<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 21, 1997
REGISTRATION NO. 333-30305
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
LESLIE'S POOLMART, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5999 95-4620298
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZA- CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
TION)
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20630 PLUMMER STREET
CHATSWORTH, CALIFORNIA 91311
(818) 701-3813
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
BRIAN P. MCDERMOTT
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LESLIE'S POOLMART, INC.
20630 PLUMMER STREET
CHATSWORTH, CALIFORNIA 91311
(818) 701-3813
(NAME AND ADDRESS, INCLUDING ZIP CODE, OF AGENT FOR SERVICE)
COPIES TO:
CYNTHIA G. WATTS, ESQ. JENNIFER BELLAH, ESQ.
LESLIE'S POOLMART, INC. GIBSON, DUNN & CRUTCHER LLP
20630 PLUMMER STREET 333 SOUTH GRAND AVENUE
CHATSWORTH, CALIFORNIA 91311 LOS ANGELES, CALIFORNIA 90071
(818) 993-4212 (213) 229-7986
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(b)
under the Securities Act, check the following box and list the Securities Act
registration statement of the earlier effective registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
[LOGO OF LESLIE'S POOLMART, INC.]
$90,000,000
LESLIE'S POOLMART, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2004
-----------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON AUGUST 26, 1997, UNLESS EXTENDED.
Leslie's Poolmart, Inc. a Delaware corporation (successor to Leslie's
Poolmart, a California Corporation, "Leslie's" or the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange its outstanding 10 3/8% Senior Notes due
2004 (the "Old Notes"), of which an aggregate of $90 million principal amount
is outstanding as of the date hereof, for an equal amount of newly issued 10
3/8% Senior Notes due 2004 (the "New Notes").
Interest on the Notes will be payable semi-annually on January 15 and July
15 of each year, commencing on January 15, 1998, at the rate of 10 3/8% per
annum. The New Notes will be redeemable, in whole or in part, at the option of
the Company on or after July 15, 2001, at the redemption prices set forth
herein plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time on or prior to July 15, 2000, the Company may redeem up
to $25.0 million of aggregate principal amount of the Notes with the net cash
proceeds from one or more Public Equity Offerings (as defined) by the Company
at a redemption price of 110.375% of the principal amount thereof plus accrued
and unpaid interest, if any, to the date of redemption, provided that at least
$65.0 million of aggregate principal amount of the New Notes remains
outstanding after any such redemption.
The New Notes will be general unsecured obligations of the Company and will
rank pari passu in right of payment to all other senior indebtedness of the
Company and senior to all subordinated indebtedness of the Company. The
New Notes will effectively be subordinated to any secured indebtedness of the
Company, including the Bank Facility (as defined) of the Company. At March 29,
1997, after giving effect to the Merger, the Offering, certain other financing
transactions and the application of the proceeds therefrom as set forth herein
(collectively, the "Transactions"), the Company would have had approximately
$97.7 million of senior indebtedness outstanding.
In the event of a Change of Control (as defined), the Company will be
required to make an offer to repurchase all outstanding Notes at a price equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase.
(Continued on the following page)
SEE "RISK FACTORS" COMMENCING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD NOTES IN THE
EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
BT SECURITIES CORPORATION
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The date of this Prospectus is July 21, 1997
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(Continued from the previous page)
The New Notes are being offered hereby in order to satisfy certain
obligations of the Company under the Registration Rights Agreement dated June
11, 1997 between the Company and BT Securities Corporation ("BT") (the
"Registration Rights Agreement"). The form and terms of the New Notes will be
the same as those of the Old Notes except that the New Notes will have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and hence will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to
the Old Notes. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of an indenture (the "Indenture"), dated as
of June 11, 1997, by and between the Company and U.S. Trust Company of
California, N.A., as trustee (the "Trustee"). The Indenture provides for the
issuance of both the Old Notes and the New Notes. The Old Notes and the New
Notes are referred to herein collectively as the "Notes" and holders of the
Notes are sometimes referred to herein as the "Holders."
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all expenses incident to the Exchange Offer (which shall not
include the expenses of any Holder in connection with resales of the New
Notes). The Company will accept for exchange any and all validly tendered Old
Notes on or prior to 5:00 p.m. New York City time, on August 26, 1997 (such
date and time, if and as extended, the "Expiration Date"). Tenders of Old
Notes may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange. Old Notes may be tendered only in integral multiples of
$1,000. In the event the Company terminates the Exchange Offer and does not
accept for exchange any Old Notes, the Company will promptly cause the return
of all previously tendered Old Notes.
The Notes will mature on July 15, 2004. Interest on the Notes will be
payable in cash semi-annually on January 15 and July 15 of each year
commencing on January 15, 1998. The Company will not be required to make any
mandatory redemption or sinking fund payment with respect to the Notes prior
to maturity. The Notes will be redeemable at the option of the Company, in
whole or in part, on or after July 15, 2001, at the redemption prices set
forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. Notwithstanding the foregoing, prior to July 15, 2000, the Company
may redeem up to $25.0 million of the aggregate principal amount of the Notes
originally outstanding, at a redemption price equal to 110.375% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the
redemption date, with the Net Cash Proceeds (as defined herein) of one or more
Public Equity Offerings (as defined herein); PROVIDED that at least $65
million of the aggregate principal amount of the Notes originally outstanding
remain outstanding immediately thereafter. Upon a Change of Control (as
defined herein), the Company will be required to make an irrevocable and
unconditional offer to repurchase all outstanding Notes at 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any,
to the date of repurchase. See "Description of Notes."
Based on interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission"), the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold,
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such New Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person who is an "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act)), without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the holder
is acquiring the New Notes in its ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Holders of Old Notes
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. This Prospectus has been
prepared for use in connection with the Exchange Offer and may be used by BT
Securities Corporation in connection with offers and sales related to market-
making transactions in the Notes. BT may act as principal or agent in such
transactions. Such sales will be made at prices related to prevailing market
prices at the time of sale. The Letter of Transmittal states that by so
acknowledging and by delivering a Prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
Notes received in exchange for Old Notes where such Old Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any broker-dealer
for use in connection with any such resale. See "Plan of Distribution."
Prior to this Exchange Offer, there has been no public market for the Old
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. There can be no assurance that an active market for the Notes will
develop. To the extent that a market for the Notes does develop, there can be
no assurance as to the liquidity of such market, the ability of holders of the
New Notes to sell their New Notes or the price at which holders would be able
to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities. Such
conditions may cause the Notes, to the extent that they are actively traded,
to trade at a significant discount from face value. See "Risk Factors--Absence
of Public Market for the Notes."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information, risk factors and financial
statements, including the related notes, appearing elsewhere in this
Prospectus. Unless otherwise referred to herein or the context otherwise
requires, references to "Leslie's" or "the Company" shall mean Leslie's
Poolmart, Inc., its predecessors by merger, Poolmart USA, Inc., a Delaware
corporation ("Poolmart") and Leslie's Poolmart, a California corporation
("Leslie's California"), and the predecessor of Leslie's California. Unless
otherwise indicated, all references to fiscal years commencing on or after
January 1995 in this Prospectus are to fiscal years ending on the Saturday
closest to December 31 and all references to fiscal years commencing prior to
January 1995 in this Prospectus are to fiscal years ending on December 31. The
information in this Prospectus gives effect to the consummation of the
Transactions.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in this Prospectus
(as well as information included in oral statements or other written statements
made by the Company) contains statements that are forward-looking, such as
statements relating to plans for future activities. Such forward-looking
information involves important risks and uncertainties that could significantly
affect results in the future and, accordingly, such results may differ from
those expressed in any forward-looking statements made by or on behalf of the
Company. These risks and uncertainties include, but are not limited to, those
relating to domestic economic conditions, seasonal and weather fluctuations,
expansion and other activities of competitors, changes in federal or state
environmental laws and the administration of such laws and the general
condition of the economy and its effect on the securities markets.
THE COMPANY
Leslie's is the leading national specialty retailer of swimming pool supplies
and related products. These products primarily consist of regularly purchased,
non-discretionary pool maintenance items such as chemicals, equipment, cleaning
accessories and parts, and also include fun, safety and fitness-oriented
recreational items. The Company currently markets its products under the trade
name Leslie's Swimming Pool Supplies through 278 company-owned retail stores in
27 states and through mail order catalogs sent to selected pool owners
nationwide. From 1992 to 1996, the Company increased its sales at a compound
annual growth rate of 18.8%, from $96.3 million to $191.6 million. During the
same period, EBITDA (FIFO basis) increased at a compound annual growth rate of
21.9%, from $6.8 million to $15.0 million. The Company's growth reflects a
store count that increased from 1992 to 1996 at the rate of 16.0% annually and
comparable store sales increases that averaged 10.1% annually during the same
time frame.
The Company provides its customers a comprehensive selection of high quality
products, competitive every day low prices ("EDLP") and superior customer
service through knowledgeable and responsive sales personnel who offer a high
level of technical assistance at convenient store locations. The EDLP offered
by the Company are generally comparable to or better than those offered by any
of its competitors, including mass merchandisers and home centers. The typical
Leslie's store contains 4,000 square feet of space, is located either in a
strip center or on a freestanding site in an area of heavy retail activity, and
draws its customers primarily from a trade area with a radius of approximately
three miles. The Company maintains a proprietary mailing list of more than
4.5 million addresses, including approximately 90% of the residential in-ground
pools in the U.S. This highly focused list of target customers is central to
the Company's direct mail marketing efforts, which support both its retail
store and mail order operations. Management believes that the Leslie's name is
one of the most recognized brands in pool supplies and represents an image of
quality to consumers. In fiscal 1996, Leslie's brand name products accounted
for approximately 60% of the Company's total sales.
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Leslie's successful execution of its business strategy has generated a 33-
year history of consistently increasing sales. Management intends to continue
increasing sales and profits by further expanding its store base at the rate of
12% to 15% annually and continuing to achieve positive comparable store sales
increases. The Company attributes its strong historical results and its
positive outlook for growth and profitability to the following factors:
Leadership Position in a Highly Fragmented Market. Leslie's current store
count of 278 locations is approximately equal to the sum of the next fifteen
largest specialty retail competitors combined. However, despite its large
relative size, Leslie's presently accounts for only approximately 5% of the
estimated $3.7 billion annual pool and spa supply market. Since 1989, Leslie's
has accelerated the pace of its new store openings and consequently has gained
market share. Management believes that this growth has come primarily at the
expense of independent local and regional pool supply retailers, which
accounted for over two-thirds of industry sales in 1996.
Attractive Store Economics. Leslie's results reflect extremely attractive
store-level economics. The Company estimates that cash required to open each
new store, including inventory net of trade payables, averages approximately
$125,000. Based upon the Company's past experience, new stores generally break
even in their first year of operation, pay back their initial investments after
three years, and in their fifth year of operation, contribute approximately
$181,000 of store operating profit, yielding a return on average initial cash
investment of 145%. In 1996, the Company's mature stores (the 115 stores open
for five years or longer) averaged approximately $900,000 of sales, generated
approximately $200,000 of store operating profit per location and posted a
comparable store sales increase of 5.8%.
Growth Potential of Recently Opened Stores. Leslie's new stores have
historically grown dramatically in sales and store operating profit during
their first five years of operation. In 1996, the 142 stores opened since the
end of 1992 averaged approximately $519,000 in sales and approximately $50,000
of store operating profit per location. Management expects these stores
generally to follow the Company's historical pattern of maturation and believes
that there exists a large potential for sales and store operating profit
increases from these nonmature stores.
Large Sales Volume of Non-Discretionary Products. The consistency of Leslie's
sales growth and profitability is due in large part to the sale of non-
discretionary and regularly consumed products such as pool chemicals, cleaning
accessories, major pool equipment (pumps and heaters) and replacement parts.
Pool owners must purchase such products to maintain their pools' water quality
and physical appearance and, in the Company's experience, do so regardless of
the economic environment. In fiscal 1996, non-discretionary and regularly
consumed products comprised approximately 74% of the Company's sales, with pool
chemicals representing approximately 44% of the Company's total sales.
Proprietary Database of Pool Locations. Through ongoing research as well as
the conduct of its retail and mail order business, Leslie's has developed a
proprietary database of over 4.5 million addresses. The list includes
approximately 90% of the residential in-ground pools in the U.S. This
proprietary database allows Leslie's to execute cost-effective and highly
targeted direct mail marketing. When combined with the Company's mail order
sales results and computerized mapping capability, this database also gives
Leslie's a sophisticated store site selection capability. Management believes
that the scope and accuracy of its proprietary database is unique in the pool
supply industry.
Purchasing Power and Vertical Integration. Due to its size, Leslie's
purchases more chemicals and other pool supplies than any other specialty
retailer. In addition, Leslie's operates a repackaging facility which provides
the Company with significant cost savings, greater control over product
availability and quality, greater flexibility when sourcing products, and vital
information when negotiating with third-party providers. Further, unlike most
of its competitors, the Company does not rely upon third-party distribution,
but has its own specialized and efficient distribution system. Management
believes that these factors permit Leslie's to achieve a lower cost of goods
than any of its competitors, including mass merchandisers and home centers.
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Superior Level of Customer Service. Leslie's believes that its superior level
of customer service, including its comprehensive product selection, gives it a
significant advantage over its competitors in winning the loyalty of customers.
Due to the complicated nature of pool chemistry and pool equipment maintenance,
and consistent with its philosophy of being a full service swimming pool supply
retailer, Leslie's offers a high level of technical assistance to its
customers. The Company has developed a comprehensive training program educating
all store employees on the subjects of maintenance techniques, water chemistry
and equipment testing and repair. As part of its regular customer service
program the Company offers free detailed water testing, pamphlets on pool
maintenance, and in-store equipment repairs, generally free of labor or bench
charges.
The Company's headquarters are at 20630 Plummer Street, Chatsworth,
California 91311 and its telephone number is (818) 993-4212.
SUMMARY OF THE TRANSACTIONS
On June 11, 1997, Leslie's consummated an Agreement and Plan of Merger (the
"Merger Agreement") with Leslie's California and Poolmart pursuant to which
Green Equity Investors II, L.P., the former sole stockholder of Poolmart
("GEI"), and a group of investors that includes certain members of the
management and certain Leslie's California shareholders (the "HPA Group")
agreed to the reorganization and recapitalization of Leslie's California
through a two-step merger process. Pursuant to the Merger Agreement, Leslie's
California reincorporated in Delaware and immediately thereafter Poolmart
merged with and into Leslie's, with Leslie's as the surviving corporation. Each
outstanding share of common stock of Leslie's, other than 359,505 shares which
remained outstanding to the HPA Group (the "Continuing Shares"), was converted
into the right to receive $14.50 in cash, and each share of common stock of
Poolmart was converted into one share of Leslie's common stock. The holders of
Leslie's common stock and stock options received approximately $94.7 million in
merger consideration. Following the Merger, GEI and the HPA Group own shares of
Leslie's common stock that represent, respectively, 73.6% and 26.4% of the
outstanding, non-diluted common stock of Leslie's. See "The Transactions" and
"Security Ownership of Certain Beneficial Owners and Management."
THE EXCHANGE OFFER
The form and terms of the New Notes will be the same as those of the Old
Notes except that the New Notes will have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), and hence will not be subject
to certain transfer restrictions, registration rights and related liquidated
damages provisions applicable to the Old Notes.
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The Exchange Offer............... The Company is offering to exchange an
aggregate of $90 million principal amount
of New Notes for a like principal amount of
Old Notes. The Old Notes may be exchanged
only in multiples of $1,000 principal
amount. The Company will issue the New
Notes on or promptly after the Expiration
Date. See "The Exchange Offer."
Expiration Date.................. The Exchange Offer will expire at 5:00
p.m., New York City time, on August 26,
1997 unless extended in which case the term
"Expiration Date" shall mean the latest
date and time to which the Exchange Offer
is extended.
Conditions to the Exchange
Offer........................... The Exchange Offer is subject to certain
conditions, which may be waived by the
Company in whole or in part and from time
to time in its discretion. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Old Notes being
tendered for exchange.
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Procedures for Tendering Old
Notes........................... Each Holder desiring to accept the Exchange
Offer must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and mail or deliver the Letter
of Transmittal, together with the Old Notes
or a Notice of Guaranteed Delivery and any
other required documents (such as evidence
of authority to act satisfactory to the
Company in its sole discretion, if the
Letter of Transmittal is signed by someone
acting in a fiduciary or representative
capacity), to the Exchange Agent (as
defined) at the address set forth herein
prior to 5:00 p.m., New York City time, on
the Expiration Date. Any beneficial owner
of the Old Notes whose Old Notes are
registered in the name of a nominee, such
as a broker, dealer, commercial bank or
trust company and who wishes to tender Old
Notes in the Exchange Offer, should
instruct such entity or person to promptly
tender on such beneficial owner's behalf.
See "The Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures... Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who
cannot deliver their Old Notes or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a
timely basis) may tender their Old Notes
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange Offer--
Guaranteed Delivery Procedures."
The Letter of Transmittal provides that
each Holder of Old Notes (other than
participating broker-dealers) will
represent to the Company that, among other
things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in
the ordinary course of business of the
person receiving such New Notes, that
neither such Holder of Old Notes nor any
such other person has an arrangement or
understanding with any person to
participate in the distribution of such New
Notes and that neither the Holder nor any
such person is an "affiliate" of the
Company, as defined in Rule 405 under the
Securities Act. Any tendered Old Notes not
accepted for exchange for any reason will
be returned promptly after the expiration
or termination of the Exchange Offer. See
"The Exchange Offer."
Withdrawal Rights................ Tenders of Old Notes may be withdrawn at
any time prior to the Expiration Date. See
"The Exchange Offer--Withdrawal Rights."
Acceptance of Old Notes and
Delivery of New Notes........... The Company will accept for exchange any
and all Old Notes which are properly
tendered in the Exchange Offer prior to the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following the Expiration
Date. See "The Exchange Offer--Terms of the
Exchange Offer."
Resales of New Notes............. Based on an interpretation by the staff of
the Commission set forth in no-action
letters issued to third parties, the
Company believes that New Notes issued
pursuant to the Exchange Offer in exchange
for
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Old Notes may be offered for resale,
resold and otherwise transferred by any
Holder thereof (other than (i) a broker-
dealer who purchases such new notes
directly from the Company to resell
pursuant to Rule 144A or any other
available exemption under the Securities
Act, or (ii) any such Holder which is an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act) without compliance with the
registration and prospectus delivery
provisions of the Securities Act,
provided that such New Notes are
acquired in the ordinary course of such
Holder's business and that such Holder
has no arrangement or understanding with
any person to participate in the
distribution of such New Notes, and
provided, further, that each broker-
dealer that receives New Notes for its
own account in exchange for Old Notes
must acknowledge that it will deliver a
Prospectus in connection with any resale
of such New Notes. See "Plan of
Distribution." If a Holder of Old Notes
does not exchange such Old Notes for New
Notes pursuant to the Exchange Offer,
such Old Notes will continue to be
subject to the restrictions on transfer
contained in the legend thereon. In
general, the Old Notes may not be
offered or sold, unless registered under
the Securities Act, except pursuant to
an exception from, or in a transaction
not subject to, the Securities Act and
applicable state securities laws. See
"The Exchange Offer--Consequences of
Failure to Exchange" and "Description of
Notes."
Consequences of Failure to Exchange.. Holders of Old Notes who do not exchange
their Old Notes for New Notes pursuant
to the Exchange Offer will continue to
be subject to the restrictions on
transfer of such Old Notes as set forth
in the legend thereon. In general, Old
Notes may not be offered or sold, except
pursuant to a registration statement
under the Securities Act or any
exemption from registration thereunder
and in compliance with applicable state
securities laws. In the event the
Company completes the Exchange Offer,
holders of Old Notes will have no
further rights to registration or
liquidated damages pursuant to the
Registration Rights Agreement.
Certain Tax Considerations........... There will be no Federal income tax
consequences to Holders exchanging Old
Notes for New Notes pursuant to the
Exchange Offer and a Holder will have
the same adjusted basis and holding
period in the New Notes as in the Old
Notes immediately before the exchange.
Registration Rights Agreement........ The Exchange Offer is intended to
satisfy the registration rights of
Holders of Old Notes under the
Registration Rights Agreement, which
rights terminate upon consummation of
the Exchange Offer.
Exchange Agent....................... U.S. Trust Company of California, N.A.
is the Exchange Agent. The address and
telephone number of the Exchange Agent
are set forth in "The Exchange Offer--
Exchange Agent."
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5
<PAGE>
THE NOTES
Securities Offered.......... $90.0 million principal amount of 10 3/8% Senior
Notes due 2004.
Maturity.................... July 15, 2004.
Interest Payment Dates...... January 15 and July 15 of each year, commencing
on January 15, 1998.
Optional Redemption......... Except as described below, the Company may not
redeem the Notes prior to July 15, 2001. On or
after such date, the Company may redeem the
Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time on or prior
to July 15, 2000, the Company may redeem up to
$25.0 million aggregate principal amount of the
Notes with the net cash proceeds of one or more
Public Equity Offerings (as defined) by the
Company at a redemption price equal to 110.375%
of the amount redeemed, together with accrued and
unpaid interest, if any, to the date of
redemption, provided that at least $65.0 million
aggregate principal amount of the Notes remains
outstanding immediately after any such
redemption. See "Description of Notes--Optional
Redemption Upon Public Equity Offerings."
Change of Control........... Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
repurchase the Notes at a price equal to 101% of
the principal amount thereof, together with
accrued and unpaid interest, if any, to the date
of repurchase. See "Description of Notes--Change
of Control."
Ranking..................... The Notes will be general unsecured obligations
of the Company and will rank pari passu in right
of payment to all other senior indebtedness of
the Company and senior to all subordinated
indebtedness of the Company. The Notes will
effectively be subordinated to any secured
indebtedness of the Company, including the Bank
Facility. See "Description of Notes."
Certain Covenants........... The indenture under which the Notes will be
issued (the "Indenture") will limit, among other
things, (i) the incurrence of additional
indebtedness by the Company or any of its
subsidiaries, (ii) the payment of dividends on,
and redemption of, capital stock of the Company
and any of its subsidiaries, the redemption of
certain subordinated obligations of the Company
and the making of certain investments by the
Company or any of its subsidiaries, (iii) the
sale of material assets of the Company, (iv) the
sale or issuance of certain restricted subsidiary
stock, (v) the creation of liens on assets of the
Company or any of its subsidiaries, (vi) the
consolidation or merger of the Company and the
transfer of all or substantially all of the
Company's assets and (vii) transactions with
affiliates. See "Description of Notes--Certain
Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by Holders prior to tendering their Old Notes in the Exchange Offer.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary historical financial and other data of
Leslie's California for each of the five fiscal years in the period ended
December 28, 1996 and as of and for the fiscal quarters ended March 30, 1996
and March 29, 1997, and certain unaudited pro forma financial and other data of
the Company for the fiscal year ended December 28, 1996 and the fiscal quarter
ended March 29, 1997. The pro forma income data assume that the Transactions
occurred on December 31, 1995. The pro forma balance sheet data assume that the
Transactions occurred on March 29, 1997. The pro forma financial data do not
purport to represent what the Company's financial position or results of
operations would actually have been had the Transactions in fact occurred on
the assumed dates or to project the Company's financial position or results of
operations for any future date or period. For additional information, see the
Consolidated Financial Statements and related notes thereto appearing elsewhere
in this Prospectus. The following table should also be read in conjunction with
"Selected Historical Consolidated Financial Data," "Unaudited Pro Forma
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
------------------------------------------------ --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net Sales............... $96,337 $119,955 $141,553 $162,456 $191,640 $18,064 $23,816
Gross Profit............ 39,017 48,289 55,469 60,399 72,760 4,258 5,562
EBITDA (FIFO basis)(1).. 6,779 8,612 11,476 10,472 14,960 (7,564) (8,243)
Income (Loss) from
Operations............. 4,330 6,350 9,569 6,691 9,400 (8,610) (9,628)
Capital Expenditures.... 3,343 5,532 7,394 9,550 8,807 2,393 4,739
Depreciation and
Amortization........... 2,423 2,389 2,393 3,374 4,326 1,057 1,314
Comparable Store Sales
Growth................. 2.4% 11.7% 12.9% 6.0% 9.9 % 6.6 % 20.8 %
Stores Operated at
Period-End............. 143 158 180 224 259 239 268
</TABLE>
<TABLE>
<CAPTION>
THREE
YEAR MONTHS
ENDED ENDED
DEC. 28, MARCH 29,
1996 1997
-------- ---------
<S> <C> <C>
PRO FORMA OPERATING DATA:
Net Sales................................................... $191,640 $23,816
EBITDA (FIFO basis)(1)...................................... 14,888 (8,304)
Income (Loss) from Operations............................... 9,328 (9,689)
Cash Interest............................................... 9,858 2,470
Ratio of EBITDA (FIFO basis) to Cash Interest............... 1.51x --
</TABLE>
<TABLE>
<CAPTION>
AS OF PRO FORMA
MARCH 29, MARCH 29,
1997 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Net Working Capital (excluding cash, short-term borrowings
and current portions of long-term debt).................. $ 26,825 $ 27,673
Total Assets.............................................. 113,656 117,643
Total Debt................................................ 38,117 97,733
Average Debt(2)........................................... 31,257 90,873
Preferred Stock........................................... -- 24,884
Stockholders' Equity (Deficit)............................ 30,235 (49,790)
</TABLE>
- --------
(1) EBITDA (FIFO basis) represents income before interest expense, depreciation
and amortization expense, LIFO inventory provision, gains and losses on
disposition of fixed assets and the provision for income taxes. While
EBITDA (FIFO basis) is not intended to represent cash flow from operations
as defined by generally accepted accounting principles ("GAAP") and should
not be considered as an indicator of operating performance or an
alternative to cash flow (as measured by GAAP) as a measure of liquidity,
it is included herein to provide additional information with respect to the
ability of the Company to meet its future debt service, capital expenditure
and working capital requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(2) Represents the sum of the outstanding balances at the end of the most
recent quarter plus each of the preceding three quarters divided by four.
7
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS,
HOLDERS OF THE OLD NOTES SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS
PRIOR TO TENDERING THEIR OLD NOTES IN THE EXCHANGE OFFER. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE HEREIN.
RESTRICTIONS UPON TRANSFER OF AND LIMITED TRADING MARKET FOR OLD NOTES
The New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of tenders of such Old Notes. Therefore, holders
of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Neither the Exchange
Agent nor the Company is under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes for exchange. Old Notes
that are not tendered or are tendered but not accepted will, following
consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. In addition, any holder of Old Notes who
tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes will be required to comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer who receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or any other trading
activities, must acknowledge that it will deliver a Prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "The Exchange Offer."
BLUE SKY RESTRICTIONS; COMPLIANCE WITH STATE SECURITIES LAWS
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration of qualification is available and the requirements of such
exemption have been satisfied. The Company does not currently intend to
register or qualify the resale of the New Notes in any such jurisdictions.
However, an exemption is generally available for sales to registered broker-
dealers and certain institutional buyers. Other exemptions under applicable
state securities laws may also be available.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
As a result of the Transactions, the Company is highly leveraged and has
indebtedness that is substantial in relation to its stockholders' equity. As
of March 29, 1997, on a pro forma basis after giving effect to the
Transactions, the Company would have had an aggregate of $97.7 million of
outstanding senior indebtedness for borrowed money, $28.0 million (liquidation
preference) of outstanding Preferred Stock and ($49.8) million of
stockholders' equity. The degree to which the Company is leveraged could have
important consequences to holders of the Notes, including the following: (i)
the Company's ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of interest on the Notes, interest
and principal on its other indebtedness and, beginning in 2002, cash dividends
on the Preferred Stock, thereby reducing the funds available to the Company
for other purposes; (iii) the agreements governing the Company's long-term
indebtedness contain certain restrictive financial and operating covenants;
(iv) indebtedness under the Bank Facility will be at variable rates of
interest, which will cause the Company to be vulnerable to increases in
interest rates; (v) all of the indebtedness outstanding under the Bank
Facility will be secured by substantially all of the assets of the Company and
will become due prior to the time the principal on the Notes will become due;
(vi) the Company will be substantially more leveraged than certain of its
competitors, which might place the Company at a competitive disadvantage;
(vii) the Company may be hindered
8
<PAGE>
in its ability to adjust rapidly to changing market conditions; and (viii) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions, repeated years of
unfavorable weather conditions or other adverse events in its business.
ASSET ENCUMBRANCE
The Notes are unsecured and thus, in effect, will rank junior to any secured
indebtedness of the Company. The indebtedness outstanding under the Bank
Facility is secured by liens on substantially all of the personal property of
the Company. The Bank Facility includes certain covenants that, among other
things, restrict: (i) investments, including in fixed assets; (ii) incurrence
of lease obligations; (iii) incurrence of additional indebtedness; (iv)
granting liens, other than liens under the Bank Facility and certain permitted
liens; (v) mergers or consolidations of the Company; (vi) changes in the
nature of the Company's business; (vii) sales of all or a substantial part of
the Company's business or property; (viii) making loans; (ix) payment of
dividends or redemption of capital stock; and (x) guarantying the debts of
other persons. The Bank Facility also requires the Company to maintain certain
financial ratios, including net worth, interest coverage and leverage ratios.
The ability of the Company to comply with these and other provisions of the
Bank Facility may be affected by events beyond the Company's control. The
breach of any of these covenants could result in a default under the Bank
Facility, in which case, depending on the actions taken by the lenders
thereunder or their successors in interest, such lenders would be entitled to
elect to declare all amounts borrowed under the Bank Facility, together with
accrued interest, to be due and payable. If the Company were unable to repay
such borrowings, such lenders could proceed against their collateral. If the
indebtedness under the Bank Facility were accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes. See "Description of Notes."
FRAUDULENT CONVEYANCE
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a debtor-in-
possession, were to find under relevant federal and state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring certain of the indebtedness,
including the Notes, incurred by the Company in connection with the
Transactions and that, at the time of such incurrence, the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such incurrence or grant,
(iii) was engaged in a business or transaction for which the assets remaining
with the Company constituted unreasonably small capital or (iv) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they matured, such court, subject to applicable statutes of
limitation, could void the Company's obligations under the Notes, subordinate
the Notes to obligations of the Company that do not otherwise constitute
senior indebtedness or take other action detrimental to the holders of the
Notes.
The measure of insolvency for these purposes varies depending upon the laws
of the jurisdiction being applied. Generally, however, a company is considered
insolvent for these purposes if the sum of the company's debts is greater than
all that company's property at a fair valuation or if the present fair salable
value of that company's assets is less than the amount that will be required
to pay its probable liability on its existing debts as they become absolute
and matured. Moreover, regardless of solvency, a court could void an
incurrence of indebtedness, including the Notes, if it determined that such
transaction was made with the intent to hinder, delay or defraud creditors, or
a court could subordinate the indebtedness, including the Notes, to the claims
of all existing and future creditors on similar grounds.
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon consummation of the
Transactions, or that, regardless of the method of valuation, a court would
not determine that the Company was insolvent upon consummation of the
Transactions.
Additionally, under federal bankruptcy or applicable state insolvency law,
if a bankruptcy or insolvency were initiated by or against the Company within
90 days after any payment by the Company with respect to the
9
<PAGE>
Notes, or if the Company anticipated becoming insolvent at the time of such
payment, all or a portion of the payment could be avoided as a preferential
transfer and the recipient of such payment could be required to return such
payment.
CONTROL OF THE COMPANY
After consummation of the Merger, GEI, through its ownership of 73.6% of the
non-diluted shares of Leslie's common stock, together with Michael J. Fourticq
and Brian P. McDermott, by virtue of contractual arrangements, have the power
to elect a majority of the board of directors of the Company. Accordingly, GEI
and such directors have the power to approve all amendments to Leslie's
certificate of incorporation and bylaws and to effect fundamental corporate
transactions such as mergers, asset sales and public offerings. In addition,
Occidental has the ability to elect 20% of the board of directors pursuant to
the Preferred Stock, and in certain events, will have the ability to elect
additional directors, up to the entire board. Accordingly, in certain
circumstances Occidental could have significant power to implement or prevent
fundamental corporate transactions of the type referred to above.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
make an offer to repurchase the Notes at a price equal to 101% of the
principal amount thereof, together with accrued and unpaid interest thereon.
However, the Bank Facility will prohibit the purchase of the Notes by the
Company in the event of a Change of Control, unless and until such time as the
indebtedness under the Bank Facility is paid in full. The Company's failure to
purchase the Notes would result in a default under the Indenture and the Bank
Facility. The inability to pay the indebtedness under the Bank Facility, if
accelerated, would also constitute a default under the Indenture, which could
have adverse consequences to the Company and to the holders of the Notes. In
the event of a Change of Control, there can be no assurance that the Company
would have sufficient assets to satisfy all of its obligations under the Bank
Facility and the Notes. See "Description of Notes--Change of Control."
PLANNED EXPANSION
The Company's continued growth depends to a significant degree on its
ability to open new stores in existing and new markets and to operate these
stores on a profitable basis. To a lesser extent, the Company's continued
growth depends on increasing comparable store sales. Leslie's opened 44 new
stores in 1995 (net of store closings) and 35 net new stores in 1996. The
Company has opened 19 net additional retail stores in 1997. The Company
anticipates that it will open approximately 30 more stores by March 31, 1998.
There can be no assurance that the Company will be able to open new stores in
a timely manner; to hire, train and integrate employees; to continue locating
and obtaining favorable store sites; and to adapt its distribution, management
information and other operating systems to the extent necessary to grow in a
successful and profitable manner. Further, there can be no assurance that the
Company's new stores will achieve historical levels of sales or profitability.
Additionally, the Company's expansion plans could be adversely affected by a
significant downturn in the economy and resulting decrease in new home and
swimming pool construction. The Company expects that its quarterly results of
operations will fluctuate depending on the timing and the amount of revenue
contributed by new stores and, to a lesser degree, the timing of costs
associated with the opening of new stores. See "Business--General" and "--
Business Strategy."
SEASONALITY AND WEATHER
Leslie's business exhibits substantial seasonality which the Company
believes is typical of the swimming pool supply industry. In general, sales
and earnings are highest during the second and third quarters, which represent
the peak months of swimming pool use. Typically, all of Leslie's operating
income is generated in these two quarters which offsets the operating losses
incurred in each of the other two quarters. Leslie's business is significantly
affected by weather patterns. For example, unseasonably late warming trends
can decrease the
10
<PAGE>
length of the pool season, and unseasonably cool weather and/or extraordinary
amounts of rainfall in the peak season may decrease swimming pool use,
resulting in lower maintenance needs and, therefore, decreased sales by the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Seasonality and Quarterly Fluctuations" and "Business--
Seasonality."
COMPETITION
Most of Leslie's competition comes from local stores or regional chains
which, unlike Leslie's, do not repackage products and which generally buy
products in smaller quantities. The chain store competitors include a large
franchise operator of approximately 110 retail outlets in the Florida market
and a limited number of other retail chains of approximately 15 to 30 stores.
Leslie's competes on selected principal products with large-volume mass
merchants and home centers which offer a limited selection of pool supplies
and equipment at competitive prices. Certain of these competitors have
substantially greater resources than the Company. There are no proprietary
technologies or other significant barriers to prevent other firms from
entering the swimming pool supply retail market in the future.
CASUALTY LOSS AND CHEMICAL HANDLING
Leslie's operates a chemical repackaging facility in Ontario, California and
stores chemicals in its retail stores and in its distribution facilities in
Ontario, California; Dallas, Texas; and Bridgeport, New Jersey. Since certain
of the chemicals which Leslie's repackages and stores are flammable or
combustible compounds, Leslie's must comply with various fire and safety
ordinances. Leslie's maintains strict policies and procedures on chemical
handling and on meeting fire and safety regulations, and has never incurred
any material liability related to its handling of chemicals. However, a fire
at one of its facilities could give rise to liability claims against the
Company. In addition, if such an incident involves the repackaging or a
distribution facility, the Company might be required temporarily to resort to
alternate sources of supply which could increase the Company's cost of sales.
The Company believes that such alternate sources would be readily available,
and that any casualty loss or business interruption would be adequately
covered by insurance. See "Business--Products," "--Distribution," and "--
Vertical Integration."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will be largely dependent upon the
abilities and experience of the senior management team of Leslie's. The loss
of services of one or more of these senior executives could adversely affect
the Company's results of operations. See "Management."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Old Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The New Notes will constitute a
new issue of securities with no established trading market. The Company does
not intend to list the New Notes on any national securities exchange or to
seek the admission thereof to trading in the National Association of
Securities Dealers Automated Quotation System. The Company has been advised by
BT that it presently intends to make a market in the Notes. However, BT is not
obligated to do so and any market-making activities with respect to the Notes
may be discontinued at any time without notice. In addition, such market-
marking activity will be subject to the limits imposed by the Securities Act
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
may be limited during the Exchange Offer. If a trading market does not develop
or is not maintained, holders of the Notes may experience difficulty in
reselling the Notes or may be unable to sell them at all. If a market for the
Notes develops, any such market may be discontinued at any time. If a public
trading market develops for the Notes, future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
Depending on prevailing interest rates, the market for similar securities and
other factors, including the financial condition of the Company, the Notes may
trade at a discount from their principal amount.
11
<PAGE>
THE TRANSACTIONS
On June 11, 1997 Leslie's consummated the Merger Agreement with Leslie's
California and Poolmart pursuant to which GEI and the HPA Group agreed to the
reorganization and recapitalization of Leslie's California through a two-step
merger process. Pursuant to the Merger Agreement, Leslie's California
reincorporated in Delaware and immediately thereafter, Poolmart merged with
and into Leslie's, with Leslie's as the surviving corporation. Each
outstanding share of common stock of Leslie's, other than the Continuing
Shares, was converted into the right to receive $14.50 in cash, and each share
of common stock of Poolmart was converted into one share of Leslie's common
stock. The holders of Leslie's common stock and stock options received
approximately $94.7 million in cash merger consideration. Upon consummation of
the Merger, GEI and the HPA Group acquired shares of Leslie's common stock
that represent, respectively, 73.6% and 26.4% of the outstanding, non-diluted
common stock of Leslie's. See "Description of Financing Transactions."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on June 11, 1997 (the "Closing Date")
to BT as Initial Purchaser (the "Initial Purchaser"). The Initial Purchaser
subsequently placed the Old Notes with qualified institutional buyers and
institutional accredited investors in transactions not requiring registration
under the Securities Act or applicable state securities laws, including sales
pursuant to Rule 144A and pursuant to Rule 506 under the Securities Act. The
Company and the Initial Purchaser also entered into the Registration Rights
Agreement. Pursuant to the Registration Rights Agreement, the Company agreed
that, unless the Exchange Offer is not permitted by applicable law or
Commission policy, it would (i) file with the Commission a Registration
Statement under the Securities Act with respect to the New Notes within 60
days after the Closing Date, (ii) use its best efforts to cause such
Registration Statement to become effective under the Securities Act within 150
days after the Closing Date, and (iii) upon effectiveness of the Registration
Statement, commence the Exchange Offer, maintain the effectiveness of the
Registration Statement for at least 45 days (or longer if required by
applicable law) and deliver to the Exchange Agent New Notes in the same
aggregate principal amount as the Old Notes that were properly tendered by
holders thereof pursuant to the Exchange Offer. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. This description of the Registration Rights
Agreement is qualified in its entirety by reference to such exhibit. The
Registration Statement, of which this Prospectus is a part, is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to the Expiration Date. As of
the date of this Prospectus, $90 million aggregate principal amount of the Old
Notes is outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about July 25, 1997 to all Holders of
Old Notes known to the Company. The Company's obligation to accept Old Notes
for exchange pursuant to the Exchange Offer is subject to certain conditions
as set forth under "--Certain Conditions to the Exchange Offer" below. The
Company will issue $1,000 principal amount of New Notes in exchange for each
$1,000 principal amount of outstanding Old Notes accepted in the Exchange
Offer. Holders may tender some or all of their Old Notes pursuant to the
Exchange Offer. See "Risk Factors--Failure to Exchange Old Notes." However,
Old Notes may be tendered only in integral multiples of $1,000.
The New Notes will evidence the same debt as the Old Notes for which they
are exchanged, and are entitled to the benefits of the Indenture. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and
hence will not bear legends restricting the transfer thereof.
12
<PAGE>
Holders do not have any appraisal or dissenters' rights under the Indenture
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of Regulation
14E under the Exchange Act.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
for the purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, such unaccepted tenders of Old Notes will be returned, without
expense to the Holder thereof, as promptly as practicable after the Expiration
Date.
Holders whose Old Notes are not tendered or are tendered but not accepted in
the Exchange Offer will continue to hold such Old Notes and will be entitled
to all the rights and preferences and subject to the limitations
applicable thereto under the Indenture. Following consummation of the Exchange
Offer, the Holders will continue to be subject to the existing restrictions
upon transfer thereof and the Company will have no further obligation to such
Holders to provide for the registration under the Securities Act of the Old
Notes held by them. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Old Notes could be adversely affected. See "Risk Factors--
Restrictions Upon Transfer of and Limited Trading Market for Old Notes."
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "--Fees and Expenses; Solicitation of Tenders."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
August 26, 1997 unless the Company extends the Exchange Offer, in which case
the term "Expiration Date" shall mean the latest date and time to which the
Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a release to
the Dow Jones News Services prior to 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
The Company reserves the right at its sole discretion to (i) delay accepting
any Old Notes, (ii) extend the Exchange Offer, (iii) terminate the Exchange
Offer and not accept Old Notes not previously accepted if any of the
conditions set forth below under "--Certain Conditions to the Exchange Offer"
shall have occurred and shall not have been waived by the Company, by giving
oral or written notice of such delay, extension or termination to the Exchange
Agent, or (iv) amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Holders. If
the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such
amendment by means of a Prospectus supplement that will be distributed to all
Holders, and the Company will extend the Exchange Offer for a period of five
to ten business days, depending upon the significance of the amendment and the
manner of disclosure to Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period. During any extension of the
Expiration Date, all Old Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company.
The Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
13
<PAGE>
INTEREST ON THE NEW NOTES
Interest accrues on the Notes at the rate of 10 3/8% per annum and will be
payable in cash semiannually in arrears on each January 15 and July 15,
commencing on January 15, 1998. No interest will be payable on the Old Notes
on the date of the exchange for the New Notes and therefore no interest will
be paid thereon to the Holders at such time.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a beneficial owner thereof as set
forth below and the acceptance by the Company thereof will constitute a
binding agreement between the tendering Holder and the Company upon the terms
and subject to the conditions set forth in this Prospectus and the Letter of
Transmittal. All of the Old Notes are held of record by a nominee of The
Depository Trust Company (the "Depositary").
Except as set forth below, a Holder who wishes to tender Old Notes for
exchange pursuant to the Exchange Offer must transmit a properly completed and
duly executed Letter of Transmittal, including all other documents required by
such Letter of Transmittal, to the Exchange Agent at one of the addresses set
forth below under "Exchange Agent" on or prior to the Expiration Date. In
addition, (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal, (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes into the
Exchange Agent's account at the Depositary (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date, or (iii)
the Holder must comply with the guaranteed delivery procedures described
below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD
BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES
SHOULD BE SENT TO THE COMPANY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or the box
entitled "Special Delivery Instructions" in the Letter of Transmittal or (ii)
for the account of an Eligible Institution (as defined below). In the event
that a signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, is required to be guaranteed, such guarantee must be by a firm
which is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. or by a commercial bank
or trust company having an office or correspondent in the United States or
otherwise an "eligible guarantor institution" within the meaning of Rule 17Ad-
15 under the Exchange Act (collectively, "Eligible Institutions"). If Old
Notes are registered in the name of a person other than the person signing the
Letter of Transmittal, the Old Notes surrendered for exchange must be endorsed
by, or be accompanied by, a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Company in its sole
discretion, duly executed by the registered Holder with the signature thereon
guaranteed by an Eligible Institution.
If the Letter of Transmittal is signed by a person or persons other than the
registered Holder or Holders of Old Notes, such Old Notes must be endorsed by
the registered Holder with signature guaranteed by an Eligible Institution or
accompanied by appropriate powers of attorney with signature guaranteed by an
Eligible Institution, in either case signed exactly as the name or names of
the registered Holder or Holders that appear on the Old Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such person should so indicate when signing and, unless waived by
the Company, proper evidence satisfactory to the Company of its authority so
to act must be submitted with the Letter of Transmittal.
14
<PAGE>
By tendering, each Holder will represent to the Company that, among other
things, (i) the New Notes acquired pursuant to the Exchange Offer are being
acquired in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder, (ii) neither the Holder nor
any such other person has an arrangement or understanding with any person to
participate in the distribution of such New Notes, (iii) if the Holder is not
a broker-dealer, or is a broker-dealer but will not receive New Notes for its
own account in exchange for Old Notes, neither the Holder nor any such other
person is engaged in or intends to participate in the distribution of such New
Notes and (iv) neither the Holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of the Company. If the
tendering Holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it will be required to
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and
by delivering a Prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
DELIVERY OF DOCUMENTS TO THE DEPOSITARY OR THE COMPANY DOES NOT CONSTITUTE
DELIVERY TO THE EXCHANGE AGENT.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right in its
sole discretion to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any Holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of
the terms and conditions of the Exchange Offer as to any particular Old Notes
either before or after the Expiration Date (including the Letter of
Transmittal and instructions thereto) by the Company shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with the tenders of Old Notes for exchange must be cured within
such reasonable period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
Old Notes for exchange, nor shall any of them incur any liability for failure
to give such notification.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of
the Old Notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Old Notes for exchange when, and if the Company has given
oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer or
if certificates representing Old Notes are submitted for a greater principal
amount than the Holder desires to exchange, such unaccepted or non-exchanged
Old Notes will be returned without expense to the tendering Holder thereof
(or, in the case of Old Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility) as promptly as practicable after the expiration or termination of
the Exchange Offer.
15
<PAGE>
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer promptly after the date of this Prospectus. Any financial
institution that is a participant in the Book-Entry Transfer Facility's
systems may make book-entry delivery of Old Notes by causing the Book-Entry
Transfer Facility to transfer such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility in accordance with the Book-Entry Transfer
Facility's Automated Tender Offer Program ("ATOP") procedures for transfer.
However, the exchange for the Old Notes so tendered will only be made after
timely confirmation of such book-entry transfer of Old Notes into the Exchange
Agent's account and timely receipt by the Exchange Agent of an Agent's Message
(as such term is defined in the next sentence) and any other documents
required by the Letter of Transmittal on or prior to the Expiration Date or
pursuant to the guaranteed delivery procedures described below. The term
"Agent's Message" means a message, transmitted by the Book-Entry Transfer
Facility and received by the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that the Book-Entry Transfer Facility has received
an express acknowledgment from a participant tendering Old Notes that are the
subject of such Book-Entry Confirmation that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal, and that the
Company may enforce such agreement against such participant.
GUARANTEED DELIVERY PROCEDURES
If a registered Holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
Holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the Holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within five New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates of all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered Old
Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal, are
received by the Exchange Agent within five NYSE trading days after the date of
execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
"Exchange Agent." Any such notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes
to be withdrawn (including the principal amount of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which
such Old Notes are registered, if different from that of the withdrawing
Holder. If certificates for Old Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing Holder must also submit the serial numbers of
the particular certificates to be withdrawn and a signed notice of withdrawal
with signatures guaranteed by an Eligible Institution unless such Holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any note of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Old Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time
16
<PAGE>
of receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
Holder thereof without cost to such Holder (or, in the case of Old Notes
tendered by book-entry transfer procedures described above, such Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under
"Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Old Notes for exchange or the exchange of the
New Notes for such Old Notes, there shall be threatened, instituted or pending
any action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, or assessing or seeking any
damages as a result thereof, or (ii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Old Notes pursuant to the Exchange Offer; or any statute, rule, regulation,
order or injunction shall be sought, proposed, introduced, enacted,
promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clause (i) or (ii) above or, in the sole judgment of the Company, might result
in the holders of New Notes having obligations with respect to resales and
transfers of New Notes which exceed those described herein, or would otherwise
make it inadvisable to proceed with the Exchange Offer.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Old Notes and return all
tendered Old Notes to exchanging Holders, (ii) extend the Exchange Offer and
retain all Old Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of Holders to withdraw such Old Notes (see "--
Withdrawal Rights") or (iii) waive certain of such unsatisfied conditions with
respect to the Exchange Offer and accept all properly tendered Old Notes which
have not been withdrawn or revoked. If such waiver constitutes a material
change to the Exchange Offer, the Company will promptly disclose such waiver
by means of a Prospectus supplement that will be distributed to all Holders.
Holders have certain rights and remedies against the Company under the
Registration Rights Agreement, including liquidated damages of up to $.30 per
week per $1,000 principal amount of Old Notes, should the Company fail to
consummate the Exchange Offer within a certain period of time, notwithstanding
a failure due to the occurrence of any of the conditions stated above. Such
conditions are not intended to modify those rights or remedies in any respect.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such condition or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
17
<PAGE>
EXCHANGE AGENT
U.S. Trust Company of California, N.A. has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL; BY OVERNIGHT COURIER; OR BY HAND:
U.S. Trust Company of California, N.A.
c/o United States Trust Company of New York
770 Broadway
13th Floor
New York, NY 10003
Attention: Tony Nista
BY FACSIMILE: (212) 420-6155
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
FEES AND EXPENSES; SOLICITATION OF TENDERS
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be $139,273 which
includes fees and expenses of the Exchange Agent and Trustee and accounting
and legal fees.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or
issued in the name of, any person other than the registered Holder of the Old
Notes tendered, or if a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering Holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted to the Exchange
Agent, the amount of such transfer taxes will be billed directly to such
tendering Holder.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
18
<PAGE>
ACCOUNTING TREATMENT
The New Notes will be recorded by the Company at the same carrying value as
the Old Notes, which is face value, as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized. The costs of the Exchange Offer will
be expensed over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon. In general,
the Old Notes may not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The
Company does not intend to register the Old Notes under the Securities Act.
The Company believes that, based upon interpretations contained in no action
letters issued to third parties by the staff of the Commission, New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold or otherwise transferred by Holders thereof (other than any
such Holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such Holders' business and such
Holders have no arrangement with any person to participate in the distribution
of such New-Notes, and provided, further, that each broker-dealer that
receives New Notes for its own account in exchange for Old Notes must
acknowledge that it will deliver a Prospectus in connection with any resale of
such New Notes. See "Plan of Distribution." If any Holder (other than a
broker-dealer described in the preceding sentence) has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such Holder (i) could not rely on the
applicable interpretations of the staff of the Commission and (ii) must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with any resale transaction. In addition, to comply with the
securities laws of certain jurisdictions, if applicable, the New Notes may not
be offered or sold unless they have been registered or qualified for sale in
such jurisdiction or an exemption from registration or qualification is
available and is complied with. See "Risk Factors--Restrictions upon Transfer
of and Limited Trading Market for Old Notes"; and "--Blue Sky Restrictions;
Compliance with State Securities Laws".
19
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated capitalization of
the Company at March 29, 1997, and as adjusted to give effect to the
Transactions. This table should be read in conjunction with "The
Transactions," "Description of Financing Transactions" and "Unaudited Pro
Forma Consolidated Financial Statements" appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 29, 1997
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current debt:
Current portion of long-term debt...................... $ 131 $ 80
======= ========
Long-term debt:
Bank credit facility and other......................... $27,986 $ 7,653
Senior Notes........................................... -- 90,000
Convertible Subordinated Debentures.................... 10,000 --
------- --------
Total long-term debt:................................ $37,986 $ 97,653
------- --------
Preferred Stock(a):...................................... -- $ 24,884
Stockholders' equity:
Common stock, no par value(b).......................... $32,646 $(46,872)
Retained (deficit)(c).................................. (2,411) (2,918)
------- --------
Total stockholders' equity........................... 30,235 (49,790)
------- --------
Total capitalization................................. $68,221 $ 72,747
======= ========
</TABLE>
- --------
(a) As adjusted represents the value assigned to the Series A Preferred Stock
net of $3.1 million assigned to 252,996 warrants issued with the Preferred
Stock. The Series A Preferred Stock has a liquidation preference of $28.0
million. The Series A Preferred Stock is mandatorily redeemable at a
liquidation value of $28.0 million in three equal installments starting
104 months after issue with full payment at 120 months.
(b) Represents the payment of merger consideration in respect of 6,192,061
shares of common stock of Leslie's and stock options for $94.7 million;
the issuance of new stock for $15.6 million; the value assigned to the
Warrants of $3.1 million; and the issuance of new common stock options for
$0.8 million aggregate exercise price, less transaction-related costs of
$4.3 million.
(c) Adjusted to reflect the issuance of new common stock options, net of the
related tax effect.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements (the
"Unaudited Pro Forma Consolidated Financial Statements") of the Company are
based on the audited and unaudited financial statements of Leslie's California
appearing elsewhere in this Prospectus, as adjusted to illustrate the
estimated effects of the Transactions. The unaudited pro forma adjustments are
based upon available information and certain assumptions that the Company
believes are reasonable. The Unaudited Pro Forma Consolidated Financial
Statements and accompanying notes should be read in conjunction with the
historical financial statements of Leslie's California and other financial
information pertaining to Leslie's California appearing elsewhere in this
Prospectus including "The Transactions," "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The Unaudited Pro Forma Consolidated Financial Statements have been prepared
to give effect to the Transactions (and the application of the net proceeds
therefrom) as though such Transactions had occurred as of March 29, 1997 for
the balance sheet (the "Unaudited Pro Forma Consolidated Balance Sheet"), and
as of December 31, 1995 for the statement of operations for the year ended
December 28, 1996 and for the three months ended March 29, 1997 (the
"Unaudited Pro Forma Consolidated Income Statements" together with the
Unaudited Pro Forma Consolidated Balance Sheet comprise the "Unaudited Pro
Forma Consolidated Financial Statements"). The Transactions will be treated as
a recapitalization for financial accounting purposes.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
be indicative of what the Company's financial position or results of operation
would actually have been had the Transactions been completed on such date or
at the beginning of the periods indicated or to project the Company's results
of operations for any future date.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
MARCH 29, PRO FORMA
1997 ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash....................................... $ .1 $ -- $ .1
Accounts and other receivables, net........ 2.9 -- 2.9
Inventories, net........................... 56.6 -- 56.6
Prepaid expenses and other................. 2.7 -- 2.7
Deferred tax assets........................ 2.6 .4 (a) 3.0
Deferred income tax charge................. 4.3 4.3
------ ------ ------
Total current assets..................... 69.2 .4 69.6
------ ------ ------
PROPERTY, PLANT AND EQUIPMENT:............... 49.4 -- 49.4
Less--Accumulated depreciation and
amortization.............................. 13.8 -- 13.8
------ ------ ------
Net property, plant and equipment.......... 35.6 -- 35.6
------ ------ ------
OTHER ASSETS:
Goodwill, net.............................. 8.2 -- 8.2
Other...................................... .7 3.6 (b) 4.3
------ ------ ------
Total other assets....................... 8.9 3.6 12.5
------ ------ ------
$113.7 $ 4.0 $117.7
====== ====== ======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................... $ 36.6 $ -- $ 36.6
Accrued liabilities........................ 5.7 (.5)(c) 5.2
Current portion of long-term debt.......... .1 -- .1
------ ------ ------
Total current liabilities................ 42.4 (.5) 41.9
------ ------ ------
DEFERRED TAX LIABILITIES..................... 3.1 -- 3.1
LONG-TERM DEBT, net of current portion....... 28.0 (20.4)(d) 7.6
SENIOR NOTES................................. -- 90.0 (d) 90.0
CONVERTIBLE SUBORDINATED DEBENTURES.......... 10.0 (10.0)(d) --
SERIES A PREFERRED STOCK, liquidation
preference $28.0 million.................... -- 24.9 (e) 24.9
COMMITMENTS AND CONTINGENCIES................ -- -- --
SHAREHOLDERS' EQUITY
Preferred stock: authorized--1,000,000
shares; none issued and outstanding....... -- -- --
Common stock, no par value: authorized--
40,000,000 shares, issued and
outstanding--6,551,566 at March 29, 1997.. 32.6 15.6 (f) (46.9)
(94.7)(g)
3.1 (e)
.8 (h)
(4.3)(i)
Retained (deficit)......................... (2.4) (.5)(j) (2.9)
------ ------ ------
Total shareholder's equity (deficit)..... 30.2 (80.0) (49.8)
------ ------ ------
$113.7 $ 4.0 $117.7
====== ====== ======
</TABLE>
The accompanying notes to the unaudited pro forma consolidated balance sheet
are an integral part of this statement.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(a) Reflects the tax effect of compensation charge for new common stock
options granted to management.
(b) Reflects the write-off of historical debt issuance costs of $0.1 million
and the addition of $3.7 million of debt issuance costs associated with
the Notes, the Bank Facility and related other fees and expenses.
(c) Reflects the payment of accrued interest on historical debt and the 8%
Convertible Subordinated Debentures being exchanged for the Preferred
Stock.
(d) Reflects the repayment of the existing credit facility, long- and short-
term debt and the exchange of the convertible subordinated debentures and
records the borrowings under the Bank Facility and the issuance of the
Notes as set forth in the following table:
<TABLE>
<S> <C>
Senior Notes....................................................... $ 90.0
Bank Facility...................................................... 6.3
Repay long-term debt............................................... (26.7)
Exchange convertible subordinated debentures....................... (10.0)
------
$ 59.6
======
</TABLE>
(e) Reflects the issuance of Preferred Stock with a face value of $28.0
million net of $3.1 million assigned to the value of 252,996 Warrants. The
Preferred Stock is entitled to annual cumulative dividends (payable in
either cash or additional Preferred Stock for the first five years) at 50
basis points over the bond yield on the Senior Notes.
(f) Represents issuance of 1,074,138 shares of common stock to GEI and
management.
(g) Represents the redemption of 6,192,061 shares of common stock and of stock
options.
(h) Represents the difference between the fair value of the option and the
exercise price on 83,599 options.
(i) Represents investment banking and advisory fees and expenses associated
with the fairness opinion, the valuation of the transaction, the
repurchase of the common stock and options, the proxy solicitation and
other related fees and expenses.
(j) Represents the non-recurring compensation charge of $0.8 million related
to the issuance of options and the write-off of deferred debt issuance
cost of $0.1 million, net of the related tax benefit.
23
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 28, PRO FORMA PRO
1996 ADJUSTMENTS FORMA
------------ ----------- ------
<S> <C> <C> <C>
Net sales................................... $191.7 $ -- $191.7
Cost of sales............................... 118.9 -- 118.9
------ ----- ------
Gross profit................................ 72.8 -- 72.8
Selling, general and administrative
expenses(a)................................ 62.4 .2 (b) 62.4
(.2)(c)
Amortization of acquisition costs........... .2 -- .2
Loss on disposition of fixed assets......... .8 -- .8
------ ----- ------
Income from operations...................... 9.4 -- 9.4
Interest expense, net(a).................... 2.8 7.1 (d) 10.5
.6 (e)
------ ----- ------
Income (loss) before taxes.................. 6.6 (7.7) (1.1)
Income tax provision (benefit).............. 2.7 (3.2)(f) (.5)
------ ----- ------
Net income (loss)........................... 3.9 (4.5) (.6)
------ ----- ------
Series A Preferred Stock dividends and ac-
cretion.................................... -- 3.5 (g) (3.5)
------ ----- ------
Earnings (loss) applicable to common share-
holders.................................... $ 3.9 $(8.0) $ (4.1)
====== ===== ======
Ratio of earnings to fixed charges(h)....... 2.07 -- --
Net income (loss) per share................. $ .57 -- $(2.88)
</TABLE>
The accompanying notes to the unaudited pro forma consolidated
statement of operations are an integral part of this statement.
24
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 29, 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED PRO FORMA PRO
MARCH 29, 1997 ADJUSTMENTS FORMA
-------------- ----------- ------
<S> <C> <C> <C>
Net sales................................. $ 23.8 $ -- $ 23.8
Cost of sales............................. 18.2 -- 18.2
------ ----- ------
Gross profit.............................. 5.6 -- 5.6
Selling, general and administrative
expenses(a).............................. 15.0 .1 (b) 15.1
Amortization of acquisition costs......... .1 -- .1
Loss on disposition of fixed assets....... .1 -- .1
------ ----- ------
Loss from operations...................... (9.6) (.1) (9.7)
Interest expense, net(a).................. .8 1.7 (d) 2.6
.1 (e)
------ ----- ------
Loss before taxes......................... (10.4) (1.9) (12.3)
Income tax benefit........................ 4.3 .8 (f) 5.1
------ ----- ------
Net loss.................................. (6.1) (1.1) (7.2)
------ ----- ------
Series A Preferred Stock dividends and ac-
cretion.................................. -- (.9)(g) (.9)
------ ----- ------
Loss applicable to common shareholders.... $ (6.1) $(2.0) $ (8.1)
====== ===== ======
Ratio of earnings to fixed charges(h)..... -- -- --
Net loss per share........................ $ (.90) -- $(5.67)
</TABLE>
The accompanying notes to the unaudited pro forma consolidated
statement of operations are an integral part of this statement.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Excludes the non-recurring compensation charge of $0.8 million related to
the issuance of 83,599 options at $5.00 per share and the write-off of
deferred debt issuance costs of $0.1 million.
(b) Represents management fee to LGP.
(c) Represents elimination of costs associated with being a publicly held
company.
(d) Represents additional interest expense on new borrowings as set forth in
the following table:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 28, MARCH 29,
1996 1997
------------ ------------
<S> <C> <C>
Interest on new borrowings....................... $ 9.9 $2.5
Less historical interest expense, net.......... (2.8) (.8)
----- ----
Pro forma adjustment......................... $ 7.1 $1.7
===== ====
</TABLE>
(e) Represents amortization of debt issuance costs.
(f) Represents the tax benefit applicable to the pro forma adjustments.
(g) Represents Preferred Stock dividends of $3.2 million and $0.8 million and
accretion of Preferred Stock of $0.3 million and $0.1 million for the year
ended December 28, 1996 and the three months ended March 29, 1997,
respectively.
(h) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes and fixed charges.
"Fixed charges" consist of interest expense on all indebtedness,
amortization of debt issuance costs, one-third of rent expense (the
portion deemed representative of the interest factor), Preferred Stock
dividend requirements and Preferred Stock accretion. The Company's
earnings were inadequate to cover pro forma fixed charges for the year
ended December 28, 1996 and the pro forma three months ended March 29,
1997 by approximately $1.1 million and $12.3 million, respectively.
However, such earnings included non-cash charges of $5.7 million for the
52 weeks ended December 28, 1996 and $1.5 million for the three months
ended March 29, 1997 primarily consisting of depreciation, amortization of
debt issuance costs and losses on the disposition of fixed assets.
26
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of
Leslie's California as of and for each of the five fiscal years in the period
ended December 28, 1996 and as of and for the fiscal quarters ended March 30,
1996 and March 29, 1997. This financial data was derived from the audited and
unaudited historical consolidated financial statements of Leslie's California
and should be read in conjunction with the financial statements of Leslie's
California and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
------------------------------------------------ --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Net Sales.............. $96,337 $119,955 $141,553 $162,456 $191,640 $ 18,064 $ 23,816
Cost of Sales.......... 57,320 71,666 86,084 102,057 118,880 13,806 18,254
------- -------- -------- -------- -------- -------- --------
Gross Profit.......... 39,017 48,289 55,469 60,399 72,760 4,258 5,562
Selling, general and
administrative
expenses.............. 33,986 41,170 45,764 53,442 62,358 12,804 15,055
Amortization of
acquisition costs..... 675 649 242 239 252 64 64
Loss (gain) on
disposition of fixed
assets................ 26 120 (106) 27 750 -- 71
------- -------- -------- -------- -------- -------- --------
Income from
operations............ 4,330 6,350 9,569 6,691 9,400 (8,610) (9,628)
Interest expense, net.. 829 1,189 1,733 2,708 2,786 834 799
------- -------- -------- -------- -------- -------- --------
Income before taxes.... 3,501 5,161 7,836 3,983 6,614 (9,444) (10,427)
Income tax provision
(benefit)............. 1,355 2,126 3,252 576 2,745 (3,919) (4,326)
------- -------- -------- -------- -------- -------- --------
Net Income (Loss)...... $ 2,146 $ 3,035 $ 4,584 $ 3,407 $ 3,869 $ (5,525) $ (6,101)
======= ======== ======== ======== ======== ======== ========
Net Income (Loss) per
share................. $ .34 $ .47 $ .70 $ .52 $ .57 $ (.82) $ (.90)
SELECTED OPERATING DATA:
EBITDA
(FIFO basis)(1)....... $ 6,779 $ 8,612 $ 11,476 $ 10,472 $ 14,960 $ (7,564) $ (8,243)
Capital Expenditures... 3,343 5,532 7,394 9,550 8,807 2,393 4,739
Comparable Store Sales
Growth................ 2.4% 11.7% 12.9% 6.0% 9.9% 6.6% 20.8%
Stores Operated at
Period-End............ 143 158 180 224 259 239 268
Ratio of earnings to
fixed charges(2)...... 2.15x 2.28x 2.54x 1.56x 1.81x -- --
<CAPTION>
AS OF AS OF
------------------------------------------------ --------------------
DEC. 31, DEC. 31, DEC. 31, DEC. 30, DEC. 28, MARCH 30, MARCH 29,
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Net Working
Capital(3)............ $11,189 $15,548 $22,161 $31,974 $30,258 $ 31,580 $ 26,825
Total Assets........... 44,025 49,532 61,717 79,529 83,157 105,044 113,656
Total Debt............. 15,795 19,397 25,424 36,884 33,208 43,301 38,117
Average Debt(4)........ 11,913 18,056 20,993 31,283 32,553 34,217 31,257
Stockholders' Equity... 17,820 21,041 26,339 31,921 36,315 26,470 30,235
</TABLE>
- -------
(1) EBITDA (FIFO basis), as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, (gains) and losses on disposition of fixed assets and the
provision for income taxes. While EBITDA (FIFO basis) is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and
working capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(2) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of loss before provision for income taxes plus fixed
charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs, one-third of rental expense
(the portion deemed representative of the interest factor),
27
<PAGE>
Preferred Stock dividend requirements and Preferred Stock accretion.
Earnings were insufficient to cover fixed charges for the three months
ended March 29, 1997 and March 30, 1996 by approximately $10.4 million and
$9.4 million, respectively.
(3) Excludes cash, short-term borrowings and current portion of long-term
debt.
(4) Represents the sum of the outstanding balances at the end of the most
recent quarter plus each of the preceding three quarters divided by four.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Historical Consolidated Financial Data" and the audited Consolidated
Financial Statements of the Company and the notes thereto included elsewhere
in this Prospectus.
The following table sets forth, for the periods indicated, certain
historical income statement and other data for the Company and also sets forth
certain of such data as a percentage of net sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------- ------------------------
MARCH 30, MARCH 29,
1994 1995 1996 1996 1997
------------ ----------- ----------- ----------- -----------
$ % $ % $ % $ % $ %
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Stores........... 129.5 91.5 150.3 92.5 179.1 93.5 16.5 91.1 22.1 92.9
Mail Order Catalog...... 8.3 5.9 7.9 4.9 7.7 4.0 0.8 4.2 0.8 3.3
Service Department and
Other.................. 3.7 2.6 4.2 2.6 4.8 2.5 0.8 4.7 0.9 3.7
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
Total Net Sales....... 141.5 100.0 162.5 100.0 191.6 100.0 18.1 100.0 23.8 100.0
Gross Profit............ 55.5 39.2 60.4 37.2 72.8 38.0 4.3 23.6 5.6 23.4
Selling, General and
Administrative
Expenses............... 45.8 32.3 53.4 32.9 62.4 32.5 12.8 70.9 15.1 63.5
Amortization of
Acquisition Costs...... 0.2 0.2 0.2 0.1 0.3 0.1 0.1 0.4 0.1 0.3
Loss on Disposition of
Fixed Assets........... (0.1) (0.1) 0.0 0.0 0.8 0.4 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- ---- ----- ---- -----
Income (Loss) from
Operations........... 9.6 6.8 6.7 4.1 9.4 4.9 (8.6) (47.7) (9.6) (40.4)
EBITDA (FIFO basis)..... 11.5 8.1 10.5 6.4 15.0 7.8 (7.6) (41.9) (8.2) (34.6)
</TABLE>
First Quarter of 1997 Compared to First Quarter of 1996
Sales for the first quarter of 1997 increased 31.8% over the first quarter
of 1996. Retail store sales grew 34.5% for the three-month period due to an
increase in the total number of stores in operation in 1997 versus 1996 as
well as a comparable store sales increase of 20.8%. The increase in comparable
store sales is primarily the result of the maturing of the new stores opened
over the last several years, and continued growth in commercial sales.
Commercial sales increased 21.4% in the first quarter of 1997 compared to the
same period last year. Additionally, in the Southern California market, the
Company is testing the operation of its service technicians out of the local
stores, and as a result, is reflecting these service sales in the retail store
sales total. Southern California service sales added approximately 2.0% to the
first quarter of 1997 comparable store sales growth.
Mail order catalog sales in the first quarter of 1997 increased 4.9%
compared to the first quarter of the prior year on increased residential mail
order sales, resulting from an expanded catalog mailing in 1997 and generally
favorable weather. Service department sales increased 5.0% in the first
quarter, reflecting strong growth in the Texas service centers, offset by the
reclassification of the Southern California service sales to retail store
sales.
Gross profit for the three months ended March 29, 1997 equaled $5.6 million
or 23.4% of sales, 0.2% of sales lower than was reported in the first quarter
of 1996. The lower gross margin is primarily due to increased promotional
activity in 1997 supporting new store openings, offset by lower rent expense
as a percentage of sales due to the decrease in the number of new stores
opened in 1997 versus 1996.
29
<PAGE>
In the first quarter of 1997, selling, general and administrative expenses
equaled $15.1 million, an increase of 18.1% over the same period of last year.
This increase is the result of higher store expenses and increased corporate
overhead costs required to support the continued growth in the number of
stores.
EBITDA (FIFO basis) was a deficit of $8.2 million in the first quarter of
1997, representing an increase of $0.6 million as compared to a deficit of
$7.6 million in the first quarter of 1996. The increased deficit in the first
quarter of 1997 was due to continued expansion of the Company's store base and
the associated cost of operating an increased number of stores in the off-
season.
Interest expense equaled $0.8 million in the first quarter of 1997, down
slightly from the same period in 1996 . The lower interest expense was
primarily the result of decreased borrowings due to improved working capital
management in the first quarter of 1997.
In the first quarter ended March 29, 1997, the Company reported a net loss
of $6.1 million or $0.90 per share, as compared to a net loss of $5.5 million
or $0.82 per share for the first quarter of 1996. During the quarter 11 new
stores were opened and 2 stores were closed, bringing the total store count to
268 on March 29, 1997. The Company historically incurs a net loss in the first
quarter of the year and generally expects such losses to grow as new stores
continue to be added at a significant rate.
During April 1997 the Company's sales increased approximately 4.0% compared
to the comparable period in the prior year. Seasonal losses continued and
unaudited year to date losses increased over 1996.
1996 Compared to 1995
Sales for the year ended December 28, 1996 increased 18.0% over the same
period in 1995. Retail store sales, which are comprised of residential sales
and commercial sales, grew 19.2%, reflecting increases in comparable store
sales of 9.9% as well as an increase in the total number of stores in
operation from 224 in 1995 to 259 for most of the 1996 selling season. The
increased growth rate of comparable store sales (9.9% in 1996) as compared to
the prior year (6.0% in 1995) was the result of improved weather experienced
in most market areas, and the commercial sales program, which continued to
show solid growth of approximately 20% in 1996.
During 1996, Leslie's expanded its business by opening 37 new stores.
Additionally, two stores were closed and three relocated in 1996. This
resulted in a net increase of 35 stores at the end of December 1996 as
compared to December 1995.
Mail order catalog sales declined 2.8% to $7.7 million from $7.9 million in
1995. New store openings in a number of strong mail order markets continued to
cannibalize mail order sales. Service department sales increased 12.9% in 1996
due to an increased number of service technicians operating in existing
service areas, including a significant expansion in Houston, Texas, as well as
generally improved execution.
Gross profit for the year ended December 28, 1996 increased to 38.0% of net
sales, from 37.2% in 1995. Gross profit represents sales less the cost of
services and purchased goods, chemical repackaging costs, and non-
administrative occupancy costs. The gross margin increase in 1996 reflects
increased retail pricing taken in early 1996, offsetting some product cost
increases seen in 1995 and again in 1996.
In 1996, selling, general and administrative expenses equaled $62.4 million,
versus $53.4 million in 1995, an increase of 16.6%, largely the result of the
15.6% increase in the number of stores. As a percentage of sales, selling,
general and administrative expenses decreased 0.4% to 32.5%, compared to 32.9%
in sales in 1995, due to the improved comparable store sales performance in
1996.
EBITDA (FIFO basis) was $15.0 million in 1996, representing an increase of
$4.5 million, or 42.9%, as compared to $10.5 million for 1995. EBITDA (FIFO
basis) margin increased to 7.8% of sales in 1996 as compared to 6.4% of sales
in 1995. The increase in EBITDA (FIFO basis) and EBITDA (FIFO basis) margin
was primarily due to the Company's higher sales volume in 1996 and an increase
in the Company's gross margin.
30
<PAGE>
Amortization of acquisition costs, which represents the amortization of
goodwill, equaled $0.3 million in 1996, essentially flat as compared to 1995.
In 1996 Leslie's recognized losses on the disposition of fixed assets
totaling approximately $0.8 million. This was primarily comprised of a $0.7
million write-off of leasehold improvements related to the relocation of its
corporate offices, Southern California distribution operations and chemical
repackaging operation in early 1997. Additionally, a $0.1 million loss was
realized on the sale of an excess property located in Oklahoma City.
Operating income for the period increased 40.5% to $9.4 million or 4.9%
sales, from $6.7 million or 4.1% of sales in 1995.
Interest expense equaled $2.8 million in 1996, up slightly from $2.7 million
in 1995. The increase was primarily the result of slightly increased
borrowings due to the capital spending and working capital requirements
associated with the continued growth of the business.
The tax provision increased to $2.7 million in 1996, an effective rate of
41.5%, from $0.6 million and an effective tax rate of 14.5% in 1995. The lower
effective tax rate in 1995 as compared to 1996 reflects the reversal in 1995
of certain tax reserves which were no longer needed.
Net income for 1996 increased 13.6% to $3.9 million or $0.57 per share, as
compared to $3.4 million or $0.52 per share in 1995. In August 1995, a 5.0%
stock dividend was effected and the 1995 earnings per share have been adjusted
to reflect the impact of the stock dividend.
1995 Compared to 1994
Sales for the year ended December 30, 1995 increased 14.8% over the same
period in 1994. Retail store sales grew 16.0%, reflecting increases in
comparable store sales of 6.0% as well as an increase in the total number of
stores in operation from 180 in 1994 to 223 for most of the 1995 selling
season. The lower growth rate of comparable store sales (6.0%) as compared to
prior years (12.9% in 1994 and 11.7% in 1993) was the result of the cool, wet
weather experienced in most market areas in the March through June time frame.
Despite the reduced growth in residential sales, the commercial sales program
continued to show strong growth of approximately 45.0% throughout 1995.
Mail order catalog sales declined 4.1% to $7.9 million from $8.3 million in
1994. The poor spring weather impacted mail order sales as did new store
openings in a number of strong mail order markets which continued to
cannibalize mail order sales. Service department sales increased 14.0% in 1995
due to an increased number of service technicians operating in existing
service areas, as well as generally improved execution.
Gross profit for the year ended December 30, 1995 declined as a percentage
of sales, to 37.2% from 39.2% in 1994. Gross profit represents sales less the
cost of services and purchased goods, chemical repackaging costs, and non-
administrative occupancy costs. The decrease in gross margin in 1995 was the
result of higher occupancy costs associated with the opening of 44 new stores
plus the new northeast distribution center, increased merchandise costs in a
variety of product categories, and the strong growth of commercial sales,
which generate a somewhat lower gross margin.
In 1995, selling, general and administrative expenses equaled $53.4 million,
versus $45.8 million in 1994, an increase of 16.8%, largely the result of the
24.4% increase in the number of stores. As a percentage of sales, selling,
general and administrative expenses increased 0.6% to 32.9%, compared to 32.3%
of sales in 1994, due to the lower than expected comparable store sales
performance in 1995. It is management's objective to grow selling, general and
administrative expenses at a rate lower than the rate of store growth and, as
a result, reduce these expenses as a percentage of sales over time.
EBITDA (FIFO basis) was $10.5 million in 1995, representing a decrease of
$1.0 million, or 8.7%, as compared to $11.5 million for 1994. EBITDA (FIFO
basis) margin decreased to 6.4% of sales in 1995 as
31
<PAGE>
compared to 8.1% of sales in 1994. The decrease in EBITDA (FIFO basis) and
EBITDA (FIFO basis) margin was primarily due to the Company's lower gross
margin and higher selling, general and administrative expenses as a percent of
sales.
Amortization of acquisition costs, which represents the amortization of
goodwill, equaled $0.2 million in 1995, essentially flat as compared to 1994.
Operating income was $6.7 million in 1995, representing a decrease of $2.9
million, or 30.2%, as compared to $9.6 million for 1994. Operating income
margin decreased to 4.1% of sales in 1995 as compared to 6.8% of sales in
1994. The decrease in operating income and operating income margin was
primarily due to the Company's lower gross margin and higher selling, general
and administrative expenses as a percent of sales.
Interest expense equaled $2.7 million in 1995, up from $1.7 million in 1994.
The increase was primarily the result of increased borrowings associated with
higher capital spending and working capital requirements due to continued
growth in the business, and the lower earnings realized in 1995.
The tax provision declined to $0.6 million in 1995, an effective rate of
14.5%, from $3.3 million and an effective tax rate of 41.5% in 1994. The lower
effective tax rate in 1995 as compared to 1994 reflects the third quarter
reversal of certain tax reserves which were no longer needed.
LIQUIDITY AND CAPITAL RESOURCES
The Company's need for liquidity arises primarily from interest payable on
the indebtedness incurred in connection with the Transactions and the funding
of the Company's capital expenditures and working capital requirements. The
Company has no mandatory payments of principal on the Notes scheduled prior to
their maturity and expects to have no mandatory payments of principal
scheduled under the Bank Facility until its expiration in five years.
The Company has historically financed its operations through internally
generated funds and borrowings under its credit facilities. In the first
quarter of 1997, net cash used in operating activities was $1.3 million
compared with $4.1 million in the first quarter of the prior year. In the
first quarter, cash is typically used to finance operating losses experienced
prior to the Company's peak selling season. The impact of the increased
operating loss in the first quarter of 1997 was offset by reduced working
capital requirements relative to the first quarter of 1996. For the year ended
December 28, 1996, net cash provided by operating activities was $12.0 million
compared with cash used in operating activities of $4.1 million in the prior
year. Higher earnings and decreased per store inventory balances resulted in
increased cash flow from operations in 1996.
For the first quarter of 1997, cash used in investing activities was $3.6
million compared with $2.4 million in the first quarter of the prior year.
This increase resulted from increased capital expenditures in the first
quarter of 1997 as compared to the first quarter of 1996 due to the relocation
of the Company's corporate headquarters, California distribution center and
the California repackaging facility during the quarter, as well as opening the
1997 new stores earlier in the season as compared to 1996. Also, in the first
quarter of 1997, two retail store properties were sold and generated proceeds
totaling approximately $1.2 million. In 1996, cash used in investing
activities was $8.6 million compared with $9.2 million in the prior year. This
decrease resulted primarily from reduced capital expenditures in 1996 as
compared to 1995 due to the slightly lower number of new store openings.
Capital expenditures are expected to be approximately $7.7 million in fiscal
1997, and will be used in part to fund new store openings. The Company
estimates that its cash requirements to open each new store in the spring,
including inventory net of trade payables, averages approximately $0.1
million.
Cash provided by financing activities was $4.9 million in the first quarter
of 1997 compared with $6.5 million in the first quarter of 1996. First quarter
of 1997 borrowings were used primarily to finance the usual first quarter
operating loss and capital expenditures associated with the continued new
store openings. Cash used in financing activities was $3.4 million in 1996
compared with cash provided of $13.4 million in 1995,
32
<PAGE>
when Leslie's California completed the private placement of its $10.0 million
8% Convertible Subordinated Debentures. The Debentures were exchanged as part
of the consideration for the Preferred Stock and the Warrants in connection
with the Transactions.
In January of 1997 the Company amended its credit agreement with Wells Fargo
Bank to consolidate the existing line of credit facility, the project
financing facility, and the term loan into one expanded $38.0 million line of
credit facility. The term of the expanded line of credit facility was extended
through February 16, 2000 and as a result, the line of credit was classified
as long-term debt on the March 29, 1997 balance sheet. Interest accrues at the
lender's reference rate (8.5% at March 29, 1997) or at LIBOR plus 1.75% at the
Company's election.
Management believes that the Company will have adequate capital resources
and liquidity to meet its working capital needs, maturing obligations and
capital expenditure requirements, including those relating to the opening of
new stores. The Company's capital resources and liquidity are expected to be
provided by the Company's cash flow from operations and borrowings under the
Bank Facility.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's business exhibits substantial seasonality which the Company
believes is typical of the swimming pool supply industry. In general, sales
and net income are highest during the second and third quarters, which
represent the peak months of swimming pool use. Sales are substantially lower
during the first and fourth quarters when the Company will typically incur net
losses. The principal external factor affecting the Company's business is
weather. Hot weather and the higher frequency of pool usage in such weather
create a need for more pool chemicals and supplies. Unseasonably early or late
warming trends can increase or decrease the length of the pool season. In
addition, unseasonably cool weather and/or extraordinary amounts of rainfall
in the peak season decrease swimming pool use. The likelihood that unusual
weather patterns will severely impact the Company's results is lessened by the
geographical diversification of the Company's store locations.
The Company expects that its quarterly results of operations will fluctuate
depending on the timing and amount of revenue contributed by new stores and,
to a lesser degree, the timing of costs associated with the opening of new
stores. The Company attempts to open its new stores primarily in the first
quarter in order to position itself for the following peak season. As
additional stores and the resultant operating expenses are added, the Company
expects its usual losses incurred in the first and fourth quarters to
increase.
33
<PAGE>
SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
MARCH 30 JUNE 29 SEPT. 28 DEC. 28
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1996
Sales............................... $18,064 $88,835 $63,657 $21,084
Gross Profit........................ 4,258 38,236 25,868 4,398
(Loss) Income from Operations....... (8,610) 17,265 7,712 (6,967)(1)
Net (Loss) Income................... (5,525) 9,658 4,176 (4,440)
EBITDA (FIFO basis)(2).............. (7,564) 18,534 8,919 (4,929)
Total Debt Outstanding.............. 43,301 28,235 25,468 33,208
Comparable Store Sales Growth....... 6.6% 16.1% 4.2% 6.4%
<CAPTION>
THREE MONTHS ENDED
--------------------------------------
APRIL 1 JULY 1 SEPT. 30 DEC. 30
-------- ------- -------- -------
<S> <C> <C> <C> <C>
1995
Sales............................... $15,360 $71,945 $56,862 $18,289
Gross Profit........................ 3,826 29,883 22,230 4,460
(Loss) Income from Operations....... (6,921) 12,138 6,974 (5,500)
Net (Loss) Income................... (4,416) 6,692 4,817 (3,686)
EBITDA (FIFO basis)(2).............. (6,257) 12,846 7,791 (3,908)
Total Debt Outstanding.............. 31,564 25,273 31,411 36,884
Comparable Store Sales Growth....... (0.6)% (0.3)% 16.0% 9.5%
</TABLE>
- --------
(1) The quarter ended December 28, 1996 loss from operations included an
approximately $0.7 million loss on disposition of fixed assets.
(2) EBITDA (FIFO basis), as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, gains and (losses) on disposition of fixed assets and the
provision for income taxes. While EBITDA (FIFO basis) is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an indicator of operating performance or an alternative to
cash flow (as measured by GAAP) as a measure of liquidity, it is included
herein to provide additional information with respect to the ability of
the Company to meet its future debt service, capital expenditure and
working capital requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Recent Accounting Pronouncements. Leslie's adopted Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121") in the first
quarter of 1996. The adoption of SFAS 121 did not impact Leslie's financial
position or its results of operations. In addition, in 1996 Leslie's adopted
the disclosures required by Statement of Financial Accounting Standard No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123").
In March 1997, the FASB issued SFAS No. 128 "Earnings per Share" ("SFAS
128") and SFAS No. 129 "Disclosure of Information about Capital Structure"
("SFAS 129"). SFAS 128 revises and simplifies the computation for earnings per
share and requires certain additional disclosures. SFAS 129 requires
additional disclosures regarding the Company's capital structure. Both
standards will be adopted in fiscal 1997. Management does not expect the
adoption of these standards to have a material effect on the Company's
financial position or the results of operations.
34
<PAGE>
BUSINESS
Leslie's is the leading national specialty retailer of swimming pool
supplies and related products. These products primarily consist of regularly
purchased, non-discretionary pool maintenance items such as chemicals,
equipment, cleaning accessories and parts, and also include fun, safety and
fitness-oriented recreational items. The Company currently markets its
products under the trade name Leslie's Swimming Pool Supplies through 278
company-owned retail stores in 27 states and through mail order catalogs sent
to selected pool owners nationwide. From 1992 to 1996, the Company increased
its sales at a compound annual growth rate of 18.8%, from $96.3 million to
$191.6 million. During the same period, EBITDA (FIFO basis) increased at a
compound annual growth rate of 21.9%, from $6.8 million to $15.0 million. The
Company's growth reflects a store count that increased from 1992 to 1996 at
the rate of 16.0% annually and comparable store sales increases that averaged
10.1% annually during the same time frame.
The Company provides its customers a comprehensive selection of high quality
products, competitive every day low prices ("EDLP") and superior customer
service through knowledgeable and responsive sales personnel who offer a high
level of technical assistance at convenient store locations. The EDLP offered
by the Company are generally comparable to or better than those offered by any
of its competitors, including mass merchandisers and home centers. The typical
Leslie's store contains 4,000 square feet of space, is located either in a
strip center or on a freestanding site in an area of heavy retail activity,
and draws its customers primarily from a trade area with a radius of
approximately three miles. The Company maintains a proprietary mailing list of
more than 4.5 million addresses, including approximately 90% of the
residential in-ground pools in the U.S. This highly focused list of target
customers is central to the Company's direct mail marketing efforts, which
support both its retail store and mail order operations. Management believes
that the Leslie's name is one of the most recognized brands in pool supplies
and represents an image of quality to consumers. In fiscal 1996, Leslie's
brand name products accounted for approximately 60% of the Company's total
sales.
Leslie's successful execution of its business strategy has generated a 33-
year history of consistently increasing sales. Management intends to continue
increasing sales and profits by further expanding its store base at the rate
of 12% to 15% annually and continuing to achieve positive comparable store
sales increases. The Company attributes its strong historical results and its
positive outlook for growth and profitability to the following factors:
Leadership Position in a Highly Fragmented Market. Leslie's current store
count of 278 locations is approximately equal to the sum of the next fifteen
largest specialty retail competitors combined. However, despite its large
relative size, Leslie's presently accounts for only approximately 5% of the
estimated $3.7 billion annual pool and spa supply market. Since 1989, Leslie's
has accelerated the pace of its new store openings and consequently has gained
market share. Management believes that this growth has come primarily at the
expense of independent local and regional pool supply retailers, which
accounted for over two-thirds of industry sales in 1996.
Attractive Store Economics. Leslie's results reflect extremely attractive
store-level economics. The Company estimates that cash required to open each
new store, including inventory net of trade payables, averages approximately
$125,000. Based upon the Company's past experience, new stores generally break
even in their first year of operation, pay back their initial investments
after three years, and in their fifth year of operation, contribute
approximately $181,000 of store operating profit, yielding a return on average
initial cash investment of 145%. In 1996, the Company's mature stores (the 115
stores open for five years or longer) averaged approximately $900,000 of
sales, generated approximately $200,000 of store operating profit per location
and posted a comparable store sales increase of 5.8%.
Growth Potential of Recently Opened Stores. Leslie's new stores have
historically grown dramatically in sales and store operating profit during
their first five years of operation. In 1996, the 142 stores opened since the
end of 1992 averaged approximately $519,000 in sales and approximately $50,000
of store operating profit per location. Management expects these stores
generally to follow the Company's historical pattern of maturation and
believes that there exists a large potential for sales and store operating
profit increases from these nonmature stores.
35
<PAGE>
Large Sales Volume of Non-Discretionary Products. The consistency of
Leslie's sales growth and profitability is due in large part to the sale of
non-discretionary and regularly consumed products such as pool chemicals,
cleaning accessories, major pool equipment (pumps and heaters) and replacement
parts. Pool owners must purchase such products to maintain their pools' water
quality and physical appearance and, in the Company's experience, do so
regardless of the economic environment. In fiscal 1996, non-discretionary and
regularly consumed products comprised approximately 74% of the Company's
sales, with pool chemicals representing approximately 44% of the Company's
total sales.
Proprietary Database of Pool Locations. Through ongoing research as well as
the conduct of its retail and mail order business, Leslie's has developed a
proprietary database of over 4.5 million addresses. The list includes
approximately 90% of the residential in-ground pools in the U.S. This
proprietary database allows Leslie's to execute cost-effective and highly
targeted direct mail marketing. When combined with the Company's mail order
sales results and computerized mapping capability, this database also gives
Leslie's a sophisticated store site selection capability. Management believes
that the scope and accuracy of its proprietary database is unique in the pool
supply industry.
Purchasing Power and Vertical Integration. Due to its size, Leslie's
purchases more chemicals and other pool supplies than any other specialty
retailer. In addition, Leslie's operates a repackaging facility which provides
the Company with significant cost savings, greater control over product
availability and quality, greater flexibility when sourcing products, and
vital information when negotiating with third-party providers. Further, unlike
most of its competitors, the Company does not rely upon third-party
distribution, but has its own specialized and efficient distribution system.
Management believes that these factors permit Leslie's to achieve a lower cost
of goods than any of its competitors, including mass merchandisers and home
centers.
Superior Level of Customer Service. Leslie's believes that its superior
level of customer service, including its comprehensive product selection,
gives it a significant advantage over its competitors in winning the loyalty
of customers. Due to the complicated nature of pool chemistry and pool
equipment maintenance, and consistent with its philosophy of being a full
service swimming pool supply retailer, Leslie's offers a high level of
technical assistance to its customers. The Company has developed a
comprehensive training program educating all store employees on the subjects
of maintenance techniques, water chemistry and equipment testing and repair.
As part of its regular customer service program the Company offers free
detailed water testing, pamphlets on pool maintenance, and in-store equipment
repairs, generally free of labor or bench charges.
HISTORY
The Company is the successor to the original Leslie's Poolmart founded in
1963. From its inception in 1963 through the end of 1987, Leslie's Poolmart
grew steadily in sales and number of stores. In September 1988, Leslie's
Poolmart was purchased in a highly leveraged transaction by an investment
group led by Hancock Park Associates ("HPA"). The Company completed an initial
public offering in April 1991 and in August 1992 added 14 stores through the
acquisition of a competitor. Leslie's has added 116 stores over the past four
years. Leslie's intends to continue to grow by opening additional retail
stores in both new and existing markets.
SWIMMING POOL SUPPLY INDUSTRY
Regardless of the type or size of a swimming pool, there are numerous
ongoing maintenance and repair requirements associated with pool ownership. In
order to keep a pool safe and sanitized, chemical treatment is required to
maintain proper chemical balance, particularly in response to variables such
as pool usage, precipitation and temperature. A swimming pool is chemically
balanced when the disinfectant, pH, alkalinity, hardness and dissolved solids
are at the desired levels. The majority of swimming pool owners use chlorine
to disinfect their pools. When the pool is chemically balanced, problems such
as algae, mineral and salt saturation, corrosive water, staining, eye
irritation and strong chlorine smell are less likely to occur. A regular
testing and maintenance routine will result in a stable and more easily
maintained pool. However, regardless of how well appropriate levels of
chlorine are maintained, "shocking" is periodically required to break up the
contaminants
36
<PAGE>
which invariably build up in the pool water. To accomplish this, the pool
owner can either superchlorinate the pool or use a nonchlorinated oxidizing
compound. The maintenance of proper chemical balance and the related upkeep
and repair of swimming pool equipment, such as pumps, heaters, and filters,
create a non-discretionary demand for pool chemicals and other swimming pool
supplies and services. Further, even non-usage considerations such as a pool's
appearance and the overall look of a household and yard create an ongoing
demand for these maintenance related supplies. In addition, pool usage creates
demand for discretionary items such as floats, games and accessories.
The swimming pool supply industry can be divided into four major segments by
pool type: residential in-ground swimming pools, residential above-ground
swimming pools (usually 12 to 24 feet in diameter), commercial swimming pools
and spas or hot tubs. The Company's historical strategy was to focus primarily
on the residential in-ground pool owner. In recent years the Company has
expanded its activities to more aggressively address the commercial and above-
ground markets as well. In the residential categories, the Company markets its
products primarily to the "do-it-yourself" market as opposed to those pool
owners who hire pool servicers. Through its rapidly growing commercial
business, products and services are offered to all non-residential pool
installations as well as to pool service companies which maintain either
residential or commercial pools. The Company's uninterrupted growth through
three recessionary periods suggests that due to the ongoing maintenance and
repair needs of existing swimming pools, the Company would not be
significantly affected by a decline in swimming pool installation. However,
there can be no assurance that a prolonged severe economic downturn and
resulting decline in new housing construction or swimming pool installation
would not adversely affect the Company's long-term expansion plans.
SEASONALITY
The Company's business exhibits substantial seasonality, which the Company
believes is typical of the swimming pool supply industry. In general, sales
and net income are highest during the second and third fiscal quarters which
represent the peak months of swimming pool use. Sales are substantially lower
during the first and fourth quarters when the Company typically incurs net
losses. The principal external factor affecting the Company's business is
weather. Hot weather and the higher frequency of pool usage in such weather
create a need for more pool chemicals and supplies. Unseasonably early or late
warming trends can increase or decrease the length of the pool season. In
addition, unseasonably cool weather and/or extraordinary amounts of rainfall
in the peak season (such as that experienced in much of the U.S. in the spring
and early summer of 1995) will tend to decrease swimming pool use. The
likelihood that unusual weather patterns will severely impact the Company's
results is lessened by the geographical diversification of the Company's store
locations. The Company also expects that its quarterly results of operations
will fluctuate depending on the timing and amount of revenue contributed by
new stores and, to a lesser degree, the timing of costs associated with the
opening of new stores. The Company attempts to open its new stores primarily
in the first quarter in order to position itself for the following peak
season.
PRODUCTS
Leslie's offers its customers a comprehensive selection of products
necessary to satisfy their swimming pool supply needs. During 1996, the
Company stocked approximately 3,000 items in each store, with more than 7,000
additional items available by special order. For 1997 and beyond, the newly-
created Xpress Parts program will make 5,000 more special order items
available to Leslie's customers. In 1996, approximately 550 items were
displayed in the Company's residential mail order catalogs and 1,200 items
were in the commercial catalog, although special order procedures make nearly
all Leslie's products available to mail order customers as well.
37
<PAGE>
The Company's major product categories are pool chemicals; major equipment;
cleaning and testing equipment; pool covers, reels, and liners; in a limited
number of stores, above-ground pools; and recreational items (which include
swimming pool floats, games, lounges, masks, fins, snorkels and other
"impulse" items). The following table shows the approximate percentage of
sales and primary function for each of the Company's major product categories
in fiscal 1996:
<TABLE>
<CAPTION>
PRODUCT LINE PERCENTAGE PURPOSE
------------ ---------- -------
<S> <C> <C>
Pool Chemicals................... 44% Cleanliness, appearance, health
Major Equipment and Parts........ 30% Pumps and heaters for cleaning
and temperature maintenance;
automatic pool cleaners for
ease of maintenance
Cleaning and Testing Equipment... 8% Water evaluation, cleanliness
and appearance
Covers, Reels, Liners and Pools.. 9% Safety, cleanliness and
temperature maintenance for
above-ground pools
Recreational Items............... 9% Pool enjoyment, swim aids
</TABLE>
Non-discretionary and regularly consumed products such as pool chemicals,
major equipment and parts represented approximately 74% of total sales in
fiscal 1996. The high percentage of Leslie's business which is attributable to
non-discretionary products results in a very high level of inventory quality
at the Company since the Company's non-discretionary products have long shelf
lives and are not prone to either obsolescence or shrinkage.
The Company believes that product quality and availability are key
attributes considered by consumers when shopping for pool supplies and that
the Company's ability to provide a high quality, in-stock product offering is
fundamental to its concept of value leadership. In addition to third-party
brand names, Leslie's carries a broad selection of products under the Leslie's
brand name. Marketing studies have shown that the Leslie's brand name is one
of the three most recognized brands in pool supplies and represents an image
of quality to consumers. In fiscal 1996, Leslie's brand name products
accounted for approximately 60% of the Company's total sales.
CHANNELS OF DISTRIBUTION
Retail Store Operations. At the end of 1996, Leslie's marketed its products
through 259 retail stores in 27 states under the trade name Leslie's Swimming
Pool Supplies. California represents the Company's single largest
concentration of stores with 82, while 45 stores are located in Texas, and 54
stores are in the northeast/mid-Atlantic area. Leslie's retail stores are
located in areas with high concentrations of swimming pools and typically are
approximately 4,000 square feet in size. In addition to the store manager, the
typical Leslie's store employs two assistant managers, both of whom are
generally full-time employees. Additionally, Leslie's makes frequent use of
part-time and temporary employees to support its full-time employees during
peak seasons. During 1996, the Company had 16 regional supervisors, each of
whom was responsible for approximately 16 stores.
Mail Order Catalog. Leslie's mail order catalogs provide an extension of its
service philosophies and products to those areas not currently served by a
retail store and allow the scope of the Company's business to be truly
nationwide. The Company believes that it operates one of the largest pool
supply mail order businesses in the country, with annual sales for 1996 of
approximately $7.7 million. Further, the Company believes that its mail order
catalogs build awareness of the Leslie's name, provide it with buying
efficiencies and, when coupled with information from its retail stores, are
instrumental in determining site selection for new stores.
CUSTOMER SERVICE
Due to the complicated nature of pool chemistry and equipment maintenance
and consistent with its philosophy of being a full service swimming pool
supply retailer, Leslie's offers a high level of technical assistance to
support its customers. The Company considers its training of store personnel
to be an integral part
38
<PAGE>
of its service philosophy. Leslie's extensive training program for all full-
time and part-time store employees includes courses in water chemistry, water
testing, trouble shooting on equipment, equipment sizing and parts
replacement. The Company maintains the same high customer service standards
for its mail order business as it does for its retail stores.
During 1996, Leslie's stores in Southern and Northern California; Dallas and
Houston, Texas; and Las Vegas, Nevada, were supported by the Leslie's Service
Department, which offers poolside equipment installation and repair, leak
detection and repair, and seasonal opening and closing services. The Service
Department utilizes both Company employees and subcontractors to perform these
services. The Company anticipates that operations in these markets will serve
as a prototype for a nationwide service expansion.
MARKETING
Substantially all the Company's marketing is done on a direct mail basis
through its proprietary mailing list of more than four and a half million
addresses at which, primarily, residential pools are located. Leslie's has
found that its ability to mail directly to this highly focused group is an
effective and efficient way to conduct its marketing activities to both retail
store and mail order customers. The Company constantly updates its address
list through primary research techniques and in-store customer sign-ups.
Addresses on the Company's proprietary list that are located within a
specified service area of a retail store receive circulars once or twice per
month from late March or early April through September or, selectively,
through October. As a regular part of Leslie's promotional activities, each
mailer highlights specific items which are intended to increase store traffic,
and reinforces to the customer the advantages of shopping at Leslie's, which
include everyday low pricing, a high level of customer service, and the broad
selection of high quality products. Addresses outside the Company's store
service areas, and recently active mail order customers within those service
areas, receive the Company's mail order catalogs. Occasionally, the Company
will utilize local print media when it enters a new market, and is doing so in
connection with its above-ground pool sales test markets. New store openings
typically involve additional advertising pieces in the first two to three
months of operation.
PURCHASING
Leslie's management believes that because it is one of the largest
purchasers of swimming pool supplies for retail sales in the United States,
the Company is able to obtain very favorable pricing on its purchases from
outside suppliers. Nearly all raw materials and those products not repackaged
by the Company are purchased directly from manufacturers. It is common in the
swimming pool supply industry for certain manufacturers to offer extended
dating terms on certain products to quantity purchasers such as Leslie's.
These dating terms are typically available to the Company for pre-season or
early season purchases.
The Company's principal chemical raw materials and granular chlorine
compounds are purchased primarily from three suppliers. At the end of 1994,
the Company entered into a three-year product purchase agreement with a major
producer of one of the principal chlorine compounds, the chlorinated
isocyanurates. The Company believes that there are several other reliable
suppliers of chlorine products in the marketplace today. Although the Company
has one sole source supplier for a nonchlorine shocking compound, termination
of supply would not pose any significant problems for the Company because
substitute chemicals and alternate shocking techniques are available. The
Company believes that reliable alternative sources of supply are available for
all of its raw materials and finished products.
VERTICAL INTEGRATION
Leslie's operates a plant in the Los Angeles area where it converts dry
granular chlorine into tablet form and repackages a variety of bulk chemicals
into various sized containers suitable for retail sales. Leslie's also
formulates a variety of specialty liquids, including water clarifiers, tile
cleaners, algaecides and stain preventives. The chemicals that the Company
processes have a relatively long shelf life. Leslie's believes that supplying
its
39
<PAGE>
stores with chemicals from its own repackaging plant provides it with cost
savings, as well as greater control over product availability and quality, as
compared to non-integrated pool supply retailers. It also offers the Company
greater flexibility of sourcing and vital information when negotiating with
third-party repackagers and chemical providers. The Leslie's brand name
appears on all products processed at its repackaging plant, and on the
significant majority of its chemical products. The Company believes that it is
among the largest processors of chlorine products for the swimming pool supply
industry. The total output of Leslie's repackaging plant is utilized by the
Company and is not sold or distributed to other retailers. Leslie's currently
does not intend to sell any significant amount of chemicals from its Los
Angeles area facility to other retailers or distributors.
In connection with the operation of its second distribution center in
Dallas, Texas, and third distribution center in Bridgeport, New Jersey, the
Company has expanded its use of third-party chemical repackagers and its
purchase of products already in end-use configurations. These products are
also generally packaged under the Leslie's brand name. The Company continually
evaluates the cost effectiveness of third-party sourcing versus internal
manufacturing in order to minimize its cost of goods. Leslie's will also
continue to evaluate the establishment of additional chemical repackaging
capabilities, though there are currently no plans for such an investment. In
addition to chemicals, a variety of the Company's products are packaged under
the Leslie's brand name.
DISTRIBUTION
The Company distributes all of its products to its retail stores and to its
catalog customers through its leased distribution facilities in Ontario,
California; Dallas, Texas; and Bridgeport, New Jersey. Leslie's relocated and
consolidated its West coast distribution operation, along with the Los Angeles
repackaging operation, into a 183,000 square foot facility in Ontario,
California in early 1997. Leslie's opened its 100,000 square foot Dallas
facility in November 1990 and the 81,000 square foot Bridgeport, New Jersey
facility in February 1995. The Company is now purchasing the majority of the
chemicals to be distributed from the Dallas and Bridgeport distribution
centers from outside manufacturers rather than obtaining them through its
repackaging facility in Southern California. During the height of its seasonal
activities, each of the Company's retail stores is generally replenished every
5 to 10 days.
The Company utilizes company-owned and operated equipment, supplemented by
additional equipment leased during the busy season, to transport its goods to
stores within an approximately 350-mile radius of a distribution center. Other
stores receive deliveries via common carriers.
MANAGEMENT INFORMATION SYSTEMS
All decisions relating to the buying, pricing and distribution of products
are centralized at the Company's headquarters. Leslie's computerized point-of-
sale system provides detailed sales and inventory information for each item in
each store. This data is used by the Company's buyers in planning their
purchases and also updates the Company's inventory management system.
COMPETITION
Primary elements of competition in the retail swimming pool supply industry
are price, technical assistance, customer service, product selection and
product availability. Most of the Company's competition comes from local
stores or regional chains which do not repackage products and which generally
buy products in smaller quantities. The Company believes that its vertical
integration, varied sourcing strategy, and large volume purchasing enable it
to maintain attractive margins as well as competitive price leadership
relative to the smaller operators, and that its position is strengthened by
its merchandising and marketing emphasis. The chain store competitors include
a large franchise operator of approximately 110 retail outlets in the Florida
market and a limited number of other retail chains of approximately 15 to 30
stores.
In August 1992, Leslie's acquired one of its more prominent competitors,
Sandy's Pool Supply, Inc. ("Sandy's"). Sandy's was, at the time of the
acquisition, a 20-store chain which was 50% owned by Mr. Philip
40
<PAGE>
Leslie, a founder and former shareholder of the Company. Mr. Leslie and the
co-owner of Sandy's, Mr. Sander Bass, are both subject to a 10-year non-
competition agreement which precludes their participation in any retail
activities competitive with the Company's current business.
The Company competes on selected principal products such as chlorine with
large volume, mass merchant and home center retailers. While the ability of
these merchants to accept low margins on the limited number of items they
offer makes them aggressive price competitors of the Company, they are not
generally priced below Leslie's and do not offer the level of customer service
or wide selection of swimming pool supplies available at Leslie's.
EMPLOYEES
As of December 28, 1996, Leslie's employed 1,055 persons. During the height
of the Company's seasonal activities in 1996, it employed 1,739 persons,
including seasonal and part-time store employees who generally are not
employed during the off season. The Company is not subject to any collective
bargaining agreements and believes that its relationships with its employees
are excellent.
TRADEMARKS
In the course of its business, Leslie's employs various trademarks, trade
names and service marks as well as its logo in packaging and advertising its
products. The Company has registered trademarks and trade names for several of
its major products on the Principal Register of the United States Patent and
Trademark Office. The Company distinguishes the products produced in its
chemical repackaging operation or by third party repackagers at its direction
through the use of the Leslie's brand name and logo and the trademarks and
trade names of the individual items, none of which is patented, licensed, or
otherwise restricted to or by the Company. The Company believes the strength
of its trademarks and trade names has been beneficial to its business and
intends to continue to protect and promote its marks in appropriate
circumstances.
PROPERTIES
The Company operated 278 stores in 27 states as of April 30, 1997. The
following table sets forth information concerning the Company's stores:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES STATE NUMBER OF STORES
----- ---------------- ----- ----------------
<S> <C> <C> <C>
Alabama.............. 4 Missouri............. 3
Arizona.............. 16 Nevada............... 5
California........... 82 New Jersey........... 14
Connecticut.......... 7 New Mexico........... 1
Delaware............. 2 New York............. 17
Florida.............. 19 North Carolina....... 1
Georgia.............. 5 Ohio................. 7
Indiana.............. 3 Oklahoma............. 4
Kansas............... 1 Pennsylvania......... 12
Kentucky............. 1 Rhode Island......... 1
Louisiana............ 4 Tennessee............ 3
Maryland............. 5 Texas................ 47
Massachusetts........ 7 Virginia............. 3
Michigan............. 4 ---
Total Stores......... 278
===
</TABLE>
Except for 23 owned stores, all of Leslie's retail stores are leased by the
Company with lease terms expiring between 1997 and 2006. The Company's typical
lease term is five years, and in the majority of instances, the Company has
renewal options at increased rents. Five leases provide for rent contingent on
sales exceeding specific amounts. No other leases require payment of
percentage rent.
41
<PAGE>
In January and February of 1997, the Company relocated its corporate
offices, the Southern California distribution center and the chemical
repackaging operation. The corporate offices were relocated to another
location in Chatsworth, California. The new 38,000 square foot office building
has been leased for five years and the lease has three five-year renewal
options.
The Southern California distribution center (previously located in
Chatsworth, California) and the chemical repackaging operations (previously
located in Los Angeles) were moved and consolidated into a 183,000 square foot
facility located in Ontario, California. The Ontario facility was leased for
10 years and the lease has two five-year renewal options. The Company's
distribution facility in Dallas, Texas, consists of 100,000 square feet, with
a lease term expiring in 2000. This lease includes options to renew for two
additional five-year periods. In July 1996, the Company entered into a short-
term lease on an additional contiguous 25,000 square feet, which may be
renewed on an annual basis. The 81,000 square foot distribution facility in
Bridgeport, New Jersey is leased for a 10-year term, expiring in 2004. The
lease includes options to renew for three five-year periods.
LEGAL PROCEEDINGS
The Company is routinely involved in legal proceedings related to the
ordinary course of its business. Management does not believe any such matters
will have a material adverse effect on the Company.
42
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and position of each of the
directors and executive officers of the Company. Each director will hold
office until the next annual meeting of the stockholders or until his
successor has been elected and qualified. Officers are elected by the Board of
Directors and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Michael J. Fourticq... 53 Chairman of the Board, Director
Brian P. McDermott.... 40 President, Chief Executive Officer, Director
Robert D. Olsen....... 44 Executive Vice President, Chief Financial Officer
Cynthia G. Watts...... 34 Vice President, General Counsel, Secretary
Dr. Dale R. Laurance.. 51 Director
Gregory J. Annick..... 33 Director
John G. Danhakl....... 40 Director
</TABLE>
MICHAEL J. FOURTICQ had been Chairman of the Board of Directors of Leslie's
California since May 1988. Between May 1988 and August 1992, he served as
Leslie's Chief Executive Officer. From 1986 to 1987, Mr. Fourticq was
President and Chief Executive Officer of the Mortell Company, a manufacturer
of specialty chemical products. Since 1985 he has been the sole general
partner of HPA, which is the general partner and affiliate of several
investment partnerships. Mr. Fourticq was Chairman of the Board and Chief
Executive Officer of Alliance Northwest Industries, Inc., a holding company,
principally for a specialty lighting retailer, which filed a petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code in March 1996.
BRIAN P. MCDERMOTT had been President and a director of Leslie's California
since April 1989 and its Chief Executive Officer since August 1992. Between
May 1988 and April 1989, he served as Leslie's Executive Vice President of
Operations and also was its Secretary from May 1988 until October 1989. From
1987 to 1988, Mr. McDermott served as Director of Acquisitions and
Divestitures at Castle & Cooke, Inc., a publicly held holding company with
diverse real estate and corporate interests. Mr. McDermott is Chairman of the
Board of Busybody, Inc., a privately held fitness equipment retailer, for
which he was acting Chief Executive Officer from November 1994 through March
1996.
ROBERT D. OLSEN had been Executive Vice President and Chief Financial
Officer of Leslie's California since April 1993. From 1990 through April 1993
he was Executive Vice President and Chief Financial Officer of TuneUp Masters,
a California-based chain of fast automotive tuneup and lube outlets, which
filed a petition for reorganization under Chapter 11 of the Federal Bankruptcy
laws in November 1994. From 1985 through 1989, Mr. Olsen held several
positions with AutoZone, an automotive parts and accessories retailer,
including Controller, Vice President--Finance, and Senior Vice President and
Chief Financial Officer. From 1981 through 1984 he held a variety of positions
with Pepsi-Cola International and Pepsi Cola USA.
CYNTHIA G. WATTS had been Vice President and General Counsel of Leslie's
California since February 1993 and Secretary of Leslie's California since
March 1993. From 1988 to January 1993, Ms. Watts was an attorney at Paul,
Hastings, Janofsky and Walker, a Los Angeles-based law firm, where her
practice was concentrated in the areas of general corporate representation and
corporate finance, including securities, venture capital and mergers and
acquisitions.
DR. DALE R. LAURANCE had been a director of Leslie's California since
January 1996. He has been a Director of Occidental Petroleum Corporation since
1990 and its President since 1996. He was its Senior Operating Officer from
1990 to 1996 and Vice President of Operations from 1984 to 1990. He is a
Director of Canadian Occidental Petroleum Ltd., Jacobs Engineering Group Inc.,
The Armand Hammer Museum of Art and Cultural Center, Inc., Chemical
Manufacturers Association, American Petroleum Institute, U.S. Arab Chamber of
43
<PAGE>
Commerce, Boy Scouts of America-Western Los Angeles County Council and a
member of the Advisory Board of the Chemical Heritage Foundation. He is a past
Chairman of the Advisory Board for the Department of Chemical and Petroleum
Engineering at the University of Kansas and is a recipient of the
Distinguished Engineering Service Award from the School of Engineering at the
University of Kansas. Dr. Laurance has served as a Managing Director of the
Joffrey Ballet Company.
GREGORY J. ANNICK became a director of the Company upon consummation of the
Merger. He has been an executive officer and an equity owner, through a trust,
of LGP, a merchant banking firm which manages GEI, since the formation of LGP
and GEI in 1994 by the principals of Leonard Green & Associates, L.P. ("LGA").
He joined LGA as an associate in 1989, became a principal in 1993, and through
a corporation became a partner of LGA in 1994. From 1988 to 1989, he was an
associate with the merchant banking firm of Gibbons, Green, van Amerongen.
Before that time, Mr. Annick was a financial analyst in mergers and
acquisitions with Goldman, Sachs & Co. Mr. Annick is also a director of Carr-
Gottstein Foods Co. and several private companies.
JOHN G. DANHAKL became a director of the Company upon consummation of the
Merger. He has been an executive officer and an equity owner of LGP, a
merchant banking firm which manages GEI, since 1995. Mr. Danhakl had
previously been a Managing Director at Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and had been with DLJ since 1990. Prior to joining DLJ,
Mr. Danhakl was a Vice President at Drexel Burnham Lambert Incorporated. Mr.
Danhakl is also a director of Twinlab Corporation, The Arden Group, Inc. and
several private companies.
All executive officers of the Company will be chosen by the Board of
Directors and serve at the Board's discretion. No family relationships exist
between any of the officers or directors of the Company.
Messrs. Fourticq and McDermott are partners together in investment
partnerships that do not own shares of the Company.
Occidental held Leslie's California's Convertible Subordinated Debentures in
the principal amount of $10.0 million, all of which were exchanged as partial
consideration for the issuance of the Preferred Stock and Warrants in
connection with the Transactions. One of the subsidiaries of Occidental is a
supplier of chemicals to Leslie's.
Leslie's, GEI, the members of the HPA Group, Brian P. McDermott and Manette
J. McDermott, as Co-Trustees of the McDermott Family Trust, and Occidental and
the holders of certain management options are parties to a Stockholders
Agreement (as defined below). In the Stockholders Agreement, Michael Fourticq
and Mr. McDermott are given certain rights to be elected as directors of the
Company. See "Certain Relationships and Related Transactions--Stockholders
Agreement." In addition, Occidental, as owner of the Preferred Stock, has the
right to board representation. See "Description of Financing Transactions."
EXECUTIVE COMPENSATION
The information set forth in this section relates to the Chief Executive
Officer of Leslie's California and the four most highly compensated executive
officers of Leslie's California as of December 28, 1996. It is expected that
the Company generally will provide its executives with compensation (including
cash compensation and benefits) comparable to the compensation provided to
them as executives of Leslie's California, with such additions or
modifications as may be negotiated by the Company and management.
44
<PAGE>
COMPENSATION SUMMARY
The following summary compensation table sets forth for the fiscal years
ended December 28, 1996, December 30, 1995 and December 31, 1994, the
historical compensation for services to Leslie's California of the Chief
Executive Officer and the four most highly compensated executive officers as
of December 28, 1996:
<TABLE>
<CAPTION>
ANNUAL LONG-TERM ALL OTHER
COMPENSATION COMPENSATION COMPENSATION
-------------- ------------- ----------------
SALARY BONUS STOCK OPTIONS 401(K) INSURANCE
YEAR ($) (1)($) (2) (3)($) (4)($)
---- ------- ------ ------------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Fourticq......... 1996 157,500 -- 3,308 -- --
Chairman of the Board 1995 150,000 -- 3,308 -- --
1994 150,000 -- 3,308 -- --
Brian P. McDermott.......... 1996 367,500 -- 30,000 3,000 204
Chief Executive Officer, 1995 350,000 -- -- 3,000 132
President and Director 1994 325,000 40,000 28,750 2,772 132
Murray H. Dashe............. 1996 288,750 -- 22,500 3,000 576
Chief Operating Officer 1995 275,000 -- -- 3,000 576
and Director 1994 255,000 27,500 21,000 2,772 576
Robert D. Olsen............. 1996 231,000 -- 22,500 3,000 204
Executive Vice President 1995 220,000 -- -- 3,000 204
and Chief Financial Officer 1994 200,000 22,500 21,000 1,945 204
Cynthia G. Watts............ 1996 157,500 -- 15,000 3,000 108
Vice President, General 1995 150,000 -- -- 3,000 108
Counsel and Secretary 1994 135,000 15,000 13,125 1,967 108
</TABLE>
- --------
(1) Annual bonuses are indicated for the year in which they were earned and
accrued. Bonuses for the 1994 fiscal year were paid in 1995.
(2) Options granted prior to April 1994 and August 1995 have been adjusted to
reflect Leslie's California's stock dividends effective those months. All
options were granted at their fair market value on the date of grant.
(3) Represents Leslie's California's matching contributions to individuals'
401(k) accounts.
(4) Represents premiums paid by Leslie's California for life insurance not
generally available to all Leslie's employees.
NQ OPTION PLAN AND ISO OPTION PLAN
Leslie's has adopted a non-qualified common stock option plan (the "NQ
Option Plan") and an incentive common stock option plan (the "ISO Option
Plan") and has reserved 83,599 shares and 273,946 shares, respectively, of
Leslie's common stock for issuance upon the exercise of options to be granted
to certain employees of Leslie's upon consummation of the Transactions and
thereafter. Options to purchase Leslie's common stock were granted to the
following individuals at an exercise price of $5.00 per share for options
granted under the NQ Option Plan ("NQ Options") and $14.50 per share in the
case of options granted under the ISO Option Plan (or $15.95 in the case of
ISO options granted to any holder of 10% or more of the Company's common
stock) ("ISO Options"):
<TABLE>
<CAPTION>
NQ OPTION ISO OPTION
NAME OF RECIPIENT SHARES SHARES
----------------- --------- ----------
<S> <C> <C>
Michael J. Fourticq................................... 4,976 --
Brian P. McDermott.................................... -- 77,000
Robert D. Olsen....................................... 52,761 50,000
Other members of management........................... 25,862 146,946
</TABLE>
45
<PAGE>
Leslie's has reserved 83,599 shares of Leslie's common stock for the NQ
Option Plan. NQ Options vest immediately. However, Leslie's has (and in some
instances other stockholders have) a right ("Call Option") to repurchase a
portion of each NQ Option (and a portion of any shares of Leslie's common
stock issued upon the exercise of any NQ Option ("NQ Option Shares")) upon the
option holder or stockholder ceasing to provide services to Leslie's. If the
NQ Option holder's service termination occurs prior to the first anniversary
of the consummation of the Transactions, two-thirds of the NQ Option and two-
thirds of any NQ Option Shares may be repurchased; if the termination occurs
on or after the first anniversary and before the second anniversary, the Call
Option applies to one-third of the NQ Options and NQ Option Shares; and the
Call Option will not apply to any NQ Options or NQ Option Shares if
termination occurs on or after the second anniversary of the consummation of
the Transactions. The per share Call Option exercise price is (i) for NQ
Options, (x) if the termination is voluntary, the amount by which $14.50
exceeds $5.00, and (y) if the termination is other than voluntary ("Other
Termination"), the greater of (A) the amount by which $14.50 exceeds $5.00, or
(B) the amount by which the fair market value of a share of the Leslie's
common stock on the date of termination, as determined by the Board of
Directors of Leslie's, exceeds $5.00; and (ii) for NQ Option Shares, (x) if
the termination is voluntary, $14.50, and (y) in the case of an Other
Termination, the greater of (A) $14.50, or (B) the fair market value of a
share of Leslie's common stock on the date of termination, as determined by
the Leslie's Board of Directors. NQ Options have a term of ten years and
remain exercisable without regard to any termination of employment of the
holder, subject to the exercise of the Call Option as described above.
Leslie's has reserved 273,946 shares of Leslie's common stock for the ISO
Plan. Under the ISO Plan, ISO Options vest in one-third increments on the
first, second and third anniversaries of the effective date of the Merger,
except for options to purchase 71,647 shares which will also be subject to a
further vesting condition based upon Leslie's achieving certain operating and
store-opening goals. Options intended to qualify as "incentive stock options"
and options not intended to so qualify may be granted under the ISO Option
Plan. Pursuant to law, options intended to qualify as "incentive stock
options" are subject to limitations on aggregate amounts granted and must be
issued to any holder of 10% or more of the issuer's outstanding common stock
at 110% of fair market value.
Vested ISO Options may be exercised for 90 days post termination of
employment, except in the case of the death of the option holder, in which
case the vested portion may be exercised within twelve months from the date of
termination. ISO Options will have a term of ten years.
COMPENSATION OF DIRECTORS
Individuals who are officers of the Company, as well as Messrs. Annick and
Danhakl, do not receive any compensation directly for their service on the
Company's Board of Directors. The Company has agreed, however, to pay LGP
certain fees for various management, consulting and financial planning
services, including assistance in strategic planning, providing market and
financial analyses, negotiating and structuring financing and exploring
expansion opportunities. See "Certain Relationships and Related Transactions."
46
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of Leslie's common stock as of June 11, 1997, assuming the Transactions
occurred on that date, by (i) each director, (ii) each of the executive
officers of the Company, (iii) all executive officers and directors as a group
and (iv) each person who is a beneficial owner of more than 5% of Leslie's
common stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENTAGE OF
BENEFICIAL SHARES
NAME OF INDIVIDUAL OR ENTITY(1) OWNERSHIP OUTSTANDING(2)
- ------------------------------- ---------- --------------
<S> <C> <C>
GEI(3)............................................... 1,055,172 73.6%
Gregory J. Annick(4)................................. 1,055,172 73.6
John G. Danhakl(4)................................... 1,055,172 73.6
Michael J. Fourticq(5)(6)............................ 165,515 11.5
Brian P. McDermott(5)(7)............................. 166,552 11.6
Robert D. Olsen(5)(8)................................ 69,727 4.8
Cynthia G. Watts(9).................................. 9,000 0.6
Dr. Dale R. Laurance................................. -- --
Occidental(10)....................................... 252,996 15.0
All executive officers and directors as a group (8
persons)............................................ 1,465,966 100.0
</TABLE>
- --------
(1) The address of Messrs. Fourticq, McDermott, Olsen and Dashe and Ms. Watts
is 20630 Plummer Street, Chatsworth, California 91311. The address of
Occidental and Dr. Laurance is 10889 Wilshire Boulevard, Los Angeles,
California 90029. The address of Green Equity Investors II, L.P. and
Messrs. Annick and Danhakl is 11111 Santa Monica Boulevard, Suite 2000,
Los Angeles, California 90025.
(2) Computed based upon the total number of shares of Leslie's common stock
outstanding and the number of shares of Leslie's common stock underlying
Warrants and options of that person exercisable within 60 days after June
11, 1997. See "Management--NQ Option Plan and ISO Option Plan" for a
description of the terms of the options being granted to certain of the
indicated individuals. In accordance with Rule 13(d)-3 of the Exchange
Act, any Leslie's common stock that was not outstanding June 11, 1997
which is subject to Warrants or options exercisable within 60 days is
deemed to be outstanding for the purpose of computing the percentage of
outstanding shares of Leslie's common stock owned by the person holding
such Warrant or option, but is not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares of Leslie's
common stock owned by any other person.
(3) GEI is a Delaware limited partnership managed by LGP, which is an
affiliate of the general partner of GEI. Each of Leonard I. Green,
Jonathan D. Sokoloff, Peter J. Nolan, Mr. Annick and Mr. Danhakl and
Jennifer Holden Dunbar, either directly (whether through ownership
interest or position) or through one or more intermediaries, may be
deemed to control LGP and such general partner. LGP and such general
partner may be deemed to control the voting and disposition of the shares
of Leslie's common stock owned by GEI. Accordingly, for certain purposes,
Messrs. Green, Sokoloff, Nolan, Annick and Danhakl and Ms. Holden Dunbar
may be deemed to be beneficial owners of the shares of Leslie's common
stock held by GEI.
(4) Includes the shares beneficially owned by GEI, of which Messrs. Annick
and Danhakl are associates.
(5) Member of the HPA Group, which in the aggregate with management will own
34.9% of the fully diluted shares of Leslie's common stock.
(6) Includes 4,976 shares subject to options exercisable within 60 days after
June 11, 1997 and 160,539 Continuing Shares of Leslie's common stock.
(7) All such shares are Continuing Shares of Leslie's common stock.
47
<PAGE>
(8) Includes 52,761 shares subject to options exercisable within 60 days
after June 11, 1997 and 16,966 shares of Leslie's common stock purchased
on June 11, 1997 (the "Subscription Stock").
(9) Includes 7,000 shares subject to options exercisable within 60 days after
consummation of the Transactions and 2,000 shares of Subscription Stock.
(10) All such shares are obtainable upon the exercise of the Warrants. See
"Description of Financing Transactions--Preferred Stock Financing."
48
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT PARTICIPATION IN THE MERGER
Common Stock. The executive officers and directors of Leslie's California
received a total of approximately $14.0 million for their sale of common stock
owned by them, representing the merger consideration of $14.50 per share
payable to Leslie's public stockholders. Certain executive officers and
directors retained shares of the Company. See "Security Ownership of Certain
Beneficial Owners and Management."
Subscription Stock. As described above, on June 11, 1997 Mr. Robert D. Olsen
purchased 16,966 shares of Leslie's common stock at a price of $14.50 per
share and Cynthia G. Watts purchased 2,000 shares of Subscription Stock at the
same per share price. The shares of Subscription Stock are subject to the same
Call Option as described above for the NQ Option Shares.
Treatment of Stock Options. Certain of the directors and executive officers
of Leslie's California held options to purchase Leslie's California common
stock that were terminated upon the effectiveness of the Merger and, as to a
portion of which, such persons received cash in the aggregate amount of
approximately $3.4 million pursuant to the terms of the Merger Agreement.
Prior to the effective date of the Merger, Leslie's California agreed,
pursuant to the terms of the Merger Agreement, to take all necessary action to
cancel all outstanding options to purchase Leslie's California common stock,
whether or not exercisable. Upon the surrender and cancellation of each such
option, unless another arrangement was made with the holder (see "Management--
NQ Option Plan and ISO Option Plan") each holder thereof was entitled to
receive an amount in cash equal to the product of (i) the excess of $14.50
over the exercise price per share of Leslie's common stock purchasable
pursuant to such option after the same has been converted into an option to
purchase Leslie's common stock upon the effectiveness of the merger of
Leslie's with and into Leslie's and (ii) the number of shares of Leslie's
common stock subject to such option at the time of such termination. As of
April 22, 1997, there were options outstanding to purchase an aggregate of
974,759 shares of Leslie's California common stock at a weighted average
exercise price of $8.66 per share, which options were held by 71 persons.
MANAGEMENT AGREEMENT
Pursuant to the terms of a Management Agreement entered into between LGP and
Leslie's, (i) upon consummation of the Transactions, Leslie's paid LGP a
transaction fee in the amount of $1.4 million, one-half of which was paid to
HPA for distribution among the HPA Group, including to Michael Fourticq, Brian
McDermott and Robert Olsen, and (ii) Leslie's agreed to pay LGP an annual
management fee equal to 1.6% of the total sum invested by GEI in Leslie's.
OCCIDENTAL SUPPLY AGREEMENT
Prior to Occidental's exchange of the 8% Convertible Subordinated Debentures
of Leslie's California for preferred stock and warrants, a wholly owned
subsidiary of Occidental was and continues to be a party to a supply agreement
with Leslie's California under which that subsidiary supplies all of Leslie's
California's requirements for certain chemical chlorine compounds. It is
expected that Leslie's and this subsidiary will extend this supply agreement
upon terms and conditions that will be mutually satisfactory.
INDEMNIFICATION AND INSURANCE
The Merger Agreement requires that Leslie's California and Leslie's, as the
surviving corporation in the Merger, provide indemnification to the current
and prior directors and officers of Leslie's California and Leslie's against
costs, expenses, suits, claims and proceedings arising out of or pertaining
to, or the approval and consummation of the transactions contemplated by, the
Merger Agreement and certain related agreements. In addition, Leslie's is
obligated for a period of at least eighteen months from the effective date of
the Merger to continue in effect (or provide insurance coverage that, subject
to Leslie's ability to obtain higher levels of
49
<PAGE>
deductibles, is comparable to) the directors and officers liability insurance
that is currently in place with respect to claims arising from facts or events
which occurred at or before the effective date of the Merger, provided that
Leslie's is not obligated to expend annually more than 150% of the current
cost of such coverage.
STOCKHOLDERS AGREEMENT
Leslie's, GEI, the HPA Group, Brian P. McDermott and Manette J. McDermott,
as Co-Trustees of the McDermott Family Trust, and Occidental (collectively,
"Class I Stockholders") and the holders of the Subscription Stock, NQ Options
and ISO Options (collectively, "Class II Stockholders," and, together with the
Class I Stockholders, the "Stockholders") are parties to a stockholders
agreement and subscription agreement (the "Stockholders Agreement"). The
Stockholders Agreement provides for the subscription of approximately 19,000
shares of Leslie's common stock at $14.50 per share by certain of the Class II
Stockholders and gives the Company (and in some instances certain of the Class
I Stockholders) the right to repurchase a portion of the unexercised NQ
Options, of the NQ Shares and of the Subscription Stock held by a Class II
Stockholder upon such Class II Stockholder ceasing to provide services to the
Company. The Stockholders Agreement generally restricts the transferability of
securities of the Company ("Securities") held by certain of the Stockholders
and establishes a right of first refusal, in the event certain Stockholders
seek to transfer any of their Securities to a third party pursuant to a bona
fide offer, in favor of the Class I Stockholders. In addition, GEI has certain
"drag-along" rights and if GEI desires to sell any Securities, other
Stockholders have certain "tag-along" rights to participate in such sale. The
Stockholders Agreement also grants demand registration rights as to each group
of Class I Stockholders (with each of GEI, Occidental and all other Class I
Stockholders representing a separate group) and piggyback registration rights
for all Stockholders. In the Stockholders Agreement, Michael Fourticq and Mr.
McDermott are given certain rights to be elected as directors of the Company.
50
<PAGE>
DESCRIPTION OF FINANCING TRANSACTIONS
GENERAL
Financing for the Merger and the working capital needs of the Company after
the Merger was provided by a combination of debt and equity (collectively, the
"Financing Transactions") as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Continuing Shares............................................ $ 5,213
Issuance of Common Stock to GEI.............................. 15,300
Issuance of Subscription Stock to Management of Leslie's..... 275
Issuance of Preferred Stock and Warrants to Occidental....... 28,000
Sale of Notes................................................ 90,000
Bank Facility................................................ 6,278
--------
Total...................................................... $145,066
========
</TABLE>
GEI EQUITY INVESTMENT
Immediately prior to the consummation of the Merger, GEI contributed $15.3
million in cash to Poolmart in exchange for 1,055,172 shares of Poolmart
common stock. As a result of the Merger, Leslie's received the $15.3 million,
and GEI received 1,055,172 shares of Leslie's common stock in exchange for its
Poolmart common stock which was automatically converted into Leslie's common
stock by virtue of the Merger.
SUBSCRIPTION STOCK
As described above under "Certain Relationships and Related Transactions--
Stockholders Agreement," immediately after the Merger, certain members of the
management of Leslie's California purchased approximately 19,000 shares of
Leslie's common stock for cash consideration in the aggregate amount of
$0.3 million.
PREFERRED STOCK FINANCING
Occidental agreed, pursuant to the Preferred Stock and Warrant Purchase
Agreement entered into on June 11, 1997, to purchase 28,000 shares of Series A
Preferred Stock of the Company, par value $0.001 per share, at $1,000 per
share for a total consideration of $28.0 million, consisting of cash and an
exchange of the $10.0 million principal amount of Convertible Subordinated
Debentures of Leslie's California then held by Occidental. In connection with
this transaction, Occidental received Warrants to purchase up to 15.0% of the
shares of Leslie's common stock at a purchase price of $0.01 per share
(subject to adjustment) for a period of ten years.
The Preferred Stock is entitled to an annual cumulative dividend (which will
be payable at the option of the Company either in cash or in additional shares
of Preferred Stock for the first five years) equal to 10 7/8%. The annual
dividend is payable quarterly at the annual rate divided by four. Dividends
that become due but are not paid after the quarterly dividend payment date
will bear interest at the annual dividend rate plus 5.0%.
The Preferred Stock has a preference and priority in liquidation over the
Leslie's common stock equal to $1,000 per share plus accumulated and unpaid
dividends. The Preferred Stock may be redeemed at the option of the Company at
any time at $1,010 per share plus accumulated and unpaid dividends. The
Company is required to redeem the Preferred Stock in three equal installments
terminating on the tenth anniversary of the date of issuance of the Preferred
Shares.
At the option of the Company, all, but not less than all, of the Preferred
Stock is exchangeable into subordinated debt of the Company due on the tenth
anniversary of the date of issuance of the Preferred Stock having the same
interest rate as the dividend rate on the Preferred Stock. Interest on such
subordinated debt will be payable in cash. The subordinated debt will contain
customary subordination provisions, subject to the approval of Occidental and
the lenders under the Bank Facility.
51
<PAGE>
The holder of the Preferred Stock is initially entitled to elect 20% of the
members of the Board of Directors of the Company. However, if the Company
fails to meet the Coverage Test described below for four continuous quarters,
the holder of the Preferred Stock will have the right to elect 40% of the
Board of Directors of the Company. If the Coverage Test is not met for eight
consecutive quarters or if the Company fails to pay four consecutive quarterly
dividends on the Preferred Stock, the holder of the Preferred Stock will have
the right to elect a majority of the Board of Directors of the Company. If the
Company either fails to satisfy the mandatory redemption requirement or
becomes subject to an event of insolvency, the holder of the Preferred Stock
will be entitled to elect the entire Board of Directors. The "Coverage Test"
requires that the sum of the Company's cumulative earnings before interest,
taxes, depreciation and amortization be greater than its fixed charges for
each four and eight fiscal quarterly period. The Company may cure any failure
to meet the Coverage Test, pay four consecutive quarterly dividends or satisfy
the mandatory redemption requirement by issuing capital stock for
consideration equal to the shortfall. The Company is also be subject to a
number of negative covenants including those prohibiting certain transactions
without the approval of the holder of the Preferred Stock. The right under
certain circumstances of the holder of the Preferred Stock to elect more than
20% of the Board of Directors will terminate when Occidental ceases to own 50%
or more of the outstanding shares of the Preferred Stock.
The Warrants provide for a proportionate adjustment of the warrant price,
and the number of shares of Leslie's common stock subject thereto, for stock
splits and stock dividends and for additional warrant shares to be issuable in
the event any of the NQ Options or ISO Options are exercised. Additionally,
Occidental is a party to the Stockholders Agreement and has the rights and is
subject to the obligations and restrictions described therein.
BANK FACILITY
The Bank Facility has the following features: (i) maximum availability of
$35.0 million subject to requirements that the level of outstanding borrowing
be limited to specified levels of inventories and accounts receivable, (ii)
five-year term, (iii) collateralized by inventories, accounts receivable,
equipment and other assets, (iv) interest at alternative fluctuating rates, as
selected by the Company, of either a prime rate or LIBOR rate, in each case
plus an applicable margin, (v) required payment of various commitment and
other fees, and (vi) customary financial and other credit document covenants
including restrictions on the payment of dividends, stock repurchases,
additional debt (except for the Notes), guaranties, liens and loans.
52
<PAGE>
DESCRIPTION OF NOTES
The New Notes will be issued under an indenture (the "Indenture"), to be
dated as of June 11, 1997 by and among the Company and U.S. Trust Company of
California, N.A., as trustee (the "Trustee"). The Old Notes were also issued
pursuant to the Indenture. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the Trust Indenture Act of 1939, as amended
(the "TIA"), and to all of the provisions of the Indenture, including the
definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA as in effect on the date of the Indenture.
The Indenture is filed as an exhibit to the Registration Statement of which
this Prospectus is a part. The definitions of certain capitalized terms used
in the following summary are set forth below under "Certain Definitions." For
purposes of this section, references to the "Company" include only Leslie's
and not its Subsidiaries.
The Notes are senior unsecured obligations of the Company, ranking pari
passu in right of payment with all other senior unsecured obligations of the
Company.
The New Notes as issued will be in book-entry form and represented by a
single global certificate which will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in the name of Cede & Co., as
nominee of DTC. A beneficial owner may request physical delivery of Notes in
certificated form.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes.
The Company may change any Paying Agent and Registrar without notice to
holders of the Notes (the "Holders"). The Company will pay principal (and
premium (as defined), if any) on the Notes at the Trustee's corporate office
in New York, New York. At the Company's option, when due, interest may be paid
at the Trustee's corporate trust office or by check mailed to the registered
addresses of Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $115.0 million, of
which $90.0 million will be issued in the Exchange Offer, and will mature on
July 15, 2004. Additional amounts may be issued in one or more series from
time to time, subject to the limitations set forth under "--Certain
Covenants--Limitation on Incurrence of Additional Indebtedness." Interest on
the Notes will accrue at the rate of 10 3/8% per annum and will be payable
semi-annually in arrears on each January 15 and July 15 commencing on January
15, 1998, to the persons who are registered Holders at the close of business
on the December 31 and June 30, respectively, immediately preceding the
applicable interest payment date. Interest on the Notes will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from and including the date of issuance. The Notes will not be entitled
to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after July 15, 2001,
upon not less than 30 nor more than 60 days' notice, at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on July 15 of the year
set forth below, plus, in each case, accrued interest to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................................... 105.188%
2002.......................................... 102.594%
2003.......................................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to July 15, 2000, the Company may, at its option, use the
net cash proceeds of one or more Public Equity Offerings (as defined below) to
redeem up to $25.0 million of aggregate principal amount of the Notes at a
redemption price equal to 110.375% of the principal amount thereof, plus
accrued interest to the date of redemption; provided that after giving effect
to any such redemption at least $65.0 million of aggregate principal amount of
the
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Notes remains outstanding. In order to effect the foregoing redemption with
the proceeds of any Public Equity Offering, the Company shall make such
redemption not more than 60 days after the consummation of any such Public
Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act, or any successor statute.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time,
selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities
exchange, if any, on which such Notes are listed or, if such Notes are not
then listed on a national securities exchange, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided,
however, that no Notes of a principal amount of $1,000 or less shall be
redeemed in part; and provided, further, that if a partial redemption is made
with the proceeds of a Public Equity Offering, selection of the Notes or
portions thereof for redemption shall be made by the Trustee only on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder of Notes to be redeemed at its
registered address. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase. Within 30 days
following the date upon which the Change of Control occurred, the Company must
send, by first-class mail, a notice to each Holder, with a copy to the
Trustee, which notice shall govern the terms of the Change of Control Offer.
Such notice shall state, among other things, the purchase date, which must be
no earlier than 30 days nor later than 60 days from the date such notice is
mailed, other than as may be required by law (the "Change of Control Payment
Date"). Holders electing to have a Note purchased pursuant to a Change of
Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment
Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. In the event the Company is required to
purchase outstanding Notes pursuant to a Change of Control Offer, the Company
expects that it would seek third-party financing to the extent it does not
have available funds to meet its purchase obligations. However, there can be
no assurance that the Company would be able to obtain such financing. Neither
the Board of Directors of the Company nor the Trustee may waive the covenant
relating to the Company's obligation to make a Change of Control Offer.
Restrictions in the Indenture described herein on the ability of the Company
and its Subsidiaries to incur additional Indebtedness, to grant Liens on its
property, to make Restricted Payments and to make Asset Sales may also make
more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes,
and there can be no assurance that the Company or the acquiring party
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<PAGE>
will have sufficient financial resources to effect such redemption or
repurchase. Such restrictions and the restrictions on transactions with
Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Subsidiaries. While such
restrictions cover a wide variety of arrangements which have traditionally
been used to effect highly leveraged transactions, the Indenture may not
afford the Holders of Notes protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, become liable, contingently or otherwise,
with respect to, or otherwise become responsible for payment of (collectively,
"incur"), any Indebtedness (including Acquired Indebtedness but excluding
Permitted Indebtedness); provided, however, that if no Default or Event of
Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness (including, without limitation, Acquired Indebtedness) if on the
date of the incurrence of such Indebtedness, after giving effect to the
incurrence thereof, the Consolidated Fixed Charge Coverage Ratio of the
Company is greater than 2.0 to 1.0.
Indebtedness of a Person which is secured by a Lien on an asset acquired by
the Company or a Subsidiary of the Company (whether or not such Indebtedness
is assumed by the acquiring Person) shall be deemed incurred at the time of
the Asset Acquisition.
The Company will not incur any Indebtedness which by its terms (or by the
terms of any agreement governing such Indebtedness) is subordinated in right
of payment to any other Indebtedness of the Company unless such Indebtedness
is also by its terms (or by the terms of any agreement governing such
Indebtedness) made expressly subordinate in right of payment to the Notes,
pursuant to subordination provisions that are substantively identical to the
subordination provisions of such Indebtedness (or such agreement) that are
most favorable to the holders of any other Indebtedness of the Company.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Subsidiaries to, directly or indirectly, (a) declare or
pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay, decrease or otherwise acquire
or retire for value, prior to any scheduled final maturity, scheduled
repayment or scheduled sinking fund payment, any Indebtedness of the Company
that is subordinate or junior in right of payment to the Notes or (d) make any
Investment (other than Permitted Investments) (each of the foregoing actions
set forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted
Payment"), if at the time of such Restricted Payment or immediately after
giving effect thereto, (i) a Default or an Event of Default shall have
occurred and be continuing or (ii) the Company is not able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness) in
compliance with the covenant described under "--Limitation on Incurrence of
Additional Indebtedness" or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in
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<PAGE>
cash, being the fair market value of such property as determined reasonably
and in good faith by the Board of Directors of the Company) shall exceed the
sum of: (w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss) of the
Company reported for any period subsequent to March 29, 1997 and on or prior
to the date the Restricted Payment occurs (the "Reference Date") (treating
such period as a single accounting period); plus (x) 100% of the aggregate net
cash proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to the Issue Date and on
or prior to the Reference Date of Qualified Capital Stock of the Company; plus
(y) without duplication of any amounts included in clause (iii)(x) above, 100%
of the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock; plus (z) without
duplication, the sum of (1) the aggregate amount returned in cash on or with
respect to Investments (other than Permitted Investments) made subsequent to
the Issue Date whether through interest payments, principal payments,
dividends or other distributions or payments and (2) the Net Cash Proceeds
received by the Company or any Subsidiary from the disposition of all or any
portion of such Investments (other than to a Subsidiary of the Company).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend within 60
days after the date of declaration of such dividend if the dividend would have
been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the application of net
proceeds of a substantially concurrent sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Notes either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no
Default or Event of Default shall have occurred and be continuing, repurchases
by the Company of Common Stock of the Company or options, warrants or other
securities exercisable or convertible into Common Stock of the Company from
employees and directors of the Company or any of its Subsidiaries or their
authorized representatives upon the death, disability or termination of
employment or directorship of such employees or directors, in an aggregate
amount not to exceed $500,000 in any calendar year and $2.0 million in the
aggregate (in each case plus the amount of net cash proceeds received by the
Company from the sale of Qualified Capital Stock to officers or directors of
the Company and its Subsidiaries, provided, that such amounts did not provide
the basis for any other Restricted Payment); and (5) so long as no Default or
Event of Default shall have occurred and be continuing, the payment of
dividends on the shares of Series A Preferred Stock issued on the Issue Date
and on any additional shares of such stock issued in lieu of cash dividends
thereon with (x) the net proceeds of a sale for cash (other than to a
Subsidiary of the Company) of shares of Qualified Capital Stock of the Company
or (y) the net cash proceeds of any capital contribution to the Company to the
extent such amounts in clauses (x) and (y) did not provide the basis for any
other Restricted Payment. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses
(2)(ii), 3(ii)(A), (4) and (5) shall be included in such calculation.
Any Investment in a direct or indirect Wholly Owned Subsidiary of the
Company that becomes, directly or indirectly, a non-Wholly Owned Subsidiary of
the Company (unless the Company or a Subsidiary retains no equity interest in
such non-Wholly Owned Subsidiary) shall become a Restricted Payment on such
date in an amount equal to (A) 1.0 minus the Company's percentage interest in
such non-Wholly Owned Subsidiary times, (B) the amount of all Investments (net
of any returns previously paid on such Investment) made in such non-Wholly
Owned Subsidiary to such date, not to exceed the greater of (x) the book value
of such Subsidiary on such date and (y) the fair market value of such
Subsidiary on such date as determined (1) in good faith by the Board of
Directors of the Company if such fair market value is determined to be less
than $5.0 million and (2) by an investment banking firm of national standing
if such fair market value is determined to be in excess of $5.0 million.
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<PAGE>
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Subsidiary, as the case may be, receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets sold
or otherwise disposed of (as determined in good faith by the Company's Board
of Directors), (ii) at least 75% of the consideration received for the assets
sold by the Company or the Subsidiary, as the case may be, from such Asset
Sale shall be in the form of cash or Cash Equivalents and is received at the
time of such disposition; provided, however, that (A) notes received by the
Company as consideration for an Asset Sale that are converted into cash or
Cash Equivalents immediately following the consummation of such Asset Sale or
(B) the assumption by the purchaser of assets pursuant to an Asset Sale of
liabilities of the Company (other than liabilities that are by their terms
subordinate to the Notes) shall, in each case of the immediately preceding
clauses (A) and (B), be deemed to be cash or Cash Equivalents at the time of
such Asset Sale in an amount equal to, in the case of clause (A), the amount
of cash or Cash Equivalents realized on such conversion and, in the case of
clause (B), the amount of the liabilities so assumed, as reflected on the
balance sheet of the Company, and (iii) following the consummation of an Asset
Sale, the Company shall or cause such Subsidiary, within 365 days of receipt
thereof either (A) to apply the Net Cash Proceeds related to such Asset Sale
to prepay any Indebtedness that by its terms is not subordinate to the Notes,
(B) to make a Permitted Investment or an investment in properties and assets
that replace the properties and assets that were the subject of such Asset
Sale or in properties and assets that will be used in a Related Business
(collectively, "Replacement Assets") or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the
365th day after an Asset Sale, or such earlier date, if any, as the Board of
Directors of the Company or of such Subsidiary determines not to apply the Net
Cash Proceeds relating to such Asset Sale as set forth in clauses (iii)(A),
(iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net Proceeds
Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which have
not been applied on or before the applicable Net Proceeds Offer Trigger Date
as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (or, in the case of a Net Proceeds Offer Trigger Date (as defined
below) occurring prior to such 365th day, the aggregate amount of Net Cash
Proceeds that the Board of Directors has determined not to so apply) (each a
"Net Proceeds Offer Amount") shall be applied by the Company or such
Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on a date
(the "Net Proceeds Offer Payment Date") not less than 30 nor more than 45 days
following the applicable Net Proceeds Offer Trigger Date, from all Holders on
a pro rata basis (and on a pro rata basis with the holders of indebtedness of
the Company that is not by its terms subordinate to the Notes), that amount of
Notes equal to the Net Proceeds Offer Amount at a price equal to 100% of the
principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if
at any time any non-cash consideration received by the Company or any
Subsidiary of the Company, as the case may be, in connection with any Asset
Sale is converted into or sold or otherwise disposed of for cash (other than
interest received with respect to any such non-cash consideration), then such
conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance
with this covenant. The Company may defer the Net Proceeds Offer until there
is an aggregate unutilized Net Proceeds Offer Amount equal to or in excess of
$5.0 million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of
$5.0 million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," the successor corporation shall be deemed to have sold the properties
and assets of the Company and its Subsidiaries not so transferred for purposes
of this covenant, and shall comply with the provisions of this covenant with
respect to such deemed sale as if it were an Asset Sale. In addition, the fair
market value of such properties and assets of the Company or its Subsidiaries
deemed to be sold shall be deemed to be Net Cash Proceeds for purposes of this
covenant.
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Notwithstanding the two immediately preceding paragraphs, the Company and
its Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
constituting Replacement Assets received by the Company or any of its
Subsidiaries in connection with any Asset Sale permitted to be consummated
under this paragraph shall constitute Net Cash Proceeds subject to the
provisions of the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer Amount, Notes of
tendering Holders will be purchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 business
days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
Upon completion of a Net Proceeds Offer, the amount of Net Cash Proceeds
will be reset at zero. Accordingly, to the extent that the aggregate amount of
Notes tendered pursuant to a Net Proceeds Offer is less than the Net Cash
Proceeds, the Company may use any remaining Net Cash Proceeds for general
corporate purposes.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit
to exist or become effective any encumbrance or restriction on the ability of
any Subsidiary of the Company to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Subsidiary of the Company; or (c) transfer any of its property or
assets to the Company or any other Subsidiary of the Company, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable
law; (2) the Indenture; (3) any Credit Agreement; (4) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Subsidiary of the Company, or any customary restriction on the ability of a
Subsidiary of the Company to dividend, distribute or otherwise transfer any
asset which secures Purchase Money Indebtedness of such Subsidiary; (5) any
instrument governing Acquired Indebtedness, which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person or the properties or assets of the Person so acquired;
(6) agreements existing on the Issue Date to the extent and in the manner such
agreements are in effect on the Issue Date; or (7) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2), (3), (5) or
(6) above; provided, however, that the provisions relating to such encumbrance
or restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in their reasonable and good faith judgment than the provisions
relating to such encumbrance or restriction contained in agreements referred
to in such clause (2), (3), (5) or (6).
Limitation on Preferred Stock of Subsidiaries. The Company will not permit
any of its Subsidiaries to issue any Preferred Stock (other than to the
Company or to a Wholly Owned Subsidiary of the Company) or permit any Person
(other than the Company or a Wholly Owned Subsidiary of the Company) to own
any Preferred Stock of any Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens of any kind against or upon any property
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or assets of the Company or any of its Subsidiaries whether owned on the Issue
Date or acquired after the Issue Date, or any proceeds therefrom, or assign or
otherwise convey any right to receive income or profits therefrom unless (i)
in the case of Liens securing Indebtedness that is expressly subordinate or
junior in right of payment to the Notes, the Notes are secured by a Lien on
such property, assets or proceeds that is senior in priority to such Liens and
(ii) in all other cases, the Notes are equally and ratably secured, except for
(A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens of the Company or a Wholly
Owned Subsidiary of the Company on assets of any Subsidiary of the Company;
(C) Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the
Indenture; provided, however, that such Liens (X) are no less favorable to the
Holders and are not more favorable to the lienholders with respect to such
Liens than the Liens in respect of the Indebtedness being Refinanced and (Y)
do not extend to or cover any property or assets of the Company or any of its
Subsidiaries not securing the Indebtedness so Refinanced; and (D) Permitted
Liens.
Merger, Consolidation and Sale of Assets. Except for the Transaction
Mergers, the Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into any Person, or sell, assign,
transfer, lease, convey or otherwise dispose of (or cause or permit any
Subsidiary of the Company to sell, assign, transfer, lease, convey or
otherwise dispose of) all or substantially all of the Company's assets
(determined on a consolidated basis for the Company and the Company's
Subsidiaries) whether as an entirety or substantially as an entirety to any
Person unless: (i) either (1) the Company shall be the surviving or continuing
corporation or (2) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, transfer, lease, conveyance or other disposition the
properties and assets of the Company and of the Company's Subsidiaries
substantially as an entirety (the "Surviving Entity") (x) shall be a
corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly
assume, by supplemental indenture (in form and substance satisfactory to the
Trustee), executed and delivered to the Trustee, the due and punctual payment
of the principal of, and premium, if any, and interest on all of the Notes and
the performance of every covenant of the Notes and the Indenture on the part
of the Company to be performed or observed; (ii) immediately after giving
effect to such transaction and the assumption contemplated by clause (i)(2)(y)
above (including giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred in connection with or in respect of
such transaction), the Company or such Surviving Entity, as the case may be,
(1) shall have a Consolidated Net Worth equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (2) shall be able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described under
"--Limitation on Incurrence of Additional Indebtedness"; (iii) immediately
before and immediately after giving effect to such transaction and the
assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness
incurred or anticipated to be incurred and any Lien granted in connection with
or in respect of the transaction), no Default or Event of Default shall have
occurred or be continuing; and (iv) the Company or the Surviving Entity shall
have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, if a supplemental
indenture is required in connection with such transaction, such supplemental
indenture, comply with the applicable provisions of the Indenture and that all
conditions precedent in the Indenture relating to such transaction have been
satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Subsidiaries of
the Company the Capital Stock of which constitutes all or substantially all of
the properties and assets of the Company, shall be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, in which the Company is not the continuing
corporation, the successor Person formed by such consolidation or into which
the Company is merged
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or to which such conveyance, lease or transfer is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company
under the Indenture and the Notes with the same effect as if such surviving
entity had been named as such.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, enter into
or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate
Transactions on terms that are no less favorable than those that might
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or
such Subsidiary. All Affiliate Transactions (and each series of related
Affiliate Transactions which are similar or part of a common plan) involving
aggregate payments or other property with a fair market value in excess of
$1.0 million shall be approved by the Board of Directors of the Company or
such Subsidiary, as the case may be, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Subsidiary of the Company enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $5.0 million, the Company or such
Subsidiary, as the case may be, shall, prior to the consummation thereof,
obtain a favorable opinion as to the fairness of such transaction or series of
related transactions to the Company or the relevant Subsidiary, as the case
may be, from a financial point of view, from an Independent Financial Advisor
and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Subsidiary
of the Company as determined in good faith by the Company's Board of Directors
or senior management; (ii) transactions exclusively between or among the
Company and any of its Subsidiaries or exclusively between or among such
Subsidiaries; provided such transactions are not otherwise prohibited by the
Indenture; (iii) payments to be made in connection with the consummation of
the Recapitalization or the financing thereof to be received by Leonard Green
& Partners, L.P. and its Affiliates; (iv) payments of annual fees and
reimbursement of reasonable expenses in accordance with the provisions of the
Management Services Agreement; (v) any employment agreement entered into in
the ordinary course of business, (vi) Restricted Payments permitted by the
Indenture and Permitted Investments, (vii) payments made in accordance with
the Occidental Supply Agreement or any other such agreement with Occidental
entered into on terms no less favorable to the Company than those that may
have been obtained in an arm's length transaction and (viii) loans or advances
to officers or employees of the Company in the ordinary course of business not
to exceed $500,000 the aggregate at any one time outstanding.
Conduct of Business. The Company and its Subsidiaries will not engage in any
businesses other than a Related Business.
Reports to Holders. The Indenture provides that the Company will deliver to
the Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents
and other reports, if any, which the Company is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture
further provides that, notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will file with the Commission, to the extent
permitted, and provide the Trustee and Holders with such annual reports and
such information, documents and other reports specified in Sections 13 and
15(d) of the Exchange Act. The Company will also comply with the other
provisions of TIA (S) 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days;
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(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including the failure to make a required payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the Notes
(except in the case of a default with respect to the covenant described
under "--Certain Covenants--Merger, Consolidation and Sale of Assets,"
which will constitute an Event of Default with such notice requirement but
without such passage of time requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Subsidiary of the Company, or the
acceleration of the final stated maturity of any such Indebtedness, in any
case if the aggregate principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness in default for failure
to pay principal at final maturity or which has been accelerated,
aggregates $5.0 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5.0
million shall have been rendered against the Company or any of its
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and non-
appealable; or
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding Notes may declare the principal
of and accrued interest on all the Notes to be due and payable by notice in
writing to the Company and the Trustee specifying the respective Event of
Default and that it is a "notice of acceleration" (the "Acceleration Notice"),
and the same shall become immediately due and payable. If an Event of Default
specified in clause (vi) above occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of
the outstanding Notes shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest that has become due
solely because of the acceleration, (iii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its reasonable
expenses, disbursements and advances and (v) in the event of the cure or
waiver of an Event of Default of the type described in clause (vi) of the
description above of Events of Default, the Trustee shall have received an
officers' certificate and an opinion of counsel that such Event of Default has
been cured or waived. No such rescission shall affect any subsequent Default
or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the principal of or interest
on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all
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provisions of the Indenture and applicable law, the Holders of a majority in
aggregate principal amount of the then outstanding Notes have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for (i) the rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest on the Notes when
such payments are due, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payments, (iii) the rights, powers, trust, duties and immunities of the
Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "--Events of Default" will no longer constitute an
Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium and Additional Interest, if any, and interest on
the Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that (A) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of the Indenture, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
Holders will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation
of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of
defeating, hindering, delaying or defrauding any other creditors of the
Company or others; (vii) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with;
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(viii) the Company shall have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; and (ix)
certain other customary conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium and Additional Interest, if any, and interest on the Notes to the date
of deposit together with irrevocable instructions from the Company directing
the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate stating that all conditions
precedent under the Indenture relating to the satisfaction and discharge of
the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does
not, in the opinion of the Trustee, adversely affect the rights of any of the
Holders in any material respect. In formulating its opinion on such matters,
the Trustee will be entitled to rely on such evidence as it deems appropriate,
including, without limitation, solely on an opinion of counsel. Other
modifications and amendments of the Indenture may be made with the consent of
the Holders of a majority in principal amount of the then outstanding Notes
issued under the Indenture, except that, without the consent of each Holder
affected thereby, no amendment may: (i) reduce the amount of Notes whose
Holders must consent to an amendment; (ii) reduce the rate of or change or
have the effect of changing the time for payment of interest, including
defaulted interest, on any Notes; (iii) reduce the principal of or change or
have the effect of changing the fixed maturity of any Notes, or change the
date on which any Notes may be subject to redemption or repurchase, or reduce
the redemption or repurchase price therefor; (iv) make any Notes payable in
money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Change of Control Offer in the event of a Change of Control
or make and consummate a Net Proceeds Offer with respect to any Asset Sale
that has been consummated or modify any of the provisions or definitions with
respect thereto or (vii) modify or change any provision of the Indenture or
the related definitions affecting the ranking of the Notes in a manner which
adversely affects the Holders.
GOVERNING LAW
The Indenture provides that the Indenture and the Notes will be governed by,
and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of
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Default, the Trustee will exercise such rights and powers vested in it by the
Indenture, and use the same degree of care and skill in its exercise as a
prudent man would exercise or use under the circumstances in the conduct of
his own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or is assumed in connection with the acquisition of assets
from such Person and in each case not incurred in connection with, or in
anticipation or contemplation of, such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any Subsidiary
of the Company in any other Person pursuant to which such Person shall become
a Subsidiary of the Company, or shall be merged with or into the Company or
any Subsidiary of the Company, or (b) the acquisition by the Company or any
Subsidiary of the Company of the assets of any Person (other than a Subsidiary
of the Company) which constitute all or substantially all of the assets of
such Person or comprises any division or line of business of such Person or
any other properties or assets of such Person other than in the ordinary
course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of its Subsidiaries (including any Sale and Leaseback Transaction) to any
Person other than the Company or a Subsidiary of the Company (including a
Person that is or will become a Subsidiary of the Company immediately after
such sale, issuance, conveyance, transfer, lease, assignment or other transfer
for value) of (a) any Capital Stock of any Subsidiary of the Company; or (b)
any other property or assets of the Company or any Subsidiary of the Company
other than in the ordinary course of business; provided, however, that Asset
Sales shall not include (i) a transaction or series of related transactions
for which the Company or its Subsidiaries receive aggregate consideration of
less than $500,000 and (ii) the sale, lease, conveyance, disposition or other
transfer of all or substantially all of the assets of the Company as permitted
under "--Certain Covenants--Merger, Consolidation and Sale of Assets."
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
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"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
or ownership interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than $250.0
million; (v) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any bank meeting the qualifications specified in clause (iv) above;
and (vi) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person or group of related Persons (other than to a
Permitted Holder) for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; (iv) the replacement of a majority of the Board
of Directors of the Company (other than in accordance with the terms of the
Series A Preferred Stock so long as Occidental owns greater than 50% of the
then outstanding shares of the Series A Preferred Stock) over a two-year
period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of
the Company then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a member of
such Board of Directors was previously so approved; or (v) the Company
consolidates with, or merges with or into, another Person, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all
of its assets to any Person, or any Person consolidates with, or merges with
or into, the Company, in any such event pursuant to a transaction in which the
shares representing the aggregate ordinary voting power represented by the
issued and outstanding Capital Stock of the Company is converted into or
exchanged for cash, securities or other property, other than (A) any such
transaction where (1) the shares representing the issued and outstanding
ordinary voting Capital Stock of the Company are converted into or exchanged
for (I) ordinary voting Capital Stock (other than Disqualified Capital Stock)
of the surviving or transferee corporation and/or (II) cash, securities and
other property in an amount which could be paid by the Company as a Restricted
Payment under the Indenture and (2) the "beneficial owners" of the shares
representing the issued and outstanding ordinary voting Capital Stock of the
Company immediately prior to such transaction own, directly or indirectly,
shares of Capital Stock representing not less than a majority of voting power
of all issued and outstanding shares of Capital Stock of the
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surviving or transferee corporation immediately after such transaction or (B)
any such transaction as a result of which the Permitted Holders own shares of
Capital Stock representing more than 50% of the voting power of all issued and
outstanding shares of Capital Stock of the surviving or transferee corporation
immediately after such transaction.
"Change of Control Offer" has the meaning set forth under "--Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "--Change
of Control."
"Commission" means the Securities and Exchange Commission, or any successor
agency thereto with respect to the regulation or registration of securities.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on
the Issue Date or issued after the Issue Date, and includes, without
limitation, all series and classes of such common stock.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (i) Consolidated Net Income and (ii) to the
extent Consolidated Net Income has been reduced thereby, (A) all income taxes
of such Person and its Subsidiaries paid or accrued in accordance with GAAP
for such period, (B) Consolidated Interest Expense and (C) Consolidated Non-
cash Charges less any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed Charges
of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving
effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and
(ii) any Asset Sales or Asset Acquisitions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of such Person or one of its Subsidiaries (including any Person who becomes a
Subsidiary as a result of the Asset Acquisition) incurring, assuming or
otherwise being liable for Acquired Indebtedness and including, without
limitation, by giving pro forma effect to any Consolidated EBITDA (provided
that such pro forma Consolidated EBITDA shall be calculated in a manner
consistent with the exclusions in the definition of "Consolidated Net Income")
attributable to the assets which are the subject of the Asset Acquisition or
Asset Sale during the Four Quarter Period) occurring during the Four Quarter
Period or at any time subsequent to the last day of the Four Quarter Period
and on or prior to the Transaction Date, as if such Asset Sale or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period.
If such Person or any of its Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect to
the incurrence of such guaranteed Indebtedness as if such Person or any
Subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed
Charges" for purposes of determining the denominator (but not the numerator)
of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the
Transaction Date and which will continue to be so determined thereafter shall
be deemed to have accrued at a
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fixed rate per annum equal to the rate of interest on such Indebtedness in
effect on the Transaction Date; (2) if interest on any Indebtedness actually
incurred on the Transaction Date may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rates, then the interest rate in effect on the
Transaction Date will be deemed to have been in effect during the Four Quarter
Period; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense
(excluding any amortization or write off of deferred financing costs), plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period
times (y) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal, state and
local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount and any amortization or write off of
deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such
Person and its Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Subsidiaries for
such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Subsidiary of the referent Person or is merged
or consolidated with the referent Person or any Subsidiary of the referent
Person, (d) the net income (but not loss) of any Subsidiary of the referent
Person to the extent that the declaration of dividends or similar
distributions by that Subsidiary of that income is restricted by contract,
operation of law or otherwise, (e) the net income of any Person, other than a
Subsidiary of the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Subsidiary of
the referent Person by such Person, (f) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued) and (h) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation
prior to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries reducing Consolidated Net Income of such
Person and its Subsidiaries for such period, determined on a consolidated
basis in accordance with GAAP (including, without limitation, any LIFO
adjustments, but excluding any such charges constituting an extraordinary item
or loss or any such charge which requires an accrual of or a reserve for cash
charges for any future period).
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"Covenant Defeasance" has the meaning set forth under "--Legal Defeasance
and Covenant Defeasance."
"Credit Agreement" means credit agreement(s) to be entered into by the
Company and one or more lenders, and all amendments thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Indebtedness under such agreement(s) or any successor or
replacement agreement(s) and whether by the same or any other agent, lender or
group of lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the sole option of the holder thereof, in any case, on or
prior to the final maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business that are not overdue by
90 days or more or are being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below, (vii) all Obligations of any other Person of
the type referred to in clauses (i) through (vi) which are secured by any lien
on any property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the Obligation so secured, (viii) all Obligations under currency
agreements and interest swap agreements of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any. For purposes
hereof, the "maximum fixed repurchase price" of any Disqualified Capital Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Capital Stock as if such Disqualified
Capital Stock were purchased on any date on which Indebtedness shall be
required to be determined pursuant to the Indenture, and if such price is
based upon, or measured by, the fair market value of such Disqualified Capital
Stock, such fair market value shall be determined reasonably and in good faith
by the Board of Directors of the issuer of such Disqualified Capital Stock.
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"Independent Financial Advisor" means an accounting firm, appraisal firm,
investment banking firm or consultant to Persons engaged in a Related
Business, in each case, of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, qualified to perform the task
for which it has been engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company or any Subsidiary on commercially reasonable terms in
accordance with normal trade practices of the Company or such Subsidiary, as
the case may be. If the Company or any Subsidiary of the Company sells or
otherwise disposes of any Common Stock of any direct or indirect Subsidiary of
the Company such that, after giving effect to any such sale or disposition,
the Company no longer owns, directly or indirectly, 100% of the outstanding
Common Stock of such Subsidiary, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Legal Defeasance" has the meaning set forth under "--Legal Defeasance and
Covenant Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
"Management Services Agreement" means that certain Management Services
Agreement dated as of the Issue Date by and between Leonard Green & Partners,
L.P., on the one hand, and the Company, on the other hand, providing for
certain fees, expenses and reimbursements to be paid to Leonard Green &
Partners, L.P., as such Management Services Agreement may be amended from time
to time so long as such amendments are in compliance with the provisions of
the covenant described under the caption "--Certain Covenants--Limitations on
Transactions With Affiliates."
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of its Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account
any reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale, (d)
appropriate amounts to be provided by the Company or any Subsidiary, as the
case may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Subsidiary,
as the case may be, after such Asset Sale, including, without limitation,
pension and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, and (e) that portion of the cash or Cash
Equivalents attributable to the Capital Stock of a Subsidiary which is not a
Wholly Owned Subsidiary of the Company held, directly or indirectly, by any
Person which is not the Company or a Wholly Owned Subsidiary of the Company.
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"Net Proceeds Offer" has the meaning set forth under "--Certain Covenants--
Limitation on Asset Sales."
"Net Proceeds Offer Amount" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Payment Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Net Proceeds Offer Trigger Date" has the meaning set forth under "--Certain
Covenants--Limitation on Asset Sales."
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Occidental" means Occidental Petroleum Corporation, a Delaware corporation.
"Occidental Supply Agreement" means the supply agreement between a
subsidiary of Occidental and the Company as in effect on the Issue Date.
"Permitted Holders" means Green Equity Investors II, L.P., senior management
of the Company as in effect on the Issue Date and Occidental, including in
each case, their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Old Notes and the New Notes issued pursuant to
the Offering;
(ii) Indebtedness incurred pursuant to a Credit Agreement(s) in an
aggregate principal amount at any time outstanding not to exceed the
greater of (a) $35.0 million and (b) the sum of 80% of the total accounts
receivable and 60% of the total inventory of the Company and its
Subsidiaries, less in each case the amount of any prepayments made with the
proceeds of an Asset Sale or assumed in connection with an Asset Sale;
(iii) other Indebtedness of the Company and its Subsidiaries outstanding
on the Issue Date;
(iv) Interest Swap Obligations of the Company covering Indebtedness of
the Company or any of its Subsidiaries and Interest Swap Obligations of any
Subsidiary of the Company covering Indebtedness of such Subsidiary;
provided, however, that such Interest Swap Obligations are entered into to
protect the Company and its Subsidiaries from fluctuations in interest
rates on Indebtedness incurred in accordance with the Indenture to the
extent the notional principal amount of such Interest Swap Obligation does
not exceed the principal amount of the Indebtedness to which such Interest
Swap Obligation relates;
(v) Indebtedness of a Subsidiary of the Company to the Company or to a
Wholly Owned Subsidiary of the Company for so long as such Indebtedness is
held by the Company or a Wholly Owned Subsidiary of the Company, in each
case subject to no Lien held by a Person other than the Company or a Wholly
Owned Subsidiary of the Company; provided that if as of any date any Person
other than the Company or a Wholly Owned Subsidiary of the Company owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness by the issuer of such Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Subsidiary of the
Company for so long as such Indebtedness is held by a Wholly Owned
Subsidiary of the Company, in each case subject to no Lien held by a Person
other than a Wholly Owned Subsidiary of the Company; provided that if as of
any date any Person other than a Wholly Owned Subsidiary of the Company
owns or holds any such Indebtedness or any Person other than a Wholly Owned
Subsidiary of the Company holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
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(vii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Subsidiaries represented
by letters of credit for the account of the Company or such Subsidiary, as
the case may be, in order to provide security for workers' compensation
claims, payment obligations in connection with self-insurance or similar
requirements in the ordinary course of business;
(ix) Refinancing Indebtedness;
(x) Capitalized Lease Obligations and Purchase Money Indebtedness of the
Company or any of its Subsidiaries in an aggregate principal amount not to
exceed $5.0 million at any one time outstanding; and
(xi) additional Indebtedness of the Company in an aggregate principal
amount not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any Wholly
Owned Subsidiary of the Company in any Person that is or will become, or
Investments by the Company or any Wholly Owned Subsidiary of the Company which
result in any Person becoming, in any case, immediately after such Investment,
a Wholly Owned Subsidiary of the Company or that will merge or consolidate
into the Company or a Wholly Owned Subsidiary of the Company; (ii) Investments
by any Wholly Owned Subsidiary of the Company in the Company; (iii)
Investments in cash and Cash Equivalents; (iv) loans and advances to employees
and officers of the Company and its Subsidiaries in the ordinary course of
business for bona fide business purposes not in excess of $500,000 at any one
time outstanding; (v) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; and (vi) Investments made by the Company or its Subsidiaries as a
result of consideration received in connection with an Asset Sale made in
compliance with the covenant described under "--Certain Covenants--Limitation
on Asset Sales."
"Permitted Liens" means the following types of Liens:
(i) Liens securing Indebtedness incurred under the Credit Agreement or
pursuant to clause (xi) of the definition of Permitted Indebtedness;
(ii) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Subsidiaries shall have set
aside on their books such reserves as may be required pursuant to GAAP;
(iii) statutory and contractual Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof;
(iv) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(v) judgment Liens not giving rise to an Event of Default so long as such
Lien is adequately bonded and any appropriate legal proceedings which may
have been duly initiated for the review of such judgment shall not have
been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
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(vi) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Subsidiaries;
(vii) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(viii) Liens securing Purchase Money Indebtedness of the Company or any
Subsidiary of the Company acquired in the ordinary course of business;
provided, however, that (A) the Purchase Money Indebtedness shall not
exceed the cost of such property or assets and shall not be secured by any
property or assets of the Company or any Subsidiary of the Company other
than the property and assets so acquired and (B) the Lien securing such
Indebtedness shall be created within 90 days of such acquisition;
(ix) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(x) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(xi) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Subsidiaries, including rights of offset and set-off;
(xii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness"; provided that (A) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Subsidiary of the Company
and (B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Subsidiary of the Company
and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Subsidiary of the Company; and
(xiv) Liens created under the Indenture.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights over any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Subsidiaries incurred in connection with the purchase of businesses (including
Capital Stock of businesses primarily engaged in a Related Business),
properties or assets for the business of the Company and its Subsidiaries and
any Refinancing thereof.
"Qualified Capital Stock" means the Series A Preferred Stock and any other
Capital Stock that is not Disqualified Capital Stock.
"Reference Date" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
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"Refinancing Indebtedness" means any Refinancing by the Company or any
Subsidiary of the Company of Indebtedness incurred in accordance with the
covenant described under "--Certain Covenants--Limitation on Incurrence of
Additional Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi),
(vii), (viii), (x) or (xi) of the definition of Permitted Indebtedness), to
the extent that such Refinancing does not (1) result in an increase in the
aggregate principal amount of the Indebtedness of such Person as of the date
of such proposed Refinancing (plus the amount of any premium required to be
paid under the terms of the instrument governing such Indebtedness and plus
the amount of reasonable expenses incurred by the Company in connection with
such Refinancing) or (2) create Indebtedness with (A) a Weighted Average Life
to Maturity that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the final
maturity of the Indebtedness being Refinanced; provided that (x) if such
Indebtedness being Refinanced is Indebtedness solely of the Company, then such
Refinancing Indebtedness shall be Indebtedness solely of the Company and (y)
if such Indebtedness being Refinanced is subordinate or junior to the Notes,
then such Refinancing Indebtedness shall be subordinate to the Notes at least
to the same extent and in the same manner as the Indebtedness being
Refinanced.
"Related Business" means a business whose revenues are derived from the
general business conducted by the Company on the Issue Date or any business or
activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
"Restricted Payments" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Subsidiary of any property, whether owned by the
Company or any Subsidiary at the Issue Date or later acquired, which has been
or is to be sold or transferred by the Company or such Subsidiary to such
Person or to any other Person by whom funds have been or are to be advanced on
the security of such Property.
"Series A Preferred Stock" means the Series A Preferred Stock of the Company
issued pursuant to the Certificate of Designation, Preferences and Rights of
Series A Redeemable Preferred Stock, as in effect on the Issue Date.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person; or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Transaction Mergers" means, collectively, the merger of Leslie's Poolmart,
a California corporation, into Leslie's Poolmart, Inc., a Delaware
corporation, and the subsequent merger of Poolmart USA Inc., a Delaware
corporation into Leslie's Poolmart, Inc., to occur on the Issue Date.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, New Notes originally issued to
(i) QIBs will be represented by a single permanent global certificate in
definitive, fully registered form (the "QIB Global Note") and (ii) Accredited
Investors will be represented by a single permanent global certificate in
definitive, fully registered form (the "Accredited Investor Global Note" and,
together with the QIB Global Note, the "Global Notes"). Each Global Note will
be deposited on the date of consummation of the Exchange Offer with, or on
behalf of, DTC and registered in the name of a nominee of DTC. The Global
Notes will be subject to certain restrictions on transfer set forth herein and
will bear the legend regarding such restrictions set forth under the heading
"Transfer Restrictions" herein.
Notes originally purchased by or transferred to foreign purchasers,
Accredited Investors or QIBs who elect to take physical delivery of their
certificates instead of holding their interest through a Global Note
(collectively referred to herein as the "Non-Global Purchasers") will be
issued in the form of Certificated Notes. Upon the transfer to a QIB, an
Accredited Investor or a foreign purchaser of any Certificated Note initially
issued to a Non-Global Purchaser, such Certificated Note will, unless the
transferee requests Certificated Notes or the Global Notes have previously
been exchanged in whole for Certificated Notes, be exchanged for an interest
in the QIB Global Note or the Accredited Investor Global Note, as the case may
be. Upon the transfer of an interest in a Global Note, such interest will,
unless the transferee requests Certificated Notes, be represented by an
interest in the applicable Global Note. For a description of the restrictions
on the transfer of Certificated Notes and any interest in Global Notes, see
"Transfer Restrictions."
The Global Notes. The Company expects that pursuant to procedures
established by DTC (a) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by the Global Notes to the
respective accounts of persons who have accounts with DTC and (b) ownership of
beneficial interests in the Global Notes will be shown on, and the transfer of
such ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of Participants (as defined herein)) and
the records of Participants (with respect to interests of persons other than
Participants). Such accounts initially will be designated by or on behalf of
the Initial Purchaser and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("Participants")
or persons who hold interests through Participants. Interests in the Global
Notes may be held directly through DTC, by Participants, or indirectly through
organizations which are Participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by such Global Notes for all
purposes under the Indenture. No beneficial owner of an interest in any Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture.
Payments of the principal of, premium and Additional Interest, if any, and
interest (including Additional Interest) on the Global Notes will be made to
DTC or its nominee, as the case may be, as the registered owner thereof. None
of the Company, the Trustee or any paying agent will have any responsibility
or liability for any aspect of the records relating to or payments made on
account of beneficial ownership interests in the Global Notes or, for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium and Additional Interest, if any, or interest (including
Additional Interest) in respect of the Global Notes, will credit Participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Notes as shown on the records
of DTC or its nominee. The Company also expects that payments by Participants
to owners of beneficial interests in the Global Notes held through such
Participants will be governed by standing instructions and customary practice,
as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. Such payments will be
the responsibility of such Participants.
74
<PAGE>
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in clearinghouse funds. If a
holder requires physical delivery of a Certificated Note for any reason,
including to sell Notes to persons in states which require physical delivery
of the Notes, or to pledge such securities, such holder must transfer its
interest in a Global Note in accordance with the normal procedures of DTC and
with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange)
only at the direction of one or more Participants to whose account the DTC
interests in the Global Notes are credited and only in respect of such portion
of the aggregate principal amount of Notes as to which such Participant or
Participants has or have given such direction. However, if there is an Event
of Default under the Indenture, DTC will exchange the Global Notes in whole
for Certificated Notes, which it will distribute to the Participants and which
will be legended as set forth under the heading "Transfer Restrictions."
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for Participants and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in accounts of its Participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a Participant, either directly or indirectly
("Indirect Participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among Participants, it is under no
obligation to perform such procedures, and such procedures may be discontinued
at any time. Neither the Company nor the Trustee will have any responsibility
for the performance by DTC or the Participants or Indirect Participants of
their respective obligations under the rules and procedures governing their
operations.
Certificated Notes. If DTC is at any time unwilling or unable to continue as
a depositary for the Global Notes and a successor depositary is not appointed
by the Company within 90 days, Certificated Notes will be issued in exchange
for the Global Notes.
FEDERAL INCOME TAX CONSIDERATIONS
There will be no Federal income tax consequences to Holders exchanging Old
Notes for New Notes pursuant to the Exchange Offer and a Holder will have the
same adjusted basis and holding period in the New Notes as the Old Notes
immediately before the exchange. There can be no assurance that the Internal
Revenue Service (the "Service") will not take a contrary view, and no ruling
from the Service has been or will be sought. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders.
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a Broker-Dealer (a "Participating Broker-Dealer") in connection
with the resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. Each such Participating Broker-Dealer that participates in the
Exchange Offer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a Prospectus in
connection
75
<PAGE>
with any resale of such New Notes. The Company has agreed that for a period of
180 days after the Expiration Date, it will make this Prospectus, as amended
or supplemented, available to any Participating Broker-Dealer for use in
connection with any such resale. In addition, until August 27, 1997, all
dealers effecting transactions in the New Notes may be required to deliver a
Prospectus.
The Company will not receive any proceeds from any sale of New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-
Dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any Participating Broker-Dealer and/or the purchasers of any
such New Notes. Any Participating Broker-Dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a Prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker-Dealer that requests
such documents in the Letter of Transmittal.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by BT in connection with the offers and sales related to
market-making transactions in the Notes. BT may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. The Company will not receive any of the
proceeds of such sales. BT has no obligation to make a market in the Notes and
may discontinue its market-making activities at any time without notice, at
its sole discretion. The Company has agreed to indemnify BT against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which BT might be required to make in respect thereof.
Affiliates of BT own, in the aggregate, 3.2% of GEI's limited partnership
interests.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Gibson, Dunn & Crutcher LLP, Los Angeles, California.
EXPERTS
The Consolidated Balance Sheets as of December 28, 1996 and December 30,
1995, and the related Consolidated Statements of Income, Shareholders' Equity
and Cash Flows for each of the three fiscal years in the period ended December
28, 1996, included in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1. File
No. 333-30305, (the "Registration Statement") under the
76
<PAGE>
Securities Act with respect to the New Notes offered hereby. As used herein,
the term "Registration Statement" means the initial Registration Statement and
any and all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company, the
Notes and the Exchange Offer, reference is hereby made to such Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance, reference is made to the copy of
such contract or documents filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549 and at
certain regional offices of the Commission located at 75 Park Place, 14th
Floor, New York, New York 1007 and Northwest Atrium Center, 500 Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Room 1025, Washington D.C. 20549, at prescribed rates. The
Commission maintains a World Wide Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that filed electronically with the Commission.
Upon completion of the Exchange Offer, the Company will be subject to the
informational requirements of the Exchange Act and, in accordance therewith,
will file reports with the Commission. The Company intends to furnish to
Holders annual reports containing audited financial statements of the Company
audited by its independent accountants and quarterly reports containing
unaudited condensed financial statements for each of the first three quarters
of the fiscal year.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Management's Report...................................................... F-3
Consolidated Balance Sheets--December 28, 1996 and December 30, 1995..... F-4
Consolidated Statements of Income--Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994................................. F-5
Consolidated Statements of Shareholders' Equity--Years Ended December 28,
1996, December 30, 1995 and December 31, 1994........................... F-6
Consolidated Statements of Cash Flows--Years Ended December 28, 1996,
December 30, 1995 and December 31, 1994................................. F-7
Notes to Consolidated Financial Statements--December 28, 1996............ F-8
Condensed Consolidated Balance Sheets--March 29, 1997 (unaudited)........ F-17
Condensed Consolidated Statements of Operations--Three Months Ended March
29, 1997 and March 30, 1996 (unaudited)................................. F-18
Condensed Consolidated Statements of Cash Flows--Three Months Ended March
29, 1997 and March 30, 1996 (unaudited)................................. F-19
Notes to Condensed Consolidated Financial Statements--March 29, 1997..... F-20
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Leslie's Poolmart:
We have audited the accompanying consolidated balance sheets of Leslie's
Poolmart (a California corporation) and subsidiaries as of December 28, 1996
and December 30, 1995 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Leslie's Poolmart and
subsidiaries as of December 28, 1996 and December 30, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 28, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Los Angeles, California
March 6, 1997
F-2
<PAGE>
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the financial
statements appearing in this Proxy Statement. The financial statements were
prepared in accordance with generally accepted accounting principles and
include certain amounts based on management's best estimates and judgments.
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are safeguarded and that transactions
are executed as authorized and are recorded and reported properly. Management
believes that existing internal accounting control systems are achieving their
objectives and that they provide reasonable assurance concerning the accuracy
of the financial statements.
Arthur Andersen LLP, independent public accountants, has audited the
Company's financial statements and their report is presented herein.
The Board of Directors has an Audit Committee composed entirely of outside
Directors. Arthur Andersen LLP has direct access to the Audit Committee and
periodically meets with the Committee to discuss accounting, auditing and
financial reporting matters.
Robert D. Olsen
Chief Financial Officer
F-3
<PAGE>
LESLIE'S POOLMART
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DEC. 28, 1996 DEC. 30, 1995
------------- -------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash............................................. $ 87 $ 74
Accounts and other receivables, net.............. 2,550 2,235
Inventories, net................................. 33,948 34,303
Prepaid expenses and other....................... 1,693 1,876
Deferred tax assets.............................. 2,602 2,321
------- -------
Total current assets........................... 40,880 40,809
------- -------
PROPERTY, PLANT AND EQUIPMENT:..................... 46,058 39,550
Less--Accumulated depreciation and amortization.. 12,751 10,005
------- -------
Net property, plant and equipment................ 33,307 29,545
------- -------
OTHER ASSETS:
Goodwill, net.................................... 8,298 8,550
Other............................................ 672 625
------- -------
Total other assets............................. 8,970 9,175
------- -------
$83,157 $79,529
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable................................. $ 6,055 $ 4,215
Accrued liabilities.............................. 4,480 4,546
Short-term borrowings............................ 15,440 16,956
Current portion of long-term debt................ 2,187 2,085
------- -------
Total current liabilities...................... 28,162 27,802
------- -------
DEFERRED TAX LIABILITIES........................... 3,099 1,963
LONG-TERM DEBT, net of current portion............. 5,581 7,843
CONVERTIBLE SUBORDINATED DEBENTURES................ 10,000 10,000
COMMITMENTS AND CONTINGENCIES...................... -- --
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares;
none issued and outstanding..................... -- --
Common stock, no par value:
Authorized--40,000,000 shares
Issued and outstanding--6,547,928 and 6,507,074
at Dec. 28,1996 and Dec. 30, 1995,
respectively................................... 32,625 32,100
Retained earnings (deficit)...................... 3,690 (179)
------- -------
Total shareholders' equity..................... 36,315 31,921
------- -------
$83,157 $79,529
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE>
LESLIE'S POOLMART
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
DEC. 28, 1996 DEC. 30, 1995 DEC. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
Net sales........................... $191,640 $162,456 $141,553
Cost of sales....................... 118,880 102,057 86,084
-------- -------- --------
Gross profit........................ 72,760 60,399 55,469
Selling, general and administrative
expenses........................... 62,358 53,442 45,764
Amortization of acquisition costs... 252 239 242
Loss (gain) on disposition of fixed
assets............................. 750 27 (106)
-------- -------- --------
Income from operations.............. 9,400 6,691 9,569
Interest expense, net............... 2,786 2,708 1,733
-------- -------- --------
Income before taxes................. 6,614 3,983 7,836
Income tax provision................ 2,745 576 3,252
-------- -------- --------
Net income.......................... $ 3,869 $ 3,407 $ 4,584
======== ======== ========
Net income per share................ $ .57 $ .52 $ .70
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
LESLIE'S POOLMART
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ RETAINED TOTAL
NUMBER OF (DEFICIT) SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- -------- --------- -------------
<S> <C> <C> <C> <C>
Balance, at December 31, 1993....... 5,603,131 $ 21,467 $ (426) $ 21,041
Stock dividend.................... 283,853 3,447 (3,447) --
Issuance of common stock.......... 1,650 17 -- 17
Stock options exercised........... 107,101 292 -- 292
Tax benefit from stock options
exercised........................ -- 405 -- 405
Net income........................ -- -- 4,584 4,584
--------- -------- ------- --------
Balance, at December 31, 1994....... 5,995,735 25,628 711 26,339
Stock dividend.................... 300,793 4,297 (4,297) --
Issuance of common stock.......... 2,050 27 -- 27
Stock options exercised........... 82,735 514 -- 514
Exercise of convertible
securities....................... 125,761 1,383 -- 1,383
Tax benefit from stock options
exercised........................ -- 251 -- 251
Net income........................ -- -- 3,407 3,407
--------- -------- ------- --------
Balance, at December 30, 1995....... 6,507,074 32,100 (179) 31,921
Issuance of common stock.......... 50 1 -- 1
Stock options exercised........... 40,804 304 -- 304
Tax benefit from stock options
exercised........................ -- 220 -- 220
Net income........................ -- -- 3,869 3,869
--------- -------- ------- --------
Balance, at December 28, 1996....... 6,547,928 $ 32,625 $ 3,690 $ 36,315
========= ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
LESLIE'S POOLMART
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------
DEC. 28, 1996 DEC. 30, 1995 DEC. 31, 1994
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income......................... $ 3,869 $ 3,407 $ 4,584
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization...... 4,326 3,374 2,393
Loss (gain) on disposition of fixed
assets............................ 750 27 (106)
(Increase) decrease in:
Accounts and other receivables..... (315) (902) (339)
Inventories, net................... 355 (10,114) (6,309)
Prepaid expenses and other......... 183 (231) (989)
Other assets....................... (47) (290) 262
Increase (decrease) in:
Accounts payable and accrued
liabilities....................... 1,774 2,121 1,725
Income taxes....................... 1,075 (1,536) (680)
------- -------- -------
Net cash provided by (used in)
operating activities.............. 11,970 (4,144) 541
------- -------- -------
INVESTING ACTIVITIES:
Purchase of property, plant and
equipment......................... (8,807) (9,550) (7,394)
Proceeds from dispositions of
property, plant and equipment..... 221 321 583
------- -------- -------
Net cash used in investing
activities........................ (8,586) (9,229) (6,811)
------- -------- -------
FINANCING ACTIVITIES:
Net line-of-credit borrowings...... (1,516) 7,435 3,151
Additions to long-term debt........ -- 10,000 4,890
Payments of long-term debt......... (2,160) (4,592) (2,055)
Issuance of common stock and stock
options exercised................. 305 541 292
------- -------- -------
Net cash (used in) provided by
financing activities.............. (3,371) 13,384 6,278
------- -------- -------
NET INCREASE IN CASH................. 13 11 8
CASH AT BEGINNING OF PERIOD.......... 74 63 55
------- -------- -------
CASH AT END OF PERIOD................ $ 87 $ 74 $ 63
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND OPERATIONS
Leslie's Poolmart (the Company) is a specialty retailer of swimming pool
supplies and related products. As of December 28, 1996, the Company marketed
its products under the trade name Leslie's Swimming Pool Supplies through 259
retail stores in 27 states and through mail order catalogs sent to selected
swimming pool owners nationwide. The Company also repackages certain bulk
chemical products for retail sale. The Company's business is highly seasonal
as the majority of its sales (79% in 1996 and 1995) and all of its operating
profits are generated in the second and third quarters.
The Company purchased the capital stock of Sandy's Pool Supply, Inc.
(Sandy's) effective August 31, 1992. The adjusted purchase price for Sandy's
was approximately $1,189,000. The Company paid cash of $730,000 (net of
Sandy's cash on hand of approximately $120,000) at August 31, 1992, and in
1993 the Company received a refund of $75,000 upon the settlement of the
purchase price. The remainder of the purchase price will be paid in
installments through 2002.
2. STOCK DIVIDEND
In August 1995 and April 1994, 5% stock dividends were declared for
shareholders of record as of August 31, 1995 and April 29, 1994, respectively.
The fair market value of the stock dividends was transferred from retained
earnings to common stock in the accompanying 1995 and 1994 consolidated
financial statements. The earnings per share, weighted average number of
shares outstanding, and the outstanding options reflect the impact of these
stock dividends.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The consolidated financial statements of the Company include Leslie's
Poolmart and Sandy's Pool Supply, Inc., its wholly-owned subsidiary.
b. Fiscal Periods
In January 1995, to be consistent with the reporting practices of many major
retailers, the Company changed its fiscal year from a calendar year to a 52-
or 53-week year which will end on the Saturday closest to December 31. Each
fiscal quarter will have 13 weeks and will close on the Saturday closest to
March 31, June 30 and September 30.
c. Cash
Line-of-credit borrowings include outstanding checks of $25,000 and excess
cash balances of $205,000 at December 28, 1996, and December 30, 1995,
respectively.
d. Accounts and Other Receivables, Net
Accounts and other receivables include allowances for doubtful accounts of
$49,000 and $70,000 at December 28, 1996 and December 30, 1995, respectively.
e. Inventories
Inventories are stated at the lower of cost or market. Cost is determined on
the last-in, first-out (LIFO) basis. The effect of utilizing this method
resulted in inventory balances which were $544,000 lower at December 28, 1996,
$60,000 lower at December 30, 1995, and $320,000 higher at December 31, 1994,
than would have been reported under the first-in, first-out (FIFO) method.
F-8
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
f. Property, Plant and Equipment
Property, plant and equipment are stated at cost. Costs of normal
maintenance and repairs are charged to expense as incurred.
Major replacements or improvements of property, plant and equipment are
capitalized. When items are sold or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed from the
accounts, and any resulting gain or loss is included in the statements of
income.
Depreciation and amortization are computed using the straight-line method
(considering appropriate salvage values) based on the following estimated
average useful lives:
<TABLE>
<S> <C>
Buildings and improvements....................................... 15-30 years
Vehicles, machinery and equipment................................ 3-10 years
Office furniture and equipment................................... 3-10 years
Leasehold improvements........................................... 4-10 years
</TABLE>
g. Goodwill
The excess of the acquisition price over the fair value of the net assets at
the date of acquisition is included in the accompanying consolidated balance
sheets as "Goodwill." Goodwill is being amortized (straight-line) over forty
years. The Company continually evaluates whether later events and
circumstances have occurred that indicate the remaining estimated useful life
of goodwill may warrant revision or that the remaining balance of goodwill may
not be recoverable. When factors indicate that goodwill should be evaluated
for possible impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. The balance recorded at
December 28, 1996 and December 30, 1995 was net of accumulated amortization of
$1,397,000 and $1,145,000, respectively.
h. Income Taxes
The Company provides for deferred income taxes relating to timing
differences in the recognition of income and expense items (primarily
depreciation and amortization) for financial and tax reporting purposes. Also,
differences between the tax basis and the financial reporting basis of various
assets were created when the Company was acquired in 1988 and when the Company
purchased Sandy's in 1992; deferred tax assets and liabilities were provided
related to these differences. Deferred taxes at December 28, 1996 and December
30, 1995 include a provision for the differences between tax and financial
asset values except that deferred taxes were not provided with respect to
amounts allocated to goodwill. As the difference between tax and financial
reporting basis changes, appropriate charges/credits are made to the deferred
tax account.
i. Mail Order Catalog Sales
Revenue on mail order catalog sales is recognized at the time goods are
shipped.
j. Cost of Sales
Included in cost of sales are the costs of services and purchased goods,
direct manufacturing and chemical repackaging costs and non-administrative
occupancy costs.
k. Advertising
Advertising costs are recognized as the advertising expense is incurred. The
net advertising expense incurred was $5,812,000 for the year ended December
28, 1996; $4,344,000 for the year ended December 30, 1995; and $4,223,000 for
the year ended December 31, 1994.
F-9
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
l. Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
m. Recent Accounting Pronouncements
The Company adopted Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of" (SFAS 121) in the first quarter of 1996. The adoption of
SFAS 121 did not impact the Company's financial position or its results of
operations. In addition, in 1996 the Company adopted Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). The disclosures required by SFAS 123 are presented in Note 12.
n. Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the 1996 presentations.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials and supplies......................... $ 1,659,000 $ 1,433,000
Finished goods..................................... 32,289,000 32,870,000
----------- -----------
$33,948,000 $34,303,000
=========== ===========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Land.............................................. $ 6,578,000 $ 6,734,000
Buildings and improvements........................ 6,868,000 6,716,000
Equipment......................................... 1,785,000 1,484,000
Leasehold improvements............................ 14,796,000 12,836,000
Office furniture, equipment and other............. 15,118,000 11,278,000
Construction-in-process........................... 913,000 502,000
----------- -----------
46,058,000 39,550,000
Less--Accumulated depreciation and amortization... 12,751,000 10,005,000
----------- -----------
$33,307,000 $29,545,000
=========== ===========
</TABLE>
6. BANK CREDIT AGREEMENT
Effective June 30, 1995, the Company entered into a Second Amended and
Restated Credit Agreement with Wells Fargo Bank which has three facilities: a
Line-of-Credit, a Revolving Term Loan, and a Project financing
F-10
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
facility, which may be drawn to finance specific real estate development
projects undertaken in connection with the addition of new retail stores. The
Credit Agreement contains certain financial covenants and requires that
certain other debts of the Company be subordinated in right of repayment to
the lender. As of December 28, 1996 the Company was in compliance with these
covenants.
As of December 28, 1996, the Line-of-Credit's outstanding principal balance
was $15,440,000. The Credit Agreement was amended in November 1995, increasing
the amount of borrowings allowed under the line-of-credit up to $19,000,000.
In early 1996, the line of credit was amended and temporarily expanded (to
$22,000,000 through May 15, 1996 and $19,000,000 thereafter) and the term was
extended through October 1, 1997. Subsequent to year-end, the Company amended
its Credit Agreement to consolidate the existing line of credit facility, the
project financing facility, and the revolving term loan into one expanded
$38,000,000 line of credit facility. The term of the expanded line of credit
facility was extended through February 16, 2000.
Interest is payable monthly on all borrowings. The amended Line-of-Credit
accrues interest at the lender's reference rate (8.25% at December 28, 1996)
or at LIBOR plus 1.75%, at the borrower's election.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 30,
1996 1995
------------ ------------
<S> <C> <C>
Revolving Loan................................... $6,000,000 $8,000,000
Notes payable collateralized by security
interests in certain assets, with maturities
from March, 1999 to September, 2002. Interest
accrues at rates of 6.5% to 8.25%............... 719,000 860,000
Notes payable collateralized by security interest
in various properties, due in monthly
installments with maturities from December 2003
to December 2009. Interest accrues at the rate
of 7.625% to 9.125%............................. 1,049,000 1,068,000
---------- ----------
7,768,000 9,928,000
Less--Current portion............................ 2,187,000 2,085,000
---------- ----------
$5,581,000 $7,843,000
========== ==========
</TABLE>
Principal maturities of long-term debt as of December 28, 1996 are as
follows:
<TABLE>
<S> <C>
1997.............................................................. $2,187,000
1998.............................................................. 4,193,000
1999.............................................................. 124,000
2000.............................................................. 106,000
2001.............................................................. 113,000
Thereafter........................................................ 1,045,000
----------
$7,768,000
==========
</TABLE>
Convertible Subordinated Debentures
On May 25, 1995, the Company completed a private placement of its $10
million 8% convertible subordinated debentures. Interest is payable semi-
annually. The debentures have a six-year term, expiring May 15, 2001 and are
convertible into the Company's common stock at $20.95 per share. The
debentures are unsecured and subordinated to the present and future senior
debt of the Company.
F-11
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7 1/2% Convertible Notes
In conjunction with the Company's initial public offering in April, 1991,
the Company and one of its former shareholders agreed to terminate the
shareholder's covenant not to compete in exchange for $2,767,000 of the
Company's 7 1/2% convertible notes. In December, 1993, approximately
$1,384,000 of these 7 1/2% convertible notes was repaid. The remaining portion
of the 7 1/2% convertible notes was converted to shares of the Company's
common stock at a conversion price of $11.00 per share on December 29, 1995.
8. LEASES
The Company leases certain store, office, distribution and manufacturing
facilities under operating leases which expire at various dates through 2007.
Lease agreements generally provide for increases related to cost of living
indices and require the Company to pay for property taxes, repairs and
insurance. Future minimum lease payments at December 28, 1996 are as follows:
<TABLE>
<S> <C>
1997............................................................. $13,798,000
1998............................................................. 11,286,000
1999............................................................. 10,030,000
2000............................................................. 7,597,000
2001............................................................. 5,320,000
Thereafter....................................................... 10,205,000
-----------
$58,236,000
===========
</TABLE>
As of March 3, 1997, the Company had entered into operating leases for
additional new store sites which have future minimum lease payment
requirements of approximately $677,000 in 1997, $1,016,000 in 1998, 1999, and
2000, $976,000 in 2001, and $1,434,000 thereafter.
Certain leases are renewable at the option of the Company for periods of one
to ten years. Rent expense charged against income totaled $16,024,000,
$13,397,000, and $10,119,000, in 1996, 1995 and 1994, respectively.
9. INCOME TAXES
The provision for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Federal:
Current............................... $2,386,000 $ 2,263,000 $3,074,000
Deferred.............................. (222,000) (1,750,000) (567,000)
---------- ----------- ----------
2,164,000 513,000 2,507,000
---------- ----------- ----------
State:
Current............................... 641,000 610,000 858,000
Deferred.............................. (60,000) (547,000) (113,000)
---------- ----------- ----------
581,000 63,000 745,000
---------- ----------- ----------
$2,745,000 $ 576,000 $3,252,000
========== =========== ==========
</TABLE>
F-12
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the provision for income taxes to the amount computed at
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate..... $2,248,000 $ 1,354,000 $2,664,000
Reversal of tax reserves no longer
needed.................................. -- (1,100,000) --
Effect of differences created by
acquisition accounting including
amortization of differences between fair
values assigned in purchase accounting
and historical tax values............... 146,000 96,000 96,000
State taxes, net of federal benefit...... 351,000 226,000 492,000
---------- ----------- ----------
$2,745,000 $ 576,000 $3,252,000
========== =========== ==========
</TABLE>
The tax effect of temporary differences which give rise to significant
portions of the deferred tax liability are summarized below.
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Property, plant and
equipment differences.. $ -- $ 1,857,000 $ -- $ 941,000
State income taxes...... 197,000 -- 207,000 --
Inventory overhead
differences............ 1,942,000 -- 1,834,000 --
Difference in timing of
certain deductions..... 463,000 1,242,000 280,000 1,022,000
---------- ----------- ---------- ----------
$2,602,000 $ 3,099,000 $2,321,000 $1,963,000
========== =========== ========== ==========
</TABLE>
The Company has net operating losses (NOL) available for offset against
future tax liabilities at December 28, 1996 of $7,452,000, extending through
2007, limited to approximately $83,000 per year. As this NOL is utilized, such
amounts will reduce goodwill.
10. CONTINGENCIES
The Company is a defendant in lawsuits or potential claims encountered in
the normal course of business, such matters are being vigorously defended. In
the opinion of management, the resolutions of these matters will not have a
material effect on the Company's financial position or results of operations.
The Company's general liability insurance program and employee group medical
plan have self-insurance retention features of $100,000 and $75,000 per
incident, respectively. The Company's liability is limited to $600,000 per
year for the general liability program.
11. 401(k) PLAN
The Company provides for the benefit of its employees a voluntary retirement
plan under Section 401(k) of the Internal Revenue Code. During 1996, the plan
covered all eligible employees and provided for a matching contribution by the
Company of 50% of each participant's contribution up to 4% of the individual's
compensation as defined. The expenses related to this program were $263,000,
$212,000, and $199,000 for 1996, 1995 and 1994, respectively.
F-13
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. STOCK BASED COMPENSATION PLANS
The Company has granted stock options to various employees and directors.
The Company accounts for these plans under APB Opinion No. 25, under which no
compensation cost has been recognized.
Had compensation cost for these plans been determined consistent with SFAS
123, the Company's net income and earnings per share would have been reduced
to the following proforma amounts:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net income
As Reported.......................................... $3,869,000 $3,407,000
Pro forma............................................ $3,490,000 $3,362,000
Primary EPS
As Reported.......................................... $ 0.57 $ 0.52
Pro forma............................................ $ 0.50 $ 0.51
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: risk free interest rates of 5.8%
and 6.5%, respectively; expected volatility of 49% and 50%, respectively;
weighted average fair value of options of $7.55 and $7.88 in 1996 and 1995,
respectively; expected lives of 7 years for both years and no expected
dividend yield for either year.
In June 1990, the Company adopted a stock option plan which provided for the
issuance of up to 165,375 common shares at an option price equal to at least
100 percent (incentive options) or at least 85 percent (nonqualified options)
of the fair value of the common stock at the date of grant. In May 1993, May
1994 and May 1996, the shareholders approved the reservation of an additional
165,375 shares, 330,750 shares and 600,000 shares, respectively, for options
issuable under the 1990 plan. Options granted vest ratably over a three-year
period, and all expire after 10 years.
In March 1992, the Board of Directors adopted the 1992 Directors' Stock
Option Plan (which was approved by the shareholders in May 1992) which
provides for the issuance to non-employee directors of up to 110,250 common
shares at an option price equal to 100 percent of fair market value of the
common stock at the date of grant. Options are granted pursuant to a formula
under which such directors and the Company's Chairman receive an option to
purchase 5,513 shares of stock upon becoming an eligible director and 3,308
shares on the first business day of each succeeding year on which such person
is an eligible director.
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- ------------------
WTD AVG WTD AVG WTD AVG
SHARES EX PRICE SHARES EX PRICE SHARES EX PRICE
------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beg. of
year................... 833,166 $ 7.58 859,947 $ 7.06 782,696 $ 5.08
Granted................. 208,168 12.92 71,332 13.02 201,497 12.16
Exercised............... (40,804) (7.44) (83,640) (6.15) (116,342) (2.51)
Cancelled............... (28,463) (11.68) (14,473) (11.61) (7,904) (7.66)
------- ------ ------- ------ -------- ------
Outstanding at end of
year................... 972,067 8.62 833,166 7.58 859,947 7.06
------- ------ ------- ------ -------- ------
Exercisable at end of
year................... 709,074 $ 9.94 565,431 $ 9.00 444,982 $ 8.74
</TABLE>
F-14
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about all stock options
outstanding as of December 28, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
Less than $1.00....... 135,536 2.6 years $ 0.64 135,536 $ 0.64
$5.00 to $7.99........ 361,805 6.2 years 6.80 355,924 6.82
$8.00 to $10.99....... 89,484 7.4 years 9.20 57,229 8.49
$11.00 to $14.00...... 385,242 8.6 years 13.00 160,385 12.86
------- --------- ------ ------- ------
972,067 6.8 years $ 8.62 709,074 $ 7.14
------- --------- ------ ------- ------
</TABLE>
During 1996, 40,804 options were exercised at exercise prices ranging
between $5.44 and $12.62.
In December 1990, the Company adopted a stock bonus plan which provides for
the issuance of 20,000 shares of common stock at the fair market value at the
date of grant to employees in consideration for services rendered. At December
28, 1996, 12,348 shares of common stock had been issued pursuant to this plan.
13. CALCULATION OF PER SHARE AMOUNTS
Net income per share amounts are computed based on the weighted average
number of shares outstanding plus the shares that would be outstanding
assuming exercise of dilutive stock options, which are considered common stock
equivalents. The weighted average number of shares outstanding was 6,789,664;
6,614,497 and 6,515,558 for 1996, 1995 and 1994, respectively.
14. PREFERRED STOCK
The rights, preferences and privileges of the preferred stock authorized in
the Company's Articles of Incorporation are to be determined by the Board of
Directors and do not require shareholder approval. No preferred stock is
currently outstanding.
15. SUPPLEMENTAL CASH FLOW DISCLOSURES
The Company paid interest charges of $2,835,000, $2,419,000 and $1,538,000,
in 1996, 1995, and 1994, respectively. The Company paid income taxes of
$2,425,000, $2,086,000, and $4,041,000, in 1996, 1995 and 1994, respectively.
16. PROPOSED REINCORPORATION AND MERGER
On February 26, 1997, the Company's Board of Directors approved an Agreement
of Merger providing for the reincorporation of the Company in Delaware by
merger into a wholly-owned Delaware subsidiary, and an Agreement and Plan of
Merger providing for the merger of Poolmart USA Inc., a newly-formed
corporation, with and into the Company. Following consummation of the
reincorporation and upon effectiveness of the latter merger, (i) each
outstanding share of common stock of the Company would be converted into
$14.50 cash (other than 359,505 shares owned primarily by members of
management, including Michael Fourticq, the Chairman of the Company, and Brian
McDermott, the President and CEO of the Company and other than shares as to
which the holders perfect dissenters' rights) and (ii) outstanding options
covering approximately 846,000 shares of
F-15
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stock, including those not yet vested, would be cancelled for payment
of the difference between the exercise price and $14.50 per share. The total
value of the shares and options at the transaction price of $14.50
approximates $101 million. The proposed mergers are subject to various
conditions, including financing and approval by the Company's shareholders.
The shareholders are expected to vote on the mergers during the second quarter
of 1997.
F-16
<PAGE>
LESLIE'S POOLMART
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 29, DEC. 28,
1997 1996
--------- --------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash...................................................... $ 133 $ 87
Accounts and other receivables, net....................... 2,900 2,550
Inventories, net.......................................... 56,552 33,948
Prepaid expenses and other................................ 2,650 1,693
Deferred tax assets....................................... 2,602 2,602
Deferred income tax charge................................ 4,326 --
-------- -------
Total current assets.................................... 69,163 40,880
-------- -------
PROPERTY, PLANT AND EQUIPMENT, NET:......................... 35,557 33,307
GOODWILL, NET............................................... 8,235 8,298
OTHER ASSETS................................................ 701 672
-------- -------
$113,656 $83,157
======== =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.......................................... $ 36,554 $ 6,055
Accrued liabilities....................................... 5,651 4,480
Short-term borrowings..................................... -- 15,440
Current portion of long-term debt......................... 131 2,187
-------- -------
Total current liabilities............................... 42,336 28,162
-------- -------
DEFERRED TAX LIABILITIES.................................... 3,099 3,099
LONG-TERM DEBT, net of current portion...................... 27,986 5,581
CONVERTIBLE SUBORDINATED DEBENTURES......................... 10,000 10,000
SHAREHOLDERS' EQUITY:
Common stock.............................................. 32,646 32,625
Retained (deficit) earnings .............................. (2,411) 3,690
-------- -------
Total shareholders' equity.............................. 30,235 36,315
-------- -------
$113,656 $83,157
======== =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
F-17
<PAGE>
LESLIE'S POOLMART
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 29, 1997 MARCH 30, 1996
-------------- --------------
<S> <C> <C>
Sales....................................... $ 23,816 $18,064
Cost of sales............................... 18,254 13,806
-------- -------
Gross profit................................ 5,562 4,258
Selling, general and administrative
expenses................................... 15,126 12,804
Amortization of acquisition costs........... 64 64
-------- -------
Loss from operations........................ (9,628) (8,610)
Interest expense............................ 799 834
-------- -------
Income before tax benefit................... (10,427) (9,444)
Income tax benefit.......................... 4,326 3,919
-------- -------
Net loss.................................... $ (6,101) $(5,525)
======== =======
Net loss per share of common stock.......... $ (.90) $ (.82)
Weighted average number of shares of common
stock outstanding and common stock
equivalents................................ 6,789 6,769
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-18
<PAGE>
LESLIE'S POOLMART
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
MARCH 29, 1997 MARCH 28, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................... $(6,101) $(5,525)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.............. 1,314 1,057
Loss on disposition of fixed assets........ 71 --
Income tax benefit......................... (4,326) (3,919)
Net change in receivables, inventory and
payables.................................. 8,716 4,627
Other, net................................. (987) (324)
------- -------
Net cash used in operating activities...... (1,313) (4,084)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment.. (4,739) (2,393)
Proceeds from dispositions of property,
plant and equipment....................... 1,168 --
------- -------
Net cash used in investing activities...... (3,571) (2,393)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net line-of-credit borrowings.............. 4,929 6,412
Payments of long-term debt................. (20) --
Proceeds from issuance of common stock and
stock options exercised................... 21 73
------- -------
Net cash provided by financing activities.. 4,930 6,485
------- -------
NET INCREASE IN CASH......................... 46 8
CASH AT BEGINNING OF PERIOD.................. 87 74
------- -------
CASH AT END OF PERIOD........................ $ 133 $ 82
======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-19
<PAGE>
LESLIE'S POOLMART
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION OF FINANCIAL INFORMATION
The financial statements included herein have been prepared by Leslie's
Poolmart (the "Company"), without audit, and include all adjustments of a
normal recurring nature which are, in the opinion of management, necessary for
a fair presentation of the results of operations for the three month periods
ended March 29, 1997 and March 30, 1996 pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company believes the
disclosures in these financial statements are adequate to make the information
presented not misleading.
The following material under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" is written with the
presumption that the users of the interim financial statements have read or
have access to the Company's 1996 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 28, 1997. This document contains
the latest audited financial statements and notes thereto, together with
Management's Discussion and Analysis of Financial Condition and Results of
Operations as of December 28, 1996 and for the year then ended. The results of
operations for the three months ended March 29, 1997 and March 30, 1996 are
not indicative of the results for a full year.
2. ORGANIZATION AND OPERATIONS
Leslie's Poolmart is a specialty retailer of swimming pool supplies and
related products. The Company currently markets its products under the trade
name Leslie's Swimming Pool Supplies through 278 retail stores in 27 states
and through mail order catalogs sent to selected swimming pool owners. The
Company also repackages certain bulk chemical products for retail sale. The
Company's business is highly seasonal as the majority of its sales (79% in
1996 and 1995) and all of its operating profits are generated in the second
and third quarters.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 29, MARCH 30,
1997 1996
----------- -----------
<S> <C> <C>
Raw materials and supplies........................ $ 2,007,000 $ 3,120,000
Finished goods.................................... 54,545,000 51,610,000
----------- -----------
Total Inventories................................. $56,552,000 $54,730,000
=========== ===========
</TABLE>
4. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" (SFAS 128)
and SFAS No. 129, "Disclosure of Information about Capital Structure" (SFAS
129). SFAS 128 revises and simplifies the computation for earnings per share
and requires certain additional disclosures. SFAS 129 requires additional
disclosures regarding the Company's capital structure. Both standards will be
adopted in the fourth quarter of fiscal 1997. Management does not expect the
adoption of these standards to have a material effect on the Company's
financial position or results of operations.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPEOPLE OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH THE
EXCHANGE OFFER MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SECURITIES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors ............................................................ 8
The Transactions ........................................................ 12
The Exchange Offer ...................................................... 12
Capitalization .......................................................... 20
Unaudited Pro Forma Consolidated Financial Statements ................... 21
Selected Historical Consolidated Financial Data ......................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 29
Business ................................................................ 35
Management .............................................................. 43
Security Ownership of Certain Beneficial Owners and Management .......... 47
Certain Relationships and Related Transactions........................... 49
Description of Financing Transactions ................................... 51
Description of Notes .................................................... 53
Book Entry; Delivery and Form ........................................... 74
Federal Income Tax Considerations........................................ 75
Plan of Distribution..................................................... 75
Legal Matters ........................................................... 76
Experts ................................................................. 76
Available Information.................................................... 76
Index to Financial Statements ........................................... F-1
</TABLE>
----------------
UNTIL OCTOBER 19, 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
----------------------------
PROSPECTUS
----------------------------
$90,000,000
[LOGO OF LESLIE'S POOLMART, INC.]
LESLIE'S POOLMART, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2004
JULY 21, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the Exchange Offer are as follows:
<TABLE>
<CAPTION>
EXPENSE AMOUNT
- ------- --------
<S> <C>
The Commission's Registration Fee..................................... $ 27,273
Printing Expenses..................................................... 45,000
Legal Fees and Expenses............................................... 25,000
Accounting Fees and Expenses.......................................... 20,000
Exchange Agent Fees................................................... 2,000
Miscellaneous Expenses................................................ 20,000
Total................................................................. $139,273
--------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Certificate of Incorporation of the Company eliminates the liability of
the Company's directors for monetary damages arising from a breach of their
fiduciary duties to the Company and its stockholders, to the extent permitted
by the Delaware General Corporation Law. Such limitation of liability does not
affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by applicable law. The Company
has entered into indemnification agreements with its directors and executive
officers containing provisions which are in some respects broader than the
specific indemnification provisions contained in the Delaware General
Corporation Law. Such agreements require the Company, among other things, (i)
to indemnify its officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers provided
such persons acted in good faith and in a manner reasonably believed to be in
the best interests of the Company and, with respect to any criminal action,
had no cause to believe their conduct was unlawful; (ii) to advance the
expenses actually and reasonable incurred by its officers and directors as a
result of any proceeding against them as to which they could be indemnified;
and (iii) to obtain directors' and officers' insurance if available on
reasonable terms. There is no action or proceeding pending or, to the
knowledge of the Company, threatened which may result in a claim for
indemnification by any director, officer, employee or agent of the Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On June 11, 1997 the Company reincorporated in the State of Delaware through
a statutory merger with its parent company, Leslie's Poolmart. Each
outstanding share of Common Stock of Leslie's Poolmart was converted
automatically into shares of the Company's Common Stock. This transaction was
exempt from the registration provisions of Section 5 of the Securities Act
pursuant to Rule 145(a)(c). Immediately thereafter, Poolmart USA Inc. merged
into the Company. The two mergers are collectively referred to as the
"Mergers."
In connection with the Mergers the following transactions were effectuated:
(i) the Company issued 83,599 non-qualified ten-year stock options to
management, (ii) Robert D. Olsen and Cynthia G. Watts purchased 16,966 and
2,000 shares, respectively of the Company's Common Stock, (iii) Occidental
Petroleum Corporation purchased warrants to purchase 252,996 shares of Common
Stock, (iv) Occidental Petroleum Corporation purchased 28,000 shares of Series
A Preferred Stock for $18.0 million cash and the exchange of $10.0 million
principal amount of Convertible Subordinated Debentures of Leslie's Poolmart
held by Occidental Petroleum Corporation. The Company believes that the
securities issued in each of these transactions were issued in a private
offering in accordance with Section 4(2) of the Securities Act or, in the case
of the non-qualified stock options, are exempt from registration under Section
3(a)(9) of the Securities Act.
II-1
<PAGE>
On June 6, 1997, the Company sold an aggregate of $90 million principal
amount of Senior Notes to BT Securities Corporation (the "Initial Purchaser").
The Company believes this offering was exempt from registration under Section
4(2) of the Securities Act. The Initial Purchaser resold an aggregate of
$90 million principal amount of Old Notes to Qualified Institutional Buyers
(within the meaning of Rule 144A under the Securities Act ("Rule 144A")) in
transactions meeting the requirements of Rule 144A, or Accredited Investors
(within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities
Act).
ITEM 16. EXHIBITS.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of the Company*
3.2 Certificate of Merger of Leslie's Poolmart into the Company*
3.3 Certificate of Merger of Poolmart USA Inc. into the Company*
3.4 Certificate of Designation, Preferences and Rights of Exchangeable
Cumulative Redeemable Preferred Stock, Series A*
3.5 Bylaws of the Company*
4.1 Indenture dated as of June 11, 1997 between the Company and U.S. Trust
Company of California, N.A.
5.1 Opinion of Gibson, Dunn & Crutcher LLP as to the enforceability of the
notes offered hereby
8.1 Opinion of Gibson, Dunn & Crutcher LLP as to tax consequences
10.1 Credit Agreement dated June 11, 1997 among the Company, Wells Fargo
Bank, N.A. and the financial institutions signatory thereto, including
Security Agreement, Stock Pledge Agreement and Guarantees of
subsidiaries
10.2 Preferred Stock and Warrant Purchase Agreement dated as of June 11,
1997 between the Company and Occidental Petroleum Corporation*
10.3 Warrant dated June 11, 1997 for the purchase of shares of Common Stock
of the Company issued to Occidental Petroleum Corporation*
10.4 Stockholders Agreement and Subscription Agreement dated as of June 11,
1997 among the Company and Green Equity Investors II, LLP, Richard H.
Hillman, Michael J. Forticq, Greg Fourticq, Brian P. McDermott, the
Trustees of the McDermott Family Trust, Occidental Petroleum
Corporation and the Stockholders identified on the signature pages
thereto.*
10.5 NQ Option Plan and form of Agreement
10.6 ISO Option Plan and form of Agreements
10.7 Lease for Dallas Distribution Center
10.8 Lease for Ontario Distribution Center
10.9 Lease for Bridgeport Distribution Center
10.10 Form of Director's and Officer's Indemnification Agreement dated as of
June 11, 1997 between the Company and certain members of management*
10.11 Management Agreement dated as of June 11, 1997 between the Company and
Leonard Green & Partners, L.P.*
10.12 Noncompetition Agreement, dated August 31, 1992, among Sandy's Pool
Supply, Inc., Leslie's Poolmart, and Philip Leslie
10.13 Noncompetition Agreement, dated August 31, 1992, among Sandy's Pool
Supply, Inc., Leslie's Poolmart, and Sander Bass
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
10.14 Purchase Agreement dated June 6, 1997 between the Company and BT
Securities Corporation
10.15 Registration Rights Agreement dated as of June 11, 1997 by and between
the Company and BT Securities Corporation
11.1 Computation of ratio of earnings to fixed charges*
23.1 Consent of Independent Public Accountants*
23.2 Consent of Gibson Dunn & Crutcher LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on page II-4)*
25.1 Form T-1: Statement of Eligibility of Trustee
27.1 Financial Data Schedule*
99.1 Letter[s] of Transmittal
</TABLE>
- --------
* Previously Filed
ITEM 17. UNDERTAKINGS.
[This Item intentionally left blank].
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF LOS
ANGELES, STATE OF CALIFORNIA ON THIS 21ST DAY OF JULY 1997.
LESLIE'S POOLMART, INC.
By:
/s/ Robert D. Olsen
___________________________________
Robert D. Olsen
Executive Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Brian P.
McDermott and Robert D. Olsen, and each of them, his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or his
substitute or their substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Michael J. Fourticq * Director July 21, 1997
____________________________________
Michael J. Fourticq
/s/ Brian P. McDermott* President, Chief Executive July 21, 1997
____________________________________ Officer and Director
Brian P. McDermott [Principal Executive
Officer]
/s/ Robert D. Olsen* Executive Vice President and July 21, 1997
____________________________________ Chief Financial Officer
Robert D. Olsen [Principal Financial and
Accounting Officer]
/s/ Gregory J. Annick* Director July 21, 1997
____________________________________
Gregory J. Annick
/s/ John G. Danhakl* Director July 21, 1997
____________________________________
John G. Danhakl
/s/ Dr. Dale R. Laurance* Director July 21, 1997
____________________________________
Dr. Dale R. Laurance
</TABLE>
*By /s/ Robert D. Olsen
- -------------------------------
Robert D. Olsen
Attorney-in-Fact
II-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Leslie's Poolmart:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Leslie's Poolmart and subsidiary included
in this Form 10-K and have issued our report thereon dated March 6, 1997. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected
to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Los Angeles, California
March 6, 1997
S-1
<PAGE>
LESLIE'S POOLMART
SCHEDULE - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance
Balance at Charged to at end
beginning costs and of
of period expenses Deductions Period
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Accumulated amortization of goodwill... $ 667,000 $239,000 $--- $ 906,000
Accumulated amortization of deferred
loan costs........................... $ 14,000 $ 41,000 $--- $ 55,000
Year ended December 30, 1995:
Accumulated amortization of goodwill... $ 906,000 $239,000 $--- $1,145,000
Accumulated amortization of deferred
loan costs........................... $ 55,000 $ 51,000 $--- $ 106,000
Year ended December 28, 1996:
Accumulated amortization of goodwill... $1,145,000 $252,000 $___ $1,397,000
Accumulated amortization of deferred
loan costs........................... $ 106,000 $ 55,000 $___ $ 161,000
</TABLE>
S-2
<PAGE>
EXHIBIT 4.1
================================================================================
LESLIE'S POOLMART, INC.,
as Issuer,
AND
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
INDENTURE
Dated as of June 11, 1997
up to $115,000,000
10 3/8% Senior Notes due 2004
================================================================================
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1)..................................................... 7.10
(a)(2)..................................................... 7.10
(a)(3)..................................................... N.A.
(a)(4)..................................................... N.A.
(a)(5)..................................................... 7.08; 7.10
(b)........................................................ 7.08; 7.10; 10.02
(c)........................................................ N.A.
311(a)........................................................ 7.11
(b)........................................................ 7.11
(c)........................................................ N.A.
312(a)........................................................ 2.05
(b)........................................................ 10.03
(c)........................................................ 10.03
313(a)........................................................ 7.06
(b)(1)..................................................... 7.06
(b)(2)..................................................... 7.06
(c)........................................................ 7.06; 10.02
(d)........................................................ 7.06
314(a)........................................................ 4.08; 4.10; 10.02
(b)........................................................ N.A.
(c)(1)..................................................... 7.02; 10.04; 10.05
(c)(2)..................................................... 7.02; 10.04; 10.05
(c)(3)..................................................... N.A.
(d)........................................................ N.A.
(e)........................................................ 10.05
(f)........................................................ N.A.
315(a)........................................................ 7.01(b); 7.02
(b)........................................................ 7.05; 10.02
(c)........................................................ 7.01
(d)........................................................ 6.05; 7.01(c); 7.02
(e)........................................................ 6.11
316(a)(last sentence)......................................... 2.09
(a)(1)(A).................................................. 6.05
(a)(1)(B).................................................. 6.04
(a)(2)..................................................... 9.02
(b)........................................................ 6.07
317(a)(1)..................................................... 6.08
(a)(2)..................................................... 6.09
(b)........................................................ 2.04
318(a)........................................................ 10.01
(c)........................................................ 10.01
</TABLE>
- --------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C>
SECTION 1.01. Definitions................................................... 1
SECTION 1.02. Incorporation by Reference of TIA............................. 23
SECTION 1.03. Rules of Construction......................................... 24
ARTICLE TWO THE SECURITIES
SECTION 2.01. Form and Dating............................................... 24
SECTION 2.02. Execution and Authentication.................................. 25
SECTION 2.03. Registrar and Paying Agent.................................... 27
SECTION 2.04. Paying Agent To Hold Assets in Trust.......................... 27
SECTION 2.05. Securityholder Lists.......................................... 28
SECTION 2.06. Transfer and Exchange......................................... 28
SECTION 2.07. Replacement Securities........................................ 29
SECTION 2.08. Outstanding Securities........................................ 29
SECTION 2.09. Treasury Securities........................................... 30
SECTION 2.10. Temporary Securities.......................................... 30
SECTION 2.11. Cancellation.................................................. 30
SECTION 2.12. Defaulted Interest............................................ 31
SECTION 2.13. CUSIP Number.................................................. 31
SECTION 2.14. Deposit of Moneys............................................. 32
SECTION 2.15. Book-Entry Provisions for Global Securities................... 32
SECTION 2.16. Registration of Transfers and Exchanges....................... 33
SECTION 2.17. Designation................................................... 39
SECTION 2.18. Additional Interest Under Registration Rights Agreement....... 39
ARTICLE THREE REDEMPTION
SECTION 3.01. Notices to Trustee............................................ 40
SECTION 3.02. Selection of Securities To Be Redeemed........................ 40
SECTION 3.03. Notice of Redemption.......................................... 41
SECTION 3.04. Effect of Notice of Redemption................................ 42
SECTION 3.05. Deposit of Redemption Price................................... 42
SECTION 3.06. Securities Redeemed in Part................................... 42
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
ARTICLE FOUR COVENANTS
<S> <C>
SECTION 4.01. Payment of Securities........................................ 42
SECTION 4.02. Maintenance of Office or Agency.............................. 43
SECTION 4.03. Limitation on Restricted Payments............................ 43
SECTION 4.04. Limitation on Incurrence of Additional Indebtedness.......... 46
SECTION 4.05. Corporate Existence.......................................... 46
SECTION 4.06. Payment of Taxes and Other Claims............................ 47
SECTION 4.07. Maintenance of Properties and Insurance...................... 47
SECTION 4.08. Compliance Certificate; Notice of Default.................... 48
SECTION 4.09. Compliance with Laws......................................... 49
SECTION 4.10. Commission Reports........................................... 49
SECTION 4.11. Waiver of Stay, Extension or Usury Laws...................... 50
SECTION 4.12. Limitation on Transactions with Affiliates................... 50
SECTION 4.13. Conduct of Business.......................................... 52
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries......................... 52
SECTION 4.15. Limitation on Liens.......................................... 52
SECTION 4.16. Change of Control............................................ 53
SECTION 4.17. Limitation on Asset Sales.................................... 55
SECTION 4.18. Limitation on Preferred Stock of Subsidiaries................ 59
ARTICLE FIVE SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets..................... 59
SECTION 5.02. Successor Corporation Substituted............................ 61
ARTICLE SIX DEFAULT AND REMEDIES
SECTION 6.01. Events of Default............................................ 61
SECTION 6.02. Acceleration................................................. 62
SECTION 6.03. Other Remedies............................................... 63
SECTION 6.04. Waiver of Past Defaults...................................... 64
SECTION 6.05. Control by Majority.......................................... 64
SECTION 6.06. Limitation on Suits.......................................... 64
SECTION 6.07. Rights of Holders To Receive Payment......................... 65
SECTION 6.08. Collection Suit by Trustee................................... 65
SECTION 6.09. Trustee May File Proofs of Claim............................. 66
SECTION 6.10. Priorities................................................... 66
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.11. Undertaking for Costs........................................ 67
ARTICLE SEVEN TRUSTEE
SECTION 7.01. Duties of Trustee............................................ 67
SECTION 7.02. Rights of Trustee............................................ 69
SECTION 7.03. Individual Rights of Trustee................................. 70
SECTION 7.04. Trustee's Disclaimer......................................... 70
SECTION 7.05. Notice of Default............................................ 70
SECTION 7.06. Reports by Trustee to Holders................................ 71
SECTION 7.07. Compensation and Indemnity................................... 71
SECTION 7.08. Replacement of Trustee....................................... 72
SECTION 7.09. Successor Trustee by Merger, Etc............................. 73
SECTION 7.10. Eligibility; Disqualification................................ 74
SECTION 7.11. Preferential Collection of Claims Against Company............ 74
ARTICLE EIGHT SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance..................... 74
SECTION 8.02. Satisfaction and Discharge................................... 78
SECTION 8.03. Survival of Certain Obligations.............................. 79
SECTION 8.04. Acknowledgment of Discharge by Trustee....................... 79
SECTION 8.05. Application of Trust Assets.................................. 79
SECTION 8.06. Repayment to the Company; Unclaimed Money.................... 80
SECTION 8.07. Reinstatement................................................ 80
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders................................... 81
SECTION 9.02. With Consent of Holders...................................... 82
SECTION 9.03. Compliance with TIA.......................................... 83
SECTION 9.04. Revocation and Effect of Consents............................ 83
SECTION 9.05. Notation on or Exchange of Securities........................ 84
SECTION 9.06. Trustee To Sign Amendments, Etc.............................. 84
ARTICLE TEN MISCELLANEOUS
SECTION 10.01. TIA Controls................................................ 85
SECTION 10.02. Notices..................................................... 85
SECTION 10.03. Communications by Holders with Other Holders................ 86
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.......... 87
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 10.05. Statements Required in Certificate or Opinion............... 87
SECTION 10.06. Rules by Trustee, Paying Agent, Registrar................... 88
SECTION 10.07. Legal Holidays.............................................. 88
SECTION 10.08. Governing Law............................................... 88
SECTION 10.09. No Adverse Interpretation of Other Agreements............... 88
SECTION 10.10. No Recourse Against Others.................................. 88
SECTION 10.11. Successors.................................................. 88
SECTION 10.12. Duplicate Originals......................................... 89
SECTION 10.13. Severability................................................ 89
SIGNATURES................................................................. 1
</TABLE>
Exhibit A - Form of Series A Security
Exhibit B - Form of Series B Security
Exhibit C - Form of Legend for Global Securities
Exhibit D - Transfer Certificate
Exhibit E - Form of Transferee Certificate for Institutional
Accredited Investors
Exhibit F - Form of Transferee Certificate for Regulation S Transfers
Note: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
-iv-
<PAGE>
INDENTURE dated as of June 11, 1997 between LESLIE'S POOLMART, INC., a
Delaware corporation (the "Company"), as Issuer and U.S. TRUST COMPANY OF
--------
CALIFORNIA, N.A., as Trustee (the "Trustee").
-------
The Company has duly authorized the creation of an issue of 10 3/8%
Senior Notes due 2004, Series A, and an issue of 10 3/8% Senior Notes due 2004,
Series B, to be issued in exchange for the 10 3/8% Senior Notes due 2004, Series
A, pursuant to the Registration Rights Agreement and, to provide therefor, the
Company has duly authorized the execution and delivery of this Indenture. All
things necessary to make the Securities, when duly issued and executed by the
Company and authenticated and delivered hereunder, the valid and binding
obligations of the Company and to make this Indenture a valid and binding
agreement of the Company have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Securities:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person or any of its
---------------------
Subsidiaries existing at the time such Person becomes a Subsidiary of the
Company or at the time it merges or consolidates with the Company or any of its
Subsidiaries or is assumed in connection with the acquisition of assets from
such Person and in each case not incurred in connection with, or in anticipation
or contemplation of, such acquisition, merger or consolidation.
"Additional Interest" has the meaning set forth in the Registration
-------------------
Rights Agreement.
"Affiliate" means, with respect to any specified Person, any other
---------
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
<PAGE>
-2-
"Affiliate Transaction" has the meaning set forth in Section 4.12.
---------------------
"Agent" means any Registrar, Paying Agent or Co-Registrar.
-----
"Asset Acquisition" means (a) an Investment by the Company or any
-----------------
Subsidiary of the Company in any other Person pursuant to which such Person
shall become a Subsidiary of the Company, or shall be merged with or into the
Company or any Subsidiary of the Company, or (b) the acquisition by the Company
or any Subsidiary of the Company of the assets of any Person (other than a
Subsidiary of the Company) which constitute all or substantially all of the
assets of such Person or comprises any division or line of business of such
Person or any other properties or assets of such Person other than in the
ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
----------
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Subsidiaries (including any Sale and Leaseback Transaction) to any Person
other than the Company or a Subsidiary of the Company (including a Person that
is or will become a Subsidiary of the Company immediately after such sale,
issuance, conveyance, transfer, lease, assignment or other transfer for value)
of (a) any Capital Stock of any Subsidiary of the Company; or (b) any other
property or assets of the Company or any Subsidiary of the Company other than in
the ordinary course of business; provided, however, that Asset Sales shall not
-------- -------
include (i) a transaction or series of related transactions for which the
Company or its Subsidiaries receive aggregate consideration of less than
$500,000 and (ii) the sale, lease, conveyance, disposition or other transfer of
all or substantially all of the assets of the Company as permitted under Article
FIVE.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
--------------
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
------------------
of such Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a
----------------
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and
<PAGE>
-3-
effect on the date of such certification, and delivered to the Trustee.
"Business Day" means any day other than a Saturday, Sunday or any
------------
other day on which banking institutions in the City of New York are required or
authorized by law or other governmental action to be closed.
"Capitalized Lease Obligation" means, as to any Person, the
----------------------------
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a
-------------
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity or ownership interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by,
----------------
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250.0 million; (v) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; and (vi) investments in money
<PAGE>
-4-
market funds which invest substantially all their assets in securities of the
types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
-----------------
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person or group of related Persons (other than
to a Permitted Holder) for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of this Indenture); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group
(other than the Permitted Holders) shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50% of
the aggregate ordinary voting power represented by the issued and outstanding
Capital Stock of the Company; (iv) the replacement of a majority of the Board of
Directors of the Company (other than in accordance with the terms of the Series
A Preferred Stock so long as Occidental owns greater than 50% of the then
outstanding shares of the Series A Preferred Stock) over a two-year period from
the directors who constituted the Board of Directors of the Company at the
beginning of such period, and such replacement shall not have been approved by a
vote of at least a majority of the Board of Directors of the Company then still
in office who either were members of such Board of Directors at the beginning of
such period or whose election as a member of such Board of Directors was
previously so approved; or (v) the Company consolidates with, or merges with or
into, another Person, or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any Person, or any Person
consolidates with, or merges with or into, the Company, in any such event
pursuant to a transaction in which the shares representing the aggregate
ordinary voting power represented by the issued and outstanding Capital Stock of
the Company is converted into or exchanged for cash, securities or other
property, other than (A) any such transaction where (1) the shares representing
the issued and outstanding ordinary voting Capital Stock of the Company are
converted into or exchanged for (I) ordinary voting Capital Stock (other than
Disqualified Capital Stock) of the surviving or transferee corporation and/or
(II) cash, securities and other property in an amount which could be paid by the
Company as a Restricted Payment under this Indenture and (2) the "beneficial
owners" of the shares representing the issued and outstanding ordinary
<PAGE>
-5-
voting Capital Stock of the Company immediately prior to such transaction own,
directly or indirectly, shares of Capital Stock representing not less than a
majority of voting power of all issued and outstanding shares of Capital Stock
of the surviving or transferee corporation immediately after such transaction or
(B) any such transaction as a result of which the Permitted Holders own shares
of Capital Stock representing more than 50% of the voting power of all issued
and outstanding shares of Capital Stock of the surviving or transferee
corporation immediately after such transaction.
"Change of Control Offer" has the meaning set forth in Section 4.16.
-----------------------
"Change of Control Payment Date" has the meaning set forth in Section
------------------------------
4.16.
"Commission" means the Securities and Exchange Commission, or any
----------
successor agency thereto with respect to the regulation or registration of
securities.
"Common Stock" of any Person means any and all shares, interests or
------------
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means the party named as such in this Indenture until a
-------
successor replaces it pursuant to this Indenture.
"Consolidated EBITDA" means, with respect to any Person, for any
-------------------
period, the sum (without duplication) of (i) Consolidated Net Income and (ii) to
the extent Consolidated Net Income has been reduced thereby, (A) all income
taxes of such Person and its Subsidiaries paid or accrued in accordance with
GAAP for such period, (B) Consolidated Interest Expense and (C) Consolidated
Non-cash Charges less any non-cash items increasing Consolidated Net Income for
such period, all as determined on a consolidated basis for such Person and its
Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction giving rise to the need to calculate the Consolidated Fixed
Charge Coverage Ratio (the "Transaction Date") to Con-
<PAGE>
-6-
solidated Fixed Charges of such Person for the Four Quarter Period. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
Asset Sales or Asset Acquisitions (including, without limitation, any Asset
Acquisition giving rise to the need to make such calculation as a result of such
Person or one of its Subsidiaries (including any Person who becomes a Subsidiary
as a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and including, without limitation, by giving
pro forma effect to any Consolidated EBITDA (provided that such pro forma
Consolidated EBITDA shall be calculated in a manner consistent with the
exclusions in the definition of "Consolidated Net Income") attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If such Person or any of its
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if such Person or any Subsidiary of such Person had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating
basis as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date; (2)
if interest on any Indebtedness actually incurred on the Transaction Date may
optionally be deter-
<PAGE>
-7-
mined at an interest rate based upon a factor of a prime or similar rate, a
eurocurrency interbank offered rate, or other rates, then the interest rate in
effect on the Transaction Date will be deemed to have been in effect during the
Four Quarter Period; and (3) notwithstanding clause (1) above, interest on
Indebtedness determined on a fluctuating basis, to the extent such interest is
covered by agreements relating to Interest Swap Obligations, shall be deemed to
accrue at the rate per annum resulting after giving effect to the operation of
such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum, without duplication, of (i) Consolidated Interest Expense
(excluding any amortization or write off of deferred financing costs), plus (ii)
the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Subsidiaries for such period determined on a
consolidated basis in accordance with GAAP, including, without limitation, (a)
any amortization of debt discount and any amortization or write off of deferred
financing costs, (b) the net costs under Interest Swap Obligations, (c) all
capitalized interest and (d) the interest portion of any deferred payment
obligation; and (ii) the interest component of Capitalized Lease Obligations
paid, accrued and/or scheduled to be paid or accrued by such Person and its
Subsidiaries during such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
-----------------------
period, the aggregate net income (or loss) of such Person and its Subsidiaries
for such period on a consolidated basis, determined in accordance with GAAP;
provided that there shall be excluded therefrom (a) after-tax gains from Asset
- --------
Sales or abandonments or reserves relating thereto, (b) after-tax items
classified as extraordinary or nonrecurring gains or losses, (c) the net income
of any Person acquired in a "pooling of interests" transaction accrued prior to
the date it becomes a Subsidiary of the referent Person or is merged or
consolidated with the referent Person or any Subsidiary of the referent Person,
(d) the net income (but not loss) of any Sub-
<PAGE>
-8-
sidiary of the referent Person to the extent that the declaration of dividends
or similar distributions by that Subsidiary of that income is restricted by
contract, operation of law or otherwise, (e) the net income of any Person, other
than a Subsidiary of the referent Person, except to the extent of cash dividends
or distributions paid to the referent Person or to a Wholly Owned Subsidiary of
the referent Person by such Person, (f) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date, (g) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued) and (h) in the case of a
successor to the referent Person by consolidation or merger or as a transferee
of the referent Person's assets, any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated
----------------------
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for
-----------------------------
any period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Subsidiaries reducing Consolidated Net Income of such
Person and its Subsidiaries for such period, determined on a consolidated basis
in accordance with GAAP (including, without limitation, any LIFO adjustments,
but excluding any such charges constituting an extraordinary item or loss or any
such charge which requires an accrual of or a reserve for cash charges for any
future period).
"Corporate Trust Office" means the principal office of the Trustee
----------------------
where it conducts its corporate trust administrative functions, which office is
currently located at 515 S. Flower Street, Suite 2700, Los Angeles, California
90071.
"Covenant Defeasance" has the meaning set forth in Section 8.01.
-------------------
"Credit Agreement" means credit agreement(s) to be entered into by the
----------------
Company and one or more lenders, and all amendments thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
<PAGE>
-9-
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Indebtedness under such agreement(s) or any successor or
replacement agreement(s) and whether by the same or any other agent, lender or
group of lenders.
"Custodian" means any receiver, trustee, assignee, liquidator,
---------
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
-------
with the lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means, with respect to the Securities issued in the form
----------
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Disqualified Capital Stock" means that portion of any Capital Stock
--------------------------
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof, in any case, on or prior to the final maturity date of the Securities.
"Event of Default" has the meaning set forth in Section 6.01.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
or any successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the
-----------------
price which could be negotiated in an arm's-length free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom is
under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of the
Board of Directors of the Company delivered to the Trustee.
"Final Maturity Date" means July 15, 2004.
-------------------
<PAGE>
-10-
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" means a security evidencing all or a portion of the
---------------
Securities issued to the Depository or its nominee in accordance with Section
2.01 and bearing the legend set forth in Exhibit C.
---------
"incur" has the meaning set forth in Section 4.04.
-----
"Indebtedness" means with respect to any Person, without duplication,
------------
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date
<PAGE>
-11-
on which Indebtedness shall be required to be determined pursuant to this
Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.
"Indenture" means this Indenture, as amended or supplemented from time
---------
to time in accordance with the terms hereof.
"Independent Financial Advisor" means an accounting firm, appraisal
-----------------------------
firm, investment banking firm or consultant to Persons engaged in a Related
Business, in each case, of nationally recognized standing that is, in the
judgment of the Company's Board of Directors, qualified to perform the task for
which it has been engaged.
"Initial Purchaser" means BT Securities Corporation.
-----------------
"Institutional Accredited Investor" means an institution that is an
---------------------------------
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means the stated due date of an installment of
---------------------
interest on the Securities.
"Interest Swap Obligations" means the obligations of any Person
-------------------------
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
----------
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company or any Subsidiary on commercially reasonable terms in accordance with
normal trade practices of the Company or such
<PAGE>
-12-
Subsidiary, as the case may be. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Common Stock of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, the Company no longer owns, directly or indirectly, 100% of the
outstanding Common Stock of such Subsidiary, the Company shall be deemed to have
made an Investment on the date of any such sale or disposition equal to the fair
market value of the Common Stock of such Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Series A
----------
Securities under this Indenture.
"Legal Defeasance" has the meaning set forth in Section 8.01.
----------------
"Leslie's California" means Leslie's Poolmart, a California
-------------------
corporation.
"Lien" means any lien, mortgage, deed of trust, pledge, security
----
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Management Services Agreement" means that certain Management Services
-----------------------------
Agreement dated as of the Issue Date by and between Leonard Green & Partners,
L.P., on the one hand, and the Company, on the other hand, providing for certain
fees, expenses and reimbursements to be paid to Leonard Green & Partners, L.P.,
as such Management Services Agreement may be amended from time to time so long
as such amendments are in compliance with Section 4.12.
"Moody's" means Moody's Investors Service, Inc. and its successors.
-------
"Net Cash Proceeds" means, with respect to any Asset Sale, the
-----------------
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of its Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking into
account any reduction in consolidated tax liability due to available tax credits
or deductions and any tax sharing arrange-
<PAGE>
-13-
ments, (c) repayment of Indebtedness that is required to be repaid in connection
with such Asset Sale, (d) appropriate amounts to be provided by the Company or
any Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by the
Company or any Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, and (e) that
portion of the cash or Cash Equivalents attributable to the Capital Stock of a
Subsidiary which is not a Wholly Owned Subsidiary of the Company held, directly
or indirectly, by any Person which is not the Company or a Wholly Owned
Subsidiary of the Company.
"Net Proceeds Offer" has the meaning set forth in Section 4.17.
------------------
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.17.
-------------------------
"Net Proceeds Offer Payment Date" has the meaning set forth in Section
-------------------------------
4.17.
"Net Proceeds Offer Trigger Date" has the meaning set forth in Section
-------------------------------
4.17.
"Obligations" means all obligations for principal, premium, Additional
-----------
Interest, interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Occidental" means Occidental Petroleum Corporation, a Delaware
----------
corporation.
"Occidental Supply Agreement" means the supply agreement between a
---------------------------
subsidiary of Occidental and the Company as in effect on the Issue Date.
"Offering Memorandum" means the Confidential Offering Memorandum of
-------------------
the Company dated June 6, 1997.
"Officer" means, with respect to any Person, the Chairman of the
-------
Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, any Vice President, the Chief Financial Officer, the Controller, the
Treasurer or the Secretary of such Person.
<PAGE>
-14-
"Officers' Certificate" means a certificate signed by two Officers of
---------------------
the Company.
"Offshore Physical Securities" has the meaning set forth in Section
----------------------------
2.01.
"Opinion of Counsel" means a written opinion from legal counsel which
------------------
opinion is reasonably acceptable to the Trustee and which counsel may be counsel
to or an employee of the Company or counsel to the Trustee.
"Participants" has the meaning set forth in Section 2.15.
------------
"Paying Agent" has the meaning set forth in Section 2.03.
------------
"Permitted Holders" means Green Equity Investors II, L.P., senior
-----------------
management of the Company as in effect on the Issue Date and Occidental,
including in each case, their respective Affiliates.
"Permitted Indebtedness" means, without duplication, each of the
----------------------
following:
(i) the Series A Securities issued on the Issue Date in an
aggregate principal amount not to exceed $90.0 million and the Series B
Securities or Private Exchange Notes issued in exchange therefor pursuant
to the Registration Rights Agreement and any replacement Security therefor
issued pursuant to Section 2.07;
(ii) Indebtedness incurred pursuant to a Credit Agreement(s) in
an aggregate principal amount at any time outstanding not to exceed the
greater of (a) $35.0 million and (b) the sum of 80% of the total accounts
receivable and 60% of the total inventory of the Company and its
Subsidiaries, less in each case the amount of any prepayments made with the
proceeds of an Asset Sale or assumed in connection with an Asset Sale;
(iii) other Indebtedness of the Company and its Subsidiaries
outstanding on the Issue Date;
(iv) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Subsidiaries and Interest Swap
Obligations of any Subsidiary of the Company covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
-------- -------
<PAGE>
-15-
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness incurred in accordance with this
Indenture to the extent the notional principal amount of such Interest Swap
Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness of a Subsidiary of the Company to the Company
or to a Wholly Owned Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Wholly Owned Subsidiary of the
Company, in each case subject to no Lien held by a Person other than the
Company or a Wholly Owned Subsidiary of the Company; provided that if as of
--------
any date any Person other than the Company or a Wholly Owned Subsidiary of
the Company owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vi) Indebtedness of the Company to a Wholly Owned Subsidiary of
the Company for so long as such Indebtedness is held by a Wholly Owned
Subsidiary of the Company, in each case subject to no Lien held by a Person
other than a Wholly Owned Subsidiary of the Company; provided that if as of
--------
any date any Person other than a Wholly Owned Subsidiary of the Company
owns or holds any such Indebtedness or any Person other than a Wholly Owned
Subsidiary of the Company holds a Lien in respect of such Indebtedness,
such date shall be deemed the incurrence of Indebtedness not constituting
Permitted Indebtedness by the Company;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
-------- -------
Indebtedness is extinguished within two business days of incurrence;
(viii) Indebtedness of the Company or any of its Subsidiaries
represented by letters of credit for the account of the Company or such
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(ix) Refinancing Indebtedness;
<PAGE>
-16-
(x) Capitalized Lease Obligations and Purchase Money
Indebtedness of the Company or any of its Subsidiaries in an aggregate
principal amount not to exceed $5.0 million at any one time outstanding;
and
(xi) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
---------------------
Wholly Owned Subsidiary of the Company in any Person that is or will become, or
Investments by the Company or any Wholly Owned Subsidiary of the Company which
result in any Person becoming, in any case, immediately after such Investment, a
Wholly Owned Subsidiary of the Company or that will merge or consolidate into
the Company or a Wholly Owned Subsidiary of the Company; (ii) Investments by any
Wholly Owned Subsidiary of the Company in the Company; (iii) Investments in cash
and Cash Equivalents; (iv) loans and advances to employees and officers of the
Company and its Subsidiaries in the ordinary course of business for bona fide
business purposes not in excess of $500,000 at any one time outstanding; (v)
Investments in securities of trade creditors or customers received pursuant to
any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of such trade creditors or customers; and (vi) Investments made by
the Company or its Subsidiaries as a result of consideration received in
connection with an Asset Sale made in compliance with Section 4.17.
"Permitted Liens" means the following types of Liens:
---------------
(i) Liens securing Indebtedness incurred under the Credit
Agreement or pursuant to clause (xi) of the definition of Permitted
Indebtedness;
(ii) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or its Subsidiaries
shall have set aside on their books such reserves as may be required
pursuant to GAAP;
(iii) statutory and contractual Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and
other Liens imposed by law incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
<PAGE>
-17-
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(v) judgment Liens not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal
proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired;
(vi) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(vii) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any property or
--------
assets which is not leased property subject to such Capitalized Lease
Obligation;
(viii) Liens securing Purchase Money Indebtedness of the Company
or any Subsidiary of the Company acquired in the ordinary course of
business; provided, however, that (A) the Purchase Money Indebtedness shall
-------- -------
not exceed the cost of such property or assets and shall not be secured by
any property or assets of the Company or any Subsidiary of the Company
other than the property and assets so acquired and (B) the Lien securing
such Indebtedness shall be created within 90 days of such acquisition;
(ix) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(x) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber
<PAGE>
-18-
documents and other property relating to such letters of credit and
products and proceeds thereof;
(xi) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual or warranty requirements of
the Company or any of its Subsidiaries, including rights of offset and set-
off;
(xii) Liens securing Interest Swap Obligations which Interest
Swap Obligations relate to Indebtedness that is otherwise permitted under
this Indenture;
(xiii) Liens securing Acquired Indebtedness incurred in
accordance with Section 4.04; provided that (A) such Liens secured such
--------
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Subsidiary of the Company and
were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by the Company or a Subsidiary of the Company
and (B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Subsidiaries other than the property or assets
that secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Subsidiary of the Company
and are no more favorable to the lienholders than those securing the
Acquired Indebtedness prior to the incurrence of such Acquired Indebtedness
by the Company or a Subsidiary of the Company; and
(xiv) Liens created under this Indenture.
"Person" means an individual, partnership, corporation, limited
------
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
-------------------
"Poolmart" means Poolmart USA Inc., a Delaware corporation.
--------
"Preferred Stock" of any Person means any Capital Stock of such Person
---------------
that has preferential rights over any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
<PAGE>
-19-
"Private Exchange Notes" has the meaning set forth in the Registration
----------------------
Rights Agreement.
"Private Placement Legend" means the legend initially set forth on the
------------------------
Securities in the form set forth on Exhibit A.
"pro forma" means, with respect to any calculation made or required to
---------
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
"Public Equity Offering" means an underwritten public offering of
----------------------
Qualified Capital Stock of the Company pursuant to a registration statement
filed with the Commission in accordance with the Securities Act or any successor
statute.
"Purchase Agreement" means the purchase agreement dated as of June 6,
------------------
1997 by and between the Company and the Initial Purchaser.
"Purchase Money Indebtedness" means Indebtedness of the Company and
---------------------------
its Subsidiaries incurred in connection with the purchase of businesses
(including Capital Stock of businesses primarily engaged in a Related Business),
properties or assets for the business of the Company and its Subsidiaries and
any Refinancing thereof.
"Qualified Capital Stock" means the Series A Preferred Stock and any
-----------------------
other Capital Stock that is not Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" means a "qualified
----------------------------- ---
institutional buyer" as that term is defined in Rule 144A under the Securities
Act.
"Recapitalization" means the merger consummated pursuant to the
----------------
Agreement and Plan of Merger among the Company, Leslie's California and Poolmart
and the related financing transactions described in the Offering Memorandum.
"Record Date" means the applicable Record Date specified in the
-----------
Securities; provided that if any such date is not a Business Day, the Record
--------
Date shall be the first day immediately preceding such specified day that is a
Business Day.
<PAGE>
-20-
"Redemption Date," when used with respect to any Security to be
----------------
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
-----------------
redeemed, means the price fixed for such redemption, payable in immediately
available funds, pursuant to this Indenture and the Securities.
"Reference Date" has the meaning set forth in Section 4.03.
--------------
"Refinance" means, in respect of any security or Indebtedness, to
---------
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
------------------------
Subsidiary of the Company of Indebtedness incurred in accordance with Section
4.04 (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (x) or
(xi) of the definition of Permitted Indebtedness), to the extent that such
Refinancing does not (1) result in an increase in the aggregate principal amount
of the Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of any premium required to be paid under the terms of the
instrument governing such Indebtedness and plus the amount of reasonable
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (x) if such Indebtedness being Refinanced is
--------
Indebtedness solely of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced
is subordinate or junior to the Securities, then such Refinancing Indebtedness
shall be subordinate to the Securities at least to the same extent and in the
same manner as the Indebtedness being Refinanced.
"Registered Exchange Offer" means the offer to exchange the Series B
-------------------------
Securities for all of the outstanding Series A Securities in accordance with the
Registration Rights Agreement.
<PAGE>
-21-
"Registrar" has the meaning set forth in Section 2.03.
---------
"Registration Rights Agreement" means the Registration Rights
-----------------------------
Agreement dated as of the Issue Date between the Company and the Initial
Purchaser.
"Regulation S" means Regulation S under the Securities Act.
------------
"Related Business" means a business whose revenues are derived from
----------------
the general business conducted by the Company on the Issue Date or any business
or activity that is reasonably similar thereto or a reasonable extension,
development or expansion thereof or ancillary thereto.
"Replacement Assets" has the meaning set forth in Section 4.17.
------------------
"Responsible Officer" means, when used with respect to the Trustee,
-------------------
any officer in the Corporate Trust Office of the Trustee including any vice
president, assistant vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Trustee who customarily performs
functions similar to those performed by the Persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred
because of such officer's knowledge of and familiarity with the particular
subject.
"Restricted Payments" has the meaning set forth in Section 4.03.
-------------------
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
-------------------
under the Securities Act; provided that the Trustee shall be entitled to request
and conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Rule 144A" means Rule 144A under the Securities Act.
---------
"Sale and Leaseback Transaction" means any direct or indirect
------------------------------
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Subsidiary of any property, whether owned by
the Company or any Subsidiary at the Issue Date or later acquired, which has
been or is to be sold or transferred by the Company or such Subsidiary to such
Person or to any other Person by whom funds have been or are to be advanced on
the security of such Property.
<PAGE>
-21-
"S&P" means Standard & Poor's Corporation and its successors.
---
"Securities" means the Series A Securities, the Series B Securities,
----------
the Private Exchange Notes, if any, and any securities issued pursuant to
Section 2.02, treated as a single class of securities, as amended or
supplemented from time to time in accordance with the terms of this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor statute or statutes thereto.
"Securityholder" or "Holder" means the Person in whose name a Security
-------------- ------
is registered on the Registrar's books.
"Series A Preferred Stock" means the Series A Preferred Stock of the
------------------------
Company issued pursuant to the Certificate of Designation, Preferences and
Rights of Series A Redeemable Preferred Stock, as in effect on the Issue Date.
"Series A Securities" means the 10 3/8% Senior Notes due 2004, Series
-------------------
A, of the Company issued pursuant to this Indenture and sold pursuant to the
Purchase Agreement.
"Series B Securities" means the 10 3/8% Senior Notes due 2004, Series
-------------------
B, of the Company to be issued in exchange for the Series A Securities pursuant
to the Registered Exchange Offer and the Registration Rights Agreement.
"Significant Subsidiary" shall have the meaning set forth in Rule
----------------------
1.02(w) of Regulation S-X under the Securities Act.
"Subsidiary," with respect to any Person, means (i) any corporation of
-----------
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person; or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth in Section 5.01.
----------------
"TIA" means the Trust Indenture act of 1939 (15 U.S.C. (S)(S) 77aaa-
---
77bbbb), as amended, as in effect on the date of the execution of this Indenture
until such time as this Indenture is qualified under the TIA, and thereafter as
in effect
<PAGE>
-23-
on the date on which this Indenture is qualified under the TIA, except as
otherwise provided in Section 9.03.
"Transaction Mergers" means, collectively, the merger of Leslie's
-------------------
California into Leslie's Poolmart, Inc., a Delaware corporation, and the
subsequent merger of Poolmart into Leslie's Poolmart, Inc., to occur on the
Issue Date.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"U.S. Government Obligations" shall have the meaning set forth in
---------------------------
Section 8.01.
"U.S. Legal Tender" means such coin or currency of the United States
-----------------
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Physical Securities" has the meaning set forth in Section 2.01.
------------------------
"Weighted Average Life to Maturity" means, when applied to any
---------------------------------
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
-----------------------
Person of which all the outstanding voting securities (other than in the case of
a foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
SECTION 1.02. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
<PAGE>
-24-
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and, in each case, not otherwise defined herein have the meanings assigned to
them therein.
SECTION 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(2) "or" is not exclusive;
(3) words in the singular include the plural, and words in the
plural include the singular;
(4) provisions apply to successive events and transactions; and
(5) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section or
other subdivision.
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
---------------
The Series A Securities and the Trustee's certificate of
authentication thereof shall be substantially in the form of Exhibit A hereto,
---------
which is hereby incorporated in and expressly made a part of this Indenture.
The Series B Securities and the
<PAGE>
-25-
Trustee's certificate of authentication thereof shall be substantially in the
form of Exhibit B hereto, which is hereby incorporated in and expressly made a
---------
part of this Indenture. The Securities may have notations, legends or
endorsements required by law, stock exchange rule or usage. The Company and the
Trustee shall approve the form of the Securities and any notation, legend or
endorsement on them. Each Security shall be dated the date of its issuance and
shall show the date of its authentication.
The terms and provisions contained in the Securities, annexed hereto
as Exhibits A and B, shall constitute, and are hereby expressly made, a part of
----------------
this Indenture and, to the extent applicable, the Company, and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such terms
and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A and Securities
offered and sold to institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) shall be issued initially
in the form of one or more permanent Global Securities in registered form,
substantially in the form set forth in Exhibit A ("Global Securities"),
--------- -----------------
deposited with the Trustee, as custodian for the Depository, and shall bear the
legend set forth on Exhibit C. The aggregate principal amount of any Global
---------
Security may from time to time be increased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of certificated Securities in
registered form set forth in Exhibit A (the "Offshore Physical Securities").
--------- ----------------------------
Securities offered and sold in reliance on any other exemption from registration
under the Securities Act other than as described in the preceding paragraph
shall be issued, and Securities offered and sold in reliance on Rule 144A may be
issued, in the form of certificated Securities in registered form in
substantially the form set forth in Exhibit A (the "U.S. Physical Securities").
--------- ------------------------
The Offshore Physical Securities and the U.S. Physical Securities are sometimes
collectively herein referred to as the "Physical Securities."
-------- ----------
SECTION 2.02. Execution and Authentication
----------------------------
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have
<PAGE>
-26-
been duly authorized by all requisite corporate actions) shall attest to, the
Securities for the Company by manual or facsimile signature. The Company's seal
may also be reproduced on the Securities.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original
issue on the Issue Date in the aggregate principal amount not to exceed
$90,000,000, (ii) Series B Securities from time to time only in exchange for a
like principal amount of Series A Securities, (iii) Private Exchange Notes from
time to time only in exchange for a like principal amount of Series A
Securities, and (iv) Securities issued in one or more series (such Securities to
be substantially in the form of Exhibit A or Exhibit B (and if in the form of
Exhibit A, a like principal amount of Securities in the form of Exhibit B in
exchange therefor)) in an aggregate principal amount of not more than
$25,000,000, in each case upon a written order of the Company in the form of an
Officers' Certificate. The Officers' Certificate shall specify the amount of
Securities to be authenticated, the series of Securities and the date on which
the Securities are to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed $115,000,000, except as
provided in Section 2.07. Upon receipt of a written order of the Company in the
form of an Officers' Certificate, the Trustee shall authenticate Securities in
substitution for Securities originally issued to reflect any name change of the
Company.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
<PAGE>
-27-
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
---------
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
------------
notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may have one or
more Co-Registrars and one or more additional Paying Agents reasonably
acceptable to the Trustee. The term "Paying Agent" includes any additional
Paying Agent. Neither the Company nor any Affiliate of the Company may act as
Paying Agent.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate the
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. The Company shall notify the Trustee, in advance, of the name
and address of any such Agent. If the Company fails to maintain a Registrar or
Paying Agent, or fails to give the foregoing notice, the Trustee shall act as
such.
The Company initially appoints the Trustee as Registrar, Paying Agent
and agent for service of demands and notices in connection with the Securities,
until such time as the Trustee has resigned or a successor has been appointed.
The Paying Agent or Registrar may resign upon 30 days notice to the Company.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all as-
<PAGE>
-28-
sets held by it to the Trustee and to account for any assets distributed. Upon
distribution to the Trustee of all assets that shall have been delivered by the
Company to the Paying Agent, the Paying Agent shall have no further liability
for such assets.
SECTION 2.05. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Record Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
---------------------
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a Co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations of the same
series, the Registrar or Co-Registrar shall register the transfer or make the
exchange as requested if its requirements for such transaction are met;
provided, however, that the Securities surrendered for transfer or exchange
- -------- -------
shall be duly endorsed or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Registrar or Co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing. To
permit registrations of transfers and exchanges, the Company shall execute and
the Trustee shall authenticate Securities at the Registrar's or Co-Registrar's
written request. No service charge shall be made for any registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax or similar governmental charge payable in connection
therewith (other than any such transfer taxes or other governmental charge
payable upon exchanges or transfers pursuant to Section 2.02, 2.10, 3.06, 4.16,
4.17 or 9.05 in which event the Company shall be responsible for the payment of
such taxes or governmental charges). The Registrar or Co-Registrar shall not be
required to register the transfer of or exchange of any Security (i) during a
period beginning at the opening of business 15 days before the mailing of a
notice of redemption of Securities and ending at the close of business on the
day of such mailing and (ii) selected for redemption in whole or in part
<PAGE>
-29-
pursuant to Article Three, except the unredeemed portion of any Security being
redeemed in part.
Any Holder of a Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Depository
(or its agent), and that ownership of a beneficial interest in a Global Security
shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
the Company, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee and any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may charge such Holder for its reasonable
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
----------------------
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
Subject to Section 2.09, a Security does not cease to be outstanding because the
Company or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
---------
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Final Maturity Date the Paying Agent
holds U.S. Legal Tender sufficient to pay all of the principal and interest due
on the Securities payable on
<PAGE>
-30-
that date, then on and after that date such Securities cease to be outstanding
and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any of its Affiliates shall be disregarded, except that, for
the purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities that the Trustee actually
knows are so owned shall be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company or its Affiliates.
SECTION 2.10. Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of all Securities surrendered for transfer, exchange, payment or
cancellation, provided that the Trustee shall not be required to destroy
Securities. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Securities
<PAGE>
-31-
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
------------------
If the Company defaults in a payment of principal or interest on the
Securities, it shall pay, to the extent such payments are lawful, interest on
overdue principal and on overdue installments of interest (without regard to any
applicable grace periods) from time to time on demand at the rate of 2% per
---
annum in excess of the rate shown on the Security.
- -----
SECTION 2.13. CUSIP Number.
------------
The Company in issuing the Securities will use one or more "CUSIP"
numbers and the Trustee shall use the CUSIP numbers in notices of redemption or
exchange as a convenience to Holders. The Trustee and the Company shall not be
liable for any defect or inaccuracy in the CUSIP numbers that appear on any
Security or in any redemption notice. The Trustee, in its discretion, may
include in any notice a statement to the effect that the CUSIP numbers on the
Securities have been assigned by an independent service and are included in such
notice solely for the convenience of the holders and that neither the Trustee
nor the Company make any representation as to the correctness or accuracy of the
CUSIP numbers printed in the notice or on the Securities, and that reliance may
be placed only on the other identification numbers printed on the Securities.
The Company shall promptly notify the Trustee of any change in the CUSIP
numbers.
In the event that the Company shall issue and the Trustee shall
authenticate any Securities issued under this Indenture subsequent to the Issue
Date pursuant to clause (iv) of the first sentence of the fourth paragraph of
Section 2.02, the Company shall use its best efforts to obtain the same "CUSIP"
number for such Securities as is printed on the Securities outstanding at such
time; provided, however, that if any series of Securities issued under this
-------- -------
Indenture subsequent to the Issue Date is determined, pursuant to an Opinion of
Counsel of the Company in a form reasonably satisfactory to the Trustee to be a
different class of security than the Securities outstanding at such time for
federal income tax purposes, the Company may obtain a "CUSIP" number for such
Securities that is different than the "CUSIP" number printed on the Securities
then outstanding.
Notwithstanding the foregoing, all Securities issued under this
Indenture shall vote and consent together on all
<PAGE>
matters as one class and no series of Securities will have the right to vote or
consent as a separate class on any matter.
SECTION 2.14. Deposit of Moneys.
-----------------
Prior to 10:00 a.m. New York City time on each Interest Payment Date
and the Final Maturity Date, the Company shall have deposited with the Paying
Agent in immediately available funds money sufficient to make cash payments, if
any, due on such Interest Payment Date or Final Maturity Date, as the case may
be, in a timely manner which permits the Paying Agent to remit payment to the
Holders on such Interest Payment Date or Final Maturity Date, as the case may
be.
SECTION 2.15. Book-Entry Provisions for Global Securities.
-------------------------------------------
(a) The Global Securities initially shall (i) be registered in
the name of the Depository or the nominee of such Depository, (ii) be delivered
to the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit C.
----------
Members of, or participants in, the Depository ("Participants") shall
------------
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and Participants, the operation of customary practices governing the exercise of
the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers
in whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for Physical Securities in accordance with the rules
and procedures of the Depository and the provisions of Section 2.16. In
addition, Physical Securities shall be transferred to all beneficial owners in
exchange for their beneficial interests in Global Securities if (i) the
Depository notifies the Company that it is unwilling or unable to continue as
Depository for any Global Security and a successor Depository is not
<PAGE>
-33-
appointed by the Company within 90 days of such notice or (ii) an Event of
Default has occurred and is continuing and the Registrar has received a request
from the Depository to issue Physical Securities.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in a Global Security to beneficial owners pursuant to
paragraph (b) of this Section 2.15, the Registrar shall (if one or more Physical
Securities are to be issued) reflect on its books and records the date and a
decrease in the principal amount of the beneficial interest in the Global
Security to be transferred, and the Company shall execute, and the Trustee shall
authenticate and make available for delivery, one or more Physical Securities of
like tenor and amount.
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b) of this Section 2.15,
the Global Securities shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall upon written
instructions from the Company authenticate and make available for delivery, to
each beneficial owner identified by the Depository in exchange for its
beneficial interest in the Global Securities, an equal aggregate principal
amount of Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) of this Section 2.15 shall, except as otherwise provided by Section 2.16,
bear the Private Placement Legend.
(f) The Holder of any Global Security may grant proxies and
otherwise authorize any Person, including Participants and Persons that may hold
interests through Participants, to take any action which a Holder is entitled to
take under this Indenture or the Securities.
SECTION 2.16. Registration of Transfers and Exchanges.
---------------------------------------
(a) Transfer and Exchange of Physical Securities. When Physical
--------------------------------------------
Securities are presented to the Registrar or Co-Registrar with a request:
(i) to register the transfer of the Physical Securities; or
<PAGE>
-34-
(ii) to exchange such Physical Securities for an equal number
of Physical Securities of other authorized denominations,
the Registrar or Co-Registrar shall register the transfer or make the exchange
as requested if the requirements under this Indenture as set forth in this
Section 2.16 for such transactions are met; provided, however, that the Physical
-------- -------
Securities presented or surrendered for registration of transfer or exchange:
(I) shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to the Registrar or Co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing;
and
(II) in the case of Physical Securities the offer and sale of which
have not been registered under the Securities Act, such Physical Securities
shall be accompanied, in the sole discretion of the Company, by the
following additional information and documents, as applicable:
(A) if such Physical Security is being delivered to the Registrar or
Co-Registrar by a Holder for registration in the name of such
Holder, without transfer, a certification from such Holder to
that effect (substantially in the form of Exhibit D hereto); or
---------
(B) if such Physical Security is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A, a certification
to that effect (substantially in the form of Exhibit D hereto);
---------
or
(C) if such Physical Security is being transferred to an
Institutional Accredited Investor, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and a
---------
Transferee Certificate for Institutional Accredited Investors
substantially in the form of Exhibit E hereto; or
---------
(D) if such Physical Security is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto), a Transferee
---------
Certificate for Regulation S Transfers substantially in the form
of Exhibit F hereto and an Opinion of
---------
<PAGE>
-35-
Counsel reasonably satisfactory to the Company to the effect that
such transfer is in compliance with Regulation S under the
Securities Act; or
(E) if such Physical Security is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and
---------
an Opinion of Counsel reasonably satisfactory to the Company to
the effect that such transfer is in compliance with Rule 144
under the Securities Act; or
(F) if such Physical Security is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and an Opinion of Counsel
---------
reasonably acceptable to the Company to the effect that such
transfer is in compliance with the rules and regulations under
the Securities Act applicable to such exemption.
(b) Restrictions on Transfer of a Physical Security for a
-----------------------------------------------------
Beneficial Interest in a Global Security. A Physical Security may not be
- ----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Registrar
or Co-Registrar of a Physical Security, duly endorsed or accompanied by
appropriate instruments of transfer, in form satisfactory to the Registrar or
Co-Registrar, together with:
(A) certification, substantially in the form of Exhibit D hereto,
---------
that such Physical Security is being transferred (I) to a
Qualified Institutional Buyer, (II) to an Institutional
Accredited Investor or (III) in an offshore transaction in
reliance on Regulation S; and
(B) written instructions directing the Registrar or Co-Registrar to
make, or to direct the Depository to make, an endorsement on the
applicable Global Security to reflect an increase in the
aggregate amount of the Securities represented by the Global
Security,
then the Registrar or Co-Registrar shall cancel such Physical Security and
cause, or direct the Depository to cause, in ac-
<PAGE>
-36-
cordance with the standing instructions and procedures existing between the
Depository and the Registrar or Co-Registrar, the principal amount of Securities
represented by the applicable Global Security to be increased accordingly. If no
Global Security representing Securities held by Qualified Institutional Buyers,
Institutional Accredited Investors or Persons acquiring Securities in offshore
transactions in reliance on Regulation S, as the case may be, is then
outstanding, the Company shall issue and the Trustee shall, upon written
instructions from the Company in accordance with Section 2.02, authenticate such
a Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer
------------------------------------------
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository in accordance with this Indenture (including the
restrictions on transfer set forth herein) and the procedures of the Depository
therefor. Upon receipt by the Registrar or Co-Registrar of written
instructions, or such other instruction as is customary for the Depository, from
the Depository or its nominee, requesting the registration of transfer of an
interest in a QIB Global Security to another type of Global Security, together
with the applicable Global Securities (or, if the applicable type of Global
Security required to represent the interest as requested to be transferred is
not then outstanding, only the Global Security representing the interest being
transferred), the Registrar or Co-Registrar shall cancel such Global Securities
(or Global Security) and the Company shall issue and the Trustee shall, upon
written instructions from the Company in accordance with Section 2.02,
authenticate new Global Securities of the types so cancelled (or the type so
cancelled and applicable type required to represent the interest as requested to
be transferred) reflecting the applicable increase and decrease of the principal
amount of Securities represented by such types of Global Securities, giving
effect to such transfer. If the applicable type of Global Security required to
represent the interest as requested to be transferred is not outstanding at the
time of such request, the Company shall issue and the Trustee shall, upon
written instructions from the Company in accordance with Section 2.02,
authenticate a new Global Security of such type in principal amount equal to the
principal amount of the interest requested to be transferred.
(d) Transfer of a Beneficial Interest in a Global Security for a
------------------------------------------------------------
Physical Security.
- ------------------
(i) Any Person having a beneficial interest in a Global Security
may exchange upon request such beneficial interest for a Physical Security.
Upon receipt by the
<PAGE>
-37-
Registrar or Co-Registrar of written instructions, or such other form of
instructions as is customary for the Depository, from the Depository or its
nominee on behalf of any Person having a beneficial interest in a Global
Security and upon receipt by the Trustee of a written order or such other
form of instructions as is customary for the Depository or the Person
designated by the Depository as having such a beneficial interest
containing registration instructions and, in the case of any such transfer
or exchange of a beneficial interest in Securities the offer and sale of
which have not been registered under the Securities Act, the following
additional information and documents:
(A) if such beneficial interest is being transferred to the Person
designated by the Depository as being the beneficial owner, a
certification from such Person to that effect (substantially in
the form of Exhibit D hereto); or
---------
(B) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule l44A, a certification
to that effect (substantially in the form of Exhibit D hereto);
---------
or
(C) if such beneficial interest is being transferred to an
Institutional Accredited Investor, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto) and a
---------
Transferee Certificate for Institutional Accredited Investors
substantially in the form of Exhibit E hereto; or
---------
(D) if such beneficial interest is being transferred in reliance on
Regulation S, delivery of a certification to that effect
(substantially in the form of Exhibit D hereto), a Transferee
---------
Certificate for Regulation S Transfers substantially in the form
of Exhibit F hereto and an Opinion of Counsel reasonably
---------
satisfactory to the Company to the effect that such transfer is
in compliance with Regulation S under the Securities Act; or
(E) if such beneficial interest is being transferred in reliance on
Rule 144 under the Securities Act, delivery of a certification to
that effect (substantially in the form of Exhibit D hereto)
---------
<PAGE>
-38-
and an Opinion of Counsel reasonably satisfactory to the Company
to the effect that such transfer is in compliance with Rule 144
under the Securities Act; or
(F) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the
Securities Act, a certification to that effect (substantially in
the form of Exhibit D hereto) and an Opinion of Counsel
---------
reasonably satisfactory to the Company to the effect that such
transfer is in compliance with the rules and regulations under
the Securities Act applicable to such exemption,
then the Registrar or Co-Registrar will cause, in accordance with the
standing instructions and procedures existing between the Depository
and the Registrar or Co-Registrar, the aggregate principal amount of
the applicable Global Security to be reduced and, following such
reduction, the Company will execute and, upon receipt of an
authentication order in the form of an Officers' Certificate in
accordance with Section 2.02, the Trustee will authenticate and make
available for delivery to the transferee a Physical Security.
(ii) Securities issued in exchange for a beneficial interest in
a Global Security pursuant to this Section 2.16(d) shall be registered in
such names and in such authorized denominations as the Depository, pursuant
to instructions from its direct or indirect participants or otherwise,
shall instruct the Registrar or Co-Registrar in writing. The Registrar or
Co-Registrar shall make available for delivery such Physical Securities to
the Persons in whose names such Physical Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
----------------------------------------------------------
Notwithstanding any other provisions of this Indenture, a Global Security may
not be transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(f) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Securities not bearing the Private Placement Legend, the
Registrar or Co-Registrar shall deliver Securities that do not bear the Private
Placement Legend. Upon
<PAGE>
-39-
the transfer, exchange or replacement of Securities bearing the Private
Placement Legend, the Registrar or Co-Registrar shall deliver only Securities
that bear the Private Placement Legend unless, and the Trustee is hereby
authorized and directed to deliver Securities without the Private Placement
Legend if, (i) there is delivered to the Trustee an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act or (ii)
such Security has been sold pursuant to an effective registration statement
under the Securities Act.
(g) General. By its acceptance of any Security bearing the
-------
Private Placement Legend, each Holder of such a Security acknowledges the
restrictions on transfer of such Security set forth in this Indenture and in the
Private Placement Legend and agrees that it will transfer such Security only as
provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.17. Designation.
------------
The Indebtedness evidenced by the Securities is hereby irrevocably
designated as "senior indebtedness" or such other term denoting seniority for
the purposes of any future Indebtedness of the Company which the Company makes
subordinate to any senior indebtedness or such other term denoting seniority.
SECTION 2.18. Additional Interest Under Registration Rights Agreement.
-------------------------------------------------------
Under certain circumstances, the Company shall be obligated to pay
Additional Interest to the Holders, all as set forth in Section 4 of the
Registration Rights Agreement. The terms thereof are hereby incorporated herein
by reference.
<PAGE>
-40-
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 or
Paragraph 6 of the Securities, it shall notify the Trustee in writing of the
Redemption Date, the Redemption Price and the principal amount of Securities to
be redeemed. The Company shall give notice of redemption to the Paying Agent
and Trustee at least 30 days but not more than 60 days before the Redemption
Date (unless a shorter notice shall be agreed to by the Trustee in writing),
together with an Officers' Certificate stating that such redemption will comply
with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
--------------------------------------
In the event that less than all of the Securities are to be redeemed
at any time, selection of such Securities for redemption will be made by the
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Securities are listed or, if the Securities are
not then listed on a national securities exchange, on a pro rata basis, by lot
--------
or by such method as the Trustee shall deem fair and appropriate; provided,
--------
however, that no Securities of a principal amount of $1,000 or less shall be
- -------
redeemed in part; and provided, further, that if a partial redemption is made
-------- -------
with the proceeds of a Public Equity Offering, selection of the Securities or
portions thereof for redemption shall be made by the Trustee only on a pro rata
--- ----
basis or on as nearly a pro rata basis as is practicable (subject to the
--- ----
procedures of the Depository), unless such method is otherwise prohibited.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denominations of $1,000 or less may be redeemed only in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called for
redemption.
<PAGE>
-41-
SECTION 3.03. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at its registered
address. At the Company's request made at least 45 days before the Redemption
Date, the Trustee shall give the notice of redemption in the Company's name and
at the Company's expense. Each notice for redemption shall identify the
Securities to be redeemed (including the CUSIP number(s), if any) and shall
state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest,
if any, to be paid;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered
to the Paying Agent to collect the Redemption Price plus accrued interest,
if any;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued;
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption; and
(8) the Paragraph of the Securities pursuant to which the
Securities are to be redeemed.
<PAGE>
-42-
SECTION 3.04. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to
the Trustee or Paying Agent, such Securities called for redemption shall be paid
at the Redemption Price (which shall include accrued interest thereon to the
Redemption Date), but installments of interest, the maturity of which is on or
prior to the Redemption Date, shall be payable to Holders of record at the close
of business on the relevant Record Dates.
SECTION 3.05. Deposit of Redemption Price.
---------------------------
On or before 11:00 a.m. New York Time on the Redemption Date, the
Company shall deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the Redemption Price plus accrued interest, if any, of all Securities to be
redeemed on that date.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Securities to be redeemed will cease to accrue on and
after the applicable Redemption Date, whether or not such Securities are
presented for payment.
SECTION 3.06. Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part only, the
Trustee shall upon written instruction from the Company authenticate for the
Holder a new Security or Securities in a principal amount equal to the
unredeemed portion of the Security surrendered.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
---------------------
The Company will pay the principal of and interest on the Securities
in the manner provided in the Securities and in this Indenture. An installment
of principal of or interest on the Securities shall be considered paid on the
date it is due if the Trustee or Paying Agent (other than the Company or an
<PAGE>
-43-
Affiliate of the Company) holds on that date U.S. Legal Tender designated for
and sufficient to pay the installment in full and is not prohibited from paying
such money to the Holders pursuant to the terms of this Indenture.
The Company will pay, to the extent such payments are lawful, interest
on overdue principal and interest on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the rate
borne by the Securities plus 2% per annum. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.03. The Company shall give
prompt written notice (in any event no later than forty-eight hours after any
change in location) to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the address of the Trustee set forth in Section 10.02.
The Company hereby initially designates the office of the Trustee at 770
Broadway, 13th Floor, New York, New York 10003 as its office or agency in the
Borough of Manhattan, The City of New York.
SECTION 4.03. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, (a) declare or pay any dividend or make
any distribution (other than dividends or distributions payable in Qualified
Capital Stock of the Company) on or in respect of shares of the Company's
Capital Stock to holders of such Capital Stock, (b) purchase, redeem or
otherwise acquire or retire for value any Capital Stock of the Company or any
warrants, rights or options to purchase or acquire shares of any class of such
Capital Stock, (c) make any principal payment on, purchase, defease, redeem,
prepay, decrease or otherwise acquire or retire for value, prior to any
scheduled final maturity, scheduled repayment or scheduled sinking fund payment,
any Indebtedness of the Company that is subordinate or junior in right of
payment to the Securities or (d) make any Investment (other than Permitted
Investments) (each of the foregoing actions set forth in clauses (a), (b), (c)
and (d) being referred to as a "Restricted Payment"), if at
<PAGE>
-44-
the time of such Restricted Payment or immediately after giving effect thereto,
(i) a Default or an Event of Default shall have occurred and be continuing or
(ii) the Company is not able to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) in compliance with Section 4.04 or (iii) the
aggregate amount of Restricted Payments (including such proposed Restricted
Payment) made subsequent to the Issue Date (the amount expended for such
purposes, if other than in cash, being the fair market value of such property as
determined reasonably and in good faith by the Board of Directors of the
Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company reported for any period subsequent to March 29, 1997
and on or prior to the date the Restricted Payment occurs (the "Reference Date")
(treating such period as a single accounting period); plus (x) 100% of the
aggregate net cash proceeds received by the Company from any Person (other than
a Subsidiary of the Company) from the issuance and sale subsequent to the Issue
Date and on or prior to the Reference Date of Qualified Capital Stock of the
Company; plus (y) without duplication of any amounts included in clause (iii)(x)
above, 100% of the aggregate net cash proceeds of any equity contribution
received by the Company from a holder of the Company's Capital Stock; plus (z)
without duplication, the sum of (1) the aggregate amount returned in cash on or
with respect to Investments (other than Permitted Investments) made subsequent
to the Issue Date whether through interest payments, principal payments,
dividends or other distributions or payments and (2) the Net Cash Proceeds
received by the Company or any Subsidiary from the disposition of all or any
portion of such Investments (other than to a Subsidiary of the Company).
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any dividend
within 60 days after the date of declaration of such dividend if the dividend
would have been permitted on the date of declaration; (2) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any shares
of Capital Stock of the Company, either (i) solely in exchange for shares of
Qualified Capital Stock of the Company or (ii) through the
<PAGE>
-45-
application of net proceeds of a substantially concurrent sale for cash (other
than to a Subsidiary of the Company) of shares of Qualified Capital Stock of the
Company; (3) if no Default or Event of Default shall have occurred and be
continuing, the acquisition of any Indebtedness of the Company that is
subordinate or junior in right of payment to the Securities either (i) solely in
exchange for shares of Qualified Capital Stock of the Company or (ii) through
the application of net proceeds of a substantially concurrent sale for cash
(other than to a Subsidiary of the Company) of (A) shares of Qualified Capital
Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no Default
or Event of Default shall have occurred and be continuing, repurchases by the
Company of Common Stock of the Company or options, warrants or other securities
exercisable or convertible into Common Stock of the Company from employees and
directors of the Company or any of its Subsidiaries or their authorized
representatives upon the death, disability or termination of employment or
directorship of such employees or directors, in an aggregate amount not to
exceed $500,000 in any calendar year and $2.0 million in the aggregate (in each
case plus the amount of net cash proceeds received by the Company from the sale
of Qualified Capital Stock to officers or directors of the Company and its
Subsidiaries, provided, that such amounts did not provide the basis for any
--------
other Restricted Payment); and (5) so long as no Default or Event of Default
shall have occurred and be continuing, the payment of dividends on the shares of
Series A Preferred Stock issued on the Issue Date and on any additional shares
of such stock issued in lieu of cash dividends thereon with (x) the net proceeds
of a sale for cash (other than to a Subsidiary of the Company) of shares of
Qualified Capital Stock of the Company or (y) the net cash proceeds of any
capital contribution to the Company to the extent such amounts in clauses (x)
and (y) did not provide the basis for any other Restricted Payment. In
determining the aggregate amount of Restricted Payments made subsequent to the
Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (2)(ii), 3(ii)(A), (4) and (5)
shall be included in such calculation.
Any Investment in a direct or indirect Wholly Owned Subsidiary of the
Company that becomes, directly or indirectly, a non-Wholly Owned Subsidiary of
the Company (unless the Company or a Subsidiary retains no equity interest in
such non-Wholly Owned Subsidiary) shall become a Restricted Payment on such date
in an amount equal to (A) 1.0 minus the Company's percentage interest in such
non-Wholly Owned Subsidiary times, (B) the amount of all Investments (net of any
returns previously paid on such Investment) made in such non-Wholly Owned
Subsidiary to such date, not to exceed the greater of (x) the book value of such
Subsidiary on such date and (y) the fair market value of such Subsidiary on such
date as determined (1) in good faith by the Board of Directors of the Company if
such fair market value is determined to be less than $5.0 million and (2) by an
investment banking firm of national standing if such fair market value is
determined to be in excess of $5.0 million.
<PAGE>
-46-
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an officers' certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
SECTION 4.04. Limitation on Incurrence of Additional Indebtedness.
----------------------------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
become liable, contingently or otherwise, with respect to, or otherwise become
responsible for payment of (collectively, "incur"), any Indebtedness (including
Acquired Indebtedness but excluding Permitted Indebtedness); provided, however,
-------- --------
that if no Default or Event of Default shall have occurred and be continuing at
the time of or as a consequence of the incurrence of any such Indebtedness, the
Company may incur Indebtedness (including, without limitation, Acquired
Indebtedness) if on the date of the incurrence of such Indebtedness, after
giving effect to the incurrence thereof, the Consolidated Fixed Charge Coverage
Ratio of the Company is greater than 2.0 to 1.0.
(b) Indebtedness of a Person which is secured by a Lien on an asset
acquired by the Company or a Subsidiary of the Company (whether or not such
Indebtedness is assumed by the acquiring Person) shall be deemed incurred at the
time of the Asset Acquisition.
(c) The Company shall not incur any Indebtedness which by its terms
(or by the terms of any agreement governing such Indebtedness) is subordinated
in right of payment to any other Indebtedness of the Company unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate in right of payment to the
Securities, pursuant to subordination provisions that are substantively
identical to the subordination provisions of such Indebtedness (or such
agreement) that are most favorable to the holders of any other Indebtedness of
the Company.
SECTION 4.05. Corporate Existence.
--------------------
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done, at its own cost and expense, all things necessary to preserve
and keep in full force
<PAGE>
-47-
and effect its corporate existence and the corporate, partnership or other
existence of each of the Subsidiaries in accordance with the respective
organizational documents of the Company or the Subsidiary, as the case may be,
and the rights (charter and statutory) and material franchises of the Company
and each of the Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to preserve any such right or franchise, or the corporate existence of
any Subsidiary, if the Board of Directors of the Company shall determine that
the preservation thereof is no longer desirable in the conduct of the business
of the Company and each of the Subsidiaries, taken as a whole, and that the loss
thereof is not, and will not be, adverse in any material respect to the Holders.
SECTION 4.06. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon it or any of the Subsidiaries or
upon the income, profits or property of it or any of the Subsidiaries and (b)
all lawful claims for labor, materials and supplies which, in each case, if
unpaid, might by law become a material liability or Lien upon the property of it
or any of the Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim the amount, applicability or validity of which is
being contested in good faith by appropriate proceedings properly instituted and
diligently conducted and for which appropriate provision has been made.
SECTION 4.07. Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material properties owned by or
leased by it or any of the Subsidiaries used or useful to the conduct of its
business or the business of any of the Subsidiaries to be maintained and kept in
normal condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals and
replacements thereof, all as in its judgment may be necessary, so that the
business carried on in connection therewith may be properly conducted at all
times; provided, however, that nothing in this Section 4.07 shall prevent the
-------- -------
Company or any of the Subsidiaries from discontinuing the use, operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal is, in the judgment of the Board of Directors of the
Company or any Subsidiary concerned, or of an officer (or other agent employed
by the Company or of any of the Subsidiaries) of the Company or any of
<PAGE>
-48-
the Subsidiaries having managerial responsibility for any such property,
desirable in the conduct of the business of the Company or any Subsidiary, and
if such discontinuance or disposal is not adverse in any material respect to the
Holders.
(b) The Company shall maintain, and shall cause the Subsidiaries
to maintain, insurance with responsible carriers against such risks and in such
amounts, and with such deductibles, retentions, self-insured amounts and co-
insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance.
SECTION 4.08. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The annual financial statements delivered pursuant to
Section 4.10 to the Trustee shall be accompanied by an Officers' Certificate
stating that a review of the activities of the Company has been made under the
supervision of the signing Officers with a view to determining whether it has
kept, observed, performed and fulfilled its obligations under this Indenture and
further stating, as to each such Officer signing such certificate, that to the
best of his knowledge the Company during such preceding fiscal year has kept,
observed, performed and fulfilled each and every such covenant and no Default or
Event of Default occurred during such year and at the date of such certificate
there is no Default or Event of Default that has occurred and is continuing or,
if such signers do know of such Default or Event of Default, the certificate
shall describe its status with particularity. The Officers' Certificate shall
also notify the Trustee should the Company elect to change the manner in which
it fixes its fiscal year end.
(b) The annual financial statements delivered pursuant to
Section 4.10 to the Trustee shall be accompanied by a written report of the
Company's independent accountants (who shall be a firm of established national
reputation) that in conducting their audit of such financial statements nothing
has come to their attention that would lead them to believe that a Default or
Event of Default under this Indenture has occurred insofar as they relate to
accounting matters or, if any such violation has occurred, specifying the nature
and period of existence thereof, it being understood that such accountants shall
not be liable directly or indirectly to any Person for any failure to obtain
knowledge of any such violation that would not be disclosed in the course of an
audit examination conducted in accordance with GAAP.
<PAGE>
-49-
(c) (i) If any Default or Event of Default has occurred and is
continuing or (ii) if any Holder seeks to exercise any remedy hereunder with
respect to a claimed Default under this Indenture or the Securities, the Company
shall deliver to the Trustee, at its address set forth in Section 10.02 hereof,
by registered or certified mail or by facsimile transmission followed by hard
copy by registered or certified mail an Officers' Certificate specifying such
event, notice or other action and the status thereof within five Business Days
of its becoming aware of such occurrence.
SECTION 4.09. Compliance with Laws.
--------------------
The Company will comply, and will cause each of the Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States, all states and municipalities thereof, and of
any governmental department, commission, board, regulatory authority, bureau,
agency and instrumentality of the foregoing, in respect of the conduct of their
respective businesses and the ownership of their respective properties, except
for such noncompliances as would not in the aggregate have a material adverse
effect on the financial condition or results of operations of the Company and
its Subsidiaries taken as a whole.
SECTION 4.10. Commission Reports.
------------------
(a) The Company will deliver to the Trustee within 15 days after
it files with the Commission, copies of the quarterly and annual reports and of
the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company (at its own expense) will file with the Commission all
information, documents and reports required to be filed with the Commission to
the extent permitted, and provide the Trustee and the Holders with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. Upon qualification of this Indenture under
the TIA, the Company shall also comply with the other provisions of TIA (S)
314(a).
(b) Regardless of whether the Company is required to furnish
such reports to its stockholders pursuant to the Exchange Act, the Company shall
cause its consolidated financial statements, comparable to that which would have
been required to appear in annual or quarterly reports, to be delivered to
<PAGE>
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the Trustee and the Holders. The Company will also make such reports available
to prospective purchasers of the Securities, securities analysts and broker-
dealers upon their request.
(c) For so long as any of the Securities remain outstanding, the
Company will make available to any prospective purchaser of the Securities or
beneficial owner of the Securities in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act during any
period when the Company is not subject to Section 13 or 15(d) under the Exchange
Act.
Delivery of such reports, information and documents to the Trustee is
for informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive the Company from paying all or any
portion of the principal of and/or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture, and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 4.12. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might
<PAGE>
-51-
reasonably have been obtained in a comparable transaction at such time on an
arm's-length basis from a Person that is not an Affiliate of the Company or such
Subsidiary. All Affiliate Transactions (and each series of related Affiliate
Transactions which are similar or part of a common plan) involving aggregate
payments or other property with a fair market value in excess of $1.0 million
shall be approved by the Board of Directors of the Company or such Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Subsidiary of the Company enters
into an Affiliate Transaction (or a series of related Affiliate Transactions
related to a common plan) that involves an aggregate fair market value of more
than $5.0 million, the Company or such Subsidiary, as the case may be, shall,
prior to the consummation thereof, obtain a favorable opinion as to the fairness
of such transaction or series of related transactions to the Company or the
relevant Subsidiary, as the case may be, from a financial point of view, from an
Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to
(i) reasonable fees and compensation paid to and indemnity provided on behalf
of, officers, directors, employees or consultants of the Company or any
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Subsidiaries or exclusively between or among such
Subsidiaries; provided such transactions are not otherwise prohibited by this
--------
Indenture; (iii) payments to be made in connection with the consummation of the
Recapitalization or the financing thereof to be received by Leonard Green &
Partners, L.P. and its Affiliates; (iv) payments of annual fees and
reimbursement of reasonable expenses in accordance with the provisions of the
Management Services Agreement; (v) any employment agreement entered into in the
ordinary course of business, (vi) Restricted Payments permitted by this
Indenture and Permitted Investments, (vii) payments made in accordance with the
Occidental Supply Agreement or any other such agreement with Occidental entered
into on terms no less favorable to the Company than those that may have been
obtained in an arm's length transaction and (viii) loans or advances to officers
or employees of the Company in the ordinary course of business not to exceed
$500,000 in the aggregate at any one time outstanding.
<PAGE>
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SECTION 4.13. Conduct of Business.
-------------------
The Company and its Subsidiaries shall not engage in any businesses
other than a Related Business.
SECTION 4.14. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
----------------------
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, create or otherwise cause or permit to
exist or become effective any encumbrance or restriction on the ability of any
Subsidiary of the Company to (a) pay dividends or make any other distributions
on or in respect of its Capital Stock; (b) make loans or advances or to pay any
Indebtedness or other obligation owed to the Company or any other Subsidiary of
the Company; or (c) transfer any of its property or assets to the Company or any
other Subsidiary of the Company, except for such encumbrances or restrictions
existing under or by reason of: (1) applicable law; (2) this Indenture; (3) any
Credit Agreement; (4) customary non-assignment provisions of any contract or any
lease governing a leasehold interest of any Subsidiary of the Company, or any
customary restriction on the ability of a Subsidiary of the Company to dividend,
distribute or otherwise transfer any asset which secures Purchase Money
Indebtedness of such Subsidiary; (5) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired; (6) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; or (7) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred to in
clause (2), (3), (5) or (6) above; provided, however, that the provisions
-------- -------
relating to such encumbrance or restriction contained in any such Indebtedness
are no less favorable to the Company in any material respect as determined by
the Board of Directors of the Company in their reasonable and good faith
judgment than the provisions relating to such encumbrance or restriction
contained in agreements referred to in such clause (2), (3), (5) or (6).
SECTION 4.15. Limitation on Liens.
-------------------
The Company shall not, and shall not cause or permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or permit or
suffer to exist any Liens of any kind against or upon any property or assets of
the Company or any of its Subsidiaries whether owned on the Issue Date or
acquired
<PAGE>
-53-
after the Issue Date, or any proceeds therefrom, or assign or otherwise
convey any right to receive income or profits therefrom unless (i) in the case
of Liens securing Indebtedness that is expressly subordinate or junior in right
of payment to the Securities, the Securities are secured by a Lien on such
property, assets or proceeds that is senior in priority to such Liens and (ii)
in all other cases, the Securities are equally and ratably secured, except for
(A) Liens existing as of the Issue Date to the extent and in the manner such
Liens are in effect on the Issue Date; (B) Liens of the Company or a Wholly
Owned Subsidiary of the Company on assets of any Subsidiary of the Company; (C)
Liens securing Refinancing Indebtedness which is incurred to Refinance any
Indebtedness which has been secured by a Lien permitted under this Indenture and
which has been incurred in accordance with the provisions of this Indenture;
provided, however, that such Liens (X) are no less favorable to the Holders and
- -------- -------
are not more favorable to the lienholders with respect to such Liens than the
Liens in respect of the Indebtedness being Refinanced and (Y) do not extend to
or cover any property or assets of the Company or any of its Subsidiaries not
securing the Indebtedness so Refinanced; and (D) Permitted Liens.
SECTION 4.16. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, the Company
shall make an offer to purchase (the "Change of Control Offer") all of the then
-----------------------
outstanding Securities pursuant to the offer described in paragraph (b) below at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, thereon to the date of purchase.
(b) Within 30 days following the date upon which a Change of
Control occurred, the Company shall send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer. The notice to the Holders shall contain all
instructions and materials necessary to enable such Holders to tender Securities
pursuant to the Change of Control Offer. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.16 and that all Securities tendered and not withdrawn will
be accepted for payment;
(2) the purchase price (including the amount of accrued
interest) and the purchase date, which shall be no earlier than 30 days nor
later than 60 days from the date
<PAGE>
-54-
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date");
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control
Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to a Change of Control Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third
Business Day prior to the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the second Business Day prior
to the Change of Control Payment Date, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Securities the Holder delivered for purchase and a statement
that such Holder is withdrawing his election to have such Security
purchased;
(7) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount equal to the
unpurchased portion of the Securities surrendered; and
(8) the circumstances and relevant facts regarding such Change
of Control.
On or before the Change of Control Payment Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, of all
Securities so tendered and (iii) deliver to the Trustee Securities so accepted
together with an Officers' Certificate stating the Securities or portions
thereof being purchased by the Company. The Paying Agent shall promptly mail to
the Holders of Securities so accepted payment in an amount equal to the purchase
price plus accrued interest, if any, thereon and the Trustee shall promptly
authenticate and mail to such Holders
<PAGE>
-55-
new Securities equal in principal amount to any unpurchased portion of the
Securities surrendered. Any Securities not so accepted shall be promptly mailed
by the Company to the Holder thereof. For purposes of this Section 4.16, the
Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
the provisions of any securities laws or regulations conflict with the
provisions under this Section 4.16, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.16 by virtue thereof.
SECTION 4.17. Limitation on Asset Sales.
-------------------------
The Company shall not, and shall not permit any of its Subsidiaries
to, consummate an Asset Sale unless (i) the Company or the applicable
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Company's Board of Directors),
(ii) at least 75% of the consideration received for the assets sold by the
Company or the Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash or Cash Equivalents and is received at the time of such
disposition; provided, however, that (A) notes received by the Company as
-------- -------
consideration for an Asset Sale that are converted into cash or Cash Equivalents
immediately following the consummation of such Asset Sale or (B) the assumption
by the purchaser of assets pursuant to an Asset Sale of liabilities of the
Company (other than liabilities that are by their terms subordinate to the
Securities) shall, in each case of the immediately preceding clauses (A) and
(B), be deemed to be cash or Cash Equivalents at the time of such Asset Sale in
an amount equal to, in the case of clause (A), the amount of cash or Cash
Equivalents realized on such conversion and, in the case of clause (B), the
amount of the liabilities so assumed, as reflected on the balance sheet of the
Company, and (iii) following the consummation of an Asset Sale, the Company
shall, or shall cause such Subsidiary, within 365 days of receipt thereof either
(A) to apply the Net Cash Proceeds related to such Asset Sale to prepay any
<PAGE>
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Indebtedness that by its terms is not subordinate to the Securities, (B) to make
a Permitted Investment or an investment in properties and assets that replace
the properties and assets that were the subject of such Asset Sale or in
properties and assets that will be used in a Related Business (collectively,
"Replacement Assets") or (C) a combination of prepayment and investment
permitted by the foregoing clauses (iii)(A) and (iii)(B). On the 365th day after
an Asset Sale, or such earlier date, if any, as the Board of Directors of the
Company or of such Subsidiary determines not to apply the Net Cash Proceeds
relating to such Asset Sale as set forth in clauses (iii)(A), (iii)(B) and
(iii)(C) of the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before the applicable Net Proceeds Offer Trigger Date as permitted in
clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (or, in
the case of a Net Proceeds Offer Trigger Date occurring prior to such 365th day,
the aggregate amount of Net Cash Proceeds that the Board of Directors has
determined not to so apply) (each a "Net Proceeds Offer Amount") shall be
applied by the Company or such Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than
30 nor more than 45 days following the applicable Net Proceeds Offer Trigger
Date, from all Holders on a pro rata basis (and on a pro rata basis with the
holders of Indebtedness of the Company that is not by its terms subordinate to
the Securities), that amount of Securities equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the Securities to be
purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
-------- -------
received by the Company or any Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then such conversion or disposition shall be deemed to
constitute an Asset Sale hereunder and the Net Cash Proceeds thereof shall be
applied in accordance with this Section 4.17. The Company may defer the Net
Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer Amount
equal to or in excess of $5.0 million resulting from one or more Asset Sales (at
which time, the entire unutilized Net Proceeds Offer Amount, and not just the
amount in excess of $5.0 million, shall be applied as required pursuant to this
paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Subsidiaries as an entirety to a
Person in a transaction per-
<PAGE>
-57-
mitted under Section 5.01, the successor corporation shall be deemed to have
sold the properties and assets of the Company and its Subsidiaries not so
transferred for purposes of this Section 4.17, and shall comply with the
provisions of this Section 4.17 with respect to such deemed sale as if it were
an Asset Sale. In addition, the fair market value of such properties and assets
of the Company or its Subsidiaries deemed to be sold shall be deemed to be Net
Cash Proceeds for purposes of this Section 4.17.
Notwithstanding the two immediately preceding paragraphs, the Company
and its Subsidiaries will be permitted to consummate an Asset Sale without
complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided that any consideration not
--------
constituting Replacement Assets received by the Company or any of its
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Notice of each Net Proceeds Offer pursuant to this Section 4.17 shall
be mailed or caused to be mailed, by first class mail, by the Company within 25
days following the applicable Net Proceeds Offer Trigger Date to all Holders at
their last registered addresses, with a copy to the Trustee. The notice shall
contain all instructions and materials necessary to enable such Holders to
tender Securities pursuant to the Net Proceeds Offer and shall state the
following terms:
(1) that the Net Proceeds Offer is being made pursuant to this
Section 4.17 and that all Securities tendered will be accepted for payment;
provided, however, that if the principal amount of Securities tendered in
-------- -------
the Net Proceeds Offer exceeds the Net Proceeds Offer Amount, the Company
shall select the Securities to be purchased on a pro rata basis;
(2) the Net Proceeds Offer price (including the amount of
accrued interest, if any) and the Net Proceeds Offer Payment Date;
(3) that any Security not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in making payment
therefor, any Security accepted for payment pursuant
<PAGE>
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to the Net Proceeds Offer shall cease to accrue interest after the Net
Proceeds Offer Payment Date;
(5) that Holders electing to have a Security purchased
pursuant to the Net Proceeds Offer will be required to surrender the
Security, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Net Proceeds
Offer Payment Date;
(6) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than the second Business Day prior
to the Net Proceeds Offer Payment Date, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part
will be issued new Securities in a principal amount at maturity equal to
the unpurchased portion of the Securities surrendered.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price, plus accrued interest, if any, of all
Securities to be purchased and (iii) deliver to the Trustee Securities so
accepted together with an Officers' Certificate stating the Securities or
portions thereof being purchased by the Company. The Paying Agent shall
promptly mail to the Holders of Securities so accepted payment in an amount
equal to the purchase price, plus accrued interest, if any, thereon and the
Trustee shall promptly authenticate and mail to such Holders new Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered. Any Securities not so accepted shall be promptly mailed by the
Company to the Holder thereof. For purposes of this Section 4.17, the Trustee
shall act as the Paying Agent.
Any Net Proceeds Offer shall remain open for at least 20 Business Days
(or such longer period as may be required by law) and until the close of
business on the Net Proceeds Offer Payment Date.
<PAGE>
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The Company shall comply with all tender offer rules under state and
federal securities laws, including, but not limited to, Section 14(e) under the
Exchange Act and Rule l4e-1 thereunder, to the extent applicable to such offer.
To the extent that the provisions of any securities laws or regulations conflict
with the foregoing provisions of this Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the foregoing provisions of this Indenture by
virtue thereof.
Upon completion of a Net Proceeds Offer, the amount of Net Cash
Proceeds will be reset at zero. Accordingly, to the extent that the aggregate
amount of Securities tendered pursuant to a Net Proceeds Offer is less than the
Net Cash Proceeds, any remaining Net Cash Proceeds held by the Trustee shall be
returned by the Trustee to the Company and the Company may use any remaining Net
Cash Proceeds for general corporate purposes.
SECTION 4.18. Limitation on Preferred Stock of Subsidiaries.
---------------------------------------------
The Company shall not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a Wholly Owned Subsidiary of
the Company) or permit any Person (other than the Company or a Wholly Owned
Subsidiary of the Company) to own any Preferred Stock of any Subsidiary of the
Company.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
----------------------------------------
(a) Except for the Transaction Mergers, the Company shall not,
in a single transaction or series of related transactions, consolidate or merge
with or into any Person, or sell, assign, transfer, lease, convey or otherwise
dispose of (or cause or permit any Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Subsidiaries) whether as an entirety or substantially as an entirety
to any Person unless: (i) either (1) the Company shall be the surviving or
continuing corporation or (2) the Person (if other than
<PAGE>
-60-
the Company) formed by such consolidation or into which the Company is merged or
the Person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and of the Company's
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium and Additional Interest, if any, and interest on all
of the Securities and the performance of every covenant of the Securities and
this Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to Section
4.04; (iii) immediately before and immediately after giving effect to such
transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture, comply with the applicable provisions of this Indenture
and that all conditions precedent in this Indenture relating to such transaction
have been satisfied.
(b) For purposes of the foregoing paragraph (a), the transfer
(by lease, assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
<PAGE>
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SECTION 5.02. Successor Corporation Substituted.
---------------------------------
Upon any such consolidation, merger, conveyance, lease or transfer of
all or substantially all of the assets of the Company in accordance with the
foregoing provisions of this Article Five, in which the Company is not the
surviving Person, the successor Person formed by such consolidation or into
which the Company is merged or to which such conveyance, lease or transfer is
made will succeed to, and be substituted for, and may exercise every right and
power of, the Company under this Indenture and the Securities with the same
effect as if such successor had been named as the Company therein.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
-----------------
An "Event of Default" occurs if:
(a) the Company fails to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of 30
days;
(b) the Company fails to pay the principal on any Securities,
when such principal becomes due and payable, at maturity, upon redemption
or otherwise (including the failure to make a payment to purchase
Securities tendered pursuant to a Change of Control Offer or a Net Proceeds
Offer);
(c) the Company or any Subsidiary of the Company defaults in the
observance or performance of any other covenant or agreement contained in
this Indenture, which default continues for a period of 30 days after the
Company receives written notice specifying the default (and demanding that
such default be remedied) from the Trustee or the Holders of at least 25%
of the outstanding principal amount of the Securities (except in the case
of a default with respect to Section 5.01, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(d) the Company or any Subsidiary of the Company fails to pay at
final maturity (giving effect to any applicable grace periods and any
extensions thereof) the
<PAGE>
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principal amount of any Indebtedness of the Company or any Subsidiary of
the Company, or the acceleration of the final stated maturity of any such
Indebtedness, in any case if the aggregate principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at final maturity or
which has been accelerated, aggregates $5.0 million or more at any time;
(e) one or more judgments in an aggregate amount in excess of
$5.0 million shall have been rendered against the Company or any of its
Subsidiaries and such judgments remain undischarged, unpaid or unstayed for
a period of 60 days after such judgment or judgments become final and non-
appealable;
(f) the Company or any of its Significant Subsidiaries (i)
admits in writing its inability to pay its debts generally as they become
due, (ii) commences a voluntary case or proceeding under any Bankruptcy Law
with respect to itself, (iii) consents to the entry of a judgment, decree
or order for relief against it in an involuntary case or proceeding under
any Bankruptcy Law, (iv) consents to the appointment of a Custodian of it
or for substantially all of its property, (v) consents to or acquiesces in
the institution of a bankruptcy or an insolvency proceeding against it,
(vi) makes a general assignment for the benefit of its creditors or (vii)
takes any partnership or corporate action, as the case may be, to authorize
or effect any of the foregoing; or
(g) a court of competent jurisdiction enters a judgment, decree
or order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law,
which shall (i) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any of its Significant Subsidiaries, (ii) appoint a Custodian of
the Company or any of its Significant Subsidiaries or for substantially all
of any of their property or (iii) order the winding-up or liquidation of
its affairs; and such judgment, decree or order shall remain unstayed and
in effect for a period of 60 consecutive days
SECTION 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
clause (f) or (g) above) shall occur and be
<PAGE>
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continuing, the Trustee or the Holders of at least 25% in principal amount of
outstanding Securities may declare the principal of, premium, if any, and
accrued and unpaid interest on all the Securities to be due and payable by
notice in writing to the Company and the Trustee specifying the respective Event
of Default and that it is a "notice of acceleration", and the same shall become
immediately due and payable. If an Event of Default specified in clause (f) or
(g) above occurs and is continuing, then all unpaid principal of, and premium
and Additional Interest, if any, and accrued and unpaid interest on all of the
outstanding Securities shall ipso facto become and be immediately due and
---- -----
payable without any declaration or other act on the part of the Trustee or any
Holder.
At any time after a declaration of acceleration with respect to the
Securities as described in the preceding paragraph, the Holders of a majority in
principal amount of the Securities may rescind and cancel such declaration and
its consequences (i) if the rescission would not conflict with any judgment or
decree, (ii) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration, (iii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
(iv) if the Company has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its reasonable expenses, disbursements and advances
and (v) in the event of the cure or waiver of an Event of Default of the type
described in clause (f) or (g) of Section 6.01, the Trustee shall have received
an Officers' Certificate and an Opinion of Counsel that such Event of Default
has been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities, this Indenture or the
Guarantees.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of De-
<PAGE>
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fault. No remedy is exclusive of any other remedy. All available remedies are
cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
-----------------------
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than
a majority in principal amount of the outstanding Securities by written notice
to the Trustee may waive an existing Default or Event of Default and its
consequences, except a Default in the payment of principal of or interest on any
Security as specified in clauses (a) and (b) of Section 6.01. The Company shall
deliver to the Trustee an Officers' Certificate stating that the requisite
percentage of Holders have consented to such waiver and attaching copies of such
consents. When a Default or Event of Default is waived, it is cured and ceases
and the duties and obligations of the Trustee shall be those expressly set forth
in this Indenture (other than those duties and obligations that by their terms
arise upon the occurrence of a Default or an Event of Default).
SECTION 6.05. Control by Majority.
-------------------
The Holders of not less than a majority in principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.01, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may, in the sole judgment of the Trustee, give rise to
or subject the Trustee to personal liability; provided that the Trustee may take
--------
any other action deemed proper by the Trustee.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
SECTION 6.06. Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
<PAGE>
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(2) the Holder or Holders of at least 25% in principal amount
of the outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee in its sole judgment
against any loss, liability or expense;
(4) the Trustee does not comply with the request within 30
days after receipt of the written request and the offer described in clause
(3) above and, if requested, the provision of indemnity; and
(5) during such 30-day period the Holder or Holders of a
majority in principal amount of the outstanding Securities do not give the
Trustee a written direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the written consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal or interest specified
in clause (a) or (b) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest and fees remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
--- -----
borne by the Securities and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the actual, documented
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
<PAGE>
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SECTION 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company, the
Subsidiaries, their creditors or their property and shall be entitled and
empowered to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same, and any Custodian in
any such judicial proceedings is hereby authorized by each Securityholder to
make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Securityholders, to pay
to the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agent and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Securityholder any plan of reorganization, arrangement, adjustment
or composition affecting the Securities or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.
SECTION 6.10. Priorities.
----------
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
<PAGE>
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SECTION 6.11. Undertaking for Costs.
---------------------
Each party to this Indenture agrees and each Holder of any Security by
its acceptance thereof shall be deemed to have agreed that, in any suit for the
enforcement of any right or remedy under this Indenture or in any suit against
the Trustee for any action taken or omitted by it as Trustee, a court in its
discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees and expenses,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit instituted by the Company, any suit instituted by the
Trustee, any suit instituted by a Holder pursuant to Section 6.07, or any suit
instituted by a Holder or Holders of more than 10% in principal amount of the
outstanding Securities.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(b) Except during the continuance of an Event of Default
actually known to a Responsible Officer of the Trustee:
(1) The Trustee need perform only those duties as are
expressly and specifically set forth herein and no others and no implied
covenants, duties or obligations whatsoever shall be read into this
Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions and such
other documents delivered to it pursuant to Section 10.04 hereof furnished
to the Trustee and conforming to the require-
<PAGE>
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ments of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform to the
requirements of this Indenture.
(c) Notwithstanding anything to the contrary herein contained,
the Trustee may not be relieved from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall reasonably believe that repayment of such funds is not assured to it
or it does not receive an indemnity that is, in its sole discretion, not
adequate against such risk, liability, loss, fee or expense which might be
incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to this Section 7.01.
(f) The Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree in writing with the
Company. Assets held in trust by the Trustee need not be segregated from other
assets of the Trustee except to the extent required by law.
(g) The Trustee shall not be accountable for the use of any of
the Securities delivered hereunder or the proceeds thereof.
(h) The permissive right of the Trustee to do things enumerated
in this Indenture shall not be construed as a duty
<PAGE>
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and the Trustee shall not be answerable for other than its negligence or willful
misconduct as provided herein.
(i) Except for Events of Default relating to the payment of the
principal or the interest with respect to the Securities, the Trustee shall not
be required to take notice, and shall not be deemed to have notice, of any
default unless the Trustee shall be notified specifically and expressly in
writing of the default; such notice being deemed "actual notice." In the
absence of delivery of a written notice satisfying these requirements, the
Trustee may assume conclusively that there is no default, except as noted above.
SECTION 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01:
(a) The Trustee may rely conclusively on any document believed
by it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate and an Opinion of Counsel, which shall
conform to the provisions of Sections 10.04 and 10.05. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any agent
(other than an agent who is an employee of the Trustee) appointed in good
faith.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be authorized
or within its rights or powers.
(e) The Trustee may consult with counsel of its selection and
the advice or opinion of such counsel as to matters of law which shall be
full and complete authorization and protection from liability in respect of
any action taken, omitted or suffered by it hereunder in good faith and in
accordance with the advice or opinion of such counsel.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this
<PAGE>
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Indenture at the request, order or direction of any of the Holders pursuant
to the provisions of this Indenture, unless such Holders shall have offered
to the Trustee reasonable security or indemnity satisfactory to the Trustee
in its sole judgment against the costs, expenses and liabilities which may
be incurred therein or thereby.
(g) The Trustee shall not be deemed to have notice of any Event
of Default unless a Responsible Officer of the Trustee has actual knowledge
thereof or unless written notice of any event which is in fact such a
default is received by the Trustee at the Corporate Trust Office of the
Trustee, and such notice references the Securities and this Indenture.
SECTION 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Securities, it shall not
be accountable for the Company's use of the proceeds from the Securities, and it
shall not be responsible for any statement of the Company in this Indenture or
any document issued in connection with the sale of Securities or any statement
in the Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such event, the Trustee shall mail to each
Securityholder, as their names and addresses appear on the Securityholder list
described in Section 2.05, notice of the uncured Default or Event of Default
within 60 days after the Trustee receives such notice. Except in the case of a
Default or an Event of Default in payment of principal of, or interest on, any
Security, including the failure to make payment on (i) the Change of Control
Payment Date pursuant to a Change of Control Offer or (ii) the Net Proceeds
Offer Payment Date pursuant to a Net Proceeds Offer, the Trustee shall not be
deemed to have actual knowledge or ac-
<PAGE>
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tual notice of a Default or an Event of Default unless a Responsible Officer of
the Trustee received written notice of such Default or Event of Default or the
Trustee may withhold the notice if and so long as the board of directors, the
executive committee, or a trust committee of directors and/or Responsible
Officers, of the Trustee in good faith determines that withholding the notice is
in the interest of the Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
-----------------------------
Within 60 days after each May 15, the Trustee shall, to the extent
that any of the events described in TIA (S) 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Securityholder a brief report
dated as of such May 15 that complies with TIA (S) 313(a). The Trustee also
shall comply with TIA (S)(S) 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time such
compensation for its services hereunder (which shall be agreed to from time to
time by the Company and the Trustee). The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all disbursements, expenses
and advances (including reasonable fees and expenses of counsel) incurred or
made by it in addition to the compensation for its services, except any such
disbursements, expenses and advances as may be attributable to the Trustee's
negligence or willful misconduct. Such expenses shall include the compensation,
disbursements and expenses of the Trustee's agents, accountants, experts and
counsel and any taxes or other expenses incurred by a trust created pursuant to
Section 8.01.
The Company shall indemnify the Trustee and each predecessor trustee
for, and hold it harmless against, any loss, liability, claim, damage or
expense, including taxes (other than taxes based upon, measured by or determined
by the income of the Trustee) incurred by the Trustee without negli-
<PAGE>
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gence or willful misconduct on its part arising out of or in connection with the
administration of this trust and its duties under this Indenture, including the
reasonable expenses and attorneys' fees of defending itself against any claim of
liability arising hereunder unless and to the extent such failure results in the
forfeiture by the Company of substantial rights and defenses. The Trustee shall
notify the Company promptly of any claim asserted against the Trustee for which
it may seek indemnity. However, the failure by the Trustee to so notify the
Company shall not relieve the Company of its obligations hereunder unless and to
the extent such failure results in the forfeiture by the Company of material
rights and defenses. The Company shall defend the claim and the Trustee shall
cooperate in the defense (and may employ its own counsel) at the Company's
expense. The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee as a result of the violation of this
Indenture by the Trustee if such violation arose from the Trustee's negligence
or willful misconduct.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a senior claim prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (f) or (g) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under
this Section 7.07 and any claim arising hereunder shall survive the resignation
or removal of any Trustee, the discharge of the Company's obligations pursuant
to Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
<PAGE>
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(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify in writing each
Holder of such event and shall appoint a successor Trustee within 60 days after
the effective date of such resignation, removal or vacancy. Within one year
after the successor Trustee takes office, the Holders of a majority in principal
amount of the Securities may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the Lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 30 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the outstanding Securities may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate
<PAGE>
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trust business to, another corporation, the resulting, surviving or transferee
corporation without any further act shall, if such resulting, surviving or
transferee corporation is otherwise eligible hereunder, be the successor
Trustee; provided, however, that such corporation shall be otherwise qualified
-------- -------
and eligible under this Article Seven.
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee shall be a
commercial bank with trust powers or a trust company, which shall have (or, in
the case of a financial institution, commercial bank with trust powers or a
trust company included in a bank holding company system, the related bank
holding company shall have) a combined capital and surplus of at least
$100,000,000 as set forth in its most recent published annual report of
condition, and subject to supervision or examination by federal or state
authorities, so long as any of the Securities are outstanding. The Trustee
shall comply with TIA (S) 310(b); provided, however, that there shall be
-------- -------
excluded from the operation of TIA (S) 310(b)(1) any indenture or indentures
under which other securities, or certificates of interest or participation in
other securities, of the Company are outstanding, if the requirements for such
exclusion set forth in TIA (S) 310(b)(1) are met. The provisions of TIA (S) 310
shall apply to the Company, as obligors of the Securities.
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated. The
provisions of TIA (S) 311 shall apply to the Company, as obligor of the
Securities.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance.
----------------------------------------
(a) The Company may, at its option by Board Resolution, at any
time, with respect to the Securities, elect to have either paragraph (b) or
paragraph (c) below be applied to
<PAGE>
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the outstanding Securities upon compliance with the conditions set forth in
paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (b), the Company shall be deemed to have
been released and discharged from its obligations with respect to the
outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
----------------
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections and matters
under this Indenture referred to in (i) and (ii) below, and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders
of outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of and interest on such Securities when such payments
are due, and (ii) obligations listed in Section 8.03, subject to compliance with
this Section 8.01. The Company may exercise its option under this paragraph (b)
notwithstanding the prior exercise of its option under paragraph (c) below with
respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the
option applicable to this paragraph (c), the Company shall be released and
discharged from its obligations under any covenant contained in Article Five and
in Sections 4.03 through 4.18 with respect to the outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"Covenant Defeasance"), and the Securities shall thereafter be deemed to be not
-------------------
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder. For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Securities, the Company and its Subsidiaries may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 6.01(c), nor shall any event
<PAGE>
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referred to in Section 6.01(d) or (e) thereafter constitute a Default or an
Event of Default thereunder but, except as specified above, the remainder of
this Indenture and such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Securities:
(1) The Company shall have irrevocably deposited in trust with
the Trustee, pursuant to an irrevocable trust and security agreement in
form and substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which obligation or guarantee
the full faith and credit of the United States of America is pledged ("U.S.
----
Government Obligations") maturing as to principal and interest in such
----------------------
amounts and at such times as are sufficient, without consideration of the
reinvestment of such interest and after payment of all Federal, state and
local taxes or other charges or assessments in respect thereof payable by
the Trustee, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof (in form
and substance reasonably satisfactory to the Trustee) delivered to the
Trustee, to pay the principal of, premium and Additional Interest, if any,
and interest on all the outstanding Securities on the dates on which any
such payments are due and payable in accordance with the terms of this
Indenture and of the Securities;
(2) Such deposit shall not cause the Trustee to have a
conflicting interest as defined in and for purposes of the TIA;
(3) The Trustee shall have received an Officers' Certificate
stating that no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the date
of such deposit or, insofar as Section 6.01(f) or (g) is concerned, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period);
(4) The Trustee shall have received an Officers' Certificate
stating that such deposit will not result in a
<PAGE>
-77-
Default under this Indenture or a breach or violation of, or constitute a
default under, any other material instrument or agreement to which the
Company or any of its Subsidiaries is a party or by which it or its
property is bound;
(5) (i) In the event the Company elects paragraph (b) hereof,
the Company shall deliver to the Trustee an Opinion of Counsel in the
United States, in form and substance reasonably satisfactory to the Trustee
to the effect that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such Opinion of Counsel
shall state that Holders of the Securities will not recognize income gain
or loss for Federal income tax purposes as a result of such deposit and the
defeasance contemplated hereby and will be subject to Federal income taxes
in the same manner and at the same times as would have been the case if
such deposit and defeasance had not occurred or (ii) in the event the
Company elects paragraph (c) hereof, the Company shall deliver to the
Trustee an Opinion of Counsel in the United States, in form and substance
reasonably satisfactory to the Trustee, to the effect that Holders of the
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of such deposit and the defeasance contemplated hereby
and will be subject to Federal income tax in the same amounts and in the
same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred;
(6) The Trustee shall have received an Opinion of Counsel
stating that the deposit shall not result in the Company, the Trustee or
the trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940;
(7) The Company shall have delivered to the Trustee an
Officer's Certificate, in form and substance reasonably satisfactory to the
Trustee, stating that the deposit under clause (1) was not made by the
Company or any Subsidiary of the Company with the intent of preferring the
Holders over any other creditors of the Company defeating, hindering,
delaying or defrauding any other creditors of the Company or any Subsidiary
of the Company or others;
<PAGE>
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(8) The Company shall have delivered to the Trustee an Opinion
of Counsel, in form and substance reasonably satisfactory to the Trustee,
to the effect that (A) the trust funds will not be subject to the rights of
holders of Indebtedness of the Company other than the Securities and (B)
assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit and that no Holder of
Securities is an insider of the Company, after the passage of 90 days
following the deposit, the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally; and
(9) The Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; provided, however, that no deposit
-------- -------
under clause (1) above shall be effective to terminate the obligations of
the Company under the Securities or this Indenture prior to 90 days
following any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company.
SECTION 8.02. Satisfaction and Discharge.
--------------------------
The Indenture will be discharged and will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Securities, as expressly provided for in this Indenture) as to all
outstanding Securities when:
(1) either (a) all the Securities, theretofore authenticated
and delivered (except lost, stolen or destroyed Securities which have been
replaced or paid and Securities for whose payment money has theretofore
been deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust) have been
delivered to the Trustee for cancellation or (b) all Securities not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Company has irrevocably deposited or caused to be deposited
with the Trustee funds in an amount
<PAGE>
-79-
sufficient to pay and discharge the entire Indebtedness on the Securities
not theretofore delivered to the Trustee for cancellation, for principal
of, premium and Additional Interest, if any, and interest on the Securities
to the date of deposit together with irrevocable instructions from the
Company directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be;
(2) the Company has paid all other sums payable under this
Indenture by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate stating that all conditions precedent under this Indenture
relating to the satisfaction and discharge of this Indenture have been
complied with.
SECTION 8.03. Survival of Certain Obligations.
-------------------------------
Notwithstanding the satisfaction and discharge of this Indenture and
of the Securities referred to in Section 8.01 or 8.02, the respective
obligations of the Company and the Trustee under Sections 2.02, 2.03, 2.04,
2.05, 2.06, 2.07, 2.10, 2.12, 2.13, 4.01, 4.02, 6.07, Article Seven, Sections
8.05, 8.06 and 8.07 shall survive until the Securities are no longer
outstanding, and thereafter the obligations of the Company and the Trustee under
Sections 7.07, 8.05, 8.06 and 8.07 shall survive. Nothing contained in this
Article Eight shall abrogate any of the obligations or duties of the Trustee
under this Indenture.
SECTION 8.04. Acknowledgment of Discharge by Trustee.
--------------------------------------
Subject to Section 8.07, after (i) the conditions of Section 8.01 or
8.02 have been satisfied, (ii) the Company has paid or caused to be paid all
other sums payable hereunder by the Company and (iii) the Company has delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating
that all conditions precedent referred to in clause (i) above relating to the
satisfaction and discharge of this Indenture have been complied with, the
Trustee upon written request shall acknowledge in writing the discharge of the
Company's obligations under this Indenture except for those surviving
obligations specified in Section 8.03.
SECTION 8.05. Application of Trust Assets.
---------------------------
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it pursuant to this Arti-
<PAGE>
-80-
cle Eight in the irrevocable trust established pursuant to Section 8.01. The
Trustee shall apply the deposited U.S. Legal Tender or the U.S. Government
Obligations, together with earnings thereon, through the Paying Agent, in
accordance with this Indenture and the terms of the irrevocable trust agreement
established pursuant to Section 8.01, to the payment of principal of and
interest on the Securities. The U.S. Legal Tender or U.S. Government Obligations
so held in trust and deposited with the Trustee in compliance with Section 8.01
shall not be part of the trust estate under this Indenture, but shall constitute
a separate trust fund for the benefit of all Holders entitled thereto.
SECTION 8.06. Repayment to the Company; Unclaimed Money.
-----------------------------------------
Subject to Sections 7.07 and 8.01, the Trustee shall promptly pay to
the Company, upon receipt by the Trustee of an Officers' Certificate, any excess
money, determined in accordance with Section 8.01, held by it at any time. The
Trustee and the Paying Agent shall pay to the Company upon receipt by the
Trustee or the Paying Agent, as the case may be, of an Officers' Certificate,
any money held by it for the payment of principal, premium, if any, or interest
that remains unclaimed for one year after payment to the Holders is required;
provided, however, that the Trustee and the Paying Agent before being required
- -------- -------
to make any payment may, but are not required to, at the expense of the Company
and within 10 days of receipt of the Officers' Certificate described above,
cause to be published once in a newspaper of general circulation in the City of
New York or mail to each Holder entitled to such money notice that such money
remains unclaimed and that after a date specified therein, which shall be at
least 30 days from the date of such publication or mailing, any unclaimed
balance of such money then remaining will be repaid to the Company. After
payment to the Company, Securityholders entitled to money must look solely to
the Company for payment as general creditors unless an applicable abandoned
property law designates another Person, and all liability of the Trustee or
Paying Agent with respect to such money shall thereupon cease.
SECTION 8.07. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with this Indenture by
reason of any legal proceeding pending before or any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then and only then the Company's obligations under this
Indenture and the Securities shall be revived and rein-
<PAGE>
-81-
stated as though no deposit had been made pursuant to this Indenture until such
time as the Trustee is permitted to apply all such U.S. Legal Tender or U.S.
Government Obligations in accordance with this Indenture; provided, however,
-------- -------
that if the Company has made any payment of principal of, premium, if any, or
interest on any Securities because of the reinstatement of its obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the U.S. Legal Tender or U.S. Government Obligations
held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
--------------------------
The Company and the Trustee, together, may amend or supplement this
Indenture or the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to evidence the succession in accordance with Article Five
hereof of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Securities;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(4) to make any other change that does not, in the opinion of
the Trustee, adversely affect in any material respect the rights of any
Securityholders hereunder;
(5) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA; or
(6) to make any change that would provide any additional
benefit or rights to the Securityholders or that does not adversely affect
the rights of any Securityholder;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
- --------
an Officers' Certificate, each stating that
<PAGE>
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such amendment or supplement complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
-----------------------
Subject to Section 6.07, the Company and the Trustee, together, with
the written consent of the Holder or Holders of at least a majority in aggregate
principal amount of the outstanding Securities, may amend or supplement this
Indenture or the Securities, without notice to any other Securityholders.
Subject to Section 6.07, the Holder or Holders of a majority in aggregate
principal amount of the outstanding Securities may waive compliance by the
Company with any provision of this Indenture or the Securities without notice
to any other Securityholder. Without the consent of each Securityholder
affected, however, no amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may:
(1) reduce the amount of Securities whose Holders must consent
to an amendment, supplement or waiver;
(2) reduce the rate of or change or have the effect of
changing the time for payment of interest, including defaulted interest, on
any Securities;
(3) reduce the principal of or change or have the effect of
changing the fixed maturity of any Securities, or change the date on which
any Securities may be subject to redemption or repurchase, or reduce the
redemption or repurchase price therefor;
(4) make any Securities payable in money other than that
stated in the Securities;
(5) make any change in provisions of this Indenture protecting
the right of each Holder to receive payment of principal of and interest on
such Security on or after the due date thereof or to bring suit to enforce
such payment, or permitting Holders of a majority in principal amount of
the Securities to waive Defaults or Events of Default;
(6) make any changes in Section 6.04, 6.07 or this Section
9.02;
(7) modify or change any provision of this Indenture or the
related definitions affecting the ranking of the Securities in a manner
which adversely affects the Holders; or
<PAGE>
-83-
(8) amend, modify or change in any material respect the
obligation of the Company to make and consummate a Change of Control Offer
in the event of a Change of Control or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement, waiver
or supplemental indenture.
SECTION 9.03. Compliance with TIA.
-------------------
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect, such compliance to be evidenced by an
Opinion of Counsel.
SECTION 9.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made on
any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstand-
<PAGE>
-84-
ing the last sentence of the immediately preceding paragraph, those Persons who
were Holders at such record date (or their duly designated proxies), and only
those Persons, shall be entitled to revoke any consent previously given, whether
or not such Persons continue to be Holders after such record date. No such
consent shall be valid or effective for more than 90 days after such record
date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (8) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such waiver
--------
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Company may require the Holder of the Security to deliver it to the Trustee.
The Company may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
--------
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel and an Officers' Certificate
each stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and constitutes the legal, valid and binding obligations of the
Company enforceable in accordance with its terms. Such Opinion of Counsel shall
be at the expense of the Company and shall be rendered by legal counsel selected
by the Trustee.
<PAGE>
-85-
ARTICLE TEN
MISCELLANEOUS
SECTION 10.01. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 318(c) of the TIA, the imposed
duties shall control.
SECTION 10.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telecopier or registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
if to the Company:
Leslie's Poolmart, Inc.
20630 Plummer Street
Chatsworth, California 91311
Attention: Brian McDermott
Facsimile: (818) 993-1930
with copies to:
Green Equity Investors II, L.P.
11111 Santa Monica Boulevard
Suite 2000
Los Angeles, California 90025
Attention: Gregory J. Annick
Facsimile: (310) 954-0404
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Attention: Jennifer Bellah, Esq.
Facsimile: (213) 229-7520
<PAGE>
-86-
if to the Trustee:
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
Facsimile: (213) 488-1370
Each of the Company and the Trustee by written notice to each other
such Person may designate additional or different addresses for notices to such
Person. Any notice or communication to the Company and the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that, notwithstanding the foregoing, a
notice of change of address shall not be deemed to have been given until
actually received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 10.03. Communications by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other Person shall
have the protection of TIA (S) 312(c).
<PAGE>
-87-
SECTION 10.04. Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory
to the Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 10.05. Statements Required in Certificate or Opinion.
----------------------------------------------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition and the definitions relating
thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with; provided,
---------
however, that with respect to matters of fact an Opinion of Counsel may
--------
rely on an Officers' Certificate or certificates of public officials.
<PAGE>
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SECTION 10.06. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 10.07. Legal Holidays.
--------------
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day, and no interest shall accrue for the
intervening period.
SECTION 10.08. Governing Law.
-------------
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES WILL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 10.09. No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 10.10. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities or this Indenture or for any claim based on, in respect of
or by reason of such obligations or their creation. Each Securityholder by
accepting a Security waives and releases all such liability. Such waiver and
release are part of the consideration for the issuance of the Securities.
SECTION 10.11. Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
<PAGE>
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SECTION 10.12. Duplicate Originals.
-------------------
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
represent the same agreement.
SECTION 10.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed and attested, all as of the date first written above.
THE COMPANY:
LESLIE'S POOLMART, INC.
By: /s/ Brian P. McDermott
-----------------------------
Name: Brian P. McDermott
Title: Chief Executive Officer
Attest: ___________________
By: /s/ Robert D. Olsen
------------------------
Name: Robert D. Olsen
Title: Executive Vice President
Chief Financial Officer,
Officer & Secretary
THE TRUSTEE:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By: /s/ Sandee Parks
-----------------------------
Name: Sandee Parks
Title: Vice President
<PAGE>
EXHIBIT A
---------
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN
"ACCREDITED INVESTOR")) OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS
SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT WILL NOT WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY RESELL OR OTHERWISE TRANSFER
THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE
UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A
U.S. BROKER-DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (D)
OUTSIDE THE UNITED STATES IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THIS SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT
OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO
YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE
IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO
THE TRUSTEE AND THE ISSUER SUCH CERTIFICATES, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED
A-1
<PAGE>
STATES" AND "U.S. PERSON" HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT.
A-2
<PAGE>
LESLIE'S POOLMART, INC.
10 3/8% Senior Note
due July 15, 2004, Series A
CUSIP No.:
No. [ ] $[ ]
LESLIE'S POOLMART, INC., a Delaware corporation (the "Company", which
term includes any successor corporation), for value received promises to pay to
[ ] or registered assigns, the principal sum of $[ ] Dollars,
on July 15, 2004.
Interest Payment Dates: January 15 and July 15, commencing January
15, 1998
Record Dates: December 31 and June 30
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: June __, 1997
LESLIE'S POOLMART, INC.
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
A-3
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 3/8% Senior Notes due 2004, described in the
within-mentioned Indenture.
Dated: June __, 1997
U.S. TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
--------------------------
Authorized Signatory
A-4
<PAGE>
(REVERSE OF SECURITY)
LESLIE'S POOLMART, INC.
10 3/8% Senior Note
due July 15, 2004, Series A
1. Interest.
--------
LESLIE'S POOLMART, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on January
15 and July 15 of each year (the "Interest Payment Date"), commencing January
15, 1998. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from June 11,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
--------------------------
Initially, U.S. Trust Company of California, N.A. (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or Co-Registrar without notice to the Holders. The Company or any of
its Sub-
A-5
<PAGE>
sidiaries may, subject to certain exceptions, act as Registrar or Co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of June
11, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture until such time as the Indenture is qualified under the TIA, and
thereafter as in effect on the date on which the Indenture is qualified under
the TIA. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$115,000,000.
5. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after July 15, 2001, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on July 15 of the year set forth below, plus,
in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.................. 105.188%
2002.................. 102.594%
2003.................. 100.000%
</TABLE>
6. Optional Redemption upon Public Equity Offering.
-----------------------------------------------
At any time, or from time to time, on or prior to July 15, 2000, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to $25.0 million aggregate
principal amount of the Securities at a redemption price equal to 110.375% of
the principal amount thereof, plus accrued interest to the date of redemption;
provided that after giving effect to any such redemption at least $65.0 million
- --------
aggregate principal amount of the Securities remains outstanding. In order to
effect the foregoing redemption with the proceeds of any Public Equity Offering,
the Company shall make such redemption not more than 60 days after the
consummation of any such Public Equity Offering.
A-6
<PAGE>
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act, or any successor statute.
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of $1,000 may
be redeemed only in whole. The Trustee may select for redemption portions
(equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
10. Denominations; Transfer; Exchange.
----------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection
A-7
<PAGE>
therewith as permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities or portions thereof selected for
redemption, except the unredeemed portion of any Security being redeemed in
part.
11. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company may be discharged from its obligations under the Indenture
and the Securities except for certain provisions thereof, and may be discharged
from obligations to comply with certain covenants contained in the Indenture and
the Securities, in each case upon satisfaction of certain conditions specified
in the Indenture.
14. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
15. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Subsidiaries to make restricted
payments, to incur indebtedness, to
A-8
<PAGE>
create liens, to issue preferred or other capital stock of Subsidiaries to third
parties, to sell assets, to permit restrictions on dividends and other payments
by Subsidiaries to the Company, to consolidate, merge or sell all or
substantially all of its assets, to engage in transactions with affiliates or to
engage in certain businesses. The limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
16. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
17. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
A-9
<PAGE>
20. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused a CUSIP number to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
22. Registration Rights.
-------------------
Pursuant to the Registration Rights Agreement, the Company will be
obligated upon the occurrence of certain events to consummate an exchange offer
pursuant to which the Holder of this Security shall have the right to exchange
this Series A Security for the Company's 10 3/8% Senior Notes due 2004, Series
B, which will have been registered under the Securities Act, in like principal
amount and having terms identical in all material respects as the Series A
Securities. The Holders shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture and the Registration Rights
Agreement. Requests may be made to: Leslie's Poolmart, Inc., 20630 Plummer
Street, Chatsworth, California 91311, Attn: Chief Financial Officer.
23. Governing Laws.
--------------
This Security and the Indenture shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York, without regard to principles of
conflict of laws. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Note.
A-10
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to:
(Print or type name, address and zip code of assignee or transferee)
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint_____________________________________, agent to transfer
this Security on the books of the Company. The agent may substitute another to
act for him.
Dated: Signed:
------------------------------------------
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ] Section 4.17 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $_____________
Date: Your Signature:
----------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
---------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-12
<PAGE>
EXHIBIT B
---------
[FORM OF SERIES B SECURITY]
LESLIE'S POOLMART, INC.
10 3/8% Senior Note
due July 15, 2004, Series B
CUSIP No.:
No. [ ] $[ ]
LESLIE'S POOLMART, INC., a Delaware corporation (the "Company", which
term includes any successor corporation), for value received promises to pay to
[ ] or registered assigns, the principal sum of $[ ] Dollars, on
July 15, 2004.
Interest Payment Dates: January 15 and July 15, commencing January
15, 1998
Record Dates: December 31 and June 30
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
LESLIE'S POOLMART, INC.
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
B-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the 10 3/8% Senior Notes due 2004, Series B, described
in the within-mentioned Indenture.
Dated:
U.S TRUST COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:
-----------------------------------
Authorized Signatory
B-2
<PAGE>
(REVERSE OF SECURITY)
LESLIE'S POOLMART, INC.
10 3/8% Senior Note
due July 15, 2004, Series B
1. Interest.
--------
LESLIE'S POOLMART, INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on January
15 and July 15 of each year (the "Interest Payment Date"), commencing January
15, 1998. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from June 11,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal from time to time
on demand at the rate borne by the Securities plus 2% and on overdue
installments of interest (without regard to any applicable grace periods) to the
extent lawful.
2. Method of Payment.
------------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address.
3. Paying Agent and Registrar.
---------------------------
Initially, U.S. Trust Company of California, N.A. (the "Trustee") will
act as Paying Agent and Registrar. The Company may change any Paying Agent,
Registrar or Co-Registrar without notice to the Holders. The Company or any of
its Sub-
B-3
<PAGE>
sidiaries may, subject to certain exceptions, act as Registrar or Co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of June
11, 1997 (the "Indenture"), between the Company and the Trustee. Capitalized
terms herein are used as defined in the Indenture unless otherwise defined
herein. The terms of the Securities include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S.C. (S)(S) 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture until such time as the Indenture is qualified under the TIA, and
thereafter as in effect on the date on which the Indenture is qualified under
the TIA. Notwithstanding anything to the contrary herein, the Securities are
subject to all such terms, and Holders of Securities are referred to the
Indenture and the TIA for a statement of them. The Securities are general
obligations of the Company limited in aggregate principal amount to
$115,000,000.
5. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after July 15, 2001, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on July 15 of the year set forth below, plus,
in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001................... 105.188%
2002................... 102.594%
2003................... 100.000%
</TABLE>
6. Optional Redemption upon Public Equity Offering.
-----------------------------------------------
At any time, or from time to time, on or prior to July 15, 2000, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings (as defined below) to redeem up to $25.0 million aggregate
principal amount of the Securities at a redemption price equal to 110.375% of
the principal amount thereof, plus accrued interest to the date of redemption;
provided that after giving effect to any such redemption at least $65.0 million
- --------
aggregate principal amount of the Securities remains outstanding. In order to
effect the foregoing redemption with the proceeds of any Public Equity Of-
B-4
<PAGE>
fering, the Company shall make such redemption not more than 60 days after the
consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act, or any successor statute.
7. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of $1,000 may
be redeemed only in whole. The Trustee may select for redemption portions
(equal to $1,000 or any integral multiple thereof) of the principal of
Securities that have denominations larger than $1,000.
If any Security is to be redeemed in part only, the notice of
redemption that relates to such Security shall state the portion of the
principal amount thereof to be redeemed. A new Security in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Security. On and after the Redemption
Date, interest will cease to accrue on Securities or portions thereof called for
redemption.
8. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, thereon to the date of repurchase.
9. Limitation on Disposition of Assets.
-----------------------------------
The Company is, subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount, plus accrued and
unpaid interest, if any, thereon to the date of repurchase with certain net cash
proceeds of certain sales or other dispositions of assets in accordance with the
Indenture.
10. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may
B-5
<PAGE>
require a Holder, among other things, to furnish appropriate endorsements and
transfer documents and to pay certain transfer taxes or similar governmental
charges payable in connection therewith as permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Securities or
portions thereof selected for redemption, except the unredeemed portion of any
Security being redeemed in part.
11. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
12. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agent will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agent
with respect to such funds shall cease.
13. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company may be discharged from their obligations under the
Indenture and the Securities except for certain provisions thereof, and may be
discharged from their obligations to comply with certain covenants contained in
the Indenture and the Securities, in each case upon satisfaction of certain
conditions specified in the Indenture.
14. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture and the Securities may be
amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Securities then outstanding, and
any existing Default or Event of Default or compliance with any provision may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the Securities then outstanding. Without notice to or consent of any
Holder, the parties thereto may amend or supplement the Indenture and the
Securities to, among other things, cure any ambiguity, defect or inconsistency,
provide for uncertificated Securities in addition to or in place of certificated
Securities or comply with any requirements of the Commission in connection with
the qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
B-6
<PAGE>
15. Restrictive Covenants.
---------------------
The Indenture contains certain covenants that, among other things,
limit the ability of the Company and the Subsidiaries to make restricted
payments, to incur indebtedness, to create liens, to issue preferred or other
capital stock of Subsidiaries to third parties, to sell assets, to permit
restrictions on dividends and other payments by Subsidiaries to the Company, to
consolidate, merge or sell all or substantially all of its assets, to engage in
transactions with affiliates or to engage in certain businesses. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
16. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of certain continuing Defaults or Events of Default
if it determines that withholding notice is in their interest.
17. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
B-7
<PAGE>
19. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
20. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
21. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company has caused a CUSIP number to be
printed on the Securities as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to
Leslie's Poolmart, Inc., 20630 Plummer Street, Chatsworth, California 91311,
Attn: Chief Financial Officer.
22. Governing Law.
-------------
This Security and the Indenture shall be governed by and construed in
accordance with the laws of the State of New York, as applied to contracts made
and performed within the State of New York, without regard to principles of
conflict of laws. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Note.
B-8
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee or transferee)
- --------------------------------------------------------------------------------
(Insert Social Security or other identifying number of assignee or transferee)
and irrevocably appoint
-------------------------------------------------------
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: Signed:
------------------- -----------------------------------------
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee:---------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
B-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [ ] Section 4.17 [ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $_____________
Date: Your Signature:
--------------- ----------------------------------------
(Sign exactly as your name appears on the
other side of this Security)
Signature Guarantee:
----------------------------------------------------------
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
B-10
<PAGE>
EXHIBIT C
---------
FORM OF LEGEND FOR GLOBAL SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN
THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND
ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH
OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF
FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
C-1
<PAGE>
EXHIBIT D
---------
CERTIFICATE TO BE DELIVERED UPON EXCHANGE
OR REGISTRATION OF TRANSFER OF SECURITIES
Re: 10 3/8% Senior Notes due 2004, (the "Securities"), of Leslie's
Poolmart, Inc.
--------------------------------------------------------------
This Certificate relates to $_______ principal amount of Securities
held in the form of* ___ a beneficial interest in a Global Security or* _______
Physical Securities by ______ (the "Transferor").
The Transferor:*
has requested by written order that the Registrar deliver in exchange
for its beneficial interest in the Global Security held by the Depositary a
Physical Security or Physical Securities in definitive, registered form of
authorized denominations and an aggregate number equal to its beneficial
interest in such Global Security (or the portion thereof indicated above); or
has requested that the Registrar by written order to exchange or
register the transfer of a Physical Security or Physical Securities.
In connection with such request and in respect of each such Security,
the Transferor does hereby certify that the Transferor is familiar with the
Indenture relating to the above captioned Securities and the restrictions on
transfers thereof as provided in Section 2.16 of such Indenture, and that the
transfer of this Securities does not require registration under the Securities
Act of 1933, as amended (the "Act") because*:
Such Security is being acquired for the Transferor's own account,
without transfer (in satisfaction of Section 2.16(a)(II)(A) or Section
2.16(d)(i)(A) of the Indenture).
Such Security is being transferred to a "qualified institutional
buyer" (as defined in Rule 144A under the Act), in reliance on Rule 144A.
D-1
<PAGE>
Such Security is being transferred to an institutional "accredited
investor" (within the meaning of subparagraphs (a)(1), (2), (3) or (7) of Rule
501 under the Act.
Such Security is being transferred in reliance on Regulation S under
the Act.
Such Security is being transferred in reliance on Rule 144 under
the Act.
Such Security is being transferred in reliance on and in compliance
with an exemption from the registration requirements of the Act other than Rule
144A or Rule 144 or Regulation S under the Act to a person other than an
institutional "accredited investor."
------------------------------
[INSERT NAME OF TRANSFEROR]
By:
----------------------------
[Authorized Signatory]
Date:
------------------
*Check applicable box.
D-2
<PAGE>
EXHIBIT E
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Institutional Accredited Investors
-----------------------------------------------
_______________, ____
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Department
Re: Leslie's Poolmart, Inc. (the "Company") Indenture (the "Indenture")
relating to 10 3/8% Senior Notes due 2004
------------------------------------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 10 3/8% Senior Notes due
2004 (the "Securities"), of Leslie's Poolmart, Inc. (the "Company"), we confirm
that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated June 6, 1997 relating to the Securities. We acknowledge
that we have read and agreed to the matters stated on pages i-ii of the Offering
Memorandum and in the section entitled "Transfer Restrictions" of the Offering
Memorandum, including the restrictions on duplication and circulation of the
Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Indenture and
the undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Securities except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Securities, we will do so only
(A) to the Company or any subsidiary thereof, (B) inside the United States in
accor-
E-1
<PAGE>
dance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a U.S. broker-dealer) to the
Trustee a signed letter substantially in the form hereof, (D) outside the United
States in accordance with Regulations S under the Securities Act, (E) pursuant
to the exemption from registration provided by Rule 144 under the Securities Act
(if available), or (F) pursuant to an effective registration statement under the
Securities Act, and we further agree to provide to any person purchasing
Securities from us a notice advising such purchaser that resales of the
Securities are restricted as stated herein.
4. We are not acquiring the Securities for or on behalf of, and will
not transfer the Securities to, any Benefit Plan (as defined in the section
entitled, "Transfer Restrictions" in the Offering Memorandum), except as
permitted in the section entitled "Transfer Restrictions" in the Offering
Memorandum.
5. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company, such certification, legal
opinions and other information as the Trustee and the Company may reasonably
require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Securities purchased by us will
bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
7. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
E-2
<PAGE>
Very truly yours,
[Name of Transferor]
By:
--------------------------------
[Authorized Signatory]
E-3
<PAGE>
EXHIBIT F
---------
Form of Certificate To Be
Delivered in Connection
with Regulation S Transfers
---------------------------
_______________, ____
U.S. Trust Company of California, N.A.
515 South Flower Street
Suite 2700
Los Angeles, California 90071
Attention: Corporate Trust Administration
Re: Leslie's Poolmart, Inc. (the "Company")
10 3/8% Senior Notes due 2004 (the "Securities")
------------------------------------------------
Dear Sirs:
In connection with our proposed sale of $____________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of
1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States in
contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
F-1
<PAGE>
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Defined terms used herein without
definition have the respective meanings provided in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------
[Authorized Signature]
F-2
<PAGE>
EXHIBIT 5.1
July 21, 1997
(213) 229-7000 C 35375-00004
Leslie's Poolmart, Inc.
20630 Plummer Street
Chatsworth, California 91311
Re: 10-3/8% Senior Notes Due 2004
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1 (the "Registration Statement") of Leslie's Poolmart, Inc., a Delaware
corporation (the "Company"), which the Company has filed with the Securities and
Exchange Commission (the "Commission") in connection with the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of up to
$90,000,000 aggregate principal amount of the Company's 10-3/8% Senior Notes due
2004 (the "Exchange Notes"). The Exchange Notes are to be issued in exchange
for an equal aggregate principal amount of the Company's outstanding 10-3/8%
Senior Notes due 2004 (the "Original Notes") pursuant to the Registration Rights
Agreement dated as of June 11, 1997 between the Company and BT Securities
Corporation ("BT"). The Exchange Notes are to be issued by the Company pursuant
to the terms of an Indenture (the "Indenture") dated as of June 11, 1997 between
the Company and U.S. Trust Company of California, N.A., as Trustee (the
"Trustee").
We have examined the proceedings taken or proposed to be taken by the
Company in connection with the issuance of the Exchange Notes. In arriving at
the following opinion, we have relied, among other things, upon our examination
of such corporate records of the Company and such certificates of public
officials and of officers of the Company as we have deemed appropriate for
purposes of rendering this opinion. We have assumed with your permission that
the terms of the Original Notes and the Exchange Notes have been established in
accordance with the terms of the Indenture, and that their issuance and sale (i)
did not and will not violate any applicable law or result in a default under or
breach of any agreement or instrument binding upon the Company and (ii) complied
and will comply with any requirement or restriction imposed by any court or
governmental body having jurisdiction over the Company. In addition, we have
assumed that the Indenture has been duly authorized, executed and delivered by
the Trustee and constitutes the legal, valid and binding agreement of the
Trustee.
<PAGE>
Leslie's Poolmart, Inc.
July 21, 1997
Page 2
Based upon the foregoing examination and assumptions and in reliance
thereon, and subject to the issuance by the Commission of an order declaring the
Registration Statement effective, it is our opinion that the Exchange Notes,
when issued in accordance with the terms of the Indenture, duly executed by the
Company, duly authenticated by the Trustee, and issued and delivered against
exchange of the Original Notes in accordance with the terms set forth in the
prospectus that forms a part of the Registration Statement, will constitute
valid and binding obligations of the Company.
Our opinion is subject to: (i) the effect of applicable bankruptcy,
reorganization, insolvency, moratorium, arrangement and other laws affecting
creditors' rights, including, without limitation, the effect of statutory or
other laws regarding fraudulent conveyances, fraudulent transfers and
preferential transfers; and (ii) the limitations imposed by general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
This opinion is limited to the effect of the present state of the laws of
the United States of America and the State of New York. The opinions expressed
herein are based upon the law and circumstances as they are in effect or exist
on the date hereof, and we assume no obligation to revise or supplement this
letter in the event of future changes in the law or interpretation thereof with
respect to circumstances or events that may occur subsequent to the date hereof.
We are expressing no opinion as to the effect of the laws of any other
jurisdiction.
We consent to the filing of this opinion as an exhibit to the Registration
Statement, and we further consent to the use of our name under the caption
"Legal Matters" in the Registration Statement and the prospectus which forms a
part thereof. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or the Rules and Regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
JB/BDK/jrp
<PAGE>
EXHIBIT 8.1
July 21, 1997
(213) 229-7000 C 35375-00004
Leslie's Poolmart, Inc.
20630 Plummer Street
Chatsworth, California 91311
Re: 10 3/8% Senior Notes due 2004
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-1, as amended, Registration No. 333-30305 (the "Registration Statement") of
Leslie's Poolmart, Inc., a Delaware corporation (the "Company"), to be filed in
connection with the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of $90,000,000 aggregate principal amount of the
Company's 10-3/8% Senior Notes due 2004 (the "New Notes") and the exchange of
the New Notes for a like principal amount of the Company's 10 3/8% Senior Notes
due 2004.
We hereby confirm our opinions set forth in the Registration Statement
under the caption "Certain Federal Income Tax Considerations." Furthermore, it
is our opinion that the discussion under the caption "Certain Federal Income Tax
Considerations," to the extent it discusses matters of law or legal conclusions,
is correct in all material respects.
<PAGE>
Leslie's Poolmart, Inc.
July 21, 1997
Page 2
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement, and we further consent to the use of our name under the
captions "Legal Matters" and "Certain Federal Income Tax Considerations." In
giving this consent, we do not thereby admit that we are within the category of
persons whose consent is required under Section 7 of the Securities Act or the
rules and regulations promulgated thereunder.
Very truly yours,
/s/ Gibson, Dunn & Crutcher LLP
GIBSON, DUNN & CRUTCHER LLP
SLT/jrp
<PAGE>
EXHIBIT 10.1
CREDIT AGREEMENT
AMONG
LESLIE'S POOLMART, INC.
a Delaware corporation,
as Borrower
THE FINANCIAL INSTITUTIONS SIGNATORY HERETO,
as Lenders,
AND
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Swingline Lender and as Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS....................................................................................... 1
SECTION 1.1. DEFINED TERMS..................................................................................... 1
SECTION 1.2. CERTAIN RULES OF CONSTRUCTION..................................................................... 17
(a) Headings..................................................................................... 17
(b) Fiscal Quarter Ending Dates.................................................................. 17
ARTICLE II THE CREDITS....................................................................................... 17
SECTION 2.1. LINE OF CREDIT.................................................................................... 17
(a) Line of Credit............................................................................... 17
(b) Swingline Loans.............................................................................. 18
(c) Fees......................................................................................... 20
(d) Letter of Credit Subfeature.................................................................. 20
SECTION 2.2. NOTICE OF BORROWING UNDER LINE OF CREDIT.......................................................... 21
SECTION 2.3. INTEREST/FEES..................................................................................... 22
(a) Interest..................................................................................... 22
(b) Computation and Payment...................................................................... 22
(c) Letter of Credit Fees........................................................................ 22
(d) Agent's Fee.................................................................................. 23
SECTION 2.4. CONVERSION OF INTEREST RATE OPTIONS............................................................... 23
(a) Election..................................................................................... 23
(b) Notice to Agent.............................................................................. 23
SECTION 2.5. OTHER PAYMENT TERMS............................................................................... 24
(a) Automatic Debit.............................................................................. 24
(b) Place and Manner............................................................................. 24
(c) Date......................................................................................... 24
(d) Interest on Overdue Amounts.................................................................. 24
(e) Application of Payments...................................................................... 24
(f) Failure to Pay Agent......................................................................... 25
SECTION 2.6. PREPAYMENT........................................................................................ 25
(a) Prime Rate................................................................................... 25
(b) LIBOR........................................................................................ 25
SECTION 2.7. FUNDING........................................................................................... 25
(a) Lender Funding and Disbursement.............................................................. 25
(b) Lender Failure to Fund....................................................................... 25
(c) Lenders' Obligations Several................................................................. 26
SECTION 2.8. PRO RATA TREATMENT................................................................................ 26
(a) Borrowings Under Line of Credit.............................................................. 26
(b) Sharing of Payments, Etc..................................................................... 26
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 2.9. CHANGE OF CIRCUMSTANCES........................................................................... 27
(a) Inability to Determine Rate................................................................. 27
(b) Illegality.................................................................................. 27
(c) Charges: Change in Law..................................................................... 27
SECTION 2.10. TAXES ON PAYMENTS................................................................................. 28
(a) Payments Free of Taxes...................................................................... 28
(b) Withholding Exemption Certificates.......................................................... 28
SECTION 2.11. FUNDING LOSS INDEMNIFICATION...................................................................... 29
SECTION 2.12. AUTHORIZED REPRESENTATIVES........................................................................ 30
ARTICLE III REPRESENTATIONS AND WARRANTIES.................................................................... 30
SECTION 3.1. LEGAL STATUS...................................................................................... 30
SECTION 3.2. AUTHORIZATION AND VALIDITY........................................................................ 30
SECTION 3.3. NO VIOLATION...................................................................................... 31
SECTION 3.4. LITIGATION........................................................................................ 31
SECTION 3.5. FINANCIAL STATEMENTS.............................................................................. 31
SECTION 3.6. INCOME TAX RETURNS................................................................................ 31
SECTION 3.7. NO SUBORDINATION.................................................................................. 31
SECTION 3.8. PERMITS, FRANCHISES............................................................................... 31
SECTION 3.9. ERISA............................................................................................. 32
SECTION 3.10. OTHER OBLIGATIONS................................................................................. 32
SECTION 3.11. ENVIRONMENTAL MATTERS............................................................................. 32
SECTION 3.12. MARGIN REGULATIONS................................................................................ 32
SECTION 3.13. SOLVENCY.......................................................................................... 32
SECTION 3.14. EFFECT OF CAPITALIZATION MERGERS.................................................................. 32
ARTICLE IV CONDITIONS........................................................................................ 33
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT......................................................... 33
(a) Approval of Agent............................................................................ 33
(b) Fees and Expenses............................................................................ 33
(c) Loan Documents............................................................................... 33
(d) Documents and Actions Relating to Collateral................................................. 33
(e) Additional Closing Documents and Actions..................................................... 34
(f) Corporate and Additional Documentation....................................................... 34
(g) Insurance.................................................................................... 35
(h) Legal Opinions............................................................................... 35
(i) Capitalization Transactions.................................................................. 35
(j) 1997 Predecessor Credit Agreement............................................................ 35
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT............................................................ 35
(a) Compliance................................................................................... 35
(b) Financial Condition.......................................................................... 35
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
(c) Additional Documentation..................................................................... 36
ARTICLE V AFFIRMATIVE COVENANTS............................................................................. 36
SECTION 5.1. PUNCTUAL PAYMENTS................................................................................. 36
SECTION 5.2. ACCOUNTING RECORDS................................................................................ 36
SECTION 5.3. FINANCIAL STATEMENTS.............................................................................. 36
SECTION 5.4. COMPLIANCE........................................................................................ 37
SECTION 5.5. INSURANCE......................................................................................... 37
SECTION 5.6. FACILITIES........................................................................................ 37
SECTION 5.7. TAXES AND OTHER LIABILITIES....................................................................... 37
SECTION 5.8. LITIGATION........................................................................................ 37
SECTION 5.9. FINANCIAL CONDITION............................................................................... 38
SECTION 5.10. NOTICE TO AGENT................................................................................... 39
(a) Notice to Agent.............................................................................. 39
(b) Notices Under Preferred Stock, Subordinated Exchange Indebtedness and Bond Indenture......... 40
ARTICLE VI NEGATIVE COVENANTS................................................................................ 40
SECTION 6.1. USE OF FUNDS...................................................................................... 40
SECTION 6.2. CAPITAL EXPENDITURES.............................................................................. 40
SECTION 6.3. OTHER INDEBTEDNESS................................................................................ 40
SECTION 6.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS......................................................... 41
SECTION 6.5. GUARANTIES........................................................................................ 41
SECTION 6.6. LOANS, ADVANCES, INVESTMENTS...................................................................... 42
SECTION 6.7. DIVIDENDS, DISTRIBUTIONS.......................................................................... 42
SECTION 6.8. PLEDGE OF ASSETS.................................................................................. 42
SECTION 6.9. INTEREST IN SUBSIDIARIES.......................................................................... 44
SECTION 6.10. FISCAL YEAR; ACCOUNTING CHANGES................................................................... 44
SECTION 6.11. BOND PAYMENTS..................................................................................... 44
SECTION 6.12. CONVERSION OF PREFERRED STOCK; SUBORDINATED EXCHANGE INDEBTEDNESS PAYMENTS........................ 44
SECTION 6.13. MODIFICATION OF CAPITALIZATION TRANSACTIONS DOCUMENTS............................................. 44
SECTION 6.14. BORROWING BASE EXCESS............................................................................. 44
ARTICLE VII EVENTS OF DEFAULT................................................................................. 45
SECTION 7.1. EVENTS OF DEFAULT DEFINED......................................................................... 45
SECTION 7.2. REMEDIES.......................................................................................... 47
ARTICLE VIII THE AGENT......................................................................................... 48
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 8.1. AUTHORIZATION AND ACTION.......................................................................... 48
SECTION 8.2. RELIANCE BY AGENT................................................................................. 48
SECTION 8.3. DEFAULTS.......................................................................................... 48
SECTION 8.4. INDEMNIFICATION................................................................................... 49
SECTION 8.5. NON-RELIANCE ON AGENT............................................................................. 49
SECTION 8.6. SUCCESSOR AGENT................................................................................... 50
SECTION 8.7. EXECUTION OF LOAN DOCUMENTS....................................................................... 50
SECTION 8.8. AGENT IN ITS INDIVIDUAL CAPACITY.................................................................. 50
ARTICLE IX MISCELLANEOUS..................................................................................... 50
SECTION 9.1. NO WAIVER......................................................................................... 50
SECTION 9.2. WAIVERS; AMENDMENTS............................................................................... 50
SECTION 9.3. NOTICES........................................................................................... 51
SECTION 9.4. COSTS, EXPENSES, AND ATTORNEYS' FEES.............................................................. 52
SECTION 9.5. SUCCESSORS AND ASSIGNS............................................................................ 52
(a) Binding Effect............................................................................... 52
(b) Participations............................................................................... 52
(c) Assignments.................................................................................. 53
(d) Register..................................................................................... 54
(e) Registration................................................................................. 54
(f) Confidentiality.............................................................................. 54
SECTION 9.6. SETOFF............................................................................................ 54
SECTION 9.7. ENTIRE AGREEMENT, AMENDMENT....................................................................... 54
SECTION 9.8. NO THIRD PARTY BENEFICIARIES...................................................................... 55
SECTION 9.9. TIME.............................................................................................. 55
SECTION 9.10. SEVERABILITY OF PROVISIONS........................................................................ 55
SECTION 9.11. GOVERNING LAW..................................................................................... 55
SECTION 9.12. WAIVER OF RIGHT TO TRIAL BY JURY.................................................................. 55
SECTION 9.13. ANCILLARY DOCUMENTS............................................................................... 55
SECTION 9.14. INDEMNIFICATION................................................................................... 56
SECTION 9.15. LEGAL ADVICE...................................................................................... 56
SECTION 9.16. COUNTERPARTS...................................................................................... 56
SECTION 9.17. ARBITRATION....................................................................................... 56
(a) Arbitration.................................................................................. 56
(b) Governing Rules.............................................................................. 57
(c) No Waiver; Provisional Remedies, Self-Help, and Foreclosure.................................. 57
(d) Arbitrator Qualifications and Powers; Awards................................................. 57
(e) Judicial Review.............................................................................. 57
(f) Real Property Collateral; Judicial Reference................................................. 58
(g) Miscellaneous................................................................................ 58
SECTION 9.18. CANCELLATION OF PRIOR AGREEMENT................................................................... 58
</TABLE>
-iv-
<PAGE>
CREDIT AGREEMENT
----------------
THIS CREDIT AGREEMENT ("Credit Agreement") is entered into as of June 11,
----------------
1997, by and among LESLIE'S POOLMART, INC., a Delaware corporation ("Borrower"),
--------
each of the financial institutions from time to time listed on Schedule I
----------
attached hereto, as amended from time to time (collectively, the "Lenders"),
-------
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo") as swingline lender (the
-----------
"Swingline Lender"), and Wells Fargo, as agent for the Lenders and the Swingline
----------------
Lender (in such capacity, "Agent").
-----
RECITALS
--------
WHEREAS, Borrower has requested that the Lenders, Swingline Lender and
Agent make available to the Borrower a revolving credit facility and letter of
credit subfacility upon the terms and subject to the conditions set forth in
this Agreement, to refinance certain existing indebtedness and to use for
working capital purposes following the Borrower's consummation of a merger and
recapitalization as provided in the Capitalization Transactions Documents (as
defined below). The Lenders, Swingline Lender and Agent are willing to make
such facilities available to the Borrower upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
conditions, and provisions hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
---------
DEFINITIONS
-----------
SECTION 1.1. DEFINED TERMS. As used in this Credit Agreement, the
following terms shall have the meanings set forth after each (with all such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"1997 Predecessor Credit Agreement" means that certain Third Amended and
---------------------------------
Restated Credit Agreement dated as of January 29, 1997 among Leslie's Poolmart,
a California corporation, and predecessor to Borrower, the financial
institutions from time to time provides thereto as lenders and Wells Fargo, as
agent.
"AAA" has the meaning set forth in Section 9.17(b) hereof.
--- ---------------
"Additional Capital Stock Agreement" means the Stockholders Agreement and
----------------------------------
Subscription Agreement dated as of June 11, 1997 among Borrower, GEI, Occidental
and certain stockholders of Borrower, including the members of the Hancock
Group, relating to subscription for the Management Subscription Stock and other
matters in respect of Borrower's Capital Stock.
"Affiliate" means, as applied to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this
-1-
<PAGE>
definition, the terms "controlling," "controlled by," and "under common control
with," as applied to any Person, means the possession directly or indirectly, of
the power to direct or cause the direction of the management and policies of
that Person, whether through ownership of voting securities, by contract, or
otherwise.
"Agent" has the meaning set forth in the introduction hereto.
-----
"Agent's Fee Letter" means that certain letter, dated as of the date
------------------
hereof, from Agent to Borrower.
"Agent's Office" means (i) initially, Agent's office designated as such in
--------------
Schedule I hereto, and (ii) subsequently, such other office designated as such
- ----------
in writing by Agent to the other Lender Parties and Borrower.
"Applicable Lending Office" means, in the case of each Lender and the
-------------------------
Swingline Lender, (i) initially, its office designated as such in Schedule I
----------
hereto, and (ii) subsequently, such other office or offices designated as such
in writing by such Lender Party to Agent.
"Applicable LIBO Rate Margin" means (i) at all times prior to Borrower's
---------------------------
delivery of the financial statements required in Section 5.3 hereof in respect
-----------
of Borrower's fiscal quarter ending in June, 1997, 1.75% and (ii) at all times
thereafter during each period between (x) the date of Borrower's delivery of
financial statements required in Section 5.3 hereof in respect of any fiscal
-----------
quarter of Borrower specified below and (y) the date of Borrower's delivery of
such financial statements in respect of the next following fiscal quarter of
Borrower, the margin set forth opposite such fiscal quarter under (corresponding
to the applicable EBITDA Coverage Ratio for such fiscal quarter) under the
heading "Applicable LIBO Rate Margin" below:
<TABLE>
<CAPTION>
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
<S> <C> <C>
(a) June, 1997; EBITDA
Coverage Ratio of:
-----------------
Greater than or equal to 1.50% 0%
4.15 to 1.00:
Less than 4.15 to 1.00, but 1.75% 0.25%
greater than or equal to
3.30 to 1.00:
Less than 3.30 to 1.00: 2.00% 0.50%
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
<S> <C> <C>
(b) September, 1997; EBITDA
Coverage Ratio of:
-----------------------
Greater than or equal to 1.50% 0%
3.40 to 1.00:
Less than 3.40 to 1.00, but 1.75% 0.25%
greater than or equal to
2.70 to 1.00:
Less than 2.70 to 1.00: 2.00% 0.50%
(c) December, 1997; EBITDA
Coverage Ratio of:
-----------------------
Greater than or equal to 1.50% 0%
2.40 to 1.00:
Less than 2.40 to 1.00, but 1.75% 0.25%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00: 2.00% 0.50%
(d) March, 1998; EBITDA
Coverage Ratio of:
-------------------
Greater than or equal to 1.50% 0%
1.75 to 1.00:
Less than 1.75 to 1.00, but 1.75% 0.25%
greater than or equal to
1.40 to 1.00:
Less than 1.40 to 1.00: 2.00% 0.50%
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
<S> <C> <C>
(e) June, 1998, EBITDA
Coverage Ratio of:
------------------
Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.50 to 1.00:
Less than 1.50 to 1.00: 2.00% 0.50%
(f) September, 1998; EBITDA
Coverage Ratio of:
-----------------------
Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.70 to 1.00:
Less than 1.70 to 1.00: 2.00% 0.50%
</TABLE>
-4-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
<S> <C> <C>
(g) December, 1998; EBITDA
Coverage Ratio of:
----------------------
Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.60 to 1.00:
Less than 1.60 to 1.00: 2.00% 0.50%
(h) March, 1999; EBITDA
Coverage Ratio of:
-------------------
Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.50 to 1.00:
Less than 1.50 to 1.00: 2.00% 0.50%
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
<S> <C> <C>
(i) June, 1999 or any month
thereafter; EBITDA
Coverage Ratio of:
------------------
Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.75 to 1.00:
Less than 1.75 to 1.00: 2.00% 0.50%
</TABLE>
The Applicable LIBO Rate Margin as in effect from time to time shall be
determined based upon Borrower's EBITDA Coverage Ratio, as calculated quarterly
as at the end of each fiscal quarter of Borrower for the period in effect at
such time as specified above. The Applicable LIBO Rate Margin in effect shall
be redetermined quarterly on the date Agent receives quarterly financial
statements pursuant to Section 5.3 hereof. Anything to the contrary
-----------
notwithstanding contained in this Credit Agreement, any LIBO Rate Loan
outstanding on a day on which the Applicable LIBO Rate Margin changes
automatically shall be adjusted as of the date on which, and to the extent that,
the Applicable LIBO Rate Margin is adjusted.
"Applicable Prime Rate Margin" means (i) at all times prior to Borrower's
----------------------------
delivery of the financial statements required in Section 5.3 hereof in respect
-----------
of Borrower's fiscal quarter ending in June, 1997, 0.25% and (ii) at all times
thereafter during each period between (x) the date Borrower's delivery of
financial statements required in Section 5.3 hereof in respect of any fiscal
-----------
quarter of Borrower specified below and (y) the date of Borrower's delivery of
such financial statements in respect of the next following fiscal quarter of
Borrower, the margin set forth opposite such fiscal quarter (corresponding to
the applicable EBITDA Coverage Ratio for such fiscal quarter) under the heading
"Applicable Prime Rate Margin" in the table contained within the definitions of
Applicable LIBOR rate Margin above. The Applicable Prime Rate Margin as in
effect from time to time shall be determined based upon the Borrower's EBITDA
Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of
Borrower for the period in effect at such time as specified above. The
Applicable Prime Rate Margin in effect shall be redetermined quarterly on the
date Agent receives quarterly financial statements pursuant
-6-
<PAGE>
to Section 5.3 hereof. Anything to the contrary notwithstanding contained in
-----------
this Credit Agreement, any Prime Rate Loan outstanding on a day on which the
Applicable Prime Rate Margin changes automatically shall be adjusted as of the
date on which the Applicable Prime Rate Margin is adjusted.
"Assignee" has the meaning set forth in Section 9.5(c) hereof.
-------- --------------
"Assignment" has the meaning set forth in Section 9.5(c) hereof.
---------- --------------
"Assignment Agreement" has the meaning set forth in Section 9.5(c) hereof.
-------------------- --------------
"Assignor" has the meaning set forth in Section 9.5(c) hereof.
-------- --------------
"Authorized Representatives" means those officers and employees designated
--------------------------
by Borrower on the most current Notice of Authorized Representatives delivered
by Borrower to Agent as being authorized to request any borrowing or make any
interest rate selection on behalf of Borrower hereunder, or to give Agent any
other notice hereunder which is required by the terms hereof to be made through
one of Borrower's Authorized Representatives.
"Base LIBO Rate" means the average of the rate per annum at which U.S.
--------------
dollar deposits are offered to the Agent in the London interbank Eurocurrency
market on the second LIBOR Business Day prior to the commencement of an 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 principal amount to
which such Interest Period shall apply.
"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the United
---------------
States Code, as amended or recodified from time to time, including (unless the
context otherwise requires) any rules or regulations promulgated thereunder.
"Bond Indenture" means the Indenture dated as of June 11, 1997 among
--------------
Borrower, as issuer, and U.S. Bank of California, N.A., a trustee, under which
the Bonds are to be issued.
"Bond Purchase Agreement" means the Purchase Agreement dated June 11, 1997
-----------------------
between LPM Holdings, Inc. and BT Securities Corporation.
"Bond Trustee" means the trustee from time to time under the Bond
------------
Indenture.
"Bonds" means Borrower's 10 3/8% Senior Notes due 2004.
-----
"Borrower" has the meaning set forth in the introduction hereto.
--------
"Borrowing Base" means, on any date of delivery by Borrower of financial
--------------
statements pursuant to Section 5.3(b) hereof, the sum of (i) 80% of the amount
--------------
of Receivables of Borrower and its Subsidiaries on a consolidated basis, as
reflected in such financial statements, plus
----
-7-
<PAGE>
(ii) (A) if such financial statements pertain to a fiscal quarter of Borrower
ending in March or December in any calendar year, 60% of the amount of Inventory
of Borrower and its Subsidiaries on a consolidated basis, as reflected (on the
basis of a lower of cost or market valuation) in such financial statements, and
(B) if such financial statements pertain to a fiscal quarter of Borrower ending
in June or September in any calendar year, 50% of the amount of Inventory of
Borrower and its Subsidiaries on a consolidated basis, as reflected (on the
basis of a lower of cost or market valuation) in such financial statements.
"Business Day" means any day other than a Saturday, Sunday, or other day on
------------
which commercial banks are authorized or required to close in Los Angeles,
California.
"Capital Lease" means, for any Person, any lease of property (whether real,
-------------
personal or mixed) which, in accordance with GAAP, would, at the time a
determination is made, be required to be recorded as a capital lease in respect
of which such Person is liable as lessee.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations, or other equivalents (however designated) of, or rights,
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalization Merger" means the merger of Leslie's Poolmart USA Inc., a
---------------------
Delaware corporation, into Borrower, with Borrower being the surviving
corporation, pursuant to the Capitalization Merger Agreement.
"Capitalization Merger Agreement" means the Agreement and Plan of Merger
-------------------------------
dated as of February 26, 1997 among Leslie's Poolmart, a California corporation,
Borrower, and Leslie's Poolmart USA Inc., a Delaware corporation.
"Capitalization Transactions" means (i) the Capitalization Merger, (ii) the
---------------------------
retention by the Hancock Group members of 359,505 shares of Borrower's common
stock (in lieu of payment of approximately $5.2 million in cash merger
consideration that would otherwise be payable in respect of such number of
shares upon consummation of the Capitalization Merger), (ii) the issuance
immediately after the Capitalization Merger of 14,768 shares of Borrower's
common stock (the "Management Subscription Stock") to certain members of
-----------------------------
Borrower's management, for aggregate cash consideration of $214,136, (iii) the
exchange in connection with the Capitalization Merger of Capital Stock of
Leslie's Poolmart USA Inc. held by GEI for 1,059,370 shares of Borrower's common
stock, for aggregate cash consideration of $15,360,865, (iv) the issuance in
connection with the Capitalization Merger to Occidental of 28,000 shares of
Preferred Stock, together with warrants to purchase 252,996 shares of Borrower's
common stock at a purchase price of $0.01 per share (subject to adjustment) for
a period of ten years (the "Occidental Warrants"), in exchange for $28,000,000
-------------------
in consideration comprised of $18,000,000 in cash and exchange of Borrower's
outstanding debentures in the aggregate principal amount of $10,000,000 held by
Occidental prior to consummation of the Capitalization Merger, and (iv) issuance
and sale of the Bonds, in the principal amount of $90,000,000, all in accordance
with the Capitalization Transaction Documents.
-8-
<PAGE>
"Capitalization Transactions Documents" means all agreements or instruments
-------------------------------------
entered into by any Loan Party in connection with the Capitalization
Transactions, including, without limitation, the Additional Capital Stock
Agreement, the Bond Indenture, the Bond Purchase Agreement, the Capitalization
Merger Agreement, the Preferred Stock Purchase Agreement, the Preferred Stock
Designation Certificate and the Reincorporation Merger Agreement, in each case
as amended, supplemented or otherwise modified from time to time to the extent
not prohibited by the Loan Documents.
"Change in Control" means the occurrence of one or more of the following
-----------------
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
Borrower to any Person (other than a Permitted Holder) or group of Persons
(other than Permitted Holders) related for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof (whether or not
-----
otherwise in compliance with the provisions of the Loan Documents); (ii) the
approval by the holders of Capital Stock of Borrower of any plan or proposal for
the liquidation or dissolution of Borrower (whether or not otherwise in
compliance with the provisions of the Loan Documents); (iii) any Person or Group
(other than any one or more of the Permitted Holders) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of Borrower; (iv) the replacement of a majority of the
Board of Directors of Borrower (other than in accordance with the terms of the
Preferred Stock) over a two-year period from the directors who constituted the
Board of Directors of Borrower at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors of Borrower then still in office who either were members of
such Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved; or (v) Borrower
consolidates with, or merges with or into, another Person, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, Borrower (in each case whether or not otherwise in compliance with the
terms of the Loan Documents), in any such event pursuant to a transaction in
which the shares representing the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of Borrower is converted into or
exchanged for cash, securities or other property, other than (A) any such
transaction where (1) the shares representing the issued and outstanding
ordinary voting Capital Stock of Borrower are converted into or exchanged for
(I) ordinary voting Capital Stock (other than Disqualified Capital Stock) of the
surviving or transferee corporation and/or (II) cash, securities and other
property in an amount which could be paid by Borrower without violating Section
-------
6.7 hereof (determined after giving pro forma effect to the combination of
- ---
Borrower and such other Person) and (2) the "beneficial owners" of the shares
representing the issued and outstanding ordinary voting Capitol Stock of
Borrower immediately prior to such transaction own, directly or indirectly,
shares of Capital Stock representing not less than a majority of voting power of
all issued and outstanding shares of Capital Stock of the surviving or
transferee corporation immediately after such transaction, or (B) any such
transaction as a result of which any one or more of the Permitted Holders own
shares of Capital Stock representing more than 50% of the voting power of all
issued and outstanding shares of Capital Stock of the surviving or transferee
corporation immediately after such transaction.
-9-
<PAGE>
"Change in Law" has the meaning set forth in Section 2.9(b) hereof.
------------- --------------
"Closing Date" means the date on which the initial extension of the Credits
------------
is made hereunder.
"Collateral" means the property described in the Collateral Documents as
----------
being subject to a Lien for the benefit of the Lender Parties and all other
property now existing or hereafter acquired which may at any time be or become
subject to a Lien for the benefit of the Lender Parties pursuant to the
Collateral Documents or otherwise, securing the payment and performance of the
obligations under the Loan Documents.
"Collateral Documents" means the Pledge Agreements, the Security
--------------------
Agreements, any other agreement pursuant to which any Loan Party or any other
Person provides a Lien on any of its assets for the benefit of the Lender
Parties and all financing statements, fixture filings, patent, trademark and
copyright filings, assignments, acknowledgments and other filings, documents and
agreements made or delivered pursuant thereto.
"Commitment" means, as to any Lender, the amount set forth opposite its
----------
name under "Commitment" in Schedule I hereof, as reduced or otherwise modified
----------
from time to time pursuant to this Credit Agreement.
"Credits" means each advance made under the Line of Credit, each Swingline
-------
Loan and each issuance of any Letter of Credit.
"Damages" has the meaning set forth in Section 9.14 hereof.
------- ------------
"Default" means an Event or Default or an event or condition which with the
-------
giving of notice or the passage of time, or both, would constitute an Event of
Default.
"Dispute" has the meaning set forth in Section 9.17(a) hereof.
------- ---------------
"Disqualified Capital Stock" means that portion of any Capital Stock which,
--------------------------
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in any case, on or prior
to the Line Maturity Date.
"EBITDA" for any period means net income for such period (excluding any
------
extraordinary or unusual items of income or expense) plus interest expense,
----
taxes, depreciation, amortization (including, without limitation, amortized
financing costs) and any non-cash charges to the extent any of the foregoing
were deducted in arriving at net income, in each case for such period plus LIFO
----
reserve adjustments to the extent deducted in arriving at net income for such
period, minus LIFO reserve adjustments to the extent added in arriving at net
-----
income for such period, in each case determined in accordance with GAAP.
-10-
<PAGE>
"EBITDA Coverage Ratio," at the end of any fiscal quarter of Borrower,
---------------------
means the ratio of (i) the EBITDA of Borrower and its Subsidiaries on a
consolidated basis for the period of such fiscal quarter and the immediately
preceding three consecutive fiscal quarters to (ii) the
-11-
<PAGE>
aggregate of (A) interest expense (excluding amortization or write-off of
deferred financing costs) of Borrower and its Subsidiaries on a consolidated
basis for such period plus (B) the aggregate amount of all regularly scheduled
----
principal payments of Borrower and its Subsidiaries due during such period on
Indebtedness of Borrower and its Subsidiaries having an initial maturity of one
year or longer, in each case determined in accordance with GAAP.
"ERISA" has the meaning set forth in Section 3.9 hereof.
----- -----------
"Event of Default" has the meaning set forth in Section 7.1 hereof.
---------------- -----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, and any successor statute thereto, and the rules and regulations
promulgated thereunder.
"Federal Funds Rate" means, for any day, the weighted average of the per
------------------
annum rates on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by federal funds brokers as published by the
Federal Reserve Bank of New York for such day (or, if such rate is not so
published for any day, the average rate quoted to Agent on such day by three (3)
federal funds brokers of recognized standing selected by Agent).
"Financing" has the meaning set forth in Section 6.3 hereof.
--------- -----------
"Funded Debt Ratio" at the end of any fiscal quarter of Borrower means the
-----------------
ratio of (i) the aggregate amount of Indebtedness under clauses (i), (ii),
(iii), (iv) and, to the extent of unreimbursed amounts, (v) of the definition of
Indebtedness hereunder of Borrower and its Subsidiaries outstanding at the end
of such fiscal quarter, determined on a consolidated basis in accordance with
GAAP, to (ii) the EBITDA of Borrower and its Subsidiaries on a consolidated
basis for the period of such fiscal quarter and the immediately preceding three
consecutive fiscal quarters, in each case determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the U.S. as in
----
effect from time to time applied in a manner consistent with the preparation of
the financial statements referred to in Section 3.5.
"GEI" means Green Equity Investors II, L.P. or, after a pro rata
---
distribution of all of its assets to its partners, such partners.
"Governmental Authority" means any domestic or foreign national, state or
----------------------
local government, any political subdivision thereof, any department, agency,
authority or bureau of any of the foregoing, or any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the Federal Deposit
-12-
<PAGE>
Insurance Corporation, the Federal Reserve Board, the Comptroller of the
Currency, any central bank or comparable authority.
"Guarantor" means each of Borrower's Subsidiaries.
---------
"Guarantor Documents" with respect to any Guarantor means, as applicable,
-------------------
the Guaranty, the Stock Pledge Agreement, and the Security Agreement executed by
such Guarantor and all other documents, agreements and instruments delivered to
Agent under or in connection with such Guaranty.
"Guaranty" with respect to any Guarantor means the Guaranty executed by
--------
such Guarantor in favor of the Lender Parties.
"Hancock Group" means Michael J. Fourticq, Brian P. McDermott and the
-------------
McDermott Family Trust, Gregory Fourticq and Richard H. Hillman.
"Hancock/Management Holders" means the members of the Hancock Group and
--------------------------
such other members of Borrower's management on the date hereof who acquire the
Management Subscription Stock.
"Hedge Agreement" means any interest rate swap, cap or collar agreements,
---------------
interest rate future or option contracts, currency swap agreements, currency
future option contracts and other similar agreements.
"Indebtedness" means, for any Person without duplication: (i) all
------------
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of business); (ii) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses; (iii) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property); (iv) all obligations under Capital Leases; (v) all reimbursement or
other obligations of such Person under or in respect of letters of credit and
bankers acceptances; (vi) all obligations of such Persons in respect of Hedge
Agreements; and (vii) all indebtedness of another Person secured by any Lien
upon or in property owned by the Person for whom Indebtedness is being
determined, whether or not such Person has assumed or become liable for the
payment of such indebtedness of such other Person.
"Interest Period" means, with respect to each LIBO Rate Borrowing, the
---------------
period commencing on the date of such LIBO Rate Borrowing and ending one (1),
two (2), three (3), or, subject to the availability of funds, six (6) months
thereafter, as Borrower may elect pursuant to the applicable Notice of Borrowing
or Notice of Conversion/Continuation; provided, however, that:
-------- -------
-13-
<PAGE>
(a) any Interest Period that would otherwise end on a day that is
not a LIBOR Business Day shall be extended to the next succeeding LIBOR
Business Day unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
LIBOR Business Day;
(b) any Interest Period that begins on the last LIBOR Business
Day of the calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c), end on the last LIBOR Business Day of the
calendar month in which it would have ended if there were a numerically
corresponding day in such calendar month; and
(c) in no event shall an Interest Period end on a date after the
Line Maturity Date.
"Inventory" means all "inventory" (as such term is defined in the UCC).
---------
"Lender Parties" means the Lenders, the Swingline Lender and the Agent.
--------------
"Lenders" has the meaning set forth in the introduction hereto.
-------
"Letter of Credit" has the meaning set forth in Section 2.1(d) hereof.
---------------- --------------
"Letter of Credit Agreement" has the meaning set forth in Section 2.1(d)
-------------------------- --------------
hereof.
"LIBOR" means for each Interest Period for each LIBO Rate Loan owed to a
-----
Lender the rate per annum (rounded upward, if necessary, to the nearest whole
1/16 of 1%) determined by Agent pursuant to the following formula:
LIBOR = Base LIBO Rate
----------------------------------------
100% - Reserve Percentage of such Lender
"LIBOR Business Day" means a Business Day on which dealings in U.S. dollar
------------------
deposits are carried on in the London interbank market.
"LIBO Rate Borrowing" means any borrowing designated by Borrower as a LIBO
-------------------
Rate Borrowing pursuant to Section 2.2 or 2.4 of this Credit Agreement.
------------------
"LIBO Rate Loan" means each portion of the advances under the Line of
--------------
Credit bearing interest at a rate determined by reference to LIBOR for a
particular Interest Period.
"Lien" means any mortgage, deed of trust, pledge, security interest,
----
assignment, deposit arrangement, charge or encumbrance, lien (statutory or
other), or other preferential arrangement (including any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing or any agreement to give any
security interest).
-14-
<PAGE>
"Line Maturity Date" means the fifth anniversary of the Closing Date.
------------------
"Line of Credit" has the meaning set forth in Section 2.1(a) hereof.
-------------- --------------
"Line of Credit Notes" has the meaning set forth in Section 2.1(a) hereof.
-------------------- --------------
"Loan Documents" means this Credit Agreement, the Notes, the Collateral
--------------
Documents, the Guarantor Documents and all other certificates, documents,
agreements and instruments delivered to Agent under or in connection with this
Credit Agreement, in each case as amended, supplemented or otherwise modified
from time to time.
"Loan Party" means the Borrower and each Guarantor.
----------
"Majority Lenders" means Lenders whose Proportionate Shares at any time
----------------
equal or exceed fifty-one percent (51%).
"Management Subscription Stock" has the meaning set forth in the definition
-----------------------------
of "Capitalization Transactions" set forth herein.
"Notes" means the Line of Credit Notes and the Swingline Note.
-----
"Notice of Authorized Representatives" has the meaning set forth in Section
------------------------------------ -------
2.12 hereof.
- ----
"Notice of Borrowing" has the meaning set forth in Section 2.2 hereof.
------------------- -----------
"Notice of Conversion or Continuation" has the meaning set forth in Section
------------------------------------ -------
2.4(b) hereof.
- ------
"Notice of Swingline Borrowing" has the meaning set forth in Section 2.1(b)
----------------------------- --------------
hereof.
"Occidental" means Occidental Petroleum Corporation.
----------
"Occidental Warrants" has the meaning set forth in the definition of
-------------------
"Capitalization Transactions" set forth herein.
"Participants" has the meaning set forth in Section 9.5(b) hereof.
------------ --------------
"Person" means natural persons, corporations, limited partnerships, general
------
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, vehicle trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Permitted Hedge Agreement" means any interest rate swap, cap, collar or
-------------------------
similar agreement entered into between Borrower and any of the Lender Parties in
respect of notional amounts corresponding to the obligations under this Credit
Agreement.
-15-
<PAGE>
"Permitted Holders" means any one or more of (i) the Hancock/Management
-----------------
Holders, (ii) GEI and (iii) Occidental and, in the case of (ii) and (iii), their
respective Affiliates.
"Permitted Liens" means Liens permitted pursuant to Section 6.8 hereof.
--------------- -----------
"Plan" has the meaning set forth in Section 3.9 hereof.
---- -----------
"Pledge Agreement" with respect to any Loan Party means the Stock Pledge
----------------
Agreement executed by such Loan Party for the benefit of the Lender Parties, in
a form acceptable to Agent.
"Preferred Stock" means Borrower's Exchangeable Cumulative Redeemable
---------------
Stock, Series A, the terms of which are designated in the Preferred Stock
Designation Certificate.
"Preferred Stock Designation Certificate" means the Certificate of
---------------------------------------
Designation, Preferences and Rights of Exchangeable Cumulative Redeemable
Preferred Stock, Series A, pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware, in the form of Exhibit A to the Preferred Stock
Purchase Agreement.
"Preferred Stock Purchase Agreement" means the Preferred Stock and Warrant
----------------------------------
Purchase Agreement dated as of June 11, 1997 between Borrower and Occidental.
"Prime Rate" means at any time the rate of interest most recently announced
----------
within Wells Fargo at its principal office in San Francisco as its "prime rate",
with the understanding that the "prime rate" is one of Wells Fargo's base rates
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof in such internal publication or publications as the Wells Fargo may
designate. Each change in the rate of interest shall become effective on the
date each Prime Rate change is announced within Wells Fargo.
"Prime Rate Loan" means each portion of the advances under the Line of
---------------
Credit bearing interest at a rate determined by reference to the Prime Rate and
the Swingline Loans.
"Proportionate Share" means, for each Lender, the quotient, expressed as a
-------------------
percentage, of such Lender's Commitment divided by the Total Commitments.
"Receivable Debtor" means any Person obligated on a Receivable.
-----------------
"Receivables" means all rights to payment arising out of the sale or lease
-----------
of goods or the performance of services in the ordinary and usual course of
business, however evidenced.
"Redemption Amount" means the sum of $94.7 million, which is the aggregate
-----------------
amount of cash merger consideration paid upon consummation of the Capitalization
Merger to the holders of Capital Stock of the Borrower outstanding prior to
consummation of the Capitalization Merger in respect of such Capital Stock.
-16-
<PAGE>
"Reincorporation Merger Agreement" means the Agreement of Merger dated as
--------------------------------
of February 26, 1997 between Leslie's Poolmart, a California corporation, and
Borrower.
"Register" has the meaning set forth in Section 9.5(d) hereof.
-------- --------------
"Security Agreement" with respect to any Loan Party means the Security
------------------
Agreement executed by such Loan Party for the benefit of the Lender Parties, in
a form acceptable to Agent.
"Solvent" means, as to any Person at any time, that (i) the fair value of
-------
the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (ii) the present fair saleable value of the
property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital.
"Subsidiary," of any Person, means any corporation, association,
----------
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interest is owned directly or indirectly by
such Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
"Subordinated Exchange Indebtedness" has the meaning set forth in Section
---------------------------------- -------
6.12 hereof.
- ----
"Swingline Lender" has the meaning set forth in the introduction hereto.
----------------
"Swingline Loan" has the meaning set forth in Section 2.1(b) hereof.
-------------- --------------
"Swingline Note" has the meaning set forth in Section 2.1(b) hereof.
-------------- --------------
"Tangible Net Worth" means, as of any date of determination, the aggregate
------------------
of total stockholders' equity plus the principal amount of outstanding
----
Subordinated Exchange Indebtedness, if any, plus the principal amount of
----
outstanding Indebtedness permitted under Section 6.3(f) hereof, if any, plus
-------------- ----
paid in capital represented by the Preferred Stock to the extent not subject to
mandatory redemption earlier than one year after the Line Maturity Date, plus
----
the Redemption Amount, less the aggregate of any treasury stock, any intangible
----
assets, and the amount by which any obligations due from stockholders,
employees, and/or affiliates exceed TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($250,000) in the aggregate.
"Taxes" has the meaning set forth in Section 2.10(a) hereof.
----- ---------------
-17-
<PAGE>
"Total Commitments" means the aggregate of the Commitments of all Lenders.
-----------------
"UCC" means the Uniform Commercial Code as in effect in the State of
---
California or any other jurisdiction, as relevant, in which Collateral is
located.
"Wells Fargo" has the meaning set forth in the introduction hereto.
-----------
SECTION 1.2. CERTAIN RULES OF CONSTRUCTION.
(a) HEADINGS. Headings in this Credit Agreement and each of the other Loan
--------
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
(b) FISCAL QUARTER ENDING DATES. Whenever reference is made herein to the
---------------------------
end of or last day of any fiscal quarter of Borrower, such reference shall be to
the Saturday closest to the last day of the month of March, June, September or
December, as the case may be, falling within such fiscal quarter.
ARTICLE II
----------
THE CREDITS
-----------
SECTION 2.1. LINE OF CREDIT.
(a) LINE OF CREDIT.
--------------
(i) Subject to the terms and conditions of this Credit Agreement, each
Lender hereby severally agrees, on a pro rata basis, to make advances to
Borrower from time to time up to the Line Maturity Date not to exceed at any
time the aggregate principal amount of the sum of (A) THIRTY-FIVE MILLION AND
NO/100 DOLLARS ($35,000,000), minus (B) the aggregate undrawn face amount of
-----
Letters of Credit outstanding at such time, minus (C) the aggregate principal
-----
amount of Swingline Loans outstanding at such time (the "Line of Credit"). The
--------------
proceeds of advances under the Line of Credit shall be used to refinance
Borrower's Indebtedness under the 1997 Predecessor Credit Agreement, for the
working capital requirements of Borrower and its Subsidiaries and to finance
capital expenditures permitted hereunder. Borrower's obligation to repay
advances under the Line of Credit shall be evidenced by promissory notes
substantially in the form of Exhibit 2.1(a) attached hereto (the "Line of Credit
-------------- --------------
Notes"), all terms of which are incorporated herein by this reference.
- -----
Outstanding advances under the 1997 Predecessor Credit Agreement shall be deemed
outstanding under the Line of Credit; provided, however, that each LIBOR Rate
-------- -------
Loan (defined in the 1997 Predecessor Credit Agreement) outstanding on the
Closing Date shall continue to bear interest hereunder at the rate applicable
thereto under the 1997 Predecessor Credit Agreement until the end of the
Interest Period, as such term is defined in the 1997 Predecessor Credit
Agreement, applicable thereto under the 1997 Predecessor Credit Agreement.
-18-
<PAGE>
(ii) Borrower may from time to time during the term of the Line of
Credit borrow, partially or wholly repay and reborrow advances under the Line of
Credit, subject to all the limitations, terms and conditions contained herein;
provided, however, that the total outstanding borrowings under the Line of
- -------- -------
Credit shall not at any time exceed the maximum principal amount available
thereunder, as set forth above. If the total outstanding borrowings hereunder
shall at any time exceed the principal amount stated above, Borrower shall
immediately repay to Agent for the benefit of the Lenders such excess amount.
The unpaid principal balance of advances under the Line of Credit at any time
shall be the total of the amounts advanced by the Lenders thereunder less the
----
amount of principal payments made by or for Borrower on such advances, which
balance may be endorsed from time to time by the Lenders on the schedules
attached to the Line of Credit Notes held by them. The outstanding principal
balance under the Line of Credit shall be due and payable in full on the Line
Maturity Date.
(b) SWINGLINE LOANS.
---------------
(i) Subject to the terms and conditions of this Credit Agreement,
the Swingline Lender may, in its sole discretion, make a portion of the Total
Commitments available to Borrower by making swingline loans (individually, a
"Swingline Loan"; collectively, the "Swingline Loans") to Borrower from time to
--------------- ---------------
time to the Line Termination Date in accordance with the procedures set forth in
this Section 2.1 in an aggregate principal amount at any one time outstanding
-----------
not to exceed FIVE MILLION AND NO/100 DOLLARS ($5,000,000), notwithstanding that
such Swingline Loans, when aggregated with advances under the Line of Credit
made by Wells Fargo in its capacity as a Lender, may exceed Wells Fargo's
Commitment. Borrower's obligation to repay Swingline Loans shall be evidenced
by a promissory note substantially ion the form of Exhibit 2.1(b)(i) attached
-----------------
hereto (the "Swingline Note"), all terms of which are incorporated by this
--------------
reference.
(ii) So long as the Swingline Lender, in its sole discretion, elects
to make Swingline Loans, Borrower may from time to time during the term of the
Line of Credit borrow, partially or wholly repay, and reborrow Swingline Loans,
subject to all the limitations, terms and conditions contained herein; provided,
--------
however, that at no time shall the sum of the aggregate principal amount of all
- -------
outstanding Swingline Loans, plus the aggregate principal amount of all
----
outstanding advances under the Line of Credit plus the aggregate undrawn face
----
amount of outstanding Letters of Credit exceed the Total Commitments. The
unpaid principal balance of the Swingline Loans at any time shall be the total
of the amount of Swingline Loans made by the Swingline Lender less the amount of
----
principal payments made by Borrower on Swingline Loans, which balance may be
endorsed from time to time by the Swingline Lender on the schedule attached to
the Swingline Note. The outstanding principal amount of each Swingline Loan
shall be due and payable in full on the maturity date therefor specified in the
applicable Notice of Swingline Borrowing, which shall be a date not more than
seven (7) days after the date of such Swingline Loan, and the outstanding
principal balance of all Swingline Loans shall in any event be due and payable
in full on the Line Maturity Date.
(iii) Borrower shall provide Agent (with a copy to the Swingline
Lender) irrevocable written notice (which notice may be delivered telephonically
and confirmed by
-19-
<PAGE>
facsimile on the same day) in the form of Exhibit 2.1(b)(iii) attached hereto (a
-------------------
"Notice of Swingline Borrowing") of any Swingline Loan requested hereunder
-----------------------------
(which notice must be received by the Swingline Lender and the Agent before 2:30
p.m. (San Francisco time) on the requested borrowing date) specifying (A) the
principal amount of the requested Swingline Loan,(B) the requested proposed date
of borrowing of such Swingline Loan, which shall be a Business Day and (C) the
maturity date for such Swingline Loan, which shall be a date not later than
seven (7) days after the date of borrowing of such Swingline Loan. Upon receipt
of a Notice of Swingline Borrowing, the Swingline Lender will immediately
confirm with Agent (by telephone or in writing) that Agent has received a copy
of such Notice of Swingline Borrowing from Borrower and, if not, the Swingline
Lender will provide Agent with a copy thereof. Unless the Swingline Lender has
received notice before 3:00 p.m. (San Francisco time) on the proposed date of
borrowing of such Swingline Loan from Agent (x) directing the Swingline Lender
not to make the requested Swingline Loan as a result of the limitations set
forth in Section 2.1(b)(ii) hereof or (y) that one or more of the conditions
------------------
specified in Article IV are not then satisfied, then, subject to the terms and
conditions hereof, the Swingline Lender will, in the event that the Swingline
Lender so elects, in its sole discretion, by the close of business in San
Francisco on the proposed date of borrowing specified in such Notice of
Swingline Borrowing, make the amount of such requested Swingline Loan available
to Agent for the account of Borrower at Agent's Payment Office in funds
immediately available to Agent. The proceeds of such Swingline Loan will then
be made available to Borrower by Agent in the manner specified for proceeds of
advances under the Line of Credit in Section 2.7(a) hereof. Each borrowing of
--------------
Swingline Loans shall be in an aggregate principal amount equal to $100,000 or
an integral multiple of $50,000 in excess thereof, unless otherwise agreed by
the Swingline Lender. Agent shall promptly notify each Lender of the date of
borrowing, principal amount and maturity of each Swingline Loan advanced by the
Swingline Lender.
(iv) If any Swingline Loan shall remain outstanding during the
existence of a Default or Event of Default and the Swingline Lender shall, in
its sole discretion, notify Agent that the Swingline Lender desires that such
Swingline Loan to be converted into advances under the Line of Credit, then
Agent shall be deemed to have received a Notice of Borrowing from the Borrower
pursuant to Section 2.2 hereof requesting that Prime Rate Loans, in the
------------------
aggregate amount of such Swingline Loan, under the Line of Credit be made on the
first Business Day after the date of such notice from the Swingline Lender, and
the Lenders, rateably in accordance with their Proportionate Shares, shall make
such advances comprising such Prime Rate Loans notwithstanding Borrower's
failure to satisfy the conditions contained in Article IV hereof, and
notwithstanding any limitations on minimum or integral borrowing amounts
contained herein, and the Lenders shall follow the procedures set forth in
Section 2.7(a) hereof in making such advances; provided, that if a borrowing
- -------------- --------
under the Line of Credit becomes, as determined by Agent, legally impracticable,
and if the Swingline Lender so requests, each Lender agrees that in lieu of
making Prime Rate Loans as described in this subsection 2.1(b)(iv), such Lender
---------------------
shall automatically be deemed to have purchased a participation from the
Swingline Lender in the applicable Swingline Loans in an amount equal to such
Lender's Proportionate Share of such Swingline Loans. The proceeds of such
Prime Rate Loans, or participation purchases, shall be applied to repay such
Swingline Loans. If any Lender so notified fails to make available to Agent for
the account of the Swingline Lender the amount of such Lender's Proportionate
Share of the amount of such Prime
-20-
<PAGE>
Rate Loans or participations, as applicable, by no later than 12:00 noon (San
Francisco time) on the date due, then interest shall accrue on such Lender's
obligation to make such payment, from such date to the date such Lender makes
such payment, at a rate per annum equal to the Federal Funds Rate in effect from
time to time during such period. A copy of each notice given by Agent to the
Lenders pursuant to this subsection 2.1(b)(iv) with respect to the making of
--------------------
Prime Rate Loans under the Line of Credit, or the purchases of participations,
shall be promptly delivered by Agent to Borrower. Each Lender's obligation in
accordance with this Credit Agreement to make the Prime Rate Loans under the
Line of Credit, or purchase participations, as contemplated by this
subsection 2.1(b)(iv), shall be absolute, irrevocable, and unconditional and
- ---------------------
shall not be affected by any circumstance, including (i) any set-off,
counterclaim, recoupment, defense or other right which such Lender may have
against the Swingline Lender, Borrower or any other Person for any reason
whatsoever, (ii) the occurrence of continuance of a Default, an Event of Default
or any material adverse change in the financial condition of Borrower or any
Subsidiary of Borrower, or (iii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
(v) If Agent or the Swingline Lender is required at any time to
return to Borrower, or to a trustee, receiver, liquidator, custodian, or any
official in any proceeding referred to in Section 7.1(h) hereof, any portion of
--------------
the payments made by Borrower to Agent for the account of the Swingline Lender,
or any interest thereon, each Lender shall, on demand of Agent or the Swingline
Lender, forthwith return to Agent or the Swingline Lender the amount of its
Proportionate Share of any amounts so returned by Agent or the Swingline Lender,
plus interest thereon from the date such demand is made to Agent or the
Swingline Lender at a rate per annum equal to the Federal Funds Rate in effect
from time to time.
(c) FEES.
----
(i) Upfront Commitment Fee. Borrower shall pay to Agent, for the
----------------------
ratable account of the Lenders based on their respective Proportionate Shares,
an upfront commitment fee in the aggregate amount of $218,750, payable on the
Closing Date.
(ii) Non-Use Fee. Borrower shall pay to Agent, for the ratable
-----------
account of the Lenders based on their respective Proportionate Shares, a fee
equal to one-half of one percent (0.5%) per annum of the difference between (i)
the Total Commitments, and (ii) the average daily outstanding principal balance
of the Line of Credit during each fiscal quarter (including the outstanding
undrawn face amount of Letters of Credit issued under the Line of Credit but
excluding the outstanding principal balance of any Swingline Loans), which fee
shall be due and payable thirty (30) days after the end of such fiscal quarter.
(d) LETTER OF CREDIT SUBFEATURE. (i) As a subfeature under the Line of
---------------------------
Credit, Agent agrees from time to time up to thirty (30) days prior to the Line
Maturity Date, to issue sight commercial or standby letters of credit on behalf
of all of the Lenders and for the account of Borrower (each, a "Letter of
---------
Credit" and collectively, the "Letters of Credit"); provided, however, that the
- ------ ----------------- -------- -------
form and substance of each Letter of Credit shall be subject to approval by
Agent, in its reasonable discretion; and provided further, however, that the
---------------- -------
aggregate undrawn amount of all
-21-
<PAGE>
outstanding Letters of Credit shall not at any time exceed THREE MILLION AND
NO/100 DOLLARS ($3,000,000). Each Letter of Credit shall be issued for a term
not to
-22-
<PAGE>
exceed three hundred sixty-five (365) days, as designated by Borrower; provided,
--------
however, that no Letter of Credit shall have an expiration date subsequent to
- -------
the Line Maturity Date. The undrawn amount of all Letters of Credit shall be
reserved under the Line of Credit and shall not be available for advances
thereunder. Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit Agreement and related documents, if any,
required by Agent in connection with the issuance thereof (each, a "Letter of
---------
Credit Agreement" and collectively, "Letter of Credit Agreements"). Each draft
- ---------------- ---------------------------
paid by Agent under a Letter of Credit shall be deemed an advance under the Line
of Credit comprising a Prime Rate Loan and shall be repaid by Borrower in
accordance with the terms and conditions of this Credit Agreement applicable to
such advances; provided, however, that if the Line of Credit is not available,
-------- -------
for any reason whatsoever, at the time any draft is paid by Agent, then the full
amount of such draft shall be immediately due and payable, together with
interest thereon, from the date such amount is paid by Agent to the date such
amount is fully paid by Borrower, at the variable rate of interest applicable to
Prime Rate Loans. In such event, Borrower agrees that Agent, at Agent's sole
discretion, may debit Borrower's deposit account with Agent for the amount of
any such draft. Outstanding Letters of Credit issued in connection with the
1997 Credit Agreement shall be deemed outstanding Letters of Credit under the
Line of Credit.
(ii) The Lenders hereby irrevocably appoint Agent as their agent, and
hereby authorize and direct Agent for and on their behalf, to issue Letters of
Credit and to honor drafts presented under Letters of Credit in accordance with
the terms thereof. The interest of each Lender in each Letter of Credit shall
be the percentage designated as its Proportionate Share in Schedule I hereto of
----------
the total amount of all Letters of Credit. If there are insufficient funds
under the Line of Credit to pay any draft under a Letter of Credit, or if
Borrower otherwise fails to reimburse Agent for the full amount of any draft
paid under any Letter of Credit pursuant to the terms of the Letter of Credit
Agreement applicable thereto, each Lender shall, immediately on demand by Agent,
pay to Agent, ratably according to such Lender's Proportionate Share in such
Letter of Credit, the unreimbursed amount of such draft and all other sums then
due under such Letter of Credit Agreement. Each such payment by a Lender shall
be made in immediately available funds at Agent's Office on the date Agent
demands such payment, and shall bear interest from the date such amount is paid
by Agent to the date such amount is fully paid by such Lender at rates equal to
(A) the Federal Funds Rate during the period from the date such payment is due
through the third Business Day thereafter, and (B) thereafter, the Prime Rate in
effect from time to time.
SECTION 2.2. NOTICE OF BORROWING UNDER LINE OF CREDIT.
Borrower, through one of its Authorized Representatives, shall request
each advance under the Line of Credit by giving Agent irrevocable written notice
or telephonic notice (confirmed promptly in writing), in the form of Exhibit 2.2
-----------
attached hereto (each, a "Notice of Borrowing"), which specifies, among other
-------------------
things:
(a) the principal amount of the requested advance under the Line of
Credit;
(b) the proposed date of borrowing, which shall be a Business Day;
-23-
<PAGE>
(c) the interest rate option applicable to such borrowing (which, for a
LIBOR interest selection, shall be subject to the minimum dollar
requirement set forth in Section 2.3(a)(i) hereof); and
-----------------
(d) if the amounts advanced will bear interest determined in relation to
LIBOR, the length of the Interest Period applicable thereto.
Each such Notice of Borrowing must be received by Agent not later than 9:00 a.m.
(i) on the same day as the date of borrowing if interest will be determined in
relation to the Prime Rate, and (ii) at least three (3) Business Days prior to
the date of borrowing if interest will be determined in relation to LIBOR.
Agent shall promptly notify each Lender of the contents of each Notice of
Borrowing and of the amount of the advance to be made by such Lender.
SECTION 2.3. INTEREST/FEES.
(a) INTEREST. (i) Line of Credit. The outstanding principal amount of
-------- --------------
each advance under the Line of Credit shall bear interest until paid in full 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 LIBOR determined for a related
Interest Period plus the Applicable LIBO Rate Margin; provided, however,
---- -------- -------
that each LIBOR interest selection must be for an amount of FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000) or an integral multiple of ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess thereof.
(ii) Swingline Loans. The outstanding principal amount of each
---------------
Swingline Loan shall bear interest until paid in full at a fluctuating rate per
annum equal to the Prime Rate in effect from time to time plus the Applicable
----
Prime Rate Margin.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Accrued unpaid interest on the outstanding
principal amount of each advance under the Line of Credit shall be paid on the
First Business day of each calendar month and on the date such advance shall be
paid in full. Accrued unpaid interest on the outstanding principal amount of
each Swingline Loan shall be paid on the maturity date therefor or such earlier
date on which such Swingline Loan shall be paid in full.
(c) LETTER OF CREDIT FEES.
---------------------
(i) Commercial Letter of Credit Fees. Borrower shall pay to Agent,
--------------------------------
for Agent's own account, non-refundable fees upon the issuance or amendment of
each commercial letter of credit and upon the payment by Agent of each draft
under any commercial letter of credit
-24-
<PAGE>
determined in accordance with Agent's standard fees and charges in effect at the
time any commercial letter of credit is issued or amended or any draft is paid.
(ii) Standby Letter of Credit Fees. Borrower shall pay to Agent, for
-----------------------------
Agent's own account, non-refundable fees upon the issuance or amendment of each
standby letter of credit and upon the payment by Agent of each draft under any
standby letter of credit determined in accordance with Agent's standard fees and
charges in effect at the time any standby letter of credit is issued or amended
or any draft is paid.
(d) AGENT'S FEE. Borrower shall pay to Agent, for Agent's own account,
-----------
non-refundable agent's fees in the amounts and at the time set forth in the
Agent's Fee Letter.
SECTION 2.4. CONVERSION OF INTEREST RATE OPTIONS
(a) ELECTION. (i) At any time any portion of advances under the Line of
--------
Credit bears interest determined in relation to the Prime Rate, Borrower may
convert all or any portion thereof so that it bears interest determined in
relation to LIBOR for an Interest Period designated by Borrower, and (ii) at any
time any portion of advances under the Line of Credit bears interest determined
in relation to LIBOR, Borrower may convert all or a portion thereof at the end
of the Interest Period applicable thereto so that it bears interest determined
in relation to the Prime Rate or in relation to LIBOR for a new Interest Period
designated by Borrower; provided, however, that Borrower may not so convert or
-------- -------
continue any advance under the Line of Credit if the effect thereof would be to
cause the outstanding principal amount of any LIBO Rate Loan to be an amount
other than FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) or an integral
multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess
thereof. If Borrower has not made the required interest rate conversion or
continuation election prior to the last day of any Interest Period (or if the
proviso in the foregoing sentence prohibits such conversion or continuation),
Borrower shall be deemed to have made a Prime Rate interest selection for the
amounts that were subject thereto.
(b) NOTICE TO AGENT. Borrower, through one of its Authorized
---------------
Representatives, shall request each interest rate conversion or continuation by
giving Agent irrevocable written notice or telephonic notice (confirmed promptly
in writing), in the form of Exhibit 2.4 attached hereto (a "Notice of Conversion
----------- --------------------
or Continuation"), which specifies, among other things:
- ---------------
(i) in the case of conversion or continuation in respect of any LIBO
Rate Loan, the Interest Period for such LIBO Rate Loan to which
such Notice of Conversion or Continuation applies;
(ii) the principal amount of advances under the Line of Credit that
are the subject of such conversion or continuation;
(iii) the proposed date of such conversion or continuation, which
shall be a Business Day;
-25-
<PAGE>
(iv) and if such Notice pertains to a LIBOR interest selection, the
length of the applicable Interest Period.
Any such Notice of Conversion or Continuation must be received by Agent not
later than 9:00 a.m. (i) on the same day as the effective date of any Prime Rate
interest selection, and (ii) at least three (3) Business Days prior to the
effective date of any LIBOR interest selection. Agent shall promptly notify
each Lender of the contents of each such Notice of Conversion or Continuation,
or if timely notice is not received from Borrower prior to the last day of any
Interest Period of the automatic conversion of the amounts subject thereto to
the Prime Rate interest option.
SECTION 2.5. OTHER PAYMENT TERMS.
(a) AUTOMATIC DEBIT. Agent shall, and Borrower hereby authorizes Agent to,
---------------
debit any demand deposit account of Borrower with Agent for all payments of
principal, interest, and fees as they become due on any of the Credits. Should,
for any reason whatsoever, the funds in any such demand deposit account be
insufficient to pay all such amounts when due, Borrower shall immediately upon
demand remit to Agent the full amount of any such deficiency.
(b) PLACE AND MANNER. Borrower shall make all payments due to each Lender
----------------
Party under the Loan Documents by payment to Agent at Agent's Office, for the
account of such Lender Party, in lawful money of the United States and in same
day or immediately available funds not later than 12:00 noon on the date due.
Agent shall promptly disburse to each Lender Party at such Lender Party's
Applicable Lending Office each such payment received by Agent for such Lender
Party.
(c) DATE. Whenever any payment due hereunder shall fall due on a day other
----
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall be included in the computation of interest
or fees, as the case may be.
(d) INTEREST ON OVERDUE AMOUNTS. From and after the maturity date of any
---------------------------
Credit, or such earlier date as all principal owing under any Credit becomes due
and payable by acceleration or otherwise, the outstanding principal balance
thereof shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to four
percent (4%) above the rate of interest from time to time applicable to such
Credit, which shall be payable on demand by Agent and otherwise on the date of
payment of such principal.
(e) APPLICATION OF PAYMENTS. All payments under the Loan Documents
-----------------------
(including prepayments) shall be applied first to unpaid fees, costs, and
expenses then due and payable under this Credit Agreement and the other Loan
Documents, second to accrued interest then due and payable under the Loan
Documents, and finally to reduce the principal amount of outstanding Credits.
All payments credited to principal outstanding under the Line of Credit shall be
applied first, to the outstanding principal balance of the Line of Credit which
bears interest determined in relation to the Prime Rate, if any, and second, to
the outstanding principal balance of the Line of Credit which bears interest
determined in relation to LIBOR, with such payments applied to the
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oldest Interest Period first. If an Event of Default has occurred and is
continuing or if Borrower fails to direct application, Agent shall apply such
payments as determined by it in its discretion.
(f) FAILURE TO PAY AGENT. Unless Agent shall have received notice from
--------------------
Borrower at least one (1) Business Day prior to the date on which any payment is
due to the Lenders or the Swingline Lender, as the case may be, hereunder that
Borrower will not make such payment in full, Agent may assume that Borrower has
made such payment in full to Agent on such date and Agent may, in reliance upon
such assumption, cause to be distributed to each Lender or the Swingline Lender,
as the case may be, on such due date an amount equal to the amount then due such
Lender or the Swingline Lender. If and to the extent Borrower shall not have
made such payment in full to Agent, such Lender or the Swingline Lender, as the
case may be, shall repay to Agent forthwith on demand such amount distributed to
such Lender Party together with interest thereon, for each day from the date
such amount is distributed to such Lender Party until the date such Lender Party
repays such amount to Agent, at the Federal Funds Rate. A certificate of Agent
submitted to any Lender or the Swingline Lender, as the case may be, with
respect to any amounts owing by such Lender Party under this Section 2.5(f)
--------------
shall be presumptive evidence of such amounts.
SECTION 2.6. PREPAYMENT.
(a) PRIME RATE. Borrower may prepay principal on any portion of any Credit
----------
that bears interest determined in relation to the Prime Rate at any time, in any
amount, and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of any Credit that
-----
bears interest determined in relation to LIBOR at any time and in the minimum
amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) or an integral
multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess
thereof; provided, however, that if the outstanding principal balance of such
-------- -------
portion of any such Credit is less than said amount, the minimum prepayment
amount shall be the entire outstanding principal balance thereof. In
consideration of the Lenders providing this prepayment option to Borrower, or if
any such portion of any such Credit shall become due and payable at any time
prior to the last day of the Interest Period applicable thereto by acceleration
or otherwise, Borrower shall make such payments as are provided for in Section
-------
2.11 hereof.
- ----
SECTION 2.7. FUNDING.
(a) LENDER FUNDING AND DISBURSEMENT. Each Lender shall, before 11:00 a.m.
-------------------------------
on the date of each borrowing under the Line of Credit make available to Agent
at Agent's Office, in same day or immediately available funds, such Lender's
Proportionate Share thereof. After Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article IV hereof, Agent
----------
will promptly disburse such funds in same day or immediately available funds to
Borrower. Unless otherwise directed by Borrower in writing, Agent shall
disburse the proceeds of each borrowing to Borrower by deposit to any demand
deposit account maintained by Borrower with Agent.
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<PAGE>
(b) LENDER FAILURE TO FUND. Unless Agent shall have received notice from a
----------------------
Lender on or prior to the date of any borrowing under any Credit that such
Lender will not make available to Agent such Lender's Proportionate Share
thereof, Agent may assume that such Lender has made such portion available to
Agent on the date of such borrowing in accordance with Section 2.7(a) hereof,
--------------
and Agent may, in reliance upon such assumption, make available to Borrower (or
otherwise disburse) on such date a corresponding amount. If any Lender does not
make the amount of its Proportionate Share of any borrowing available to Agent
on the date of such borrowing, such Lender shall pay to Agent, on demand,
interest which shall accrue on such amount until made available to Agent at
rates equal to (i) the daily Federal Funds Rate during the period from the date
of such borrowing through the third Business Day thereafter, and (ii)
thereafter, the Prime Rate in effect from time to time. A certificate of Agent
submitted to any Lender with respect to any amounts owing under this Section
-------
2.7(b) shall be presumptive evidence of such amounts. If any Lender's
- ------
Proportionate Share of any borrowing is not in fact made available to Agent by
such Lender within three (3) Business Days after the date of such borrowing,
Borrower shall pay to Agent, on demand, an amount equal to such Proportionate
Share together with interest thereon, for each day from the date such amount was
made available to Borrower until the date such amount is repaid to Agent, at the
rate of interest then applicable thereto.
(c) LENDERS' OBLIGATIONS SEVERAL. The obligation of each Lender hereunder
----------------------------
is several. The failure of any Lender to make available its Proportionate Share
of any borrowing under the Line of Credit shall not relieve any other Lender of
its obligation hereunder to do so on the date requested, but no Lender shall be
responsible for the failure of any other Lender to make available the
Proportionate Share to be funded by such other Lender.
SECTION 2.8. PRO RATA TREATMENT.
(a) BORROWINGS UNDER LINE OF CREDIT. Except as otherwise provided herein,
-------------------------------
(i) each extension of credit under the Line of Credit shall be made or shared
among the Lenders pro rata according to their respective Proportionate Shares in
such Credit, and (ii) each payment of principal of and interest or fees on a
Credit shall be made or shared among the Lenders pro rata according to the
respective unpaid principal amounts of such Credit held by such Lenders.
(b) SHARING OF PAYMENTS, ETC. If any Lender Party shall obtain any payment
-------------------------
(whether voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of a Credit in excess of its ratable share of payments on
account of such Credit obtained by all Lender Parties entitled to such payments,
such Party Lender shall forthwith purchase from the other Lender Parties
sufficient participations in such Credit as shall be necessary to cause the
purchasing Lender Party's interest in the Credit to be equivalent to the excess
payment received; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from such purchasing Lender Party, such purchase
shall be rescinded and each other Lender Party shall repay to the purchasing
Lender Party the purchase price to the extent of such recovery together with an
amount equal to such other Lender Party's ratable share (according to the
proportion of (i) the amount of such other Lender Party's required repayment to
(ii) the total amount so recovered from the purchasing Lender Party) of any
interest or other amount paid or payable by the purchasing Lender Party in
respect of the total amount so recovered. Borrower agrees that any Lender Party
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<PAGE>
so purchasing a participation from another Lender Party pursuant to this Section
-------
2.8(b) may, to the fullest extent permitted by law, exercise all its rights
- ------
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<PAGE>
of payment (including the right of setoff) with respect to such participation as
fully as if such Lender Party were the direct creditor of Borrower in the amount
of such participation.
SECTION 2.9. CHANGE OF CIRCUMSTANCES.
(a) INABILITY TO DETERMINE RATE. If Agent at any time shall determine that
---------------------------
for any reason adequate and reasonable means do not exist for ascertaining
LIBOR, or the Majority Lenders shall determine at any time, by virtue of
circumstances that affect the LIBOR market generally, such as, but not limited
to, insufficient trading to establish rates that are reasonably indicative of
actual funding costs, that LIBOR does not accurately reflect the cost to Lenders
of making or maintaining LIBOR interest rates hereunder, then Agent shall
promptly give notice thereof to Borrower and each Lender. If such notice is
given and until such notice has been withdrawn by Agent, then (i) no new LIBOR
option may be selected by Borrower, and (ii) any portion of the outstanding
principal balance hereof which bears interest determined in relation to LIBOR,
subsequent to the end of the Interest Period applicable thereto, shall bear
interest determined in relation to the Prime Rate.
(b) ILLEGALITY. If any law, treaty, rule, regulation or determination of a
----------
court or governmental authority adopted or enacted after the date hereof or any
change therein or in the interpretation or application thereof (each, a "Change
------
in Law") shall make it unlawful for any Lender (i) to make LIBOR options
- ------
available hereunder, or (ii) to maintain interest rates based on LIBOR, then, in
the former event, any obligation of the Lenders to make available such unlawful
LIBOR options shall immediately be cancelled, and in the latter event, any such
unlawful LIBOR-based interest rates then outstanding shall be converted, at
Agent's option, so that interest on the portion of the outstanding principal
balance subject thereto is determined in relation to the Prime Rate; provided,
--------
however, that if any such Change in Law shall permit any LIBOR-based interest
- -------
rates to remain in effect until the expiration of the Interest Period applicable
thereto, then such permitted LIBOR-based interest rates shall continue in effect
until the expiration of such Interest Period. Upon the occurrence of any of the
foregoing events, Borrower shall pay to each Lender immediately upon demand such
amounts as such Lender shall set forth in a certificate (which certificate shall
show in reasonable detail the calculation of such amounts) as being necessary to
compensate such Lender for any fines, fees, charges, penalties, or other costs
incurred or payable by such Lender as a result thereof and which are reasonably
attributable to any LIBOR options made available to Borrower hereunder, and any
reasonable allocation made by such Lender among its operations shall be
conclusive and binding upon Borrower.
(c) CHARGES: CHANGE IN LAW. If any Change in Law or compliance by any
-----------------------
Lender with any request or directive (whether or not having the force of law)
from any central bank or other governmental authority shall:
(i) subject any Lender to any tax, duty, or other charge with
respect to any LIBOR options, or change the basis of taxation of payments
by Borrower to any Lender of principal, interest, fees, or any other amount
payable hereunder (except for changes in the rate of tax on the overall net
income of any Lender); or
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<PAGE>
(ii) impose, modify, or hold applicable any reserve, special
deposit, compulsory loan, or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or loans
by, or any other acquisition of funds by any Lender that is not included in
determining the applicable interest rate; or
(iii) impose on any Lender any other materially adverse
condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing, or maintaining any LIBOR options hereunder and/or to reduce
any amount receivable by such Lender in connection therewith, then in any such
case, Borrower shall pay to such Lender immediately upon demand such amounts as
may be necessary to compensate such Lender for any additional costs incurred by
such Lender and/or reductions in amounts received by such Lender which are
attributable to such LIBOR options. In determining which costs incurred by such
Lender and/or reductions in amounts received by such Lender are attributable to
any LIBOR options made available to Borrower hereunder, any reasonable
allocation made by such Lender among its operations set forth in a certificate
of an officer of such Lender (which certificate shall show in reasonable detail
the calculation of such allocation) shall be conclusive and binding upon
Borrower.
SECTION 2.10. TAXES ON PAYMENTS.
(a) PAYMENTS FREE OF TAXES. All payments made by Borrower under the Loan
----------------------
Documents shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority
(except net income, franchise or withholding taxes imposed on any Lender Party)
(with all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter referred to herein as "Taxes").
-----
If any Taxes are required to be withheld from any amounts payable to any Lender
Party under the Loan Documents, the amounts so payable to such Lender Party
shall be increased by such amount as such Lender Party shall set forth in a
certificate of an officer of such Lender Party (which certificate shall show in
reasonable detail the calculation of such amounts) as being necessary to yield
to such Lender Party (after payment of all Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in the Loan
Documents. Whenever any Taxes are payable by Borrower, as promptly as possible
thereafter, Borrower shall send to Agent for its own account or for the account
of such other Lender Party, as the case may be, a certified copy of an original
official receipt received by Borrower showing payment thereof. If Borrower
fails to pay any Taxes when due to the appropriate taxing authority or fails to
remit to Agent the required receipts or other required documentary evidence,
Borrower shall indemnify the Lender Parties for any incremental taxes, interest
or penalties that may become payable by any Lender Party as a result of any such
failure. The agreements in this Section 2.10(a) shall survive the termination
---------------
of this Credit Agreement.
(b) WITHHOLDING EXEMPTION CERTIFICATES. Each Lender agrees that it will
----------------------------------
deliver to Borrower and Agent, upon the reasonable request of Borrower or Agent,
either (i) a statement that
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<PAGE>
it is incorporated under the laws of the United States of America or a state
thereof, or (ii) if it is not so incorporated, two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 or successor applicable
form, as the case may be, certifying in each case that such Lender is entitled
to receive payments under this Credit Agreement without deduction or withholding
of any United States federal income taxes.
SECTION 2.11. FUNDING LOSS INDEMNIFICATION.
(a) If Borrower shall (i) repay or prepay any portion of a LIBO Rate
Loan on any day other than the last day of the Interest Period therefor (whether
an optional prepayment, a mandatory prepayment, a payment upon acceleration, or
otherwise), (ii) fail to borrow any LIBO Rate Loan on the date specified
therefor in a Notice of Borrowing that has been delivered to Agent (whether as a
result of the failure to satisfy any applicable conditions or otherwise), or
(iii) fail to convert advances into or continue advances as a LIBO Rate Loan in
accordance with a Notice of Conversion or Continuation delivered to Agent
(whether as a result of the failure to satisfy any applicable conditions or
otherwise), then Borrower shall pay to Agent, for the account of the Lenders,
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of such prepayment or failure through
the month in which the Interest Period for such LIBO Rate Loan matures (or would
have matured), calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each
---------
month on the amount so prepaid, or not borrowed, converted to or continued
as a LIBO Rate Loan, as the case may be, at the interest rate applicable to
such amount had it remained outstanding until the last day of the Interest
Period applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount so
prepaid, or not borrowed, converted to or continued as a LIBO Rate Loan, as
the case may be, for the remaining term of such Interest Period at LIBOR in
effect on the date of such prepayment (or specified in the applicable
Notice of Borrowing or Notice of Conversion or Continuation as the date of
borrowing, conversion or continuation of such LIBO Rate Loan) plus the
----
Applicable LIBO Rate Margin used in the determination described in clause
(i) for new loans made for such term and in a principal amount equal to
such amount.
(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.
Borrower acknowledges that any such prepayment or failure to borrow, convert or
continue, as the case may be, will result in the Lenders incurring additional
costs, expenses, and/or liabilities, and that it is difficult to ascertain the
full extent of such costs, expenses, and/or liabilities. Borrower, therefore,
agrees to pay the above-described prepayment fee and agrees that said amount
represents a reasonable estimate of the prepayment costs, expenses, and/or
liabilities of the Lenders incurred as a result of any such prepayment or
failure.
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<PAGE>
(b) If Borrower fails to pay any amount payable under this Section
-------
2.11 when due, such amount shall thereafter bear interest until paid at a rate
- ----
per annum of four percent (4%) above the Prime Rate in effect from time to time
(computed on the basis of a 360-day year, actual days elapsed).
(c) The agreements in this Section 2.11 shall survive the termination
------------
of this Credit Agreement.
SECTION 2.12. AUTHORIZED REPRESENTATIVES. On the Closing Date, and from
time to time subsequent thereto at Borrower's option, Borrower shall deliver to
Agent a written notice in the form of Exhibit 2.12 attached hereto, which
------------
designates by name each of Borrower's Authorized Representatives and includes
each of their respective specimen signatures (each, a "Notice of Authorized
--------------------
Representatives"). Agent shall be entitled to rely conclusively on the
- ---------------
authority of each officer or employee designated as an Authorized Representative
in the most current Notice of Authorized Representatives delivered by Borrower
to Agent, to request borrowings and select interest rate options hereunder, and
to give to Agent such other notices as are specified herein as being made
through one of Borrower's Authorized Representatives, until such time as
Borrower has delivered to Agent, and Agent has actual receipt of, a new written
Notice of Authorized Representatives. Agent shall have no duty or obligation to
Borrower to verify the authenticity of any signature appearing on any Notice of
Borrowing, Notice of Conversion or Continuation, or any other written notice
from an Authorized Representative or to verify the authenticity of any person
purporting to be an Authorized Representative giving any telephonic notice
permitted hereby.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to the Lender
Parties.
SECTION 3.1. LEGAL STATUS. Borrower is a corporation duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business, and is in good standing as a foreign
corporation, if applicable, in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. There are no Subsidiaries of
Borrower, other than Sandy's Pool Supply, a California corporation and Leslie's
Pool Brite, Inc., a California corporation. Borrower owns 100% of the stock of
each such Subsidiary. Each Loan Party other than Borrower is duly organized and
existing and in good standing under the laws of the state of its incorporation
and is qualified or licensed to do business, and is in good standing in all
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on such Loan Party.
SECTION 3.2. AUTHORIZATION AND VALIDITY. This Credit Agreement, the
Notes, and each other Loan Document have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid, and binding
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<PAGE>
agreements and obligations of Borrower or other Loan Party thereto, enforceable
in accordance with their respective terms; except as the enforceability thereof
may be affected by bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally, and except as the availability of
certain equitable remedies may be limited by certain equitable principles of
general applicability.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance by
Borrower and each other Loan Party of each of the Loan Documents do not violate
any provision of any law or regulation, or contravene any provision of such Loan
Party's articles or certificate of incorporation or by-laws or, to the best of
the knowledge of Borrower's senior management result in a breach of or
constitute a default under any contract, obligation, indenture or other
instrument to which Borrower is a party or by which Borrower or any other Loan
Party may be bound.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings before any governmental authority, arbitrator, court or
administrative agency which could reasonably be expected to have a material
adverse effect upon the financial condition or operation of Borrower or any
Subsidiary of Borrower other than those disclosed by Borrower to Agent in
writing prior to the date hereof.
SECTION 3.5. FINANCIAL STATEMENTS. The audited financial statements of
Borrower and each Subsidiary of Borrower dated December 31, 1996, heretofore
delivered by Borrower to Agent present fairly in all material respects the
consolidated financial condition of Borrower and each such Subsidiary; reflect
all liabilities of Borrower and each such Subsidiary that are required to be
reflected or reserved against under generally accepted accounting principles;
and have been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statements
there has been no material adverse change in the financial condition of Borrower
or any such Subsidiary, nor has Borrower or any such Subsidiary mortgaged,
pledged or granted a security interest or encumbered any assets or properties
except as disclosed by Borrower to Agent in writing prior to the date hereof or
as permitted by this Credit Agreement.
SECTION 3.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its or any of its Subsidiaries' income tax payable
with respect to any year prior to 1996.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract, or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Credit Agreement or any other Loan Document to any
other obligation of Borrower.
SECTION 3.8. PERMITS, FRANCHISES. Borrower and each Subsidiary of
Borrower possess, and will hereafter possess, all permits, memberships,
franchises, contracts and licenses
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<PAGE>
required and all trademark rights, trade names, trade name rights, patents,
patent rights and fictitious name rights necessary to enable each of them to
conduct the business in
-35-
<PAGE>
which each is now engaged without conflict with the rights of others, except
where the failure so to possess such rights or property would not have a
material adverse effect upon Borrower or any such Subsidiary.
SECTION 3.9. ERISA. Borrower and each Subsidiary of Borrower are in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended from time to time
("ERISA"); Borrower and each such Subsidiary have not violated in any material
- -------
respect any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower or any such Subsidiary (each,
a "Plan"); no Reportable Event as defined in ERISA has occurred and is
----
continuing with respect to any Plan initiated by Borrower or any such
Subsidiary; Borrower and each Subsidiary of Borrower have met their minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. Borrower and each Subsidiary of Borrower
are not in default on any obligation for borrowed money, any purchase money
obligation, or any other material lease, commitment, contract, instrument, or
obligation.
SECTION 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Agent in writing prior to the date hereof, to the best of Borrower's knowledge,
Borrower and each Subsidiary of Borrower are in compliance in all material
respects with all applicable environmental, hazardous waste, health, and safety
statutes and regulations governing their operations and/or properties, including
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), the Superfund Amendments and Reauthorization Act
of 1986 (SARA), the Federal Resource Conservation and Recovery Act of 1976, the
Federal Toxic Substances Control Act, and the California Health and Safety Code.
To the best of Borrower's knowledge, none of the operations of Borrower or any
Subsidiary of Borrower are the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. To the best of Borrower's knowledge, neither Borrower nor any
such Subsidiary have any material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the environment.
SECTION 3.12. MARGIN REGULATIONS. Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying "margin stock"
(within the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of the
Credits will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
SECTION 3.13. SOLVENCY. Each Loan Party is Solvent after giving effect to
the transactions contemplated by the Loan Documents and the Capitalization
Transactions.
SECTION 3.14. EFFECT OF CAPITALIZATION MERGERS. The merger of Leslie's
Poolmart, a California corporation, with and into Borrower pursuant to the
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<PAGE>
Reincorporation Merger Agreement was properly consummated in compliance
therewith and under the laws of the States of Delaware and California and any
other applicable jurisdiction, and Borrower is the surviving corporation of such
merger; and upon consummation of the Capitalization Merger pursuant to the
Capitalization Merger Agreement, such merger shall have been properly
consummated in compliance therewith and under the laws of the State of Delaware
and any other applicable jurisdiction, and Borrower shall be the surviving
corporation of such merger.
ARTICLE IV
----------
CONDITIONS
----------
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Lender Parties to grant any initial extension of the Credits is subject to the
fulfillment to Agent's satisfaction of all of the following conditions:
(a) APPROVAL OF AGENT. All legal matters incidental to the granting of
-----------------
each of the Credits shall be reasonably satisfactory to Agent.
(b) FEES AND EXPENSES. Borrower shall have paid (i) all fees then due in
-----------------
accordance with Section 2.1 hereof, (ii) all invoiced costs and expenses then
-----------
due in accordance with Section 9.4 hereof and (iii) all fees, expenses and other
-----------
amounts then payable under the 1997 Credit Agreement (subject, however, to the
last sentence of Section 2.1(a) hereof).
--------------
(c) LOAN DOCUMENTS. Agent shall have received the following Loan Documents
--------------
in each case in form and substance satisfactory to Agent: the Notes, the
Collateral Documents and the Guarantor Documents, duly executed by each of the
respective parties thereto.
(d) DOCUMENTS AND ACTIONS RELATING TO COLLATERAL. Agent shall have
--------------------------------------------
received the following, in form and substance satisfactory to it:
(i) evidence that all filings, registrations and recordings have
been made in the appropriate governmental offices, and all other action has been
taken, which shall be necessary to create, for the benefit of the Lender
Parties, a perfected first priority Lien on the Collateral subject only to
Permitted Liens, and filing of completed UCC-1 financing statements and the
filing of the Security Agreements, in each case in the appropriate governmental
offices;
(ii) evidence that the Liens on the Collateral granted for the
benefit of the Lender Parties, are subject only to Permitted Liens, including
the results of searches conducted in the UCC filing records in each of the
governmental offices in which UCC-1 financing statements shall have been filed;
(iii) the certificates representing the pledged shares referred to in
the Pledge Agreements and undated stock powers for such certificates executed in
blank.
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<PAGE>
(e) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS. Agent shall have received
----------------------------------------
the following, in form and substance satisfactory to it:
(i) evidence of completion to the satisfaction of Agent of such
investigations, reviews and audits with respect to Borrower and the Guarantors
and their respective operations as Agent may deem appropriate;
(ii) evidence that all (A) authorizations or approvals of any
Governmental Authority and (B) approvals or consents of any other Person,
required in connection with the Capitalization Transactions or the execution,
delivery and performance of the Capitalization Transactions Documents or the
Loan Documents shall have been obtained;
(iii) the financial statements referred to in Section 3.5 hereof;
-----------
(iv) copies of all shareholders agreements or voting agreements
entered into among the shareholders of Borrower;
(v) a certificate of Borrower, dated the Closing Date, stating that
(1) the representations and warranties of Borrower and the other Loan Parties
contained in Article III hereof and in the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate as
though made on and as of such date, (2) on and as of the Closing Date, no
Default shall have occurred and be continuing or shall result from the initial
borrowing, and (C) each of the conditions precedent to consummation of the
Capitalization Transactions contained in the Capitalization Transactions
Documents have been fulfilled as of the date thereof;
(f) CORPORATE AND ADDITIONAL DOCUMENTATION. Agent shall have received the
--------------------------------------
following, in form and substance satisfactory to it:
(i) certified corporate resolutions of the Borrower and each
Guarantor duly authorizing the Borrower's and such Guarantor's entry into
and performance of the Loan Documents to which it is party;
(ii) certified copies of the certificate of incorporation and bylaws
or partnership agreement, as the case may be, of each of the Borrower and
each Guarantor that is not a natural person;
(iii) an incumbency certificate for Borrower and each Guarantor,
certifying the names and titles of each officer of such Loan Party that is
duly authorized to act on behalf of such Loan Party in entering into and
performing the Loan Documents to which such Loan Party is party;
(iv) a Notice of Authorized Representatives as in effect on the
Closing Date; and
(v) such other documents as Agent and the Lenders may require under
any other section of this Credit Agreement or any other Loan Document.
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<PAGE>
(g) INSURANCE. Borrower shall have delivered to Agent evidence
---------
satisfactory to Agent of insurance coverage, together with appropriate
endorsements thereto, on the Collateral and on all of Borrower's and each
Subsidiary's property, covering risks, in amounts, issued by companies and in
form and substance reasonably satisfactory to Agent, and where required by
Agent, with loss payable endorsements in favor of Agent, and which in each case
is otherwise in compliance with the requirements of this Credit Agreement and
the other Loan Documents as of the Closing Date.
(h) LEGAL OPINIONS. The Agent shall have received the opinions of (i)
--------------
Gibson, Dunn & Crutcher LLP, counsel to Borrower and its Subsidiaries and to the
Guarantors and (ii) Cynthia G. Watts, General Counsel of Borrower, in each case
dated the Closing Date, in a form acceptable to Agent and as to such matters as
Agent may reasonably request.
(i) CAPITALIZATION TRANSACTIONS. (A) Agent shall have received true and
---------------------------
complete copies of all Capitalization Transactions Documents, which shall be in
form and substance satisfactory to Agent; (B) all conditions to consummation of
the Capitalization Transactions shall have been fulfilled and not waived by
Borrower without the prior consent of Agent; and (C) each of the Capitalization
Transactions shall have been consummated.
(j) 1997 PREDECESSOR CREDIT AGREEMENT. No letters of credit issued under
---------------------------------
the 1997 Predecessor Credit Agreement shall remain outstanding, and not more
than THIRTY-FIVE MILLION AND NO/100 DOLLARS ($35,000,000) in principal amount of
loans under the 1997 Predecessor Credit Agreement shall remain outstanding.
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
the Lender Parties to extend any of the Credits requested by Borrower hereunder,
including the initial such extension, shall be subject to the fulfillment to
Agent's satisfaction of each of the following conditions:
(a) COMPLIANCE. The representations and warranties contained herein and in
----------
the other Loan Documents shall be true in all material respects (unless
qualified by a materiality standard within any such representation or warranty,
in which case such representation and warranty shall be true in all respects) on
and as of the date of the signing of this Credit Agreement and (other than those
representations and warranties that are, by their terms, made only on and as of
a specific date) on the date of each extension of credit by the Lender Parties
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default, and no condition, event or act which with the giving of notice
or the passage of time or both would constitute such an Event of Default, shall
have occurred and be continuing or shall exist.
(b) FINANCIAL CONDITION. There shall have been no material adverse change,
-------------------
as determined by Agent, in the financial condition or business of Borrower or
the Borrower and
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<PAGE>
its Subsidiaries, taken as a whole, nor any material decline, as determined by
Agent, in the market value of the Collateral, taken as a whole.
(c) ADDITIONAL DOCUMENTATION. Agent shall have received all additional
------------------------
documents which may reasonably be required in connection with such extension of
the Credits.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as any of the Credits remain available or
any liabilities of Borrower or any other Loan Party to the Lender Parties under
any of the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower and other Loan Parties subject hereto and thereto,
Borrower shall:
SECTION 5.1. PUNCTUAL PAYMENTS. Punctually pay or cause to be paid the
interest and principal on each of the Loan Documents requiring any such payments
at the times and place and in the manner specified therein, and any fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon demand by Agent, the
amount by which the outstanding principal balance of any of the Credits is at
any time in excess of any limitation on borrowings hereunder.
SECTION 5.2. ACCOUNTING RECORDS. Maintain, and cause each Subsidiary of
Borrower to maintain, adequate books and records in accordance with generally
accepted accounting principles consistently applied, and permit any
representative of Agent, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same, and to inspect the
properties of Borrower and each such Subsidiary.
SECTION 5.3. FINANCIAL STATEMENTS. Provide to Agent all of the following,
in form and detail satisfactory to Agent:
(a) not later than 90 days after and as of the end of each fiscal year of
Borrower, audited consolidated and unaudited consolidating financial statements
of Borrower and each Subsidiary of Borrower, including a Balance Sheet, Income
Statement and Statement of Cash Flow, prepared in accordance with GAAP, and the
report thereon of a Certified Public Accountant acceptable to Agent;
(b) not later than 45 days after and as of the end of each fiscal quarter
of Borrower, unaudited consolidated and consolidating financial statements of
Borrower and each Subsidiary of Borrower, including a Balance Sheet, Income
Statement and Statement of Cash Flow, prepared by Borrower in accordance with
GAAP;
(c) contemporaneously with each annual and quarterly financial statement of
Borrower and each Subsidiary required hereby, a certificate of the president or
chief financial officer of Borrower that to the best of such officer's
knowledge, the financial statements delivered pursuant
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<PAGE>
thereto fairly present the financial condition and results of operations of
Borrower and its Subsidiaries and that there exists no Event of Default nor any
condition, act or event which with the giving of notice or the passage of time
or both would constitute an Event of Default;
(d) from time to time such other information as Agent or any other Lender
Party may reasonably request.
SECTION 5.4. COMPLIANCE. Maintain, and cause each Subsidiary of Borrower
to maintain, all licenses, permits, governmental approvals, rights, privileges,
and franchises necessary for the conduct of their business; conduct their
business in an orderly and regular manner; and comply with the provisions of all
documents pursuant to which each of them is organized and/or which govern their
continued existence and with the requirements of all laws, rules, regulations,
and orders of any governmental authority applicable to each of them or their
business.
SECTION 5.5. INSURANCE. Maintain and keep in force, and cause each
Subsidiary of Borrower to maintain and keep in force, insurance of the types and
in amounts customarily carried in similar lines of business, including but not
limited to fire, extended coverage, public liability, property damage, and
workers' compensation, carried with companies and in amounts reasonably
satisfactory to Agent, and deliver to Agent from time to time at Agent's request
schedules setting forth all insurance then in effect; provided, however, that
-------- -------
(a) with respect to Borrower's and each such Subsidiary's commercial liability
insurance, Borrower and each such Subsidiary may maintain deductibles which do
not exceed, in the aggregate, FIVE HUNDRED THOUSAND AND NO/100 ($500,000) per
occurrence, (b) Borrower and each such Subsidiary may self-insure for workers'
compensation upon disclosure by Borrower to Agent in writing, so long as such
self-insurance program is instituted and maintained in compliance with all
applicable laws, rules, and regulations, and (c) with respect to Borrower's and
each such Subsidiary's fire and property damage insurance, Borrower and each
Subsidiary may maintain deductibles which do not exceed, in the aggregate, five
percent (5%) of their combined net current assets per occurrence.
SECTION 5.6. FACILITIES. Keep, and cause each Subsidiary of Borrower to
keep, all properties useful or necessary to their business in good repair and
condition, subject to ordinary wear and tear.
SECTION 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due, and
cause each Subsidiary of Borrower to pay and discharge when due (in each case
except to the extent otherwise permitted under the Loan Documents), any and all
indebtedness, obligations, assessments, and taxes, both real or personal and
including federal and state income taxes, except such as Borrower or any such
Subsidiary may in good faith contest or as to which a bona fide dispute may
arise, provided provision is made to the reasonable satisfaction of Agent for
eventual payment thereof in the event that it is found that the same is an
obligation of Borrower or any such Subsidiary.
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<PAGE>
SECTION 5.8. LITIGATION. Promptly give notice in writing to Agent of any
litigation pending or threatened against Borrower or any Subsidiary of Borrower
in respect of
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<PAGE>
any claim or alleged claim seeking damages in excess of ONE MILLION AND NO/100
DOLLARS ($1,000,000).
SECTION 5.9. FINANCIAL CONDITION. Maintain the financial condition of
Borrower and its Subsidiaries on a consolidated basis, as follows (in accordance
with GAAP, except to the extent modified by the following defined terms):
(a) Tangible Net Worth not less than the amounts shown below, determined as
of the end of each corresponding fiscal quarter:
<TABLE>
<CAPTION>
Month of Fiscal Quarter End Amount
--------------------------- ------
<S> <C>
June, 1997 $62,600,000
September, 1997 $68,100,000
December, 1997 $62,100,000
March, 1998 $54,100,000
June, 1998 $63,100,000
September, 1998 $70,100,000
December, 1998 $63,600,000
March, 1999 $54,600,000
June, 1999 $67,100,000
September, 1999 $75,100,000
December, 1999 $68,600,000
March, 2000 $58,100,000
June, 2000 $72,100,000
September, 2000 $81,600,000
December, 2000 $74,100,000
March, 2001 $62,600,000
June, 2001 $78,100,000
September, 2001 $89,100,000
December, 2001 or any month thereafter $81,100,000
</TABLE>
(b) Funded Debt Ratio not greater than the ratio set forth below,
determined as of the end of the corresponding fiscal quarter:
<TABLE>
<CAPTION>
Month of Fiscal Quarter End Ratio
--------------------------- -----
<S> <C>
June, 1997 8.55:1.00
September, 1997 5.90:1.00
December, 1997 7.30:1.00
March, 1998 8.90:1.00
June, 1998 6.15:1.00
September, 1998 4.95:1.00
December, 1998 6.00:1.00
March, 1999 7.30:1.00
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
June, 1999 5.05:1.00
September, 1999 4.15:1.00
December, 1999 5.10:1.00
March, 2000 6.25:1.00
June, 2000 4.35:1.00
September, 2000 4.05:1.00
December, 2000 4.90:1.00
March, 2001 5.60:1.00
June, 2001 4.25:1.00
September, 2001 3.85:1.00
December, 2001 or any month thereafter 4.80:1.00
</TABLE>
(c) EBITDA Coverage Ratio not less than the ratio set forth below,
determined as of the end of the corresponding fiscal quarter:
<TABLE>
<CAPTION>
Month of Fiscal Quarter End Ratio
--------------------------- -----
<S> <C>
June, 1997 2.75:1.00
September, 1997 2.45:1.00
December, 1997 1.70:1.00
March, 1998 1.20:1.00
June, 1998 1.30:1.00
September, 1998 1.50:1.00
December, 1998 1.45:1.00
March, 1999 1.30:1.00
June, 1999 1.55:1.00
September, 1999 1.75:1.00
December, 1999 1.70:1.00
March, 2000 1.55:1.00
June, 2000 or any month thereafter 1.75:1.00
</TABLE>
SECTION 5.10. NOTICE TO AGENT.
(a) NOTICE TO AGENT. Promptly (but in no event more than five (5) Business
---------------
Days after Borrower learns of the occurrence of each such event or matter) give
written notice to Agent in reasonable detail of: (a) the occurrence of any
Event of Default, or any condition, event, or act which with the giving of
notice or the passage of time or both would constitute such an Event of Default;
(b) any change in the name or the legal structure of Borrower or any Subsidiary
of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any material funding deficiency with
respect to any Plan; (d) any termination or cancellation of any material
insurance policy which Borrower or any Subsidiary of Borrower is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
or any such Subsidiary's property in excess of an aggregate of ONE MILLION AND
NO/100 DOLLARS ($1,000,000); (e) any assessment or adjustment of Borrower's or
any of its Subsidiaries' income
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<PAGE>
tax payable with respect to any year; or (f) the incurrence by Borrower and its
Subsidiaries of self-insured workers' compensation claims in an aggregate amount
in excess
-45-
<PAGE>
of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) in any period of twelve (12)
consecutive calendar months.
(b) NOTICES UNDER PREFERRED STOCK, SUBORDINATED EXCHANGE INDEBTEDNESS AND
---------------------------------------------------------------------
BOND INDENTURE. Promptly (upon delivery by Borrower of any such notice or
- --------------
certificate and in no event more than seven (7) Business Days after receipt by
Borrower of any such notice or certificate) provide a copy of any material
notice or certificate delivered to or by Borrower under the Bond Indenture or
under the Preferred Stock Purchase Agreement or otherwise in respect of the
Preferred Stock, including, without limitation, (i) any notice or certificate
delivered under Section 3.01, 3.02, 3.03, 4.03, 4.08(c), 4.16, 4.17, 6.01, 6.02,
6.04, 7.08, 8.01, 8.02, 8.04, 10.04 or 10.05 of the Bond Indenture or in respect
of any amendment, supplement or other modification of the Bond Indenture or the
terms of the Bonds; (ii) any notice or certificate in respect of any redemption
of any Preferred Stock; (iii) any notice or certificate in respect of any
default or event of default under any Subordinated Exchange Indebtedness; or
(iv) any conversion notice by Borrower pursuant to Section (g)(i)(A) of the
Preferred Stock Designation Certificate in respect of a contemplated exercise of
Borrower's right to convert Preferred Stock into subordinated Indebtedness,
provided that notice of proposed delivery of such a conversion notice shall be
- --------
provided to Agent at least sixty (60) days prior to the contemplated conversion.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as any of the Credits remain
available or any liabilities of Borrower or any other Loan Party to the Lender
Parties under any of the Loan Documents remain outstanding, and until payment in
full of all obligations of Borrower and the other Loan Parties subject hereto
and thereto, Borrower will not:
SECTION 6.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article II hereof.
----------
SECTION 6.2. CAPITAL EXPENDITURES. Make, nor permit any Subsidiary of
Borrower to make, any additional investment in fixed assets except to the extent
not in excess of an aggregate of (a) NINE MILLION FIVE HUNDRED AND NO/100
DOLLARS ($9,500,000) during each of Borrower's fiscal year 1997 and 1998, (b)
TEN MILLION AND NO/100 DOLLARS ($10,000,000) during Borrower's fiscal year 1999
and (c) TEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($10,500,000)
during Borrower's fiscal year 2000 or any fiscal year thereafter. For the
purposes of calculating compliance with this Section 6.2, the investments in
-----------
fixed assets by Borrower and each of its Subsidiaries will be combined.
SECTION 6.3. OTHER INDEBTEDNESS. Create, incur, assume, or permit to
exist, nor permit any Subsidiary to create, incur, assume, or permit to exist,
any Indebtedness, in each case whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except for (a)
Indebtedness of Borrower or any Subsidiary of Borrower to the Lender Parties
under the Loan Documents and any Permitted Hedge Agreement, (b) Indebtedness
incurred
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<PAGE>
by Borrower hereafter to finance the acquisition by Borrower of real estate or
other fixed assets for use in the on-going operations of Borrower, provided (i)
--------
that such Indebtedness is secured only by the real estate or other assets
financed thereby, and that such investments in real estate or other assets are
permitted under Section 6.2 hereof and (ii) that the aggregate amount of such
-----------
Indebtedness outstanding at any time shall not exceed FIVE MILLION AND NO/100
DOLLARS ($5,000,000); (c) Indebtedness incurred by Borrower under the Bonds,
provided that the principal amount of the Bonds shall not exceed in the
- --------
aggregate the initial amount of NINETY MILLION AND NO/100 DOLLARS ($90,000,000)
and shall not be increased above such amount or any lesser outstanding principal
amount thereof following any repayment of principal in respect of the Bonds; (d)
Subordinated Exchange Indebtedness, if any; and (e) Indebtedness arising under
Capital Leases entered into by Borrower or any of its Subsidiaries in the
ordinary course of business, provided that the aggregate amount of such
--------
Indebtedness outstanding at any time shall not exceed FIVE MILLION AND NO/100
DOLLARS ($5,000,000); and (f) Indebtedness incurred by Borrower (exclusive of
Subordinated Exchange Indebtedness) in an aggregate amount not to exceed FIVE
MILLION AND NO/100 DOLLARS ($5,000,000), which Indebtedness is subordinated to
the obligations of Borrower owing to the Lender Parties hereunder on terms and
conditions, including repayment terms and subordination provisions, acceptable
to Agent; and (g) Indebtedness of any Subsidiary of Borrower to Borrower
incurred in the ordinary course of business.
SECTION 6.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate, nor permit any Subsidiary of Borrower to merge into or consolidate,
with any corporation or other entity; provided that Borrower may merge with
--------
Poolmart USA Inc., with Borrower being the surviving corporation, in connection
with the Capitalization Transactions as provided in the Capitalization Merger
Agreement; make any substantial change in the nature of Borrower's or any it its
Subsidiaries' business; acquire, nor permit any such Subsidiary to acquire, all
or substantially all of the assets of any corporation or other entity, except
for acquisitions which do not exceed TWO MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($2,500,000) in the aggregate during any fiscal year for Borrower
and each such Subsidiary combined; nor sell, lease, transfer or otherwise
dispose of, nor permit any Subsidiary of Borrower to sell, lease, transfer or
otherwise dispose of, all or a substantial part of Borrower's assets on a
consolidated basis, except for (y) sales of inventory and equipment in the
ordinary course of business, and (z) the merger of any Subsidiary of Borrower
into Borrower.
SECTION 6.5. GUARANTIES. Guaranty or become liable, nor permit any such
Subsidiary of Borrower to guaranty 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 pledge or hypothecate, nor permit any such Subsidiary to
pledge or hypothecate, any assets as security for, any liabilities or
obligations of any other person or entity, except for (a) any of the foregoing
in favor of the Lender Parties in respect of obligations under the Loan
Documents and Permitted Hedge Agreements, and (b) unsecured guaranties by
Borrower of Indebtedness of any such Subsidiary incurred in the ordinary course
of business and (c) unsecured guaranties by Borrower of any such Subsidiary's
obligations under any lease entered into in the ordinary course of business.
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<PAGE>
SECTION 6.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity (other than loans or advances to, or
investments in a Subsidiary of Borrower on the date of this Credit Agreement),
nor permit Subsidiary of Borrower to make any loans or advances to or
investments in any person or entity, except for (i) loans by Borrower to
employees which do not exceed TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000) in the aggregate at any time and (ii) trade credit extended to
customers of Borrower and its Subsidiaries in the ordinary course of business.
SECTION 6.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock, or any other property on Borrower's Capital
Stock now or hereafter outstanding; nor redeem, retire, repurchase, or otherwise
acquire any shares of any class of Borrower's Capital Stock now or hereafter
outstanding; provided, however, that (a) each Subsidiary of Borrower may pay
-------- -------
cash dividends or distributions to Borrower and (b) Borrower (i) may pay
dividends payable on the Preferred Stock in the form of additional shares of
Preferred Stock, (ii) may, so long as no Default or Event of Default shall have
occurred or be continuing or would result therefrom, pay dividends payable on
the shares of Preferred Stock with (x) the net proceeds of a sale for cash
(other than to a Subsidiary of Borrower) of shares of Capital Stock of Borrower
or (y) the net proceeds of any capital contribution to Borrower, (iii) may, so
long as no Default or Event of Default shall have occurred or be continuing or
would result therefrom, repurchase Capital Stock of Borrower or options,
warrants or other securities exercisable or convertible into Capital Stock of
Borrower from employees and directors of Borrower or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination of
employment or directorship of such employees or directors, in an aggregate
amount not to exceed FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) in any
calendar year and TWO MILLION AND NO/100 DOLLARS ($2,000,000) in the aggregate
plus, in the case of any such repurchase of Capital Stock, the amount of net
cash proceeds received by Borrower from the resale of repurchased Capital Stock
to officers or directors or Borrower and its Subsidiaries; and (v) may declare
and pay dividends on its Capital Stock other than the Preferred Stock in the
form of additional shares of such Capital Stock.
SECTION 6.8. PLEDGE OF ASSETS. Mortgage, pledge, grant, or permit to
exist, nor permit any Subsidiary of Borrower to mortgage, pledge, grant, or
permit to exist, any Lien upon any assets of any kind, now owned or hereafter
acquired, except for the following:
(a) Liens for the benefit of the Lender Parties securing the
obligations under the Loan Documents or any Permitted Hedge Agreement;
(b) Liens against Borrower's real property existing as of, and
disclosed to Agent in writing prior to the date hereof;
(c) Liens granted lenders providing acquisition financing for real
property and other fixed assets acquired by Borrower hereafter to secure debt to
such lenders permitted under Section 6.3(b) hereof, provided that such
-------------- --------
investments are also permitted under Section 6.2 hereof and that such debt is
-----------
secured only by the real estate financed thereby;
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<PAGE>
(d) Liens for taxes, assessments or governmental charges or claims (i)
not delinquent or (ii) contested in good faith by appropriate proceedings and as
to which Borrower or its Subsidiaries shall have set aside on their books such
reserves as may be required pursuant to GAAP;
(e) statutory and contractual Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP, shall have been
made in respect thereof;
(f) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security or to secure the performance of tenders, statutory
obligations, surety and appeal bonds and other similar obligations;
(g) Liens securing judgments not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(h) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of Borrower or any of
its Subsidiaries;
(i) any interest or title of a lessor under any Capital Lease;
provided that such Liens do not extend to any property or assets which are not
- --------
leased property subject to such Capital Lease; and
(j) Liens securing Indebtedness of a Person or any of its Subsidiaries
existing at the time that, to the extent otherwise permitted under this Credit
Agreement, such Person becomes a Subsidiary of Borrower or merges or
consolidates with Borrower or any of its Subsidiaries or is assumed in
connection with the acquisition of assets from such Person and in each case not
incurred in connection with, or in anticipation or contemplation of, such
acquisition, merger or consolidation ("Acquired Indebtedness"); provided that
--------
(i) such Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of
Borrower and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of Borrower
and (ii) such Liens do not extend to or cover any property or assets of Borrower
or any of its Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Borrower or a Subsidiary of Borrower and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of
Borrower.
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<PAGE>
SECTION 6.9. INTEREST IN SUBSIDIARIES. Sell, transfer, encumber, or
otherwise dispose of any interest in any Subsidiary, except for the merger of
any Subsidiary into Borrower as permitted under Section 6.4 hereof.
-----------
SECTION 6.10. FISCAL YEAR; ACCOUNTING CHANGES. Change, nor permit any
Subsidiary of Borrower to change, its fiscal year; nor make any material change
in accounting treatment or reporting practices except as permitted by GAAP.
SECTION 6.11. BOND PAYMENTS. Make any payment in respect of principal of,
or premium on, the Bonds (including, without limitation, any purchase or
redemption of or sinking fund or other payment in respect of principal on any
portion of the Bonds) except for redemption payments to the extent that both (i)
any such payment is made solely (x) with the net proceeds of issuance of common
stock of Borrower or (y) with the net proceeds of the sale of any assets of
Borrower to the extent that such sale is made with the consent of the Majority
Lenders or all the Lenders, as the case may be as required by Section 9.2
-----------
hereof, without such proceeds being applied toward payment of the Credits and
permanent reduction of the Commitments and (ii) at the time of any such payment
no Event of Default exists, no Event of Default would result after giving effect
to such payment and no condition or event exists which with the giving of notice
or the passage of time or both would constitute such an Event of Default.
SECTION 6.12. CONVERSION OF PREFERRED STOCK; SUBORDINATED EXCHANGE
INDEBTEDNESS PAYMENTS. (a) Convert any Preferred Stock into Indebtedness as
contemplated by Section (g) of the Preferred Stock Designation Certificate
unless (i) such Indebtedness is subordinated to Indebtedness under the Loan
Documents on terms and pursuant to documentation in each case satisfactory to
the Majority Lenders in their sole and absolute discretion (any such
subordinated Indebtedness being the "Subordinated Exchange Indebtedness") and
----------------------------------
(ii) at the time of any such conversion no Event of Default exists, no Event of
Default would result after giving effect to such conversion and no condition or
event exists which with the giving of notice or the passage of time or both
would constitute such an Event of Default; or (b) without limiting the
subordination provisions applicable under the terms of the Subordinated Exchange
Indebtedness, make any payment in respect of principal of, or premium on, any
Subordinated Exchange Indebtedness (including, without limitation, any purchase
or redemption of or sinking fund or other payment in respect of principal on any
portion of the Subordinated Exchange Indebtedness).
SECTION 6.13. MODIFICATION OF CAPITALIZATION TRANSACTIONS DOCUMENTS. Enter
into or agree or consent to any material amendment or other modification of, or
material waiver under or departure from the terms of, any Capitalization
Transactions Document unless Agent shall have approved such amendment,
modification, waiver or departure in writing with the consent of the Majority
Lenders.
SECTION 6.14. BORROWING BASE EXCESS. On the date on which financial
statements in respect of any fiscal quarter of Borrower are delivered pursuant
to Section 5.3(b) hereof, permit the total of (i) the aggregate principal amount
--------------
of outstanding advances under the Line of Credit (including any such advances
arising pursuant to Section 2.1 (d) hereof as a result
---------------
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of payment of a draft by the Agent under the Letter of Credit) plus (ii) the
aggregate amount of the undrawn face amount of all outstanding Letters of Credit
and all unpaid reimbursement and other obligations in respect of Letters of
Credit (other than any such obligation that has been converted into an advance
under the Line of Credit pursuant to Section 2.1(d) hereof) to exceed the amount
--------------
of the Borrowing Base as in effect on such date.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
SECTION 7.1. EVENTS OF DEFAULT DEFINED. The occurrence of any of the
following shall constitute an "Event of Default" under this Credit Agreement:
(a) Borrower shall fail to pay within five (5) days of the date when due
any principal, interest, fees, or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Agent in connection
with this Credit Agreement or any representation or warranty made by Borrower or
any other Loan Party hereunder or under the other Loan Documents shall prove to
be false, incorrect or incomplete in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained in Section 6.3, 6.4, 6.7, 6.8, 6.9, 6.11,
----------- --- --- --- --- ----
6.12, 6.13 or 6.14 hereof.
- ---- ---- ----
(d) Any default in the performance of or compliance with any obligation,
agreement, or other provision contained herein (other than those referred to in
subsections (a), (b) and (c) above), and with respect to any such default which
by its nature can be cured, such default shall continue for a period of twenty
(20) days from the date of its occurrence; provided, however, that in the case
-------- -------
of a default which by its nature can be cured under any of the following
sections of this Credit Agreement, such default shall continue for a period of
twenty (20) days from the date Borrower receives written notice from Agent of
the existence of such default: Section 5.2 with respect to the maintenance of
-----------
adequate books and records; Section 5.3 with respect to Agent's satisfaction
-----------
with financial statements furnished to Agent; Section 5.5 with respect to the
-----------
maintenance of insurance satisfactory to Agent; Section 5.6; and Section 5.7
----------- -----------
with respect to the failure to make provision to the satisfaction of Agent for
payment of the obligations described therein.
(e) Any default in the payment or performance of any Indebtedness, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any Subsidiary of
Borrower has incurred any Indebtedness to any person or entity, including any
Lender Party; provided, however, that such Indebtedness is in excess of FIVE
-------- -------
HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) in the aggregate for all such
defaults by Borrower and each such Subsidiary combined, and any cure period
applicable to such Indebtedness has expired and such default has not been cured
or waived; provided further, however, that an Event of Default shall not be
---------------- -------
deemed to exist
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under this Paragraph (c) in the case of a default under the terms of such
Indebtedness if Borrower or any such Subsidiary, as the case may be, is in good
faith contesting the existence of such default and provision is made to the
reasonable satisfaction of Agent for eventual payment thereof in the event that
it is found that the same is an obligation of Borrower or any such Subsidiary.
(f) Any default by any Loan Party in the performance of any obligation, or
any defined event of default, under any of the Loan Documents other than this
Credit Agreement (other than those covered by subsections (a), (b), and (c)
above), and with respect to any such default which by its nature can be cured,
such default shall have continued for a period of twenty (20) days from the date
of its occurrence.
(g) The filing of a notice of judgment lien against Borrower or any
Subsidiary of Borrower or the recording of any abstract of judgment against
Borrower or any such Subsidiary in any county in which Borrower or any such
Subsidiary has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any such Subsidiary or the entry of a judgment against
Borrower or any such Subsidiary; provided, however, that such judgments,
-------- -------
judgment liens, levies, writs, executions, and other process involve debts of or
claims against Borrower or any such Subsidiary in excess of ONE MILLION AND
NO/100 DOLLARS ($1,000,000) in the aggregate, and within forty-five (45) days
after an officer of Borrower or of any such Subsidiary learns of the creation
thereof, or at least five (5) days prior to the date on which any assets could
be lawfully sold in satisfaction thereof, such debts and claims are not
satisfied or stayed pending appeal and insured against in a manner reasonably
satisfactory to Agent.
(h) Any Loan Party shall not be Solvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian, or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors; any
Loan Party shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Code, or under any state or federal law
granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against any Loan Party, or any Loan
Party shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or any Loan Party shall be
adjudicated a bankrupt, or an order for relief shall be entered by any court of
competent jurisdiction under the Bankruptcy Code or any other applicable state
or federal law relating to bankruptcy, reorganization or other relief for
debtors; provided, however, that in the case of any involuntary petition or
-------- -------
involuntary proceeding pursuant to the Bankruptcy Code or pursuant to any other
applicable state or federal law relating to bankruptcy, reorganization, or other
relief for debtors, any Loan Party as the case may be, fail to oppose such
proceeding or such proceeding is not dismissed within sixty (60) days of its
commencement.
(i) The dissolution or liquidation of any Loan Party (except for the merger
of any Subsidiary into Borrower in accordance with this Credit Agreement); or
any Loan Party, or any
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of their directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of any Loan Party.
(j) Any Change in Control.
(k) Any of the Collateral Documents or Guaranties after delivery thereof
shall for any reason be revoked or invalidated, or otherwise not be in full
force and effect, or any Loan Party shall contest in any manner the validity or
enforceability thereof, or any Loan Party thereto shall deny that it has any
further liability or obligation thereunder; or any of the Collateral Documents
for any reason, except to the extent permitted by the terms thereof, shall not
create a valid and perfected first priority Lien, subject only to Permitted
Liens, in any of the Collateral purported to be covered thereby for the benefit
of the Lender Parties.
SECTION 7.2. REMEDIES. If an Event of Default shall occur and shall not
have been cured in accordance with this Credit Agreement, (a) any indebtedness
of Borrower under any of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Agent's option, with the consent of Majority Lenders
or upon instructions from the Majority Lenders, upon notice by Agent to Borrower
become immediately due and payable without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower, provided, however, that in the event of an actual or deemed entry of
-------- -------
an order for relief in respect of Borrower in any proceeding by or against
Borrower referred to in Section 7.1(h) hereof, all indebtedness of Borrower
--------------
under any of the Loan Documents, any term thereof to the contrary
notwithstanding, shall automatically become immediately due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower; (b) the obligation, if any, of the Lender Parties
to permit further borrowing hereunder, any term hereunder to the contrary
notwithstanding, shall at Agent's option, with the consent of the Majority
Lenders or upon instructions from the Majority Lenders, upon notice by Agent to
Borrower immediately cease and terminate; provided, however, that in the event
-------- -------
of an actual or deemed entry of an order for relief in respect of Borrower in
any proceeding by or against Borrower referred to in Section 7.1(h) hereof, any
--------------
such obligation of the Lender Parties, any term hereof to the contrary
notwithstanding, shall automatically cease and terminate without notice of any
kind, which is hereby expressly waived by Borrower; and (c) Agent shall have all
rights, powers, and remedies available to it or the Lender Parties under each of
the Loan Documents, or accorded by law, including without limitation, the right
to resort to any or all security for any of the Credits and to exercise any or
all of the rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers, and remedies of Agent in connection with each of the Loan
Documents may be exercised at any time by Agent and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided to it or the
Lender Parties by law or equity. Immediately after taking any action under this
Section 7.2, Agent shall notify each Lender of such action.
- -----------
Borrower acknowledges that even though an Event of Default as defined above
may not exist hereunder or under any of the other Loan Documents as a result of
the fact that a cure period may not have expired, the Lenders nevertheless shall
remain entitled under Section 4.2(a) of this Credit Agreement to decline to make
--------------
any extension of credit during such cure period.
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ARTICLE VIII
------------
THE AGENT
---------
SECTION 8.1. AUTHORIZATION AND ACTION. Each Lender and the Swingline
Lender hereby irrevocably appoints Wells Fargo as Agent and authorizes Agent to
act as its agent under the Loan Documents, and to take such actions on such
Lender Party's behalf and to exercise such powers and perform such duties under
the Loan Documents as are expressly delegated to Agent by the terms thereof,
together with such other powers as are reasonably incidental thereto. Agent
shall have no duties or responsibilities except those expressly set forth in the
Loan Documents, and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into any Loan Document or otherwise
exist against Agent. Anything to the contrary contained herein notwithstanding,
Agent shall not be required to take any action which is contrary to any Loan
Document or applicable law. Neither Agent nor any other Lender Party shall be
responsible to any other Lender Party for any recitals, statements,
representations, or warranties made by Borrower contained in any Loan Document,
for the value, validity, effectiveness, genuineness, enforceability, or
sufficiency of any Loan Document or the Collateral or for any failure by
Borrower to perform its respective obligations hereunder or thereunder. Agent
may employ agents and attorneys-in-fact and shall not be responsible to any
Lender Party for the negligence or misconduct of any such agents or attorneys-
in-fact selected by it with reasonable care. Neither Agent nor any of its
directors, officers, employees, or agents shall be responsible to any Lender
Party for any action taken or omitted to be taken by it or them under any Loan
Document or in connection therewith, except for its or their own gross
negligence or wilful misconduct. Except as otherwise provided under this Credit
Agreement, Agent shall take such action with respect to the Loan Documents as
shall be directed by the Majority Lenders.
SECTION 8.2. RELIANCE BY AGENT. Agent shall be entitled to rely upon any
certificate, notice, or other document (including any cable, telegram, telecopy,
or telex) or conversation believed by it in good faith to be genuine and correct
and to have been signed, sent, or made by or on behalf of the proper person or
persons, and upon advice and statements of legal counsel (including counsel to
any Loan Party), independent accountants, and other experts selected by Agent
with reasonable care. As to any matters not expressly provided for by this
Credit Agreement, Agent shall not be required to take any action or exercise any
discretion, but shall be required to act or to refrain from acting upon
instructions of the Majority Lenders and shall in all cases be fully protected
by the Lenders and the Swingline Lender in acting, or in refraining from acting,
hereunder or under any other Loan Document in accordance with the instructions
of the Majority Lenders, and such instructions of the Majority Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders and the Swingline Lender.
SECTION 8.3. DEFAULTS. Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default unless Agent has received a notice from a
Lender, the Swingline Lender or Borrower referring to this Credit Agreement,
describing such Default and expressly stating that such notice is a "notice of
default". If Agent receives such notice of the occurrence of a Default, Agent
shall promptly give notice thereof to the Lenders and the Swingline Lender.
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<PAGE>
Agent thereupon shall take such action with respect to such Default as shall be
reasonably directed by the Majority Lenders; provided, however, that unless and
-------- -------
until Agent shall have received such directions, Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lender
Parties.
SECTION 8.4. INDEMNIFICATION. Without limiting the obligations of
Borrower hereunder, each Lender agrees to indemnify Agent, ratably in accordance
with its Proportionate Shares, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may at any time (including at any time
following payment of such obligations) be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Credit Agreement or
any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof or of any such other documents or any action taken or
omitted by Agent under or in connection herewith or therewith; provided,
--------
however, that no Lender shall be liable for any of the foregoing to the extent
- -------
they arise from Agent's gross negligence or willful misconduct. Without
limiting the foregoing, each Lender agrees to reimburse Agent promptly on demand
for its ratable share of any amounts payable but not paid by Borrower under
Section 9.4 hereof. Agent shall be fully justified in refusing to take or to
- -----------
continue to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by Agent by reason of taking or continuing to take any such
action. The agreements in this Section 8.4 shall survive the payment of
-----------
Borrower's obligations hereunder.
SECTION 8.5. NON-RELIANCE ON AGENT. Each Lender and the Swingline Lender
represents that it has, independently and without reliance on Agent or any other
Lender Party, and based on such documents and information as such Lender Party
has deemed appropriate, made its own appraisal of and investigation into the
financial condition and affairs of Borrower and decision to enter into this
Credit Agreement. Each Lender and the Swingline Lender agrees that such Lender
Party will, independently and without reliance upon Agent or any other Lender
Party, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own appraisals and decisions in taking or not
taking action under this Credit Agreement. Each Lender and the Swingline Lender
acknowledges that Agent has not made any representation or warranty to it with
respect to the financial condition or affairs of Borrower, any Loan Document, or
any Collateral, and that no act by Agent hereafter, including any review of any
of such matters, shall be deemed to constitute any such representation or
warranty by Agent to any Lender Party. Neither Agent nor any other Lender Party
shall be required to keep informed as to the performance or observance by
Borrower of the obligations under this Credit Agreement or any other document
referred to or provided for herein or to make inquiry of, or to inspect the
properties or books of Borrower. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lender
Parties by Agent hereunder, neither Agent nor any other Lender Party shall have
any duty or responsibility to provide any Lender Party with any credit or other
information concerning Borrower, which may come into the possession of Agent or
such other Lender Party, or any of its or their affiliates.
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SECTION 8.6. SUCCESSOR AGENT. Subject to the appointment and acceptance
of a successor Agent as provided below, Agent may resign at any time by giving
thirty (30) days' written notice thereof to the Lenders and Swingline Lender,
and Agent may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be a bank having a combined capital, surplus and retained earnings of not
less than FIVE HUNDRED MILLION AND NO/100 U.S. DOLLARS ($500,000,000). Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VIII shall continue in effect for its benefit in respect of any
------------
actions taken or omitted to be taken by it while it was acting as Agent.
SECTION 8.7. EXECUTION OF LOAN DOCUMENTS. Agent hereby is authorized by
the Swingline Lender and the Lenders to execute, deliver, and perform each of
the Loan Documents to which Agent is or is intended to be a party and each such
Lender Party agrees to be bound by all of the agreements of Agent contained in
the Loan Documents.
SECTION 8.8. AGENT IN ITS INDIVIDUAL CAPACITY. Agent and its affiliates
may make loans to, accept deposits from, own securities of, and generally engage
in any kind of business with Borrower, as though Agent were not Agent hereunder,
without any duty to give notice thereof or account therefor to any Lender Party.
Wells Fargo as a Lender shall have the same rights and powers under this Credit
Agreement and the other Loan Documents as any other Lender and may exercise the
same as though it were not Agent, and the terms "Lender" or "Lenders" shall
include Wells Fargo in each such capacity.
ARTICLE IX
----------
MISCELLANEOUS
-------------
SECTION 9.1. NO WAIVER. No delay, failure, or discontinuance of any
Lender Party in exercising any right, power, or remedy under any of the Loan
Documents shall affect or operate as a waiver of such right, power, or remedy;
nor shall any single or partial exercise of any such right, power, or remedy
preclude, waive, or otherwise affect any other or further exercise thereof or
the exercise of any other right, power, or remedy.
SECTION 9.2. WAIVERS; AMENDMENTS. Any term, covenant, agreement, or
condition of this Credit Agreement or any other Loan Document may be amended or
waived if such amendment or waiver is in writing and is signed by the Majority
Lenders (or by Agent with written consent of the Majority Lenders), Borrower,
and any other party thereto; provided,
--------
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however, that any amendment, waiver, or consent which affects the rights or
- -------
duties of Agent must be in writing and be signed also by Agent; and provided
--------
further, however, that any
- ------- -------
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amendment, waiver, or consent which effects any of the following changes must be
in writing and signed by all Lenders (or by Agent with the written consent of
all Lenders):
(a) increases the maximum principal amount available under the Line of
Credit;
(b) extends the maturity date of any Credit;
(c) reduces the principal of, or interest (including default rate
interest) on, any Credit or any fees or other amounts payable for the
account of the Lenders hereunder;
(d) postpones or conditions any date fixed for any payment of the
principal of, or interest on, any Credit or any fees or other amounts
payable for the account of the Lenders hereunder;
(e) waives or amends this Section 9.2;
-----------
(f) amends the definition of Majority Lenders or any provision of this
Credit Agreement requiring approval of the Majority Lenders or some
other specified amount of Lenders;
(g) results in a release of any material part of the Collateral other than
as permitted in the Loan Documents; or
(h) increases or decreases the Proportionate Share of any Lender in the
Total Commitments (other than through an assignment under Section 9.5
-----------
hereof).
Unless otherwise specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 9.3. NOTICES. All notices, requests, and demands which any party
is required or may desire to give to any other party under any provision of this
Credit Agreement must be in writing, addressed to Agent, the Swingline Lender
and each Lender at its address or telecopy number set forth as the "Address for
Notices" for Agent, the Swingline Lender or such Lender in Schedule I attached
----------
hereto, and addressed to Borrower at the following address or telecopy number:
LESLIE'S POOLMART, INC.
Corporate Headquarters
20630 Plummer Street
Chatsworth, CA 91311
Attention: Chief Financial Officer
Telecopier: (818) 993-1930
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or to such other address or telecopy number as any party may designate by
written notice to all other parties. Each such notice, request, and demand
shall be deemed given or made as follows: (a) if sent by hand delivery or
courier service, upon delivery; (b) if sent by mail, upon the
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earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
SECTION 9.4. COSTS, EXPENSES, AND ATTORNEYS' FEES. Borrower shall pay
immediately upon demand the full amount of all out-of-pocket costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Agent's in-house counsel), incurred by Agent and/or the other
Lender Parties in connection with (a) the negotiation and preparation of this
Credit Agreement and each other of the Loan Documents, and the preparation of
amendments and waivers hereto and thereto, (b) the enforcement of the Lender
Parties' rights and/or the collection of any amounts which become due to Agent
and/or the Lender Parties under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation any action for declaratory relief.
SECTION 9.5. SUCCESSORS AND ASSIGNS.
(a) BINDING EFFECT. The Loan Documents shall be binding upon and inure to
--------------
the benefit of Borrower, the Lender Parties, all future holders of the Notes and
their respective successors and permitted assigns, except that Borrower may not
assign or transfer any of its rights or obligations under any Loan Document
without the prior written consent of Agent and each Lender. All references in
this Credit Agreement to any person or entity shall be deemed to include all
successors and assigns of such person or entity.
(b) PARTICIPATIONS. Subject to the prior receipt of the written consent of
--------------
Agent (which may be granted or withheld in Agent's sole and absolute
discretion), any Lender Party may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("Participants") participating interests in any Credit
------------
owing to such Lender Party, any Note held by such Lender Party, or any other
interest of such Lender Party under this Credit Agreement and the other Loan
Documents. In the event of any such sale by a Lender Party of a participating
interest to a Participant, (i) such Lender Party's obligations under this Credit
Agreement to the other parties to this Credit Agreement shall remain unchanged,
(ii) such Lender Party shall remain solely responsible for the performance
thereof, (iii) such Lender Party shall remain the holder of any such Note for
all purposes under this Credit Agreement, and (iv) Borrower and Agent shall
continue to deal solely and directly with such Lender Party in connection with
such Lender Party's rights and obligations under this Credit Agreement.
Participants shall have no rights under this Credit Agreement or any other Loan
Document except as provided below. No Lender Party shall sell any participating
interest under which the Participant shall have any rights to vote on any
amendment or waiver of this Credit Agreement or any other Loan Document or
consent to, or instruct such Lender Party as to, any voting or consent rights of
such Lender Party under this Credit Agreement; provided, however, that any
-------- -------
agreement pursuant to which any Lender Party sells a participating interest to a
Participant may require the selling Lender Party to obtain the consent of such
Participant in order for such Lender Party to agree in writing to any amendment
of a type specified in the further proviso to Section 9.2 hereof. No agreement
-----------
pursuant to which any Lender Party sells a
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participating interest to a Participant other than a Lender may permit the
participant to transfer, pledge, assign, sell participations in, or otherwise
encumber its
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participating interest. Borrower agrees that any Lender Party which has
transferred all or part of its interests in the Credits to one or more
Participants shall, notwithstanding any such transfer, be entitled to the full
benefits accorded such Lender Party under Sections 2.9 and 2.11 hereof, as if
such Lender Party had not made such transfer.
(c) ASSIGNMENTS. Subject to the prior receipt of the written consent of
-----------
Agent (which may be granted or withheld in Agent's sole and absolute
discretion), any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time, sell and assign to any Lender, any
affiliate of a Lender or any other bank or financial institution (individually,
an "Assignee") all or any portion of its rights and obligations under this
--------
Credit Agreement and the other Loan Documents (such a sale and assignment to be
referred to herein as an "Assignment") pursuant to an Assignment and Assumption
----------
Agreement in the form of Exhibit 9.5 attached hereto (an "Assignment
----------- ----------
Agreement"), executed by each Assignee and such assignor Lender (an "Assignor")
--------
and delivered to Agent for its acceptance and recording in the Register;
provided, however, that:
- -------- -------
(i) each Assignment shall be in a minimum amount of THREE
MILLION AND NO/100 DOLLARS ($3,000,000); and
(ii) without the written consent of Borrower, which consent shall
not be unreasonably withheld, no Lender may make any Assignment to any
Assignee which is not, immediately prior to such Assignment, a Lender
hereunder or an affiliate thereof.
Upon the execution, delivery, acceptance, and recording of each Assignment
Agreement, from and after the effective date set forth therein, (A) each
Assignee thereunder shall be a Lender hereunder with a Proportionate Share as
set forth in Section 1 of such Assignment Agreement and shall have the rights,
duties and obligations of such a Lender under this Credit Agreement and the
other Loan Documents, and (B) the Assignor thereunder shall be a Lender with a
Proportionate Share as set forth in Section 1 of such Assignment Agreement, or,
if the Proportionate Share of the Assignor has been reduced to 0%, the Assignor
shall cease to be a Lender; provided, however, that each Assignor shall
-------- -------
nevertheless be entitled to the indemnification rights contained in Section 9.14
------------
hereof for any events, acts or omissions occurring before the effective date of
its Assignment. Each Assignment Agreement shall be deemed to amend Schedule I
----------
hereto to the extent necessary to reflect the addition of each Assignee and the
resulting adjustment of Proportionate Shares arising from the purchase by each
Assignee of all or a portion of the rights and obligations of an Assignor under
this Credit Agreement and the other Loan Documents. On or prior to the
effective date of any Assignment, Borrower, at its own expense, shall execute
and deliver to Agent, in exchange for the surrendered Note of the Assignor
thereunder, a new Note to the order of the Assignee thereunder (with each new
Note to be in an amount equal to the commitment assumed by such Assignee) and,
if the Assignor has retained a commitment hereunder, a new Note to the order of
the Assignor (with the new Note to be in an amount equal to the commitment
retained by the Assignor), and otherwise in the form of the Note replaced
thereby. Any Note surrendered by the Assignor shall be returned by Agent to
Borrower marked "Exchanged".
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<PAGE>
(d) REGISTER. Agent shall maintain at Agent's Office a copy of each
--------
Assignment Agreement delivered to and accepted by Agent and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
- ---------
the Proportionate Shares of each Lender from time to time. The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and Borrower, Agent, and the Lenders may treat each entity whose name is
recorded in the Register as a Lender hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) REGISTRATION. Upon its receipt of an Assignment Agreement executed by
------------
an Assignor and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate of a Lender, by Borrower and Agent) together with payment
by such Assignee to Agent of a registration and processing fee of THREE THOUSAND
AND NO/100 DOLLARS ($3,000), Agent shall (i) promptly accept such Assignment
Agreement, and (ii) on the effective date of such Assignment record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and Borrower. Agent may, from time to time at
its election, prepare and deliver to the Lenders and Borrower a revised Schedule
--------
I reflecting the names, addresses and respective Proportionate Shares of all
- -
Lenders then parties hereto.
(f) CONFIDENTIALITY. Without limitation, Agent and the Lender Parties may
---------------
disclose the Loan Documents, and any financial or other information relating to
Borrower, to each other or to any potential Participant or Assignee.
SECTION 9.6. SETOFF. In addition to any rights and remedies of the Lender
Parties provided by law, each Lender Party shall have the right, with the prior
consent of Agent but without prior notice to Borrower, any such notice being
expressly waived by Borrower to the extent permitted by applicable law, upon the
occurrence and during the continuance of an Event of Default, to set-off and
apply against any indebtedness, whether matured or unmatured, of Borrower to
such Lender Party, any amount owing from such Lender Party to Borrower, at or at
any time after, the happening of any of the above mentioned events, and as
security for such indebtedness, Borrower hereby grants to each Lender Party a
continuing security interest in any and all deposits, accounts or moneys of
Borrower then or thereafter maintained with such Lender Party, subject in each
case to Section 2.8(b) hereof. The aforesaid right of set-off may be exercised
--------------
by such Lender Party against Borrower or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver or
execution, judgment or attachment creditor of Borrower or against anyone else
claiming through or against Borrower or such trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor, notwithstanding the fact that such right of
set-off shall not have been exercised by such Lender Party prior to the
occurrence of an Event of Default. Each Lender Party agrees promptly to notify
Borrower after any such set-off and application made by such Lender Party,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
SECTION 9.7. ENTIRE AGREEMENT, AMENDMENT. This Credit Agreement and each
other of the Loan Documents constitute the entire agreement among Borrower and
the Lender
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<PAGE>
Parties with respect to the Credits and supersede all prior negotiations,
communications, discussions, and correspondence concerning the subject matter
hereof. This Credit Agreement may be amended or modified only by a written
instrument executed by each party hereto.
SECTION 9.8. NO THIRD PARTY BENEFICIARIES. This Credit Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or entity
shall be a third party beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Credit Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 9.9. TIME. Time is of the essence of each and every provision of
this Credit Agreement and each other of the Loan Documents.
SECTION 9.10. SEVERABILITY OF PROVISIONS. If any provision of this Credit
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Credit Agreement.
SECTION 9.11. GOVERNING LAW. This Credit Agreement shall be governed by
and construed in accordance with the laws of the State of California, except to
the extent that Lender Parties have greater rights or remedies under federal
law, whether as national banks or otherwise, in which case such choice of
California law shall not be deemed to deprive Agent or the other Lender Parties
of such rights and remedies as may be available under federal law.
SECTION 9.12. WAIVER OF RIGHT TO TRIAL BY JURY. WITHOUT LIMITING THE
APPLICATION OF SECTION 9.17 HEREOF, EACH PARTY TO THIS CREDIT AGREEMENT HEREBY
------------
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (I) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF, OR (II) IN ANY WAY
CONNECTED WITH OR RELATED TO OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED)
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE, EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS CREDIT AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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<PAGE>
SECTION 9.13. ANCILLARY DOCUMENTS. In the event of an express conflict
between the terms of this Credit Agreement and any of the other Loan Documents,
this Credit Agreement shall prevail (but the more detailed description of
collateral in any security agreement executed in connection herewith shall not
be deemed in conflict with the more general description of collateral in this
Credit Agreement).
SECTION 9.14. INDEMNIFICATION. To the fullest extent permitted by law,
Borrower shall indemnify, defend, and hold harmless each of the Lender Parties
and their respective officers, directors, employees, successors, and assigns in
respect of any and all claims, actions, suits, or other proceedings in any and
all losses, costs, expenses, liabilities, fines, penalties, interest, and
damages, whether or not arising out of any claim, action, suit, or other
proceeding, and including reasonable counsel and accountant's fees and expenses
and all other reasonable costs and expenses of investigation, defense, or
settlement of claims and amounts paid in settlement (collectively, "Damages")
-------
incurred by, imposed on or borne by the Lender Parties or such other parties
resulting from or arising out of this Credit Agreement, or any other Loan
Document, the Capitalization Transactions or Agent's consent to Borrower
entering into any Capitalization Transactions Document or consummation of any
transaction contemplated thereby or in connection with the Capitalization
Transactions; provided that Borrower shall not be required to indemnify, defend,
--------
and hold harmless the Lender Parties or any other party pursuant to this Section
-------
9.14 for any Damages that are the direct result of a material breach of this
- ----
Credit Agreement by the Lender Parties or such party or are caused by the gross
negligence or willful misconduct of the Lender Parties or such party.
SECTION 9.15. LEGAL ADVICE. Each party hereto has received independent
legal advice from its attorneys with respect to the advisability of executing
this Credit Agreement and the meaning of the provisions hereof. The provisions
of this Credit Agreement shall be construed as to their fair meaning and shall
not be construed for or against any party based upon any attribution to such
party as the source of the language in question.
SECTION 9.16. COUNTERPARTS. This Credit Agreement may be executed in any
number of identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for all
purposes.
SECTION 9.17. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party hereto, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Credit Agreement. A "Dispute" shall mean any action,
-------
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, this Credit Agreement
and each other Loan Document required hereby or now or hereafter delivered to
any Lender Party in connection herewith, or any past, present or future
extensions of credit and other activities, transactions, or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary, or other remedies pursuant to any of the Loan
Documents.
-65-
<PAGE>
Any party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. 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 of any
Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
---
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to
arbitration shall be resolved in accordance with the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice of
law provision in any of the Documents. The arbitration shall be conducted at a
location in California selected by the AAA or other administrator. If there is
any inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP, AND FORECLOSURE. No
-----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment, or the appointment of a receiver, from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the State of California, (ii) may grant
any remedy or relief that a court of the State of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions, and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is FIVE MILLION AND NO/100
DOLLARS ($5,000,000) or less shall be decided by a single arbitrator who shall
not render an award of greater than FIVE MILLION AND NO/100 DOLLARS ($5,000,000)
(including damages, costs, fees, and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
FIVE MILLION AND NO/100 DOLLARS ($5,000,000). Any Dispute in which the amount
in controversy exceeds FIVE MILLION AND NO/100 DOLLARS ($5,000,000) shall be
decided
-66-
<PAGE>
by majority vote of a panel of three arbitrators; provided, however, that all
-------- -------
three arbitrators must actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Anything herein to the contrary notwithstanding, in
---------------
any arbitration in which the amount in controversy exceeds TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000), the arbitrators shall be required to make
specific, written
-67-
<PAGE>
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall not
be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for vacating,
modifying, or correcting an award the right to judicial review of (x) whether
the findings of fact rendered by the arbitrators are supported by substantial
evidence, and (y) whether the conclusions of law are erroneous under the
substantive law of the State of California. Judgment confirming an award in
such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the State of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Anything herein to the
--------------------------------------------
contrary notwithstanding, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien, or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens, and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgement upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. The AAA, the arbitrators and the parties shall take all
-------------
action required to conclude any arbitration proceeding within 180 days of the
filing of the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the ordinary course
of its business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
SECTION 9.18. CANCELLATION OF PRIOR AGREEMENT. As of the Closing Date,
this Credit Agreement shall cancel and supersede the 1997 Predecessor Credit
Agreement and no prepayment penalty shall be assessed thereunder as a result of
the refinancing pursuant to this Credit Agreement of Indebtedness outstanding
under the 1997 Predecessor Credit Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be executed as of the day and year first written above.
LESLIE'S POOLMART, INC. WELLS FARGO BANK,
A DELAWARE CORPORATION NATIONAL ASSOCIATION,
AS AGENT, AS SWINGLINE LENDER
AND AS LENDER
/s/ Robert D. Olsen /s/ Brian Carrico
By: -------------------- By: ---------------------
Robert D. Olsen Brian Carrico
Chief Financial Officer and Vice President
Executive Vice President
<PAGE>
SCHEDULE I
----------
1. LENDERS: PROPORTIONATE SHARES; COMMITMENTS:
------- ---------------------------------
WELLS FARGO BANK,
NATIONAL ASSOCIATION,
as Lender and Swingline Lender 100%; $35,000,000
Applicable Lending Office:
Wells Fargo Bank,
National Association
Commercial Banking Office
6001 Topanga Canyon Blvd., Suite 205
Woodland Hills, CA 91367
Address for Notices:
Wells Fargo Bank,
National Association
Commercial Banking Office
6001 Topanga Canyon Blvd., Suite 205
Woodland Hills, CA 91367
Attn: Mr. Brian Carrico
Telephone: (818) 716-3247
Telecopier: (818) 347-1675
Wiring Instructions:
Wells Fargo Bank,
National Association
San Francisco, CA
ABA No. 121000248
Account: 4629051160
Attn: Agency Department, Destination SR #703
2. AGENT'S OFFICE:
--------------
Wells Fargo Bank,
National Association
Agency Department
555 Montgomery Street, 17th Floor
San Francisco, CA 94111
Attn: Mr. Dennis Bloch
Telephone: (415) 222-2336
Telecopier: (415) 326-5081
<PAGE>
SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT (this
"Agreement") is entered into as of the 11th day of June, 1997, by and between
- ----------
WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting in its capacity
-----------
as agent on behalf of the financial institutions signatory as lenders (the
"Lenders") and swingline lender (the "Swingline Lender") to that certain Credit
- -------- ----------------
Agreement dated as of June 11, 1997 (as it may be amended or supplemented from
time to time, the "Credit Agreement"), and any successor to Wells Fargo as agent
----------------
thereunder (in such capacity, "Secured Party"; together with the Lenders and the
-------------
Swingline Lender being the "Lender Parties") and LESLIE'S POOLMART, INC., a
--------------
Delaware corporation ("Debtor"), in light of the following facts:
------
WHEREAS, Debtor, on the one hand, and the Lender Parties, on the other
hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Debtor"), to which Debtor is successor by merger, under a Third Amended and
Restated Credit Agreement dated as of January 29, 1997 among Predecessor Debtor,
the lenders parties thereto and Wells Fargo, as agent (the "1997 Predecessor
----------------
Credit Agreement").
- ----------------
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral (as defined below)
as security for Debtor's obligations under the Credit Agreement and under the
Notes (as defined in the Credit Agreement);
WHEREAS, Predecessor Debtor and Wells Fargo heretofore executed that
certain Security Agreement, dated as of October 1, 1994 (as amended and restated
by that certain Amended and Restated Continuing Security Agreement dated as of
January 29, 1997, the "Original Security Agreement") to provide security for the
---------------------------
obligations under the 1997 Predecessor Credit Agreement, which are being
refinanced under the Credit Agreement; and
WHEREAS, this Agreement is intended to amend and restate the Original
Security Agreement in its entirety to provide security for the obligations under
the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby amend and restate the
Original Security Agreement in its entirety, and hereby agree as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including, without limitation,
all securities, investment property, guaranties, warranties, indemnity
agreements, insurance policies, and other agreements pertaining to the foregoing
or, if applicable, the property described therein, and in all goods returned by
Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
----------
whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
- ---------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
----------
together with (a) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from any
such sale, lease, collection, exchange or other disposition of any of the
foregoing, (b) all
-2-
<PAGE>
Rights to Payment, including without limitation returned premiums, with respect
to any insurance relating to any of the Collateral or proceeds thereof, and (c)
all Rights to Payment with respect to any cause of action affecting or relating
to any of the Collateral or proceeds thereof (hereinafter called "Proceeds").
--------
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Credit Agreement; and (b) all obligations of
Debtor and rights in respect thereof of Secured Party, on behalf of the Lender
Parties, under this Agreement and the other Loan Documents (as defined in the
Credit Agreement); (collectively, the "Secured Obligations"). The word
-------------------
"Indebtedness" is used herein in its most comprehensive sense and includes any
- -------------
and all advances, debts, obligations and liabilities of Debtor heretofore, now
or hereafter made, incurred or created, whether voluntary or involuntary and
however arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Debtor may be liable
individually or jointly, or whether recovery upon such Indebtedness may be or
hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Secured Party in writing and except for Permitted Liens (as defined in the
Credit Agreement); (d) all statements contained herein are true and complete;
(e) no financing statement covering any of the Collateral or Proceeds, and
naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without limitation, any Equipment that
Debtor may deem to be surplus, has been or shall be consented to
-3-
<PAGE>
or acquiesced in by Secured Party, except as permitted under Section 6(b)(vi)
----------------
herein or as otherwise specifically set forth in writing by Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured
hereby when due; (ii) to indemnify Secured Party against all losses, claims,
demands, liabilities and expenses of every kind caused by property subject
hereto; (iii) to pay all costs and expenses, including reasonable attorneys'
fees, incurred by Secured Party in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Secured Party to exercise its powers; (v) to execute and deliver such
documents as Secured Party deems necessary to create, perfect and continue the
security interests contemplated hereby (including, without limitation, in
respect of the Trademark Collateral); (vi) not to change its chief executive
office or the places where Debtor keeps any of the Collateral or Debtor's
records concerning the Collateral and Proceeds without first giving Secured
Party 60 calendar days' written notice of the address to which Debtor is moving
same and (vi) (A) to use its best efforts to deliver to Secured Party a
landlord's consent in substantially the form of Exhibit A hereto, or such other
---------
form as shall be reasonably satisfactory to Secured Party, for each of Debtor's
distribution centers identified on Schedule 2 hereto executed by the landlord of
----------
each such distribution center, and (B) after the date hereof, not to locate any
distribution center of Debtor on leased premises (including any listed in
Section 1 of Schedule 2 hereto after Borrower shall have exercised its best
efforts as described in the foregoing clause (A) and been unable to deliver a
landlord's consent as contemplated therein) unless the landlord of such premises
shall have executed and delivered to Secured Party a landlord's consent in
substantially the form of Exhibit A hereto or such other form as shall be
---------
reasonably satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
--------
however, that the foregoing restriction shall not
- -------
-4-
<PAGE>
apply to (Y) the sale of Inventory to buyers in the ordinary course of Debtor's
business, and (Z) the sale or other disposition of Equipment so long as (1) no
Event of Default has occurred and is continuing, (2) Borrower is receiving fair
value therefor, and (3) such Equipment is no longer integral to the operation of
Debtor's business; (vii) not to rent, lease, or charter Equipment without
Secured Party's prior written consent; provided, however, that the foregoing
-------- -------
restriction shall not apply to the rental, lease or charter of Equipment so long
as (1) no Event of Default has occurred and is continuing, and (2) such
Equipment is no longer integral to the operation of Debtor's business; (viii) to
furnish reports to Secured Party of all acquisitions, returns, sales and other
dispositions of Inventory in such form and detail and at such times as Secured
Party may require; (ix) to permit Secured Party to inspect the Collateral at any
time; (x) to keep, in accordance with generally accepted accounting principles,
complete and accurate records regarding all Collateral and Proceeds, and to
permit Secured Party to inspect the same and make copies thereof at any
reasonable time; (xi) if requested by Secured Party, to receive and use
reasonable diligence to collect Rights to Payment and Proceeds, in trust and as
the property of Secured Party, and to immediately endorse as appropriate and
deliver such Rights to Payment and Proceeds to Secured Party daily in the exact
form in which they are received together with a collection report in form
satisfactory to Secured Party; (xii) not to commingle Rights to Payment,
Proceeds or collections thereunder with other property; (xiii) to give only
normal allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or Proceeds; (xiv) on demand, to deliver
to Secured Party returned property resulting from, or payment equal to, such
allowances or credits on any Collateral or Proceeds or to execute such documents
and do such other things as Secured Party may reasonably request for the purpose
of perfecting, preserving and enforcing its security interest in such returned
property; (xv) from time to time, when requested by Secured Party, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Secured Party all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof; (xvi) in the event that Secured Party elects to receive payments of
Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Secured
Party in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xvii) to provide any
service and do any other acts which may be necessary to maintain, preserve and
protect all Collateral and, as appropriate and applicable, to keep all
Collateral in good and saleable condition and repair, to deal with the
Collateral in accordance with the standards and practices adhered to generally
by users, manufacturers and owners of like property, and to keep all Collateral
and Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and
-5-
<PAGE>
acquittances and compromise disputes in connection therewith; (d) to release
security; (e) to resort to security in any order; (f) to prepare, execute, file,
record or deliver notes, assignments, schedules, designation statements,
financing statements, continuation statements, termination statements,
statements of assignment, applications for registration or like papers to
perfect, preserve or release Secured Party's interest in the Collateral and
Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take
cash, instruments for the payment of money and other property to which Secured
Party is entitled; (i) to verify facts concerning the Collateral and Proceeds by
inquiry of obligors thereon, or otherwise, in its own name or a fictitious name;
(j) to endorse, collect, deliver and receive payment under instruments for the
payment of money constituting or relating to Proceeds; (k) to prepare, adjust,
execute, deliver and receive payment under insurance claims, and to collect and
receive payment of and endorse any instrument in payment of loss or returned
premiums or any other insurance refund or return, and to apply such amounts
received by Secured Party, at Secured Party's sole option, toward repayment of
the Secured Obligations or replacement of the Collateral; (l) to exercise all
rights, powers and remedies which Debtor would have, but for this Agreement,
with respect to all Collateral and Proceeds subject hereto; (m) to enter onto
Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and
to close deposit accounts or other accounts with any financial institution,
wherever located, into which Proceeds may have been deposited, and to apply
funds so withdrawn to payment of the Secured Obligations; (o) to preserve or
release the interest evidenced by chattel paper to which Secured Party is
entitled hereunder and to endorse and deliver evidences of title incidental
thereto; and (p) to do all acts and things and execute all documents in the name
of Debtor or otherwise, deemed by Secured Party as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
----------
Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
-6-
<PAGE>
10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Secured Party shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Secured Party. All rights, powers, privileges and remedies of Secured Party
shall be cumulative. No delay, failure or discontinuance of Secured Party in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Secured Party of any default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is agreed that
public or private sales, for cash or on credit, to a wholesaler or retailer or
investor, or user of property of the types subject to this Agreement, or public
auction, are all commercially reasonable since differences in the sales prices
generally realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party
-7-
<PAGE>
toward the payment of the Secured Obligations in such order of application as
Secured Party may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party 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 Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
----------
rate that Wells Fargo 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.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations, the release or substitution
of Collateral or Proceeds or any other security for the Secured Obligations, and
the release of any guarantors; provided, however, that in each instance, Secured
-------- -------
Party believes in good faith that the action in question is commercially
reasonable in that it does not unreasonably increase the risk of nonpayment of
the Indebtedness to which the action applies. Until all Secured Obligations
shall have been indefeasibly paid in cash and performed in full, Debtor shall
not have any right of subrogation or contribution vis a vis any other person or
entity obligated to Secured Party and/or the other Lender Parties in connection
with the Credit Agreement or any other Loan Document, and Debtor hereby waives
any benefit of or right to participate in any of the Collateral or Proceeds or
any other security now or hereafter held by Secured Party.
-8-
<PAGE>
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
Debtor warrants that its chief executive office is located at the
following address:
20630 Plummer Street, Chatsworth, California 91311
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
----------
locations of leased premises on which Debtor's distribution centers are located
are also set forth in Schedule 2.
----------
[Remainder of page intentionally left blank]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
LESLIE'S POOLMART, INC., A DELAWARE
CORPORATION
/s/ Robert D. Olsen
By: ---------------------------
Title: Chief Financial Officer and
Executive Vice President
WELLS FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
/s/ Brian Carrico
By: ---------------------------
Title: Vice President
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<PAGE>
SCHEDULE 1
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Trademark Collateral
--------------------
-11-
<PAGE>
SCHEDULE 2
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
------------------------------------------------
-12-
<PAGE>
EXHIBIT A
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
------------------------
See attached.
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<PAGE>
STOCK PLEDGE AGREEMENT
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of June 11, 1997
is executed by LESLIE'S POOLMART, INC., a Delaware Corporation ("Debtor"), in
favor of WELLS FARGO BANK, NATIONAL ASSOCIATION ("Wells Fargo"), acting in its
-----------
capacity as agent on behalf of the financial institutions signatory as lenders
(the "Lenders") and swingline lender (the "Swingline Lender") to that certain
------- ----------------
Credit Agreement dated as of June 11, 1997 (as it may be amended or
supplemented from time to time, the "Credit Agreement"), and any successor to
----------------
Wells Fargo as agent thereunder (in such capacity, "Agent"; together with the
-----
Lenders and the Swingline Lender being the "Lender Parties"), in light of the
--------------
following facts:
WHEREAS, Debtor, on the one hand, and the Lender Parties, on the other
hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Debtor"), to which Debtor is successor by merger, under a Third Amended and
- ------
Restated Credit Agreement dated as of January 29, 1997 among Predecessor Debtor,
the lenders parties thereto and Wells Fargo, as agent (the "1997 Predecessor
----------------
Credit Agreement");
- ----------------
WHEREAS, Debtor has agreed to grant to Agent for the benefit of the
Lender Parties, a security interest in the Collateral and Proceeds (each as
defined below) as security for Debtor's obligations under the Credit Agreement,
the Notes and the other Loan Documents (each as defined in the Credit
Agreement);
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. Debtor hereby assigns, transfers to and
pledges with Agent, for the ratable benefit of Lenders and Agent, the shares of
stock described on Schedule 1 hereto issued by the Debtor's subsidiaries named
----------
therein (collectively called "Collateral"), together with whatever is receivable
or received when any of the Collateral or proceeds thereof are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation, (a) all rights to payment, including
returned premiums, with respect to any insurance relating to any of the
foregoing, (b) all rights to payment with respect to any cause of action
affecting or relating to any of the foregoing, and (c) all stock rights, rights
to subscribe, stock splits, liquidating dividends, cash dividends, dividends
paid in stock, new securities or other property of any kind which Debtor is or
may hereafter be entitled to receive on account of any securities pledged
hereunder, including without limitation, stock received by Debtor due to stock
splits or dividends paid in
<PAGE>
stock or sums paid upon or in respect of any securities pledged hereunder upon
the liquidation or dissolution of the issuer thereof (hereinafter called
"Proceeds"), and in the event that Debtor receives any such Proceeds, Debtor
will hold the same in trust on behalf of and for the benefit of Agent and will
immediately deliver all such Proceeds to Agent in the exact form received, with
the endorsement of Debtor if necessary and/or appropriate undated stock powers
duly executed in blank, to be held by Agent as a part of the Collateral, subject
to all terms hereof.
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to the
Lender Parties under the Credit Agreement; and (b) all obligations of Debtor and
rights of Agent, on behalf of the Lender Parties, in respect thereof under this
Agreement and the other Loan Documents (as defined in the Credit Agreement);
(collectively, the "Secured Obligations"). The word "Indebtedness" is used
------------------- ------------
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Debtor heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Debtor may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter become
unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor represents and
warrants to Agent that: (a) Debtor is the owner and has possession or control
of the Collateral and Proceeds; (b) Debtor has the right to pledge the
Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from
liens, adverse claims, setoffs, default, prepayment, defenses and conditions
precedent of any kind or character, except as heretofore disclosed to Agent in
writing; (d) all statements contained herein and, where applicable, in the
Collateral, are true and complete; (e) no financing statement covering any of
the Collateral or Proceeds, and naming any secured party other than Agent, is on
file in any public office; (f) none of the Collateral and Proceeds pledged
pursuant to this Agreement constitutes "margin stock" as defined under
Regulation U promulgated by the Board of Governors of the Federal Reserve; (g)
all of the shares of capital stock described on Schedule 1 hereto and
----------
represented by the certificates delivered to Agent as provided in subsection
5(b)(x) hereof (i) are duly and validly issued, and are fully paid and non-
assessable, and (ii) constitute 100% of the issued and outstanding shares of
capital stock of each issuer thereof; and (h) specifically with respect to
Collateral and Proceeds consisting of securities, instruments, chattel paper,
documents, contracts, insurance policies or any like property, (i) all persons
appearing to be obligated thereon have authority and capacity to contract and
are bound as they appear to be, and (ii) the same comply with applicable laws
concerning form, content and manner of preparation and execution.
-2-
<PAGE>
5. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay all Secured Obligations when
due; (ii) to indemnify Agent and the other Lender Parties against all losses,
claims, demands, liabilities and expenses of every kind caused by property
subject hereto; (iii) to pay all costs and expenses, including reasonable
attorneys' fees, incurred by Agent in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Agent to exercise its powers; (v) to execute and deliver such documents
as Agent deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief executive office or the
place where Debtor keeps any of the Collateral or Debtor's records concerning
the Collateral and Proceeds without first giving Agent written notice of the
address to which Debtor is moving same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) not
to permit any lien on the Collateral or Proceeds, except in favor of Agent; (ii)
not to sell, hypothecate or otherwise dispose of any of the Collateral or
Proceeds, or any interest therein, without the prior written consent of Agent;
(iii) to keep, in accordance with generally accepted accounting principles,
complete and accurate records regarding all Collateral and Proceeds, and to
permit Agent to inspect the same and make copies thereof at any reasonable time;
(iv) if requested by Agent, to receive and use reasonable diligence to collect
Proceeds, in trust and as the property of Agent, and to immediately endorse as
appropriate and deliver such Proceeds to Agent in the exact form in which they
are received; (v) not to commingle Collateral or Proceeds, or collections
thereunder, with other property; (vi) in the event Agent elects to receive
payments of Proceeds hereunder, to pay all expenses incurred by Agent in
connection therewith, including expenses of accounting, correspondence,
collection efforts, filing, recording, record keeping and expenses incidental
thereto; (vii) to provide any service and do any other acts which may be
necessary to keep all Collateral and Proceeds free and clear of all defenses,
rights of offset and counterclaims; (viii) where the Collateral or Proceeds
consists of securities and so long as no Event of Default exists, to vote said
securities and to give consents, waivers and ratifications with respect thereto,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would impair Agent's interests in the Collateral and Proceeds
or be inconsistent with or violate any provisions of this Agreement; and (ix)
upon the execution of this Agreement, to deliver to or for the account of Agent
the certificates representing the shares of capital stock described on Schedule
--------
1 hereto, which shall be in suitable form for transfer by delivery, or shall be
- -
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Agent.
6. POWERS OF AGENT. Debtor appoints Agent its true attorney in fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Agent's officers and employees, or any of them, whether or not
Debtor is in default: (a) to perform any obligation
-3-
<PAGE>
of Debtor hereunder in Debtor's name or otherwise; (b) to notify any person
obligated on any security, instrument or other document subject to this
Agreement of Agent's rights hereunder; (c) to collect by legal proceedings or
otherwise all dividends, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral or Proceeds; (d) to enter into any
extension, reorganization, deposit, merger or consolidation agreement, or any
other agreement relating to or affecting the Collateral or Proceeds, and in
connection therewith to deposit or surrender control of the Collateral and
Proceeds, to accept other property in exchange for the Collateral and Proceeds,
and to do and perform such acts and things as Agent may deem proper, with any
money or property received in exchange for the Collateral or Proceeds, at
Agent's discretion, to be applied to the Secured Obligations or held by Agent
under this Agreement; (e) to make any compromise or settlement Agent deems
desirable or proper in respect of the Collateral and Proceeds; (f) to insure,
process and preserve the Collateral and Proceeds; (g) to exercise all rights,
powers and remedies which Debtor would have, but for this Agreement, under all
Collateral and Proceeds subject hereto; and (h) to do all acts and things and
execute all documents in the name of Debtor or otherwise, deemed by Agent as
necessary, proper and convenient in connection with the preservation, perfection
or enforcement of its rights hereunder. To effect the purposes of this Agreement
or otherwise upon instructions of Debtor, Agent may cause any Collateral and/or
Proceeds to be transferred to Agent's name or the name of Agent's nominee. If an
Event of Default has occurred and is continuing, any or all Collateral and/or
Proceeds consisting of securities may be registered, without notice, in the name
of Agent or its nominee, and thereafter Agent or its nominee may exercise,
without notice, all voting and corporate rights at any meeting of the
shareholders of the issuer thereof, any and all rights of conversion, exchange
or subscription, or any other rights, privileges or options pertaining to such
Collateral and/or Proceeds, all as if it were the absolute owner thereof. The
foregoing shall include, without limitation, the right of Agent or its nominee
to exchange, at its discretion, any and all Collateral and/or Proceeds upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the issuer thereof, or upon the exercise by the issuer thereof or Agent of any
right, privilege or option pertaining to any shares of the Collateral and/or
Proceeds, and in connection therewith, the right to deposit and deliver any and
all of the Collateral and/or Proceeds with any committee, depository, transfer
agent, registrar or other designated agency upon such terms and conditions as
Agent may determine. All of the foregoing rights, privileges or options may be
exercised without liability on the part of Agent or its nominee except to
account for property actually received by Agent. Agent shall have no duty to
exercise any of the foregoing, or any other rights, privileges or options with
respect to the Collateral or Proceeds and shall not be responsible for any
failure to do so or delay in so doing.
7. CASH COLLATERAL ACCOUNT. Any money received by Agent in respect of
the Collateral may be deposited, at Agent's option, into a non-interest bearing
cash collateral account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
-4-
<PAGE>
8. AGENT'S CARE AND DELIVERY OF COLLATERAL. Agent's obligation with
respect to Collateral and Proceeds in its possession shall be strictly limited
to the duty to exercise reasonable care in the custody and preservation of such
Collateral and Proceeds, and such duty shall not include any obligation to
ascertain or to initiate any action with respect to or to inform Debtor of
maturity dates, conversion, call, or exchange rights, or offers to purchase the
Collateral or Proceeds, or any similar matters, notwithstanding Agent's
knowledge of the same. Agent shall have no duty to take any steps necessary to
preserve the rights of Debtor against prior parties, or to initiate any action
to protect against the possibility of a decline in the market value of the
Collateral or Proceeds. Agent shall not be obligated to take any action with
respect to the Collateral or Proceeds requested by Debtor unless such request is
made in writing and Agent determines, in its sole discretion, that the requested
action would not unreasonably jeopardize the value of the Collateral and
Proceeds as security for the Secured Obligations. Agent may at any time deliver
the Collateral and Proceeds, or any part thereof, to Debtor, and the receipt
thereof by Debtor shall be a complete and full acquittance for the Collateral
and Proceeds so delivered, and Agent shall thereafter be discharged from any
liability or responsibility therefor.
9. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Agent, at its option, may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same. Any such payments made by Agent shall be obligations of
Debtor, due and payable immediately upon demand, together with interest at a
rate determined in accordance with the provisions of Section 13 hereof, and
shall be secured by the Collateral and Proceeds, subject to all terms and
conditions of this Agreement.
10. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: a. any Event of Default
----------------
(as such term is defined in the Credit Agreement); b. any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; c. Debtor shall fail to observe or perform any
obligation or agreement contained herein; d. any attachment or like levy on any
property of Debtor; and e. Agent, in good faith, believes any or all of the
Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling,
loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory
in character or value.
11. REMEDIES. Upon the occurrence of any Event of Default, Agent shall
have the right to declare immediately due and payable all or any Secured
Obligations and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Agent shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on Collateral and to
-5-
<PAGE>
instruct such persons to deliver all Collateral and/or Proceeds directly to
Agent. All rights, powers, privileges and remedies of Agent shall be cumulative.
No delay, failure or discontinuance of Agent in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Agent of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. While an Event of Default exists: (a) Agent may appropriate the
Collateral and apply all Proceeds toward repayment of the Secured Obligations in
such order of application as Agent may from time to time elect or, at Agent's
sole option, place any Proceeds in the cash collateral account; (b) at Agent's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Agent at a reasonably convenient place
designated by Agent; (c) all voting rights of Debtor in respect of securities
constituting Collateral and all rights of Debtor to receive any Proceeds shall
terminate, and all of such rights shall vest in Secured Party; and (d) if Debtor
receives any Proceeds, Debtor shall hold such Proceeds in trust for Agent and
the other Lender Parties and promptly deliver to Agent all such Proceeds in the
form received by Debtor together with all necessary endorsements, assignments or
other instruments of conveyance or transfer with respect to all or any of such
Proceeds. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. For any Collateral or Proceeds consisting of securities, Agent shall
have no obligation to delay a sale of any portion thereof for the period of time
necessary to permit the issuer thereof to register such securities for public
sale under any applicable state or Federal law, even if the issuer thereof would
agree to do so. Debtor recognizes that Agent may be unable to make a public sale
of any or all of the Collateral or Proceeds, by reason of prohibitions contained
in applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonably sale.
12. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Secured Obligations, Agent may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Agent hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred, Agent shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of the Collateral or Proceeds, or any part thereof, may be applied
by Agent to the payment of expenses incurred by Agent in connection with the
foregoing, including reasonable attorneys' fees, and the balance
-6-
<PAGE>
of such proceeds may be applied by Agent toward the payment of the Secured
Obligations in such order of application as Agent may from time to time elect.
13. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Agent
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 Agent's in-house counsel), incurred by
Agent in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any workout or restructuring of the Secured Obligations or
any bankruptcy proceeding relating to Debtor or the valuation of the Collateral
and/or Proceeds, including without limitation, the seeking of relief from or
modification of the automatic stay or the negotiation and drafting of a cash
collateral order. All of the foregoing shall be paid by Debtor with interest at
a rate per annum equal to the greater of ten percent (10%) or Agent's Prime Rate
in effect from time to time, as defined in the Credit Agreement.
14. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have been
indefeasibly paid in cash and performed in full, the power of sale and all other
rights, powers, privileges and remedies granted to Agent hereunder shall
continue to exist and may be exercised by Agent at any time and from time to
time irrespective of the fact that the Secured Obligations or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Debtor may have ceased, unless such liability shall have ceased due
to the indefeasible payment in cash and performance in full of all Secured
Obligations.
15. MISCELLANEOUS. Presentment, protest, notice of protest, notice of
dishonor and notice of nonpayment are waived with respect to any Proceeds to
which Agent is entitled hereunder; any right to direct the application of
payments or security for any of the Secured Obligations and any right to require
proceedings against others or to require exhaustion of security are waived; and
consent to extensions, forbearances or alterations of the terms of any of the
Secured Obligations, the release or substitution of security, and the release of
guarantors is given; provided however, that in each instance Agent believes in
good faith that the action in question is commercially reasonable in that it
does not unreasonably increase the risk of nonpayment of the Secured Obligations
to which the action applies. Until all Secured Obligations shall have been
indefeasibly paid in cash and performed in full, Debtor shall have no right of
subrogation or contribution, and Debtor hereby waives any benefit of or any
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Agent.
16. NOTICES. All notices or demands of any kind which Agent may be
required or desires to serve upon Debtor under the terms of this Agreement shall
be served upon Debtor as provided in the Credit Agreement.
-7-
<PAGE>
17. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
Debtor warrants that its residence or chief executive office is located at
the following address: 20630 Plummer Street, Chatsworth, California 91311.
[Signature page follows.]
-8-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
set forth above.
LESLIE'S POOLMART, INC., a
Delaware corporation
By: /s/ Robert D. Olsen
----------------------------
Name: Robert D. Olsen
Title: Chief Financial Officer and
Executive Vice President
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<PAGE>
Schedule 1
to the Stock Pledge Agreement
PLEDGED SHARES
-10-
<PAGE>
SWINGLINE NOTE
--------------
$5,000,000.00 Los Angeles, California
- -------------
June 11, 1997
1. PROMISE TO REPAY. FOR VALUE RECEIVED, LESLIE'S POOLMART, INC., a
----------------
Delaware corporation ("Maker"), promises to pay to WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank"), or order, the principal sum of Five Million Dollars
($5,000,000.00) or such lesser amount as shall equal the outstanding amount of
the obligations owing to Bank as Swingline Lender under the Line of Credit as
described in Section 2.1(b) of that certain Credit Agreement, dated as of June
--------------
11, 1997 (as it may be amended or otherwise modified from time to time, the
"Credit Agreement"), entered into between Maker, on the one hand, and, on the
other hand, Bank, the other financial institutions from time to time parties
thereto as lenders, and Wells Fargo Bank, National Association, as agent
("Agent").
2. DEFINED TERMS. Any and all initially capitalized terms used
-------------
herein shall have the meaning ascribed thereto in the Credit Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated or where the context hereof otherwise requires (such
as the first sentence of Section 1 hereof), the inclusive meaning represented by
---------
the phrase "and/or". This Swingline Note (as it may be amended or otherwise
modified from time to time, this "Note") is the promissory note defined in the
Credit Agreement as the "Swingline Note" and is subject to, and entitled to the
benefits of, the terms and provisions of the Credit Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST. Maker hereby promises to
----------------------------------
make payments of principal and interest with respect to the loans evidenced
hereby at the rates and times, and in the amounts, and in all other respects in
the manner, as provided in the Credit Agreement.
4. PREPAYMENTS. Maker may prepay the principal balance due under
-----------
this Note, in whole or in part, only in accordance with the provisions of the
Credit Agreement.
5. APPLICATION OF PAYMENTS. All payments (including prepayments)
-----------------------
made hereunder shall be applied as set forth in the Credit Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and interest due
--------------------------
hereunder are payable to Agent at Agent's Office (or such other office as may be
designated from time to time by Agent to Maker in writing), for the account of
Bank, in lawful money of the United States and in same day or immediately
available funds not later than 12:00 noon on the date due.
<PAGE>
7. RECORDS. Bank shall record the date and amount of each loan
-------
made, each conversion to a different interest rate and each relevant Interest
Period, if applicable, the amount of principal and interest due and payable from
time to time hereunder, each payment thereof and the resulting unpaid principal
balance hereof, in the Bank's internal records, and any such recordation shall
be rebuttable presumptive evidence of the accuracy of the information so
recorded; provided, however, that Bank's failure to so to record shall not limit
-------- -------
or otherwise affect the obligations of Maker hereunder and under the Credit
Agreement to repay the principal and interest under the Line of Credit.
8. ACCELERATION AND WAIVERS. The Credit Agreement provides, among
------------------------
other things, for acceleration (which in certain cases shall be automatic) of
the maturity hereof upon the occurrence of certain stated events, in each case,
without presentment, protest, demand, notice of dishonor, notice of nonpayment,
notice of maturity, notice of intent to accelerate, notice of acceleration,
presentment for the purpose of accelerating maturity, and diligence in
collection, all of which hereby are expressly waived.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE LIENS
--------
GRANTED TO BANK (OR AGENT ON BEHALF OF BANK) PURSUANT TO THE TERMS OF THE
SECURITY AGREEMENT AND ANY AND ALL OTHER DOCUMENTS, AGREEMENTS, OR INSTRUMENTS
EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
10. INCORPORATION. ALL OF THE COVENANTS, CONDITIONS, WARRANTIES,
-------------
REPRESENTATIONS, AND AGREEMENTS CONTAINED IN THE CREDIT AGREEMENT OR IN ANY
OTHER AGREEMENT BETWEEN MAKER AND BANK WHICH IS EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT OR THIS NOTE, OR IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER OR UNDER THE CREDIT AGREEMENT, ARE HEREBY INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF.
11. ATTORNEYS' FEES. In the event it should become necessary to
---------------
employ counsel to collect or enforce this Note, Maker agrees to pay the
reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Credit Agreement.
12. AMENDMENTS. This Note may not be changed, modified, amended, or
----------
terminated except by a writing duly executed by Maker and the then holder hereof
in accordance with the terms and conditions of the Credit Agreement.
13. HEADINGS. Section headings used in this Note are solely for
--------
convenience of reference, shall not constitute a part of this Note for any other
purpose, and shall not affect the construction of this Note.
-2-
<PAGE>
14. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN
-------------
THE STATE OF CALIFORNIA AND THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
LESLIE'S POOLMART, INC.
a Delaware corporation
By: /s/ Robert D. Olsen
______________________________
Title: Chief Financial Officer and
Executive Vice President
-3-
<PAGE>
CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of June 11, 1997, is
executed by SANDY'S POOL SUPPLY, INC. ("Guarantor"), in favor of the Lenders
from time to time parties to the Credit Agreement referred to below (each
individually, a "Lender" and, collectively, the "Lenders"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION, as swingline lender thereunder (the "Swingline
Lender") and WELLS FARGO BANK, NATIONAL ASSOCIATION, as agent for the Lenders
and Swingline Lender (in such capacity, "Agent"; together with the Lenders and
Swingline Lender being the "Lender Parties").
RECITALS
--------
A. Pursuant to that certain Credit Agreement dated as of June 11, 1997,
among Leslie's Poolmart, Inc., a Delaware corporation ("Borrower"), the Lenders,
Swingline Lender and Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"; terms defined therein and not otherwise defined
herein being used herein as therein defined), the Lender Parties have agreed to
make available to Borrower certain credit facilities, upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The availability of the credit facilities under the Credit Agreement is
subject, among other conditions, to the execution and delivery by Guarantor of
this Guaranty.
C. Guarantor is a wholly owned Subsidiary of Borrower. Guarantor shall
receive substantial direct and indirect benefits from the making of loans and
other financial accommodations to Borrower under the Credit Agreement, in the
form, among others, of Borrower's financing of the working capital needs of
Guarantor with proceeds of the credit facilities made available to Borrower
under the Credit Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor hereby agrees as follows:
1. GUARANTY; CERTAIN DEFINITIONS. Guarantor hereby unconditionally
guaranties and promises to pay to Agent, each Lender and the Swingline Lender,
or their order, punctually when due, whether at stated maturity, by acceleration
or otherwise, and otherwise on demand, in lawful money of the United States of
America and in immediately
<PAGE>
available funds, any Indebtedness of Borrower to any such Lender Party, whether
or not evidenced by a promissory note or notes, as defined in or arising under
the Credit Agreement or any document, instrument or agreement delivered by
Borrower to any Lender Party pursuant to the Credit Agreement or otherwise in
connection with any of the foregoing (the Credit Agreement and such documents,
instruments and agreements, as amended, modified or supplemented from time to
time, collectively being the "Loan Documents"; and all such Indebtedness of
Borrower being the "Guarantied Obligations"). The term "Indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Borrower may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
2. MAXIMUM LIABILITY; CONTINUING GUARANTY; OBLIGATION UNDER OTHER
GUARANTIES. (a) The liability of Guarantor under this Guaranty shall not
exceed at any one time the Maximum Amount, as hereinafter defined, in effect at
such time for principal, plus all interest thereon and costs and expenses
pertaining to the enforcement of this Guaranty or the collection of the
Indebtedness of Borrower to any Lender Party. Notwithstanding the foregoing,
any Lender Party may permit the Guarantied Obligations to exceed Guarantor's
maximum liability hereunder. The "Maximum Amount" on any date of determination
shall mean the greater of (i) the net benefits realized by Guarantor as of such
date from the proceeds of the Credits under the Credit Agreement made available
from time to time by Borrower or any Subsidiary of Borrower to Guarantor and
(ii) the greater of (A) 95% of the Adjusted Net Assets of Guarantor on the date
of delivery hereof and (B) 95% of the Adjusted Net Assets of Guarantor on such
date of determination. "Adjusted Net Assets" of Guarantor on any date of
determination means the lesser of (x) the amount by which the fair value of the
property of Guarantor exceeds the total amount of liabilities, including,
without limitation, disputed, contingent and unliquidated liabilities, but
excluding liabilities under this Guaranty, of Guarantor on such date and (y) the
amount by which the present fair salable value of the property of Guarantor on
such date exceeds the amount that will be required to pay the probable liability
of Guarantor on its debts, excluding debt in respect of this Guaranty, as they
become absolute and matured.
(b) This is a continuing guaranty and all rights, powers and remedies
hereunder shall apply to all past, present and future Indebtedness under the
Loan Documents, including that arising under successive transactions which shall
either continue the Indebtedness under the Loan Documents, increase or decrease
it, or from time to time create new Indebtedness in addition to or to refinance
Indebtedness under the Loan Documents in whole or in part, and after all or any
prior such Indebtedness has been satisfied, and notwithstanding the incapacity,
dissolution, liquidation or bankruptcy of Borrower or Guarantor or any other
event or proceeding affecting Borrower or Guarantor. The obligations of
Guarantor hereunder shall be
2
<PAGE>
in addition to any obligations of Guarantor under any other guaranties of any
liabilities or obligations of Borrower or any other persons heretofore or
hereafter given to any Lender Party; and this Guaranty shall not affect or
invalidate any such other guaranties.
3. GUARANTY OF PAYMENT IN ACCORDANCE WITH LOAN DOCUMENTS; OBLIGATIONS
INDEPENDENT; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT
OF LIABILITY. Guarantor guaranties that the Guarantied Obligations will be paid
when due strictly in accordance with the terms of the Loan Documents. The
obligations hereunder independent of the obligations of Borrower, and a separate
action or actions may be brought and prosecuted against Guarantor whether action
is brought against Borrower or any other person, or whether Borrower or any
other person is joined in any such action or actions. Guarantor acknowledges
that there are no conditions precedent to the effectiveness of this Guaranty,
and that this Guaranty is in full force and effect and is binding on Guarantor
as of the date written above, regardless of whether the Lender Parties obtain
collateral or any guaranties from others or take any other action contemplated
by Guarantor. Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof, and
Guarantor agrees that any payment of any Indebtedness or other act which shall
toll any statute of limitations applicable thereto shall similarly operate to
toll such statute of limitations applicable to Guarantor's liability hereunder.
The liability of Guarantor hereunder shall be reinstated and revived and the
rights of the Lender Parties shall continue if and to the extent for any reason
any amount at any time paid on account of any Indebtedness guarantied hereby is
rescinded or must be otherwise restored by any Lender Party, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been paid. The determination as to whether any amount so
paid must be rescinded or restored shall be made by any Lender Party in its sole
discretion; provided however, that if any Lender Party chooses to contest any
such matter at the request of Guarantor, Guarantor agrees to indemnify and hold
such Lender Party harmless from and against all costs and expenses, including
reasonable attorneys' fees, expended or incurred by such Lender Party in
connection therewith, including without limitation, in any litigation with
respect thereto.
4. AUTHORIZATIONS. Guarantor authorizes the Lender Parties, without
notice to or demand on Guarantor, and without affecting Guarantor's liability
hereunder, from time to time to: (a) alter, compromise, renew, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the Guarantied Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Guarantied Obligations or any portion thereof,
and exchange, enforce, waive and release any such security; (c) apply such
security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as the Lender Parties in their discretion
may determine; (d) release or substitute any one or more of the endorsers or any
other guarantors of the Guarantied Obligations, or any part thereof, or any
party thereto; and
3
<PAGE>
(e) apply payments received from Borrower to any Indebtedness of Borrower to any
Lender Party, in such order as such Lender Party shall determine in its sole
discretion, whether or not any such Indebtedness is covered by this Guaranty,
and Guarantor hereby waives any provision of law regarding application of
payments which specifies otherwise. Any Lender Party may without notice assign
this Guaranty in whole or in part. Upon any Lender Party's request, Guarantor
agrees to provide to such Lender Party copies of Guarantor's financial
statements.
5. REPRESENTATIONS AND WARRANTIES; COVENANTS OF GUARANTOR. Guarantor
represents and warrants to the Lender Parties that: (a) this Guaranty is
executed at Borrower's request; (b) the execution, delivery and performance by
Guarantor of this Guaranty and each other document, instrument or agreement
executed and delivered by Guarantor in connection with the Credit Agreement has
been duly authorized are within Guarantor's corporate power and authority, have
been duly authorized by all necessary corporate action and do not and will not
violate any law, regulation, order of contractual provision applicable to
Guarantor or its property; (b) this Guaranty and each other document, instrument
and agreement executed and delivered by Guarantor in connection with the Credit
Agreement constitute the legal, valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms; (c)
Guarantor shall not, without Agent's prior written consent, sell, lease, assign,
encumber, hypothecate, transfer or otherwise dispose of all or a substantial or
material part of Guarantor's assets other than in the ordinary course of
business; (d) neither Agent nor any other Lender Party has made any
representation to Guarantor as to the creditworthiness of Borrower; (e)
Guarantor is, and after giving effect hereto (treating the Maximum Amount,
calculated under each of the alternative formulations therefor in Section 2(a)
hereof, as a noncontingent liability of Guarantor) shall be, Solvent; (f)
Guarantor acknowledges that it will receive substantial benefit from the Credits
to be provided under the Credit Agreement, in the form, among others, of
Borrower's financing of the working capital needs of Guarantor with proceeds of
such credit facilities, and Guarantor accordingly acknowledges that is has
received fair and adequate consideration for its execution, delivery and
performance of this Guaranty; and (g) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Guarantor further
agrees that neither Agent nor any other Lender Party shall have any obligation
to disclose to Guarantor any information or material about Borrower which is
acquired by any Lender Party in any manner.
6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require any
Lender Party to: (i) proceed against Borrower or any other person; (ii) proceed
against or exhaust any security held from Borrower or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or otherwise
comply with the provisions of Section 9504 of the California Uniform Commercial
Code; (iv) pursue any other remedy in Agent's or any other Lender
4
<PAGE>
Party's power; or (v) make any presentments or demands for performance, or give
any notices of nonperformance, protests, notices of protest or notices of
dishonor in connection with any obligations or evidences of indebtedness held by
any Lender Party as security or which constitute in whole or in part the
Indebtedness guarantied hereunder, or in connection with the creation of new or
additional Indebtedness.
(b) Guarantor waives any defense based upon or arising by reason of: (i)
any disability or other defense of Borrower or any other person; (ii) the
cessation or limitation from any cause whatsoever, other than indefeasible
payment in full, of the Indebtedness of Borrower or any other person; (iii) any
lack of authority of any officer, director, partner, agent or any other person
acting or purporting to act on behalf of Borrower if a corporation, partnership
or other type of entity, or any defect in the formation of any such Borrower;
(iv) the application by Borrower of the proceeds of any Indebtedness for
purposes other than the purposes represented by Borrower to, or intended or
understood by any Lender Party or Guarantor; (v) any act or omission by any
Lender Party which directly or indirectly results in or aids the discharge of
Borrower or any Indebtedness by operation of law or otherwise; or (vi) any
modification of any Indebtedness, in any form whatsoever, including without
limitation any modification made after revocation hereof to any Indebtedness
incurred prior to such revocation, and including without limitation the renewal,
extension, acceleration or other change in time for payment of, or other change
in the terms of, the Guarantied Obligations or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Indebtedness of
Borrower to the Lender Parties under the Loan Documents shall have been
indefeasibly paid in full, Guarantor shall have no right of subrogation.
Guarantor waives all rights and defenses or may have arising out of (A) any
election of remedies by any Lender Party, even though that election of remedies,
such as a non-judicial foreclosure with respect to any security for any portion
of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's
rights to proceed against Borrower for reimbursement, or (B) any loss of rights
Guarantor may suffer by reason of any rights, powers or remedies of Borrower in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrower's Indebtedness, whether by operation of Sections 726 or
580d of the Code of Civil Procedure as from time to time amended, or otherwise.
Until all Indebtedness of Borrower to the Lender Parties under the Loan
Documents shall have been indefeasibly paid in full, Guarantor further waives
any right to enforce any remedy which any Lender Party now has or may hereafter
have against Borrower or any other person, and waives any benefit of, or any
right to participate in, any security now or hereafter held by any Lender Party.
7. GUARANTOR'S UNDERSTANDINGS WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences, and that under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any of said waivers is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted by
law.
5
<PAGE>
8. LENDER PARTIES' RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN
POSSESSION OF AGENT AND LENDERS. In addition to all liens upon, and rights of
setoff against the monies, securities or other property of or given to any
Lender Party by law, each Lender Party shall have a lien upon and a right of
setoff against all monies, securities and other property of Guarantor now or
hereafter in the possession of Guarantor on deposit with such Lender Party,
whether held in a general or special account or deposit or for safekeeping or
otherwise, and every such lien and right of setoff may be exercised without
demand upon or notice to Guarantor. No lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of any Lender Party, or by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing, and every right of setoff and lien shall continue in full
force and effect until such right of setoff or lien is specifically waived or
released by an instrument in writing executed by such Lender Party.
9. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Without limiting
provisions in the Loan Documents restricting Borrower's ability to incur
indebtedness, any Indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the Indebtedness of Borrower to the Lender Parties under
the Loan Documents. Such Indebtedness of Borrower to Guarantor is assigned to
the Lender Parties as security for this Guaranty and the Guarantied Obligations
and, if Agent requests, shall be collected and received by Guarantor as trustee
for the Lender Parties and paid over to Agent on account of the Indebtedness of
Borrower to the Lender Parties but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty. Any
notes or other instruments now or hereafter evidencing such Indebtedness of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and, if Agent so requests, shall be delivered to Agent. Guarantor
will, and Agent is hereby authorized, in the name of Guarantor from time to time
to execute and file financing statements and continuation statements and execute
such other documents and take such other actions as Agent deems necessary or
appropriate to perfect, preserve and enforce the rights of any Lender Party
hereunder.
10. DISCLOSURE OF INFORMATION. Guarantor acknowledges that the Lender
Parties have the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, any Indebtedness of
Borrower to any Lender Party under the Loan Documents and any obligations with
respect thereto, including this Guaranty. In connection therewith, the Lender
Parties may disclose all documents and information which any Lender Party now
has or hereafter acquires relating to Guarantor and this Guaranty, whether
furnished by Borrower, Guarantor or otherwise. Guarantor further agrees that
the Lender Parties may disclose such documents and information to Borrower.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Agent and
each other Lender Party immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside
6
<PAGE>
counsel fees and all allocated costs of such Lender Party's in-house counsel),
incurred by such Lender Party in connection with the enforcement of this
Guaranty and any other document, instrument or agreement executed and delivered
by Guarantor in connection with the Credit Agreement, including any of the
foregoing incurred in connection with any workout or bankruptcy proceeding
relating to Guarantor, and/or the collection of any of the Indebtedness of
Borrower to any Lender Party. All of the foregoing shall be paid by Guarantor
with interest at a rate per annum equal to the greater of ten percent (10%) or
Agent's Prime Rate in effect from time to time, as defined in the Credit
Agreement.
12. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Guaranty shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
13. SUBMISSION TO JURISDICTION. GUARANTOR HEREBY (A) SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL
COURTS OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY
OTHER DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED AND DELIVERED BY GUARANTOR IN
CONNECTION WITH THE CREDIT AGREEMENT, (B) AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, (C)
IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW) ANY
OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION
ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, AND (IV) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
14. WAIVER OF JURY TRIAL. GUARANTOR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF
OR RELATING TO THIS GUARANTY OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED AND DELIVERED BY GUARANTOR IN CONNECTION WITH THE CREDIT AGREEMENT OR
ANY OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
7
<PAGE>
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND ANY SUCH DOCUMENT, INSTRUMENT
OR AGREEMENT. A COPY OF THIS SECTION 14 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY
COURT.
[Signature page follows.]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as
of the date first written above.
SANDY'S POOL SUPPLY, INC.
BY: /s/ Brian P. McDermott
--------------------------
Name: Brian P. McDermott
Title: Chief Executive Officer,
President, Chief Financial
Officer and Secretary
9
<PAGE>
CONTINUING SECURITY AGREEMENT
-----------------------------
THIS CONTINUING SECURITY AGREEMENT (this "Agreement") is entered into
---------
as of the 11 day of June, 1997, by and between WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Wells Fargo"), acting in its capacity as agent on behalf of the
-----------
financial institutions signatory as lenders (the "Lenders") and swingline lender
-------
(the "Swingline Lender") to that certain Credit Agreement dated as of June 11,
----------------
1997 (as it may be amended or supplemented from time to time, the "Credit
------
Agreement"), and any successor to Wells Fargo as agent thereunder (in such
- ---------
capacity, "Secured Party"; together with the Lenders and the Swingline Lender
-------------
being the "Lender Parties") and SANDY'S POOL SUPPLY, INC., a California
--------------
corporation ("Debtor"), in light of the following facts:
------
WHEREAS, Leslie's Poolmart, Inc., a Delaware corporation and parent
company of Debtor (the "Borrower"), on the one hand, and the Lender Parties, on
the other hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Borrower"), to which Borrower is successor by merger, under a Third Amended and
- --------
Restated Credit Agreement dated as of January 29, 1997 among Predecessor
Borrower, the lenders parties thereto and Wells Fargo, as agent;
WHEREAS, Debtor has executed and delivered that certain Continuing
Guaranty dated as of June 11, 1997 in favor of Secured Party and the other
Lender Parties (the "Guaranty") pursuant to which Debtor has agreed to guaranty
Borrower's obligations under the Credit Agreement and the other Loan Documents
(as defined in the Credit Agreement).
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral and Proceeds (each
as defined below) as security for Debtor's obligations under the Guaranty;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including, without limitation,
all securities, investment property, guaranties, warranties, indemnity
agreements, insurance policies, and other agreements pertaining to the foregoing
or, if applicable, the property described therein, and in all goods returned by
Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
----------
whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
- ---------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
----------
together with (i) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from
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<PAGE>
any such sale, lease, collection, exchange or other disposition of any of the
foregoing, (ii) all Rights to Payment, including without limitation returned
premiums, with respect to any insurance relating to any of the Collateral or
proceeds thereof, and (iii) all Rights to Payment with respect to any cause of
action affecting or relating to any of the Collateral or proceeds thereof
(hereinafter called "Proceeds").
--------
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Guaranty; and (b) all obligations of Debtor and
rights in respect thereof of Secured Party, on behalf of the Lender Parties,
under this Agreement and the other Loan Documents; (collectively, the "Secured
-------
Obligations"). The word "Indebtedness" is used herein in its most comprehensive
- ----------- ------------
sense and includes any and all advances, debts, obligations and liabilities of
Debtor heretofore, now or hereafter made, incurred or created, whether voluntary
or involuntary and however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Debtor may be liable individually or jointly, or whether recovery upon such
Indebtedness may be or hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of
the Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except as heretofore
disclosed to Secured Party in writing and except for Permitted Liens (as defined
in the Credit Agreement); (d) all statements contained herein are true and
complete; (e) no financing statement covering any of the Collateral or Proceeds,
and naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without
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<PAGE>
limitation, any Equipment that Debtor may deem to be surplus, has been or shall
be consented to or acquiesced in by Secured Party, except as permitted under
Section 6(b)(vi) herein or as otherwise specifically set forth in writing by
- ----------------
Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured
hereby when due; (ii) to indemnify Secured Party against all losses, claims,
demands, liabilities and expenses of every kind caused by property subject
hereto; (iii) to pay all costs and expenses, including reasonable attorneys'
fees, incurred by Secured Party in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Secured Party to exercise its powers; (v) to execute and deliver such
documents as Secured Party deems necessary to create, perfect and continue the
security interests contemplated hereby (including, without limitation, in
respect of the Trademark Collateral); (vi) not to change its chief executive
office or the places where Debtor keeps any of the Collateral or Debtor's
records concerning the Collateral and Proceeds without first giving Secured
Party 60 calendar days' written notice of the address to which Debtor is moving
same; and (vii) not to locate any distribution center of Debtor on leased
premises unless the landlord of such premises shall have executed and delivered
to Secured Party a landlord's consent in substantially the form of Exhibit A
---------
hereto or such other form as shall be reasonably satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
--------
however, that the foregoing restriction shall not apply to (Y) the sale of
- ------
Inventory to buyers in the ordinary course of Debtor's business, and (Z) the
sale or other disposition of Equipment so long as (1) no Event of Default has
occurred and is continuing, (2) Borrower is receiving fair value therefor, and
(3) such Equipment is no longer integral to the operation of Debtor's business;
(vii) not to rent, lease, or charter Equipment
-4-
<PAGE>
without Secured Party's prior written consent; provided, however, that the
-------- -------
foregoing restriction shall not apply to the rental, lease or charter of
Equipment so long as (1) no Event of Default has occurred and is continuing, and
(2) such Equipment is no longer integral to the operation of Debtor's business;
(viii) to furnish reports to Secured Party of all acquisitions, returns, sales
and other dispositions of Inventory in such form and detail and at such times as
Secured Party may require; (ix) to permit Secured Party to inspect the
Collateral at any time; (x) to keep, in accordance with generally accepted
accounting principles, complete and accurate records regarding all Collateral
and Proceeds, and to permit Secured Party to inspect the same and make copies
thereof at any reasonable time; (xi) if requested by Secured Party, to receive
and use reasonable diligence to collect Rights to Payment and Proceeds, in trust
and as the property of Secured Party, and to immediately endorse as appropriate
and deliver such Rights to Payment and Proceeds to Secured Party daily in the
exact form in which they are received together with a collection report in form
satisfactory to Secured Party; (xii) not to commingle Rights to Payment,
Proceeds or collections thereunder with other property; (xiii) to give only
normal allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or Proceeds; (xiv) on demand, to deliver
to Secured Party returned property resulting from, or payment equal to, such
allowances or credits on any Collateral or Proceeds or to execute such documents
and do such other things as Secured Party may reasonably request for the purpose
of perfecting, preserving and enforcing its security interest in such returned
property; (xv) from time to time, when requested by Secured Party, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Secured Party all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof; (xvi) in the event that Secured Party elects to receive payments of
Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Secured
Party in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xvii) to provide any
service and do any other acts which may be necessary to maintain, preserve and
protect all Collateral and, as appropriate and applicable, to keep all
Collateral in good and saleable condition and repair, to deal with the
Collateral in accordance with the standards and practices adhered to generally
by users, manufacturers and owners of like property, and to keep all Collateral
and Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release security; (e) to resort to security in any
order; (f) to prepare, execute, file, record or deliver notes, assignments,
schedules, designation statements, financing statements, continuation
statements,
-5-
<PAGE>
termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Secured Party's
interest in the Collateral and Proceeds; (g) to receive, open and read mail
addressed to Debtor; (h) to take cash, instruments for the payment of money and
other property to which Secured Party is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Secured
Party, at Secured Party's sole option, toward repayment of the Secured
Obligations or replacement of the Collateral; (l) to exercise all rights, powers
and remedies which Debtor would have, but for this Agreement, with respect to
all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises
in inspecting the Collateral; (n) to make withdrawals from and to close deposit
accounts or other accounts with any financial institution, wherever located,
into which Proceeds may have been deposited, and to apply funds so withdrawn to
payment of the Secured Obligations; (o) to preserve or release the interest
evidenced by chattel paper to which Secured Party is entitled hereunder and to
endorse and deliver evidences of title incidental thereto; and (p) to do all
acts and things and execute all documents in the name of Debtor or otherwise,
deemed by Secured Party as necessary, proper and convenient in connection with
the preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
----------
Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare
-6-
<PAGE>
immediately due and payable all or any Indebtedness secured hereby. Secured
Party shall have all other rights, powers, privileges and remedies granted to a
secured party upon default under the California Uniform Commercial Code or
otherwise provided by law, including without limitation, the right to contact
all persons obligated to Debtor on any Collateral or Proceeds and to instruct
such persons to deliver all Collateral and/or Proceeds directly to Secured
Party. All rights, powers, privileges and remedies of Secured Party shall be
cumulative. No delay, failure or discontinuance of Secured Party in exercising
any right, power, privilege or remedy hereunder shall affect or operate as a
waiver of such right, power, privilege or remedy; nor shall any single or
partial exercise of any such right, power, privilege or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or approval
of any kind by Secured Party of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing. It is agreed that public or private sales,
for cash or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction, are all
commercially reasonable since differences in the sales prices generally realized
in the different kinds of sales are ordinarily offset by the differences in the
costs and credit risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party toward
the payment of the Secured Obligations in such order of application as Secured
Party may from time to time elect.
-7-
<PAGE>
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party 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 Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and/or Borrower's obligations under the Credit Agreement and
the other Loan Documents and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
----------
rate that Wells Fargo 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.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations and/or of Borrower's
obligations under the Credit Agreement and the other Loan Documents, the release
or substitution of Collateral or Proceeds or any other security for the Secured
Obligations or for Borrower's obligations under the Credit Agreement and the
other Loan Documents, and the release of any guarantors; provided, however, that
-------- -------
in each instance, Secured Party believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Secured Obligations shall have been indefeasibly paid in cash and performed
in full, Debtor shall not have any right of subrogation or contribution vis a
vis any other person or entity obligated to Secured Party and/or the other
Lender Parties in connection with the Credit Agreement or any other Loan
Document, and Debtor hereby waives any benefit of or right to participate in any
of the Collateral or Proceeds or any other security now or hereafter held by
Secured Party.
-8-
<PAGE>
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
Debtor warrants that its chief executive office is located at the
following address:
20630 Plummer Street, Chatsworth, California 91311
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
----------
locations of leased premises on which Debtor's distribution centers, if any, are
located are also set forth in Schedule 2.
----------
[Remainder of page intentionally left blank]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
SANDY'S POOL SUPPLY, INC.
By: /s/ Brian P. McDermott
-----------------------------
Title: President
-----------------------------
WELLS FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
By: /s/ Brian Carrico
-----------------------------
Title: Vice President
-----------------------------
-10-
<PAGE>
SCHEDULE 1
TO CONTINUING SECURITY AGREEMENT
Trademark Collateral
--------------------
-11-
<PAGE>
SCHEDULE 2
TO CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
------------------------------------------------
None.
-12-
<PAGE>
EXHIBIT A
TO CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
------------------------
See attached.
-13-
<PAGE>
CONTINUING SECURITY AGREEMENT
-----------------------------
THIS CONTINUING SECURITY AGREEMENT (this "Agreement") is entered into
---------
as of the 11 day of June, 1997, by and between WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Wells Fargo"), acting in its capacity as agent on behalf of the
-----------
financial institutions signatory as lenders (the "Lenders") and swingline lender
-------
(the "Swingline Lender") to that certain Credit Agreement dated as of June 11,
----------------
1997 (as it may be amended or supplemented from time to time, the "Credit
------
Agreement"), and any successor to Wells Fargo as agent thereunder (in such
- ---------
capacity, "Secured Party"; together with the Lenders and the Swingline Lender
-------------
being the "Lender Parties") and LESLIE'S POOL BRITE, INC., a California
--------------
corporation ("Debtor"), in light of the following facts:
---------
WHEREAS, Leslie's Poolmart, Inc., a Delaware corporation and parent
company of Debtor (the "Borrower"), on the one hand, and the Lender Parties, on
the other hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Borrower"), to which Borrower is successor by merger, under a Third Amended and
- --------
Restated Credit Agreement dated as of January 29, 1997 among Predecessor
Borrower, the lenders parties thereto and Wells Fargo, as agent;
WHEREAS, Debtor has executed and delivered that certain Continuing
Guaranty dated as of June 11, 1997 in favor of Secured Party and the other
Lender Parties (the "Guaranty") pursuant to which Debtor has agreed to guaranty
Borrower's obligations under the Credit Agreement and the other Loan Documents
(as defined in the Credit Agreement).
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral and Proceeds (each
as defined below) as security for Debtor's obligations under the Guaranty;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair
<PAGE>
or otherwise or from any other source whatsoever), including, without
limitation, all securities, investment property, guaranties, warranties,
indemnity agreements, insurance policies, and other agreements pertaining to the
foregoing or, if applicable, the property described therein, and in all goods
returned by Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
----------
whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
--------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
----------
together with (i) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from any
such sale, lease, collection, exchange or other disposition of any of the
foregoing, (ii) all Rights to Payment, including without limitation returned
premiums, with respect to any insurance relating to any of the Collateral or
proceeds thereof, and (iii) all Rights to Payment with respect to any cause of
action affecting or relating to any of the Collateral or proceeds thereof
(hereinafter called "Proceeds").
--------
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Guaranty; and (b) all obligations of Debtor and
rights in respect thereof of Secured Party, on behalf of the Lender Parties,
under this Agreement and the other Loan Documents; (collectively, the "Secured
-------
Obligations"). The word "Indebtedness" is used herein in its most comprehensive
- ----------- ------------
sense
-2-
<PAGE>
and includes any and all advances, debts, obligations and liabilities of Debtor
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of
the Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except as heretofore
disclosed to Secured Party in writing and except for Permitted Liens (as defined
in the Credit Agreement); (d) all statements contained herein are true and
complete; (e) no financing statement covering any of the Collateral or Proceeds,
and naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without limitation, any Equipment that
Debtor may deem to be surplus, has been or shall be consented to or acquiesced
in by Secured Party, except as permitted under Section 6(b)(vi) herein or as
----------------
otherwise specifically set forth in writing by Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Secured Party against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Secured Party in the perfection, preservation, realization, enforcement and
exercise of its rights, powers and remedies hereunder; (iv) to permit Secured
Party to exercise its powers; (v) to execute and deliver such documents as
Secured Party deems necessary to create, perfect and continue the security
interests contemplated hereby (including,
-3-
<PAGE>
without limitation, in respect of the Trademark Collateral); (vi) not to change
its chief executive office or the places where Debtor keeps any of the
Collateral or Debtor's records concerning the Collateral and Proceeds without
first giving Secured Party 60 calendar days' written notice of the address to
which Debtor is moving same; and (vii) not to locate any distribution center of
Debtor on leased premises unless the landlord of such premises shall have
executed and delivered to Secured Party a landlord's consent in substantially
the form of Exhibit A hereto or such other form as shall be reasonably
---------
satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
--------
however, that the foregoing restriction shall not apply to (Y) the sale of
- -------
Inventory to buyers in the ordinary course of Debtor's business, and (Z) the
sale or other disposition of Equipment so long as (1) no Event of Default has
occurred and is continuing, (2) Borrower is receiving fair value therefor, and
(3) such Equipment is no longer integral to the operation of Debtor's business;
(vii) not to rent, lease, or charter Equipment without Secured Party's prior
written consent; provided, however, that the foregoing restriction shall not
-------- -------
apply to the rental, lease or charter of Equipment so long as (1) no Event of
Default has occurred and is continuing, and (2) such Equipment is no longer
integral to the operation of Debtor's business; (viii) to furnish reports to
Secured Party of all acquisitions, returns, sales and other dispositions of
Inventory in such form and detail and at such times as Secured Party may
require; (ix) to permit Secured Party to inspect the Collateral at any time; (x)
to keep, in accordance with generally accepted accounting principles, complete
and accurate records regarding all Collateral and Proceeds, and to permit
Secured Party to inspect the same and make copies thereof at any reasonable
time; (xi) if requested by Secured Party, to receive and use reasonable
diligence to collect Rights to Payment and Proceeds, in trust and as the
property of Secured Party, and to immediately endorse as appropriate and deliver
such Rights to Payment and Proceeds to Secured Party daily in the exact form in
which they are received together with a collection report in form satisfactory
to Secured Party; (xii) not to commingle Rights to Payment, Proceeds or
collections thereunder with other property; (xiii) to give only normal
allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or
-4-
<PAGE>
Proceeds; (xiv) on demand, to deliver to Secured Party returned property
resulting from, or payment equal to, such allowances or credits on any
Collateral or Proceeds or to execute such documents and do such other things as
Secured Party may reasonably request for the purpose of perfecting, preserving
and enforcing its security interest in such returned property; (xv) from time to
time, when requested by Secured Party, to prepare and deliver a schedule of all
Collateral and Proceeds subject to this Agreement and to assign in writing and
deliver to Secured Party all accounts, contracts, leases and other chattel
paper, instruments, documents and other evidences thereof; (xvi) in the event
that Secured Party elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Secured Party in connection
therewith, including expenses of accounting, correspondence, collection efforts,
reporting to account or contract debtors, filing, recording, record keeping and
expenses incidental thereto; and (xvii) to provide any service and do any other
acts which may be necessary to maintain, preserve and protect all Collateral
and, as appropriate and applicable, to keep all Collateral in good and saleable
condition and repair, to deal with the Collateral in accordance with the
standards and practices adhered to generally by users, manufacturers and owners
of like property, and to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release security; (e) to resort to security in any
order; (f) to prepare, execute, file, record or deliver notes, assignments,
schedules, designation statements, financing statements, continuation
statements, termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Secured Party's
interest in the Collateral and Proceeds; (g) to receive, open and read mail
addressed to Debtor; (h) to take cash, instruments for the payment of money and
other property to which Secured Party is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Secured
Party, at Secured Party's sole option, toward repayment of the Secured
Obligations or replacement of the Collateral; (l) to exercise all rights, powers
and remedies which Debtor would have, but for this Agreement, with respect to
all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises
in inspecting the Collateral; (n) to make withdrawals from and to close deposit
accounts or other accounts with any financial institution, wherever located,
into which Proceeds may have been deposited, and to apply funds so withdrawn to
payment of the Secured Obligations; (o) to preserve or release the interest
evidenced by chattel paper to which Secured Party is entitled hereunder and
-5-
<PAGE>
to endorse and deliver evidences of title incidental thereto; and (p) to do all
acts and things and execute all documents in the name of Debtor or otherwise,
deemed by Secured Party as necessary, proper and convenient in connection with
the preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
----------
Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare immediately due and payable all or any Indebtedness secured
hereby. Secured Party shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Secured Party. All rights, powers, privileges and remedies of Secured Party
shall be cumulative. No delay, failure or discontinuance of Secured Party in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Secured Party of any default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is agreed that
public or private sales, for cash or on credit, to a wholesaler or retailer or
investor, or user of property of the types subject to this Agreement, or public
auction, are all commercially reasonable since differences in the sales prices
generally realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales.
-6-
<PAGE>
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party toward
the payment of the Secured Obligations in such order of application as Secured
Party may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party 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 Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and/or Borrower's obligations under the Credit Agreement and
the other Loan Documents and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
----------
rate that Wells Fargo 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.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
-7-
<PAGE>
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations and/or of Borrower's
obligations under the Credit Agreement and the other Loan Documents, the release
or substitution of Collateral or Proceeds or any other security for the Secured
Obligations or for Borrower's obligations under the Credit Agreement and the
other Loan Documents, and the release of any guarantors; provided, however, that
-------- -------
in each instance, Secured Party believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Secured Obligations shall have been indefeasibly paid in cash and performed
in full, Debtor shall not have any right of subrogation or contribution vis a
vis any other person or entity obligated to Secured Party and/or the other
Lender Parties in connection with the Credit Agreement or any other Loan
Document, and Debtor hereby waives any benefit of or right to participate in any
of the Collateral or Proceeds or any other security now or hereafter held by
Secured Party.
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
-8-
<PAGE>
Debtor warrants that its chief executive office is located at the
following address:
20630 Plummer Street, Chatsworth, California 91311
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
----------
locations of leased premises on which Debtor's distribution centers, if any, are
located are also set forth in Schedule 2.
----------
[Remainder of page intentionally left blank]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
POOL BRITE, INC.
By: /s/ Cynthia G. Watts
--------------------------
Title: Secretary
--------------------------
WELLS FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
By: /s/ Brian Carrico
--------------------------
Title: Vice President
--------------------------
-10-
<PAGE>
SCHEDULE 1
TO CONTINUING SECURITY AGREEMENT
Trademark Collateral
--------------------
-11-
<PAGE>
SCHEDULE 2
TO CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
------------------------------------------------
None.
-12-
<PAGE>
EXHIBIT A
TO CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
------------------------
See attached.
-13-
<PAGE>
CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of June 11, 1997, is
--
executed by LESLIE'S POOL BRITE, INC. ("Guarantor"), in favor of the Lenders
from time to time parties to the Credit Agreement referred to below (each
individually, a "Lender" and, collectively, the "Lenders"), and WELLS FARGO
BANK, NATIONAL ASSOCIATION, as swingline lender thereunder (the "Swingline
Lender") and WELLS FARGO BANK, NATIONAL ASSOCIATION, as agent for the Lenders
and Swingline Lender (in such capacity, "Agent"; together with the Lenders and
Swingline Lender being the "Lender Parties").
RECITALS
--------
A. Pursuant to that certain Credit Agreement dated as of June 11, 1997,
--
among Leslie's Poolmart, Inc., a Delaware corporation ("Borrower"), the Lenders,
Swingline Lender and Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"; terms defined therein and not otherwise defined
herein being used herein as therein defined), the Lender Parties have agreed to
make available to Borrower certain credit facilities, upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The availability of the credit facilities under the Credit Agreement is
subject, among other conditions, to the execution and delivery by Guarantor of
this Guaranty.
C. Guarantor is a wholly owned Subsidiary of Borrower. Guarantor shall
receive substantial direct and indirect benefits from the making of loans and
other financial accommodations to Borrower under the Credit Agreement, in the
form, among others, of Borrower's financing of the working capital needs of
Guarantor with proceeds of the credit facilities made available to Borrower
under the Credit Agreement .
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor hereby agrees as follows:
1. GUARANTY; CERTAIN DEFINITIONS. Guarantor hereby unconditionally
guaranties and promises to pay to Agent, each Lender and the Swingline Lender,
or their order, punctually when due, whether at stated maturity, by acceleration
or otherwise, and otherwise on demand, in lawful money of the United States of
America and in immediately
<PAGE>
available funds, any Indebtedness of Borrower to any such Lender Party, whether
or not evidenced by a promissory note or notes, as defined in or arising under
the Credit Agreement or any document, instrument or agreement delivered by
Borrower to any Lender Party pursuant to the Credit Agreement or otherwise in
connection with any of the foregoing (the Credit Agreement and such documents,
instruments and agreements, as amended, modified or supplemented from time to
time, collectively being the "Loan Documents"; and all such Indebtedness of
Borrower being the "Guarantied Obligations"). The term "Indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Borrower may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
2. MAXIMUM LIABILITY; CONTINUING GUARANTY; OBLIGATION UNDER OTHER
GUARANTIES. (a) The liability of Guarantor under this Guaranty shall not
exceed at any one time the Maximum Amount, as hereinafter defined, in effect at
such time for principal, plus all interest thereon and costs and expenses
pertaining to the enforcement of this Guaranty or the collection of the
Indebtedness of Borrower to any Lender Party. Notwithstanding the foregoing,
any Lender Party may permit the Guarantied Obligations to exceed Guarantor's
maximum liability hereunder. The "Maximum Amount" on any date of determination
shall mean the greater of (i) the net benefits realized by Guarantor as of such
date from the proceeds of the Credits under the Credit Agreement made available
from time to time by Borrower or any Subsidiary of Borrower to Guarantor and
(ii) the greater of (A) 95% of the Adjusted Net Assets of Guarantor on the date
of delivery hereof and (B) 95% of the Adjusted Net Assets of Guarantor on such
date of determination. "Adjusted Net Assets" of Guarantor on any date of
determination means the lesser of (x) the amount by which the fair value of the
property of Guarantor exceeds the total amount of liabilities, including,
without limitation, disputed, contingent and unliquidated liabilities, but
excluding liabilities under this Guaranty, of Guarantor on such date and (y) the
amount by which the present fair salable value of the property of Guarantor on
such date exceeds the amount that will be required to pay the probable liability
of Guarantor on its debts, excluding debt in respect of this Guaranty, as they
become absolute and matured.
(b) This is a continuing guaranty and all rights, powers and remedies
hereunder shall apply to all past, present and future Indebtedness under the
Loan Documents, including that arising under successive transactions which shall
either continue the Indebtedness under the Loan Documents, increase or decrease
it, or from time to time create new Indebtedness in addition to or to refinance
Indebtedness under the Loan Documents in whole or in part, and after all or any
prior such Indebtedness has been satisfied, and notwithstanding the incapacity,
dissolution, liquidation or bankruptcy of Borrower or Guarantor or any other
event or proceeding affecting Borrower or Guarantor. The obligations of
Guarantor hereunder shall be
2
<PAGE>
in addition to any obligations of Guarantor under any other guaranties of any
liabilities or obligations of Borrower or any other persons heretofore or
hereafter given to any Lender Party; and this Guaranty shall not affect or
invalidate any such other guaranties.
3. GUARANTY OF PAYMENT IN ACCORDANCE WITH LOAN DOCUMENTS; OBLIGATIONS
INDEPENDENT; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT
OF LIABILITY. Guarantor guaranties that the Guarantied Obligations will be paid
when due strictly in accordance with the terms of the Loan Documents. The
obligations hereunder independent of the obligations of Borrower, and a separate
action or actions may be brought and prosecuted against Guarantor whether action
is brought against Borrower or any other person, or whether Borrower or any
other person is joined in any such action or actions. Guarantor acknowledges
that there are no conditions precedent to the effectiveness of this Guaranty,
and that this Guaranty is in full force and effect and is binding on Guarantor
as of the date written above, regardless of whether the Lender Parties obtain
collateral or any guaranties from others or take any other action contemplated
by Guarantor. Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof, and
Guarantor agrees that any payment of any Indebtedness or other act which shall
toll any statute of limitations applicable thereto shall similarly operate to
toll such statute of limitations applicable to Guarantor's liability hereunder.
The liability of Guarantor hereunder shall be reinstated and revived and the
rights of the Lender Parties shall continue if and to the extent for any reason
any amount at any time paid on account of any Indebtedness guarantied hereby is
rescinded or must be otherwise restored by any Lender Party, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been paid. The determination as to whether any amount so
paid must be rescinded or restored shall be made by any Lender Party in its sole
discretion; provided however, that if any Lender Party chooses to contest any
such matter at the request of Guarantor, Guarantor agrees to indemnify and hold
such Lender Party harmless from and against all costs and expenses, including
reasonable attorneys' fees, expended or incurred by such Lender Party in
connection therewith, including without limitation, in any litigation with
respect thereto.
4. AUTHORIZATIONS. Guarantor authorizes the Lender Parties, without
notice to or demand on Guarantor, and without affecting Guarantor's liability
hereunder, from time to time to: (a) alter, compromise, renew, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the Guarantied Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Guarantied Obligations or any portion thereof,
and exchange, enforce, waive and release any such security; (c) apply such
security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as the Lender Parties in their discretion
may determine; (d) release or substitute any one or more of the endorsers or any
other guarantors of the Guarantied Obligations, or any part thereof, or any
party thereto; and
3
<PAGE>
(e) apply payments received from Borrower to any Indebtedness of Borrower to any
Lender Party, in such order as such Lender Party shall determine in its sole
discretion, whether or not any such Indebtedness is covered by this Guaranty,
and Guarantor hereby waives any provision of law regarding application of
payments which specifies otherwise. Any Lender Party may without notice assign
this Guaranty in whole or in part. Upon any Lender Party's request, Guarantor
agrees to provide to such Lender Party copies of Guarantor's financial
statements.
5. REPRESENTATIONS AND WARRANTIES; COVENANTS OF GUARANTOR. Guarantor
represents and warrants to the Lender Parties that: (a) this Guaranty is
executed at Borrower's request; (b) the execution, delivery and performance by
Guarantor of this Guaranty and each other document, instrument or agreement
executed and delivered by Guarantor in connection with the Credit Agreement has
been duly authorized are within Guarantor's corporate power and authority, have
been duly authorized by all necessary corporate action and do not and will not
violate any law, regulation, order of contractual provision applicable to
Guarantor or its property; (b) this Guaranty and each other document, instrument
and agreement executed and delivered by Guarantor in connection with the Credit
Agreement constitute the legal, valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms; (c)
Guarantor shall not, without Agent's prior written consent, sell, lease, assign,
encumber, hypothecate, transfer or otherwise dispose of all or a substantial or
material part of Guarantor's assets other than in the ordinary course of
business; (d) neither Agent nor any other Lender Party has made any
representation to Guarantor as to the creditworthiness of Borrower; (e)
Guarantor is, and after giving effect hereto (treating the Maximum Amount,
calculated under each of the alternative formulations therefor in Section 2(a)
hereof, as a noncontingent liability of Guarantor) shall be, Solvent; (f)
Guarantor acknowledges that it will receive substantial benefit from the Credits
to be provided under the Credit Agreement, in the form, among others, of
Borrower's financing of the working capital needs of Guarantor with proceeds of
such credit facilities, and Guarantor accordingly acknowledges that is has
received fair and adequate consideration for its execution, delivery and
performance of this Guaranty; and (g) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Guarantor further
agrees that neither Agent nor any other Lender Party shall have any obligation
to disclose to Guarantor any information or material about Borrower which is
acquired by any Lender Party in any manner.
6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require any
Lender Party to: (i) proceed against Borrower or any other person; (ii) proceed
against or exhaust any security held from Borrower or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or otherwise
comply with the provisions of Section 9504 of the California Uniform Commercial
Code; (iv) pursue any other remedy in Agent's or any other Lender
4
<PAGE>
Party's power; or (v) make any presentments or demands for performance, or give
any notices of nonperformance, protests, notices of protest or notices of
dishonor in connection with any obligations or evidences of indebtedness held by
any Lender Party as security or which constitute in whole or in part the
Indebtedness guarantied hereunder, or in connection with the creation of new or
additional Indebtedness.
(b) Guarantor waives any defense based upon or arising by reason of: (i)
any disability or other defense of Borrower or any other person; (ii) the
cessation or limitation from any cause whatsoever, other than indefeasible
payment in full, of the Indebtedness of Borrower or any other person; (iii) any
lack of authority of any officer, director, partner, agent or any other person
acting or purporting to act on behalf of Borrower if a corporation, partnership
or other type of entity, or any defect in the formation of any such Borrower;
(iv) the application by Borrower of the proceeds of any Indebtedness for
purposes other than the purposes represented by Borrower to, or intended or
understood by any Lender Party or Guarantor; (v) any act or omission by any
Lender Party which directly or indirectly results in or aids the discharge of
Borrower or any Indebtedness by operation of law or otherwise; or (vi) any
modification of any Indebtedness, in any form whatsoever, including without
limitation any modification made after revocation hereof to any Indebtedness
incurred prior to such revocation, and including without limitation the renewal,
extension, acceleration or other change in time for payment of, or other change
in the terms of, the Guarantied Obligations or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Indebtedness of
Borrower to the Lender Parties under the Loan Documents shall have been
indefeasibly paid in full, Guarantor shall have no right of subrogation.
Guarantor waives all rights and defenses or may have arising out of (A) any
election of remedies by any Lender Party, even though that election of remedies,
such as a non-judicial foreclosure with respect to any security for any portion
of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's
rights to proceed against Borrower for reimbursement, or (B) any loss of rights
Guarantor may suffer by reason of any rights, powers or remedies of Borrower in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrower's Indebtedness, whether by operation of Sections 726 or
580d of the Code of Civil Procedure as from time to time amended, or otherwise.
Until all Indebtedness of Borrower to the Lender Parties under the Loan
Documents shall have been indefeasibly paid in full, Guarantor further waives
any right to enforce any remedy which any Lender Party now has or may hereafter
have against Borrower or any other person, and waives any benefit of, or any
right to participate in, any security now or hereafter held by any Lender Party.
7. GUARANTOR'S UNDERSTANDINGS WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences, and that under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any of said waivers is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted by
law.
5
<PAGE>
8. LENDER PARTIES' RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN
POSSESSION OF AGENT AND LENDERS. In addition to all liens upon, and rights of
setoff against the monies, securities or other property of or given to any
Lender Party by law, each Lender Party shall have a lien upon and a right of
setoff against all monies, securities and other property of Guarantor now or
hereafter in the possession of Guarantor on deposit with such Lender Party,
whether held in a general or special account or deposit or for safekeeping or
otherwise, and every such lien and right of setoff may be exercised without
demand upon or notice to Guarantor. No lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of any Lender Party, or by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing, and every right of setoff and lien shall continue in full
force and effect until such right of setoff or lien is specifically waived or
released by an instrument in writing executed by such Lender Party.
9. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Without limiting
provisions in the Loan Documents restricting Borrower's ability to incur
indebtedness, any Indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the Indebtedness of Borrower to the Lender Parties under
the Loan Documents. Such Indebtedness of Borrower to Guarantor is assigned to
the Lender Parties as security for this Guaranty and the Guarantied Obligations
and, if Agent requests, shall be collected and received by Guarantor as trustee
for the Lender Parties and paid over to Agent on account of the Indebtedness of
Borrower to the Lender Parties but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty. Any
notes or other instruments now or hereafter evidencing such Indebtedness of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and, if Agent so requests, shall be delivered to Agent. Guarantor
will, and Agent is hereby authorized, in the name of Guarantor from time to time
to execute and file financing statements and continuation statements and execute
such other documents and take such other actions as Agent deems necessary or
appropriate to perfect, preserve and enforce the rights of any Lender Party
hereunder.
10. DISCLOSURE OF INFORMATION. Guarantor acknowledges that the Lender
Parties have the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, any Indebtedness of
Borrower to any Lender Party under the Loan Documents and any obligations with
respect thereto, including this Guaranty. In connection therewith, the Lender
Parties may disclose all documents and information which any Lender Party now
has or hereafter acquires relating to Guarantor and this Guaranty, whether
furnished by Borrower, Guarantor or otherwise. Guarantor further agrees that
the Lender Parties may disclose such documents and information to Borrower.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Agent and
each other Lender Party immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside
6
<PAGE>
counsel fees and all allocated costs of such Lender Party's in-house counsel),
incurred by such Lender Party in connection with the enforcement of this
Guaranty and any other document, instrument or agreement executed and delivered
by Guarantor in connection with the Credit Agreement, including any of the
foregoing incurred in connection with any workout or bankruptcy proceeding
relating to Guarantor, and/or the collection of any of the Indebtedness of
Borrower to any Lender Party. All of the foregoing shall be paid by Guarantor
with interest at a rate per annum equal to the greater of ten percent (10%) or
Agent's Prime Rate in effect from time to time, as defined in the Credit
Agreement.
12. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Guaranty shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
13. SUBMISSION TO JURISDICTION. GUARANTOR HEREBY (A) SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL
COURTS OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY
OTHER DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED AND DELIVERED BY GUARANTOR IN
CONNECTION WITH THE CREDIT AGREEMENT, (B) AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, (C)
IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW) ANY
OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION
ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, AND (IV) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
14. WAIVER OF JURY TRIAL. GUARANTOR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF
OR RELATING TO THIS GUARANTY OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED AND DELIVERED BY GUARANTOR IN CONNECTION WITH THE CREDIT AGREEMENT OR
ANY OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
7
<PAGE>
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND ANY SUCH DOCUMENT, INSTRUMENT
OR AGREEMENT. A COPY OF THIS SECTION 14 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY
COURT.
[Signature page follows.]
8
<PAGE>
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of the date first written above.
LESLIE'S POOL BRITE, INC.
BY: /s/ Cynthia G. Watts
---------------------------
Name: Cynthia G. Watts
Title: Secretary
9
<PAGE>
LINE OF CREDIT NOTE
-------------------
$35,000,000.00 Los Angeles, California
-------------
June 11, 1997
1. PROMISE TO REPAY. FOR VALUE RECEIVED, LESLIE'S POOLMART, INC., a
----------------
Delaware corporation ("Maker"), promises to pay to WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank"), or order, the principal sum of Thirty Five Million and
00/100 Dollars ($35,000,000.00) or such lesser amount as shall equal the
outstanding amount of the obligations owing to Bank under the Line of Credit as
described in Section 2.1(a) of that certain Credit Agreement, dated as of June
--------------
11, 1997 (as it may be amended or otherwise modified from time to time, the
"Credit Agreement"), entered into between Maker, on the one hand, and, on the
other hand, Bank, the other financial institutions from time to time parties
thereto as lenders or swingline lender, and Wells Fargo Bank, National
Association, as agent ("Agent").
2. DEFINED TERMS. Any and all initially capitalized terms used
-------------
herein shall have the meaning ascribed thereto in the Credit Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated or where the context hereof otherwise requires (such
as the first sentence of Section 1 hereof), the inclusive meaning represented by
---------
the phrase "and/or". This Line of Credit Note (as it may be amended or
otherwise modified from time to time, this "Note") is one of the promissory
notes defined in the Credit Agreement as the "Line of Credit Notes" and is
subject to, and entitled to the benefits of, the terms and provisions of the
Credit Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST. Maker hereby promises to
----------------------------------
make payments of principal and interest with respect to the loans evidenced
hereby at the rates and times, and in the amounts, and in all other respects in
the manner, as provided in the Credit Agreement.
4. PREPAYMENTS. Maker may prepay the principal balance due under
-----------
this Note, in whole or in part, only in accordance with the provisions of the
Credit Agreement.
5. APPLICATION OF PAYMENTS. All payments (including prepayments)
-----------------------
made hereunder shall be applied as set forth in the Credit Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and interest due
--------------------------
hereunder are payable to Agent at Agent's Office (or such other office as may be
designated from time to time by Agent to Maker in writing), for the account of
Bank, in lawful money of the United States and in same day or immediately
available funds not later than 12:00 noon on the date due.
<PAGE>
7. RECORDS. Bank shall record the date and amount of each loan made,
-------
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
--------
however, that Bank's failure to so to record shall not limit or otherwise affect
- -------
the obligations of Maker hereunder and under the Credit Agreement to repay the
principal and interest under the Line of Credit.
8. ACCELERATION AND WAIVERS. The Credit Agreement provides, among
------------------------
other things, for acceleration (which in certain cases shall be automatic) of
the maturity hereof upon the occurrence of certain stated events, in each case,
without presentment, protest, demand, notice of dishonor, notice of nonpayment,
notice of maturity, notice of intent to accelerate, notice of acceleration,
presentment for the purpose of accelerating maturity, and diligence in
collection, all of which hereby are expressly waived.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE LIENS
--------
GRANTED TO BANK (OR AGENT ON BEHALF OF BANK) PURSUANT TO THE TERMS OF THE
SECURITY AGREEMENT AND ANY AND ALL OTHER DOCUMENTS, AGREEMENTS, OR INSTRUMENTS
EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
10. INCORPORATION. ALL OF THE COVENANTS, CONDITIONS, WARRANTIES,
-------------
REPRESENTATIONS, AND AGREEMENTS CONTAINED IN THE CREDIT AGREEMENT OR IN ANY
OTHER AGREEMENT BETWEEN MAKER AND BANK WHICH IS EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT OR THIS NOTE, OR IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER OR UNDER THE CREDIT AGREEMENT, ARE HEREBY INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF.
11. ATTORNEYS' FEES. In the event it should become necessary to
---------------
employ counsel to collect or enforce this Note, Maker agrees to pay the
reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Credit Agreement.
12. AMENDMENTS. This Note may not be changed, modified, amended, or
----------
terminated except by a writing duly executed by Maker and the then holder hereof
in accordance with the terms and conditions of the Credit Agreement.
13. HEADINGS. Section headings used in this Note are solely for
--------
convenience of reference, shall not constitute a part of this Note for any other
purpose, and shall not affect the construction of this Note.
-2-
<PAGE>
14. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN
-------------
THE STATE OF CALIFORNIA AND THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
LESLIE'S POOLMART, INC.
a Delaware corporation
By: /s/ Robert D. Olsen
---------------------------
Title: Chief Financial Officer
------------------------
Executive Vice President
------------------------
and Secretary
------------------------
-3-
<PAGE>
EXHIBIT 10.5
LESLIE'S POOLMART, INC.
1997 NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE.
-------
The Plan is intended to provide an opportunity to key employees and
directors of the Corporation and its Subsidiaries to acquire Common Stock of the
Corporation pursuant to Nonstatutory Stock Options. No Incentive Stock Option
shall be granted under the Plan.
2. DEFINITIONS. Unless otherwise defined herein or the context
-----------
otherwise requires, the capitalized terms used herein shall have the following
meanings:
(a) "Administrator" shall mean the Board or the Committee,
-------------
whichever shall be administering the Plan from time to time in the discretion of
the Board, as described in Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation.
-----
(c) "Class I Stockholder" shall have the meaning given to that
-------------------
term in the Stockholders Agreement.
(d) "Class II Stockholder" shall have the meaning given to that
--------------------
term in the Stockholders Agreement.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(f) "Commission" shall mean the Securities and Exchange
----------
Commission.
(g) "Committee" shall mean the committee appointed by the Board
---------
in accordance with Section 4 of the Plan.
(h) "Common Stock" shall mean the $.001 par value Common Stock of
------------
the Corporation and any class of shares into which such Common Stock hereafter
may be converted or reclassified.
(i) "Corporation" shall mean LESLIE'S POOLMART, INC., a Delaware
-----------
corporation.
<PAGE>
(j) "Employee" shall mean an individual who is employed (within
--------
the meaning of Section 3401 of the Code and the regulations thereunder) by the
Corporation or a Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
(l) "Exercise Price" shall mean the price per Share of Common
--------------
Stock at which an Option may be exercised, which price shall be $5.00 per Share
of Common Stock, adjusted in accordance with Section 9 of the Plan (if
applicable) .
(m) "Fair Market Value" shall mean the value of one (1) Share of
-----------------
Common Stock, determined as follows:
(i) If the Shares are traded on an exchange or over-the-
counter on the Nasdaq National Market (the "NNM") of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), (A) if listed on
an exchange, the closing price as reported for composite transactions on the
business day immediately prior to the date of valuation or, if no sale occurred
on that date, then the mean between the closing bid and asked prices on such
exchange on such date, and (B) if traded on the NNM, the last sale price on the
business day immediately prior to the date of valuation or, if no sale occurred
on such date, then the mean between the highest bid and lowest asked prices as
of the close of business on the business day immediately prior to the date of
valuation, as reported in the NASDAQ system;
(ii) If the Shares are not traded on an exchange or the NNM
but are otherwise traded over-the-counter, the mean between the highest bid and
lowest asked prices quoted in the NASDAQ system as of the close of business on
the business day immediately prior to the date of valuation or, if on such day
such security is not quoted in the NASDAQ system, the mean between the
representative bid and asked prices on such date in the domestic over-the-
counter market as reported by the National Quotation Bureau, Inc., or any
similar successor organization; and
(iii) If neither clause (i) nor (ii) above applies, the fair
market value as determined by the Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
(n) "Incentive Stock Option" shall mean an option described in
----------------------
Section 422 of the Code.
-2-
<PAGE>
(o) "Nonstatutory Stock Option" shall mean an option that is not
-------------------------
an Incentive Stock Option.
(p) "Option" shall mean any Nonstatutory Stock Option granted
------
pursuant to the Plan. An Option shall be granted on the date the Administrator
takes the necessary action to approve the grant. However, if the minutes or
appropriate resolutions of the Administrator provide that an Option is to be
granted as of a date in the future, the date of grant shall be that future date.
Each Option is fully vested when granted.
(q) "Option Agreement" shall mean a written stock option
----------------
agreement evidencing a particular Option.
(r) "Optionee" shall mean a Participant who has received an
--------
Option.
(s) "Participant" shall have the meaning assigned to it in
-----------
Section 5(a) hereof.
(t) "Plan" shall mean this LESLIE'S POOLMART, INC. 1997
----
Nonstatutory Stock Option Plan, as it may be amended from time to time.
(u) "Purchase Price" shall mean the Exercise Price multiplied by
--------------
the number of Shares with respect to which an Option is exercised.
(v) "Revolving Line of Credit" shall mean the Corporation's
------------------------
revolving line of credit with Wells Fargo Bank (or Wells Fargo Bank and BT
Commercial Corporation), or any revolving line of credit substituted therefor.
(w) "Section 16 Participant" shall mean a Participant who is (or,
----------------------
in the opinion of the Administrator, may be) generally subject to the Section 16
Requirements with respect to purchases and sales of Common Stock or other equity
securities of the Corporation.
(x) "Section 16 Requirements" shall mean the those obligations
-----------------------
and requirements imposed by Sections 16(a) and 16(b) of the Exchange Act and the
rules of the Commission promulgated thereunder.
(y) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
(z) "Share" shall mean one share of Common Stock, adjusted in
-----
accordance with Section 9 of the Plan (if applicable).
-3-
<PAGE>
(aa) "Stockholders Agreement" shall mean that certain
----------------------
Stockholders Agreement and Subscription Agreement dated [__________], 1997 among
the Corporation, Green Equity Investors II, L.P., Richard H. Hillman, Michael J.
Fourticq, Greg Fourticq, Brian P. McDermott and Manette J. McDermott, the
trustees of the McDermott Family Trust, [Occidental Petroleum Corporation] and
the other persons contemplated thereby.
(ab) "Subsidiary" shall mean any subsidiary corporation as
----------
defined in Section 424(f) of the Code.
3. EFFECTIVE DATE.
--------------
The Plan was adopted by the Board effective [_________], 1997.
4. ADMINISTRATION.
--------------
The Plan shall be administered, in the discretion of the Board from
time to time, by the Board or by a Committee which shall be appointed by the
Board. The Board may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, shall be filled by
the Board. The Board shall appoint one of the members of the Committee as
Chairman. The Administrator shall hold meetings at such times and places as it
may determine. Acts of a majority of the Administrator at which a quorum is
present, or acts reduced to or approved in writing by the unanimous consent of
the members of the Administrator, shall be the valid acts of the Administrator.
5. PARTICIPATION.
-------------
The Optionees shall be such persons (collectively, "Participants";
individually, a "Participant") as the Administrator may select from among the
following classes of persons:
(i) Employees (who may be officers, whether or not they are
directors); and
(ii) Directors of the Corporation or of a Subsidiary.
6. STOCK.
-----
The stock subject to Options granted under the Plan shall be Shares of
the Corporation's authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued upon exercise of Options under
the Plan
-4-
<PAGE>
shall not exceed 83,599. The number of Shares subject to Options outstanding at
any time shall not exceed the number of Shares remaining available for issuance
under the Plan. The limitations established by this Section 6 shall be subject
to adjustment in the manner provided in Section 9 hereof upon the occurrence of
an event specified in that Section.
7. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreements.
-----------------------
Each Option shall be evidenced by an Option Agreement
substantially in the form attached hereto as Annex A. Such Option Agreements
shall comply with and be subject to the terms and conditions set forth in this
Section 7.
(b) Nature of Option.
----------------
Each Option shall state that it is a Nonstatutory Stock Option.
(c) Optionee's Undertaking.
----------------------
Each Optionee shall agree to be bound by the terms of, and shall
become subject to, the Stockholders Agreement.
(d) Number of Shares.
----------------
Each Option shall state the number of Shares to which it pertains
and shall provide for the adjustment thereof in accordance with the provisions
of Section 9 hereof.
(e) Exercise Price.
--------------
Each Option shall state the Exercise Price.
(f) Medium and Time of Payment; Notice.
----------------------------------
The Purchase Price may be paid in full by any of the following
means or any combination thereof, in the discretion of the Optionee:
(i) in cash or by personal check in United States dollars in the
amount being paid;
(ii) if the Corporation has completed an underwritten public offering
of the Shares registered under the Securities Act, by the surrender of
Shares, in good form for transfer to the Corporation, registered in
-5-
<PAGE>
the name of the Optionee or the successor of the Optionee and having a Fair
Market Value on the date of exercise equal to the amount being paid; and
(iii) if permitted by the terms of the Corporation's agreements and
securities, by payment of at least fifty percent (50%) of the Purchase
Price of the Shares being purchased in cash or by personal check and/or
Shares as in subsection (ii) above and payment of the balance of the amount
being paid by delivery of a full-recourse promissory note executed by the
Optionee or the successor of the Optionee, which promissory note shall (a)
be payable semi-annually as to interest and shall bear interest at the
greater of (x) the prime rate in effect on the date of exercise (as
published in the Pacific Coast Edition of the Wall Street Journal) plus one
-------------------
percent (1%) or (y) the interest rate on the Corporation's Revolving Line
of Credit plus one percent (1%), (b) be payable as to principal in eight
equal semi-annual installments commencing six months after exercise, and
(c) be secured by a security interest in all of the Shares being purchased
upon such Option exercise (which security interest shall be released
ratably concurrently with amortization of principal) pursuant to which the
Corporation may retain possession of certificates evidencing the Shares
subject to such security interest.
Each Optionee shall acknowledge that the Corporation may be required
to withhold Federal and state income tax as a result of the exercise of an
Option. Therefore, as a condition to the exercise of an Option, if requested by
the Corporation, the Optionee shall make arrangements satisfactory to the
Corporation to enable it to satisfy such withholding requirements. Payment of
such withholding amount shall be made, at the discretion of the Optionee, (i) by
cash or personal check, (ii) if the Corporation has completed an underwritten
public offering of the Shares registered under the Securities Act, by delivery
of Shares registered in the name of the Optionee or its successor, or by the
Corporation not issuing such number of Shares subject to the Option, having a
Fair Market Value at the time of exercise equal to the amount to be withheld or
(iii) any combination of (i) and (ii) above.
The Optionee shall exercise an Option by completing and delivering to
the Corporation, concurrently with the payment of the Purchase Price in the
manner described above, an exercise notice in such form as the Administrator
shall from time to time determine.
-6-
<PAGE>
(g) Term of Options.
---------------
Each Option shall state that it is exercisable in whole at any
time or in part from time to time. No Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(h) Rights as a Stockholder.
-----------------------
No Optionee shall have rights as a stockholder with respect to
any Shares covered by an Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends (ordinary
or extra ordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued. Each Option Agreement shall state whether such Optionee
is or will become a Class I Stockholder or a Class II Stockholder upon the
exercise thereof. The Stockholders Agreement specifies certain respective rights
of Class I Stockholders and Class II Stockholders.
(i) Modification, Extension and Renewal of Options.
----------------------------------------------
Within the limitations of the Plan, the Administrator may modify
an Option, extend or renew outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously exercised) for the granting of
new Options in substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.
(j) Stockholders Agreement.
----------------------
Under certain circumstances, Options may be subject to a purchase
option under the Stockholders Agreement.
8. TERM OF PLAN.
------------
Options may be granted pursuant to the Plan until the tenth
anniversary of the effective date referred to in Section 3.
9. EFFECT OF CERTAIN EVENTS.
------------------------
(a) Adjustments.
-----------
If the outstanding shares of Common Stock are increased,
decreased or exchanged for or converted into cash,
-7-
<PAGE>
property or a different number or kind of shares or securities, or if cash,
property or shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, Common Stock
dividend or other distribution, stock split, reverse stock split, spin-off or
the like, or if substantially all of the property and assets of the Corporation
are sold, then, the Administrator shall make appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Options theretofore granted
under this Plan and the exercise price of such Options, and (ii) the maximum
number and type of shares or other securities that may be issued pursuant to
Options thereafter granted under this Plan provided, however, that
notwithstanding the foregoing, such aggregate number of Shares shall be subject
to adjustment under this Section 9(a) only to the extent that such will not
affect the status of any Options intended to qualify as "performance based
compensation" under Section 162(m) of the Code.
(b) Merger, Sale of Assets, Liquidation.
-----------------------------------
If the Corporation shall merge with another corporation and the
Corporation is the surviving corporation in such merger and under the terms of
such merger the shares of Common Stock outstanding immediately prior to the
merger remain outstanding and unchanged, each outstanding Option shall continue
to apply to the Shares subject thereto and shall also pertain and apply to any
additional securities and other property, if any, to which a holder of the
number of Shares subject to the Option would have been entitled as a result of
the merger. If the Corporation sells or disposes of all or substantially all of
its assets or merges (other than a merger of the type described in the
immediately preceding sentence) or consolidates with or into another corporation
or entity, this Plan and each Option shall terminate upon the effectiveness of
such transaction if, but only if, the Optionee will be entitled to receive and
receives, in exchange for the Shares issued upon the exercise of such Option
prior to such effectiveness, along with all other holders of Common Stock, (i)
cash, (ii) fully marketable securities (subject only, in the case of an Optionee
that is an affiliate of the Corporation, any restriction imposed by generally
accepted accounting principles on the disposition of capital stock received in
such transaction in order that such transaction may be accounted for as a
pooling of interests), or (iii) any combination of cash and fully marketable
securities, in each case for the same per share consideration and in the same
ratio as all other holders of Common Stock.
-8-
<PAGE>
An Option exercised in contemplation of the consummation of the sale
of all substantially all of the assets of the Corporation or a merger (other
than a merger of the type described in the first sentence of the immediately
preceding paragraph) or consolidation of the Corporation with another
corporation, may be conditioned upon such sale, merger or consolidation becoming
effective.
(c) Extraordinary Dividends.
-----------------------
If the Corporation declares a dividend or makes any other
distribution on its Common Stock, other than a regular periodic cash dividend
payable out of retained earnings, whether such dividend or distribution is
payable in cash or kind, it shall reserve and set aside out of such dividend or
distribution a sufficient sum or amount to pay to each Optionee, upon the
exercise of his or her Option, and upon such exercise such Optionee shall be
entitled to receive in addition to the Shares and other securities to which such
Optionee would be entitled upon such exercise, the same per share amount that
such Optionee would have received had such Optionee exercised such Option in
full prior to the record date for the payment of such dividend or distribution
and been a record holder of all Shares so issuable on such record date and on
the date such dividend or distribution was paid (together with any additional
cash, securities or other property to which such holder would have been entitled
if he or she continued to hold such dividend or distribution from the payment
date until the actual exercise of such Option).
(d) Adjustment Determination.
------------------------
To the extent that the foregoing adjustments relate to securities
of the Corporation, such adjustments shall be as determined reasonably and in
good faith by the Administrator, whose determination shall be conclusive and
binding on all persons.
(e) Limitation on Rights.
--------------------
Except as expressly provided in this Section 9, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or stock
of another corporation, and any issue by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to
-9-
<PAGE>
an Option. The grant of an Option pursuant to the Plan shall not affect in any
way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or transfer
all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
---------------------------
(a) Legality of Issuance.
--------------------
No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the offer and sale of the Shares under the Securities Act, or to
perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange
on which the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or Federal law
has been satisfied.
(b) Restrictions on Transfer; Representations of Optionee;
------------------------------------------------------
Legends.
- -------
Regardless of whether the offering and sale of Shares under the
Plan has been registered under the Securities Act or has been registered or
qualified under the securities laws of any state, the Corporation may impose
restrictions upon the sale, pledge or other transfer of such Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Corporation and its counsel, such restrictions are necessary or desirable
in order to achieve compliance with the provisions of the Securities Act, the
securities laws of any state or any other law. In the event that the sale of
Shares under the Plan is not regis tered under the Securities Act but an
exemption is available which requires an investment representation or other
represen tation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Stock certificates
evidencing Shares acquired under the Plan pursuant to an unregistered
transaction shall bear the following restrictive legend and
-10-
<PAGE>
such other restrictive legends as are required or deemed advisable under the
provisions of any applicable law:
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
REASONABLE 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 good faith and reasonable determination by the Corporation and its
counsel in connection with any of the matters set forth in this Section 10 shall
be conclusive and binding on all persons.
(c) Registration or Qualification of Securities.
-------------------------------------------
Except as provided in the Stockholders Agreement, the Corporation may,
but shall not be obligated to, register or qualify the sale of Shares under the
Securities Act or any other applicable law.
(d) Exchange of Certificates.
------------------------
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold under the Plan is no
longer required, the holder of such certificate shall be entitled to exchange
such certificate for a certificate representing the same number of Shares but
without such legend.
-11-
<PAGE>
11. AMENDMENT OF THE PLAN.
---------------------
The Board may from time to time, with respect to any Shares at the
time not subject to Options, suspend or discontinue the Plan or revise or amend
it in any respect whatsoever except that, without the approval of the
Corporation's stockholders, no such revision or amendment shall:
(a) Except as provided in Section 9(a), increase the number of
Shares which may be issued under the Plan;
(b) Change the designation in Section 5 with respect to the
classes of persons eligible to receive Options; or
(c) Amend this Section 11 to defeat its purpose.
12. EXCHANGE ACT.
------------
If the Common Stock is registered under the Exchange Act, the Plan
shall be amended by the Administrator from time to time to the extent necessary
or advisable, in the judgment of the Administrator after having consulted with
Corporation's counsel, to enable Section 16 Participants to obtain the benefits
of such exclusions or exemptions from the Sections 16 Requirements as may be
established by the Commission from time to time by rule, regulation,
administrative order or interpretation (whether such interpretation is made by
the Commission or staff) with respect to (i) the receipt of Options, (ii) the
exercise, modification, extension, cancellation, exchange, termination or
expiration of Options, (iii) the purchase of Common Stock upon the exercise of
Options, (iv) the sale of Common Stock received upon the exercise of Options,
and (v) the administration of this Plan. Anything in the Plan to the contrary
notwithstanding, such amendments may be made without approval of the
Corporation's stockholders unless and to the extent that, in the judgment of the
Administrator after consulting with the Corporation's counsel, stockholder
approval of such an amendment is a prerequisite to effectuating a desired
exclusion or exemption from the Section 16 Requirements.
13. APPLICATION OF FUNDS.
--------------------
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option will be used for general corporate
purposes.
-12-
<PAGE>
14. EXECUTION.
---------
To record the adoption of the Plan by the Board as of _________, 1997,
the Corporation has caused an authorized officer to affix the corporate name
hereto.
LESLIE'S POOLMART, INC.
By: ______________________________
Michael J. Fourticq,
Chairman
-13-
<PAGE>
LESLIE'S POOLMART, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the 11th day of June, 1997,
between LESLIE'S POOLMART, INC., a Delaware corporation (the "Company"), and
[_______________] (the "Optionee").
R E C I T A L S
- - - - - - - -
A. The Board of Directors of the Company (the "Board") has established
the Company's 1997 Nonstatutory Stock Option Plan (the "Plan") in order to
provide directors and key employees of the Company with an opportunity to
acquire shares of the Company's common stock, par value $.001 per share
("Stock").
B. The Board has determined that it would be in the best interests of
the Company and its stockholders to grant the option described in this Agreement
to the Optionee.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS AND INCORPORATION. Unless otherwise defined herein or
-----------------------------
the context otherwise requires, the capitalized terms used in this Agreement
shall have the meanings given to such terms in the Plan. The terms, conditions
and limitations set forth in the Plan are hereby incorporated in and made a part
of this Agreement as if fully set forth herein. The Optionee hereby acknowledges
that he or she has received a copy of the Plan.
2. GRANT OF OPTION. Pursuant to the Plan, the Company hereby grants
---------------
to the Optionee as of the date hereof the option to purchase all or any part of
an aggregate of [_______________________] ([________]) shares of Stock (the
"Option"), subject to adjustment in accordance with Section 9 of the Plan. The
Option is not intended to qualify as an Incentive Stock Option under the Code.
As of the date hereof this Option is fully vested, subject to certain purchase
rights under the Stockholders Agreement.
<PAGE>
3. OPTION PRICE. The price to be paid for Stock upon exercise of the
------------
Option or any part thereof shall be $5.00 per share (the "Exercise Price"),
subject to adjustment in accordance with Section 9 of the Plan.
4. RIGHT TO EXERCISE. Subject to the conditions set forth in this
-----------------
Agreement, this Option may be exercised at any time in whole or in part from
time to time.
5. SECURITIES LAW REQUIREMENTS. No part of the Option shall be
---------------------------
exercised if any applicable registration requirement, or exemption therefrom,
under the Securities Act of 1933 (the "Act") or any other applicable requirement
of state securities law has not been met.
6. STOCKHOLDERS AGREEMENT. The Optionee hereby represents to the
----------------------
Company that he or she has entered into the Stockholders Agreement and is or
will be subject to such agreement upon issuance of the shares subject to this
Option and will comply therewith as to this Option and the shares of Stock
subject to this Option.
7. TERM OF OPTION. The Option shall terminate in any event on the
--------------
10th day of June, 2007, at 11:59 P.M. California time. The Option shall also
terminate as provided in the Plan or elsewhere in this Agreement.
8. EFFECT OF EXERCISE. Upon exercise of all or any part of the
------------------
Option, the number of shares of Stock subject to the Option under this Agreement
shall be reduced by the number of shares with respect to which such exercise is
made.
9. EXERCISE OF OPTION. The Option may be exercised by delivering to
------------------
the Company (a) a written notice of exercise in substantially the form
prescribed from time to time by the Administrator and (b) full payment of the
Exercise Price for each share of Stock purchased under the Option. Such notice
shall specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the Option
is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Purchase Price shall be payable (i) in U.S. dollars in
cash (including by personal check), (ii) if the Company has completed an
underwritten public offering of the Stock registered under the Securities Act,
by delivery of shares of Stock registered in the name of the Optionee or
Optionee's successor having a Fair
-2-
<PAGE>
Market Value at the time of exercise equal to the amount of the Purchase Price,
(iii) any combination of the payment of cash and the delivery of Stock, or (iv)
so long as at least fifty percent (50%) of the Purchase Price of the Stock being
purchased is paid in cash or by personal check and/or shares of Stock as above,
and if permitted by the terms of the Corporation's agreements and securities,
the balance of the Purchase Price may be paid with a full recourse, secured
promissory note executed by the Optionee or Optionee's successor as provided in
the Plan.
10. WITHHOLDING TAXES. Unless the Corporation determines that no
-----------------
withholding taxes need be withheld, the Optionee shall deliver payment, upon
exercise of the Option, of any withholding taxes (in addition to the Purchase
Price) with respect to the difference between the Purchase Price and the Fair
Market Value of the Stock acquired upon exercise, which payment shall be made
(a) in cash (including by personal check), (b) if the Company has completed an
underwritten public offering of the Stock registered under the Securities Act,
by delivery of shares of Stock registered in the name of the Optionee, or
Optionee's successor, or by the Company not issuing such number of shares of the
Stock subject to the Option, having a Fair Market Value at the time of exercise
in the amount to be withheld or (c) any combination of (a) and (b) above.
11. ISSUANCE OF SHARES OF STOCK. Subject to the foregoing conditions,
---------------------------
the Company, as promptly as reasonably practicable after receipt of a notice of
exercise and without transfer or issue tax or other incidental expense to the
person exercising the Option, shall deliver to such person at the principal
office of the Company, or such other location as may be acceptable to the
Company and such person, one or more certificates for the shares of Stock with
respect to which the Option is exercised. Such shares shall be fully paid and
nonassessable and shall be issued in the name of such person. However, at the
request of the Optionee, such shares may be issued in the names of the Optionee
and his or her spouse (a) as joint tenants with right of survivorship, (b) as
community property, (c) as tenants in common without right of survivorship or
(d) as trustee of a revocable trust for the benefit of the Optionee and his or
her spouse or family members.
12. RIGHTS AS STOCKHOLDER. Neither the Optionee nor any other person
---------------------
entitled to exercise the Option shall have any rights as a stockholder of the
Company with respect
-3-
<PAGE>
to the Stock subject to the Option until a certificate for such shares has been
issued to him or her following the exercise of the Option. Upon issuance of
such certificate, the Optionee shall have all the rights, privileges and
obligations of a Class [I/II] Stockholder as provided in the Stockholders
Agreement.
13. OPTIONEE'S REPRESENTATIONS AND WARRANTIES.
-----------------------------------------
(a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Optionee represents and
---------------------------------
warrants that the Option and any and all shares of Stock he or she may acquire
pursuant to this Agreement are solely for his or her own account for investment
and not with a view to, or for resale in connection with, any "distribution"
(within the meaning of the Act) of any portion thereof and that he or she has no
present intention of selling, offering to sell or otherwise disposing of or
distributing the Option or the shares of Stock or any portion thereof in any
transaction other than a transaction exempt from registration under the Act.
The Optionee also represents that the entire legal and beneficial interest of
the Option and the shares of Stock that Optionee may acquire pursuant to this
Agreement are being acquired for, and will be held for the account of, the
Optionee only and neither in whole nor in part for any other person.
(b) RESIDENCE. The Optionee represents and warrants that his or her
---------
principal residence is located in the State of [_____________].
(c) INFORMATION CONCERNING COMPANY. The Optionee represents and
------------------------------
warrants that he or she is a director or key employee of the Company and is
aware of the Company's plans, operations and financial condition and that he or
she has heretofore received all such information as he or she deems necessary
and appropriate to enable him or her to evaluate the financial risk inherent in
making an investment in the Option and the shares of Stock and the Optionee
further represents and warrants that he or she has received satisfactory and
complete information concerning the business and financial condition of the
Company in response to all inquiries in respect thereof.
(d) ECONOMIC RISK. The Optionee represents and warrants that he or
-------------
she realizes that his or her acquisition of the shares of Stock will be a
speculative investment and that he or she is able, without impairing his
-4-
<PAGE>
or her financial condition, to hold the shares of Stock for an indefinite period
of time and to suffer a loss on his or her investment.
(e) RESTRICTED SECURITIES. The Optionee represents and warrants
---------------------
that he or she understands that:
(i) the sale of the shares of Stock which the Optionee is
purchasing has not been registered under the Act, and the shares of Stock must
be held indefinitely unless subsequently registered under the Act or an
exemption from such registration is available;
(ii) the Company will make a notation in its records of the
aforementioned restrictions on transfer; and
(iii) certificates evidencing any shares of Stock acquired
hereunder will reflect appropriate legends with respect to restrictions imposed
on the transfer thereof under applicable securities laws, under the Stockholders
Agreement and under this Agreement.
(f) DISPOSITION UNDER RULE 144. The Optionee represents and
--------------------------
warrants that he or she understands that the shares of Stock constitute
restricted securities within the meaning of Rule 144 promulgated under the Act;
that the exemption from registration under Rule 144 will not be available in any
event for at least one (1) year from the date of purchase of and payment for the
shares of Stock (and payment by a note is not deemed payment unless it is
otherwise secured), and even then will not be available unless (a) a public
trading market then exists for the shares of Stock, (b) adequate information
concerning the Company is then available to the public, and (c) other terms and
conditions of Rule 144 are complied with; and that any sale of the shares of
Stock may be made by him or her only in limited amounts in accordance with such
terms and conditions.
14. NO RIGHTS AS TO SERVICE. Nothing in this Agreement shall be
-----------------------
construed to give any person the right to remain in the employ or service of the
Company or any Subsidiary or to affect the absolute and unqualified right of the
Company and any Subsidiaries to terminate such person's employment or service
relationship at any time for any reason or no reason and with or without cause
or prior notice.
-5-
<PAGE>
15. NOTICES. Any notice to the Company contemplated by this
-------
Agreement shall be in writing and shall be addressed to it in care of its
President, 20630 Plummer Street, Chatsworth, California 91311, or such other
address as the Company may specify in a notice to the Optionee; and any notice
to the Optionee shall be in writing and shall be addressed to him or her at the
address on file with the Company on the date hereof or at such other address as
he or she may hereafter designate in writing. Notice shall be deemed to have
been given upon receipt or, if sooner, five (5) days after such notice has been
deposited, postage prepaid, certified or registered mail, return receipt
requested, in the United States mail addressed to the address specified in the
immediately preceding sentence.
16. CHOICE OF LAW. This Agreement shall be governed by and construed
-------------
in accordance with the internal substantive laws (not the law of choice of laws)
of the State of Delaware.
[Signature page follows.]
-6-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the day and
year first above written.
LESLIE'S POOLMART, INC.
BY_____________________________
An Authorized Officer
OPTIONEE
________________________________
________________________________
(Please print name)
________________________________
Optionee's Spouse /*/
________________________________
(Please print spouse's name)
- ---------------------
/*/ Include Signature and name of Optionee's spouse, if Optionee is married.
-7-
<PAGE>
EXHIBIT 10.6
LESLIE'S POOLMART, INC.
1997 INCENTIVE STOCK OPTION PLAN
1. PURPOSE.
-------
The Plan is intended to provide an opportunity to key employees of the
Corporation and its Subsidiaries to acquire Common Stock of the Corporation
pursuant to Incentive Stock Options and Nonstatutory Stock Options in order to
encourage such persons to remain in the employ of the Corporation.
2. DEFINITIONS. Unless otherwise defined herein or the context otherwise
-----------
requires, the capitalized terms used herein shall have the following meanings:
(a) "Administrator" shall mean the Board or the Committee, whichever
-------------
shall be administering the Plan from time to time in the discretion of the
Board, as described in Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation.
-----
(c) "Change-in-Control" shall have the meaning given to that term in
-----------------
the Stockholders Agreement.
(d) "Class I Stockholder" shall have the meaning given to that term in
-------------------
the Stockholders Agreement.
(e) "Class II Stockholder" shall have the meaning given to that term
--------------------
in the Stockholders Agreement.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(g) "Commission" shall mean the Securities and Exchange Commission.
----------
(h) "Committee" shall mean the committee appointed by the Board in
---------
accordance with Section 4 of the Plan.
(i) "Common Stock" shall mean the $.001 par value Common Stock of the
------------
Corporation and any class of shares into which such Common Stock hereafter may
be converted or reclassified.
(j) "Corporation" shall mean LESLIE'S POOLMART, INC., a Delaware
-----------
corporation.
(k) "Disability" shall mean a medically determinable physical or
----------
mental impairment which has made an individual incapable of engaging in any
substantial gainful activity. A condition shall be considered a Disability only
if (i) it can be expected to result in death, or has
<PAGE>
lasted or can be expected to last for a continuous period of not less than
twelve (12) months, and (ii) the Administrator, based upon medical evidence, has
expressly determined that a Disability exists.
(l) "EBITDA" shall mean the Corporation's annual Consolidated Net
------
Income, as reflected on its annual audited statement of operations delivered
pursuant to Section 10(e)(ii) of the Stockholders Agreement (i) plus (minus) any
extraordinary or nonrecurring gain (loss); (ii) plus (minus) any gain (loss) due
solely to fluctuations in currency values; (iii) plus provision for taxes; (iv)
plus consolidated interest expense, whether paid or accrued and whether or not
capitalized (and including any amortization of deferred financing costs); (v)
plus any noncash charges for such period (including LIFO charges); (vi) plus
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that were paid
in a prior period) and other noncash charges and (vii) plus the amounts paid
during the period pursuant to the Management Agreement dated June 11, 1997
between the Corporation and Leonard Green & Partners, L.P..
(m) "Employee" shall mean an individual who is employed (within the
--------
meaning of Section 3401 of the Code and the regulations thereunder) by the
Corporation or a Subsidiary.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(o) "Exercise Price" shall mean the price per Share of Common Stock,
--------------
determined by the Administrator, at which an Option may be exercised.
(p) "Fair Market Value" shall mean the value of one (1) Share of
-----------------
Common Stock, determined as follows:
(i) If the Shares are traded on an exchange or over-the-counter
on the Nasdaq National Market (the "NNM") of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), (a) if listed on
an exchange, the closing price as reported for composite transactions on the
business day immediately prior to the date of valuation or, if no sale occurred
on that date, then the mean between the closing bid and asked prices on such
exchange on such date, and (b) if traded on the NNM, the last sale price on the
business day immediately prior to the date of valuation or, if no sale occurred
on such date, then the mean between the highest bid and lowest asked prices as
of the close of business on the business day immediately prior to the date of
valuation, as reported in the NASDAQ system;
(ii) If the Shares are not traded on an exchange or the NNM but
are otherwise traded over-the-counter, the mean between the highest bid and
lowest asked prices quoted in the NASDAQ system as of the close of business on
the business day immediately prior to the date of valuation or, if on such day
such security is not quoted in the NASDAQ system, the mean between the
representative bid and asked prices on such date in the domestic over-the-
counter market as reported by the National Quotation Bureau, Inc., or any
similar successor organization; and
2
<PAGE>
(iii) If neither clause (i) nor (ii) above applies, the fair
market value as determined by the Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
(q) "Incentive Stock Option" shall mean an option described in Section
----------------------
422 of the Code.
(r) "Nonstatutory Stock Option" shall mean an option granted under the
-------------------------
Plan that is not an Incentive Stock Option.
(s) "Option" shall mean any Incentive Stock Option or Nonstatutory
------
Stock Option granted pursuant to the Plan. An Option shall be granted on the
date the Administrator takes the necessary action to approve the grant.
However, if the minutes or appropriate resolutions of the Administrator provide
that an Option is to be granted as of a date in the future, the date of grant
shall be that future date. Each Option shall vest in accordance with the terms
of the Plan and the applicable Option Agreement.
(t) "Option Agreement" shall mean a written stock option agreement
----------------
evidencing a particular Option.
(u) "Optionee" shall mean a Participant who has received an Option.
--------
(v) "Participant" shall have the meaning assigned to it in Section
-----------
5(a) hereof.
(w) "Plan" shall mean this LESLIE'S POOLMART, INC. 1997 Inventive
----
Stock Option Plan, as it may be amended from time to time.
(x) "Purchase Price" shall mean the Exercise Price multiplied by the
--------------
number of Shares with respect to which an Option is exercised.
(y) "Retirement" shall mean the voluntary cessation of employment by
----------
an Employee upon the attainment of age sixty-five (65) and the completion of not
less than twenty (20) years of service with the Corporation or a Subsidiary.
(z) "Revolving Line of Credit" shall mean the Corporation's revolving
------------------------
line of credit with Wells Fargo Bank (or Wells Fargo Bank and BT Commercial
Corporation), or any revolving line of credit substituted therefor.
(aa) "Section 16 Participant" shall mean a Participant who is (or, in
----------------------
the opinion of the Administrator, may be) generally subject to the Section 16
Requirements with respect to purchases and sales of Common Stock or other equity
securities of the Corporation.
(bb) "Section 16 Requirements" shall mean those obligations and
-----------------------
requirements imposed by Sections 16(a) and 16(b) of the Exchange Act and the
rules of the Commission promulgated thereunder.
(cc) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
3
<PAGE>
(dd) "Share" shall mean one share of Common Stock, adjusted in
-----
accordance with Section 10 of the Plan (if applicable).
(ee) "Stockholders Agreement" shall mean that certain Stockholders
----------------------
Agreement and Subscription Agreement dated June 11, 1997 among the Corporation,
Green Equity Investors II, L.P., Richard H. Hillman, Michael J. Fourticq, Brian
P. McDermott, Greg Fourticq, Brian P. McDermott and Manette J. McDermott, the
trustees of the McDermott Family Trust, Occidental Petroleum Corporation and the
other persons contemplated thereby.
(ff) "Subsidiary" shall mean any subsidiary corporation as defined in
----------
Section 424(f) of the Code.
3. EFFECTIVE DATE.
--------------
The Plan was adopted by the Board effective June 11, 1997, subject to
approval of the Corporation's stockholders pursuant to Section 15 hereof.
4. ADMINISTRATION.
--------------
The Plan shall be administered, in the discretion of the Board from time to
time, by the Board or by a Committee which shall be appointed by the Board. The
Board may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, however caused, shall be filled by the
Board. The Board shall appoint one of the members of the Committee as Chairman.
The Administrator shall hold meetings at such times and places as it may
determine. Acts of a majority of the Administrator at which a quorum is
present, or acts reduced to or approved in writing by the unanimous consent of
the members of the Administrator, shall be the valid acts of the Administrator.
The Administrator shall from time to time at its discretion select the
Employees who are to be granted Options, determine the number of Shares to be
subject to Options to be granted to each Optionee and designate such Options as
Incentive Stock Options or Nonstatutory Stock Options.
A Committee or Board member shall in no event participate in any
determination relating to Options held by or to be granted to such Committee or
Board member. The interpretation and construction by the Administrator of any
provision of the Plan or of any Option or Option Agreement shall be final. No
member of the Administrator shall be liable for any action or determination made
in good faith with respect to the Plan or any Option.
5. PARTICIPATION.
-------------
(a) Eligibility.
-----------
The Optionees shall be such persons (collectively, "Participants";
individually, a "Participant") as the Administrator may select from among the
Employees (who may be officers, whether or not they are directors of the
Corporation); provided however, that the Administrator may at any time or from
time to time designate one or more Employees who are directors as being
4
<PAGE>
ineligible for selection as Participants in the Plan for any period or periods
of time in order to comply with the Section 16 Requirements.
(b) Ten-Percent Stockholders.
------------------------
A Participant who owns more than ten percent (10%) of the total
combined voting power of all classes of outstanding stock of the Corporation,
its parent or any of its Subsidiaries, shall not be eligible to receive an
Incentive Stock Option unless (i) the Exercise Price of the Shares subject to
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of such Shares on the date of grant, and (ii) such Option by its terms is not
exercisable after the expiration of five (5) years from the date of grant.
(c) Stock Ownership.
---------------
For purposes of Section 5(b) above, in determining stock ownership, a
Participant shall be considered as owning the stock owned, directly or
indirectly, by or for his or her brothers and sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Participant holds an Option shall not be counted.
(d) Outstanding Stock.
-----------------
For purposes of Section 5(b) above, "outstanding stock" shall include
all stock actually issued and outstanding immediately after the grant of the
Option to the Optionee. "Outstanding stock" shall not include shares authorized
for issue under outstanding Options held by the Optionee or by any other person.
6. STOCK AND VESTING.
-----------------
(a) Number of Shares.
----------------
The stock subject to Options granted under the Plan shall be Shares of
the Corporation's authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued upon exercise of Options under
the Plan shall not exceed 273,946; provided however, that 202,299 of such Shares
shall be subject to the vesting requirements of Section 6(b) and 71,647 of such
shares shall be subject to the vesting requirements of Section 6(c). The number
of Shares subject to Options outstanding at any time shall not exceed the number
of Shares remaining available for issuance under the Plan. The limitations
established by this Section 6 shall be subject to adjustment in the manner
provided in Section 10 hereof upon the occurrence of an event specified in that
Section.
(b) Tenure Vesting.
--------------
202,299 Shares in the aggregate subject to Options under the Plan
shall vest and become exercisable with respect to each such Option in three
equal annual installments (subject to
5
<PAGE>
rounding to the nearest whole Share) on each of the first, second and third
anniversaries of the date of grant, provided the holder of such Option is then
an Employee.
(c) Performance Vesting.
-------------------
71,647 Shares in the aggregate subject to Options under the Plan shall
vest and become exercisable with respect to each such Option in three equal
installments (subject to rounding to the nearest whole Share) if the holder of
such Option is then an Employee and if the following performance criteria are
achieved by the Corporation:
(i) Commencing March 31, 1998, one-third of such Shares shall
vest if both (x) EBITDA for the year ending January 3, 1998 ("'97 EBITDA") is at
least $18 million and (y) at least 30 new stores have been opened between the
date of this Plan and March 31, 1998; in the event such Shares do not become
exercisable on March 31, 1998, they will become exercisable commencing March 31,
1999, if (x) '97 EBITDA is at least $17.1 million, (y) the total of '97 EBITDA
and EBITDA for the year ending in December 1998 ("'98 EBITDA") is a least $40
million, and (z) at least 30 new stores have been opened between the date of
this Plan and March 31, 1998; in the event that the such Shares have not become
exercisable pursuant to either of the foregoing alternatives by March 31, 1999,
they shall be forfeited.
(ii) Commencing March 31, 1999, an additional one-third of such
Shares shall vest if both (x) '98 EBITDA is at least $22 million and (y) at
least 30 new stores have been opened in the 12 month period ending March 31,
1999; in the event such Shares do not become exercisable on March 31, 1999, they
will become exercisable commencing March 31, 2000, if (x) '98 EBITDA is at least
$20.9 million, (y) the total of '98 EBITDA and EBITDA for the year ending
December 1999 ("'99 EBITDA") is at least $48 million, and (z) at least 30 new
stores have been opened in the 12 month period ending March 31, 1999; in the
event that such Shares have not become exercisable pursuant to either of the
foregoing alternatives by March 31, 2000, they shall be forfeited.
(iii) Commencing March 31, 2000, the final one-third of such
Shares shall vest if both (x) '99 EBITDA is at least $26 million and (y) at
least 30 new stores have been opened in the 12 month period ending March 31,
2000; in the event such Shares do not become exercisable on March 31, 2000, they
will become exercisable on March 31, 2001 if (x) '99 EBITDA is at least $24.7
million, (y) the total of '99 EBITDA and EBITDA for the year ending December
2000 is at least $55.4 million, and (z) at least 30 new stores have been opened
in the 12 month period ending March 31, 2000; in the event such Shares have not
become exercisable pursuant to either of the foregoing alternatives by March 31,
2001, they shall be forfeited.
(d) Reallocation of Options. Notwithstanding the provisions of
-----------------------
Section 6(c) above, with respect to the 71,647 Shares subject to performance
vesting pursuant to that Section 6(c), in the event the performance criteria set
forth in Subsection 6(c)(i), 6(c)(ii), or 6(c)(iii) are met, any Shares subject
to such criteria which are not subject to an outstanding Option, or which at any
time thereafter remain unexercised upon the expiration or cancellation of an
outstanding Option, shall be available for grant as a "tenure" option pursuant
to Section 6(b), and the number of shares eligible for grant under such section
shall be increased accordingly. By
6
<PAGE>
way of example, in the event the goal set forth in Section 6(c)(i) has been
satisfied, any of the 23,883 Options subject to vesting pursuant to such section
that are at that time unallocated or are at any time restored to the Plan
unexercised upon the expiration or cancellation of an outstanding Option, would
be reallocated and available for grant pursuant to Section 6(b) above.
(e) Subsequent Grants. Performance options granted between March 31,
-----------------
1998 and March 31, 1999 shall vest in two equal installments pursuant to
Subsections (ii) and (iii) below. Performance options granted on or after March
31, 1999 shall vest in one installment in accordance with Subsection (iii)
below, provided, however, that in no event shall the total of all Options
eligible to vest pursuant to Subsection (i) below exceed 23,883, or the total of
all Options eligible to vest pursuant to Subsection (ii) below exceed 23,883, or
the total of all Options eligible to vest pursuant to Subsection (iii) below
exceed 23,882.
(f) Change-in-Control.
-----------------
Notwithstanding anything herein to the contrary, including Section
6(b), 6(c) or 10 hereof, all Options outstanding under the Plan, whether or not
then exercisable, shall vest and become immediately exercisable upon a Change-
in-Control.
7. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreements.
-----------------------
Each Option shall be evidenced by an Option Agreement in substantially
the form attached hereto as Exhibit A or B, as applicable, or as the
Administrator shall from time to time determine. Such Option Agreements shall
comply with and be subject to the terms and conditions set forth in this Section
7.
(b) Nature of Option.
----------------
Each Option shall state whether it is an Incentive Stock Option or a
Nonstatutory Stock Option.
(c) Optionee's Undertaking.
----------------------
Each Optionee shall agree to be bound by the terms of, and shall
become subject to, the Stockholders Agreement.
(d) Number of Shares.
----------------
Each Option shall state the number of Shares to which it pertains and
shall provide for the adjustment thereof in accordance with the provisions of
Section 10 hereof.
(e) Exercise Price.
--------------
Each Option shall state the Exercise Price. The Exercise Price shall
be the Fair Market Value on the date of grant; provided however, that in the
case of an Incentive Stock
7
<PAGE>
Option granted to an Optionee described in Section 5(b) hereof, the Exercise
Price shall be one hundred ten percent (110%) of the Fair Market Value on the
date of grant.
(f) Medium and Time of Payment; Notice.
----------------------------------
The Purchase Price may be paid in full by any of the following means
or any combination thereof, in the discretion of the Optionee:
(i) in cash or by personal check in United States dollars in
the amount being paid;
(ii) if the Corporation has completed an underwritten public
offering of the Shares registered under the Securities Act, by the surrender of
Shares, in good form for transfer to the Corporation, registered in the name of
the Optionee or the successor of the Optionee and having a Fair Market Value on
the date of exercise equal to the amount being paid; and
(iii) if permitted by the terms of the Corporation's agreements
and securities, by payment of at least fifty percent (50%) of the Purchase Price
of the Shares being purchased in cash or by personal check and/or Shares as in
subsection (ii) above and payment of the balance of the amount being paid by
delivery of a full-recourse promissory note executed by the Optionee or the
successor of the Optionee, which promissory note shall (a) be payable semi-
annually as to interest and shall bear interest at the greater of (x) the prime
rate in effect on the date of exercise (as published in the Pacific Coast
Edition of the Wall Street Journal) plus one percent (1%) or (y) the interest
-------------------
rate on the Corporation's Revolving Line of Credit plus one percent (1%), (b) be
payable as to principal in eight equal semi-annual installments commencing six
months after exercise, and (c) be secured by a security interest in all of the
Shares being purchased upon such Option exercise (which security interest shall
be released ratably concurrently with amortization of principal) pursuant to
which the Corporation may retain possession of certificates evidencing the
Shares subject to such security interest.
Each Optionee shall acknowledge that the Corporation may be required
to withhold Federal, state and other income taxes as a result of the exercise of
an Option. Therefore, as a condition to the exercise of an Option, if requested
by the Corporation, the Optionee shall make arrangements satisfactory to the
Corporation to enable it to satisfy such withholding requirements. Payment of
such withholding amount shall be made, at the discretion of the Optionee, (i) by
cash or personal check, (ii) if the Corporation has completed an underwritten
public offering of the Shares registered under the Securities Act, by delivery
of Shares registered in the name of the Optionee or its successor, or by the
Corporation not issuing such number of Shares subject to the Option, having a
Fair Market Value at the time of exercise equal to the amount to be withheld or
(iii) any combination of (i) and (ii) above.
The Optionee shall exercise an Option by completing and delivering to
the Corporation, concurrently with the payment of the Purchase Price in the
manner described above, an exercise notice in such form as the Administrator
shall from time to time determine.
8
<PAGE>
(g) Vesting, Term and Non-Transferability of Options.
------------------------------------------------
Each Option shall state the time or times when all or part thereof
becomes exercisable. No Option, including Incentive Stock Options, shall be
exercisable after the expiration of ten (10) years from the date it was granted.
During the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee or the Optionee's guardian or legal representative and shall not be
assignable or transferable, except that an Optionee may transfer a Nonstatutory
Stock Option in whole or in part without consideration, upon written notice to
the Administrator, to a trustee of a revocable inter vivos trust established by
the Optionee for the benefit of the Optionee during his or her lifetime. In the
event of the Optionee's death, the Option shall not be transferable by the
Optionee other than by will or the laws of descent and distribution or pursuant
to a written beneficiary designation previously presented to and accepted by the
Administrator. Any other attempted alienation, assignment, pledge,
hypothecation, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of any Option or right thereunder,
shall be void and, at the Corporation's election, may cause all of the
Optionee's rights under the Option to terminate.
(h) Cessation of Employment (Except by Death, Disability or
-------------------------------------------------------
Retirement).
- -----------
If an Optionee ceases to be an Employee for any reason other than his
or her death, Disability or Retirement, such Optionee shall have the right,
subject to the restrictions referred to in Section 7(g) above, to exercise the
Option at any time within three (3) months after cessation of employment, but,
except as otherwise provided in the applicable Option Agreement, only to the
extent that, at the date of cessation of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable Option
Agreement and had not previously been exercised. An Option Agreement may, in
the sole discretion of the Administrator, but need not, provide that the Option
shall cease to be exercisable on the date of such cessation of employment if
such cessation arises by reason of such Employee's misconduct. An Employee
shall be considered to have been terminated for misconduct if he or she resigns,
is discharged or otherwise terminated, in any of such cases, on account of
conviction of a felony, misappropriation of the assets of the Corporation or any
Subsidiaries or any affiliate, continued or repeated insobriety or illegal drug
use, continued or repeated absence from service during the usual working hours
of the employee's position for reasons other than Disability or sickness, or
refusal to carry out a reasonable direction of the Board or of the chief
executive officer of the Corporation or of any other person designated by such
chief executive officer.
For purposes of this Section 7(h), the employment relationship shall
be treated as continuing intact while the Optionee is on military leave, sick
leave or other bona fide leave of absence (to be determined in the sole
discretion of the Administrator). The foregoing notwithstanding, in the case of
an Incentive Stock Option, employment shall not be deemed to continue beyond the
90th day after the Optionee ceased active employment, unless the Optionee's re-
employment rights are guaranteed by statute or by contract.
9
<PAGE>
(i) Death of Optionee.
-----------------
If an Optionee dies while a Participant, or after ceasing to be a
Participant but during the period in which he or she could have exercised the
Option under this Section 7, and has not fully exercised the Option, then the
Option may be exercised in full, subject to the restrictions referred to in
Section 7(g) above, at any time within twelve (12) months after the Optionee's
death, by the executor or administrator of his or her estate, the Optionee's
designated beneficiary, or by any person or persons who have acquired the Option
directly from the Optionee by bequest or inheritance, but, except as otherwise
provided in the applicable Option Agreement, only to the extent that, at the
date of death, the Optionee's right to exercise such Option had accrued and had
not been forfeited pursuant to the terms of the applicable Option Agreement and
had not previously been exercised.
(j) Disability of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Disability, such
Optionee shall have the right, subject to the restrictions referred to in
Section 7(g) above, to exercise the Option at any time within twelve (12) months
after such cessation of employment, but, except as provided in the applicable
Option Agreement, only to the extent that, at the date of such cessation of
employment, the Optionee's right to exercise such Option had accrued pursuant to
the terms of the applicable Option Agreement and had not previously been
exercised.
(k) Retirement of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Retirement (and
not on account of misconduct as determined in Section 7(h)), such Optionee shall
have the right, subject to the restrictions referred to in Section 7(g) above,
to exercise the Option at any time within three (3) months after cessation of
employment, but only to the extent that, at the date of cessation of employment,
the Optionee's right to exercise such Option had accrued pursuant to the terms
of the applicable Option Agreement and had not previously been exercised.
(l) Rights as a Stockholder.
-----------------------
No Optionee shall have rights as a stockholder with respect to any
Shares covered by an Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 10
hereof. Each Option Agreement shall state whether such Optionee is or will
become a Class I Stockholder or a Class II Stockholder upon the exercise
thereof. The Stockholders Agreement specifies certain respective rights of
Class I Stockholders and Class II Stockholders.
(m) Modification, Extension and Renewal of Options.
----------------------------------------------
Within the limitations of the Plan, the Administrator may modify an
Option, extend or renew outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously exercised) for the granting of
new Options in substitution therefor. The foregoing not-
10
<PAGE>
withstanding, no modification of an Option shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option previously
granted.
(n) Other Provisions.
----------------
An Option Agreement authorized under the Plan may contain such other
provisions not inconsistent with the terms of the Plan (including, without
limitation, restrictions upon the exercise of the Option) as the Administrator
may, in its discretion, deem advisable.
8. LIMITATION OF ANNUAL AWARDS.
---------------------------
The aggregate Fair Market Value (determined as of the date an Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
the Plan and all other plans maintained by the Corporation, its parent or its
Subsidiaries, shall not exceed $100,000.
9. TERM OF PLAN.
------------
Options may be granted pursuant to the Plan until the tenth anniversary of
the effective date referred to in Section 3.
10. EFFECT OF CERTAIN EVENTS.
------------------------
(a) Adjustments.
-----------
If the outstanding shares of Common Stock are increased, decreased or
exchanged for or converted into cash, property or a different number or kind of
shares or securities, or if cash, property or shares or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, Common Stock dividend or other distribution,
stock split, reverse stock split, spin-off or the like, or if substantially all
of the property and assets of the Corporation are sold, then the Administrator
shall make appropriate and proportionate adjustments in (i) the number and type
of shares or other securities or cash or other property that may be acquired
pursuant to Options theretofore granted under this Plan and the exercise price
of such Options, and (ii) the maximum number and type of shares or other
securities that may be issued pursuant to Options thereafter granted under this
Plan provided, however, that notwithstanding the foregoing, such aggregate
number of Shares shall be subject to adjustment under this Section 10(a) only to
the extent that such will not affect the status of any Options intended to
qualify as "performance based compensation" under Section 162(m) of the Code and
will not cause Incentive Stock Options to be treated as Nonstatutory Stock
Options.
(b) Merger, Sale of Assets, Liquidation.
-----------------------------------
If the Corporation shall merge with another corporation and the
Corporation is the surviving corporation in such merger and under the terms of
such merger the shares of Common Stock outstanding immediately prior to the
merger remain outstanding and unchanged, each outstanding Option shall continue
to apply to the Shares subject thereto and shall also pertain and
11
<PAGE>
apply to any additional securities and other property, if any, to which a holder
of the number of Shares subject to the Option would have been entitled as a
result of the merger. If the Corporation sells or disposes of all or
substantially all of its assets or merges (other than a merger of the type
described in the immediately preceding sentence) or consolidates with or into
another corporation or entity, this Plan and each Option shall terminate upon
the effectiveness of such transaction if, but only if, the Optionee will be
entitled to receive and receives, in exchange for the Shares issued upon the
exercise of such Option prior to such effectiveness, along with all other
holders of Common Stock, (i) cash, (ii) fully marketable securities (subject
only, in the case of an Optionee that is an affiliate of the Corporation, any
restriction imposed by generally accepted accounting principles on the
disposition of capital stock received in such transaction in order that such
transaction may be accounted for as a pooling of interests), or (iii) any
combination of cash and fully marketable securities, in each case for the same
per share consideration and in the same ratio as all other holders of Common
Stock.
An Option exercised in contemplation of the consummation of the sale
of all substantially all of the assets of the Corporation or a merger (other
than a merger of the type described in the first sentence of the immediately
preceding paragraph) or consolidation of the Corporation with another
corporation, may be conditioned upon such sale, merger or consolidation becoming
effective.
(c) Extraordinary Dividends.
-----------------------
If the Corporation declares a dividend or makes any other distribution
on its Common Stock, other than a regular periodic cash dividend payable out of
retained earnings, whether such dividend or distribution is payable in cash or
kind, it shall reserve and set aside out of such dividend or distribution a
sufficient sum or amount to pay to each Optionee, upon the exercise of his or
her Option, and upon such exercise such Optionee shall be entitled to receive in
addition to the Shares and other securities to which such Optionee would be
entitled upon such exercise, the same per share amount that such Optionee would
have received had such Optionee exercised such Option in full prior to the
record date for the payment of such dividend or distribution and been a record
holder of all Shares so issuable on such record date and on the date such
dividend or distribution was paid (together with any additional cash, securities
or other property to which such holder would have been entitled if he or she
continued to hold such dividend or distribution from the payment date until the
actual exercise of such Option).
(d) Adjustment Determination.
------------------------
To the extent that the foregoing adjustments relate to securities of
the Corporation, such adjustments shall be as determined reasonably and in good
faith by the Administrator, whose determination shall be conclusive and binding
on all persons.
(e) Limitation on Rights.
--------------------
Except as expressly provided in this Section 10, the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of stock
of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or
12
<PAGE>
by reason of any dissolution, liquidation, merger or consolidation or spin-off
of assets or stock of another corporation, and any issue by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or Exercise Price of Shares subject to an Option.
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
11. SECURITIES LAW REQUIREMENTS.
---------------------------
(a) Legality of Issuance.
--------------------
No Shares shall be issued upon the exercise of any Option unless and
until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the offer and sale of the Shares under the Securities Act, or to
perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock exchange on
which the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or Federal law has
been satisfied.
(b) Restrictions on Transfer; Representations of Optionee; Legends.
--------------------------------------------------------------
Regardless of whether the offer and sale of Shares under the Plan has
been registered under the Securities Act or has been registered or qualified
under the securities laws of any state, the Corporation may impose restrictions
upon the sale, pledge or other transfer of such Shares (including the placement
of appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Securities Act, the
securities laws of any state or any other law. In the event that the sale of
Shares under the Plan is not registered under the Securities Act but an
exemption is available which requires an investment representation or other
representation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Stock certificates
evidencing Shares acquired under the Plan pursuant to an unregistered
transaction shall bear the following restrictive legend and such other
restrictive legends as are required or deemed advisable under the provisions of
any applicable law:
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
13
<PAGE>
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
REASONABLE 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 JUNE 11, 1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY.
Any good faith and reasonable determination by the Corporation and its
counsel in connection with any of the matters set forth in this Section 11 shall
be conclusive and binding on all persons.
(c) Registration or Qualification of Securities.
-------------------------------------------
Except as provided in the Stockholders Agreement, the Corporation may,
but shall not be obligated to, register or qualify the sale of Shares under the
Securities Act or any other applicable law.
(d) Exchange of Certificates.
------------------------
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold under the Plan is no
longer required, the holder of such certificate shall be entitled to exchange
such certificate for a certificate representing the same number of Shares but
without such legend.
12. AMENDMENT OF THE PLAN.
---------------------
The Board may from time to time, with respect to any Shares at the time not
subject to Options, suspend or discontinue the Plan or revise or amend it in any
respect whatsoever except that, without the approval of the Corporation's
stockholders, no such revision or amendment shall:
(a) Except as provided in Section 10(a), increase the number of Shares
which may be issued under the Plan;
14
<PAGE>
(b) Change the designation in Section 5 with respect to the class of
persons eligible to receive Options; or
(c) Amend this Section 12 to defeat its purpose.
13. EXCHANGE ACT.
------------
If the Common Stock is registered under the Exchange Act, the Plan shall be
amended by the Administrator from time to time to the extent necessary or
advisable, in the judgment of the Administrator after having consulted with
Corporation's counsel, to enable Section 16 Participants to obtain the benefits
of such exclusions or exemptions from the Sections 16 Requirements as may be
established by the Commission from time to time by rule, regulation,
administrative order or interpretation (whether such interpretation is made by
the Commission or staff) with respect to (i) the receipt of Options, (ii) the
exercise, modification, extension, cancellation, exchange, termination or
expiration of Options, (iii) the purchase of Common Stock upon the exercise of
Options, (iv) the sale of Common Stock received upon the exercise of Options,
and (v) the administration of this Plan. Anything in the Plan to the contrary
notwithstanding, such amendments may be made without approval of the
Corporation's stockholders unless and to the extent that, in the judgment of the
Administrator after consulting with the Corporation's counsel, stockholder
approval of such an amendment is a prerequisite to effectuating a desired
exclusion or exemption from the Section 16 Requirements.
14. APPLICATION OF FUNDS.
--------------------
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option will be used for general corporate
purposes.
15. APPROVAL OF STOCKHOLDERS.
------------------------
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the Corporation's outstanding shares of capital stock
no later than June 10, 1998. Prior to such approval, Options may be granted but
shall not be exercisable. Any amendment described in Section 12 shall also be
subject to approval by the Corporation's stockholders.
16. EXECUTION.
---------
To record the adoption of the Plan by the Board as of June 11, 1997, the
Corporation has caused an authorized officer to affix the corporate name hereto.
LESLIE'S POOLMART, INC.
By:
------------------------------
Michael J. Fourticq
Chairman
15
<PAGE>
EXHIBIT A
---------
LESLIE'S POOLMART, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the ___ day of _____________, _____
(the "Grant Date"), between LESLIE'S POOLMART, INC., a Delaware corporation (the
"Company"), and ____________________ (the "Optionee").
R E C I T A L S
---------------
A. The Board of Directors of the Company (the "Board") has established
the Company's 1997 Incentive Stock Option Plan (the "Plan") in order to provide
key employees of the Company with an opportunity to acquire shares of the
Company's common stock ("Stock").
B. The Board has included in the Plan certain provisions to provide for
the grant of incentive stock options.
C. The Board regards the Optionee as a key employee as contemplated by
the Plan and has determined that it would be in the best interests of the
Company and its stockholders to grant the option described in this Agreement to
the Optionee as an inducement to remain in the service of the Company, and as an
incentive for increasing efforts during such service.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS AND INCORPORATION. Unless otherwise defined herein or the
-----------------------------
context otherwise requires, the capitalized terms used in this Agreement shall
have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
The Optionee hereby acknowledges that he or she has received a copy of the Plan.
2. GRANT OF OPTION. Pursuant to the Plan, the Company hereby grants to
---------------
the Optionee as of the date hereof the option to purchase all or any part of an
aggregate of ____________________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 10 of the Plan. The Option is intended to
qualify as an Incentive Stock Option under the Code.
3. OPTION PRICE. The price to be paid for Stock upon exercise of the
------------
Option or any part thereof shall be $____ per share (the "Exercise Price").
4. RIGHT TO EXERCISE. Subject to the conditions set forth in this
-----------------
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.
A-1
<PAGE>
5. SECURITIES LAW REQUIREMENTS. No part of the Option shall be exercised
---------------------------
if counsel to the Company determines that any applicable registration
requirement under the Securities Act of 1933 (the "Act") or any other applicable
requirement of Federal or state law has not been met.
6. TERM OF OPTION. The Option shall terminate in any event on the
--------------
earliest of (a) the __________ day of ____________, 20__, at 11:59 P.M.
California time, (b) the expiration of the period described in Section 8 below,
(c) the expiration of the period described in Section 9 below or (d) the
expiration of the period described in Section 10 below. The Option shall also
terminate as provided in the Plan or elsewhere in this Agreement.
7. EXERCISE FOLLOWING CESSATION OF EMPLOYMENT. If the Optionee's
------------------------------------------
employment with the Company ceases for any reason or no reason, whether
voluntarily or involuntarily, with or without cause, other than death,
Disability or Retirement, the Option (to the extent it has not previously been
exercised and is exercisable at the time of cessation) may be exercised within
three (3) months after the date of such cessation. The foregoing sentence to
the contrary notwithstanding, the Option shall cease to be exercisable on the
date of such cessation if such cessation arises out of termination for
misconduct. For this purpose, "misconduct" shall mean conviction of a felony,
misappropriation of the assets of the Company or any Subsidiary, continued or
repeated insobriety, illegal use of drugs, continued or repeated absence from
service during the usual working hours of the Optionee's position for reasons
other than Disability or sickness, or refusal to carry out the reasonable
direction of the Board or of the chief executive officer of the Company or of
any other person designated by such chief executive officer. Any determination
of "misconduct" by the Administrator made in good faith shall be final and
binding upon the Company and the Optionee and all persons claiming under or
through them.
8. EXERCISE FOLLOWING DEATH OR DISABILITY. If the Optionee's employment
--------------------------------------
with the Company ceases by reason of the Optionee's death or Disability, or if
the Optionee dies after cessation of employment but while the Option would have
been exercisable hereunder, the Option (to the extent it has not previously been
exercised and is exercisable at the time of cessation) may be exercised within
one year after the date of the Optionee's death or cessation by reason of
Disability. In the case of death, the exercise may be made by his or her
representative, named beneficiary, or by the person entitled thereto under the
Optionee's will or the laws of descent and distribution; provided that such
representative, named beneficiary, or such person consents in writing to abide
by and be subject to the terms of the Plan and this Agreement and such writing
is delivered to the President or Chairman of the Company.
9. EXERCISE FOLLOWING RETIREMENT. If the Optionee's employment with the
-----------------------------
Company ceases by reason of Retirement, the Option (to the extent it has not
previously been exercised and is exercisable at the time of cessation) may be
exercised within three (3) months after the date of the Optionee's Retirement.
10. TIME OF CESSATION OF SERVICE. For the purposes of this Agreement, the
----------------------------
Optionee's employment shall be deemed to have ceased on the earlier of (a) the
date when the Optionee's employment in fact ceased or (b) except in the case of
Retirement, the date when the Optionee gave or received written notice that his
or her employment is to cease.
A-2
<PAGE>
11. NONTRANSFERABILITY. The Option shall be exercisable during the
------------------
Optionee's lifetime only by the Optionee or by the Optionee's guardian or legal
representative and shall be nontransferable, except that the Optionee may
transfer all or any part of the Option by will or by the laws of descent and
distribution, or pursuant to a written beneficiary designation previously
presented to and accepted by the Administrator. Except as otherwise provided
herein, any attempted alienation, assignment, pledge, hypothecation, attachment,
execution or similar process, whether voluntary or involuntary, with respect to
all or any part of the Option or any right thereunder, shall be null and void
and, at the Company's option, shall cause all of the Optionee's rights under
this Agreement to terminate.
12. STOCKHOLDERS AGREEMENT. The Optionee hereby represents to the Company
----------------------
that he or she has entered into the Stockholders Agreement and is or will be
subject to such agreement upon issuance of the shares subject to this Option and
will comply therewith as to this Option and the shares of Stock subject to this
Option.
13. EFFECT OF EXERCISE. Upon exercise of all or any part of the Option,
------------------
the number of shares of Stock subject to the Option under this Agreement shall
be reduced by the number of shares with respect to which such exercise is made.
14. EXERCISE OF OPTION. The Option may be exercised by delivering to the
------------------
Company (a) a written notice of exercise in substantially the form prescribed
from time to time by the Administrator and (b) full payment of the Exercise
Price for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Purchase Price shall be payable (i) in U.S. dollars in
cash (by check), (ii) if the Company has completed an underwritten public
offering of the Stock registered under the Securities Act, by delivery of shares
of Stock registered in the name of the Optionee or Optionee's successor having a
Fair Market Value at the time of exercise equal to the amount of the Purchase
Price, (iii) any combination of the payment of cash and the delivery of stock,
or (iv) so long as at least fifty percent (50%) of the Purchase Price of the
Stock being purchased is paid in cash or by personal check and/or shares of
Stock as above, and if permitted by the terms of the Corporation's agreements
and securities, the balance of the Purchase Price may be paid with a full
recourse, secured promissory note executed by the Optionee or Optionee's
successor as provided in the Plan.
15. WITHHOLDING TAXES. The Company may require the Optionee to deliver
-----------------
payment, as a condition to the exercise of the Option, of any withholding taxes
(in addition to the Purchase Price) with respect to the difference between the
Purchase Price and the Fair Market Value of the Stock acquired upon exercise,
which payment shall be made, at the discretion of the Optionee, (a) by cash or
personal check, (b) if the Corporation has completed an underwritten public
offering of the Stock registered under the Securities Act, by delivery of shares
of Stock registered in the name of the Optionee, or by the Company not issuing
such number of shares of the Stock subject to the Option, having a Fair Market
Value at the time of exercise in the amount to be withheld or (c) any
combination of (a) and (b) above.
A-3
<PAGE>
16. ISSUANCE OF SHARES. Subject to the foregoing conditions, the Company,
------------------
as soon as reasonably practicable after receipt of a proper notice of exercise
and without transfer or issue tax or other incidental expense to the person
exercising the Option, shall deliver to such person at the principal office of
the Company, or such other location as may be acceptable to the Company and such
person, one or more certificates for the shares of Stock with respect to which
the Option is exercised. Such shares shall be fully paid and nonassessable and
shall be issued in the name of such person. However, at the request of the
Optionee, such shares may be issued (i) to a trustee of a revocable inter vivos
trust established by the Optionee for the benefit of the Optionee during his or
her lifetime in the names of the Optionee and his or her spouse (a) as joint
tenants with right of survivorship, (b) as community property or (c) as tenants
in common without right of survivorship.
17. NOTICE OF DISQUALIFYING DISPOSITION OF SHARES. If the Optionee sells
---------------------------------------------
or otherwise disposes of shares of the Stock acquired pursuant to exercise of
the Option on or before the later of (a) the date two years after the Grant Date
or (b) the date one year after transfer of such shares to the Optionee upon
exercise of the Option, the Optionee shall immediately notify the Company in
writing of such disposition. The Optionee agrees that the Optionee will be
solely liable for any tax withholding required in respect of the compensation
income recognized by the Optionee from the early disposition by payment in cash
or out of the current earnings paid to the Optionee.
18. RIGHTS AS STOCKHOLDER. Neither the Optionee nor any other person
---------------------
entitled to exercise the Option shall have any rights as a stockholder of the
Company with respect to the Stock subject to the Option until a certificate for
such shares has been issued to him or her following the exercise of the Option.
Upon issuance of such certificate, the Optionee shall have all the rights,
privileges and obligations of a Class [I/II] Stockholder as provided in the
Stockholders Agreement.
19. AT-WILL AGREEMENT. In consideration of the grant of this Option,
-----------------
Optionee understands and agrees that Optionee's employment is at-will, and,
therefore, Optionee's employment and compensation can be terminated by Optionee
or the Company, with or without cause, and with or without notice, at any time.
This at-will agreement supersedes any contrary contract of employment, express
or implied, that Optionee may have had, or believed Optionee had, prior to this
date. Optionee further understands and agrees that although other terms and
conditions of Optionee's employment may change, this at-will employment
relationship will remain in effect throughout Optionee's employment with the
Company, or any of its affiliated companies, unless it is modified by a
specific, written employment contract that is signed by the President of the
Company and Optionee. This at-will employment status cannot be modified by any
oral or implied agreement. Optionee understands and agrees that these
statements about the at-will nature of Optionee's employment constitute the
complete understanding between the Company and Optionee regarding this subject.
20. LOCK-UP. In the event that the Company files a registration statement
-------
with respect to an underwritten public offering under the Act in which any class
of the Company's equity securities is to be offered, the Optionee shall not
effect any public sale or distribution of any shares of the Stock or any of the
Company's other equity securities, or of any securities convertible into, or
exchangeable or exercisable for such securities, during the period beginning
A-4
<PAGE>
thirty (30) days prior to the filing of such registration statement with the
Securities and Exchange Commission and ending on such date after such
registration statement has become effective as shall be specified by the
managing underwriter of such public offering.
21. NOTICES. Any notice to the Company contemplated by this Agreement
-------
shall be in writing and shall be addressed to it in care of its General Counsel,
20630 Plummer Street, Chatsworth, California 91311, or such other address as the
Company may specify in a notice to the Optionee; and any notice to the Optionee
shall be in writing and shall be addressed to him or her at the address on file
with the Company on the date hereof or at such other address as he or she may
hereafter designate in writing. Notice shall be deemed to have been given upon
receipt or, if sooner, five (5) days after such notice has been deposited,
postage prepaid, certified or registered mail, return receipt requested, in the
United States mail addressed to the address specified in the immediately
preceding sentence.
22. INTERPRETATION. The interpretation, construction, performance and
--------------
enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Administrator, and the Administrator's determinations shall be
conclusive and binding on all interested persons. In the event of any conflict
between the terms of the Plan and this Agreement, the Plan shall govern.
23. CHOICE OF LAW. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws (not the law of choice of laws) of
the State of California.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the date first
above written.
LESLIE'S POOLMART, INC.
By________________________________
__________________________________ ___________________________________
Optionee Optionee's Spouse*
__________________________________ ___________________________________
(Please print Optionee's name) (Please print spouse's name)
- ------------------
* Include signature and name of Optionee's spouse, if Optionee is married.
A-5
<PAGE>
SCHEDULE 1
----------
RIGHT TO EXERCISE
-----------------
Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue as follows:
1. With respect to ________ shares subject to the Option
(a) Commencing one year after the Grant Date, the Option may be
exercised to the extent of one-third of such shares.
(b) Commencing two years after the Grant Date, the Option may be
exercised to the extent of one-third of such shares (plus any such shares with
respect to which the Option has previously become exercisable but has not been
exercised).
(c) Commencing three years after the Grant Date, all such shares may
be exercised to the extent they have not previously been exercised.
2. With respect to __________ shares subject to the Option
(a) Commencing March 31, 1998, the Option may be exercised to the
extent of one-third of such shares if both (i) EBITDA (as defined in the Plan)
for the year ending January 3, 1998 ("'97 EBITDA") is at least $18 million and
(ii) at least 30 new stores have been opened between June 11, 1997 and March 31,
1998; in the event such shares do not become exercisable on March 31, 1998, they
will become exercisable commencing March 31, 1999, if (i) '97 EBITDA is at least
$17.1 million, (ii) the total of '97 EBITDA and EBITDA for the year ending in
December 1998 ("'98 EBITDA") is a least $40 million, and (iii) at least 30 new
stores have been opened between June 11, 1997 and March 31, 1998; in the event
that the such shares have not become exercisable pursuant to either of the
foregoing alternatives by March 31, 1999, they shall be forfeited.
(b) Commencing March 31, 1999, the Option may be exercised to the
extent of one-third of such shares (plus any such shares with respect to which
the Option has previously become exercisable but has not been exercised) if both
(i) '98 EBITDA is at least $22 million and (ii) at least 30 new stores have been
opened in the 12 month period ending March 31, 1999; in the event such shares do
not become exercisable on March 31, 1999, they will become exercisable
commencing March 31, 2000, if (i) '98 EBITDA is at least $20.9 million, (ii) the
total of '98 EBITDA and EBITDA for the year ending December 1999 ("'99 EBITDA")
is at least $48 million, and (iii) at least 30 new stores have been opened in
the 12 month period ending March 31, 1999; in the event that such shares have
not become exercisable pursuant to either of the foregoing alternatives by March
31, 2000, they shall be forfeited.
(c) Commencing March 31, 2000, the Option may be exercised to the
extent of one-third of such shares (plus any shares with respect to which the
Option has previously become exercisable but has not been exercised) if both (i)
EBITDA for the year ending in December 1999
A-6
<PAGE>
("'99 EBITDA") is at least $26 million and (ii) at least 30 new stores have been
opened March 31, 2000; in the event such shares do not become exercisable on
March 31, 2000, they will become exercisable on March 31, 2001 if (i) '99 EBITDA
is at least $24.7 million, (ii) the total of '99 EBITDA and EBITDA for the year
ending December 2000 is at least $55.4 million, and (iii) at least 30 new stores
have been opened in the 12 month period ending March 31, 2000; in the event such
shares have not become exercisable pursuant to either of the foregoing
alternatives by March 31, 2001, they shall be forfeited.
A-7
<PAGE>
EXHIBIT B
---------
LESLIE'S POOLMART, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into as of the __ day of _____________, _____
(the "Grant Date"), between LESLIE'S POOLMART, INC., a Delaware corporation (the
"Company"), and __________________________ (the "Optionee").
R E C I T A L S
---------------
A. The Board of Directors of the Company (the "Board") has established the
Company's 1997 Incentive Stock Option Plan (the "Plan") in order to provide key
employees of the Company with an opportunity to acquire shares of the Company's
common stock ("Stock").
B. The Board regards the Optionee as a key employee as contemplated by the
Plan and has determined that it would be in the best interests of the Company
and its shareholders to grant the option described in this Agreement to the
Optionee as an inducement to remain in the service of the Company, and as an
incentive for promoting efforts during such service.
NOW, THEREFORE, it is agreed as follows:
1. DEFINITIONS AND INCORPORATION. Unless otherwise defined herein or the
-----------------------------
context otherwise requires, the capitalized terms used in this Agreement shall
have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
The Optionee hereby acknowledges that he or she has received a copy of the Plan.
2. GRANT OF OPTION. Pursuant to the Plan, the Company hereby grants to
---------------
the Optionee as of the date hereof the option to purchase all or any part of an
aggregate of __________________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 10 of the Plan. The Option will not be
treated as an incentive stock option under the Code.
3. OPTION PRICE. The price to be paid for Stock upon exercise of the
------------
Option or any part thereof shall be $_____ per share (the "Exercise Price").
4. RIGHT TO EXERCISE. Subject to the conditions set forth in this
-----------------
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.
5. SECURITIES LAW REQUIREMENTS. No part of the Option shall be exercised
---------------------------
if counsel to the Company determines that any applicable registration
requirement under the Securities Act of 1933 (the "Act") or any other applicable
requirement of Federal or state law has not been met.
B-1
<PAGE>
6. TERM OF OPTION. The Option shall terminate in any event on the
--------------
earliest of (a) the _______ day of ___________, ______, at 11:59 P.M. California
time, (b) the expiration of the period described in Section 8 below, (c) the
expiration of the period described in Section 9 below or (d) the expiration of
the period described in Section 10 below. The Option shall also terminate as
provided in the Plan or elsewhere in this Agreement.
7. EXERCISE FOLLOWING CESSATION OF EMPLOYMENT OR SERVICE. If the
-----------------------------------------------------
Optionee's employment or service with the Company ceases for any reason or no
reason, whether voluntarily or involuntarily, with or without cause, other than
death, Disability or Retirement, the Option (to the extent it has not previously
been exercised and is exercisable at the time of cessation) may be exercised
within three (3) months after the date of such cessation. The foregoing
notwithstanding, the Option shall cease to be exercisable on the date of such
cessation if such cessation arises out of termination for misconduct. For this
purpose, "misconduct" shall mean conviction of a felony, misappropriation of the
assets of the Company or any Subsidiary, continued or repeated insobriety,
illegal use of drugs, continued or repeated absence from service during the
usual working hours of the Optionee's position for reasons other than Disability
or sickness, or refusal to carry out the reasonable direction of the Board or of
the chief executive officer of the Company or of any other person designated by
such chief executive officer. Any determination of "misconduct" by the
Administrator made in good faith shall be final and binding upon the Company and
the Optionee and all persons claiming under or through them.
8. EXERCISE FOLLOWING DEATH OR DISABILITY. If the Optionee's employment
--------------------------------------
or service with the Company ceases by reason of the Optionee's death or
Disability, or if the Optionee dies after cessation of employment or service but
while the Option would have been exercisable hereunder, the Option (to the
extent it has not previously been exercised and is exercisable at the time of
cessation) may be exercised within one (1) year after the date of the Optionee's
death or cessation by reason of Disability. In case of death, the exercise may
be made by his or her representative, named beneficiary, or by the person
entitled thereto under the Optionee's will or the laws of descent and
distribution; provided that such representative, named beneficiary, or such
person consents in writing to abide by and be subject to the terms of the Plan
and this Agreement and such writing is delivered to the President or Chairman of
the Company.
9. EXERCISE FOLLOWING RETIREMENT. If the Optionee's employment or
-----------------------------
service with the Company ceases by reason of Retirement the Option (to the
extent it has not previously been exercised and is exercisable at the time of
cessation) may be exercised within three (3) months after the date of the
Optionee's retirement.
10. TIME OF CESSATION OF SERVICE. For the purposes of this Agreement, the
----------------------------
Optionee's employment or service shall be deemed to have ceased on the earlier
of (a) the date when the Optionee's employment or service in fact ceased or (b)
except in the case of Retirement, the date when the Optionee gave or received
written notice that his or her employment or service is to cease.
11. NONTRANSFERABILITY. The Option shall be exercisable during the
------------------
Optionee's lifetime only by the Optionee or by the Optionee's guardian or legal
representative and shall be nontransferable, except that the Optionee may
transfer all or any part of the Option without
B-2
<PAGE>
consideration, upon written notice to the Administrator, to a trustee of a
revocable inter vivos trust established by the Optionee for the benefit of the
Optionee during his or her lifetime. All or any part of the Option may be
transferred upon the Optionee's death only by will, by the laws of descent and
distribution, or pursuant to a written beneficiary designation previously
presented to and accepted by the Administrator. Except as otherwise provided
herein, any attempted alienation, assignment, pledge, hypothecation, attachment,
execution or similar process, whether voluntary or involuntary, with respect to
all or any part of the Option or any right thereunder, shall be null and void
and, at the Company's option, shall cause all of the Optionee's rights under
this Agreement to terminate.
12. STOCKHOLDERS AGREEMENT. The Optionee hereby represents to the Company
----------------------
that he or she has entered into the Stockholders Agreement and is or will be
subject to such agreement upon issuance of the shares subject to this Option and
will comply therewith as to this Option and the shares of Stock subject to this
Option.
13. EFFECT OF EXERCISE. Upon exercise of all or any part of the Option,
------------------
the number of shares of Stock subject to the Option under this Agreement shall
be reduced by the number of shares with respect to which such exercise is made.
14. EXERCISE OF OPTION. The Option may be exercised by delivering to the
------------------
Company (a) a written notice of exercise in substantially the form prescribed
from time to time by the Administrator, and (b) full payment of the Exercise
Price for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, satisfactory to the Company, of such person's right to
exercise the Option. The Purchase Price shall be payable (i) in U.S. dollars in
cash (by check), (ii) if the Company has completed an underwritten public
offering of the Stock registered under the Securities Act, by delivery of shares
of Stock registered in the name of the Optionee or Optionee's successor having a
Fair Market Value at the time of exercise equal to the amount of the Purchase
Price, (iii) any combination of the payment of cash and the delivery of stock,
or (iv) so long as at least fifty percent (50%) of the Purchase Price of the
Stock being purchased is paid in cash or by personal check and/or shares of
Stock as above, and if permitted by the terms of the Corporation's agreements
and securities, the balance of the Purchase Price may be paid with a full
recourse, secured promissory note executed by the Optionee or Optionee's
successor as provided in the Plan.
15. WITHHOLDING TAXES. The Company may require the Optionee to deliver
-----------------
payment, as a condition to the exercise of the Option, of any withholding taxes
(in addition to the Purchase Price) with respect to the difference between the
Purchase Price and the Fair Market Value of the Stock acquired upon exercise,
which payment shall be made, at the discretion of the Optionee, (a) by cash or
personal check, (b) if the Corporation has completed an underwritten public
offering of the Stock registered under the Securities Act, by delivery of shares
of Stock registered in the name of the Optionee, or by the Company not issuing
such number of shares of the Stock subject to the Option, having a Fair Market
Value at the time of exercise in the amount to be withheld or (c) any
combination of (a) and (b) above.
B-3
<PAGE>
16. ISSUANCE OF SHARES. Subject to the foregoing conditions, the Company,
------------------
as soon as reasonably practicable after receipt of a proper notice of exercise
and without transfer or issue tax or other incidental expense to the person
exercising the Option, shall deliver to such person at the principal office of
the Company, or such other location as may be acceptable to the Company and such
person, one or more certificates for the shares of Stock with respect to which
the Option is exercised. Such shares shall be fully paid and nonassessable and
shall be issued in the name of such person. However, at the request of the
Optionee, such shares may be issued (i) to a trustee of a revocable inter vivos
trust established by the Optionee for the benefit of the Optionee during his or
her lifetime or (ii) in the names of the Optionee and his or her spouse (a) as
joint tenants with right of survivorship, (b) as community property or (c) as
tenants in common without right of survivorship.
17. RIGHTS AS STOCKHOLDER. Neither the Optionee nor any other person
---------------------
entitled to exercise the Option shall have any rights as a stockholder of the
Company with respect to the Stock subject to the Option until a certificate for
such shares has been issued to him or her following the exercise of the Option.
Upon issuance of such certificate, the Optionee shall have all the rights,
privileges and obligations of a Class [I/II] Stockholder as provided in the
Stockholders Agreement.
18. AT-WILL AGREEMENT. In consideration of the grant of this Option,
-----------------
Optionee understands and agrees that Optionee's employment is at-will, and,
therefore, Optionee's employment and compensation can be terminated by Optionee
or the Company, with or without cause, and with or without notice, at any time.
This at-will agreement supersedes any contrary contract of employment, express
or implied, that Optionee may have had, or believed Optionee had, prior to this
date. Optionee further understands and agrees that although other terms and
conditions of Optionee's employment may change, this at-will employment
relationship will remain in effect throughout Optionee's employment with the
Company, or any of its affiliated companies, unless it is modified by a
specific, written employment contract that is signed by the President of the
Company and Optionee. This at-will employment status cannot be modified by any
oral or implied agreement. Optionee understands and agrees that these
statements about the at-will nature of Optionee's employment constitute the
complete understanding between the Company and Optionee regarding this subject.
19. LOCK-UP. In the event that the Company files a registration statement
-------
with respect to an underwritten public offering under the Act in which any class
of the Company's equity securities is to be offered, the Optionee shall not
effect any public sale or distribution of any shares of the Stock or any of the
Company's other equity securities, or of any securities convertible into, or
exchangeable or exercisable for such securities, during the period beginning
thirty (30) days prior to the filing of such registration statement with the
Securities and Exchange Commission and ending on such date after such
registration statement has become effective as shall be specified by the
managing underwriter of such public offering.
20. NOTICES. Any notice to the Company contemplated by this Agreement
-------
shall be addressed to it in care of its General Counsel, 20630 Plummer Street,
Chatsworth, California 91311, or such other address as the Company may specify
in a notice to the Optionee; and any notice to the Optionee shall be addressed
to him or her at the address on file with the Company on
B-4
<PAGE>
the date hereof or at such other address as he or she may hereafter designate in
writing. Notice shall be deemed to have been given upon receipt or, if sooner,
five (5) days after such notice has been deposited, postage prepaid, certified
or registered mail, return receipt requested, in the United States mail
addressed to the address specified in the immediately preceding sentence.
21. INTERPRETATION. The interpretation, construction, performance and
--------------
enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Administrator, and the Administrator's determinations shall be
conclusive and binding on all interested persons. In the event of any conflict
between the terms of the Plan and this Agreement, the Plan shall govern.
22. CHOICE OF LAW. This Agreement shall be governed by and construed in
-------------
accordance with the internal substantive laws (not the law of choice of laws) of
the State of California.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the date first
above written.
LESLIE'S POOLMART, INC.
By___________________________
_____________________________ ______________________________
Optionee Optionee's Spouse*
______________________________ ______________________________
(Please print Optionee's name) (Please print spouse's name)
____________________
* Include signature and name of Optionee's spouse, if Optionee is married.
B-5
<PAGE>
SCHEDULE 1
----------
RIGHT TO EXERCISE
-----------------
Subject to the conditions set forth in this Agreement, the right to
exercise the Option shall accrue as follows:
1. With respect to ________ shares subject to the Option
(a) Commencing one year after the Grant Date, the Option may be
exercised to the extent of one-third of such shares.
(b) Commencing two years after the Grant Date, the Option may be
exercised to the extent of one-third of such shares (plus any such shares with
respect to which the Option has previously become exercisable but has not been
exercised).
(c) Commencing three years after the Grant Date, all such shares may
be exercised to the extent they have not previously been exercised.
2. With respect to __________ shares subject to the Option
(a) Commencing March 31, 1998, the Option may be exercised to the
extent of one-third of such shares if both (i) EBITDA (as defined in the Plan)
for the year ending January 3, 1998 ("'97 EBITDA") is at least $18 million and
(ii) at least 30 new stores have been opened between June 11, 1997 and March 31,
1998; in the event such shares do not become exercisable on March 31, 1998, they
will become exercisable commencing March 31, 1999, if (i) '97 EBITDA is at least
$17.1 million, (ii) the total of '97 EBITDA and EBITDA for the year ending in
December 1998 ("'98 EBITDA") is a least $40 million, and (iii) at least 30 new
stores have been opened between June 11, 1997 and March 31, 1998; in the event
that the such shares have not become exercisable pursuant to either of the
foregoing alternatives by March 31, 1999, they shall be forfeited.
(b) Commencing March 31, 1999, the Option may be exercised to the
extent of one-third of such shares (plus any such shares with respect to which
the Option has previously become exercisable but has not been exercised) if both
(i) '98 EBITDA is at least $22 million and (ii) at least 30 new stores have been
opened in the 12 month period ending March 31, 1999; in the event such shares do
not become exercisable on March 31, 1999, they will become exercisable
commencing March 31, 2000, if (i) '98 EBITDA is at least $20.9 million, (ii) the
total of '98 EBITDA and EBITDA for the year ending December 1999 ("'99 EBITDA")
is at least $48 million, and (iii) at least 30 new stores have been opened in
the 12 month period ending March 31, 1999; in the event that such shares have
not become exercisable pursuant to either of the foregoing alternatives by March
31, 2000, they shall be forfeited.
(c) Commencing March 31, 2000, the Option may be exercised to the
extent of one-third of such shares (plus any shares with respect to which the
Option has previously become exercisable but has not been exercised) if both (i)
EBITDA for the year ending in December 1999
B-6
<PAGE>
("'99 EBITDA")is at least $26 million and (ii) at least 30 new stores have been
opened in the 12 month period ending March 31, 2000; in the event such shares do
not become exercisable on March 31, 2000, they will become exercisable on March
31, 2001 if (i) '99 EBITDA is at least $24.7 million, (ii) the total of '99
EBITDA and EBITDA for the year ending December 2000 is at least $55.4 million,
and (iii) at least 30 new stores have been opened in the 12 month period ending
March 31, 2000; in the event such shares have not become exercisable pursuant to
either of the foregoing alternatives by March 31, 2001, they shall be forfeited.
B-7
<PAGE>
EXHIBIT 10.7
LEASE AGREEMENT 100,800 Square Feet
-------------------
4202 Dan Morton
---------------
Dallas, Texas 75236
-------------------
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into by and between ADAMS PROPERTY
ASSOCIATES hereinafter referred to as "Lessor", and LESLIE'S POOL MART, A
CALIFORNIA CORPORATION hereinafter referred to as "Lessee";
WITNESSETH
1. PREMISES AND TERM. In consideration of the mutual obligations of
Lessor and Lessee set forth herein, Lessor leases to Lessee, and Lessee hereby
takes from Lessor the Premises situated within the County of Dallas, State of
Texas, more particularly described on EXHIBIT "A" attached hereto and
incorporated herein by reference, (the "Premises"), together with all rights,
privileges, easements, appurtenances, and amenities belonging to or in any way
pertaining to the Premises, to have and to hold, subject to the terms, covenants
and conditions in this Lease. The term of this Lease shall commence on the
commencement date hereinafter set forth and shall end on the last day of the
month that is 120 months after the commencement date.
A. EXISTING BUILDING. As set forth in Exhibit D the commencement date
shall be _________________. Except as otherwise provided in this Lease, Lessee
acknowledges that (i) it has inspected and accepts the Premises, (ii) the
buildings and improvements comprising the same are suitable for the purpose for
which the Premises are leased, (iii) the Premises are in good and satisfactory
condition, and (iv) no representations as to the repair of the Premises, nor
promises to alter, remodel or improve the Premises have been made by Lessor
(unless otherwise expressly set forth in this Lease).
2. BASE RENT, SECURITY DEPOSIT AND ESCROW PAYMENTS.
A. Lessee agrees to pay to Lessor rent for the Premises, in advance,
without demand, deduction or set off, at the rate of _____________________
Dollars ($ * ) per month during the term hereof. One such monthly installment,
plus the other monthly charges set forth in Paragraph 2C below shall be due and
payable on the date hereof and a like monthly installment shall be due and
payable on or before the first day of each calendar month succeeding the
commencement date, except that all payments due hereunder for any fractional
calendar month shall be prorated.
B. In addition, Lessee agrees to deposit with Lessor on the date hereof
the sum of Twenty One Thousand Three Hundred Thirty-six and no/100 Dollars
($21,336.00), which shall be held by Lessor as security for the performance of
Lessee's obligations under this lease, it being expressly understood and agreed
that this deposit Is not an advance rental deposit or a measure of Lessor's
damages in case of Lessee's default. Upon each occurrence of an event of
default, Lessor may use all or part of the deposit to pay past due rent or other
payments due Lessor under this Lease, and the cost of any other damage, injury,
expense or liability caused by such event of default without prejudice to any
other remedy provided herein or provided by law. On demand, Lessee shall pay
Lessor the amount that will restore the security deposit to its original amount.
The security deposit shall be deemed the property of Lessor, but any remaining
balance of such deposit shall be returned by Lessor to Lessee when Lessee's
obligations under this Lease have been fulfilled.
C. Lessee agrees to pay its proportionate share (as defined in Paragraph
22B below) of (i) Taxes (hereinafter defined) payable by Lessor pursuant to
paragraph 3A below, (ii) the cost of utilities payable pursuant to paragraph B
below, (iii) the cost of maintaining insurance pursuant to paragraph 9 below,
(iv) the cost of any common area charges payable by Lessee in accordance with
paragraph 4 below and (v) the cost of security provided to the Premises as set
forth in paragraph 23 below. During each month of the term of this Lease, on the
same day that rent is due hereunder, Lessee shall escrow with Lessor an amount
equal to 1/12 of the estimated annual cost of its proportionate share of such
items. Lessee authorizes Lessor to use the funds deposited with Lessor under
this Paragraph 2C to pay such costs. The initial monthly escrow payments are
based upon the estimated amounts for the year in question, and shall be
increased or decreased annually to reflect the projected actual cost of all such
items. If the Lessee's total escrow payments are less than Lessee's actual
proportionate share of all such items, Lessee shall pay the difference to Lessor
within ten (10) days after demand. If the total escrow payments of Lessee are
more than Lessee's actual proportionate share of all such items, Lessor shall
retain such excess and credit it against Lessee's next annual escrow payments.
The amount of the monthly rental and the initial monthly escrow payments are as
follows:
<TABLE>
<S> <C>
(1) Base Rent as set forth in Paragraph 2A (Months 1-36)..... $15,456.00
----------
(2) Tax Escrow Payment....................................... $ 3,108.00
----------
(3) Insurance Escrow Payment................................. $ 252.00
----------
(4) Utility Charge........................................... $ ----
----------
(5) Common Area Charge....................................... $ 168.00
----------
(6) Security Services........................................ $ ----
----------
(7) Other.................................................... $
----------
Monthly Payment Total.................................... $18,984.00
==========
</TABLE>
Months 1-36: $15,456.00
Months 37-72: $20,496.00
Months 73-96: $25,956.00
Months 97-120: $26,376.00
1
<PAGE>
3. TAXES.
A. Lessor agrees to pay all taxes, assessments and governmental charges
of any kind and nature (collectively referred to herein as "Taxes") that accrue
against the Premises, and/or the land and/or improvements of which the Premises
are a part. If at any time during the term of this Lease, the present method of
taxation shall be changed so that in lieu of assessments imposed on real estate
and improvements thereon, there shall be levied, assessed or imposed on Lessor a
capital levy or other tax directly on the rents received therefrom and/or a
franchise tax, assessment, levy or charge measured by or based, in whole or in
part, upon such rents from the Premises and/or the land and improvements of
which the Premises are a part, then all such taxes, assessments, levies or
charges, or the part, thereof so measured or based, shall be deemed to be
included within the term "Taxes" for the purposes hereof. The Lessor shall have
the right to employ a tax consulting firm to attempt to assure a fair tax burden
on the building and grounds within the applicable taxing jurisdiction. Lessee
agrees to pay its proportionate share of the cost of such consultant.
B. Lessee shall be liable for all taxes levied or assessed against any
personal property or fixtures placed in the Premises. If any such taxes are
levied or assessed against Lessor or Lessor's property and (i) Lessor pays the
same or (ii) the assessed value of Lessor's property is increased by inclusion
of such personal property and fixtures and Lessor pays the increased taxes,
then, upon demand Lessee shall pay to Lessor such taxes.
4. LESSOR'S REPAIRS.
A. Lessor, at its own cost and expense, shall maintain the roof,
foundation and the structural soundness of the exterior walls of the building of
which the Premises are a part in good repair, reasonable wear and tear excluded.
The term "walls" as used herein shall not include windows, glass or plate glass,
doors, special store fronts or office entries. Lessee shall immediately give
Lessor written notice of defect or need for repairs, after which Lessor shall
have reasonable opportunity to repair same or cure such defect.
B. Lessor reserves the right to perform the paving, common area and
landscape replacement and maintenance, exterior painting, common sewage line
plumbing and any other items that are otherwise Lessee's obligations under
Paragraph 5A, in which event, Lessee shall be liable for its proportionate share
of the cost and expense of such repair, replacement, maintenance and other such
items.
C. Lessee agrees to pay its proportionate share of the cost of (i)
maintenance and/or landscaping of any property that is a part of the building
and/or project of which the Premises are a part, (ii) maintenance and/or
landscaping of any property that is maintained or landscaped by any property
owner or community owner association that is named in the restrictive covenants
or deed restrictions to which the Premises are subject, and (iii) operating and
maintaining any property, facilities or services provided for the common use of
Lessee and other lessees of any project or building of which the Premises are a
part.
5. LESSEE'S REPAIRS.
A. Lessee, at its own cost and expense, shall (i) maintain all parts of
the Premises, landscape and grounds surrounding the Premises (except those for
which Lessor is expressly responsible hereunder) in good condition, (ii)
promptly make all necessary repairs and replacements, (iii) keep the parking
areas, driveways and alleys surrounding the Premises in a clean and sanitary
condition, and (iv) maintain any spur track servicing the Premises, Lessee
agrees to sign a joint maintenance agreement with the railroad company servicing
the Premises if requested by the railroad company. Lessor shall have the right
to coordinate all repairs and maintenance of any rail tracks serving or intended
to serve the Premises and, if Lessee uses such rail tracks, Lessee shall
reimburse Lessor from time to time, upon demand, for its proportionate share of
the costs of such repairs and maintenance and any other sums specified in any
agreement respecting such tracks to which Lessor is a party.
B. Lessee and its employees, customers and licensees shall have the
exclusive rights to use any parking areas that have been designated for such use
by Lessor in writing, subject to (i) all rules and regulations promulgated by
Lessor and (ii) rights of ingress and egress of other lessees. Lessor shall not
be responsible for enforcing Lessee's parking rights against any third parties.
Lessee agrees not to use more spaces than so provided.
C. Lessee, at its own cost and expense, shall enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
approved by Lessor for servicing all hot water, heating and air conditioning
systems and equipment within the Premises. The service contract must include
all services suggested by the equipment manufacturer in its
operations/maintenance manual and must become effective within thirty (30) days
of the date Lessee takes possession of the Premises.
6. ALTERATIONS. Lessee shall not make any alterations, additions or
improvements to the Premises without the prior written consent of Lessor.
Lessee, at its own cost and expense, may erect such shelves, bins, machinery and
trade fixtures as it desires provided that (a) such items do not alter the basic
character of the Premises or the building and/or improvements of which the
Premises are a part; (b) such items do not overload or damage the same; (c) such
items may be removed without injury to the Premises; and (d) the construction,
erection or installation thereof complies with all applicable governmental laws,
ordinances, regulations and with Lessor's specifications and requirements. All
alterations, additions, improvements and partitions erected by Lessee shall be
and remain the property of Lessee during the term of this Lease. All shelves,
bins, machinery and trade fixtures installed by Lessee shall be removed on or
before the earlier to occur of the date of termination of this Lease or vacating
the Premises, at which time Lessee shall restore the Premises to their original
condition except for reasonable wear and tear. All alterations, installations,
removals and restoration shall be performed in a good and workmanlike manner so
as not to damage or alter the primary structure or structural qualities of the
buildings and other improvements situated on the Premises or of which the
Premises are a part.
7. SIGNS. Any signage Lessee desires for the Premises shall be subject
to Lessor's written approval and shall be submitted to Lessor prior to the
commencement date of this Lease. Lessee shall repair, paint, and/or replace the
building facial surface to which its signs are attached upon vacation of the
Premises, or the removal or alteration of its signage. Lessee shall not, (i)
make any changes to the exterior of the Premises, (ii) install any exterior
lights, decorations, balloons, flags, pennants, banners or painting, or (iii)
erect or install any signs, windows or door lettering, placards, decorations or
advertising media of any type which can be viewed from the exterior of the
Premises, without Lessor's prior written consent. All signs, decorations,
advertising media, blinds, draperies and other window treatment or bars or other
security installations visible from outside the Premises shall conform in all
respects to the criteria established by Lessor.
8. UTILITIES. Lessor agrees to provide normal water and electricity
service to the Premises. Lessee shall pay for all water, gas, heat, light,
power, telephone, sewer, sprinkler charges and other utilities and services used
on or at the Premises, together with any taxes, penalties, surcharges or the
like pertaining to the Lessee's use of the Premises, and any maintenance charges
for utilities. Lessor shall have the right to cause any of said services to be
separately metered to Lessee, at Lessee's expense. Lessee shall pay its pro
rata share, as reasonably determined by Lessor, of all charges for jointly
metered utilities. Lessor shall not be liable for any interruption or failure
of utility service on the Premises.
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9. INSURANCE.
A. Lessor shall maintain insurance covering the buildings situated on the
Premises or of which the Premises are a part in an amount not less than eighty
percent (80%) of the "replacement cost" thereof insuring against the perils of
Fire, Lightning, Extended Coverage, Vandalism and Malicious Mischief.
B. Lessee, at its own expense, shall maintain during the term of this
Lease a policy or policies of worker's compensation and comprehensive general
liability insurance, including personal injury and property damage, with
contractual liability endorsement. In the amount of Five Hundred Thousand
Dollars ($500,000.00) for property damage and One Million Dollars
($1,000,000.00) per occurrence for personal injuries or deaths of persons
occurring in or about the Premises. Lessee, at its own expense, also shall
maintain during the term of this Lease, fire and extended coverage insurance
covering the replacement cost of (i) all alterations, additions, partitions and
improvements installed or placed on the Premises by Lessee or by Lessor on
behalf of Lessee and (ii) all of Lessee's personal property contained within the
Premises. Said policies shall (i) be issued by an insurance company which is
acceptable to Lessor, and (ii) provide that said insurance shall not be
cancelled unless thirty (30) days prior written notice shall have been given to
Lessor. Said policy or policies or certificates thereof shall be delivered to
Lessor by Lessee upon commencement of the term of the Lease and upon each
renewal of said insurance.
C. Lessee will not permit the Premises to be used for any purpose or in
any manner that would (i) void the insurance thereon, (ii) increase the
insurance risk, or (iii) cause the disallowance of any sprinkler credits. If
any increase in the cost of any insurance on the Premises or the building of
which the Premises are a part is caused by Lessee's use of the Premises, or
because Lessee vacates the Premises, then Lessee shall pay the amount of such
increase to Lessor.
10. FIRE AND CASUALTY DAMAGE.
A. If the Premises or the building of which the Premises are a part
should be damaged or destroyed by fire or other peril, Lessee immediately shall
give written notice to Lessor. If the buildings situated upon the Premises or
of which the Premises are a part should be totally destroyed by any peril not
covered by the insurance to be provided by Lessor under Paragraph 9A above, or
if they should be so damaged thereby that, in Lessor's reasonable estimation,
rebuilding or repairs cannot be completed within one hundred eighty (180) days
after the date of such damage, this Lease shall terminate and the rent shall be
abated during the unexpired portion of this Lease, effective upon the date of
the occurrence of such damage.
B. If the buildings situated upon the Premises or of which the Premises
are a part, should be damaged by any peril covered by the insurance to be
provided by Lessor under Paragraph 9A above, and in Lessor's reasonable
estimation, rebuilding or repairs can be substantially completed within one
hundred eighty (180) days after the date of such damage, this Lease shall not
terminate, and Lessor shall restore the Premises to substantially its previous
condition, except that Lessor shall not be required to rebuild, repair or
replace any part of the partitions, fixtures, additions and other improvements
that may have been constructed, erected or installed in, or about the Premises
or for the benefit of, or by or for Lessee. If such repairs and rebuilding have
not been substantially completed within one hundred eighty (180) days after the
date of such damage, Lessee, as Lessee's exclusive remedy, may terminate this
Lease by delivering written notice of termination to Lessor in which event the
rights and obligations hereunder shall cease and terminate.
C. Notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
Premises requires that the insurance proceeds be applied to such indebtedness,
then Lessor shall have the right to terminate this Lease by delivering written
notice of termination to Lessee within fifteen (15) days after such requirement
is made known by any such holder, whereupon all rights and obligations hereunder
shall cease and terminate.
D. Anything in this Lease to the contrary notwithstanding, Lessor and
Lessee hereby waive and release each other of and from any and all rights of
recovery, claim, action or cause of action, against each other, their agents,
officers and employees, for any loss or damage that may occur to the Premises,
improvements to the building of which the Premises are a part, or personal
property (building contents) within the building and/or Premises, for any reason
regardless of cause or origin. Each party to this Lease agrees immediately
after execution of this Lease to give each insurance company, which has issued
to its policies of fire and extended coverage insurance, written notice of the
terms of the mutual waivers contained in this subparagraph, and if necessary, to
have the insurance policies properly endorsed.
12. USE. The Premises shall be used only for the purpose of receiving,
storing, shipping and selling (other than retail) products, materials and
merchandise made and/or distributed by Lessee and Lessee's permitted assigns for
such other lawful purposes as may be incidental thereto. Outside storage,
including without limitation, storage of trucks and other vehicles, is
prohibited without Lessor's prior written consent. Lessee shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
Premises, and promptly shall comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the Premises, all at Lessee's sole expense. Lessee shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the Premises, nor take any other action that would
constitute a nuisance or would disturb, unreasonably interfere with, or endanger
Lessor or any other lessees of the building in which the Premises are a part.
13. INSPECTION. Lessor and Lessor's agents and representatives shall have
the right to enter the Premises at any reasonable time during business hours, to
inspect the Premises and to make such repairs as may be required or permitted
pursuant to this Lease. During the period that is six (6) months prior to the
end of the Lease term, upon telephonic notice to Lessee, Lessor and Lessor's
representatives may enter the Premises during business hours for the purpose of
showing the Premises. In addition, Lessor shall have the right to erect a
suitable sign on the Premises stating the Premises are available. Lessee shall
notify Lessor in writing at least thirty (30) days prior to vacating the
Premises and shall arrange to meet with Lessor for a joint inspection of the
Premises prior to
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vacating. If Lessee fails to give such notice or to arrange for such inspection,
then Lessor's inspection of the Premises shall be deemed correct for the purpose
of determining Lessee's responsibility for repairs and restoration of the
Premises.
14. ASSIGNMENT AND SUBLETTING.
A. Lessee shall have the right to assign, sublet, transfer or encumber
this Lease, or any interest therein, with the prior written consent of Lessor,
which consent will not be unreasonably withheld. Any attempted assignment,
subletting, transfer or encumbrance by Lessee in violation of the terms and
covenants of this Paragraph shall be void. Notwithstanding the foregoing,
Lessee shall have the right to assign this Lease to any affiliate (as such term
is defined in the Securities Act of 1933) provided that such assignment is in
form satisfactory to Lessor. Any assignee, sublessee or transferee of Lessee's
interest in this Lease (all such assignees, sublessees and transferees being
hereinafter referred to as "Transferees"), by assuming Lessee's obligations
hereunder, shall assume liability to Lessor for all amounts paid to persons
other than Lessor by such Transferees in contravention of this Paragraph. No
assignment, subletting or other transfer, whether consented to by Lessor or not
or permitted hereunder shall relieve Lessee of its liability hereunder. If an
event of default occurs while the Premises or any part thereof are assigned or
sublet, then Lessor, in addition to any other remedies herein provided, or
provided by law, may collect directly from such Transferee all rents payable to
the Lessee and apply such rent against any sums due Lessor hereunder. No such
collection shall be construed to constitute a novation or a release of Lessee
from the further performance of Lessee's obligations hereunder. The sale or
transfer of Lessee's stock is not a prohibited assignment.
B. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, 11 U.S.C. (S) 101 et seq., (the "Bankruptcy
Code"), any and all monies or other consideration payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Lessor, shall be and remain the exclusive property of Lessor and shall not
constitute property of Lessee or of the estate of Lessee within the meaning of
the Bankruptcy Code. Any and all monies or other considerations constituting
Lessor's property under the preceding sentence not paid or delivered to Lessor
shall be held in trust for the benefit of Lessor and be promptly paid or
delivered to Lessor.
C. Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or deed,
to have assumed all of the obligations arising under this Lease on and after the
date of such assignment. Any such assignee shall upon demand execute and
deliver to Lessor an instrument confirming such assumption.
15. CONDEMNATION. If more than eight percent (80%) of the Premises are
taken for any public or quasi-public use under governmental law, ordinance or
regulation, or by right of eminent domain, or by private purchase in lieu
thereof and the taking prevents or materially interferes with the use of the
Premises for the purpose for which they were leased to Lessee, this Lease shall
terminate and the rent shall be abated during the unexpired portion of this
Lease, effective on the date of such taking. If less than eighty percent (80%)
of the Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation, or by right of eminent domain, or by
private purchase in lieu thereof, this Lease shall not terminate, unless
Lessor's and Lessee's determination that such condemnation so significantly
impairs the purposes of this Lease that its legitimate intended uses are no
longer practical but the rent payable hereunder during the unexpired portion of
this Lease shall be reduced to such extent as may be fair and reasonable under
all of the circumstances. All compensation awarded in connection with or as a
result of any of the foregoing proceedings shall be the property of Lessor and
Lessee hereby assigns any interest in any such award to Lessor; provided,
however, Lessor shall have no interest in any award made to Lessee for loss of
business or goodwill or for the taking of Lessee's fixtures and improvements, if
a separate award for such items is made to Lessee.
16. HOLDING OVER. At the termination of this Lease by its expiration or
otherwise, Lessee immediately shall deliver possession to Lessor with all
repairs and maintenance required herein to be performed by Lessee completed.
If, for any reason, Lessee retains possession of the Premises after the
expiration or termination of this Lease, unless the parties hereto otherwise
agree in writing, such possession shall be subject to termination by either
Lessor or Lessee at any time upon not less than ten (10) days advance written
notice, and all of the other terms and provisions of this Lease shall be
applicable during such period, except that Lessee shall pay Lessor from time to
time, upon demand, as rental for the period of such possession, an amount equal
to 150% the rent in effect on the termination date, computed on a daily basis
for each day of such period. No holding over by Lessee, whether with or without
consent of Lessor shall operate to extend this Lease except as otherwise
expressly provided. The preceding provisions of this Paragraph 16 shall not be
construed as consent for Lessee to retain possession of the Premises in the
absence of written consent thereto by Lessor.
17. QUIET ENJOYMENT. Lessor covenants that on or before the commencement
date it will have good title to the Premises, free and clear of all liens and
encumbrances, excepting only the lien for current taxes not yet due, such
mortgage or mortgages as are permitted by the terms of this Lease, zoning
ordinances and other building and fire ordinances and governmental regulations
relating to the intended use of such property, and easements, restrictions and
other conditions of record. If this Lease is a sublease, then Lessee agrees to
take the Premises subject to the provisions of the prior Leases. Lessor
represents that it has the authority to enter into this Lease and that so long
as Lessee pays all amounts due hereunder and performs all other covenants and
agreements herein set forth, Lessee shall peaceably and quietly have, hold and
enjoy the Premises for the term hereof without hindrance or molestation from
Lessor, subject to the terms and provisions of this Lease.
18. EVENTS OF DEFAULT. The following events (herein individually referred
to as "event of default") each shall be deemed to be events of nonperformance by
Lessee under this Lease:
A. Lessee shall fail to pay any installment of the rent herein
reserved when due, or any other payment or reimbursement to Lessor required
herein when due, and such failure shall continue for a period of five (5)
days following written notice of such failure. For purposes of this
Section 18A., "written notice" shall include Lessor's standard invoicing
documents.
B. The Lessee or any guarantor of the Lessee's obligations hereunder
shall (i) become insolvent; (ii) admit in writing its inability to pay its
debts; (iii) make a general assignment for the benefit of creditors; (iv)
commence any case, proceeding or other action seeking to have an order for
relief entered on its behalf as a debtor or to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidation,
dissolution or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors or seeking
appointment of a receiver, trustee, custodian or other similar official for
it or for all or of any substantial part of its property; or (v) take any
action to authorize or in contemplation of any of the actions set forth
above in this Paragraph.
C. Any case, proceeding or other action against the Lessee or any
guarantor of the Lessee's obligations hereunder shall be commenced seeking
(i) to have an order for relief entered against it as debtor or to
adjudicate it a bankrupt or insolvent; (ii) reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts
under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors; (iii) appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property,
and such case, proceeding or other action (a) results in the entry of an
order for relief against it which it is not fully stayed within seven (7)
business days after the entry thereof or (b) shall remain undismissed for a
period of forty-five (45) days.
D. Lessee shall (i) vacate all or a substantial portion of the
Premises or (ii) fail to continuously operate its business at the Premises
for the permitted use set forth herein, whether or not Lessee is in default
of the rental payments due under this Lease.
E. Lessee shall fail to discharge any lien placed upon the Premises
in violation of Paragraph 21 hereof within twenty (20) days after any such
lien or encumbrance is filed against the Premises.
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F. Lessee shall fail to comply with any term, provision or covenant
of the Lease (other than those listed in this Paragraph 18), and shall not
cure or commence to cure such failure within thirty (30) days after written
notice thereof to Lessee and thereafter diligently prosecute such cure to
completion.
19. REMEDIES.
A. Upon each occurrence of an event of default, Lessor shall have the
option to pursue any one or more of the following remedies without any notice or
demand:
(1) Terminate this Lease; and/or
(2) Enter upon and take possession of the Premises without terminating
this Lease; and/or
(3) Alter all locks and other security devices at the Premises with or
without terminating this Lease, and pursue, at Lessor's option, one or more
remedies pursuant to this Lease, Lessee hereby specifically waiving any
state or federal law to the contrary;
and in any such event Lessee immediately shall surrender the Premises to Lessor,
and if Lessee fails so to do, Lessor, without waiving any other remedy it may
have, may enter upon and take possession of the Premises and expel or remove
Lessee and any other person who may be occupying such Premises or any part
thereof, without being liable for prosecution or any claim of damages therefor.
B. If Lessor terminates this Lease, at Lessor's option, Lessee shall be
liable for and shall pay to Lessor, the sum of all rental and other payments
owed to Lessor hereunder accrued to the date of such termination, plus, as
liquidated damages, an amount equal to (1) the present value of the total rental
and other payments owed hereunder for the remaining portion of the Lease term,
calculated as if such term expired on the date set forth in Paragraph 1, less
(2) the then present fair market rental value of the Premises for such period,
which because of the difficulty of ascertaining such value, Lessor and Lessee
stipulate and agree, shall in no event be deemed to exceed seventy-five percent
(75%) of the rental amount set forth in Paragraph 2 above.
C. If Lessor repossesses the Premises without terminating the Lease,
Lessee, at Lessor's option, shall be liable for and shall pay Lessor on demand
all rental and other payments owed to Lessor hereunder, accrued to the date of
such repossession, plus all amounts required to be paid by Lessee to Lessor
until the date of expiration of the term as stated in Paragraph 1, diminished by
all amounts received by Lessor through reletting the Premises during such
remaining term (but only to the extent of the rent herein reserved). Actions to
collect amounts due by Lessee to Lessor under this subparagraph may be brought
from time to time, on one or more occasions, without the necessity of Lessor's
waiting until expiration of the Lease term.
D. Upon an event of default, in addition to any sum provided to be paid
herein, Lessee also shall be liable for and shall pay to Lessor (i) brokers'
fees incurred by Lessor in connection with reletting the whole or any part of
the Premises; (ii) the costs of removing and storing Lessee's or other
occupant's property; (iii) the costs of repairing, altering, remodeling or
otherwise putting the Premises into condition acceptable to a new Lessee or
Lessees; and (iv) all reasonable expenses incurred by Lessor in enforcing or
defending Lessor's rights and/or remedies. If either party hereto institute any
action or proceeding to enforce any provision hereof by reason of any alleged
breach of any provision of this Lease, the prevailing party shall be entitled to
receive from the losing party all reasonable attorneys' fees and all court costs
in connection with such proceeding.
E. In the event Lessee fails to make any payment due hereunder within 15
days of when payment is due, to help defray the additional cost to Lessor for
processing such late payments, Lessee shall pay to Lessor on demand a late
charge in an amount equal to five percent (5%) of such installment; and the
failure to pay such amount within ten (10) days after demand therefor shall be
an additional event of default hereunder. The provision for such late charge
shall be in addition to all of Lessor's other rights and remedies hereunder or
at law and shall not be construed as liquidated damages or as limiting Lessor's
remedies in any manner.
F. Exercise by Lessor of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
Premises by Lessor, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Lessor and Lessee. Lessee and Lessor further agree that forbearance by Lessor
to enforce its rights pursuant to the Lease at law or in equity, shall not be a
waiver of Lessor's right to enforce one or more of its rights in connection with
any subsequent default.
G. In the event of termination and/or repossession of the Premises for an
event of default, Lessor shall use reasonable efforts to relet the Premises and
to collect rental after reletting; provided, that, Lessee shall not be entitled
to credit or reimbursement of any proceeds in excess of the rental owed
hereunder. Lessor may relet the whole or any portion of the Premises for any
period, to any Lessee and for any use and purpose.
H. If Lessor fails to perform any of its obligations hereunder within
thirty (30) days after written notice from Lessee specifying such failure,
Lessee's exclusive remedy shall be an action for damages, except as stated to
the contrary in this Lease. Unless and until Lessor fails to so cure any
default after such notice, Lessee shall not have any remedy or cause of action
by reason thereof. All obligations of Lessor hereunder will be construed as
covenants, not conditions; and all such obligations will be binding upon Lessor
only during the period of its possession of the Premises and not thereafter.
The term "Lessor" shall mean only the owner, for the time being of the Premises,
and in the event of the transfer by such owner of its interest in the Premises,
such owner shall thereupon be released and discharged from all covenants and
obligations of the Lessor thereafter accruing, but such covenants and
obligations shall be binding during the Lease term upon each new owner for the
duration of such owner's ownership. Notwithstanding any other provision hereof,
Lessor shall not have any personal liability hereunder. In the event of any
breach or default by Lessor in any term or provision of this Lease, Lessee
agrees to look solely to the equity or interest then owned by Lessor in the
Premises or of the building of which the Premises are a part; however, in no
event, shall any deficiency judgment or any money judgment of any kind be sought
or obtained against any Lessor.
I. If Lessor repossesses the Premises pursuant to the authority herein
granted, then Lessor shall have the right to (i) keep in place and use or (ii)
remove and store all of the furniture, fixtures and equipment at the Premises,
including that which is owned by or leased to Lessee at all times prior to any
foreclosure thereon by Lessor or repossession thereof by any Lessor thereof or
third party having a lien thereon. Lessor also shall have the right to
relinquish possession of all or any portion of such furniture, fixtures,
equipment and other property to any person ("Claimant") who presents to Lessor a
copy of any instrument represented by Claimant to have been executed by Lessee
(or any predecessor of Lessee) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other
property, without the necessity on the part of Lessor to inquire into the
authenticity or legality of said instrument. The rights of Lessor herein stated
shall be in addition to any and all other rights that Lessor has or may
hereafter have at law or in equity; and Lessee stipulates and agrees that the
rights herein granted Lessor are commercially reasonable.
J. Notwithstanding anything in this Lease to the contrary, all amounts
payable by Lessee to or on behalf of Lessor under this Lease, whether or not
expressly denominated as rent, shall constitute rent.
K. This is a contract under which applicable law excuses Lessor from
accepting performance from (or rendering performance to) any person or entity
other than Lessee.
L. Lessor shall at all times use its best efforts to mitigate its
damages.
20. MORTGAGES. Lessee accepts this Lease subject and subordinate to any
mortgages and/or deeds of trust now or at any time hereafter constituting a lien
or charge upon the Premises or the improvements situated thereon or the building
of which the Premises are a part, provided, however, that if the mortgagee,
trustee, or holder of any such mortgage or deed of trust elects to have Lessee's
interest in this Lease superior to any such instrument, then by notice to Lessee
from such mortgagee, trustee or holder, this Lease shall be deemed superior to
such lien, whether this Lease was executed before or after said mortgage or deed
of trust. Lessee, at any time
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hereafter on demand, shall execute any instruments, releases or other documents
that may be required by any mortgagee for the purpose of subjecting and
subordinating this Lease to the lien of any such mortgage. See Exhibit D
Paragraph "O".
21. MECHANIC'S LIENS. Lessee has no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind the interest of Lessor or Lessee in the Premises or to
charge the rentals payable hereunder for any claim in favor of any person
dealing with Lessee, including those who may furnish materials or perform labor
for any construction or repairs. Lessee covenants and agrees that it will pay
or cause to be paid all sums legally due and payable by it on account of any
labor performed or materials furnished in connection with any work performed on
the Premises and that it will save and hold Lessor harmless from any and all
loss, cost or expense based on or arising out of asserted claims or liens
against the leasehold estate or against the right, title and interest of the
Lessor in the Premises or under the terms of this Lease. Lessee agrees to give
Lessor immediate written notice of the placing of any lien or encumbrance
against the Premises.
22. MISCELLANEOUS.
A. Words of any gender used in this Lease shall be held and construed to
include any other gender, and words in the singular number shall be held to
include the plural, unless the context otherwise requires. The captions
inserted in this Lease are for convenience only and in no way define, limit or
otherwise describe the scope or intent of this Lease, or any provision hereof,
or in any way affect the interpretation of this Lease.
B. In the event the Premises constitute a portion of a multiple occupancy
building, Lessee's "proportionate share", as used in this Lease, shall mean a
fraction, the numerator of which is the space contained in the Premises and the
denominator of which is the entire space contained in the building.
C. The terms, provisions and covenants and conditions contained in this
Lease shall run with the land and shall apply to, inure to the benefit of, and
be binding upon, the parties hereto and upon their respective heirs, executors,
personal representatives, legal representatives, successors and assigns, except
as otherwise herein expressly provided. Lessor shall have the right to transfer
and assign, in whole or in part, its rights and obligations in the building and
property that are the subject of this Lease. Each party agrees to furnish to
the other, promptly upon demand, a corporate resolution, proof of due
authorization by partners, or other appropriate documentation evidencing the due
authorization of such party to enter into this Lease.
D. Lessor shall not be held responsible for delays in the performance of
its obligations hereunder when caused by material shortages, acts of God or
labor disputes.
E. Lessee agrees, from time to time, within ten (10) days after request
of Lessor, to deliver to Lessor, or Lessor's designee, a Certificate of
Occupancy and an estoppel certificate stating that this Lease is in full force
and effect, the date to which rent has been paid, the unexpired term of this
Lease and such other factual matters pertaining to this Lease as may be
requested by Lessor. It is understood and agreed that Lessee's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Lessor's execution of this Lease. Lessee shall have a reciprocal right to
receive an estoppel certificate from Lessor upon 10 days written demand.
F. This Lease constitutes the entire understanding and agreement of the
Lessor and Lessee with respect to the subject matter of this Lease, and contains
all of the covenants and agreements of Lessor and Lessee with respect thereto.
Lessor and Lessee each acknowledge that no representations, inducements,
promises or agreements, oral or written, have been made by Lessor or Lessee, or
anyone acting on behalf of Lessor or Lessee, which are not contained herein, and
any prior agreements, promises, negotiations, or representations not expressly
set forth in this Lease are of no force or effect. This Lease may not be
altered, changed or amended except by an instrument in writing signed by both
parties hereto.
G. All obligations of Lessee hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation, all payment obligations with respect to taxes and insurance and all
obligations concerning the condition and repair of the Premises. Upon the
expiration or earlier termination of the term hereof, and prior to Lessee
vacating the Premises, Lessee shall pay to Lessor any amount reasonably
estimated by Lessor as necessary to put the Premises, including without
limitation, all heating and air conditioning systems and equipment therein, in
good condition and repair, reasonable wear and tear excluded, Lessee shall also,
prior to vacating the Premises pay to Lessor the amount, as estimated by Lessor,
of Lessee's obligation hereunder for real estate taxes and insurance premiums
for the year in which the Lease expires or terminates. All such amounts shall
be used and held by Lessor for payment of such obligations of Lessee hereunder,
with Lessee being liable for any additional costs therefor upon demand by
Lessor, or with any excess to be returned to Lessee after all such obligations
have been determined and satisfied as the case may be. Any security deposit
held by Lessor shall be credited against the amount due from Lessee under this
Paragraph 22G.
H. If any clause or provision of this Lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
Lease, then and in that event, it is the intention of the parties hereto that
the remainder of this Lease shall not be affected thereby, and it is also the
intention of the parties to this Lease that in lieu of each clause or provision
of this Lease that is illegal, invalid or unenforceable, there be added, as a
part of this Lease, a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
I. All references in this Lease to "the date hereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this Lease.
J. Lessee represents and warrants that it has dealt with no broker, agent
or other person in connection with this transaction or that no broker, agent or
other person brought about this transaction, other than Harry B. Lucas
Commercial & Industrials, Inc. and Lessee agrees to indemnify and hold Lessor
harmless from and against any claims by any other broker, agent or other person
claiming a commission or other form of compensation by virtue of having dealt
with Lessee with regard to this leasing transaction.
K. If and when included within the term "Lessor", as used in this
instrument, there is more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address for the receipt of notices
and payments to Lessor. If and when included within the term "Lessee", as used
in this instrument, there is more than one person, firm or corporation, all
shall jointly arrange among themselves for their joint execution of a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Lessee. All parties
included within the terms "Lessor" and "Lessee", respectively shall be bound by
notices given in accordance with the provisions of Paragraph 25 hereof to the
same effect as if each had received such notice.
23. SECURITY SERVICE. Lessee agrees to pay the proportionate share of the
cost of monitoring, repair and maintenance of the burglar alarm systems, water
flow detection systems and other protective security equipment installed on the
Premises and/or the building of which the Premises are a part, including the
cost of any license or permit or user charge required for such security systems.
Lessor has entered into an agreement with a third party for the monitoring,
maintenance and repair. Lessor shall not be liable to Lessee for any damages,
costs or expenses which occur for any reason in the event such security system
is not properly installed, monitored or maintained.
24. NOTICES. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivering of notice or the making of any payment by
Lessor to Lessee or with reference to the sending, mailing or delivering of any
notice or the
<PAGE>
making of any payment by Lessee to Lessor shall be deemed to be complied with
when and if the following steps are taken:
(a) All rent and other payments required to be made by Lessee to
Lessor hereunder shall be payable to Lessor at the address for Lessor set
forth below or at such other address as Lessor may specify from time to
time by written notice delivered in accordance herewith. Lessee's
obligation to pay rent and any other amounts to Lessor under the terms of
this Lease shall not be deemed satisfied until such rent and other amounts
have been actually received by Lessor. In addition to base rental due
hereunder, all sums of money and all payments due Lessor hereunder shall be
deemed to be additional rental owed to Lessor.
(b) All payments required to be made by Lessor to Lessee hereunder
shall be payable to Lessee at the address set forth below, or at such other
address within the continental United States as Lessee may specify from
time to time by written notice delivered in accordance herewith.
(c) Any written notice or document required or permitted to be
delivered hereunder shall be deemed to be delivered whether actually
received or not when deposited in the United States Mail, postage prepaid,
Certified or Registered Mail, addressed to the parties hereto at the
respective addresses set out below, or at such other address as they have
theretofore specified by written notice delivered in accordance herewith.
25. ADDITIONAL PROVISIONS. See Exhibits A-F attached hereto and
incorporated by reference herein, the provisions of which shall supersede and
control the provisions of Sections 1-25 of this Lease to the extent of any
inconsistency.
EXECUTED BY LESSOR, this 30th day of August, 1990.
Attest/Witness ADAMS PROPERTY ASSOCIATES
-------------------------
/s/ Diana Brown By: /s/ Adams Property Associates
- ---------------------------- -------------------------------
Title: Title: Vice President
---------------------- -----------------------
ADDRESS:
333 Texas Street
-----------------------------
Suite 1450
-----------------------------
Shreveport, Louisiana 71101
-----------------------------
-----------------------------
EXECUTED BY LESSEE, this 15th day of August, 1990.
LESLIE'S POOL MART
------------------
Attest/Witness A CALIFORNIA CORPORATION
/s/ Cheryl L. Ellicott By: /s/ Hugh Pierce
- --------------------------- ----------------------------
Title: Title: EVP
--------------------- -------------------------
ADDRESS:
20222 Plummer Street
----------------------------------
P.O. Box 2108
----------------------------------
Chatsworth, California 91313-2108
----------------------------------
----------------------------------
By
--------------------------------
7
<PAGE>
EXHIBIT A
---------
100,800 square feet of the western section (designated as Space 100 on page
two of this Exhibit "A") of the property described as follows:
Being situated in the John J. Metcalf Survey, Abstract No. 885, and located
in City Block 8032, City of Dallas, Dallas Country, Texas, and being more
particularly described as follows:
Beginning at a point in the north line of Ledbetter Drive, said point
being 10.0 feet east. of the east line of Dan Morton Drive as shown on
the file plat of Dedication of' Dan Morton Drive and Investment Drive
Redbird Industrial Park West, an addition to the City of Dallas,
Texas, according to the plat thereof recorded in Volume 77083, at page
0008 of the Deed Records of Dallas Country, Texas;
Thence North 45 degrees 16 minutes West 14.16 feet to corner; Thence
North 0 decrees 21 minutes West along the east line of Dan Morton
Drive 1119.0 feet to corner;
Thence North 89 degrees 38 minutes, 30 seconds east 400.0 feet to
corner; Thence South 0 degrees 21 minutes 30 seconds east 1130.24 feet
to corner; Thence South 89 degrees 49 minutes 10 seconds west along
the north line of Ledbetter Drive 390.0 feet to place of beginning.
This tract of land contains 451,798 square feet or 10.2/19 acres of land.
Being now known as Lot 1 in Block 5/8032 of the SIXTH SECTION OF RED BIRD
INDUSTRIAL PARK WEST, an Addition to the City of Dallas, Texas, according
to the Map thereof as recorded, in Volume 79218, Page 1062, Map Records,
Texas.
<PAGE>
EXHIBIT A
---------
(CONTINUED)
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT B
HAZARDOUS SUBSTANCES
--------------------
The term "Hazardous Substances," as used in this Lease shall mean
pollutants, contaminants, toxic or hazardous wastes, or any other substances,
the removal of which is required or the use of Which is restricted, prohibited
or penalized by an "Environmental Law," which term shall mean any federal, state
or local law, ordinance or other statute of a governmental or quasi-governmental
authority relating to pollution or protection of the environment.
Lessee hereby agrees that:
1. No activity will be conducted on the Premises that will produce any
Hazardous Substance except for such activities that are necessary or useful
to Lessee's legitimate business activities (the "Permitted Activities")
provided said Permitted Activities are conducted in accordance with all
Environmental Laws; Lessee shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by any
governmental agency which are directly indirectly related to the Permitted
Activities.
2. The Premises will not be used in any manner for the storage of
Hazardous Substances except for the storage of such materials that are
necessary or useful to Lessee's legitimate business activities (the
"Permitted Materials"), provided such Permitted Materials are properly
stored in a manner and location meeting all Environmental Laws; Lessee
shall be responsible for obtaining any required permits and paying any fees
and providing any testing required by any governmental agency which are
directly or indirectly related to the Permitted Materials.
3. No portion of the Premises will be used as a landfill or a dump.
4. Lessee will not install any underground tanks of any type.
5. Lessee will not allow any surface or subsurface conditions to exist or
come into existence that constitute, or with the passage of time, may
constitute a public or private nuisance.
6. Lessee will not permit any Hazardous Substances to be brought onto the
Premises, except for the Permitted Materials, and if so brought or found
located thereon, the same shall immediately be removed, with proper
disposal, and all required cleanup procedures shall be diligently
undertaken pursuant to all Environmental Laws. Lessor or Lessor's
representative shall have the right but not the obligation to enter the
premises upon reasonable notice for the purposes of inspecting the storage,
use and disposal of Permitted Materials to ensure compliance with all
Environmental Laws. Should it be determined that said Permitted Materials
are being improperly stored, used, or disposed of, then Lessee shall
immediately take such corrective action as required by Lessor. Should
Lessee fail to take such corrective action within twenty-four
<PAGE>
EXHIBIT B cont.
Page 2 of 3
(24) hours, Lessor shall have the right to perform such work and Lessee
shall promptly reimburse Lessor for any and all reasonable ("reasonable" to
be determined by reference to applicable Environmental Laws) costs
associated with said work.
If at any time during or after the term of the Lease, Lessee breaches or if
it is discovered that Lessee has breached any provision of this Exhibit "B",
which breach or breaches, singular, collectively, directly or indirectly result
or have resulted in the contamination of the Premises by one or more Hazardous
Substances, Lessee shall diligently institute proper and thorough cleanup
procedures at Lessee's sole cost, and Lessee agrees to indemnify and hold Lessor
and its partners, venturers, beneficiaries, affiliates, employees, contractors,
agents and representatives harmless from all reasonable claims, demands,
actions, liabilities, costs, expenses, damages and obligations of any nature
arising from or as a direct or indirect result of such contamination. Without
limiting the generality of the foregoing, the indemnification provided by this
paragraph shall specifically cover any and all expenses and costs (including any
legal fees or costs incurred in determining liability) incurred by Lessor in
clean-up, removal, remedial or restoration work required by any federal, state
or local government agency or political subdivision or third party because of
the presence of any Hazardous Substance in the soil or ground water on or under
the Premises, including any improvements located thereon.
Lessor understands that Lessee will be storing swimming pool chemicals on
the Premises. As noted in Exhibit D, Lessor will be constructing chemical
containment and flammable rooms for the Lessee's use for the storage of
combustible oxidizing compounds.
Lessor agrees to indemnify, defend and hold Lessee and its shareholders,
officers, affiliates, employees, contractors, agents and representatives
harmless from any and all reasonable claims, demands, actions, liabilities,
costs, expenses, damages and obligations of any nature arising from or as a
direct or indirect result of the presence or release of any Hazardous Substance
in or into the air, soil, surface water or ground water at, on, about, under or
within the Premises, or any portion thereof, except for contamination by
Hazardous Substances caused by Lessee after Lessor's execution of this Lease.
Without limiting the generality of the foregoing, the indemnification provided
by this paragraph, shall specifically cover any and all expenses and costs
(including any legal fees or costs incurred in determining liability) incurred
by Lessee in clean-up, removal, remedial or restoration work required by any
federal, state or local government agency or political subdivision or third
party because of the presence of any Hazardous Substance in the soil or ground
water on or under the Premises, including any improvements located thereon.
Each of the covenants and agreements of Lessor and Lessee set forth in this
Exhibit "B" shall survive the expiration or earlier termination of this Lease.
<PAGE>
EXHIBIT B cont.
Page 3 of 3
Lessor hereby represents and warrants to the best of its knowledge that
there has been no lank, spill, release, discharge, emissions, installation or
disposal of any Hazardous Substance in, on or about the Premises to date and
that to the best of its knowledge the soil, ground water, and improvements on or
under the Premises are free of any Hazardous Substance as of the date of this
Lease. In the event that Lessor shall determine after the date of the Lease
that any of the foregoing is untrue, Lessor shall promptly notify Lessee of said
new information in writing.
<PAGE>
EXHIBIT C
---------
TRUST EXCULPATION: Lessor is ADAMS PROPERTY ASSOCIATES, a Georgia General
-----------------
Partnership composed of Continental Mortgage and Equity Trust and Income Special
Associates, a California General Partnership as managing partner composed of
National Income Realty Trust, a California business trust, and Continental
Mortgage and Equity Trust, a California business trust. The Declarations of
Trust, as amended, establishing National Income Realty Trust and Continental
Mortgage and Equity Trust, California business trusts (collectively, the
"Trusts" and severally, "Trust") , dated October 31, 1978 and August 27, 1980,
respectively, copies of which, together with all amendments thereto (the
"Declaration") , are duly recorded in the office of the recorder of the county
of Alameda, State of California, provide with respect to each Trust that:
(a) The Trustees shall conduct the Trust's activities in the name of the
Trust;
(b) The name of the Trust refers to the Trustees collectively as trustee,
but not Individually or personally;
(c) No trustee, shareholder, officer, employee or agent shall have any
personal liability, jointly or severally, for any obligation of or
claim against the Trust; and
(d) All persons dealing with the Trust, in any way, must look solely to
the assets of the Trust for payment of any claims against the Trust.
Accordingly, Lessee agrees to look solely to the respective assets of each
Trust for the enforcement of any claims against either National Income Realty
Trust or Continental Mortgage and Equity Trust.
<PAGE>
EXHIBIT D
---------
A. LEASE COMMENCEMENT:
------------------
Commencement date shall be the later of October 1, 1990, the successful
termination of the existing lease agreement for the Premises between Lessor
and Goody Products, Inc., or upon the issuance of a Certificate of
Occupancy (provided that such Certificate of Occupancy is not delayed due
to Lessee's failure to comply with reasonable requirements for issuance of
a Certificate of Occupancy, Lessee's failure to cooperate and provide
pertinent information to effect the finish-out improvements as per Section
C of this Exhibit "D," or delays caused by Lessee's change orders). Lessee
shall use its best efforts to ensure an October 1, 1990 commencement date.
Notwithstanding the foregoing, if all plans and drawings for the finish-out
improvements described in Exhibit "E" attached hereto and in Section C of
this Exhibit "D" are not approved by the applicable agencies and
departments of the City of Dallas on or before August 20, 1990, then either
party shall have the right to immediately terminate this Lease upon written
notice. Further, if a Certificate of Occupancy is not issued through no
fault of Lessee on or before November 15, 1990, then either party shall
have the right to immediately terminate this Lease upon written notice.
B. RENTAL ABATEMENT:
----------------
The total monthly payment for months 2-7 shall be waived. (six months
total)
C. LESSEE IMPROVEMENTS:
-------------------
Lessor will provide finish-out improvement, in accordance with applicable
re-building and zoning improvements and codes, as per the working drawings
attached hereto as Exhibit "E," as approved by Lessor and Lessee, including
the following:
1. Construction of two chemical containment rooms
A. Class 3 oxidizer room: 4,592 square feet (56' x 82')
B. Class 1 and 2 oxidizer room: 6,150 square feet (75' x 82')
These rooms must be completed by city fire code and building
----
requirements and will contain four 101 x 101 overhead firedoors for
access.
2. Construction of flammable room 990 square feet (22' x 45')
This room must be completed to city fire code and building
----
requirements and will contain one 10' x 10' overhead firedoor for
access.
3. Refurbishment of existing office (painting, new carpet, new tile for
the lunchroom), minor modifications to layout (shown in item 14
below).
<PAGE>
EXHIBIT D. cont.
Page 2 of 6
4. Installation of 11 additional dock levelers at Dock #'s 2, 3, 6, 7, 7,
11, 12, 13, 14, 15 and 16. These levelers must meet the following
minimum specifications:
A. Must be 6' x 8'
B. 25,000 lb capacity
C. 20" lip
Note: Existing levelers will remain at dock #'s 5, 8 and 10.
5. Installation of dock shelters to dock #'s 2 through 16.
6. Add dock lights to dock #'s 2 through 16 (comparable to Tripp light
model DL 60/300 watt with double arm).
7. Add day gates to docks #'s 1, 5, 7, 9, 11, 13, 15, 17, 22, 25, and all
six rail doors.
8. Installation of permanently fixed wheel chocks to docks #'s 2 through
16.
9. Realignment of warehouse lighting based on the following lighting
specifications and racking configuration. This also includes the
addition of metal halide-type lighting as required (see warehouse
racking layout).
The minimum power requirement is 40' candle power at 3' elevation for
all high bay storage areas, bulk stock, docks and other circulation
areas. 60' candle power at 3' elevation for all repack areas and
filter assembly area.
10. Construction of a warehouse receiving office (10' x 10') at the
northeast end of the existing warehouse restroom. This office will
also contain heating/air condition units.
11. Dock #17 will contain a concrete ramp for access to ground level.
12. Encase or repair badly damaged column.
13. All areas of the warehouse must be covered by adequate sprinkler
coverage to meet city fire and building codes.
14. Office layout revisions:
1. Complete painting in one color
2. New carpet, cost not to exceed $10.00 per square yard, installed
3. New tile for lunchroom, cost not to exceed $10.00 per square yard,
installed
4. Add 36" x 60" sliding glass window to Office No. 1
5. Add warehouse entry door to Office No. 1
<PAGE>
EXHIBIT D. cont.
Page 3 of 6
6. Add two 36" x 60" sliding glass windows to office No. 3
7. Change existing glass window to a sliding glass window in office
No. 2
Lessee shall pay to Commercial Finish Group $85,000.00 cash upon the
execution of this Lease as Lessee's total contribution towards finish-out
improvements.* This amount is refundable if this Lease is terminated for
any reason within 180 days of execution. Provided, however, notwithstanding
the foregoing provision as to Lessee's contribution to finish-out
improvements, Lessee shall be additionally responsible for and shall pay to
Lessor, upon five (5) days written demand, all costs associated with
Lessee's alterations, additions or deletions to the finish-out improvements
stated in this Section C, as well as all costs associated with Lessee's
actions and/or inactions causing delays, alterations, additions or
deletions to the finish-out improvements stated in this Section C,
including, but not limited to failures to comply with the reasonable
requests of Lessor or its contractors for logistical or informational
cooperation. In this connection, Lessee will use its best efforts to ensure
that all finish-out improvements described are effected at originally
budgeted cost according to original plans and drawings in this Section C
and Exhibit "E" attached hereto.
D. SECURITY DEPOSIT:
----------------
$21,336.00 to be held by Lessor, which shall bear interest at the rate of
eight percent (8%) per annum payable to Lessee on an annual basis in the
form of a credit against the rent payment due for the 12th month of each
Lease year.
E. RENEWAL OPTION:
--------------
Lessor hereby grants to Lessee two (2) options to extend the Lease term for
additional term(s) of five (5) years each. The renewal option will be
based on the prevailing market rate, terms and conditions at the time of
renewal and to include a base year expense stop for the calendar year of
renewal.
F. RIGHT OF FIRST REFUSAL:
----------------------
Lessor shall grant one right of first refusal during the term of the Lease,
including extensions, on segregated space adjacent to the Premises (as per
the site plan attached hereto as part of Exhibit "F"), subject to any
existing lease or renewal options. Any exercise of such right shall be at
the prevailing market rate, terms and conditions for such adjacent space.
This right shall be exercisable by providing written notice to Lessor
within 30 days of Lessor providing written notice to Lessee of the
potential leasing of such adjacent space. Any adjacent space for which
Lessee does not exercise its rights herein shall be fully leasable by
Lessor after this 30 day period.
G. ROOF MAINTENANCE:
----------------
Prior to Lessee's occupancy (see Section A of this Exhibit "D"), weather
permitting and subject to delays unavoidable by Lessor's contractor, Lessor
at Lessor's sole cost and expense
* Leslie's Pool Mart will pay Commercial Finish Group, the contractor, the
sum of $85,000.00 within 10 days of substantial completion. Leslie's Pool Mart
shall be responsible for obtaining a lien waver from the contractor, the
subcontractors, and suppliers upon payment of the $85,000.00.
<PAGE>
EXHIBIT D. cont.
Page 4 of 6
shall make preventative maintenance repairs to the roof in accordance with
Exhibit "F" to this Agreement, including six ruptured blisters existing on
the roof.
During the first three (3) years of the Lease term, should Lessor not
respond in a timely manner after written notice from Lessee (7 days,
weather permitting) in addressing any necessary roof repairs, Lessee shall
have the option to repair the roof at its cost and withhold rental payments
to offset such cost. In addition, after inspections and confirmation by
both parties' roof consultants that the roof needs to be replaced, Lessor
will replace the roof at its sole cost and expense with a new retro-fit
roof system. In any event, Lessor will replace the roof with a new retro-
fit roof system with a. ten (10) year manufacturer's warranty by the end of
the third year of the Lease Agreement.
H. TAXES, UTILITIES AND INSURANCE PRORATIONS:
-----------------------------------------
Lessee shall have the right to review Lessor's supporting documentation
relating to the method of calculating Lessee's pro rata cost of insurance,
taxes, utilities or other charges allocatable to Lessee.
Lessor is solely responsible for penalties and late fees relating to the
delinquent payment of these expenses.
I. CONDITION OF PREMISES/REPAIRS/ALTERATIONS:
-----------------------------------------
To ensure that all plumbing, lighting, air conditioning, heating, and
loading doors will be in good and working order on the date the Premises is
delivered to Lessee, Lessor and Lessee will conduct an inspection of the
Premises within 10 days of substantial completion of the finish-out
improvements described in Section C of this Exhibit "D" (such substantial
completion to be determined by Lessor's contractor).
Upon 30 days written notice to Lessor, Lessee shall have the right to
perform any of the maintenance and repair duties of Lessor if needed in an
emergency in order to minimize the disruption of Lessee's business if
Lessor has not commenced with such maintenance or repair within such 30 day
period.
Lessor shall reimburse Lessee for the reasonable value of such maintenance
or repairs upon 10 days written notice.
J. CASUALTY/LIABILITY/DAMAGE/INDEMNIFICATION:
-----------------------------------------
In the event of partial destruction where repairs can be made within 180
days, rents will be abated during any period where Lessee's use is impaired
to the extent of such impairment, on a pro rata square footage basis.
Except for any claims, rights of recovery and causes of action that Lessor
or Lessee have release against each other, Lessee and Lessor shall hold the
other harmless from and defend the other against any and all claims or
liability for any injury or damage caused by the negligence or willful
misconduct of Lessor or Lessee or their respective agents, servants,
employees or invitees: (i) to any person or property whatsoever occurring
in, on or about the Premises or any part thereof and/or of the building of
which the Premises
<PAGE>
EXHIBIT D. cont.
Page 5 of 6
are a part, including without limitation elevators, stairways passageways
or hallways, (ii) arising from the conduct of management of any work done
by the Lessee or Lessor in or about the Premises, (iii) arising from
transactions of the Lessee or Lessor, and (iv) all costs, counsel fees,
expenses and liabilities incurred in connection with any such claim or
action or proceeding brought thereon. The provisions of this Section J.
shall survive the expiration or termination of this Lease with respect to
any claims or liability occurring prior to such expiration or termination.
K. SALE OF PREMISES:
----------------
Lessor's obligations under the Lease shall continue in the event of the
sale of the Premises unless the new owner of the Premises expressly assumes
the obligations of Lessor under the Lease. In no event shall Lessor be
relieved of liabilities accruing prior to such sale or conveyance.
L. CONSENT TO ASSIGN/SUBLET:
------------------------
Lessor shall not unreasonably withhold consent to assign or sublet the
Premises.
M. NON-STRUCTURAL ALTERATIONS:
--------------------------
Lessee may make de minimus non-structural alterations to the Premises
----------
provided that the reasonable value of such alterations do not exceed, in
the aggregate, $3,000.00 during the Lease term. Such alterations shall
comply with all applicable national, state, county and municipal laws,
codes and ordinances and Lessee shall provide evidence of such compliance
in the form of certificates, permits, licenses and other documents where
required. In connection with such alterations, Lessee shall provide to
Lessor any vendor's/contractor's drawings of such alterations and evidence
of worker's compensation and liability insurance covering the activities
attendant to the work to be performed in effecting such alterations within
30 days after the completion of such alterations. Lessee represents and
warrants that it will use only competent and qualified vendors and
contractors for such alterations.
N. MISCELLANEOUS:
-------------
1. When consents are needed of Lessor under the Lease, they shall not be
unreasonably withheld.
2. Monthly rents and escrow payments are based on a rentable area of
100,800 square feet. Lessee shall have the right to re-measure the
Premises and, if necessary, all payments to Lessor based on rentable
area to be adjusted accordingly. Lessee shall have 20 days from the
date of the execution of the Lease to inspect the Premises and notify
Lessor of any discrepancies in square footage.
<PAGE>
EXHIBIT D. cont.
Page 5 of 6
3. All amounts paid to Lessor upon execution of this Lease by Lessee,
including, but not limited to the first month's rent, security deposit
and Lessee improvement contribution are refundable to Lessee should
this Lease be terminated for Lessor's failure to deliver Promises in
accordance with Section A of this Exhibit "D."
O. NONDISTURBANCE, ATTORNMENT AND SUBORDINATION:
--------------------------------------------
Lessor agrees that prior to the commencement Date, it will provide Lessee
with non-disturbance, attornment and subordination agreements in a form
reasonably acceptable to Lessor and Lessee ("Non-Disturbance Agreements")
from any ground lessors, mortgage holders or lien holders of Lessor now in
existence. Lessor also agrees to provide Lessee with Non-Disturbance
Agreements from any ground lessors, mortgage holders or lien holders of
Lessor who later come into existence at any time after this Lease is
executed, and prior to the expiration of the terms of this Lease in
consideration of, and as a condition precedent to, Lessee's agreement to be
bound by Paragraph 20 of the Lease. Lessor agrees to notify each
prospective lender of the terms and conditions of this Lease and shall
require such lender to provide Lessee with a Non-Disturbance Agreement.
Lessor's failure to comply with this Paragraph O shall constitute a
material breach of this Lease.
<PAGE>
EXHIBIT "E"
-----------
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "E"
-----------
(CONTINUED)
[FLOOR PLAN APPEARS HERE]
<PAGE>
EXHIBIT "F"
[LETTERHEAD OF JOHN J. CAMPBELL CO., INC.]
July 20, 1990
Leslies Swimming Pool Co.
20222 Plummer St.
Chatsworth, CA 91311
ATTN: Mr. Charles Vasquez
RE: Repairs to Goody Space Warehouse
Dan Morton Drive
Dallas, Texas
Gentlemen:
Upon your request we have inspected the above referenced building and below you
will find our proposal for repair work to the Good Space side only.
1. The existing expansion joint joints will be cleaned and three coursed with
a MBR Type modified bit cement. This type of repair will allow the
expansion joint to continue to expand and contract without causing splits
at the joint areas.
2. Broken gravel guard joints will be bumped back, cleaned, primed, three
coursed, stripped and regraveled.
3. All pitch pockets will be refilled and properly topped off.
4. All existing base flashing will be bumped back at roof level and torn out.
We will then incorporate new wood fiber cant and mop down 170 Type modified
bit base flashing.
5. All existing gutter in this area will be cleaned. Minor repairs will be
made to gutter joints where necessary.
6. A portion of the existing gravel guard will be bumped back, stripped, and
regraveled.
7. All debris incidental to our work will be hauled away and properly disposed
of.
8. All existing open (ruptured) blisters will be repaired.
<PAGE>
EXHIBIT "F" cont.
Page 2 of 2
Leslies Swimming Pool Co.
Repairs Dan Morton Drive
July 20, 1990
Page Two
NOTE: Although repair work carries no warranty, John J. Campbell Co. will do
everything possible to prevent any problems that you may be having now and
minimize any future problems that you may have.
We appreciate the opportunity of submitting this information and if we can be of
any further assistance in the future, please feel free to contact us. We are
looking forward to working with you on this project.
Sincerely,
John J. Campbell Co., Inc.
/s/ Richard C. Landers
Richard C. Landers
Project Manager
RCL/cc
<PAGE>
ASSIGNMENT
THIS ASSIGNMENT (the "Assignment") is made and entered into this 27th day
of March, 1992, by and between ADAMS PROPERTIES ASSOCIATES, a Georgia general
partnership (hereinafter referred to as the "Assignor") composed of (i) Income
Special Associates, a California general partnership having as its only general
partners National Income Realty Trust and Continental Mortgage and Equity Trust,
both California business trusts, and (ii) Continental Mortgage and Equity Trust,
a California business trust, Adams Properties Associates being formerly named
Sealy Consolidated Capital Properties (hereinafter referred to as the
"Assignor") and SEALY SOUTHEASTERN, L.P., a Georgia limited partnership having
as its only general partner Sealy venture II, L.P., a Georgia limited
partnership (hereinafter referred to as the "Assignee").
W I T N E S S E T H:
THAT, WHEREAS, Assignor has on even date herewith conveyed to Assignee
certain premises located in Georgia, Tennessee and Texas and improvements
located thereon, being more particularly described on Exhibit A attached hereto
---------
and made a part hereof (collectively the "Premises").
NOW, THEREFORE, for and in consideration of the sum of Ten and No/100
Dollars ($10.0) in hand paid to Assignor by Assignee, at and with the execution
and delivery of this Assignment, the mutual covenants contained herein and other
good and valuable Consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee covenant and agree that:
1. Tenant Leases. Assignor does hereby assign, transfer, sell, grant,
-------------
convey, deliver and set over, without warranty or recourse, except for a
warranty as to free and clear title except for the Permitted Exceptions (as
hereinafter defined), unto Assignee, all of Assignor's right, title, interest,
powers and privileges in and to each and every tenant lease relating to the
Premises (hereinafter referred to as the "Leases"). Assignee hereby assumes
Assignor's obligations as lessor in and to the Leases, including with respect to
the tenants, security deposits, arising on and after the date of this
Assignment. Assignor does hereby agree to indemnify and hold Assignee harmless
as to tenant claims arising out of occurrences or obligations accruing prior to
the date of this Assignment, including, without limitation, in respect to the
tenants' security deposits, described on Exhibit C and with respect to any
---------
claims for tenants' security deposits which are not described on Exhibit C, and
---------
Assignee does hereby agree to indemnify and hold Assignor harmless as to tenant
claims arising out of occurrences or obligations accruing on or after the date
of this Assignment, including, without limitation, in respect to the tenants'
security deposits described on Exhibit C. The indemnifications made in this
---------
paragraph 1 shall survive the execution and delivery of this Assignment and the
payment of all considerations hereof.
<PAGE>
2. Service Agreements. Assignor does hereby assign, transfer, sell,
------------------
grant, convey, deliver and set over, without recourse, to Assignee, all of
Assignor's right, title, interest, powers and privileges in and to the
maintenance, supply and service agreements and other agreements relating to the
Premises that appear on Exhibit B attached hereto and made a part hereof.
---------
Assignee hereby assumes all such agreements that appear in Exhibit B and all
---------
obligations thereunder occurring or accruing on or after the date of this
Assignment. Assignor does hereby agree to indemnify and hold Assignee harmless
with respect to fees payable in connection with such agreements and contracts
assumed by Assignee for all time periods before the date hereof. Assignee does
hereby agree to indemnify and hold Assignor harmless with respect to fees
payable in connection with such agreements and contracts assumed by Assignee for
all time periods on or after the date hereof. The indemnifications made in this
paragraph 2 shall survive the execution and delivery of this Assignment and the
payment of all. considerations hereof.
3. Warranties and Guaranties. Assignor does hereby assign, transfer,
-------------------------
sell, grant, convey, deliver and set over unto Assignee, without recourse, all
of Assignor's right, title, interest, powers and privileges in and under all
guaranties and warranties from any contractor, subcontractor, vendor,
manufacturer, supplier or other person in connection with the construction,
manufacture, development, installation, operation and maintenance of any and all
improvements, fixtures, equipment and personal property located on or used in
connection with the Premises.
4. Licenses, Permits and Certificates. Assignor does hereby assign,
----------------------------------
transfer, sell, grant, convey, deliver and set over unto Assignee, without
recourse, all of Assignor's right, title, interest, powers and privileges in and
under all assignable licenses, certificates and permits relating to the
operation of the Premises.
5. Defined Terms. All capitalized terms used in this Assignment, unless
-------------
specified herein to the contrary, shall have the meanings ascribed to them in
that certain Sales Contract dated March 6, 1992 between Assignor, as Seller and
Assignee, as Purchaser, as same may have been amended through the date hereof,
with respect to the acquisition and sale of 27 properties located in Georgia,
Tennessee and Texas, and in that certain Sales Contract dated March 6, 1992
between Assignor, as Seller and Assignee, as Purchaser, as same may have been
amended through the date hereof, with respect to the acquisition and sale of six
properties located in Georgia and Tennessee.
6. Successors and Assigns. This Assignment shall inure to the benefit of
----------------------
and be binding upon Assignor and Assignee, their respective successors and
assigns, and legal representatives, and the term "Assignor" and "Assignee" shall
mean and include their respective successors, assigns and legal representatives
whenever used in this Assignment.
7. Governing Law. This Assignment shall be construed under and enforced
---------
in accordance with the laws of the State of Georgia.
8. Time. Time is of the essence of this Assignment.
----
2
<PAGE>
9. Trust Disclaimers. The Declarations of Trust, as amended,
-----------------
establishing National Income Realty Trust and Continental Mortgage and Equity
Trust, California business trusts (collectively, the "Trusts" and severally,
"Trust"), dated June 15, 1987 and May 27, 1987, respectively, copies of which,
together with all amendments thereto (the "Declaration"), are duly recorded in
the office of the recorder of the County of Alameda, State of California,
provide with respect to each Trust that (a) the Trustees shall conduct the
Trust's activities in the name of the Trust, (b) the name of the Trust refers to
the Trustees collectively as trustees, but not individually or personally, (c)
no trustee, shareholder, officer, employee or agent shall have any personal
liability, jointly or severally, for any obligation of, or claim against, the
Trust, and (d) all persons dealing with the Trust, in any way, must look solely
to the assets of the Trust for the payment of any claims against the Trust.
Accordingly, Assignee agrees to look solely to the respective assets of each
Trust for the enforcement of any claims against either National Income Realty
Trust or Continental Mortgage and Equity Trust.
IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment and
affixed their respective seals as of the day and year first above written.
ASSIGNOR:
ADAMS PROPERTIES ASSOCIATES, a Georgia
general partnership
By: Income Special Associates,
a California general partnership,
general partner
By: National Income Realty Trust,a
California business trust,
general partner
By: /s/ Peter L. Larsen
------------------------
Peter L. Larsen,
Vice President
(TRUST SEAL)
3
<PAGE>
By: Continental Mortgage and Equity
Trust, a California business
trust, general partner
By: /s/ Peter L. Larsen
-------------------------------
Peter L. Larsen,
Vice President
(TRUST SEAL)
By: Continental Mortgage and Equity
Trust, a California business
trust, general partner
By: /s/ Peter L. Larsen
-------------------------------
Peter L. Larsen,
Vice President
(TRUST SEAL)
ASSIGNEE:
SEALY SOUTHEASTERN, L.P., a Georgia
general partnership
By: Sealy Venture II, L.P., a
Georgia limited partnership,
its sole general partner
By: Sealy Industrial, Inc.,
a Georgia corporation,
its sole general partner
By: /s/ Scott P. Sealy
--------------------------
Scott P. Sealy, President
(CORPORATE SEAL)
4
<PAGE>
EXHIBIT "A"
That certain property located at 4202 through 4250 Dan Morton Drive in the City
of Dallas, Texas, described as follows:
Lot 1, Block 5, City Block 8032, Sixth Section, Redbird Industrial Park West, an
Addition to the City of Dallas, Texas, according to Plat thereof recorded in
Volume 79218, page 1062 of the Deed Records of Dallas County, Texas, and being
more particularly described as follows:
BEGINNING at a 1/2-inch iron rod set in the north line of Ledbetter Drive (100
foot right-of-way), said iron rod set being 10.0 feet east of the east line of
Dan Morton Drive as shown on the file plat of dedication of Dan Morton Drive and
Investment Drive, Redbird Industrial Park West, an Addition to the City of
Dallas, Texas, according to the Plat thereof recorded in Volume 77083, page 8 of
the Deed Records of Dallas County, Texas;
THENCE North 45 degrees 16 minutes West 14.16 feet to a 1/2-inch iron rod set in
the east line of Dan Morton Drive (60 foot right-of-way);
THENCE North 0 degrees 21 minutes 30 seconds West along the east line of Dan
Morton Drive 1119.00 feet to a 1/2-inch iron rod set for corner;
THENCE, leaving said east line, North 89 degrees 38 minutes 30 seconds East
400.0 feet to a 1/2-inch iron rod set for corner;
THENCE South 00 degrees 21 minutes 30 seconds East 1130.24 feet to a 1/2-inch
iron rod found in the north line of Ledbetter Drive for corner;
THENCE South 89 degrees 49 minutes 10 seconds West along the north line of
Ledbetter Drive 390.00 feet to the PLACE OF BEGINNING.
This tract of land containing 451,797 square feet or 10.3718 acres of land, more
or less, as shown on plat of As-Built Survey of 4202-4250 Dan Morton Drive, City
of Dallas, Dallas County, Texas prepared for Sealy Southeastern, L.P., Adams
Properties Associates, Title Insurance Company of Minnesota and Confederation
Life Insurance Company, prepared by Shields & Lee Surveyors, bearing the seal
and certification of W.R. Lee, Texas Registered Professional Land Surveyor No.
2038, dated November 18, 1991.
<PAGE>
EXHIBIT "B"
-----------
SERVICE CONTRACTS
-----------------
1. Agreement with Kassell & Company for the following-described properties:
- 1450-68 Chattahoochee, Atlanta, Georgia
- 355 Fisk, Atlanta, Georgia
- 825 Great Southwest Parkway, Atlanta, Georgia
- 1435 Hills Place, Atlanta, Georgia
- 4164 Northeast Expressway, Atlanta, Georgia
- 4194 Northeast Expressway, Atlanta, Georgia
- 3645 Oakcliff, Atlanta, Georgia
- 1610 Southland Circle, Atlanta, Georgia
- 999 Wharton, Atlanta, Georgia
- 3510 Zip Industrial, Atlanta, Georgia
- 3530 Zip Industrial, Atlanta, Georgia
- 3538-44 Zip Industrial, Atlanta, Georgia
- 3550 Zip Industrial, Atlanta, Georgia
2. Agreement with Garrett Professional Lawn Service for the following
properties:
- 4400 Delp, Memphis, Tennessee
- 4590-98 Lamar, Memphis, Tennessee
- 4606 Lamar, Memphis, Tennessee
3. Agreement with GreenScape, Inc. for 4050 Getwell, Memphis, Tennessee.
4. Agreements with K.C. Maintenance for the following properties:
- 4000 Dan Morton, Dallas, Texas
- 4202 Dan Morton, Dallas, Texas
- 2005 Hightower, Dallas, Texas
5. Agreements with Perennial Lawn Care for the following properties:
- 4703-05 Greatland, San Antonio, Texas
- 4615-4651 Greatland, San Antonio, Texas
- 4926 Space Center, San Antonio, Texas
- 5000-5006 Space Center, San Antonio, Texas
<PAGE>
EXHIBIT "C"
-----------
SCHEDULE A
----------
TENANT SECURITY DEPOSITS
------------------------
<TABLE>
<CAPTION>
Property Tenant Amount
-------- ------ ------
<S> <C> <C>
1325 Chattahoochee Avenue Events Group, Inc. (3,500 s.f.) $ 1,152.00
1325 Chattahoochee Avenue Events Group, Inc. (9,000 s.f.) 1,687.50
1355 Chattahoochee Avenue Mohawk Finishing 1,100.00
1450-1468 Chattahoochee Avenue Nilan's Alley, Inc. (5,621 s.f.) 1,240.50
1450-1468 Chattahoochee Avenue Nilan's Alley, Inc. (5,200 s.f.) 1,452.00
1450-1468 Chattahoochee Avenue Diversified Mail 1,300.00
1450-1468 Chattahoochee Avenue Summit Commercial 1,235.00
1450-1468 Chattahoochee Avenue National Exhibitor Service 1,360.00
1450-1468 Chattahoochee Avenue Germersheim, Inc. 2,167.00
825 Great Southwest Parkway B&F Distribution Services 8,943.00
355 Fisk Bonded Service Warehouse 2,000.00
1435 Hill Place Allied Foods, Inc. 1,400.00
4161 Northeast Expressway Electrical Reps South 4,261.00
4164 Northeast Expressway American Racing Equipment 3,149.32
4164 Northeast Expressway Van's Antique Delivery Serv. 2,811.06
4164 Northeast Expressway Coleman American Moving 1,000.00
4164 Northeast Expressway Electrical Products 10,262.71
3645 Oakcliff Cenco Enterprises 3,125.00
5360 Tulane Alchem Chemical Corporation 3,750.00
5700 Tulane Pirelli Power TranSMiBSion 900.00
</TABLE>
<PAGE>
EXHIBIT "C"
-----------
SCHEDULE A
----------
TENANT SECURITY DEPOSITS
------------------------
<TABLE>
<CAPTION>
Property Tenant Amount
-------- ------ ------
<S> <C> <C>
5700 Tulane Webwork, Inc. (18,125 s.f.) 2,640.00
5700 Tulane Webwork, Inc. (21,875 s.f.) 3,500.00
999 Wharton Atlanta Coil, Inc. 6,135.00
3530 Zip Industrial Blvd. American Distribution 15,750.00
4590-98 Lamar Avenue Valeo Engine Cooling, Inc. 10,083.33
4590-98 Lamar Avenue Myers Laminates Georgia 6,562.50
4606 Lamar Avenue Trans Ubiquity Corp. 450.00
4606 Lamar Avenue A-Safeway Moving & Storage 2,203.13
4202 Dan Morton Drive Leslie's Pool Mart 21,336.00
4202 Dan Morton Drive Tree of Life, Inc. 21,586.00
2005 Hightower Road Shipper's Warehouse 15,150.00
4615-4651 Greatland Drive Regal Plastics Supply 656.25
4615-4651 Greatland Drive Marsha Largen 703.00
4703-4750 Greatland Drive American Spirits 5,062.50
4703-4750 Greatland Drive D.S.E. San Antonio, Inc. 2,150.00
4926 Space Center Reliance Steel & Aluminum 2,550.00
5000-5006 Space Center Theis Distributing Co. 1,128.00
5000-5006 Space Center Cargo-Lite Pallet Company 5,240.00
-----------
Total $177,181.80
</TABLE>
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
BY AND BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST,
a Maryland real estate investment trust,
and
LESLIE'S POOL MART,
a California corporation
This First Amendment To Lease Agreement (this "First Amendment") is made
and entered into effective as of ______________________, 1996, by and between
SECURITY CAPITAL INDUSTRIAL TRUST (hereinafter "Landlord"), and LESLIE'S POOL
MART (hereinafter "Tenant").
W I T N E S S E T H:
-------------------
WHEREAS, Landlord (or its predecessor in title) and Tenant have previously
made and entered into that certain Lease Agreement dated August 30, 1990 (the
"Lease"), pursuant to which Landlord currently leases to Tenant approximately
100,800 square feet of office/warehouse space (the "Existing Leased Premises" or
the "Existing Premises") situated in Suite 100 of the Project known as the 4202
Dan Morton Project, situated at 4202 Dan Morton, Dallas, Texas 75236; and
WHEREAS, Landlord and Tenant desire to provide for the expansion of the
Existing Premises, and to modify certain terms and provisions of the Lease, all
as herein more particularly set forth;
NOW, THEREFORE, pursuant to the foregoing, and in consideration of the
mutual covenants and agreements contained in the Lease and in this First
Amendment, the Lease is hereby modified and amended as set out below:
1. Section 1 of the Lease, captioned "Premises and Term," is hereby
amended to reflect the following:
(a) Effective as of July 1, 1996 (the "Expansion Commencement Date"),
the Existing Premises shall be expanded to include the
approximately 25,200 square feet of space (the "Expansion
Premises") situated in Suite 103 of the 4202 Dan Morton Project,
said Expansion Space being depicted on Exhibit A attached to this
First Amendment and made a part hereof for all purposes. From
and after the Expansion Commencement Date, all references in the
Lease to the "Premises" or the "Leased Premises" shall mean and
refer to the Existing Premises and the Expansion Premises,
together, unless otherwise expressly provided in this First
Amendment. Without limiting the generality of the foregoing,
Tenant shall obtain an amended certificate of insurance, as
provided for in Paragraph 9B of the Lease, evidencing extension
of the coverages therein required to the Expansion Premises, and
naming Landlord and SCI Client Services Incorporated as
additional insureds with respect to Tenant's operations and
activities in and about the Expansion Premises.
(b) With respect to the Expansion Space, the Term of the Lease shall
run from the Expansion Commencement Date through September 30,
1997. Additionally, Tenant shall have the right and option to
further renew the Lease Term for the Expansion Space for one (1)
additional year, on and subject to the terms and provisions of
Exhibit B attached to this First Amendment and made a part hereof
for all purposes.
(c) Expiration of the Lease Term with respect to the Expansion
Premises as provided in (b) above shall not alter or affect the
continuing effectiveness of the Lease with respect to the
Existing Premises, on and subject to the remaining terms and
provisions of the Lease.
<PAGE>
2. (a) Tenant may, at its sole cost and expense and within 30 days
after the Expansion Space Commencement Date described in
Paragraph 1 above, construct one (1) opening, not to exceed a 10'
x 10' opening, in the common demising wall between the Existing
Premises and the Expansion Premises. Tenant accepts the
Expansion Premises in their present, "as is" condition.
(b) Upon expiration or termination of the Lease Term for the
Expansion Premises for any reason, Tenant, at its sole cost and
expense, shall restore the opening constructed by Tenant in the
demising wall between the Existing Premises and the Expansion
Premises to its original condition and to Landlord's reasonable
satisfaction.
3. Section 2A of the Lease, captioned "Base Rent, Security Deposit and
Escrow Payments," is hereby amended to reflect the following:
(a) Commencing July 1, 1996, the Base Rental payable by Tenant to
Landlord for the Expansion Premises shall be $4,725.00 per month
($2.25 per square foot per year, triple net).
(b) Beginning July 1, 1996 and continuing during the Lease Term for
the Expansion Premises, Tenant's obligation to pay to Landlord,
as additional rental, Tenant's pro rata share of all Operating
Expenses of the project allocable to the Expansion Premises.
Tenant's estimated pro rata share of Operating Expenses allocable
to the Expansion Premises shall be payable monthly in advance,
commencing July 1, 1996 (with an annual reconciliation of
estimated and actual Operating Expenses as provided for in
Paragraph 2C of the Lease), in the following amounts:
<TABLE>
<S> <C>
Taxes $0.46 per square foot per year ($966.00 per month)
Insurance $0.05 per square foot per year ($105.00 per month)
Common Area $0.13 per square foot per year ($273.00 per month)
Maintenance
Management Fee $0.0476 per square foot per year ($100.00 per month)
____________
Total $0.74 per square foot per year ($1,444.00 per month)
</TABLE>
(c) The Base Rental and Operating Expense obligations of Tenant with
respect to the Expansion Premises, as hereinabove set forth, are
in addition to Tenant's Base Rental and Operating Expense
obligations for the Existing Premises as set forth in the Lease.
4. (a) Notwithstanding anything to the contrary set forth in Paragraph
12 of the Lease, captioned "USE," or in Paragraphs 2 or 6 of
Exhibit B to the Lease, with respect to Hazardous Substances the
Expansion Premises shall be used only as a staging area for
Tenant's sales and distribution operations on and from the
Premises, and shall not be used for the processing, mixing,
blending, packaging, or re-packaging of any Hazardous Substances.
All Permitted Materials that are at any time in the Expansion
Premises shall be and remain in sealed, unopened containers.
(b) So long as Tenant complies with the use restrictions set forth in
subparagraph 4(a) above, the indemnification by Tenant of
Landlord set forth in the first full paragraph on page two of
Exhibit B to the Lease shall not apply to the Expansion Premises,
and in lieu of such indemnity Tenant covenants and agrees that in
the event of contamination of the Expansion Premises as a result
of the presence or release of Hazardous Substances in, on or
under the Expansion Premises caused by Tenant, its employees,
agents, contractors, assignees or subtenants, Tenant, at its sole
cost and expense, shall promptly institute and diligently
prosecute to completion proper and thorough remediation
procedures in accordance with applicable Environmental Laws, so
that upon completion of such
2
<PAGE>
remediation the Expansion Premises may be used for customary
office/warehouse purposes without any use restrictions thereon
that did not apply prior to such contamination.
5. The environmental representations, warranties, covenants, agreements
and indemnity of Landlord as set forth in the last three grammatical
paragraphs of Exhibit B to the Lease shall not apply to the Expansion
Premises or any portion thereof, or the presence or release, of any
Hazardous Substances therein, thereon or thereunder. However, and in
lieu of such indemnity, landlord covenants and agrees that in the
event it is determined the Expansion Premises are contaminated by
Hazardous Substances, and such contamination was not caused by Tenant,
its employees, agents, contractors, assignees or subtenants, Landlord,
at its sole cost and expense, shall promptly institute and diligently
prosecute to completion proper and thorough remediation. procedures in
accordance with applicable Environmental Laws, so that upon completion
of such remediation the Expansion Premises may be used for customary
office/warehouse purposes without any use restrictions thereon that
did not apply prior to such contamination.
6. ANY OBLIGATION OR LIABILITY WHATSOEVER OF SECURITY CAPITAL INDUSTRIAL
TRUST, A MARYLAND REAL ESTATE INVESTMENT TRUST, WHICH MAY ARISE AT ANY
TIME UNDER THIS LEASE OR ANY OBLIGATION OR LIABILITY WHICH MAY BE
INCURRED BY IT PURSUANT TO ANY OTHER INSTRUMENT, TRANSACTION, OR
UNDERTAKING CONTEMPLATED HEREBY SHALL NOT BE PERSONALLY BINDING UPON,
NOR SHALL RESORT FOR THE ENFORCEMENT THEREOF BE HAD TO, THE PROPERTY
OF ANY OF ITS TRUSTEES, DIRECTORS, SHAREHOLDERS, OFFICERS, OR
EMPLOYEES, REGARDLESS OF WHETHER SUCH OBLIGATION OR LIABILITY IS IN
THE NATURE OF CONTRACT, TORT, OR OTHERWISE.
7. With the exception of those terms and conditions specifically modified
and amended herein, the herein referenced Lease shall remain in full
force and effect in accordance with all its terms and conditions. In
the event of any conflict between the terms and provisions of this
First Amendment and the terms and provisions of the Lease, the terms
and provisions of this First Amendment shall supersede and control.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
To Lease Agreement to be effective as of the day and year as first above
written.
LANDLORD: TENANT:
SECURITY CAPITAL INDUSTRIAL TRUST LESLIE'S POOL MART
By: /s/ Steven K. Meyer By: /s/ Richard Grice
------------------------- ------------------------
Name: Steven K. Meyer Name: Richard Grice
Title: Senior Vice President Title: Vice President
Date: ________, 1996 Date: 6/21, 1996
Landlord's Address for Notices:
5420 LBJ Freeway, Suite 375
Dallas, Texas 75240
Phone: (214) 770-2292
Fax: (214) 770-2290
3
<PAGE>
EXHIBIT A
TO
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
Depiction of the Expansion Premises:
- -----------------------------------
<PAGE>
EXHIBIT A
TO
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
[Depiction of the Expansion Premises appears here]
<PAGE>
EXHIBIT B
TO
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
ONE RENEWAL OPTION AT MARKET
----------------------------
(a) Provided that as of the time of the giving of the Extension Notice
(hereinbelow defined) and the Commencement Date of the Extension Term, (x)
Tenant is the Tenant originally named herein, (y) Tenant actually occupies all
of the Existing Premises and the Expansion Premises, and (z) no Event of Default
exists or would exist but for the passage of time or the giving of notice, or
both; then Tenant shall have the right to extend the Lease Term for the
Expansion Premises for an additional term of one (1) year (such additional term
is hereinafter called the "Extension Term") commencing on the day following the
--------------
expiration of the Lease Term for the Expansion Premises (hereinafter referred to
as the "Commencement Date of the Extension Term"). Tenant shall give Landlord
---------------------------------------
notice (hereinafter called the "Extension Notice") of its election to extend the
---------
term of the Lease Term for the Expansion Premises at least two (2) months, but
not more than five (5) months, prior to the scheduled expiration date of the
Lease Term for the Expansion Premises.
(b) The Base Rent payable by Tenant to Landlord for the Expansion Premises
during the Extension Term shall be the greater of (i) the Base Rent then payable
for the Expansion Premises and (ii) the then prevailing market rate for
comparable space in the Project and comparable buildings in the vicinity of the
Project, taking into account the size of the Lease, the length of the renewal
term, market escalations and the credit of Tenant. The Base Rent shall not be
reduced by reason of any costs or expenses saved by Landlord by reason of
Landlord's not having to find a new tenant for such premises (including, without
limitation, brokerage commissions, costs of improvements, rent concessions or
lost rental income during any vacancy period). In the event Landlord and Tenant
fail to reach an agreement on such rental rate and execute the Amendment
(defined below) at least one (1) month prior to the expiration of the Lease Term
for the Expansion Premises, then Tenant's exercise of the renewal option shall
be deemed withdrawn and the Lease Term for the Expansion Premises shall
terminate on its original expiration date (September 30, 1997).
(c) The determination of Base Rent does not reduce the Tenant's obligation
to pay or reimburse Landlord for Operating Expenses for the Expansion Premises
and other reimbursable items as set forth in the Lease, and Tenant shall
reimburse and pay Landlord as set forth in the Lease with respect to such
Operating Expenses and other items with respect to the Expansion Premises during
the Extension Term.
(d) Except for the Base Rent as determined above, Tenant's occupancy of the
Expansion Premises during the Extension Term shall be on the same terms and
conditions as are in effect immediately prior to the expiration of the initial
Lease Term for the Expansion Premises; provided, however, Tenant shall have no
further right to any allowances, credits or abatements or any options to expand,
contracts renew or extend the Lease Term for the Expansion Premises.
(e) If Tenant does not give the Extension Notice within the period set
forth in paragraph (a) above, Tenant's right to extend the Lease Term for the
Expansion Premises shall automatically terminate. Time is of the essence as to
the giving of the Extension Notice.
(f) Landlord shall have no obligation to refurbish or otherwise improve the
Expansion Premises for the Extension Term. The Expansion Premises shall be
tendered on the Commencement Date of the Extension Term in "as-is" condition.
(g) If the Lease is extended for the Extension Term, then Landlord shall
prepare and Tenant shall execute an amendment to the Lease confirming the
extension of the Lease Term for the Expansion Premises and the other provisions
applicable thereto (the "Amendment").
Page 1 of 2
<PAGE>
(h) If Tenant exercises its right to extend the term of the Lease for the
Expansion Premises for the Extension Term pursuant to this Addendum, the term
"Lease Term" as used in the Lease, shall be construed to include, when
practicable and with respect to the Expansion Premises, the Extension Term
except as provided in (d) above.
(i) Tenant's exercise of the option for the Extension Term, or Tenant's
election not to exercise the option, or Tenant's failure to exercise the option
for the Extension Term, shall not alter or affect the Lease or the Lease Term
with respect to the Existing Premises.
Page 2 of 2
<PAGE>
EXHIBIT 10.8
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO OF AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION APPEARS HERE]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 26 , 1996 is made by and between Bedford Property
- ------------------------ -- --------------------------
Investors, Inc., a Maryland corporation ("Lessor") and Leslie's Poolmart
- --------------------------------------------- --------------------
(Inc.), a California corporation ("Lessee"), (collectively the "Parties," or
- --------------------------------
individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1595 Dupont Avenue , located
------------------------------
in the City of Ontario County of San Bernadino , State of California ,
------- ----------------- --------------
with zip code 91761 , as outlined on Exhibit A attached hereto, plus the area
indicated on Exhibit A as the "Truck Parking Area"; provided that Lessor shall
have access to this Truck Parking Area during normal business hours, and at
other times upon reasonable advance notice to Lessee, for the purpose of
repairing, replacing and maintaining the Truck Parking Area and the landscaping
appurtenant thereto ("Premises"). The "Building" is that certain building
containing the Premises and generally described as (describe briefly the nature
of the Building): approximately 183,244 sq. ft. concrete tilt-up building at
----------------------------------------------------------
1595 Dupont Ave., Ontario, CA; part of a larger complex located at
- ------------------------------------------------------------------
1505/1555/1595 Dupont Ave.. In addition to Lessee's rights to use and occupy the
- --------------------------
Premises as hereinafter specified, Lessee shall have non-exclusive rights to the
Common Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but
shall not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements therein, are herein collectively referred to as
the "Industrial Center." (Also see Paragraph 2.)
1.2(b) Parking: No more than 202 unreserved vehicle parking spaces
------------------
("Unreserved Parking Spaces"); (Also see Paragraph 2.6.)
1.3 Term: See Addendum (Also see Paragraph 3.)
-----------------------------------
1.4 Early Possession: See Addendum (Also see Paragraphs 3.2 and 3.3)
----------------
1.5 Base Rent: $See Addendum per month ("Base Rent"), payable on the
--------------
First (1st) day of each month commencing on the Commencement Date (Also see
- ------------- ------------------------
Paragraph 4.)
[_] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum _________, attached hereto.
1.6(a) Base Rent Paid Upon Execution: $43,798 as Base Rent for the period
------
of the third (3rd) month of the term.
- ------------------------------------
1.6(b) Lessee's Share of Common Area Operating Expenses: See Addendum
-----------------
1.7 Security Deposit: $_______________
1.8 Permitted Use: See Addendum
----------------------------------------------------
- --------------------------------------------------------------------------------
("Permitted Use") (Also see Paragraph 6.)
- ---------------
1.9 Insuring Party. Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Brokers. The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] CB Commercial represents Lessor exclusively ("Lessor's
-----------------------------------
Broker");
[X] Grubb & Ellis Company represents Lessee exclusively ("Lessee's
-----------------------------------
Broker"); or
1.12 Addends and Exhibits. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 1 through 18 , and Exhibits A
---------- ---------- ----------
through E , all of which constitute a part of this Lease.
-----------
2. Premises, Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
sixty (60) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
Notwithstanding the foregoing, Lessor hereby warrants that (i) the heating,
ventilating and air conditioning system ("HVAC") currently existing in the
Premises (and not any HVAC system installed by or for Lessee as part of the
Improvements to be constructed by Lessee pursuant to Exhibit C hereto, which
Lessee shall repair or replace at its sole cost and expense) shall be in good
working order, condition and repair for a period of nine (9) months following
the Commencement Date, and (ii) Lessor shall be responsible for repairing or
replacing latent defects in the construction of the Building (other than latent
defects in the Improvements to be constructed by Lessee pursuant to Exhibit C
hereto, which Lessee shall repair or replace at its sole cost and expense).
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within nine (9) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of the Premises. Lessee acknowledges that it has
--------------------------
inspected and knows the condition of the Premises, and has satisfied itself with
respect thereto and the suitability of the Premises for Lessee's intended use.
Except as expressly provided in this Lease, Lessee accepts the Premises in their
condition existing as of the Early Possession Date, subject to all applicable
zoning, municipal, county, state and federal laws, ordinances and regulations
governing and regulating the use or occupancy of the Premises, including without
limitation the Americans With Disabilities Act, all laws, ordinances and
regulations governing Hazardous Substances and any covenants or restrictions of
record (hereinafter "Applicable Laws"), and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor any employee or agent of Lessor has made
any representation or warranty to Lessee as to the condition of the Premises,
except as expressly set forth in Sections 2.2 and 2.3, above, or the present or
future suitability of the Premises for the conduct of Lessee's business. Lessee,
at its sole cost and expense, shall comply with all Applicable Laws related to
the particular manner in which Lessee uses or occupies the Premises. Lessor
acknowledges receipt of a letter from Lessee to Dave Ariss, Managing Director of
California Commerce Center of which the Industrial Center is a part, wherein
Lessee's and its subtenant, Leslie's Pool Brite's, use of the Premises for their
intended purposes was approved by Dave Ariss on behalf of California Commerce
Center, and agrees that Lessor shall not object to the use of the Premises made
by Lessee and Leslie's Pool Brite as being in violation of the California
Commerce Center covenants, conditions and restrictions.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
(C) American Industrial Real Estate Association 1993
<PAGE>
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces specified in Paragraph 1.2(b) on those portions of
the Common Areas designated from time to time by Lessor for parking. Lessee
shall not use more parking spaces than said number. Said parking spaces shall be
used for parking by vehicles no larger than full-size passenger automobiles or
pick-up trucks, herein called "Permitted Size Vehicles." Vehicles other than
Permitted Size Vehicles shall be parked and loaded or unloaded in the area
identified on Exhibit A hereto as the "Truck Parking Area." (Also see Paragraph
2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.8, then Lessor shall have the right, upon notice
to Lessee at the Premises, in addition to such other rights and remedies that it
may have to remove or tow away the vehicle involved and charge the cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Application Law.
2.7 Common Area - Definition. The term "Common Areas" is defined as
all areas and faciliates outside the Premises and within the exterior boundary
line of the Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways, and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and priviledges reserved
by Lessor under the terms hereof or under the terms of any reasonable and non-
discriminatory rules and regulations or restrictions governing the use of the
Industrial Center, and which Lessee has notice of. Lessee hereby agrees that
Lessee has notice of the terms and conditions of this Lease, including without
limitation, the rules and regulations attached hereto as Exhibit D, all
covenants, conditions and restrictions currently of record affecting the
Premises, and all zoning and other building and land use regulations governing
the Premises. Under no circumstances shall the right herein granted to use the
Common Areas be deemed to include the right to store any property, temporarily
or permanently, in the Common Areas. Any such storage shall be permitted only by
the prior written consent of Lessor or Lessor's designated agent, which consent
may be revoked at any time, in the event that any unauthorized storage shall
occur, then Lessor shall have the right, without notice, in addition to such
other rights and remedies that it may have, to remove the property and charge
the cost to Lessee, which cost shall be immediately payable upon demand by
Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and management
of the Common Areas and shall have the right, from time to time, to establish,
modify, amend, and enforce reasonable and non-discriminatory Rules and
Regulations with respect thereto in accordance with Paragraph 40. Lessee agrees
to abide by and conform to all such Rules and Regulations, and to cause its
employees, suppliers, shippers, customers, contractors and invitees to so abide
and conform. Lessor shall not be responsible to Lessee for the non-compliance
with said rules and regulations by other lessees of the Industrial Center.
2.10 Common Area - Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises remains
available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
Notwithstanding the foregoing, in no event shall any changes to the Industrial
Center or the Common Areas thereof voluntarily undertaken by Lessor (and not
under threat of condemnation) materially and adversely affect Lessee's access
to, or the parking or loading for, the Premises. With respect to the area noted
on Exhibit A hereto as the "Truck Parking Area", such area shall be deemed to be
part of the Premises and not part of the Common Areas; provided, however, that
such Truck Parking Area shall be maintained by Lessor along with the Common
Areas. The cost of such maintenance shall be a Reimbursable Cost (as defined in
Paragraph 4 of the Addendum attached hereto) attributable to the Building.
3. Term
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to carry the
insurance required by paragraph 8) shall be in effect during such period. Any
such early possession shall not affect nor advance the Expiration Date of the
Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date. Lessor shall
not be subject to any liability therefor, nor shall such failure affect the
validity of this Lease, or the obligations of Lessee hereunder, or extend
the term hereof, but in such case, Lessee shall not, except as otherwise
provided herein, be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease until Lessor delivers possession of the
Premises to Lessee. If possession of the Premises is not delivered to Lessee
within sixty (60) days after the Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of the said sixty (60) day
period, cancel this Lease, in which event the parties shall be discharged from
all obligations hereunder; provided furthur, however, that if such written
notice of Lessee is not received by Lessor within said ten (10) day period,
Lessee's right to cancel this Lease hereunder shall terminate and be of no
further force or effect.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, except as specifically provided in
Paragraph 10 of Exhibit C hereto on or before the day on which it is due under
the terms of this Lease. Base Rent and all other rent and charges for any period
during the term hereof which is for less than one full month shall be prorated
based upon the actual number of days of the month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purpose of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Property management and security services and the
costs of any environmental inspections of Common Areas.
(iv) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(v) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vi) Any commercially reasonable deductable portion of an
insured loss (not including any deductible any Lessor's earthquake coverage)
concerning the Building of the Common Areas, it being agreed between Lessor and
Lessee that Lessor's insurance deductible as specified in Section 8.3 hereof is
deemed to be commercially reasonable.
(vii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitable allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide these
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within thirty (30) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor prior to the Commencement Date and
thereafter the end of each calendar year during the term hereof, based upon the
prior year's Reimbursable Costs of Lessee's Share of annual Common Area
Operating Expenses and the same shall be payable monthly during each 12-month
period of the Lease term, on the same day as the Base Rent is due hereunder,
Lessor shall deliver to Lessee within one hundred twenty (120) days after the
expiration of each calendar year a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses incurred during the
preceding year. If Lessee's payments under this paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be credited the amount of such over-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next becoming
due. If Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall pay
to Lessor the amount of the deficiency within thirty (30) days after delivery by
Lessor to Lessee of said statement. See Addendum
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8 and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that unreasonably disturbs owners and/or occupants of, or causes
damage to the Premises or neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either; (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereto and
asbestos or asbestos containing materials. Lessee shall not engage in any
activity in or about the Premises which constitutes a Reportable Use (as
hereinafter defined) of Hazardous Substances without the express prior written
consent of Lessor and compliance in a timely manner (at Lessee's sole cost and
expense) with all Applicable Requirements (as defined in Paragraph 6.3).
"Reportable Use" shall mean (i) the installation or use of any above or below
ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof. Notwithstanding the foregoing, and
subject to the terms and conditions of this Lease, Lessor agrees that Lessee may
use, process and store within the Premises only the following Hazardous
----
Substances without the need for additional security deposits or additional
installations in the Premises (other than Lesses's Special Improvements, as
defined in Exhibit C hereto), provided that Lessee complies with all applicable
federal, state and local laws, regulations and ordinances and all other
Applicable Requirements governing the generation, use, manufacture,
transportation, storage, disposal, spill or release of such Hazardous
Substances:
a. Sodium Dichloroisocyanurate, dihydrate
b. Sodium Dichloro-s-triazainetrione, dihydrate
c. Sodium Persulfate
d. Trichloroisocyanuric Acid
e. Trichloro-s-triazainetrione
f. 1-Bromo-3-Chloro-5,5-Dimethylhydantoin
g. Calcium Hypochlorite
h. Sodium Dichloroisocyanuric Acid, Anhydrous
i. Sodium Dichloro-s-triazainetrione, Anhydrous
From and after the Early Possession Date, Lessee shall be solely
responsible for any release of, or contamination caused by, the aforementioned
Hazardous Substances and any other Hazardous Substances brought onto the
Industrial Center by or for Lessee. In the event that Lessee shall desire to
generate, use, manufacture, transport, store, or dispose of Hazardous Substances
other than those specifically listed above, Lessee shall obtain Lessor's prior
written consent thereto, which consent shall not be unreasonably withheld or
delayed, but which consent may be conditioned upon Lessee's providing Lessor
with adequate assurances that such Hazardous Substances will not expose the
Building, the Industrial Center, and/or the tenants, users and customers thereof
to any risk of physical harm or property damage.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance brought onto the Industrial Center by or
for Lessee, has come to be located in, on, under or about the Premises or the
Building, other than as previously consented to by Lessor, Lessee shall
immediately give Lessor written notice thereof, together with a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action, or proceeding given to, or received from, any
governmental authority or private party concerning the presence, spill, release,
discharge of, or exposure to, such Hazardous Substance including but not limited
to all such documents as may be involved in any Reportable Use involving the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including, without limitation,
through the plumbing or sanitary sewer system). Lessor acknowledges that
Leslie's Pool Brite, a California corporation, a Lessor approved subtenant of
Lessee, may vent certain fumes as part of its operations in the Premises. Lessor
hereby agrees that the venting of such fumes shall not constitute a spill or
release of a Hazardous Substance by Lessee or it subtenant, provided that such
venting of fumes is properly performed and permitted in accordance with all
Applicable Laws relating thereto, including without limitation all requirements
of the South Coast Air Quality Management District.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages (whether direct or
consequential, including, without limitation, any diminution in the value of the
Premises or the Industrial Center) liabilities, judgements, costs, claims,
liens, expenses, penalties, loss of permits and attorneys' and consultants'
fees arising out of or involving any Hazardous Substance brought onto the
Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement. Lessor shall indemnify, protect, defend and hold Lessee
harmless from and against any and all claims, judgements, damages, penalties,
fines, liabilities, losses, suits, administrative proceedings and costs
(including, but not limited to, reasonable attorneys' and consultants' fees)
arising out of or involving any Hazardous Substance brought onto the Premises by
Lessor, its employees, agents or contractors; provided, however, that the
foregoing indemnity shall not apply to any Hazardous Substances that were not
brought onto the Premises by Lessor, its employees, agents or contractors,
notwithstanding that Lessor may be held legally responsible for such Hazardous
Substances because Lessor is the owner of the Premises, or otherwise.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants (in the event, and only in the event, that there
has been a spill or release of Hazardous Substances for which Lessee is
responsible hereunder, it being understood and agreed between Lessor and Lessee
that absent such a spill or release, Lessor's engineers or consultants shall not
direct the manner in which Lessee utilizes or stores those Hazardous Substances
which Lessee is allowed to use hereunder) relating in any manner to Lessee's
particular use and/or occupancy of the Premises (including but not limited to
matters pertaining to (i) industrial hygiene, (ii) environmental conditions on,
in, under or about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation, maintenance,
removal, transportation, storage, spill, or release of any Hazardous Substance),
now in effect or which may hereafter come into effect. Lessee shall, within
fifteen (15) days after receipt of Lessor's written request (except in the case
of an emergency, in which event Lessee shall provide such information
immediately) provide Lessor with copies of all documents and information,
including but not limited to permits, registrations, manifests, applications,
reports and certificates, evidencing Lessee's compliance with any Applicable
Requirements specified by Lessor, and shall immediately upon receipt, notify
Lessor in writing (with copies of any documents involved) of any threatened or
actual claim, notice, citation, warning, compliant or report pertaining to or
involving failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. Notwithstanding the foregoing, in
no event shall Lessor's inspection rights hereunder materially interfere with
Lessee's business operations in the Premises, unless there has been a spill or
release of Hazardous Substances. The costs and expenses of any such inspections
shall be paid by the party requesting same, unless a Default or Breach of this
Lease by Lessee or a violation of Applicable Requirements or a contamination,
caused or materially contributed to by Lessee, if found to exist or to be
imminent, or unless the inspection in requested or ordered by a governmental
authority as the result of any such existing or imminent violation or
contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
If at any time during the term Lessee knows or believes that any spill
or release of any Hazardous Substance for which Lessee is responsible hereunder
has come or will come to be located upon, about, or beneath the Premises, then
Lessee shall, as soon as reasonably possible, either prior to the release or
spill or following the discovery thereof by Lessee, giver verbal and follow-up
written notice of that condition to Lessor. Lessee covenants to investigate,
clean up and otherwise remediate any spill or release of any Hazardous Substance
for which Lessee is responsible hereunder at Lessee's cost and expense. Any such
investigation, cleanup and remediation shall be performed only after Lessee has
obtained Lessor's written consent, which shall not be unreasonably withheld;
provided, however, that Lessee shall be entitled to respond immediately to an
emergency without first obtaining Lessor's written consent. All cleanup and
remediation shall be done in accordance with all Applicable Laws relating
thereto and to the standard required by the governmental authorities having
jurisdiction thereover; provided, however, that Lessee shall be solely
responsible for reimbursing the Lessor for any diminution in the value of the
Industrial Center or the Premises caused a result of such spill or release of
Hazardous Substances.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation) and reasonable
wear and tear Lessee shall, at Lessee's sole cost and expense and at all times,
keep the Premises and every part thereof in good order, condition and repair
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same, are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired pressure
vessels, fire hose connections if within the Premises, fixtures, interior walls,
interior surfaces of exterior walls, ceilings, floors, windows, doors, plate
glass, and skylights, but excluding any items which are the responsibility of
Lessor pursuant to Paragraph 7.2 below. Lessee, in keeping the Premises in good
order, condition and repair, shall exercise and perform good maintenance
practices. Lessee's obligations shall include restorations, replacements or
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
a contract, with copies to Lessor, in customary form and substance for and with
a contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after thirty (30) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee's behalf, and put the
Premises in good order, condition and repair; in accordance with Paragraph 13.2
below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
<PAGE>
detection systems and equipment, fire hydrants, parking lots, walkways,
parkways, driveways, landscaping, fences, signs and utility systems serving the
Common Areas and all parts thereof, as well as providing the services for which
there is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall
not be obligated to paint the exterior surfaces of exterior walls nor shall
Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Leasee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
Alterations and Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, provided that
Lessee complies with all the following terms and conditions: (i) all such
Alterations and Utility Installations shall be made at Lessee's sole cost and
expense, including any additional requirements or conditions imposed upon Lessee
or Lessor as a result of Lessee's desire to make such Alterations and Utility
Installations, (ii) all such Alterations and Utility Installations shall not be
visible from the exterior of the Premises, (iii) all such Alterations and
Utility Installations shall not affect the roof or structural portions of the
Premises, (iv) all such Alterations and Utility Installations shall not affect
the existing utility and mechanical systems serving the Premises, including
without limitation the HVAC, plumbing, electrical, fire safety and sprinkler
systems, (v) all such Alterations and Utility Installations shall be properly
approved and permitted by all governmental authorities having jurisdiction
thereover, shall be expeditiously commenced and completed, shall be performed
in a good and workmanlike manner using new materials and otherwise in
conformance with all Applicable Laws, and shall be constructed by a California
licensed contractor which carries a policy of commercial general liability
insurance in an amount not less than $500,000.00 per occurrence, with Lessor
named as additional insured thereunder, (vi) all such Alterations and Utility
Installations shall not cost, in the aggregate, more than Thirty Thousand
Dollars ($30,000.00) in any one calendar year, or more than One Hundred Fifty
Thousand Dollars ($150,000.00) in the aggregate during the Lease term, (vii)
Lessee shall give Lessor not less than ten (10) days prior written notice of the
date that Lessee intends to commence such Alterations and Utility Installations
so that Lessor may post notices of non-responsibility with respect thereto,
(viii) unless otherwise agreed to in writing by Lessor, all such Alterations and
Utility Installations shall be removed by Lessee prior to the expiration or
earlier termination of this Lease, and the Premises restored to the condition
existing prior to the making of such Alterations and Utility Installations. In
the event that Lessee desires not to remove all such Alterations and Utility
Installations, Lessee shall provide Lessor, along with the notice specified in
subsection (vii) above, with (a) a written request that such Alterations and
Utility Installations need not be removed, (b) plans and specifications for such
Alterations and Utility Installations, and (c) such other information as is
reasonably necessary for Lessor to understand the nature and extent of the
proposed Alterations and Utility Installations. Lessor shall respond in writing
to Lessee within five (5) business days following receipt of all the information
specified above, notifying Lessee whether or not such Alterations and Utility
Installations need be removed and the Premises restored upon the expiration or
earlier termination of this Lease.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make which require the consent of the Lessor shall be presented
to Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide if it is to its best
interest to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Unless otherwise instructed per Subparagraph 7.4(b) hereof, all
Lessee-Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
the Premises and be surrendered with the Premises by Lessee; provided, however,
that in the event that this Lease is terminated as a result of damage or
destruction to the Premises, any insurance proceeds related to Lessee's Special
Improvements and Lessee-Owned Alterations and Utility Installations shall belong
solely to Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of the Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear and damage, destruction or condemnation covered by
Paragraphs 9 and 13 herein excepted. Ordinary wear and tear shall not include
any damage or deterioration that would have been prevented by Lessee performing
all of its obligations under this Lease. Except as otherwise agreed or specified
herein, the Premises, as surrendered, shall include the Alterations and Utility
Installations. The obligation of Lessee shall include the repair of any damage
occasioned by the Installation, maintenance or removal of Lessee's Trade
Fixtures, furnishings, equipment, and Lessee-Owned Alterations and Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Requirements and/or good practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
pro-rated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than See Addendum with an
"Additional Insured-Managers or Lessors of Premises' endorsement and contain the
"Amendment of the Pollution Exclusion" endorsement for damage caused by heat,
smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability insurance
in addition to and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall be named as an additional insured therein; provided,
however, that Lessee's liability insurance policy shall be primary, non-
contributing with and not in excess of Lessor's policy.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be a standard "All Risk" policy of property
insurance, in an amount equal to the full replacement value of the Building
(exclusive of foundations and footings), with a deductible not in excess of Ten
Thousand Dollars ($10,000.00.) Lessee-Owned Alterations and Utility
Installations, Trade Fixtures and Lessee's personal property shall be insured by
Lessee pursuant to Paragraph 8.4. If the coverage is available and commercially
appropriate, Lessor's policy or policies shall insure against the perils of
earthquake.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor, with loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for a period of
twelve (12) months.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the insuring Party under Paragraph 8.3(a). Such insurance
shall be a full replacement cost coverage with a deductible not to exceed Ten
Thousand Dollars ($10,000.00) per occurrence; provided that in no event shall
Lessor be responsible to Lessee for any amount paid by Lessee as part of a
deductible payment made by Lessee in connection with the aforesaid property
insurance. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force. Lessee shall also carry business interruption/loss of income insurance in
an amount equal to Lessee's lost revenues for a period of twelve (12) months
(including without limitation, lost revenues in Lessee's retail facilities) as a
result of Lessee's inability to utilize the Premises to any extent.
Notwithstanding the foregoing, Lessee may elect to self insure for its personal
property insurance and business interruption/loss of income insurance.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Rating" of at least B+, V, or
such other rating as may be required by a Lender, as set forth in the most
current issue of "Best's Insurance Guide." Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in
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this Paragraph 8, Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancellable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies furnish Lessor with evidence of renewals or
"Insurance binders" evidencing renewal thereof or certificates of insurance
evidencing that Lessee continues to carry the insurance required to be carried
by Lessee herein, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property or for loss of revenue or income
arising out of or incident to the perils required to be insured against under
Paragraph 8. The effect of such releases and waivers of the right to recover
damages shall not be limited by the amount of insurance carried of required, or
by any deductibles applicable thereto. Lessor and Lessee agree to have their
respective insurance companies issuing property damage and business
interruption/loss of income insurance or rental loss insurance, as applicable
insurance waive any right to subrogation that such companies may have against
Lessor or Lessee, as the case may be, so long as the insurance is not
invalidated thereby.
8.7 Indemnity, Lessee's Indemnity. Subject to the provisions of Section
-----------------------------
8.6 of this Lease and Paragraph 15 of the Addendum hereto, Lessee, as a material
part of the consideration to be rendered to Lessor, shall indemnify, defend,
protect and hold harmless Lessor and all partners, shareholders, directors,
officers, employees and agents of Lessor (collectively, "Lessor Parties")
against all actions, claims, demands, damages, liabilities, losses, penalties,
fees (including without limitation reasonable attorneys' fees and costs) and
expenses (collectively, "Claims and Damages") of any kind which may be brought
or imposed upon the Lessor Parties or which the Lessor Parties may pay or incur
by reason of injury to person or property, from whatever cause, all or in any
way connected with the condition or use of the Premises, or the improvements or
personal property therein or thereon, including without limitation any
liability or injury to the person or property of Lessee, its partners,
shareholders, directors, officers, employees and agents (the "Lessee Parties"),
to the extent the same would be covered under a customary commercial general
liability insurance policy with the Lessor named as an additional insured
thereunder. Subject to the provisions of Section 8.6 of this Lease and Paragraph
15 of the Addendum hereto, Lessee also agrees to indemnify, defend and protect
the Lessor Parties and hold them harmless from any and all Claim and Damages
incurred in connection with or arising out of the negligence or willful
misconduct of the Lessee Parties.
Lessor's Indemnity. Subject to the provisions of Section 8.6 of this Lease
------------------
and Paragraph 15 of the Addendum hereto, Lessor, as a material part of the
consideration to be rendered to Lessee, shall indemnify, defend, protect and
hold harmless the Lessee Parties against all Claims and Damages of any kind
which may be brought or imposed upon the Lessee Parties or which the Lessee
Parties may pay or incur by reason of injury to person or property, from
whatever cause, all or in any way connected with the condition or use of the
Common Areas, or the improvements or personal property therein or thereon,
including without limitation any liability or injury to the person or property
of the Lessor Parties, to the extent the same would be covered under a customary
commercial general liability insurance policy with the Lessee named as an
additional insured thereunder. Subject to the provisions of Section 8.6 of this
Lease and Paragraph 15 of the Addendum hereto, Lessor also agrees to indemnify,
defend and protect the Lessee Parties and hold them harmless from any and all
Claims and Damages incurred in connection with or arising out of the negligence
or willful misconduct of the Lessor Parties.
<PAGE>
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent it
is inconsistent herewith.
10. Real Property Taxes.
10.1 Payments of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center prior to
delinquency and except as otherwise provided in Paragraph 10.3, any such amounts
shall be included in the calculation of Common Area Operating Expenses in
accordance with the provisions of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street
drainage, or other Improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.4 Joint Assessment. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined as follows: Lessee
shall pay, as additional rent to Lessor, its "pro rata share" of all Real
Property Taxes stated in the tax bill in which the Premises are included,
including the parking and Common Areas, as well as the improvements on all of
said land, or otherwise arising under the provisions of this Article 10. Pro
rata share is defined as that fraction the numerator of which is the square
footage in the Premises and the denominator of which is the gross leasable
square footage included within the tax bill.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed to the premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessor and Lessee acknowledge that,
although Lessee's stock is currently publicly traded, Lessee has informed Lessor
of a proposed transaction whereby the current management of the Lessee intends
to purchase all of the outstanding stock of Lessee such that the stock of the
Lessee would no longer be publicly traded (the "Management Buyout.") The
provisions of Sections 12.1 (b) and (c) below shall not apply to the Management
Buyout.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under the subject to the terms of
Paragraph 36.
(b) Provided that Lessee is or becomes a company whose stock
shares are no longer publicly traded, a change in the control of Lessee shall
constitute an assignment requiring Lessor's consent. During the initial three
(3) years of the term hereof, the transfer, on a cumulative basis, of more than
twenty-five percent (25%), but less than fifty percent (50%), of the outstanding
shares of Lessee, shall not constitute an assignment requiring Lessor's consent,
provided that the current President and CEO of Lessee, Brian McDermott
("McDermott") remains employed by Lessee in his current capacity. In addition,
during the initial three (3) years of the term hereof, the transfer, on a
cumulative basis, of more than twenty-five percent (25%) of the outstanding
shares of Lessee which causes or is accompanied by McDermott no longer being
employed by Lessee in his current capacity shall constitute an assignment
requiring Lessor's consent; provided, however, that Lessor may not withhold its
consent to any such transaction if Lessee agrees to post with Lessor such
security for Lessee's performance of this Lease (including, without limitation,
cash, or a letter of credit, or a Lease guaranty) as is reasonable given the
nature of the transaction proposed by Lessee, the reduction in the Net Worth of
Lessee (as defined below), if any, which will occur thereby, and the increased
risk to Lessor of Lessee's performance hereunder which is caused thereby. From
and after the expiration of the initial three (3) years of the term hereof, a
transfer of up to forty nine percent (49%) of the outstanding shares of Lessee
shall not constitute an assignment requiring Lessor's consent, notwithstanding
any changes in the employment status of McDermott. In any event, the transfer,
on a cumulative basis, at any time during the term hereof, of fifty percent
(50%) or more of the outstanding shares of Lessee shall constitute an assignment
requiring Lessor's consent. The foregoing provisions shall not apply to the
Management Buyout.
(c) The involvement of the Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, re-financing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction in the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the
time of full execution and delivery of this Lease, shall be considered an
assignment of this Lease by Lessee to which Lessor may reasonably withhold its
consent; provided, however, that Lessor may not withhold its consent to any
transaction contemplated by this Section 12.1 (b) if Lessee agrees to post with
Lessor such security for Lessee's performance of this Lease (including, without
limitation, cash, or a letter of credit, or a Lease guaranty) as is reasonable
given the nature of the transaction proposed by Lessee, the reduction in the Net
Worth of Lessee which will occur thereby, and the increased risk to Lessor of
Lessee's performance hereunder which is caused thereby. "Net Worth of Lessee"
for purposed of this Lease shall be the net worth of Lessee (excluding any
guarantors) established under generally accepted accounting principles
consistently applied. The foregoing provisions shall not initiate the
Management Buyout.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a non-curable Breach, Lessor
shall have the right to terminate this Lease.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent for performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto upon
notification to Lessee unless Lessee has been released from its obligations
hereunder pursuant to Paragraph 9.F of the Addendum herein, or otherwise, and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises. Lessee agrees to provide Lessor
with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
<PAGE>
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur under Paragraphs 13.1(b), 13.1(d)(to the extent that Lessor expends
sums in curing such Breach) and 13.1(e) in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in this
Lease, receive, collect and enjoy the rents accruing under such sublease, Lessor
shall not, by reason of the foregoing provision or any other assignment of such
sublease to Lessor, nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
Sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a Breach exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents and other charges due and to become due under the sublease. Sublessee
shall rely upon any such statement and request from Lessor and shall pay such
rents and other charges to Lessor without any obligation or right to inquire as
to whether such Breach exists and notwithstanding any notice from or claim from
Lessee to the contrary. Lessee shall have no right or claim against such
sublessee, or, until the Breach has been cured, against Lessor, from any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
13. Default;Breach;Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350,000 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder (hereinafter, "Additional Rent") as and when due, the failure
by Lessee to provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any obligation
under this Lease which endangers or threatens life or property, where such
failure continues for a period of three (3) days following written notice
thereof by or on behalf of Lessor to Lessee. Notwithstanding the foregoing, no
more often than once each twelve (12) months during the term hereof, Lessor
shall provide Lessee with written notice of Lessee's failure to timely pay Base
Rent or Additional Rent, and provided that Lessee pays such Base Rent or
Additional Rent to Lessor within ten (10) days following Lessee's receipt of
Lessor's written notice, Lessee shall not be deemed to be in default hereunder.
In all events Lessor shall give Lessee such notice of non-payment of Base Rent
and/or Additional Rent, and/or of Lessee's non-performance of any provision of
this Lease as is required by California law, prior to instituting any action in
unlawful detainer to dispossess Lessee from the Premises.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, If applicable) of (I) compliance with Applicable
Requirements per Paragraph 6.3 (II) the inspection, maintenance and service
contracts required under Paragraph 7.1(b) (III) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (IV) a Tenancy
Statement per Paragraphs 16 or 37, (V) the subordination or non-subordination of
this Lease per Paragraph 30, (VI) the guaranty of the Performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (VII) the
execution of any document requested under Paragraph 42 (easements), or (VIII)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, compiled with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events:(i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within sixty (60) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within sixty (60) days; provided, however,in the event
that any provision of this Subparagraph 13.1(e) is contrary to any applicable
law, such provision shall be of no force or effect, and shall not affect the
validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within thirty (30) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at its
option (but without obligation to do so), perform such duty or obligation on
Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be due
and payable by Lessee to Lessor within thirty (30) days following Lessee's
receipt of Lessor's invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check in the event of a Breach of this Lease by Lessee
(as defined in Paragraph 13.1), with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may;
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee; (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided: and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
Page 7
<PAGE>
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to Incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessee
shall not be received by Lessor of Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to (i) One Thousand Dollars
($1000.00), if Lessee has failed to timely make a payment of Base Rent, or (ii)
two percent (2%) of the past due sum, for all other payments due from Lessee to
Lessor hereunder. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will Incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion. Notwithstanding the
foregoing, in the event of an "emergency situation" (as defined below) that
Lessee believes is Lessor's obligation to cure or remedy pursuant to the terms
hereof, Lessee shall make reasonable attempts to notify Lessor of such emergency
situation, but Lessee shall not be required to wait for Lessor to respond to
such emergency situation. In the event of an emergency situation, Lessee may
undertake to cure such emergency situation and thereafter bill Lessor for the
reasonable cost thereof. In the event that Lessor shall dispute that it was
Lessor's obligation under this Lease to cure or remedy the emergency situation,
the dispute, if not resolved by Lessor and Lessee through negotiation, shall,
upon written notice from either party to the other, be submitted to arbitration
under the commercial arbitration rules of the American Arbitration Association.
If such dispute is arbitrated, the losing party in such dispute shall pay all
the fees and costs of the American Arbitration Association in such arbitration,
including without limitation, the fee for the arbitrator. As used herein, an
"emergency situation" is any situation that poses a present danger of personal
injury or property damage.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether (such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority, Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers'.
15.4 Representations and Warranties. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction, Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
thirty (30) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing, acknowledging the commencement and termination dates of this Lease,
that it is in full force and effect, has not been modified (or if it has,
stating such modifications), stating the Base Rent and Additional Rent payable
thereunder, plus such additional information, confirmation and/or statements as
may be reasonably requested by the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor either (i) if Lessee is then a publicly owned company, a copy of Lessee's
most recent 10Q or 10K filing with the SEC, or (ii) if Lessee is then a company
whose stock is not publicly traded, a copy of Lessee's audited financial
statement for the preceding calendar year, or if available, more current audited
financial statements. All such financial statements shall be received by Lessor
and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or credit)
any unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, and the
assumption by such transferee or assignee from the date of such assignment or
transfer of the landlord's obligations under this Lease, the prior Lessor shall
be relieved of all liablity with respect to the obligations and/or covenants
under this Lease thereafter to be performed by the Lessor. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by the
Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor or
Lessee hereunder, other than late charges, not received by Lessor or Lessee
within ten (10) days following the date on which it was due, shall bear interest
from the date due at the prime rate charged by the largest state chartered bank
in the state in which the Premises are located plus four percent (4%) per annum,
but not exceeding the maximum rate allowed by law, in addition to the potential
late charge provide for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. No Prior or other Agreements. This Lease contains all agreements between
the Parties with respect to any matter mentioned herein, and no other prior or
contemporaneous agreement or understanding shall be effective.
23. Notices.
23.1 Notice Requirements. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by
facsimile transmission during normal business hours, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid. Notice
delivered by United States Express Mail or overnight courier that guarantees
next day
MULT-TENANT-MODIFIED NET
(R) American Industrial Real Estate Association 1993
<PAGE>
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by either party hereto of the Default or Breach of any
term, covenant or condition hereof by the other party hereto shall be deemed a
waiver of any other term covenant or condition hereof, or of any subsequent
Default or Breach by such party of the same or any other term, covenant or
condition hereof Either party's consent to, or approval of, any such act shall
not be deemed to render unnecessary the obtaining of such party's consent to, or
approval of, any subsequent or similar act by Lessee, or be construed as the
basis of an estoppel to enforce the provision or provisions of this Lease
requiring such consent. Regardless of Lessor's knowledge of a Default or Breach
at the time of accepting rent, the acceptance of rent by Lessor shall not be a
waiver of any Default or Breach by Lessee of any provision hereof. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall be
of no force or effect whatsoever unless specifically agreed to in writing by
Lessor at or before the time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred twenty five
percent (125%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein
shall be construed as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provision of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (I) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (II) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (III) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices currently
encumbering the Premises, it is acknowledged and agreed between the parties
hereto that The Prudential Insurance Company of America ("Prudential") is
currently the beneficiary under a deed of trust encumbering the Premise, and
that Lessor has requested that Prudential enter into a non-disturbance agreement
with Lessee with respect to this Lease. With respect to any Security Devices
entered into by Lessor after the execution of this lease, Lessee's subordination
of this Lease shall be subject to receiving assurance (a "non-disturbance
agreement") from the Lender in a commercially reasonable form, that Lessee's
possession and this Lease, including any options to extend the term hereof, will
not be disturbed so long as Lessee is not in Breach hereof and attorns to the
record owner of the Premises. With respect to the Security Device currently
encumbering the Premises in favor Prudential, Lessor shall deliver to Lessee,
prior to the parties' full execution and delivery of this Lease, a non-
disturbance agreement in favor of Lessee, in the form attached hereto as
Exhibit E, executed and acknowledged by Purdential. In the event Lessor does not
deliver to Lessee such executed and acknowledged non-disturbance agreement
within thirty (30) days following the Early Possession Date, Lessee shall have
the right to terminate this Lease, exercisable within ten (10) days thereafter
upon ten (10) days written notice to Lessor, which termination shall be
effective if Lessor does not provide Lessee with the executed and acknowledged
non-distrubance agreement within such ten (10) day period. In the event that
Lessee shall elect to so terminate this Lease, (i) Lessee shall remove, at its
sole cost and expense, all Improvements (as defined in Exhibit C hereto)
constructed by Lessee to the date of such termination and restore the Premises
to the condition existing prior to such construction, and (ii) Lessor,
notwithstanding anything to the contrary contained in this Lease, shall have no
obligation to partially or totally reimburse Lessee for the cost of constructing
any Improvements.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party brings an action or proceeding to enforce
the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter
defined) in any such proceeding, action, or appeal thereon, shall be entitled to
reasonable attorneys' fees. Such fees may be awarded in the same suit or
recovered in a separate suit, whether or not such action or proceeding is
pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party who substantially obtains or defeats the relief
sought, as the case may be, whether by compromise, settlement, judgment, or the
abandonment by the other Party of its claim or defense. The attorneys' fee award
shall not be computed in accordance with any court fee schedule, but shall be
such as to fully reimburse all attorneys' fees reasonably incurred.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time in the case of an
emergency, and otherwise at reasonable times upon reasonable advance notice to
Lessee at the Premises, for the purpose of showing the same to prospective,
purchasers, lenders, or lessees (provided, however, with respect to showing the
Premises to proposed lessees, such inspection shall only take place during the
last one hundred eighty (180) days of the term hereof) and making such
alterations, repairs, improvements or additions to the Premises or to the
Building, as Lessor may reasonably deem necessary. Lessor may at any time place
on or about the Premises or Building any ordinary "For Sale" signs and Lessor
may at any time during the last one hundred eighty (180) days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee;
provided that Lessor shall use commercially reasonable efforts not to materially
and adversely affect Lessee's use and occupation of the Premises as a result of
such entry by Lessor, but Lessor shall not be obligated to expend any additional
sums beyond what Lessor would otherwise pay in performing any alterations,
repairs, replacements or improvements to the Premises in order not to affect
Lessee's use and occupation of the Premises.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign
on the Premises by or for Lessee shall be subject to the provisions of Paragraph
7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building; provided, however, that Lessee shall be entitled to
install or place all items on or through the roof as are shown on Final Plans
for the Improvements, as specified in Exhibit C hereto.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
35. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment & subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Lessor's consent to any act,
assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
See Addendum
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
<PAGE>
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees. Lessor's
current Rules and Regulations are attached hereto as Exhibit D.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations, Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions. Lessor shall reimburse Lessee for Lessee's
actual and reasonable attorneys' fees and cost incurred in connection with
Lessee's review of any such documents, not to exceed the sum of Fifteen Hundred
Dollars ($1,500.00), upon receipt of bills or invoices evidencing such
expenditure by Lessee.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change. Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
See Addendum
-10-
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE
POSSIBLE PRESENCE OF ASBESTOS, UNDERGROUND STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY
THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Lafayette CA Executed at: Chatsworth, California
------------------------- -------------------------
on: 11/27/96 on: 11/26/96
---------------------------------- ----------------------------------
By LESSOR: By LESSEE:
BEDFORD PROPERTY INVESTORS, INC., LESLIE'S POOLMART (INC.),
- -------------------------------------- -------------------------------------
a Maryland corporation a California corporation
- -------------------------------------- -------------------------------------
By: /s/ Jim Moore By: /s/ Brian McDermott
----------------------------------- ----------------------------------
Name Printed: Jim Moore Name Printed: Brian McDermott
------------------------- ------------------------
Title: VP Mgr Title: CEO & President
-------------------------------- -------------------------------
By: By: /s/ Cynthia G. Watts
----------------------------------- ----------------------------------
Name Printed: Name Printed: Cynthia G. Watts
------------------------- ------------------------
Title: Title: VP & Secretary
-------------------------------- -------------------------------
Address: Address:
------------------------------ -----------------------------
- -------------------------------------- -------------------------------------
Telephone:( ) Telephone:(818) 993-4212
----------------------- -----------------------
Facsimile:( ) Facsimile:(818) 885-0292
----------------------- -----------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of industry. Always write or call to make sure you are utilizing the most
current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777.
(C)1993 by American Industrial Real Estate Association. All rights reserved. No
part of these words may be reproduced in any form without permission in writing.
-11-
<PAGE>
Exhibit 10.9
AGREEMENT OF LEASE
Single Tenant Building
THIS AGREEMENT OF LEASE, BY AND BETWEEN LIBERTY PROPERTY LIMITED
PARTNERSHIP, A LIMITED PARTNERSHIP ORGANIZED AND EXISTING UNDER THE LAWS OF
PENNSYLVANIA (HEREIN CALLED "LANDLORD") AND LESLIE'S POOLMART, A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF CALIFORNIA (HEREIN CALLED "TENANT").
WITNESSETH:
1. PREMISES. Landlord does hereby demise and let unto Tenant and Tenant
does hereby lease and take from Landlord for the term and upon the terms,
covenants, conditions and provisions set forth herein all that tract of land
located at 750 Cardinal Drive, Logan Township, Pineland, New Jersey (herein
called the "Lot") which is outlined in red on Exhibit "A" hereto, together with
the building (herein called the "Building") and improvements to be constructed
thereon in accordance with Article 2 hereof (the Lot, the Building and any other
improvements thereon being herein called the "Premises").
2. COMPLETION BY LANDLORD. The Premises shall be completed in accordance
with the plans to be attached hereto as Exhibit "B" (herein call the "Plans")
and the specifications to be attached hereto as Exhibit "C" (herein call the
"Specifications"). All necessary construction shall be commenced promptly and
shall be substantially completed ready for use and occupancy by Tenant on the
date set forth in Article 3. Provided, however, that the time for substantial
completion of the Premises shall be extended for additional periods of time
equal to the time lost by Landlord or Landlord's contractors, subcontractors or
suppliers due to strikes or other labor troubles, governmental restrictions and
limitations, scarcity, unavailability or delays in obtaining fuel, labor or
materials, war or other national emergency, accidents, floods, defective
material, fire damage or other casualties, adverse weather conditions, or any
cause similar or dissimilar to the foregoing beyond the reasonable control of
Landlord or Landlord's contractors, subcontractors or suppliers. ("Force
Majeure"). All construction shall be done in good and workmanlike manner and
shall comply at the time of completion with all applicable and lawful laws,
ordinances, regulations and orders of the federal, state, county or other
governmental authorities having jurisdiction thereof, Tenant and its authorized
agents, employees and contractors shall have the right, at Tenant's own risk,
expense and responsibility at all reasonable times prior to the Commencement
Date as hereinafter defined, to enter the Premises for the purpose of taking
measurements and installing its furnishings and equipment; provided that Tenant,
in so doing, shall not interfere with or delay the work to be performed
hereunder by Landlord, and Tenant shall use contractors and workmen compatible
with the contractors and workmen engaged in the work to be performed hereunder
by Landlord, and Tenant shall have obtained Landlord's written consent prior to
installing any furnishings or equipment. Landlord hereby consents to Tenant's
installation of the furnishings and equipment described on Exhibit E hereto.
See Rider.
3. TERM. The term of this lease shall commence on the later of December
1, 1994 or on the date when the Premises and the improvements required to be
constructed by Landlord
<PAGE>
under Article 2 hereof shall have been substantially completed (herein call the
"Commencement Date"). If the date of substantially completion is delayed as a
result of changes requested by Tenant and Tenant was notified, in writing, that
such changes would result in delays, the term of the lease and the payment of
rent shall commence as if the Premises were substantially completed on the
originally scheduled date, as extended for reasons other than those caused by
Tenant. Unless__________terminated in accordance with the terms hereof, the term
of this lease shall end without the necessity for notice from either party to
the other at 12:01 local time on the tenth (10th) anniversary of the first day
of the first full calendar month during the term (herein call the "Expiration
Date").
4. USE OF PREMISES. Tenant shall occupy the Premises throughout the term
and shall use the same for and only for a warehouse for distribution of pool
supplies and such other items as Tenant may from time to time sell in its retail
stores with appurtenant offices, and other uses incidental thereto, including,
but not limited to, parking of tractors and trailers.
5. RENT.
(a) MINIMUM ANNUAL RENT. Tenant shall pay a minimum annual rent of
See Rider ($____________), without notice or demand, and without setoff, in
- ---------
equal monthly installments of See Rider ($____________) in advance, on the
---------
first day of each calendar month during the term of this lease. Provided,
however, that rent for the first full month shall be paid upon the signing of
this lease. If the Commencement Date shall fall on a day other than the first
day of a calendar month, the rent shall be apportioned pro rata on a per diem
basis for the period between the Commencement Date and the first day of the
following calendar month and such apportioned sum shall be paid on such
Commencement Date. In addition, Tenant shall pay Landlord without setoff the
additional rent as hereinafter set forth. Unless otherwise specifically
provided, all sums shall be paid to Landlord at the address given in Article 30
hereof.
6. TAXES AND OTHER IMPOSITIONS.
(a) PAYMENT. As additional rent hereunder, at least thirty (30) days
before any fine, penalty, interest or cost may be added thereto for the non-
payment thereof (or sooner if elsewhere herein required). Tenant shall pay
throughout the term of this lease a __________ ______ __________ waiver and
_________ rents and charges, liens, license and permit fees, charges for public
utilities and all other charges, imposts or burdens of whatsoever kind and
nature, general or special, foreseen and unforeseen, whether or not
particularized by name, ordinary or extraordinary, which are applicable to the
term of this lease, and which are created, levied, assessed, confirmed, adjudged
imposed or charged by any federal, state or municipal government or public
authority, or under any law, ordinance or regulation thereof, or pursuant to any
record covenants or agreements (all of which are hereinafter referred to as
"Impositions") upon or with respect to the Premises, the Lot or any improvements
made thereto, any part of the foregoing, any appurtenances thereto, or directly
upon this lease or the rent payable hereunder or amounts payable by the
subtenants or other occupants of the Premises, or upon this transaction or any
related documents to which the Tenant is a party or successor in interest, or
against Landlord because of Landlord's estate or interest herein. If Tenant is
permitted by the assessing and collecting authorities and by all mortgagees and
elects to pay any Imposition in installments,
2
<PAGE>
Tenant shall nevertheless pay all unpaid installments thereof prior to the
expiration or sooner termination of the term of this lease, * whether or not
---
such installments are then due or payable. Tenant shall pay each Imposition
at Landlord's election to Landlord or directly to the government or other public
authority charged with the collection of such Imposition; and in the latter
event. ** Tenant shall furnish Landlord, not later than ten (10) days prior
---
to the last day upon which they may be paid without any fine, penalty, interest
or cost, receipts or other evidence satisfactory to Landlord of the payment of
all such Impositions
(b) NEW METHODS OF TAXATION. Nothing herein contained shall be
interpreted as requiring Tenant to pay any income, excess profits, corporate
capital stock, *** or franchisee tax imposed or assessed upon Landlord,
-------
unless such tax or any similar tax is levied or assessed in lieu of all or any
part of any imposition or an increase in any Imposition. If under the
requirements of any state or local law with respect to such new method of
taxation, Tenant is prohibited from paying such new tax the minimum annual rent
shall increase by the amount of such new tax.
(c) MONTHLY DEPOSITS. Notwithstanding the foregoing provisions of
this Article 6 during any time that Tenant is in default under this Lease,
Landlord shall have the right, at its option, to require Tenant to pay to
Landlord or to any mortgagee, at the time when the monthly installment of
minimum rent is payable, an amount equal to one-twelfth (1/12th) of the annual
Impositions as estimated by Landlord. If Landlord elects to have Tenant make
such payments. Tenant also shall pay to Landlord or to such mortgagee, as the
case may be, at least thirty (30) days before any fine, penalty, interest or
cost may be added thereto for the non-payment thereof, the amount by which the
Impositions becoming due exceed the monthly payments on account thereof
previously made by Tenant. The amount paid by Tenant pursuant to this
Paragraph(c) shall be used to pay the Imposition, but such amounts shall not be
deemed to be trust funds and no interest shall be payable thereon.
(d) CONTESTS BY LANDLORD. Landlord may bring proceedings to contest
the validity or amount of any Imposition or to recover payments therefor.
Tenant shall cooperate with Landlord with respect to such proceedings to the
extent reasonably necessary and shall pay to Landlord all reasonable costs, fees
and expenses incurred in connection with such proceedings as additional rent
promptly upon being billed therefor.
(e) CONTESTS BY TENANT. Tenant, without postponement of payment, may
bring proceedings to contest the validity or amount of any Imposition or to
recover payments therefor. Tenant shall save Landlord harmless from all costs
and expenses in connection with such proceedings. Landlord shall cooperate with
Tenant with respect to such proceedings to the extent reasonably necessary, but
all costs, fees and expenses incurred in connection with such proceedings shall
be borne by Tenant. Tenant shall give Landlord advance written notice of
Tenant's intention to take any such action.
7. INSURANCE.
(a) Types. Tenant, at Tenant's sole cost and expense, shall maintain
and keep in effect throughout the term with policies from an insurer rated B+ or
better by Best's:
3
<PAGE>
(i) [deleted in its entirety]
(ii) insurance against liability for bodily injury (including
death) or property damage in or about the Premises, under a policy of
comprehensive general public liability insurance, with such limits as to each as
may reasonably be required by Landlord from time to time but not less than
$500,000 for each person and $1,000,000 for each occurrence of bodily injury
(including death) and $500,000 for property damage;
(iii) such other forms of insurance as may be reasonably
specified from time to time by Landlord and are regularly required of tenants in
similar situations; all such insurance shall be in such reasonable amounts as
may be specified from time to time by Landlord or by any mortgagee; and See
Rider.
(iv) any other reasonable and customary insurance coverage
regularly required of tenants in similar situations that may be required from
time to time by any mortgagee or that may be required generally by institutional
mortgages.
(b) INSURED PARTIES. The policies of insurance described in
Paragraphs (a)(i), (iii) and (iv) of this Article 7 shall name Landlord as the
insured party, and in addition shall contain a standard mortgagee endorsement in
favor of all mortgagees or, at the election of any such mortgagee, any
reasonable variation of such endorsement. The policies of insurance described
in Paragraph (a)(ii) of this Article 7 shall name both Landlord and Tenant as
the insured parties.
(c) POLICIES. Each policy of insurance required by Paragraph (a) of
this Article 7 shall provide that it shall not be canceled without at least
thirty (3) days prior written notice to Landlord and to any mortgagee named in
any endorsement thereto. Each policy shall have an executive notice endorsement
or comparable form of coverage attached thereto to the effect that no act or
omission of Tenant shall affect the obligation of the insurer to pay the full
amount of any loss sustained.
(d) EVIDENCE OF COVERAGE. At least ten (10) days prior to the
Commencement Date, the original and a signed duplicate of each policy shall be
delivered to Landlord by Tenant. Tenant may carry any insurance required by
this Article 7 under a blanket policy, applicable to the Premises, in which
event Tenant shall deliver the insurer's certification thereof showing all the
terms of such coverage applicable to the Premises and showing the insured
parties as aforesaid. If Tenant shall fail, refuse or neglect to obtain or to
maintain any insurance that it is required to provide, or to furnish Landlord
with satisfactory evidence or coverage within the time required, Landlord shall
have the right after five (5) days' notice to Tenant to purchase such insurance.
All payments for such insurance made by Landlord shall be recoverable by
Landlord from Tenant, together with interest thereon, as additional rent
promptly upon being billed therefor.
(e) WAIVER OF SUBROGATION. Each of the parties hereto hereby releases
the other, to the extent of the releasing party's insurance coverage, from any
and all liability for any loss or damage covered by such insurance which may be
inflicted upon the property of such party even if such loss or damage shall be
brought about by the fault of negligence of the other party, its
4
<PAGE>
agents or employees; provided, however, that this release shall be effective
only with respect to loss or damage occurring during such time as the
appropriate policy of insurance shall contain a clause to the effect that this
release shall not affect said policy or the right of the insured to recover
thereunder. If any policy does not permit such a waiver, and if the party to
benefit therefrom requests that such a waiver be obtained, the other party
agrees to obtain an endorsement to its insurance policies permitting such waiver
of subrogation if it is available. If an additional premium is charged for
waiver, the party benefiting therefrom agrees to pay the amount of such
additional premium promptly upon being applied therefor.
(f) SEE RIDER.
8. REPAIRS AND MAINTENANCE.
(a) Except as specifically otherwise provided in Paragraph (b) of this
Article, Tenant, at its sole cost and expense throughout the term of this lease,
shall keep and sustain in good order and condition the Buildings, and promptly
make all repairs necessary to keep and maintain such good order and condition,
whether such repairs are interior or exterior, ordinary or extraordinary,
foreseen or unforeseen. When used in this Article 8, the term "repairs" shall
include replacements and renewals when necessary. All repairs made by Tenant
utilize materials and equipment which are at least equal in quality and
usefulness to those originally used in constructing the Buildings. Tenant shall
maintain all HVAC systems appurtenant to the Building using a service firm(s)
acceptable to Landlord who shall provide service and maintenance in accordance
with the manufacturer's recommendations and shall provide a copy of the contract
to Landlord. See Rider.
(b) Landlord, throughout the term of this lease and at Landlord's sole
cost and expense, shall make all necessary repairs to the footings and
foundations and the structural steel columns and girders * forming a part of
-----
the Premises; provided, however, that the Landlord shall have no responsibility
to make any repair unless and until Landlord receives written notice of the need
for such repair, and provided further that Landlord shall have no responsibility
to repair any damage which arises out of or is caused by Tenant's use,
__________ of use or occupancy of the Premises, or by Tenant's installations in
or upon the Premises, or by any act or omission of Tenant or an employee, agent,
contractor or invitee of Tenant.
(c) Landlord shall keep and maintain all portions of the Premises and
any sidewalks, parking areas, curbs and access __________ adjoining the Premises
in a clean and orderly condition, free of accumulation of dirt, rubbish, snow
and ice and shall keep and maintain all landscaped areas in a neat and orderly
condition by performing all necessary tasks, including, but not limited to,
grass cutting, seeding, watering, weeding and replacing any dead or diseased
planting. SEE RIDER.
(d) SEE RIDER.
(e) SEE RIDER.
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9. REPAIRS AND MAINTENANCE. Tenant shall be solely responsible for all
rents, costs and charges for water service, sewer service, gas, electricity,
light, heat, steam, power, telephone and other communication services, and any
and all other utilities or services rendered or supplied upon or in connection
with the Premises.
10. NET LEASE. Except for the obligations of Landlord expressly set forth
herein, this lease is a "net lease" and Landlord shall receive the minimum
annual rent as hereinabove provided as net income from the Premises, not
diminished by any imposition or any expenses or charges required to be paid to
maintain and carry the Premises other than payment under any mortgages now
existing or thereafter created by Landlord, and Landlord is not and shall not be
required to render any service of any kind to Tenant.
11. GOVERNMENTAL REGULATIONS. With regard to all or any part of the
Premises or to the use or manner of use of the Premises, or to the sidewalks,
parking areas, curbs and access ways adjoining the Premises, or to the fixtures
and equipment in the Premises, throughout the term of this lease and at its sole
cost and expense, Tenant shall: (i) comply with all laws, ordinances, notices,
orders, rules, regulations and requirements of all federal, state and municipal
governments and all departments, commissions, boards and officers thereof, and
all recorded covenants, rules and regulations of Pureland Industrial Complex and
of the National Board of Fire Underwriters or any other body now or hereafter
constituted exercising similar functions; and (ii) keep in force at all times
all licenses, consents and permits necessary for the lawful use of the Premises
for the purposes herein provided; and (iii) comply with the requirements of all
public liability, ________, and other policies of insurance covering the
Premises whether any of the foregoing are foreseen or unforeseen, ordinary or
extraordinary. Provided, however, that Tenant shall not be required to comply
with the foregoing laws, ordinances and notices with respect to the footings and
foundations and the structural steel columns and girders ** forming a part
------
of the Premises unless the need for such compliance arises out of or is caused
by Tenant's use, manner of use or occupancy of the Premises, or by Tenant's
installations in or upon the Premises or by any act or omission of Tenant or any
employee, agent, contractor or invitee of Tenant, ordinary wear and tear
excluded.
12. SIGNS. Except for signs which are located wholly within the interior
of the Building and which are not visible from the exterior of the Premises, no
signs shall be placed, erected, maintained or painted at any place upon the
Premises without the prior written consent of Landlord as to the size, design,
color, location, content, illumination, composition or material and mobility
thereof. All signs shall be maintained by Tenant in good condition during the
term of this lease, and Tenant shall remove all signs at the termination of this
lease and shall repair and restore any damage caused by the installation or
removal thereof. See Rider.
13. ALTERATIONS, ADDITIONS AND FIXTURES.
(a) Subject to the provisions of Article 14 hereof, Tenant shall have
the right to install in the Building any trade fixtures from time to time during
the term of this lease; provided, however, that no such installation or removal
thereof shall affect the structural portions of the Building and that Tenant
shall repair and restore any damage or injury to the Premises caused thereby.
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(b) Tenant shall not make or permit to be made any alterations,
improvements or additions to the Premises without on each occasion first
presenting to Landlord plans and specifications therefor and obtaining
Landlord's prior written consent thereto; except if such alterations will cost
in excess of $10,000 in one-year period, that Tenant may make minor
nonstructural changes to the interior of the Building without the consent of
Landlord provided that: (i) Tenant supplies Landlord with plans and
specifications and any necessary permits therefor at least ten (10) days in
advance of commencing construction thereof; (ii) such alterations and
improvements do not impair the structural strength of the Building or any other
improvements; (iii) Tenant shall take or cause to be taken all steps that are
required by Article 14 hereof and that are required or permitted by law in order
to avoid the imposition of any mechanic's, laborer's or materialman's lien upon
the Premises, Building or Lot; and (iv) the occupants of any adjoining real
estate are not disturbed by reason thereof. Any and all alterations,
improvements and additions to the Premises which are constructed, installed or
otherwise made by Tenant shall be the property of Tenant until the expiration or
sooner termination of this lease; at that time all such alterations and
additions shall remain on the Premises and become the property of Landlord
without payment therefor by Landlord; unless, Landlord's written consent to such
alterations, improvements or additions shall require Tenant to remove the same;
in which event Tenant will remove such alterations, improvements and additions,
and repair and restore any damage to the Premises caused by the installation or
removal thereof.
14. MECHANICS' LIENS. Tenant shall promptly pay any contractors and
materialmen who supply labor, work or materials to Tenant at the Premises so as
to minimize the possibility of a lien attaching to the Premises or the Lot.
Tenant shall take all steps permitted by law in order to avoid the imposition of
any mechanic's, laborer's or materialman's lien upon the Premises or the Lot.
Should any such lien or notice of lien be filed, for work performed for Tenant
other than by Landlord, Tenant shall bond against or discharge the same within
fifteen (15) days after the lien or claim is filed or formal notice of said lien
or claim has been issued regardless of the validity of such lien or claim.
Nothing in this lease is intended to authorize Tenant to do or cause any work or
labor to be done or any materials to be supplied for the account of Landlord,
all of the same to be solely for Tenant's account and at Tenant's risk and
expense. Throughout this lease the term "mechanic's lien" is used to include
any lien, encumbrance or charge levied or imposed upon the Premises or the Lot
or any interest therein or income therefrom on account of any mechanic's,
laborer's or materialman's lien or arising out of any debt or liability to or
any claim or demand of any contractor mechanic, supplier, materialman or laborer
and shall include without limitation any mechanic's notice of intention given to
Landlord or Tenant, any stop order given to Landlord or Tenant, any notice of
refusal to pay naming Landlord or Tenant and any injunctive or equitable action
brought by any person entitled to any mechanic's lien.
15. LANDLORD'S RIGHT OF ENTRY.
(a) Tenant shall permit Landlord and the authorized representatives of
Landlord and of any mortgagee or any live mortgagee to enter the Premises at all
reasonable times or making any necessary thereto or to the Property and
performing any work therein. During the progress of any work on the Premises
Landlord will _________ to inconvenience Tenant, but shall not be liable for
inconvenience, annoyance, disturbance, loss of business or other damage to
Tenant ______ reason of making any repair or by bringing or storing materials,
supplies, tools and
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equipment on the Premises during the performance of any work, and the
obligations of Tenant under this lease shall not be thereby affected in any
manner whatsoever.
(b) Landlord shall have the right at all reasonable times to enter and
to exhibit the Premises for the purpose of mortgage, and, during the last nine
(9) months of the term of this lease, to enter and to exhibit the Premises to
any prospective __________.
16. DAMAGE BY FIRE OR OTHER CASUALTY.
(a) If the Premises shall be damaged or destroyed by fire or other
casualty, Tenant shall promptly notify Landlord. Landlord, subject to any
mortgagee's consent and to the conditions set forth in this Article 16, shall
repair, rebuild or replace such ________ and restore the Premises to
substantially the same condition in which they were immediately prior to such
damage or destruction; provided, however, that Landlord shall only be obligated
to restore such damage which is covered by the fire and other extended coverage
insurance policies. Notwithstanding the foregoing, Landlord shall repair any
damage to the Building to the extent of 10% of the value of the Premises whether
or not covered by insurance.
(b) The work shall be commenced promptly and completed with due
diligence, taking into account the time required by Landlord to effect a
settlement with and procure insurance proceeds from the insurer, and for delays
beyond Landlord's reasonable control. If the restoration is reasonably expected
to take longer than 6 months to complete, Tenant may, at its option, terminate
this Lease.
(c) The net amount of any insurance proceeds (excluding proceeds
received pursuant to a rental coverage endorsement recovered by reason of the
damage or destruction of the Premises in excess of the cost of adjusting the
insurance claim and collecting insurance proceeds (such excess amount being
hereinafter called the "net insurance proceeds") shall be applied towards the
reasonable cost of restoration. If in Landlord's * the net insurance
-----
proceeds ** will not be adequate to complete such restoration, Landlord
------
shall have the right to terminate this lease and all the unaccrued obligations
of the parties hereto by sending a written notice of such termination to Tenant,
the notice to specify a termination date no less then ten (10) days after its
transmission; provided, however, that except during the last two (2) years of
the term, Tenant may require Landlord to withdraw the notice of termination by
agreeing to pay cost of restoration in excess of the net insurance proceeds and
by giving Landlord adequate security for such payment prior to the termination
date specified in Landlord's notice of termination. If Landlord determines that
the net insurance proceeds ** are not adequate Landlord does not elect to so
------
terminate the lease. Tenant shall pay, upon notice that Landlord shall restore,
out of funds other than _______ net insurance proceeds, the amount by which the
cost of restoration estimated by Landlord will exceed the net insurance proceeds
__________ sum payable by Tenant to be later readjusted to such actual excess
upon the completion of restoration. If such net insurance proceeds are more
than adequate, the amount by which such net insurance proceeds exceed the cost
of restoration will be retained by Landlord or ___________ to repayment of any
mortgage secured by the Premises.
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(d) Landlord's obligation or election to restore the Premises under
this Article shall not include the repair, restoration or replacement of the
fixtures, improvements, alterations, furniture or any other property owned,
installed, made by, or in the possession of Tenant.
(e) Landlord shall maintain a rental coverage endorsement or other
comparable form of coverage as part of its fire and extended coverage or all-
risk insurance policy. Tenant will receive an abatement of its minimum annual
rent *** to the extent equitable based upon the extent to which Tenant is
-------
reasonably unable to conduct business in the Premises.
17. NON-ABATEMENT OF RENT. Except as otherwise expressly provided as to
damage by fire or by any other casualty Paragraph 16(e) and as to condemnation
in Paragraphs 19(a) and (b) there shall be no abatement or reduction of the
minimum rent, additional rent or other sums payable hereunder for any cause
whatsoever, and this lease shall not terminate, and Tenant shall not be entitled
to surrender the Premises.
18. INDEMNIFICATION.
(a) Tenant will indemnify Landlord and save Landlord harmless from and
against any and all claims, actions, damages, liability and expense (including
without limitation fees of attorneys, investigators and experts) in connection
with loss of life, personal injury or damage to property caused to any person in
or about the Premises or arising out of the occupancy or use by Tenant of the
Premises or any part thereof or occasioned wholly or in part by any act or
omission of Tenant, its agents, contractors, employees, licensees or invitees;
unless such loss, injury or damage was caused by the negligence of Landlord, its
agents, employees, licensees or invitees. Without limiting the foregoing,
Tenant will forever release and hold Landlord harmless from all claims arising
out of damage to Tenant's property unless such damage occurs as a result of
Landlord's negligent failure to make repairs after having received written
notice of the need for such repair. In case any such claim, action or
proceeding is brought against Landlord, upon notice from Landlord and at
Tenant's sole cost and expense. Tenant shall resist or defend such claim,
action or proceedings or shall cause it to be resisted or defended by an
insurer.
(b) See Rider.
19. CONDEMNATION.
(a) TERMINATION. (i) If all of the Premises are covered by a
condemnation; or (ii) subject to the provisions of Paragraph (b)(i) hereof, if
any of the Premises is covered by a condemnation and, in Landlord's * , it
-----
would be impractical or the condemnation proceeds are insufficient to restore
the remainder of the Premises; then, in any such event, this lease shall
terminate and all obligations hereunder shall cease as of the date upon which
possession is taken by the condemnor and the rent herein reserved shall be
apportioned and paid in full by Tenant to Landlord to that date and all rent
prepaid for periods beyond that date shall forthwith be repaid by Landlord to
Tenant.
(b) PARTIAL CONDEMNATION.
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(i) If there is a partial condemnation and Landlord decides to
terminate pursuant to Paragraph (a) hereof, except during the last two (2) years
of the term, Tenant may require Landlord to withdraw its notice of termination
by: [A] giving Landlord written notice thereof within ten (10) days from
transmission of Landlord's notice to Tenant of Landlord's intention to
terminate, [B] agreeing to pay the cost of restoration in excess of the
condemnation proceeds reduced by those sums expended by Landlord in collecting
the condemnation proceeds, and [C] giving Landlord adequate security for such
payment within such ten (10) day period.
(ii) If there is a partial condemnation and this lease has not
been terminated pursuant to Paragraph (a) hereof * Landlord shall restore
-----
the Building and the improvements which are part of the Premises to a condition
and size as nearly comparable as reasonably possible to the condition and size
thereof immediately prior to the date upon which possession shall have been
taken by the condemnor. If the condemnation proceeds are more than adequate to
cover the cost of restoration and Landlord's expenses in collecting the
condemnation proceeds, any excess proceeds shall be retained by Landlord or
applied to repayment of any mortgage secured by the Premises.
(iii) If there is a partial condemnation and Landlord has not
exercised its right to terminate on the date upon which the condemnor shall have
obtained possession, the obligations of Landlord and Tenant under the lease
shall be unaffected by such condemnation except that there shall be an equitable
abatement for the balance of the term of the minimum annual rent according to
the value of the Premises before and after the date upon which the condemnor
shall have agreed upon the amount, either party may submit the issue to
arbitration.
(c) AWARD. In the event of a condemnation affecting Tenant, Tenant
shall have the right to make a claim against condemnor for removal expenses,
business dislocation damages and moving expenses; provided and to the extent,
however, that such claims or payments do not reduce the sums otherwise payable
by the condemnor to Landlord. Except as aforesaid, Tenant hereby waives all
claims against Landlord and against the condemnor, and Tenant hereby assigns to
Landlord all claims against the condemnor, including, without limitation, all
claims for _______________ damages and ________________ in value of Tenant's
_______.
(d) TEMPORARY TAKING. If the condemnor should take only the right to
possession for a fixed period of time or for the duration of an emergency or
other temporary condition, then, notwithstanding anything hereinabove provided,
this lease shall continue in full force and effect without any abatement of
rent, but the amounts payable by the condemnor with respect to any period of
time prior to the expiration or sooner termination of this lease shall be paid
by the condemnor to Landlord and the condemnor shall be considered subtenant of
Tenant. Landlord shall apply the amount received from the condemnor applicable
to the rent due hereunder net of costs _________ Landlord for the collection
thereof, or as much thereof as may be necessary for the purpose toward the
amount due from Tenant as __________ for that period; and, Tenant shall pay to
Landlord any deficiency between the amount thus paid by the condemnor and the
amount of the rent, or Landlord shall pay to Tenant any excess of the amount of
the award over the amount of the rent.
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20. QUIET ENJOYMENT. Tenant, upon paying the minimum rent, additional
rent and other charges herein provided for, and observing and keeping all
covenants, agreements and conditions of this lease on its part to be kept, shall
quietly have and enjoy the Premises during the term of this lease without
hindrance or molestation by anyone claiming by or through Landlord, subject,
however, to the exceptions, reservations and conditions of this lease.
21. ASSIGNMENT AND SUBLETTING.
(a) RESTRICTED ASSIGNMENT. Tenant shall not assign, mortgage, pledge
or encumber this lease, or sublet the whole or any part of the Premises, without
the prior written consent of Landlord which consent shall not be unreasonably
withheld or delayed. This prohibition against assigning or subletting shall not
be construed to include a prohibition against any assignment or subletting by
operation of law (except in bankruptcy or similar proceedings) and/or a transfer
by any person or persons controlling Tenant on the date of the lease of such
control to a person or persons not controlling Tenant on the date of the lease.
In the event of any assignment of this lease made with or without Landlord's
consent, Tenant nevertheless shall remain liable for the performance of all of
the terms, conditions and covenants of this lease and shall require any assignee
to execute and deliver to Landlord an assumption of liability agreement in form
satisfactory to Landlord, including an assumption by the assignee of all of the
obligations of Tenant and the assignee's ratification of and agreement to be
bound by all the provisions of this lease. Landlord shall be entitled to, and
Tenant shall promptly remit to Landlord 50 percent of any profit which may inure
to the benefit of Tenant as a result of any subletting of the Premises or
assignment of this lease, whether or not consented to by Landlord.
(b) PERCENTAGE AGREEMENTS. It is agreed that Tenant shall not enter
into any assignment, sublease, license, concession or other agreement for use,
occupancy or utilization of the whole or any part of the Premises with or
without Landlord's consent, which provides for rental or other payment for such
use, occupancy or utilization based, in whole or in part on the net income or
profits derived by any person or entity from the space leased, used, occupied or
utilized (other than an amounts based on a fixed percentage or percentages of
receipts or sales), and any such purported assignment, sublease, license,
concession or other agreement shall be absolutely void and ineffective as a
conveyance of any right or interest in the possession, use, occupancy or
utilization of any part of the Premises.
22. SUBORDINATES. This lease and Tenant's rights hereunder shall be
subject and subordinate at all times in lien and priority to any first mortgage
or other primary encumbrance now or, upon receipt by Tenant or a nondisturbance
agreement reasonably satisfactory to Tenant, hereafter placed upon or affecting
the Premises, and to any second mortgage or encumbrance with the consent of the
first mortgagee, and to all renewals, modifications, consolidations and
extensions thereof, without the necessity of any further instrument or act on
the part of Tenant. Tenant shall, upon receipt by Tenant of a nondisturbance
agreement reasonably satisfactory to Tenant, execute and deliver upon demand any
further instrument or instruments confirming the subordination of this lease to
the lien of any such first mortgage or to the lien of any other mortgage if
requested to do so by Landlord with the consent of the first mortgagee, and any
further instrument or instruments of attornment that may be desired by any such
mortgagee or Landlord. Notwithstanding the foregoing, any mortgagee may at any
time subordinate its
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<PAGE>
mortgage to this lease, without Tenant's consent, by giving notice in writing to
Tenant, and thereupon this lease shall be deemed prior to such mortgage without
regard to their respective dates of execution and delivery, and in that event
such mortgagee shall have the same rights with respect to this lease as though
this lease had been executed prior to the execution and delivery of the mortgage
and had been assigned to such mortgages.
23. MEMORANDUM OF LEASE: TENANT'S CERTIFICATE.
See Rider.
24. CURING PARTY DEFAULTS.
See Rider.
25. SURRENDER.
(a) Subject to the terms of Paragraphs 13(b) and 16(a) and (c) hereof
at the expiration or earlier termination of the term hereof, Tenant shall
promptly yield up, clean and neat, and in the same condition, order and repair
in which they are required to be kept throughout the term hereof, the Premises
and all improvements, alterations and additions thereto, and all fixtures and
equipment servicing the Building, ordinary wear and tear excepted.
(b) If Tenant, or any person claiming through Tenant, shall continue
to occupy the Premises after the expiration or earlier termination of the term
or any renewal thereof, such occupancy shall be deemed to be under a month-to-
month tenancy under the same terms and conditions set forth in this lease;
except, however, that the minimum annual rent during such continued occupancy
shall be the amount set forth in Paragraphs 5(a) and (b) hereof. Anything to
the contrary notwithstanding, any holding over by Tenant without Landlord's
prior written consent shall constitute a default ______________ and shall be
subject to all the remedies set forth in Article 26.
26. DEFAULTS - REMEDIES.
(a) DEFAULTS.
(i) If Tenant does not pay in full when due and without demand any
and all installments of minimum rent or _______________ rent or any other
charges or payments whether or not herein included as rent; or
(ii) Tenant violates or fails to perform or otherwise breaches any
agreement, term, covenant or condition he contained; or
(iii) If Tenant abandons the Premises or removes or attempts to
remove Tenant's goods or property therefrom other than in the ordinary course of
business without having first paid to Landlord in full all minimum rent,
additional rent and of charges that may have become due or does not continue to
pay such charges as they come due in the future; or
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<PAGE>
(iv) If Tenant becomes insolvent or bankrupt in any sense or makes
an assignment for the benefit of creditors offers a composition or settlement to
creditors, or if a petition in bankruptcy or for reorganization or for an
arrangement with credit under any federal or state law is filed by or against
Tenant, or a bill in equity or other proceeding for the appointment of a
receiver, trustee, liquidator, custodian, conservator or similar official for
any of Tenant's assets is commenced, or if any of the real or personal property
of Tenant shall be levied upon by an sheriff, marshal or constable; provided,
however, that any proceeding brought by anyone other than the parties to this
lease under any bankruptcy, reorganization arrangement, insolvency,
readjustment, receivership or similar law shall not constitute a default until
such proceeding, decree, judgment or order has continued unstayed for more than
sixty (60) consecutive days.
(b) REMEDIES. Then, and in any such event, Landlord shall have the
following rights:
(i) To charge a late payment penalty of live (5%) percent of any
amount owed to Landlord pursuant to this lease which is not paid within five (5)
days of the date which is set forth in the lease if a date is specified [SEE
RIDER] or, if a date is not specified, within thirty (30) days of the mailing of
a bill therefor by Landlord, if Landlord incurs a penalty in connection with any
payment which Tenant has failed to make within the times required in this lease,
Tenant shall pay Landlord, in addition to such sums, the full amount of such
penalty incurred by Landlord.
(ii) To accelerate the whole or any part of the rent for the
entire unexpired balance of the term of this lease, as we _________ as all other
charges, payments, costs and expenses herein agreed to be paid by Tenant, and
any rent or other charges, payments, costs and expenses if so accelerated shall,
in addition to any and all installments of rent already due and payable and in
arrears, and any other charge or payment herein reserved, included or agreed to
be treated or collected as rent and any other charge, expense or cost herein
agreed to be paid by Tenant which may be due and payable and in arrears, be
deemed due and payable as if, by the terms and provisions of this lease such
accelerated rent and other charges, payments, costs and expenses were on that
date payable in advance. SEE RIDER.
(iii) To enter the Premises and without further demand or notice
proceed to distress and sale of the goods, chattels and personal property there
found and to levy the rent and other charges herein payable as rent, and Tenant
shall pay all costs and officers' commissions which are permitted by law,
including watchmen's wages and sums chargeable to Landlord, and further
including commission(s) charged by the constable or other person making the
levy, and in such case all cost, officers' commissions and other charges shall
immediately attach and become part of the claim of Landlord for rent, and any
tender of rent without said costs, commissions and charges made after the
issuance of a warrant of distress shall not be sufficient to satisfy the claim
of Landlord.
(iv) To re-enter the Premises, together with all additions,
alterations and improvements, and, at the option of Landlord, remove all persons
and all or any property therefrom, either by summary dispossess proceedings or
by any suitable action or proceeding at law or by force or otherwise, without
being liable for prosecution or damages therefor, and
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repossess and enjoy the Premises. Upon recovering possession of the Premises as
a result of a default on the part of Tenant, Landlord may, at Landlord's option,
either terminate this lease or make such alterations and repairs as may be
necessary in order to relet the Premises and relet the Premises or any part or
parts thereof, either in Landlord's name or otherwise, for a term or terms which
may, at Landlord's option, be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and at such
rent or rents and upon such other terms and conditions as in Landlord's
reasonable discretion may seem advisable and to such person or persons as may in
Landlord's discretion seem best; upon each such reletting all rents received by
Landlord from such reletting shall be applied: first, to the payment of any
costs and expenses of such reletting, including brokerage fees and attorney's
fees and all costs of such alterations and repairs; second, to the payment of
any indebtedness other than rent due hereunder from Tenant to Landlord; third,
to the payment of rent due and unpaid hereunder; and the residue, if any, shall
be held by Landlord and applied in payment of future rent as it may become due
and payable hereunder. If such rentals received from such reletting during any
month shall be less than that to be paid during that month by Tenant, Tenant
shall pay any such deficiency to Landlord. Such deficiency shall be calculated
and paid monthly. No such re-entry or taking possession of the Premises or the
making of alterations or improvements thereto or the reletting thereof shall be
construed as an election on the part of Landlord to terminate this lease unless
written notice of such intention be given to Tenant. Landlord shall in no event
be liable in any way whatsoever for failure to relet the Premises or, in the
event that the Premises or any part or parts thereof are relet, for failure to
collect the rent under such reletting, provided that Landlord agrees to use its
reasonable efforts to mitigate its damages. Tenant for Tenant and Tenant's
successors and assigns, hereby irrevocably constitutes and appoints Landlord
Tenant's and their agent to collect the rents due and to become due under all
subleases of the Premises or any parts thereof without in any way affecting
Tenant's obligation to pay any unpaid balance of rent due or to become due
hereunder. Notwithstanding any such reletting without termination. Landlord may
at any time thereafter elect to terminate this lease for such previous breach.
(v) To terminate this lease and the term hereby created without any
right on the part of Tenant to waive the forfeiture by payment of any sum due or
by other performance of any condition, term or covenant broken. Whereupon
Landlord shall be entitled to recover, in addition to any and all sums and
damages for violation of Tenant's obligations hereunder in existence at the time
of such termination, damages for Tenant's default in an amount equal to the
amount of the rent reserved for the balance of the term of this lease, as well
as all other charges, payments, costs and expenses herein agreed to be paid by
tenant, all discounted at the rate of eight percent (8%) per annum to their then
present worth, less the fair rental value of the Premises for the remainder of
said term, also discounted at the rate of eight percent (8%) per annum to its
then present worth, all of which amount shall be immediately due and payable
from Tenant to Landlord.
(c) NON-WAIVER.
SEE RIDER.
(d) GRACE PERIOD. Notwithstanding anything hereinabove stated, except
in the case of emergency as set forth in Article 24 and except in the event of
any default enumerated in
14
<PAGE>
Paragraphs (a)(iii), (iv) and (v) of this Article, neither party hereto will
exercise any right or remedy provided for in this lease or allowed by law
because of any default of the other, except those remedies contained in
Paragraph (b)(i) of this Article unless such party shall have first given ten
(10) days written notice thereof, or in the case of nonmonetary default, 30 days
notice thereof to the defaulting party, and defaulting party shall have failed
to cure the default within such period; provided, however, that if the default
consists of something other than the failure to pay money which cannot
reasonably be cured within thirty (30) days, neither party hereto will exercise
any such right or remedy if the defaulting party begins to cure the default
within the thirty (30) days and continues actively and diligently in good faith
to completely cure said default; and further provided that Landlord shall be
required to give such ten (10) days notice regarding monetary default more than
two (2) times during any twelve (12) month period.
(e) RIGHTS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reserved to either party is intended to be exclusive of any
other right or remedy provided herein or by law or equity, but each shall be
cumulative and in addition to every other right remedy given herein or now or
hereafter existing at law or in equity or by statute.
27. CONDITION OF TITLE AND OF PREMISES.
(a) Tenant represents that the Premises, the zoning thereof, the
street or streets, sidewalks, parking areas, curbs and access ways adjoining
them, any surface conditions thereof, and the present uses and non-uses thereof
have been examined by Tenant, and Tenant accepts them in the condition or state
in which they now are, or any of them now is, without relying on any
representation, covenant or warranty, express or implied, in fact or in law, by
Landlord and without recourse to Landlord as to the nature, condition or
usability thereof or the use or uses of which the Premises or any part thereof
may be put, except as to work to be performed by Landlord pursuant to Article 2
hereof. Subject to the completion of a mutually agreed upon punchlist of items
need correction. SEE RIDER.
(b) Tenant shall not suffer or permit the Premises or any portion
thereof to be used by the public without restriction of in such manner as might
reasonably tend to impair Landlord's title to the premises or in such manner as
might reasonably make possible claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the premises or
any portion thereof.
28. INTERPRETATION.
(a) CAPTIONS. The captions in this lease are for convenience only and
are not a part of this lease and do not in any way define, limit, describe or
amplify the terms and provisions of this lease or the scope or intent thereof.
(b) ENTIRE AGREEMENT. This lease represents the entire agreement
between the parties hereto and there are no reasonably collateral or oral
agreements or understandings between Landlord and Tenant with respect to the
Premises. No rights, easements or licenses are acquired in the Premises or any
land adjacent to the Premises by Tenant by implication or otherwise except as
expressly set forth in the provisions of this lease. Tenant agrees to make such
15
<PAGE>
changes to this lease as are required by any mortgagee, provided such changes do
not in Tenant's reasonable judgment, substantially affect Tenant's rights and
obligations hereunder. This lease shall not be modified in any manner except by
an instrument in writing executed by the parties. The masculine (or neuter)
pronoun, singular number, shall include the masculine, feminine and neuter
genders and the singular and plural number.
(c) EXHIBITS. Each writing or plan referred to herein as being
attached hereto as an Exhibit or otherwise designated herein as an Exhibit
hereto is hereby made a part hereof.
(d) COVENANTS. The terms, covenants and obligations set forth herein
all constitute conditions and not covenants of this lease.
(e) ARBITRATION. Wherever arbitration is set forth herein as the
appropriate resolution of a dispute, issues shall be submitted for arbitration
to the American Arbitration Association in the city nearest to the Premises in
which offices of the American Arbitration Association are located for
arbitration by a mutually acceptable arbitrator or arbitrators experienced in
commercial real estate disputes. Landlord and Tenant will comply with the rules
then obtaining of the American Arbitration Association and the determination of
award rendered by the arbitrator(s) shall be final, conclusive and binding upon
the parties and not subject to appeal, and judgment thereon may be entered in
any court of competent jurisdiction. Landlord and Tenant agree that _______
arbitrator's determination of award may include an award of attorney's fees to
the prevailing party.
(f) INTEREST. Wherever interest is required to be paid hereunder,
such interest shall be at the highest rate permitted under law but not in excess
of twelve (12%) percent.
29. DEFINITIONS.
(a) "LANDLORD". The word "Landlord" is used herein to include the
Landlord named above as well as its heirs, successors and assigns, each of whom
shall have the same rights, remedies, powers, authorities and privileges as he
would have had had he originally signed this lease as Landlord. Any such
person, whether or not named herein, shall have no liability hereunder after he
ceases to hold title to the Premises except for obligations which may have
theretofore accrued. Neither Landlord nor any principal of Landlord nor any
owner of the Building or the Lot, whether disclosed or undisclosed, shall have
any personal liability with respect to any of the provisions of this lease or
the Premises and if Landlord is in breach or default with respect to Landlord's
obligations under this lease or otherwise, Tenant shall look solely to the
equity of Landlord in the Premises for the satisfaction of Tenant's claims.
(b) "TENANT". The word "Tenant" is used herein to include the Tenant
named above as well as its successors and assigns, each of which shall be under
the same obligations, liabilities and disabilities and each of which shall have
the same rights, privileges and powers as it would have possessed had it
originally signed this lease as Tenant. Each and every of the persons named
above as Tenant shall be bound formally and severally by the terms, covenants
and agreements contained herein. However, no such rights, privileges or powers
shall inure to the benefit of any assignee of Tenant immediate or remote, unless
the assignment to such assignee is
16
<PAGE>
permitted or has been approved in writing by Landlord. Any notice required or
permitted by the terms of this lease may be given by or to any one of the
persons named above as Tenant, and shall have the same force and effect as if
given by or to all thereof.
(c) "MORTGAGE" AND "MORTGAGEE". The word "mortgage" is used herein to
include any lien or encumbrance on the Premises or the Lot or on any part of or
interest in or appurtenance to the Premises, including without limitation any
ground rent or ground lease if Landlord's interest is or becomes a leasehold
estate. The word "mortgagee" is used herein to include the holder of any
mortgage, including any ground lessor if Landlord's interest is or becomes a
leasehold estate. Wherever any right is given to a mortgagee, that right may be
exercised on behalf of such mortgagee by any representative or servicing agent
of such mortgagee.
(d) "PERSON". The word "person" is used herein to include a natural
person, partnership, a corporation, an association, and any other form of
business association or entity.
(e) "DATE OF THIS LEASE". The "date of this lease" shall be the date
upon which this lease has been fully executed by both parties.
(f) "INDEX". The word "index" is used herein to mean the Average
Consumer Price Index for Urban Wage Earners and Clerical Workers (revised series
1982-84) issued from time to time by the Federal Bureau of Labor Statistics or
any successor agency that shall issue the index or any other measure hereafter
employed by the Federal Bureau of Labor Statistics, or any successor agency in
lieu of such index. If there be any controversy as to the measure to be
substituted, then the controversy shall be resolved by arbitration. The
arbitrators shall be guided by the intention of the parties herein to modify the
minimum annual rent to reflect upward changes in the cost of living. The fees
and expenses of the arbitration shall be __________ by Landlord and Tenant.
(g) "LOT". The metes and bounds description of the Lot is set forth
in Exhibit "D" attached hereto.
17
<PAGE>
30. NOTICES. All notices, demands, requests, consents, certificates and
waivers required or permitted hereunder from either party to the other shall be
in writing and sent by United States certified mail, return receipt requested,
postage prepaid. Notices to Tenant shall be addressed to Leslie's Poolmart,
20222 Plimmer Street, Chatsworth, California 91311, Attn: Brian P. McDermott,
President, or, after the Commencement Date, to the Premises, Notices to Landlord
shall be addressed to 65 Valley Stream Parkway, Suite 100, Malvern, PA 19355,
with a copy to any mortgagee or other party designated by Landlord. Either
party may at any time, in the manner set forth for giving notices to the other,
specify a different address to which notices to it shall be sent.
31. SECURITY DEPOSIT. At the time of signing this lease, Tenant shall
deposit with Landlord the sum of Ten Thousand Dollars ($10,000.00) to be treated
in the manner set forth in the letter of intent dated October 13, 1994.
32. ADDITIONAL ARTICLES. The following Additional Articles 33 through 40
[AND RIDER] attached hereto are hereby made a part hereof.
IN WITNESS WHEREOF, and in consideration of the mutual entry into this
lease and for other good and valuable consideration, and intending to be legally
bound, each party hereto has caused this agreement to be duly executed under
seal.
Date signed: Landlord:
___________________________ LIBERTY PROPERTY LIMITED
PARTNERSHIP
By: Liberty Property Trust, General Partner
By:___________________________________
Date signed: Tenant:
___________________________ LESLIE'S POOLMART
By:___________________________________
Attest:________________________________
[Corporate Seal]
18
<PAGE>
RIDER ATTACHED TO AND FORMING PART OF
AGREEMENT OF LEASE BETWEEN
LIBERTY PROPERTY LIMITED PARTNERSHIP, AS LANDLORD, AND
LESLIE'S POOLMART, AS TENANT
PREMISES: 750 CARDINAL DRIVE
LOGAN TOWNSHIP
PINELAND, NEW JERSEY
(Paragraph numbers herein refer to paragraph numbers in the Agreement of Lease)
2. Landlord shall perform the improvements in accordance with plans and
specifications to be prepared based upon the layout prepared by Semco, Sweet &
Mayers, Inc., dated November 1, 1994, a copy of which is attached hereto as
Exhibit "F", except that the racking system indicated thereon and finish work to
the office space will be performed by Tenant at its cost and expense and the
fire protection work for the Premises will be performed by Landlord in
accordance with the plan dated September 9, 1994. In the event the improvements
to be performed by Landlord (the "Improvements") are not substantially completed
on or before January 1, 1995, as such date may be extended for delays caused by
changes in the plans and specifications requested by Tenant or Force Majeure,
Tenant shall receive a credit against minimum rent in an amount equal to one (1)
day's prorated rent for each day thereafter until the improvements are
substantially completed.
Landlord further agrees that, promptly after completion of the Improvements
and subject to Force Majeure, it will extend a portion of the asphalt pad in the
loading area as shown on the Site Plan attached hereto as Exhibit "G", but the
failure to complete same, by January 1, 1995 shall not result in any rent credit
to Tenant or delay the Commencement Date of this Lease. During the term of this
Lease, if Tenant should require additional space in the loading area, Landlord
shall cooperate with Tenant, at no expense to Landlord, in obtaining required
variances and approvals to further extend the asphalt pad.
5. (a) Tenant shall pay rent as follows:
<TABLE>
<CAPTION>
Lease Year Minimum Annual Rent Monthly Installment
---------- ------------------- -------------------
<S> <C> <C>
1 $285,033.00 $23,752.75
2 293,176.80 24,431.40
3 301,320.60 25,110.05
4 309,464.40 25,788.70
5 317,608.20 26,467.35
6 325,752.00 27,146.00
7 333,895.80 27,824.65
8 342,039.60 28,503.30
9 350,183.40 29,181.95
10 358,327.20 29,860.60
</TABLE>
<PAGE>
For purposes of this Lease, a "Lease Year" shall mean the period in any
calendar year during the term of this Lease commencing on the anniversary of the
first day of the first full month after the Commencement Date and ending one (1)
year thereafter, except that the first Lease Year shall commence on the
Commencement Date and end on the anniversary of the first day of the first full
mouth after the Commencement Date.
7. (a) (iii) Tenant may satisfy. all of its insurance requirements
hereunder by self-insurance provided that Tenant's net worth (as indicated on
financial statements to be delivered to Landlord on the Commencement Date and
each anniversary thereof ) is (A) equal to or greater than the net worth shown
on Tenant's most recent financial statement issued prior to the date hereof, or
(B) reasonably satisfactory to Landlord.
(f) Landlord shall maintain and keep in effect throughout the term of
this Lease insurance against loss or damage to the Building or the Premises by f
ire and such other casualties as may be included within either fire or extended
coverage insurance or all-risk insurance, and such other insurance as Landlord
may reasonably desire which is regularly required of tenants in similar
situations or may be reasonably required from time to time by any mortgagee or
as may be required generally by mortgage institutions. Tenant shall pay to
Landlord as additional rent the full amount of the cost of premiums required to
be paid by Landlord for insurance promptly upon being billed therefor.
8. (a) Tenant shall have the right to use portions of the Premises for
outdoor storage, subject to compliance by Tenant with all recorded covenants and
governmental requirements affecting the Premises. Landlord shall warrant that
the HVAC system in the Premises will be in good working order for a period of
ninety (90) days after the Commencement Date.
(c) Tenant shall pay the full, cost of all work to be performed by
Landlord pursuant to this subparagraph (c) as additional rent promptly upon
being billed therefor. Landlord covenants and agrees to at all times maintain
the Premises as a high quality industrial property consistent with the standards
of operation applicable to such facilities in the county in which it is located.
(d) Landlord, throughout the term of this Lease, shall make all
necessary repairs to the utility lines, equipment and other utility facilities
in the Building, and to any driveways, sidewalks, curbs, loading, parking and
landscaped areas, and other exterior improvements on the Premises; provided,
however, that Landlord shall have no responsibility to make any repairs unless
and until Landlord receives written notice of the need for such repair. Tenant
shall pay the full cost of all repairs to be performed by Landlord pursuant to
this subparagraph (d) as additional rent promptly upon being billed therefor.
(e) In consideration for the performance of repairs and maintenance by
Landlord hereunder, Tenant shall pay Landlord, without notice or demand,
together with each installment of minimum rent due hereunder, a management fee
in an amount equal to two (2%) percent of such monthly installment.
2
<PAGE>
12. Tenant shall have the exclusive right to erect and maintain the
maximum amount of signage that Tenant deems appropriate to conduct its business,
provided any such sign or signs comply with all applicable governmental
regulations and recorded covenants of the industrial park in which the Premises
is located. Landlord agrees that no signs or advertising matter of any nature
other than Tenant's shall be permitted on any part of the Premises. Landlord
shall cooperate with Tenant at no expense to Landlord in obtaining any variance
from restrictions placed on the use-of signs by local authorities.
18. (b) Landlord will indemnify Tenant and save Tenant harmless from and
against any and all claims, actions, damages, liability and expense (including
without limitation fees of attorneys, investigators and experts) in connection
with loss of life, personal injury or damage to property caused to any person in
or about the Premises occasioned wholly or in part by any act or omission of
Landlord, its agents, contractors, employees, licensees or invitees; unless such
loss, injury, or damage was caused by the negligence of Tenant, its agents,
employees, licensees or invitees.
23. (a) Either party at any time and from time to time and within ten
(10) days after the other's written request, shall execute, acknowledge and
deliver to the other party a short form or memorandum of this lease for
recording purposes.
(b) Either party at any time and from time to time and within ten (10)
days after the other's written request, and so long as the other is not in
default of this lease, shall. execute, acknowledge and deliver to the requesting
party a written instrument in recordable form certifying that this lease is
unmodified and in full force and effect (or, if there have been modifications,
that it is in full force and effect as modified and stating the modifications);
stating that the improvements required by Article 2 hereof have been completed;
certifying that Tenant has accepted possession of the Premises; stating the date
on which the term of the lease commenced and the dates to which minimum rent,
additional rent and other charges have been paid in advance, if any; stating
that to the best knowledge of the signer of such instrument, the other party is
not in default of this lease; stating any other fact or certifying any other
condition reasonably requested by such party or required by any mortgagee or
prospective mortgagee or purchaser of the Premises or Tenant or any interest
therein; and stating that it is understood that such instrument may be relied
upon by any mortgagee or prospective mortgagee or purchaser of the Premises or
Tenant or any interest therein or by any assignee of the requesting party's
interest in this lease or by any assignee of any mortgagee. The foregoing
instrument shall be addressed to the requesting party and to any mortgagee,
prospective mortgagee, purchaser or other party specified by the requesting
party.
24. If either party shall be in default in the performance of any of its
obligations hereunder, the nondefaulting party without any obligation to do so,
in addition to any other rights it may have in law or equity, may elect to cure
such default on behalf of the defaulting party after thirty (30) days written
notice (except in the case of emergency) to the defaulting party. The
defaulting party shall reimburse the nondefaulting party upon demand for any
sums paid or costs incurred by the nondefaulting party in curing such default,
including interest thereon from the respective dates of making the payments and
incurring such costs, which sums and costs together with interest thereon shall
be payable promptly upon being billed therefor.
3
<PAGE>
26. (b) (i) . . . provided that with respect only to the first payment
in any Lease Year which is in arrears in excess of the time set forth in this
subparagraph, such late payment penalty shall not be payable unless Tenant fails
to make such payment within five (5) days after receipt of written notice
thereof from Landlord.
(ii) Notwithstanding anything to the contrary herein contained,
Landlord may not recover under this subparagraph and subparagraph (v) an
aggregate amount in excess of sums recoverable by Landlord under subparagraph
(v).
(c) No waiver by either party of any breach by the other of any of
such party's obligations, agreement or covenants herein shall be a waiver of any
subsequent breach or of any obligation, agreement or covenant, nor shall any
forbearance by either party to seek a remedy for any breach by the other be a
waiver by such party of any rights and remedies with respect to such or any
subsequent breach.
27. The parties shall conduct an inspection of the Premises and prepare a
punchlist immediately prior to the Commencement Date. Landlord will promptly
thereafter proceed to remedy all items on the punchlist in a diligent manner
within a reasonable period of time.
33. Restricted Activities.
----------------------
(a) Tenant, at its sole cost and expense, shall comply with (i) all
federal, state and municipal laws, ordinances, notices, orders, rules,
regulations and requirements, (ii) any requirements of the National Board of
Fire Underwriters or any other body exercising similar functions and (iii) the
requirements of all public liability, fire and other policies of insurance
covering the Premises, relating to Tenant's treatment, production, storage,
handling, transfer, processing, transporting, use, disposal and release of
hazardous substances, toxic or radioactive matter. In addition Tenant shall
take similar precautions with any other materials or substance which, even it
not regulated by law or requirements as aforesaid, way or could pose a hazard to
the health and safety of the current or future occupants of the Premises, or the
owners or occupants of property adjacent to or in the vicinity of the Premises.
All of the above activities are hereinafter referred to as "Restricted
Activities." Tenant shall be solely responsible for and shall defend, indemnify
and hold Landlord, and its agents, successors and assigns, harmless from and
against all claims, actions, damages, liabilities and expenses (including
without limitation, fees of attorneys investigators and experts) arising out of
or in connection with (A) Restricted Activities by Tenant, its agents,
contractors, employees, licensees or invitees and (B) the removal, clean-up and
restoration work and materials necessary to return the Premises and any other
property adjacent to or in the vicinity of the Premises and the Building) to
their condition existing prior to the Restricted Activities. Tenant's
obligations hereunder shall survive the termination of this lease. If at any
time during or after the term and any term of -this lease, Tenant becomes aware
of any inquiry, investigation, administrative proceeding or judicial proceeding
regarding the Restricted Activities, Tenant shall, within five (5) days after
first learning of such inquiry, investigation or proceeding, give Landlord
written notice providing all available information regarding such inquiry,
investigation or proceeding.
4
<PAGE>
(b) Landlord shall be solely responsible for and shall defend,
indemnify and hold Tenant, and its agents, successors and assigns, harmless from
and against all claims, actions, damages, liabilities and expenses (including
without limitation, fees of attorney, investigators and experts) arising out of
or in connection with the conduct of Restricted Activities on the Premises at
any time by any party other than Tenant, its agents, contractors, employees,
licensees or invitees, or the remediation thereof. Landlord's obligations
hereunder shall survive the termination of this lease.
34. Environmental Information. At all times during and after the term of
-------------------------
this lease, Tenant shall furnish Landlord, upon request, with such information
with respect to Tenant's operations at the Premises as is necessary in order for
Landlord or any successor owner of the Premises to comply with the New Jersey
Industrial Site Recovery Act, N.J. Stat. Ann 13:1K-6 et seq. and other federal
and New Jersey environmental laws regulations and ordinances, including without
limitation affidavits to be submitted to the New Jersey Department of
Environmental Protection and Energy in connection with requests for letters of
non-applicability and negative declarations. Tenant's obligations hereunder
shall survive the termination of this lease.
35. Options to Extend.
------------------
(a) Provided Tenant is not then in default under this lease, Tenant
shall have the right and option, exercisable by giving Landlord prior written
notice thereof more than six (6) months in advance of the Expiration Date of the
original term or any additional term of. this lease, as the case may be, to
extend the term of this lease under the same terms and conditions as herein set
forth for three (3) additional terms of five (5) years each, the additional term
to begin on the Expiration Date;
(b) The minimum annual rent for each Lease Year of each additional
term hereof shall be set in accordance with the formula set forth in
subparagraph (c) below. In applying the formula, the following definitions
shall prevail:
(1) "Prior Index" is the monthly Index as defined in Article 29
issued in the month which is twelve (12) months prior to the
Commencement Date of each Lease Year of the additional term(s).
(2) "Latest Index" is the monthly Index issued for the calendar
month of the Commencement Date of each Lease Year of the additional
term(s).
(3) "Previous Rent" is the minimum annual rent applicable to the
immediately prior Lease Year.
(c) The minimum annual rent shall be adjusted for each Lease Year of
each additional term. The minimum annual rent for any Lease Year of an
additional term shall be equal to the lesser of (i) 102.5% of the Previous Rent
or (ii) the amount which bears the same ratio to the Previous Rent as the Latest
Index bears to the Prior Index, provided that in no event shall the minimum
annual rent for any Lease Year be less than the Previous Rent.
5
<PAGE>
36. Landlord Charges.
-----------------
(a) Tenant shall have the right, upon reasonable prior written notice,
to audit at Landlord's principal place of business, Landlord's charges for
maintenance and repairs, insurance, utilities and other charges for which
Landlord has billed Tenant during the preceding calendar year or accounting
period, to determine if such charges are correct. Tenant shall have the right
to conduct this audit not more than once each calendar year, and Landlord shall
fully cooperate in such regard at no expense to Landlord. If an audit discloses
any charge to Tenant which is five percent (5%) or more in excess of the amount
actually owed by Tenant, Landlord shall reimburse Tenant for the reasonable
costs of the audit conducted. Any overpayment shall be promptly refunded to
Tenant and shall bear interest at twelve percent (12%) per annum or the highest
lawful interest rate, whichever is less.
(b) In any year, Tenant's payments to Landlord for maintenance and
repairs and insurance shall never increase by more than three percent (3%) over
the prior year. Expenses for snow removal shall not be included in this cap.
Expenses (legal or otherwise) which are incurred in connection with financing
costs or debt service for the Premises; depreciation of the Building and the
cost of repairing defective construction; work covered by insurance and
warranties; overhead and profit increments paid by or to Landlord for services
exceeding those charged by unaffiliated third parties on a competitive basis;
Landlord's costs related to conforming the Premises to present and future laws;
any fees for overhead, general, administrative or management expenses except the
two percent (2%) fee set forth in Section 8(e); and reserves maintained in
connection with the Premises, shall be excluded from expenses for which Tenant
is charged. Such expenses shall include capital expenditures only to the extent
of the annual amortized portion, if any, of the amount thereof provided such
amortization in spread over the reasonably anticipated useful life thereof.
37. Prevailing Party Attorney's Fees. In the event any action or suit is
--------------------------------
brought by a party hereto against the other party hereto, by reason of any
alleged breach or default arising hereunder, the party in whose favor the final
judgment is entered shall be entitled to recover from the other party reasonable
attorney's fees and costs incurred by the prevailing party in connection with
such action or suit.
38. Landlord Representations. Landlord represents and warrants that on
------------------------
the Commencement Date (a) Tenant's permitted use will not violate any
exclusivity clause or other restriction contained in any other lease with
respect to the Premises or in any other agreement or document to which Landlord
is or will be a party; (b) Landlord will have good and marketable title to the
Premises, free of liens and encumbrances which could prevent the use of the
Premises for the uses permitted under this Lease; (c) all taxes an the Premises,
except current taxes not delinquent, will be paid in full and (d) to the best of
Landlord's knowledge, the Premises will comply with all laws, rules, statutes
and regulations, including but not limited to the requirements of all
environmental laws.
39. Brokers. Landlord and Tenant each warrant and represent that they
-------
have had no dealings, negotiations or consultations with any broker in
connection with this lease, except for CB Commercial Realty Group, Inc., whose
commission shall be paid by Landlord. Landlord and
6
<PAGE>
Tenant hereby agree to indemnify and hold each other harmless from all damages
(including reasonable attorneys' fees and costs) resulting from any claims that
may be asserted against them by any other broker, finder, or other person with
whom either party has dealt.
40. Contingency. This lease and the obligations of the parties hereunder
-----------
are contingent upon the acquisition by Landlord of title to the Premises. In
the event Landlord has not obtained title to the Premises on or before December
1, 1994, either party may, at its option, cancel this Lease, upon notice to the
other within five (5) days after such date, without further liability hereunder.
7
<PAGE>
EXHIBIT "A"
Lot Outline
SEE EXHIBIT C
<PAGE>
EXHIBIT "B"
Plans
SEE EXHIBIT F
<PAGE>
EXHIBIT "C"
Specifications
SEE EXHIBIT F
<PAGE>
EXHIBIT "D"
ALL THAT CERTAIN tract or parcel of land and premises, situate in the
Township of Logan, County of Gloucester and State of New Jersey, bounded and
described as follows:
BEGINNING at a point in the centerline of Cardinal Drive Phase I (60 feet
wide), said point being the following courses along the centerline of Cardinal
Drive and the old centerline and title line of Pedricktown-Center Square Road;
(a) North 25 degrees 42 minutes 18 seconds West, a distance of 570.00
feet; thence
(b) A curve of the left, an arc distance of 471.99 feet, having a radius
of 750.00 feet, thence
(c) North 61 degrees 45 minutes 45 seconds West, a distance of 100.95
feet; thence
(d) a curve to the right, an arc distance of 222.08 feet, having a radius
of 1005.00 feet to the point of beginning, said tract of land having the
following courses;
(1) From said point of beginning and leaving the centerline of
Cardinal Drive, South 45 degrees 51 minutes 41 seconds West, a distance of
707.45 feet to a point; thence
(2) North 44 degrees 08 minutes 19 seconds West, a distance of 425.19
feet to a point in the Northerly title line of lot 2.02 Block 40.01; thence
(3) Leaving the Northerly title line of Lot 2.02 Block 40.01, North 45
degrees 51 minutes 41 seconds East, a distance of 681.42 feet to a point in the
centerline of proposed Cardinal Drive Phase II; thence
(4) Continuing along the proposed centerline of Cardinal Drive, an arc
length of 88.06 feet, having a radius of 500.00 feet and a chord bearing on
South 51 degrees 30 minutes 13 seconds East to a point of tangency in the
aforesaid centerline; thence
(5) Continuing along said proposed centerline, South 46 degrees 27
minutes 29 seconds East, a distance of 21.93 feet to a point, said point being
the end of Cardinal Drive Phase I centerline; thence
(6) Continuing along the centerline of Cardinal Drive, 46 degrees 27
minutes 29 seconds East, a distance of 270.00 feet to a point of curvature;
thence
(7) Continuing along said centerline, an arc length of 46.37 feet,
having a radius of 1005.00 feet and a chord bearing of South 47 degrees 46
minutes 48 seconds East to the point of beginning.
CONTAINING within said bounds 6.80 Acres.
<PAGE>
BEING shown and designated as Lot 2.01 Block 40.01 on Subdivision of
"Proposed Lot 2.01, Block 40.01, Logan Township, Gloucester County, New Jersey,"
prepared by Pennoni Associates, Inc., dated October 12, 1988 and duly filed in
the Gloucester County Clerk's Office on November 17, 1988 as Map Number 7-499.
ALSO BEING shown and designated as Lot 2.01 Block 40.01 Plate 7 on the
Current Tax Map of the Township of Logan, and assessed as Lot 2.01 Block 40 on
the Current Tax Assessment Rolls of said Township.
BEING further known as 750 Cardinal Drive.
2
<PAGE>
EXHIBIT "E"
Tenant's Furnishings and Equipment
<PAGE>
EXHIBIT "F"
Layout Plan
SEE ATTACHED
<PAGE>
EXHIBIT 10.12
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
---------
August 31, 1992 among SANDY'S POOL SUPPLY, a California corporation (the
"Company"), PHILIP L. LESLIE, a former shareholder of the Company
- --------
("Shareholder") and LESLIE'S POOLMART, a California corporation ("Purchaser").
----------- ---------
R E C I T A L S
---------------
A. Purchaser, Shareholder and one other shareholder of the Company
entered into a Stock Purchase Agreement dated as of August 31, 1992 (the
"Purchase Agreement"), pursuant to which Purchaser has agreed to purchase all of
- -------------------
the capital stock of the Company.
B. It is a condition precedent to the obligations of Purchaser to
consummate the transactions contemplated by the Purchase Agreement that
Shareholder enter into this Agreement and be bound by its terms.
C. The execution and delivery of this Noncompetition Agreement by
Shareholder and the agreement by Shareholder to be bound by its terms are
necessary to cause the effective preservation of the goodwill and business of
the Company and to provide assurance to Purchaser and the Company that
Shareholder will not take any action that could frustrate or interfere with such
preservation or transfer or otherwise impair such goodwill or business.
NOW, THEREFORE, in consideration of the premises and the covenants of the
parties contained herein and in the Purchase Agreement and Purchaser's payment
of $10,000, the parties hereto agree as follows:
1. Confidential Information; Covenant Not To Compete. Shareholder hereby
-------------------------------------------------
covenants to and agrees with Purchaser and the Company that, except as otherwise
expressly consented to, approved or otherwise permitted by the Board of
Directors of Purchaser in writing, for a period of ten (10) years commencing on
the date hereof (provided, however, that such period shall be extended by and
for the duration of any period of time during which Shareholder is in violation
of any provision hereof), Shareholder shall not,
(a) directly or indirectly, acting alone, through his spouse or other
family member, or as a member of a partnership or other business entity or as a
holder of any security of any class issued by a corporation or other business
entity (other than as a holder of less than one percent (1%) of the outstanding
amount of any security listed on a national securities exchange or designated as
a National Market System security by the National Association of securities
Dealers, Inc.) or as an officer, director, partner, employee, consultant, agent
or representative of any corporation, partnership or other business entity,
engage in any business, trade or other enterprise substantially similar to, or
directly or indirectly in competition with, Purchaser or the Company or any
affiliate of Purchaser or the Company with respect to the manufacture,
marketing, distribution or sale of above-ground swimming pools, swimming pool
equipment, and swimming pool supplies including related installation, service
and repair activities (the
<PAGE>
"Business") in (i) each county in the States of California, Arizona, Texas,
--------
Pennsylvania and Ohio (it being agreed by Purchaser, the Company and Shareholder
that the Company currently carries on the Business or has established goodwill
in each of such counties), (ii) any county in the United States of America or
provincial subdivision in Canada in which the Company has carried on the
Business or established goodwill prior to the date hereof, (iii) any county in
the United States of America or provincial subdivision in Canada in which
Purchaser has carried on the Business or established goodwill prior to the date
hereof, and (iv) each state and country in which Purchaser or the Company
conducts the Business during the term of this Agreement; or loan or provide
money or other property to any such business, trade, or enterprise; or extend,
or assist in arranging, credit or resources to establish or conduct any such
business, trade, or enterprise; or permit his name, reputation or affiliations
TO be used, in connection with any such business, trade or enterprise;
(b) use or disclose (or cause to be disclosed) to any person, firm,
corporation, association or her entity (except as required by law) any
confidential or proprietary information pertaining to the organization,
business, inventions, discoveries, customers, suppliers, operations, affairs or
other trade secrets (including all trade secrets as defined by Section 3426.1(d)
of the California Civil Code) of the Company or Purchaser, including any
Customer List (as defined in the Purchase Agreement) or any portion thereof or
information therein, at any time; provided, however, that such obligations of
non-use and non-disclosure shall not apply to information that is or becomes a
part of the public domain without breach of the foregoing obligations of
Shareholder;
(c) request, induce or attempt to influence (or cause a Person to
request, induce or attempt to influence) any current, future or prospective
customer or supplier of the Company or Purchaser in connection with the Business
to limit, curtail or cancel its business with the Company or Purchaser; or
(d) request, induce or attempt to influence (or cause a Person to
request, induce or attempt to influence) any then-current officer, director,
employee, consultant, agent or representative of the Company or Purchaser to (i)
terminate his, her or its employment or business relationship with the Company
or Purchaser or (ii) commit any act that, if committed by Shareholder would
constitute a breach of any provision hereof.
(e) make (or cause to be made) any false, misleading or disparaging
statements regarding Purchaser, the Company or any of their respective officers,
directors, employees, shareholders, businesses, operations, products or
financial conditions;
(f) incorporate, form or become affiliated or associated with (or
cause a Person to be incorporated, formed or become affiliated with) any
corporation or entity with a name or trade name that includes the name "Leslie,"
"Leslie's," "Sandy" or "Sandy's" or is otherwise similar to the name of
Purchaser or the Company, or that employs any such name in any trademark, trade
name, trade dress, or in any other manner; or
(g) represent or otherwise suggest that he, or any business in which
he may become affiliated, is in any way affiliated with Purchaser or the
company;
2
<PAGE>
2. Remedy for Breach of Provisions Hereof.
--------------------------------------
(a) The provisions of clauses (a), (b), (c), (d), (e), (f) and (g) of
Section 1 above are separate and distinct commitments independent of each of the
other such clauses. Shareholder agrees that the provisions of such clauses are
reasonable and necessary to protect the legitimate interests of the Company and
Purchaser and that the Company and Purchaser have no adequate remedy at law for
any breach or threatened or attempted breach by him thereof and, accordingly,
Shareholder also agrees that the Company and Purchaser may, in addition to the
other remedies that may be available to them hereunder or at law, commence
proceedings in equity for an injunction temporarily or permanently enjoining
Shareholder from breaching or threatening or attempting any such breach of such
provisions and to command specific performance by shareholder of such
provisions; and for purposes of any such proceeding in equity, it shall be
presumed and it is hereby agreed by the parties hereto that the remedies at law
available to the company and Purchaser would be inadequate and that the Company
and Purchaser would suffer immediate and irreparable harm as a result of the
violation of any provision hereof by Shareholder.
(b) In the event of any use or disclosure of the Customer Lists (or
any portion thereof) by Shareholder in violation of Section 1(b) above,
Shareholder shall pay to Purchaser $1,000,000, as liquidated damages, for each
such use or disclosure. Purchaser, the Company and Shareholder agree that. (i)
it would be difficult to ascertain the amount of damages resulting from any such
use or disclosure and (ii) the foregoing amount stated as liquidated damages is
reasonable under the circumstances existing on the date hereof. The parties
acknowledge and agree that the liquidated damage remedy specified in this
subsection (b) is not intended to limit the other remedies of Purchaser or the
Company, as specified in subsection (a) above or otherwise, including injunctive
relief prohibiting the use or disclosure of the Customer Lists in violation of
Section 1(b). The remedy described in this subsection (b) shall not apply with
respect to the first three Isolated Disclosures. As used in the foregoing
sentence, an "Isolated Disclosure" shall mean the oral disclosure by Shareholder
of a single customer name on the Customer Lists (but not the address, telephone
number, sales information or any other information in the Customer Lists
relating to the customer), if such disclosure was not intended to be used, and
could not reasonably be expected to be used by the recipient, for commercial
purposes.
(c) The prevailing party in any proceeding in equity or at law
commenced in respect of this Agreement shall be entitled to recover from the
other party or parties to such proceeding, in addition to any other award to
which such party may be entitled, all fees, costs and expenses (including all
reasonable fees and disbursements of counsel) incurred in connection with such
proceeding and any appeals therefrom.
3. Consent to Partial Enforcement; Severability. It is the desired
--------------------------------------------
intent of the parties hereto that the provisions of Section 1 hereof shall be
enforced to the fullest extent permissible in each jurisdiction in which
enforcement is sought. Accordingly, Purchaser, the Company and Shareholder
agree that if any of the provisions set forth in Section 1 hereof are deemed by
any court to be invalid, unenforceable or overly broad, the court may, reduce,
amend or reform such
3
<PAGE>
provisions to a scope which it deems reasonable under the circumstances. If any
one or more provisions hereof or portions thereof are held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions and
portions thereof shall not be affected thereby.
4. Independent of Other Agreements. The covenants and agreements of
-------------------------------
Shareholder hereunder are independent of the covenants, representations,
warranties and agreements of the parties to the Purchase Agreement, and no
default, breach or failure to perform by any party to the Purchase Agreement
shall constitute an excuse or other justification for Shareholder to fail to
observe fully his covenants and agreements hereunder. No course of dealing
among Purchaser, the Company and Shareholder and no delay by Purchaser or the
Company in exercising any right, power or remedy hereunder, in equity or at law,
shall constitute a waiver of, or otherwise prejudice, any such right, power or
remedy.
5. Knowledge; Advice of Counsel. Shareholder represents and warrants
----------------------------
that he has read and understands each of the provisions of this Agreement and
that he has sought and obtained the advice of legal counsel before agreeing to
be bound by the terms hereof. Shareholder presents and warrants to the Company
and Purchaser that (i) this Agreement is a valid and binding obligation of
shareholder, enforceable against him in accordance with its terms (except to the
extent that a court may decline to enforce Sections 1(a), 2(b), 3 or 4 hereof
and (ii) he is free to enter into this Agreement and not under any contractual
or other restraint that would prohibit or impede in any respect his performance
hereunder. Shareholder acknowledges and agrees that Purchaser would not have
agreed to enter into the Purchase Agreement but for the execution, delivery and
performance by Shareholder of this Agreement.
6. Miscellaneous. This Agreement (i) constitutes the entire agreement
-------------
and supersedes all prior and contemporaneous agreements and understandings, both
written and oral, among the parties hereto with regard to the subject matter
hereof [except that the Covenant Not To Compete between Shareholder and
Purchaser dated as of December 30, 1988 shall remain in full force and effect],
(ii) is not intended to confer upon any person any rights or remedies hereunder
or with respect to the subject matter hereof except as expressly set fort
herein, (iii) shall inure to the benefit of and be enforceable by the Company
and Purchaser and its successors and assigns and (iv) may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which counterparts shall together constitute a single agreement.
7. Permitted Activities.
--------------------
(a) Notwithstanding anything in Section 1(a) to the contrary,
Shareholder may with respect to "Molly Brown," "Explorer" and "Custodian"
products only, market and sell such products (i) to wholesalers and retailers,
(ii) through direct mail solicitation of end-users or (iii) by retail sale
through a single store factory outlet location located in the city of Simi
Valley which only sells Molly Brown products and does not advertise for, or
solicit sales from, such location. Except as expressly described in clauses
(ii) and (iii) of the foregoing sentence, Shareholder may not engage in retail
sales of such products.
4
<PAGE>
(b) Notwithstanding anything in Section 1(b) to the contrary,
Purchaser shall, upon written request of Shareholder, provide the Customer Lists
to a third party mailing house for use by Shareholder on a "blind basis" for any
advertising purpose relating to the activity described in subsection (a) of this
Section 7 that Purchaser, in its reasonable discretion, deems appropriate..
Without limiting Purchaser's discretion under the foregoing sentence, the
parties acknowledge and agree that Shareholder may not use Customer Lists as a
"broker" for any other person or entity or for any similar purpose.
8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Noncompetition Agreement, or has caused this Noncompetition Agreement to be
executed on its behalf by a representative duly authorized, as of the date first
above set forth.
LESLIE'S POOLMART
By /s/ Brian P. McDermott
--------------------------------------
SANDY'S POOL SUPPLY
By /s/ Brian P. McDermott
---------------------------------------
/s/ Philip L. Leslie
-----------------------------------------
PHILIP L. LESLIE
5
<PAGE>
EXHIBIT 10.13
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of
---------
August 31, 1992 among SANDY'S POOL SUPPLY, a California corporation (the
"Company"), SANDER BASS, a former shareholder of the Company ("Shareholder") and
- -------- -----------
LESLIE'S POOLMART, a California corporation ("Purchaser").
---------
R E C I T A L S
---------------
A. Purchaser, Shareholder and one other shareholder of the Company
entered into a Stock Purchase Agreement dated as of August 31, 1992 (the
"Purchase Agreement"), pursuant to which Purchaser has agreed to purchase all of
- -------------------
the capital stock of the Company.
B. It is a condition precedent to the obligations of Purchaser to
consummate the transactions contemplated by the Purchase Agreement that
Shareholder enter into this Agreement and be bound by its terms.
C. The execution and delivery of this Noncompetition Agreement by
Shareholder and the agreement by Shareholder to be bound by its terms are
necessary to cause the effective preservation of the goodwill and business of
the Company and to provide assurance to Purchaser and the Company that
Shareholder will not take any action that could frustrate or interfere with such
preservation or transfer or otherwise impair such goodwill or business.
NOW, THEREFORE, in consideration of the premises and the covenants of
the parties contained herein and in the Purchase Agreement and Purchaser's
payment of $10,000, the parties hereto agree as follows:
1. Confidential Information; Covenant Not To Compete. Shareholder
-------------------------------------------------
hereby covenants to and agrees with Purchaser and the Company that, except as
otherwise expressly consented to, approved or otherwise permitted by the Board
of Directors of Purchaser in writing, for a period of ten (10) years commencing
on the date hereof (provided, however, that such period shall be extended by and
for the duration of any period of time during which Shareholder is in violation
of any provision hereof), Shareholder shall not,
(a) directly or indirectly, acting alone, through his spouse or
other family member, or as a member of a partnership or other business entity or
as a holder of any security of any class issued by a corporation or other
business entity (other than as a holder of less than one percent (1%) of the
outstanding amount of any security listed on a national securities exchange or
designated as a National Market System security by the National Association of
Securities Dealers, Inc.) or as an officer, director, partner, employee,
consultant, agent or representative of any corporation, partnership or other
business entity, engage in any business, trade or other enterprise substantially
similar to, or directly or indirectly in competition with, Purchaser or the
Company or any affiliate of Purchaser or the Company with respect to the
manufacture, marketing, distribution or sale of above-ground swimming pools,
swimming pool
<PAGE>
equipment or swimming pool supplies, including related installation, service and
repair activities (the "Business") in (i) each county in the States of
--------
California, Arizona, Texas, Pennsylvania and Ohio (it being agreed by Purchaser,
the Company and Shareholder that the Company currently carries on the Business
or has established goodwill in each of such counties), (ii) any county in the
United States of America or provincial subdivision in Canada in which the
Company has carried on the Business or established goodwill prior to the date
hereof, (iii) any county in the United States of America or provincial
subdivision in Canada in which Purchaser has carried on the Business or
established goodwill prior to the date hereof, and (iv) each state and country
in which Purchaser or the Company conducts the Business during the term of this
Agreement; or loan or provide money or other property to any such business,
trade, or enterprise; or tend, or assist in arranging, credit or resources to
establish or conduct any such business, trade, or enterprise; or permit his
name, reputation or affiliations to be used in connection with any such
business, trade or enterprise; provided, that nothing in this subsection (a)
--------
shall prohibit Shareholder from engaging in the construction of in-ground
swimming pools;
(b) use or disclose (or cause to be used or disclosed) to any person,
firm, corporation, association or other entity (except as required by law) any
confidential or proprietary information pertaining to the organization,
business, inventions, discoveries, customers, suppliers, operations, affairs or
other trade secrets (including all trade secrets as defined by Section 3426.1(d)
of the California Civil Code) of the Company or Purchaser, including any
Customer List (as defined in the Purchase Agreement) or any portion thereof or
any information therein, at any time; provided, however, that such obligations
of non-use and non-disclosure shall not apply to information that is or becomes
a part of the public domain without breach of the foregoing obligations of
Shareholder;
(c) request, induce or attempt to influence (or cause a Person to
request, induce or attempt to influence) any current, future or prospective
customer or supplier of the Company or Purchaser in connection with the Business
to limit, curtail or cancel its business with the Company or Purchaser; or
(d) request, induce or attempt to influence (or cause a Person to
request, induce or attempt to influence) any then-current officer, director,
employee, consultant, agent or representative of the Company or Purchaser to (i)
terminate his, her or its employment or business relationship with the Company
or Purchaser or (ii) commit any act that, if committed by Shareholder would a
breach of any provision hereof;
(e) make (or cause to be made) any false, misleading or disparaging
statements regarding Purchaser, the Company or any of their respective officers,
directors, employees, shareholders, businesses, operations, products or
financial conditions;
(f) incorporate, form or become affiliated or associated with (or
cause a Person to be incorporated, formed or become affiliated with) any
corporation or entity with a name or trade name that includes the name "Leslie,"
"Leslie's," "Sandy" or "Sandy's" or is otherwise similar to the name of
Purchaser or the Company, or that employs any such name in any trademark, trade
name, trade dress, or in any other manner; or
2
<PAGE>
(g) represent or otherwise suggest that he, or any business in which
he may become affiliated, is in any way affiliated with Purchaser or the
Company;
2. Remedy for Breach of Provisions Hereof.
--------------------------------------
(a) The provisions of clauses (a), (b), (c), (d), (e), (f) and (g) of
Section 1 above are separate and distinct commitments independent of each of the
other such clauses. Shareholder agrees that the provisions of such clauses are
reasonable and necessary to protect the legitimate interests of the Company and
Purchaser and that the Company and Purchaser have no adequate remedy at law for
any breach or threatened or attempted breach by him thereof and, accordingly,
Shareholder also agrees that the Company and Purchaser may, in addition to the
other remedies that may be available to them hereunder or at law, commence
proceedings in equity for an injunction temporarily or permanently enjoining
Shareholder from breaching or threatening or attempting any such breach of such
provisions and to command specific performance by Shareholder of such
provisions; and for purposes of any such proceeding in equity, it shall be
presumed and it is hereby agreed by the parties hereto that the remedies at law
available to the Company and Purchaser would be inadequate and that the Company
and Purchaser would suffer immediate and irreparable harm as a result of the
violation of any provision hereof by Shareholder.
(b) In the event of any use or disclosure of the Customer Lists (or
any portion thereof) by Shareholder in violation of Section 1(b) above,
Shareholder shall pay to Purchaser $1,000,000, as liquidated damages, for each
such use or disclosure. Purchaser, the Company and Shareholder agree that (i)
it would be difficult to ascertain the amount of damages resulting from any such
use or disclosure and (ii) the foregoing amount stated as liquidated damages is
reasonable under the circumstances existing on the date hereof. The parties
acknowledge and agree that the liquidated damage remedy specified in this
subsection (b) is not intended to limit the other remedies of Purchaser or the
Company, as specified in subsection (a) above or otherwise, including injunctive
relief prohibiting the use or disclosure of the Customer Lists in violation of
Section 1(b). The remedy described in this subsection (b) shall not apply with
respect to the first three Isolated Disclosures. As used in the foregoing
sentence, an "Isolated Disclosure" shall mean the oral disclosure by Shareholder
of a single customer name on the Customer Lists (but not the address, telephone
number, sales information or any other information in the customer Lists
relating to the customer), if such disclosure was not intended to be used, and
could not reasonably be expected to be used by the recipient, for commercial
purposes.
(c) The prevailing party in any proceeding in equity or at law
commenced in respect of this Agreement shall be entitled to recover from the
other party or parties to such proceeding, in addition to any other award to
which such party may be entitled, all fees, costs and expenses (including all
reasonable fees and disbursements of counsel) incurred in connection with such
proceeding and any appeals therefrom.
3. Consent to Partial Enforcement; Severability. It is the desired
--------------------------------------------
intent of the parties hereto that the provisions of Section 1 hereof shall be
enforced to the fullest extent permissible in each jurisdiction in which
enforcement is sought. Accordingly, Purchaser, the
3
<PAGE>
Company and Shareholder agree that if any of the provisions set forth in Section
1 hereof are deemed by any court to be invalid, unenforceable or overly broad,
the court may reduce, amend or reform such provisions to a scope which it deems
reasonable under the circumstances. If any one or more provisions hereof or
portions thereof are held to be invalid or unenforceable, the validity and
enforceability of the remaining provisions and portions thereof shall not be
affected thereby.
4. Independent of Other Agreements. The covenants and agreements of
-------------------------------
Shareholder hereunder are independent of the covenants, representations,
warranties and agreements of the parties to the Purchase Agreement, and no
default, breach or failure to perform by any party to the Purchase Agreement
shall constitute an excuse or other justification for Shareholder to fail to
observe fully his covenants and agreements hereunder. No course of dealing
among Purchaser, the Company and Shareholder and no delay by Purchaser or the
Company in exercising any right, power or remedy hereunder, in equity or at law,
shall constitute a waiver of, or otherwise prejudice, any such right, power or
remedy.
5. Knowledge; Advice of Counsel. Shareholder represents and warrants
----------------------------
that he has read and understands each of the provisions of this Agreement and
that he has sought and obtained the advice of legal counsel before agreeing to
be bound by the terms hereof. Shareholder represents and warrants to the
Company and Purchaser that (i) this Agreement is a valid and binding obligation
of Shareholder, enforceable against him in accordance with its terms (except to
the extent that a court may decline to enforce Sections 1(a), 2(b), 3 or 4
hereof) and (ii) he is free to enter into this Agreement and not under any
contractual or other restraint that would prohibit or impede in any respect his
performance hereunder. Shareholder acknowledges and agrees that Purchaser would
not have agreed to enter into the Purchase Agreement but for the execution.,
delivery and performance by Shareholder of this Agreement.
6. Miscellaneous. This Agreement (i) constitutes the entire
-------------
agreement and supersedes all prior and contemporaneous agreements and
understandings, both written and oral, among the parties hereto with regard to
the subject matter hereof, (ii) is not intended to confer upon any person any
rights or remedies hereunder or with respect to the subject matter hereof except
as expressly set forth herein, (iii) shall inure to the benefit of and be
enforceable by the Company and Purchaser and its successors and assigns and (iv)
may be executed in one or more counterparts, each of which shall be deemed to be
an original, but all of which counterparts shall together constitute a single
agreement.
7. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Noncompetition Agreement, or has caused this Noncompetition Agreement to be
executed on its behalf by a representative duly authorized, as of the date first
above set forth.
LESLIE'S POOLMART
By /s/ Brian P. McDermott
------------------------------
SANDY'S POOL SUPPLY
By /s/ Brian P. McDermott
------------------------------
/s/ Sander Bass
--------------------------------
SANDER BASS
5
<PAGE>
EXHIBIT 10.14
LPM HOLDINGS, INC.
------------------
$90,000,000
10 3/8% Senior Notes due 2004
PURCHASE AGREEMENT
------------------
June 6, 1997
BT SECURITIES CORPORATION
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
LPM Holdings, Inc., a wholly owned Delaware corporation ("Leslie's
--------
Delaware" or the "Company") that will change its name to Leslie's Poolmart, Inc.
- -------- -------
upon consummation of the Merger Transaction (as defined below) (as survivor of
the Merger Transaction, the "Issuer"), hereby confirms its agreement with you
------
(the "Initial Purchaser") as set forth below.
-----------------
1. The Notes. Subject to the terms and conditions contained in this
---------
Purchase Agreement (the "Agreement"), the Issuer proposes to issue and sell to
---------
the Initial Purchaser (the "Offering") $90,000,000 aggregate principal amount of
--------
its 10 3/8% Senior Notes due 2004 (the "Notes"). The Notes are to be issued
-----
under an indenture (the "Indenture") to be dated as of June 11, 1997 by and
---------
between the Issuer and U.S. Trust Company of California, N.A., as Trustee (the
"Trustee").
-------
The Notes will be offered and sold to the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "Act"), in
---
reliance on exemptions therefrom.
The Notes are being sold in connection and concurrently with (i) the
merger of Leslie's Poolmart, a California corporation ("Leslie's California"),
-------------------
with and into Leslie's Delaware, which shall survive the merger (the
"Reincorporation Merger"), pursuant to the Agreement of Merger dated February
----------------------
26, 1997 by and between Leslie's California and Leslie's Delaware (as it may be
amended through the date hereof and together with all ancillary agreements
entered into in connection therewith, the "Reincorporation Merger Agreement")
--------------------------------
and (ii) immediately subsequent to the Reincorporation Merger, the merger of
<PAGE>
-2-
Poolmart USA Inc., a Delaware corporation ("Poolmart") owned by Green Equity
--------
Investors II, L.P. ("GEI"), with and into the Issuer (the "Recapitalization
--- ----------------
Merger", and, together with the Reincorporation Merger, the "Merger
- ------ ------
Transaction") pursuant to the Agreement and Plan of Merger dated as of
- -----------
February 26, 1997 by and among Leslie's California, Leslie's Delaware and
Poolmart (as it may be amended through the date hereof and together with all
ancillary agreements entered into in connection therewith, the
"Recapitalization Merger Agreement" and, together with the Reincorporation
---------------------------------
Merger Agreement, the "Merger Agreements"). The time of consummation of the
-----------------
Merger Transaction is referred to herein as the "Effective Time".
--------------
In connection with the Merger Transaction, each outstanding share of
Leslie's Delaware (other than 359,505 shares (the "Continuing Shares") which
-----------------
will remain outstanding to the Hancock Park Associates group (the "HPA Group")
---------
and shares as to which dissenters' rights have been exercised) into which the
outstanding shares of common stock of Leslie's California shall have been
converted, will be automatically canceled and converted immediately prior to the
Recapitalization Merger into the right to receive $14.50 in cash, and each
outstanding share of common stock of Poolmart will be converted into one share
of Leslie's Delaware common stock. Consummation of the Merger Transaction is
subject to a number of conditions, including (i) approval of the Merger
Agreements by a specified percentage of the holders of Leslie's California
common stock (the "Shareholder Vote"), (ii) compliance with all applicable
----------------
regulatory requirements, including termination of the applicable waiting periods
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and (iii) obtaining sufficient financing. The consummation of the
-------
Merger Transaction is a condition precedent to the Offering.
The financing to consummate the Merger Transaction will be provided by
(i) the Continuing Shares, which shall account for $5.2 million in excused
payment of merger consideration, (ii) an investment in common stock of the
Issuer by GEI of $15.3 million (the "GEI Equity Investment") pursuant to the
---------------------
terms of the Recapitalization Merger Agreement, (iii) the issuance of additional
shares of common stock of the Issuer to its management for $.275 million (the
"Subscription Stock") pursuant to the terms of the Stockholders Agreement and
------------------
Subscription Agreement (the "Stockholders and Subscription Agreement"),
---------------------------------------
(iv) the issuance to Occidental Petroleum Corporation, a Delaware corporation
("Occidental"), of Series A Exchangeable Cumulative Redeemable Preferred Stock
----------
of the Issuer (the "Series A Preferred") and Warrants of the Issuer (the
------------------
"Warrants") for aggre-
--------
<PAGE>
-3-
gate consideration consisting of the exchange of $10,000,000 in aggregate
principal amount of Leslie's California's 8% Convertible Subordinated
Debentures expiring May 15, 2001 (the "Occidental Notes") and $18.0 million
----------------
(less accrued and unpaid interest on the Occidental Notes) in cash (the
"Occidental Equity Investment") pursuant to the terms of the Preferred Stock
----------------------------
and Warrant Purchase Agreement (the "Preferred Stock Purchase Agreement"),
----------------------------------
(v) borrowings under a revolving credit facility pursuant to a credit agreement
(the "Credit Agreement") between the Issuer and Wells Fargo Bank National
----------------
Association with an availability of approximately $35.0 million (the "Bank
----
Facility") and (vi) the net proceeds from the Offering.
- --------
In connection with the sale of the Notes, Leslie's Delaware has
prepared a preliminary offering memorandum dated May 19, 1997 (the "Preliminary
-----------
Memorandum") and a final offering memorandum dated June 6, 1997 (the "Final
- ---------- -----
Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein
- ----------
being referred to as a "Memorandum") setting forth or including a description of
----------
the terms of the Notes, the terms of the Offering, the Merger Transaction and
the transactions contemplated thereby and hereby, a description of Leslie's
Delaware and Leslie's California and its subsidiaries and, at and as of the
Effective Time, the Issuer and its subsidiaries, and any material developments
relating to any such entities occurring after the date of the most recent
historical financial statements included therein.
Leslie's Delaware understands that the Initial Purchaser proposes to
make an offering of the Notes only on the terms and in the manner set forth in
the Final Memorandum and Section 8 hereof as soon as the Initial Purchaser deems
advisable after this Agreement has been executed and delivered, to persons in
the United States whom the Initial Purchaser reasonably believes to be qualified
institutional buyers ("Qualified Institutional Buyers" or "QIBs") as defined in
------------------------------ ----
Rule 144A under the Act, as such rule may be amended from time to time ("Rule
----
144A"), to a limited number of other institutional "accredited investors"
- ----
("Accredited Investors") as defined in Rule 501(a)(1), (2), (3) and (7) under
--------------------
Regulation D of the Act in private sales exempt from registration under the Act
and outside the United States to persons other than U.S. Persons ("foreign
purchasers," which term shall include dealers or other professional fiduciaries
in the United States acting on a discretionary basis for foreign beneficial
owners (other than an estate or trust)) in reliance on Regulation S
("Regulation S") under the Act.
------------
<PAGE>
-4-
The Initial Purchaser and its direct and indirect transferees of the
Notes will be entitled to the benefits of the Registration Rights Agreement,
substantially in the form attached hereto as Exhibit A (the "Registration Rights
--------- -------------------
Agreement"), pursuant to which the Issuer will agree, among other things, to
- ---------
file a registration statement (the "Registration Statement") with the Securities
----------------------
and Exchange Commission (the "Commission") registering the Notes or the Exchange
----------
Notes (as defined in the Registration Rights Agreement) under the Act.
The Merger Transaction and the Offering are collectively referred to
herein as the "Transactions". The Notes, the Indenture, the Registration Rights
------------
Agreement and this Agreement are collectively referred to herein as the
"Offering Documents". The Merger Agreements, the Stockholders and Subscription
------------------
Agreement, the Preferred Stock Purchase Agreement and the Credit Agreement are
collectively referred to herein as the "Other Transaction Documents". The
---------------------------
Offering Documents and the Other Transaction Documents are collectively referred
to herein as the "Transaction Documents".
---------------------
2. Representations and Warranties. Leslie's Delaware represents and
------------------------------
warrants to and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Memorandum as of the date thereof nor the
Final Memorandum nor any amendment or supplement thereto as of the date thereof
and at all times subsequent thereto up to the Closing Date (as defined in
Section 3 below) contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
Section 2(a) do not apply to statements or omissions made in reliance upon and
in conformity with information relating to the Initial Purchaser furnished to
Leslie's Delaware in writing by the Initial Purchaser expressly for use in the
Preliminary Memorandum, the Final Memorandum or any amendment or supplement
thereto.
(b) At and as of the Effective Time, the Issuer will have the
authorized, issued and outstanding capitalization set forth in the Final
Memorandum; as of the date hereof, all of the subsidiaries of Leslie's
California are listed in Schedule 1 attached hereto (the "Existing
---------- --------
Subsidiaries"); as of the date hereof, all of the outstanding shares of capital
- ------------
stock of Leslie's California and the Existing Subsidiaries and, to the knowledge
of Leslie's Delaware, all of the outstanding shares
<PAGE>
-5-
of capital stock of Poolmart have been, and, at and as of the Effective Time, of
the Issuer and its subsidiaries (the "Subsidiaries", listed in Schedule 2
------------ ----------
attached hereto) will be, duly authorized and validly issued, fully paid and
nonassessable and not issued in violation of any preemptive or similar rights;
at and as of the Closing Date, GEI and the HPA Group will own, respectively,
73.6% and 26.4% of the outstanding, nondiluted common stock of the Issuer;
except as set forth in the Final Memorandum, all of the outstanding shares of
capital stock of Leslie's California, the Existing Subsidiaries and Poolmart are
and, at and as of the Effective Time, the Issuer and the Subsidiaries will be,
free and clear of all liens, encumbrances, equities and claims or restrictions
on transferability (other than those imposed by the Act and the securities or
"Blue Sky" laws of certain jurisdictions) or on voting; except as set forth in
the Final Memorandum, there are no (i) options, warrants or other rights to
purchase, (ii) agreements or other obligations to issue or (iii) other rights to
convert any obligation into, or exchange any securities for, shares of capital
stock of or ownership interests in Leslie's California, the Existing
Subsidiaries, Poolmart or, at and as of the Effective Time, the Issuer or the
Subsidiaries. Neither Poolmart, Leslie's California nor the Existing
Subsidiaries, owns and, at and as of the Effective Time, neither the Issuer nor
the Subsidiaries will own, directly or indirectly, a material number of shares
of capital stock or any other equity or long term debt securities or has any
equity interest in any firm, partnership, joint venture or other entity (other
than the equity interests in the Existing Subsidiaries owned by Leslie's
California and, at and as of the Effective Time, the equity interests in the
Subsidiaries that will be owned by the Issuer).
(c) Each of Leslie's California and the Existing Subsidiaries and, to
the knowledge of Leslie's Delaware, Poolmart has been, and immediately after the
Effective Time, the Issuer and the Subsidiaries will be, duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, with all requisite power and authority (corporate
or otherwise) under such laws, and will have all necessary authorizations,
approvals, orders, licenses, franchises, consents, certificates and permits of
and from regulatory or governmental officials, bodies and tribunals, to own or
lease its respective properties and conduct its respective business as now
conducted and, with respect to the Issuer and the Subsidiaries immediately after
the Effective Time, as will be conducted, as described in the Final Memorandum;
each of Leslie's California and the Existing Subsidiaries and, to the knowledge
of Leslie's Delaware, Poolmart, is, and immedi-
<PAGE>
-6-
ately after the Effective Time, each of the Issuer and the Subsidiaries will be,
duly qualified to do business as a foreign corporation in good standing in all
other jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the failure to
be so qualified would not, individually or in the aggregate, have (x) a material
adverse effect on the general affairs, management, business, condition
(financial or otherwise), prospects or results of operations of Poolmart,
Leslie's California and the Existing Subsidiaries and, immediately after the
Effective Time, the Issuer and the Subsidiaries, taken as a whole; or (y) a
material adverse effect on the ability of Leslie's California and the Existing
Subsidiaries or Poolmart and, immediately after the Effective Time, the Issuer
and the Subsidiaries to perform any of their material obligations under the
Transaction Documents to which such person is a party or any of the material
agreements, documents or instruments contemplated hereby or by the Final
Memorandum to be entered into by Leslie's California, the Existing Subsidiaries,
Poolmart or the Issuer (any such event, a "Material Adverse Effect").
-----------------------
(d) At and as of the Effective Time, the Issuer will have all
requisite corporate power and authority to execute, deliver and perform each of
its obligations under the Notes, the Exchange Notes and the Private Exchange
Notes (as defined in the Registration Rights Agreement). The Notes conform in
all material respects to the description thereof in the Final Memorandum. The
Notes, the Exchange Notes and the Private Exchange Notes have each been duly and
validly authorized by Leslie's Delaware and, at and as of the Effective Time, by
the Issuer and, when executed by the Issuer and authenticated by the Trustee in
accordance with the provisions of the Indenture and, in the case of the Notes,
when delivered to and paid for by the Initial Purchaser in accordance with the
terms of this Agreement, will constitute valid and legally binding obligations
of the Issuer, entitled to the benefits of the Indenture, and enforceable
against the Issuer, in accordance with their terms, except that the enforcement
thereof may be subject to limitations imposed by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect affecting creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances or transfers
or preferential transfers and (ii) general principles of equity, whether
considered at law or at equity, and the discretion of the court before which any
proceeding therefor may be brought (the "Enforceability Limitations").
--------------------------
<PAGE>
-7-
(e) At and as of the Effective Time, the Issuer will have all
requisite corporate power and authority to execute, deliver and perform its
obligations under the Indenture. The Indenture has been duly authorized by
Leslie's Delaware and, at and as of the Effective Time, the Issuer, and when
executed and delivered by the Issuer (assuming the due authorization, execution
and delivery thereof by the Trustee), will constitute a valid and legally
binding agreement of the Issuer, enforceable against the Issuer in accordance
with its terms, except that the enforcement thereof may be subject to the
Enforceability Limitations. No qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "1939 Act"), is required in connection
--------
with the offer and sale of the Notes contemplated hereby. The Indenture meets
the requirements for qualification under the 1939 Act, and conforms in all
material respects to the description thereof in the Final Memorandum.
(f) Leslie's California, the Existing Subsidiaries and, to the
knowledge of Leslie's Delaware, Poolmart have and, at and as of the Effective
Time, the Issuer will have, all requisite corporate power and authority to
execute, deliver and perform their respective obligations under each of the
Other Transaction Documents to which such person is a party. As of the Closing
Date, each of the Other Transaction Documents to which such person is a party
will have been duly and validly authorized by Leslie's California and the
Existing Subsidiaries, and, to the knowledge of Leslie's Delaware, Poolmart, and
immediately after the Effective Time by the Issuer; and, when executed and
delivered by Leslie's California, the Existing Subsidiaries or, to the knowledge
of Leslie's Delaware, Poolmart, or the Issuer, each such Other Transaction
Document to which such person is a party will constitute a valid and legally
binding obligation of such party, enforceable against each such person in
accordance with its terms, except that the enforcement thereof may be subject to
the Enforceability Limitations. The Merger Transaction has been duly authorized
by Leslie's California (subject only to the Shareholder Vote) and Leslie's
Delaware and, to the knowledge of Leslie's Delaware, Poolmart has duly
authorized the Recapitalization Merger.
(g) At and as of the Effective Time, the Issuer will have all
requisite corporate power and authority to execute, deliver, and perform its
obligations under the Registration Rights Agreement. As of the date hereof, the
Registration Rights Agreement has been duly authorized by Leslie's Delaware and,
immediately after the Effective Time, will be duly and validly authorized by the
Issuer; and, when executed and delivered by the Issuer (assuming the due
authorization, execution
<PAGE>
-8-
and delivery by the Initial Purchaser), will constitute a valid and legally
binding agreement of the Issuer, enforceable against the Issuer in accordance
with its terms, except that (i) the enforcement thereof may be subject to the
Enforceability Limitations and (ii) any rights to indemnity or contribution
thereunder may be limited by federal and state securities laws and public policy
considerations.
(h) Leslie's California has prepared and filed with the Commission in
accordance with the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder (the "Exchange Act") a proxy statement
------------
and form of proxy relating to the special meeting of the shareholders of
Leslie's California at which the shareholders of Leslie's California will be
asked to approve the Merger Transaction and a Rule 13e-3 Transaction Statement
(together with any amendments or supplements thereto, the "Schedule 13E-3") with
--------------
respect to the transactions contemplated by the Merger Agreements. As used in
this Agreement, the term "Proxy Statement" means the definitive proxy statement
---------------
and form of proxy, including appendices, financial statements and schedules, and
any amendments or supplements thereto in the form filed with the Commission
pursuant to Rule 14a-6(b) under the Exchange Act. On the date that (i) the Proxy
Statement was first mailed to the shareholders of Leslie's California and
(ii) the Schedule 13E-3 was first filed with the Commission and at all times
subsequent thereto up to and including the date of the Shareholder Vote, the
Proxy Statement and the Schedule 13E-3 complied with the provisions of the
Exchange Act, and the rules and regulations promulgated thereunder, and the
Proxy Statement and the Schedule 13E-3 at all such times and on the Closing Date
did not or will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading.
(i) Except as described in the Final Memorandum, no consent, approval,
authorization or order of any court or governmental agency or body, or third
party is required for the performance of this Agreement, the Notes, the
Indenture, the Registration Rights Agreement or any of the Other Transaction
Documents by Leslie's California, the Existing Subsidiaries or Poolmart, or, at
and as of the Effective Time, the Issuer, or the consummation by Leslie's
California, the Existing Subsidiaries, Poolmart or, at and as of the Effective
Time, the Issuer of any of the transactions contemplated hereby or thereby or by
the Final Memorandum, except such as have been or will be obtained (including,
without limitation, the Shareholder Vote and
<PAGE>
-9-
compliance with the HSR Act) and such as may be required under state securities
or "Blue Sky" laws in connection with the purchase and resale of the Notes by
the Initial Purchaser, or as would not have a Material Adverse Effect. None of
Leslie's California, the Existing Subsidiaries or, to the knowledge of Leslie's
Delaware, Poolmart is or, at and as of the Effective Time, the Issuer will be,
(i) in violation of its certificate of incorporation or bylaws, (ii) in
violation of any statute, judgment, decree, order, rule or regulation applicable
to any of them or any of their respective properties or assets, except for any
such violation which would not, individually or in the aggregate, have a
Material Adverse Effect, or (iii) in breach of or default under (nor has any
event occurred which, with notice or passage of time or both, would constitute a
default under) or in violation of any of the terms or provisions of any
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate, contract or other agreement or
instrument to which any of them is a party or to which any of them or their
respective properties or assets is or will be subject (collectively,
"Contracts"), except for any such breach, default, violation or event which
---------
would not, individually or in the aggregate, have a Material Adverse Effect.
(j) The execution, delivery and performance by Leslie's California and
the Existing Subsidiaries and, to the knowledge of Leslie's Delaware, Poolmart
and, at and as of the Effective Time, the Issuer of the Transaction Documents to
which such person is a party, and the consummation by Leslie's Delaware and the
Existing Subsidiaries and, to the knowledge of Leslie's Delaware, Poolmart and,
at and as of the Effective Time, the Issuer of the transactions contemplated
hereby, thereby (including, without limitation, the issuance and sale of the
Notes to the Initial Purchaser) and by the Final Memorandum will not conflict
with or constitute or result in a breach of or a default under (or an event
which with notice or passage of time or both would constitute a default under)
or violation of any of (i) the terms or provisions of any Contract, except for
any such conflict, breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse Effect, (ii) the
certificate of incorporation or bylaws of any such person or (iii) (assuming
compliance with all applicable state securities or "Blue Sky" laws and assuming
the accuracy of the representations and warranties of the Initial Purchaser in
Section 8 hereof) any statute, judgment, decree, order, rule or regulation
applicable to any such person, or any of their respective properties or assets,
except for any such conflict, breach or violation which would
<PAGE>
-10-
not, individually or in the aggregate, have a Material Adverse Effect.
(k) Each of the Transactions and Transaction Documents conforms in all
material respects to the description thereof in the Final Memorandum. All
representations and warranties of Leslie's California, the Existing Subsidiaries
and, to the knowledge of Leslie's Delaware, Poolmart, set forth in any of the
Other Transaction Documents to which such person is a party, were true and
correct in all material respects at the time as of which such representations
and warranties were made and will be true and correct in all material respects
at and as of the Closing Date as if made at and as of such date (other than to
the extent any such representation or warranty is expressly made as to only a
certain date).
(l) Arthur Andersen LLP, who are reporting on the audited consolidated
financial statements of Leslie's California included in the Final Memorandum,
are independent public accountants within the meaning of the Act and the rules
and regulations promulgated thereunder. The audited consolidated financial
statements of Leslie's California and related notes thereto included in the
Final Memorandum present fairly in all material respects the consolidated
financial position of Leslie's California and its consolidated subsidiaries, the
results of operations and the consolidated cash flow at the dates and for the
periods specified and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as otherwise stated
therein. The summary and selected financial and statistical data in the Final
Memorandum present fairly in all material respects the information shown therein
and have been prepared and compiled on a basis consistent with the audited
financial statements included therein.
(m) The pro forma financial statements (including the notes thereto)
and the other pro forma financial information included in the Final Memorandum
(i) comply as to form in all material respects with the applicable requirements
of Regulation S-X promulgated under the Exchange Act, (ii) have been prepared in
all material respects in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements and (iii) have been correctly
computed on the bases described therein; the assumptions used in the preparation
of the pro forma financial data and other pro forma financial information
included in the Final Memorandum are reasonable at the time of preparation and
the adjustments used
<PAGE>
-11-
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(n) There is not pending any action, suit, proceeding, inquiry or
investigation to which Leslie's California or any of the Existing Subsidiaries
or, to the knowledge of Leslie's Delaware, Poolmart is, or, at and as of the
Effective Time, the Issuer would be, a party, nor, to the knowledge of Leslie's
Delaware, is there any such action, suit, proceeding, inquiry or investigation
threatened, or to which the property or assets of any such person is subject,
before or brought by any court, arbitrator or governmental agency or body which,
if determined adversely to any such person would, individually or in the
aggregate, have a Material Adverse Effect or which seeks to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of the
Notes to be sold hereunder or the consummation of any of the Transactions.
(o) Each of Leslie's California and the Existing Subsidiaries and, to
the knowledge of Leslie's Delaware, Poolmart possess, and, at and as of the
Effective Time, the Issuer, will possess all licenses, permits, certificates,
consents, orders, approvals and other authorizations from, and has made or, in
the case of the Issuer, will have made all declarations and filings with, all
federal, state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, presently required or
necessary to own or lease, as the case may be, and to operate its respective
properties and to carry on its respective businesses as now or proposed to be
conducted as set forth in the Final Memorandum ("Permits"), except where the
-------
failure to obtain such Permits would not, individually or in the aggregate, have
a Material Adverse Effect; each of Leslie's California and the Existing
Subsidiaries and, to the knowledge of Leslie's Delaware, Poolmart has and, at
and as of the Effective Time, the Issuer will have fulfilled and performed all
of its obligations with respect to such Permits and no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
thereof or results in any other material impairment of the rights of the holder
of any such Permit except where the failure to fulfill or perform and except
where such revocation, termination or impairment would not, individually or in
the aggregate, have a Material Adverse Effect; and none of Leslie's California
or any of the Existing Subsidiaries or, to the knowledge of Leslie's Delaware,
Poolmart, has received any written or, to the knowledge of Leslie's Delaware,
oral notice of any proceeding relating to revocation or modification of any such
Permit, except where such revocation or modification would
<PAGE>
-12-
not, individually or in the aggregate, have a Material Adverse Effect.
(p) Since the date of the most recent financial statements appearing
in the Final Memorandum, except as described in the Final Memorandum, (i) none
of Leslie's California, any of the Existing Subsidiaries or, to the knowledge of
Leslie's Delaware, Poolmart has and, at and as of the Effective Time, the Issuer
will not have incurred any liabilities or obligations, direct or contingent, or
entered into or agreed to enter into any transactions or contracts (written or
oral) not in the ordinary course of business, which liabilities, obligations,
transactions or contracts would, individually or in the aggregate, be material
to the general affairs, management, business, condition (financial or
otherwise), prospects or results of operations of such person, (ii) none of
Leslie's California, any of the Existing Subsidiaries or, to the knowledge of
Leslie's Delaware, Poolmart has and, at and as of the Effective Time, the Issuer
will not have purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its capital stock
and (iii) there shall not have been any change in the capital stock or long-term
indebtedness of Leslie's California, any of the Existing Subsidiaries or, to the
knowledge of Leslie's Delaware, Poolmart and, immediately after the Effective
Time, of the Issuer.
(q) Each of Leslie's California, the Existing Subsidiaries and, to the
knowledge of Leslie's Delaware, Poolmart has filed all necessary federal, state
and foreign income and franchise tax returns, except where the failure to so
file such returns would not, individually or in the aggregate, have a Material
Adverse Effect, and has paid all taxes shown as due thereon; and other than tax
deficiencies which Leslie's California, any of the Existing Subsidiaries or, to
the knowledge of Leslie's Delaware, Poolmart is contesting in good faith and for
which it has provided reserves in accordance with generally accepted accounting
principles, there is no tax deficiency that has been asserted against Leslie's
California, any of the Existing Subsidiaries or, to the knowledge of Leslie's
Delaware, Poolmart or, at and as of the Effective Time, the Issuer that would
have, individually or in the aggregate, a Material Adverse Effect.
(r) Forward-looking statements in the Final Memorandum are based on
assumptions that Leslie's Delaware believes and, at and as of the Effective
Time, the Issuer will believe to be reasonable. The statistical and market-
related data in-
<PAGE>
-13-
cluded in the Final Memorandum are based on or derived from sources which
Leslie's Delaware believes and, at and as of the Effective Time, the Issuer,
will believe to be reliable and accurate.
(s) None of Leslie's California, any of the Existing Subsidiaries or,
to the knowledge of Leslie's Delaware, Poolmart has taken or, at and as of the
Effective Time, the Issuer, or any agent acting on their behalf will take any
action that might cause this Agreement or the sale of the Notes to violate
Regulation G, T, U or X of the Board of Governors of the Federal Reserve System,
in each case as in effect, or as the same may hereafter be in effect, on the
Closing Date.
(t) Each of Leslie's California and the Existing Subsidiaries and, to
the knowledge of Leslie's Delaware, Poolmart has and, at and as of the Effective
Time, the Issuer will have good and marketable title to all real property and
good title to all personal property described in the Final Memorandum as being
owned by it and good and marketable title to a leasehold estate in the real and
personal property described in the Final Memorandum as being leased by it free
and clear of all liens, charges, encumbrances or restrictions, except as
described in the Final Memorandum or to the extent the failure to have such
title or the existence of such liens, charges, encumbrances or restrictions
would not, individually or in the aggregate, have a Material Adverse Effect. All
leases, contracts and agreements to which Leslie's California, any of the
Existing Subsidiaries or, to the knowledge of Leslie's Delaware, Poolmart is or,
at and as of the Effective Time, the Issuer will be a party or by which any of
them is bound or will be bound, are valid and enforceable against such person,
and are valid and enforceable against the other party or parties thereto and, to
the knowledge of Leslie's Delaware, are in full force and effect with only such
exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect. Each of Leslie's California, the Existing Subsidiaries and, to
the knowledge of Leslie's Delaware, Poolmart owns or possesses and, at and as of
the Effective Time, the Issuer will own or possess adequate licenses or other
rights to use all patents, trademarks, service marks, trade names, copyrights
and know-how necessary to conduct the businesses now operated, or proposed to be
operated, by them as described in the Final Memorandum, except where the failure
to own or possess such licenses or other rights would not, individually or in
the aggregate, have a Material Adverse Effect, and none of Leslie's California,
any of the Existing Subsidiaries or, to the knowledge of Leslie's Delaware,
Poolmart has received any written notice of infringe-
<PAGE>
-14-
ment of or conflict with (or knows of any such infringement of or conflict with)
asserted rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how which, if such assertion of
infringement or conflict were sustained, would have a Material Adverse Effect.
(u) There are no legal or governmental proceedings involving or
affecting Leslie's California, any of the Existing Subsidiaries or, to the
knowledge of Leslie's Delaware, Poolmart or, at and as of the Effective Time,
the Issuer or any of their respective properties or assets that would be
required to be described in a prospectus pursuant to the Act that are not
described in the Final Memorandum, nor are there any material Contracts or other
documents that would be required to be described in a prospectus pursuant to the
Act that are not described in the Final Memorandum.
(v) Except as would not, individually or in the aggregate, have a
Material Adverse Effect (i) each of Leslie's California, the Existing
Subsidiaries and, to the knowledge of Leslie's Delaware, Poolmart is and, at and
as of the Effective Time, the Issuer will be in compliance with and not subject
to liability under applicable Environmental Laws (as defined below), (ii) each
of Leslie's California, the Existing Subsidiaries and, to the knowledge of
Leslie's Delaware, Poolmart has made and, at and as of the Effective Time, the
Issuer will have made all filings and provided all notices required under any
applicable Environmental Law, and has and is or, in the case of the Issuer, at
and as of the Effective Time, will have and will be in compliance with all
Permits required under any applicable Environmental Laws and each of them is or,
in the case of the Issuer, at and as of the Effective Time, will be in full
force and effect, (iii) there is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation, proceeding,
notice or demand letter or request for information pending against Leslie's
California or any of the Existing Subsidiaries or, to the knowledge of Leslie's
Delaware, Poolmart or, to the knowledge of Leslie's Delaware, threatened against
Poolmart, Leslie's California, any of the Existing Subsidiaries or, at and as of
the Effective Time, the Issuer under any Environmental Law, (iv) no lien,
charge, encumbrance or restriction has been recorded under any Environmental Law
with respect to any assets, facility or property owned, operated, leased or
controlled by Leslie's California, any of the Existing Subsidiaries or, to the
knowledge of Leslie's Delaware, Poolmart or, at and as of the Effective Time,
the Issuer, (v) none of Leslie's California, the Existing Subsidiaries or, to
the knowledge of Leslie's Delaware, Poolmart
<PAGE>
-15-
has received written notice that it has been identified as a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), or any comparable state law,
------
(vi) no property or facility of Leslie's California, any of the Existing
Subsidiaries or, to the knowledge of Leslie's Delaware, Poolmart is (A) listed
or proposed for listing on the National Priorities List under CERCLA or (B)
listed in the Comprehensive Environmental Response, Compensation, Liability
Information System List promulgated pursuant to CERCLA, or on any comparable
list maintained by any state or local governmental authority.
For purposes of this Agreement, "Environmental Laws" means the common
------------------
law and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder, relating to pollution or to the protection of public or
employee health and safety or the environment, including, without limitation,
laws relating to (x) emissions, discharges, releases or threatened releases of
Hazardous Materials (as defined below) into the environment (including, without
limitation, ambient air, surface water, ground water, land surface or subsurface
strata), (y) the manufacture, processing, distribution, use, generation,
treatment, storage, disposal, transport or handling of Hazardous Materials and
(z) underground and above-ground storage tanks and related piping, and
emissions, discharges, releases or threatened releases therefrom. "Hazardous
---------
Materials" means any material, substance, chemical or waste that is listed,
- ---------
defined or otherwise referred to as hazardous, toxic or dangerous under
Environmental Laws.
(w) There is no strike, labor dispute, slowdown or work stoppage with
the employees of Leslie's California, any of the Existing Subsidiaries, or to
the knowledge of Leslie's Delaware, Poolmart or, at and as of the Effective
Time, the Issuer which is pending or, to the knowledge of Leslie's Delaware or,
at and as of the Effective Time, the Issuer, threatened.
(x) Each of Leslie's California, the Existing Subsidiaries and, to the
knowledge of Leslie's Delaware, Poolmart, carries, and, at and as of the
Effective Time, the Issuer will carry insurance in such amounts and covering
such risks as is adequate for the conduct of its business and the value of its
properties.
(y) None of Leslie's California, any of the Existing Subsidiaries or,
to the knowledge of Leslie's Delaware, Pool-
<PAGE>
-16-
mart has and, at and as of the Effective Time, the Issuer will not have any
material liability for any prohibited transaction or any liability for funding
deficiency or any complete or partial withdrawal liability with respect to any
pension, profit sharing or other plan which is subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), to which Leslie's
California, any of the Existing Subsidiaries or, to the knowledge of Leslie's
Delaware, Poolmart makes or, at and as of the Effective Time, the Issuer will
make or ever has made a contribution and in which any employee of any such
person is or has ever been a participant. With respect to such plans, each of
Leslie's California, the Existing Subsidiaries and, to the knowledge of Leslie's
Delaware, Poolmart is and, at and as of the Effective Time, the Issuer will be
in compliance in all respects with all applicable provisions of ERISA.
(z) Each of Leslie's California, the Existing Subsidiaries and, to the
knowledge of Leslie's Delaware, Poolmart and, at and as of the Effective Time,
the Issuer (i) makes and keeps or, in the case of the Issuer, will make and keep
accurate books and records and (ii) maintains or, in the case of the Issuer,
will maintain internal accounting controls which provide reasonable assurance
that (A) transactions are executed in accordance with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of its financial statements and to maintain accountability for its assets,
(C) access to its assets is permitted only in accordance with management's
authorization and (D) the reported accountability for its assets is compared
with existing assets at reasonable intervals.
(aa) None of Leslie's California, any of the Existing Subsidiaries
nor, to the knowledge of Leslie's Delaware, Poolmart is now and, after giving
effect to the Transactions, the Issuer will not be an "investment company" or
"promoter" or "principal underwriter" for an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(bb) No holder of securities of Leslie's California, any of the
Existing Subsidiaries or, to the knowledge of Leslie's Delaware, Poolmart, or,
at and as of the Effective Time, of the Issuer will be entitled to have such
securities registered under the registration statements required to be filed by
the Issuer pursuant to the Registration Rights Agreement, other than as
expressly permitted thereby.
<PAGE>
-17-
(cc) (i) Immediately after the consummation of the Transactions, the
fair value and present fair saleable value of the assets of the Issuer will
exceed the sum of its stated liabilities and identified contingent liabilities;
and (ii) neither Leslie's California or Leslie's Delaware is, nor will any of
them or the Issuer be, after giving effect to the execution, delivery and
performance of the Transaction Documents to which such person is a party and the
consummation of the transaction contemplated thereby, (A) left with unreasonably
small capital with which to carry on its business as it is proposed to be
conducted, (B) unable to pay its debts (contingent or otherwise) as they mature
or (C) otherwise insolvent.
(dd) None of Leslie's California, the Existing Subsidiaries, or to the
knowledge of Leslie's Delaware, Poolmart or any of their respective Affiliates
(as defined in Rule 501(b) of Regulation D under the Act) has and, at and as of
the Effective Time, neither the Issuer nor its Affiliates will have directly or
through any agent, (i) sold, offered for sale, solicited offers to buy or
otherwise negotiated in respect of, any "security" (as defined in the Act) which
is or could be integrated with the sale of the Notes in a manner that would
require the registration under the Act of the Notes or (ii) engaged in any form
of general solicitation or general advertising (as those terms are used in
Regulation D under the Act) in connection with the offering of the Notes or in
any manner involving a public offering within the meaning of Section 4(2) of the
Act. Assuming the accuracy of the representations and warranties of the Initial
Purchaser in Section 8 hereof, it is not necessary in connection with the offer,
sale and delivery of the Notes to the Initial Purchaser in the manner
contemplated by this Agreement to register any of the Notes under the Act or to
qualify the Indenture under the TIA.
(ee) At and as of the Effective Time, no securities of the Issuer are
of the same class (within the meaning of Rule 144A under the Act) as any of the
Notes, listed on a national securities exchange registered under Section 6 of
the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system.
(ff) None of Leslie's California and the Existing Subsidiaries or, to
the knowledge of Leslie's Delaware, Poolmart has taken, nor will any of them
take, directly or indirectly, and, at and as of the Effective Time, the Issuer
will not take, directly or indirectly, any action designed to, or that might be
reasonably expected to, cause or result in stabilization or manipulation of the
price of the Notes.
<PAGE>
-18-
(gg) None of Leslie's California, the Existing Subsidiaries or, to the
knowledge of Leslie's Delaware, Poolmart, any of their respective Affiliates
and, at and as of the Effective Time, the Issuer or any of its Affiliates, or
any person acting on behalf of any such person (other than the Initial
Purchaser) has engaged in any directed selling efforts (as that term is defined
in Regulation S under the Act) with respect to the Notes; none of Leslie's
California, the Existing Subsidiaries or, to the knowledge of Leslie's Delaware,
Poolmart, their respective Affiliates have and, at and as of the Effective Time,
the Issuer and its Affiliates, and any person acting on behalf of any such
person (other than the Initial Purchaser) will have taken any action that would
cause the sale of the Notes hereby to fail to comply with the offering
restrictions requirement of Regulation S.
(hh) Leslie's Delaware has delivered to the Initial Purchaser a true
and correct copy of each of the Other Transaction Documents that has been
executed and delivered prior to the date of this Agreement and each other Other
Transaction Document in the form substantially as it will be executed and
delivered on or prior to the Closing Date, together with all related agreements
and all schedules and exhibits thereto, and there shall have been no amendments,
alterations, modifications or waivers of any of the provisions of any of the
Other Transaction Documents since their respective dates of execution or from
the form in which it has been delivered to the Initial Purchaser, other than any
such amendments, alterations, modifications and waivers as to which the Initial
Purchaser has been advised in writing and which would not be required to be
disclosed in the Preliminary Memorandum or the Final Memorandum, as the case may
be; and to the knowledge of Leslie's Delaware there exists no event or condition
which would constitute a default or an event of default under any of the Other
Transaction Documents which would result in a Material Adverse Effect or
materially adversely affect the ability to consummate the transactions
contemplated by the Transaction Documents or the Final Memorandum.
At and as of the Effective Time, any certificate signed by any officer
of the Issuer and delivered to the Initial Purchaser or to counsel for the
Initial Purchaser shall be deemed a representation and warranty to the Initial
Purchaser as to the matters covered thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
----------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and condi-
<PAGE>
-19-
tions herein set forth, Leslie's Delaware and, at and as of the Effective Time,
the Issuer agrees to issue and sell to the Initial Purchaser, and the Initial
Purchaser agrees to purchase the Notes at 97% of their principal amount. One or
more certificates in global form for the Notes (the "Global Notes") and
------------
additional certificated Notes, if any (the "Certificated Notes"), that the
------------------
Initial Purchaser has agreed to purchase hereunder, each in such denomination or
denominations as the Initial Purchaser requests upon notice to Leslie's Delaware
at least 2 business days prior to the Closing Date, shall be registered, in the
case of the Global Notes, in the name of Cede & Co., the nominee for The
Depository Trust Company (the "DTC") and, in the case of the Certificated Notes,
---
if any, in such names as shall be requested by the Initial Purchaser, and in
each case, shall be delivered by or on behalf of Leslie's Delaware to the
Initial Purchaser, against payment by or on behalf of the Initial Purchaser to
the Issuer at the Closing Date of the purchase price therefor by wire transfer
(same day funds), net of the overnight cost of such funds, to such account or
accounts as Leslie's Delaware shall specify prior to the Closing Date, or by
such means as the parties hereto shall agree prior to the Closing Date. Such
delivery of and payment for the Notes shall be made at the offices of Gibson,
Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, California at 6:00
A.M., Los Angeles time, on June 11, 1997, or at such other place, time or date
as the Initial Purchaser, on the one hand, and Leslie's Delaware, on the other
hand, may agree upon, such time and date of delivery against payment being
herein referred to as the "Closing Date." Leslie's Delaware will make such
------------
Global Notes and Certificated Notes, if any, available for checking and
packaging by the Initial Purchaser at the offices of BT Securities Corporation
in New York, New York, or at such other place as BT Securities Corporation may
designate, at least 24 hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser proposes
---------------------------------
to make an offering of the Notes at the price and upon the terms set forth in
the Final Memorandum, as soon as practicable after this Agreement is entered
into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of Leslie's Delaware. Leslie's Delaware covenants and
------------------------------
agrees with the Initial Purchaser that:
(a) Leslie's Delaware and, at and as of the Effective Time, the Issuer
will not amend or supplement the Final Memorandum or any amendment or supplement
thereto of which the Initial Purchaser shall not previously have been advised
and
<PAGE>
-20-
furnished a copy for a reasonable period of time prior to the proposed amendment
or supplement and as to which the Initial Purchaser shall not have given its
consent. Leslie's Delaware will and, at and as of the Effective Time, the Issuer
will, promptly, upon the reasonable request of the Initial Purchaser or counsel
for the Initial Purchaser, make any amendments or supplements to the Preliminary
Memorandum or the Final Memorandum that may be necessary or advisable in
connection with the resale of the Notes by the Initial Purchaser.
(b) Leslie's Delaware will and, at and as of the Effective Time, the
Issuer will cooperate with the Initial Purchaser in arranging for the
qualification of the Notes for offering and sale under the securities or "Blue
Sky" laws of such jurisdictions as the Initial Purchaser may designate and will
continue such qualifications in effect for as long as may be necessary to
complete the resale of the Notes; provided, however, that in connection
-------- -------
therewith, neither Leslie's Delaware nor the Issuer shall be required to qualify
as a foreign corporation or to execute a general consent to service of process
in any jurisdiction or subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction where it is not then so subject.
(c) If, at any time prior to the completion of the distribution by the
Initial Purchaser of the Notes or the Private Exchange Notes, any event occurs
or information becomes known as a result of which the Final Memorandum as then
amended or supplemented would include any untrue statement of a material fact,
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
for any other reason it is necessary at any time to amend or supplement the
Final Memorandum to comply with applicable law, Leslie's Delaware and, at and as
of the Effective Time, the Issuer will promptly notify the Initial Purchaser
thereof and will prepare, at their expense, an amendment or supplement to the
Final Memorandum that corrects such statement or omission or effects such
compliance.
(d) Leslie's Delaware and, at and as of the Effective Time, the Issuer
will, without charge, provide to the Initial Purchaser and to counsel for the
Initial Purchaser as many copies of the Preliminary Memorandum and the Final
Memorandum or any amendment or supplement thereto as the Initial Purchaser may
reasonably request.
<PAGE>
-21-
(e) At and as of the Effective Time, the Issuer will apply the net
proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the
Final Memorandum.
(f) For so long as any of the Notes remain outstanding, the Issuer
will furnish to the Initial Purchaser copies of all reports and other
communications (financial or otherwise) furnished by the Issuer to the Trustee
or to the holders of the Notes and, as soon as available, copies of any reports
or financial statements furnished to or filed by the Issuer with the Commission
or any national securities exchange on which any class of securities of the
Issuer may be listed.
(g) Prior to the Closing Date, as soon as practicable after they have
been prepared, a copy of any unaudited interim consolidated financial statements
of Leslie's California, for any period subsequent to the period covered by the
most recent consolidated financial statements of Leslie's California appearing
in the Final Memorandum, shall be furnished by Leslie's California and Leslie's
Delaware to the Initial Purchaser.
(h) None of Poolmart, Leslie's California, Leslie's Delaware nor any
of their Affiliates will, and at and as of the Effective Time, the Issuer and
its Affiliates will not, sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any "security" (as defined in the Act) which
could be integrated with the sale of the Notes in a manner which would require
the registration under the Act of the Notes.
(i) Leslie's Delaware and, at and as of the Effective Time, the Issuer
will not engage in any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Act) in connection with the
offering of the Notes or in any manner involving a public offering within the
meaning of Section 4(2) of the Act.
(j) For so long as any of the Notes remain outstanding, the Issuer
will make available at its expense, upon request, to any holder of such Notes
and any prospective purchasers thereof the information specified in Rule
144A(d)(4) under the Act, unless the Issuer is then subject to Section 13 or
15(d) of the Exchange Act.
(k) Leslie's Delaware will and, at and as of the Effective Time, the
Issuer will use its reasonable best efforts to (i) permit the Notes to be
designated PORTAL securities in
<PAGE>
-22-
accordance with the rules and regulations adopted by the National Association of
Securities Dealers, Inc., relating to trading in the Private Offerings, Resales
and Trading through Automated Linkages market (the "PORTAL Market") and
-------------
(ii) permit the Notes to be eligible for clearance and settlement through DTC.
(l) Leslie's Delaware will do and perform all things required or
necessary to be done and performed by it under this Agreement prior to the
Closing Date and to satisfy all conditions precedent to the delivery of the
Notes.
(m) Leslie's California and Leslie's Delaware will do, or cause to be
done, and perform, or cause to be performed, all things required or necessary to
be done and performed by it or any of its respective subsidiaries (other than
any such things which have been waived or which would not have a Material
Adverse Effect) pursuant to the Other Transactions Documents.
(n) Leslie's Delaware and, at and as of the Effective Time, the Issuer
will not, claim voluntarily, and will resist actively any attempts to claim, the
benefit of any usury law against the holders of the Notes.
6. Expenses. Leslie's Delaware agrees, and at and as of the Effective
--------
Time, the Issuer will agree, to pay all costs and expenses incident to the
performance of their respective obligations under this Agreement, whether or not
the transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses
incident to (i) the printing, word processing or other production of documents
with respect to the transactions contemplated hereby, including any costs of
printing the Preliminary Memorandum and the Final Memorandum and any amendment
or supplement thereto, and any "Blue Sky" memoranda, (ii) all arrangements
relating to the delivery to the Initial Purchaser of copies of the foregoing
documents, (iii) the reasonable fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by Leslie's California
and Leslie's Delaware, and at and as of the Effective Time, the Issuer,
(iv) preparation (including printing), issuance and delivery to the Initial
Purchaser of the Notes, (v) the qualification of the Notes under state
securities and "Blue Sky" laws, including filing fees and fees and disbursements
of counsel for the Initial Purchaser relating thereto, (vi) expenses in
connection with any meetings with prospective investors in the Notes, (vii) fees
and expenses of the Trustee including
<PAGE>
-23-
fees and expenses of its counsel, (viii) all expenses and listing fees incurred
in connection with the application for quotation of the Notes on the PORTAL
Market, (ix) any fees charged by investment rating agencies for the rating of
the Notes, (x) the cost of a same day loan in the amount of the net proceeds of
the offering of the Notes and (xi) any other costs and expenses as have been
agreed to between the parties hereto. If the sale of the Notes provided for
herein is not consummated because any condition to the obligations of the
Initial Purchaser set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated or because of any failure, refusal or inability on the
part of Leslie's California or Leslie's Delaware, and at and as of the Effective
Time, the Issuer, to perform all obligations and satisfy all conditions on its
part to be performed or satisfied hereunder (other than solely by reason of a
default by the Initial Purchaser of its obligations hereunder after all
conditions hereunder have been satisfied in accordance herewith), Leslie's
Delaware agrees to promptly reimburse the Initial Purchaser upon demand for all
reasonable out-of-pocket expenses (including reasonable fees, disbursements and
charges of Cahill Gordon & Reindel, counsel for the Initial Purchaser) that
shall have been incurred by the Initial Purchaser in connection with the
proposed purchase and sale of the Notes.
7. Conditions of the Initial Purchaser's Obligations. The obligation
-------------------------------------------------
of the Initial Purchaser to purchase and pay for the Notes shall, in its sole
discretion, be subject to the satisfaction or waiver of the following conditions
on or prior to the Closing Date:
(a) On the Closing Date, the Initial Purchaser shall have received the
opinions, dated as of the Closing Date and addressed to the Initial Purchaser,
of Gibson, Dunn & Crutcher LLP, counsel for Leslie's California and Leslie's
Delaware and, at and as of the Effective Time, the Issuer, as to the matters set
forth in clauses (iii), (v), (vi), (vii), (viii), (x), (xi), (xiv), (xvii),
(xix), (xx), (xxi) and (xxii) below, and Cynthia G. Watts, General Counsel of
Leslie's California and, at and as of the Effective Time, of the Issuer, as to
the matters set forth in clauses (i), (ii), (iv), (ix), (xii), (xiii), (xv),
(xvi) and (xviii), in each case in form and substance satisfactory to counsel
for the Initial Purchaser, to the effect that:
(i) Each of the Issuer and the Subsidiaries is duly incorporated,
validly existing and in good standing under the laws of its respective
jurisdiction of incorpo-
<PAGE>
-24-
ration and has all requisite corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the Final
Memorandum. Each of the Issuer and the Subsidiaries is duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate, have
a Material Adverse Effect.
(ii) The Issuer has the authorized, issued and outstanding
capitalization set forth in the Final Memorandum; all of the outstanding
shares of capital stock of the Issuer and the Subsidiaries have been duly
authorized and validly issued, are fully paid and nonassessable and were not
issued in violation of any preemptive or similar rights; all of the
outstanding shares of capital stock of the Subsidiaries are owned, directly
or indirectly, by the Issuer, free and clear of all liens, encumbrances,
equities and claims or restrictions on transferability or voting, except
liens securing indebtedness under the Credit Agreement.
(iii) The statements set forth under the captions "Description of
Notes", "Exchange Offer; Registration Rights", "Stockholders Agreement"
under the caption "Certain Relationships and Related Transactions" and
"Preferred Stock Financing" and Bank Facility" under the caption
"Description of Financing Transactions" in the Final Memorandum, insofar as
such statements purport to summarize certain provisions of the Indenture,
the Notes, the Exchange Notes, the Private Exchange Notes, the Registration
Rights Agreement, the Stockholders and Subscription Agreement, the Preferred
Stock Purchase Agreement and the Credit Agreement, constitute a fair summary
of such provisions.
(iv) Except as set forth in the Final Memorandum (A) no options,
warrants or other rights to purchase from the Issuer or any of the
Subsidiaries' shares of capital stock or ownership interests in the Issuer
or any of the Subsidiaries are outstanding, (B) no agreements or other
obligations of the Issuer or any Subsidiary to issue, or other rights to
cause the Issuer or any Subsidiary to convert, any obligation into, or
exchange any securities for, shares of capital stock or ownership interests
in the Issuer or any Subsidiary are outstanding and (C) no holder
<PAGE>
-25-
of securities of the Issuer or any Subsidiary is entitled to have such
securities registered under a registration statement filed pursuant to the
Registration Rights Agreement.
(v) The Issuer has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Indenture,
the Notes, the Exchange Notes and the Private Exchange Notes; the Indenture
has been duly and validly authorized by the Issuer and, when duly executed
and delivered by the Issuer (assuming the due authorization, execution and
delivery thereof by the Trustee), will constitute the valid and legally
binding agreement of the Issuer, enforceable against the Issuer in
accordance with its terms, except that the enforcement thereof may be
subject to limitations imposed by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances or
transfer or preferential transfers and (ii) general principles of equity,
whether considered at law or at equity.
(vi) The Notes have been duly authorized by the Issuer and, when
executed and authenticated in accordance with the provisions of the
Indenture and delivered to and paid for by the Initial Purchaser in
accordance with the terms of this Agreement (assuming the due authorization,
execution and delivery of the Indenture by the Trustee and due
authentication and delivery of the Notes by the Trustee in accordance with
the Indenture), will constitute legal, valid and binding obligations of the
Issuer, entitled to the benefits of the Indenture, and enforceable against
the Issuer in accordance with their terms, except that the enforcement
thereof may be subject to limitations imposed by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally, including,
without limitation, the effect of statutory or other laws regarding
fraudulent conveyances or transfers or preferential transfers and
(ii) general principles of equity, whether considered at law or at equity.
(vii) The Exchange Notes and the Private Exchange Notes have been duly
authorized by the Issuer, and when the Exchange Notes and the Private
Exchange Notes have been executed and authenticated in accordance with the
<PAGE>
-26-
provisions of the Indenture and delivered by the Issuer in accordance with
the terms of the Registration Rights Agreement and the Indenture (assuming
the due authorization, execution and delivery of the Indenture by the
Trustee and due authentication and delivery of the Exchange Notes and the
Private Exchange Notes by the Trustee in accordance with the Indenture),
will constitute legal, valid and binding obligations of the Issuer, entitled
to the benefits of the Indenture, and enforceable against the Issuer in
accordance with their terms, except that the enforcement thereof may be
subject to limitations imposed by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting creditors' rights generally, including, without limitation, the
effect of statutory or other laws regarding fraudulent conveyances or
transfers or preferential transfers and (ii) general principles of equity,
whether considered at law or at equity.
(viii) The Issuer has all requisite corporate power and authority to
execute, deliver and perform its obligations under the Registration Rights
Agreement; the Registration Rights Agreement has been duly and validly
authorized by the Issuer and, when duly executed and delivered by the Issuer
(assuming due authorization, execution and delivery thereof by the Initial
Purchaser), will constitute the legal, valid and binding agreement of the
Issuer, enforceable against the Issuer in accordance with its terms, except
that (A) the enforcement thereof may be subject to limitations imposed by
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect affecting creditors' rights
generally, including, without limitation, the effect of statutory or other
laws regarding fraudulent conveyances or transfers or preferential transfers
and (ii) general principles of equity, whether considered at law or at
equity and (B) any rights to indemnity or contribution thereunder may be
limited by federal and state securities laws and public policy
considerations.
(ix) The Issuer has all requisite corporate power and authority to
perform its obligations under this Agreement and to consummate the
transactions contemplated hereby; the consummation by the Issuer of the
transactions contemplated hereby have been duly and validly authorized by
the Issuer. This Agreement has been duly executed and delivered by Leslie's
Delaware.
<PAGE>
-27-
(x) The Issuer has all requisite corporate power and authority to
execute, deliver and perform its obligations under each of the Other
Transaction Documents to which it is a party; each of the Other Transaction
Documents has been duly and validly authorized by the Issuer and, when duly
executed and delivered by the Issuer (assuming due authorization, execution
and delivery thereof by the other parties thereto), will constitute the
valid and legally binding agreements of the Issuer, enforceable against the
Issuer in accordance with its terms, except that (A) the enforcement thereof
may be subject to limitation imposed by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect affecting creditors' rights generally, including,
without limitation, the effect of statutory or other laws regarding
fraudulent conveyances or transfers or preferential transfers and (ii)
general principles of equity, whether considered at law or at equity and (B)
any rights to indemnity or contribution thereunder may be limited by federal
and state securities laws and public policy considerations.
(xi) The Merger Transaction has been approved by the shareholders of
Leslie's California. Any applicable waiting period under the HSR Act has
expired or early termination has been granted, and each of the
Reincorporation Merger and the Recapitalization Merger has become effective
in accordance with the laws of the States of California and Delaware.
(xii) No legal or governmental proceedings are pending or, to the
knowledge of such counsel, threatened to which the Issuer or any of the
Subsidiaries is a party or to which any of their respective properties or
assets is subject which, if determined adversely to the Issuer or the
Subsidiaries, would result, individually or in the aggregate, in a Material
Adverse Effect, or which seeks to restrain, enjoin, prevent the consummation
of or otherwise challenge the issuance or sale of the Notes to be sold
hereunder or the consummation of the other transactions described in the
Final Memorandum under the caption "Use of Proceeds."
(xiii) The execution and delivery by the Issuer of the Indenture and
the Registration Rights Agreement and the consummation of the transactions
contemplated hereby and thereby (including, without limitation, the issuance
and sale of the Notes to the Initial Purchaser), the exe-
<PAGE>
-28-
cution, delivery and performance by the Issuer of the Other Transaction
Documents and the consummation of the Transactions will not conflict with or
constitute or result in a breach or a default under (or an event which with
notice or passage of time or both would constitute a default under) or
violation of any of (i) the terms or provisions of any Contract known to
such counsel (including in any event any of the foregoing which have been
filed by or on behalf of the Issuer with the Commission), except for any
such conflict, breach, violation, default or event which would not,
individually or in the aggregate, have a Material Adverse Effect, (ii) the
certificate of incorporation or bylaws (or similar organizational document)
of the Issuer or any of the Subsidiaries, or (iii) (assuming compliance with
all applicable state securities or "Blue Sky" laws and assuming the accuracy
of the representations and warranties of the Initial Purchaser in Section 8
hereof) any statute, judgment, decree, order, rule or regulation known to
such counsel to be applicable to the Issuer or any of the Subsidiaries or
any of their respective properties or assets, except for any such conflict,
breach or violation which would not, individually or in the aggregate, have
a Material Adverse Effect.
(xiv) After giving effect to the Transactions, none of the Issuer or
any of the Subsidiaries is (i) in violation of its certificate of
incorporation (or similar organizational document), (ii) to the knowledge of
such counsel, in breach or violation of any statute, judgment, decree,
order, rule or regulation applicable to any of them or any of their
respective properties or assets, except for any such breach or violation
which would not, individually or in the aggregate, have a Material Adverse
Effect, or (iii) to the knowledge of such counsel, in breach or default
under or in violation of any of the terms or provisions of any Contract
known to such counsel (including in any event any of the foregoing which
have been filed by or on behalf of the Issuer with the Commission), except
for any such breach, default, violation or event which would not,
individually or in the aggregate, have a Material Adverse Effect.
(xv) The Issuer and the Subsidiaries have obtained all Permits
necessary to conduct the businesses now conducted by them as described in
the Final Memorandum, except for the failure to obtain any such as would
not, individually or in the aggregate, have a Material Adverse Effect; each
of the Issuer and the Subsidiaries has ful-
<PAGE>
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filled and performed all of its obligations with respect to such Permits and
to the knowledge of such counsel no event has occurred which allows, or
after notice or lapse of time would allow, revocation or termination thereof
or results in any other material impairment of the rights of the holder of
any such Permit, except where the failure to so fulfill or perform would not
have a Material Adverse Effect.
(xvi) To the knowledge of such counsel, the Issuer and the
Subsidiaries own or possess adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how
necessary to conduct the businesses now operated by them as described in the
Final Memorandum, except where the failure to own or possess any such would
not have a Material Adverse Effect, and none of the Issuer or any of the
Subsidiaries has received any notice of infringement of or conflict with
asserted rights of others with respect to any patents, trademarks, service
marks, trade names, copyrights or know-how which, if such assertion of
infringement or conflict were sustained, would have a Material Adverse
Effect.
(xvii) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, no consent, approval,
authorization or order of any governmental authority is required for (i) the
issuance and sale by the Issuer of the Notes to the Initial Purchaser or the
consummation by the Issuer of the other transactions contemplated hereby and
by the other Offering Documents and (ii) the consummation by the Issuer of
the transactions contemplated by the Other Transaction Documents, except (A)
such as may be required under Blue Sky laws, as to which such counsel need
express no opinion, (B) the filings of the Reincorporation Merger Agreement
with each of the Secretary of State of the State of California and the
Secretary of State of the State of Delaware, (C) the filing of the
Recapitalization Merger Agreement with the Secretary of State of the State
of Delaware and (D) those which have previously been obtained, including,
without limitation, those pursuant to the HSR Act.
(xviii) To the knowledge of such counsel, there are no legal or
governmental proceedings involving or affecting the Issuer or any of the
Subsidiaries or any of their respective properties or assets which would be
required to be described in a prospectus pursuant to the Act that are
<PAGE>
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not described in the Final Memorandum, nor are there any material contracts
or other documents which would be required to be described in a prospectus
pursuant to the Act that are not described in the Final Memorandum.
(xix) None of the Issuer or any of the Subsidiaries is, or immediately
after the sale of the Notes to be sold hereunder and the application of the
proceeds from such sale (as described in the Final Memorandum under the
caption "Use of Proceeds") will be, an "investment company", as such term is
defined in the Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
(xx) No registration under the Act of the Notes is required in
connection with the sale of the Notes to the Initial Purchaser as
contemplated by this Agreement and the Final Memorandum or in connection
with the initial resale of the Notes by the Initial Purchaser in accordance
with Section 8 of this Agreement, and prior to the commencement of the
Exchange Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Registration Statement (as defined in the Registration
Rights Agreement), the Indenture is not required to be qualified under the
TIA, in each case assuming (i) (A) that the purchasers who buy such Notes in
the initial resale thereof are QIBs or Accredited Investors or (B) that the
offer or sale of the Notes is made in compliance with an offshore
transaction as defined in Regulation S promulgated under the Act, (ii) the
accuracy of the Initial Purchaser's representations and warranties in
Section 8 hereof and those of Leslie's Delaware and, at and as of the
Effective Time, the Issuer contained in this Agreement, including regarding
the absence of a general solicitation in connection with the sale of such
Notes to the Initial Purchaser and the initial resale thereof and (iii) the
due performance by the Initial Purchaser of the agreements set forth in
Section 8 hereof.
(xxi) Neither the consummation of the transactions contemplated by
this Agreement nor the sale, issuance, execution or delivery of the Notes
will violate Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
(xxii) The execution and delivery by the Issuer of the Offering
Documents and the consummation by the Issuer of the transactions
contemplated thereby will not conflict
<PAGE>
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with or constitute or result in a breach or default under (or an event
which with notice or passage of time or both would constitute a default
under) or violation of any of the terms or provisions of (i) the Amended and
Restated Certificate of Incorporation of the Issuer or (ii) any of the Other
Transaction Documents, except for any such breach, violation, default or
event which would not, individually or in the aggregate, have a Material
Adverse Effect.
At the time each of the foregoing opinions is delivered, such counsel
shall additionally state that it has participated in conferences with officers
and other representatives of Poolmart, Leslie's California and the Existing
Subsidiaries, representatives of the independent public accountants for Leslie's
California, representatives of the Initial Purchaser and counsel for the Initial
Purchaser, at which conferences the contents of the Final Memorandum and related
matters were discussed, and, although it has not independently verified and is
not passing upon and assumes no responsibility for the accuracy, completeness or
fairness of the statements contained in the Final Memorandum (except to the
extent specified in subsection 7(a)(iii)), no facts have come to its attention
which lead it to believe that the Final Memorandum, on the date thereof or at
the Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading (it being understood that such counsel need not
express any opinion with respect to the financial statements and related notes
thereto and the other financial, statistical and accounting data included in the
Final Memorandum). The opinions described in this Section shall be rendered to
the Initial Purchaser at the request of the Issuer, and shall so state therein.
In rendering the foregoing opinions, such counsel may (i) state that
their opinion is limited to matters governed by the federal laws of the United
States of America and the corporate laws of the State of California and the
State of Delaware, and (ii) rely, to the extent such counsel deems proper, upon
the representations set forth herein and on certificates of public officials and
officers of Leslie's Delaware and, at and as of the Effective Time, the Issuer
with respect to the accuracy of factual matters contained therein which were not
independently established.
<PAGE>
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References to the Final Memorandum in this subsection (a) shall
include any amendment or supplement thereto prepared in accordance with the
provisions of this Agreement at the Closing Date.
(b) On the Closing Date, the Initial Purchaser shall have received the
opinion, in form and substance satisfactory to the Initial Purchaser, dated as
of the Closing Date and addressed to the Initial Purchaser, of Cahill Gordon &
Reindel, counsel for the Initial Purchaser, with respect to certain legal
matters relating to this Agreement and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, Cahill Gordon &
Reindel shall have received and may rely upon such certificates and other
documents and information as it may reasonably request to pass upon such
matters.
(c) At the Special Meeting of Shareholders of Leslie's California held
on June 10, 1997, the requisite number of shareholders of Leslie's California
shall have approved, among other things, the Merger Transaction, as contemplated
by the Proxy Statement.
(d) All material conditions to the consummation of the Merger
Transaction shall have been satisfied, and each of the Reincorporation Merger
and the Recapitalization Merger shall have become effective under the laws of
the State of Delaware and the State of California. Since the date of this
Agreement, except as previously disclosed to the Initial Purchaser and
reasonably acceptable to it, there have been no amendments, modifications,
restatements or waivers to the Merger Agreements that, individually or in the
aggregate, could have a Material Adverse Effect, or (assuming the Closing were
to occur) materially adversely affect the holders of the Notes, or materially
adversely affect the ability of the parties thereto to consummate the Merger
Transaction, or which would be required to be disclosed in the Final Memorandum
and are not so disclosed.
(e) All material conditions to the consummation of the transactions
contemplated by each of the Other Transaction Documents (other than the Merger
Agreements) shall have been satisfied (including, without limitation, the filing
of the Certificate of Designation, Preferences and Rights of Series A
Exchangeable Cumulative Redeemable Preferred Stock and any other corporate
documents). Each of such transactions, including, without limitation,
(i) aggregate commitments under the Bank Facility of not less than $35.0
million; (ii) the GEI Eq-
<PAGE>
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uity Investment in an amount of not less than $15.3 million; (iii) the
Continuing Shares which shall account for $5.2 million in excused payment of
merger consideration; (iv) the issuance of the Subscription Stock in an amount
of not less than $.275 million; and (v) the issuance to Occidental of the Series
A Preferred and the Warrants for aggregate consideration consisting of the
exchange of $10,000,000 in aggregate principal amount of the Occidental Notes
and $18.0 million (less accrued interest on the Occidental Notes) in cash shall,
in each case, be consummated concurrently with the purchase and sale of the
Notes. Since the date of this Agreement, except as previously disclosed to the
Initial Purchaser and reasonably acceptable to it, no changes to the terms of
any of the Other Transaction Documents (other than the Merger Agreements and
certificates referred to in subsection (d) above) or any agreement or
instruments related thereto, have been made to such Other Transaction Documents
from the forms thereof provided to the Initial Purchaser that, individually or
in the aggregate, could have a Material Adverse Effect, or (assuming the Closing
were to occur) would materially adversely affect the holders of the Notes, or
materially adversely affect the ability of the parties thereto to consummate the
transaction contemplated by each of the Other Transaction Documents, or which
would be required to be disclosed in the Final Memorandum and are not so
disclosed. Any changes to any of the terms and conditions of each of the
securities of the Issuer to be issued pursuant to the terms of any of the Other
Transaction Documents shall have been on terms reasonably satisfactory to the
Initial Purchaser.
(f) Any applicable waiting period under the HSR Act shall have expired
or early termination shall have been granted.
(g) The Initial Purchaser shall have received from Arthur Andersen LLP
comfort letters dated the date hereof and the Closing Date, in form and
substance reasonably satisfactory to counsel for the Initial Purchaser.
(h) The representations and warranties of Leslie's California and
Leslie's Delaware contained in this Agreement shall be true and correct on and
as of the date hereof and on and as of the Closing Date as if made on and as of
the Closing Date; the statements of officers of Leslie's California and Leslie's
Delaware and, at and as of the Effective Time, the Issuer made pursuant to any
certificate delivered in accordance with the provisions hereof shall be true and
correct in all material respects on and as of the date made and on and as of the
Closing Date or the Effective Time, as the case may be; Les-
<PAGE>
-34-
lie's Delaware shall have performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied hereunder at or prior to
the Closing Date and the Issuer shall have performed all covenants and
agreements and satisfied all conditions on its part to be performed or satisfied
hereunder at and as of the Effective Time; and, except as described in the Final
Memorandum (exclusive of any amendment or supplement thereto after the date
hereof) subsequent to the date of the most recent financial statements in such
Final Memorandum, there shall have been no event or development, and no
information shall have become known, that, individually or in the aggregate, has
or would be reasonably likely to have a Material Adverse Effect.
(i) The sale of the Notes hereunder shall not be enjoined (temporarily
or permanently) on the Closing Date.
(j) Subsequent to the date of the most recent financial statements in
the Final Memorandum (exclusive of any amendment or supplement thereto after the
date hereof), none of Leslie's California, any of the Existing Subsidiaries or,
to the knowledge of Leslie's Delaware, Poolmart or, at and as of the Effective
Time, the Issuer shall have sustained any loss or interference with respect to
its business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any strike, labor
dispute, slow down or work stoppage or from any legal or governmental
proceeding, order or decree, which loss or interference, individually or in the
aggregate, has or would be reasonably likely to have a Material Adverse Effect.
(k) The Initial Purchaser shall have received a certificate of the
Issuer, dated the Closing Date, signed on behalf of the Issuer by its Chairman
of the Board, President or any Senior Vice President and the Chief Financial
Officer, to the effect that:
(i) After giving effect to the Transactions, the representations and
warranties of the Issuer contained in this Agreement are true and correct on
and as of the date hereof and on and as of the Closing Date, and the Issuer
has performed all covenants and agreements and satisfied all conditions on
its part to be performed or satisfied hereunder and, without duplication of
the aforementioned, that the conditions set forth in Sections 7(c), (d), (e)
and (f) have been satisfied, at or prior to the Closing Date;
<PAGE>
-35-
(ii) At the Closing Date, since the date hereof or since the date of
the most recent financial statements in the Final Memorandum (exclusive of
any amendment or supplement thereto after the date hereof), (A) no event or
development has occurred, and no information has become known, that,
individually or in the aggregate, has or would be reasonably likely to have
a Material Adverse Effect and (B) the sale of the Notes hereunder has not
been enjoined (temporarily or permanently).
(l) On the Closing Date, the Initial Purchaser shall have received the
Registration Rights Agreement executed by the Issuer and such agreement shall be
in full force and effect at all times from and after the Closing Date.
On or before the Closing Date, the Initial Purchaser and counsel for
the Initial Purchaser shall have received such further documents, certificates,
letters and schedules or instruments relating to the business, corporate, legal
and financial affairs of Poolmart, Leslie's California and the Existing
Subsidiaries as they shall have heretofore reasonably requested.
All such documents, opinions, certificates, letters, schedules or
instruments delivered pursuant to this Agreement will comply with the provisions
hereof only if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Issuer shall
furnish to the Initial Purchaser such conformed copies of such documents,
opinions, certificates, letters, schedules and instruments in such quantities as
the Initial Purchaser shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. (a) The Initial
-------------------------------------------
Purchaser represents and warrants that it is a QIB. The Initial Purchaser agrees
with Leslie's Delaware and, at and as of the Effective Time, the Issuer that
(i) it has not solicited and will not solicit offers for, or offer or sell, the
Notes by any form of general solicitation or general advertising (as those terms
are used in Regulation D under the Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Act; and (ii) it has
solicited and will solicit offers for the Notes only from, and will offer the
Notes only to (A) in the case of offers inside the United States, (x) persons
whom the Initial Purchaser reasonably believes to be QIBs or, if any such person
is buying for one or more institutional accounts for which such person is acting
as fiduciary or agent, only when such person has represented to
<PAGE>
-36-
the Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A, and, in
each case, in transactions under Rule 144A or (y) a limited number of other
institutional investors reasonably believed by the Initial Purchaser to be
Accredited Investors that, prior to their purchase of the Notes, deliver to the
Initial Purchaser a letter containing the representations and agreements set
forth in Appendix A to the Final Memorandum and (B) in the case of offers
outside the United States, to foreign purchasers; provided, however, that, in
-------- -------
the case of this clause (B), in purchasing such Notes such foreign purchasers
are deemed to have represented and agreed as provided under the caption
"Transfer Restrictions" contained in the Final Memorandum (or, if the Final
Memorandum is not in existence, in the most recent Memorandum).
(b) The Initial Purchaser represents and warrants with respect to
offers and sales outside the United States that (i) it has complied and will
comply with all applicable laws and regulations in each jurisdiction in which it
acquires, offers, sells or delivers Notes or has in its possession or
distributes any Memorandum or any such other material, in all cases at its own
expense; (ii) the Notes have not been and will not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Act or pursuant to an exemption from the
registration requirements of the Act; (iii) it has offered the Notes and will
offer and sell the Notes (A) as part of its distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering and the Closing Date, only in accordance with Rule 903 of Regulation S
and, accordingly, neither it nor any persons acting on its behalf have engaged
or will engage in any directed selling efforts (within the meaning of Regulation
S) with respect to the Notes, and any such persons have complied and will comply
with the offering restrictions requirement of Regulation S; (iv) it has (1) not
offered or sold and will not offer or sell in the United Kingdom, by means of
any document, any Notes other than to person whose ordinary business it is to
buy and sell shares or debentures, whether as a principal or agent, or in
circumstances which do not constitute an offer to the public with the meaning of
the Companies Act 1985, as amended, (2) complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Note in, from or otherwise involving the
United Kingdom, and (3) only issued or passed on and will only issue and pass on
to any person in the United Kingdom any document received by it in connection
with the issue of the Notes if
<PAGE>
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that person is of a kind described in Article 9(3) of the Financial Services Act
1986 (investment Advertisements) (Exemptions) Order 1988 or is a person to whom
the document may otherwise lawfully be issued or passed on; and (v) it agrees
that, at or prior to confirmation of sales of the Notes, it will have sent to
each distributor, dealer or person receiving a selling concession, fee or other
remuneration that purchases Notes from it during the restricted period a
confirmation or notice to substantially the following effect:
"The Notes covered hereby have not been registered under the United
States Notes Act of 1933 (the "Securities Act") and may not be offered
and sold within the United States or to, or for the account or benefit
of, U.S. persons (i) as part of the distribution of the Notes at any
time or (ii) otherwise until 40 days after the later of the
commencement of the offering and the closing date of the offering,
except in either case in accordance with Regulation S (or Rule 144A if
available) under the Securities Act. Terms used above have the meaning
given to them in Regulation S."
Terms used in this Section 8(b) and not defined in this Agreement have the
meanings given to them in Regulation S.
9. Indemnification and Contribution. (a) Leslie's Delaware and, at and
--------------------------------
as of the Effective Time, the Issuer agrees, to indemnify and hold harmless the
Initial Purchaser and the affiliates, directors, officers, agents,
representatives and employees of the Initial Purchaser or its affiliates, and
each other person, if any, who controls the Initial Purchaser within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities to which the Initial Purchaser or such other
person may become subject under the Act, the Exchange Act or otherwise, insofar
as any such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material
fact contained in any Memorandum or any amendment or supplement thereto or
any application or other document, or any amendment or supplement thereto,
executed by Leslie's California, Leslie's Delaware or the Issuer or based
upon written information furnished by or on behalf of Leslie's California,
Leslie's Delaware or the Issuer filed in any jurisdiction in order to
qualify the
<PAGE>
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Notes under the securities or "Blue Sky" laws thereof or filed with any
securities association or securities exchange (each an "Application"); or
-----------
(ii) the omission or alleged omission to state, in any Memorandum or
any amendment or supplement thereto or any Application, a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading,
and will reimburse, as incurred, the Initial Purchaser and each such other
person for any reasonable legal or other expenses incurred by the Initial
Purchaser or such other person in connection with investigating, defending
against or appearing as a third-party witness in connection with any such loss,
claim, damage, liability or action; provided, however, Leslie's Delaware or the
-------- -------
Issuer will not be liable in any such case to the extent that any such loss,
claim, damage, or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Memorandum or any amendment or supplement thereto or any Application in reliance
upon and in conformity with written information concerning the Initial Purchaser
furnished to Leslie's California or the Issuer by the Initial Purchaser
specifically for use therein. This indemnity agreement will be in addition to
any liability that Leslie's Delaware or the Issuer may otherwise have to the
indemnified parties. Leslie's Delaware or the Issuer shall not be liable under
this Section 9 for any settlement of any claim or action effected without their
prior written consent, which shall not be unreasonably withheld.
(b) The Initial Purchaser agrees to indemnify and hold harmless
Leslie's Delaware, the Issuer and their respective directors, officers and each
person, if any, who controls Leslie's Delaware or the Issuer within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which Leslie's Delaware, the Issuer or any
such director, officer or controlling person may become subject under the Act,
the Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in any Memorandum or any amendment or supplement thereto or any Application, or
(ii) the omission or the alleged omission to state therein a material fact
required to be stated in any Memorandum or any amendment or supplement thereto
or any Application, or necessary to make the
<PAGE>
-39-
statements therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information concerning the Initial Purchaser, furnished to Leslie's Delaware or
the Issuer by the Initial Purchaser specifically for use therein; and subject to
the limitation set forth immediately preceding this clause, will reimburse, as
incurred, any reasonable legal or other expenses incurred by Leslie's Delaware
or the Issuer or any such director, officer or controlling person in connection
with investigating or defending against or appearing as a third party witness in
connection with any such loss, claim, damage, liability or action in respect
thereof. This indemnity agreement will be in addition to any liability that the
Initial Purchaser may otherwise have to the indemnified parties. The Initial
Purchaser shall not be liable under this Section 9 for any settlement of any
claim or action effected without its consent, which shall not be unreasonably
withheld. Leslie's Delaware and the Issuer shall not, without the prior written
consent of the Initial Purchaser, effect any settlement or compromise of any
pending or threatened proceeding in respect of which the Initial Purchaser is or
could have been a party, or indemnity could have been sought hereunder by the
Initial Purchaser, unless such settlement (A) includes an unconditional written
release of the Initial Purchaser, in form and substance satisfactory to the
Initial Purchaser, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of the Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action for which such indemnified party
is entitled to indemnification under this Section 9, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof
in writing; but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and to the
extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and (b) above. In case any
such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein
<PAGE>
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and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if (i) the use
-------- -------
of counsel chosen by the indemnifying party to represent the indemnified party
would present such counsel with a conflict of interest, (ii) the defendants in
any such action include both the indemnified party and the indemnifying party
and the indemnified party shall have been advised in writing by counsel that
there may be one or more legal defenses available to it and/or other indemnified
parties that are different from or additional to those available to the
indemnifying party, or (iii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after receipt by the indemnifying
party of notice of the institution of such action, then, in each such case, the
indemnifying party shall not have the right to direct the defense of such action
on behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
behalf of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such indemnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated by the Initial
Purchaser in the case of paragraph (a) of this Section 9 or the Issuer in the
case of paragraph (b) of this Section 9, representing the indemnified parties
under such paragraph (a) or paragraph (b), as the case may be, who are parties
to such action or actions) or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the prior written consent of the indemnifying party (which consent shall
not
<PAGE>
-41-
be unreasonably withheld), unless such indemnified party waived in writing its
rights under this Section 9, in which case the indemnified party may effect such
a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 9 is unavailable to, or insufficient to
hold harmless, an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from the
offering of the Notes or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, not only such relative benefits but also
the relative fault of the indemnifying party or parties on the one hand and the
indemnified party on the other in connection with the statements or omissions or
alleged statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received by
the Issuer on the one hand and the Initial Purchaser on the other shall be
deemed to be in the same proportion as the total proceeds from the offering
(before deducting expenses) received by the Issuer bear to the total discounts
and commissions received by the Initial Purchaser. The relative fault of the
parties 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 Leslie's
Delaware or the Issuer on the one hand, or the Initial Purchaser on the other,
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission or alleged statement or
omission, and any other equitable considerations appropriate in the
circumstances. The parties agree that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocation or by any
other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Initial Purchaser
shall not be obligated to make contributions hereunder that in the aggregate
exceed the total discounts, commissions and other compensation received by the
Initial Purchaser under this Agreement, less the aggregate
<PAGE>
-42-
amount of any damages that the Initial Purchaser has otherwise been required to
pay by reason of the untrue or alleged untrue statements or the omissions or
alleged omissions to state a material fact, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act shall have the same rights to contribution as the
Initial Purchaser, and each director of Leslie's Delaware or the Issuer, each
officer of Leslie's Delaware or the Issuer and each person, if any, who controls
the Leslie's Delaware or the Issuer within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, shall have the same rights to contribution as
the Issuer.
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of Leslie's Delaware
and, at and as of the Effective Time, the Issuer, their respective officers and
the Initial Purchaser set forth in this Agreement or made by or on behalf of
them pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of Leslie's Delaware or
the Issuer, any of their respective officers or directors, the Initial Purchaser
or any controlling person referred to in Section 9 hereof and (ii) delivery of
and payment for the Notes. The respective agreements, covenants, indemnities and
other statements set forth in Sections 6, 9 and 15 hereof shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchaser by notice to Leslie's Delaware given prior
to the Closing Date in the event that Leslie's California or the Existing
Subsidiaries shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on their parts to be performed or
satisfied hereunder at or prior thereto or, if at or prior to the Closing Date:
(i) Leslie's California, any of the Existing Subsidiaries or Poolmart
shall have sustained any loss or interference with respect to its respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any strike, labor
dispute, slow down or work stoppage or any
<PAGE>
-43-
legal or governmental proceeding, which loss or interference, in the sole
judgment of the Initial Purchaser, has had or has a Material Adverse Effect,
or there shall have been, in the sole judgment of the Initial Purchaser, any
event or development that, individually or in the aggregate, has or could be
reasonably likely to have a Material Adverse Effect (including, without
limitation, a change in control of Leslie's California, any of the Existing
Subsidiaries, or Poolmart), except in each case as described in the Final
Memorandum (exclusive of any amendment or supplement thereto);
(ii) trading in securities generally on the New York Stock Exchange,
American Stock Exchange or the Nasdaq National Market System shall have been
suspended or minimum or maximum prices shall have been established on any
such exchange or market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities;
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, or (B) an
outbreak or escalation of any other insurrection or armed conflict involving
the United States or any other national or international calamity or
emergency, or (C) any material change in the financial markets of the United
States which, in the case of (A), (B) or (C) above and in the sole judgment
of the Initial Purchaser, makes it impracticable or inadvisable to proceed
with the offering or the delivery of the Notes as contemplated by the Final
Memorandum; or
(v) any securities of Leslie's California shall have been downgraded
or placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.
(b) Termination of this Agreement pursuant to this Section 11 shall be
without liability of any party to any other party except as provided in Section
10 hereof.
12. Information Supplied by the Initial Purchaser. The statements set
---------------------------------------------
forth in the last paragraph on the front cover page and in the second and third
sentences of the third paragraph under the heading "Private Placement" in the
Final Memorandum (to the extent such statements relate to the Initial Purchaser)
constitute the only information furnished by the
<PAGE>
-44-
Initial Purchaser to Leslie's Delaware for the purposes of Sections 2(a) and 9
hereof.
13. Notices. All communications hereunder shall be in writing and, if
-------
sent to the Initial Purchaser, shall be mailed or delivered to BT Securities
Corporation, 130 Liberty Street, New York, New York 10006, Attention: Corporate
Finance Department, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New
York, New York 10005, Attention: William M. Hartnett, Esq.; if sent to Leslie's
Delaware or the Issuer, shall be mailed or delivered to each such person at
20630 Plummer Street, Chatsworth, California 91311, Attention: Brian McDermott,
with a copy to Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles,
California 90071, Attention: Jennifer Bellah, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; and one business
day after being timely delivered to a next-day air courier.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchaser, Leslie's Delaware, the Issuer, and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that
(i) the indemnities of Leslie's Delaware and the Issuer contained in Section 9
of this Agreement shall also be for the benefit of the affiliates, directors,
officers, agents, representatives and employees of the Initial Purchaser or its
affiliates and any person or persons who control the Initial Purchaser within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act and
(ii) the indemnities of the Initial Purchaser contained in Section 9 of this
Agreement shall also be for the benefit of the affiliates, directors, officers,
agents, representatives and employees of Leslie's Delaware and the Issuer or
their respective affiliates and the directors of Leslie's Delaware and the
Issuer, its officers and any person or persons who control such companies within
the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Notes from the Initial Purchaser will be deemed a successor because
of such purchase.
<PAGE>
-45-
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
--------------
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY PROVISIONS
THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
LPM HOLDINGS, INC.
By: /s/ Brian P. McDermott
-----------------------
Name: Brian P. McDermott
Title: President & CEO
The foregoing Agreement is
hereby confirmed and accepted
as of the date first above
written.
BT SECURITIES CORPORATION
By: /s/ Kate W. Cook
-----------------
Name: Kate W. Cook
Title: Managing Director
<PAGE>
SCHEDULE 1
----------
Existing Subsidiaries
---------------------
<TABLE>
<CAPTION>
Jurisdiction of
Name Stockholder(s) Incorporation
---- -------------- ---------------
<S> <C> <C>
LPM Holdings, Inc. Leslie's Poolmart Delaware
Sandy's Pool Supply, Inc. Leslie's Poolmart California
Leslie's Pool Brite, Inc. Leslie's Poolmart California
</TABLE>
<PAGE>
SCHEDULE 2
----------
Subsidiaries of Leslie's Poolmart, Inc.
---------------------------------------
<TABLE>
<CAPTION>
Jurisdiction of
Name Stockholder(s) Incorporation
---- -------------- ---------------
<S> <C> <C>
Sandy's Pool Supply, Inc. Leslie's Poolmart, Inc. California
Leslie's Pool Brite, Inc. Leslie's Poolmart, Inc. California
</TABLE>
<PAGE>
EXHIBIT A
---------
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
<PAGE>
EXHIBIT 10.15
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of June 11, 1997
by and between
LESLIE'S POOLMART, INC.,
and
BT SECURITIES CORPORATION
(as Initial Purchaser)
================================================================================
$90,000,000
10-3/8% SENIOR NOTES DUE 2004
<PAGE>
This Registration Rights Agreement is dated as of June 11, 1997, by
and between Leslie's Poolmart, Inc., a Delaware corporation (the "Issuer") and
------
BT Securities Corporation (the "Initial Purchaser").
-----------------
This Agreement is made pursuant to the Purchase Agreement, dated June
6, 1997, between the Issuer and the Initial Purchaser (the "Purchase
--------
Agreement"). In order to induce the Initial Purchaser to enter into the
- ---------
Purchase Agreement, the Issuer has agreed to provide the registration rights
provided for in this Agreement to the Initial Purchaser and its direct and
indirect transferees and assigns. The execution and delivery of this Agreement
is a condition to the closing of the transactions contemplated by the Purchase
Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: As defined in Section 4(a) hereof.
-------------------
Affiliate: With respect to any specified person, "Affiliate" shall
---------
mean any other person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified person. For the
purposes of this definition, "control," when used with respect to any person,
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise and the terms "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
Agreement: This Registration Rights Agreement, as the same may be
---------
amended, supplemented or modified from time to time in accordance with the terms
hereof.
Business Day: Any day except a Saturday, a Sunday or a day on which
------------
banking institutions in New York, New York generally are required or authorized
by law or other government action to be closed.
Consummate or consummate: When used to qualify the term "Exchange
------------------------
Offer," shall mean validly and lawfully to issue and deliver the Exchange Notes
pursuant to the Exchange Offer
<PAGE>
-2-
for all Notes validly tendered and not validly withdrawn pursuant thereto in
accordance with the terms of this Agreement.
Consummation Date: The date that is 45 days immediately following the
-----------------
date that the Exchange Registration Statement shall have been declared effective
by the SEC.
Effectiveness Period: As defined in Section 3(a) hereof.
--------------------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated by the SEC pursuant thereto.
Exchange Date: As defined in Section 2(d) hereof.
-------------
Exchange Notes: The 10-3/8% Senior Notes due 2004 of the Issuer, that
--------------
are identical to the Notes in all material respects, except that the provisions
regarding restrictions on transfer shall be modified, as provided in the
Indenture (or the indenture pursuant to which the Exchange Notes are issued),
and the issuance thereof pursuant to the Exchange Offer shall have been
registered pursuant to an effective Registration Statement in compliance with
the Securities Act.
Exchange Offer: An offer to issue, in exchange for any and all of the
--------------
Notes, a like aggregate principal amount of Exchange Notes, which offer shall be
made by the Issuer pursuant to Section 2 hereof.
Exchange Offer Filing Date: As defined in Section 2(a).
--------------------------
Exchange Registration Statement: As defined in Section 2(a) hereof.
-------------------------------
Indemnified Person: As defined in Section 7(a) hereof.
------------------
Indenture: The Indenture, dated as of June 11, 1997, between the
---------
Issuer and U.S. Trust Company of California, N.A. as trustee thereunder,
pursuant to which the Notes are issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchaser: As defined in the preamble hereof.
-----------------
<PAGE>
-3-
Issue Date: As defined in Section 2(a).
----------
Issuer: As defined in the preamble hereof.
------
Notes: The 10-3/8% Senior Notes due 2004 of the Issuer issued
-----
pursuant to the Indenture.
Participating Broker-Dealer: As defined in Section 2(e) hereof.
---------------------------
Private Exchange: As defined in Section 2(c) hereof.
----------------
Private Exchange Notes: As defined in Section 2(c) hereof.
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated pursuant to the Securities
Act), as amended or supplemented by any prospectus supplement, with respect to
the terms of the offering of any portion of the Notes, Exchange Notes or Private
Exchange Notes covered by such Registration Statement, and all other amendments
and supplements to any such prospectus, including post-effective amendments, and
all material incorporated by reference or deemed to be incorporated by
reference, if any, in such prospectus.
Registration Default: As defined in Section 4(a) hereof.
--------------------
Registration Statement: Any registration statement of the Issuer that
----------------------
covers any of the Notes, Exchange Notes or Private Exchange Notes pursuant to
the provisions of this Agreement, including the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference or deemed to be incorporated by reference, if any, in such
registration statement.
Rule 144A: Rule 144A promulgated by the SEC pursuant to the
---------
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 144(k): Rule 144(k) promulgated by the SEC pursuant to the
-----------
Securities Act, as such Rule may be amended from
<PAGE>
-4-
time to time, or any similar rule or regulation hereafter adopted by the SEC as
a replacement thereto having substantially the same effect as such Rule.
Rule 158: Rule 158 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 174: Rule 174 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 415: Rule 415 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
Rule 424: Rule 424 promulgated by the SEC pursuant to the Securities
--------
Act, as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC as a replacement thereto having
substantially the same effect as such Rule.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations promulgated by the SEC thereunder.
Shelf Filing Event: As defined in Section 3(a) hereof.
------------------
Shelf Registration: As defined in Section 3(a) hereof.
------------------
Shelf Registration Statement: As defined in Section 3(a) hereof.
----------------------------
Special Counsel: Such special counsel to the holders of Transfer
---------------
Restricted Notes as shall be agreed upon by the Issuer and holders of a majority
in aggregate principal amount of Transfer Restricted Notes, the reasonable
expenses of which
<PAGE>
-5-
holders of Transfer Restricted Notes will be reimbursed by the Issuer pursuant
to Section 6 hereof.
TIA: The Trust Indenture Act of 1939, as amended.
---
Transfer Restricted Note: Each Note, upon original issuance thereof,
------------------------
and at all times subsequent thereto, each Exchange Note as to which Section
3(a)(ii) hereof is applicable upon original issuance and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at all
times subsequent thereto, until in the case of any such Note, Exchange Note or
Private Exchange Note, as the case may be, the earliest to occur of (i) the date
on which any such Note has been exchanged by a person other than a Participating
Broker-Dealer for an Exchange Note (other than with respect to an Exchange Note
as to which Section 3(a)(ii) hereof applies) pursuant to the Exchange Offer,
(ii) with respect to Exchange Notes received by Participating Broker-Dealers in
the Exchange Offer, the earlier of (x) the date on which such Exchange Note has
been sold by such Participating Broker-Dealer by means of the Prospectus
contained in the Exchange Registration Statement and (y) the date on which the
Exchange Registration Statement has been effective under the Securities Act for
a period of six months after the Consummation Date, (iii) a Shelf Registration
Statement covering such Note, Exchange Note or Private Exchange Note has been
declared effective by the SEC and such Note, Exchange Note or Private Exchange
Note, as the case may be, has been disposed of in accordance with such effective
Shelf Registration Statement, (iv) the date on which such Note, Exchange Note or
Private Exchange Note, as the case may be, is eligible for distribution to the
public without volume or manner of sale restrictions pursuant to Rule 144(k) or
(v) the date on which such Note, Exchange Note or Private Exchange Note, as the
case may be, ceases to be outstanding for purposes of the Indenture or any other
indenture under which such Exchange Note or Private Exchange Note was issued.
Trustee: The trustee under the Indenture.
-------
underwritten registration or underwritten offering: A registration in
--------------------------------------------------
connection with which securities are sold to an underwriter for reoffering to
the public pursuant to an effective Registration Statement.
2. Exchange Offer
--------------
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the staff of the SEC, the
<PAGE>
-6-
Issuer shall (A) prepare and, on or prior to 60 days after the date of original
issuance of the Notes (the "Issue Date") (the "Exchange Offer Filing Date"),
---------- --------------------------
file with the SEC a Registration Statement under the Securities Act with respect
to an offer by the Issuer to the holders of the Notes to issue and deliver to
such holders, in exchange for Notes, a like principal amount of Exchange Notes,
(B) use its best efforts to cause the Registration Statement relating to the
Exchange Offer to be declared effective by the SEC under the Securities Act on
or prior to 150 days after the Issue Date, and (C) commence the Exchange Offer
and use its best efforts to issue, on or prior to the Consummation Date, the
Exchange Notes. The offer and sale of the Exchange Notes pursuant to the
Exchange Offer shall be registered pursuant to the Securities Act on an
appropriate form (the "Exchange Registration Statement") and duly registered or
-------------------------------
qualified under all applicable state securities or Blue Sky laws and will comply
with all applicable tender offer rules and regulations under the Exchange Act
and state securities or Blue Sky laws. The Exchange Offer shall not be subject
to any condition, other than that the Exchange Offer does not violate any
applicable law or interpretation of the staff of the SEC. Upon consummation of
the Exchange Offer in accordance with this Section 2, the Issuer shall have no
further registration obligations other than with respect to (i) Private Exchange
Notes, (ii) Exchange Notes held by Participating Broker-Dealers and (iii) Notes
or Exchange Notes as to which Section 3(a)(iii) hereof applies. No securities
shall be included in the Exchange Registration Statement other than the Exchange
Notes.
(b) The Issuer may require each holder of Notes, as a condition
to its participation in the Exchange Offer, to represent to the Issuer and its
counsel in writing (which may be contained in the applicable letter of
transmittal) that at the time of the consummation of the Exchange Offer (i) any
Exchange Notes received by such holder will be acquired in the ordinary course
of its business, (ii) such holder will have no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes and (iii) such holder is not an Affiliate
of the Issuer, or if it is an Affiliate of the Issuer, it will comply with the
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable.
If the holder is not a broker-dealer, it will be required to represent
that it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive Exchange
Notes for its own account in exchange for Notes that were acquired as
<PAGE>
-7-
a result of market-making activities or other trading activities, it will be
required to acknowledge that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
(c) If, prior to consummation of the Exchange Offer, the
Initial Purchaser holds any Notes acquired by them and having, or which are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, or any other holder of Notes is not entitled to
participate in the Exchange Offer, the Issuer, upon the request of the Initial
Purchaser or any such holder, shall, simultaneously with the delivery of the
Exchange Notes in the Exchange Offer, issue and deliver to such Initial
Purchaser and any such holder, in exchange (the "Private Exchange") for such
----------------
Notes held by the Initial Purchaser and any such holder, a like principal amount
of debt securities of the Issuer, that are identical in all material respects to
the Exchange Notes (the "Private Exchange Notes") (and which are issued pursuant
----------------------
to the same indenture as the Exchange Notes). The Private Exchange Notes shall
bear the same CUSIP number as the Exchange Notes.
(d) Unless the Exchange Offer would not be permitted by any
applicable law or interpretation of the staff of the SEC, the Issuer shall mail
the Exchange Offer Prospectus and appropriate accompanying documents, including
appropriate letters of transmittal, to each holder of Notes providing, in
addition to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this Agreement
and that all Notes validly tendered will be accepted for exchange;
(ii) the date of acceptance for exchange (the "Exchange Date"),
-------------
which date shall in no event be later than the Consummation Date (unless
otherwise required by applicable law);
(iii) that a holder of a Note electing to have a Note exchanged
pursuant to the Exchange Offer will be required to surrender such Note,
together with the enclosed letters of transmittal, to the institution and
at the address (located in the Borough of Manhattan, The City of New York)
specified in the notice prior to the close of business on the Exchange
Date; and
<PAGE>
-8-
(iv) that holders of Notes that do not tender all such securities
pursuant to the Exchange Offer may no longer have any registration rights
hereunder with respect to Notes not tendered.
Promptly after the Exchange Date, the Issuer shall:
(i) accept for exchange all Notes or portions thereof validly
tendered and not validly withdrawn pursuant to the Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by the
Issuer, and issue, cause the Trustee under the Indenture (or the indenture
pursuant to which the Exchange Notes are issued) to authenticate, and mail
to each holder of Notes, Exchange Notes equal in principal amount to the
principal amount of the Notes surrendered by such holder.
(e) The Issuer and the Initial Purchaser acknowledge that the
staff of the SEC has taken the position that any broker-dealer that owns
Exchange Notes that were received by such broker-dealer for its own account in
the Exchange Offer (a "Participating Broker-Dealer") may be deemed to be an
---------------------------
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes (other than a resale of an unsold allotment
resulting from the original offering of the Notes).
The Issuer and the Initial Purchaser also acknowledge that it is the
SEC staff's position that if the Prospectus contained in the Exchange
Registration Statement includes a plan of distribution containing a statement to
the above effect and the means by which Participating Broker-Dealers may resell
the Exchange Notes, without naming the Participating Broker-Dealers or
specifying the amount of Exchange Notes owned by them, such Prospectus may be
delivered by Participating Broker-Dealers to satisfy their prospectus delivery
obligations under the Securities Act in connection with resales of Exchange
Notes for their own accounts, so long as the Prospectus otherwise meets the
requirements of the Securities Act.
In light of the foregoing, if requested by a Participating Broker-
Dealer, the Issuer agrees (x) to use its best efforts to keep the Exchange
Registration Statement continuously effective for a period of up to six months
after the Consumma-
<PAGE>
-9-
tion Date or such earlier date as each Participating Broker-Dealer shall have
notified the Issuer in writing that such Participating Broker-Dealer has resold
all Exchange Notes acquired in the Exchange Offer, (y) to comply with the
provisions of Section 5 of this Agreement, as they relate to the Exchange Offer
and the Exchange Registration Statement, and (z) to deliver to such
Participating Broker-Dealer a "cold comfort" letter of the independent public
accountants of the Issuer and a legal opinion as to matters reasonably requested
by such Participating Broker-Dealer relating to the Exchange Registration
Statement and the related Prospectus and any amendments or supplements thereto.
(f) The Initial Purchaser shall have no liability to any Participating
Broker-Dealer with respect to any request made pursuant to Section 2(e).
(g) Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
Notes surrendered in exchange therefor or, if no interest has been paid on the
Notes, from the date of the original issuance of the Notes.
(h) The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event shall provide that the Exchange Notes
shall not be subject to the transfer restrictions set forth in the Indenture.
The Indenture or such indenture shall provide that the Exchange Notes, the
Private Exchange Notes and the Notes shall vote and consent together on all
matters as one class and that neither the Exchange Notes, the Private Exchange
Notes nor the Notes will have the right to vote or consent as a separate class
on any matter.
3. Shelf Registration
------------------
(a) If (i) the Issuer is not permitted to file the Exchange Offer
Registration Statement or to consummate the Exchange Offer because the Exchange
Offer is not permitted by any applicable law or applicable interpretation of the
staff of the SEC or (ii) any holder of a Note notifies the Issuer on or prior to
the 30th day following the Issue Date that (A) due to a change in law or policy
it is not entitled to participate in the Exchange Offer, (B) due to a change in
law or policy it may not resell Exchange Notes acquired by it in the Exchange
Offer to the public without delivering a prospectus and the Prospectus contained
in the Exchange Registration Statement is not ap-
<PAGE>
-10-
propriate or available for such resales by such holder or (C) it owns Notes
(including the Initial Purchaser that holds Notes as part of an unsold allotment
from the original offering of the Notes) acquired directly from an Issuer or an
Affiliate of an Issuer or (iii) any holder of Private Exchange Notes so requests
after the consummation of the Private Exchange or (iv) the Issuer has not
consummated the Exchange Offer within 150 days after the Issue Date (each such
event referred to in clauses(i) through (iv), a "Shelf Filing Event"), the
------------------
Issuer shall cause to be filed with the SEC pursuant to Rule 415 a shelf
registration statement (the "Shelf Registration Statement") prior to the later
----------------------------
of (x) 60 days after the Issue Date or (y) 60 days after the occurrence of such
Shelf Filing Event, relating to all Transfer Restricted Notes (the "Shelf
-----
Registration") the holders of which have provided the information required
- ------------
pursuant to Section 3(b) hereof (provided that if the Shelf Filing Event arises
--------
pursuant to clause (iv) above, the Issuer shall file the Shelf Registration
Statement on or prior to 151st day after the Issue Date), and shall use its best
efforts to have the Shelf Registration Statement declared effective by the SEC
as promptly as possible and in any event on or prior to 90 days after the filing
of such Shelf Filing Event. In such circumstances, the Issuer shall use its best
efforts to keep the Shelf Registration Statement continuously effective under
the Securities Act, until (A) 24 months following the Issue Date or (B) if
sooner, the date immediately following the date that all Transfer Restricted
Notes covered by the Shelf Registration Statement have been sold pursuant
thereto or otherwise cease to be Transfer Restricted Notes (the "Effectiveness
-------------
Period"); provided that the Effectiveness Period shall be extended to the
- ------ --------
extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174.
(b) No holder of Transfer Restricted Notes may include any of
its Transfer Restricted Notes in any Shelf Registration Statement pursuant to
this Agreement unless and until such holder furnishes to the Issuer in writing,
within 30 days after receipt of a request therefor, such information as the
Issuer may reasonably request for use in connection with any Shelf Registration
Statement or Prospectus or preliminary prospectus included therein. No holder
of Transfer Restricted Notes shall be entitled to Additional Interest pursuant
to Section 4 hereof unless and until such holder shall have provided all such
reasonably requested information. Each holder of Transfer Restricted Notes as
to which any Shelf Registration Statement is being effected agrees to furnish
promptly to the Issuer all information required to be disclosed in order to
<PAGE>
-11-
make the information previously furnished to the Issuer by such holder not
materially misleading.
4. Additional Interest
-------------------
(a) The parties hereto agree that the holders of Transfer Restricted
Notes will suffer damages if the Issuer fails to fulfill its obligations
pursuant to Section 2 or Section 3, as applicable, and that it would not be
feasible to ascertain the extent of such damages. Accordingly, in the event that
(i) the applicable Registration Statement is not filed with the SEC on or prior
to the date specified herein for such filing, (ii) the applicable Registration
Statement has not been declared effective by the SEC on or prior to the date
specified herein for such effectiveness after such obligation arises, (iii) if
the Exchange Offer is required to be Consummated hereunder, the Issuer has not
exchanged Exchange Notes for all Notes validly tendered and not validly
withdrawn in accordance with the terms of the Exchange Offer by the Consummation
Date or (iv) the applicable Registration Statement is filed and declared
effective but shall thereafter cease to be effective or usable in connection
with the Exchange Offer or resales of Transfer Restricted Notes during a period
in which it is required to be effective hereunder without being succeeded
immediately by any additional Registration Statement covering the Notes, the
Exchange Notes or the Private Exchange Notes, as the case may be, which has been
filed and declared effective (each such event referred to in clauses (i) through
(iv), a "Registration Default"), then the interest rate on Transfer Restricted
--------------------
Notes will increase ("Additional Interest"), with respect to the first 90-day
-------------------
period immediately following the occurrence of such Registration Default, by
0.5% per annum and will increase by an additional 0.5% per annum with respect to
each subsequent 90-day period until such Registration Default has been cured, up
to a maximum amount of 2.0% per annum with respect to all Registration Defaults.
Following the cure of a Registration Default, the accrual of Additional Interest
with respect to such Registration Default will cease and upon the cure of all
Registration Defaults the interest rate will revert to the original rate.
(b) The Issuer shall notify the Trustee and paying agent under
the Indenture (or the trustee and paying agent under such other indenture under
which any Transfer Restricted Notes are issued) immediately upon the happening
of each and every Registration Default. The Issuer shall pay the Additional
Interest due on the Transfer Restricted Notes by depositing with the paying
agent (which shall not be the Issuer for
<PAGE>
-12-
these purposes) for the Transfer Restricted Notes, in trust, for the benefit of
the holders thereof, prior to 11:00 A.M. on the next interest payment date
specified by the Indenture (or such other indenture), sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date specified by the Indenture (or such other indenture)
to the record holders entitled to receive the interest payment to be made on
such date. Each obligation to pay Additional Interest shall be deemed to accrue
from and including the applicable Registration Default.
(c) The parties hereto agree that the Additional Interest
provided for in this Section 4 constitutes a reasonable estimate of the damages
that will be suffered by holders of Transfer Restricted Notes by reason of the
happening of any Registration Default.
5. Registration Procedures
-----------------------
In connection with the Issuer's registration obligations hereunder,
the Issuer shall effect such registrations on the appropriate form available for
the sale of the Notes, the Exchange Notes or Private Exchange Notes, as
applicable, to (i) in the case of the Exchange Offer, permit the exchange of
Exchange Notes for Notes in the Exchange Offer and, if applicable, resales of
Exchange Notes by Participating Broker-Dealers and (ii) in the case of a Shelf
Registration, permit the sale of the applicable Transfer Restricted Notes in
accordance with the method or methods of disposition thereof specified by the
holders of such Transfer Restricted Notes, and pursuant thereto the Issuer shall
as expeditiously as possible:
(a) In the case of a Shelf Registration, a reasonable period of
time prior to the initial filing of a Shelf Registration Statement or
Prospectus and a reasonable period of time prior to the filing of any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), furnish to
the holders of the Transfer Restricted Notes included in such Shelf
Registration Statement, their counsel and the managing underwriters, if
any, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference)
will be subject to the review of such holders, their Special Counsel and
such underwriters, if any, and cause the officers and directors of the
Issuer, counsel to the Issuer and independent certified public accountants
to the Issuer to respond to such reasonable in-
<PAGE>
-13-
quiries as shall be necessary, in the opinion of respective counsel to such
holders and such underwriters, to conduct a reasonable investigation within
the meaning of the Securities Act; provided that the foregoing inspection
--------
and information gathering shall be coordinated on behalf of any other
persons, by one counsel designated by and on behalf of such other persons;
provided, however, that the Issuer shall not be deemed to have kept a Shelf
-------- -------
Registration Statement effective during the applicable period if it
voluntarily takes any unreasonable action or voluntarily fails to take any
reasonable action that results in holders of the Transfer Restricted Notes
covered thereby not being able to sell such Transfer Restricted Notes
pursuant to Federal securities laws during that period. The Issuer shall
not file any such Shelf Registration Statement or related Prospectus or any
amendments or supplements thereto which the holders of a majority in
principal amount of the Transfer Restricted Notes included in such Shelf
Registration Statement shall reasonably object on a timely basis;
(b) Prepare and file with the SEC such amendments, including
post-effective amendments, to each Registration Statement as may be
necessary to keep such Registration Statement continuously effective for
the applicable time period required hereunder; cause the related Prospectus
to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424; and comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or
in such Prospectus as so supplemented;
(c) Notify the holders of Transfer Restricted Notes to be sold
or, in the case of an Exchange Offer, tendered for, their Special Counsel
and the managing underwriters, if any, promptly, and (if requested by any
such person), confirm such notice in writing, (i)(A) when a Prospectus or
any Prospectus supplement or post-effective amendment is proposed to be
filed, and (B) with respect to a Registration Statement or any post-
effective amendment, when the same has become effective, (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to a Registration Statement or related Prospectus
or for additional information, (iii)
<PAGE>
-14-
of the issuance by the SEC, any state securities commission, any other
governmental agency or any court of any stop order or injunction suspending
or enjoining the use of a Prospectus or the effectiveness of a Registration
Statement or the initiation of any proceedings for that purpose, (iv) of
the receipt by the Issuer of any notification with respect to the
suspension of the qualification or exemption from qualification of any of
the Notes, Exchange Notes or Private Exchange Notes for sale in any
jurisdiction, or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event or information becoming
known to the Issuer that makes any statement made in a Registration
Statement or related Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires the making of any changes in such Registration Statement,
Prospectus or documents so that it will 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, not misleading, and
that in the case of a Prospectus, it will 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 (vi) of the
determination by the Issuer that a post-effective amendment to a
Registration Statement would be appropriate;
(d) Use its best efforts to avoid the issuance of or, if issued,
obtain the withdrawal of any order enjoining or suspending the use of a
Prospectus or the effectiveness of a Registration Statement or the lifting
of any suspension of the qualification (or exemption from qualification) of
any of the Notes, Exchange Notes or Private Exchange Notes for sale in any
jurisdiction, at the earliest practicable moment;
(e) If a Shelf Registration Statement is filed pursuant to Section 3
hereof and if requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold pursuant to such Shelf Registration Statement,
(i) promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters, if any, and such
holders reasonably believe should be included therein, and (ii) make all
required filings of such Prospectus supplement or such post-
<PAGE>
-15-
effective amendment under the Securities Act as soon as practicable after
the Issuer has received notification of the matters to be incorporated in
such Prospectus supplement or post-effective amendment and (iii) supplement
or make amendments to such Registration Statement;
(f) Upon written request to the Issuer by a holder of Notes, Exchange
Notes or Private Exchange Notes to be exchanged or sold pursuant to a
Registration Statement, their Special Counsel and each managing
underwriter, if any, without charge, furnish at least one conformed copy of
such Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
(including those previously furnished or incorporated by reference) as soon
as practicable after the filing of such documents with the SEC;
(g) Deliver to each holder of Notes, Exchange Notes or Private
Exchange Notes to be exchanged or sold pursuant to a Registration
Statement, their Special Counsel, and the underwriters, if any, without
charge, as many copies of the Prospectus (including each form of
prospectus) and each amendment or supplement thereto as such persons
reasonably request; and the Issuer hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
holders of Transfer Restricted Notes and the underwriters, if any, in
connection with the offering and sale of the Transfer Restricted Notes in
accordance with the terms thereof and with U.S. Federal securities laws and
Blue Sky laws covered by such Prospectus and any amendment or supplement
thereto;
(h) Prior to any public offering of Notes, Exchange Notes or Private
Exchange Notes, use its best efforts to register or qualify or cooperate
with the holders of Notes, Exchange Notes or Private Exchange Notes to be
sold or tendered for, the underwriters, if any, and their respective
counsel in connection with the registration or qualification (or exemption
from such registration or qualification) of such Notes, Exchange Notes or
Private Exchange Notes for offer and sale under the securities or Blue Sky
laws of such jurisdictions within the United States as any such holder or
underwriter reasonably requests in writing; keep each such registration or
qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept
<PAGE>
-16-
effective hereunder and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Notes,
Exchange Notes or Private Exchange Notes covered by the applicable
Registration Statement; provided, however, that the Issuer shall not be
-------- -------
required to (i) qualify generally to do business in any jurisdiction where
it is not then so qualified or (ii) take any action which would subject it
to general service of process or to taxation in any jurisdiction where it
is not so subject;
(i) In connection with any sale or transfer of Transfer Restricted
Notes that will result in such securities no longer being Transfer
Restricted Notes, cooperate with the holders thereof and the managing
underwriters, if any, to facilitate the timely preparation and delivery of
certificates representing Transfer Restricted Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company and to enable such
Transfer Restricted Notes to be in such denominations and registered in
such names as the managing underwriters, if any, or such holders may
request at least two Business Days prior to any sale of Transfer Restricted
Notes;
(j) Upon the occurrence of any event contemplated by Section 5(c)(v),
as promptly as practicable, prepare a supplement or amendment, including,
if appropriate, a post-effective amendment, to each Registration Statement
or a supplement to the related Prospectus or any document incorporated or
deemed to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, such Prospectus will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(k) Use its best efforts to cause the Notes, Exchange Notes or
Private Exchange Notes covered by the applicable Registration Statement to
be rated with the appropriate rating agencies, if so requested by the
holders of a majority in aggregate principal amount of Transfer Restricted
Notes being sold pursuant to such Registration Statement or the managing
underwriter or underwriters, if any.
<PAGE>
-17-
(l) Prior to the effective date of the Exchange Registration
Statement, to provide a CUSIP number for the Exchange Notes (and Private
Exchange Notes, if applicable);
(m) If a Shelf Registration Statement is filed pursuant to Section 3
hereof, enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in underwritten offerings) and
take all such other reasonable actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the
holders of a majority in aggregate principal amount of the Transfer
Restricted Notes being sold) in order to expedite or facilitate the
disposition of such Transfer Restricted Notes, and, whether or not an
underwriting agreement is entered into and whether or not the registration
is an underwritten registration, (i) make such representations and
warranties to the holders of such Transfer Restricted Notes and the
underwriters, if any, with respect to the business of the Issuer and its
subsidiaries (including with respect to businesses or assets acquired or to
be acquired by any of them), and the Shelf Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated
by reference therein, in each case, in form, substance and scope as are
customarily made by issuers to underwriters in underwritten offerings, and
confirm the same if and when customarily requested; (ii) obtain opinions of
counsel to the Issuer and updates thereof (which counsel and opinions (in
form, scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and Special Counsel to the holders of the Transfer
Restricted Notes being sold), addressed to each selling holder of Transfer
Restricted Notes and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Special Counsel
and the managing underwriters, in any; (iii) obtain customary "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Issuer (and, if necessary, any other independent
certified public accountants of any subsidiary of the Issuer or of any
business acquired by the Issuer or any such subsidiary for which financial
statements and financial data is, or is required to be, included in the
Shelf Registration Statement), addressed (where reasonably possible) to
each selling holder of Transfer Restricted Notes and each of the
underwriters, if any, such letters to be in customary form and covering
matters of the type customarily covered in
<PAGE>
-18-
"cold comfort" letters in connection with underwritten offerings; (iv) if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable to the selling
holders and the underwriters, if any, than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to holders of a
majority in aggregate principal amount of Transfer Restricted Notes covered
by such Shelf Registration Statement and the managing underwriters, if
any); and (v) deliver such documents and certificates as may be reasonably
requested by the holders of a majority in aggregate principal amount of the
Transfer Restricted Notes being sold, their Special Counsel and the
managing underwriters, if any, to evidence the continued validity of the
representations and warranties made pursuant to clause (i) above and to
evidence compliance with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Issuer;
(n) In the case of a Shelf Registration, make available for inspection
by any selling holder of Transfer Restricted Notes being sold, any
underwriter participating in any such disposition of Transfer Restricted
Notes, if any, and any attorney, accountant or other agent retained by any
such selling holders or underwriter, (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable
----------
business hours, all relevant financial and other records, pertinent
corporate documents and instruments of the Issuer and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary to enable
-------
them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Issuer and its subsidiaries to
supply all information reasonably requested by any such Inspector in
connection with such Registration Statement. Records which the Issuer
determines, in good faith, to be confidential and any Records which it
notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in such Registration Statement, (ii)
the release of such Records is ordered pursuant to a subpoena or other
order from a court of competent jurisdiction, (iii) disclosure of such
information is, in the opinion of counsel for any Inspector, necessary or
advisable in connection with any action, claim, suit or proceeding,
directly or indirectly, involving or potentially involving such Inspector
and arising out of, based upon, relating to, or involving this Agree-
<PAGE>
-19-
ment, or any transactions contemplated hereby or arising hereunder, or (iv)
the information in such Records has been made generally available to the
public. Each selling holder of such Transfer Restricted Securities will be
required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of the Issuer unless
and until such information is generally available to the public. Each
selling holder of such Transfer Restricted Securities will be required to
further agree that it will, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Issuer
and allow the Issuer to undertake appropriate action to prevent disclosure
of the Records deemed confidential at the Issuer's sole expense;
(o) Provide an indenture trustee for the Notes and/or the Exchange
Notes and Private Exchange Notes, as the case may be, and cause an
indenture to be qualified under the TIA not later than the effective date
of the first Registration Statement relating to the Notes and/or the
Exchange Notes and Private Exchange Notes, as the case may be; and if such
indenture shall be the Indenture, in connection therewith, cooperate with
the Trustee and the holders of the Notes and/or the Exchange Notes and
Private Exchange Notes, to effect such changes to the Indenture, if any, as
may be required for the Indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its reasonable efforts to cause the
Trustee to execute, all customary documents as may be required to effect
such changes, and all other forms and documents required to be filed with
the SEC to enable the Indenture to be so qualified in a timely manner;
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earning statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158, no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Transfer Restricted
Notes are sold to underwriters in a firm commitment or reasonable efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter after the
effective date of a Regis-
<PAGE>
-20-
tration Statement, which statement shall cover said period, consistent with
the requirements of Rule 158;
(q) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Issuer, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
holders of Exchange Notes of Private Exchange Notes participating in the
Exchange Offer or the Private Exchange, as the case may be, that the
Exchange Notes or Private Exchange Notes, as the case may be, and the
related indenture constitute legal, valid and binding obligations of the
Issuer, enforceable against the Issuer in accordance with their respective
terms;
(r) Cooperate with each seller of Transfer Restricted Notes covered by
any Registration Statement and each underwriter, if any, participating in
the disposition of such Transfer Restricted Notes and their respective
counsel in connection with any filings required to be made with the
National Association of Securities Dealers, Inc.; and
(s) Use its best efforts to take all other steps reasonably necessary
to effect the registration of the Transfer Restricted Notes covered by a
Registration Statement contemplated hereby.
The Issuer may require a holder of Transfer Restricted Notes to be
included in a Registration Statement to furnish to the Issuer such information
regarding the distribution of such Transfer Restricted Notes as is required by
law to be disclosed in such Registration Statement and the Issuer may exclude
from such Registration Statement the Transfer Restricted Notes of any holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
In the case of a Shelf Registration pursuant to Section 3 hereof, each
holder of Transfer Restricted Notes agrees by acquisition of such Transfer
Restricted Notes that, upon receipt of any notice from the Issuer of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(iv) or 5(c)(v) hereof, such holder will forthwith discontinue disposition
of such Transfer Restricted Notes covered by such Registration Statement or
Prospectus until such holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 5(j) hereof, or until it is advised
in
<PAGE>
-21-
writing by the Issuer that the use of the applicable Prospectus may be resumed,
and, in either case, has received copies of any additional or supplemental
filings that are incorporated or deemed to be incorporated by reference in such
Prospectus.
6. Registration Expenses
---------------------
All fees and expenses incident to the performance of or compliance
with this Agreement by the Issuer shall be borne by the Issuer whether or not
any Registration Statement is filed or becomes effective and whether or not any
Notes, Exchange Notes or Private Exchange Notes are issued or sold pursuant to
any Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the National Association of Securities Dealers, Inc.
and (B) in compliance with state securities or Blue Sky laws), (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Notes, Exchange Notes and Private Exchange Notes in a form eligible for deposit
with The Depository Trust Company and of printing Prospectuses), (iii)
messenger, telephone and delivery expenses, (iv) reasonable fees and
disbursements of counsel for the Issuer and the Special Counsel (not to exceed
one firm of counsel (in addition to appropriate local counsel)) and out-of-
pocket expenses (other than legal expenses) of holders of Transfer Restricted
Notes incurred in connection with the registration and sale of such notes
pursuant to a Shelf Registration Statement or in connection with the exchange
thereof pursuant to the Exchange Offer, (v) fees and disbursements of all
independent certified public accountants referred to in Section 2(e) and Section
5(l)(iii) hereof (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, if any, and any fees associated with making the
Transfer Restricted Notes eligible for trading through The Depository Trust
Company, (vii) Securities Act liability insurance, if the Issuer desires such
insurance, (viii) fees and expenses of all other persons retained by the Issuer,
(ix) internal expenses of the Issuer (including, without limitation, all
salaries and expenses of officers and employees of the Issuer performing legal
or accounting duties), (x) the expense of any annual audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securi-
<PAGE>
-22-
ties exchange, if applicable, and (xii) the expenses relating to printing, word
processing and distributing all Registration Statements, underwriting
agreements, securities sales agreements, indentures and any other documents
necessary in order to comply with this Agreement.
7. Indemnification
---------------
(a) The Issuer agrees to indemnify and hold harmless each
Holder of Transfer Restricted Notes, the affiliates, directors, officers,
agents, representatives and employees of each such person or its affiliates, and
each other Person, if any, who controls any such Person or its affiliates within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act (each, a "Participant"), from and against any and all losses,
-----------
claims, damages and liabilities (including, without limitation, the reasonable
legal fees and other expenses actually incurred in connection with any suit,
action or proceeding or any claim asserted) caused by, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (or any amendment thereto) or related
Prospectus (or any amendments or supplements thereto) or any related preliminary
prospectus, or caused by, arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Issuer will
-------- -------
not be required to indemnify a Participant if (i) such losses, claims, damages
or liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Participant furnished to the Issuer in writing by or on behalf
of such Participant expressly for use therein or (ii) if such Participant sold
to the person asserting the claim the Transfer Restricted Notes which are the
subject of such claim and such untrue statement or omission or alleged untrue
statement or omission was contained or made in any preliminary prospectus and
corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and it is established by the Issuer in the related
proceeding that such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Transfer Restricted Notes sold to such Person
if required by applicable law, unless such failure to deliver or
<PAGE>
-23-
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Issuer with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to
indemnify and hold harmless the Issuer, its directors and officers and each
Person who controls the Issuer within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as the
foregoing indemnity from the Issuer to each Participant, but only (i) with
reference to information relating to such Participant furnished to the Issuer in
writing by such Participant expressly for use in any Registration Statement or
Prospectus, any amendment or supplement thereto, or any preliminary prospectus
or (ii) with respect to any untrue statement or representation made by such
Participant in writing to the Issuer. The liability of any Participant under
this paragraph shall in no event exceed the proceeds received by such
Participant from sales of Transfer Restricted Notes giving rise to such
obligations.
(c) If any suit, action, proceeding (including any governmental
or regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified Person")
------------------
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
-------------------
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding; provided, however, that the failure to so notify the
-------- -------
Indemnifying Person shall not relieve it of any obligation or liability which it
may have hereunder or otherwise (unless and only to the extent that such failure
directly results in the loss or compromise of any material rights or defenses by
the Indemnifying Person and the Indemnifying Person was not otherwise aware of
such action or claim). In any such proceeding, any Indemnified Person shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Person unless (i) the
Indemnifying Person and the Indemnified Person shall have mutually agreed in
writing to the contrary, (ii) the Indemnifying Person shall have failed within a
reasonable period of time to retain counsel reasonably satisfactory to the
Indemnified Person or (iii) the named parties in
<PAGE>
-24-
any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that, unless there exists a
conflict among Indemnified Persons, the Indemnifying Person shall not, in
connection with any one such proceeding or separate but substantially similar
related proceeding in the same jurisdiction arising out of the same general
allegations, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed promptly as they are incurred. Any
such separate firm for the Participants and such control Persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Transfer Restricted Notes sold by all such Participants and any such separate
firm for the Issuer, its directors, its officers and such control Persons of the
Issuer shall be designated in writing by the Issuer. The Indemnifying Person
shall not be liable for any settlement of any proceeding effected without its
prior written consent, but if settled with such consent or if there be a final
non-appealable judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an Indemnified Person shall have
requested an Indemnifying Person to reimburse the Indemnified Person for
reasonable fees and expenses actually incurred by counsel as contemplated by the
third sentence of this paragraph, the Indemnifying Person agrees that it shall
be liable for any settlement of any proceeding effected without its written
consent if (i) such settlement is entered into more than 30 days after receipt
by such Indemnifying Person of the aforesaid request and (ii) such Indemnifying
Person shall not have reimbursed the Indemnified Person in accordance with such
request prior to the date of such settlement; provided, however, that the
-------- -------
Indemnifying Person shall not be liable for any settlement effected without its
consent pursuant to this sentence if the Indemnifying Person is contesting, in
good faith, the request for reimbursement. No Indemnifying Person shall, without
the prior written consent of the Indemnified Person, effect any settlement or
compromise of any pending or threatened proceeding in respect of which any
Indemnified Person is or could have been a party, and indemnity could have been
sought hereunder by such Indemnified Person, unless such settlement (A) includes
an unconditional written release of such Indemnified Person, in form and
substance rea-
<PAGE>
-25-
sonably satisfactory to such Indemnified Person, from all liability on claims
that are the subject matter of such proceeding and (B) does not include any
statement as to an admission of fault, culpability or failure to act by or on
behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the Notes or (ii) if the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnifying Person or Persons on the one hand and the
Indemnified Person or Persons on the other in connection with the statements or
omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) as well as any
other relevant equitable considerations. The relative fault of the parties
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 Issuer on the
one hand or such Participant or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable
if contribution pursuant to this Section 7 were determined by pro rata
--------
allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified
<PAGE>
-26-
Person in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Transfer Restricted
Notes exceeds the amount of any damages that such Participant has otherwise been
required to pay or has paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. 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.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rule 144A
---------
The Issuer covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Issuer is not required to file such reports, it will, upon the request of
any holder of Transfer Restricted Notes, make publicly available annual reports
and such information, documents and other reports of the type specified in
Sections 13 and 15(d) of the Exchange Act. The Issuer further covenants for so
long as any Transfer Restricted Notes remain outstanding, to make available to
any holder or beneficial owner of Transfer Restricted Notes in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted Notes
from such holder or beneficial owner the information required by Rule 144A(d)(4)
under the Securities Act in order to permit resales of such Transfer Restricted
Notes pursuant to Rule 144A.
9. Underwritten Registrations
--------------------------
If any of the Transfer Restricted Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment banker
or investment bankers and manager or managers that will administer the offering
will be selected by the holders of a majority in aggregate principal amount of
the Transfer Restricted Notes included in such offering and reasonably
acceptable to the Issuer.
<PAGE>
-27-
No person may participate in any underwritten registration hereunder
unless such person (i) agrees to sell such Transfer Restricted Notes on the
basis reasonably provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
10. Miscellaneous
-------------
(a) No Inconsistent Agreements. The Issuer has not entered, as
--------------------------
of the date hereof, and the Issuer will not, after the date of this Agreement,
enter into any agreement with respect to any of its securities that is
inconsistent with the rights granted to the holders of Transfer Restricted Notes
in this Agreement or otherwise conflicts with the provisions hereof. The rights
granted to the holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of any of the Issuer's other
issued and outstanding securities under any such agreements. The Issuer has not
entered and the Issuer will not enter into any agreement with respect to any of
its securities which will grant to any Person piggy-back registration rights
with respect to a Registration Statement.
(b) Adjustments Affecting Transfer Restricted Notes. The Issuer
-----------------------------------------------
will not, directly or indirectly, take any action with respect to the Transfer
Restricted Notes as a class that would adversely affect the ability of the
holders of Transfer Restricted Notes to include such Transfer Restricted Notes
in a registration undertaken pursuant to this Agreement.
(c) Amendments and Waivers. The provisions of this Agreement
----------------------
may not be amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, otherwise than with the
prior written consent of the holders of not less than a majority in aggregate
principal amount of the then outstanding Transfer Restricted Notes; provided,
--------
however, that Section 7 and this Section 10(c) may not be amended, modified or
- -------
supplemented without the prior written consent of each holder of Transfer
Restricted (including any person who was a holder of Transfer Restricted Notes,
disposed of pursuant to any Registration
<PAGE>
-28-
Statement). Notwithstanding the foregoing, a waiver or consent to depart from
the provisions hereof with respect to a matter that relates exclusively to the
rights of holders of Transfer Restricted Notes whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other holders of Transfer
Restricted Notes may be given by holders of at least a majority in aggregate
principal amount of the Transfer Restricted Notes being sold by such holders
pursuant to such Registration Statement; provided, however, that the provisions
-------- -------
of this sentence may not be amended, modified or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(d) Notices.
--------
All notices and other communications (including without limitation any
notices or other communications to the Trustee) provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, next-day air courier or facsimile:
1. if to a holder of Transfer Restricted Notes, at the most current
address of such holder set forth on the records of the registrar under the
Indenture, with a copy in like manner to the Initial Purchaser as follows:
BT Securities Corporation
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No: (212) 250-7200
Attention: Corporate Finance Department
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to the Issuer, as follows:
Leslie's Poolmart, Inc.
20630 Plummer Street
Chatsworth, California 91311
Facsimile No: (818) 993-1930
Attention: General Counsel
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
<PAGE>
-29-
Copies of all such notices, demands or other communications shall be
concurrently delivered by the person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors and assigns of each of the parties
hereto, including, without limitation and without the need for express
assignment, subsequent holders of Notes, Exchange Notes and Private Exchange
Notes and each Indemnified Person.
(f) Counterparts. This Agreement may be executed in any number
------------
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and, all of which taken
together shall constitute one and the same Agreement.
(g) Governing Law; Submission to Jurisdiction. THIS AGREEMENT
-----------------------------------------
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK. THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN
RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE AFORESAID COURTS.
(h) Severability. The remedies provided herein are cumulative
------------
and not exclusive of any remedies provided by law. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions set forth herein shall remain in
full force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.
<PAGE>
-30-
(i) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. All references made in this Agreement to "Section" and
"paragraph" refer to such Section or paragraph of this Agreement, unless
expressly stated otherwise.
(j) Notes Held by The Issuer or its Affiliates. Whenever the
------------------------------------------
consent or approval of Holders of a specified percentage of Transfer Restricted
Notes is required hereunder, Transfer Restricted Notes held by the Issuer or its
affiliates (as such term is defined in Rule 405 under the Securities Act) shall
not be counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(k) Third Party beneficiaries. Holders of Transfer Restricted
-------------------------
Notes are intended third party beneficiaries of this Agreement and this
Agreement may be enforced by such persons.
(l) Entire Agreement. This Agreement, together with the
----------------
Purchase Agreement and the Indenture, is intended by the parties as a final
expression of their agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Issuer with respect to
the Notes, the Exchange Notes and the Private Exchange Notes. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
<PAGE>
-31-
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first written above.
THE ISSUER:
LESLIE'S POOLMART, INC.
By:/s/ Brian P. McDermott
----------------------------------
Name: Brian P. McDermott
Title: Chief Executive Officer
THE INITIAL PURCHASER:
BT SECURITIES CORPORATION
By: /s/ Kate W. Cook
-------------------------
Name: Kate W. Cook
Title: Managing Director
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM T- 1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
----------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2)_
----------------------------
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
(Exact name of trustee as specified in its charter)
95-4311476
(I.R.S. employer
identification No.)
515 South Flower Street, Suite 2700
Los Angeles, CA 90071
(Address of principal (Zip Code)
executive offices)
DWIGHT LIU
515 South Flower Street, Suite 2700
Los Angeles, California 90071
(213) 861-5000
(Name, address, including zip code and telephone number of agent for service)
----------------------------
LESLIE'S POOLMART, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 95-4620298
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
<PAGE>
20630 PLUMMER STREET
CHATSWORTH, CA 91311
(Address of principal chief executive offices)
10 3/8% SENIOR NOTES DUE 2004
(Title of indenture securities)
GENERAL
-------
1. General Information
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency
490 L'Enfant Plaza East, S.W.
Washington, D.C. 20219
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Federal Reserve Bank (12th District)
San Francisco, California
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15.
The obligor currently is not in default under any of its outstanding securities
for which U.S. Trust Company of California, N.A. is Trustee. Accordingly,
responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1
are not required under General Instruction B.
16. List of Exhibits
----------------
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
California, N.A. currently in effect; incorporated herein by reference to
Exhibit T-1.1 filed with Form T-1 Statement, Registration No. 33-33031.
2
<PAGE>
T-1.2 - Included in Exhibit T-1. 1
T-1.3 - Included in Exhibit T-1. 1
T-1.4 - A copy of the By-Laws of U.S. Trust Company of California, N.A., as
amended to date; incorporated by reference to Exhibit T-1.4 filed with Form T-1
Statement, Registration No. 33-54136.
T-1.6 - The consent of the trustee required by Section 321(b) of the Trust
Indenture Act of 1939; incorporated herein by reference to Exhibit T-1.6 filed
with Form T-1 Statement, Registration No. 33-33031.
T-1.7 - A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority
NOTE
- ----
As of July 15, 1997, the Trustee had 20,000 shares of Capital Stock outstanding,
all of which are owned by U.S. Trust Corporation.
The responses to Items 2, 5, 6, 7, 8, 9, 10, 11 and 14 set forth the information
requested as though U. S. Trust Company of California, N.A. and U.S. Trust
Corporation were the "trustee."
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
Pursuant to the requirements of the Trust Indenture of Act of 1939, the trustee,
U.S. Trust Company of California, N.A., a corporation organized and existing
under the laws of the State of California, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Los Angeles, and State of
California, on the 15th day of July, 1997.
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
Trustee
By: /s/ Sandee Parks
------------------------------------
Sandee Parks
Authorized Signatory
3
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
LESLIE'S POOLMART, INC.
OFFER TO EXCHANGE
10 3/8% SENIOR NOTES DUE 2004
FOR ANY AND ALL OUTSTANDING
10 3/8% SENIOR NOTES DUE 2004
PURSUANT TO THE PROSPECTUS, DATED JULY 21, 1997.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON AUGUST 26,
1997 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
MAIN DELIVERY TO: U.S. Trust Company of California, N.A., EXCHANGE AGENT
BY MAIL; BY OVERNIGHT COURIER; OR BY HAND:
U.S. Trust Company of California, N.A.
c/o United States Trust Company of New York
770 Broadway
13th Floor
New York, NY 10003
Attention: Tony Nista
BY FACSIMILE:(212) 420-6155
CONFIRM BY TELEPHONE: Tony Nista
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL
NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus, dated July 21, 1997 (the "Prospectus"), of Leslie's Poolmart, Inc.,
a Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter"), which together constitute the Company's offer (the "Exchange Offer")
to exchange an aggregate principal amount of up to $90 million of its 10 3/8%
Senior Notes due 2004 (the "New Notes") of the Company for a like principal
amount of the issued and outstanding 10 3/8% Senior Notes due 2004 (the "Old
Notes") of the Company from the holders (the "Holders") thereof.
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. No interest will be payable on the Old Notes on the date of the
exchange for the New Notes and Old Notes accepted for exchange will cease to
accrue interest from and after the consummation of the Exchange Offer; therefore
no interest will be paid thereon to the Holders at such time. Each New Note will
bear interest at 10 3/8% per annum and will be payable in cash semiannually in
arrears on each January 15 and July 15, commencing on January 15, 1998. Holders
of Old Notes accepted for exchange will be deemed to have waived the right to
receive any other payment of interest on the Old Notes. The Company reserves the
right, at any time or from time to time, to extend the Exchange Offer at its
discretion, in which event the term "Expiration Date" shall mean the latest time
and date to which the Exchange Offer is extended. The Company shall notify the
holders of the Old Notes of any extension by means of an press release or other
public announcement prior to 9:00 A.M., New York City time, on the next business
day after the previously scheduled Expiration Date.
This Letter is to be completed by a holder of Old Notes either if
certificates are to be forwarded herewith or if a tender of certificates for Old
Notes, if available, is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company (the "Book-
Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange
Offer -- Book-Entry Transfer" section of the Prospectus. Holders of Old Notes
whose certificates are not immediately available, or who are unable to deliver
their certificates or confirmation of the book-entry tender of their Old Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-
Entry Confirmation") and all other documents required by this Letter to the
Exchange Agent on or prior to the Expiration Date, must tender their Old Notes
according to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus. See
Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does
not constitute delivery to the Exchange Agent.
The undersigned has completed the appropriate boxes below and signed this
Letter to indicate the action the undersigned desires to take with respect to
the Exchange Offer.
<PAGE>
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, the certificate numbers and principal amount of
Old Notes should be listed on a separate signed schedule affixed hereto.
DESCRIPTION OF OLD NOTES 1 2 3
AGGREGATE PRINCIPAL
PRINCIPAL
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
CERTIFICATE AMOUNT OF AMOUNT
(PLEASE FILL IN, IF BLANK) NUMBER(S)* OLD NOTE(S)
TENDERED**
TOTAL
* Need not be completed if Old Notes are being tendered by book-entry
transfer.
** Unless otherwise indicated in this column, a holder will be deemed to have
tendered ALL of the Old Notes represented by the Old Notes indicated in
column 2. See Instruction 2. Old Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple
thereof. See Instruction 1.
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ___________________________________________
Account Number ______________ Transaction Code Number______________
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s) _________________________________________
Window Ticket Number (if any) ___________________________________________
Date of Execution of Notice of Guaranteed Delivery ______________________
Name of Institution which guaranteed delivery ___________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number ______________ Transaction Code Number______________
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
NAME: ___________________________________________________________________
ADDRESS: ________________________________________________________________
________________________________________________________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the aggregate principal amount of Old
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns
and transfers to, or upon the order of, the Company all right, title and
interest in and to such Old Notes as are being tendered hereby.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Old Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim when the same are accepted by the Company. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact with full power of substitution, for purposes of
delivering this Letter and the Old Notes to the Company. The Power of Attorney
granted in this paragraph shall be deemed irrevocable from and after the
Expiration Date and coupled with an interest. The undersigned hereby further
represents that any New Notes acquired in exchange for Old Notes tendered hereby
will have been acquired in the ordinary course of business of the person
receiving such New Notes, whether or not such person is the undersigned, that
neither the holder of such Old Notes nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the holder of such Old Notes nor any such
other person is an "affiliate," of the Company, as defined in Rule 405 under the
Securities Act of 1933, as amended (the "Securities Act").
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") set forth in no-action letters to third parties, based on
which the Company believes that the New Notes issued in exchange for the Old
Notes pursuant to the Exchange Offer may be offered for resale, resold and
otherwise transferred by any holder thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the
<PAGE>
ordinary course of such holder's business and such holder has no arrangement
with any person to participate in the distribution of such New Notes. If the
undersigned is not a broker-dealer, the undersigned represents that it is not
engaged in, and does not intend to engage in, a distribution of New Notes. If
the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes, it represents that the Old Notes to be
exchanged for New Notes were acquired by it as a result of market-making
activities or other trading activities, and acknowledges that it will deliver
the Prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering the Prospectus, the undersigned will not be
deemed to admit that is is an "underwriter" within the meaning of the Securities
Act. The undersigned acknowledges that in reliance on an interpretation by the
staff of the SEC, a broker-dealer may fulfill his prospectus delivery
requirements with respect to the New Notes (other than a resale of an unsold
allotment from the original sale of the Old Notes) with the Prospectus which
constitutes part of this Exchange Offer.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
conferred or agreed to be conferred in this Letter and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in "The Exchange Offer -- Withdrawal Rights"
section of the Prospectus.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the New Notes (and, if applicable,
substitute certificates representing Old Notes for any Old Notes not exchanged)
in the name of the undersigned or, in the case of a book-entry delivery of Old
Notes, please credit the account indicated above maintained at the Book-Entry
Transfer Facility. Similarly, unless otherwise indicated under the box entitled
"Special Delivery Instructions" below, please send the New Notes (and, if
applicable, substitute certificates representing Old Notes for any Old Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Old Notes."
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES"
ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS
SET FORTH IN SUCH BOX ABOVE.
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchange and/or New
Notes are to be issued in the name of and sent to someone other than the person
or persons whose signature(s) appear(s) on this Letter above, or if Old Notes
delivered by book-entry transfer which are not accepted for exchange are to be
returned by credit to an account maintained at the Book-Entry Transfer Facility
other than the account indicated above.
Issue: New Notes and/or Old Notes to:
Name(s):
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(PLEASE TYPE OR PRINT)
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(PLEASE TYPE OR PRINT)
Address:
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(ZIP CODE)
[ ] Credit unexchanged Old Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility account set forth below.
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(Book-Entry Transfer Facility Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
To be completed ONLY if certificates for Old Notes not exchanged and/or New
Notes are to be sent to someone other than the person or persons whose
signature(s) appear(s) on this Letter above or to such person or persons at an
address other than shown in the box entitled "Description of Old Notes" on this
Letter above.
Mail: New Notes and/or Old Notes to:
Name(s):
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(PLEASE TYPE OR PRINT)
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(PLEASE TYPE OR PRINT)
Address:
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(ZIP CODE)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE
NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY
BOX ABOVE.
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
Dated: _______________, 1997
x _______________, 1997
x _______________, 1997
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SIGNATURE(S) OF OWNER DATE
Area code and Telephone Number
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If a holder is tendering any Old Notes, this Letter must be signed by the
registered holder(s) as the name(s) appear(s) on the certificate(s) for the Old
Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents transmitted herewith. If signature is by a trustee,
executor, administrator, guardian, officer or other person acting in a fiduciary
or representative capacity, please set forth full title. See Instruction 3.
Name(s):
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(PLEASE TYPE OR PRINT)
Capacity:
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Address:
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(INCLUDING ZIP CODE)
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SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by an Eligible Institution:
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(AUTHORIZED SIGNATURE)
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(TITLE)
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(NAME AND FIRM)
Dated:
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<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER OF 10 3/8%
SENIOR NOTES DUE 2004 FOR ANY AND ALL OUTSTANDING 10 3/8% SENIOR NOTES DUE 2004
OF LESLIE'S POOLMART, INC.
1. DELIVERY OF THIS LETTER AND NOTES; GUARANTEED DELIVERY PROCEDURES.
This letter is to be completed by noteholders either if certificates are to
be forwarded herewith or if tenders are to be made pursuant to the procedures
for delivery by book-entry transfer set forth in "The Exchange Offer --Book-
Entry Transfer" section of the Prospectus. Certificates for all physically
tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed letter (or manually signed facsimile
hereof) and any other documents required by this Letter, must be received by the
Exchange Agent at the address set forth herein on or prior to the Expiration
Date, or the tendering holder must comply with the guaranteed delivery
procedures set forth below. Old Notes tendered hereby must be in denominations
of principal amount of $1,000 and any integral multiple thereof.
Noteholders whose certificates for Old Notes are not immediately available
or who cannot deliver their certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date, or who cannot complete the
procedure for book-entry transfer on a timely basis, may tender their Old Notes
pursuant to the guaranteed delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to
such procedures, (i) such tender must be made through an Eligible Institution,
(ii) prior to the Expiration Date, the Exchange Agent must receive from such
Eligible Institution a properly completed and duly executed Letter (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the Holder of Old Notes
and the amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, or a Book-Entry
Confirmation, and any other documents required by the Letter will be deposited
by the Eligible Institution with the Exchange Agent, and (iii) the certificates
for all physically tendered Old Notes, in proper form for transfer, or Book-
Entry Confirmation, as the case may be, and all other documents required by this
Letter, are received by the Exchange Agent within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter, the Old Notes and all other required
documents is at the election and risk of the tendering holders, but the delivery
will be deemed make only when actually received or confirmed by the Exchange
Agent. If such delivery is by mail, it is recommended that registered mail,
properly insured, with return receipt requested, be used. In all cases, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO NOTEHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER).
If less than all of the Old Notes evidenced by a submitted certificate are
to be tendered, the tendering holder(s) should fill in the aggregate principal
amount of Old Notes to be tendered in the box above entitled "Description of Old
Notes -- Principal Amount Tendered." Holders whose Old Notes are not tendered or
are tendered but not accepted in the Exchange Offer will continue to hold such
Old Notes and will be entitled to all the rights and preferences and subject to
the limitations applicable thereto under the Indenture. Following consummation
of the Exchange Offer, the Holders will continue to be subject to the existing
restrictions upon transfer thereof and the Company will have no further
obligation to such Holders to provide for the registration under the Securities
Act of the Old Notes held by them. ALL OF THE OLD NOTES DELIVERED TO THE
EXCHANGE AGENT WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED.
3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF
SIGNATURES.
If this Letter is signed by the registered Holder of the Old Notes tendered
hereby, the signature must correspond exactly with the name as written on the
face of the certificates without any change whatsoever.
If any tendered Old Notes are owned of record by two or more joint owners,
all such owners must sign this Letter.
If any tendered Old Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
copies of this Letter as there are different registrations of certificates.
When this Letter is signed by the registered Holder or Holders of the Old
Notes specified herein and tendered hereby, no endorsements of certificates or
separate bond powers are required. If, however, the New Notes are to be issued,
or any untendered Old Notes are to be reissued, to a person other than the
registered holder, then endorsements of any certificates transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) must be
guaranteed by an Eligible Institution.
If this Letter is signed by a person other than the registered Holder or
Holders of any certificate(s) specified herein, such certificate(s) must be
endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name or names of the registered holder or holders appear(s) on
the certificate(s) and signatures on such certificate(s) must be guaranteed by
an Eligible Institution.
If this Letter or any certificates or bond powers are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
<PAGE>
ENDORSEMENTS ON CERTIFICATES FOR OLD NOTES OR SIGNATURES ON BOND POWERS
REQUIRED BY THIS INSTRUCTION 3 MUST BE GUARANTEED BY A FIRM WHICH IS A
MEMBER OF A REGISTERED NATIONAL SECURITIES EXCHANGE OR A MEMBER OF THE NATIONAL
ASSOCIATION OF SECURITIES DEALERS, INC. OR BY A COMMERCIAL BANK OR TRUST COMPANY
HAVING AN OFFICE OR CORRESPONDENT IN THE UNITED STATES (AN "ELIGIBLE
INSTITUTION").
SIGNATURES ON THIS LETTER NEED NOT BE GUARANTEED BY AN ELIGIBLE
INSTITUTION, PROVIDED THE OLD NOTES ARE TENDERED: (I) BY A REGISTERED HOLDER OF
OLD NOTES (WHICH TERM, FOR PURPOSES OF THE EXCHANGE OFFER, INCLUDES ANY
PARTICIPANT IN THE BOOK-ENTRY TRANSFER FACILITY SYSTEM WHOSE NAME APPEARS ON A
SECURITY POSITION LISTING AS THE HOLDER OF SUCH OLD NOTES) TENDERED WHO HAS NOT
COMPLETED THE BOX ENTITLED "SPECIAL ISSUANCE INSTRUCTIONS" OR "SPECIAL DELIVERY
INSTRUCTIONS," ON THIS LETTER, OR (II) FOR THE ACCOUNT OF AN ELIGIBLE
INSTITUTION.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Old Notes should indicate in the applicable box the
name and address to which New Notes issued pursuant to the Exchange Offer and/or
Old Notes not exchanged are to be sent, if different from the name or address of
the person signing this Letter. In the case of issuance in a different name, the
employer identification or social security number of the person named must also
be indicated. Noteholders tendering Old Notes by book-entry transfer may request
that Old Notes not exchanged be credited to such account maintained at the
Book-Entry Transfer Facility as such noteholder may designate hereon. If no such
instructions are given, such Old Notes not exchanged will be returned to the
name or address of the person signing this Letter.
5. TRANSFER TAXES.
The Company will pay all transfer taxes, if any, applicable to the transfer
of Old Notes to it or its order pursuant to the Exchange Offer. If however,
certificates representing New Notes and/or Old Notes for principal amounts not
tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter, or if a transfer
tax is imposed for any reason other than the transfer of Old Notes to the
Company or its order pursuant to the Exchange Offer, the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 5, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD NOTES SPECIFIED IN THIS LETTER.
6. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
7. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Old Notes, by execution of this Letter, shall
waive any right to receive notice of the acceptance of their Old Notes for
exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of Old
Notes nor shall any of them incur any liability for failure to give any such
notice.
8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES.
Any holder whose Old Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at the address indicated above for further
instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter, may be directed to the
Exchange Agent, at the address and telephone number indicated above.
