any court or administrative agency and no Borrower has any knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving any Borrower or any guarantor of the Obligations, except for: (i) ongoing collection matters in which a Borrower is the plaintiff, (ii) matters disclosed on Schedule 5.10(a); and (iii) matters that would not reasonably be expected to cause a Material Adverse Change.

(b) Schedule 5.10(b) lists all of the Borrower’s Commercial Tort Claims existing as of the date hereof.

5.11. No Material Adverse Change. All of Poolmart’s consolidated financial statements that have been delivered to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present Poolmart’s consolidated financial condition as of the date thereof and results of operations for the period then ended. There has not been a Material Adverse Change on or before the Restatement Date with respect to Borrowers (taken as a whole) since the date of the latest financial statements submitted to the Lender Group on or before the Restatement Date.

5.12. Solvency; Borrowers are Solvent. No transfer of property is being made by any Borrower and no obligation is being incurred by any Borrower in connection with the transactions contemplated by this Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of any Borrower. No transfer of property is being made by the Borrowers without receiving a reasonably equivalent value in exchange for such transfer and the Borrowers’ remaining assets are not unreasonably small in relation to their businesses. The Borrowers are Solvent on a consolidated basis.

65

5.13. Employee Benefits. Each Borrower and each Subsidiary of a Borrower are in compliance in all material respects with all applicable provisions of ERISA; each Borrower and each such Subsidiary have not violated in any material respect any provision of any Benefit Plan maintained or contributed to by Borrower or any such Subsidiary; no Reportable Event as defined in ERISA has occurred and is continuing with respect to any Benefit Plan initiated by a Borrower or any such Subsidiary; Borrowers and each Subsidiary of a Borrower have met their minimum funding requirements under ERISA with respect to each Benefit Plan; and each Benefit Plan will be able to fulfill its benefit obligations as they come due in accordance with the Benefit Plan documents and under GAAP.

5.14. Environmental Condition. Except as set forth on Schedule 5.14 to the best of Borrowers’ knowledge, Borrowers and each Subsidiary of a Borrower are in compliance in all material respects with all applicable environmental, hazardous waste, health, and safety statutes and regulations governing their operations and/or properties or relating to the disposal, handling, production, storage, transport or release of Hazardous Materials. To the best of Borrowers’ knowledge, none of Borrowers’ properties or assets has ever been used by Borrowers in the disposal of, or to produce, store, handle, treat, release, or transport, any Hazardous Materials, where such production, storage, handling, treatment, release or transport was in violation, in any material respect, of applicable Environmental Law, (b) to Borrowers’ knowledge, none of Borrowers’ properties or assets have ever been designated or identified in any manner pursuant to any environmental protection statute as a Hazardous Materials disposal site, (c) none of Borrowers have received notice that a Lien arising under any Environmental Law has attached to any revenues or to any Real Property owned or operated by Borrowers, and (d) to the best of Borrowers’ knowledge, none of the Borrowers have received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal Provincial or state governmental agency concerning any action by any Borrower resulting in the releasing or disposing of Hazardous Materials into the environment. To the best of Borrowers’ knowledge, none of the operations of Borrowers or any Subsidiary of a Borrower are the subject of any federal or state investigation evaluating whether any remedial action involving a material expenditure is needed to respond to a release of any Hazardous Material into the environment. To the best of Borrowers’ knowledge, no Borrower or any such Subsidiary has any material contingent liability in connection with any such release of Hazardous Materials into the environment.

5.15. Taxes.

Borrowers have timely filed all Tax Returns required to be filed by Borrowers and all Taxes upon each Borrower or its properties, assets, income, and franchises (including real property Taxes and payroll Taxes) have been paid prior to delinquency, except such Taxes that are the subject of a Permitted Protest.

66

5.16. Foreign Asset Control Regulations. None of the requesting or borrowing of the Advances, the requesting or issuance, extension or renewal of any Letters of Credit or the use of the proceeds of any thereof will violate the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) (the “Trading With the Enemy Act”) or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) (the “Foreign Assets Control Regulations”) or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) Executive Order 13224 of September 21, 2001 Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism (66 Fed. Reg. 49079 (2001)) (the “Executive Order”) and (b) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56)). Furthermore, neither the Borrowers nor any of their Subsidiaries or other Affiliates (a) is or will become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations or (b) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person”.

5.17. Brokerage Fees. No Borrower has utilized the services of any broker or finder in connection with such Borrower’s obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable by any Borrower in connection herewith.

5.18. Intellectual Property. Except as would not reasonably be expected to result in a Material Adverse Change, each Borrower owns, or holds licenses in, all trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. Attached to the Perfection Certificate is a true, correct, and complete listing of all patents, patent applications, trademarks, trademark applications, copyrights, and copyright registrations as to which such Borrower is the owner or is an exclusive licensee.

5.19. Leases. Except as would not reasonably be expected to result in a Material Adverse Change, each Borrower enjoys peaceful and undisturbed possession under all leases material to the business of such Borrower and to which such Borrower is a party or under which such Borrower is operating.

5.20. DDAs. The Perfection Certificate sets forth all of the DDAs of the Borrowers as of the date hereof, including, with respect to each depositary (i) the name and address of that depositary, (ii) the account numbers of the accounts maintained with such depositary, and (iii) the purpose for which each deposit account is used (i.e., payroll, benefits, collections, disbursement, etc.).

5.21. Credit Card Receipts. Schedule 5.21 sets forth the Borrowers’ Credit Card Processors and all arrangements to which the Borrowers are a party with respect to the payment to the Borrowers of the proceeds of all credit card charges for sales by Borrowers.

67

5.22. Indebtedness. Set forth on Schedule 5.22 is a true and complete list of all Indebtedness of Borrower outstanding immediately prior to the Restatement Date that is to remain outstanding after the Restatement Date. Such Schedule accurately reflects the aggregate principal amount of such Indebtedness and the principal terms thereof and whether (and to what extent) such Indebtedness is secured.

5.23. Complete Disclosure. All factual information (taken as a whole) furnished by or on behalf of each Borrower in writing to the Agent, Issuing Bank, or Lenders (including all information contained in the Schedules hereto or in the other Loan Documents) for purposes of or in connection with this Agreement, the other Loan Documents or any transaction contemplated herein or therein is (taken as a whole), and all other such factual information (taken as a whole) hereafter furnished by or on behalf of such Borrower in writing to Agent, Issuing Bank, or Lenders will be, true, accurate and complete in all material respects on the date as of which such information is dated or certified. The Business Plan delivered to Agent and Lenders prior to the Restatement Date is, and each additional Business Plan delivered to the Agent hereunder will be, on the date of its delivery, prepared in good faith based on assumptions believed by management of the Borrowers to be accurate and reasonable at the time made, it being recognized by the Agent and the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that such differences may be material.

5.24. Insurance. Schedule 5.24 annexed hereto, is a schedule of all insurance policies owned by the Borrowers or under which any Borrower is the named insured. Each of such policies is in full force and effect. The coverage reflected on Schedule 5.24 satisfies the requirements of Section 6.10.

5.25. Requirements of Law. To each Borrower’s knowledge, each Borrower is in compliance with, and shall hereafter comply with and use its assets in compliance with, all requirements of law except where the failure of such compliance will not be reasonably likely to have a Material Adverse Change. No Borrower has received any notice of any violation of any requirement of law (other than of a violation which would not be reasonably likely to have a Material Adverse Change) which violation has not been cured or otherwise remedied.

5.26. Investment Company Status. No Borrower is an “investment company” as defined in, or subject to regulation under, the Investment Company Act of 1940.

5.27. No Margin Stock. No Borrower is engaged in the business of extending credit for the purpose of purchasing or carrying any margin stock (within the meaning of Regulations U, T, and X of the Board of Governors of the Federal Reserve System of the United States). No part of the proceeds of any Borrowing hereunder will be used at any time to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock.

68

5.28. Preferred Stock. The “Preferred Stock” (as defined in the Existing Loan Agreement) has been cancelled and all obligations of Poolmart with respect thereto have been satisfied in full.

5.29. In Transit Inventory. On the Restatement Date, substantially none of Borrowers’ Inventory consists of Inventory in-transit from any other country to the United States.

6. AFFIRMATIVE COVENANTS.

Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations, such Borrower shall do all of the following:

6.1. Accounting System. Maintain a system of accounting that enables such Borrower to produce financial statements in accordance with GAAP, consistent with past practices.

6.2. Collateral Reporting. At the request of the Agent, provide Agent (and if so requested by Agent, with copies for each Lender) with the following documents at the following times in form satisfactory to Agent: (a) a detailed calculation of the Net Book Value of Inventory, including Inventory mix by major category (including a separate parts inventory category), all in such form and detail as Agent may reasonably require, (b) a summary aging, by vendor, of such Borrower’s accounts payable and any book overdraft, (c) a physical inventory report together with an inventory shrinkage reconciliation schedule based upon such count, (d) a reconciliation of the Borrowers’ general ledger to the perpetual inventory report, and (e) such other reports as to the Collateral or the financial condition of such Borrower as Agent may reasonably request from time to time.

6.3. Financial Statements, Reports, Certificates.

(a) Deliver to Agent: (i) as soon as available, but in any event within 30 days after the end of each month during each of Borrowers’ Fiscal years (or 45 days after end of the last month in each Fiscal quarter), a Borrower prepared consolidated balance sheet, income statement, and, on a quarterly basis only, a statement of cash flow covering the Borrowers’ and their Subsidiaries operations during such period; and (ii) as soon as available, but in any event within 90 days after the end of each of the Borrowers’ Fiscal years, financial statements of Borrowers and their Subsidiaries for each such Fiscal year, audited by independent certified public accountants from a “Big 4” accounting firm or such other accounting firm as is reasonably acceptable to Agent and certified, without any material qualifications, by such accountants to have been prepared in accordance with GAAP, together with a certificate of such accountants addressed to Agent stating that such accountants do not have knowledge of the existence of any Default or Event of Default. Such audited financial statements shall include a consolidated balance sheet, profit and loss statement, and statement of cash flow and, if prepared, such accountants’ letter to management.

(b) Together with the above, Borrowers also shall deliver to Agent Borrowers’ Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made by Borrowers with the Securities and Exchange Commission, if any, as soon as the same are filed, and any other report reasonably requested by Agent relating to the financial condition of Borrowers.

69

(c) Each month, together with the financial statements provided pursuant to Section 6.3(a), Borrowers shall deliver to Agent a Compliance Certificate signed by its chief financial officer to the effect that: (i) all financial statements delivered or caused to be delivered to Agent hereunder have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack of footnotes and being subject to year-end audit adjustments) and fairly present the consolidated financial condition of the Borrowers and their Subsidiaries, (ii) the representations and warranties of the Borrowers contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), (iii) for each month that also is the date on which a financial covenant in Section 7.2 is to be tested, the Borrowers are in compliance at the end of such period with the applicable financial covenants contained in Section 7.20 (and demonstrating such compliance in reasonable detail), (iv) in any month in which any principal amount of Indebtedness arising under the Indenture is redeemed, a statement of the principal amount of such Indebtedness redeemed during such month and during the term hereof; and (v) on the date of delivery of such certificate to Agent there does not exist any condition or event that constitutes a Default or Event of Default (or, in the case of clauses (i), (ii), or (iii), to the extent of any noncompliance, describing such non-compliance as to which he or she may have knowledge and what action such Borrower has taken, is taking, or proposes to take with respect thereto).

(d) Poolmart shall, from time to time, not more frequently than once in any year unless an Event of Default has occurred and is continuing, at the request of the Agent cause its independent certified public accountants to meet and confer with Agent, in the presence of management of Poolmart, to discuss with Agent the Borrowers’ financial affairs.

(e) As soon as available, but in any event within ninety (90) days after the last Business Day of each Fiscal year, copies of Borrowers’ Business Plan, for the forthcoming year, setting forth the Borrowers’ Projections, on a quarter-by-quarter basis, for the upcoming Fiscal year, certified by the chief financial officer of Borrowers (in such officer’s capacity as such and not individually) as being prepared in good faith based on assumptions believed by management of the Borrowers to be reasonable at the time made (it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that such difference may be material).

(f) Upon the request of Agent, any other report reasonably requested relating to the financial condition of the Borrowers.

6.4. Intentionally Omitted.

6.5. Intentionally Omitted.

70

6.6. Returns. Cause returns of Inventory and allowances, if any, as between such Borrower and its Account Debtors to be on the same basis and in accordance with the usual customary practices of such Borrower, as they exist at the time of the execution and delivery of this Agreement.

6.7. Title to Equipment. Upon Agent’s request after the occurrence and during the continuation of an Event of Default, such Borrower immediately shall deliver to Agent, properly endorsed, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment.

6.8. Maintenance. Maintain their properties that are necessary in the proper conduct of their business in good working order and condition. Maintain the Equipment in good operating condition and repair (ordinary wear and tear excepted), and make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Other than those items of Equipment that constitute fixtures on the Restatement Date, such Borrower shall not permit any item of Equipment to become a fixture to real estate or an accession to other property, and such Equipment shall at all times remain personal property.

6.9. Taxes. Cause all Taxes of such Borrower or any of its property to be paid in full, before delinquency or before the expiration of any extension period, except to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. Such Borrower shall make due and timely payment or deposit of all such Taxes required of it by law, and will execute and deliver to Agent, on demand, appropriate certificates attesting to the payment thereof or deposit with respect thereto. Such Borrower will make timely payment or deposit of all Taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income Taxes, and will, upon request, furnish Agent with proof satisfactory to Agent indicating that such Borrower has made such payments or deposits.

6.10. Insurance.

(a) Maintain and keep in force, and cause each Subsidiary of such Borrower to maintain and keep in force, insurance of the types and in amounts customarily carried in similar lines of business, including but not limited to fire, extended coverage, public liability, property damage, and workers’ compensation, carried with companies and in amounts reasonably satisfactory to Agent, and deliver to Agent from time to time at Agent’s request certificates of insurance setting forth all insurance then in effect; provided, however, that (a) with respect to Borrowers’ and each such Subsidiary’s commercial liability insurance, each Borrower and each such Subsidiary may maintain deductibles which do not exceed, in the aggregate, $500,000 per occurrence, (b) each Borrower and each such Subsidiary may self-insure for workers’ compensation upon disclosure by Borrowers to Agent in writing, so long as such self-insurance program is instituted and maintained in compliance with all applicable laws, rules, and regulations, and (c) with respect to each Borrower’s and each such Subsidiary’s fire and property damage insurance, each Borrower and each Subsidiary may maintain deductibles which do not exceed, in the aggregate, five percent (5%) of their combined net current assets per occurrence.

71

(b) Except as otherwise provided in (a) above, all hazard insurance and such other insurance as Agent shall specify shall contain a California Form 438BFU (NS) mortgagee endorsement, or an equivalent endorsement satisfactory to Agent, showing Agent (for the ratable benefit of the Lenders) as sole loss payee thereof and shall contain a waiver of warranties. Every policy of insurance referred to in this Section 6.10 shall contain an agreement by the insurer that it will not cancel such policy except after 30 days prior written notice to Agent (for the ratable benefit of the Lenders) and that any loss payable thereunder shall be payable notwithstanding any act or negligence of such Borrower or the Lender Group which might, absent such agreement, result in a forfeiture of all or apart of such insurance payment.

(c) Original policies or certificates thereof satisfactory to Agent evidencing such insurance shall be delivered to Agent at least 30 days prior to the expiration of the existing or preceding policies. Such Borrower shall give Agent prompt notice of any loss covered by such insurance, and, after the occurrence and during the continuation of an Event of Default, Agent shall have the right to adjust any loss. In such event, Agent shall have the exclusive right to adjust all losses payable under any such insurance policies without any liability to such Borrower whatsoever in respect of such adjustments. Any monies received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent domain, shall be paid over to Agent to be disbursed to Borrower under staged payment terms reasonably satisfactory to the Agent for application to the cost of repairs, replacements, or restorations; provided, however that if a Default or Event of Default has occurred and is continuing Agent may, in its Permitted Discretion, apply such funds to the prepayment of the Obligations. Any such repairs, replacements, or restorations shall be affected with reasonable promptness.

(d) Such Borrower shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this Section 6.10, unless Agent is included thereon as named insured with the loss payable to Agent (for the ratable benefit of Lenders) under a standard California 438BFU (NS) Mortgagee endorsement, or its local equivalent. Such Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the policies evidencing the same, and originals of such policies immediately shall be provided to Agent.

6.11. No Setoffs or Counterclaims. Make payments hereunder and under the other Loan Documents by or on behalf of such Borrower without setoff or counterclaim and free and clear of and without deduction or withholding for or on account of, any federal, state, or local Taxes.

6.12. Location of Inventory and Equipment. Except for in-transit Inventory, keep the Inventory and Equipment only at the locations (including store locations) identified on Schedule 6.12; provided, however, that Borrowers may amend Schedule 6.12 so long as such amendment occurs by written notice to Agent not less than 30 days prior to the date on which the Inventory or Equipment of Borrowers is moved to such new location, so long as such new location is within the continental United States, and so long as, at the time of such written notification, Borrowers provide to Agent, if requested by Agent or otherwise required under this Agreement, a Collateral Access Agreement.

72

6.13. Compliance with Laws. Comply with the requirements of all applicable laws, rules, regulations, and orders of any governmental authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the non-compliance with which, individually or in the aggregate, would not reasonably be expected to cause a Material Adverse Change.

6.14. Employee Benefits. Deliver to Agent: (i) promptly, and in any event within 10 Business Days after such Borrower or any of its Subsidiaries knows or has reason to know that an ERISA Event has occurred that reasonably could be expected to result in a Material Adverse Change, a written statement of the chief financial officer of such Borrower describing such ERISA Event and any action that is being taking with respect thereto by Borrowers, any such Subsidiary or ERISA Affiliate, and any action taken or threatened by the IRS, Department of Labor, or PBGC. Such Borrower or such Subsidiary, as applicable, shall be deemed to know all facts known by the administrator of any Benefit Plan of which it is the plan sponsor, (ii) promptly, and in any event within three Business Days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by such Borrower, any of its Subsidiaries or, to the knowledge of such Borrower, any ERISA Affiliate with respect to such request, and (iii) promptly, and in any event within three Business Days after receipt by such Borrower, any of its Subsidiaries or, to the knowledge of such Borrower, any ERISA Affiliate, of the PBGCs intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice.

6.15. Leases. Pay when due all rents and other amounts payable under any leases to which such Borrower is a party or by which such Borrower’s properties and assets are bound, unless such payments are the subject of a Permitted Protest. To the extent that such Borrower fails timely to make payment of such rents and other amounts payable when due under its leases, Agent shall be entitled, in its discretion, to reserve an amount equal to such unpaid amounts against the Maximum Commitment Amount.

6.16. [Intentionally Omitted.]

6.17. Existence. At all times preserve and keep in full force and effect Borrowers’ valid existence and good standing and any rights and franchises material to the Borrowers’ businesses, except where the failure to maintain a foreign good standing qualification or any right or franchise could not reasonably be expected to result in a Material Adverse Effect.

6.18. Environmental. (a) Keep any property either owned or operated by the Borrowers free of any material Environmental Liens or post bonds or other financial assurances sufficient to satisfy the obligations or liability evidenced by such Environmental Liens, (b) comply, in all material respects, with Environmental Laws and provide to Agent documentation of such compliance which Agent reasonably requests, (c) promptly notify Agent of any release of a Hazardous Material of any reportable and material quantity from or onto property owned or operated by the any Borrower and take any Remedial Actions required to abate said release or otherwise to come into compliance with applicable Environmental Law, and (d) promptly provide Agent with written notice within 10 days of

73

the receipt of any of the following: (i) notice that an Environmental Lien has been filed against any of the real or personal property of any Borrower, (ii) commencement of any Environmental Action or notice that an Environmental Action will be filed against any Borrower, and (iii) notice of a violation, citation, or other administrative order which reasonably could be expected to result in a Material Adverse Change.

6.19. Immediate Notice to Agent. Each Borrower shall provide Agent with written notice promptly upon actual knowledge of the occurrence of any of the following events, which written notice shall state with reasonable particularity the facts and circumstances of the event for which such notice is being given:

(i) Any change in the Authorized Persons;

(ii) Any cessation by such Borrower of its making payment to its creditors generally as such Borrower’s debts become due;

(iii) Any failure by the Borrowers to pay rent at the Borrowers’ locations, which failure continues for more than five (5) Business Days following the last day on which such rent was payable without more than a minimal adverse effect on the Borrowers;

(iv) Any Material Adverse Change in the business, operations, or financial affairs of any Borrower;

(v) The occurrence of any Default or Event of Default;

(vi) Any intention on the part of any Borrower to discharge such Borrower’s present independent accountants or any withdrawal or resignation by such independent accountants from their acting in such capacity;

(vii) Any determination by Borrowers to import an amount of its Inventory in excess of $500,000 in any Fiscal year;

(viii) Any litigation which could reasonably be expected to result in a Material Adverse Change;

(ix) Any determination by Parent or a Borrower, as applicable, to amend, or agree to amend, the terms of Parent Debentures, the Parent Note Purchase Documents, the Indenture or to enter into or amend any other agreement evidencing any Indebtedness of Parent or a Borrower;

(x) The occurrence of any default or event of default under the Parent Debentures, the Parent Note Purchase Documents, the Indenture or any other agreement evidencing any Indebtedness of Parent or a Borrower; and

(xi) Any amendments or waivers (with copies thereof) to any of the documents governing or evidencing the Parent Debentures, the Parent Note Purchase Documents, the Indenture or any other agreement evidencing any Indebtedness of Parent or a Borrower.

74

6.20. Disclosure Updates. Promptly and in no event later than 5 Business Days after obtaining actual knowledge thereof, (a) notify Agent if any written information, exhibit, schedule, or report furnished to the Agent contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (b) correct any defect or error that may be discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof; provided, however, that any Schedules attached to this Agreement or the Perfection Certificate shall be deemed amended by any written notification provided by Borrowers pursuant to this Section.

6.21. Solvency. The Borrowers are in compliance with Section 5.12 hereof on a consolidated basis.

6.22. Line of Business. Each Borrower shall not engage in any business other than the business in which it is currently engaged or a business reasonably related thereto (the conduct of which reasonably related business is reflected in the Business Plan).

6.23. Additional Subsidiaries. If any additional Subsidiary of a Borrower is formed or acquired after the Restatement Date, Borrowers will notify the Agent thereof and (a) each Borrowers will cause such Subsidiary to become a Borrower hereunder and under each applicable Loan Document within ten (10) Business Days after such Subsidiary is formed or acquired and promptly take such actions to create and perfect Liens on such Subsidiary’s assets to secure the Secured Obligations as the Agent shall reasonably request.

6.24. In-Transit Inventory. In the event that Borrowers elect to import any Inventory in excess of $500,000 in any Fiscal year from any other country to the United States, Borrowers shall, after the occurrence and during the continuation of a Cash Dominion Event, use their commercially reasonable best efforts to cause such Inventory to be (i) the subject of a negotiable bill of lading (x) that is consigned to Agent (either directly or by means of endorsements), (y) that was issued by the carrier respecting the subject Inventory, and (z) that is in the possession of Agent or a customs broker or freight forwarder that has executed a Custom Brokers Agreement or Freight Forwarders Agreement with Agent, or (ii) the subject of a negotiable cargo receipt and is not the subject of a bill of lading (other than a negotiable bill of lading consigned to, and in the possession of, a consolidator or Agent, or their respective agents) and such negotiable cargo receipt is (x) consigned to Agent (either directly or by means of endorsements), (y) was issued by a consolidator respecting the subject Inventory, and (z) is in the possession of Agent or a customs broker or freight forwarder that has executed a Custom Brokers Agreement or Freight Forwarders Agreement with Agent.

75

6.25. Post-Restatement Date.

(a) Borrowers shall, on the later of one hundred eighty (180) days after the Restatement Date or prior to the date on which Borrowers commence importing Inventory in excess of $500,000 in any Fiscal year from outside the United States, use commercially reasonable best efforts to deliver to Agent fully executed Customs Brokers Agreements or Freight Forwarders Agreements, as applicable, from each freight forwarder and customs broker that transports or ships Inventory from a location outside the United States for receipt by Borrowers, in each case in form and substance satisfactory to Agent in its Permitted Discretion and executed by the freight forwarder or customs broker, as applicable, the Agent and Borrowers.

(b) Borrowers shall: (i) use commercially reasonable best efforts to deliver a Collateral Access Agreement after the Restatement Date for each retail store location of Borrowers which is, as of any date, located in a Landlord Lien State and (ii) deliver to Agent, within thirty (30) days after the Restatement Date, Collateral Access Agreements for each distribution center or warehouse where any Collateral is located and for Borrowers’ chief executive office.

(c) Borrowers shall, within thirty (30) days after the Restatement Date, execute and deliver to the Agent original but undated Credit Card Notifications duly authorized, executed and delivered by Borrowers, and directed to each Credit Card Processor of Borrowers as of the Restatement Date. In the event that Borrowers retain any Credit Card Processor which was not a Credit Card Processor on the Restatement Date (or if the legal identity of any Credit Card Processor changes because of merger, acquisition, or any other reason), Borrowers shall promptly deliver a duly authorized and executed Credit Card Notification for such additional Credit Card Processor to Agent, which shall be held by the Agent and delivered to the Credit Card Processors, if at all, only after the occurrence and during the continuation of a Cash Dominion Event.

(d) Borrowers shall, within thirty (30) days after the Restatement Date, execute and deliver to the Agent original but undated notifications duly authorized, executed, and delivered by Borrowers, directed to each depositary institution at which Borrowers maintain a DDA on the Restatement Date, and, for any DDA opened after the conclusion of such thirty (30) day period, on the date such DDA is opened, instructing each such institution to remit all amounts deposited from time to time in the DDA to the Restricted Account, which shall be held by the Agent and delivered to such depositary institutions, if at all, only after the occurrence and during the continuation of a Cash Dominion Event.

7. NEGATIVE COVENANTS.

Each Borrower and each Subsidiary of a Borrower covenants and agrees that, so long as any credit hereunder shall be available to Borrowers and until full and final payment of the Obligations, such Borrower or Subsidiary will not:

7.1. Indebtedness. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except:

(a) Indebtedness evidenced by this Agreement;

76

(b) Indebtedness under the Indenture outstanding as of the Restatement Date (and Indebtedness in exchange thereof not to exceed the aggregate amount of the Indebtedness so exchanged) and such other Indebtedness as set forth on Schedule 5.22;

(c) Indebtedness incurred by Poolmart hereafter to finance the acquisition by Poolmart of real estate or other fixed assets for use in the on-going operations of Poolmart, provided (i) that such Indebtedness is secured only by the real estate or other assets financed thereby, and that such investments in real estate or other assets are permitted under Section 7.21 hereof and (ii) that the aggregate amount of such Indebtedness outstanding at any time shall not exceed $10,000,000;

(d) Indebtedness of Parent in an aggregate principal amount not to exceed $450,000,000 (plus interest paid in kind in respect of any outstanding permitted Indebtedness of Parent) (the “Permitted Parent Debt”);

(e) Indebtedness arising under Capital Leases entered into by a Borrower or any of its Affiliates in the ordinary course of business, provided that the aggregate amount of such Indebtedness outstanding at any time shall not exceed $10,000,000;

(f) Indebtedness incurred by a Borrower or any of its Subsidiaries in an aggregate amount not to exceed $10,000,000 at any time outstanding;

(g) Indebtedness of any Subsidiary of a Borrower to a Borrower incurred in the ordinary course of business; and

(h) refinancings, renewals, or extensions of Indebtedness permitted under clauses (b) (other than Indebtedness under the Indenture), (d), and (g) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancings, renewals, or extensions do not materially impair the prospects of repayment of the Secured Obligations by Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or extensions do not result in an increase in the aggregate principal amount of the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, and (iv) to the extent that Indebtedness that is refinanced was subordinated in right of payment to the Secured Obligations, then the subordination terms and conditions of the refinancing Indebtedness must be at least as favorable to the Lender Group as those applicable to the refinanced Indebtedness.

7.2. Liens. Create, incur, assume, or permit to exist, directly or indirectly, any Lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced under Section 7.1(c) and so long as the replacement Liens only encumber those assets or property that secured the original Indebtedness); provided that in any event, with respect to any of fee interest in Real Property, Borrowers shall not create or suffer to exist any consensual Liens, or sell or enter into any sale and leaseback transaction relating to any such interest in any Real Property which is owned by a Borrower on the Restatement Date.

77

7.3. Restrictions on Fundamental Changes. Enter into any merger or consolidation (other than of a Subsidiary of a Borrower into a Borrower, or a Borrower into the other Borrower), reorganization or recapitalization (other than in connection with an acquisition permitted by Section 7.13, in which the Borrower or a Subsidiary is the surviving corporation), or reclassify its capital stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its property or assets.

7.4. Disposal of Assets. Sell, lease, assign, transfer, or otherwise dispose of any of such Borrower’s properties or assets other than sales of or other disposition of (a) Inventory, (b) obsolete Equipment, (c) Equipment not used or useful in the conduct of the applicable Borrower’s business, (d) sale and leasebacks of the properties listed on Schedule 7.4 or of any Real Property or fixed assets acquired after the Restatement Date, and (e) other assets (other than Inventory) not exceeding $500,000 per year in book value.

7.5. Change Name. Change such Borrower’s name, FEIN, corporate structure (within the meaning of Section 9-402(7) of the Code), or identity, or add any new fictitious name.

7.6. Guarantee. Guarantee or otherwise become in any way liable with respect to the obligations of any third Person except by endorsement of instruments or items of payment for deposit to the account of such Borrower or which are transmitted or turned over to Agent.

7.7. Nature of Business. Make any material change in the principal nature of such Borrower’s business.

7.8. Prepayments and Amendments.

(a) Prepay, redeem, retire, defease, purchase, or otherwise acquire any Funded Debt owing to any Person; provided, however, that Borrowers may prepay, redeem, retire, defease, purchase, or otherwise acquire any Funded Debt if (i) the Availability Condition has been satisfied; (ii) the amount of such prepayment, redemption, retirement, defeasance, purchase, or acquisition does not exceed, when aggregated with all other payments made pursuant to this Section 7.8(a) or any of Sections 7.11(b) and 7.11(c) and Section 7.13(d) in the same Fiscal year, the Restricted Payments Cap then in effect; and (iii) the amount of such prepayment, redemption, retirement, defeasance, purchase, or acquisition does not exceed (A) $25,000,000 per annum if such Funded Debt is prepaid, redeemed, retired, defeased, purchased or otherwise acquired with proceeds of a Borrowing under this Agreement or (B) $50,000,000 per annum if such Funded Debt is prepaid, redeemed, retired, defeased, purchased or otherwise acquired solely by use of Borrowers’ available cash-on-hand, less Revolving Facility Usage at such time.

78

(b) Directly or indirectly, amend or otherwise modify the terms or conditions of the Indenture or any other agreement, instrument, document, indenture, or other writing evidencing or concerning any other Indebtedness of the Borrowers without Agent’s prior written consent if such amendment or modification to such other Indebtedness would materially adversely change any obligations or covenants of a Borrower or could otherwise be reasonably anticipated to result in a Material Adverse Change.

7.9. Change of Control. Cause, permit, or suffer, directly or indirectly, any Change of Control.

7.10. Consignments. Consign any Inventory or sell any inventory on bill and hold, sale or return, sale on approval, or other conditional terms of sale.

7.11. Distributions. Make any distribution or declare or pay any dividends (in cash or other property, other than capital stock) on, or purchase, acquire, redeem, or retire any of such Borrower’s capital stock, of any class, whether now or hereafter outstanding; provided, however, that:

(a) each Subsidiary of a Borrower may pay cash dividends or distributions to a Borrower or another wholly-owned Subsidiary of a Borrower;

(b) so long as the Availability Condition has been satisfied and subject to the Restricted Payments Cap, a Borrower may:

(i) declare or pay any dividend or make distribution to Parent for the purpose of repurchasing capital stock of Parent or options, warrants or other securities exercisable or convertible into capital stock of Parent from employees and directors of Parent or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment or directorship of such employees or directors, in an aggregate amount not to exceed $1,000,000 in any calendar year and $4,000,000 in the aggregate plus, in the case of any such repurchase of capital stock, the amount of net cash proceeds received by Parent from the resale of repurchased capital stock to officers or directors of Parent and its Subsidiaries; and

(ii) make distributions or declare or pay any dividends (in cash or other property) on, or otherwise purchase, acquire, redeem, or retire any of such Borrower’s capital stock, of any class;

(c) if the Availability Condition has been satisfied and subject to the Restricted Payments Cap, the Borrowers may make distributions to Parent to pay interest on the Permitted Parent Debt (collectively, the “Parent Debt Service Distributions”); provided, however, that the aggregate amount of Restricted Payments under clauses “b” and “c” of this Section 7.11, when aggregated with all payments made under Sections 7.8(a) and 7.13(d) in any Fiscal year shall not exceed the Restricted Payments Cap at any time; and

(d) the Borrowers may make distributions to Parent in respect of any Fiscal year in an amount up to the federal and state income tax expense of Poolmart on a consolidated basis in such Fiscal year (collectively, the “Parent Tax Distributions”).

79

7.12. Accounting Methods. Other than pursuant to GAAP or with the concurrence of a “Big 4” accounting firm, modify or change its method of accounting.

7.13. Investments and Acquisitions. Directly or indirectly make any Investment or acquire any assets outside of the ordinary course of business comprising substantially all of the assets of any other Person or of a business unit of any other Person other than (a) Permitted Investments, (b) loans by a Borrower to employees which do not exceed $1,000,000 in the aggregate outstanding at any time, (c) trade credit extended to customers of Borrowers in the ordinary course of business, (d) acquisitions of capital stock of any Person or any assets comprising substantially all of the assets of any other Person or of a business unit of any other Person in an amount not to exceed $30,000,000 in the aggregate over the term of this Agreement so long as the Availability Condition at the time of each such acquisition is satisfied and the aggregate amount of all such acquisitions, together with the aggregate amount of all payments made under Sections 7.8(a) and 7.11(b) and (c) in the same Fiscal year does not exceed Restricted Payments Cap in effect for such Fiscal year.

7.14. Transactions with Affiliates. Directly or indirectly enter into or permit to exist any material transaction with any Affiliate of such Borrower except for (x) transactions contemplated under the Management Agreement as in effect as of the Restatement Date and (y) transactions that are in the ordinary course of such Borrower’s business and upon fair and reasonable terms, and that are no less favorable to such Borrower than would be obtained in an arm’s length transaction with a non-Affiliate.

7.15. Suspension. Suspend or go out of a substantial portion of its business.

7.16. Fiscal Year. The Borrowers shall not change their Fiscal year from the current twelve month period that comprises each Fiscal year.

7.17. Use of Proceeds. Use the proceeds of the Advances or any Letter of Credit for any purpose other than (i) on the Restatement Date, to pay transactional fees, costs, and expenses incurred in connection with this Agreement and the transactions contemplated hereby, including the refinance of any existing Obligations under the Existing Loan Agreement, and (ii) thereafter, for Borrowers’ general corporate purposes and all other lawful and permitted purposes.

7.18. Change in Location of Chief Executive Office; Inventory and Equipment with Bailees. Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Agent and so long as, at the time of such written notification, such Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Lien of Agent (for the benefit of the Lender Group) and also provides to Agent a Collateral Access Agreement with respect to such new location. The Inventory and Equipment of such Borrower shall not at anytime now or hereafter be stored with a bailee, warehouseman, or similar party without Agent’s prior written consent and without a Collateral Access Agreement.

80

7.19. No Prohibited Transactions Under ERISA. Directly or indirectly:

(a) engage, or permit any Subsidiary of such Borrower to engage, in any prohibited transaction which is reasonably likely to result in a civil penalty or excise Tax described in Sections 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor;

(b) permit to exist with respect to any Benefit Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), whether or not waived;

(c) fail, or permit any Subsidiary of such Borrower to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan;

(d) terminate, or permit any Subsidiary of such Borrower to terminate, any Benefit Plan where such event would result in any liability of such Borrower, any of its Subsidiaries or any ERISA Affiliate under Title IV of ERISA;

(e) fail, or permit any Subsidiary of such Borrower to fail, to make any required contribution or payment to any Multiemployer Plan;

(f) fail, or permit any Subsidiary of such Borrower to fail, to pay any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment;

(g) amend, or permit any Subsidiary of such Borrower to amend, a Plan resulting in an increase in current liability for the plan year such that either of such Borrower, any Subsidiary of such Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the IRC; or

(h) withdraw, or permit any Subsidiary of such Borrower to withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely to result in any liability of any such entity under Title IV of ERISA;

which, individually or in the aggregate, results in or reasonably would be expected to result in a claim against or liability of such Borrower, any of its Subsidiaries or any ERISA Affiliate in excess of $1,000,000.

7.20. Financial Covenants.

(a) Fixed Charge Coverage Ratio. At any time during which the Revolving Facility Usage exceeds $12,500,000 for more than sixty (60) consecutive days, permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal quarter to be less than 1.10 to 1.00.

81

(b) Leverage Ratio. Permit the Leverage Ratio for the preceding Fiscal quarter tested as of the last day of any Fiscal quarter to exceed the ratio of 2.75 to 1.00.

(c) Capital Expenditures Covenant. Permit the aggregate amount of Capital Expenditures incurred in any Fiscal year to exceed $25,000,000, provided, however, that if Borrowers expend less (a “Capital Expenditures Savings”) than $25,000,000 on Capital Expenditures in any Fiscal Year, such Capital Expenditure Cap in the next Fiscal Year shall equal the lesser of (i) $25,000,000 plus the amount of the previous Fiscal Year’s Capital Expenditures Savings or (ii) $28,000,000.

(d) Minimum EBITDA. Permit EBITDA as of the last day of any Fiscal quarter to be less than $70,000,000.

7.21. Store Closings. Close (or plan or project to close) more than ten percent (10%) of Borrowers’ retail store locations in any Fiscal year or 12 month consecutive period unless Borrowers have first obtained Agent’s prior written consent which consent may be conditioned, among other things, upon Borrowers’ retention of a nationally recognized liquidator approved by Agent as either a consultant or liquidator in connection with the closing of such stores.

7.22. Securities Accounts. Establish or maintain any Securities Account unless Agent shall have received a Securities Account Control Agreement in respect of such Securities Account.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an event of default (each, an “Event of Default”) under this Agreement:

8.1. Payment. If Borrowers fail to pay, within two (2) Business Days of the date due or the date when declared due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender Group Expenses, or other amounts constituting Obligations), provided that nothing contained herein shall prohibit Agent from charging such amounts to the Borrowers’ loan account on the due date thereof;

8.2. Covenants, etc.

(a) If any Borrower fails to perform or observe any term, provision, condition, covenant or agreement contained in Section 6.25(a) of this Agreement;

(b) If any Borrower fails to perform or observe any term, provision, condition, covenant or agreement in this Agreement or any of the Loan Documents (other than those listed in Sections 8.1 or 8.2), and, with respect to any such failure which by its nature can be cured, such failure shall continue for a period of 20 days from the date of its occurrence; provided, however, that in the case of a failure which by its nature can be cured under any of the following sections of this Agreement, such failure shall continue for a period of 20 days from the

82

date the such Borrower receives written notice from Agent of the existence of such failure: Section 6.1 with respect to the maintenance of adequate books and records; Section 6.3 with respect to Agent’s satisfaction with form of the financial statements furnished to Agent; Sections 6.9 and 6.10 with respect to the failure to make provision to the satisfaction of Agent for payment of the obligations described therein;

8.3. Attachment. If any material portion of any Borrower’s properties or assets is attached, seized, subjected to a writ or distress warrant; or is levied upon, or comes into the possession of any-third Person, or if any Borrower fails to pay its debts generally when due or admits in writing its inability to pay its debts as they become due;

8.4. Insolvency. If an Insolvency Proceeding is commenced by any Borrower or any of their Affiliates;

8.5. Involuntary Insolvency. If an Insolvency Proceeding is commenced against any Borrower and any of the following events occur: (a) such Borrower consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof; provided, however, that, during the pendency of such period, the Lender Group shall be relieved of its obligation to extend credit hereunder; (d) an interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, such Borrower; or (e) an order for relief shall have been issued or entered therein;

8.6. Judgment. If one or more judgments or orders for the payment of money is rendered against any Borrower or any of its Subsidiaries in excess of $500,000 in the aggregate (provided, that, any judgment covered by insurance where the insurer has assumed responsibility in writing for such judgment shall not be included in calculating such amount) and shall remain undischarged or unvacated for a period in excess of thirty (30) days or execution shall at any time not be effectively stayed;

8.7. Levy. If a notice of Lien, levy, or assessment is filed of record with respect to any Borrower’s or any of such Borrower’s Subsidiaries’ assets by the United States, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any Taxes or debts owing at any time hereafter to anyone or more of such entities becomes a Lien, whether choate or otherwise, upon any of such Borrower’s properties or assets and the same is not paid on the payment date thereof provided that any such Lien or assessment shall not be an Event of Default if for less than $500,000 and if fully reserved by Agent against Availability;

8.8. [Intentionally Omitted]

8.9. Material Agreements. If there is a default by a Borrower under the Indenture or under any other agreement evidencing Indebtedness of a Borrower evidencing Indebtedness outstanding in an amount in excess of $500,000, or under any other agreement to which any Borrower is a party with one or more third Persons the termination

83

or suspension of which would be reasonably anticipated to result in a Material Adverse Change, and such default (a) occurs at the final maturity of the obligations thereunder, or (b) results in a right by such third Person(s), irrespective of whether exercised, to accelerate the maturity of such Borrower’s obligations thereunder, to terminate such agreement or to refuse to renew such agreement pursuant to an automatic renewal right therein;

8.10. Optional Redemption of Indebtedness. If any Borrower makes any optional redemption of Indebtedness under the Indenture or any other Subordinated Debt (other than as contemplated under Section 7.8) or any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness;

8.11. Misrepresentation. If any misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or report made to the Lender Group by any Borrower or any of their Subsidiaries or any officer, employee, agent, or director of any Borrower or any of their Subsidiaries, on the date any such warranty, representation, statement, or report is made;

8.12. Cessation of Business. Any event occurs, as a result of which revenue producing activities (except to the extent such lost revenue is promptly replaced with business interruption insurance) cease at (a) any of Borrowers’ principal distribution centers and such cessation or curtailment would reasonably be anticipated to result in a Material Adverse Change or (b) any other facility or facilities of the Borrowers generating more than 10% of Borrowers’ consolidated revenues for Borrowers’ Fiscal year preceding such event, and such cessation continues for more than twenty (20) days.

8.13. Change of Control. If a “Change in Control” occurs under and as defined in the Indenture or under and as defined in this Agreement.

8.14. Liens. If this Agreement or any other Loan Document that purports to create a Lien in favor of the Lender Group, shall, for any reason, fail or cease to create a valid and perfected and, except to the extent permitted by the terms hereof or thereof, first priority Lien on or security interest (subject only to Permitted Liens) in a material portion of the Collateral covered hereby or thereby in which a Lien is required to be perfected under the Loan Documents.

8.15. Loan Documents. Any provision of any Loan Document shall at any time for any reason be declared to be null and void, or the validity or enforceability thereof shall be contested by any Borrower, a proceeding shall be commenced by any Borrower, or by any Governmental Authority having jurisdiction over the Borrowers, seeking to establish the invalidity or unenforceability thereof (as the case may be), or any Borrower that such Borrower has any liability or obligation purported to be created under any Loan Document (as the case may be) or any challenge is brought by any Borrower which seeks to void, avoid, limit or otherwise adversely affect any security interests created by or in any Loan Document or any payment made pursuant thereto or a determination by any court or any other judicial government authority that any Loan Document is not enforceable strictly in accordance with the subject Loan Documents terms or which voids, avoids, limits, or otherwise adversely affects any security interests created by any Loan Document or any payment made pursuant thereto.

84

8.16. Parent Note Purchase Documents. If there is an “Event of Default” (as therein defined) under the Parent Note Purchase Documents or the Parent Debentures or a breach or “Event of Default” under any other Indebtedness of Parent by reason of Parent’s failure to make any payment required by Parent thereunder or if any other “Event of Default” occurs under the Parent Note Purchase Documents, the Parent Debentures or any other such other Indebtedness in consequence of which the holders of such Parent Note Purchase Documents, Parent Debentures or other Indebtedness have caused the acceleration of the maturity of Indebtedness evidenced thereby.

8.17. Material Restraint. The indictment of, or institution of any legal process or proceedings against any Borrower where the relief, penalties or remedies sought or available include the forfeiture of any property of any Borrower and/or the imposition of any stay or other order, in each case, which would cause a Material Adverse Change.

8.18. Indictment. Any indictment of Borrowers’ chief executive officer or chief financial officer under Applicable Law where the crime alleged arises from an act of defalcation, breach of fiduciary duty, embezzlement or intentions) fraud related to senior executive’s work responsibilities and would constitute a felony under Applicable Law unless in the case of an indicted executive, such executive’s employment is terminated within sixty (60) days of such indictment or the Agent determines, in its Permitted Discretion, that such indictment may not reasonably be anticipated to result in a Material Adverse Change.

9. THE LENDER GROUP’S RIGHTS AND REMEDIES.

9.1. Rights and Remedies. Upon the occurrence, and during the continuation, of an Event of Default Agent may, pursuant to Sections 17.4 and 17.5, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrowers:

(a) Declare all Obligations immediately due and payable;

(b) Cease advancing money or extending credit to or for the benefit of Borrowers under this Agreement or under any of the Loan Documents;

(c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting the Lender Group’s rights and security interests in the Collateral and without affecting the Secured Obligations;

(d) Notify Account Debtors and other Persons obligated on the Collateral to make payment or otherwise render performance to or for Agent, and, to the extent permitted under the Code, enforce the obligations of Account Debtors and other Persons obligated on the Collateral and exercise the rights of Borrowers with respect to such obligations

85

and any property that may secure such obligations and settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit Borrowers’ Loan Account with only the net amounts received by Agent in payment of such disputed, Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith;

(e) Take any proceeds of Collateral;

(f) Cause Borrowers to hold all of their returned Inventory in trust for the Lender Group, segregate all such returned Inventory from all other property of any Borrower or in any Borrower’s possession and conspicuously label said returned Inventory as the property of the Lender Group;

(g) Without notice to or demand upon any Borrower or any guarantor, make such payments and do such acts as Agent considers necessary or reasonable to protect its security interests in the Collateral. Borrowers agree to assemble the Collateral if Agent so requires, and to make the Collateral available to Agent as Agent may designate. Each Borrower authorizes Agent to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or Lien that in Agent’s determination appears to conflict with the Liens of Agent (for the benefit of the Lender Group) in the Collateral and to pay all expenses incurred in connection therewith. With respect to any of Borrowers’ owned or leased premises, each Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same, without charge, for up to 120 days in order to exercise any of the Lender Group’s rights or remedies provided herein, at law, in equity, or otherwise;

(h) Without notice to any Borrower (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within the meaning of Section 9505 of the Code), set off and apply to the Secured Obligations any and all (i) balances and deposits of Borrowers held by the Lender Group (including any amounts received in any Restricted Account), or (ii) indebtedness at any time owing to or for the credit or the account of any Borrower held by the Lender Group;

(i) Hold, as cash collateral, any and all balances and deposits of any Borrower held by the Lender Group, and any amounts received in any Restricted Account, to secure the full and final repayment of all of the Secured Obligations;

(j) Instruct each Cash Management Bank, Restricted Account Bank and any other depositary with whom a DDA subject to a Restricted Account Control Agreement is maintained, to pay any and all balances and deposits in the applicable Cash Management Account, Restricted Account, or other DDA to the Agent’s Account.

(k) Instruct any securities intermediary to liquidate the applicable Securities Account or any related Investment Property maintained or held thereby and remit the proceeds thereof to the Agent’s Account;

86

(l) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Agent is hereby granted an irrevocable license or other right to use, apply, and/or affix, without charge, any Borrowers’ labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and each Borrower’s rights under all licenses and all franchise agreements shall inure to the Lender Group’s benefit;

(m) Sell, or cause to be sold, the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including any Borrowers’ premises) as Agent determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale;

(n) Agent shall give notice of the disposition of the Collateral as follows:

(1) Agent shall give Borrowers a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made;

(2) The notice shall be personally delivered or mailed, postage prepaid, to Borrowers as provided in Section 12, at least five days before the date fixed for the sale, or at least five days before the date on or after which the private sale or other disposition is to be made; no notice needs to be given prior to the disposition of any portion of the Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized market. Notice to Persons other than Borrowers claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Agent;

(3) If the sale is to be a public sale, Agent also shall give notice of the time and place by publishing a notice one time at least five days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held;

(4) Borrowers agree that such written notice shall satisfy all requirements for notice to the Borrowers which are imposed under the Code or other applicable law with respect to the exercise of the Agent’s rights and remedies upon default.

(o) Agent may credit bid and purchase at any public sale;

(p) Agent may conduct one or more going out of business sales in respect to the Collateral;

(q) The Agent shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents and as a secured party under the Code;

(r) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third Persons, by Agent to Borrowers;

87

(s) The Agent, in the exercise of the Agent’s rights and remedies upon default, may conduct one or more going out of business sales, in the Agent’s own right or by one or more agents and contractors. Such sale(s) may be conducted upon any premises owned, leased, or occupied by the Borrowers. The Agent’s and any such agent or contractor, in conjunction with any such sale, may augment the Inventory with other goods (all of which other goods shall remain the sole property of the Agent’s or such agent or contractor). Any amounts realized from the sale of such goods which constitute augmentations to the Inventory (net of an allocable share of the costs and expenses incurred in their disposition) shall be the sole property of the Agent’s or such agent or contractor and none of the Lenders, Borrowers nor any Person claiming under or in right of the Borrowers shall have any interest therein;

(t) Unless the Collateral is perishable or threatens to decline speedily in value, or is of a type customarily sold on a recognized market (in which event the Agent shall provide the Borrowers with such notice as may be practicable under the circumstances), the Agent shall give the Borrowers at least ten (10) days prior written notice of the date, time, and place of any proposed public sale, and of the date after which any private sale or other disposition of the Collateral may be made. The Borrowers agree that such written notice shall satisfy all requirements for notice to the Borrowers which are imposed under the Code or other applicable law with respect to the exercise of the Agent’s rights and remedies upon default;

(u) In connection with the Agent’s exercise of its rights under this Agreement, the Agent may enter upon, occupy, and use any premises owned or occupied by the Borrowers, and may exclude the Borrowers from such premises or portion thereof as may have been so entered upon, occupied, or used by the Agent. The Agent shall not be required to remove any of the Collateral from any such premises upon the Agent’s taking possession thereof, and may render any Collateral unusable to the Borrowers. In no event shall the Agent be liable to the Borrowers for use or occupancy by the Agent of any premises pursuant to this Agreement, nor for any charge (such as wages for the Borrowers’ employees and utilities) incurred in connection with the Agent’s exercise of the Agent’s rights and remedies; and

(v) The Borrowers hereby grant to the Agent a royalty free nonexclusive irrevocable license to use, apply, and affix any trademark, trade name, logo, or the like in which any of the Borrowers now or hereafter has rights, such license being with respect to the Agent’s exercise of its rights and remedies hereunder including, without limitation, in connection with any completion of the manufacture of Inventory or sale or other disposition of Inventory.

9.2. Remedies Cumulative. The Lender Group’s rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative and may be exercised simultaneously. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender Group shall constitute a waiver, election, or acquiescence by it.

88

10. TAXES AND EXPENSES; WITHHOLDINGS.

10.1. Third Party Payments. If, after written request by Agent to a Borrower, such Borrower fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Agent determines that such failure by such Borrower could result in a Material Adverse Change, in its discretion and without prior notice to such Borrower, Agent may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves in Borrowers’ Loan Account as Agent deems necessary to protect the Lender Group from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type described in Section 6.10, and take any action with respect to such policies as Agent deems prudent. Any such amounts paid by Agent shall constitute Lender Group Expenses. Any such payments made by Agent shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing.

10.2. Taxes.

(a) All payments required to be made by a Borrower under the Loan Documents shall be made free and clear of, and without deduction or withholding for or on account of, any Taxes unless such deduction or withholding is required by Applicable Law or the affected Lender has not made commercially reasonable efforts to minimize its exposure to any such Taxes.

(b) If any Taxes are required to be deducted or withheld by Applicable Law from any amounts payable under the Loan Documents by a Borrower, (i) such Borrower shall promptly pay an additional amount (“Additional Amount”) to the Agent or the applicable Lender as may be necessary so that after making all required Tax deductions or withholdings (including deductions or withholdings applicable to all Taxes on, or arising by reason of, the payment of Additional Amounts), the Agent or applicable Lender receives and retains, an amount equal to the amount that it would have received had no such deductions or withholdings been required, (ii) such Borrower shall deduct or withhold all Taxes (including Taxes on Additional Amounts) required to be withheld or deducted under Applicable Law from any payments made to the Agent or the Lenders pursuant to the Loan Documents, and (iii) the Borrower shall pay the full amount of all Taxes deducted or withheld under this Section 10.2 to the relevant Governmental Authority on a timely basis, all in accordance with Applicable Law.

(c) The obligations of the Borrowers to pay Additional Amounts under this Section 10.2 shall not apply with respect to “Excluded Taxes”, which shall mean (i) in relation to the Agent or any Lender any Taxes imposed on the net income or capital of the Agent or any Lender (however denominated) and franchise taxes imposed on the Agent or any Lender (in lieu of net income taxes) by any Governmental Authority, and also Taxes that are branch

89

profits taxes or any similar tax imposed by any Governmental Authority, in each case as a result of the Agent or the Lender (1) carrying on a trade or business or having a permanent establishment in any jurisdiction or political subdivision thereof, (2) being organized under the laws of such jurisdiction or any political subdivision thereof, or (3) being or being deemed to be resident in such jurisdiction or political subdivision thereof and (ii) any withholding Tax that (1) is imposed on amounts payable to any Lender at the time such Lender becomes a party to this Agreement (or designates a new lending office) or (2) is attributable to such Lender’s failure to comply with Section 17.10(a).

(d) The Borrowers shall, promptly following receipt of a request from the Agent, pay to the Agent, on its behalf or on behalf of any Lender, any and all Taxes in the nature of sales, use, goods and services, and harmonized sales Taxes payable under the laws of the United States of America, any State of the United States of America or any other country or jurisdiction with respect to any and all goods and services made available under the Loan Documents to any Borrower by the Agent and the Lenders.

(e) Whenever any Taxes are required to be paid by a Borrowers to a Governmental Authority under this Section 10.2, the Borrower shall send or cause to be sent to the Agent, for the account of the Agent and each affected Lender, a certified copy of an original official receipt evidencing payment of such Taxes, or other evidence of such payment reasonably satisfactory to the Agent, within 30 days after the date of any payment of Taxes thereunder.

(f) If a Borrower fails to pay any Taxes under this Section 10.2 when due or if a Borrower fails to send to the Agent the required documentary evidence of the payment of Taxes pursuant to Section 10.2, the Borrowers shall jointly and severally indemnify and save harmless the Agent and the Lenders from any Taxes, interest, penalties or other liabilities that may become payable by the Agent or by any Lender or to which the Agent or any Lender may be subjected to as a result of any such failure. A certificate of the Agent or any applicable Lender as to the amount of any such Taxes, interest, penalties or other liabilities and containing reasonable details of the calculation of such Taxes, interest, penalties or other liabilities shall be, absent manifest error, prima facie evidence of the amount of such Taxes, interest, penalties or other liabilities, as the case may be. The indemnification in this Section 10.2 shall be made within 30 days after the date the Agent or any applicable Lender has submitted a certificate under this Section 10.2.

(g) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which a Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrowers (with a copy to the Agent), at the time or times prescribed by Applicable Law or reasonably requested by a Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender’s judgment such completion, execution or submission would not materially prejudice the legal position of such Lender.

90

(h) If the Agent or any Lender determines, in its Permitted Discretion, that it has received a refund of any Taxes as to which it has been indemnified by a Borrower or with respect to which a Borrower has paid additional amounts pursuant to this Section 10.2, it shall pay over such refund to the Borrowers (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower under this Section 10.2 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses of the Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that the Borrowers, upon the request of the Agent or such Lender, agrees to repay the amount paid over to for the account of such Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Agent or such Lender in the event the Agent or such Lender is required to repay such refund to such Governmental Authority. This paragraph shall not be construed to require the Agent or any Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the Borrowers or any other Person.

(i) Without prejudice to the survival of any other obligation contained in the Loan Documents, the obligations of a Borrower under this Section 10.2 shall survive the termination of the Loan Documents and the payment of all amounts payable to the Agent or the Lenders under the Loan Documents or with respect to the Loan Documents.

11. WAIVERS; INDEMNIFICATION.

11.1. Demand; Protest; etc. Each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by the Lender Group on which such Borrower may in any way be liable.

11.2. The Lender Group’s Liability for Collateral. So long as the Lender Group complies with its obligations, if any, under Section 9207 of the Code, the Lender Group shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other Person. All risk of loss, damage, or destruction of the Collateral shall be borne by the Borrowers.

11.3. Indemnification. Borrowers shall pay, indemnify, defend, and hold each Agent-Related Person, each Lender, each Participant, and each of their respective officers, directors, employees, agents (each, an “Indemnified Person”) harmless (to the fullest extent permitted by law) from and against any and all claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other reasonable and documented out-of-pocket costs and expenses actually incurred in connection therewith (as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to the execution, delivery, enforcement, performance, and administration (including any of the foregoing arising out of the administration of the credit facilities hereunder on a joint borrowing basis) of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation, litigation, or proceeding related to this Agreement, any

91

other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the “Indemnified Liabilities”). Borrowers shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability as to which a Borrower was required to indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by such Borrower with respect thereto. Borrowers shall be subrogated to an Indemnified Person’s rights of recovery to the extent of any liabilities satisfied by the Borrowers and such Indemnified Person shall execute and deliver such instruments and papers as are necessary to assign such rights and assist in the execution thereof; provided, however, that, and, notwithstanding the foregoing to the contrary, such subrogation rights of Borrowers may not be exercised until payment in full of all Obligations due hereunder and the termination of the Commitments and shall be subordinate to the Obligations due Lender Group in all respects. WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION (OTHER THAN GROSS NEGLIGENCE) OF SUCH INDEMNIFIED PERSON OR OF ANY OTHER PERSON.

11.4. Joint Borrowers.

(a) Each Borrower agrees that it is jointly and severally, directly and primarily liable to the Agent and the Lenders for payment in full of all Secured Obligations, whether for principal, interest or otherwise and that such liability is independent of the duties, obligations, and liabilities of the other Borrowers. The Agent may bring a separate action or actions on each, any, or all of the Obligations against any Borrower, whether action is brought against the other Borrowers or whether the other Borrowers are joined in such action. In the event that any Borrower fails to make any payment of any Secured Obligations on or before the due date thereof, the other Borrowers immediately shall cause such payment to be made or each of such Secured Obligations to be performed, kept, observed, or fulfilled.

(b) The Loan Documents are a primary and original obligation of each Borrower, are not the creation of a surety relationship, and are an absolute, unconditional, and continuing promise of payment and performance which shall remain in full force and effect without respect to future changes in conditions, including any change of law or any invalidity or irregularity with respect to the Loan Documents. Each Borrower agrees that its liability -under the Loan Documents shall be immediate and shall not be contingent upon the exercise or enforcement by Agent of whatever remedies it may have against the other Borrowers, or the enforcement of any lien or realization upon any security Agent may at any time possess. Each Borrower consents and agrees that Agent shall be under no obligation (under Section 2899 or 3433 of the California Civil Code or otherwise) to marshal any assets of any Borrower against or in payment of any or all of the Obligations.

92

(c) Each Borrower acknowledges that it is presently informed as to the financial condition of the other Borrowers and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Obligations. Each Borrower hereby covenants that it will continue to keep informed as to the financial condition of the other Borrowers, the status of the other Borrowers and of all circumstances which bear upon the risk of nonpayment of the Secured Obligations. Absent a written request from any Borrower to Agent for information, such Borrower hereby waives any and all rights it may have to require Agent to disclose to such Borrower any information which Agent may now or hereafter acquire concerning the condition or circumstances of the other Borrowers.

(d) The liability of each Borrower under the Loan Documents includes Obligations arising under successive transactions continuing, compromising, extending, increasing, modifying, releasing, or renewing the Obligations, changing the interest rate, payment terms, or other terms and conditions thereof, or creating new or additional Obligations after prior Obligations have been satisfied in whole or in part. To the maximum extent permitted by law, each Borrower hereby waives any right to revoke its liability under the Loan Documents as to future indebtedness, and in connection therewith, each Borrower hereby waives any rights it may have under Section 2815 of the California Civil Code. If such a revocation is effective notwithstanding the foregoing waiver, each Borrower acknowledges and agrees that (a) no such revocation shall be effective until written notice thereof has been received by Agent, (b) no such revocation shall apply to any Secured Obligations in existence on such date (including, any subsequent continuation, extension, or renewal thereof, or change in the interest rate, payment terms, or other terms and conditions thereof), (c) no such revocation shall apply to any Obligations made or created after such date to the extent made or created pursuant to a legally binding commitment of Agent in existence on the date of such revocation, (d) no payment by such Borrower or from any other source prior to the date of such revocation shall reduce the maximum obligation of the other Borrowers hereunder, and (e) any payment by such Borrower or from any source other than Borrowers, subsequent to the date of such revocation, shall first be applied to that portion of the Obligations as to which the revocation is effective and which are not, therefore, guaranteed hereunder, and to the extent so applied shall not reduce the maximum obligation of each Borrower hereunder.

(e) (i) Each Borrower absolutely, unconditionally, knowingly, and expressly waives (A) notice of acceptance hereof; (B) notice of any loans or other financial accommodations made or extended under the Loan Documents or the creation or existence of any Secured Obligations; (C) notice of the amount of the Secured Obligations, subject, however, to each Borrower’s right to make inquiry of Agent to ascertain the amount of the Secured Obligations at any reasonable time; (D) notice of any adverse change in the financial condition of the other Borrowers or of any other fact that might increase such Borrower’s risk hereunder, (E) notice of presentment for payment, demand, protest, and notice thereof as to any instruments among the Loan Documents; and (F) all notices (except if such notice is specifically required to be given to Borrowers hereunder or under the Loan Documents) and demands to which such Borrower might otherwise be entitled:

93

(ii) its right, under Sections 2845 or 2850 of the California Civil Code, or otherwise, to require Agent, on behalf of the Lender Group, to institute suit against, or to exhaust any rights and remedies which Agent has or may have against, the other Borrowers or any third party, or against any Collateral provided by the other Borrowers, or any third party. In this regard, each Borrower agrees that it is bound to the payment of all Secured Obligations, whether now existing or hereafter accruing, as fully as if such Obligations were directly owing to the Lender Group by such Borrower. Each Borrower further waives any defense arising by reason of any disability or other defense (other than the defense that the Obligations shall have been fully and finally performed and indefeasibly paid) of the other Borrowers or by reason of the cessation from any cause whatsoever of the liability of the other Borrowers in respect thereof.

(iii) (A) any rights to assert against Agent, any Lender, or any Bank Product Provider any defense (legal or equitable), set-off, counterclaim, or claim which such Borrower may now or at any time hereafter have against the other Borrowers or any other party liable to Agent, any Lender, or any Bank Product Provider; (B) any defense, set-off, counterclaim, or claim, of any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Secured Obligations or any security therefor, (C) any defense such Borrower has to performance hereunder, and any right such Borrower has to be exonerated, provided by Sections 2819, 2822, or 2825 of the California Civil Code, or otherwise, arising by reason of the impairment or suspension of Agent’s rights or remedies against the other Borrowers; the alteration by Agent and Lenders of the Obligations; any discharge of the other Borrowers’ obligations to the Lender Group by operation of law as a result of Agent’s intervention or omission; or the acceptance by the Lender Group of anything in partial satisfaction of the Obligations; (D) the benefit of any statute of limitations affecting such Borrower’s liability hereunder or the enforcement thereof, and any act which shall defer or delay the operation of any statute of limitations applicable to the Obligations shall similarly operate to defer or delay the operation of such statute of limitations applicable to such Borrower’s liability hereunder.

(iv) Each Borrower absolutely, unconditionally, knowingly, and expressly waives any defense arising by reason of or deriving from (i) any claim or defense based upon an election of remedies by Agent including any defense based upon an election of remedies by Agent under the provisions of Sections 580a, 580b, 580d, and 726 of the California Code of Civil Procedure or any similar law of California or any other jurisdiction; or (ii) any election by Agent under Bankruptcy Code Section 1111(b) to limit the amount of, or any collateral securing, the Lender Group’s claim against the Borrowers. Pursuant to California Civil Code Section 2856(b);

(A) “Each Borrower waives all rights and defenses arising out of an election of remedies by the creditor, even though that election of remedies, such as a nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed such Borrower’s rights of subrogation and reimbursement against the other Borrowers by the operation of Section 580(d) of the California Code of Civil Procedure or otherwise.”

94

(B) “Each Borrower waives all rights and defenses that such Borrower may have because the Obligations are secured by real property. This means, among other things (i) Agent may collect from such Borrower without first foreclosing on any real or personal property collateral pledged by the other Borrower or any third Person; (ii) if Agent forecloses on any real property collateral pledged by the other Borrower or any third Person: (x) the amount of the Obligations may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (y) Agent may collect from such Borrower even if Agent, by foreclosing on the real property collateral, has destroyed any right such Borrower may have to collect from the other Borrower or any third Person.

This is an unconditional and irrevocable waiver of any rights and defenses each Borrower may have because the Obligations are secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.”

(v) If any of the Obligations at any time is secured by a mortgage or deed of trust upon real property, Agent may elect, in its sole discretion, upon a default with respect to the Obligations, to foreclose such mortgage or deed of trust judicially or nonjudicially in any manner permitted by law, before or after enforcing the Loan Documents, without diminishing or affecting the liability of any Borrower hereunder except to the extent the Obligations are repaid with the proceeds of such foreclosure. Each Borrower understands that (a) by virtue of the operation of California’s antideficiency law applicable to nonjudicial foreclosures, an election by Agent nonjudicially to foreclose such a mortgage or deed of trust probably would have the effect of impairing or destroying rights of subrogation, reimbursement, contribution, or indemnity of such Borrower against the other Borrowers or other guarantors or sureties, and (b) absent the waiver given by such Borrower, such an election would prevent Agent from enforcing the Loan Documents against such Borrower. Understanding the foregoing, and understanding that such Borrower is hereby relinquishing a defense to the enforceability of the Loan Documents, such Borrower hereby waives any right to assert against Agent any defense to the enforcement of the Loan Documents, whether denominated “estoppel” or otherwise, based on or arising from an election by Agent nonjudicially to foreclose any such mortgage or deed of trust. Each Borrower understands that the effect of the foregoing waiver may be that each Borrower may have liability hereunder for amounts with respect to which such Borrower may be left without rights of subrogation, reimbursement, contribution, or indemnity against the other Borrower or other guarantors or sureties. Each Borrower also agrees that the “fair market value” provisions of Section 580a of the California Code of Civil Procedure shall have no applicability with respect to the determination of such Borrower’s liability under the Loan Documents.

(vi) Until such time as all Obligations have been fully, finally, and indefeasibly paid in full, in cash, each Borrower hereby absolutely, unconditionally, knowingly, and expressly postpones: (1) any right of subrogation such Borrower has or

95

may have as against the other Borrowers with respect to the Obligations; (2) any right to proceed against the other Borrowers or any other Person, now or hereafter, for contribution, indemnity, reimbursement, or any other suretyship rights and claims, whether direct or indirect, liquidated or contingent, whether arising under express or implied contract or by operation of law, which such Borrower may now have or hereafter have as against the other Borrowers with respect to the Obligations; and (3) any right to proceed or seek recourse against or with respect to any property or asset of the other Borrowers.

(vii) WITHOUT LIMITING THE GENERALITY OF ANY OTHER WAIVER OR OTHER PROVISION SET FORTH IN THIS SECTION 11.4, EACH BORROWER HEREBY ABSOLUTELY, KNOWINGLY, UNCONDITIONALLY, AND EXPRESSLY WAIVES AND AGREES NOT TO ASSERT ANY AND ALL BENEFITS OR DEFENSES ARISING DIRECTLY OR INDIRECTLY UNDER ANY ONE OR MORE OF CALIFORNIA CIVIL CODE SECTIONS 2799, 2808, 2809, 2810, 2815, 2819, 2820, 2821, 2822, 2825, 2839, 2845, 2848, 2849, AND 2850, CALIFORNIA CODE OF CIVIL PROCEDURE SECTIONS 580a, 580b, 580c, 580d, AND 726, CALIFORNIA UNIFORM COMMERCIAL CODE SECTIONS 3116, 3118, 3119, 3419, 3605, 9610, 9612, 9615, 9624, 9625 AND 9627, AND CHAPTER 2 OF TITLE 14 OF PART 4 OF DIVISION 3 OF THE CALIFORNIA CIVIL CODE.

(f) Each Borrower consents and agrees that, without notice to or by such Borrower, and without affecting or impairing the liability of such Borrower hereunder, Agent may, by action or inaction:

(i) compromise, settle, extend the duration or the time for the payment of, or discharge the performance of, or may refuse to or otherwise not enforce the Loan Documents, or any part thereof, with respect to the other Borrowers;

(ii) release the other Borrowers or grant other indulgences to the other Borrowers in respect thereof; or

(iii) release or substitute any guarantor, if any, of the Obligations, or enforce, exchange, release, or waive any security for the Obligations or any guaranty of the Obligations, or any portion thereof.

(g) Agent shall have the right to seek recourse against each Borrower to the fullest extent provided for herein, and no election by Agent to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Agent’s right to proceed in any other form of action or proceeding or against other parties unless Agent has expressly waived such right in writing. Specifically, but without limiting the generality of the foregoing, no action or proceeding by Agent under the Loan Documents shall serve to diminish the liability of any Borrower thereunder except to the extent that Agent finally and unconditionally shall have realized indefeasible payment by such action or proceeding.

96

(h) The Obligations shall not be considered indefeasibly paid for purposes of this Section 11.4 unless and until all payments to Agent are no longer subject to any right on the part of any Person, including any Borrower, any Borrower as a debtor in possession, or any trustee (whether appointed pursuant to 11 U.S.C., or otherwise) of any Borrower’s assets to invalidate or set aside such payments or to seek to recoup the amount of such payments or any portion thereof, or to declare same to be fraudulent or preferential. Upon such full and final performance and indefeasible payment of the Obligations, Agent shall have no obligation whatsoever to transfer or assign its interest in the Loan Documents to any Borrower. In the event that, for any reason, any portion of such payments to Agent is set aside or restored, whether voluntarily or involuntarily, after the making thereof, then the obligation intended to be satisfied thereby shall be revived and continued in full force and effect as if said payment or payments had not been made, and each Borrower shall be liable for the full amount Agent is required to repay plus any and all costs and expenses (including attorneys’ fees and attorneys’ fees incurred pursuant to 11 U.S.C.) paid by Agent in connection therewith.

(i) Each Borrower warrants and agrees that each of the waivers and consents set forth herein are made after consultation with legal counsel and with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which a Borrower otherwise may have against the other Borrower, the Lender Group or others, or against Collateral. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law.

11.5. Costs and Expenses of Agent and Lenders.

(a) The Borrowers shall pay from time to time on demand all costs of collection, Lender Expenses and all reasonable costs, expenses, and disbursements (including reasonable attorneys’ fees and expenses) which are incurred by Agent in connection with the preparation, negotiation, execution, administration and delivery of this Agreement and of any other Loan Documents, and all other reasonable costs, expenses, and disbursements which may be incurred in connection with or in respect to the credit facility contemplated hereby or which otherwise are incurred with respect to the Obligations.

(b) The Borrowers shall pay from time to time on demand all Lender Expenses (including reasonable attorneys’ and solicitors’ fees and reasonable attorneys’ and solicitors’ expenses) incurred, following the occurrence of any Event of Default, by the Lenders or Agent.

(c) Each Borrower authorizes the Agent to pay all such fees and expenses, and in the Agent’s discretion, to add such fees and expenses to the Loan Account.

(d) The undertaking on the part of each Borrower in this Section 11.5 shall survive payment of the Obligations and/or any termination, release, or discharge executed by any Agent in favor of any Borrower, other than a termination, release, or discharge which makes specific reference to this Section 11.5.

97

12. NOTICES.

Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail (postage prepaid, return receipt requested), overnight courier, or telefacsimile to Borrowers or to Agent, as the case may be, at its address set forth below:

If to Borrowers:	LESLIE’S POOLMART, INC. 3925 E. Broadway Road Suite 100 Phoenix, Arizona 85040 Attn: Chief Financial Officer Fax No. 602-366-3942
with copies to:	GIBSON, DUNN & CRUTCHER LLP 333 South Grand Avenue Los Angeles, California 90071-3197 Attn: Brian D. Kilb, Esq. Fax No. 213.229.7520
If to Agent or the Lender Group:	WELLS FARGO RETAIL FINANCE, LLC One Boston Place 18th Floor Boston, Massachusetts 02108 Attn: Jennifer Blanchette Fax No. 617.523.4029
with copies to:	BROWN RUDNICK LLP One Financial Center Boston, MA 02111 Attn: Steven B. Levine, Esq. Fax : 617.856.8201

The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12, other than notices by Agent in connection with Sections 9-504 or 9-505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three days after the deposit thereof in the mail. Each Borrower acknowledges and agrees that notices sent by Agent in connection with Sections 9-610, 9-611, 9-612, or 9-620 of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted by telefacsimile or other similar method set forth above.

98

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF THE LENDER GROUP, IN ANY OTHER COURT IN WHICH THE LENDER GROUP SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP REPRESENTS THAT IT HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

14. DESTRUCTION OF BORROWERS’ DOCUMENTS.

All documents, schedules, invoices, agings, or other papers delivered to Agent may be destroyed or otherwise disposed of by Agent four months after they are delivered to or received by Agent, unless Borrowers requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrowers’ expense, for their return.

99

15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

15.1. Assignments and Participations.

(a) Any Lender may, subject to the terms and conditions of this Section 15, assign and delegate to one or more Eligible Transferees or, with the prior written consent of Agent, Issuing Bank, and Borrowers (provided, however, that Borrowers’ consent shall not be required if an Event of Default has occurred and is continuing), any other Person (each an “Assignee”) all, or any ratable part, of the Obligations, the Commitments, and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $5,000,000, which assignment shall not become effective until (i) written notice of such assignment, together with payment instructions, addresses, and related information with respect to the Assignee, shall have been given to Borrowers and Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered to Borrowers and Agent a fully executed Assignment and Acceptance (“Assignment and Acceptance”) in the form of Exhibit A-1; and (iii) the assignor Lender or Assignee has paid to Agent for Agent’s sole and separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall not be required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of the business or loan portfolio of such Lender.

(b) From and after the date that Agent notifies the assignor Lender that it has received a fully executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender’s rights and obligations under this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto).

(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of this Agreement or any other Loan Document furnished pursuant hereto; (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers or any guarantor or the performance or observance by Borrowers or any guarantor of any of its obligations under this Agreement or any other Loan Document furnished pursuant hereto; (3) such Assignee confirms that it has received a copy of this Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (4) such Assignee will, independently and without reliance upon Agent, such assigning Lender, or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (5) such Assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (6) such Assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

100

(d) Immediately upon each Assignee’s making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments of the Assignor and Assignee arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitment of the assigning Lender pro tanto.

(e) Any Lender may at any time, with the written consent of Agent, which consent shall not be unreasonably withheld, sell to one or more Persons (a “Participant”) participating interests in the Obligations, the Commitment, and the other rights and interests of that Lender (the “Originating Lender”) hereunder and under the other Loan Documents; provided, however, that (i) the Originating Lender’s obligations under this Agreement shall remain unchanged, (ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) Borrowers and Agent shall continue to deal solely and directly with the Originating Lender in connection with the Originating Lender’s rights and obligations under this Agreement and the other Loan Documents, (iv) no Originating Lender shall transfer or grant any participating interest under which the Participant has any right to approve or consent to, or vote with respect to, any amendment to, or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such participant is participating; (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating; (C) release all or a material portion of the Collateral (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating; (D) postpone the payment of or reduce the amount of, the interest or fees hereunder in which such Participant is participating; or (E) change the amount or due dates of scheduled principal repayments or prepayments or fees in respect of the Obligations hereunder in which such Participant is participating; and (v) all amounts payable by Borrowers hereunder shall be determined as if such Originating Lender had not sold such participation. The rights of any Participant shall only be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any direct rights as to the other Lenders, Agent, Borrowers, the Collections, the Collateral, or otherwise in respect of the Advances or the Letters of Credit. No Participant shall have the right to participate directly in the making of decisions by the Lenders among themselves.

(f) In connection with any such assignment or participation or proposed assignment or participation, a Lender may disclose to the proposed assignee or participant all documents and information which it now or hereafter may have relating to Borrowers or Borrowers’ business if such Person has agreed to be bound by the confidentiality provisions of this Agreement.

(g) Notwithstanding any other provision in this Agreement, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

101

15.2. Successors. This Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of each of the parties; provided, however, that no Borrower may assign this Agreement or any rights or duties hereunder without the Lenders’ prior written consent and any prohibited assignment shall be absolutely void. No consent to assignment by the Lenders shall release Borrower from its Obligations. A Lender may assign this Agreement and its rights and duties hereunder pursuant to Section 15.1 and, except as expressly required pursuant to Section 15.1, no consent or approval by Borrower is required in connection with any such assignment.

16. AMENDMENTS; WAIVERS.

16.1. Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by Borrowers therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders (or by Agent at the written request of the Required Lenders) and Borrowers and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and Borrowers and acknowledged by Agent, do any of the following:

(a) increase or extend the Commitment of any Lender;

(b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees, or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document;

(c) reduce the principal of, or the rate of interest specified herein on, any Loan, or any fees or other amounts payable hereunder or under any other Loan Document;

(d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances which is required for the Lenders or any of them to take any action hereunder;

(e) amend this Section or any provision of the Agreement providing for consent or other action by all Lenders;

(f) release Collateral other than as permitted by Section 17.11;

(g) change the definition of “Required Lenders”;

(h) release Borrowers from any Obligation for the payment of money; or

(i) amend any of the provisions of Article 17.

102

and, provided further that no amendment, waiver or consent shall affect the rights or duties of Agent or Issuing Bank under this Agreement or any other Loan Document unless in writing and signed by Agent or Issuing Bank, as applicable; and, provided further, that the limitation contained in clause (d) above shall not be deemed to limit the ability of Agent to make Advances or Agent Loans, as applicable, in accordance with the provisions of Sections 2.1(i), 2.1(j), or 2.1(k). The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of or with respect to any provision of this Agreement or any other Loan Document that relates only to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrowers, shall not require consent by or the agreement of Borrowers.

16.2. No Waivers; Cumulative Remedies. No failure by Agent or any Lender to exercise any right, remedy, or option under this Agreement, any other Loan Document, or any present or future supplement hereto or thereto, or in any other agreement between or among Borrowers and Agent and/or any Lender, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only to the extent specifically stated. No waiver by Agent or the Lenders on any occasion shall affect or diminish Agent’s and each Lender’s rights thereafter to require strict performance by Borrowers of any provision of this Agreement. Agent’s and each Lender’s rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy which Agent or any Lender may have.

16.3. Replacement of Holdout Lender. If any action to be taken by the Lenders or Agent hereunder requires the unanimous consent, authorization, or agreement of all Lenders, and a Lender (“Holdout Lender”) fails to give its consent, authorization, or agreement, then Agent, upon at least 5 Business Days prior irrevocable notice to the Holdout Lender may permanently replace the Holdout Lender with one or more substitute Lenders (each, a “Replacement Lender”), and the Holdout Lender shall have no right to refuse to be replaced hereunder. Such notice to replace the Holdout Lender shall specify an effective date for such replacement, which date shall not be later than 15 Business Days after the date such notice is given. Prior to the effective date of such replacement, the Holdout Lender and each Replacement Lender shall execute and deliver an Assignment and Acceptance Agreement, subject only to the Holdout Lender being repaid its share of the outstanding Obligations (including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever. If the Holdout Lender shall refuse or fail to execute and deliver any such Assignment and Acceptance Agreement prior to the effective date of such replacement, the Holdout Lender shall be deemed to have executed and delivered such Assignment and Acceptance Agreement. The replacement of any Holdout Lender shall be made in accordance with the terms of Section 15.1. Until such time as the Replacement Lenders shall have acquired all of the Obligations, the Commitments, and the other rights and obligations of the Holdout Lender hereunder and under the other Loan Documents, the Holdout Lender shall remain obligated to make the Holdout Lender’s Pro Rata Share of Advances and to purchase a participation in each Letter of Credit, in an amount equal to its Pro Rata Share of the Risk Participation Liability of such Letter of Credit.

103

17. AGENT; THE LENDER GROUP.

17.1. Appointment and Authorization of Agent. Each Lender (on its own behalf and on behalf of any Affiliate which is a Bank Product Provider) hereby designates and appoints WFRF as its Agent under this Agreement and the other Loan Documents and each Lender (on its own behalf and on behalf of any Affiliate which is a Bank Product Provider) hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Article 17. The provisions of this Article 17 are solely for the benefit of Agent and the Lenders, and Borrowers shall not have any rights as a third party beneficiary of any of the provisions contained herein; provided, however, that the provisions of Sections 17.10, 17.11, and 17.16(d) also shall be for the benefit of Borrowers. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary or other non-contractual relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations, or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent. Except as expressly otherwise provided in this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents, including making the determinations contemplated by Section 2.1(b). Without limiting the generality of the foregoing, or of any other provision of the Loan Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in accordance with its customary business practices, ledgers and records reflecting the status of the Advances, the Collateral, the Collections, and related matters; (b) execute and/or file any and all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim for Lenders, notices and other written agreements with respect to the Loan Documents; (c) make Advances for itself or on behalf of Lenders as provided in the Loan Documents; (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents; (e) open and maintain such bank accounts and lock boxes as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral and the Collections; (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrowers, the Advances, the Collateral, the Collections, or otherwise related to any of same as provided in the Loan Documents; (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and fulfillment of its functions and powers pursuant to the Loan Documents; and (h) incur the Agent’s Cover.

17.2. Delegation of Duties. Except as otherwise provided in this Section, Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees, or attorneys-in-fact and shall be entitled to advice of counsel

104

concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as such selection was made in compliance with this Section and without gross negligence or willful misconduct. The foregoing notwithstanding, Agent shall not make any material delegation of duties to subagents or non-employee delegees without the prior written consent of Required Lenders (it being understood that routine delegation of such administrative matters as filing financing statements, or conducting appraisals or audits, is not viewed as a material delegation that requires prior Required Lender approval).

17.3. Liability of Agent-Related Persons. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or, (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Borrower, or any Subsidiary or Affiliate of any Borrower, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement, or other document referred to or provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books, or records of any Borrower, or any of such Borrower’s Subsidiaries or Affiliates. Agent may employ attorneys, accountants, and other professionals and agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such attorneys, accountants, and other professionals or agents or attorneys-in-fact selected by the Agent with reasonable care. No such attorney, accountant, other professional, agent, or attorney-in-fact shall be responsible for any action taken or omitted to be taken by any other such Person. Neither Agent, nor any of its directors, officers, or employees shall be responsible for any action taken or omitted to be taken or omitted to be taken by any other of them in connection herewith in reliance upon advice of counsel nor, in any other event except for any action taken or omitted to be taken as to which a final judicial determination has been or is made (in a proceeding in which such Person has had an opportunity to be heard) that such Person had acted in a grossly negligent manner, in actual bad faith, or in willful misconduct. Agent shall not have any responsibility in any event for more funds than that Agent actually receives and collects.

17.4. Reliance by Agent. Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex, or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to Borrowers or counsel to any Lender), independent accountants, and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it

105

shall first receive such advice or concurrence of the Required Lenders or all Lenders, as applicable, and until such instructions are received, Agent shall act, or refrain from acting, as it deems advisable so long as it is not grossly negligent or guilty of willful misconduct. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Required Lenders or all Lenders, as applicable, and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Lenders.

17.5. Notice of Default or Event of Default. Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the account of Agent or the Lenders, except with respect to Defaults and Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrower referring to this Agreement, describing such Default or Event of Default, and stating that such notice is a “notice of default.” Agent promptly will notify the Lenders of its receipt of any such notice or of any Event of Default of which Agent has, or is deemed to have, actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 17.4, Agent shall take such action with respect to such Default or Event of Default as may be requested by the Required Lenders; provided, however, that:

(a) At all times, Agent may propose and, with the consent of Required Lenders (which shall not be unreasonably withheld and which shall be deemed to have been given by a Lender unless such Lender has notified Agent to the contrary in writing within three Business Days of notification of such proposed actions by Agent) exercise, any remedies on behalf of the Lender Group; and

(b) At all times, once Required Lenders or all Lenders, as the case may be, have approved the exercise of a particular remedy or pursuit of a course of action, Agent may, but shall not be obligated to, make all administrative decisions in connection therewith or take all other actions reasonably incidental thereto (for example, if the Required Lenders approve the foreclosure of certain Collateral, Agent shall not be required to seek consent for the administrative aspects of conducting such sale or handling of such Collateral).

17.6. Credit Decision. Each Lender acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their Subsidiaries or Affiliates, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other

106

condition, and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals, and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition, and creditworthiness of Borrowers, and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports, and other documents expressly herein required to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations, property, financial and other condition, or creditworthiness of Borrowers, and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons.

17.7. Costs and Expenses; Indemnification. Agent may incur and pay Lender Group Expenses to the extent Agent deems reasonably necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including without limiting the generality of the foregoing, but subject to any requirements of the Loan Documents that it obtain any applicable consents or engage in any required consultation, court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or insurance premiums paid to maintain the Collateral, whether or not Borrowers are obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is authorized and directed to deduct and retain sufficient amounts from Collections to reimburse Agent for such out-of-pocket costs and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections, each Lender hereby agrees that it is and shall be obligated to pay to or reimburse Agent for the amount of such Lender’s Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so), according to their Pro Rata Shares, from and against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person’s gross negligence, bad faith, or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including attorney fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification, amendment, or enforcement (whether through negotiations, legal proceedings or otherwise) of or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this Section 17.7 shall survive the payment of all Obligations hereunder and the resignation or replacement of Agent.

107

17.8. Agent in Individual Capacity. WFRF and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests, in and generally engage in any kind of banking, trust, financial advisory, underwriting, or other business with Borrowers and their Subsidiaries and Affiliates and any other Person party to any Loan Documents as though WFRF were not Agent hereunder without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, WFRF and its Affiliates may receive information regarding Borrowers or its Affiliates and any other Person party to any Loan Documents that is subject to confidentiality obligations in favor of Borrowers or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use its reasonable best efforts to obtain), Agent shall be under no obligation to provide such information to them. With respect to the Agent Loans and Agent Protective Advances, WFRF shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not Agent, and the terms “Lender” and “Lenders” include WFRF in its individual capacity.

17.9. Successor Agent. Agent may resign as Agent following notice of such resignation (“Notice”) to the Lenders and Borrowers, and effective upon the appointment of and acceptance of such appointment by, a successor Agent. If Agent resigns under this Agreement, the Required Lenders shall appoint any Lender or Eligible Transferee as successor Agent for the Lenders. If no successor Agent is appointed within 30 days of such retiring Agent’s Notice, Agent may appoint a successor Agent, after consulting with the Lenders and Borrowers. In any such event, upon the acceptance of its appointment as successor Agent hereunder, such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the term “Agent” shall mean such successor Agent and the retiring Agent’s appointment, powers, and duties as Agent shall be terminated. After any retiring Agent’s resignation hereunder as Agent, the provisions of this Section 16.3 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement.

17.10. Withholding Tax.

(a) If any Lender is a “foreign corporation, partnership or trust” within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S. withholding tax under Sections 871, 881, 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Borrowers, whichever of the following is applicable:

(i) properly completed copies of IRS Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States of America is a party,

(ii) properly completed copies of IRS Form W-8ECI,

108

(iii) in the event the Lender is claiming the benefits of the exemption for portfolio interest under Section 881(c) of the IRC, (x) a certificate, in form reasonably acceptable to the Borrowers, to the effect that the Lender is not (A) a “bank” within the meaning of Section 881(c)(3)(A) of the IRC, (B) a “10 percent shareholder” of any Borrower within the meaning of Section 881(c)(3)(B) of the IRC, or (C) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the IRC and (y) properly completed copies of Internal Revenue Service Form W-8BEN, or

(iv) any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding Tax properly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrowers to determine the withholding or deduction required to be made.

Such Lender agrees to promptly notify Agent and Borrowers of any change in circumstances which would modify or render invalid any claimed exemption or reduction.

(b) If any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrowers to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC.

(c) If any Lender is entitled to a reduction in the applicable withholding Tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the applicable withholding Tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding Tax.

(d) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent or Borrowers did not properly withhold Tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent and Borrowers of a change in circumstances which rendered the exemption from, or reduction of, withholding Tax ineffective, or for any other reason) such Lender shall indemnify Agent and Borrowers fully for all amounts paid, directly or indirectly, by Agent or Borrowers as Tax or otherwise, including penalties and interest, and including any Taxes imposed by any jurisdiction on the amounts payable to Agent or Borrowers under this Section, together with all costs and expenses (including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation of Agent.

17.11. Collateral Matters.

(a) The Lenders hereby irrevocably authorize Agent to release any Lien on any Collateral (i) upon the termination of the Commitments and payment and satisfaction in full by Borrowers of all Obligations; and upon such termination and payment Agent shall deliver to Borrowers, at Borrowers’ sole cost and expense, all UCC termination statements and any other documents necessary to terminate the Loan Documents and release the Liens with respect to the

109

Collateral; (ii) constituting property being sold or disposed of if a release is required or desirable in connection therewith and if Borrowers certify to Agent that the sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such certificate, without further inquiry); (iii) constituting property in which Borrowers owned no interest at the time the Lien was granted or at any time thereafter, or (iv) constituting property leased to Borrowers under a lease that has expired or been terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not release any Lien on any Collateral without the prior written authorization of the Lenders; provided, however, that Agent may, in its discretion, without prior authorization of Lenders, release any Lien on Collateral where the value of such Collateral released at any one time is not in excess of $100,000 and the value of all such Collateral released in any calendar year is not in excess of $250,000. Upon request by Agent or Borrowers at any time, the Lenders will confirm in writing Agent’s authority to release any such Liens on particular types or items of Collateral pursuant to this Section 17.11; provided, however, that (i) Agent shall not be required to execute any document necessary to evidence such release on terms that, in Agent’s reasonable opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien without recourse, representation, or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens (other than those expressly being released), upon (or obligations of Borrowers in respect of) all interests retained by Borrowers, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral.

(b) Agent shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrowers, is cared for, protected, or insured or has been encumbered, or that the Liens of the Agent (for the benefit of the Lender Group) have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise at all or in any particular manner or under any duty of care, disclosure, or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, Agent may act in any manner it may deem appropriate, in its sole discretion given Agent’s own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein.

17.12. Restrictions on Actions by Lenders; Sharing of Payments.

(a) Agent, in its reasonable discretion based upon its determination of the likelihood that additional payments will be received, expenses incurred, and/or claims made by third parties to all or a portion of such proceeds, may delay the distribution of any payment received on account of the Secured Obligations.

(b) Agent may disburse funds prior to determining that the sums that Agent expects to receive have been finally and unconditionally paid to that Agent. If and to the extent that Agent does disburse funds and it later becomes apparent that the Agent did not then receive a payment in an amount equal to the sum paid out, then any Lender to whom the Agent made the funds available, on demand from the Agent, shall refund to the Agent the sum paid to that Person.

110

(c) If, in the opinion of the Agent, the distribution of any amount received by Agent might involve Agent in liability, or might be prohibited hereby, or might be questioned by any Person, then Agent may refrain from making distribution until Agent’s right to make distribution has been adjudicated by a court of competent jurisdiction.

(d) Each Lender recognizes that the crediting the Borrowers with the “proceeds” of any transaction in which a Post Foreclosure Asset is acquired is a non-cash transaction and that, in consequence, no distribution of such “proceeds” will be made by the Agent to any Lender.

(e) In the event that (x) a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is required to be repaid or disgorged or (y) those Lenders adversely affected thereby determine to effect such repayment or disgorgement, then each Lender to which any such distribution shall have been made shall repay, to the Agent which had made such distribution, that Lender’s Pro-Rata share of the amount so adjudged or determined to be repaid or disgorged.

(f) Each of the Lenders agrees that it shall not, absent the occurrence and continuation of an Event of Default, and that it shall, to the extent that it is lawfully entitled to do so, upon the request of the Agent, set off against the Obligations any amounts owing by such Lender to Borrowers or any accounts of Borrowers now or hereafter maintained with such Lender. Each of the Lenders further agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including the commencement of any legal or equitable proceedings, to foreclose any Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with respect to the Collateral.

(g) Subject to Section 17.8, if at any time or times any Lender shall receive (i) by payment, foreclosure, setoff, or otherwise, any proceeds of Collateral or any payments with respect to the Obligations of Borrowers to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender’s Pro Rata Share of all such distributions by Agent, such Lender shall promptly (1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in same day funds, as applicable, for the account of all of the Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided, however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required to pay interest in connection with the recovery of the excess payment.

111

17.13. Agency for Perfection. Agent and each Lender hereby appoints each other Lender as agent for the purpose of perfecting the Liens of the Lender Group in assets which, in accordance with Article 9 of the UCC can be perfected only by possession. Should any Lender obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent’s request therefor shall deliver such Collateral to Agent or in accordance with Agent’s instructions.

17.14. Payments by Agent to the Lenders. All payments to be made by Agent to the Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to the instructions set forth on Schedule C-1, or pursuant to such other wire transfer instructions as each party may designate for itself by written notice to Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, fee or interest on revolving advances or otherwise.

17.15. Concerning the Collateral and Related Loan Documents. Each member of the Lender Group (and any of their Affiliates which are Bank Product Providers) authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the ratable benefit (subject to Section 4.1) of the Lender Group. Each member of the Lender Group agrees that any action taken by Agent, Required Lenders, or all Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent, Required Lenders, or all Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders.

17.16. Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information. By signing this Agreement, each Lender,

(a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a “Report” and collectively, “Reports”) prepared by Agent, and Agent shall so furnish each Lender with such Reports;

(b) expressly agrees and acknowledges that Agent (i) does not make any representation or warranty as to the accuracy of any Report, and (ii) shall not be liable for any information contained in any Report;

(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will inspect only specific information regarding Borrowers and will rely significantly upon Borrowers’ Books and records, as well as on representations of Borrowers’ personnel;

112

(d) agrees to keep all Reports and other material information obtained by it pursuant to the requirements of this Agreement in accordance with its reasonable customary procedures for handling confidential information; it being understood and agreed by Borrower that in any event such Lender may make disclosures (i) reasonably required by any bona fide potential or actual Assignee, transferee, or Participant in connection with any contemplated or actual assignment or transfer by such Lender of an interest herein or any participation interest in such Lender’s rights hereunder, (ii) of information that has become public by disclosures made by Persons other than such Lender, its Affiliates, assignees, transferees, or participants, or (iii) as required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Borrowers of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information concurrent with, or where practicable, prior to the disclosure thereof, and

(e) without limiting the generality of any other indemnification provision contained in this Agreement, agrees: (1) to hold Agent and any such other Lender preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit accommodations that the indemnifying Lender has made or may make to Borrower, or the indemnifying Lender’s participation in, or the indemnifying Lender’s purchase of, a loan or loans of Borrowers; and (ii) to pay and protect, and indemnify, defend, and hold Agent and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including, attorney costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrowers to Agent, and, upon receipt of such request, Agent shall provide a copy of same to such Lender promptly upon receipt thereof; (y) to the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrowers, any Lender may, from time to time, reasonably request Agent to exercise such right as specified in such Lender’s notice to Agent, whereupon Agent promptly shall request of Borrowers the additional reports or information specified by such Lender, and, upon receipt thereof, Agent promptly shall provide a copy of same to such Lender; and (z) any time that Agent renders to Borrowers a statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender.

17.17. Several Obligations; No Liability. Notwithstanding that certain of the Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of Agent (if any) to make any Advances shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments, to make an amount of such Advances not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in, or subject any Lender to any liability for, or in respect of the business, assets, profits, losses, or liabilities

113

of any other Lender. Each Lender shall be solely responsible for notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant of any other Lender. Except as provided in Section 17.7, no member of the Lender Group shall have any liability for the acts of any other member of the Lender Group. No Lender shall be responsible to Borrower or any other Person for any failure by any other Lender to fulfill its obligations to make Advances, nor to advance for it or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein.

17.18. Distributions.

(a) On such day as may be set from time to time by the Agent, not less frequently than weekly (or more frequently at the Agent’s option) the Agent, each Lender and the Issuing Bank shall settle up on amounts advanced under this Agreement and collected funds received in a Restricted Account.

(b) The Agent shall distribute to each Lender and the Issuing Bank, such Person’s respective Pro-Rata Share of payments of principal, interest and fees on the Obligations when actually received and collected by the Agent. For purposes of calculating interest due to a Lender, that Lender shall be entitled to receive interest on the actual amount contributed by that Lender towards the principal balance of the Obligations outstanding during the applicable period covered by the interest payment made by the Borrowers. Any net principal reductions to the Obligations received by the Agent in accordance with the Loan Documents during such period shall not reduce such actual amount so contributed, for purposes of calculation of interest due to that Lender (but will reduce the principal amount for purposes of calculation of interest due from the Borrowers), until the Agent has distributed to that Lender its Pro-Rata Share thereof.

(c) The Agent shall distribute fees paid by Borrowers hereunder for the account of Lenders to each Lender (other than Deteriorating Lenders) based upon such Lender’s Pro Rata Share when actually received and collected by the Agent. No Lender shall be entitled to any fees payable to Agent under the Fee Letter.

(d) Any amount received by the Agent as reimbursement for any cost or expense (including without limitation, reasonable attorneys’ fees) shall be distributed by the Agent to that Person which is entitled to such reimbursement as provided in this Agreement (and if such Person(s) is (are) the Lenders, based on the Lender’s Pro Rata Shares at the date on which the expense, in respect of which such reimbursement is being made, was incurred).

17.19. Agent’s Covering of Fundings

(a) Each Lender shall make available to the Agent, as provided herein, that Lender’s Pro Rata Share of the following:

(i) Each Advance, up to the maximum amount of that Lender’s Pro Rata Share.

114

(ii) Up to the maximum amount of that Lender’s Pro Rata Share of each L/C Disbursement (to the extent that such L/C Disbursement is not “covered” by an Advance as provided herein).

(b) In all circumstances, the Agent may:

(i) Assume that each Lender timely shall make available to the Agent that Lender’s Pro Rata Share of each Advance, notice of which is provided pursuant to Section 12 and shall make available, to the extent not “covered” by an Advance, that Lender’s Pro Rata Share of any honoring of a Letter of Credit.

(ii) In reliance upon such assumption, make available the corresponding amount to the Borrowers.

(iii) Assume that each Lender timely shall pay, and shall make available, to the Agent all other amounts which that Lender is obligated to so pay and/or make available hereunder or under any of the Loan Documents.

(c) In the event that, in reliance upon any of such assumptions, the Agent makes available, a Lender’s Pro Rata Share of one or more Advances, or any other amount to be made available hereunder or under any of the Loan Documents, which amount a Lender fails to provide to the Agent within one (1) Business Day of written notice of such failure, then:

(i) The amount which had been made available by the Agent is an “Agent’s Cover” (and is so referred to herein).

(ii) All interest paid by the Borrowers on account of the Advances or coverage of the subject L/C Disbursement which consist of the Agent’s Cover shall be retained by the Agent and applied by Agent to Agent’s Cover until the Agent’s Cover, with interest, has been paid.

(iii) The Defaulting Lender shall pay to the Agent, on demand, interest at a rate equal to the prevailing federal funds rate on any Agent’s Cover in respect of that Defaulting Lender.

(iv) The Agent shall have succeeded to all rights to payment to which the Defaulting Lender otherwise would have been entitled hereunder in respect of those amounts paid by or in respect of the Borrowers on account of the Agent’s Cover together with interest until it is repaid. Such payments shall be deemed made first towards the amounts in respect of which the Agent’s Cover was provided and only then towards amounts in which the Defaulting Lender is then participating. For purposes of distributions to be made hereunder, amounts shall be deemed distributable to a Defaulting Lender (and consequently, to the Agent to the extent to which the Agent is then entitled) at the highest level of distribution (if applicable) at which the Defaulting Lender would otherwise have been entitled to a distribution.

115

(v) Subject to Section 17.18 and except as otherwise provided herein, the Defaulting Lender shall be entitled to receive any payments from the Borrowers to which the Defaulting Lender is then entitled, provided however there shall be deducted from such amount and retained by the Agent any interest to which the Agent is then entitled on account of Section17.18 above.

(d) A Defaulting Lender shall not be relieved of any obligation of such and except as otherwise provided herein Lender hereunder (all and each of which shall constitute continuing obligations on the part of any Defaulting Lender).

(e) A Defaulting Lender may cure its status as a Defaulting Lender by paying the Agent the aggregate of the following:

(i) The Agent’s Cover (to the extent not previously repaid by the Borrowers and retained by the Agent in accordance with Section 17.18 above) with respect to that Defaulting Lender.

Plus

(ii) The aggregate of the amount payable under Section 17.18 above (which relates to interest to be paid by that Defaulting Lender).

Plus

(iii) All such costs and expenses as may be incurred by the Agent in the enforcement of the Agent’s rights against such Defaulting Lender.

17.20. Bank Product Obligations.

Each Lender agrees to furnish the Agent at such frequency as the Agent may reasonably request with a summary of all Bank Products provided by, and amounts due to become due on account thereof to, such Lender or its Affiliates. In connection with any distributions to be made hereunder, the Agent shall be entitled to assume that no amounts are due to any Bank Product Provider on account of any such Bank Products unless the Agent has received such written notice thereof.

18. ACCELERATION AND LIQUIDATION.

18.1. Acceleration Notice.

(a) The Agent may give the Lenders an Acceleration Notice at any time following the occurrence and during the continuation of an Event of Default.

(b) The Required Lenders may give the Agent an Acceleration Notice at any time following the occurrence and during the continuation of an Event of Default. Such notice may be by multiple counterparts, provided that counterparts executed by the requisite Lenders are received by the Agent within a period of five (5) consecutive Business Days.

116

18.2. Acceleration of Duties.

(a) Unless stayed by judicial or statutory process, the Agent shall Accelerate the Obligations within a commercially reasonable time following:

(i) The Agent’s giving of an Acceleration Notice to the Lenders as provided in Section 18.1(a).

(ii) The Agent’s receipt of an Acceleration Notice from the Required Lenders, in compliance with Section 18.1(b).

18.3. Actions At and Following Initiation of Liquidation. At the initiation of a Liquidation:

(a) The Agent and the Lenders shall “net out” each Lender’s respective contributions towards the Advances, so that each Lender holds that Lender’s Pro Rata Share percentage of the Advances.

(b) Each Lender shall contribute, towards any Letter of Credit thereafter honored and not immediately reimbursed by the Borrowers, that Lender’s Pro Rata Share of such honoring.

18.4. Agent’s Conduct of Liquidation.

(a) Any Liquidation, including, without limitation, the exercise of any rights of set off or offset, shall be conducted solely by the Agent (or any of the Lenders solely if so directed by Agent), with the advice and assistance of the Lenders.

(b) The Agent may establish one or more nominees (a “Nominee”) to “bid in” or otherwise acquire ownership to any Post Foreclosure Asset.

(c) The Agent shall manage the Nominee and manage and dispose of any Post Foreclosure Assets with a view towards the realization of the economic benefits of the ownership of the Post Foreclosure Assets and in such regard, the Agent and/or the Nominee may operate, repair, manage, maintain, develop, and dispose of any Post Foreclosure Asset in such manner as the Agent determines as appropriate under the circumstances.

(d) Agent may decline to undertake or to continue taking a course of action or to execute an action plan (whether proposed by a Lender or Agent) unless indemnified to Agent’s satisfaction by the Lenders against any and all liability and expense which may be incurred by Agent by reason of taking or continuing to take that course of action or action plan if such action was taken in the absence of gross negligence, actual bad faith, or willful misconduct.

(e) The Agent and each Lender shall execute all such instruments and documents not inconsistent with the provisions of this Agreement as the Agent and/or the Nominee reasonably may request with respect to the creation and governance of any Nominee, the conduct of the Liquidation, and the management and disposition of any Post Foreclosure Asset.

117

(f) The Agent, with the advice of the Lenders, may Liquidate (through a public or private sale in its discretion) or sell or otherwise dispose of any of the Collateral or all or any portion of the Borrowers’ assets or stock following the occurrence and during the continuance of an Event of Default hereunder and in connection therewith release the Lien thereon granted to the Agent hereunder. Each Lender hereby consents to the Agent’s release of the Liens granted to it in the Collateral in connection with a Liquidation or other sale of the Borrowers’ assets or stock following the occurrence and during the continuance of an Event of Default hereunder which the Agent determines is in the Lenders’ best interest.

18.5. Distribution of Liquidation Proceeds by Agent.

(a) The Agent may establish one or more reasonably funded reserve accounts into which proceeds of the conduct of any Liquidation may be deposited in anticipation of future expenses which may be incurred by the Agent in the exercise of rights as a secured creditor and prior claims which the Agent anticipates may need to be paid.

(b) The Agent shall distribute the net proceeds of Liquidation in accordance with the relative priorities set forth in Section 18.6.

(c) Each Lender, on the written request of the Agent and/or any Nominee, not more frequently than once each month, shall reimburse the Agent and/or any Nominee, pro-rata, for any cost or expense reasonably incurred by the Agent and/or the Nominee in the conduct of a Liquidation, which amount is not covered out of current proceeds of the Liquidation, which reimbursement shall be paid over to and distributed by the Agent.

18.6. Distributions of Liquidation Proceeds by Agent and Ordinary Loan Payments.

(a) Proceeds of a Liquidation shall be distributed based on levels of priority with respect to each classification of Collateral as specified below.

(b) All distributions of proceeds of a Liquidation shall be net of payment over to the Agent as reimbursement for all reasonable third party costs and expenses incurred by the Agent and its counsel and to any funded reserve established pursuant to Section 18.5(a).

(c) The relative priorities to the proceeds of a Liquidation or any other sale of Collateral outside of the ordinary course of business shall be distributed based on the following relative priorities:

(A) First, to pay all fees and expenses then due and payable to the Agent or any Lender (other than any Deteriorating Lender), including, but not limited to, all Lender Expenses due to either the Agent or any Lender (other than any Deteriorating Lender);

(B) Second, to the Lenders (other than any Deteriorating Lender), in respect to the Secured Obligations (other than Bank Product Obligations) owed to such Lenders or their Affiliates (including, but not limited to the Early Termination Fee);

118

(C) Third, to any Deteriorating Lenders, until all of such Secured Obligations (other than Bank Product Obligations) are indefeasibly paid in full and the Loan Agreement is terminated; and then

(D) Third, to the holders of any and all other Obligations due to the Agents or any Lender or any of their Affiliates (including, but not limited to Bank Product Obligations).

19. GENERAL PROVISIONS.

19.1. Effectiveness. This Agreement shall be binding and deemed effective when executed by Borrowers, the Agent, and each Lender agreeing to provide a Commitment on the Restatement Date.

19.2. Section Headings. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement.

19.3. Interpretation. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against the Lender Group or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto.

19.4. Severability of Provisions. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision.

19.5. Counterparts; Telefacsimile Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement

19.6. Revival and Reinstatement of Obligations. If the incurrence or payment of the Secured Obligations by any Borrower or any guarantor of the Secured Obligations or the transfer by any or all of such parties to the Lender Group of any property of either or both of such parties should for any reason subsequently be declared to be void or voidable under any state or federal law relating to creditors’ rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a “Voidable Transfer”), and if the Lender Group is required to repay or restore, in whole or in part, any

119

such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrowers or such guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made.

19.7. Integration. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the date hereof.

19.8. Existing Loan Agreement Superseded. On the Restatement Date, this Agreement shall supersede the Existing Loan Agreement in its entirety, except as provided in this Section 19.8. On the Restatement Date, the rights and obligations of the parties evidenced by the Existing Loan Agreement shall be evidenced by this Agreement and the other Loan Documents, the “Advances” and all other “Obligations” as each such term is defined in the Existing Loan Agreement shall be converted to Advances and Obligations as defined herein and the Existing Letters of Credit issued by the Agent for the account of the Borrowers prior to the Restatement Date shall be converted into L/Cs or L/C Guaranties, as applicable, under this Agreement. Without limiting the generality of the foregoing and to the extent necessary, the Lenders and the Agent reserve all of their rights under the Existing Loan Agreement in respect of all present and future Obligations under, inter alia, the Existing Credit Agreement, as amended and restated by this Agreement. All interest and fees and expenses, if any, owing or accruing under or in respect of the Existing Loan Agreement through the Restatement Date shall be calculated as of the Restatement Date (pro rated in the case of any fractional periods), and shall be paid on the Restatement Date. Commencing on the Restatement Date, the all fees hereunder shall be payable by the Borrowers to the Agent for the account of the Lenders in accordance with this Agreement.

19.9. U.S. Patriot Act. Each Lender hereby notifies each Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies such Borrower, which information includes the name and address of such Borrower and other information that will allow such Lender to identify such Borrower in accordance with the Act.

19.10. Replacement of Lenders. If any Lender requests compensation under Section 2.16 or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.16, if any Lender does not consent (a “Non-Consenting Lender”) to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender and that has been approved by the Required Lenders or any Lender is a Deteriorating Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 15.1), all of its interests, rights and obligations under this

120

Agreement and the related Loan Documents to an Eligible Transferee that shall assume such obligations (which Eligible Transferee may be another Lender, if a Lender accepts such assignment), provided that:

(a) the Borrowers shall have paid to the Agent the assignment fee specified in Section 15.1;

(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(c) in the case of any such assignment resulting from a claim for compensation under Section 2.16 or payments required to be made pursuant to Section 2.16, such assignment will result in a reduction in such compensation or payments thereafter;

(d) with respect to the replacement of any Non-Consenting Lender, such amendment, waiver or consent can be effected as a result of such assignment (together with all other assignments required by the Agent to be made pursuant to this paragraph); and

(e) such assignment does not conflict with applicable Laws.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

19.11. Right of Set-Off. Any and all deposits or other sums at any time credited by or due to any Borrower from any Agent or any Lender or any Participant or from any Affiliate of any of the foregoing, and any cash, securities, instruments or other property of any Borrower in the possession of any of the foregoing, whether for safekeeping or otherwise (regardless of the reason such Person had received the same) shall at all times constitute security for any and all Secured Obligations of each Borrower to each Agent and such Lender or any Participant or such Affiliate and may be applied or set off against Secured Obligations and against such obligations at any time, whether or not such are then due and whether or not other collateral is then available to any Agent or that Lender.

19.12. Pledges To Federal Reserve Banks. Nothing included in this Agreement shall prevent or limit any Lender, to the extent that such Lender is subject to any of the twelve Federal Reserve Banks organized under §4 of the Federal Reserve Act (12 U.S.C. §341) from pledging all or any portion of that Lender’s interest and rights under this Agreement, provided, however, neither such pledge nor the enforcement thereof shall release the pledging Lender from any of its obligations hereunder or under any of the Loan Documents.

121

19.13. Dispute Resolution. Any dispute among the Lenders and/or any Agent concerning the interpretation, administration, or enforcement of the financing arrangements contemplated by this or any other Loan Document or the interpretation or administration of this or any other Loan Document which cannot be resolved amicably shall be resolved in the United States District Court for the District of California, sitting in Los Angeles County, California, to the jurisdiction of which courts each Lender hereto hereby submits.

19.14. Press Releases. Each Borrower agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of Agents or their Affiliates or referring to this Agreement or the other Loan Documents without at least two (2) Business Days’ prior notice to Agent and without the prior written consent of the Agent unless (and only to the extent that) such Borrower or Affiliate is required to do so under Applicable Law and then, in any event, such Borrower or Affiliate will consult with Agent before issuing such press release or other public disclosure. Each Borrower, on their own behalf and on behalf of their Affiliates, consents to the publication by Agent or any Lender of advertising material relating to the financing transactions contemplated by this Agreement using any Borrower’s or Affiliates name, product photographs, logo or trademark. Agent or such Lender shall provide a draft reasonably in advance of any advertising material to the Lead Borrower for review and comment prior to the publication thereof. Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.

[SIGNATURE PAGES FOLLOW]

122

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed in Los Angeles, California.

LESLIE’S POOLMART, INC., a Delaware corporation
By	/s/ Steven L. Ortega
Title:	Chief Financial Officer and EVP
LPM MANUFACTURING, INC., a California corporation
By	/s/ Steven L. Ortega
Title:	Chief Financial Officer and EVP

WELLS FARGO RETAIL FINANCE, LLC, as Agent
By	/s/ Jennifer Blanchette
Title:	Vice President
WELLS FARGO RETAIL FINANCE, LLC, as Lender
By	/s/ Jennifer Blanchette
Title:	Vice President

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT

OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

CERTIFICATION

I, Lawrence H. Hayward, certify that:

1. I have reviewed this annual report on Form 10-K, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and others financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting; principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses to the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 23, 2009

/s/ Lawrence H. Hayward

Lawrence H. Hayward

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES EXCHANGE ACT

OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

CERTIFICATION

I, Steven L. Ortega certify that:

1. I have reviewed this annual report on Form 10-K, of Leslie’s Poolmart, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances, under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and others financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision; to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting; principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses to the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 23, 2009

/s/ Steven L. Ortega

Steven L. Ortega

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence H. Hayward, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Leslie’s Poolmart, Inc. on Form 10-K for the fiscal year ended October 3, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Dated: December 23, 2009

By:	/s/ Lawrence H. Hayward
Name:	Lawrence H. Hayward
Title:	Chief Executive Officer

I, Steven L. Ortega, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual Report of Leslie’s Poolmart, Inc. on Form 10-K for the fiscal year ended October 3, 2009 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financial condition and results of operations of Leslie’s Poolmart, Inc.

Dated: December 23, 2009

By:	/s/ Steven L. Ortega
Name:	Steven L. Ortega
Title:	Executive Vice-President and
	Chief Financial Officer