<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13E-3/A
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No. 1 )
--------------------
LESLIE'S POOLMART
(Name of the Issuer)
LESLIE'S POOLMART LPM HOLDINGS, INC.
GREGORY FOURTICQ LIBERTY WEST PARTNERS
MICHAEL J. FOURTICQ BRIAN P. McDERMOTT
RICHARD H. HILLMAN ROBERT D. OLSEN
(Name of Persons Filing Statement)
Common Stock
(Title of Class of Securities)
527069 10 8
(CUSIP Number of Class of Securities)
Cynthia G. Watts, Esq.
20630 Plummer Street
Chatsworth, California 91311
(818) 994-4212
WITH COPIES TO:
Alan J. Barton, Esq. Neal H. Brockmeyer, Esq.
Paul Hastings Janofsky & Walker Heller Ehrman White & McAuliffe
555 South Flower Street 601 South Figueroa Street, 40th Floor
Los Angeles, California 90071 Los Angeles, California 90017
(213) 683-6000 (213) 689-0200
(Name, Address and Telephone Number of Persons Authorized to Receive Notices
and Communications on Behalf of Persons Filing Statement.)
This statement is filed in connection and with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [_] The filing of a registration statement under the Securities Act
of 1933.
c. [_] A tender offer.
d. [_] None of the above.
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Check the following box if the soliciting materials are preliminary
copies. [X]
Calculation of Filing Fee
Transaction Valuation* Amount of Filing Fee
$97,585,790 $19,517.16
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
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<S> <C> <C>
Amount previously paid: $19,517.16 Filing party: Leslie's Poolmart
Form or registration no.: Preliminary Proxy Statement Date filed: March 17, 1997
Schedule 14A
</TABLE>
______________________________
* For purposes of calculating the fee only. This transaction applies to an
aggregate of 6,192,061 outstanding shares (the "Cash Out Shares") of Common
Stock of Leslie's Poolmart ("Leslie's California") computed as follows: (i)
6,551,566 outstanding shares of Leslie's California Common Stock, less (ii)
359,505 shares (the "Continuing Shares") primarily held by members of
management (the "Continuing Stockholders") which will remain outstanding
after the Merger Agreement as described in the Proxy Statement submitted as
Exhibit (d) hereto.
The cash consideration being offered to shareholders of Leslie's California
for each share of Common Stock is $14.50 per share (other than with respect
to the Continuing Shares to be held by the Continuing Stockholders).
The proposed maximum aggregate value of the transaction is $97,585,790 (sum
of (i) the product of the Cash Out Shares and $14.50, and (ii) cash
consideration of $7,800,905 to be paid for options being surrendered in
connection with the transaction.) The total fee of $19,517.16 was paid by
wire transfer on March 14, 1997 to the Federal lock box depository account
at Mellon Bank. The amount of the filing fee, calculated in accordance
with Rule 0-11 promulgated under the Securities Exchange Act of 1934, as
amended, equals 1/50 of one percent of the maximum aggregate value of the
transaction.
This Transaction Statement (this "Statement") is being filed with the
Securities and Exchange Commission jointly by Michael J. Fourticq, Gregory
Fourticq, Liberty West Partners (a general partnership in which Michael J.
Fourticq and Gregory Fourticq are general partners), Brian P. McDermott, Richard
H. Hillman and Robert D. Olsen (collectively, the "Hancock Group"), Leslie's
California and LPM Holdings, Inc., a Delaware corporation and wholly-owned
subsidiary of Leslie's California ("Leslie's Delaware")in connection with the
filing of a Proxy Statement by Leslie's California under the Securities Exchange
Act of 1934, as amended.
This Statement relates to (i) a proposal to reincorporate Leslie's
California in Delaware in accordance with an Agreement of Merger pursuant to
which Leslie's California would be merged with and into Leslie's Delaware and
(ii) a proposal to adopt an Agreement and Plan of Merger (the "Merger
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Agreement") among Leslie's California, Leslie's Delaware and Poolmart USA Inc.,
a Delaware corporation ("Poolmart") dated February 26, 1997, pursuant to which
Poolmart will be merged with and into Leslie's Delaware (the "Merger"). Upon
the consummation of the Merger, each outstanding share of Common Stock (other
than 359,505 outstanding shares currently held by Messrs. Fourticq, McDermott
and Hillman, and Liberty West Partners and an as yet unknown number of shares
held by stockholders who may perfect their dissenters' rights), will be
converted into the right to receive $14.50 in cash for each share of Common
Stock.
Pursuant to General Instruction F to Schedule 13E-3, the information
indicated below as contained in the Proxy Statement is hereby incorporated by
reference in answer to the items of this Schedule. Where substantially
identical information required by Schedule 13E-3 is included under more than one
caption, reference may be made to only one caption of the Proxy Statement.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
- -------------- --------------------------------
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
<S> <C>
(a).................... "SUMMARY -- Date, Time and Place of the Special Meeting";
"SUMMARY -- Parties to the Merger Transaction"
(b).................... "SUMMARY -- Market Prices for Common Stock and Dividends";
"MARKET PRICES OF COMMON STOCK AND DIVIDENDS"; "THE
PROPOSALS -- Vote Required; Record Date"
(c).................... "SUMMARY -- Market Prices for Common Stock and Dividends";
"MARKET PRICES OF COMMON STOCK AND DIVIDENDS"
(d).................... "SUMMARY -- Market Prices for Common Stock and Dividends";
"MARKET PRICES OF COMMON STOCK AND DIVIDENDS"
(e).................... Not applicable
(f).................... Not applicable
</TABLE>
ITEM 2. IDENTITY AND BACKGROUND.
This Schedule 13E-3 is being filed by Leslie's California, the issuer of
the class and equity securities which is the subject of this Rule 13E-3
transaction, and by Leslie's Delaware, a wholly owned subsidiary of Leslie's
California, Michael J. Fourticq, Brian P. McDermott, Richard H. Hillman, Gregory
Fourticq, Robert D. Olsen and Liberty West Partners (a California partnership
of which Michael J. Fourticq and Brian P. McDermott are general partners).
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<TABLE>
<CAPTION>
Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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<S> <C>
(a) - (d).............. "PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT"; "CERTAIN INFORMATION CONCERNING
HANCOCK GROUP AND GREEN; "APPENDIX I"
(e) - (f).............. None of Leslie's California, Leslie's Delaware or
the persons listed in Appendix I of the Proxy
Statement during the past five years (i) has been
convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or
(ii) was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and
as a result of such proceeding was or is subject to
a judgment, decree or final order enjoining further
violation of, or prohibiting activities subject to,
Federal or State securities laws or finding any
violation of such laws.
(g)................... "APPENDIX I"
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1)................ Not applicable
(a)(2)................ "SPECIAL FACTORS -- Background of the Merger
Transaction"; "SPECIAL FACTORS -- Conflicts of Interest"; "THE REINCORPORATION"
(b)................... "SPECIAL FACTORS -- Background of the Merger Transaction";
"SPECIAL FACTORS -- Conflicts of Interest"; "THE REINCORPORATION"
ITEM 4. TERMS OF THE TRANSACTION
(a)................... "SPECIAL FACTORS -- Conflicts of Interest"; "THE MERGER"; "THE REINCORPORATION"
(b)................... "SPECIAL FACTORS -- Conflicts of Interest"; "SPECIAL FACTORS -- Certain Effects of the
Merger"; "SPECIAL FACTORS -- Background of the Merger
Transaction"; "THE MERGER"
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE
(a) - (g)............. "SPECIAL FACTORS -- Certain Effects of the Merger";
"SPECIAL FACTORS -- Conflicts of Interest"; "SPECIAL FACTORS -- Conduct of Leslie's
Delaware's Business After the Merger"; "THE MERGER --
Financing"
</TABLE>
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<TABLE>
<CAPTION>
Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
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ITEM 6. SOURCES AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
<S> <C>
(a) - (d)........... "THE MERGER -- Financing"
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS
(a) - (c)............. "SPECIAL FACTORS -- Background of the Merger Transaction";
"SPECIAL FACTORS -- Purpose and Reasons of Hancock Group
and Green for the Merger Transaction"; "SPECIAL FACTORS --
The Special Committee's and Board's Recommendation";
"SPECIAL FACTORS -- Position of Hancock Group as to
Fairness of the Merger Transaction"; "THE REINCORPORATION --
Principle Reasons for the Proposed Reincorporation"
(d)................... "SPECIAL FACTORS -- The Special Committee's and Board's
Recommendation"; "SPECIAL FACTORS -- Certain Effects of the
Merger"; "FEDERAL INCOME TAX CONSEQUENCES"; "THE
RECAPITALIZATION MERGER"; "SPECIAL FACTORS -- Conflicts of
Interest"
ITEM 8. FAIRNESS OF THE TRANSACTION
(a) - (e)............. "SPECIAL FACTORS -- The Special Committee's and Board's
Recommendation"; "SPECIAL FACTORS -- Opinion of Dillon
Read"; "SPECIAL FACTORS -- Position of Hancock Group as
to Fairness of Merger; "SPECIAL FACTORS -- Background of
Merger"
(f)................... Not Applicable
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS
(a) - (c)............. "SPECIAL FACTORS -- Background of Merger Transaction";
"SPECIAL FACTORS -- Opinion of DLJ"; "SPECIAL FACTORS --
Opinion of Dillon Read"
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER
(a) .................. "SPECIAL FACTORS -- Conflicts of Interest";
"PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT"
(b) .................. Not applicable
</TABLE>
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<TABLE>
<CAPTION>
Item of Location in Proxy Statement
Schedule 13E-3 (For Incorporation by Reference)
- -------------- --------------------------------
<S> <C>
ITEM 11. CONTRACTS, ARRANGEMENTS OF UNDERSTANDING WITH RESPECT TO THE ISSUER'S SECURITIES
"SPECIAL FACTORS -- Conflicts of Interest";
"THE MERGER -- Financing"; "SPECIAL FACTORS -- Background
of the Merger Transaction"
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO THE TRANSACTION
(a) - (b)............. "SUMMARY -- Vote Required", "Record Date and Quorum"; "MERGER
TRANSACTION -- Vote Required", "Record Date"; SPECIAL FACTORS --
Conflicts of Interest"
ITEM 13. OTHER PROVISION OF THE TRANSACTION
(a)................... "RIGHTS OF DISSENTING SHAREHOLDERS"; "ANNEX F"
(b) - (c)............. Not applicable
ITEM 14. FINANCIAL INFORMATION
(a)................... Company's Financial Statements (as set forth in the "FS" pages)
accompanying the Proxy Statement; "SUMMARY -- Summary of
Selected Consolidated Financial Data"
(b)................... Not applicable
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED
(a) - (b)............. "PROXY SOLICITATION"; "THE MERGER - Financing"; "SPECIAL FACTORS --
Conflicts of Interest"
</TABLE>
ITEM 16. ADDITIONAL INFORMATION
The Proxy Statement and the Financial Statements and Appendices
attached thereto.
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ITEM 17. MATERIALS TO BE FILED AS EXHIBITS.
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<S> <C>
(a)................... (1) Letter dated December 27, 1996 from Occidental Petroleum
Corporation to Mike J. Fourticq(3)
(2) Letter dated February 19, 1997 from Hancock Park Associates
to the Board of Directors of Leslie's Poolmart(3)
(3) Letter dated February 20, 1997 from Leonard, Green & Partners L.P.
to the Board of Directors of Leslie's Poolmart(3)
(4) Letter dated February 4, 1997 from BT Securities Corporation to
Hancock Park Associates(3)
(5) Letter dated February 4, 1997 from BT Securities Corporation to
Hancock Park Associates(3)
(6) Letter dated January 14, 1997 from Wells Fargo Bank to Leslie
Poolmart issuer(3)
(7) Letter dated February 21, 1997 from Wells Fargo Bank to Leslie's
Poolmart(3)
(8) Letter dated March 13, 1997 from Wells Fargo Bank to Leslie's
Poolmart(3)
(9) Letter dated November 11, 1996 from Hancock Park Associates II to
Leslie's Poolmart(3)
(b)................... (10) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
dated February 26, 1996 (included as Appendix C to the
Preliminary Proxy Statement of Leslie's Poolmart filed April 29,
1997)(2)
(11) Opinion of Dillon, Read & Co., Inc. dated February 26, 1996
(included as Appendix D to the Preliminary Proxy Statement of
Leslie's Poolmart filed April 29, 1997)(2)
(12) Presentation Materials to the Special Committee of the Board of
Directors of Leslie's Poolmart prepared by Donaldson, Lufkin &
Jenrette dated February 26, 1997(1)
(13) Presentation Materials to the Special Committee of the Board of Directors
of Leslie's Poolmart prepared by Dillon Read dated February 26, 1997(1)
(c)................... (14) Agreement of Plan and Merger dated February 26, 1997 among Leslie's
California, Poolmart USA Inc. and LPM Holdings, Inc. (included as
Appendix B to the Preliminary Proxy Statement of Leslie's Poolmart
filed April 29, 1997)(2)
(15) Merger Agreement between Leslie's Poolmart and LPM Holdings, Inc.
dated February 26, 1997 (included as Exhibit A to the Prelimiary
Proxy Statement of Leslie's Poolmart and filed April 29, 1997.)(2)
(16) Letter dated February 26, 1997 from Michael J. Fourticq and
Brian P. McDermott to the Board of Directors of Leslie's
Poolmart(3)
(17) Letter dated February 26, 1997 from Leonard, Green & Partners, L.P.
to Michael J. Fourticq and Brian P. McDermott attaching proposed
form of Stockholders Agreement(3)
(18) Revised form of Stockholders Agreement as of April 29, 1997(1)
(d)................... (19) Letter to Stockholders, Notice of Special Meeting of Stockholders,
Proxy Card and Preliminary Proxy Statement of Leslie's Poolmart
filed April 29, 1997.(2)
(e)................... (20) Chapter 13 of the California Corporation Code included as Appendix F
of the Preliminary Proxy Statement of Leslie's Poolmart filed
April 29, 1997 and Section of that Preliminary Proxy Statement
entitled "Rights of Dissenting Shareholders"(2)
</TABLE>
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<TABLE>
<S> <C>
(f)................... Not Applicable
Misc.................. (21) Power of Attorney of Michael J. Fourticq dated November 20, 1996,
naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(3)
(22) Power of Attorney of Greg Fourticq dated November 20, 1996 naming
Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as
attorney-in-fact.(3)
(23) Power of Attorney of Liberty West Partners dated November 20, 1996,
naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact.(3)
(24) Power of Attorney of Richard H. Hillman dated November 20, 1996,
naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen
as attorney-in-fact.(3)
(25) Power of Attorney of Robert D. Olsen dated November 20, 1996, naming
Michael J. Fourticq and Brian P. McDermott as attorney-in-fact.(3)
</TABLE>
- ----------------------
(1) Filed herewith.
(2) Incorporated herein by reference from the Preliminary Proxy Materials of
Leslie's Poolmart filed April 29, 1997.
(3) Incorporated herein by reference from the Schedule 13E filed by Leslie's
Poolmart on March 17, 1997, File No. 5-42108.
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement, as amended, is true,
complete and correct.
Dated: April 29, 1997
MICHAEL J. FOURTICQ
*
----------------------------------------------
Michael J. Fourticq
GREGORY FOURTICQ
*
----------------------------------------------
Gregory Fourticq
RICHARD H. HILLMAN
*
----------------------------------------------
Richard H. Hillman
BRIAN P. McDERMOTT
/s/ Brian P. McDermott
----------------------------------------------
Brian P. McDermott
ROBERT D. OLSEN
*
----------------------------------------------
Robert Olsen
LESLIE'S POOLMART
By: /s/ Brian P. McDermott
-------------------------------------------
Brian P. McDermott
President and Chief Executive Officer
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LPM HOLDINGS, INC.
By: /s/ Brian P. McDermott
-------------------------------------------
Brian P. McDermott
President and Chief Executive Officer
LIBERTY WEST PARTNERS
By: *
-------------------------------------------
*By: /s/ Brian P. McDermott
------------------------------------------
Brian P. McDermott
Attorney-in-fact
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Page No.
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<S> <C> <C>
(a)................... (1) Letter dated December 27, 1996 from Occidental Petroleum
Corporation to Mike J. Fourticq /3/ *
(2) Letter dated February 19, 1997 from Hancock Park Associates
to the Board of Directors of Leslie's Poolmart /3/ *
(3) Letter dated February 20, 1997 from Leonard, Green & Partners L.P.
to the Board of Directors of Leslie's Poolmart /3/ *
(4) Letter dated February 4, 1997 from BT Securities Corporation to
Hancock Park Associates /3/ *
(5) Letter dated February 4, 1997 from BT Securities Corporation to
Hancock Park Associates /3/ *
(6) Letter dated January 14, 1997 from Wells Fargo Bank to Leslie
Poolmart issuer /3/ *
(7) Letter dated February 21, 1997 from Wells Fargo Bank to Leslie's
Poolmart /3/ *
(8) Letter dated March 13, 1997 from Wells Fargo Bank to Leslie's
Poolmart /3/ *
(9) Letter dated November 11, 1996 from Hancock Park Associates II
to Leslie's Poolmart /3/ *
(b)................... (10) Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
dated February 26, 1996 (included as Appendix C to the
Preliminary Proxy Statement of Leslie's Poolmart filed April 29,
1997) /2/ *
(11) Opinion of Dillon, Read & Co., Inc. dated February 26, 1996
(included as Appendix D to the Preliminary Proxy Statement of
Leslie's Poolmart filed April 29, 1997) /2/ *
(12) Presentation Materials to the Special Committee of the Board
of Directors of Leslie's Poolmart prepared by Donaldson,
Lufkin & Jenrette dated February 26, 1997 /1/ *
(13) Presentation Materials to the Special Committee of the Board
of Directors of Leslie's Poolmart prepared by Dillon Read
dated February 26, 1997 /1/ *
(c)................... (14) Agreement of Plan and Merger dated February 26, 1997 among Leslie's
California, Poolmart USA Inc. and LPM Holdings, Inc. (included as
Appendix B to the Preliminary Proxy Statement of Leslie's Poolmart
and filed April 29, 1997) /2/ *
(15) Merger Agreement between Leslie's Poolmart and LPM Holdings, Inc.
dated February 26, 1997 (included as Exhibit A to the Preliminary
Proxy Statement of Leslie's Poolmart and filed April 29, 1997.) /2/ *
(16) Letter dated February 26, 1997 from Michael J. Fourticq and
Brian P. McDermott to the Board of Directors of Leslie's Poolmart /3/ *
(17) Letter dated February 26, 1997 from Leonard, Green & Partners, L.P.
to Michael J. Fourticq and Brian P. McDermott attaching proposed
form of Stockholders Agreement /3/ *
(18) Revised form of Stockholders Agreement as of April 29, 1997 /1/ *
(d)................... (19) Letter to Stockholders, Notice of Special Meeting of Stockholders,
Proxy Card and Preliminary Proxy Statement of Leslie's Poolmart
filed April 29, 1997. /2/ *
(e)................... (20) Chapter 13 of the California Corporation Code included as Appendix F
of the Preliminary Proxy Statement of Leslie's Poolmart filed
April 29, 1997 and Section of that Preliminary Proxy Statement
entitled "Rights of Dissenting Shareholders" /2/ *
</TABLE>
11
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<TABLE>
Page No.
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<S> <C> <C>
(f)................... Not Applicable
Misc.................. (21) Power of Attorney of Michael J. Fourticq dated November 20, 1996,
naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /3/ *
(22) Power of Attorney of Greg Fourticq dated November 20, 1996 naming
Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen as *
attorney-in-fact. /3/
(23) Power of Attorney of Liberty West Partners dated November 20, 1996,
naming Brian P. McDermott and Robert D. Olsen as attorney-in-fact. /3/ *
(24) Power of Attorney of Richard H. Hillman dated November 20, 1996,
naming Michael J. Fourticq, Brian P. McDermott and Robert D. Olsen
as attorney-in-fact. /3/ *
(25) Power of Attorney of Robert D. Olsen dated November 20, 1996, naming
Michael J. Fourticq and Brian P. McDermott as attorney-in-fact. /3/ *
</TABLE>
- -------------------
1 Filed herewith
2 Incorporated herein by reference from the Preliminary Proxy Materials of
Leslie's Poolmart filed April 29, 1997
3 Incorporated herein by reference from the Schedule 13E filed by Leslie's
Poolmart on March 17, 1997, File No. 5-42108
12
<PAGE>
EXHIBIT 12 TO 13E-3/A
- --------------------------------------------------------------------------------
PRESENTATION TO THE
SPECIAL COMMITTEE OF BOARD OF DIRECTORS OF
LESLIE'S POOLMART
FEBRUARY 26, 1997
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
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DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
EXHIBIT
<S> <C>
TRANSACTION OVERVIEW............................................. 1
MARKETING PROCESS SUMMARY........................................ 2
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE................... 3
STOCK PRICE HISTORY.............................................. 4
VALUATION SUMMARY................................................ 5
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW
. Hancock Park Associates II, L.P.("Hancock"), Leonard Green & Partners,
L.P. ("LGP") and current management to sponsor a recapitalization
transaction of Leslie's Poolmart ("Leslie's" or the "Company")
. In the transaction, all of the outstanding shares of Leslie's common
stock other than shares held by Continuing Stockholders(1)will receive
$14.50 per share in cash (the "Public Shareholders")
. Selected conditions in the draft Merger Agreement dated February 21,
1997 include: (i) financing; (ii) approval by majority of all
shareholders and the Public Shareholders; (iii) LGP must be satisfied
with environmental due diligence; and (iv) SEC allows recapitalization
accounting
. Financing for the Transaction is to be provided by BT Securities, BT
Commercial, Occidental Petroleum ("Occidental"), Hancock and LGP
- --------------------------------------------------------------------------------
DLJ HAS BEEN REQUESTED BY THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
OF THE COMPANY TO RENDER AN OPINION AS TO WHETHER THE CONSIDERATION TO BE
RECEIVED BY THE PUBLIC SHAREHOLDERS IS FAIR TO THE PUBLIC SHAREHOLDERS FROM
A FINANCIAL POINT OF VIEW.
- --------------------------------------------------------------------------------
- ---------------------------
(1) Continuing Stockholders include Michael Fourticq, Chairman and affiliate of
Hancock; Brian McDermott, President and affiliate of Hancock; Manette
McDermott, Trustee of the McDermott Family Trust; Greg Fourticq, affiliate
of Hancock; and Richard Hillman, director.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
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<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
TRANSACTION OVERVIEW (CONT'D)
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<S> <C>
Purchase Price per Share..................... $14.50
Fully-diluted Shares Outstanding............. 6,943,278
---------
Equity Value................................. $100.7
Plus: Debt (@ 12/28/96 est.)................ 33.2
Less: Cash (@ 12/28/96 est.)................ (0.1)
-----
Total Enterprise Value..................... $133.8
======
</TABLE>
SUMMARY FINANCIAL AND VALUATION DATA
<TABLE>
<CAPTION>
1996E 1997P
---------------------- ---------------------
$ MULTIPLE $ MULTIPLE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue/(1)/................. $191.6 0.7x $223.3 0.6x
EBITDA/(1)/.................. 14.5 9.2 18.1 7.4
EBIT/(1)/.................... 10.2 13.2 12.6 10.6
Company EPS Estimates........ $0.63 23.0x $0.80 18.1x
First Call EPS Estimates..... 0.63 23.0 0.85 17.1
</TABLE>
- ---------------
(1) Management estimates.
- ----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
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<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
SUMMARY SOURCES AND USES
($ IN MILLIONS)
<TABLE>
<CAPTION>
SOURCES USES
- ------------------------------------------- -----------------------------------------------------
<S> <C> <C> <C>
Revolver..................... $5.9 Purchase Price of Equity............... $100.7
Senior Notes................. 85.0 Refinance Existing Debt................ 33.2
PIK Preferred................ 28.0 Fees & Expenses........................ 7.0
Rollover Equity.............. 6.7
New Equity................... 15.3
----
Total Sources........... $140.9 Total Uses......................... $140.9
====== ======
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
SECURITY PROVIDER AMOUNT COMMENT
- ------------------ ---------------- ------------ -----------------------------------------------------------------------
<S> <C> <C> <C>
Revolver BT Commercial $ 5.9 Letter delivered on February 21, 1997
Senior Notes BT Securities 85.0 Highly confident letter delivered on February 4,1997
PIK Preferred Occidental 28.0 Term sheet provided on December 27, 1996; additional oral confirmation
Rollover Equity Hancock 6.7 Letter delivered February 19, 1997
New Equity LGP 15.3 Letter delivered on February 20, 1997
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------
(1) With warrants representing 15% of the fully diluted Common Stock.
- ----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
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<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
MARKETING PROCESS SUMMARY
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
CHRONOLOGY OF EVENTS
DATE EVENT
- ------------------ ---------------------------------------------------
December 1995 DLJ is engaged by Leslie's to advise on strategic
alternatives
January 1996 DLJ and Leslie's halt marketing process due to
market conditions
June 1996 Process is resumed (Leslie's stock at all-time high
of $19.50)
August-October 1996 DLJ conducts comprehensive marketing and
solicitation process (38 potential strategic
partners, 13 potential financial buyers)
October 1996 DLJ receives indications of interest from LGP and
Shamrock Holdings ("Shamrock")
November 12, 1996 Hancock publicly announces $14.50 per share offer
December 1996 Leslie's Board of Directors forms Special
Committee; DLJ is engaged by Special Committee
December 24, 1996 LGP revisits the Company to re-evaluate initial
proposal; Shamrock withdraws from process;
LGP submits non-binding offer for $15.00 per
share
January 1997 LGP informs DLJ of their participation in Hancock's
original proposal
Keller expresses interest then withdraws
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
LESLIE'S POOLMART
- -------------------------------------------------------------------------------
MARKETING PROCESS SUMMARY
<TABLE>
<CAPTION>
RECEIVED RECEIVED
CONFIDENTIALITY INFORMATION
POTENTIAL PURCHASER CONTACTED AGREEMENTS MEMORANDUM INDICATED INTEREST
- ------------------------------ -------------------- --------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
STRATEGIC BUYERS
- ----------------
Aoen/Jusco X
Albertson's Inc. X
Authentic Fitness Corporation X
Carrefour S.A. X
CML Group, Inc. X X X
Culligan Water Technologies, Inc X
CVS H.C. Inc. X
Delhaize "Le Lion" S.A. X
Eckerd Corporation X
Fingerhut Companies, Inc. X
Food Lion, Inc. X
Great Lakes Chemical X
Hayward Industries, Inc. X
Home Depot, Inc. X
Hughes Supply, Inc. X
Israel Chemicals Limited X
Kroger Company X
Limited, Inc. X
Lowe's Companies, Inc. X
Metro Vermogensverwaltlungs RG X
Olin Corporation X X X
PPG X
Price/Costco, Inc. X
Publix Super Markets, Inc. X
Rentokill Group, Plc. X
Roto-Rooter X
Sears, Roebuck & Co. X
Sentrachem Limited X
</TABLE>
- ----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
MARKETING PROCESS SUMMARY (CONT'D)
<TABLE>
<CAPTION>
RECEIVED RECEIVED
CONFIDENTIALITY INFORMATION
POTENTIAL PURCHASER CONTACTED AGREEMENTS MEMORANDUM INDICATED INTEREST
- ----------------------------------------- ------------------ --------------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
STRATEGIC BUYERS
- ----------------
Service Master X
Tangleman Warenhandels X
Gesellschaft/Great A&P
Tesco Plc X
Thrifty PayLess Holdings X
Toys R' Us X
Vons Companies X
Wicor X X X
Williams-Sonoma, Inc. X
Winn-Dixie X
Zodiac S.A. X X X
SUB TOTAL 38 4 4 0
FINANCIAL BUYERS
- ----------------
Apollo Advisors X X X
Castle Harlan, Inc. X
Code, Hennessy & Simmons, Inc. (SCP Pools) X
Freeman, Spogli & Company, Inc. X X X
Hicks Muse Tate & Furst X
Investcorp International, Inc., X
Keller Group X X X
Kohlberg & Company X X X
Leonard Green & Partners X X X X
Rosecliff, Inc. X X X
Shamrock Capital Advisors, Inc. X X X X
Saunders, Karp & Company X X X
Thomas H. Lee Co. X X X
SUB TOTAL 13 9 9 2
GRAND TOTAL 51 13 13 2
</TABLE>
- ----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
HISTORICAL AND PROJECTED FINANCIAL PERFORMANCE
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
EVOLUTION OF PROJECTED FINANCIAL RESULTS
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DATE OF PROJECTIONS/(1)/
----------------------------------------------------------------------
OFFERING
MEMORANDUM 9/11/96 12/19/97 2/21/97
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
EBITDA
- ------
1996......................... $17,600 $16,100 $14,362 $14,477
1997......................... 22,113 20,500 18,928 18,122
EPS
- ---
1996......................... $0.86 $0.73 $0.61 $0.63
1997......................... 1.14 0.96 0.86 0.80
</TABLE>
- ---------------------
(1) The date DLJ received the projections from the Company.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
DIFFERENCE BETWEEN ACTUAL AND ESTIMATED EPS/(1)/
1991-1996
[THE TABLE ON THE FOLLOWING PAGE WAS DEPICTED AS A GRAPH HERE IN THE PRINTED
MATERIAL.]
- ------------------
(1) Mean IBES rolling earning per share estimate.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
COMPARISON OF ACTUAL VS. ESTIMATED EPS(1)
1991-1996
<TABLE>
<CAPTION>
SEP-91 DEC-91 MAR-92 JUN-92 SEP-92 DEC-92 MAR-93 JUN-93 SEP-93 DEC-93 MAR-94
-------------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual EPS $0.31 $(0.19) $(0.44) $0.71 $0.34 $(0.27) $(0.56) $0.93 $0.39 $(0.29) $(0.54)
IBES Mean Estimates 0.31 (0.19) (0.43) 0.79 0.34 (0.26) (0.51) 0.89 0.51 (0.32) (0.68)
----- ------ ------- ----- ----- ------ ------ ----- ----- ------ -----
Over / (Under) 0.00 0.00 (0.01) (0.08) 0.00 (0.01) (0.05) 0.04 (0.12) 0.03 0.14
<CAPTION>
JUN-94 SEP-94 DEC-94 MAR-95 JUN-95 SEP-95 DEC-95 MAR-96 JUN-96 SEP-96 DEC-96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Actual EPS $1.10 $0.50 $(0.36) $(0.67) $1.01 $0.73 $(0.56) $(0.82) $1.41 $0.62 $(0.58)
IBES Mean Estimates 1.16 0.50 (0.34) 0.60 1.32 0.88 (0.38) NA 1.43 0.66 (0.59)
----- ----- ----- ------ ----- ----- ------- ------- ----- ----- -------
Over / (Under) (0.06) 0.00 (0.02) (0.07) (0.31) (0.15) (0.18) NA (0.02) (0.04) 0.01
</TABLE>
- -------------------------
(1) Mean IBES rolling earning per share estimates.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
SUMMARY HISTORICAL AND PROJECTED DATA
($ in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,/(1)/
-------------------------------------------------------------------------
1991/(2)/ 1992 1993 1994 1995 1996E
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Retail Sales $70,454 $85,355 $107,432 $129,545 $150,263 $179,119
Mail-Order 9,206 8,013 8,918 8,283 7,945 7,723
Service 2,942 2,969 3,605 3,725 4,247 4,798
----- ----- ----- ----- ----- -----
Total Sales 82,602 96,337 119,955 141,553 162,455 191,640
Gross Profit/(3)/ 34,547 39,017 48,289 55,469 60,399 72,759
SG&A 27,245 32,238 39,550 43,507 50,307 58,282
------ ------ ------ ------ ------ ------
EBITDA 7,302 6,779 8,739 11,962 10,092 14,477
Depreciation and Amortization 2,221 2,423 2,389 2,393 3,373 4,327
----- ----- ----- ----- ----- -----
EBIT 5,081 4,356 6,350 9,569 6,719 10,150
Interest/Other Expenses/(4)/ 1,651 855 1,189 1,733 2,736 3,536
----- ----- ----- ----- ----- -----
Pre-Tax Income 3,430 3,501 5,161 7,836 3,983 6,614
Income Taxes 1,389 1,355 2,126 3,252 576 2,745
----- ----- ----- ----- ----- -----
Net Income $2,041 $2,146 $3,035 $4,584 $3,407 $3,869
====== ====== ===== ===== ===== =====
Shares Outstanding 5,713 6,399 6,464 6,515 6,614 6,790
EPS after extraordinary items $0.36 $0.34 $0.47 $0.70 $0.52 $0.57
EPS before extraordinary $0.36 $0.34 $0.47 $0.70 $0.52 $0.63
items
Margins:
- --------
Gross Margin 41.8% 40.5% 40.3% 39.2% 37.2% 38.0%
SG&A 33.0 33.5 33.0 30.7 31.0 30.4
EBITDA 8.8 7.0 7.3 8.5 6.2 7.6
EBIT 6.2 4.5 5.3 6.8 4.1 5.3
Store Information:
- ------------------
No. of Stores Open 102 143 158 180 224 259
Comp Store Sales Growth 3.7% 2.4% 11.7% 12.9% 6.0% 11.9%
High Stock Price $11.56 $10.20 $10.44 $13.81 $16.67 $19.50
Low Stock Price $4.98 $4.53 $6.80 $7.94 $12.38 $10.50
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,/(1)/
-----------------------------------------------------------
1997P 1998P 1999P 2000P 2001P
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Retail Sales $208,348 $244,139 $281,526 $320,338 $362,609
Mail-Order 8,300 8,300 8,300 8,300 8,300
Service 6,661 7,660 8,809 10,131 11,650
----- ----- ----- ------ ------
Total Sales 223,309 260,099 298,635 338,768 382,559
Gross Profit/(3)/ 85,617 100,174 114,972 130,137 146,612
SG&A 67,495 77,510 87,970 99,250 111,770
------ ------ ------ ------ -------
EBITDA 18,122 22,664 27,002 30,887 34,842
Depreciation and Amortization 5,492 5,710 6,042 6,424 6,848
----- ----- ----- ----- -----
EBIT 12,630 16,954 20,960 24,463 27,994
Interest/Other Expenses/(4)/ 3,100 3,039 2,900 2,645 2,289
----- ----- ----- ----- -----
Pre-Tax Income 9,530 13,915 18,059 21,818 25,704
Income Taxes 3,955 5,668 7,326 8,829 10,384
----- ----- ----- ----- ------
Net Income $5,575 $8,247 $10,733 $12,989 $15,320
====== ====== ======= ======= =======
Shares Outstanding 7,050 7,214 7,394 7,579 7,769
EPS after extraordinary items $0.79 $1.14 $1.45 $1.71 $1.97
EPS before extraordinary $0.80 $1.14 $1.45 $1.71 $1.97
items
Margins:
- --------
Gross Margin 38.3% 38.5% 38.5% 38.4% 38.3%
SG&A 30.2 29.8 29.5 29.3 29.2
EBITDA 8.1 8.7 9.0 9.1 9.1
EBIT 5.7 6.5 7.0 7.2 7.3
Store Information:
- ------------------
No. of Stores Open 284 319 359 404 454
Comp Store Sales Growth 10.7% 10.5% 8.8% 7.4% 7.0%
High Stock Price -- -- -- -- --
Low Stock Price -- -- -- -- --
</TABLE>
- ----------------------
(1) Financial data for 1996 derived from unaudited year-end closing estimates
made by the Company. Financial data for 1997-2001 derived from management's
estimates and projection models.
(2) 1991 results exclude a non-recurring charge of approximately $1.8 mm.
(3) Cost of goods sold includes manufacturing overhead and store and
distribution center (DC) occupancy costs.
(4) Includes write-off of assets of $28,000, $750,000 and $100,000 in 1995,
1996E and 1997P, respectively.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
SUMMARY OF COMPARABLE STORE GROWTH
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Quarter 1.................... 10.7% (7.0%) (2.7%) 12.1% (0.6%) 6.6%
Quarter 2.................... 4.4 3.8 14.3 15.0 (0.3) 16.1
Quarter 3.................... 1.0 3.9 12.0 10.5 16.0 4.2
Quarter 4.................... NA 3.3 13.0 12.3 9.5 6.4
Full Year.................... 3.7 2.4 11.7 12.9 6.0 11.9
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
STOCK PRICE HISTORY
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
LESLIE'S HISTORICAL TRADING PERFORMANCE
April 19, 1991 through February 21, 1997
[GRAPH SHOWING HISTORICAL TRADING PRICE AND WEEKLY TRADING VOLUME FOR THE PERIOD
COMMENCING ON 4/19/91 AND ENDING ON 2/21/97 APPEARS HERE, COMPARED TO THE
ACQUISITION PRICE OF $14.50]
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(2/21/92 - 2/19/97) (2/21/96 - 2/21/97) (11/21/96 - 2/21/97) (1/21/96 - 2/21/97)
---------------------- -------- ------------------------ -------- --------------------- --------- ------------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Since IPO High $19.50 52-Week High $19.50 90-Day High $13.63 30-Day High $13.50
Since IPO Low 4.54 52-Week Low 10.50 90-Day Low 12.75 30-Day Low 12.88
Mean 10.66 Mean 13.71 Mean 13.07 Mean 13.10
Average Volume/(1)/ 32,257 Average Volume/(1)/ 33,454 Average Volume/(1)/ 23,585 Average Volume/(1)/ 15,764
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ----------------------
(1) Reflects average daily trading volume over the period.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
LESLIE'S STOCK PRICE PERFORMANCE: LAST TWELVE MONTHS
[GRAPH SHOWING THE STOCK PRICE PERFORMANCE (PRICE AND WEEKLY TRADING VOLUME) FOR
THE LAST TWELVE-MONTH PERIOD COMMENCING ON 2/23/96 AND ENDING ON 12/27/96, WITH
DESCRIPTION OF SPECIFIC EVENTS APPEARS HERE, COMPARED TO THE ACQUISITION PRICE
OF $14.50.]
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
HISTORICAL INDEXED STOCK PRICE PERFORMANCE
February 21, 1996 through February 21, 1997
[GRAPH SHOWING THE HISTORICAL INDEXED STOCK PRICE PERFORMANCE FOR THE COMPANY, A
COMPOSITE AND THE S & P 400 FOR THE PERIOD COMMENCING ON 2/21/96 AND ENDING ON
2/21/97 APPEARS HERE.]
- --------------------------
(1) Composite includes Central Tractor Farm & Country, Discount Auto Parts,
Eagle Hardware Garden, Friedman's, Garden Ridge, O'Reilly Automotive, SPC
Pool, Tractor Supply and West Marine.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
HISTORICAL INDEXED STOCK PRICE PERFORMANCE
February 21, 1995 through February 21, 1997
[GRAPH SHOWING THE HISTORICAL INDEXED STOCK PRICE PERFORMANCE FOR THE COMPANY, A
COMPOSITE AND THE S & P 400 FOR THE PERIOD COMMENCING 2/21/95 AND ENDING ON
2/21/97 APPEARS HERE.]
- -----------------------
(1) Composite includes Central Tractor Farm & Country, Discount Auto Parts,
Eagle Hardware Garden, Friedman's, Garden Ridge, O'Reilly Automotive, SPC
Pool, Tractor Supply and West Marine.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
STOCK TRADING HISTOGRAM
February 21, 1996 through February 21, 1997
[THE FOLLOWING TABLE WAS DEPICTED AS A HISTOGRAM IN THE PRINTED MATERIAL.]
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Volume 8,366,800 6,313,000 4,575,800
Percent 100.0% 75.5% 54.7%
Stock Price $10.00 less than $11.50 less than $13.00 less than
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Volume 2,470,000 1,238,400 1,217,300 98,800
Percent 29.5% 14.8% 14.5% 1.2%
Stock Price $14.50 less than $16.00 less than $17.50 less than $19.00 less than
- -------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
STOCK TRADING HISTOGRAM
February 21, 1995 through February 21, 1997
[THE FOLLOWING TABLE WAS DEPICTED AS A HISTOGRAM IN THE PRINTED MATERIAL.]
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Volume 14,930,572 12,876,772 10,226,946
Percent 100.0% 86.2% 68.5%
Stock Price $10.00 less than $11.50 less than $13.00 less than
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Volume 5,363,723 1,956,056 1,217,300 98,800
Percent 35.9% 13.1% 8.2% 0.7%
Stock Price $14.50 less than $16.00 less than $17.50 less than $19.00 less than
- -------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-6-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
STOCK TRADING HISTOGRAM
February 21, 1996 through February 21, 1997
[THE FOLLOWING TABLE WAS DEPICTED AS A HISTOGRAM IN THE PRINTED MATERIAL.]
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume 1,366,400 779,400 1,645,200 1,914,200 386,100
Stock Price $10 - $10.99 $11 - $11.99 $12 - $12.99 $13- 13.99 $14 - $14.99
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume 1,037,100 8,800 271,200 859,600 98,800
Stock Price $15 - $15.99 $16 - $16.99 $17 - $17.99 $18 - $18.99 $19 - $19.99
- ---------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-7-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
STOCK TRADING HISTOGRAM
February 21, 1995 through February 21, 1997
[THE FOLLOWING TABLE WAS DEPICTED AS A HISTOGRAM IN THE PRINTED MATERIAL.]
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume 1,366,400 779,400 2,557,826 4,233,967 1,665,310
Stock Price $10 - $10.99 $11 - $11.99 $12 - $12.99 $13- 13.99 $14 - $14.99
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Volume 2,371,612 726,456 271,200 859,600 98,800
Stock Price $15 - $15.99 $16 - $16.99 $17 - $17.99 $18 - $18.99 $19 - $19.99
- ---------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-8-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
VALUATION SUMMARY
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
<PAGE>
LESLIE'S POOLMART
- -------------------------------------------------------------------------------
VALUATION METHODOLOGY OVERVIEW
- ---------------------------------
PREMIUM ANALYSIS Comparison of the premium of the
Acquisition Price over the current market
price relative to premiums paid in all
closed merger and acquisition transactions
occurring between January 1, 1996 and
February 21, 1997 with transaction
valuations of between $50 and $250 million
- ---------------------------------
COMPARISON OF SELECTED PUBLICLY Comparison of the implied purchase
TRADED COMPARABLE COMPANIES multiples of the proposed Transaction to
trading multiples of selected publicly
- --------------------------------- traded specialty retailers
ANALYSIS OF SELECTED TRANSACTIONS Comparison of the implied purchase
IN THE SPECIALTY RETAIL SECTOR multiples of the proposed Transaction to
multiples paid in recent comparable merger
and acquisition transactions in the
specialty retailing industry
- ---------------------------------
DISCOUNTED CASH FLOW ANALYSIS Comparison of the implied equity purchase
price of Leslie's to the value of its
discounted future cash flows based on: (i)
the Company's projections; and (ii)
adjusted projections utilizing a 20%
discount applied to the Company's
projections
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-1-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
PREMIUM ANALYSIS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DATE PRIOR TO
ANNOUNCEMENT DATE (11/12/96) 1 DAY 1 WEEK 1 MONTH
- ------------------------------------- ------------------ ---------------- ---------------
<S> <C> <C> <C>
Leslie's Stock Price............................. $11.50 $11.00 $10.75
Purchase Price................................... 14.50 14.50 14.50
Implied Acquisition Premium...................... 26.1% 31.8% 34.9%
Median Premiums-M&A Transactions................. 19.0 24.6 28.4
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-2-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
COMPARISON OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES
($ IN MILLIONS,EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
LESLIE'S
IMPLIED ACQUISITION
MULTIPLE/(1)/ COMPARABLE TRADING MULTIPLES
------------------------- -------------------------------------------
LTM 1996E MEDIAN MEAN(2) HIGH LOW
------- ------------ ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ENTERPRISE VALUE/
LTM Revenues................ 0.7x 0.7x 0.7x 0.8x 1.4x 0.5x
LTM EBITDA.................. 8.2 9.2 8.0 8.3 19.7 6.2
LTM EBIT.................... 11.6 13.2 9.8 10.3 24.6 7.8
PRICE/
LTM EPS..................... 21.7x 23.0x 16.5x 16.5x 51.1x 10.2x
1996 EPS.................... 23.0 23.0 16.7 13.0 38.6 8.8
1997 EPS.................... 17.1 17.1 12.5 10.3 27.1 7.1
LTM EBITDA Margin............ 8.1% 7.6% 7.2% 9.2% 16.4% 6.2%
3 Year Historical EPS Growth
Rate........................ 5.0 15.6 25.7 25.1 105.4 (1.0)
5 Year Projected EPS Growth
(IBES)...................... 17.0 17.0 20.5 22.5 31.0 17.5
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
(1) Assumes purchase price of $14.50 per share.
(2) Mean excludes high and low.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-3-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
COMPARISON OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VALUATION MULTIPLES
-----------------------------------------------------
ENTERPRISE VALUE PRICE/
-------------------- --------------------------------
STOCK PRICE EQUITY ENTERPRISE LTM LTM LTM PROJ. 1996 PROJ. 1997
COMPANY MKT. CAP. VALUE REVENUES EBITDA EPS EPS EPS
- --------------------------- ----------- --------- ----------- -------- ------ ---- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leslie's Poolmart - LTM $14.50 $100.678 $126.022 0.7x 8.2x 21.7x 23.0x 17.1x
Leslie's Poolmart - 1996E 14.50 100.678 133.799 0.7 9.2 23.0 23.0 17.1
Comparables:
Central Tractor Farm & Country $13.88 $148.059 $165.430 0.6x 8.0x 17.3x 16.7x 12.5x
Discount Auto Parts Inc. 15.75 261.135 353.738 1.0 6.2 10.2 10.2 9.8
Eagle Hardware & Garden Inc. 16.13 465.470 499.532 0.7 10.4 19.9 21.2 17.3
Friedman's Inc. 14.25 204.142 194.439 1.2 8.1 13.6 8.8 7.1
Garden Ridge Corp. 7.75 138.188 110.452 0.6 6.9 15.7 14.9 12.1
O'Reilly Automotive Inc. 31.75 331.904 321.462 1.3 9.9 17.9 17.4 14.8
SCP Pool Corp. 22.38 94.485 114.672 0.5 7.6 NM 22.6 14.4
Tractor Supply Co. 21.00 183.078 201.472 0.5 7.4 14.6 14.0 11.5
West Marine Inc. 30.13 493.991 519.022 1.4 19.7 51.1 38.6 27.1
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-4-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
ANALYSIS OF SELECTED TRANSACTIONS IN THE SPECIALTY RETAIL SECTOR/(1)/
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LESLIE'S J.W. CHILDS/
IMPLIED ACQUISITION CENTRAL
MULTIPLE/(2)/ COMPARABLE ACQUISITION MULTIPLES TRACTOR
-------------------- ----------------------------------------- ------------
LTM 1996E MEDIAN MEAN/(3)/ HIGH LOW
------- --------- ---------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
ENTERPRISE VALUE/
LTM Revenues................ 0.7x 0.7x 0.6x 0.5x 0.9x 0.2x 0.6x
LTM EBITDA.................. 8.2 9.2 9.4 9.7 12.3 7.6 8.4
LTM EBIT.................... 11.6 13.2 13.1 15.3 27.9 10.4 10.4
EQUITY VALUE/
LTM Net Income.............. 21.8x 21.8x 22.4x 25.7x 48.8x 11.2x 17.8x
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Completed transactions with values ranging from $50 to $500 million.
(2) Assumes purchase price of $14.50 per share.
(3) Mean excludes high and low.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-5-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS: MANAGEMENT CASE
($ in thousands, except per share data)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 30,
---------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBIT......................... $ 12,630 $16,954 $20,960 $24,463 $27,994
Taxes................. 40.0% 5,052 6,781 8,384 9,785 11,197
----- -------- ------- ------- ------- -------
After-tax EBIT............... 7,578 10,172 12,576 14,678 16,796
Plus: D & A............... 5,492 5,710 6,042 6,424 6,848
Less: CapEx............... (7,700) (7,200) (7,800) (8,400) (8,400)
Less: Change in WC........ (7,029) (4,106) (4,668) (5,249) (5,846)
-------- ------- ------- ------- -------
Free Cash Flow............... $ (1,659) $ 4,576 $ 6,150 $ 7,453 $ 9,399
======== ======= ======= ======= =======
<CAPTION>
----------------------------------------------------------------------------------------------------------------
5 YEAR EXIT IMPLIED VALUE PER SHARE BASED ON A DISCOUNT RATE OF:
EBITDA -----------------------------------------------------------------------------------
MULTIPLE 12.0% 14.0% 16.0% 18.0%
- ------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
6.5 $16.49 $14.73 $13.14 $11.70
7.0 17.95 16.06 14.36 12.82
7.5 19.41 17.39 15.58 13.94
8.0 20.86 18.73 16.80 15.06
8.5 22.32 20.06 18.02 16.19
----------------------------------------------------------------------------------------------------------------
</TABLE>
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-6-
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS: ADJUSTED CASE
($ in thousands, except per share data)
<TABLE>
<CAPTION>
PROJECTED FISCAL YEAR ENDED DECEMBER 30,
---------------------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EBIT/(1)/.................... $ 10,104 $13,563 $16,768 $19,570 22,395
Taxes................ 40.0% 4,042 5,425 6,707 7,828 8,958
----- -------- ------- ------- ------- -------
After-tax EBIT............... 6,062 8,138 10,061 11,742 13,437
Plus: D & A............... 5,492 5,710 6,042 6,424 6,848
Less: CapEx............... (7,700) (7,200) (7,800) (8,400) (8,400)
Less: Change in WC........ (7,029) (4,106) (4,668) (5,249) (5,846)
-------- ------- ------- ------- -------
Free Cash Flow............... $ (3,175) $ 2,542 $ 3,635 $ 4,517 $ 6,039
======== ======= ======= ======= =======
<CAPTION>
----------------------------------------------------------------------------------------------------------------
5 YEAR EXIT IMPLIED VALUE PER SHARE BASED ON A DISCOUNT RATE OF:
EBITDA -----------------------------------------------------------------------------------
MULTIPLE 12.0% 14.0% 16.0% 18.0%
- -------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
6.5 $12.20 $10.76 $ 9.46 $ 8.29
7.0 13.42 11.87 10.48 9.23
7.5 14.64 12.99 11.51 10.17
8.0 15.86 14.11 12.53 11.11
8.5 17.08 15.23 13.56 12.05
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------
(1) Discounted 20%.
- -----------------------------------------------------------------------------DLJ
DONALDSON, LUFKIN & JENRETTE
-7-
<PAGE>
EXHIBIT 13 TO 13E-3/A
- --------------------------------------------------------------------------------
CONFIDENTIAL
[LESLIE'S POOLMART LOGO]
PRESENTATION TO THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
DILLON, READ & CO. INC.
FEBRUARY 26, 1997
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Table of Contents
<TABLE>
<CAPTION>
Tab
---
<S> <C>
Review of Proposed Transaction.............................................A
Overview of Sale Process.........................................A - 1
Summary of Terms and Conditions of Offer.........................A - 2
Acquisition Multiples............................................A - 3
Financing Structure and Analysis of Feasibility of Proposal......A - 4
Review of Leslie's Poolmart................................................B
Historical Financial Performance.................................B - 1
Historical Trading Analysis......................................B - 2
Projected Business Plan and Strategy.............................B - 3
Preliminary Valuation......................................................C
Exhibits
- --------
Financial Projections Model.............................................1
Discounted Cash Flow Analysis...........................................2
LBO Analysis............................................................3
Recapitalization Analysis...............................................4
Calculation of Estimated Weighted Average Cost of Capital...............5
</TABLE>
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
REVIEW OF PROPOSED TRANSACTION....................................... A
Overview of Sale Process....................................... A - 1
</TABLE>
<PAGE>
LESLIE'S POOLMART/A-1-1
- --------------------------------------------------------------------------------
Executive Summary
. DILLON READ HAS BEEN ASKED TO RENDER AN OPINION AS TO THE FAIRNESS OF A BID
BY POOLMART USA, INC. (A CORPORATION WHOSE SHAREHOLDERS CONSIST OF LEONARD
GREEN & PARTNERS ("LEONARD GREEN") AND CERTAIN EXECUTIVE OFFICERS OF
LESLIE'S POOLMART ("LESLIE'S" OR THE "COMPANY")) FOR LESLIE'S.
<PAGE>
LESLIE'S POOLMART/A-1-2
- --------------------------------------------------------------------------------
History of Sale Process
. IN NOVEMBER OF 1995 LESLIE'S POOLMART RETAINED DONALDSON, LUFKIN & JENRETTE
("DLJ") AS FINANCIAL ADVISOR TO REVIEW POSSIBLE STRATEGIC ALTERNATIVES FOR
THE COMPANY, INCLUDING:
- Strategic acquisition
- Strategic alliance with third parties
- Sale of the Company
. THE PROCESS WAS DELAYED DUE TO LESLIE'S WEAK PERFORMANCE IN LATE 1995 AND
EARLY 1996.
- Process was reinstated in late summer 1996 based on Leslie's improved
results in 2Q of 1996.
. DLJ CONTACTED 51 POTENTIAL PARTNERS AND/OR ACQUIRORS INCLUDING 39 CORPORATE
BUYERS AND 12 FINANCIAL BUYERS.
- Potential corporate buyers included chemical manufacturers, general
retailers and specialty retailers.
. THE COMPANY DISTRIBUTED INFORMATION MEMORANDUMS TO 12 POTENTIAL ACQUIRORS
(8 FINANCIAL BUYERS AND 4 CORPORATE BUYERS) WHO EXPRESSED INTEREST AND
SIGNED CONFIDENTIALITY AGREEMENTS.
<PAGE>
LESLIE'S POOLMART/A-1-3
- --------------------------------------------------------------------------------
History of Sale Process
. AFTER EXTENSIVE DISCUSSION WITH A NUMBER OF PARTIES, ONLY TWO POTENTIAL
ACQUIRORS SUBMITTED FORMAL PRELIMINARY INDICATIONS OF INTEREST. THE
FOLLOWING PARTIES SHOWED INTEREST IN LESLIE'S POOLMART.
- Shamrock Associates, L.P.
. On November 10, 1996 submitted a preliminary indication of $13.00 -
$14.00 per share
- Leonard Green & Partners, L.P.
. On November 12, 1996 submitted a preliminary indication of $14.50 per
share
. ON NOVEMBER 12, 1996 HANCOCK PARK ASSOCIATES ("HANCOCK") ANNOUNCED THEIR
OWN INDICATION OF $14.50 PER SHARE.
- Hancock, the Company's largest shareholder, is a partnership consisting
of Leslie's Chairman, Michael Fourticq, and President and CEO, Brian
McDermott, as well as certain other members of senior management.
<PAGE>
LESLIE'S POOLMART/A-1-4
- --------------------------------------------------------------------------------
History of Sale Process
. ON DECEMBER 24, 1996 LEONARD GREEN EXPRESSED PRELIMINARY INTEREST IN
SPONSORING A LEVERAGED RECAPITALIZATION OF THE COMPANY WHICH WOULD DELIVER
$15.00 PER SHARE OF CASH TO SHAREHOLDERS.
. AFTER CONDUCTING ADDITIONAL DUE DILIGENCE, HOWEVER, LEONARD GREEN
REAFFIRMED ITS INITIAL BID OF $14.50 PER SHARE ON JANUARY 30, 1997.
- Leonard Green believed the Company would be too leveraged at a $15.00
share price and the resulting weakened credit statistics could affect
the success of the transaction.
- In addition, Leonard Green decided to join with Hancock in formulating a
proposal in order to ensure continuity of management.
. HANCOCK FORMALLY SUBMITTED A PROPOSAL TO SPONSOR A LEVERAGED
RECAPITALIZATION AT $14.50 PER SHARE WITH BOTH HANCOCK AND LEONARD GREEN
ACTING AS EQUITY SPONSORS.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
REVIEW OF PROPOSED TRANSACTION........................ A
Overview of Sale Process...................A - 1
SUMMARY OF TERMS AND CONDITIONS OF OFFER...A - 2
</TABLE>
<PAGE>
LESLIE'S POOLMART/A-2-1
- --------------------------------------------------------------------------------
Summary of Terms and Conditions
DILLON READ HAS CONDUCTED DUE DILIGENCE WITH THE MANAGEMENT OF LESLIE'S
POOLMART AND LEONARD GREEN TO VERIFY THEIR INTEREST IN, FINANCING
CAPABILITY AND PROPOSED FINANCING STRUCTURE OF THE PROPOSED TRANSACTION.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
ACQUIRING ENTITY: Poolmart USA, Inc. (a corporation owned by
Hancock Park Associates and Leonard Green &
Partners, L.P.)
<S> <C>
PRICE PER COMMON SHARE: $14.50
PERCENT OF SHARES TO BE ACQUIRED: 100%
CONSIDERATION: Cash
OFFER FOR EQUITY/1/: $100.7 million
- -----------------------------------------------------------------------------------
</TABLE>
Note 1: Net of proceeds from exercise of options.
<PAGE>
LESLIE'S POOLMART/A-2-2
- --------------------------------------------------------------------------------
Summary of Terms and Conditions
CONDITIONS: 1) Completion of financing on satisfactory terms and
conditions
2) No material adverse change
3) Satisfactory review of year-end audited financial
statements
4) Receipt of regulatory approval and SEC acceptance of
recapitalization accounting treatment
5) Fully diluted ownership by Leonard Green greater
than 50%
6) Compliance with all necessary regulatory and
governmental laws
7) Receipt of approval from Board of Directors of
Leslie's Poolmart
BREAK-UP FEE: Board has fiduciary right to negotiate and accept a
higher offer from another acquiror without incurring any
legal obligations to Hancock other than expense
reimbursement. However, if fiduciary out is invoked,
Leonard Green would receive $1.75 million of break-up
fees and reasonable out-of-pocket expenses of up to $1.5
million would be split between Leonard Green and
Hancock. In addition, if the Company breaks the "no
shop" provision, Leonard Green would receive the break-
up fees.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
REVIEW OF PROPOSED TRANSACTION.................... A
Overview of Sale Process................... A - 1
Summary of Terms and Conditions of Offer... A - 2
ACQUISITION MULTIPLES...................... A - 3
</TABLE>
<PAGE>
LESLIE'S POOLMART/A-3-1
- --------------------------------------------------------------------------------
Acquisition Multiples
. BASED ON A PURCHASE PRICE OF $14.50 PER SHARE, AN OFFER FOR EQUITY OF
$100.7 MILLION AND AN OFFER OF $133.8 MILLION FOR THE NET ASSETS OF
LESLIE'S POOLMART, POOLMART USA WOULD BE PAYING THE FOLLOWING ACQUISITION
MULTIPLES.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
VALUATION
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
Offer price per share $14.50
Primary shares outstanding 6.548
Exercisable options 0.974
------
Total shares 7.522
Total equity value of offer $109.1
Less: cash from exercise of options/1/ (8.4)
------
EQUITY VALUE OF OFFER: $100.7
Plus: debt assumed/2/ 33.2
Less: cash/2/ (0.1)
------
ENTERPRISE VALUE OF OFFER: $133.8
- --------------------------------------------------------------------------------
</TABLE>
Note 1: Average exercise price equals $8.62 per share.
Note 2: 1996 year-end Company preliminary figure.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
IMPLIED ACQUISITION MULTIPLES
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C>
LTM EPS $ 0.65
FY 1996P EPS/1/ 0.63
FY 1997E EPS/2/ 0.80
Book value per common share 5.51
Equity Value to:
LTM EPS 22.3x
FY 1996P EPS/1/ 23.0x
FY 1997E EPS/2/ 18.1x
Book value per share 2.6x
1996P Sales $191.6
1996P EBITDA 14.5/1/
1996P EBIT 10.2/1/
Enterprise Value to:
1996P Sales 0.7x
1996P EBITDA 9.2x
1996P EBIT 13.1x
Acquisition premium over unaffected
stock price of $10.75 34.9%
- --------------------------------------------------------------------------------
</TABLE>
Note 1: Excludes $750,000 asset write-off.
Note 2: Excludes $100,000 asset write-off.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
REVIEW OF PROPOSED TRANSACTION...................... A
Overview of Sale Process................... A - 1
Summary of Terms and Conditions of Offer... A - 2
Acquisition Multiples...................... A - 3
FEASIBILITY OF PROPOSED TRANSACTION........ A - 4
</TABLE>
<PAGE>
LESLIE'S POOLMART/A-4-1
- --------------------------------------------------------------------------------
Feasibility Analysis
. DILLON READ HAS ANALYZED THE FEASIBILITY OF THE PROPOSED LEVERAGED BUYOUT
OF LESLIE'S POOLMART BASED UPON THE PROPOSED FINANCING STRUCTURE USING
ACCEPTED FINANCING PARAMETERS IN TODAY'S CURRENT LENDING MARKET FOR LBO'S.
AS SUCH, A TYPICAL LBO IS STRUCTURED AS FOLLOWS.
- Generally, a minimum of 25% of the purchase price is in the form of
common equity.
- Lenders typically require total indebtedness not to exceed 5.5x EBITDA
(earnings before interest, taxes and depreciation and amortization),
and the senior portion not to exceed 4.0x EBITDA, excluding seasonal
demands. EBITDA for this criteria is generally based on historical
performance as substantial projected improvements are often skeptically
received.
- Subordinated debt or preferred stock lenders typically require 5% - 15%
in equity in the form of warrants which in combination with the
interest / dividend rate on the debt or preferred stock is designed to
yield a combined return in the 20% area.
- Equity investors generally require a minimum return of 30% - 35%
return over four to five years.
<PAGE>
LESLIE'S POOLMART/A-4-2
- --------------------------------------------------------------------------------
Feasibility Analysis
. THE PROPOSED FINANCING STRUCTURE TO BE USED IN THE BUYOUT IS
OUTLINED BELOW.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
SOURCES OF FUNDS
(IN MILLIONS)
Expected Fully-
Interest/ Diluted
% of Dividend Equity
Amount Total Rate Ownership Source
------ ----- -------- --------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Equity $ 22.0 16% -- 81% $6.7MM from rollover of Hancock's and mgmt's equity
holdings; $15.3MM of new equity from Leonard Green
PIK Preferred 28.0 20 11.5-12.0% 15 Occidental Petroleum
------ ----- ---------
Total Equity 50.0 36 96
Sr. Unsecured Notes 85.0 60 11.0-11.5% 4/1/ Bankers Trust underwriting
Revolver 5.7 4 Eurodollar -- Bankers Trust; Five-year
------ ----- Rate + 250 --------- $40.0MM facility
TOTAL SOURCES $140.7 100% 100%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Senior Notes may require a small amount of warrants depending upon
market conditions.
- --------------------------------------------------------------------------------
USES OF FUNDS
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Payment of Cash Dividends $100.7
Repayment of existing debt/1/ 33.2
Fees and expenses 6.8
------
TOTAL USES $140.7
- --------------------------------------------------------------------------------
</TABLE>
Note 1: Preliminary year-end figure.
<PAGE>
LESLIE'S POOLMART/A-4-3
- --------------------------------------------------------------------------------
Illustrative Financing Structure
. PRO FORMA CREDIT STATISTICS UNDER THIS ILLUSTRATIVE FINANCING STRUCTURE
FOLLOW.
- These credit statistics are generally at low end of acceptable levels.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Stand-Alone Leslie's Poolmart Pro Forma
----------------------------- --------------------------
1996E 1997E 1996E 1997E
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
EBIT/ Cash Interest 3.6x 4.2x 1.0x 1.2x
EBITDA/Cash Interest 5.2 6.0 1.4 1.8
EBITDA - CapEx/Cash Interest 2.5 3.5 0.7 1.0
Cash Fixed Charge Coverage Ratio 1.5 1.6 1.0 1.2
EBIT/Total Interest 3.6x 4.2x 1.0x 1.2x
EBITDA/Total Interest 5.2 6.0 1.4 1.8
EBITDA-CapEx/Total Interest 2.5 3.5 0.7 1.0
Total Fixed Charge Coverage Ratio 1.4 1.6 0.9 0.9
Total Debt/Capitalization 47.9% 47.2% 123.7% 120.8%
Total Fixed Obligations/Capitalization/1/ 47.8% 47.1% 161.9% 161.0%
Total Debt/EBITDA 2.3x 2.1x 6.3x 5.1x
Total Debt/EBIT 3.3 3.0 8.9 7.4
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Includes preferred stock in fixed obligations.
<PAGE>
LESLIE'S POOLMART/A-4-4
- --------------------------------------------------------------------------------
Returns Analysis
. ASSUMING THE SUCCESSFUL EXECUTION OF LESLIE'S POOLMART'S BUSINESS PLAN,
THE EQUITY INVESTORS IN LESLIE'S POOLMART SPONSORED BY HANCOCK AND LEONARD
GREEN CAN EXPECT RETURNS IN THE 20% AREA, WHICH IS BELOW THOSE TYPICALLY
SOUGHT BY LBO FUNDS.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
EQUITY RETURN ANALYSIS
(IN MILLIONS)
MULTIPLE OF FY2001E EBITDA
-------------------------------------------------------
5.0x 6.0x 7.0x
------------- ------------- -------------
<S> <C> <C> <C>
FY 2001E EBITDA/1/ $ 35.1 $ 35.1 $ 35.1
Total Enterprise Value 175.5 210.6 245.6
Less: Net Fixed Obligations (140.0) (140.0) (140.0)
------------- ------------- -------------
Total Equity Value 35.5 70.6 105.6
Less: Value of Warrants (6.7) (13.4) (20.1)
------------- ------------- -------------
NET VALUE TO EQUITY INVESTORS $ 26.8 $ 57.2 $ 85.5
Equity Rate of Return 4.5% 17.2% 25.4%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Includes an increase in EBIT of $250,000 due to a savings resulting
from not being a public company.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
Review of Proposed Transaction......................... A
Overview of Sale Process..................... A - 1
Summary of Terms and Conditions of Offer..... A - 2
Acquisition Multiples........................ A - 3
Feasibility of Proposed Transaction.......... A - 4
REVIEW OF LESLIE'S POOLMART............................ B
HISTORICAL FINANCIAL PERFORMANCE............. B - 1
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-1
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. LESLIE'S HAS GROWN DRAMATICALLY OVER THE PAST FIVE YEARS NEARLY DOUBLING
THE TOTAL NUMBER OF RETAIL STORES.
---------------------------------------------------------------------------
STORES OPERATED AT YEAR END
[GRAPH APPEARS HERE]
CAGR: 16.0%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
143 158 180 224 259
- -------------------------------------------------------------------------------------------------------
Number of Net New
Stores Opened 41 15 22 44 35
% Change 40.2% 10.5% 13.9% 24.4% 15.6%
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-2
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. LESLIE'S SALES GROWTH HAS BENEFITED FROM THE COMPANY'S ENTRY INTO THE
COMMERCIAL SEGMENT OF THE MARKET.
--------------------------------------------------------------------------
COMMERCIAL SALES
(in millions)
[GRAPH APPEARS HERE]
CAGR: 50.5%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
---- ---- ----- ----- -----
<S> <C> <C> <C> <C>
$4.0 $7.3 $10.9 $17.1 $20.5
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
% Change N.A. 82.5% 49.3% 56.9% 19.9%
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-3
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. HOWEVER, THE COMPANY'S CATALOG SALES HAVE BEEN NEGATIVELY IMPACTED BY NEW
STORE OPENINGS DUE TO CANNIBALIZATION.
--------------------------------------------------------------------------
CATALOG SALES
(in millions)
[GRAPH APPEARS HERE]
CAGR: (1.0%)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
---- ---- ---- ---- -----
<S> <C> <C> <C> <C>
$8.0 $8.9 $8.3 $7.9 $7.7
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
% Change (3.0%) 11.3% (6.7%) (4.8%) (2.5%)
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-4
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. COMPARABLE STORE SALES HAVE TYPICALLY BEEN IN THE LOW DOUBLE
DIGIT AREA.
- Compares favorably to other retailers
- Exceptions (1992 and 1995) were largely due to poor weather.
--------------------------------------------------------------------------
COMPARABLE STORE SALES GROWTH
[GRAPH APPEARS HERE]
Average: 8.8%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
---- ----- ----- ---- -----
<S> <C> <C> <C> <C>
2.4% 11.7% 12.9% 6.0% 11.0%
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-5
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. AS A RESULT OF THESE FACTORS TOTAL REVENUES HAVE GROWN FROM $96.3 MILLION
IN 1992 TO $191.6P MILLION IN 1996.
--------------------------------------------------------------------------
TOTAL SALES
(in millions)
[GRAPH APPEARS HERE]
CAGR: 18.8%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
96.3 $119.9 $141.6 $162.5 $191.6
- ------------------------------------------------------------------------------------------
% Change 16.6% 24.5% 18.1% 14.8% 18%
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-6
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
--------------------------------------------------------------------------
GROSS PROFIT
(in millions)
[GRAPH APPEARS HERE]
CAGR: 16.8%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
$39.0 $48.3 $55.5 $60.4 $72.7
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
% Change 13.0% 23.8% 14.9% 8.8% 20.4%
- --------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
GROSS MARGIN
(in millions)
[GRAPH APPEARS HERE]
Average: 39.0%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
----- ----- ----- ----- -----
<S> <C> <C> <C> <C>
40.5% 40.3% 39.2% 37.2% 37.9%
</TABLE>
--------------------------------------------------------------------------
EBIT
(in millions)
[GRAPH APPEARS HERE]
CAGR: 23.4%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P/1/
----- ----- ----- ----- --------
<S> <C> <C> <C> <C>
$4.4 $6.4 $9.6 $6.7 $10.2
</TABLE>
--------------------------------------------------------------------------
Note 1: Excludes $750,000 asset write-off.
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
% Change (13.7%) 45.5% 50.0% (30.2%) 52.2%
- --------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
EBIT MARGIN
[GRAPH APPEARS HERE]
Average: 5.2%
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996P
---- ---- ---- ---- -----
<S> <C> <C> <C> <C>
4.5% 5.3% 6.8% 4.1% 5.3%
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-1-7
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance
. MARGINS AND PROFITABILITY HAVE BEEN NEGATIVELY IMPACTED OVER THE PAST
SEVERAL YEARS DUE TO A NUMBER OF FACTORS.
- 1995 results were particularly impacted by generally wet and cold
weather which reduced sales.
. 1996 results improved, in part, due to more normal weather patterns.
- In addition, the Company was unable to pass on to consumers during
1995 price increases in many of its products.
. However, the Company was able to increase prices during 1996.
- As a result of the significant increase in new store openings, many
stores were opened late in the season during FY1995 and FY1996 and
performed below the Company's new store model, incurring greater than
expected losses in the first year.
. Approximately 40% of Leslie's stores have been open three years or
less.
. As a result, the Company intends to reduce the number of new store
openings going forward.
<PAGE>
LESLIE'S POOLMART/B-1-8
- --------------------------------------------------------------------------------
Overview of Historical Financial Performance (Cont'd)
- The Company's entry into Florida, an important market, has not matched
expectations.
. New stores (20) in Florida have performed below the Company's store
model.
-----------------------------------------------------------------------
FLORIDA FINANCIAL RESULTS
<TABLE>
<CAPTION>
1994 1995 1996E
---------- ----------- -----------
<S> <C> <C> <C>
Sales $2,610,059 $4,562,243 $6,997,429
Store Operating Loss NA (599,083) (400,000)
</TABLE>
- ------------------------------------------------------------------------------
. Company plans no more new stores in Florida and expects Florida stores
to reach breakeven in 1997 and profitability in 1998.
- Commercial sales did not increase as projected during 1996 due to the
Company's decision to hire commercial account salespeople and change the
commission structure.
. New salespeople took longer than expected to generate revenue.
. Compensation system removed incentive for store managers to focus on
commercial business.
. The Company intends to restructure compensation system for 1997 in
order to assure appropriate incentive for store managers as well as
commercial salespeople.
. AS A RESULT OF THE ABOVE FACTORS, 1995 AND 1996P FINANCIAL PERFORMANCE
(ALTHOUGH IMPROVED VS. 1995) WAS SIGNIFICANTLY BELOW INVESTORS'
EXPECTATIONS.
<PAGE>
LESLIE'S POOLMART/B-1-9
- --------------------------------------------------------------------------------
Comparable Financial Analysis
. EXCEPT FOR GROSS MARGIN LESLIE'S FINANCIAL RESULTS ARE GENERALLY BELOW
THOSE OF ITS PEERS.
--------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
(in millions)
<TABLE>
<CAPTION>
3 Yr. CAGR Gross Margin EBIT Margin
----------------------- ------------------- --------------------
LTM 3 Year 3 Year
Company Revenues Revenues Net Income Average LTM Average LTM
- ----------------------------- -------- -------- ---------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Related Industry
- ----------------
West Marine $ 300 35.1% 29.1% 28.8% 29.5% 6.5% 8.2%
SCP Pool 211 54.7 (17.6) 23.8 23.0 7.0 6.1
Home Centers
- ------------
Home Depot $18,329 29.4% 26.5% 27.8% 27.7% 7.7% 7.8%
Lowe's 8,255 24.9 31.0 22.6 23.1 7.1 5.7
Wickes Lumber 860 7.2 NA 23.0 21.5 2.5 1.2
"Category Killers"
- ------------------
The Sports Authority $ 1,220 31.3% 32.3% 27.5% 28.4% 3.6% 3.6%
Office Max 3,036 33.7 122.4 21.9 21.9 2.6 3.4
Toys 'R Us 9,870 8.9 (10.6) 28.9 28.2 9.6 8.0
PetSmart 1,227 45.9 NA 25.9 27.4 1.3 6.0
Bed Bath & Beyond 701 40.2 34.3 41.7 41.5 11.7 10.9
Leslie's Poolmart/1/ $ 192 16.4% (3.0%)/2/ 38.1% 37.9% 5.4% 5.3%/2/
Ranking 11/11 9/11 7/9 2/11 2/11 7/11 8/11
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: 1996 Company preliminary figures.
Note 2: Excludes $750,000 asset write-off.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
Review of Proposed Transaction..................... A
Overview of Sale Process..................A - 1
Summary of Terms and Conditions of Offer..A - 2
Acquisition Multiples.....................A - 3
Feasibility of Proposed Transaction.......A - 4
REVIEW OF LESLIE'S POOLMART........................ B
Historical Financial Performance..........B - 1
HISTORICAL TRADING ANALYSIS...............B - 2
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-2-1
- --------------------------------------------------------------------------------
Overview of Leslie's trading statistics
. LESLIE'S POOLMART COMPLETED ITS IPO IN APRIL 1991 AT $11.00 PER SHARE.
. THE COMPANY'S STOCK PRICE REACHED A LOW OF $4.54 ON JULY 15, 1992, AND A
SUBSEQUENT HIGH OF $19.50 ON JUNE 14, 1996.
. LESLIE'S STOCK JUMPED $2.875 FROM $16.250 TO $19.125 ON MAY 31, 1996.
- We believe this increase was due to investors wrongly interpreting the
announced acquisition of Leslie's Supply (a private distributor of
office equipment) by Danka Business Systems in late May 1996.
- The stock subsequently declined to $16.00 by early July.
- As a result we believe the true all-time high stock price is
approximately $16.50.
----------------------------------------------------------------------
LESLIE'S POOLMART HISTORICAL STOCK PRICE PERFORMANCE, IPO TO PRESENT
[GRAPH APPEARS HERE]
<PAGE>
LESLIE'S POOLMART/B-2-2
- --------------------------------------------------------------------------------
Leslie's Trading Statistics
. THE STOCK SUBSEQUENTLY RECEDED TO $10.75 PRIOR TO THE ANNOUNCEMENT OF
HANCOCK'S INITIAL ACQUISITION OFFER.
- The recent decline was largely attributable to disappointing third
quarter sales and earnings growth.
. DESPITE CONTINUED SALES AND EARNINGS GROWTH THE COMPANY HAS OFTEN MISSED
"STREET" EARNINGS ESTIMATES AND ITS STOCK PRICE HAS REACTED ACCORDINGLY.
. THE STOCK PRICE IS CURRENTLY TRADING IN THE $12.50-$13.00 AREA IN
ANTICIPATION OF THE COMPANY'S SALE AT $14.50 PER SHARE.
<PAGE>
LESLIE'S POOLMART/B-2-3
- --------------------------------------------------------------------------------
Overview of Leslie's Trading Statistics
. LESLIE'S VALUATION IS AT THE BOTTOM OF ITS PEER GROUP.
--------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
(in millions)
<TABLE>
<CAPTION>
Equity Value to: Unlevered Value to:
----------------------------- ---------------------
Total Equity LTM CY 1996E CY 1997E LTM LTM
Company Value EPS EPS EPS EBIT EBITDA
- ------------------------------------------ ------------ ----- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Related Industry
- ----------------
West Marine $ 494.0 36.1x 38.6x 27.1x 21.2x 18.0x
SCP Pool 94.5 15.3 22.2 14.9 11.9 9.9
Home Centers
- ------------
Home Depot $24,496.7 28.2x 27.0x 22.0x 17.6x 15.2x
Lowe's 5,731.6 19.8 20.1 16.6 13.7 9.8
Wickes Lumber 47.2 NA NA NA 22.8 13.3
"Category Killers"
- ------------------
The Sports Authority $ 605.4 23.2x 20.9x 16.9x 15.7x 9.9x
Office Max 1,438.5 21.6 21.1 16.0 12.1 8.2
Toys 'R Us 6,973.0 17.2 14.8 12.8 11.1 8.8
Pet Smart 2,129.4 47.7 48.5 33.8 29.6 22.1
Bed Bath & Beyond 1,755.5 36.4 35.2 27.7 21.2 18.4
Leslie's Poolmart/1/ $ 70.4 15.5x 16.8x 12.8x 8.8x 6.3x
Ranking 10/11 9/10 9/10 10/10 11/11 11/11
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Leslie's statistics are based on a pre-announcement stock price of
$10.75 per share.
<PAGE>
LESLIE'S POOLMART/B-2-4
- --------------------------------------------------------------------------------
Overview of Leslie's Trading Statistics
. LESLIE'S VOLATILE STOCK PRICE PERFORMANCE AND LOW VALUATION CAN BE
ATTRIBUTED TO A NUMBER OF FACTORS MANY OF WHICH ARE INHERENT TO LESLIE'S
BUSINESS.
- Disappointing results versus investor expectations for the reasons
outlined in Section B-1.
- Tremendous seasonality of business which is disliked by investors
. Business incurs substantial losses in 1stQ and 4thQ.
- Importance and unpredictability of weather
- Relative illiquidity of stock and "micro-cap" market capitalization
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special
Committee of the Board of Directors
<TABLE>
<S> <C>
Review of Proposed Transaction.......................A
Overview of Sale Process...................A - 1
Summary of Terms and Conditions of Offer...A - 2
Acquisition Multiples......................A - 3
Feasibility of Proposed Transaction........A - 4
REVIEW OF LESLIE'S POOLMART..........................B
Historical Financial Performance...........B - 1
Historical Trading Analysis................B - 2
PROJECTED BUSINESS PLAN AND STRATEGY.......B - 3
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-3-1
- --------------------------------------------------------------------------------
Overview of Business Plan and Strategy
. DILLON READ HAS PERFORMED DUE DILIGENCE OF LESLIE'S POOLMART'S BUSINESS
PROJECTIONS AND STRATEGIES INCLUDING:
- Receipt and review of financials as of September 28, 1996 and subsequent
revisions including:
. Detailed preliminary results for 12 months ended December 1996
. Summary projections for fiscal years 1997-2001
- Discussions with Brian McDermott, President and CEO, and Bob Olsen, CFO,
regarding major assumptions underlying strategy and potential upside and
downside risks
. MANAGEMENT HAS INDICATED THAT THERE WILL BE NO MAJOR CHANGES IN THE
COMPANY'S BUSINESS PLAN AND STRATEGY IF POOLMART USA IS SUCCESSFUL IN
ACQUIRING LESLIE'S.
- The Company may slightly slow growth of new store openings.
. THE FOLLOWING PAGES SUMMARIZE CERTAIN ASPECTS OF THE PLAN.
<PAGE>
LESLIE'S POOLMART/B-3-2
- --------------------------------------------------------------------------------
Projected Financial Performance
. SIGNIFICANT ASSUMPTIONS AND/OR CHANGES IN LESLIE'S BUSINESS PLAN INCLUDE:
- Normal weather patterns throughout the 5 year projection period,
1997-2001
- Reduced new store openings from the 40 - 50 level to the 25 - 35 level
in 1997 & 1998
- No new store openings in Florida and the assumption that the existing
store base is breakeven in 1997 and profitable in 1998
- Restructure of commercial compensation system which should cause
commercial sales to increase at a greater rate than in 1996
<PAGE>
LESLIE'S POOLMART/B-3-3
- --------------------------------------------------------------------------------
Review of Business Plan and Strategy
. DILLON READ COMPARED LESLIE'S POOLMART'S HISTORICAL GROWTH AND
PROFITABILITY TO THOSE PRESENTED IN THE CURRENT BUSINESS PLAN.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SELECTED STATISTICS
Projected Historical
1997-2001 1992-1996P
--------- ----------
<S> <C> <C>
Annual Average Number of Net New Store Openings 39 31
CAGR in New Store Openings 12.4% 16.0%
Average Comparable Store Sales Increase 8.8 8.8
Average Sales Growth 14.8 18.4
Average Gross Margin 38.4 39.0
Average EBIT Margin 6.7 5.2
CAGR in EPS 24.9 16.7
- ---------------------------------------------------------------------------------------------------------
</TABLE>
. IN SUMMARY, LESLIE'S BUSINESS PLAN IS GENERALLY MORE AGGRESSIVE THAN THE
COMPANY'S HISTORICAL RESULTS IN EVERY ASPECT THAN NEW STORE OPENINGS.
- This can be in part attributable to the assumption of normal weather
patterns throughout the projection periods.
<PAGE>
LESLIE'S POOLMART/B-3-4
- --------------------------------------------------------------------------------
Projected Financial Performance
--------------------------------------------------------------------------
NUMBER OF STORES
(in millions)
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 11.9%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
259 285 320 360 405 455
</TABLE>
<TABLE>
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net New Stores 35 25 35 40 45 50
% Change 12% 10% 12% 13% 13% 12%
- -----------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
COMPARABLE STORE SALES GROWTH
[GRAPH APPEARS HERE]
1997P-2001E AVERAGE: 8.9%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
11.0% 10.7% 10.5% 8.8% 7.4% 7.0%
</TABLE>
--------------------------------------------------------------------------
TOTAL SALES
(in millions)
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 14.8%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$191.6 $223.3 $260.1 $298.6 $338.8 $382.6
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% Change 18.2% 16.5% 15.9% 14.8% 13.5% 12.9%
- -------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-3-5
- --------------------------------------------------------------------------------
Projected Financial Performance
. GROSS MARGIN IS PROJECTED TO REMAIN EFFECTIVELY CONSISTENT WITH 1996P
RESULTS.
- As a result, gross profit grows at approximately the same rate as
sales.
--------------------------------------------------------------------------
GROSS PROFIT
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 15.1%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$72.7 $85.6 $100.2 $115.0 $130.1 $146.6
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% Change 20.4% 17.7% 16.5% 14.8% 13.1% 12.7%
- -------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
GROSS MARGIN
[GRAPH APPEARS HERE]
1996P-2001E Average: 38.3%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
37.9% 38.3% 38.5% 38.5% 38.4% 38.3%
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-3-6
- --------------------------------------------------------------------------------
Projected Financial Performance
. EBIT MARGIN IS PROJECTED TO IMPROVE OVER THE PROJECTION PERIOD DUE TO THE
ABILITY TO LEVERAGE SG&A EXPENSES AND REDUCED NEW STORE OPENINGS.
--------------------------------------------------------------------------
EBIT
(in millions)
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 22.3%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$10.2 $12.6 $17.0 $21.0 $24.5 $28.0
</TABLE>
<TABLE>
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
% Change 52.2% 23.5% 34.9% 23.5% 16.7% 14.3%
- -------------------------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
EBIT MARGIN
[GRAPH APPEARS HERE]
1997P-2001E Average: 6.7%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
5.3% 5.7% 6.5% 7.0% 7.2% 7.3%
</TABLE>
<PAGE>
LESLIE'S POOLMART/B-3-7
- --------------------------------------------------------------------------------
Projected Financial Performance
AS A RESULT OF THE ABOVE FACTORS, NET INCOME AND EPS ARE PROJECTED TO GROW
APPROXIMATELY 25%-30% PER YEAR.
--------------------------------------------------------------------------
NET INCOME
(in millions)
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 29.8%
<TABLE>
<CAPTION>
1996P 1997E 1998E 1999E 2000E 2001E
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$4.3 $5.7 $8.2 $10.7 $13.0 $15.3
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
% Change
26.5% 32.6% 43.9% 30.5% 21.5% 17.7%
- --------------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------
EARNINGS PER SHARE
[GRAPH APPEARS HERE]
1996P-2001E CAGR: 25.6%
<TABLE>
<CAPTION>
1996P/1/ 1997E/1/ 1998E 1999E 2000E 2001E
-------- -------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
$0.63 $0.80 $1.14 $1.45 $1.71 $1.97
--------------------------------------------------------------------------
</TABLE>
Note 1: Excludes asset write-off.
<PAGE>
LESLIE'S POOLMART
- --------------------------------------------------------------------------------
Presentation to the Special Committee
of the Board of Directors
<TABLE>
<S> <C>
Review of Proposed Transaction....................... A
Overview of Sale Process................. A - 1
Summary of Terms and Conditions of Offer. A - 2
Acquisition Multiples.................... A - 3
Feasibility of Proposed Transaction...... A - 4
Review of Leslie's Poolmart.......................... B
Historical Financial Performance......... B - 1
Historical Trading Analysis.............. B - 2
Projected Business Plan and Strategy..... B - 3
PRELIMINARY VALUATION................................ C
</TABLE>
<PAGE>
LESLIE'S POOLMART/C-1
- --------------------------------------------------------------------------------
Discounted Cash Flow Analysis
. BASED UPON THE BUSINESS PLAN PROVIDED BY MANAGEMENT, DILLON READ EVALUATED
A MEASURE OF INTRINSIC VALUE USING A DISCOUNTED CASH FLOW ANALYSIS.
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
(in millions, except per share data)
<TABLE>
<CAPTION>
Discount Rates
--------------------------------------
11.0% 12.0% 13.0%
-------- -------- --------
<S> <C> <C> <C>
Net Present Value of Cash Flows $ 16.6 $ 15.9 $ 15.3
Terminal Value as a Multiple (6.0x) of 2001 EBITDA 123.6 118.2 113.1
-------- -------- --------
Total Net Present Value of Enterprise 140.2 134.1 128.4
Less: Net Debt (33.1) (33.1) (33.1)
-------- -------- --------
TOTAL NET PRESENT VALUE OF EQUITY $107.1 $101.0 $ 95.3
Per Share Basis $15.36 $14.55 $13.78
- -----------------------------------------------------------------------------------------------------
</TABLE>
. BASED ON THE COMPARISON OF THE COMPANY'S PROJECTED RESULTS TO HISTORICAL
RESULTS, WE VIEW LESLIE'S CURRENT PLAN AS A BETTER THAN AVERAGE SCENARIO.
- Assumes normal weather for next 5 years where as 2 out of the last 5
years (1992 & 1995) had abnormally poor weather conditions.
. ASSUMING THE COMPANY EXPERIENCES ONE POOR WEATHER YEAR OVER THE NEXT FIVE
SIGNIFICANTLY REDUCES THE EQUITY VALUE.
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ASSUMING POOR WEATHER YEAR IN 1999/1/
(in millions, except per share data)
<TABLE>
<CAPTION>
Discount Rates
--------------------------------------
11.0% 12.0% 13.0%
-------- -------- --------
<S> <C> <C> <C>
Adjusted Net Present Value of Equity $ 91.7 $86.3 $81.2
Per Share Basis $13.31 $12.59 $11.91
- -----------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Assumes EBITDA and cash flow decline by 25% and grow the next year at
50% and 25% each year thereafter.
<PAGE>
LESLIE'S POOLMART/C-2
- --------------------------------------------------------------------------------
Leveraged Buyout Analysis
. A LEVERAGED BUYOUT AT PURCHASE PRICES GREATER THAN $14.50 WOULD BE
DIFFICULT TO FINANCE DUE TO INCREASINGLY WEAKER CREDIT STATISTICS BELOW
MARKET EQUITY RETURNS.
-------------------------------------------------------------------------
SUMMARY 5-YEAR EQUITY RETURN ANALYSIS
<TABLE>
<CAPTION>
Price Per Common Share/1/
------------------------------------------------
$14.50 $15.00 $15.50 $16.00
- ---------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1997E EBITDA/Total Fixed Charges 0.57x 0.57x 0.57x 0.56x
1997E EBIT/Total Fixed Charges 0.31 0.31 0.30 0.29
Total Debt/Capitalization 65.9% 65.6% 65.4% 65.2%
Total Debt / EBITDA 5.1x 5.2x 5.3x 5.4x
IRR Assuming 6.0x Exit Multiple of 2001 EBITDA 17.2% 14.9% 12.7% 10.6%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Assumes increase in purchase price is funded 50% with equity and 50%
with debt.
<PAGE>
LESLIE'S POOLMART/C-3
- --------------------------------------------------------------------------------
Recapitalization Analysis
. AN ANALYSIS OF LESLIE'S COMPLETING A LEVERAGED RECAPITALIZATION BY PAYING
A ONE-TIME CASH DIVIDEND FINANCED WITH DEBT GENERALLY RESULTS IN LOWER
VALUES.
--------------------------------------------------------------------------
RECAPITALIZATION VALUATION ANALYSIS
(in millions, except per share data)
<TABLE>
<CAPTION>
Cash dividend per share $ 5.00 $ 6.00 $ 7.00 $ 8.00
- --------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Total cash dividend $29,212 $36,734 $44,257 $51,779
1996 EBIT/Interest expense 1.3x 1.1x 1.0x 1.0x
1996 EBITDA/Interest expense 1.8 1.6 1.5 1.4
1997E pro forma EPS $ 0.42 $ 0.33 $ 0.25 $ 0.17
Assumed P/E multiple/1/ 13.4x 13.4x 13.4x 13.4x
------- ------- ------- -------
Implied stock value $ 5.61 $ 4.50 $ 3.39 $ 2.28
------- ------- ------- -------
TOTAL VALUE PER SHARE $ 10.61 $ 10.50 $ 10.39 $ 10.28
- ---------------------------------------------------------------------------------------------
</TABLE>
Note 1: Multiple of 1997E earnings prior to announcement of $14.50 offer.
. IN ADDITION, THERE ARE MANY OTHER NEGATIVE QUALITATIVE FACTORS TO CONSIDER
WHICH COULD CAUSE THE COMPANY'S STOCK TO TRADE AT LEVELS BELOW THAT
INDICATED ABOVE, INCLUDING:
- The resulting very small market capitalization and float of stock
- Significant financial leverage added to inherent operating leverage of
business due to seasonality and unpredictability of weather.
<PAGE>
LESLIE'S POOLMART/C-4
- --------------------------------------------------------------------------------
Analysis of Comparable Acquisitions
. NO MEANINGFUL ACQUISITIONS OF RETAILERS OF POOL SUPPLIES HAVE BEEN
COMPLETED IN RECENT YEARS.
- As a result, comparable acquisition statistics do not provide clear
valuation parameters.
. REVIEWING A SELECTION OF ACQUISITIONS OF RETAILERS, BROADLY DEFINED, THE
VALUATION MULTIPLES OF LESLIE'S ARE COMPARABLE TO THOSE RECEIVED BY OTHER
RETAILERS IN RECENT ACQUISITIONS.
--------------------------------------------------------------------------
COMPARABLE MERGER ANALYSIS FOR SPECIALTY RETAIL COMPANIES
<TABLE>
<CAPTION>
Offer for Assets to LTM: Offer for Equity to:/1/
-------------------------- ------------------------
Offer Date Acquiror/Target Description of Target Sales EBIT EBITDA Book Value LTM Net Inc
- ---------- --------------------------- ------------------------ ----- ----- ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
11/27/96 Childs/Central Tractor Tractor/hardware stores 0.6x 11.8x 9.3x 1.7x 20.8x
10/02/96 Toys 'R Us/Baby Superstores Childrens wear stores 1.6 NM NM 4.2 NM
09/04/96 Staples/Office Depot Office supply stores 0.7 16.5 12.8 3.3 26.2
08/15/96 Sears Robuck/Orchard Hardware stores 0.7 /2/ 12.2 /2/ 9.2 /2/ 2.7 27.5
08/08/96 Proffits/Parisian Family apparel stores 0.6 15.4 9.9 2.6 24.4
10/23/95 Proffits/Younkers Department stores 0.5 11.4 7.4 1.4 17.5
02/07/95 Petsmart/Petstuff Pet supply stores 0.8 NM NM 2.4 NM
MEDIAN 0.7X 12.2X 9.3X 2.6X 24.4X
LESLIE'S IMPLIED
VALUE PER SHARE/3/ $14.53 $13.57 $14.61 $14.33 $15.37
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note 1: Includes cash paid for outstanding options.
Note 2: Assumes the conversion of preferred stock into 1.28MM shares of Sears
common stock.
Note 3: Based on 1996P financials.
. HOWEVER, MANY OF THE ABOVE TRANSACTIONS ARE OF A SIGNIFICANTLY LARGER SIZE
AND REPRESENT CONSOLIDATIONS OF COMPETITORS IN THE SAME INDUSTRY WHICH
TYPICALLY RESULTS IN SIGNIFICANT COST SAVING OPPORTUNITIES.
<PAGE>
LESLIE'S POOLMART/C-5
- --------------------------------------------------------------------------------
Analysis of Accretion (Dilution) at Various Purchase Prices
. AT $14.50 A SHARE IN CASH AND HIGHER PRICES, AN ACQUISITION OF LESLIE'S BY
A CORPORATE ACQUIROR WOULD BE SLIGHTLY DILUTIVE.
- Does not reflect any synergies
- Assumes achievement of 1997 plan
-------------------------------------------------------------------------
ACCRETION (DILUTION) ANALYSIS
(in millions)
<TABLE>
<CAPTION>
$14.50 $15.00 $15.50 $16.00
- ---------------------------- ------- ------ ------ ------
<S> <C> <C> <C> <C>
1997E Pretax Income $ 9.6 $ 9.6 $ 9.6 $ 9.6
Plus: Public Company Costs 0.3 0.3 0.3 0.3
Less: Interest Expense on
Acquisition Debt at 8.5% (8.6) (8.9) (9.2) (9.5)
------- ------ ------ ------
Adjusted Pretax Income 1.3 1.0 0.7 0.4
Less: Taxes (0.5) (0.4) (0.3) (0.2)
------- ------ ------ ------
Net Income 0.8 0.6 0.4 0.2
Goodwill Amortization/1/ (2.7) (2.8) (3.0) (3.2)
------- ------ ------ ------
PRO FORMA NET INCOME $(1.9) $(2.2) $(2.6) $(3.0)
- -------------------------------------------------------------------------
</TABLE>
Note 1: Assumes goodwill amortized over 25 years.
. HOWEVER, NO CORPORATE BUYER APPROACHED THE COMPANY WITH FORMAL BIDS.
<PAGE>
- --------------------------------------------------------------------------------
Exhibits
<TABLE>
<S> <C>
FINANCIAL PROJECTIONS MODEL..................... 1
DISCOUNTED CASH FLOW ANALYSIS................... 2
LBO ANALYSIS.................................... 3
RECAPITALIZATION ANALYSIS....................... 4
CALCULATION OF ESTIMATED WEIGHTED AVERAGE
COST OF CAPITAL............................... 5
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Income Statement
<TABLE>
<CAPTION>
Projected For the Year Ending December 31,
--------------------------------------------------------------------------------------
1996P 1997 1998 1999 2000 2001
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales
Retail $179,119 $208,348 $244,139 $281,526 $320,338 $362,609
Mail Order 7,723 8,300 8,300 8,300 8,300 8,300
Service 4,798 6,661 7,660 8,809 10,131 11,651
-------- -------- -------- -------- -------- --------
Total Sales 191,640 223,309 260,099 298,635 338,769 382,559
Cost of Goods Sold 118,919 137,691 159,925 183,664 208,632 235,947
-------- -------- -------- -------- -------- --------
Gross Profit 72,721 85,617 100,174 114,972 130,137 146,612
SG&A 58,241 67,495 77,510 87,970 99,250 111,770
-------- -------- -------- -------- -------- --------
EBITDA 14,480 18,122 22,664 27,001 30,887 34,842
Depreciation & Amortization 4,327 5,492 5,710 6,042 6,424 6,848
-------- -------- -------- -------- -------- --------
EBIT 10,153(1) 12,630(1) 16,954 20,959 24,463 27,994
Interest and Other Expense 2,787 3,000 3,039 2,900 2,645 2,289
-------- -------- -------- -------- -------- --------
Pretax Income 7,366 9,630 13,915 18,059 21,818 25,705
Income Taxes 3,053 3,955 5,668 7,326 8,829 10,384
-------- -------- -------- -------- -------- --------
Net Income $4,314 $5,675 $8,247 $10,733 $12,989 $15,321
Shares Outstanding 6,825 7,050 7,214 7,394 7,579 7,769
EPS $0.63 $0.80 $1.14 $1.45 $1.71 $1.97
<CAPTION>
(1) Excludes $750,000 and $100,000 write offs in 1996 and 1997, respectively.
Assumptions
<S> <C> <C> <C> <C> <C> <C>
Sales Growth
Retail 19.2% 16.3% 17.2% 15.3% 13.8% 13.2%
Mail Order -2.8% 7.5% 0.0% 0.0% 0.0% 0.0%
Service 13.0% 38.8% 15.0% 15.0% 15.0% 15.0%
Margins
Gross Profit 37.9% 38.3% 38.5% 38.5% 38.4% 38.3%
SG&A 30.4% 30.2% 29.8% 29.5% 29.3% 29.2%
EBITDA 7.6% 8.1% 8.7% 9.0% 9.1% 9.1%
EBIT 5.3% 5.7% 6.5% 7.0% 7.2% 7.3%
Net Income 2.3% 2.5% 3.2% 3.6% 3.8% 4.0%
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Projected Balance Sheet
<TABLE>
<CAPTION>
Projected As of December 31,
--------------------------------------------------------------
1996P 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Cash $87 $87 $87 $87 $87 $87
Accounts Receivable 2,550 3,350 3,901 4,480 5,082 5,738
Inventory 37,048 38,840 43,507 48,812 54,776 61,416
Prepaid Expenses and Other Current 1,693 2,233 2,601 2,986 3,388 3,826
Deferred Tax Assets 2,321 2,321 2,321 2,321 2,321 2,321
------- ------- ------- ------- ------- -------
Total Current 43,699 46,831 52,418 58,686 65,653 73,388
Net PP&E 33,307 35,775 37,520 39,532 41,763 43,570
Goodwill, Net 8,298 8,038 7,783 7,528 7,273 7,018
Other Assets 672 713 800 900 1,013 1,138
------- ------- ------- ------- ------- -------
Total Assets $85,976 $91,356 $98,520 $106,647 $115,703 $125,114
Liabilities and Shareholders' Equity
Accounts Payable $9,155 $4,661 $5,221 $5,857 $6,573 $7,370
Accrued Liabilities 5,556 5,583 6,502 7,466 8,469 9,564
------- ------- ------- ------- ------- -------
Total Current Liabilities 14,711 10,243 11,723 13,323 15,042 16,934
Total Debt 33,208 37,381 34,818 30,611 24,959 17,158
Deferred Tax Liabilities 1,963 1,963 1,963 1,963 1,963 1,963
------- ------- ------- ------- ------- -------
Total Liabiliites 49,882 49,587 48,504 45,897 41,965 36,055
Shareholders' Equity 36,094 41,769 50,016 60,750 73,738 89,059
------- ------- ------- ------- ------- -------
Total Liabilities and Sharesholders' Equity $85,976 $91,356 $98,520 $106,647 $115,703 $125,114
Assumptions
Accounts Receivable as a % of Sales 1.3% 1.5% 1.5% 1.5% 1.5% 1.5%
Prepaid Expenses and Other Current as
a % of Sales 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Accrued Liabilities as a % of Sales 2.9% 2.5% 2.5% 2.5% 2.5% 2.5%
Accounts Payable as a % of Inventory 24.7% 12.0% 12.0% 12.0% 12.0% 12.0%
Inventory per Store $142 $136 $136 $136 $135 $135
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Credit Statistics
<TABLE>
<CAPTION>
Projected As of December 31,
------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Debt 33,208 37,381 34,818 30,611 24,959 17,158
EBIT / Cash Interest 3.6 x 4.2 x 5.6 x 7.2 x 9.2 x 12.2 x
EBITDA / Cash Interest 5.2 6.0 7.5 9.3 11.7 15.2
EBITDA - CapX / Cash Interest 2.5 3.5 5.1 6.6 8.5 11.6
EBIT / Total Interest 3.6 4.2 5.6 7.2 9.2 12.2
EBITDA / Total Interest 5.2 6.0 7.5 9.3 11.7 15.2
EBITDA - CapX / Total Interest 2.5 3.5 5.1 6.6 8.5 11.6
Cash Fixed Charge Coverage Ratio 1.5 1.6 1.8 2.1 2.4 2.6
Total Debt / EBIT 3.3 3.0 2.1 1.5 1.0 0.6
Total Debt / EBITDA 2.3 x 2.1 x 1.5 x 1.1 x 0.8 x 0.5 x
Total Debt / Total Capitalization 47.9% 47.2% 41.0% 33.5% 25.3% 16.2%
Net Debt / Total Capitalization 47.8% 47.1% 40.9% 33.4% 25.2% 16.1%
Total Debt / Common Equity 0.9 x 0.9 x 0.7 x 0.5 x 0.3 x 0.2 x
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Projected Cash Flow Statement
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
-----------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities
Net Income $4,314 $5,675 $8,247 $10,733 $12,989 $15,321
Depreciation 4,073 5,232 5,455 5,787 6,169 6,593
Amortization of Goodwill 254 260 255 255 255 255
(Increase)/Decrease in Accts Receivable (800) (552) (578) (602) (657)
(Increase)/Decrease in Inventory (1,792) (4,667) (5,305) (5,964) (6,640)
(Increase)/Decrease in Prepaid & Other Current (540) (368) (385) (401) (438)
Increase/(Decrease) in Accounts Payable (4,494) 560 637 716 797
Increase/(Decrease) in Accrued Liabilities 27 920 963 1,003 1,095
------ ------ ------ ------- ------- -------
Total Operating Activities 8,641 3,568 9,850 12,107 14,165 16,326
Investing Activities
Capital Expenditures (7,522) (7,700) (7,200) (7,800) (8,400) (8,400)
(Increase)/Decrease in Other Assets (41) (87) (100) (113) (125)
------ ------ ------ ------- ------- -------
Total Investing Activities (7,522) (7,741) (7,287) (7,900) (8,513) (8,525)
Total Cash Provided/(Used) 1,119 (4,173) 2,563 4,207 5,652 7,801
Beginning Balance Total Debt 34,327 33,208 37,381 34,818 30,611 24,959
Drawn/(Paydown) (1,119) 4,173 (2,563) (4,207) (5,652) (7,801)
------ ------ ------ ------- ------- -------
Ending Balance Total Debt 33,208 37,381 34,818 30,611 24,959 17,158
Beginning Cash Balance 87 87 87 87 87 87
Cash Provided/(Used) 0 0 0 0 0 0
------ ------ ------ ------- ------- -------
Ending Cash Balance $87 $87 $87 $87 $87 $87
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
New Store Model
<TABLE>
<CAPTION>
Sales Ramp-up Average Sales % Growth Number of New Stores Opened
----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year 1 $400 NM 1991 97 A 1997 25 E
Year 2 550 37.5% 1992 37 A 1998 35 E
Year 3 650 18.2% 1993 16 A 1999 40 E
Year 4 730 12.3% 1994 26 A 2000 45 E
Year 5 840 15.1% 1995 44 A 2001 50 E
Thereafter NM 2.5% 1996 40 E 2002 50 E
</TABLE>
Projected Retail Sales
<TABLE>
<CAPTION>
Sales from Stores in Model
----------------------------------------------------------- Stores At
Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total Sales Year End
------- ------- ------- ------- ------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $12,661 $21,722 $15,361 $12,151 $32,739 $ 84,485 $179,119 260
1997 10,000 18,992 27,153 18,433 13,985 119,785 208,348 285
1998 14,000 13,750 23,738 32,583 21,761 138,307 244,139 320
1999 16,000 19,250 16,250 28,487 37,470 164,070 281,526 360
2000 18,000 22,000 22,750 18,250 32,760 206,578 320,338 405
2001 20,000 24,750 26,000 25,550 20,988 245,321 362,609 455
</TABLE>
Projected Rent Expense
<TABLE>
<CAPTION>
Rent Expense Total Total Rent Total Rent Expense
per Store Stores Expense as a % of Sales
----------- ------ ---------- -----------------
<S> <C> <C> <C> <C>
1995 A $60 224 $13,397 8.2%
1996 61 260 15,804 8.2%
1997 65 285 18,415 8.2%
1998 67 320 21,449 8.2%
1999 68 360 24,627 8.2%
2000 69 405 27,937 8.2%
2001 69 455 31,548 8.2%
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Capital Expenditures, Depreciation and Amortization and Tax Schedule
<TABLE>
<CAPTION>
Capital Expenditures Projected for the Year Ending December 31,
-------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Base CapEx $3,522 $5,200 $3,700 $3,800 $3,900 $3,900
New Stores CapEx $100 Per Store 4,000 2,500 3,500 4,000 4,500 4,500
------ ------ ------ ------ ------ ------
Total CapEx $7,522 $7,700 $7,200 $7,800 $8,400 $8,400
Depreciation and Amortization Schedule Projected for the Year Ending December 31,
-------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
Existing PP&E $3,321 $3,710 $3,213 $2,765 $2,307 $1,891
Total New CapEx 10 Avg Life
1996 752 752 752 752 752 752
1997 770 770 770 770 770
1998 720 720 720 720
1999 780 780 780
2000 840 840
2001 840
------ ------ ------ ------ ------ ------
Total Depreciation 4,073 5,232 5,455 5,787 6,169 6,593
Amortization of Existing Goodwill 254 260 255 255 255 255
------ ------ ------ ------ ------ ------
Total Depreciation and Amortization $4,327 $5,492 $5,710 $6,042 $6,424 $6,848
Tax Schedule Projected for the Year Ending December 31,
--------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------- ------- ------- -------
Pretax Income $7,366 $9,630 $13,915 $18,059 $21,818 $25,705
Plus: Goodwill Amortization 254 260 255 255 255 255
------ ------ ------- ------- ------- -------
Total Taxable Income 7,620 9,890 14,170 18,314 22,073 25,960
Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
------ ------ ------- ------- ------- -------
Total Income Taxes $3,053 $3,955 $ 5,668 $ 7,326 $ 8,829 $10,384
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Financial Projections Confidential
(Dollars in thousands)
Debt Schedule
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Total Debt
Beginning Balance 34,327 33,208 37,381 34,818 30,611 24,959
Change (1,119) 4,173 (2,563) (4,207) (5,652) (7,801)
Ending Balance 33,208 37,381 34,818 30,611 24,959 17,158
Cash Interest 2,787 3,000 3,039 2,900 2,645 2,289
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Leslie's Poolmart Discounted Cash Flow Analysis
(Dollars in thousands)
Valuation Summary
<TABLE>
<CAPTION>
Net Present Value of Cash Flows Net Present Value of Terminal Value
As a Multiple of 2001 EBITDA
Average Cost Value of Average Cost -------------------------------------
of Capital Free Cash Flow of Capital 5.0 x 6.0 x 7.0 x
------------ -------------- ------------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
11% 16,766 11.00% 103,385 124,062 144,739
12% 16,110 12.00% 98,851 118,622 138,392
13% 15,489 13.00% 94,554 113,465 132,376
</TABLE>
<TABLE>
<CAPTION>
Enterprise Valuation
As a Multiple of 2001 EBITDA
Average Cost -------------------------------------
of Capital 5.0 x 6.0 x 7.0 x
------------ ------- ------- -------
<S> <C> <C> <C>
11% 120,151 140,828 161,505
12% 114,962 134,732 154,502
13% 110,043 128,954 147,865
Less: Current Net Debt 33,121 33,121 33,121
<CAPTION>
Equity Valuation
As a Multiple of 2001 EBITDA
Average Cost -------------------------------------
of Capital 5.0 x 6.0 x 7.0 x
------------ ------- ------- -------
<S> <C> <C> <C>
11% 87,030 107,707 128,384
12% 81,841 101,611 121,381
13% 76,922 95,833 114,744
<CAPTION>
As a Multiple of 2001 EBITDA
-------------------------------------
Per Share 5.0 x 6.0 x 7.0 x
------- ------- -------
<S> <C> <C> <C>
11% $12.69 $15.43 $18.18
12% $12.00 $14.62 $17.25
13% $11.34 $13.86 $16.37
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Leslie's Poolmart Discounted Cash Flow Analysis
(Dollars in thousands)
Free Cash Flow Reconciliation
<TABLE>
<CAPTION>
Projected For the Year Ending December 31,
-----------------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total Sales $191,640 $223,309 $260,099 $298,635 $338,769 $382,559
Earnings Before Interest & Taxes 10,153 12,630 16,954 20,959 24,463 27,994
Plus: Goodwill Amortizaton 254 260 255 255 255 255
--------- --------- --------- --------- --------- ---------
Earnings Before Interest, Taxes and Amortization 10,407 12,890 17,209 21,214 24,718 28,249
Tax Effect 40% (4,163) (5,156) (6,884) (8,486) (9,887) (11,300)
--------- --------- --------- --------- --------- ---------
Earnings Before Interest and Amortization, after tax 6,244 7,734 10,325 12,728 14,831 16,949
Plus: Depreciation 4,073 5,232 5,455 5,787 6,169 6,593
Less: Increase in Working Capital (168) (7,599) (4,107) (4,669) (5,248) (5,843)
Less: Capital Expenditures and Increase in Other Assets (7,522) (7,741) (7,287) (7,900) (8,513) (8,525)
--------- --------- --------- --------- --------- ---------
Net Free Cash Flow $2,627 ($2,374) $4,386 $5,947 $7,239 $9,175
EBITDA 14,480 18,122 22,664 27,001 30,887 34,842
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Transaction Summary
<TABLE>
<S> <C>
Equity Valuation
Current Common Shares Out 6,548.411
Proposed Price per Share $14.50
---------
Value of Common Shares 94,952
Options Outstanding 974
Average Exercise Price $8.62
Proposed Price per Share $14.50
---------
Value of Options $5,724
Total Value of Equity $100,675
Goodwill Calculation
Purchase Price of Equity $100,675
Plus: Transaction Fees and Expenses 2,812
Less: Book Value of Equity 36,094
---------
Total Goodwill $67,394
Years of Amortization 25
Annual Goodwill Expense 2,696
</TABLE>
<TABLE>
<CAPTION>
Sources of Funds % of Total Coupon Warrants
---------- ------ --------
<S> <C> <C> <C> <C>
Common Equity $22,000 16% NM
PIK Preferred A 28,000 20% 11.3% 15.0%
PIK Preferred B 0 0% 11.3%
Senior Unsecured Notes 85,000 60% 11.8% 4.0%
Revolver 5,695 4% 8.0%
--------
Total Sources of Funds $140,696 100%
</TABLE>
<TABLE>
<S> <C>
Fees and Expenses
Transaction Fees $1,812
Transaction Expenses 1,000
Financing Fees 3,500
Financing Expenses 500
------
Total Fees and Expenses $6,812
Deferred Financing Fees $4,000
Years of Amortization 7
------
Annual Amortization of Financing Fees $571
</TABLE>
<TABLE>
<S> <C>
Uses of Funds
Purchase Price of Equity $100,675
Revolving Loan 6,000
Mortgage Notes 1,049
Notes 719
Convertible Subordinated Notes 10,000
Line of Credit 15,440
Fees and Expenses 6,812
--------
Total Uses of Funds $140,696
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Capitalization 1996 Pro Forma 1997 1998 1999 2000 2001
-------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total Long-term Debt 85,000 85,000 85,000 85,000 85,000 85,000
Total Debt 90,695 93,715 96,085 96,588 95,402 92,391
Net Debt 90,608 93,615 95,985 96,488 95,302 92,291
Total Equity 50,000 48,560 49,179 51,734 56,014 62,112
Total Book Capitalization 140,696 142,275 145,264 148,322 151,416 154,503
Credit Statistics
EBIT / Cash Interest (1) 1.0 x 1.0 x 1.3 x 1.6 x 1.8 x 2.1 x
EBITDA / Cash Interest (1) 1.4 1.8 2.1 2.5 2.9 3.2
EBITDA - CapX /Cash Interest (1) 0.7 1.0 1.3 1.7 2.0 2.3
EBIT /Total Interest 1.0 1.0 1.3 1.6 1.8 2.1
EBITDA / Total Interest 1.4 1.8 2.1 2.5 2.9 3.2
EBITDA - CapX /Total Interest 0.7 1.0 1.3 1.7 2.0 2.3
EBITDA/Total Fixed Charges 0.78 0.57 0.64 0.69 0.72 0.74
EBIT/Total Fixed Charges 0.55 0.31 0.38 0.43 0.46 0.49
Cash Fixed Charge Coverage Ratio 1.0 1.0 1.1 1.2 1.2 1.3
Total Fixed Charge Coverage Ratio 0.9 0.9 1.0 1.1 1.1 1.2
Total Fixed Obligations/Total Book
Capitalization (2) 84.4% 87.8% 90.0% 91.1% 91.3% 90.7%
Total Debt / EBIT 8.9 9.4 7.0 5.6 4.8 4.0
Total Debt / EBITDA 6.3 x 5.1 x 4.2 x 3.5 x 3.1 x 2.6 x
Total Debt / Total Capitalization 64.5% 65.9% 66.1% 65.1% 63.0% 59.8%
Net Debt / Total Capitalization 64.4% 65.8% 66.1% 65.1% 62.9% 59.7%
Total Debt / Common Equity 1.8 x 1.9 x 2.0 x 1.9 x 1.7 x 1.5 x
</TABLE>
Note 1: Excludes PIK preferred and zero coupon bonds.
Note 2: Includes PIK preferred and zero coupon bonds in total fixed
obligations.
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Return Analysis
<TABLE>
<CAPTION>
Summary 5-Year Return Analysis
Price per Common Share
-------------------------------------------------
Common Equity $14.50 $15.00 $15.50 $16.00
------ ------ ------ ------
<S> <C> <C> <C> <C>
Based on 5 x 4.5% 1.8% -0.9% -3.6%
Exit Multiple of 6 x 17.2% 14.9% 12.7% 10.6%
EBITDA 7 x 25.4% 23.2% 21.1% 19.1%
PIK Preferred A
Based on 5 x 11.2% 11.1% 10.9% 10.8%
Exit Multiple of 6 x 13.0% 12.9% 12.7% 12.6%
EBITDA 7 x 14.6% 14.5% 14.4% 14.3%
</TABLE>
<TABLE>
<CAPTION>
Implied Transaction Multiples
Actual
--------
<S> <C>
1996 Sales 0.7 x
1996 EBIT 13.9
1996 EBITDA 9.7
1996 Net Income 23.3
1997 Net Income 17.7
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Projected Income Statement
<TABLE>
<CAPTION>
Projected For the Year Ending December 31,
----------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales
Retail 179,119 208,348 244,139 281,526 320,338 362,609
Mail Order 7,723 8,300 8,300 8,300 8,300 8,300
Service 4,798 6,661 7,660 8,809 10,131 11,651
------- ------- ------- ------- ------- -------
Total Sales 191,640 223,309 260,099 298,635 338,769 382,559
Cost of Goods Sold 118,919 137,691 159,925 183,664 208,632 235,947
------- ------- ------- ------- ------- -------
Gross Profit 72,721 85,617 100,174 114,972 130,137 146,612
Operating Expenses
SG&A 58,241 67,495 77,510 87,970 99,250 111,770
Less: Public Company Expenses 0 (250) (250) (250) (250) (250)
------- ------- ------- ------- ------- -------
EBITDA 14,480 18,372 22,914 27,251 31,137 35,092
Depreciation and Amortization
Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Existing Goodwill 254 254 254 254 254 254
Amortization of New Goodwill 0 2,696 2,696 2,696 2,696 2,696
Amortization of Financing Fees 0 571 571 571 571 571
------- ------- ------- ------- ------- -------
Total Depreciation and Amortization 4,327 8,364 9,234 10,154 11,124 12,144
------- ------- ------- ------- ------- -------
EBIT 10,153 10,008 13,680 17,097 20,012 22,948
Interest Expense
Existing Debt 2,787 0 0 0 0 0
Revolver 0 456 697 887 927 832
Zero Coupon Bonds 0 0 0 0 0 0
Senior Unsecured Notes 0 9,988 9,988 9,988 9,988 9,988
Interest Income (2) (2) (2) (2) (2) (2)
------- ------- ------- ------- ------- -------
Net Interest Expense 2,785 10,441 10,683 10,872 10,913 10,818
------- ------- ------- ------- ------- -------
Pretax Income 7,368 (433) 2,997 6,225 9,100 12,130
Income Taxes 3,053 1,007 2,379 3,670 4,820 6,032
------- ------- ------- ------- ------- -------
Net Income $4,315 ($1,440) $618 $2,555 $4,280 $6,098
Assumptions
Sales Growth
Retail 19.2% 16.3% 17.2% 15.3% 13.8% 13.2%
Mail Order -2.8% 7.5% 0.0% 0.0% 0.0% 0.0%
Service 13.0% 38.8% 15.0% 15.0% 15.0% 15.0%
Margins
Gross Profit 37.9% 38.3% 38.5% 38.5% 38.4% 38.3%
SG&A 30.4% 30.2% 29.8% 29.5% 29.3% 29.2%
EBITDA 8.1% 8.8% 9.4% 9.7% 9.7% 9.7%
EBIT 5.7% 4.8% 5.6% 6.1% 6.2% 6.3%
Net Income 2.4% -0.7% 0.3% 0.9% 1.3% 1.7%
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Projected Balance Sheet
<TABLE>
<CAPTION>
Projected As of December 31,
--------------------------------------------------------------------
1996 Adjustments 1996 Pro Forma 1997 1998
------- ----------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Assets
Cash $87 0 $87 $100 $100
Accounts Receivable 2,550 0 2,550 2,847 3,316
Inventory 37,048 0 37,048 38,840 43,507
Prepaid Expenses and Other Current 1,693 0 1,693 2,263 2,636
Deferred Tax Assets 2,321 0 2,321 2,321 2,321
------- -------- -------- --------
Total Current 43,699 43,699 46,371 51,881
Net PP&E 33,307 0 33,307 36,164 39,151
Goodwill, Net 8,298 67,394 75,692 72,742 69,792
Amortized Financing Fees 0 4,000 4,000 3,429 2,857
Other Assets 672 0 672 713 800
------- -------- -------- --------
Total Assets $85,976 $157,370 $159,418 $164,480
Liabilities and Shareholders' Equity
Accounts Payable $9,155 0 $9,155 $9,598 $10,751
Accrued Liabilities 5,556 0 5,556 5,583 6,502
Line of Credit and Project Financing Facility 15,440 (15,440) 0 0 0
New Revolver 0 5,695 5,695 8,714 11,085
Current Portion of Long-term Debt 2,120 (2,120) 0 0 0
------- -------- -------- --------
Total Current Liabilities 32,271 20,406 23,895 28,338
Revolving Loan 33,208 4,000 (4,000) 0 0 0
Mortgage Notes Payable 1,049 (1,049) 0 0 0
Notes Payable 599 (599) 0 0 0
Convertible Subordinated Notes 10,000 (10,000) 0 0 0
Senior Unsecured Notes 0 85,000 85,000 85,000 85,000
------- -------- -------- --------
Total Long-term Debt 15,648 85,000 85,000 85,000
Deferred Tax Liabilities 1,963 0 1,963 1,963 1,963
------- -------- -------- --------
Total Liabiliites 49,882 107,369 110,858 115,302
PIK Preferred A 0 28,000 28,000 31,150 34,654
PIK Preferred B 0 0 0 0 0
Shareholders' Equity 36,094 (14,094) 22,000 17,410 14,525
------- -------- -------- --------
Total Shareholders' Equity 36,094 50,000 48,560 49,179
------- -------- -------- --------
Total Liabilities and Sharesholders' Equity $85,976 $157,370 $159,418 $164,480
Assumptions
Accounts Receivable as a % of Sales 1.3% 1.3% 1.3% 1.3%
Prepaid Expenses and Other Current as a % of Sales 1.0% 0.9% 1.0% 1.0%
Accrued Liabilities as a % of Sales 0.0% 2.9% 2.5% 2.5%
Accounts Payable as a % of Inventory 24.7% 24.7% 24.7% 24.7%
Inventory per Store $142 $142 $136 $136
</TABLE>
<TABLE>
<CAPTION>
Projected As of December 31,
--------------------------------------
1999 2000 2001
-------- -------- --------
<S> <C> <C> <C>
Assets
Cash $100 $100 $100
Accounts Receivable 3,808 4,319 4,878
Inventory 48,812 54,776 61,416
Prepaid Expenses and Other Current 3,027 3,433 3,877
Deferred Tax Assets 2,321 2,321 2,321
-------- -------- --------
Total Current 58,068 64,950 72,592
Net PP&E 41,717 43,814 45,391
Goodwill, Net 66,842 63,893 60,943
Amortized Financing Fees 2,286 1,714 1,143
Other Assets 900 1,013 1,138
-------- -------- --------
Total Assets $169,813 $175,384 $181,207
Liabilities and Shareholders' Equity
Accounts Payable $12,062 $13,536 $15,177
Accrued Liabilities 7,466 8,469 9,564
Line of Credit and Project Financing Facility 0 0 0
New Revolver 11,588 10,402 7,391
Current Portion of Long-term Debt 0 0 0
-------- -------- --------
Total Current Liabilities 31,116 32,407 32,132
Revolving Loan 33,208 0 0 0
Mortgage Notes Payable 0 0 0
Notes Payable 0 0 0
Convertible Subordinated Notes 0 0 0
Senior Unsecured Notes 85,000 85,000 85,000
-------- -------- --------
Total Long-term Debt 85,000 85,000 85,000
Deferred Tax Liabilities 1,963 1,963 1,963
-------- -------- --------
Total Liabiliites 118,079 119,370 119,095
PIK Preferred A 38,553 42,890 47,715
PIK Preferred B 0 0 0
Shareholders' Equity 13,181 13,124 14,396
-------- -------- --------
Total Shareholders' Equity 51,734 56,014 62,112
-------- -------- --------
Total Liabilities and Sharesholders' Equity $169,813 $175,384 $181,207
Assumptions
Accounts Receivable as a % of Sales 1.3% 1.3% 1.3%
Prepaid Expenses and Other Current as a % of Sales 1.0% 1.0% 1.0%
Accrued Liabilities as a % of Sales 2.5% 2.5% 2.5%
Accounts Payable as a % of Inventory 24.7% 24.7% 24.7%
Inventory per Store $136 $135 $135
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Projected Cash Flow Statement
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
----------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities
Net Income $4,315 ($1,440) $618 $2,555 $4,280 $6,098
Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Goodwill 254 3,521 3,521 3,521 3,521 3,521
(Increase)/Decrease in Accts Receivable (297) (469) (491) (512) (558)
(Increase)/Decrease in Inventory (1,792) (4,667) (5,305) (5,964) (6,640)
(Increase)/Decrease in Prepaid & Other Current (570) (373) (391) (407) (444)
Increase/(Decrease) in Accounts Payable 443 1,153 1,311 1,474 1,641
Increase/(Decrease) in Accrued Liabilities 27 920 963 1,003 1,095
------ ------- ------- ------- ------- -------
Total Operating Activities 8,643 4,735 6,417 8,796 10,999 13,336
Investing Activities
Capital Expenditures (7,522) (7,700) (8,700) (9,200) (9,700) (10,200)
(Increase)/Decrease in Other Assets 0 (41) (87) (100) (113) (125)
------ ------- ------- ------- ------- -------
Total Investing Activities (7,522) (7,741) (8,787) (9,300) (9,813) (10,325)
Total Cash Provided/(Used) 1,121 (3,006) (2,370) (504) 1,186 3,011
Cash Available (13) 0 0 0 0
------ ------- ------- ------- ------- -------
Additional Cash Needed (3,019) (2,370) (504) 0 0
Beginning Line of Credit Balance 34,327 5,695 8,714 11,085 11,588 10,402
Line Drawn/(Paydown) (1,121) 3,019 2,370 504 (1,186) (3,011)
------ ------- ------- ------- ------- -------
Ending Line of Credit Balance 33,208 8,714 11,085 11,588 10,402 7,391
Beginning Cash Balance 87 87 100 100 100 100
Cash Provided/(Used) 0 13 0 0 0 0
------ ------- ------- ------- ------- -------
Ending Cash Balance $87 $100 $100 $100 $100 $100
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
New Store Model
<TABLE>
<CAPTION>
Sales Ramp-up Average Sales % Growth
------------- ---------
<S> <C> <C>
Year 1 $400 NM
Year 2 550 37.5%
Year 3 650 18.2%
Year 4 730 12.3%
Year 5 840 15.1%
Thereafter NM 2.5%
</TABLE>
<TABLE>
<CAPTION>
Number of New Stores Opened
<S> <C> <C> <C>
1991 97 A 1997 25 E
1992 37 A 1998 35 E
1993 16 A 1999 40 E
1994 26 A 2000 45 E
1995 44 A 2001 50 E
1996 40 E 2002 50 E
</TABLE>
Projected Retail Sales
<TABLE>
<CAPTION>
Sales from Stores in Model
-------------------------------------------------------------------------- Stores At
Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter Total Sales Year End
------- ------- ------- ------- ------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $12,661 $21,722 $15,361 $12,151 $32,739 $84,485 $0 $179,119 260
1997 $10,000 $18,992 $27,153 $18,433 $13,985 $119,785 $0 $208,348 285
1998 $14,000 $13,750 $23,738 $32,583 $21,761 $138,307 $0 $244,139 320
1999 $16,000 $19,250 $16,250 $28,487 $37,470 $164,070 $0 $281,526 360
2000 $18,000 $22,000 $22,750 $18,250 $32,760 $206,578 $0 $320,338 405
2001 $20,000 $24,750 $26,000 $25,550 $20,988 $245,321 $0 $362,609 455
2002 $0 $0 $0 $0 $0 $0 $0 $0 505
</TABLE>
Projected Rent Expense
<TABLE>
<CAPTION>
Rent Expense Total Total Rent Total Rent Expense
per Store Stores Expense as a % of Sales
------------ ------ ---------- ------------------
<S> <C> <C> <C> <C>
1995 A $60 224 $13,397 8.2%
1996 61 260 15,804 8.2%
1997 65 285 18,415 8.2%
1998 67 320 21,449 8.2%
1999 68 360 24,627 8.2%
2000 69 405 27,937 8.2%
2001 69 455 31,548 8.2%
2002 0 505 0 8.2%
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Capital Expenditures, Depreciation and Amortization and Tax Schedule
<TABLE>
<CAPTION>
Capital Expenditures Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Base CapEx $3,522 $5,200 $5,200 $5,200 $5,200 $5,200
New Stores CapEx $100 Per Store 4,000 2,500 3,500 4,000 4,500 5,000
------ ------ ------ ------ ------ -------
Total CapEx $7,522 $7,700 $8,700 $9,200 $9,700 $10,200
<CAPTION>
Depreciation and Amortization Schedule Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Existing PP&E $3,321 $3,321 $3,321 $3,321 $3,321 $3,321
Total New Capital Expenditure 10 Avg Life
1996 752 752 752 752 752 752
1997 770 770 770 770 770
1998 870 870 870 870
1999 920 920 920
2000 970 970
2001 1,020
2002
------ ------ ------ ------- ------- -------
Total Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Existing Goodwill 254 254 254 254 254 254
Amortization of New Goodwill 0 2,696 2,696 2,696 2,696 2,696
Amortization of Deferred Financing Fees 0 571 571 571 571 571
------ ------ ------ ------- ------- -------
Total Amortization 254 3,521 3,521 3,521 3,521 3,521
------ ------ ------ ------- ------- -------
Total Depreciation and Amortization $4,327 $8,364 $9,234 $10,154 $11,124 $12,144
<CAPTION>
Tax Schedule Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Pretax Income $7,368 ($433) $2,997 $6,225 $9,100 $12,130
Plus: New Goodwill Amortization 0 2,696 2,696 2,696 2,696 2,696
Plus: Goodwill Amortization 254 254 254 254 254 254
------ ------ ------ ------ ------ -------
Total Taxable Income 7,622 2,517 5,947 9,174 12,050 15,080
Tax Rate 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
------ ------ ------ ------ ------ -------
Total Income Taxes $3,053 $1,007 $2,379 $3,670 $4,820 $6,032
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Debt Schedule
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Short-term Debt
Line of Credit
Beginning Balance 0 0 0 0 0
Annual Interest Payment LIBOR +175 bps 7.3% 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 15,440 0 0 0 0 0
Average Balance 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0
Project Financing Facility
Beginning Balance 2,000 0 0 0 0 0
Annual Interest Payment Prime + 25 bps 8.8% 154 0 0 0 0 0
Additions/(Redemptions) (2,000) 0 0 0 0 0
Ending Balance 0 0 0 0 0 0
New Revolver
Beginning Balance 5,695 8,714 11,085 11,588 10,402
Annual Interest Payment 8.0% 456 697 887 927 832
Additions/(Redemptions) 3,019 2,370 504 (1,186) (3,011)
Ending Balance 8,714 11,085 11,588 10,402 7,391
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Debt Schedule (Cont'd)
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Long-term Debt
Revolving Loan
Beginning Balance(total incl. current portion) 8,000 0 0 0 0 0
Annual Interest Payment LIBOR +175 bps 7.3% 584 0 0 0 0 0
Additions/(Redemptions) (2,000) (2,000) 0 0 0 0
Ending Balance 6,000 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0 0
Mortgage Notes Payable
Beginning Balance 1,049 0 0 0 0 0
Annual Interest Payment 8.6% 90 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 1,049 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0 0
Notes Payable
Beginning Balance(total incl. current portion) 804 0 0 0 0 0
Annual Interest Payment 7.5% 60 0 0 0 0 0
Additions/(Redemptions) (85) (120) 0 0 0 0
Ending Balance 719 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0 0
Convertible Subordinated Notes
Beginning Balance 10,000 0 0 0 0 0
Annual Interest Payment 8.0% 800 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0 0
Ending Balance 10,000 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0 0
PIK Preferred A
Beginning Balance 28,000 31,150 34,654 38,553 42,890
Annual Interest Payment 11.3% 3,150 3,504 3,899 4,337 4,825
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 31,150 34,654 38,553 42,890 47,715
PIK Preferred B
Beginning Balance 0 0 0 0 0
Annual Interest Payment 11.3% 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 0 0 0 0 0
Senior Unsecured Notes
Beginning Balance 85,000 85,000 85,000 85,000 85,000
Annual Interest Payment 11.8% 9,988 9,988 9,988 9,988 9,988
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 85,000 85,000 85,000 85,000 85,000
Zero Coupon Bonds
Beginning Balance 0 0 0 0 0
Annual Interest Payment 11.3% 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 0 0 0 0 0
Total Interest Payments 1,689 13,138 13,492 13,886 14,325 14,813
Cash Interest Income 5.0% (2) (2) (2) (2) (2) (2)
------ ------ ------ ------ ------ -------
Net Interest Expense 1,686 13,136 13,490 13,884 14,323 14,811
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Leveraged Buyout Analysis Confidential
(Dollars in thousands)
Return Analysis
Projected Value of Equity
<TABLE>
<CAPTION>
2001
--------
<S> <C> <C>
Projected EBITDA 35,092
Projected Enterprise Value 5.0 x 175,460
Based on 6.0 x 210,552
Multiple of EBITDA 7.0 x 245,644
Less: Net Fixed Obligations (140,007)
Projected Equity Value 5.0 x 35,453
Based on 6.0 x 70,545
Multiple of EBITDA 7.0 x 105,637
</TABLE>
Equity Ownership
<TABLE>
<CAPTION>
Pro Forma
for Offerings
-------------
<S> <C>
Common 81.0%
PIK Preferred A 15.0%
PIK Preferred B 0.0%
Senior Secured Note Holders 4.0%
Existing Shareholders 0.0%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5-Year Return Analysis
Common Equity 5.0 x (22,000) 0 0 0 0 28,717 4.5%
6.0 (22,000) 0 0 0 0 57,142 17.2%
7.0 (22,000) 0 0 0 0 85,566 25.4%
PIK Preferred A 5.0 x (28,000) 0 0 0 0 53,033 11.2%
6.0 (28,000) 0 0 0 0 58,297 13.0%
7.0 (28,000) 0 0 0 0 63,561 14.6%
PIK Preferred B 5.0 x 0 0 0 0 0 0 NA
6.0 0 0 0 0 0 0 NA
7.0 0 0 0 0 0 0 NA
Senior Secured Notes 5.0 x (85,000) 9,988 9,988 9,988 9,988 96,406 9.5%
6.0 (85,000) 9,988 9,988 9,988 9,988 97,810 9.7%
7.0 (85,000) 9,988 9,988 9,988 9,988 99,213 9.9%
PIK Preferred B and Common 5.0 x (22,000) 0 0 0 0 28,717 4.5%
6.0 (22,000) 0 0 0 0 57,142 17.2%
7.0 (22,000) 0 0 0 0 85,566 25.4%
</TABLE>
<PAGE>
Dillion, Read & Co., Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
Transaction Summary
<TABLE>
<S> <C>
SHAREHOLDER DIVIDEND
Current Common Shares Out 6,548,411
Dividend per Share $ 5.00
----------
Value of Common Shares 32,742
Options Outstanding 974
Average Exercise Price $ 8.62
Proposed Price per Share $ 5.00
----------
Value of Options ($ 3,530)
TOTAL DIVIDENDS DISTRIBUTED $29,212
</TABLE>
<TABLE>
<S> <C>
GOODWILL CALCULATION
Purchase Price of Equity $0
Plus: Transaction Fees and Expenses 0
Less: Book Value of Equity 0
----
TOTAL GOODWILL 0
Years of Amortization 25
Annual Goodwill Expense 0
</TABLE>
<TABLE>
<S> <C>
FEES AND EXPENSES
Transaction Fees $ 526
Transaction Expenses 1,000
Financing Fees 3,500
Financing Expenses 500
------
TOTAL FEES AND EXPENSES $5,526
Deferred Financing Fees $4,000
Years of Amortization 7
------
Annual Amortization of Financing Fees $ 571
</TABLE>
<TABLE>
<CAPTION>
SOURCES OF FUNDS % of Total Coupon Warrants
---------- ------ ---------
<S> <C> <C> <C> <C>
Common Equity $ 0 0% NM 0.0%
PIK Preferred A $ 0 0% 11.3% 15.0%
PIK Preferred B $ 0 0% 11.3% 0.0%
Senior Unsecured Notes $67,946 100% 11.8% 4.0%
Revolver $ 0 0% 8.0%
-------
TOTAL SOURCES OF FUNDS $67,946 100%
</TABLE>
<TABLE>
<S> <C>
USES OF FUNDS
Dividend to Shareholders $29,212
Revolving Loan 6,000
Mortgage Notes 1,049
Notes 719
Convertible Subordinated 10,000
Line of Credit 15,440
Fees and Expenses 5,526
-------
TOTAL USES OF FUNDS $67,946
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CAPITALIZATION 1996 Pro Forma 1997 1998 1999 2000 2001
-------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total Long-term Debt 67,946 67,946 67,946 67,946 67,946 67,946
Total Debt 67,946 69,489 70,313 69,196 67,946 67,946
Net Debt 67,859 69,389 70,213 69,096 66,211 61,498
Total Equity 5,356 8,088 12,949 19,820 28,494 38,990
Total Book Capitalization 73,302 77,577 83,262 89,016 96,440 106,935
CREDIT STATISTICS
EBIT / Cash Interest (1) 1.3x 1.6x 2.0x 2.4x 2.8x 3.2x
EBITDA / Cash Interest (1) 1.8 2.3 2.8 3.3 3.9 4.4
EBITDA - CapX /Cash Interest (1) 0.9 1.3 1.8 2.2 2.7 3.1
EBIT /Total Interest 1.3 1.6 2.0 2.4 2.8 3.2
EBITDA / Total Interest 1.8 2.3 2.8 3.3 3.9 4.4
EBITDA - CapX /Total Interest 0.9 1.3 1.8 2.2 2.7 3.1
Cash Fixed Charge Coverage Ratio 1.1 1.6 2.0 2.4 2.8 3.2
Total Fixed Obligations/Total Book
Capitalization (2) 92.7% 89.6% 84.4% 77.7% 70.5% 63.5%
Total Debt / EBITDA 4.7 3.8x 3.1x 2.5x 2.2x 1.9
Total Debt/EBIT 6.7 5.5 4.3 3.5 3.0 2.6
Total Debt / Total Capitalization 92.7% 89.6% 84.4% 77.7% 70.5% 63.5%
Net Debt / Total Capitalization 92.6% 89.4% 84.3% 77.6% 68.7% 57.5%
Total Debt / Common Equity 12.7x 8.6x 5.4x 3.5x 2.4x 1.7
</TABLE>
Note 1: Excludes PIK preferred and zero coupon bonds.
Note 2: Includes PIK preferred and zero coupon bonds in total fixed
obligations.
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
VALUATION ANALYSIS
<TABLE>
<CAPTION>
Dividend per Share
---------------------------------------------------------------
$5.00 $6.00 $7.00 $8.00 $9.00
--------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Shares Outstanding 6,548.4 6,548.4 6,548.4 6,548.4 6,548.4
Total Dividends $32,742.1 $39,290.5 $45,838.9 $52,387.3 $58.935.7
Projected 1997 Net Income 2,732 2,192 1,652 1,112 572
Net Income per Share $ 0.42 $ 0.33 $ 0.25 $ 0.17 $ 0.09
1997 Price Earnings Multiple 13.4x 13.4x 13.4x 13.4 13.4
Implied Trading Price per Share $ 5.61 $ 4.50 $ 3.39 $ 2.28 $ 1.17
Plus: Dividend per Share 5.00 6.00 7.00 8.00 9.00
Implied Total Value per Share $ 10.61 $ 10.50 $ 10.39 $ 10.28 $ 10.17
</TABLE>
<PAGE>
Dillion, Read & Co. Inc.
- --------------------------------------------------------------------------------
LESLIE'S POOLMART RECAPITALIZATION ANALYSIS Confidential
(Dollars in thousands)
PROJECTED INCOME STATEMENT
<TABLE>
<CAPTION>
Projected For the Year Ending December 31,
---------------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Sales
Retail 179,119 208,348 244,139 281,526 320,338 362,609
Mail Order 7,723 8,300 8,300 8,300 8,300 8,300
Service 4,798 6,661 7,660 8,809 10,131 11,651
-------- -------- -------- -------- -------- --------
Total Sales 191,640 223,309 260,099 298,635 338,769 382,559
Cost of Goods Sold 118,919 137,691 159,925 183,664 208,632 235,947
-------- -------- -------- -------- -------- --------
Gross Profit 72,721 85,617 100,174 114,972 130,137 146,612
Operating Expenses
SG&A 58,241 67,495 77,510 87,970 99,250 111,770
Less: Public Company Expenses 0 (250) (250) (250) (250) (250)
-------- -------- -------- -------- -------- --------
EBITDA 14,480 18,372 22,914 27,251 31,137 35,092
Depreciation and Amortization
Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Existing Goodwill 254 254 254 254 254 254
Amortization of New Goodwill 0 0 0 0 0 0
Amortization of Financing Fees 0 571 571 571 571 571
-------- -------- -------- -------- -------- --------
Total Depreciation and Amortization 4,327 5,669 6,539 7,459 8,429 9,449
-------- -------- -------- -------- -------- --------
EBIT 10,153 12,704 16,376 19,793 22,708 25,643
Interest Expense
Existing Debt 2,787 0 0 0 0 0
Revolver 0 0 123 189 100 0
Zero Coupon Bonds 0 0 0 0 0 0
Senior Unsecured Notes 0 7,984 7,984 7,984 7,984 7,984
Interest Income (2) (2) (2) (2) (2) (2)
-------- -------- -------- -------- -------- --------
Net Interest Expense 2,785 7,982 8,105 8,171 8,082 7,982
-------- -------- -------- -------- -------- --------
Pretax Income 7,368 4,722 8,271 11,622 14,627 17,662
Income Taxes 3,053 1,990 3,410 4,750 5,952 7,166
-------- -------- -------- -------- -------- --------
NET INCOME $ 4,315 $ 2,732 $ 4,861 $ 6,871 $ 8,674 $ 10,495
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS
Sales Growth
Retail 19.2% 16.3% 17.2% 15.3% 13.8% 13.2%
Mail Order -2.8% 7.5% 0.0% 0.0% 0.0% 0.0%
Service 13.0% 38.8% 15.0% 15.0% 15.0% 15.0%
Margins
Gross Profit 37.9% 38.3% 38.5% 38.5% 38.4% 38.3%
SG&A 30.4% 30.2% 29.8% 29.5% 29.3% 29.2%
EBITDA 8.1% 8.8% 9.4% 9.7% 9.7% 9.7%
EBIT 5.7% 6.1% 6.7% 7.0% 7.1% 7.1%
Net Income 2.4% 1.3% 2.0% 2.4% 2.7% 2.9%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DILLION, READ & CO. INC.
- --------------------------------------------------------------------------------
CONFIDENTIAL
Leslie's Poolmart Recapitalization Analysis
(Dollars in thousands)
PROJECTED BALANCE SHEET
<TABLE>
<CAPTION>
Projected As of December 31,
-------------------------------------------------------
Assets 1996 ADJUSTMENTS 1996 PRO FORMA 1997
------- ----------- -------------- -------
<S> <C> <C> <C> <C>
Cash $ 87 0 $ 87 $ 100
Accounts Receivable 2,550 0 2,550 2,847
Inventory 37,048 0 37,048 38,840
Prepaid Expenses and Other Current 1,693 0 1,693 2,263
Deferred Tax Assets 2,321 0 2,321 2,321
-------- ----------- -------------- -------
Total Current 43,699 43,699 46,371
Net PP&E 33,307 0 33,307 36,164
Goodwill, Net 8,298 0 8,298 8,044
Amortized Financing Fees 0 4,000 4,000 3,429
Other Assets 672 0 672 713
-------- ----------- -------------- -------
TOTAL ASSETS $ 85,976 $89,976 $94,721
Liabilities and Shareholders' Equity
Accounts Payable $ 9,155 0 $ 9,155 $ 9,598
Accrued Liabilities 5,556 0 5,556 5,583
Line of Credit and Project Financing Facility 15,440 (15,440) 0 0
New Revolver 0 0 0 1,543
Current Portion of Long-term Debt 2,120 (2,120) 0 0
-------- ----------- -------------- -------
Total Current Liabilities 32,271 14,711 16,724
Revolving Loan 4,000 (4,000) 0 0
Mortgage Notes Payable 1,049 (1,049) 0 0
Notes Payable 599 (599) 0 0
Convertible Subordinated Notes 10,000 (10,000) 0 0
Senior Unsecured Notes 0 67,946 67,946 67,946
Zero Coupon Bonds 0 0 0 0
-------- ----------- -------------- -------
Total Long-term Debt 15,648 67,946 67,946
Deferred Tax Liabilities 1,963 0 1,963 1,963
-------- ----------- -------------- -------
Total Liabilities 49,882 84,620 86,633
PIK Preferred A 0 0 0 0
PIK Preferred B 0 0 0 0
Shareholders' Equity 36,094 (30,738) 5,356 8,088
-------- -------------- -------
Total Shareholders' Equity 36,094 5,356 8,088
-------- -------------- -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 85,976 $89,976 $94,721
<CAPTION>
Projected As of December 31,
-------------------------------------------------------
Assets 1998 1999 2000 2001
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Cash $ 100 100 $ 1,735 $ 6,477
Accounts Receivable 3,316 3,808 4,319 4,878
Inventory 43,507 48,812 54,776 61,416
Prepaid Expenses and Other Current 2,636 3,027 3,433 3,877
Deferred Tax Assets 2,321 2,321 2,321 2,321
-------- --------- -------- --------
Total Current 51,881 58,068 66,585 78,939
Net PP&E 39,151 41,717 43,814 45,391
Goodwill, Net 7,790 7,536 7,282 7,028
Amortized Financing Fees 2,857 2,286 1,714 1,143
Other Assets 800 900 1,013 1,138
-------- --------- -------- --------
TOTAL ASSETS $102,478 $ 110,507 $120,408 $133,639
Liabilities and Shareholders' Equity
Accounts Payable $ 10,751 $ 12,062 $ 13,536 $ 15,177
Accrued Liabilities 6,502 7,466 8,469 9,564
Line of Credit and Project Financing Facility 0 0 0 0
New Revolver 2,367 1,250 0 0
Current Portion of Long-term Debt 0 0 0 0
-------- --------- -------- --------
Total Current Liabilities 19,621 $ 20,778 22,005 24,741
Revolving Loan 0 0 0 0
Mortgage Notes Payable 0 0 0 0
Notes Payable 0 0 0 0
Convertible Subordinated Notes 0 0 0 0
Senior Unsecured Notes 67,946 67,946 67,946 67,946
Zero Coupon Bonds 0 0 0 0
-------- --------- -------- --------
Total Long-term Debt 67,946 $ 67,946 67,946 67,946
Deferred Tax Liabilities 1,963 1,963 1,963 1,963
-------- --------- -------- --------
Total Liabilities 89,530 90,687 91,914 94,649
PIK Preferred A 0 0 0 0
PIK Preferred B 0 0 0 0
Shareholders' Equity 12,949 19,820 28,494 38,990
-------- --------- -------- --------
Total Shareholders' Equity 12,949 19,820 28,494 38,990
-------- --------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $102,478 $ 110,507 $120,408 $133,639
</TABLE>
<TABLE>
<CAPTION>
ASSUMPTIONS 1996 1996 PRO FORMA 1997
-------- -------------- -------
<S> <C> <C> <C>
Accounts Receivable as a % of Sales 1.3% 1.3% 1.3%
Prepaid Expenses and Other Current as a % of Sal 1.0% 0.9% 1.0%
Accrued Liabilities as a % of Sales 0.0% 2.9% 2.5%
Accounts Payable as a % of Inventory 24.7% 24.7% 24.7%
Inventory per Store $142 142 $136
Inventory Turns (1) 5.6x 5.6 3.9
</TABLE>
<TABLE>
<CAPTION>
1998 1999 2000 2001
------- ------- ------- -------
<S> <C> <C> <C> <C>
ASSUMPTIONS
Accounts Receivable as a % of Sales 1.3% 1.3% 1.3% 1.3%
Prepaid Expenses and Other Current as a % of Sal 1.0% 1.0% 1.0% 1.0%
Accrued Liabilities as a % of Sales 2.5% 2.5% 2.5% 2.5%
Accounts Payable as a % of Inventory 24.7% 24.7% 24.7% 24.7%
Inventory per Store $136 $136 $135 $135
Inventory Turns (1) 3.9 3.4 3.5 3.5
</TABLE>
Notes:
(1) Excludes rent expense. Based on annual average inventory.
<PAGE>
Dillion, Read & Co., Inc.
- --------------------------------------------------------------------------------
LESLIE'S POOLMART RECAPITALIZATION ANALYSIS Confidential
(Dollars in thousands)
Projected Cash Flow Statement
<TABLE>
<CAPTION>
Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------- ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Operating Activities
Net Income $ 4,315 $ 2,732 $ 4,861 $ 6,871 $ 8,674 $ 10,495
Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Goodwill 254 825 825 825 825 825
(Increase)/Decrease in Accts Receivable (297) (469) (491) (512) (558)
(Increase)/Decrease in Inventory (1,792) (4,667) (5,305) (5,964) (6,640)
(Increase)/Decrease in Prepaid & Other Current (570) (373) (391) (407) (444)
Increase/(Decrease) in Accounts Payable 443 1,153 1,311 1,474 1,641
Increase/(Decrease) in Accrued Liabilities 27 920 963 1,003 1,095
------- ------- ------- ------- ------- --------
Total Operating Activities 8,643 6,211 7,963 10,417 12,698 15,038
Investing Activities
Capital Expenditures (7,522) (7,700) (8,700) (9,200) (9,700) (10,200)
(Increase)/Decrease in Other Assets (41) (87) (100) (113) (125)
------- ------- ------- ------- ------- --------
Total Investing Activities (7,522) (7,741) (8,787) (9,300) (9,813) (10,325)
Total Cash Provided/(Used) 1,121 (1,530) (824) 1,117 2,885 4,713
Cash Available (13) 0 0 0 1,635
------- ------- ------- ------- --------
Additional Cash Needed (1,543) (824) 0 0 0
Beginning Line of Credit Balance 34,329 0 1,543 2,367 1,250 0
Line Drawn/(Paydown) (1,121) 1,543 824 (1,117) (1,250) 0
------- ------- ------- ------- ------- --------
Ending Line of Credit Balance 33,208 1,543 2,367 1,250 0 0
Beginning Cash Balance 87 87 100 100 100 1,735
Cash Provided/(Used) 0 13 0 0 1,635 4,713
------- ------- ------- ------- ------- --------
Ending Cash Balance $ 87 $ 100 $ 100 $ 100 $ 1,735 $ 6,447
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
NEW STORE MODEL
<TABLE>
<CAPTION>
SALES RAMP-UP AVERAGE SALES % GROWTH
------------- --------
<S> <C> <C>
Year 1 $400 NM
Year 2 550 37.5%
Year 3 650 18.2%
Year 4 730 12.3%
Year 5 840 15.1%
Thereafter NM 0.0%
</TABLE>
NUMBER OF NEW STORES OPENED
<TABLE>
<S> <C> <C> <C>
1991 97 A 1997 25 E
1992 37 A 1998 35 E
1993 16 A 1999 40 E
1994 26 A 2000 45 E
1995 44 A 2001 50 E
1996 40 E 2002 50 E
</TABLE>
PROJECTED RETAIL SALES
<TABLE>
<CAPTION>
SALES FROM STORES IN MODEL
-------------------------------------------------------------------------------------- STORES AT
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 THEREAFTER TOTAL SALES YEAR END
------- ------- ------- ------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 $12,661 $21,722 $15,361 $12,151 $32,739 $ 84,485 $ 179,119 260
1997 $10,000 $18,992 $27,153 $18,433 $13,985 $119,785 208,348 285
1998 $14,000 $13,750 $23,738 $32,583 $21,761 $138,307 244,139 320
1999 $16,000 $19,250 $16,250 $28,487 $37,470 $164,070 281,526 360
2000 $18,000 $22,000 $22,750 $18,250 $32,760 $206,578 320,338 405
2001 $20,000 $24,750 $26,000 $25,550 $20,988 $245,321 362,609 455
2002 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 0 505
</TABLE>
PROJECTED RENT EXPENSE
<TABLE>
<CAPTION>
RENT EXPENSE TOTAL TOTAL RENT TOTAL RENT EXPENSE
PER STORE STORES EXPENSE AS A % OF SALES
------------ ------ ---------- ------------------
<S> <C> <C> <C> <C>
1995 A $60 224 $13,397 ERR
1996 61 260 15,804 8.2%
1997 65 285 18,415 8.2%
1998 67 320 21,449 8.2%
1999 68 360 24,627 8.2%
2000 69 405 27,937 8.2%
2001 69 455 31,548 8.2%
2002 0 505 0 8.2%
</TABLE>
<PAGE>
Dillion, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
Capital Expenditures, Depreciation and Amortization and Tax Schedule
<TABLE>
<CAPTION>
Capital Expenditures Projected for the Year Ending December 31,
--------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Base CapEx $3,522 $5,200 $5,200 $5,200 $5,200 $5,200
New Stores CapEx $0 Per Store 4,000 2,500 3,500 4,000 4,500 5,000
------ ------ ------ ------ ------ -------
Total CapEx $7,522 $7,700 $8,700 $9,200 $9,700 $10,200
<CAPTION>
Depreciation and Amortization Schedule Projected for the Year Ending December 31,
---------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Existing PP&E (1) 0 Avg Life $3,321 $3,321 $3,321 $3,321 $3,321 $ 3,321
Total New Capital Expenditures 0 Avg Life
1996 752 752 752 752 752 752
1997 770 770 770 770 770
1998 870 870 870 870
1999 920 920 920
2000 970 970
2001 1,020
2002
------ ------ ------ ------ ------ -------
Total Depreciation 4,073 4,843 5,713 6,633 7,603 8,623
Amortization of Existing Goodwill 254 254 254 254 254 254
Amortization of New Goodwill 0 0 0 0 0 0
Amortization of Deferred Financing Fees 0 571 571 571 571 571
------ ------ ------ ------ ------ -------
Total Amortization 254 825 825 825 825 825
------ ------ ------ ------ ------ -------
Total Depreciation and Amortization $4,327 $5,669 $6,539 $7,459 $8,429 $ 9,449
<CAPTION>
Tax Schedule Projected for the Year Ending December 31,
----------------------------------------------------------
1996 1997 1998 1999 2000 2001
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Pretax Income $7,368 $4,722 $8,271 $11,622 $14,627 $17,662
Plus: New Goodwill Amortization 0 0 0 0 0 0
Plus: Goodwill Amortization 254 254 254 254 254 254
------ ------ ------ ------- ------- -------
Total Taxable Income 7,622 4,976 8,525 11,876 14,881 17,916
Tax Rate 0.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
------ ------ ------ ------- ------- -------
Total Income Taxes $3,053 $1,990 $3,410 $ 4,750 $ 5,952 $ 7,166
</TABLE>
Notes:
(1) Based on net PP&E as of 12/31/95.
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
<TABLE>
<CAPTION>
Debt Schedule
Projected for the Year Ending December 31,
---------------------------------------------------------
Short-term Debt 1996 1997 1998 1999 2000 2001
------ ----- ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Line of Credit
Beginning Balance 0 0 0 0 0
Annual Interest Payment LIBOR +175 bps 7.3% 0 0 0 0 0
Additions/(Redemptions) 0 0 0 0 0
Ending Balance 15,440 0 0 0 0 0
Average Balance 0 0 0 0 0
Ending Balance Pro Forma 0 0 0 0 0
Project Financing Facility
Beginning Balance 2,000 0 0 0 0 0
Annual Interest Payment Prime + 25 bps 8.8% 154 0 0 0 0 0
Additions/(Redemptions) (2,000) 0 0 0 0 0
Ending Balance 0 0 0 0 0 0
New Revolver
Beginning Balance 0 1,543 2,367 1,250 0
Annual Interest Payment 8.0% 0 123 189 100 0
Additions/(Redemptions) 1,543 824 (1,117) (1,250) 0
Ending Balance 1,543 2,367 1,250 0 0
</TABLE>
<PAGE>
Dillon, Read & Co., Inc.
- --------------------------------------------------------------------------------
Leslie's Poolmart Recapitalization Analysis Confidential
(Dollars in thousands)
DEBT SCHEDULE (CONT'D)
<TABLE>
<CAPTION>
PROJECTED FOR THE YEAR ENDING DECEMBER 31,
------------------------------------------
1996 1997 1998
-------- -------- ------
<S> <C> <C> <C>
Long-term Debt
Revolving Loan
Beginning Balance(total incl. current portion) 8,000 0 0
Annual Interest Payment LIBOR +175 bps 7.3% 584 0 0
Additions/(Redemptions) (2,000) (2,000) 0
Ending Balance 6,000 0 0
Ending Balance Pro Forma 0 0 0
Mortgage Notes Payable
Beginning Balance 1,049 0 0
Annual Interest Payment 8.6% 90 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 1,049 0 0
Ending Balance Pro Forma 0 0 0
Notes Payable
Beginning Balance(total incl. current portion) 804 0 0
Annual Interest Payment 7.5% 60 0 0
Additions/(Redemptions) (85) (120) 0
Ending Balance 719 0 0
Ending Balance Pro Forma 0 0 0
Convertible Subordinated Notes
Beginning Balance 10,000 0 0
Annual Interest Payment 8.0% 800 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 10,000 0 0
Ending Balance Pro Forma 0 0 0
PIK Preferred A
Beginning Balance 0 0
Annual Interest Payment 11.3% 0 0
Additions/(Redemptions) 0 0
Ending Balance 0 0
PIK Preferred B
Beginning Balance 0 0
Annual Interest Payment 11.3% 0 0
Additions/(Redemptions) 0 0
Ending Balance 0 0
Senior Unsecured Notes
Beginning Balance 67,946 67,946
Annual Interest Payment 11.8% 7,984 7,984
Additions/(Redemptions) 0 0
Ending Balance 67,946 67,946
Zero Coupon Bonds
Beginning Balance 0 0
Annual Interest Payment 11.3% 0 0
Additions(Redemptions) 0 0
Ending Balance 0 0
Total Interest Payments 1,689 7,984 7,984
Cash Interest Income 5.0% (2) (2) (2)
-------- -------- ------
Net Interest Expense 1,686 7,982 7,982
<CAPTION>
1999 2000 2001
-------- -------- ------
<S> <C> <C> <C>
Long-term Debt
Revolving Loan
Beginning Balance(total incl. current portion) 0 0 0
Annual Interest Payment LIBOR +175 bps 7.3% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
Ending Balance Pro Forma 0 0 0
Mortgage Notes Payable
Beginning Balance 0 0 0
Annual Interest Payment 8.6% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
Ending Balance Pro Forma 0 0 0
Notes Payable
Beginning Balance(total incl. current portion) 0 0 0
Annual Interest Payment 7.5% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
Ending Balance Pro Forma 0 0 0
Convertible Subordinated Notes
Beginning Balance 0 0 0
Annual Interest Payment 8.0% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
Ending Balance Pro Forma 0 0 0
PIK Preferred A
Beginning Balance 0 0 0
Annual Interest Payment 11.3% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
PIK Preferred B
Beginning Balance 0 0 0
Annual Interest Payment 11.3% 0 0 0
Additions/(Redemptions) 0 0 0
Ending Balance 0 0 0
Senior Unsecured Notes
Beginning Balance 67,946 67,946 67,946
Annual Interest Payment 11.8% 7,984 7,984 7,984
Additions/(Redemptions) 0 0 0
Ending Balance 67,946 67,946 67,946
Zero Coupon Bonds
Beginning Balance 0 0 0
Annual Interest Payment 11.3% 0 0 0
Additions(Redemptions) 0 0 0
Ending Balance 0 0 0
Total Interest Payments 7,984 7,984 7,984
Cash Interest Income 5.0% (2) (2) (2)
-------- -------- ------
Net Interest Expense 7,982 7,982 7,982
</TABLE>
<PAGE>
Dillon, Read & Co. Inc.
- --------------------------------------------------------------------------------
LESLIE'S POOLMART RECAPITALIZATION ANALYSIS Confidential
(Dollars in thousands)
RETURN ANALYSIS
<TABLE>
<CAPTION>
PROJECTED VALUE OF EQUITY
2001
-------
<S> <C> <C>
Projected EBITDA 35,092
Projected Enterprise Value 5.0x 175,460
Based on 6.0x 210,552
Multiple of EBITDA 7.0x 245,644
Less: Net Fixed Obligations (61,498)
Projected Equity Value 5.0x 113,961
Based on 6.0x 149,053
Multiple of EBITDA 7.0x 184,145
</TABLE>
<TABLE>
<CAPTION>
5-YEAR RETURN ANALYSIS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Equity 5.0x 0 0 0 0 0 92,309 NA
6.0 0 0 0 0 0 120,733 NA
7.0 0 0 0 0 0 149,158 NA
PIK Preferred A 5.0x 0 0 0 0 0 64,810 NA
6.0 0 0 0 0 0 70,073 NA
7.0 0 0 0 0 0 75,337 NA
PIK Preferred B 5.0x 0 0 0 0 0 0 NA
6.0 0 0 0 0 0 0 NA
7.0 0 0 0 0 0 0 NA
Senior Secured Notes 5.0x (67,946) 9,988 9,988 9,988 9,988 99,546 15.0%
6.0 (67,946) 9,988 9,988 9,988 9,988 100,950 15.2%
7.0 (67,946) 9,988 9,988 9,988 9,988 102,354 15.4%
PIK Preferred B and Common 5.0x 0 0 0 0 0 92,309 ERR
6.0 0 0 0 0 0 120,733 ERR
7.0 0 0 0 0 0 149,158 ERR
</TABLE>
<TABLE>
<CAPTION>
EQUITY OWNERSHIP
Pro Forma
for Offerings
-------------
<S> <C>
Common 81.0%
PIK Preferred A 15.0%
PIK Preferred B 0.0%
Senior Secured Note Holders 4.0%
Existing Shareholders 0.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Estimation of Unlevered Asset Beta
----------------------------------
Equity Total Market D/ E/ Unlevered
Company Name Beta (a) Net Debt* Equity ME + D ME + D Beta (b)
- ------------ -------- --------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Leslie's Poolmart 1.05 33.1 89.4 27.0% 73.0% 0.81
Average Unlevered Asset Beta 0.81
----
- ---------------------------------------------------------------------------------------------------------------
After tax cost of Debt 5.0% 5.5% 6.0%
Estimation of Weighted Average Cost of Capital Under Hypothetical Capital Structures
------------------------------------------------------------------------------------
<S> <C> <C> <C>
D/(ME+D) 20.0% 30.0% 40.0%
D/ME 25.0% 42.9% 66.7%
Implied Equity Beta (b) 0.973 1.087 1.240
Cost of Equity Over Bills (c) 13.5% 14.5% 15.8%
Cost of Equity Over Bonds (d) 13.4% 14.2% 15.3%
Average Cost of Equity 13.5% 14.3% 15.5%
After Tax Cost of Debt (e) 5.0% 5.5% 6.0%
Weighted Average Cost of Capital
Based on Bills 11.8% 11.8% 11.9%
Based on Bonds 11.7% 11.6% 11.6%
------------------------------------------------------
Average 11.8% 11.7% 11.7%
------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
- -----------------------------------------
* Includes liquidation value of preferred stock.
(a) Source: Bloomberg (02/24/97)
(b) Assumes a debt beta of 0.17 as given by Reilly and Joehnk in The
Journal of Finance, December, 1976, Table I, p.1394. Unlevered asset
beta calculated as: [(D/(ME + D)) * Debt Beta + (ME/(ME + D)) * Equity
Beta]. Equity beta under the hypothetical capital structures calculated
as: [Asset Beta + (D/ME) * (Asset Beta - Debt Beta)]. Levered Beta =
[1+((1-corporate tax rate)*(Debt/Market Equity))]*Unlevered Beta. As
found in Financial Theory and Corporate Policy, Page 457, Third
Edition, Copeland and Weston.
(c) Cost of equity over bills calculated as: [Equity Beta * 8.40% + 5.35%].
The 8.40% figure is the short-horizon expected equity risk premium
(large company stock total returns minus U.S. Treasury bill total
returns; average based on annual data from 1926 to 1994) according to
SBBI 1995 Yearbook (Ibbotson Associates). The 5.35% figure, our proxy
for the risk-free rate, is the average yield on 3-Month Treasury Bills
on 12/13/96.
(d) Cost of equity over bonds calculated as: [Equity Beta * 7.00% + 6.57%].
The 7.00% figure is the long-horizon expected equity risk premium
(large company stock total returns minus long-term government bond
income returns; average based on annual data from 1926 to 1994)
according to SBBI 1995 Yearbook (Ibbotson Associates). The 6.57%
figure, our proxy for the risk-free rate, is the average yield on 30
Year Treasury Bonds on 8/20/96.
(e) Pretax costs of debt were taken as the average yields for each class of
bond on Bloomberg for 8/20/96. These were taxed at a rate of 40.0%,
which approximates the average federal and state tax rates for the
period beginning January,1993 under the Tax Reform Act of 1993. (Note:
Pretax costs of debt used were A=7.16%, BBB=7.63%, BB=10.0% and
B=11.5%)
<PAGE>
EXHIBIT 18 TO 13E-3/A
STOCKHOLDERS AGREEMENT
AND
SUBSCRIPTION AGREEMENT
AMONG
LESLIE'S POOLMART, INC.
GREEN EQUITY INVESTORS II, L.P.
RICHARD H. HILLMAN
MICHAEL J. FOURTICQ
GREG FOURTICQ
BRIAN P. MCDERMOTT
THE TRUSTEES OF THE MCDERMOTT FAMILY TRUST
OCCIDENTAL PETROLEUM CORPORATION
AND
THE STOCKHOLDERS IDENTIFIED ON ANNEX A HERETO
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Representations and Warranties.................................................. 1
(a) Company Representations..................................................... 1
(b) Stockholder Representations and Warranties.................................. 2
2. Subscription for Common Stock; Call Option...................................... 3
(a) Common Stock Subscription................................................... 3
(b) Call Option................................................................. 3
3. Compliance with Securities Law.................................................. 4
4. Transfers of Securities......................................................... 4
(a) Prohibition on Transfers.................................................... 4
(b) Transfer Procedure; Right of First Refusal.................................. 4
(c) Transfers to Related Transferees............................................ 5
(d) Legend on Certificates...................................................... 6
(e) Transfers in Violation of this Agreement.................................... 7
5. Company Call Option............................................................. 7
(a) Call Purchase Event and Purchase Price...................................... 7
(b) Exercise of Call Option..................................................... 8
6. Registration Rights............................................................. 8
(a) Demand Registration Rights.................................................. 8
(b) Piggyback Registration Rights; Cutbacks..................................... 9
(c) Expenses of Registration.................................................... 11
(d) Registration Procedures..................................................... 12
(e) Indemnification............................................................. 15
(f) Holdback Amount............................................................. 17
(g) Assignment and Assumption................................................... 17
(h) Stock Option Plans.......................................................... 18
7. Drag-Along Sales and Tag-Along Sales........................................... 18
(a) Drag-Along Sales............................................................ 18
(b) Optional Participation in Sales of Common Stock (Tag-Along Sales)........... 19
(c) Obligations of Drag-Along Sellers........................................... 20
8. Termination and Lapse of Rights and Restrictions; Applications to Other
Stock and Adjustments........................................................... 20
9. Election of Directors........................................................... 20
10. Certain Additional Agreements................................................... 21
(a) Right to Participate in Securities Issuances................................ 21
(b) Right to Participate in Equity Repurchases.................................. 21
(c) Affiliate Transactions...................................................... 22
(d) Change of Control Transactions.............................................. 22
(e) Information................................................................. 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11. Notices........................................................................ 23
12. General........................................................................ 23
13. Additional Class II Stockholders............................................... 25
14. Arbitration.................................................................... 25
(a) Scope...................................................................... 25
(b) Deposition................................................................. 25
(c) JAMS....................................................................... 25
(d) Selection of Arbitrator.................................................... 25
(e) Governing Law.............................................................. 25
(f) Procedures................................................................. 26
(g) Award...................................................................... 26
15. Definitions.................................................................... 26
ANNEX A CAPITAL STRUCTURE.......................................................... A-1
ANNEX B TERMS OF NQ OPTION PLAN.................................................... B-1
ANNEX C TERMS OF INCENTIVE STOCK OPTION PLAN....................................... C-1
</TABLE>
ii
<PAGE>
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT") is entered into as of
____________, 1997, by and among (i) Leslie's Poolmart, Inc., a Delaware
corporation (the "COMPANY"), (ii) Green Equity Investors II, L.P., a Delaware
limited partnership ("GEI"), (iii) Michael J. Fourticq, Greg Fourticq, Richard
H. Hillman, Brian P. McDermott and Manette J. McDermott, T.R.U.A. DTD 3/15/90
The McDermott Family Trust (collectively referred to as the "HPA GROUP") and
(iv) Occidental Petroleum Corporation, a Delaware corporation ("OCCIDENTAL," and
together with GEI and the HPA Group, the "CLASS I STOCKHOLDERS") and the
individual stockholders named on the signature pages hereto (the "CLASS II
STOCKHOLDERS").
WHEREAS, on the date hereof the Company has consummated a merger (the
"MERGER") with Poolmart USA Inc., a Delaware corporation ("POOLMART"), pursuant
to which certain of the outstanding shares of common stock of the Company, $.001
par value per share (which authorized class of stock is hereinafter called
"COMMON STOCK"), remained outstanding and the shares of capital stock of
Poolmart were converted into capital stock of the Company; and
WHEREAS, concurrently with the Merger, GEI acquired ______ shares of Common
Stock, the HPA Group collectively retained _______ shares of Common Stock,
Occidental acquired ______ shares of Exchangeable Cumulative Redeemable
Preferred Stock, Series A of the Company (the "PREFERRED STOCK") and warrants
(the "WARRANTS") to purchase ________ shares of Common Stock, subject to
adjustment (the "WARRANT SHARES") certain of the Class II Stockholders are
subscribing for Common Stock and certain of the Class II Stockholders will
acquire certain nonqualified options and incentive stock options, as described
on Annex B and Annex C, respectively (collectively, the "OPTIONS" and the Common
Stock issuable upon exercise thereof, the "OPTION SHARES"); and
WHEREAS, the Company and the Class I and Class II Stockholders
(collectively, the "STOCKHOLDERS") desire to enter into certain agreements
concerning their holdings of Common Stock, Warrants, Warrant Shares, Options and
Option Shares (collectively, the "SECURITIES");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Representations and Warranties.
------------------------------
(a) Company Representations. The Company hereby represents and
-----------------------
warrants to the Class I and Class II Stockholders as follows:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has full
corporate power and authority to carry on its business as and where it is
now being conducted. The Company has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and
1
<PAGE>
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in
equity).
(ii) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will violate or
conflict with (A) any provision of the Certificate of Incorporation or
Bylaws of the Company, or (B) any agreement, indenture, undertaking,
permit, license or other instrument to which the Company is a party or by
which it or any of its properties may be bound or affected, other than such
violations and conflicts which are not reasonably likely to (1) prevent or
materially delay consummation of the transactions contemplated by this
Agreement or (2) prevent the Company from performing its obligations under
this Agreement.
(iii) The Company has no outstanding capital stock or securities
convertible into or exchangeable or exercisable for any shares of its
capital stock, nor any outstanding rights to subscribe for or to purchase,
or any options for the purchase of, or any agreement providing for the
issuance (contingent or otherwise) of any shares of its capital stock or
any securities convertible into or exchangeable or exercisable for any
shares of its capital stock, other than the Preferred Stock and the
Securities .
(b) Stockholder Representations and Warranties. Each Stockholder
------------------------------------------
hereby severally represents and warrants as follows:
(i) If it is an entity, it is a corporation, limited partnership,
trust or other entity duly organized and validly existing under the laws of
its state of organization.
(ii) It has full power and authority and, in the case of an
individual, legal and fiduciary capacity to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby.
This Agreement constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
(iii) Each of the Class II Stockholders (A) as a result of his
relationship with the Company and experience in financial matters, is able
to evaluate the acquisition of Common Stock and Options, the business and
proposed capital structure of the Company and the risks inherent therein;
(B) has been given the opportunity to obtain any additional information or
documents, and to ask questions and receive answers, from the officers and
representatives of the Company to the extent necessary to evaluate the
risks
2
<PAGE>
and merits of an investment in the Company; (C) has determined that
the acquisition of Common Stock and Options is consistent both in nature
and amount, with his overall investment program and financial condition,
and that his financial condition is such that he can afford to bear the
economic risk of holding unregistered Securities for which there is no
market and acknowledges that he may suffer a complete loss of such
investment.
(iv) (A) the Securities acquired by him are being acquired for
his own account for investment, without any present intention of selling or
further distributing the same, (B) acknowledges that that no liquid trading
market currently exists or is expected to exist in the foreseeable future
and as a result, such Stockholder may be unable to sell any of the
Securities for an indefinite period of time and (C) acknowledges that the
Company has no obligation, except as set forth in Section 6 hereof, to
register any of the Securities.
(v) Each member of the HPA Group represents and warrants that he
or it is an accredited investor within the meaning of Regulation D under
the Act.
Each Stockholder acknowledges that the Company is relying upon the truth and
accuracy of the above representations to a material degree in effectuating the
transactions contemplated hereby.
2. Subscription for Common Stock; Call Option.
------------------------------------------
(a) Common Stock Subscription. Each Class II Stockholder reflected
-------------------------
as a purchaser of Common Stock on Annex A hereto (a "PURCHASER") severally
agrees to purchase, and the Company agrees to sell to such Purchaser, the number
of shares of Common Stock set forth opposite his name on Annex A hereto, at the
purchase price shown thereon. Each Purchaser severally agrees to make payment
for the Subscription Shares by delivery to the Company of a certified check or
wire transfer in the amount of the purchase price therefore.
(b) Call Option. Each Class II Stockholder agrees that the Company
-----------
and certain other Stockholders shall have a call ("Call Option") in respect of
certain shares of Common Stock acquired pursuant to Section 2(a) above
("SUBSCRIPTION STOCK"), as well as in respect of the Non-Qualified Options
described on Annex B hereto (the "NQ OPTIONS") and shares issued upon the
exercise thereof. As to each holder of Subscription Stock, of an NQ Option or
of shares issued upon the exercise thereof, the Call Option shall apply only to
(i) two-thirds of all of such holder's shares of Subscription Stock, NQ Options
and shares issued upon exercise of such NQ Options (collectively, "Callable
Securities") if the Call Option is exercised before the first anniversary of the
date hereof, and (ii) one-third of the holder's Callable Securities of each
category if the Call Option is exercised on or after the first anniversary of
the date hereof but before the second anniversary of the date hereof. Except as
expressly provided in this Section 2(b), the Call Option shall not otherwise
apply to Subscription Stock, NQ Options or shares issued upon the exercise
thereof. Subscription Stock, NQ Options and shares issuable upon the exercise
thereof that are Callable Securities are respectively hereinafter referred to as
"Call Option Stock," "Call NQ Options" and "Call Option Shares."
3
<PAGE>
3. Notice of Transfer; Compliance with Securities Law. In addition to
--------------------------------------------------
the other applicable restrictions provided in this Agreement, each Stockholder
agrees that prior to effecting any Transfer of any Securities (other than a
Transfer to the Company) such Stockholder will give not less than 15 days'
advance written notice to the Company describing the manner of such proposed
Transfer. Each Stockholder further agrees that he or it will not effect such
proposed Transfer until either (A) such Stockholder has provided to the Company,
if so requested by the Company, an opinion of counsel reasonably satisfactory in
form and substance to the Company that such proposed Transfer is exempt from
registration under the Act and any applicable state securities laws, or (B) a
registration statement under the Act covering such proposed Transfer has been
filed by the Company and become effective under the Act and compliance with
applicable state securities laws has been effected and in each case, the
Company's independent public accountants have advised the Company that it is not
reasonably likely that such Transfer will necessitate a new basis for accounting
for the Company. Each Stockholder also agrees that he or it will not Transfer
any Securities except in compliance with the registration requirements of the
Act, the rules and regulations of the SEC thereunder, the relevant state
securities laws applicable to the Stockholder's actions, and the applicable
terms of this Agreement. The restrictions in this Section 3 shall remain in
effect until, in the opinion of counsel for the Company, Securities held by the
Stockholder are no longer subject to restrictions pursuant to the Act or
applicable state securities law.
4. Transfers of Securities.
-----------------------
(a) Prohibition on Transfers. Each of the members of the HPA
------------------------
Group, Occidental and each of the Class II Stockholders hereby agrees that such
Stockholder will not Transfer any Securities (or any interest therein) now or
hereafter at any time owned by such Stockholder, except for Transfers permitted
pursuant to this Section 4, Section 5 or Section 7 of this Agreement (each such
Transfer being a "PERMITTED TRANSFER").
(b) Transfer Procedure; Right of First Refusal. If any member of
------------------------------------------
the HPA Group, Occidental or any of the Class II Stockholders hereby shall have
received a bona fide arm's-length written offer (a "BONA FIDE OFFER") which such
Stockholder desires to accept from an independent party unrelated to such
Stockholder (the "OUTSIDE PARTY") for the purchase of Securities for
consideration consisting entirely of cash (it being understood that no sale for
any other consideration would be a Permitted Transfer), then such Stockholder
shall give a notice in writing (the "OPTION NOTICE") to each Class I Stockholder
and the Company setting forth such desire, which notice shall set forth at least
the name and address of the Outside Party and the price and terms of the Bona
Fide Offer and be accompanied by a copy of the Bona Fide Offer. Upon the giving
of such Option Notice, the Company, and to the extent the Company elects not to
do so, the respective Stockholders set forth in the following sentence (each an
"ELECTING STOCKHOLDER") shall have an option to purchase all, but not less than
all, of the Securities specified in the Option Notice, such option to be
exercised within 30 days after the giving of such Option Notice by giving a
counter-notice (the "ELECTION NOTICE") to the Stockholder. If the Stockholder
sending an Option Notice is (i) Occidental or a Class II Stockholder, then GEI
and the HPA Group shall be entitled to be Electing Stockholders; or (ii) a
member of the HPA Group, then GEI and the other members of the HPA Group shall
be entitled to be Electing
4
<PAGE>
Stockholders. Where more than one Electing Stockholder desires to participate in
a purchase pursuant to an Option Notice, such Stockholders shall participate,
pro rata based upon their respective Equity Ownership in the Company, with the
portion attributable to Stockholders declining to be Electing Stockholders being
redistributed to the remaining Stockholders pro rata based upon their respective
Equity Ownership in the Company, it being understood that the Company may elect
to purchase up to all of the Securities and any remainder shall be prorated as
aforesaid. The Company and, if applicable, the Electing Stockholders shall be
severally obligated to purchase, and the Stockholder shall be obligated to sell,
the Securities covered by such Election Notice at the cash price and terms
indicated in the Bona Fide Offer, provided that the closing of the purchase by
the Electing Stockholder shall be held on a business day within 30 days after
the giving of the Election Notice at 10:30 a.m., California time, at the
principal executive office of the Company, or at such other time and place as
may be mutually agreed to by the Stockholder, the Company and, if applicable,
the Electing Stockholders. If an Election Notice is not timely given by the
Company and/or one or more Electing Stockholders within the period specified
above after an Option Notice has been given, the Stockholder thereafter, at any
time within a period of four months from the giving of such Option Notice, may
Transfer all (but not less than all) of the Securities covered by such Option
Notice to the Outside Party at the cash price and terms contained in the Bona
Fide Offer; provided, however, that such Outside Party and such Securities shall
thereafter be subject to and bound by all of the provisions of this Agreement as
if such party were a Class II Stockholder except as otherwise provided in
Section 6(g) and, as a condition precedent to the completion of such Transfer of
Securities to such Outside Party, shall execute and deliver to the Company a
written consent to such effect in form and substance satisfactory to the
Company; and provided, further, however, that to the extent that the Stockholder
has not so Transferred such Securities to the Outside Party within such four-
month period, then such Securities thereafter shall continue to be subject to
all of the restrictions contained in this Agreement. Any election in any
instance by the Company or any Stockholder entitled to be Electing Stockholders
not to exercise its rights under this clause (b) shall not constitute a waiver
of such rights with respect to any other actual or proposed Transfer of
Securities.
(c) Transfers to Related Transferees. Notwithstanding anything to
--------------------------------
the contrary contained in clauses (a) and (b) of this Section 4, any Stockholder
may Transfer Securities to a Related Transferee provided that such Related
Transferee shall first (i) execute a written consent in form and substance
satisfactory to the Company to be bound by all of the provisions of this
Agreement, and (ii) give a duplicate original of such consent to the Company.
In the event of any Transfer by a Stockholder to a Related Transferee of all or
any part of his or its Securities (or in the event of any subsequent Transfer by
any such Related Transferee to another Related Transferee of the Stockholder),
such Related Transferee shall receive and hold such Securities subject to the
terms of this Agreement and the rights and obligations hereunder of a
Stockholder as though such Securities were still owned by the Stockholder, and
such Related Transferee shall be deemed the Stockholder for the purposes of this
Agreement. If the Related Transferee acquired Securities from a Stockholder,
such Related Transferee shall be entitled to participate, collectively with the
Stockholders of the same group, in the registration rights provided for in
Section 6 hereof. There shall be no further Transfer of such Securities by a
5
<PAGE>
Related Transferee except between and among such Related Transferee, the
original Stockholder and other Related Transferees, or except as otherwise
permitted by this Agreement.
(d) Legend on Certificates. Each certificate of the Company issued
----------------------
to represent any of the Securities shall bear the following (or substantially
equivalent) legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE
UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION
FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW,
RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED AN
OPINION OF COUNSEL IS FURNISHED TO THE COMPANY, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE
SECURITIES LAW IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER COMPLIES WITH THE PROVISIONS OF THE STOCKHOLDERS AGREEMENT DATED
AS OF _____________, 1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY.
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon the
completion of a public offering) shall also bear such (or substantially
equivalent) legends, unless the Security represented by such certificate is no
longer subject to the provisions of this Agreement and, in the opinion of
counsel for the Company, the Security represented thereby need no longer be
subject to restrictions pursuant to the Act or applicable state securities law.
(e) Transfers in Violation of this Agreement. The Company shall
----------------------------------------
not be required to record on its books and records, or otherwise to recognize or
facilitate, any Transfer of Securities in violation of this Agreement, nor shall
the Company be required to issue any certificate for Securities Transferred in
violation of this Agreement.
6
<PAGE>
5. Company "Call" Option.
---------------------
(a) Call Purchase Event and Purchase Price. Upon the termination
--------------------------------------
of a Class II Stockholder's employment with the Company or its subsidiaries for
any reason (including, without limitation, the voluntary termination, dismissal,
involuntary termination, Retirement, death or Permanent Disability of the
Stockholder) (a "CALL PURCHASE EVENT"), the Company, and to the extent the
Company elects not to do so and, in the case of the NQ Options, such purchase
may otherwise be made pursuant to the NQ Option Plan, GEI, Michael J. Fourticq
and Brian P. McDermott (or any Related Transferee of the latter) (collectively
the "PURCHASING GROUP") may, collectively and pro rata based upon their
respective Equity Ownership in the Company, exercise the Call Option by written
notice (a "PURCHASE NOTICE") delivered to the Class II Stockholder within 90
days after such Call Purchase Event, elect to purchase, and, upon the giving of
such notice, the Company, and if applicable, the Purchasing Group shall be
severally obligated to purchase and the Class II Stockholder (and the Related
Transferees, if any, of the Class II Stockholder) (in each case, the "SELLER")
shall be obligated to sell all, or any lesser portion indicated in the Purchase
Notice, of the Callable Securities owned at the time of the Call Purchase Event
by the Seller, for consideration calculated as to each share of Call Option
Stock and each Call Option Share or Call NQ Option, as the case may be, as
follows:
(i) in the case of voluntary termination by a Class II
Stockholder holding Call NQ Options, an amount equal to the difference
between the cash consideration per share paid in the Merger and the
exercise price of the Call NQ Option; or
(ii) in the case of any other termination (including without
limitation dismissal, involuntary termination, death, Retirement or
Permanent Disability of a Class II Stockholder holding Option Shares)
("OTHER TERMINATION"), of a Class II Stockholder holding Call NQ Options,
the difference between the higher of (A) the cash consideration per share
paid in the Merger and (B) the Fair Market Value of the underlying shares
on the date of the Call Purchase Event, and the exercise price of the Call
NQ Option; or
(iii) in the case of voluntary termination by a Class II
Stockholder holding Call Option Stock, the purchase price therefor; or
(iv) in the case of Other Termination of a Class II Stockholder
holding Call Option Stock, the higher of the Fair Market Value thereof on
the date of the Call Purchase Event and the purchase price paid by the
holder therefor; or
(v) in the case of voluntary termination by a Class II
Stockholder holding Call Option Shares, an amount equal to the cash
consideration per share paid in the Merger; or
(vi) in the case of Other Termination of a Class II Stockholder
holding Call Option Shares, the higher of the Fair Market Value of such
shares on the date of the Call Purchase Event and the amount payable
pursuant to clause (v) above.
7
<PAGE>
(b) Exercise of Call Option. In the event the Company and/or any
-----------------------
Class I Stockholder elects not to participate in the purchase of Callable
Securities pursuant to the Call Option, all remaining Purchasing Group
Stockholders desiring so to participate may do so, pro rata amongst such
remaining Purchasing Group Stockholders based upon their respective Equity
Ownership in the Company, or in any other proportion as they may agree. The
closing for all purchases and sales of Callable Securities pursuant to this
Section 5 shall be at the principal executive offices of the Company at 10:30
a.m., California time, on the 60th day after the giving of the applicable
Purchase Notice. The purchase price for the purchase and sale of Callable
Securities shall be paid in cash, by certified or official bank check. The
Seller(s) of Callable Securities sold pursuant to this Section 5 shall cause
such Securities to be delivered to the Purchasing Group or the Company at the
relevant closing free and clear of all liens, charges or encumbrances of any
kind. Such Seller(s) shall take all actions as the Purchasing Group or the
Company shall request as necessary to vest in the members of the Purchasing
Group and/or the Company at such closing such Callable Securities, free and
clear of all liens, charges and encumbrances incurred, voluntarily or
involuntarily, by or through Seller(s).
6. Registration Rights.
-------------------
(a) Demand Registration Rights. At any time on or after January
--------------------------
31, 1998, each of (i) GEI, (ii) the HPA Group collectively, and (iii) Occidental
shall be entitled, respectively, to request a registration (a "DEMAND
REGISTRATION") of no less than 50% of its Registrable Securities held by such
Class I Stockholder, and at such time as the Company qualifies for registration
of securities on Form S-3 or any successor short-form, one additional
registration for a period not to exceed 180 days on such form. In such event,
the Company shall:
(i) as soon as reasonably practicable, and at its expense as set
forth in Section 6 hereof, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of the Class
I Stockholder's Registrable Securities as are specified in such request on
the form specified in such request covering the Registrable Securities;
(ii) use its best efforts to cause such registration to become
and remain effective, as soon as practicable after receipt of the request
of the Class I Stockholder, for the period necessary to effectuate the
distribution contemplated by the Class I Stockholder; and
(iii) at the request of the Class I Stockholder or the Manager,
enter into and perform its obligations under an underwriting or purchase
agreement (the "UNDERWRITING AGREEMENT") in customary form for secondary
offerings of common stock, and otherwise reasonably acceptable to the
parties, with the Manager (acting for itself and/or a group of syndicate of
underwriters) and the Class I Stockholder.
Notwithstanding the foregoing, the Company shall be entitled to delay any such
Demand Registration if (i) the Company has determined in good faith that in view
of pending negotiations or other material developments regarding the Company not
otherwise required to be made public, disclosure of such information is not in
the best interest of the Company (in which case the delay
8
<PAGE>
in filing a Demand Registration may not exceed 90 days); (ii) the Company has
initiated discussions with an underwriter regarding the sale of securities of
the same class or convertible into the same class as the Registrable Securities
in a registered primary public offering, in which case the Demand Registration
may be delayed for up to 180 days from the effectiveness of such primary public
offering, provided that the Company may not invoke the provision of clause (i)
for more than an aggregate of 120 days in any twelve-month period, and may not
invoke the delay in clause (ii) more than once in any such period. In addition,
to the extent a Demand Registration is a "shelf" registration, the Company may
interrupt such registration for the reasons set forth above, provided that sales
under such shelf registration shall in all events be permitted for an aggregate
of 180 days if requested.
(b) Piggyback Registration Rights; Cutbacks. Each time the Company
---------------------------------------
proposes to register under the Act (other than registration (A) on Forms S-4 or
S-8 or any successor forms thereto, or (B) filed in connection with an exchange
offer) securities of the same class as any of the Registrable Securities, the
Company shall give written notice of such proposed registration (a "REGISTRATION
NOTICE") to each Class I Stockholder and Class II Stockholder at least 20 days
prior to the filing thereof. Each Registration Notice shall indicate that the
recipient has the right (subject to the provisions of this Section 6) to propose
that its Registrable Securities be included in such registration. Each Class I
Stockholder and Class II Stockholder shall have the right to propose that a
number of its Registrable Securities be included in such registration by written
notice given to the Company within fifteen (15) days after the giving of such
Registration Notice. Subject to the provisions of this Section 6, the Company
shall include all such Registrable Securities in such registration; provided,
--------
however, that:
- -------
(i) if the registration is in whole or part an underwritten
primary registration on behalf of the Company (whether or not it is also in
part a Demand Registration or other secondary registration on behalf of any
Company securityholders) and the managing underwriters of such offering
determine that the aggregate amount of securities of the Company which all
Stockholders and all other Company securityholders pursuant to future
contractual rights to participate in such registration (such other Company
securityholders, "FUTURE PARTICIPANTS") propose to include in such
registration exceeds the maximum amount of securities that should be
included therein, the Company will include in such registration, first, the
-----
shares which the Company proposes to sell and second, securities to be sold
------
for the account of any Class I Stockholder pro rata among the Class I
--- ----
Stockholders, and third, securities to be sold for the account of the Class
-----
II Stockholders, pro rata among the Class II Stockholders and fourth, the
--- ----
other securities to be sold for the account of Future Participants, pro
---
rata among such Future Participants, in each case on the basis of the
----
relative Equity Ownership of the parties who have requested that securities
owned by them be so included (it being agreed and understood, however, that
such underwriters shall have the right to eliminate entirely the
participation in such registration of all Stockholders and Future
Participants);
9
<PAGE>
(ii) if the registration is pursuant to an underwritten Demand
Registration and the managing underwriters determine that the aggregate
amount of securities which all Stockholders and all Future Participants
propose to include in such registration exceeds the maximum amount of
securities that should be included therein, the Company will include in
such registration, first, the securities to be sold for the account of the
-----
Class I Stockholders, pro rata among the Class I Stockholders, second,
--- ---- ------
securities to be sold for the account of the Company, if any, third,
-----
securities to be sold for the account of the Class II Stockholders, pro
---
rata among the Class II Stockholders and fourth, securities to be sold for
---- ------
the account of the Future Participants electing to include securities in
such registration, pro rata among such Future Participants, in each case,
--- ----
on the basis of their relative Equity Ownership (it being agreed and
understood, however, that such underwriters shall have the right to
eliminate entirely the participation therein of the Company and all such
Future Participants not entitled to demand inclusion of securities in such
registration);
(iii) if the registration is pursuant to an underwritten
secondary registration other than as described in clause (ii) above on
behalf of Future Participants and the managing underwriters determine that
the aggregate amount of securities which all Future Participants and
Stockholders propose to include in such registration exceeds the maximum
number of securities that should be included therein, the Company will
include in such registration first, the securities to be sold for the
-----
account of the Future Participants, pro rata among the Future Participants,
--- ----
second, securities to be sold for the account of the Company, if any,
------
third, securities to be sold for the account of the Class I Stockholders,
-----
pro rata among such Stockholders and fourth, securities to be sold for the
--- ---- ------
account of the Class II Stockholders, in each case, on the basis of their
relative Equity Ownership (it being agreed and understood, however, that
such underwriters shall have the right to eliminate the participation
therein of the Company and the Stockholders entirely unless, on the date of
such secondary registration, any Class I Stockholder electing to
participate in such registration shall not theretofore have completed one
Demand Registration in which all of the Registrable Securities it sought to
include were sold, in which case any such Class I Stockholder may convert
such registration into one governed by clause (ii) above);
(iv) in the event that, as a result of the provisions of Section
6(b)(i) or (ii), a group of Stockholders which has exercised its right to
request a Demand Registration is unable to register all of the Registrable
Securities as to which the request was made, such Stockholder shall not be
considered to have utilized a Demand Registration under Section 6(a); and.
(v) in exercising the rights of Stockholders in respect of
Registrable Securities in this Section 6, Stockholders comprising the
holders of the Demand Registrations enumerated in clauses (i) through (iii)
of Section 6(a) shall, if more than one Stockholder has or succeeds to such
rights, exercise such rights and make all determinations hereunder acting
by majority-in-interests based upon their respective ownership of
Registrable Securities.
10
<PAGE>
(c) Expenses of Registration. Whether or not any registration
------------------------
statement prepared and filed pursuant to Section 6(a) or (b) hereof is declared
effective by the SEC (except where a Demand Registration is terminated,
withdrawn or abandoned at the written request of a Class I Stockholder solely
due to market conditions), the Company shall pay all expenses incident to
Company's performance of or compliance with the registration requirements of
this Agreement, including, without limitation, the following: (A) all SEC
registration and filing fees and expenses; (B) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of Registrable Securities; (C) any and all
expenses incident to its performance of, or compliance with, this Agreement,
including, without limitation, any allocation of salaries and expenses of
Company personnel or other general overhead expenses of Company, or other
expenses for the preparation of historical and pro forma financial statements;
(D) fees and expenses incurred in connection with the listing of Registrable
Securities on each securities exchange or the NASDAQ Stock Market, as
applicable, on which securities of the same class are then listed; (E) all
transfer and/or exchange agent and registrar fees; (F) fees and expenses in
connection with the qualification of the Registrable Securities under securities
or "blue sky" laws including reasonable fees and disbursements of counsel for
the underwriters in connection therewith; (G) mailing and printing expenses
relating to the registration and distribution of Registrable Securities; (H)
messenger and delivery expenses relating to the registration and distribution of
Registrable Securities; (I) fees and out-of-pocket expenses of a single counsel
for the selling Stockholders and (J) fees and out-of-pocket expenses of counsel
for Company and its independent certified public accountants (including the
expenses of any audit, review and/or "cold comfort" letters) and other persons,
including special experts, retained by Company (collectively, clauses (A)
through (J), "REGISTRATION EXPENSES"); Provided, however, that company shall not
-----------------
be required to pay, and the stockholder shall pay, any discounts, commissions or
fees of underwriters, selling brokers and dealers relating to the distribution
of the Registrable Securities.
(d) Registration Procedures. In the case of each registration
-----------------------
effected by Company pursuant to this Agreement, Company shall keep the
participating Stockholders advised in writing as to the initiation of each
registration and as to the completion thereof. The Company shall (i) permit the
Stockholder, the Manager, if any, and their respective counsel to make such
investigation of Company as they may reasonably request, (ii) furnish to the
participating Stockholders, the Manager and their respective counsel drafts of
the registration statement and all amendments thereto, all prospectuses and
supplements thereof prior to filing with the SEC and consider their comments and
suggestions with respect to such documents, and (iii) not file any such
registration statement, amendment, prospectus or supplement to which the
participating Stockholders or the Manager shall reasonably object. At its
expense, Company shall:
(i) keep such registration effective and current as required by
law for such period necessary to permit the Stockholder to complete the
distribution described in the registration statement relating thereto, or
for such period as may be agreed to in the Underwriting Agreement;
11
<PAGE>
(ii) prepare and file with the SEC such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply with
the provisions of the Securities Act and the Underwriting Agreement and to
keep such registration statement effective and current as required by law
for that period of time specified above, in each case exclusive of any
period during which the prospectus used in connection with such
registration shall not comply with the requirements of Section 10 of the
Securities Act, and respond as promptly as practicable to any comments
received from the SEC with respect to such registration statement or any
amendment thereto;
(iii) furnish such number of copies of the registration
statement, each amendment thereto, each preliminary prospectus,
prospectuses, supplements and incorporated documents and other documents
incident thereto as the Stockholder or the Manager from time to time may
reasonably request;
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the Stockholder and the Manager
shall reasonably request, and do any and all other acts and things which
may be necessary or desirable to enable the Stockholder and the Manager to
consummate the offering and disposition of Registrable Securities in such
jurisdictions; provided, however, that the Company shall not, by virtue of
--------- -------
this Agreement, be required to qualify generally to do business as a
foreign corporation, subject itself to taxation, or consent to general
service of process, in any jurisdiction wherein it would not, but for the
requirements of this clause (iv), be obligated to be qualified;
(v) notify the Stockholder and the Manager promptly and, if
requested by any such person, confirm such notification in writing, (A)
when a prospectus or any prospectus supplement has been filed with the SEC,
and, with respect to a registration statement or any post-effective
amendment thereto, when the same has been declared effective by the SEC,
(B) of any request by the SEC for amendments or supplements to a
registration statement or related prospectus, or for additional
information, (C) of the issuance by the SEC of any stop order or the
initiation of any proceedings for such or a similar purpose (and the
Company shall make every reasonable effort to obtain the withdrawal of any
such order at the earliest practicable time), (D) of the receipt by Company
of any notification with respect to the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose (and the
Company shall make every reasonable effort to obtain the withdrawal of any
such suspension at the earliest practicable time), (E) of the occurrence of
any event with requires the making of any changes to a registration
statement or related prospectus so that such documents shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
(and the Company shall promptly prepare and furnish to the Stockholder and
the Manager a reasonable number of copies of a supplemented or
12
<PAGE>
amended prospectus such that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading), and (F) of
the Company's determination that the filing of a post-effective amendment
to the Registration Statement shall be necessary or appropriate. Each
Stockholder agrees that it shall, as expeditiously as possible, notify the
Company at any time when a prospectus relating to a registration statement
covering such Stockholder's Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event of the
kind described in this clause (v) as a result of any information provided
by such Stockholder in writing expressly for inclusion in such prospectus
included in such registration statement and, at the request of the Company,
promptly prepare and furnish to it such information as may be necessary so
that, after incorporation into a supplement or amendment of such prospectus
as thereafter delivered to the purchasers of such securities, the
information so provided by the Stockholder shall not include an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
Stockholder shall be deemed to have agreed by acquisition of such
Registrable Securities that upon the receipt of any notice from the Company
of the occurrence of any event of the kind described in clause (E) of this
clause (v), such Stockholder shall forthwith discontinue its offer and
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Stockholder shall
have received copies of a supplemented or amended prospectus which is no
longer defective as contemplated by clause (E) of this clause (v) and, if
so directed by the Company, shall deliver to the Company, at the Company's
expense, all copies (other than permanent file copies) of the defective
prospectus covering such Registrable Securities which are then in such
Stockholder's possession;
(vi) use its best efforts to cause all such Registrable
Securities covered by such registration statement to be listed on each
securities exchange or the Nasdaq Stock Market, as applicable, on which
similar securities issued by Company are then listed, if the listing of
such Registrable Securities is then permitted under the rules and
regulations of such exchange or the Nasdaq Stock Market, as applicable;
(vii) engage and provide a transfer agent for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement;
(viii) whether or not the Underwriting Agreement is entered into
and whether or not any portion of the offering contemplated by such
registration statement is an underwritten offering or is made through a
placement or sales agent or any other entity, (A) make such representations
and warranties to the underwriters, if any, in form, substance and scope as
are customarily made in connection with an offering of common stock or
other equity securities pursuant to any appropriate agreement and/or to a
13
<PAGE>
registration statement filed on the form applicable to such registration;
(B) obtain an opinion of counsel to the Company in customary form and
covering such matters, of the type customarily covered by such opinions, as
the Manager, if any, and as the Stockholder may reasonably request; (C)
obtain a "cold comfort" letter or letters from the independent certified
public accountants of Company addressed to the underwriters, if any,
thereof, dated (i) the effective date of such registration statement and
(ii) the date of the closing under the underwriting agreement relating
thereto, such letter or letters to be in customary form and covering such
matters of the type customarily covered, from time to time, by letters of
such type and such other financial matters as the Manager, if any, may
reasonably request; (D) deliver such documents and certificates, including
officers' certificates, as may be reasonably requested by the underwriters,
if any, therefor and the Manager, if any, thereof to evidence the accuracy
of the representations and warranties made pursuant to clause (A) above and
the compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other agreement entered into by
Company, and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in this
Agreement;
(ix) permit the Stockholder to participate in the preparation of
such registration statement and include therein material acceptable to the
Company and its counsel, furnished to Company in writing which, in the
reasonable judgment of the Stockholder and its counsel, is required to be
included therein;
(x) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement by the SEC or
any state securities authority as promptly as possible; and
(xi) cooperate with the Stockholder to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and enable certificates for such Registrable
Securities to be issued for such number of shares of Company Common Stock
and registered in such names as Stockholder may reasonably request.
(e) Indemnification.
---------------
(i) The Company shall indemnify and hold harmless each
Stockholder, each of its directors, officers and agents, each underwriter
(as defined in the Securities Act) of such Registrable Securities, if any,
and each person who controls (within the meaning of Section 15 of the
Securities Act) such Stockholder or any underwriter of the Registrable
Securities held by or issuable to such Stockholder, against all claims,
losses, expenses, damages and liabilities, joint or several, including any
of the foregoing incurred in settlement of any proceeding, commenced or
threatened, (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be
14
<PAGE>
stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under
the Act or any state securities law applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, and shall reimburse each Stockholder, each of its directors,
officers and agents, each such underwriter and each person who controls
such Stockholder or any such underwriter for any reasonable legal and any
other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action, provided,
--------
however, that the Company shall not be liable in any such case to the
-------
extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by such Stockholder or such underwriter
specifically for use therein. The indemnity provided by this Section 6(e)
shall be in addition to any liability which Company may otherwise have.
(ii) Each Stockholder shall indemnify and hold harmless Company,
each of its directors and officers, each underwriter, if any, and each
person who controls Company or any of the underwriters within the meaning
of the Act, against all claims, losses, expenses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Company or underwriters for
any reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information pertaining to such Stockholder, which is furnished in
writing to Company by such Stockholder specifically for use therein.
(iii) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Party (as
defined below) in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then Company and the
Stockholder shall contribute to the amount paid or payable as a result of
such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of
Company on the one hand and the Stockholder on the other in connection with
the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one
hand or the Stockholder on the other and such person's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 6(e) were determined by
pro
---
15
<PAGE>
rata allocation or by any other method of allocation which does not
---
take account of the equitable considerations referred to above in this
Section 6(e). The amount paid or payable by a party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 6(e) shall include any legal or other
expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. No person shall be required to
contribute to any settlement effected without its consent, which consent
shall not be unreasonably withheld. If, however, indemnification is
available under this Section 6, the indemnifying parties shall indemnify
each indemnified party to the fullest extent provided here without regard
to the relative fault of such indemnifying party or indemnified party or
any other equitable considerations.
(iv) Each party entitled to indemnification under this Section
6(e) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, unless the Indemnified
Party in its reasonable judgment determines that joint representation by
counsel for the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnifying Party and the
Indemnified Party in the conduct of the defense of such action, in which
case the Indemnified Party shall be entitled to be represented by separate
counsel selected by it, the reasonable fees and expenses of which shall be
borne by the Indemnifying Party, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations hereunder, unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with
the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification of the underwriters and their controlling
persons contained in the Underwriting Agreement in connection with an
underwritten public offering are in conflict with the foregoing provisions,
the provisions in the Underwriting Agreement shall control as to
indemnification of the underwriters and their controlling persons in the
public offering.
(vi) Notwithstanding the foregoing, in no event shall any
Stockholder be liable under this Section 6(e) for an amount exceeding the
net proceeds received by
16
<PAGE>
Stockholder from the sale of its Registrable Securities pursuant to
the registration rights granted to Stockholder hereunder.
(f) Holdback Amount. Each Stockholder agrees that in the event of an
---------------
underwritten public offering of Registrable Securities for the account of
any Stockholder, such Stockholder and any Related Transferee thereof will
not, without the written consent of the underwriters, offer for public
sale (other than as part of such underwritten public offering) any
Securities during the ten (10) days prior to and such number of days (not
to exceed 180 days in the case of an initial public offering and 90 days
in all other cases) after the effective date of the registration statement
in connection with such public offering as the underwriters may reasonably
request in writing.
(g) Assignment and Assumption. For avoidance of doubt, the parties
-------------------------
acknowledge that each Stockholder may assign its rights under this Section
6 as an incident to any permitted Transfer of Securities held by it to the
Transferee of such Securities, and if the Stockholder retains any
Securities, the rights under this Section 6 shall remain applicable to the
retained Securities. If Securities are acquired from a Class I
Stockholder, such Securities shall be entitled to participate in any
Demand Registration as a member of the group enumerated in clauses (i)
through (iii) of Section 6(a), without thereby increasing the aggregate
number of Demand Registrations the Company may be required to effect. Each
Stockholder shall promptly notify the Company in writing of each such
assignment of rights, and the assignee shall execute such documentation as
the Company may reasonably request to evidence its agreement to be bound
by this Section 6. Registration rights shall not be assignable to any
purchaser of Securities sold under Rule 144 or in any public securities
sale. If the Company effects a business combination in which Stockholders
receive securities of another issuer and such securities cannot be resold
by the Stockholders without registration under the Securities Act, as a
condition to the consummation of such business combination, the Company
shall cause such issuer to assume the Company's obligations under this
Section 6.
(h) Stock Option Plans. After the IPO, the Company shall use its
------------------
reasonable efforts to register, on Form S-8 or any similar or successor
form, the Securities underlying the ISOs and NQ Options so as to permit
the Stockholders to dispose of Common Stock issuable upon the exercise
thereof pursuant to Rule 144.
7. Drag-Along Sales and Tag-Along Sales.
------------------------------------
(a) Drag-Along Sales.
----------------
(i) Notwithstanding any other provision hereof, if GEI agrees to
sell Securities held by it pursuant to a transaction in which more than 75%
of the then-outstanding Common Stock of the Company will be sold to or
acquired by a Third Party (either of such sales, a "DRAG-ALONG SALE"), then
upon the demand of GEI, (i) in the case of Occidental and the Class II
Stockholders, made at any time after the Closing Date and (ii) in the case
of the HPA Group, made at any time after the fourth anniversary of the
Closing Date (the HPA Group and the Class II Stockholders being
collectively referred to for this purpose as "DRAG-ALONG SELLERS"), each
Drag-Along Seller hereby agrees to sell
17
<PAGE>
to such Third Party the same percentage of the total number of securities
held by such Drag-Along Seller on the date of the Drag-Along Notice, as the
number of Securities GEI is selling in the Drag-Along Sale bears to the
total number of shares held by GEI as of the date of the Drag-Along Notice
(the "SALE PERCENTAGE"), at the same price and form of consideration and on
the same terms and conditions as GEI has agreed to with such Third Party.
If the Drag-Along Sale is in the form of a merger transaction, the Drag-
Along Seller agrees to vote his or her securities in favor of such merger
and not to exercise any rights of appraisal or dissent afforded under
applicable law. The provisions of this Section 7 shall apply regardless of
the form of consideration received in the Drag-Along Sale. For purposes of
Drag-Along Sales, the number of shares owned by each Drag-Along Seller
shall include all shares underlying Options, which Options will be
exercised by the Drag-Along Sellers immediately prior to and contingent
upon consummation of the Drag-Along Sale.
(ii) Prior to making any Drag-Along Sale, if GEI elects to
exercise the option described in this Section 7, GEI shall provide the
Drag-Along Seller to whom this Section 7 then applies with written notice
(the "DRAG-ALONG NOTICE") not more than 60 nor less than 15 days prior to
the proposed date of the drag-along sale (the "DRAG-ALONG SALE DATE"). The
Drag-Along Notice shall set forth: (i) a general description of the
transaction and the proposed amount and form of consideration to be paid
per share offered by the Third Party; (ii) the aggregate number of
Securities held by GEI as of the date that the Drag-Along notice is first
given to a Drag-Along Seller; (iii) the Sale Percentage; and (iv) the Drag-
Along Sale Date.
(iii) On the Drag-Along Sale Date, each Drag-Along Seller shall
deliver a certificate or certificates for the Sale Percentage of its
Securities, duly endorsed for transfer with signatures guaranteed, to such
Third Party in the manner and at the address indicated in the Drag-Along
Notice against delivery of the purchase price therefor; provided, however,
that in the event the Company has possession of any such certificates
pursuant to this Agreement, upon the written request of the Drag-Along
Seller at least five (5) business days in advance of-the Drag-Along Sale
Date, the Company shall deliver such certificates to the purchaser at the
time and in the manner described above.
(b) Optional Participation in Sales of Common Stock (Tag-Along
----------------------------------------------------------
Sales).
------
(i) If GEI shall at any time desire to Transfer shares of Common
Stock to a third party, other than ratably to its partners, then each of
the HPA Group and the Class II Stockholders and their Related Transferees
(collectively, a "TAG-ALONG SELLER") shall be entitled, to participate pro
---
rata in such transfer at the same price and on the same terms and
----
conditions applicable to GEI, based upon their respective Fully Diluted
Ownership in the Company.
(ii) Each Tag-Along Seller shall have the right to Transfer up to
a percentage of the number of shares specified in the Transfer Notice
delivered pursuant to the following sentence by the aggregate number of
shares of Common Stock then owned
18
<PAGE>
by GEI. GEI shall deliver or cause to be delivered to each Tag-Along Seller
a written notice (a "TRANSFER NOTICE") of a proposed tag-along sale no
later than 30 days prior to the proposed closing thereof. Such notice shall
make reference to the Tag-Along Sellers' rights under this Section 7(b) and
shall describe in reasonable detail (A) the aggregate number of shares of
Common Stock to be Transferred by GEI if none of the HPA Group or Class II
Stockholders participates, (B) the aggregate number of shares of Common
Stock then owned by GEI, (C) the person or entity to whom or which such
shares of Common Stock are proposed to be Transferred, (D) the terms and
conditions of the Transfer, including the consideration to be paid
therefor, (E) the maximum percentage of its shares such Tag-Along Seller is
entitled to include in the Transfer and (F) the proposed date, time and
location of the closing of the Transfer. Each Stockholder receiving a
Transfer Notice shall exercise its right to participate in a Transfer of
Common Stock pursuant to this Section 7 by delivering to GEI a written
notice (a "TAG-ALONG NOTICE") stating its election to do so and specifying
the number of shares (which shall not exceed the number of shares
determined for such Tag-Along Seller in the Transfer Notice) of Common
Stock held by it to be Transferred no later than fifteen days after receipt
of the Transfer Notice. Failure to provide a Tag-Along Notice within such
fifteen-day period shall be deemed to constitute an election by such
Stockholder not to exercise its rights pursuant to this Section 7, and GEI
shall have 90 days following the expiration of such fifteen-day period in
which to Transfer the number of shares equal to the difference between the
number set forth in the Transfer Notice and the aggregate number of shares
as to which GEI has received a Tag-Along Notice, on terms not more
favorable to GEI than those set forth in the Transfer Notice.
(iii) Each Tag-Along Seller shall be required to deliver at such
closing the certificate or certificates representing the shares to be
Transferred, duly endorsed for transfer, and shall be entitled to receive
the net proceeds allocable to the Transfer thereof, after deduction of such
Tag-Along Seller's proportionate share of the expenses of Transfer, which
share shall not exceed an amount proportionate to the amount of such
expenses allocated to GEI. If, at the end of the 90-day period following
the expiration of such fifteen-day period, GEI has not completed the
Transfer of shares of Common Stock, GEI may not sell the shares of Common
Stock without again fully providing a Transfer Notice.
(c) Obligations of Drag-Along Sellers. In connection with any Drag-
---------------------------------
Along Sale,Drag-Along Sellers shall not be required to make any representation
or warranty to the purchaser other than to the effect that they hold title to
the Securities they are selling in the Drag-Along Sale, free and clear of liens
and the like, and as to their right, power and authority to sell such
Securities. Except as to such representations, Drag-Along Sellers shall not be
liable beyond thenet proceeds of the Drag-Along Sale for any other breach of
representations or warranties. In addition, unless expressly agreed to by a
Drag-Along Seller, no Drag-Along Seller shall be required to enter into any
covenant not to compete or similar agreement restricting their business
activities.
19
<PAGE>
8. Termination and Lapse of Rights and Restrictions; Applications to
-----------------------------------------------------------------
Other Stock and Adjustments. The provisions of Sections 4, 5, 7, 9 and 10 shall
- ---------------------------
lapse and be of no further effect immediately following the earlier to occur of
a Change in Control or an IPO. In the event any capital stock of the Company or
any other corporation shall be distributed on, with respect to, or in exchange
for Securities as a stock dividend, stock split, reverse stock split,
reclassification or recapitalization, or in connection with any merger or
reorganization, the restrictions, rights and options and prices set forth herein
shall apply with respect to such other capital stock to the same extent as they
are, or would have been applicable, to the Securities on or with respect to
which such other capital stock was distributed and shall continue to apply to
the Securities or such other securities outstanding thereafter, in each case
with such adjustments as are necessary or appropriate.
9. Election of Directors. So long as such individuals respectively own
----------------------
the requisite amount of Common Stock set forth herein, each of the other
Stockholders agrees to vote his or its Common Stock, and to cause his Related
Transferees to vote their Common Stock, in favor of Michael J. Fourticq and
Brian P. McDermott ("FOURTICQ" AND "MCDERMOTT") in all elections of the
directors of the company, whether by meeting or action in writing. such
agreement to vote shall be effective as to each such individual so long as such
individual continues to own (directly or, in the case of Mr. McDermott, through
a family trust and in either case, through Related Transferees after the date
hereof) at least two-thirds of the Common Stock owned by him on the date hereof.
Such agreement to vote shall cease to be effective upon the first to occur of:
(i) Such individual ceasing to own (directly or indirectly, as aforesaid) in
excess of one-third of the Common Stock owned by him on the date hereof and (ii)
a Disproportionate Sale after which such individual and his Related Transferees
own less than two-thirds of the Common Stock owned by him and such Related
Transferees on the date hereof. A "DISPROPORTIONATE SALE" as to either
individual occurs on the date of a Transfer of Common Stock as a result of which
the Common Stock owned by such individual and Related Transferees has decreased
by a percentage that is greater, by at least five percent (5%), than the
corresponding decrease in ownership of Common Stock of GEI to date. Each of the
stockholders further agrees that he or it shall vote its Common Stock, and cause
its Related Transferees to vote their Common Stock, in all elections of
directors of the Company, whether by meeting or action in writing, in favor of
all nominees for the board of directors proposed by GEI. For purposes of this
Section 9 and the effectiveness of the voting agreements herein, ownership of
Common Stock shall be calculated based upon the Fully Diluted Ownership of the
individual and his Related Transferees, in the aggregate; provided, however,
that to the extent any of the Options included in the Fully Diluted Ownership of
an individual should fail to vest, the calculation as to such individual's
ownership of Common Stock shall thereafter be made as if the aggregate Common
Stock owned by such individual on the date hereof had not included such Options.
10. Certain Additional Agreements.
-----------------------------
(a) Right to Participate in Securities Issuances. If the Company
--------------------------------------------
shall issue, sell or distribute to GEI or any of its Affiliates any equity or
debt securities of the Company, or any option, warrant, or right to acquire, or
any security convertible into or exchangeable for, any of the foregoing (other
than pursuant to an underwritten public offering, a stock dividend, stock
20
<PAGE>
split or other pro rata distribution of securities to stockholders of the
--- ----
Company generally in which the HPA Group participates on an equal basis,
including any Related Transferees), the members of the HPA Group shall be
entitled, provided that they collectively maintain two-thirds (2/3) of the
Fully Diluted Ownership held by them on the date hereof, to participate in such
issuance, sale or distribution, at the same price and on the same terms and
conditions applicable to GEI, pro rata, based upon their respective Fully
--- ----
Diluted Ownership in the Company. The Company shall provide at least twenty
(20) days' prior notice to the members of the HPA Group as to its intention so
to issue equity, debt or related securities to GEI, and in the event any member
of the HPA Group fails to respond within such twenty-day period, such member
shall be deemed to have waived his or its right so to participate in the
issuance of securities. The members of the HPA Group may determine amongst
themselves that to the extent any member does not desire to participate, other
members may increase their participation, provided that the aggregate
participation does not exceed that offered to the HPA Group as a whole and that
notice, which shall be binding upon all the HPA Group members and as to which
GEI shall have no duty to inquire, shall be given to GEI within such 20-day
period as to the aggregate number of securities being subscribed for. The
parties acknowledge that time is of the essence as to this Section 10(a).
(b) Right to Participate in Equity Repurchases. The Company and GEI
------------------------------------------
agree that the Company will not purchase any Securities from GEI or any of its
Affiliates unless the Company offers to simultaneously purchase a
proportionately equal number of Securities of the same class from each member of
the HPA Group at the same price and on the same terms and conditions applicable
to GEI and its Affiliates, based upon their respective Fully Diluted Ownership.
(c) Affiliate Transactions. No material transaction or series or
----------------------
related transactions (including any issuance of securities, profits interests,
stock appreciation rights, or similar rights or interests of the Company)
between the Company and GEI or any of its Affiliates involving value in excess
of $1,000,000 may be consummated unless approved (i) if one of Fourticq or
McDermott then holds at least one-third of his Fully Diluted Ownership as of the
date hereof, by such individual, and otherwise by a majority of the
disinterested directors of the Company, or (ii) by the board of directors of the
Company after it is presented with a fairness opinion of a nationally recognized
investment bank to the effect that the transaction is fair to the Company and
its stockholders. Notwithstanding the foregoing, other than the Management
Agreement of even date herewith between the Company and Leonard Green &
Partners, L.P. (the "Management Agreement"), GEI and its Affiliates will not
enter into any consulting, management or similar agreement or arrangement with
the Company or increase the fees provided for in the Management Agreement as of
the date hereof, except that such fees may be proportionately increased provided
such increase is calculated on the same basis (1.6% of invested capital) as the
fee currently provided for therein and such increase reflects further investment
by GEI consistent with the terms of this Section 10.
(d) Change of Control Transactions. Each of GEI, Fourticq and
------------------------------
McDermott agrees that no such Stockholder shall, without the prior consent
of the other two Stockholders, pursue, advocate or enter into an agreement in
respect of any recapitalization, reclassification,
21
<PAGE>
share exchange, reorganization, merger, consolidation or similar transaction
involving the Company unless all holders of Common Stock of the Company will
be treated identically in such transaction, but ratably in proportion to their
respective Equity Ownership.
(e) Information. The Company shall provide each Class I Stockholder
-----------
with the following information, all of which each Class I Stockholder agrees
to hold in confidence:
(i) For each fiscal quarter of the Company, as and when
submitted to Green, unaudited consolidated financial statements of the
Company (consisting of balance sheet and statements of operations,
stockholders' equity and cash flows for such fiscal quarter, in the form
submitted to GEI;
(ii) For each fiscal year of the Company, as and when submitted
to Green, audited financial statements of the Company for such fiscal year,
certified by the Company's independent certified public accounting firm, in
the form submitted to GEI;
(iii) Such additional information about the Company as such
Class I Stockholder may reasonably request from time to time.
11. Notices. All notices or other communications under this Agreement
-------
shall be given in writing and shall be deemed duly given and received on the
third full business day following the day of the mailing thereof by registered
or certified mail or the next Business Day if sent by overnight courier or
when delivered personally or sent by facsimile transmission as follows:
(a) if to the Company, at its principal executive offices at the time
of the giving of such notice, or at such other place as the Company shall have
designated by notice as herein provided to the Purchaser;
(b) if to a Class I Stockholder, at its principal executive offices at
the time of the giving of such notice, or at such other place as such
Stockholder shall have designated by notice as herein provided to the Company.
(c) if to any Class II Stockholder, at his address as it appears on
Annex A or at such other place as he shall have designated by notice as herein
provided to the Company.
12. General.
-------
(a) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except by a written agreement signed by each of the Company and the Class I
Stockholders and, to the extent their interests are affected, by the Class II
Stockholders, provided, however, that Class II Stockholders having a majority of
-------- -------
Equity Ownership as amongst such Stockholders may bind all of such Stockholders
as to any matter adversely affecting them if such adverse effect is equal, on a
proportionate basis, as to all such Stockholders and the consent of each
adversely affected Class II Stockholder shall otherwise be required.
22
<PAGE>
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(c) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of each of the Company, the
Stockholders and their respective heirs, personal representatives, successors
and assigns; provided, however, that nothing contained herein shall be construed
-------- -------
as granting any Stockholder the right to Transfer any of the Securities except
in accordance with this Agreement and any Transferee shall hold such Securities
having only those rights and being subject to the restrictions provided for in
this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
(e) Each Class II Stockholder agrees that nothing herein shall be
deemed to create any implication concerning the adequacy of his services to the
company, or shall be construed as an agreement by the Company, express or
implied, to employ him or contract for his services, to restrict the right of
the Company to discharge him or cease contracting for his services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between him and the Company
or its subsidiaries. Each Class II Stockholder represents that he has been
advised, to the extent he deemed necessary, by legal counsel and tax advisors of
his choice in connection with this Agreement. Each Class II Stockholder further
represents that, if he is married, his spouse has executed and delivered to the
Company the Acknowledgment and Agreement of Spouse set forth at the end of this
Agreement.
(f) In the event any day upon which a sale, notice or other matter is
required to occur hereunder is not a Business Day, such matter shall be deferred
until the next Business Day.
(g) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of such
sections. The masculine pronoun shall be deemed to include and incorporate the
feminine pronoun.
(h) Each party hereto shall cooperate and shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(i) Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
23
<PAGE>
(j) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed one original.
(k) Due to the fact the securities of the Company cannot be readily
purchased or sold in the open market, and for other reasons, the parties will be
irreparably damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the terms, covenants
and/or conditions of this Agreement by any of the parties hereto, the other
parties shall, subject to Section 13, in addition to all other remedies, be
entitled to a temporary and/or permanent injunction, without showing any actual
damage or that monetary damages would not provide an adequate remedy, and/or a
decree for specific performance, in accordance with the provisions hereof. Each
Stockholder hereby irrevocably and unconditionally consents to the jurisdiction
of any California State court or federal court of the United States sitting in
the State of California in any action or proceeding relating to this Agreement
and consents to service of process in connection therewith by the delivery of
notice to such Stockholder's address set forth in this Agreement.
(l) This Agreement shall be deemed to be a contract under the laws of
the State of Delaware and for all purposes shall be construed and enforced in
accordance with the internal laws of such state without regard to the principles
of conflicts of law.
13. Additional Class II Stockholders. Prior to issuing any Options,
--------------------------------
Common Stock or other right exercisable for or convertible into Common Stock,
and as a condition to the receipt thereof, the Company shall require the
recipient to execute and deliver a duplicate counterpart of this Agreement, and
such recipient shall become a Class II Stockholder for all purposes hereof.
14. Arbitration.
-----------
(a) Scope. The parties mutually consent to the resolution by binding
-----
arbitration of all claims or controversies ("CLAIMS") arising out of or related
to this agreement. notwithstanding the foregoing, the parties may have recourse
to the courts for injunctive or equitable relief in respect of matters arising
out of or relating to this Agreement.
(b) Deposition. Each party to a dispute shall have the right to
----------
take the deposition of up to two individuals and any expert witness designated
by each other party. Each party also shall have the right to make requests
for production of documents to any party. The subpoena right specified below
shall be applicable to discovery pursuant to this paragraph. Additional
discovery may be had only where the arbitrator selected pursuant to this Section
14 so orders, upon a showing of reasonable and substantial need. At least 30
days before the arbitration, the parties must exchange lists of witnesses,
including any expert, and copies of all exhibits intended to be used at the
arbitration. Each party shall have the right to subpoena witnesses and documents
for the arbitration.
(c) JAMS. The Arbitration will be held under the auspices of either
----
the American Arbitration Association ("AAA") or Judicial Arbitration &
Mediation Services, Inc. ("J.A.M.S"), with the designation of the sponsoring
organization to be made by the party who did not initiate the claim. The
parties agree that, except as provided in this Agreement, the
24
<PAGE>
arbitration shall be in accordance with the AAA's then-current arbitration
procedures (if AAA is designated) or the then-current J.A.M.S arbitration rules
(if j.a.m.s is designated). the arbitration shall be conducted by a single
arbitrator selected from the AAA large complex case panel (the "Arbitrator").
The arbitration shall take place in Los Angeles, California.
(d) Selection of Arbitrator. If the parties to the dispute cannot
------------------------
agree upon the selection of the arbitrator within 30 days from the day the
matter is submitted to arbitration, then, on application of any party, the
arbitrator shall be designated by the sponsoring organization.
(e) Governing Law. The Arbitrator shall apply the substantive law
--------------
(and the law of remedies, if applicable) of the state of Delaware. The
Arbitrator shall be without jurisdiction to apply any different substantive law,
or law of remedies. The Arbitrator, and not any federal, state, or local court
or agency, shall have exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this Agreement,
including but not limited to any claim that all or any part of this Agreement is
void or voidable. The arbitration shall be final and binding upon the parties,
except as provided in this Agreement.
(f) Procedures. The Arbitrator shall have jurisdiction to hear and
-----------
rule on pre-hearing disputes and are authorized to hold pre-hearing conferences
by telephone or in person, as the Arbitrator deems necessary. The Arbitrator
shall have the authority to entertain a motion to dismiss and/or a motion for
summary judgment by any party and shall apply the standards governing such
motions under the Federal Rules of Civil Procedure. If such a transcript is
prepared, it shall be the official transcript of the proceedings for all
purposes. Such proceedings shall be concluded within 180 days of the
commencement of the arbitration, as evidenced by the rendering of the award
described below. Any party to a dispute, at its expense, may arrange for and
pay the cost of a court reporter to provide a stenographic record of
proceedings. Any party to a dispute, upon request at the close of hearing,
shall be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(g) Award. The Arbitrator shall render an award and opinion
------
outlining in reasonable detail the findings of fact and conclusions of law upon
which the award is based. The award of the Arbitrator shall be final, binding
and conclusive on the parties. If the Company is a party to the dispute, the
Company shall bear the fees and costs of the Arbitrator. If Company is not a
party to the dispute, the parties to the dispute shall equally share the fees
and costs of the Arbitrator. Each party shall pay for its own costs and
attorneys' fees.
15. Definitions. As used in this Agreement, unless the context requires
------------
otherwise, the capitalized terms described in this Section 15 shall have the
meanings indicated herein.
(a) Each of the following capitalized terms shall have the meaning
ascribed to such term in the section of this Agreement indicated:
<TABLE>
<CAPTION>
Term Section
- ------------------------------- -------
<S> <C>
Act............................ 15(b)
Affiliate...................... 15(b)
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Term Section
- ------------------------------- ------------
<S> <C>
Agreement...................... Introduction
Bona Fide Offer................ 4(b)
Business Day................... 15(b)
Callable Securities............ 2(b)
Call Purchase Event............ 5(a)
Call Option.................... 2(b)
Change in Control.............. 15(b)
Class I Stockholder............ Introduction
Class II Stockholder........... Introduction
Common Stock................... Recitals
Company........................ Introduction
Control........................ 13(b)
Demand Registration............ 6(a)
Demand Seller.................. 6(b)
Disproportionate Disposition... 9
Drag-Along Notice.............. 7(b)
Drag-Along Sale................ 7(a)
Drag-Along Sale Date........... 7(b)
Drag-Along Seller.............. 15(b)
Electing Stockholder........... 4(b)
Equity Ownership............... 15(b)
Fair Market Value.............. 15(b)
Fully Diluted Ownership........ 15(b)
Future Stockholder............. 6(b)
Future Participants............ 6(a)
GEI............................ Introduction
GEI Distribution............... 12
Stockholder.................... 6(a)
IPO............................ 15(b)
Living Trust................... 15(b)
Manager........................ 15(b)
NQ Option...................... 2(b)
Option Notice.................. 4(b)
Other Termination.............. 5(a)
Outside Party.................. 4(b)
Permanent Disability........... 15(b)
Permitted Transfer............. 4(a)
Purchase Notice................ 5(a)
Purchaser...................... 2(b)
Purchasing Group............... 5(a)
Registrable Securities......... 15(b)
Registration Notice............ 6(a)
Related Transferee............. 15(b)
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Term Section
- -------------------------------- ------------
<S> <C>
Retirement..................... 15(b)
Rule 144....................... 15(b)
Sale Percentage................ 7(a)
SEC............................ 15(b)
Securities..................... Introduction
Seller......................... 5(a)
Subscription Stock............. 2(b)
Tag-Along Notice............... 7(e)
Tag-Along Seller............... 7(d)
Third Party.................... 7(a)
Transfer....................... 15(b)
Transfer Notice................ 7(e)
</TABLE>
(b) Each of the following capitalized terms shall have the meanings
indicated in this clause (b):
"ACT" means the Securities Act of 1933, as amended from time to time.
"AFFILIATE" has the meaning set forth in Rule 405 under the Act.
"BUSINESS DAY" means a day on which banks are open for business in the
State of California.
"CHANGE IN CONTROL" means any of (i) a sale or other disposition by the
Company of all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole, or (ii) a merger or consolidation of the Company
if, immediately following such merger or consolidation, there is not Control of
the surviving entity of such merger or consolidation, or (iii) a sale of capital
stock of the Company (by any holder thereof or by the Company) if, immediately
following such sale, there is not Control of the Company.
"CONTROL" means that the holders of the capital stock of the Company
immediately following the Merger (including the Class I Stockholders) hold, in
the aggregate, directly and indirectly, the power to elect a majority of the
directors of the Company that are not elected pursuant to the provisions of the
Preferred Stock (or, as the case may be, the surviving entity of a merger or
consolidation of the Company).
"EQUITY OWNERSHIP" means the relative interests of the holders of the
Company's outstanding Common Stock as of the date of determination.
"FAIR MARKET VALUE" of Securities means the fair market value of Securities
as determined as of the time of the Call Purchase Event by the Company's Board
of Directors in the exercise of its reasonable discretion; provided, however,
-------- ------
that in the event that the Common Stock is traded publicly on any national
securities exchanges) (including without limitation NASDAQ
27
<PAGE>
National Market System or the NASDAQ "Small-Cap" Issues System), such fair
market value shall be based upon the closing price for such Common Stock on such
exchange(s) on the date preceding the Call Purchase Event.
"FULLY DILUTED OWNERSHIP" means, as to any Stockholder, his or its
aggregate ownership of all equity interests in the Company, including all
Options and all other securities excercisable convertible or exchangeable for
Common Stock.
"IPO" means the completion of the first underwritten public offering of the
Company's shares of Common Stock registered under the Act.
"LIVING TRUST" means a revocable living trust established by the Purchaser
for estate planning purposes and pursuant to which no one other than the
Purchaser and/or the Purchaser's spouse is the beneficiary during the
Purchaser's lifetime.
"MANAGER" means the investment banking firm or firms designated by the
Stockholder as the managing underwriter(s) of an offering registered pursuant to
this Agreement, which firm or firms shall be the existing investment bankers for
or other nationally recognized investment bankers reasonably acceptable to the
Company.
"PERMANENT DISABILITY" of a Class II Stockholder means that (i) the Class
II Stockholder becomes physically or mentally incapacitated or disabled so that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and (ii) such
incapacity or disability continues for a period of 120 days, whether or not
consecutive, over a period of six consecutive months; provided, however, that
-------- -------
(x) the Company, at its option and expense, shall be entitled to retain a
physician to confirm the existence of such incapacity or disability, and the
determination of such physician shall be binding upon the Company and the Class
II Stockholder.
"REGISTRABLE SECURITIES" means the Common Stock and the Warrant Shares,
subject to adjustment pursuant to Section 8 hereof.
"RELATED TRANSFEREE" means (i) in the case of any individual, any of the
Stockholder's spouse, adult lineal descendants, adult spouses of such lineal
descendants, a Living Trust, trusts solely for the benefit of the Stockholder's
spouse or the Stockholder's minor or adult lineal descendants, and (in the event
of the Stockholder's death) the Stockholder's personal representatives (in their
capacities as such), estate or named beneficiaries and (ii) in the case of a
business organization, any individual or other business organization controlled
by or under common control with such business organization, as such terms are
defined within the meaning of Rule 405 under the Act.
"RETIREMENT" means retirement pursuant to the Company's standard retirement
policy in effect from time to time but in no event prior to the age of 65,
unless pursuant to a specific determination by the Board of Directors of the
Company.
28
<PAGE>
"RULE 144" means Rule 144 under the Act, as amended from time to time, or
any successor or similar rule.
"SEC" means the Securities and Exchange Commission.
"TRANSFER," used as a noun, means any sale, pledge, gift, bequest,
transfer, assignment or any other encumbrance or disposition, whether direct or
indirect, conditional or unconditional. "TRANSFER," used as a verb, means to
make a Transfer.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first date written above.
LESLIE'S POOLMART, INC.
By _______________________________________________
Its_______________________________________________
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.,
its sole general partner
By: Grand Avenue Capital Corporation,
its sole general partner
By: ______________________________________________
Name _____________________________________________
Title ____________________________________________
__________________________________________________
Richard H. Hillman
__________________________________________________
Michael J. Fourticq
__________________________________________________
Greg Fourticq
__________________________________________________
Brian P. McDermott
__________________________________________________
Brian P. McDermott and Manette J. McDermott,
T.R.U.A. DTD 3/15/90 The McDermott Family Trust
OCCIDENTAL PETROLEUM CORPORATION
By _______________________________________________
Name _____________________________________________
Title ____________________________________________
30
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE
--------------------------------------
The undersigned, being the spouse of a Purchaser listed on Annex A hereto,
hereby agrees to be bound by the provisions of this Agreement and consents to
the Purchaser's subscription for the Common Stock pursuant hereto.
_________________________________________
Name ____________________________________
31
<PAGE>
ANNEX A
CAPITAL STRUCTURE
-----------------
<TABLE>
<CAPTION>
Fully
Diluted
Shares
-------
<S> <C>
Michael J. Fourticq 160,539
Brian McDermott 166,552
Richard H. Hillman 22,414
Greg Fourticq 10,000
---------
Total Stock Remaining Outstanding 359,505
Michael J. Fourticq 4,976
Robert Olsen 52,761
Other Management 25,862
---------
Total Options 83,599
Robert Olsen--Cash 14,768
Other Management Cash 4,198
Green Equity Investors II, L.P. 1,055,172
Occidental Warrants 316,092
Management Incentive Stock Options 273,946
Total 2,107,280
=========
</TABLE>
A-1
<PAGE>
ANNEX B
TERMS OF NQ OPTION PLAN
-----------------------
Number of Shares............. 83,599 total. The number of shares covered by
each individual grant will be the quotient of
(i) the product of (x) the number of shares
subject to the corresponding cancelled option
multiplied by (y) the difference between
$14.50 and such cancelled option's exercise
price, divided by (ii) $9.50. In the case of
Messrs. Fourticq and Olsen, the foregoing
formula results in the issuance of options for
a maximum of 4,976 and 52,761 shares,
respectively, with the balance to be allocated
to management as heretofore agreed.
Exercise Price............... $5.00
Type of Options.............. Non-Qualified, ten-year options
Termination
of Employment................ A portion of options and shares are subject to
repurchase upon termination of employment
prior to the second anniversary of the Closing
Date as set forth in the Agreement, all other
NQ Options remain exercisable notwithstanding
employment status of optionee
Adjustment................... The number of shares subject to NQ Options,
and the exercise price, will be
proportionately adjusted for each subdivision
and combination of Company common stock.
Acceleration................. NQ Options will accelerate and may be cashed
out upon the occurrence of a Change of
Control. In a cash-out situation, Class I
Optionholders will be treated as Class I
Stockholders and Class II Optionholders will
be treated as Class II Stockholders.
B-1
<PAGE>
ANNEX C
TERMS OF INCENTIVE STOCK OPTION PLAN
------------------------------------
Number of Shares............. 13% of the Company's fully-diluted Common
Stock on the Closing Date
Exercise Price............... Fair Market Value (opening equity price)
Type of Options.............. Incentive, ten-year options
Vesting...................... One-third (w) on the first, second and third
anniversaries of the Closing Date, except in
respect of performance portion
Performance Portion.......... Options equivalent to 3.4% of the fully-
diluted Common Stock outstanding on the
Closing Date vest upon achievement (assuming
continued employment) of performance targets
as follows:
<TABLE>
<CAPTION>
EBITDA for Year Ended: Number of Stores Opened by:
--------------------- --------------------------
<S> <C>
$18M............. 1997 30...........March 31, 1998
$22M............. 1998 30...........March 31, 1999
$26M............. 1999 30...........March 31, 2000
</TABLE>
Note: Vesting also occurs if the store
----
opening target is met in each prior year and
the Company achieves 95% of a year's EBITDA
target and the sum of that year and the
following year's EBITDA equals 100% of the
combined targets. EBITDA means the
Consolidated Net Income of the Company (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.
C-1
<PAGE>
Termination of
Employment................... Vested options may be exercised for 90 days
post-termination; unvested options are
forfeited and become eligible for future grant
at Fair Market Value
Adjustment................... The number of shares subject to Options, and
the exercise price, will be proportionately
adjusted for each subdivision and combination
of Company common stock
Acceleration................. ISO Options will accelerate and may be cashed
out upon the occurrence of a Change of
Control. In a cash-out situation, Class I
Optionholders will be treated as Class I
Stockholders and Class II Optionholders will
be treated as Class II Stockholders.
C-2
