-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EEabRm/9IMlcQT26+ZrkQJsG2SIiOzBj/WAPwRi0cVX54zibxcSoUljQhtGmYeFL jtdugTvNd9Xs23Gr4ZihJw== 0000898430-97-001035.txt : 19970319 0000898430-97-001035.hdr.sgml : 19970319 ACCESSION NUMBER: 0000898430-97-001035 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19970317 SROS: NASD GROUP MEMBERS: BRIAN P. MCDERMOTT GROUP MEMBERS: GREGORY FOURTICQ GROUP MEMBERS: LESLIES POOLMART GROUP MEMBERS: LIBERTY WEST PARTNERS GROUP MEMBERS: LPM HOLDINGS, INC. GROUP MEMBERS: MICHAEL J. FOURTICQ GROUP MEMBERS: RICHARD H. HILLMAN GROUP MEMBERS: ROBERT D. OLSEN SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: LESLIES POOLMART CENTRAL INDEX KEY: 0000866048 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 930976447 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-42108 FILM NUMBER: 97558152 BUSINESS ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189934212 MAIL ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: LESLIES POOLMART CENTRAL INDEX KEY: 0000866048 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 930976447 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8189934212 MAIL ADDRESS: STREET 1: 20222 PLUMMER ST CITY: CHATSWORTH STATE: CA ZIP: 91311 SC 13E3 1 SCHEDULE 13E-3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------- SCHEDULE 13E-3 RULE 13E-3 TRANSACTION STATEMENT (PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934) (Amendment No. ___________________) LESLIE'S POOLMART (Name of the Issuer) LESLIE'S POOLMART LPM HOLDINGS, INC. GREGORY FOURTICQ LIBERTY WEST PARTNERS MICHAEL J. FOURTICQ BRIAN P. McDERMOTT RICHARD H. HILLMAN ROBERT D. OLSEN (Name of Persons Filing Statement) Common Stock (Title of Class of Securities) 527069 10 8 (CUSIP Number of Class of Securities) Cynthia G. Watts, Esq. 20630 Plummer Street Chatsworth, California 91311 (818) 994-4212 WITH COPIES TO: Alan J. Barton, Esq. Neal H. Brockmeyer, Esq. Paul Hastings Janofsky & Walker Heller Ehrman White & McAuliffe 555 South Flower Street 601 South Figueroa Street, 40th Floor Los Angeles, California 90071 Los Angeles, California 90017 (213) 683-6000 (213) 689-0200 (Name, Address and Telephone Number of Persons Authorized to Receive Notices and Communications on Behalf of Persons Filing Statement.) This statement is filed in connection and with (check the appropriate box): a. [X] The filing of solicitation materials or an information statement subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. [_] The filing of a registration statement under the Securities Act of 1933. c. [_] A tender offer. d. [_] None of the above. -1- Check the following box if the soliciting materials are preliminary copies. [X] Calculation of Filing Fee Transaction Valuation* Amount of Filing Fee $97,585,790 $19,517.16 [X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. Amount previously paid: $19,517.16 Filing party: Leslie's Poolmart Form or registration no.: Preliminary Proxy Statement Date filed: March 17, 1997 Schedule 14A
______________________________ * For purposes of calculating the fee only. This transaction applies to an aggregate of 6,192,061 outstanding shares (the "Cash Out Shares") of Common Stock of Leslie's Poolmart ("Leslie's California") computed as follows: (i) 6,551,566 outstanding shares of Leslie's California Common Stock, less (ii) 359,505 shares (the "Continuing Shares") primarily held by members of management (the "Continuing Stockholders") which will remain outstanding after the Merger Agreement as described in the Proxy Statement submitted as Exhibit (d) hereto. The cash consideration being offered to shareholders of Leslie's California for each share of Common Stock is $14.50 per share (other than with respect to the Continuing Shares to be held by the Continuing Stockholders). The proposed maximum aggregate value of the transaction is $97,585,790 (sum of (i) the product of the Cash Out Shares and $14.50, and (ii) cash consideration of $7,800,905 to be paid for options being surrendered in connection with the transaction.) The total fee of $19,517.16 was paid by wire transfer on March 14, 1997 to the Federal lock box depository account at Mellon Bank. The amount of the filing fee, calculated in accordance with Rule 0-11 promulgated under the Securities Exchange Act of 1934, as amended, equals 1/50 of one percent of the maximum aggregate value of the transaction. This Transaction Statement (this "Statement") is being filed with the Securities and Exchange Commission jointly by Michael J. Fourticq, Gregory Fourticq, Liberty West Partners (a general partnership in which Michael J. Fourticq and Gregory Fourticq are general partners), Brian P. McDermott, Richard H. Hillman and Robert D. Olsen (collectively, the "Hancock Group"), Leslie's California and LPM Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of Leslie's California ("Leslie's Delaware")in connection with the filing of a Proxy Statement by Leslie's California under the Securities Exchange Act of 1934, as amended. This Statement relates to (i) a proposal to reincorporate Leslie's California in Delaware in accordance with an Agreement of Merger pursuant to which Leslie's California would be merged with and into Leslie's Delaware and (ii) a proposal to adopt an Agreement and Plan of Merger (the "Merger -2- Agreement") among Leslie's California, Leslie's Delaware and Poolmart USA Inc., a Delaware corporation ("Poolmart") dated February 26, 1997, pursuant to which Poolmart will be merged with and into Leslie's Delaware (the "Merger"). Upon the consummation of the Merger, each outstanding share of Common Stock (other than 359,505 outstanding shares currently held by Messrs. Fourticq, McDermott and Hillman, and Liberty West Partners and an as yet unknown number of shares held by stockholders who may perfect their dissenters' rights), will be converted into the right to receive $14.50 in cash for each share of Common Stock. Pursuant to General Instruction F to Schedule 13E-3, the information indicated below as contained in the Proxy Statement is hereby incorporated by reference in answer to the items of this Schedule. Where substantially identical information required by Schedule 13E-3 is included under more than one caption, reference may be made to only one caption of the Proxy Statement. CROSS REFERENCE SHEET
Item of Location in Proxy Statement Schedule 13E-3 (For Incorporation by Reference) - -------------- -------------------------------- ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION. (a).................... "SUMMARY -- Date, Time and Place of the Special Meeting"; "SUMMARY -- Parties to the Merger Transaction" (b).................... "SUMMARY -- Market Prices for Common Stock and Dividends"; "MARKET PRICES OF COMMON STOCK AND DIVIDENDS"; "THE PROPOSALS -- Vote Required; Record Date" (c).................... "SUMMARY -- Market Prices for Common Stock and Dividends"; "MARKET PRICES OF COMMON STOCK AND DIVIDENDS" (d).................... "SUMMARY -- Market Prices for Common Stock and Dividends"; "MARKET PRICES OF COMMON STOCK AND DIVIDENDS" (e).................... Not applicable (f).................... Not applicable
ITEM 2. IDENTITY AND BACKGROUND. This Schedule 13E-3 is being filed by Leslie's California, the issuer of the class and equity securities which is the subject of this Rule 13E-3 transaction, and by Leslie's Delaware, a wholly owned subsidiary of Leslie's California, Michael J. Fourticq, Brian P. McDermott, Richard H. Hillman, Gregory Fourticq, Robert D. Olsen and Liberty West Partners (a California partnership of which Michael J. Fourticq and Brian P. McDermott are general partners). -3-
Item of Location in Proxy Statement Schedule 13E-3 (For Incorporation by Reference) - -------------- -------------------------------- (a) - (d).............. "PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT"; "CERTAIN INFORMATION CONCERNING HANCOCK GROUP AND GREEN; "APPENDIX I" (e) - (f).............. None of Leslie's California, Leslie's Delaware or the persons listed in Appendix I of the Proxy Statement during the past five years (i) has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) was a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining further violation of, or prohibiting activities subject to, Federal or State securities laws or finding any violation of such laws. (g)................... "APPENDIX I"
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS. (a)(1)................ Not applicable (a)(2)................ "SPECIAL FACTORS -- Background of the Merger Transaction"; "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "THE REINCORPORATION" (b)................... "SPECIAL FACTORS -- Background of the Merger Transaction"; "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "THE REINCORPORATION"
ITEM 4. TERMS OF THE TRANSACTION (a)................... "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "THE MERGER"; "THE REINCORPORATION" (b)................... "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "SPECIAL FACTORS -- Certain Effects of the Merger"; "SPECIAL FACTORS -- Background of the Merger Transaction"; "THE MERGER"
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE (a) - (g)............. "SPECIAL FACTORS -- Certain Effects of the Merger"; "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "SPECIAL FACTORS -- Conduct of Leslie's Delaware's Business After the Merger"; "THE MERGER -- Financing"
-4-
Item of Location in Proxy Statement Schedule 13E-3 (For Incorporation by Reference) - -------------- -------------------------------- ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) - (d)........... "THE MERGER -- Financing"
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS (a) - (c)............. "SPECIAL FACTORS -- Background of the Merger Transaction"; "SPECIAL FACTORS -- Purpose and Reasons of Hancock Group and Green for the Merger Transaction"; "SPECIAL FACTORS -- The Special Committee's and Board's Recommendation"; "SPECIAL FACTORS -- Position of Hancock Group as to Fairness of the Merger Transaction"; "THE REINCORPORATION -- Principle Reasons for the Proposed Reincorporation" (d)................... "SPECIAL FACTORS -- The Special Committee's and Board's Recommendation"; "SPECIAL FACTORS -- Certain Effects of the Merger"; "FEDERAL INCOME TAX CONSEQUENCES"; "THE RECAPITALIZATION MERGER"; "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"
ITEM 8. FAIRNESS OF THE TRANSACTION (a) - (e)............. "SPECIAL FACTORS -- The Special Committee's and Board's Recommendation"; "SPECIAL FACTORS -- Opinion of Dillon Read"; "SPECIAL FACTORS -- Position of Hancock Group as to Fairness of Merger; "SPECIAL FACTORS -- Background of Merger" (f)................... Not Applicable
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS (a) - (c)............. "SPECIAL FACTORS -- Background of Merger Transaction"; "SPECIAL FACTORS -- Opinion of DLJ"; "SPECIAL FACTORS -- Opinion of Dillon Read"
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER (a) .................. "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"; "PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT" (b) .................. Not applicable
-5-
Item of Location in Proxy Statement Schedule 13E-3 (For Incorporation by Reference) - -------------- -------------------------------- ITEM 11. CONTRACTS, ARRANGEMENTS OF UNDERSTANDING WITH RESPECT TO THE ISSUER'S SECURITIES "SPECIAL FACTORS -- Interests of Certain Persons in Merger"; "THE MERGER -- Financing"; "SPECIAL FACTORS -- Background of the Merger Transaction" ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION (a) - (b)............. "SUMMARY -- Vote Required", "Record Date and Quorum"; "MERGER TRANSACTION -- Vote Required", "Record Date"; SPECIAL FACTORS -- Interest of Certain Persons in the Merger" ITEM 13. OTHER PROVISION OF THE TRANSACTION (a)................... "RIGHTS OF DISSENTING SHAREHOLDERS"; "ANNEX F" (b) - (c)............. Not applicable ITEM 14. FINANCIAL INFORMATION (a)................... Company's Financial Statements (as set forth in the "FS" pages) accompanying the Proxy Statement; "SUMMARY -- Summary of Selected Consolidated Financial Data" (b)................... Not applicable ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED (a) - (b)............. "PROXY SOLICITATION"; "THE MERGER - Financing"; "SPECIAL FACTORS -- Interests of Certain Persons in the Merger"
ITEM 16. ADDITIONAL INFORMATION The Proxy Statement and the Financial Statements and Appendices attached thereto. -6- ITEM 17. MATERIALS TO BE FILED AS EXHIBITS. (a)................... (1) Letter dated December 27, 1996 from Occidental Petroleum Corporation to Mike J. Fourticq(1) (2) Letter dated February 19, 1997 from Hancock Park Associates to the Board of Directors of Leslie's Poolmart(1) (3) Letter dated February 20, 1997 from Leonard, Green & Partners L.P. to the Board of Directors of Leslie's Poolmart(1) (4) Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates(1) (5) Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates(1) (6) Letter dated January 14, 1997 from Wells Fargo Bank to Leslie Poolmart issuer(1) (7) Letter dated February 21, 1997 from Wells Fargo Bank to Leslie's Poolmart(1) (8) Letter dated March 13, 1997 from Wells Fargo Bank to Leslie's Poolmart(1) (9) Letter dated November 11, 1996 from Hancock Park Associates II to Leslie's Poolmart(1) (b)................... (10) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation dated February 26, 1996 (included as Appendix C to the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997)(2) (11) Opinion of Dillon, Read & Co., Inc. dated February 26, 1996 (included as Appendix D to the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997)(2) (c)................... (12) Agreement of Plan and Merger dated February 26, 1997 among Leslie's California, Poolmart USA Inc. and LPM Holdings, Inc. (included as Appendix B to the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997)(2) (13) Merger Agreement between Leslie's Poolmart and LPM Holdings, Inc. dated February 26, 1997 (included as Exhibit A to the Prelimiary Proxy Statement of Leslie's Poolmart and filed March 17, 1997.)(2) (14) Letter dated February 26, 1997 from Michael J. Fourticq and Brian P. McDermott to the Board of Directors of Leslie's Poolmart(1) (15) Letter dated February 26, 1997 from Leonard, Green & Partners, L.P. to Michael J. Fourticq and Brian P. McDermott attaching proposed form of Stockholders Agreement(1) (d)................... (16) Letter to Stockholders, Notice of Special Meeting of Stockholders, Proxy Card and Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997.(2) (e)................... (17) Chapter 13 of the California Corporation Code included as Appendix F of the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997 and Section of that Preliminary Proxy Statement entitled "Rights of Dissenting Shareholders"(2)
-7- (f)................... Not Applicable Misc.................. (18) Power of Attorney of Michael J. Fourticq dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(1) (19) Power of Attorney of Greg Fourticq dated November 20, 1996 naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(1) (20) Power of Attorney of Liberty West Partners dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(1) (21) Power of Attorney of Richard H. Hillman dated November 20, 1996, naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(1) (22) Power of Attorney of Robert D. Olsen dated November 20, 1996, naming Michael J. Fourticq and Brian P. McDermott as attorney-in-fact.(1)
- ---------------------- (1) Filed herewith. (2) Incorporated herein by reference from the Preliminary Proxy Materials of Leslie's Poolmart filed March 17, 1997. -8- SIGNATURES After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement, as amended, is true, complete and correct. Dated: March 17, 1997 MICHAEL J. FOURTICQ * ---------------------------------------------- Michael J. Fourticq GREGORY FOURTICQ * ---------------------------------------------- Gregory Fourticq RICHARD H. HILLMAN * ---------------------------------------------- Richard H. Hillman BRIAN P. McDERMOTT /s/ Brian P. McDermott ---------------------------------------------- Brian P. McDermott ROBERT D. OLSEN * ---------------------------------------------- Robert Olsen LESLIE'S POOLMART By: /s/ Brian P. McDermott ------------------------------------------- Brian P. McDermott President and Chief Executive Officer -9- LPM HOLDINGS, INC. By: /s/ Brian P. McDermott ------------------------------------------- Brian P. McDermott President and Chief Executive Officer LIBERTY WEST PARTNERS By: * ------------------------------------------- *By: /s/ Brian P. McDermott ------------------------------------------ Brian P. McDermott Attorney-in-fact -10- EXHIBIT INDEX
Exhibit Number Page No. - -------- -------- (a)................... (1) Letter dated December 27, 1996 from Occidental Petroleum Corporation to Mike J. Fourticq /1/ 13 (2) Letter dated February 19, 1997 from Hancock Park Associates to the Board of Directors of Leslie's Poolmart /1/ 17 (3) Letter dated February 20, 1997 from Leonard, Green & Partners L.P. to the Board of Directors of Leslie's Poolmart /1/ 20 (4) Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates /1/ 21 (5) Letter dated February 4, 1997 from BT Securities Corporation to Hancock Park Associates /1/ 25 (6) Letter dated January 14, 1997 from Wells Fargo Bank to Leslie Poolmart issuer /1/ 34 (7) Letter dated February 21, 1997 from Wells Fargo Bank to Leslie's Poolmart /1/ 45 (8) Letter dated March 13, 1997 from Wells Fargo Bank to Leslie's Poolmart /1/ 47 (9) Letter dated November 11, 1996 from Hancock Park Associates II to Leslie's Poolmart /1/ 48 (b)................... (10) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation dated February 26, 1996 (included as Appendix C to the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997) /2/ * (11) Opinion of Dillon, Read & Co., Inc. dated February 26, 1996 (included as Appendix D to the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997) /2/ * (c)................... (12) Agreement of Plan and Merger dated February 26, 1997 among Leslie's California, Poolmart USA Inc. and LPM Holdings, Inc. (included as Appendix B to the Preliminary Proxy Statement of Leslie's Poolmart and filed March 17, 1997) /2/ * (13) Merger Agreement between Leslie's Poolmart and LPM Holdings, Inc. dated February 26, 1997 (included as Exhibit A to the Prelimiary Proxy Statement of Leslie's Poolmart and filed March 17, 1997.) /2/ * (14) Letter dated February 26, 1997 from Michael J. Fourticq and Brian P. McDermott to the Board of Directors of Leslie's Poolmart /1/ 49 (15) Letter dated February 26, 1997 from Leonard, Green & Partners, L.P. to Michael J. Fourticq and Brian P. McDermott attaching proposed form of Stockholders Agreement /1/ 51 (d)................... (16) Letter to Stockholders, Notice of Special Meeting of Stockholders, Proxy Card and Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997. /2/ * (e)................... (17) Chapter 13 of the California Corporation Code included as Appendix F of the Preliminary Proxy Statement of Leslie's Poolmart filed March 17, 1997 and Section of that Preliminary Proxy Statement entitled "Rights of Dissenting Shareholders" /2/ *
11 Page No. ------- (f)................... Not Applicable Misc.................. (18) Power of Attorney of Michael J. Fourticq dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /1/ 87 (19) Power of Attorney of Greg Fourticq dated November 20, 1996 naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /1/ 88 (20) Power of Attorney of Liberty West Partners dated November 20, 1996, naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /1/ 89 (21) Power of Attorney of Richard H. Hillman dated November 20, 1996, naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /1/ 90 (22) Power of Attorney of Robert D. Olsen dated November 20, 1996, naming Michael J. Fourticq and Brian P. McDermott as attorney-in-fact. /1/ 91
- ------------------- 1 Filed herewith 2 Incorporated herein by reference from the Preliminary Proxy Materials of Leslie's Poolmart filed March 17, 1997 12 EX-1 2 LETTER DATED DECEMBER 27, 96 FROM OCCIDENTAL EXHIBIT 1 [LETTERHEAD FOR OCCIDENTAL PETROLEUM CORPORATION APPEARS HERE] STEPHEN I. CHAZEN EXECUTIVE VICE PRESIDENT CORPORATE DEVELOPMENT Direct Telephone (310) 443-6311 Direct Fax (310) 443-6812 December 27, 1996 Mr. Michael J. Fourticq Hancock Park Associates 1925 Century Park East, Suite 810 Los Angeles, California 90067 Dear Michael: This letter is intended to clarify the terms and conditions under which we would participate in the buyout of Leslie's. Occidental is prepared to invest up to $30 million in the proposed deal, as I understand it to be, under the conditions detailed in this letter. As you know, we have not performed any due diligence on the company. We will focus our efforts on assuring that the 1996 numbers are as stated, and that the 1997 forecast would at least be achieved under reasonably adverse conditions. We will also want to better understand your model. We, of course, have no idea what the terms of senior financing will be, and so we will reserve any commitments until that becomes clearer. An outline of the preferred stock term sheet is attached. We reserve the right to alter this term sheet and tighten the restrictions listed. Occidental would receive 15% of the fully diluted equity in Leslie's in the form of warrants convertible over a 10 year period at a strike price of $.01 per share. By fully diluted, I mean to include any other warrants or employee options issued as a result of this transaction. If we are required to invest less than $25 million, we will reduce the 15% in proportion to that reduction using $25 million as a base. (i.e. $20 million investment is 20/25 of 15% or 12% - fully diluted). The attached term sheet gives the company the option to pay dividends to us in cash, new preferred stock or to allow the dividends to accrue on the existing preferred, for a period of 5 years. For the next two years cash payments of dividends are required. In years 8, 9 and 10 the preferred will be retired. 13 Mr. Michael Fourticq Hancock Park Associates December 27, 1996 Page 2 I believe that this proposal represents very cost effective financing compared with any third party sources. If you have any questions, please call me. Very truly yours, /s/ STEPHEN I. CHAZEN SIC:jk Attachment cc: Marty Murrer Donaldson, Lufkin, Jenrette 14 EXCHANGEABLE CUMULATIVE SINKING FUND PREFERRED ---------------------------------------------- NUMBER OF SHARES - Up to 30,000 PAR VALUE PER SHARE - $1,000 PURCHASER - Occidental Petroleum Corporation ISSUER - Leslie's Poolmart Inc. DIVIDEND RATE - 50 BP greater than the implied coupon on the publicly or 144A sold company debentures. If the bonds are sold at par, it will be the interest rate plus 50 BP times $1,000. If the bonds are sold at a premium or discount to par, the dividend rate will be the bond equivalent YTM of the security plus 50 BP times $1,000. DIVIDEND PAYMENTS - The dividends will be paid quarterly at the dividend rate divided by four. CALL FEATURES - Callable in whole or part at any time at the option of the company at 101% of par plus accrued and unpaid dividends. EXCHANGEABILITY - Exchangeable at the option of the company into subordinated debt having the same coupon and maturity characteristics as the preferred. If the company elects to exchange, its right to pay dividends (or interest) in kind is terminated. The subordinated debt will have standard subordinated debt covenants which will require the company to make interest payments. UNPAID DIVIDENDS - Dividends which are due but are not paid by the company will accrue interest at the dividend rate plus 500 BP. Such dividends will be cumulative. RIGHT TO PAY IN KIND - The company at its option may issue new preferred stock to the holders in lieu of making the first 20 payments. MANDATORY REDEMPTION - The company will redeem 1/3 of the preferred stock each year beginning in the 8th year and ending in the 10th year. RIGHTS OF PREFERRED SHAREHOLDERS - Preferred shareholders shall, voting as a class, elect 20% of the Board of Directors. If the company over a continuous 4 quarter period fails the coverage test, the preferred shareholders will elect 40% of the Board of Directors. DECEMBER 27, 1996 15 If the company over a continuous 8 quarter period fails the coverage test, the preferred shareholders will elect a majority of the Board of Directors. If the company fails to pay 4 consecutive dividends, the preferred shareholders will elect a majority of the Board of Directors. If the mandatory redemption provisions are not met, the preferred shareholders will elect 100% of the Board of Directors. In the event of insolvency, the entire board will be elected by the preferred shareholders. The right to elect directors is not lost once obtained. COVERAGE TEST - The cumulative EBITDA over 4 quarters or 8 quarters less all fixed charges (whether paid or accrued) must be greater than zero. PROHIBITIONS WITHOUT THE CONSENT OF A MAJORITY PREFERRED SHAREHOLDERS . No issuance of debt or preferred stock (except in DE MINIMIS amounts) that was not anticipated in the original financing. . No cash dividends on any common or preferred stock. . No repurchase of any common or preferred stock. . No consulting or other arrangements with related parties. . Any employment contracts. . Any change in executive benefits or pay. DECEMBER 27, 1996 16 EX-2 3 LETTER DATED FEBRUARY 19, 97 FROM HANCOCK PARK EXHIBIT 2 HANCOCK PARK ASSOCIATES 1925 Century Park East, Suite No. 810, Los Angeles, CA 90067 (310) 553-5550 Fax (310) 201-0403 February 19, 1997 Board of Directors of Leslie's Poolmart 20222 Plummer Street Chatsworth, California 91311 Attention: Special Committee Gentlemen: Reference is made to the Agreement and Plan of Merger among Leslie's Poolmart, LPM Holdings, Inc. and Green LPM Investors dated as of February __, 1997, in the draft form dated February 17, 1997 that has been distributed to you ("Agreement"). Unless the context otherwise requires, capitalized terms herein will have the same meaning as in the Agreement. We are prepared to proceed with the Merger Transaction and acknowledge the participation in the Merger Transaction by Green Equity Partners II, L.P. ("GEI"). Enclosed is a schedule of equity participation in the Merger Transaction by Leslie's California's management. We personally undertake to continue our ownership in the Surviving Corporation to the extent shown on this Schedule. The possibility exists that holders of Leslie's California stock options will cancel all or a portion of their existing options and will receive new options of the Surviving Corporation. This letter will also confirm our discussions with Occidental Petroleum Corporation in which Occidental confirmed its agreement to provide up to $30 million of preferred stock financing for the Merger Transaction on terms that are mutually acceptable to Occidental, GEI and Hancock Park Associates II, L.P. We also understand that you have received or shortly will receive a letter from GEI confirming its equity participation in the Merger Transaction. We have previously delivered to you (or counsel for the Special Committee) a highly confident letter from BT Securities Corporation with respect to $85 million of high-rate Senior Note financing for the Merger Transaction and a letter from BT Commercial Corporation for a Senior Revolving Credit Financing Facility for Leslie's Delaware. In light of the information provided as described in the immediately preceding four paragraphs, we believe that the Special Committee and the Board of Directors has been provided with adequate assurances as to our ability to finance the Merger Transaction. 17 Board of Directors of Leslie's Poolmart 2 We wish to have the Special Committee's counsel meet with our counsel to finalize the Agreement and to have the Agreement submitted to the Special Committee and the Board of Directors at a meeting to be held on February 21. Please contact either of us if you have any questions about the matters described or referred to in this letter. We are anxious to proceed with the Merger Transaction and look forward to positive action by the Special Committee and the Board of Directors this coming Friday. Very truly yours, HANCOCK PARK ASSOCIATES II, L.P. /s/ MICHAEL J. FOURTICQ - ----------------------- Michael J. Fourticq /s/ BRIAN P. MCDERMOTT - ----------------------- Brian P. McDermott 18 EQUITY PARTICIPANTS Michael J. Fourticq $2,700,000* Brian P. McDermott 2,500,000 Richard H. Hillman 300,000 Robert D. Olsen 825,000 Other Management 375,000 ---------- $6,700,000 Leonard Green 15,300,000 ---------- Total Common $22,000,000 Occidental Preferred 28,000,000 ---------- Total Equity $50,000,000 =========== *Michael J. Fourticq may allocate a portion of his investment to his brother, Gregory Fourticq, who is a current shareholder through their partnership, Liberty West Partners. 19 EX-3 4 LETTER DATED FEBRUARY 20, 97 FROM LGP EXHIBIT 3 [LETTERHEAD OF LEONARD, GREEN & PARTNERS, L.P.] February 20, 1997 Board of Directors of Leslie's Poolmart LESLIE'S SWIMMING POOL SUPPLIES 20222 Plummer Street Chatsworth, CA 91311 Gentlemen: This letter will confirm that Leonard Green & Partners, L.P. ("LGP") on behalf of Green Equity Investors II, L.P. ("GEI II"), will commit to provide up to $17 million but not less than $15.3 million out of total of up to $22 million in value, of common stock equity financing for the previously announced transaction by Hancock Park Associates II, L.P. and its affiliates and associates to acquire Leslie's Poolmart. LGP is satisfied with the terms of the $28 million of preferred stock financing to be provided by Occidental Petroleum Corporation, as they have been modified, and the general terms of the $85 million of senior note financing described in BT Securities Corporation's highly confident letter dated February 4, 1997 and the revolving line of credit facilities proposed by Wells Fargo Bank and Bankers Trust Company. Morever, I advise you that LGP has substantially completed its due diligence for this transaction. LGP's investment will be provided immediately prior to the closing of the sale of the preferred stock, senior note financing and revolving line of credit. It is subject to fully diluted ownership by GEI II greater than 50%, no material adverse change in the condition or prospects for Leslie's, sufficient and satisfactory financing to complete the transaction and satisfactory documentation among all parties. LGP is delighted to be part of a transaction that will bring substantial value to the public shareholders of Leslie's. Very truly yours, LEONARD GREEN & PARTNERS, L.P. By: LGP Management, Inc. By: /s/ Gregory J. Annick ------------------------------ Gregory J. Annick 20 EX-4 5 LETTER DATED FEBRUARY 4, 97 FROM BT SECURITIES EXHIBIT 4 BT SECURITIES CORPORATION ONE BANKERS TRUST PLAZA NEW YORK, NEW YORK, 10006 February 4, 1997 Hancock Park Associates 1925 Century Park East Suite 810 Los Angeles, CA 90067 Attention: Michael Fourticq Brian McDermott Gentlemen: You have advised BT Securities Corporation ("BTSC") of your intention to enter into a transaction (the "Transaction") in which a company ("Newco") formed by you and other third party investors would acquire all of the outstanding capital stock of Leslie's Poolmart (the "Acquired Business"). You have asked us to assist you in raising a portion of the funds required to consummate the Transaction through the sale or placement of $85 million aggregate principal amount of senior debt securities (the "Securities") to be issued by the Acquired Business. We understand that the cash proceeds to be paid to the shareholders of the Acquired Business in connection with the Transaction will be approximately $101.5 million and the total amount of funds necessary to effect the Transaction, to refinance existing debt of the Acquired Business, to pay all fees and expenses incurred in connection therewith and to provide for ongoing working capital of the Acquired Business will be provided through (i) a revolving credit facility pursuant to which the Acquired Business may borrow amounts based a borrowing base of receivables and inventory (the "Revolving Credit Facility"), of which $18 million will be drawn upon closing of the Transaction (assuming the Transaction closes in March 1997), (ii) at least $28 million from the issuance of pay-in-kind preferred stock of Newco (the "PIK Preferred Financing"), (iii) at least $13 million from the issuance of common stock of Newco (the "Common Stock Financing"); provided that the aggregate of proceeds raised by Newco from the PIK Preferred Financing and the Common Stock Financing shall not be 21 -2- less than $50 million, and (iv) the Securities. It is our understanding that other than indebtedness under the Revolving Credit Facility and the Securities, neither Newco nor the Acquired Business will have other indebtedness for money borrowed after giving affect to the consummation of the Transaction. We are pleased to inform you that, based upon our understanding of the Transaction as summarized above and current market conditions and subject to the conditions set forth below, we are highly confident of our ability to sell or place the Securities in connection with the Transaction. The structure, covenants and terms of the Securities thereof will be as determined by BTSC in consultation with you, on terms mutually acceptable to both parties based on market conditions at the time of the sale or placement and on the structure and documentation of the Transaction. Our confidence in our ability to consummate the sale or placement of the Securities is subject to (i) there not having occurred any material adverse change in the financial condition, results of operations, business or prospects of the Acquired Business since December 31, 1995, (ii) there not existing any pending or threatened claim, suit or proceeding by any governmental or regulatory authority which BTSC shall reasonably determine could have a materially adverse effect on the business, property, assets, liabilities, condition (financial or otherwise) or prospects of Newco or the Acquired Business, (iii) the receipt of all necessary governmental, regulatory or third party approvals or consents in connection with the Transaction, (iv) the execution and delivery of documentation for the Transaction and related transactions in form and substance reasonably satisfactory to BTSC and such documentation being in full force and effect, (v) agreement on the terms of the Securities consistent with the term sheet attached hereto and negotiation and execution of satisfactory documentation with respect to the Securities and the offering and sale thereof, (vi) the terms and structure of the Revolving Credit Facility being reasonably acceptable to BTSC and the execution of documentation relating thereto reasonably satisfactory in form and substance to BTSC, (vii) the terms and provisions of the PIK Preferred Financing and the Common Stock Financing being reasonably acceptable to BTSC and the entities that own the securities comprising the PIK Preferred Financing and the Common Stock Financing, and the level of ownership, shall be reasonably acceptable to BTSC, (viii) BTSC and its representatives shall have completed and be satisfied with the results of its continuing financial, business, environmental and legal due diligence, (ix) the receipt and review (to our 22 -3- reasonable satisfaction) of independent third party reports as to certain matters customarily so reported upon in transactions of this type, including, without limitation, solvency, (x) the availability of audited and unaudited historical financial statements of Newco and the Acquired Business and pro forma financial statements of Newco and the Acquired Business after giving effect to the Transaction, in each case reasonably acceptable to BTSC and in form and presentation as required by the Securities Act of 1933, as amended, and the rules and regulations thereunder applicable to registration statements filed thereunder, (xi) there not having been any disruption or material adverse change in the market for new issues of high yield securities or the financial or capital markets in general, in the judgment of BTSC and (xii) BTSC having a reasonable time to market the Securities based on BTSC's experience in comparable transactions. This letter is not intended to be and should not be construed as a commitment with respect to the underwriting, sale or placement of the Securities. 23 -4- Except as otherwise required by law or unless BTSC has otherwise consented in writing, you are not authorized to show or circulate this letter to any other person or entity (other than your legal or financial advisors in connection with your evaluation hereof and Leslie's Poolmart, its' Board of Directors and its legal and financial advisors); provided that BTSC agrees that this letter may be referred to in Leslie's Poolmart's proxy statement relating to the Transaction in such a manner as Leslie's Poolmart and BTSC shall agree in their reasonable discretion. If this letter is not accepted by you by 3:00 p.m. on February 28, 1997, you are to immediately return this letter (and any copies hereof) to the undersigned. Very truly yours, BT SECURITIES CORPORATION By: /s/ Kate W. Cook --------------------------- Name: Kate W. Cook Title: Managing Director AGREED TO AND ACCEPTED as of the date first written above: HANCOCK PARK ASSOCIATES By: ------------------------------- Name: Title: 24 EX-5 6 LETTER DATED FEBRUARY 4, 97 FROM BT SECURITIES EXHIBIT 5 BT SECURITIES CORPORATION ONE BANKERS TRUST PLAZA NEW YORK, NEW YORK 10006 February 4, 1997 Hancock Park Associates 1925 Century Park East Suite 810 Los Angeles, CA 90067 Attention: Michael Fourticq Brian McDermott Re: Leslie's Poolmart Financing --------------------------- Gentlemen: You have advised BT Securities Corporation ("BTSC") that you intend to consummate a transaction (the "Transaction") whereby a company formed by you ("Newco") would acquire all of the outstanding capital stock of Leslie's Poolmart (the "Acquired Business"). You have asked us to assist Newco in raising a portion of the funds required to consummate the Transaction through the sale or placement of up to $85 million aggregate principal amount of senior debt securities of Newco (the "Securities"). The purpose of this letter agreement (this "Agreement") is to confirm the engagement of BTSC by you and Newco (together, the "Company") in connection with the issuance or sale (whether pursuant to a public offering or a private placement) of debt securities of the Company in connection with the Transaction, which is likely to be in the form of, but not limited to, the issuance of the Securities. Section 1. Engagement of BTSC in Connection with Proposed Issuance. The Company hereby retains BTSC on an exclusive basis, and BTSC agrees to act as exclusive representative and underwriter or placement agent in connection with any public or private debt financing or issuance by the Company 25 -2- or any of its subsidiaries to finance the Transaction during the term of this Agreement. The Company will not, directly or indirectly (except through BTSC or as otherwise approved by BTSC), sell or offer to sell any of the Securities or debt instrument (other than a revolving credit facility, the amount of which shall be determined by customary borrowing bases) during the term of this Agreement or for 180 days thereafter. Any such offer, sale or other disposition of the Securities or any debt instrument during the term of this Agreement, or for 180 days thereafter, will be treated for purposes of Section 2 as if such sale or disposition were undertaken by BTSC directly. Section 2. Fees. As compensation for BTSC's services in connection with the issuance of the Securities, the Company shall pay BTSC the following non-refundable fees: (a) an underwriting or placement fee of 3.25% of the gross proceeds received by the Company from the issuance of the Securities, payable at the closing of such issuance; and (b) in the event that either (i) the Transaction does not close and the Securities are not issued or (ii) the Securities are issued other than pursuant to a registered public offering or an offering under Rule 144A of the Securities Act of 1933, as amended, all reasonable out-of-pocket expenses (including reasonable legal fees and expenses) incurred in connection with the Transaction. Section 3. Other Agreements. (a) Term. BTSC's engagement hereunder may be terminated by BTSC at any time or, after the date which is 180 days from the execution of this letter, by the Company by prior written notice thereof to the other party; provided, however, that the provisions of the last sentence of Section 1 and Sections 2, 3(c), 3(d) and 3(f) shall survive such termination. (b) Information. During the course of the term, the Company agrees to furnish BTSC with such information about the Company as BTSC reasonably requests, including information to be included in a private placement memorandum or other disclosure document ("Company Information"). The Company represents and 26 -3- warrants to BTSC that all Company Information will be accurate and complete in all material respects at the time it is furnished and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in light of the circumstances under which such statements are made, and agrees to advise BTSC during the period of the engagement of all developments materially affecting the Company or the accuracy of Company Information previously furnished to BTSC or prospective purchasers of the Securities. The Company recognizes and confirms that BTSC (i) will be relying solely on such information and other information available from generally recognized public sources in performing the services contemplated hereunder, (ii) will not independently verify the accuracy or completeness of such information, (iii) does not assume responsibility for the accuracy or completeness thereof, and (iv) will make appropriate disclaimers consistent with the foregoing. In addition, any representations and warranties made by the Company to purchasers of the Securities shall be deemed to be incorporated into this Agreement and any opinions delivered by or on behalf of the Company to the purchasers of the Securities shall expressly provide that BTSC may rely upon such opinions. (c) Indemnification. The Company agrees to indemnify BTSC and its affiliates and each person in control of BTSC and its affiliates and their respective officers, directors, employees, agents and representatives as provided in the indemnity letter dated the date hereof and attached hereto. (d) No Shareholder Rights. The Company acknowledges and agrees that BTSC has been retained only by the Company and that the Company's engagement of BTSC is not deemed to be on behalf of and is not intended to confer rights upon any shareholder, owner or partner of the Company or any other person not a party hereto as against BTSC or any of its affiliates or the respective directors, officers, employees, agents and representatives of BTSC or its affiliates. Unless otherwise expressly agreed, no one other than the Company is authorized to rely upon the Company's engagement of BTSC or any statements, advice, opinions, or conduct by BTSC. 27 -4- (e) Miscellaneous. This Agreement may be executed in two or more counterparts, all of which together shall be considered a single instrument. The term "affiliate" as used herein shall have the meaning ascribed to such term in the rules and regulations promulgated under the Securities Exchange Act of 1934, as amended. The Company confirms that it will rely on its own counsel, accountants and other similar expert advisors for legal, accounting, tax and other similar expert advice. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both written and oral, between the parties hereto with respect to the subject matter hereof and cannot be amended or otherwise modified except in writing executed by the parties hereto. BTSC may transfer or assign, in whole or from time to time in part, to one or more of its affiliates its rights and obligations hereunder, but no such transfer or assignment will relieve BTSC of its obligations hereunder without the prior written consent of the Company. The provisions hereof shall inure to the benefit of and be binding upon the successors and assignees of the Company and BTSC. This letter is not intended to be and should not be construed as a commitment with respect to the underwriting, sale or placement of the Securities and creates no obligation or liability on our part in connection therewith. (f) Confidentiality. Except as required by law and except with respect to any information that otherwise becomes publicly available, BTSC agrees that its officers, employees, affiliates and agents will treat confidentially any and all information furnished to BTSC pursuant to the terms of this Agreement and consistent with industry practices and will not use any of such information for any purpose other than as set forth herein. In connection with the services to be provided hereunder, BTSC may employ the services of its affiliates. Subject to compliance with applicable law, the first sentence of this Section 3(f) and any other confidentiality agreements which BTSC or its affiliates may be subject to, the Company hereby consents to BTSC and its affiliates sharing amongst each other any information related to the Company and its subsidiaries (including information relating to the creditworthiness of the Company and 28 -5- its subsidiaries and the Acquired Business) or any matters contemplated hereby. (g) Use of Name; Disclosure; BTSC Advice, Role, etc. The Company agrees that any references to BTSC and/or its affiliates made in connection with the Transaction are subject to (i) restrictions set forth in documents delivered by BTSC and/or its affiliates to the Company relating to the Transaction and (ii) BTSC's prior approval, which approval shall not be unreasonably withheld. The Company acknowledges that all analyses, evaluation and advice (whether written or oral, formal or informal) given by BTSC to the Company in connection with its engagement hereunder are intended solely for the benefit and use of the Company (including its management, directors and attorneys) in considering the transaction to which they relate and the Company agrees that no such opinion or advice shall be used for any other purpose or reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose, without BTSC's prior written consent. BTSC may also publicize its services in connection with the Transaction contemplated hereby, including, without limitation, granting interviews with an providing information to the financial press; and other media. BTSC is authorized upon consummation of the Transaction contemplated hereby to place the customary "tombstone" advertisement in publications of its choice at BTSC's expense. Nothing in this Agreement is intended to obligate or commit BTSC or any of its affiliates to provide any services other than as set out herein. (h) GOVERNING LAW, ETC. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE CONFLICTS OF LAW PROVISIONS THEREOF). ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) RELATED TO OR ARISING OUT OF THE TRANSACTION, AND BTSC'S ACTIVITIES PURSUANT TO, OR THE PERFORMANCE BY BTSC OF THE SERVICES CONTEMPLATED BY, THIS AGREEMENT IS HEREBY WAIVED. THE COMPANY HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND NEW YORK STATE COURTS LOCATED IN THE CITY OF NEW YORK IN CONNECTION WITH ANY DISPUTE RELATED TO THIS AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY. THE COMPANY AGREES THAT ANY LEGAL SUIT, ACTION OR PROCEEDING BROUGHT BY 29 -6- BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO ENFORCE ANY RIGHTS UNDER OR WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTION MAY BE INSTITUTED IN ANY STATE OR FEDERAL COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK, WAIVES TO THE FULLEST EXTENT PERMITTED BY LAW ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING AND IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. NOTHING IN THIS SECTION 3(h) SHALL AFFECT THE RIGHT OF BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF BTSC, ANY OF ITS AFFILIATES OR ANY INDEMNIFIED PARTY TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY JURISDICTION OR JURISDICTIONS. SECTION 4. Notices. Notice given pursuant to any of the provisions of this Agreement shall be in writing and shall be mailed or delivered or faxed (a) to the Company, at the address listed on the front of this Agreement and (b) to BTSC, at the offices of BT Securities Corporation, One Bankers Trust Plaza, New York, New York 10006, (212) 669-0021, Attention: Christine Barbella-Foggia. 30 -7- We are delighted to accept this engagement and look forward to working with you on this assignment. Please confirm that the foregoing is in accordance with your understanding by signing and returning to us the enclosed duplicate of this letter. Very truly yours, BT SECURITIES CORPORATION By: /s/ Kate W. Cook ---------------------------- Name: Kate W. Cook Title: Managing Director AGREED TO AND ACCEPTED as of the date first written above: HANCOCK PARK ASSOCIATES By: ----------------------------- Name: Title: 31 Leslie's Poolmart CONFIDENTIAL - -------------------------------------------------------------------------------- For Discussion Purposes Only INDICATIVE TERM SHEET Senior Notes Issuer: Leslie's Poolmart (the "Company") Issue: Senior Notes (the "Notes") Amount: $85,000,000 Maturity: 7 years Indicative Coupon: [ %] Use of Proceeds: To finance a portion of the management acquisition of the Company. Ranking: The Notes will be senior unsecured general obligations of the Company and will rank pari passu in right of payment to all other senior indebtedness of the Company, including borrowings under the credit facility, and senior to all subordinated debt of the Company. The Notes will be effectively subordinated to any secured indebtedness of the Company. Security: None Optional Redemption: Non-callable for 4 years. Thereafter, callable at the Company's option, in whole or in part, at redemption prices to be determined. Optional redemption of 25% of the Notes based on an initial public offering of the common stock or issuances of Qualified Capital Stock to Strategic Investors by the Company or Holdco for up to 3 years after the closing of the offering. Redemption prices to be determined. Change of Control: In event of a change of control (as defined), the Company shall be obligated to make an offer to purchase all outstanding Notes at a repurchase price of 101% of the principal amount thereof plus accrued interest to the date of purchase. Covenants: Customary and appropriate for financings of this type, including, but not limited to: (i) limitations of restricted - -------------------------------------------------------------------------------- -7- 32 Leslie's Poolmart CONFIDENTIAL - -------------------------------------------------------------------------------- payments, (ii) limitation on liens, (iii) limitation on incurrence of additional indebtedness, (iv) limitation on sale of assets, (v) limitation on transactions with affiliates, (vi) limitation on dividends and other payment restrictions affecting subsidiaries, (vii) limitation on mergers, sale or consolidation, (viii) restrictions on sale and issuance of certain restricted subsidiary stock. Events of Default and Remedies: Customary and appropriate for financings of this type. - -------------------------------------------------------------------------------- -8- 33 EX-6 7 LETTER DATED JANUARY 14, 97 FROM WELLS FARGO EXHIBIT 6 [LETTERHEAD OF WELLS FARGO] January 14, 1997 Mr. Robert Olsen Chief Financial Officer Leslie's Poolmart 20222 Plummer Street Chatsworth, CA 91311 Dear Bob: This letter is to confirm that Wells Fargo Bank, National Association ("Bank"), subject to all terms and conditions contained herein, has agreed to make available to Leslie's Poolmart, a California Corporation ("Borrower") a revolving line of credit under which Bank will make advances to Borrower from time to time up to and including March 31, 2000 not to exceed at any time the maximum principal of $30,000,000 during 1997, $32,000,000 during 1998 and $35,000,000 thereafter ("Line of Credit"), the proceeds of which shall be used for working capital. Letter of Credit Subfeature. As a subfeature under the Line of Credit, Bank - --------------------------- agrees from time to time during the term thereof to issue sight commercial or standby letters of credit for the account of Borrower (each, a "Letter of Credit" and collectively, "Letters of Credit"); provided however, that the form and substance of each Letter of Credit shall be subject to approval by Bank, in its sole discretion; and provided further, that the aggregate undrawn amount of all outstanding Letters of Credit shall not at any time exceed Three Million Dollars ($3,000,000.00). Each Letter of Credit shall be issued for a term not to exceed 365 days, as designated by Borrower; provided however, that no Letter of Credit shall have an expiration date subsequent to the maturity date of the Line of Credit. The undrawn amount of all Letters of Credit shall be reserved under the Line of Credit and shall not be available for borrowings thereunder. Borrowing and Repayment. Borrower may from time to time during the term of the - ----------------------- Line of Credit borrow, partially or wholly repay its outstanding borrowings, and reborrow; provided however, that the total outstanding borrowings under the Line of Credit shall 1 34 not at any time exceed the maximum principal amount available thereunder, as set forth above. COLLATERAL: As security for all indebtedness of Borrower to Bank, Borrower shall grant to Bank security interests of first priority in all Borrower's accounts, accounts receivable, equipment, general intangibles, deposit accounts, chattel paper, documents, instruments, rights to payment and inventory. Borrower shall reimburse Bank immediately upon demand for all costs and expenses incurred by Bank in connection with any of the foregoing security, including without limitation, filing and recording fees and costs of appraisals, audits and title insurance. INTEREST/FEES: Interest. The outstanding principal balance of the Line of Credit shall bear - -------- interest in accordance with the following interest rate options, as designated by Borrower: (a) at a fluctuating rate per annum equal to the Prime Rate in effect from time to time plus the Applicable Prime Rate Margin*, or ---- (b) at a fixed rate per annum equal to the Base LIBOR Rate plus the ---- Applicable LIBOR Rate Margin*; provided, however, that each LIBOR interest -------- ------- selection must be for a minimum amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000). * The EBITDA Covorage Ratio tests below, used to determine the applicable margins are based upon a March 31, 1997 transaction closing date. Any material change in transaction closing date may require a change in the Coverage Ratio tests. Applicable LIBOR and Prime Rate Margins: - --------------------------------------- At Closing Date LIBOR plus 1.75% or Prime plus .25% thereafter: EBITDA Coverage Ratio Applicable LIBOR and Prime Rate Margins - --------------------- --------------------------------------- Upon Bank's receipt of the designated financial statement of Borrower, if Borrower's EBITDA Coverage Ratio, as 2 35 described below, is: (based upon Borrower's September 30, 1997 financial statement) (a) greater than or equal to 6.10:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 6.10:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's December 31, 1997 financial statement) (a) greater than or equal to 3.50:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 3.50:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's March 31, 1998 financial statement) (a) greater than or equal to 1.70:1.00 LIBOR plus 1.50% or Prime plus 0% or (b) less than 1.70:1.00 LIBOR plus 1.75% or Prime plus .25% (based upon Borrower's June 30, 1998 financial statement and each quarterly statement thereafter) (a) greater than or equal to 2.25:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.25% or Prime plus 0% or (b) greater than or equal to 1.90:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.50% or Prime plus 0% or (c) less than 1.90:1.00, as of the end of any fiscal quarter of any fiscal year LIBOR plus 1.75% or Prime plus .25%
The Applicable LIBOR and Prime Rate Margins shall be based upon the Borrower's EBITDA Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of Borrower based upon the two (2) and three (3) immediately preceding fiscal quarters, including the quarter then ended, for the quarters ending September 30, 1997 and December 31, 1997, respectively. Beginning with the Bank's receipt of the Borrower's March 31, 1998 financial statement, the Applicable LIBOR and Prime Rate Margins shall be based upon the Borrower's EBITDA Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of Borrower based upon the four (4) immediately preceding fiscal quarters, including the quarter then ended. The applicable margins shall be redetermined quarterly on the date Bank receives quarterly financial 3 36 statements. Base LIBOR Rate "The Base LIBOR Rate" means the average of the rate per annum at - --------------- which U.S. dollar deposits are offered to Bank in the London interbank eurocurrency market on the second LIBOR Business Day prior to the commencement of a LIBOR interest period at or about 11:00 a.m. (London time), for delivery on the first day of such interest period, for a term comparable to the number of days in such interest period and in an amount approximately equal to the principle amount to which such interest period shall apply. Prime Rate. The "Prime Rate" is a base rate that Bank from time to time - ---------- establishes and which serves as the basis upon which effective rates of interest are calculated for those loans making reference thereto. Each change in the rate of interest shall become effective on the date each Prime Rate change is announced within Bank. Computation and Payment. Interest shall be computed on the basis of a 360-day - ----------------------- year, actual days elapsed, and shall be payable at the times and place set forth in any promissory note of other document executed by Borrower to evidence any extension of credit by Bank. Unused Commitment Fee. Borrower shall pay to bank a fee equal to one quarter - --------------------- percent (1/4%) per annum (computed on the basis of a 360-day year, actual days elapsed) on the average daily unused amount of the Line of Credit, which fee shall be calculated on a quarterly basis by Bank. Letter of Credit Fees. Borrower shall pay to Bank fees upon the issuance of each - --------------------- Letter of Credit, upon the payment of negotiation by Bank of each draft under any Letter of Credit and upon the occurrence of any other activity with respect to any Letter of Credit (including without limitation, the transfer, amendment or cancellation of any Letter of Credit) determined in accordance with Bank's standard fees and charges then in effect for such activity. CONDITIONS PRECEDENT: Prior to Bank's extension to Borrower of any credit contemplated by this letter, all of the following shall have occurred: Loan Documents. Borrower shall have executed, or caused to be executed by any - -------------- guarantor or other party required hereby, and delivered to Bank, any and all promissory notes, contracts, instruments and other documents, including without limitation a comprehensive loan agreement, required by Bank to evidence Bank's extension of credit pursuant to the terms and conditions of this letter, all of which shall be in form and substance satisfactory to Bank and shall include, in addition to the terms and 4 37 conditions of this letter, such representations, warranties, conditions, covenants, events of default and other provisions as Bank deems appropriate. Financial Condition. There shall have been no material adverse change, as - ------------------- determined by Bank, in the financial condition or business of Borrower, nor any material decline, as determined by Bank, in the market value of any collateral required hereunder or a substantial or material portion of the assets of Borrower. Credit Checks. Bank shall have conducted and shall be satisfied with the results - ------------- of credit checks on Borrower and all other persons and entities which directly or indirectly own or control Borrower. Insurance. Borrower shall have delivered to Bank evidence of insurance coverage - --------- on all Borrower's property, in form, substance, amounts, covering risks and issued by companies satisfactory to Bank, and where required by Bank, with loss payable endorsements in favor of Bank. Senior Unsecured Debt Securities. Borrower shall have delivered to Bank the - -------------------------------- proposed Bond Indenture Agreement and all related documents to be entered into by Borrower in connection with BT Securities Corporation's proposed $85 Million Senior Unsecured Debt Securities underwriting for Borrower. All of said documents shall be in form and substance satisfactory to Bank, including all proposed covenants included in said documents. Preferred and Common Stock Issuance. Borrower shall have a minimum of $50 - ----------------------------------- Million, in aggregate, in common and payment-in-kind preferred stock on its opening balance sheet, as of the transaction closing date. COVENANTS: The loan agreement required by Bank shall include such covenants as Bank may require, which may include, without limitation, (a) covenants obligating Borrower, and any guarantor or other party as required by Bank, to: provide financial statements; preserve and maintain its facilities; maintain insurance; pay taxes and other indebtedness when due; notify Bank of litigation; and maintain Borrower's financial condition at all levels and in accordance with standards acceptable to Bank; and (b) covenants restricting the ability of Borrower, or any such guarantor or other party, to: invest in fixed assets; incur lease obligations; borrow from others; create or permit liens on assets; merge; change the nature of Borrower's business; sell a substantial part of Borrower's assets; make loans or investments; pay dividends or redeem stock; or guaranty debts of others. 5 38 Without limiting the covenants which Bank may require in the loan agreement with Borrower, Bank has determined that such document will include Borrower's agreement: Financial Statements. To provide to Bank all of the following, in form and - -------------------- detail satisfactory to Bank: (a) not later than 90 days after and as of the end of each fiscal year, an audited financial statement of Borrower, prepared by a Certified Public Account acceptable to Bank to include a Balance Sheet, Income Statement and Statement of Cash Flow. (b) not later than 45 days after and as of the end of each quarter, a financial statement of Borrower, prepared by Borrower, to include a Balance Sheet, Income Statement and Statement of Cash Flow. (c) from time to time such other information as Bank shall reasonably request. Litigation. To promptly give notice in writing to Bank of any litigation - ---------- pending or threatened against Borrower with a claim in excess of $1,000,000. Financial Condition. To maintain Borrower's financial condition as follows using - ------------------- generally accepted accounting principles consistently applied and used consistently with prior practices (except to the extent modified by the definitions herein), with compliance determined commencing with Borrower's financial statements for the period ending June 30, 1997. (a) Net Worth not less than the following amounts shown below, determined as of the end of each corresponding fiscal quarter (based upon a transaction closing date of March 31, 1997):
Fiscal Quarter Ended Amount - -------------------- ------ June 30, 1997 $49,000,000 September 30, 1997 $56,000,000 December 31, 1997 $46,000,000 March 31, 1998 $32,000,000 June 30, 1998 $50,500,000 September 30, 1998 $59,500,000 December 31, 1998 $49,000,000 March 31, 1999 $33,500,000 June 30, 1999 $55,000,000 September 30, 1999 $66,500,000 December 31, 1999 $55,000,000
(b) Net Income (net loss) after taxes not less than (not greater than) the amount set 6 39 forth below, determined as of the corresponding fiscal quarter for the then current fiscal year-end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended:
Fiscal Quarter Ended Amount - -------------------- ------ March 31, 1998 ($5,000,000) June 30, 1998 ($2,500,000) September 30, 1998 ($500,000) December 31, 1998 ($1,000,000) March 31, 1999 ($2,500,000) June 30, 1999 $0 September 30, 1999 $2,500,000 December 31, 1999 $1,500,000
(c) EBITDA Coverage Ratio not less than the ratio set forth below, determined as of the end of the corresponding fiscal quarter for the then current fiscal year end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended, with "EBITDA" defined as net profit before tax plus interest expense (net of capitalized interest expense), depreciation expense and amortization expense, and with "EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total interest expense plus the prior period current maturity of long-term debt and the prior period current maturity of subordinated debt:
Quarter Ended Minimum EBITDA Coverage Ratio - ------------- ----------------------------- September 30, 1997 5.75:1.00* December 31, 1997 3.20:1.00* March 31, 1998 1.50:1.00 Each fiscal quarter thereafter 1.75:1.00
* The EBITDA Coverage Ratios calculated for the quarters ending September 30, 1997 and December 31, 1997 are based upon the two (2) and three (3) immediate preceding fiscal quarters, including the fiscal quarter then ended, respectively. (d) The sum of the aggregate amount of all outstanding borrowings under the Line of Credit (including advances and Letters of Credit) shall not, as of the end of any quarter, exceed a borrowing base ("Borrowing Base") which is: (i) eighty percent (80%) of Borrower's outstanding accounts receivable, plus (ii) (A) for each quarter ending March 31, sixty percent (60%) of the value of Borrower's inventory, or (B) for each remaining quarter end, fifty percent (50%) of the value of Borrow's inventory, with "value" defined as the lower of cost or market value; provided however, that in the event such borrowings exceed the Borrowing -------- ------- Base at the end of any quarter, an Event 7 40 of Default shall not exist unless Borrower fails to cure such default within twenty (20) days after Borrower receives written notice from Bank that borrowings exceeded the Borrowing Base. Bank shall have no obligation to make new advances under the Line of Credit or issue new Letters of Credit during such cure period. (e) Funded Debt Ratio not greater than the ratio set forth below, determined as of the end of the corresponding fiscal quarter for the then current fiscal year end based upon the four (4) immediate preceding fiscal quarters, including the fiscal quarter then ended, with "Funded Debt" defined as all indebtedness or obligations of Borrower for borrowed money, all obligations evidenced by notes, bonds, debentures or similar instruments, all obligations under capital leases, and all reimbursement or other obligations of Borrower under or in respect of letters of credit, and "Funded Debt Ratio" defined as Funded Debt divided by EBITDA:
Fiscal Quarter Ended Maximum Funded Debt Ratio - -------------------- ------------------------- September 30, 1997 3.00:1.00* December 31, 1997 4.15:1.00* March 31, 1998 7.25:1.00 Each fiscal quarter thereafter 5.00:1.00**
* The Funded Debt Ratios calculated for the quarters ending September 30, 1997 and December 31, 1997 are based upon the two (2) and three (3) immediate preceding fiscal quarters, including the fiscal quarter then ended, respectively. ** Except for the quarter ending March 31, 1999, at which time the Maximum Funded Debt Ratio shall be 5.75:1.00. Capital Expeditures. Not to mako any additional investment in fixed assets in - ------------------- excess of an aggregate of $4,000,000 for the nine months ended December 31, 1997, $9,000,000 for 1998 and $10,500,000 for 1999. Other Indebtedness. Not to create, incur, assume or permit to exist any - ------------------ indebtedness or liabilities resulting from borrowings, loans or advances, whether secured or unsecured, matured or unmatured, liquidated or unliquidated, joint or several, except (a) the liabilities of Borrower to Bank, and (b) any other existing liabilities disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to borrower, including but not limited to an $85,000,000 Senior Unsecured bond issuance to be underwritten by BT Securities Corporation. Merger Consolidation Transfer of Assets. Not to merge into or consolidate with - --------------------------------------- any other entity; nor to make any substantial change in the nature of Borrower's business as presently conducted; nor to acquire all or substantially all of the assets or any other 8 41 entity; nor to sell, lease, transfer or otherwise dispose of all or a substantial or material portion of Borrower's assets except in the ordinary course of its business. Guaranties. Not to guarantee or become liable in any way as surety, endorser - ---------- (other than as endorser of negotiable instruments for deposit or collection in the ordinary course of business), accommodation endorser or otherwise for, nor to pledge or hypothecate any assets of Borrower as security for, any liabilities or obligations of any other person or entity, except any of the foregoing in favor of Bank. Loans, Advances, Investments. Not to make any loans or advances to or - ---------------------------- investments in any person or entity, except any of the foregoing disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to Borrower and additional loans or advances to employees in amounts not to exceed an aggregate of $250,000 outstanding at any one time. Dividends, Distributions. Not to declare or pay any dividend or distribution - ------------------------ either in cash, stock or any other property on Borrower's stock now or hereafter outstanding; nor to redeem, retire, repurchase or otherwise acquire any shares of any class of Borrower's stock now or hereafter outstanding. Pledge of Assets. Not to mortgage, pledge, grant or permit to exist a security - ---------------- interest in, or lien upon, all or any portion of Borrower's assets now owned or hereafter acquired, except any of the foregoing in favor of Bank or which is disclosed by Borrower to, and deemed acceptable by, Bank prior to Bank's extension of any credit to Borrower. ADDITIONAL TERMS AND PROVISIONS: Whether or not any credit is extended to Borrower or a loan agreement or any other documents are agreed to and executed, Borrower shall be liable for and shall pay to Bank, immediately upon demand, the full amount of all payments, advances, charges, costs and expenses, including reasonable attorneys' fees (to include outside counsel fees and all allocated costs of Bank's in-house counsel), expended or incurred by Bank in connection with the negotiation and/or preparation of this letter, any such loan agreement, and any other contracts, instruments and documents required hereunder or thereunder, whether incurred at the trial or appellate level, in an arbitration proceeding or otherwise, and including any of the foregoing incurred in connection with any bankruptcy proceeding (including without limitation, any adversary proceeding, contested matter or motion brought by Bank or any other person) relating to any Borrower or any other person or entity. This letter shall be governed by and construed in accordance with the laws of the State 9 42 of California. Upon demand of any party, any action, dispute, claim or controversy of any kind, whether in contract or tort, statutory or common law, legal or equitable, arising under or in any way pertaining to this letter or any extensions of credit or other activities, transactions or obligations of any kind related hereto, shall be resolved by binding arbitration administered by the American Arbitration Association ("AAA") in accordance with the AAA Commercial Arbitration Rules and the Federal Arbitration Act (Title 9 of the United States Code), notwithstanding any conflicting choice of law provision herein. Bank's current standard provision governing arbitration of disputes is deemed incorporated herein as though set forth in full and shall be included in full in the loan agreement and/or other contracts, instruments and documents required hereby. Any party who fails or refuses to submit to arbitration following a lawful demand by any other party shall bear all costs and expenses incurred by such other party in compelling arbitration. The commitment set forth herein is personal to Borrower and may not be transferred or assigned without the prior written consent of Bank. Neither this letter, nor any portions hereof, may be disclosed or exhibited to any person or entity without the prior written consent of the Bank. Bank reserves the right to terminate this commitment at any time prior to receipt by Bank of a copy of this letter executed below by Borrower. Your acknowledgment of this letter shall constitute acceptance of the foregoing terms and conditions. Unless accepted or terminated, this commitment shall expire on February 15, 1997. If the loan documentation required by Bank hereunder is not completed and the credit contemplated hereby has not been extended by Bank to Borrower for any reason by April 30, 1997, then this commitment shall expire on said date. Sincerely, WELLS FARGO BANK NATIONAL ASSOCIATION By: /s/ Brian Carrico ----------------------- Title: Vice President -------------------- 10 43 Acknowledged and accepted as of _________________. - ----------------------------- By: -------------------------- Title: ----------------------- By: -------------------------- Title: ----------------------- 11 44 EX-7 8 LETTER DATED FEBRUARY 21, 97 FROM WELLS FARGO EXHIBIT 7 [LETTERHEAD OF WELLS FARGO BANK] February 21, 1997 Robert Olsen Chief Financial Officer Leslie's Poolmart 20222 Plummer Street Chatsworth, CA 91311 Dear Bob: This letter is to confirm that Wells Fargo Bank, National Association ("Bank"), subject to all terms and conditions contained herein, has agreed to extend from February 15, 1997 until March 15, 1997 the date on which Bank's commitment letter from Bank to Leslie's Poolmart, a California Corporation ("Borrower") date January 14, 1997 will expire. As an additional condition precedent to the credit accommodation described therein, not less than 95% of Borrower's common equity ownership, at closing, shall be held by the following parties: Leonard Green Partners, Existing Management and Directors; and Occidental Petroleum Corporation. Except as expressly provided herein, all terms and conditions of said commitment letter shall continue in full force and effect without waiver or modification. Without limiting the forgoing, Bank reserves the right to terminate its commitment at any time prior to receipt by Bank of a copy of the commitment letter executed by Borrower. 45 Your acknowledgment of this letter shall constitute acceptance of the foregoing terms and conditions. Sincerely, WELLS FARGO BANK, N.A. /s/ Brian Carrico Brian Carrico Vice President Accepted and Agreed to: LESLIE'S POOLMART By: -------------------- Title: ----------------- Date: , 1997 ------------------ 46 EX-8 9 LETTER DATED MARCH 13, 97 FROM WELLS FARGO [LETTERHEAD OF WELLS FARGO] EXHIBIT 8 March 13, 1997 Robert Olsen Chief Financial Officer Leslie's Poolmart 20630 Plummer Street Chatsworth, CA 91311 Dear Bob: Subject to the terms and conditions included in our original commitment letter dated January 14, 1997 and amended February 21, 1997 (except as otherwise amended herein), Wells Fargo Bank is prepared to offer Leslie's Poolmart a Revolving Line of Credit based upon the following terms and conditions: Amount: $40 Million Term: Five years Interest Rate: Initial rate of LIBOR plus 1.75% or Prime plus .25% (thereafter subject to the pricing grid as described in the original commitment letter) Unused Commitment Fee: .5% per annum (payable quarterly in arrears) Upfront Commitment Fee: .625% or $250,000 Covenants: As described in the original commitment letter (subject to further negotiations on a best efforts basis). Participation Fees: Bank reserves the right, at any time, to include Participants in the Revolving Line of Credit. Should the Bank include Participants, the Bank reserves the right to charge Leslie's Poolmart an annual Agent's Fee equal to $10,000 per annum and a one-time Arrangement Fee equal to $20,000.
Should you have any questions regarding the above, please do not hesitate to give me a call. Sincerely, /s/ BRIAN CARRICO 47 EX-9 10 LETTER DATED NOV 11, 96 FROM HPA II EXHIBIT 9 HANCOCK PARK ASSOCIATES 1925 Century Park East, Suite No. 810, Los Angeles, CA 90067 (310) 553-5550 Fax (310) 201-0403 November 11, 1996 Board of Directors Leslie's Poolmart 20222 Plummer Street Chatsworth, California 91311 Gentlemen: Hancock Park Associates II (the "Purchaser") is hereby offering to acquire all outstanding shares of the Common Stock of Leslie's Poolmart (the "Company") for $14.50 per share. The purchase will involve a cash merger of the Company and a corporation ("Newco") to be formed by the Purchaser. Certain officers and directors of the Company and their affiliated entities will participate as stockholders of Newco. The transaction is subject to receipt by Purchaser of sufficient financing, upon terms and conditions satisfactory to it, to approval of the transaction by the Board of Directors of the Company and receipt by the Board of Directors of an opinion by an independent investment banking firm that the $14.50 per share price is fair to the Company's stockholders from a financial point of view. The Purchaser and its advisors are prepared to meet as soon as possible with the Board of Directors or a committee of the Board of Directors established to consider an offer, and any advisors to the Board or this committee, to begin negotiations of a definitive agreement covering this transaction. We request that any public announcement of this offer be reviewed by a representative of Purchaser prior to its release. We realize that it will take some time for the Board of Directors and its advisors to consider this offer. However, as you can appreciate, timing is very important to the financing of such a transaction. Accordingly, we look forward to receiving a response as soon as possible. Very truly yours, HANCOCK PARK ASSOCIATES II Michael J. Fourticq Brian P. McDermott General Partner General Partner 48 EX-14 11 LETTER DATED FEB 26, 97 FROM MICHAEL J. FOURTICQ EXHIBIT 14 MICHAEL J. FOURTICQ BRIAN P. MCDERMOTT February 26, 1997 Board of Directors of Leslie's Poolmart 20630 Plummer Street Chatsworth, California 91311 Attention: Special Committee Re: Proposed Reincorporation and Recapitalization Merger Involving Leslie's Poolmart Gentlemen: Reference is made to the Agreement of Merger entered into as of February 26, 1997 between Leslie's Poolmart, a California corporation ("Leslie's -------- California") and LPM Holdings, Inc., a Delaware corporation ("Leslie's - ---------- -------- Delaware") (the "Reincorporation Merger Agreement") and the Agreement and Plan - -------- -------------------------------- of Merger entered into as of February 26, 1997 among Leslie's California, Leslie's Delaware and Poolmart USA, Inc., a Delaware corporation ("Poolmart") -------- (the "Recapitalization Merger Agreement"). --------------------------------- Each of the undersigned agrees to vote all shares of Leslie's California common stock ("California Shares") held by the undersigned, as well ----------------- as all California Shares over which either of the undersigned has voting power, in favor of (i) the Reincorporation Merger Agreement and the Recapitalization Merger Agreement, and (ii) the respective merger transactions contemplated by the Reincorporation Merger Agreement and the Recapitalization Merger Agreement; provided, that the undersigned shall not be obligated by this letter to vote California Shares in its capacity as a named proxy in any proxy solicited by the board of directors of Leslie's California from its shareholders generally in connection with seeking approval of the matters referred to in the preceding clauses (i) and (ii). 49 Board of Directors of Leslie's Poolmart February 26, 1997 Page 2 This agreement shall (i) not require the undersigned to vote California Shares if either the Reincorporation Merger Agreement or the Recapitalization Merger Agreement is amended without the written approval of the undersigned, and (ii) terminate automatically upon any termination of either the Reincorporation Merger Agreement or the Recapitalization Merger Agreement. This agreement is not intended to be for the benefit of any entity or person other than Leslie's California. Very truly yours, /s/ BRIAN P. MCDERMOTT ----------------------------- Brian P. McDermott MICHAEL J. FOURTICQ By:/s/ BRIAN P. MCDERMOTT -------------------------- Brian P. McDermott Attorney-in-Fact 50 EX-15 12 LETTER DATED FEBRUARY 26, 97 FROM LGP EXHIBIT 15 LEONARD GREEN OF PARTNERS L.P. ------------------------- February 26, 1997 Mr. Michael J. Fourticq Mr. Brian P. McDermott c/o Hancock Park Associates 1925 Century Park East, Suite No. 810 Los Angeles, CA 90067 Re: Stockholders Agreement and Subscription Agreement Dear Brian and Mike: The purpose of this letter is to evidence the agreement between us to the following effect: 1. Each of you agrees, and the undersigned agrees on behalf of GEI (as defined in the below-defined Agreement) to enter into an agreement in substantially the form of the attached draft dated February 26, 1997 of a Stockholders Agreement and Subscription Agreement (the "Agreement") contingent upon the Closing of the Merger Transaction contemplated by the Agreement and Plan of Merger by and among Leslie's Poolmart, LPM Holdings, Inc. and Poolmart USA, Inc. of even date herewith (the "Merger Agreement"). 2. Each of you agrees that your obligations in this letter agreement extend to those shares and shareholders over which you exercise control who are included in the definition of the HPA Group in the Agreement. Very truly yours, LEONARD GREEN & PARTNERS, L.P. By: LGP Management, Inc. its General Partner By: /s/ John G. Danhakl ACCEPTED AND AGREED: ------------------- John G. Danhakl Vice President /s/ Brian P. McDermott ---------------------- Brian P. McDermott MICHAEL J. FOURTICQ By: /s/ Brian P. McDermott ---------------------- Brian P. McDermott Attorney-in-Fact 51 TABLE OF CONTENTS
Page ---- 1. REPRESENTATIONS AND WARRANTIES................................................ 1 (a) Company Representations................................................... 1 (b) Stockholder Representations and Warranties................................ 2 2. SUBSCRIPTION FOR COMMON STOCK; CALL OPTION.................................... 3 (a) Common Stock Subscription................................................. 3 (b) Call Option............................................................... 3 3. COMPLIANCE WITH SECURITIES LAW................................................ 4 4. TRANSFERS OF SECURITIES....................................................... 4 (a) Prohibition on Transfers.................................................. 4 (b) Transfer Procedure; Right of First Refusal................................ 4 (c) Transfers to Related Transferees.......................................... 5 (d) Legend on Certificates.................................................... 6 (e) Transfers in Violation of this Agreement.................................. 6 5. COMPANY CALL OPTION........................................................... 6 (a) Call Purchase Event and Purchase Price.................................... 6 (b) Exercise of Call Option................................................... 7 6. REGISTRATION RIGHTS........................................................... 8 (a) Demand Registration Rights................................................ 8 (b) Piggyback Registration Rights; Cutbacks................................... 9 (c) Expenses of Registration.................................................. 10 (d) Registration Procedures................................................... 11 (e) Indemnification........................................................... 14 (f) Holdback Amount........................................................... 16 (g) Assignment and Assumption................................................. 16 (h) Stock Option Plans........................................................ 17 7. DRAG-ALONG SALES AND TAG-ALONG SALES.......................................... 17 (a) Drag-Along Sales.......................................................... 17 (b) Optional Participation in Sales of Common Stock (Tag-Along Sales)......... 18 (c) Obligations of Drag-Along Sellers......................................... 19 8. TERMINATION AND LAPSE OF RIGHTS AND RESTRICTIONS; APPLICATIONS TO OTHER STOCK AND ADJUSTMENTS........................................................ 19 9. ELECTION OF DIRECTORS......................................................... 19 10. CERTAIN ADDITIONAL AGREEMENTS................................................ 20 (a) Right to Participate in Equity Issuances.................................. 20 (b) Right to Participate in Equity Repurchases................................ 20 (c) Affiliate Transactions.................................................... 20 (d) Change of Control Transactions............................................ 21 (e) Information............................................................... 21
i 52
Page ---- 11. NOTICES...................................................................... 21 12. GENERAL...................................................................... 21 13. ADDITIONAL CLASS II STOCKHOLDERS............................................. 24 14. ARBITRATION.................................................................. 24 (a) General................................................................... 24 (b) Scope..................................................................... 24 (c) Deposition................................................................ 24 (d) JAMS...................................................................... 25 (e) Selection of Arbitrators.................................................. 25 (f) Governing Law............................................................. 25 (g) Procedures................................................................ 26 (h) Award..................................................................... 26 15. DEFINITIONS.................................................................. 26 ANNEX A CAPITAL STRUCTURE........................................................ 1 ANNEX B TERMS OF INCENTIVE STOCK OPTION PLAN..................................... 1 ANNEX C TERMS OF NQ OPTIONS...................................................... 1
ii 53 STOCKHOLDERS AGREEMENT This Stockholders Agreement (this "AGREEMENT") is entered into as of __________, 1997, by and among (i) Leslie's Poolmart, Inc., a Delaware corporation (the "COMPANY"), (ii) Green Equity Investors II, L.P., a Delaware limited partnership ("GEI"), (iii) Michael J. Fourticq, Greg Fourticq, Richard H. Hillman, Brian P. McDermott and Manette J. McDermott, T.R.U.A. DTD 3/15/90 The McDermott Family Trust (collectively referred to as the "HPA GROUP") and (iv) Occidental Petroleum Corporation, a Delaware corporation ("OCCIDENTAL," and together with GEI and the HPA Group, the "CLASS I STOCKHOLDERS") and the individual stockholders named on the signature pages hereto (the "CLASS II STOCKHOLDERS"). WHEREAS, on the date hereof the Company has consummated a merger (the "MERGER") with Poolmart USA Inc., a Delaware corporation ("POOLMART"), pursuant to which certain of the outstanding shares of common stock of the Company, $.001 par value per share (which authorized class of stock is hereinafter called "COMMON STOCK"), remained outstanding and the shares of capital stock of Poolmart were converted into capital stock of the Company; and WHEREAS, concurrently with the Merger, GEI acquired ______ shares of Common Stock, the HPA Group collectively retained _________ shares of Common Stock, Occidental acquired ______ shares of preferred stock of the Company (the "PREFERRED STOCK") and warrants (the "WARRANTS") to purchase ________ shares of Common Stock, subject to adjustment (the "WARRANT SHARES") certain of the Class II Stockholders are subscribing for Common Stock and certain of the Class II Stockholders will acquire certain nonqualified options and incentive stock options, as described on Annex B and Annex C, respectively (collectively, the "OPTIONS" and the Common Stock issuable upon exercise thereof, the "OPTION SHARES"); and WHEREAS, the Company and the Class I and Class II Stockholders (collectively, the "STOCKHOLDERS") desire to enter into certain agreements concerning their holdings of Common Stock, Warrants, Warrant Shares, Options and Option Shares (collectively, the "SECURITIES"); NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Representations and Warranties. ------------------------------ (a) Company Representations. The Company hereby represents and ----------------------- warrants to the Class I and Class II Stockholders as follows: (i) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full corporate power and authority to carry on its business as and where it is now being conducted. The Company has full corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by 54 all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company. This Agreement constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (ii) Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will violate or conflict with (A) any provision of the Certificate of Incorporation or Bylaws of the Company, or (B) any agreement, indenture, undertaking, permit, license or other instrument to which the Company is a party or by which it or any of its properties may be bound or affected, other than such violations and conflicts which are not reasonably likely to (1) prevent or materially delay consummation of the transactions contemplated by this Agreement or (2) prevent the Company from performing its obligations under this Agreement. (iii) The Company has no outstanding capital stock or securities convertible into or exchangeable or exercisable for any shares of its capital stock, nor any outstanding rights to subscribe for or to purchase, or any options for the purchase of, or any agreement providing for the issuance (contingent or otherwise) of any shares of its capital stock or any securities convertible into or exchangeable or exercisable for any shares of its capital stock, other than the Preferred Stock and the Securities. (b) Stockholder Representations and Warranties. Each Stockholder ------------------------------------------ hereby severally represents and warrants as follows: (i) If it is an entity, it is a corporation, limited partnership, trust or other entity duly organized and validly existing under the laws of its state of organization. (ii) It has full power and authority and, in the case of an individual, legal and fiduciary capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. This Agreement constitutes a legal, valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms, except as the enforceability hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). (iii) Each of the Class II Stockholders (A) as a result of his relationship with the Company and experience in financial matters, is able to evaluate the acquisition of Common Stock and Options, the business and proposed capital structure of the Company and the risks inherent therein; (B) has been given the opportunity to obtain any additional information or documents, and to ask questions and receive answers, from the officers and representatives of the Company to the extent necessary to evaluate the risks and merits of an investment in the Company; (C) has determined that the acquisition of Common Stock 2 55 and Options is consistent both in nature and amount, with his overall investment program and financial condition, and that his financial condition is such that he can afford to bear the economic risk of holding unregistered Securities for which there is no market and acknowledges that he may suffer a complete loss of such investment. (iv) (A) the Securities acquired by him are being acquired for his own account for investment, without any present intention of selling or further distributing the same, (B) acknowledges that no liquid trading market currently exists or is expected to exist in the foreseeable future and as a result, such Stockholder may be unable to sell any of the Securities for an indefinite period of time and (C) acknowledges that the Company has no obligation, except as set forth in Section 6 hereof, to register any of the Securities. (v) Each member of the HPA Group represents and warrants that he or it is an accredited investor within the meaning of Regulation D under the Act. Each Stockholder acknowledges that the Company is relying upon the truth and accuracy of the above representations to a material degree in effectuating the transactions contemplated hereby. 2. Subscription for Common Stock; Call Option. ------------------------------------------ (a) Common Stock Subscription. Each Class II Stockholder reflected ------------------------- as a purchaser of Common Stock on Annex A hereto (a "PURCHASER") severally agrees to purchase, and the Company agrees to sell to such Purchaser, the number of shares of Common Stock set forth opposite his name on Annex A hereto, at the purchase price shown thereon. Each Purchaser severally agrees to make payment for the Subscription Shares by delivery to the Company of a certified check or wire transfer in the amount of the purchase price therefore. (b) Call Option. Each Class II Stockholder agrees that the Company ----------- and certain other Stockholders shall have a call ("Call Option") in respect of certain shares of Common Stock acquired pursuant to Section 2(a) above ("SUBSCRIPTION STOCK"), as well as in respect of the Non-Qualified Options described on Annex B hereto (the "NQ OPTIONS") and shares issued upon the exercise thereof. As to each holder of Subscription Stock, of an NQ Option or of shares issued upon the exercise thereof, the Call Option shall apply only to (i) two-thirds of all of such holder's shares of Subscription Stock, NQ Options and shares issued upon exercise of such NQ Options (collectively, "Callable Securities") if the Call Option is exercised on or before the first anniversary of the date hereof, and (ii) one-third of the holder's Callable Securities of each category if the Call Option is exercised on or after the first anniversary of the date hereof but before the second anniversary of the date hereof. Except as expressly provided in this Section 2(b), the Call Option shall not otherwise apply to Subscription Stock, NQ Options or shares issued upon the exercise thereof. Subscription Stock NQ Options and shares issuable upon the exercise thereof that are Callable Securities are respectively hereinafter referred to as "Call Option Stock," "Call NQ Options" and "Call Option Shares." 3 56 3. Notice of Transfer; Compliance with Securities Law. In addition to the -------------------------------------------------- other applicable restrictions provided in this Agreement, each Stockholder agrees that prior to effecting any Transfer of any Securities (other than a Transfer to the Company) such Stockholder will give not less than 15 days' advance written notice to the Company describing the manner of such proposed Transfer. Each Stockholder further agrees that he or it will not effect such proposed Transfer until either (A) such Stockholder has provided to the Company, if so requested by the Company, an opinion of counsel reasonably satisfactory in form and substance to the Company that such proposed Transfer is exempt from registration under the Act and any applicable state securities laws, or (B) a registration statement under the Act covering such proposed Transfer has been filed by the Company and become effective under the Act and compliance with applicable state securities laws has been effected and in each case, the Company's independent public accountants have advised the Company that it is not reasonably likely that such Transfer will necessitate a new basis for accounting for the Company. Each Stockholder also agrees that he or it will not Transfer any Securities except in compliance with the registration requirements of the Act, the rules and regulations of the SEC thereunder, the relevant state securities laws applicable to the Stockholder's actions, and the applicable terms of this Agreement. The restrictions in this Section 3 shall remain in effect until, the opinion of counsel for the Company, Securities held by the Stockholder are no longer subject to restrictions pursuant to the Act or applicable state securities law. 4. Transfers of Securities. ----------------------- (a) Prohibition on Transfers. Each of the members of the HPA Group, ------------------------ Occidental and each of the Class II Stockholders hereby agrees that such Stockholder will not Transfer any Securities (or any interest therein) now or hereafter at any time owned by such Stockholder, except for Transfers permitted pursuant to this Section 4, Section 5 or Section 7 of this Agreement (each such Transfer being a "PERMITTED TRANSFER"). (b) Transfer Procedure; Right of First Refusal. If any member of the ------------------------------------------ HPA Group, Occidental or any of the Class II Stockholders hereby shall have received a bona fide arm's-length written offer (a "BONA FIDE OFFER") which such Stockholder desires to accept from an independent party unrelated to such Stockholder (the "OUTSIDE PARTY") for the purchase of Securities for consideration consisting entirely of cash (it being understood that no sale for any other consideration would be a Permitted Transfer), then such Stockholder shall give a notice in writing (the "OPTION NOTICE") to each Class I Stockholder and the Company setting forth such desire, which notice shall set forth at least the name and address of the Outside Party and the price and terms of the Bona Fide Offer and be accompanied by a copy of the Bona Fide Offer. Upon the giving of such Option Notice, the Company, and to the extent the Company elects not to do so, the respective Stockholders set forth in the following sentence (each an "ELECTING STOCKHOLDER") shall have an option to purchase all, but no less than all, of the Securities specified in the Option Notice, such option to be exercised within 30 days after the giving of such Option Notice by giving a counter-notice (the "ELECTION NOTICE") to the Stockholder. If the Stockholder sending an Option Notice is (i) Occidental or a Class II Stockholder, then GEI and the HPA Group shall be entitled to be Electing Stockholders; or (ii) a member of the HPA Group, then GEI and the other members of the HPA Group shall be entitled to be Electing Stockholders. Where more than one Electing Stockholder desires to participate in a purchase pursuant to an 4 57 Option Notice, such Stockholders shall participate, pro rata based upon their --- ---- respective Equity Ownership in the Company, with the portion attributable to Stockholders declining to be Electing Stockholders being redistributed to the remaining Stockholders pro rata based upon their respective Equity Ownership in --- ---- the Company, it being understood that the Company may elect to purchase up to all of the Securities and any remainder shall be prorated as aforesaid. The Company and, if applicable, the Electing Stockholders shall be severally obligated to purchase, and the Stockholder shall be obligated to sell, the Securities covered by such Election Notice at the cash price and terms indicated in the Bona Fide Offer, provided that the closing of the purchase by the Electing Stockholder shall be held on a business day within 30 days after the giving of the Election Notice at 10:30 a.m., California time, at the principal executive office of the Company, or at such other time and place as may be mutually agreed to by the Stockholder, the Company and, if applicable, the Electing Stockholders. If an Election Notice is not timely given by the Company and/or one or more Electing Stockholders within the period specified above after an Option Notice has been given, the Stockholder thereafter, at any time within a period of four months from the giving of such Option Notice, may Transfer all (but not less than all) of the Securities covered by such Option Notice to the Outside Party at the cash price and terms contained in the Bona Fide Offer; provided, however, that such Outside Party and such Securities shall thereafter - --------- -------- be subject to and bound by all of the provisions of this Agreement as if such party were a Class II Stockholder except as otherwise provided in Section 6(g) and, as a condition precedent to the completion of such Transfer of Securities to such Outside Party, shall execute and deliver to the Company a written consent to such effect in form and substance satisfactory to the Company; and provided, further, however, that to the extent that the Stockholder has not so Transferred such Securities to the Outside Party within such four-month period, then such Securities thereafter shall continue to be subject to all of the restrictions contained in this Agreement. Any election in any instance by the Company or any Stockholder entitled to be Electing Stockholders not to exercise its rights under this clause (b) shall not constitute a waiver of such rights with respect to any other actual or proposed Transfer of Securities. (c) Transfers to Related Transferees. Notwithstanding anything to ------------------------------- the contrary contained in clauses (a) and (b) of this Section 4, any Stockholder may Transfer Securities to a Related Transferee provided that such Related -------- Transferee shall first (i) execute a written consent in form and substance satisfactory to the Company to be bound by all of the provisions of this Agreement and (ii) give a duplicate original of such consent to the Company. In the event of any Transfer by a Stockholder to a Related Transferee of all or any part of his or its Securities (or in the event of any subsequent Transfer by any such Related Transferee to another Related Transferee of the Stockholder), such Related Transferee shall receive and hold such Securities subject to the terms of this Agreement and the rights and obligations hereunder of a Stockholder as though such Securities were still owned by the Stockholder, and such Related Transferee shall be deemed the Stockholder for the purposes of this Agreement. If the Related Transferee acquired Securities from a Stockholder, such Related Transferee shall be entitled to participate, collectively with the Stockholders of the same group, in the registration rights provided for in Section 6 hereof. There shall be no further Transfer of such Securities by a Related Transferee except between and among such Related Transferee, the original Stockholder and other Related Transferees, or except as otherwise permitted by this Agreement. 5 58 (d) Legend on Certificates. Each certificate of the Company issued to ---------------------- represent any of the Securities shall bear the following (or substantially equivalent) legends on the face or reverse side thereof: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED AN OPINION OF COUNSEL IS FURNISHED TO THE COMPANY, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE SECURITIES LAW IS AVAILABLE. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER COMPLIES WITH THE PROVISIONS OF THE STOCKHOLDERS AGREEMENT DATED AS OF _____________, 1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE COMPANY. Any stock certificate issued at any time in exchange or substitution for any certificate bearing such legends (except a new certificate issued upon the completion of a public offering) shall also bear such (or substantially equivalent) legends, unless the Security represented by such certificate is no longer subject to the provisions of this Agreement and, in the opinion of counsel for the Company, the Security represented thereby need no longer be subject to restrictions pursuant to the Act or applicable state securities law. (e) Transfers in Violation of this Agreement. The Company shall not ---------------------------------------- be required to record on its books and records, or otherwise to recognize or facilitate, any Transfer of Securities in violation of this Agreement, nor shall the Company be required to issue any certificate for Securities Transferred in violation of this Agreement. 5. Company "Call" Option. --------------------- (a) Call Purchase Event and Purchase Price. Upon the termination of a -------------------------------------- Class II Stockholder's employment with the Company or its subsidiaries for any reason (including, without limitation, the voluntary termination, dismissal, involuntary termination, Retirement, death or Permanent Disability of the Stockholder) (a "CALL PURCHASE EVENT"), the Company, and 6 59 to the extent the Company elects not to do so and, in the case of the NQ Options, such purchase may otherwise be made pursuant to the NQ Option Plan, GEI, Michael J. Fourticq and Brian P. McDermott (or any Related Transferee of the latter) (collectively the "PURCHASING GROUP") may, collectively and pro --- rata based upon their respective Equity Ownership in the Company, exercise the - ---- Call Option by written notice (a "PURCHASE NOTICE") delivered to the Class II Stockholder within 90 days after such Call Purchase Event, elect to purchase, and, upon the giving of such notice, the Company, and if applicable, the Purchasing Group shall be severally obligated to purchase and the Class II Stockholder (and the Related Transferees, if any, of the Class II Stockholder) (in each case, the "SELLER") shall be obligated to sell all, or any lesser portion indicated in the Purchase Notice, of the Callable Securities owned at the time of the Call Purchase Event by the Seller; for consideration calculated as to each share of Call Option Stock and each Call Option Share or Call NQ Option, as the case may be, as follows: (i) in the case of voluntary termination by a Class II Stockholder holding Call NQ Options, an amount equal to the difference between the cash consideration per share paid in the Merger and the exercise price of the Call NQ Option; or (ii) in the case of any other termination (including without limitation dismissal, involuntary termination, death, Retirement or Permanent Disability of a Class II Stockholder holding Option Shares) ("OTHER TERMINATION"), of a Class II Stockholder holding Call NQ Options, the difference between the higher of (A) the cash consideration per share paid in the Merger and (B) the Fair Market Value of the underlying shares on the date of the Call Purchase Event, and the exercise price of the Call NQ Option; or (iii) in the case of voluntary termination by a Class II Stockholder holding Call Option Stock, the purchase price therefor; or (iv) in the case of Other Termination of a Class II Stockholder holding Call Option Stock, the higher of the Fair Market Value thereof on the date of the Call Purchase Event and the purchase price paid by the holder therefor; or (v) in the case of voluntary termination by a Class II Stockholder holding Call Option Shares, an amount equal to the cash consideration per share paid in the Merger; or (vi) in the case of Other Termination of a Class II Stockholder holding Call Option shares, the higher of the Fair Market Value of such shares on the date of the Call Purchase Event and the amount payable pursuant to clause (v) above. (b) Exercise of Call Option. In the event the Company and/or any ----------------------- Class I Stockholder elects not to participate in the purchase of Callable Securities pursuant to the Call Option, all remaining Purchasing Group Stockholders desiring so to participate may do so, pro rata amongst such --- ---- remaining Purchasing Group Stockholders based upon their respective Equity Ownership in the Company, or in any other proportion as they may agree. The closing for all purchases and sales of Callable Securities pursuant to this Section 5 shall be at the principal executive offices of the Company at 10:30 a.m., California time, on the 60th day after the giving 7 60 of the applicable Purchase Notice. The purchase price for the purchase and sale of Callable Securities shall be paid in cash, by certified or official bank check. The Seller(s) of Callable Securities sold pursuant to this Section 5 shall cause such Securities to be delivered to the Purchasing Group or the Company at the relevant closing free and clear of all liens, charges or encumbrances of any kind. Such Seller(s) shall take all actions as the Purchasing Group or the Company shall request as necessary to vest in the members of the Purchasing Group and/or the Company at such closing such Callable Securities, free and clear of all liens, charges and encumbrances incurred, voluntarily or involuntarily, by or through Seller(s). 6. Registration Rights. ------------------- (a) Demand Registration Rights. At any time on or after January 31, -------------------------- 1998, each of (i) GEI, (ii) the HPA Group collectively, and (iii) Occidental shall be entitled, respectively, to request a registration (a "DEMAND REGISTRATION") of no less than 50% of its Registrable Securities held by such Class I Stockholder, and at such time as the Company qualifies for registration of securities on Form S-3 or any successor short-form, one additional registration for a period not to exceed 180 days on such form. In such event, the Company shall: (i) as soon as reasonably practicable, and at its expense as set forth in Section 6 hereof, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of the Class I Stockholder's Registrable Securities as are specified in such request on the form specified in such request covering the Registrable Securities; (ii) use its best efforts to cause such registration to become and remain effective, as soon as practicable after receipt of the request of the Class I Stockholder, for the period necessary to effectuate the distribution contemplated by the Class I Stockholder; and (iii) at the request of the Class I Stockholder or the Manager, enter into and perform its obligations under an underwriting or purchase agreement (the "UNDERWRITING AGREEMENT") in customary form for secondary offerings of common stock, and otherwise reasonably acceptable to the parties, with the Manager (acting for itself and/or a group of syndicate of underwriters) and the Class I Stockholder. Notwithstanding the foregoing, the Company shall be entitled to delay any such Demand Registration if (i) the Company has determined in good faith that in view of pending negotiations or other material developments regarding the Company not otherwise required to be made public, disclosure of such information is not in the best interest of the Company (in which case the delay in filing a Demand Registration may not exceed 90 days); (ii) the Company has initiated discussions with an underwriter regarding the sale of securities of the same class or convertible into the same class as the Registrable Securities in a registered primary public offering, in which case the Demand Registration may be delayed for up to 180 days from the effectiveness of such primary public offering, provided that the Company may not invoke the provision of clause (i) for more than an aggregate of 120 days in any twelve-month period, and may not invoke the delay in clause (ii) more than once in any such period. In addition, to the extent a Demand Registration is 8 61 a "shelf" registration, the Company may interrupt such registration for the reasons set forth above, provided that sales under such shelf registration shall in all events be permitted for an aggregate of 180 days if requested. (b) Piggyback Registration Rights; Cutbacks. Each time the Company --------------------------------------- proposes to register under the Act (other than registration (A) on Forms S-4 or S-8 or any successor forms thereto, or (E) filed in connection with an exchange offer) securities of the same class as any of the Registrable Securities, the Company shall give written notice of such proposed registration (a "REGISTRATION NOTICE") to each Class I Stockholder and Class II Stockholder at least 20 days prior to the filing thereof. Each Registration Notice shall indicate that the recipient has the right (subject to the provisions of this Section 6) to propose that its Registrable Securities be included in such registration. Each Class I Stockholder and Class II Stockholder shall have the right to propose that a number of its Registrable Securities be included in such registration by written notice given to the Company within fifteen (15) days after the giving of such Registration Notice. Subject to the provisions of this Section 6, the Company shall include all such Registrable Securities in such registration provided, -------- however, that: - ------- (i) if the registration is in whole or part an underwritten primary registration on behalf of the Company (whether or not it is also in part a Demand Registration or other secondary registration on behalf of any Company securityholders) and the managing underwriters of such offering determine that the aggregate amount of securities of the Company which all Stockholders and all other Company securityholders pursuant to future contractual rights to participate in such registration (such other Company securityholders, "FUTURE PARTICIPANTS") propose to include in such registration exceeds the maximum amount of securities that should be included therein, the Company will include in such registration, first, ----- the shares which the Company proposes to sell and second, securities to be ------ sold for the account of any Class I Stockholder pro rata among the Class I --- ---- Stockholders, and third, securities to be sold for the account of the Class ----- II Stockholders, pro rata among the Class II Stockholders and fourth, the --- ---- ------ other securities to be sold for the account of Future Participants, pro --- rata among such Future Participants, in each case on the basis of the ---- relative Equity Ownership of the parties who have requested that securities owned by them be so included (it being agreed and understood, however, that such underwriters shall have the right to eliminate entirely the participation in such registration of all Stockholders and Future Participants); (ii) if the registration is pursuant to an underwritten Demand Registration and the managing underwriters determine that the aggregate amount of securities which all Stockholders and all Future Participants propose to include in such registration exceeds the maximum amount of securities that should be included therein, the Company will include in such registration, first, the securities to be sold for the account of the ----- Class I Stockholders, pro rata among the Class I Stockholders, second, --- ---- ------ securities to be sold for the account of the Company, if any, third, ----- securities to be sold for the account of the Class II Stockholders, pro --- rata among the Class II Stockholders and fourth, securities to be sold for ---- ------ the account of the Future Participants electing to include securities in such registration, pro rata among such Future Participants, in each case, --- ---- on the basis of their relative Equity Ownership (it being agreed and understood, however, that such 9 62 underwriters shall have the right to eliminate entirely the participation therein of the Company and all such Future Participants not entitled to demand inclusion of securities in such registration); (iii) if the registration is pursuant to an underwritten secondary registration other than as described in clause (ii) above on behalf of Future Participants and the managing underwriters determine that the aggregate amount of securities which all Future Participants and Stockholders propose to include in such registration exceeds the maximum number of securities that should be included therein, the Company will include in such registration first, the securities to be sold for the ----- account of the Future Participants, pro rata among the Future Participants, --- ---- second, securities to be sold for the account of the Company, if any, ------ third, securities to be sold for the account of the Class I Stockholders, ----- pro rata among such Stockholders and fourth, securities to be sold for the --- ---- ------ account of the Class II Stockholders, in each case, on the basis of their relative Equity Ownership (it being agreed and understood, however, that such underwriters shall have the right to eliminate the participation therein of the Company and the Stockholders entirely unless, on the date of such secondary registration, any Class I Stockholder electing to participate in such registration shall not theretofore have completed one Demand Registration in which all of the Registrable Securities it sought to include were sold, in which case any such Class I Stockholder may convert such registration into one governed by clause (ii) above); (iv) in the event that, as a result of the provisions of Section 6(b)(i) or (ii), a group of Stockholders which has exercised its rights to request a Demand Registration is unable to register all of the Registrable Securities as to which the request was made, such Stockholder shall not be considered to have utilized a Demand Registration under Section 6(a); and (v) in exercising the rights of Stockholders in respect of Registrable Securities in this Section 6, Stockholders comprising the holders of the Demand Registrations enumerated in clauses (i) through (iii) of Section 6(a) shall, if more than one Stockholder has or succeeds to such rights, exercise such rights and make all determinations hereunder acting by majority-in-interests based upon their respective ownership of Registrable Securities. (c) Expenses of Registration. Whether or not any registration ------------------------ statement prepared and filed pursuant to Section 6(a) or (b) hereof is declared effective by the SEC (except where a Demand Registration is terminated, withdrawn or abandoned at the written request of a Class I Stockholder solely due to market conditions), the Company shall pay all expenses incident to Company's performance of or compliance with the registration requirements of this Agreement, including, without limitation, the following: (A) all SEC registration and filing fees and expenses; (B) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of Registrable Securities; (C) any and all expenses incident to its performance of, or compliance with, this Agreement, including, without limitation, any allocation of salaries and expenses of Company personnel or other general overhead expenses of Company, or other expenses for the preparation of historical and pro forma financial 10 63 statements; (D) fees and expenses incurred in connection with the listing of Registrable Securities on each securities exchange or the NASDAQ Stock Market, as applicable, on which securities of the same class are then listed; (E) all transfer and/or exchange agent and registrar fees; (F) fees and expenses in connection with the qualification of the Registrable Securities under securities or "blue sky" laws including reasonable fees and disbursements of counsel for the underwriters in connection therewith; (G) mailing and printing expenses relating to the registration and distribution of Registrable Securities; (H) messenger and delivery expenses relating to the registration and distribution of Registrable Securities; (I) fees and out-of-pocket expenses of a single counsel for the selling Stockholders and (J) fees and out-of-pocket expenses of counsel for Company and its independent certified public accountants (including the expenses of any audit, review and/or "cold comfort" letters) and other persons, including special experts, retained by Company (collectively, clauses (A) through (J), "REGISTRATION EXPENSES"); provided, however, that Company shall not -------- ------- be required to pay, and the Stockholder shall pay, any discounts, commissions or fees of underwriters, selling brokers and dealers relating to the distribution of the Registrable Securities. (d) Registration Procedures. In the case of each registration ----------------------- effected by Company pursuant to this Agreement, Company shall keep the participating Stockholders advised in writing as to the initiation of each registration and as to the completion thereof. The Company shall (i) permit the Stockholder, the Manager, if any, and their respective counsel to make such investigation of Company as they may reasonably request, (ii) furnish to the participating Stockholders, the Manager and their respective counsel drafts of the registration statement and all amendments thereto, all prospectuses and supplements thereof prior to filing with the SEC and consider their comments and suggestions with respect to such documents, and (iii) not file any such registration statement, amendment, prospectus or supplement to which the participating Stockholders or the Manager shall reasonably object. At its expenses, Company shall: (i) keep such registration effective and current as required by law for such period necessary to permit the Stockholder to complete the distribution described in the registration statement relating thereto, or for such period as may be agreed to in the Underwriting Agreement; (ii) prepare and file with the SEC such amendments, post- effective amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to comply with the provisions of the Securities Act and the Underwriting Agreement and to keep such registration statement effective and current as required by law for that period of time specified above, in each case exclusive of any period during which the prospectus used in connection with such registration shall not comply with the requirements of Section 10 of the Securities Act, and respond as promptly as practicable to any comments received from the SEC with respect to such registration statement or any amendment thereto; (iii) furnish such number of copies of the registration statement, each amendment thereto, each preliminary prospectus, prospectuses, supplements and incorporated documents and other documents incident thereto as the Stockholder or the Manager from time to time may reasonably request; 11 64 (iv) use its best efforts to register or qualify the Registrable Securities covered by such registration statement under the securities or "blue sky" laws of such jurisdictions as the Stockholder and the Manager shall reasonably request, and do any and all other acts and things which may be necessary or desirable to enable the Stockholder and the Manager to consummate the offering and disposition of Registrable Securities in such jurisdictions; provided, however, that the Company shall not, by virtue of this -------- ------- Agreement, be required to qualify generally to do business as a foreign corporation, subject itself to taxation, or consent to general service of process, in any jurisdiction wherein it would not, but for the requirements of this clause (iv), be obligated to be qualified; (v) notify the Stockholder and the Manager promptly and, if requested by any such person, confirm such notification in writing, (A) when a prospectus or any prospectus supplement has been filed with the SEC, and, with respect to a registration statement or any post-effective amendment thereto, when the same has been declared effective by the SEC, (B) of any request by the SEC for amendments or supplements to a registration statement or related prospectus, or for additional information, (C) of the issuance by the SEC of any stop order or the initiation of any proceedings for such or a similar purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such order at the earliest practicable time), (D) of the receipt by Company of any notification with respect to the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose (and the Company shall make every reasonable effort to obtain the withdrawal of any such suspension at the earliest practicable time), (E) of the occurrence of any event with requires the making of any changes to a registration statement or related prospectus so that such documents shall not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (and the Company shall promptly prepare and furnish to the Stockholder and the Manager a reasonable number of copies of a supplemented or amended prospectus such that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not statements therein, in light of the circumstances under which they are made, not misleading), and (F) of the Company's determination that the filing of a post-effective amendment to the Registration Statement shall be necessary or appropriate. Each Stockholder agrees that it shall, as expeditiously as possible, notify the Company at any time when a prospectus relating to a registration statement covering such Stockhloder's Registrable Securities is required to be delivered under the Securities Act, of the happening of any event of the kind described in this clause (v) as a result of any information provided by such Stockholder in writing expressly for inclusion in such prospectus included in such registration statement and at the request of the Company, promptly prepare and furnish to it such information as may be necessary so that, after incorporation into a supplement or amendment of such prospectus as thereafter delivered to the purchasers of such securities, the information so provided by the Stockholder shall 12 65 not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Each Stockholder shall be deemed to have agreed by acquisition of such Registrable Securities that upon the receipt of any notice from the Company of the occurrence of any event of the kind described in clause (E) of this clause (v), such Stockholder shall forthwith discontinue its offer and disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until such Stockholder shall have received copies of a supplemented or amended prospectus which is no longer defective as contemplated by clause (E) of this clause (v) and, if so directed by the Company, shall deliver to the Company, at the Company's expense, all copies (other than permanent file copies) of the defective prospectus covering such Registrable Securities which are then in such Stockholder's possession; (vi) use its best efforts to cause all such Registrable Securities covered by such registration statement to be listed on each securities exchange or the Nasdaq Stock Market, as applicable, on which similar securities issued by the Company are then listed, if the listing of such Registrable Securities is then permitted under the rules and regulations of such exchange or the Nasdaq Stock Market, as applicable; (vii) engage and provide a transfer agent for all Registrable Securities covered by such registration statement not later than the effective date of such registration statement; (viii) whether or not the Underwriting Agreement is entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the underwriters, if any, in form, substance and scope as are customarily made in connection with an offering of common stock or other equity securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to such registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such opinions, as the Manager, if any, and as the Stockholder may reasonable request; (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of Company addressed to the underwriters, if any, thereof, dated (i) the effective date of such registration statement and (ii) the date of the closing under the underwriting agreement relating thereto, such letter or letters to be in customary form and covering such matters of the type customarily covered, from time to time, by letters of such type and such other financial matters as the Manager, if any, may reasonably request; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by the underwriters, if any, therefor and the Manager, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by Company, and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in this Agreement; 13 66 (ix) permit the Stockholder to participate in the preparation of such registration statement and include therein material acceptable to the Company and its counsel, furnished to Company in writing which in the reasonable judgement of the Stockholder and its counsel is required to be included therein: (x) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement by the SEC or any state securities authority as promptly as possible; and (xi) cooperate with the Stockholder to facilitate the timely preparation and delivery certificate representing Registrable Securities to be sold and enable certificates for such Registrable Securities to be issued for such number of shares of Company Common Stock and registered in such names as Stockholder may reasonably request. (e) Indemnification --------------- (i) The Company shall indemnify and hold harmless each Stockholder, each of its directors, officers and agents, each underwriter (as defined in the Securities Act) of such Registrable Securities, if any, and each person who controls (within the meaning of Section 15 of the Securities Act) such Stockholder or any underwriter of the Registrable Securities held by or issuable to such Stockholder, against all claims, losses, expenses, damages and liabilities, joint or several, including any of the foregoing incurred in settlement of any proceeding, commenced or threatened, (or actions in respect thereto) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of any rule or regulation promulgated under the Act of any state securities law applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and shall reimburse each Stockholder each of its directors, officers and agents, each such underwriter and each person who controls such Stockholder or any such underwriter for any reasonable legal and any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability or action, provided, however, that the Company shall not -------- ------- be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Stockholder or such underwriter specifically for use therein. The indemnity provided by this Section (6)(e) shall be in addition to any liability which Company may otherwise have. (ii) Each Stockholder shall indemnity and hold harmless Company, each of its directors and officers, each underwriter, if any, and each person who controls Company or any of the underwriters within the meaning of the Act, against all claims, losses, expenses, damages and liabilities (or actions in respect thereof) arising out of or 14 67 based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse the Company or underwriters for any reasonable legal or any other expenses incurred in connection with investigating, defending or settling any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information pertaining to such Stockholder, which is furnished in writing to Company by such Stockholder specifically for use therein. (iii) If the indemnification provided for in this Section 6 is unavailable to or insufficient to hold harmless an Indemnified Party (as defined below) in respect of any losses, claims, damages or liabilities (or action in respect thereof) referred to therein, then Company and the Stockholder shall contribute to the amount paid or payable as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of Company on the one hand and the Stockholder on the other in connection with the statements or omission which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. Relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Stockholder on the other and such persons's relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 6(e) were determined pro --- rata allocation or by any other method of allocation which does not take ---- account of the equitable considerations referred to above in this Section 6(e). The amount paid or payable by a party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this Section 6(e) shall include any legal or other expenses reasonably incurred by such party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. No person shall be required to contribute to any settlement effected without its consent, which consent shall not be unreasonably withheld. If, however, indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the fullest extent provided here without regard to the relative fault of such indemnifying party or indemnified party or any other equitable considerations. (iv) Each party entitled to indemnification under this Section 6(e) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that 15 68 counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld, and the Indemnified Party may participate in such defense at such party's expense, unless the Indemnified Party in its reasonable judgment determines that joint representation by counsel for the Indemnifying Party would be inappropriate due to actual or potential differing interests between the Indemnifying Party and the Indemnified Party in the conduct of the defense of such action, in which case the Indemnified Party shall be entitled to be represented by separate counsel selected by it, the reasonable fees and expenses of which shall be borne by the Indemnifying Party, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder, unless such failure resulted in actual detriment to the Indemnifying Party. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification of the underwriters and their controlling persons contained in the Underwriting Agreement in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in the Underwriting Agreement shall control as to indemnification of the underwriters and their controlling persons in the public offering. (vi) Notwithstanding the foregoing, in no event shall any Stockholder be liable under this Section 6(e) for an amount exceeding the net proceeds received by Stockholder from the sale of its Registrable Securities pursuant to the registration rights granted to Stockholder hereunder. (f) Holdback Amount. Each Stockholder agrees that in the event of an --------------- underwritten public offering of Registrable Securities for the account of any Stockholder, such Stockholder and any Related Transferee thereof will not, without the written consent of the underwriters, offer for public sale (other than as part of such underwritten public offering) any Securities during the ten (10) days prior to and such number of days (not to exceed 180 days in the case of an initial public offering and 90 days in all other cases) after the effective date of the registration statement in connection with such public offering as the underwriters may reasonably request in writing. (g) Assignment and Assumption. For avoidance of doubt, the parties ------------------------- acknowledge that each Stockholder may assign its rights under this Section 6 as an incident to any permitted Transfer of Securities held by it to the Transferee of such Securities, and if the Stockholder retains any Securities, the rights under this Section 6 shall remain applicable to the retained Securities. If Securities are acquired from a Class I Stockholder, such Securities shall be entitled to participate in any Demand Registration as a member of the group enumerated in clauses (i) through (iii) of Section 6(a), without thereby increasing the aggregate number of Demand Registrations the Company may be required to effect. Each Stockholder shall promptly 16 69 notify the Company in writing of each such assignment of rights, and the assignee shall execute such documentation as the Company may reasonably request to evidence its agreement to be bound by this Section 6. Registration rights shall not be assignable to any purchaser of Securities sold under Rule 144 or in any public securities sale. If the Company effects a business combination in which Stockholders receive securities of another issuer and such securities cannot be resold by the Stockholders without registration under the Securities Act, as a condition to the consummation of such business combination, the Company shall cause such issuer to assume the Company's obligations under this Section 6. (h) Stock Option Plans. After the IPO, the Company shall use its ------------------ reasonable efforts to register, on Form S-3 or any similar or successor form, the ISOs and NQ Options so as to permit the non-Affiliate Stockholders to dispose of Common Stock issuable upon the exercise thereof pursuant to Rule 144. 7. Drag-Along Sales and Tag-Along Sales. ------------------------------------ (a) Drag-Along Sales. ---------------- (i) Notwithstanding any other provision hereof, if GEI agrees to sell Securities held by it pursuant to a transaction in which more than 75% of the then-outstanding Common Stock of the Company will be sold to or acquired by a Third Party (either of such sales, a "DRAG-ALONG SALE"), then upon the demand of GEI, (i) in the case of Occidental and the Class II Stockholders, made at any time after the Closing Date and (ii) in the case of the HPA Group, made at any time after the fourth anniversary of the Closing Date (the HPA Group and the Class II Stockholders being collectively referred to for this purpose as "DRAG-ALONG SELLERS"), each Drag-Along Seller hereby agrees to sell to such Third Party the same percentage of the total number of Securities held by such Drag-Along Seller on the date of the Drag-Along Notice, as the number of Securities GEI is selling in the Drag-Along Sale bears to the total number of shares held by GEI as of the date of the Drag-Along Notice (the "SALE PERCENTAGE"), at the same price and form of consideration and on the same terms and conditions as GEI has agreed to with such Third Party. If the Drag-Along Sale is in the form of a merger transaction, the Drag-Along Seller agrees to vote his or her Securities in favor of such merger and not to exercise any rights of appraisal or dissent afforded under applicable law. The provisions of this Section 7 shall apply regardless of the form of consideration received in the Drag-Along Sale. For purposes of Drag-Along Sales, the number of shares owned by each Drag-Along Seller shall include all shares underlying NQ Options, which NQ Options will be exercised by the Drag-Along Sellers immediately prior to and contingent upon consummation of the Drag-Along Sale. (ii) Prior to making any Drag-Along Sale, if GEI elects to exercise the option described in this Section 7, GEI shall provide the Drag-Along Seller to whom this Section 7 then applies with written notice (the "DRAG-ALONG NOTICE") not more than 60 nor less than 15 days prior to the proposed date of the Drag-Along Sale (the "DRAG-ALONG SALE DATE"). The Drag-Along Notice shall set forth: (i) a general description of the transaction and the proposed amount and form of consideration to be 17 70 paid per share offered by the Third Party; (ii) the aggregate number of Securities held by GEI as of the date that the Drag-Along Notice is first given to a Drag-Along Seller; (iii) the Sale Percentage; and (iv) the Drag- Along Sale Date. (iii) On the Drag-Along Sale Date, each Drag-Along Seller shall deliver a certificate or certificates for the Sale Percentage of its Securities, duly endorsed for transfer with signatures guaranteed, to such Third Party in the manner and at the address indicated in the Drag-Along Notice against delivery of the purchase price therefor, provided, however, -------- ------- that in the eventthe Company has possession of any such certificates pursuant to this Agreement, upon the written request of the Drag-Along Seller at least five (5) business days in advance of-the Drag-Along Sale Date, the Company shall deliver such certificates to the purchaser at the time and in the manner described above. (b) Optional Participation in Sales of Common Stock (Tag-Along ---------------------------------------------------------- Sales). ------ (i) If GEI shall at any time desire to Transfer shares of Common Stock to a third party, other than ratably to its partners, then each of the HPA Group and the Class II Stockholders and their Related Transferees (collectively, a "TAG-ALONG SELLER") shall be entitled, to participate pro rata in such Transfer at the same price and on the same --- ---- terms and conditions applicable to GEI, based upon their respective Fully Diluted Ownership in the Company. (ii) Each Tag-Along Seller shall have the right to Transfer up to a percentage of the number of shares specified in the Transfer Notice delivered pursuant to the following sentence by the aggregate number of shares of Common Stock then owned by GEI. GEI shall deliver or cause to be delivered to each Tag-Along Seller a written notice (a "TRANSFER NOTICE") of a proposed tag-along sale no later than 30 days prior to the proposed closing thereof. Such notice shall make reference to the Tag-Along Sellers' rights under this Section 7(b) and shall describe in reasonable detail (A) the aggregate number of shares of Common Stock to be Transferred by GEI if none of the HPA Group or Class II Stockholders participates, (B) the aggregate number of shares of Common Stock then owned by GEI, (C) the person or entity to whom or which such shares of Common Stock are proposed to be Transferred, (D) the terms and conditions of the Transfer, including the consideration to be paid therefor, (E) the maximum percentage of its shares such Tag-Along Seller is entitled to include in the Transfer and (F) the proposed date, time and location of the closing of the Transfer. Each Stockholder receiving a Transfer Notice shall exercise its right to participate in a Transfer of Common Stock pursuant to this Section 7 by delivering to GEI a written notice (a "TAG-ALONG NOTICE") stating its election to do so and specifying the number of shares (which shall not exceed the number of shares determined for such Tag-Along Seller in the Transfer Notice) of Common Stock held by it to be Transferred no later than fifteen days after receipt of the Transfer Notice. Failure to provide a Tag-Along Notice within such fifteen-day period shall be deemed to constitute an election by such Stockholder not to exercise its rights pursuant to this Section 7, and GEI shall have 90 days following the expiration of such fifteen-day period in which to Transfer the number of shares equal to the difference between the number set forth in the Transfer Notice and the aggregate number of shares 18 71 as to which GEI has received a Tag-Along Notice, on terms not more favourable to GEI than those set forth in the Transfer Notice. (iii) Each Tag-Along Seller shall be required to deliver at such closing the certificate or certificates representing the shares to be Transferred, duly endorsed for transfer, and shall be entitled to receive the net proceeds allocable to the Transfer thereof, after deduction of such Tag-Along Seller's proportionate share of the expenses of Transfer, which share shall not exceed an amount proportionate to the amount of such expenses allocated to GEI. If, at the end of the 90-day period following the expiration of such fifteen-day period, GEI has not completed the Transfer of shares of Common Stock, GEI may not sell the shares of Common Stock without again fully providing a Transfer Notice. (c) Obligations of Drag-Along Sellers. In connection with any --------------------------------- Drag-Along Sale, Drag-Along Sellers shall not be required to make any representation or warranty to the purchaser other than to the effect that they hold title to the Securities they are selling in the Drag-Along Sale, free and clear of liens and the like, and as to their right, power and authority to sell such Securities. Except as to such representations, Drag-Along Sellers shall not be liable beyond the net proceeds of the Drag-Along Sale for any other breach of representations or warranties. In addition, unless expressly agreed to by a Drag-Along Seller, no Drag-Along Seller shall be required to enter into any covenant not to compete or similar agreement restricting their business activities. 8. Termination and Lapse of Rights and Restrictions; Applications of ----------------------------------------------------------------- Other Stock and Adjustments. The provisions of Sections 4, 5, 7, 9, and 10 - --------------------------- shall lapse and be of no further effect immediately following the earlier to occur of a Change in Control or an IPO. In the event any capital stock of the Company or any other corporation shall be distributed on, with respect to, or in exchange for Securities as a stock dividend, stock split, reverse stock split, reclassification or recapitalization, or in connection with any merger or reorganization, the restrictions, rights and options and prices set forth herein shall apply with respect to such other capital stock to the same extent as they are, or would have been applicable, to the Securities on or with respect to which such other capital stock was distributed and shall continue to apply to the Securities or such other securities outstanding thereafter, in each case with such adjustments as are necessary or appropriate. 9. Election of Directors. So long as such individuals respectively own ---------------------- the requisite amount of Common Stock set forth herein, each of the other Stockholders agrees to vote his or its Common Stock, and cause his Related Transferees to vote their Common Stock, in favor of Michael J. Fourticq and Brian P. McDermott ("FOURTICQ" and MCDERMOTT") in all elections of the directors of the Company whether by meeting or action in writing. Such agreement to vote shall be effective as to each such individual so long as such individual continues to own (directly or, in the case of Mr. McDermott, through a family trust and in either case, through Related Transferees after the date hereof) at least two-thirds (2/3) of the Common Stock owned by him on the date hereof. Such agreement to vote shall cease to be effective upon the first to occur of: (i) such individual ceasing to own (directly or indirectly, as aforesaid) in excess of one-third (1/3) of the Common Stock owned by him on the date hereof and (ii) a Disproportionate Sale after 19 72 which such individual and his Related Transferees own less than two-thirds (2/3) of the Common Stock owned by him and such Related Transferees on the date hereof. A "DISPROPORTIONATE SALE" as to either individual occurs on the date of a Transfer of Common Stock as a result of which the Common Stock owned by such individual and Related Transferees has decreased by a percentage that is greater, by at least five percent (5%), than the corresponding decrease in ownership of Common Stock of GEI to date. Each of the Stockholders further agrees the he or it shall vote its Common Stock and cause its Related Transferees to vote their Common Stock, in all elections of directors of the Company, whether by meeting or action in writing, in favour of all nominees for the board of directors proposed by GEI. For purposes of this Section 9 and the effectiveness of the voting agreements herein, ownership of Common Stock shall be calculated based upon the Fully Diluted Ownership of the individual and his Related Transferees, in the aggregate. 10. Certain Additional Agreements. ----------------------------- (a) Right to Participate in Equity Issuances. If the Company shall ---------------------------------------- issue, sell or distribute to GEI or any of its Affiliates any equity or debt securities of the Company, or any option warrant, or right to acquire, or any security convertible into or exchangeable for, any of the foregoing (other than pursuant to an underwritten public offering, a stock dividend, stock split or other pro rata distribution of securities to stockholders of the Company --- ---- generally in which the HPA Group participates on an equal basis, including any Related Transferees), the HPA Group shall be entitled, provided that they collectively maintain two-thirds (2/3) of the Fully Diluted Ownership held by them on the date hereof, to participate in such issuance, sale or distribution, at the same price and on the same terms and conditions applicable to GEI, pro --- rata, based upon their respective Fully Diluted Ownership in the Company. - ---- (b) Right to Participate in Equity Repurchases. GEI agrees that the ------------------------------------------ Company will not purchase any Securities from GEI or any of its Affiliates unless the Company offers to simultaneously purchase a proportionately equal number of Securities of the same class from each member of the HPA Group at the same price and on the same terms and conditions applicable to GEI and its Affiliates, based upon their respective Fully Diluted Ownership. (c) Affiliate Transactions. No material transaction or series or ---------------------- related transactions (including any issuance of securities, profits interests, stock appreciation rights, or similar rights or interests of the Company) between the Company and GEI or any of its Affiliates involving value in excess of $1,000,000 may be consummated unless approved (i) if one of Fourticq or McDermott then holds at least one-third of his Fully Diluted Ownership as of the date hereof, by such individual, and otherwise by a majority of the disinterested directors of the Company, or (ii) by the board of directors of the Company after it is presented with a fairness opinion of a nationally recognized investment bank to the effect that the transaction is fair to the Company and its stockholders. Notwithstanding the foregoing, other than the Management Agreement of even date herewith between the Company and Leonard Green & Partners, L.P. (the "Management Agreement"), GEI and its Affiliates will not enter into any consulting management or similar agreement or arrangement with the Company or increase the fees provided for in the Management Agreement as of the date hereof, except that such fees may be proportionately increase provided such increase is calculated on the same basis (1.6% of invested capital) as the 20 73 fee currently provided for therein and such increase reflects further investment by GEI consistent with the terms of this Section 10. (d) Change of Control Transactions. Each of GEI, Fourticq and ------------------------------ McDermott agrees that no such Stockholder shall, without the prior consent of the other two Stockholders, pursue, advocate or enter into an agreement in respect of any recapitalization, reclassification, share exchange, reorganization, merger, consolidation or similar transaction involving the Company unless all holders of Common Stock of the Company will be treated identically in such transaction, but ratably in proportion to their respective Equity Ownership. (e) Information. The Company shall provide each Class I Stockholder ----------- with the following information, all of which each Class I Stockholder agrees to hold in confidence: (i) For each fiscal quarter of the Company, as and when submitted to Green, unaudited consolidated financial statements of the Company (consisting of balance sheet and statements of operations, stockholders' equity and cash flows for such fiscal quarter, in the form submitted to GEI; (ii) For each fiscal year of the Company, as and when submitted to Green audited financial statements of the Company for such fiscal year, certified by the Company's independent certified public accounting firm, in the form submitted to GEI; (iii) Such additional information about the Company as such Class I Stockholder may reasonably request from time to time. 11. Notices. All notices or other communications under this Agreement ------- shall be given in writing and shall be deemed duly given and received on the third full business day following the day of the mailing thereof by registered or certified mail or the next Business Day if sent by overnight courier or when delivered personally or sent by facsimile transmission as follows: (a) if to the Company, at its principal executive offices at the time of the giving of such notice, or at such other place as the Company shall have designated by notice as herein provided to the Purchaser; (b) if to a Class I Stockholder, at its principal executive offices at the time of the giving of such notice, or at such other place as such Stockholder shall have designated by notice as herein provided to the Company. (c) if to any Class II Stockholder, at his address as it appears on Annex A or at such other place as he shall have designated by notice as herein provided to the Company. 12. General. ------- (a) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and may not be modified or amended except by a written agreement signed by each of the Company and the Class I Stockholders and, to the extent their interests are affected, by the Class II Stockholders, provided, however, that Class II Stockholders having a -------- ------- 21 74 majority of Equity Ownership as amongst such Stockholders may bind all of such Stockholders as to any matter adversely affecting them if such adverse effect is equal, on a proportionate basis, as to all such Stockholders and the consent of each adversely affected Class II Stockholders shall otherwise be required. (b) No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. (c) Except as otherwise expressly provided herein, this Agreement shall be binding upon and inure to the benefit of each of the Company, the Stockholders and their respective heirs, personal representatives, successors and assigns; provided, however, that nothing contained herein shall be construed -------- ------- as granting any Stockholder the right to Transfer any of the Securities except in accordance with this Agreement and any Transferee shall hold such Securities having only those rights and being subject to the restrictions provided for in this Agreement. (d) If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render invalid or unenforceable any other severable provision of this Agreement, and this Agreement shall be carried out as if any such invalid or unenforceable provision were not contained herein. (e) Each Class II Stockholder agrees that nothing herein shall be deemed to create any implication concerning the adequacy of his services to the Company, or shall be construed as an agreement by the Company, express or implied, to employ him or contract for his services, to restrict the right of the Company to discharge him or cease contracting for his services or to modify, extend or otherwise affect in any manner whatsoever, the terms of any employment agreement or contract for services which may exist between him and the Company or its subsidiaries. Each Class II Stockholder represents that he has been advised, to the extent he deemed necessary, by legal counsel and tax advisors of his choice in connection with this Agreement. Each Class II Stockholder further represents that, if he is married, his spouse has executed and delivered to the Company the Acknowledgment and Agreement of Spouse set forth at the end of this Agreement. (f) In the event any day upon which a sale, notice or other matter is required to occur hereunder is not a Business Day, such matter shall be deferred until the next Business Day. (g) The section headings contained herein are for the purposes of convenience only and are not intended to define or limit the contents of such sections. The masculine pronoun shall be deemed to include and incorporate the feminine pronoun. (h) Each party hereto shall cooperate and shall take such further action and shall execute and deliver such further documents as may be reasonably requested by any other party in order to carry out the provisions and purposes of this Agreement. 22 75 (i) Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. (j) This Agreement may be executed in one or more counterparts, all of which taken together shall be deemed one original. (k) Due to the fact the securities of the Company cannot be readily purchased or sold in the open market, and for other reasons, the parties will be irreparably damaged in the event that this Agreement is not specifically enforced. In the event of a breach or threatened breach of the terms, covenants and/or conditions of this Agreement by any of the parties hereto, the other parties shall, subject to Section 13, in addition to all other remedies, be entitled to a temporary and/or permanent injunction, without showing any actual damage or that monetary damages would not provide an adequate remedy, and/or a decree for specific performance, in accordance with the provisions hereof. Each Stockholder hereby irrevocably and unconditionally consents to the jurisdiction of any California State court or federal court of the United States sitting in the State of California in any action or proceeding relating to this Agreement and consents to service of process in connection therewith by the delivery of notice to such Stockholder's address set forth in the Agreement. (l) This Agreement shall be deemed to be a contract under the laws of the State of Delaware and for all purposes shall be construed and enforced in accordance with the internal laws of such state without regard to the principles of conflicts of law. 13. Additional Class II Stockholders. Prior to issuing any Options, Common -------------------------------- Stock or other right exercisable for or convertible into Common Stock, and as a condition to the receipt thereof, the Company shall require the recipient to execute and deliver a duplicate counterpart of this Agreement, and such recipient shall become a Class II Stockholder for all purposes hereof. 14. Arbitration. ----------- (a) General. Except as provided in this Section 14, the Federal ------- Arbitration Act shall govern the interpretation, enforcement and all proceedings pursuant to this Section 14. To the extent that the Federal Arbitration Act is inapplicable, Delaware law pertaining to agreements to arbitrate shall apply. (b) Scope. ----- (i) The parties mutually consent to the resolution by arbitration of all claims or controversies ("CLAIMS"), past, present, or future, whether or not arising out of matters related to this Agreement or that any party may have against another party or against its partners, officers, directors, employees, agents or trustees in their capacity as such or otherwise. The only claims that are arbitrable are those that, in the absence of this Section 14, would have been justifiable under applicable state or federal law. Except as otherwise provided in this Section 14, no party shall initiate or prosecute any lawsuit or 23 76 administrative action (other than an administrative charge of discrimination) in any way related to any claim covered by this Section 14. (ii) Claims for workers' compensation or unemployment compensation benefits are not covered by this Section 14. Also not covered are claims by any of the parties for injunctive and/or other equitable relief including but not limited to claims for specific performance. (c) Deposition. Each party to a dispute shall have the right to take ---------- the deposition of up to [two] individuals and any expert witness designated by each other party. Each party also shall have the right to make requests for production of documents to any party. The subpoena right specified below shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had only where the arbitrator selected pursuant to this Section 14 so orders, upon a showing of reasonable and substantial need. At least 30 days before the arbitration, the parties must exchange lists of witnesses, including any expert, and copies of all exhibits intended to be used at the arbitration. Each party shall have the right to subpoena witnesses and documents for the arbitration. (d) JAMS. The Arbitration will be held under the auspices of either ---- the American Arbitration Association ("AAA") or Judicial Arbitration & Mediation Services, Inc. ("J.A.M.S"), with the designation of the sponsoring organization to be made by the party who did not initiate the claim. The parties agree that, except as provided in this Agreement, the arbitration shall be in accordance with the AAA's then-current arbitration procedures (if AAA is designated) or the then-current J.A.M.S arbitration rules (if J.A.M.S is designated). The arbitration shall be conducted by a panel of three arbitrators each of whom shall be either a retired judge, or an attorney licensed to practice law in the state in which the arbitration is convened (the "ARBITRATORS"). The arbitration shall take place in Los Angeles, California. (e) Selection of Arbitrators. The Arbitrators shall be selected as ------------------------ follows: (i) If the dispute to be resolved is between the Company and another party, shall each select an arbitrator from a list of arbitrators provided by the sponsoring organization and meeting the criteria set forth above. If the dispute is between two Stockholders, each shall select an arbitrator from such list. If the dispute involves more than two parties and if the parties to the dispute agree to being separated into two groups, each group may select one arbitrator from such list. If the parties to a dispute cannot agree on a third arbitrator, the arbitrators so selected shall select a third arbitrator who also meets the above criteria. If the two named arbitrators are unable to agree upon the third arbitrator, or fail to designate such arbitrator within 30 days from the day the matter is submitted to arbitration, then, on application of any party, the third arbitrator shall be designated by the sponsoring organization. (ii) If two arbitrators cannot be selected by the process described in subparagraph (i) within 30 days from the day the matter is submitted to arbitration, then, on application of any party, the three arbitrators shall be designated by the sponsoring organization. 24 77 (iii) The decision of any two (2) Arbitrators shall constitute a final decision and award hereunder. (f) Governing Law. The Arbitrators shall apply the substantive law ------------- (and the law of remedies, if applicable) of the state of Delaware or federal law, or both, as applicable to the claim(s) asserted. The Arbitrators are without jurisdiction to apply any different substantive law, or law of remedies. The Federal Rules of Evidence shall apply. The Arbitrators, and not any federal, state, or local court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including but not limited to any claim that all or any part of this Agreement is void or voidable. The arbitration shall be final and binding upon the parties, except as provided in this Agreement. (g) Procedures. The Arbitrators shall have jurisdiction to hear and ---------- rule on pre-hearing disputes and are authorized to hold pre-hearing conferences by telephone or in person, as the Arbitrators deem necessary. The Arbitrators shall have the authority to entertain a motion to dismiss and/or a motion for summary judgment by any party and shall apply the standards governing such motions under the Federal Rules of Civil Procedure. Any party to a dispute, at its expense, may arrange for and pay the cost of a court reporter to provide a stenographic record of proceedings. Any party to a dispute, upon request at the close of hearing, shall be given leave to file a post-hearing brief. The time for filing such a brief shall be set by the Arbitrators. (h) Award. The Arbitrators shall render an award and opinion ----- outlining in reasonable detail the findings of fact and conclusions of law upon which the award is based. The award of the Arbitrators shall be final, binding and conclusive on the parties. If the Company is a party to the dispute, the Company shall bear the fees and costs of the Arbitrators. If Company is not a party to the dispute, the parties to the dispute shall equally share the fees and costs of the Arbitrators. Each party shall pay for its own costs and attorneys' fees. 15. Definitions. As used in this Agreement, unless the context requires ----------- otherwise, the capitalized terms described in this Section 15 shall have the meanings indicated herein. (a) Each of the following capitalized terms shall have the meaning ascribed to such term in the section of this Agreement indicated:
Term Section ---------------------------------------------- ---------------- Act.......................................... 15(b) Affiliate.................................... 15(b) Agreement.................................... Introduction Bona Fide Offer.............................. 4(b) Business Day................................. 15(b) Callable Securities.......................... 2(b) Call Purchase Event.......................... 5(a) Call Option.................................. 2(b) Change in Control............................ 15(b) Class I Stockholder.......................... Introduction
25 78
Term Section ---------------------------------------------- ---------------- Class II Stockholder......................... Introduction Common Stock................................. Recitals Company...................................... Introduction Control...................................... 13(b) Demand Registration.......................... 6(a) Demand Seller................................ 6(b) Disproportionate Disposition................. 9 Drag-Along Notice............................ 7(b) Drag-Along Sale.............................. 7(a) Drag-Along Sale Date......................... 7(b) Drag-Along Seller............................ 15(b) Electing Stockholder......................... 4(b) Equity Ownership............................. 15(b) Fair Market Value............................ 15(b) Fully Diluted Ownership...................... 15(b) Future Stockholder........................... 6(b) Future Participants.......................... 6(a) GEI.......................................... Introduction GEI Distribution............................. 12 Stockholder.................................. 6(a) IPO.......................................... 15(b) Living Trust................................. 15(b) Manager...................................... 15(b) NQ Option.................................... 2(b) Option Notice................................ 4(b) Other Termination............................ 5(a) Outside Party................................ 4(b) Permanent Disability......................... 15(b) Permitted Transfer........................... 4(a) Purchase Notice.............................. 5(a) Purchaser.................................... 2(b) Purchasing Group............................. 5(a) Registrable Securities....................... 15(b) Registration Notice.......................... 6(a) Related Transferee........................... 15(b) Retirement................................... 15(b) Rule 144..................................... 15(b) Sale Percentage.............................. 7(a) SEC.......................................... 15(b) Securities................................... Introduction Seller....................................... 5(a) Subscription Stock........................... 2(b) Tag-Along Notice............................. 7(e)
26 79
Term Section ---------------------------------------------- ---------------- Tag-Along Seller............................. 7(d) Third Party.................................. 7(a) Transfer..................................... 15(b) Transfer Notice.............................. 7(e)
(b) Each of the following capitalized terms shall have the meanings indicated in this clause (b): "ACT" means the Securities Act of 1933, as amended from time to time. "AFFILIATE" has the meaning set forth in Rule 405 under the Act. "BUSINESS DAY" means a day on which banks are open for business in the State of California. "CHANGE IN CONTROL" means any of (i) a sale or other disposition by the Company of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, or (ii) a merger or consolidation of the Company if, immediately following such merger or consolidation, there is not Control of the surviving entity of such merger or consolidation, or (iii) a sale of capital stock of the Company (by any holder thereof or by the Company) if, immediately following such sale, there is not Control of the Company. "CONTROL" means that the holders of the capital stock of the Company immediately following the Merger (including the Class I Stockholders) hold, in the aggregate, directly and indirectly, the power to elect a majority of the directors of the Company that are not elected pursuant to the provisions of the Preferred Stock (or, as the case may be, the surviving entity of a merger or consolidation of the Company). "EQUITY OWNERSHIP" means the relative interests of the holders of the Company's outstanding Common Stock as of the date of determination. "FAIR MARKET VALUE" of Securities means the fair market value of Securities as determined as of the time of the Call Purchase Event by the Company's Board of Directors in the exercise of its reasonable discretion; provided, however, -------- ------- that in the event that the Common Stock is traded publicly on any national securities exchanges) (including without limitation NASDAQ National Market System or the NASDAQ "Small-Cap" Issues System), such fair market value shall be based upon the closing price for such Common Stock on such Exchange(s) on the date preceding the Call Purchase Event. "FULLY DILUTED OWNERSHIP" means, as to any Stockholder, his or its aggregate ownership of all equity interests in the Company, including all Options and all other securities exercisable convertible or exchangeable for Common Stock. 27 80 "IPO" means the completion of the first underwritten public offering of the Company's shares of Common Stock registered under the Act. "LIVING TRUST" means a revocable living trust established by the Purchaser for estate planning purposes and pursuant to which no one other than the Purchaser and/or the Purchaser's spouse is the beneficiary during the Purchaser's lifetime. "MANAGER" means the investment banking firm or firms designated by the Stockholder as the managing underwriter(s) of an offering registered pursuant to this Agreement, which firm or firms shall be the existing investment bankers for or other nationally recognized investment bankers reasonably acceptable to the Company. "PERMANENT DISABILITY" of a Class II Stockholder means that (i) the Class II Stockholder becomes physically or mentally incapacitated or disabled so that he is unable to perform for the Company substantially the same services as he performed prior to incurring such incapacity or disability, and (ii) such incapacity or disability continues for a period of 120 days, whether or not consecutive, over a period of six consecutive months; provided, however, that -------- ------- (x) the Company, at its option and expense, shall be entitled to retain a physician to confirm the existence of such incapacity or disability, and the determination of such physician shall be binding upon the Company and the Class II Stockholder. "REGISTRABLE SECURITIES" means the Common Stock and the Warrant Shares, subject to adjustment pursuant to Section 8 hereof. "RELATED TRANSFEREE" means (i) in the case of any individual, any of the Stockholder's spouse, adult lineal descendants, adult spouses of such lineal descendants, a Living Trust, trusts solely for the benefit of the Stockholder's spouse or the Stockholder's minor or adult lineal descendants, and (in the event of the Stockholder's death) the Stockholder's personal representatives (in their capacities as such), estate or named beneficiaries and (ii) in the case of a business organization, any individual or other business organization controlled by or under common control with such business organization, as such terms but defined within the meaning of Rule 405 under the Act. "RETIREMENT" means retirement pursuant to the Company's standard retirement policy in effect from time to time but in no event prior to the age of 65, unless pursuant to a specific determination by the Board of Directors of the Company. "RULE 144" means Rule 144 under the Act, as amended from time to time, or any successor or similar rule. "SEC" means the Securities Exchange Commission. "TRANSFER," used as a noun, means any sale, pledge, gift, bequest, transfer, assignment or any other encumbrance or disposition, whether direct or indirect, conditional or unconditional. "TRANSFER," used as a verb means to make a Transfer. 28 81 IN WITNESS WHEREOF, the parties have executed this Agreement as of the first date written above. LESLIE'S POOLMART, INC. By___________________________________ Its__________________________________ GREEN EQUITY INVESTORS II, L.P. By: Grand Avenue Capital Partners, L.P., its sole general partner By: Grand Avenue Capital Corporation, its sole general partner By:__________________________________ Name_________________________________ Title________________________________ _____________________________________ Richard H. Hillman _____________________________________ Michael J. Fourticq _____________________________________ Greg Fourticq _____________________________________ Brian P. McDermott _____________________________________ Brian P. McDermott and Manette J. McDermott, T.R.U.A. DTD 3/15/90 The McDermott Family Trust OCCIDENTAL PETROLEUM CORPORATION By___________________________________ Name_________________________________ Title________________________________ 29 82 ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE -------------------------------------- The undersigned, being the spouse of a Purchaser listed on Annex A hereto, hereby agrees to be bound by the provision of this Agreement and consents to the Purchaser's subscription for the Common Stock pursuant hereto. _____________________________________ Name_________________________________ 30 83 ANNEX A CAPITAL STRUCTURE -----------------
Fully Diluted Shares ------------- Michael J. Fouricq 160,539 Brian McDermott 166,552 Richard H. Hillman 22,414 Greg Fourticq 10,000 ------------- Total Stock Remaining Outstanding 359,505 Michael J. Fourticq 4,976 Robert Olsen 52,761 Other Management 25,862 ------------- Total Options 83,599 Robert Olsen-Cash 14,768 Other Management Cash 4,198 Green Equity Investors II, L.P. 1,055,172 Occidental Warrants 316,092 Management Incentive Stock Options 273,946 Total 2,107,280 =============
A-1 84 ANNEX B. TERMS OF INCENTIVE STOCK OPTION PLAN ------------------------------------ Number of Shares............ 83,599 total. The number of shares covered by each individual grant will be the quotient of (i) the product of (x) the number of shares subject to the corresponding cancelled option multiplied by (y) the difference between $14.50 and such cancelled option's exercise price, divided by (ii) $9.50. In the case of Messrs. Fourtiqc and Olson, the foregoing formula results in the issuance of options for a maximum of 4,976 and 52,761 shares, respectively, with the balance to be allocated to management as heretofore agreed. Exercise Price.............. $5.00 Type of Options............. Non-Qualified, ten year options Termination of Employment.................. A portion of options and shares are subject to repurchase upon termination of employment prior to the second anniversary of the Closing Date as set forth in the Agreement, all other options remain exercisable notwithstanding employment status of optionee Adjustment.................. The number of shares subject to Options, and the exercise price, will be proportionately adjusted for each subdivision and combination of Company common stock. B-1 85 ANNEX C TERMS OF ISO OPTIONS -------------------- Number of Shares......... 13% of the Company's fully-diluted Common Stock on the Closing Date Exercise Price........... Fair Market Value (opening equity price) Type of Options.......... Incentive, ten-year options Vesting.................. One-third (1/3) on the first, second and third anniversaries of the Closing Date, except in respect of performance portion Performance Portion ..... Options equivalent to 3% of the fully-diluted Common Stock outstanding on the Closing Date vest upon achievement (assuming continued employment) of performance targets as follows: EBITDA for Year Ended: Number of Stores Opened by: --------------------- -------------------------- $18M............. 1997 30...........March 31, 1998 $22M............. 1998 30...........March 31, 1999 $26M............. 1999 30...........March 31, 2000 Note: Vesting also occurs if the store opening ---- target is met in each prior year and the Company achieves 95% of a year's EBITDA target and the sum of that year and the following year's EBITDA equals 100% of the combined targets Termination of Employment .............. Vested options may be exercised for 90 days post- termination; unvested options are forfeited and become eligible for future grant at Fair Market Value Adjustment............... The number of shares subject to Options, and the exercise price, will be proportionately adjusted for each subdivision and combination of Company common stock. C-1 86 EX-18 13 POWER OF ATTORNEY OF MICHAEL J. FOURTICQ EXHIBIT 18 POWER OF ATTORNEY The undersigned, Michael J. Fourticq, hereby makes, constitutes and appoints Brian P. McDermott and Robert D. Olsen the attorneys-in-fact (individually, "Attorney"; and collectively, "Attorneys") of the undersigned, with full power and authority, including without limitation the power of substitution and resubstitution, acting together or separately, in the name of and for and on behalf of the undersigned: (a) For the purpose of complying with the requirements of the Securities Act of 1933, as amended, and the rules of the Securities and Exchange Commission (the "Commission") promulgated thereunder (collectively, the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules of the Commission promulgated thereunder (collectively, the "Exchange Act"), to prepare or cause to be prepared, execute, sign and file with the Commission and all applicable securities exchanges and interdealer quotation systems on behalf of the undersigned all statements, reports and other filings (including without limitation amendments thereto) required to be filed by the undersigned under the Securities Act or the Exchange Act, including without limitation all Schedules 13G, Schedules 13D and Initial Statements of Beneficial Ownership of Securities on Commission Forms 3, 4 and 5 with respect to the equity securities of Leslie's Poolmart; and (b) To make, execute, acknowledge, and deliver such other documents, letters, and other writings, including communications to the Commission, and in general to do all things and to take all actions, which any one or more of the Attorneys in his, her or their sole discretion may consider necessary or proper in connection with or to carry out the objective of complying with the Securities Act and the Exchange Act, as fully as could the undersigned if personally present and acting. Each of the Attorneys is hereby empowered to determine in his or her sole discretion the time or times when, purpose for and manner in which any power herein conferred upon him or her shall be exercised, and the conditions, provisions, or other contents of any report, instrument or other document which may be executed by him or her pursuant hereto. The undersigned hereby ratifies all that any one or more of the Attorneys or his, her or their substitute or substitutes shall do under the authority of this Power of Attorney. Each Attorney shall have full power to make and substitute any other attorney-in-fact in his or her place and stead. The term "Attorney" shall include the respective substitutes of any Attorney. This Power of Attorney shall remain in effect until 12:01 a.m. California time on November 11, 1997. The expiration of this Power of Attorney shall not affect any action taken by the Attorneys prior to such expiration. This Power of Attorney shall be governed by the laws of California. IN WITNESS WHEREOF, the undersigned has duly executed this Power of Attorney on this 20th day of November, 1996 /s/ Michael J. Fourticq ----------------------- Michael J. Fourticq Page 20 of 24 87 EX-19 14 POWER OF ATTORNEY OF GREG FOURTICQ EXHIBIT 19 POWER OF ATTORNEY The undersigned, Greg Fourticq, hereby makes, constitutes and appoints Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen the attorneys-in-fact (individually, "Attorney"; and collectively, "Attorneys") of the undersigned, with full power and authority, including without limitation the power of substitution and resubstitution, acting together or separately, in the name of and for and on behalf of the undersigned: (a) For the purpose of complying with the requirements of the Securities Act of 1933, as amended, and the rules of the Securities and Exchange Commission (the "Commission") promulgated thereunder (collectively, the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules of the Commission promulgated thereunder (collectively, the "Exchange Act"), to prepare or cause to be prepared, execute, sign and file with the Commission and all applicable securities exchanges and interdealer quotation systems on behalf of the undersigned all statements, reports and other filings (including without limitation amendments thereto) required to be filed by the undersigned under the Securities Act or the Exchange Act, including without limitation all Schedules 13G, Schedules 13D and Initial Statements of Beneficial Ownership of Securities on Commission Forms 3, 4 and 5 with respect to the equity securities of Leslie's Poolmart; and (b) To make, execute, acknowledge, and deliver such other documents, letters, and other writings, including communications to the Commission, and in general to do all things and to take all actions, which any one or more of the Attorneys in his, her or their sole discretion may consider necessary or proper in connection with or to carry out the objective of complying with the Securities Act and the Exchange Act, as fully as could the undersigned if personally present and acting. Each of the Attorneys is hereby empowered to determine in his or her sole discretion the time or times when, purpose for and manner in which any power herein conferred upon him or her shall be exercised, and the conditions, provisions, or other contents of any report, instrument or other document which may be executed by him or her pursuant hereto. The undersigned hereby ratifies all that any one or more of the Attorneys or his, her or their substitute or substitutes shall do under the authority of this Power of Attorney. Each Attorney shall have full power to make and substitute any other attorney-in-fact in his or her place and stead. The term "Attorney" shall include the respective substitutes of any Attorney. This Power of Attorney shall remain in effect until 12:01 a.m. California time on November 11, 1997. The expiration of this Power of Attorney shall not affect any action taken by the Attorneys prior to such expiration. This Power of Attorney shall be governed by the laws of California. IN WITNESS WHEREOF, the undersigned has duly executed this Power of Attorney on this 20th day of November, 1996 /s/ Greg Fourticq ----------------- Greg Fourticq Page 21 of 24 88 EX-20 15 POWER OF ATTORNEY OF LIBERTY EXHIBIT 20 POWER OF ATTORNEY The undersigned, Liberty West Partners, hereby makes, constitutes and appoints Brian P. McDermott and Robert D. Olsen the attorneys-in-fact (individually, "Attorney"; and collectively, "Attorneys") of the undersigned, with full power and authority, including without limitation the power of substitution and resubstitution, acting together or separately, in the name of and for and on behalf of the undersigned: (a) For the purpose of complying with the requirements of the Securities Act of 1933, as amended, and the rules of the Securities and Exchange Commission (the "Commission") promulgated thereunder (collectively, the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules of the Commission promulgated thereunder (collectively, the "Exchange Act"), to prepare or cause to be prepared, execute, sign and file with the Commission and all applicable securities exchanges and interdealer quotation systems on behalf of the undersigned all statements, reports and other filings (including without limitation amendments thereto) required to be filed by the undersigned under the Securities Act or the Exchange Act, including without limitation all Schedules 13G, Schedules 13D and Initial Statements of Beneficial Ownership of Securities on Commission Forms 3, 4 and 5 with respect to the equity securities of Leslie's Poolmart; and (b) To make, execute, acknowledge, and deliver such other documents, letters, and other writings, including communications to the Commission, and in general to do all things and to take all actions, which any one or more of the Attorneys in his, her or their sole discretion may consider necessary or proper in connection with or to carry out the objective of complying with the Securities Act and the Exchange Act, as fully as could the undersigned if personally present and acting. Each of the Attorneys is hereby empowered to determine in his or her sole discretion the time or times when, purpose for and manner in which any power herein conferred upon him or her shall be exercised, and the conditions, provisions, or other contents of any report, instrument or other document which may be executed by him or her pursuant hereto. The undersigned hereby ratifies all that any one or more of the Attorneys or his, her or their substitute or substitutes shall do under the authority of this Power of Attorney. Each Attorney shall have full power to make and substitute any other attorney-in-fact in his or her place and stead. The term "Attorney" shall include the respective substitutes of any Attorney. This Power of Attorney shall remain in effect until 12:01 a.m. California time on November 11, 1997. The expiration of this Power of Attorney shall not affect any action taken by the Attorneys prior to such expiration. This Power of Attorney shall be governed by the laws of California. IN WITNESS WHEREOF, the undersigned has duly executed this Power of Attorney on this 20th day of November, 1996 LIBERTY WEST PARTNERS /s/ MICHAEL J. FOURTICQ By:____________________________ Name: Michael J. Fourticq Title: General Partner Page 22 of 24 89 EX-21 16 POWER OF ATTORNEY OF RICHARD G. HILLMAN EXHIBIT 21 POWER OF ATTORNEY The undersigned, Richard H. Hillman, hereby makes, constitutes and appoints Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen the attorneys-in-fact (individually, "Attorney"; and collectively, "Attorneys") of the undersigned, with full power and authority, including without limitation the power of substitution and resubstitution, acting together or separately, in the name of and for and on behalf of the undersigned: (a) For the purpose of complying with the requirements of the Securities Act of 1933, as amended, and the rules of the Securities and Exchange Commission (the "Commission") promulgated thereunder (collectively, the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules of the Commission promulgated thereunder (collectively, the "Exchange Act"), to prepare or cause to be prepared, execute, sign and file with the Commission and all applicable securities exchanges and interdealer quotation systems on behalf of the undersigned all statements, reports and other filings (including without limitation amendments thereto) required to be filed by the undersigned under the Securities Act or the Exchange Act, including without limitation all Schedules 13G, Schedules 13D and Initial Statements of Beneficial Ownership of Securities on Commission Forms 3, 4 and 5 with respect to the equity securities of Leslie's Poolmart; and (b) To make, execute, acknowledge, and deliver such other documents, letters, and other writings, including communications to the Commission, and in general to do all things and to take all actions, which any one or more of the Attorneys in his, her or their sole discretion may consider necessary or proper in connection with or to carry out the objective of complying with the Securities Act and the Exchange Act, as fully as could the undersigned if personally present and acting. Each of the Attorneys is hereby empowered to determine in his or her sole discretion the time or times when, purpose for and manner in which any power herein conferred upon him or her shall be exercised, and the conditions, provisions, or other contents of any report, instrument or other document which may be executed by him or her pursuant hereto. The undersigned hereby ratifies all that any one or more of the Attorneys of his, her or their substitute or substitutes shall do under the authority of this Power of Attorney. Each Attorney shall have full power to make and substitute any other attorney-in-fact in his or her place and stead. The term "Attorney" shall include the respective substitutes of any Attorney. This Power of Attorney shall remain in effect until 12:01 a.m. California time on November 11, 1997. The expiration of this Power of Attorney shall not affect any action taken by the Attorneys prior to such expiration. This Power of Attorney shall be governed by the laws of California. IN WITNESS WHEREOF, the undersigned has duly executed this Power of Attorney on this 20th day of November, 1996 /s/ Richard H. Hillman ---------------------------- Richard H. Hillman Page 23 of 24 90 EX-22 17 POWER OF ATTORNEY OF ROBERT D. OLSEN EXHIBIT 22 POWER OF ATTORNEY The undersigned, Robert D. Olsen, hereby makes, constitutes and appoints Michael J. Fourticq and Brian P. McDermott the attorneys-in-fact (individually, "Attorney"; and collectively, "Attorneys") of the undersigned, with full power and authority, including without limitation the power of substitution and resubstitution, acting together or separately, in the name of and for and on behalf of the undersigned: (a) For the purpose of complying with the requirements of the Securities Act of 1933, as amended, and the rules of the Securities and Exchange Commission (the "Commission") promulgated thereunder (collectively, the "Securities Act"), and the Securities Exchange Act of 1934, as amended, and the rules of the Commission promulgated thereunder (collectively, the "Exchange Act"), to prepare or cause to be prepared, execute, sign and file with the Commission and all applicable securities exchanges and interdealer quotation systems on behalf of the undersigned all statements, reports and other filings (including without limitation amendments thereto) required to be filed by the undersigned under the Securities Act or the Exchange Act, including without limitation all Schedules 13G, Schedules 13D and Initial Statements of Beneficial Ownership of Securities on Commission Forms 3, 4 and 5 with respect to the equity securities of Leslie's Poolmart; and (b) To make, execute, acknowledge, and deliver such other documents, letters, and other writings, including communications to the Commission, and in general to do all things and to take all actions, which any one or more of the Attorneys in his, her or their sole discretion may consider necessary or proper in connection with or to carry out the objective of complying with the Securities Act and the Exchange Act, as fully as could the undersigned if personally present and acting. Each of the Attorneys is hereby empowered to determine in his or her sole discretion the time or times when, purpose for and manner in which any power herein conferred upon him or her shall be exercised, and the conditions, provisions, or other contents of any report, instrument or other document which may be executed by him or her pursuant hereto. The undersigned hereby ratifies all that any one or more of the Attorneys or his, her or their substitute or substitutes shall do under the authority of this Power of Attorney. Each Attorney shall have full power to make and substitute any other attorney-in-fact in his or her place and stead. The term "Attorney" shall include the respective substitutes of any Attorney. This Power of Attorney shall remain in effect until 12:01 a.m. California time on May 11, 1997. The expiration of this Power of Attorney shall not affect any action taken by the Attorneys prior to such expiration. This Power of Attorney shall be governed by the laws of California. IN WITNESS WHEREOF, the undersigned has duly executed this Power of Attorney on this 18th day of November, 1996 /s/ ROBERT D. OLSEN ------------------------- Robert D. Olsen Page 24 of 24 91 -----END PRIVACY-ENHANCED MESSAGE-----