EXHIBIT 10.1
CREDIT AGREEMENT
AMONG
LESLIE'S POOLMART, INC.
a Delaware corporation,
as Borrower
THE FINANCIAL INSTITUTIONS SIGNATORY HERETO,
as Lenders,
AND
▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION,
as Swingline Lender and as Agent
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS....................................................................................... 1
SECTION 1.1. DEFINED TERMS..................................................................................... 1
SECTION 1.2. CERTAIN RULES OF CONSTRUCTION..................................................................... 17
(a) Headings..................................................................................... 17
(b) Fiscal Quarter Ending Dates.................................................................. 17
ARTICLE II THE CREDITS....................................................................................... 17
SECTION 2.1. LINE OF CREDIT.................................................................................... 17
(a) Line of Credit............................................................................... 17
(b) Swingline Loans.............................................................................. 18
(c) Fees......................................................................................... 20
(d) Letter of Credit Subfeature.................................................................. 20
SECTION 2.2. NOTICE OF BORROWING UNDER LINE OF CREDIT.......................................................... 21
SECTION 2.3. INTEREST/FEES..................................................................................... 22
(a) Interest..................................................................................... 22
(b) Computation and Payment...................................................................... 22
(c) Letter of Credit Fees........................................................................ 22
(d) Agent's Fee.................................................................................. 23
SECTION 2.4. CONVERSION OF INTEREST RATE OPTIONS............................................................... 23
(a) Election..................................................................................... 23
(b) Notice to Agent.............................................................................. 23
SECTION 2.5. OTHER PAYMENT TERMS............................................................................... 24
(a) Automatic Debit.............................................................................. 24
(b) Place and Manner............................................................................. 24
(c) Date......................................................................................... 24
(d) Interest on Overdue Amounts.................................................................. 24
(e) Application of Payments...................................................................... 24
(f) Failure to Pay Agent......................................................................... 25
SECTION 2.6. PREPAYMENT........................................................................................ 25
(a) Prime Rate................................................................................... 25
(b) LIBOR........................................................................................ 25
SECTION 2.7. FUNDING........................................................................................... 25
(a) Lender Funding and Disbursement.............................................................. 25
(b) Lender Failure to Fund....................................................................... 25
(c) Lenders' Obligations Several................................................................. 26
SECTION 2.8. PRO RATA TREATMENT................................................................................ 26
(a) Borrowings Under Line of Credit.............................................................. 26
(b) Sharing of Payments, Etc..................................................................... 26
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PAGE
SECTION 2.9. CHANGE OF CIRCUMSTANCES........................................................................... 27
(a) Inability to Determine Rate................................................................. 27
(b) Illegality.................................................................................. 27
(c) Charges: Change in Law..................................................................... 27
SECTION 2.10. TAXES ON PAYMENTS................................................................................. 28
(a) Payments Free of Taxes...................................................................... 28
(b) Withholding Exemption Certificates.......................................................... 28
SECTION 2.11. FUNDING LOSS INDEMNIFICATION...................................................................... 29
SECTION 2.12. AUTHORIZED REPRESENTATIVES........................................................................ 30
ARTICLE III REPRESENTATIONS AND WARRANTIES.................................................................... 30
SECTION 3.1. LEGAL STATUS...................................................................................... 30
SECTION 3.2. AUTHORIZATION AND VALIDITY........................................................................ 30
SECTION 3.3. NO VIOLATION...................................................................................... 31
SECTION 3.4. LITIGATION........................................................................................ 31
SECTION 3.5. FINANCIAL STATEMENTS.............................................................................. 31
SECTION 3.6. INCOME TAX RETURNS................................................................................ 31
SECTION 3.7. NO SUBORDINATION.................................................................................. 31
SECTION 3.8. PERMITS, FRANCHISES............................................................................... 31
SECTION 3.9. ERISA............................................................................................. 32
SECTION 3.10. OTHER OBLIGATIONS................................................................................. 32
SECTION 3.11. ENVIRONMENTAL MATTERS............................................................................. 32
SECTION 3.12. MARGIN REGULATIONS................................................................................ 32
SECTION 3.13. SOLVENCY.......................................................................................... 32
SECTION 3.14. EFFECT OF CAPITALIZATION MERGERS.................................................................. 32
ARTICLE IV CONDITIONS........................................................................................ 33
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT......................................................... 33
(a) Approval of Agent............................................................................ 33
(b) Fees and Expenses............................................................................ 33
(c) Loan Documents............................................................................... 33
(d) Documents and Actions Relating to Collateral................................................. 33
(e) Additional Closing Documents and Actions..................................................... 34
(f) Corporate and Additional Documentation....................................................... 34
(g) Insurance.................................................................................... 35
(h) Legal Opinions............................................................................... 35
(i) Capitalization Transactions.................................................................. 35
(j) 1997 Predecessor Credit Agreement............................................................ 35
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT............................................................ 35
(a) Compliance................................................................................... 35
(b) Financial Condition.......................................................................... 35
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PAGE
(c) Additional Documentation..................................................................... 36
ARTICLE V AFFIRMATIVE COVENANTS............................................................................. 36
SECTION 5.1. PUNCTUAL PAYMENTS................................................................................. 36
SECTION 5.2. ACCOUNTING RECORDS................................................................................ 36
SECTION 5.3. FINANCIAL STATEMENTS.............................................................................. 36
SECTION 5.4. COMPLIANCE........................................................................................ 37
SECTION 5.5. INSURANCE......................................................................................... 37
SECTION 5.6. FACILITIES........................................................................................ 37
SECTION 5.7. TAXES AND OTHER LIABILITIES....................................................................... 37
SECTION 5.8. LITIGATION........................................................................................ 37
SECTION 5.9. FINANCIAL CONDITION............................................................................... 38
SECTION 5.10. NOTICE TO AGENT................................................................................... 39
(a) Notice to Agent.............................................................................. 39
(b) Notices Under Preferred Stock, Subordinated Exchange Indebtedness and Bond Indenture......... 40
ARTICLE VI NEGATIVE COVENANTS................................................................................ 40
SECTION 6.1. USE OF FUNDS...................................................................................... 40
SECTION 6.2. CAPITAL EXPENDITURES.............................................................................. 40
SECTION 6.3. OTHER INDEBTEDNESS................................................................................ 40
SECTION 6.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS......................................................... 41
SECTION 6.5. GUARANTIES........................................................................................ 41
SECTION 6.6. LOANS, ADVANCES, INVESTMENTS...................................................................... 42
SECTION 6.7. DIVIDENDS, DISTRIBUTIONS.......................................................................... 42
SECTION 6.8. PLEDGE OF ASSETS.................................................................................. 42
SECTION 6.9. INTEREST IN SUBSIDIARIES.......................................................................... 44
SECTION 6.10. FISCAL YEAR; ACCOUNTING CHANGES................................................................... 44
SECTION 6.11. BOND PAYMENTS..................................................................................... 44
SECTION 6.12. CONVERSION OF PREFERRED STOCK; SUBORDINATED EXCHANGE INDEBTEDNESS PAYMENTS........................ 44
SECTION 6.13. MODIFICATION OF CAPITALIZATION TRANSACTIONS DOCUMENTS............................................. 44
SECTION 6.14. BORROWING BASE EXCESS............................................................................. 44
ARTICLE VII EVENTS OF DEFAULT................................................................................. 45
SECTION 7.1. EVENTS OF DEFAULT DEFINED......................................................................... 45
SECTION 7.2. REMEDIES.......................................................................................... 47
ARTICLE VIII THE AGENT......................................................................................... 48
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PAGE
SECTION 8.1. AUTHORIZATION AND ACTION.......................................................................... 48
SECTION 8.2. RELIANCE BY AGENT................................................................................. 48
SECTION 8.3. DEFAULTS.......................................................................................... 48
SECTION 8.4. INDEMNIFICATION................................................................................... 49
SECTION 8.5. NON-RELIANCE ON AGENT............................................................................. 49
SECTION 8.6. SUCCESSOR AGENT................................................................................... 50
SECTION 8.7. EXECUTION OF LOAN DOCUMENTS....................................................................... 50
SECTION 8.8. AGENT IN ITS INDIVIDUAL CAPACITY.................................................................. 50
ARTICLE IX MISCELLANEOUS..................................................................................... 50
SECTION 9.1. NO WAIVER......................................................................................... 50
SECTION 9.2. WAIVERS; AMENDMENTS............................................................................... 50
SECTION 9.3. NOTICES........................................................................................... 51
SECTION 9.4. COSTS, EXPENSES, AND ATTORNEYS' FEES.............................................................. 52
SECTION 9.5. SUCCESSORS AND ASSIGNS............................................................................ 52
(a) Binding Effect............................................................................... 52
(b) Participations............................................................................... 52
(c) Assignments.................................................................................. 53
(d) Register..................................................................................... 54
(e) Registration................................................................................. 54
(f) Confidentiality.............................................................................. 54
SECTION 9.6. SETOFF............................................................................................ 54
SECTION 9.7. ENTIRE AGREEMENT, AMENDMENT....................................................................... 54
SECTION 9.8. NO THIRD PARTY BENEFICIARIES...................................................................... 55
SECTION 9.9. TIME.............................................................................................. 55
SECTION 9.10. SEVERABILITY OF PROVISIONS........................................................................ 55
SECTION 9.11. GOVERNING LAW..................................................................................... 55
SECTION 9.12. WAIVER OF RIGHT TO TRIAL BY JURY.................................................................. 55
SECTION 9.13. ANCILLARY DOCUMENTS............................................................................... 55
SECTION 9.14. INDEMNIFICATION................................................................................... 56
SECTION 9.15. LEGAL ADVICE...................................................................................... 56
SECTION 9.16. COUNTERPARTS...................................................................................... 56
SECTION 9.17. ARBITRATION....................................................................................... 56
(a) Arbitration.................................................................................. 56
(b) Governing Rules.............................................................................. 57
(c) No Waiver; Provisional Remedies, Self-Help, and Foreclosure.................................. 57
(d) Arbitrator Qualifications and Powers; Awards................................................. 57
(e) Judicial Review.............................................................................. 57
(f) Real Property Collateral; Judicial Reference................................................. 58
(g) Miscellaneous................................................................................ 58
SECTION 9.18. CANCELLATION OF PRIOR AGREEMENT................................................................... 58
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CREDIT AGREEMENT
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THIS CREDIT AGREEMENT ("Credit Agreement") is entered into as of June 11,
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1997, by and among LESLIE'S POOLMART, INC., a Delaware corporation ("Borrower"),
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each of the financial institutions from time to time listed on Schedule I
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attached hereto, as amended from time to time (collectively, the "Lenders"),
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▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION ("▇▇▇▇▇ Fargo") as swingline lender (the
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"Swingline Lender"), and ▇▇▇▇▇ Fargo, as agent for the Lenders and the Swingline
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Lender (in such capacity, "Agent").
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RECITALS
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WHEREAS, Borrower has requested that the Lenders, Swingline Lender and
Agent make available to the Borrower a revolving credit facility and letter of
credit subfacility upon the terms and subject to the conditions set forth in
this Agreement, to refinance certain existing indebtedness and to use for
working capital purposes following the Borrower's consummation of a merger and
recapitalization as provided in the Capitalization Transactions Documents (as
defined below). The Lenders, Swingline Lender and Agent are willing to make
such facilities available to the Borrower upon the terms and subject to the
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
conditions, and provisions hereinafter set forth, the parties hereto agree as
follows:
ARTICLE I
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DEFINITIONS
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SECTION 1.1. DEFINED TERMS. As used in this Credit Agreement, the
following terms shall have the meanings set forth after each (with all such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"1997 Predecessor Credit Agreement" means that certain Third Amended and
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Restated Credit Agreement dated as of January 29, 1997 among Leslie's Poolmart,
a California corporation, and predecessor to Borrower, the financial
institutions from time to time provides thereto as lenders and ▇▇▇▇▇ Fargo, as
agent.
"AAA" has the meaning set forth in Section 9.17(b) hereof.
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"Additional Capital Stock Agreement" means the Stockholders Agreement and
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Subscription Agreement dated as of June 11, 1997 among Borrower, GEI, Occidental
and certain stockholders of Borrower, including the members of the ▇▇▇▇▇▇▇
Group, relating to subscription for the Management Subscription Stock and other
matters in respect of Borrower's Capital Stock.
"Affiliate" means, as applied to any Person, any other Person directly or
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indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this
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definition, the terms "controlling," "controlled by," and "under common control
with," as applied to any Person, means the possession directly or indirectly, of
the power to direct or cause the direction of the management and policies of
that Person, whether through ownership of voting securities, by contract, or
otherwise.
"Agent" has the meaning set forth in the introduction hereto.
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"Agent's Fee Letter" means that certain letter, dated as of the date
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hereof, from Agent to Borrower.
"Agent's Office" means (i) initially, Agent's office designated as such in
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Schedule I hereto, and (ii) subsequently, such other office designated as such
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in writing by Agent to the other Lender Parties and Borrower.
"Applicable Lending Office" means, in the case of each Lender and the
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Swingline Lender, (i) initially, its office designated as such in Schedule I
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hereto, and (ii) subsequently, such other office or offices designated as such
in writing by such Lender Party to Agent.
"Applicable LIBO Rate Margin" means (i) at all times prior to Borrower's
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delivery of the financial statements required in Section 5.3 hereof in respect
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of Borrower's fiscal quarter ending in June, 1997, 1.75% and (ii) at all times
thereafter during each period between (x) the date of Borrower's delivery of
financial statements required in Section 5.3 hereof in respect of any fiscal
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quarter of Borrower specified below and (y) the date of Borrower's delivery of
such financial statements in respect of the next following fiscal quarter of
Borrower, the margin set forth opposite such fiscal quarter under (corresponding
to the applicable EBITDA Coverage Ratio for such fiscal quarter) under the
heading "Applicable LIBO Rate Margin" below:
APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
(a) June, 1997; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.50% 0%
4.15 to 1.00:
Less than 4.15 to 1.00, but 1.75% 0.25%
greater than or equal to
3.30 to 1.00:
Less than 3.30 to 1.00: 2.00% 0.50%
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APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
(b) September, 1997; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.50% 0%
3.40 to 1.00:
Less than 3.40 to 1.00, but 1.75% 0.25%
greater than or equal to
2.70 to 1.00:
Less than 2.70 to 1.00: 2.00% 0.50%
(c) December, 1997; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.50% 0%
2.40 to 1.00:
Less than 2.40 to 1.00, but 1.75% 0.25%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00: 2.00% 0.50%
(d) March, 1998; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.50% 0%
1.75 to 1.00:
Less than 1.75 to 1.00, but 1.75% 0.25%
greater than or equal to
1.40 to 1.00:
Less than 1.40 to 1.00: 2.00% 0.50%
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APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
(e) June, ▇▇▇▇, ▇▇▇▇▇▇
Coverage Ratio of:
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Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.50 to 1.00:
Less than 1.50 to 1.00: 2.00% 0.50%
(f) September, 1998; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.70 to 1.00:
Less than 1.70 to 1.00: 2.00% 0.50%
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APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
(g) December, 1998; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.60 to 1.00:
Less than 1.60 to 1.00: 2.00% 0.50%
(h) March, 1999; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.50 to 1.00:
Less than 1.50 to 1.00: 2.00% 0.50%
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APPLICABLE LIBO APPLICABLE PRIME
MONTH OF FISCAL QUARTER END RATE MARGIN RATE MARGIN
--------------------------- --------------- ----------------
(i) June, 1999 or any month
thereafter; EBITDA
Coverage Ratio of:
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Greater than or equal to 1.25% 0%
2.25 to 1.00:
Less than 2.25 to 1.00, but 1.50% 0%
greater than or equal to
1.90 to 1.00:
Less than 1.90 to 1.00, but 1.75% 0.25%
greater than or equal to
1.75 to 1.00:
Less than 1.75 to 1.00: 2.00% 0.50%
The Applicable LIBO Rate Margin as in effect from time to time shall be
determined based upon Borrower's EBITDA Coverage Ratio, as calculated quarterly
as at the end of each fiscal quarter of Borrower for the period in effect at
such time as specified above. The Applicable LIBO Rate Margin in effect shall
be redetermined quarterly on the date Agent receives quarterly financial
statements pursuant to Section 5.3 hereof. Anything to the contrary
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notwithstanding contained in this Credit Agreement, any LIBO Rate Loan
outstanding on a day on which the Applicable LIBO Rate Margin changes
automatically shall be adjusted as of the date on which, and to the extent that,
the Applicable LIBO Rate Margin is adjusted.
"Applicable Prime Rate Margin" means (i) at all times prior to Borrower's
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delivery of the financial statements required in Section 5.3 hereof in respect
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of Borrower's fiscal quarter ending in June, 1997, 0.25% and (ii) at all times
thereafter during each period between (x) the date Borrower's delivery of
financial statements required in Section 5.3 hereof in respect of any fiscal
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quarter of Borrower specified below and (y) the date of Borrower's delivery of
such financial statements in respect of the next following fiscal quarter of
Borrower, the margin set forth opposite such fiscal quarter (corresponding to
the applicable EBITDA Coverage Ratio for such fiscal quarter) under the heading
"Applicable Prime Rate Margin" in the table contained within the definitions of
Applicable LIBOR rate Margin above. The Applicable Prime Rate Margin as in
effect from time to time shall be determined based upon the Borrower's EBITDA
Coverage Ratio, as calculated quarterly as at the end of each fiscal quarter of
Borrower for the period in effect at such time as specified above. The
Applicable Prime Rate Margin in effect shall be redetermined quarterly on the
date Agent receives quarterly financial statements pursuant
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to Section 5.3 hereof. Anything to the contrary notwithstanding contained in
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this Credit Agreement, any Prime Rate Loan outstanding on a day on which the
Applicable Prime Rate Margin changes automatically shall be adjusted as of the
date on which the Applicable Prime Rate Margin is adjusted.
"Assignee" has the meaning set forth in Section 9.5(c) hereof.
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"Assignment" has the meaning set forth in Section 9.5(c) hereof.
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"Assignment Agreement" has the meaning set forth in Section 9.5(c) hereof.
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"Assignor" has the meaning set forth in Section 9.5(c) hereof.
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"Authorized Representatives" means those officers and employees designated
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by Borrower on the most current Notice of Authorized Representatives delivered
by Borrower to Agent as being authorized to request any borrowing or make any
interest rate selection on behalf of Borrower hereunder, or to give Agent any
other notice hereunder which is required by the terms hereof to be made through
one of Borrower's Authorized Representatives.
"Base LIBO Rate" means the average of the rate per annum at which U.S.
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dollar deposits are offered to the Agent in the London interbank Eurocurrency
market on the second LIBOR Business Day prior to the commencement of an Interest
Period at or about 11:00 a.m. (London time), for delivery on the first day of
such Interest Period, for a term comparable to the number of days in such
Interest Period and in an amount approximately equal to the principal amount to
which such Interest Period shall apply.
"Bankruptcy Code" means the Bankruptcy Reform Act, Title 11 of the United
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States Code, as amended or recodified from time to time, including (unless the
context otherwise requires) any rules or regulations promulgated thereunder.
"Bond Indenture" means the Indenture dated as of June 11, 1997 among
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Borrower, as issuer, and U.S. Bank of California, N.A., a trustee, under which
the Bonds are to be issued.
"Bond Purchase Agreement" means the Purchase Agreement dated June 11, 1997
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between LPM Holdings, Inc. and BT Securities Corporation.
"Bond Trustee" means the trustee from time to time under the Bond
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Indenture.
"Bonds" means Borrower's 10 3/8% Senior Notes due 2004.
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"Borrower" has the meaning set forth in the introduction hereto.
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"Borrowing Base" means, on any date of delivery by Borrower of financial
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statements pursuant to Section 5.3(b) hereof, the sum of (i) 80% of the amount
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of Receivables of Borrower and its Subsidiaries on a consolidated basis, as
reflected in such financial statements, plus
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(ii) (A) if such financial statements pertain to a fiscal quarter of Borrower
ending in March or December in any calendar year, 60% of the amount of Inventory
of Borrower and its Subsidiaries on a consolidated basis, as reflected (on the
basis of a lower of cost or market valuation) in such financial statements, and
(B) if such financial statements pertain to a fiscal quarter of Borrower ending
in June or September in any calendar year, 50% of the amount of Inventory of
Borrower and its Subsidiaries on a consolidated basis, as reflected (on the
basis of a lower of cost or market valuation) in such financial statements.
"Business Day" means any day other than a Saturday, Sunday, or other day on
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which commercial banks are authorized or required to close in Los Angeles,
California.
"Capital Lease" means, for any Person, any lease of property (whether real,
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personal or mixed) which, in accordance with GAAP, would, at the time a
determination is made, be required to be recorded as a capital lease in respect
of which such Person is liable as lessee.
"Capital Stock" of any Person means any and all shares, interests,
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participations, or other equivalents (however designated) of, or rights,
warrants, or options to purchase, corporate stock or any other equity interest
(however designated) of or in such Person.
"Capitalization Merger" means the merger of Leslie's Poolmart USA Inc., a
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Delaware corporation, into Borrower, with Borrower being the surviving
corporation, pursuant to the Capitalization Merger Agreement.
"Capitalization Merger Agreement" means the Agreement and Plan of Merger
-------------------------------
dated as of February 26, 1997 among Leslie's Poolmart, a California corporation,
Borrower, and Leslie's Poolmart USA Inc., a Delaware corporation.
"Capitalization Transactions" means (i) the Capitalization Merger, (ii) the
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retention by the ▇▇▇▇▇▇▇ Group members of 359,505 shares of Borrower's common
stock (in lieu of payment of approximately $5.2 million in cash merger
consideration that would otherwise be payable in respect of such number of
shares upon consummation of the Capitalization Merger), (ii) the issuance
immediately after the Capitalization Merger of 14,768 shares of Borrower's
common stock (the "Management Subscription Stock") to certain members of
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Borrower's management, for aggregate cash consideration of $214,136, (iii) the
exchange in connection with the Capitalization Merger of Capital Stock of
Leslie's Poolmart USA Inc. held by GEI for 1,059,370 shares of Borrower's common
stock, for aggregate cash consideration of $15,360,865, (iv) the issuance in
connection with the Capitalization Merger to Occidental of 28,000 shares of
Preferred Stock, together with warrants to purchase 252,996 shares of Borrower's
common stock at a purchase price of $0.01 per share (subject to adjustment) for
a period of ten years (the "Occidental Warrants"), in exchange for $28,000,000
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in consideration comprised of $18,000,000 in cash and exchange of Borrower's
outstanding debentures in the aggregate principal amount of $10,000,000 held by
Occidental prior to consummation of the Capitalization Merger, and (iv) issuance
and sale of the Bonds, in the principal amount of $90,000,000, all in accordance
with the Capitalization Transaction Documents.
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"Capitalization Transactions Documents" means all agreements or instruments
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entered into by any Loan Party in connection with the Capitalization
Transactions, including, without limitation, the Additional Capital Stock
Agreement, the Bond Indenture, the Bond Purchase Agreement, the Capitalization
Merger Agreement, the Preferred Stock Purchase Agreement, the Preferred Stock
Designation Certificate and the Reincorporation Merger Agreement, in each case
as amended, supplemented or otherwise modified from time to time to the extent
not prohibited by the Loan Documents.
"Change in Control" means the occurrence of one or more of the following
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events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of
Borrower to any Person (other than a Permitted Holder) or group of Persons
(other than Permitted Holders) related for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof (whether or not
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otherwise in compliance with the provisions of the Loan Documents); (ii) the
approval by the holders of Capital Stock of Borrower of any plan or proposal for
the liquidation or dissolution of Borrower (whether or not otherwise in
compliance with the provisions of the Loan Documents); (iii) any Person or Group
(other than any one or more of the Permitted Holders) shall become the owner,
directly or indirectly, beneficially or of record, of shares representing more
than 50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of Borrower; (iv) the replacement of a majority of the
Board of Directors of Borrower (other than in accordance with the terms of the
Preferred Stock) over a two-year period from the directors who constituted the
Board of Directors of Borrower at the beginning of such period, and such
replacement shall not have been approved by a vote of at least a majority of the
Board of Directors of Borrower then still in office who either were members of
such Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved; or (v) Borrower
consolidates with, or merges with or into, another Person, or sells, assigns,
conveys, transfers, leases or otherwise disposes of all or substantially all of
its assets to any Person, or any Person consolidates with, or merges with or
into, Borrower (in each case whether or not otherwise in compliance with the
terms of the Loan Documents), in any such event pursuant to a transaction in
which the shares representing the aggregate ordinary voting power represented by
the issued and outstanding Capital Stock of Borrower is converted into or
exchanged for cash, securities or other property, other than (A) any such
transaction where (1) the shares representing the issued and outstanding
ordinary voting Capital Stock of Borrower are converted into or exchanged for
(I) ordinary voting Capital Stock (other than Disqualified Capital Stock) of the
surviving or transferee corporation and/or (II) cash, securities and other
property in an amount which could be paid by Borrower without violating Section
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6.7 hereof (determined after giving pro forma effect to the combination of
---
Borrower and such other Person) and (2) the "beneficial owners" of the shares
representing the issued and outstanding ordinary voting Capitol Stock of
Borrower immediately prior to such transaction own, directly or indirectly,
shares of Capital Stock representing not less than a majority of voting power of
all issued and outstanding shares of Capital Stock of the surviving or
transferee corporation immediately after such transaction, or (B) any such
transaction as a result of which any one or more of the Permitted Holders own
shares of Capital Stock representing more than 50% of the voting power of all
issued and outstanding shares of Capital Stock of the surviving or transferee
corporation immediately after such transaction.
-9-
"Change in Law" has the meaning set forth in Section 2.9(b) hereof.
------------- --------------
"Closing Date" means the date on which the initial extension of the Credits
------------
is made hereunder.
"Collateral" means the property described in the Collateral Documents as
----------
being subject to a Lien for the benefit of the Lender Parties and all other
property now existing or hereafter acquired which may at any time be or become
subject to a Lien for the benefit of the Lender Parties pursuant to the
Collateral Documents or otherwise, securing the payment and performance of the
obligations under the Loan Documents.
"Collateral Documents" means the Pledge Agreements, the Security
--------------------
Agreements, any other agreement pursuant to which any Loan Party or any other
Person provides a Lien on any of its assets for the benefit of the Lender
Parties and all financing statements, fixture filings, patent, trademark and
copyright filings, assignments, acknowledgments and other filings, documents and
agreements made or delivered pursuant thereto.
"Commitment" means, as to any Lender, the amount set forth opposite its
----------
name under "Commitment" in Schedule I hereof, as reduced or otherwise modified
----------
from time to time pursuant to this Credit Agreement.
"Credits" means each advance made under the Line of Credit, each Swingline
-------
Loan and each issuance of any Letter of Credit.
"Damages" has the meaning set forth in Section 9.14 hereof.
------- ------------
"Default" means an Event or Default or an event or condition which with the
-------
giving of notice or the passage of time, or both, would constitute an Event of
Default.
"Dispute" has the meaning set forth in Section 9.17(a) hereof.
------- ---------------
"Disqualified Capital Stock" means that portion of any Capital Stock which,
--------------------------
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in any case, on or prior
to the Line Maturity Date.
"EBITDA" for any period means net income for such period (excluding any
------
extraordinary or unusual items of income or expense) plus interest expense,
----
taxes, depreciation, amortization (including, without limitation, amortized
financing costs) and any non-cash charges to the extent any of the foregoing
were deducted in arriving at net income, in each case for such period plus LIFO
----
reserve adjustments to the extent deducted in arriving at net income for such
period, minus LIFO reserve adjustments to the extent added in arriving at net
-----
income for such period, in each case determined in accordance with GAAP.
-10-
"EBITDA Coverage Ratio," at the end of any fiscal quarter of Borrower,
---------------------
means the ratio of (i) the EBITDA of Borrower and its Subsidiaries on a
consolidated basis for the period of such fiscal quarter and the immediately
preceding three consecutive fiscal quarters to (ii) the
-11-
aggregate of (A) interest expense (excluding amortization or write-off of
deferred financing costs) of Borrower and its Subsidiaries on a consolidated
basis for such period plus (B) the aggregate amount of all regularly scheduled
----
principal payments of Borrower and its Subsidiaries due during such period on
Indebtedness of Borrower and its Subsidiaries having an initial maturity of one
year or longer, in each case determined in accordance with GAAP.
"ERISA" has the meaning set forth in Section 3.9 hereof.
----- -----------
"Event of Default" has the meaning set forth in Section 7.1 hereof.
---------------- -----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
------------
time to time, and any successor statute thereto, and the rules and regulations
promulgated thereunder.
"Federal Funds Rate" means, for any day, the weighted average of the per
------------------
annum rates on overnight federal funds transactions with member banks of the
Federal Reserve System arranged by federal funds brokers as published by the
Federal Reserve Bank of New York for such day (or, if such rate is not so
published for any day, the average rate quoted to Agent on such day by three (3)
federal funds brokers of recognized standing selected by Agent).
"Financing" has the meaning set forth in Section 6.3 hereof.
--------- -----------
"Funded Debt Ratio" at the end of any fiscal quarter of Borrower means the
-----------------
ratio of (i) the aggregate amount of Indebtedness under clauses (i), (ii),
(iii), (iv) and, to the extent of unreimbursed amounts, (v) of the definition of
Indebtedness hereunder of Borrower and its Subsidiaries outstanding at the end
of such fiscal quarter, determined on a consolidated basis in accordance with
GAAP, to (ii) the EBITDA of Borrower and its Subsidiaries on a consolidated
basis for the period of such fiscal quarter and the immediately preceding three
consecutive fiscal quarters, in each case determined in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the U.S. as in
----
effect from time to time applied in a manner consistent with the preparation of
the financial statements referred to in Section 3.5.
"GEI" means Green Equity Investors II, L.P. or, after a pro rata
---
distribution of all of its assets to its partners, such partners.
"Governmental Authority" means any domestic or foreign national, state or
----------------------
local government, any political subdivision thereof, any department, agency,
authority or bureau of any of the foregoing, or any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, including the Federal Deposit
-12-
Insurance Corporation, the Federal Reserve Board, the Comptroller of the
Currency, any central bank or comparable authority.
"Guarantor" means each of Borrower's Subsidiaries.
---------
"Guarantor Documents" with respect to any Guarantor means, as applicable,
-------------------
the Guaranty, the Stock Pledge Agreement, and the Security Agreement executed by
such Guarantor and all other documents, agreements and instruments delivered to
Agent under or in connection with such Guaranty.
"Guaranty" with respect to any Guarantor means the Guaranty executed by
--------
such Guarantor in favor of the Lender Parties.
"▇▇▇▇▇▇▇ Group" means ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and the
-------------
▇▇▇▇▇▇▇▇▇ Family Trust, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇.
"▇▇▇▇▇▇▇/Management Holders" means the members of the ▇▇▇▇▇▇▇ Group and
--------------------------
such other members of Borrower's management on the date hereof who acquire the
Management Subscription Stock.
"Hedge Agreement" means any interest rate swap, cap or collar agreements,
---------------
interest rate future or option contracts, currency swap agreements, currency
future option contracts and other similar agreements.
"Indebtedness" means, for any Person without duplication: (i) all
------------
indebtedness or other obligations of such Person for borrowed money or for the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of business); (ii) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets or
businesses; (iii) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property); (iv) all obligations under Capital Leases; (v) all reimbursement or
other obligations of such Person under or in respect of letters of credit and
bankers acceptances; (vi) all obligations of such Persons in respect of Hedge
Agreements; and (vii) all indebtedness of another Person secured by any Lien
upon or in property owned by the Person for whom Indebtedness is being
determined, whether or not such Person has assumed or become liable for the
payment of such indebtedness of such other Person.
"Interest Period" means, with respect to each LIBO Rate Borrowing, the
---------------
period commencing on the date of such LIBO Rate Borrowing and ending one (1),
two (2), three (3), or, subject to the availability of funds, six (6) months
thereafter, as Borrower may elect pursuant to the applicable Notice of Borrowing
or Notice of Conversion/Continuation; provided, however, that:
-------- -------
-13-
(a) any Interest Period that would otherwise end on a day that is
not a LIBOR Business Day shall be extended to the next succeeding LIBOR
Business Day unless such LIBOR Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
LIBOR Business Day;
(b) any Interest Period that begins on the last LIBOR Business
Day of the calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall, subject to clause (c), end on the last LIBOR Business Day of the
calendar month in which it would have ended if there were a numerically
corresponding day in such calendar month; and
(c) in no event shall an Interest Period end on a date after the
Line Maturity Date.
"Inventory" means all "inventory" (as such term is defined in the UCC).
---------
"Lender Parties" means the Lenders, the Swingline Lender and the Agent.
--------------
"Lenders" has the meaning set forth in the introduction hereto.
-------
"Letter of Credit" has the meaning set forth in Section 2.1(d) hereof.
---------------- --------------
"Letter of Credit Agreement" has the meaning set forth in Section 2.1(d)
-------------------------- --------------
hereof.
"LIBOR" means for each Interest Period for each LIBO Rate Loan owed to a
-----
Lender the rate per annum (rounded upward, if necessary, to the nearest whole
1/16 of 1%) determined by Agent pursuant to the following formula:
LIBOR = Base LIBO Rate
----------------------------------------
100% - Reserve Percentage of such Lender
"LIBOR Business Day" means a Business Day on which dealings in U.S. dollar
------------------
deposits are carried on in the London interbank market.
"LIBO Rate Borrowing" means any borrowing designated by Borrower as a LIBO
-------------------
Rate Borrowing pursuant to Section 2.2 or 2.4 of this Credit Agreement.
------------------
"LIBO Rate Loan" means each portion of the advances under the Line of
--------------
Credit bearing interest at a rate determined by reference to LIBOR for a
particular Interest Period.
"Lien" means any mortgage, deed of trust, pledge, security interest,
----
assignment, deposit arrangement, charge or encumbrance, lien (statutory or
other), or other preferential arrangement (including any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing or any agreement to give any
security interest).
-14-
"Line Maturity Date" means the fifth anniversary of the Closing Date.
------------------
"Line of Credit" has the meaning set forth in Section 2.1(a) hereof.
-------------- --------------
"Line of Credit Notes" has the meaning set forth in Section 2.1(a) hereof.
-------------------- --------------
"Loan Documents" means this Credit Agreement, the Notes, the Collateral
--------------
Documents, the Guarantor Documents and all other certificates, documents,
agreements and instruments delivered to Agent under or in connection with this
Credit Agreement, in each case as amended, supplemented or otherwise modified
from time to time.
"Loan Party" means the Borrower and each Guarantor.
----------
"Majority Lenders" means Lenders whose Proportionate Shares at any time
----------------
equal or exceed fifty-one percent (51%).
"Management Subscription Stock" has the meaning set forth in the definition
-----------------------------
of "Capitalization Transactions" set forth herein.
"Notes" means the Line of Credit Notes and the Swingline Note.
-----
"Notice of Authorized Representatives" has the meaning set forth in Section
------------------------------------ -------
2.12 hereof.
----
"Notice of Borrowing" has the meaning set forth in Section 2.2 hereof.
------------------- -----------
"Notice of Conversion or Continuation" has the meaning set forth in Section
------------------------------------ -------
2.4(b) hereof.
------
"Notice of Swingline Borrowing" has the meaning set forth in Section 2.1(b)
----------------------------- --------------
hereof.
"Occidental" means Occidental Petroleum Corporation.
----------
"Occidental Warrants" has the meaning set forth in the definition of
-------------------
"Capitalization Transactions" set forth herein.
"Participants" has the meaning set forth in Section 9.5(b) hereof.
------------ --------------
"Person" means natural persons, corporations, limited partnerships, general
------
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, vehicle trusts, business trusts, or
other organizations, irrespective of whether they are legal entities, and
governments and agencies and political subdivisions thereof.
"Permitted Hedge Agreement" means any interest rate swap, cap, collar or
-------------------------
similar agreement entered into between Borrower and any of the Lender Parties in
respect of notional amounts corresponding to the obligations under this Credit
Agreement.
-15-
"Permitted Holders" means any one or more of (i) the ▇▇▇▇▇▇▇/Management
-----------------
Holders, (ii) GEI and (iii) Occidental and, in the case of (ii) and (iii), their
respective Affiliates.
"Permitted Liens" means Liens permitted pursuant to Section 6.8 hereof.
--------------- -----------
"Plan" has the meaning set forth in Section 3.9 hereof.
---- -----------
"Pledge Agreement" with respect to any Loan Party means the Stock Pledge
----------------
Agreement executed by such Loan Party for the benefit of the Lender Parties, in
a form acceptable to Agent.
"Preferred Stock" means Borrower's Exchangeable Cumulative Redeemable
---------------
Stock, Series A, the terms of which are designated in the Preferred Stock
Designation Certificate.
"Preferred Stock Designation Certificate" means the Certificate of
---------------------------------------
Designation, Preferences and Rights of Exchangeable Cumulative Redeemable
Preferred Stock, Series A, pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware, in the form of Exhibit A to the Preferred Stock
Purchase Agreement.
"Preferred Stock Purchase Agreement" means the Preferred Stock and Warrant
----------------------------------
Purchase Agreement dated as of June 11, 1997 between Borrower and Occidental.
"Prime Rate" means at any time the rate of interest most recently announced
----------
within ▇▇▇▇▇ Fargo at its principal office in San Francisco as its "prime rate",
with the understanding that the "prime rate" is one of ▇▇▇▇▇ Fargo's base rates
and serves as the basis upon which effective rates of interest are calculated
for those loans making reference thereto, and is evidenced by the recording
thereof in such internal publication or publications as the ▇▇▇▇▇ Fargo may
designate. Each change in the rate of interest shall become effective on the
date each Prime Rate change is announced within ▇▇▇▇▇ Fargo.
"Prime Rate Loan" means each portion of the advances under the Line of
---------------
Credit bearing interest at a rate determined by reference to the Prime Rate and
the Swingline Loans.
"Proportionate Share" means, for each Lender, the quotient, expressed as a
-------------------
percentage, of such Lender's Commitment divided by the Total Commitments.
"Receivable Debtor" means any Person obligated on a Receivable.
-----------------
"Receivables" means all rights to payment arising out of the sale or lease
-----------
of goods or the performance of services in the ordinary and usual course of
business, however evidenced.
"Redemption Amount" means the sum of $94.7 million, which is the aggregate
-----------------
amount of cash merger consideration paid upon consummation of the Capitalization
Merger to the holders of Capital Stock of the Borrower outstanding prior to
consummation of the Capitalization Merger in respect of such Capital Stock.
-16-
"Reincorporation Merger Agreement" means the Agreement of Merger dated as
--------------------------------
of February 26, 1997 between Leslie's Poolmart, a California corporation, and
Borrower.
"Register" has the meaning set forth in Section 9.5(d) hereof.
-------- --------------
"Security Agreement" with respect to any Loan Party means the Security
------------------
Agreement executed by such Loan Party for the benefit of the Lender Parties, in
a form acceptable to Agent.
"Solvent" means, as to any Person at any time, that (i) the fair value of
-------
the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code; (ii) the present fair saleable value of the
property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to pay its debts and other liabilities
(including disputed, contingent and unliquidated liabilities) as they mature in
the normal course of business; (iv) such Person does not intend to, and does not
believe that it will, incur debts or liabilities beyond such Person's ability to
pay as such debts and liabilities mature; and (v) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital.
"Subsidiary," of any Person, means any corporation, association,
----------
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interest is owned directly or indirectly by
such Person or one or more of the other Subsidiaries of such Person or a
combination thereof.
"Subordinated Exchange Indebtedness" has the meaning set forth in Section
---------------------------------- -------
6.12 hereof.
----
"Swingline Lender" has the meaning set forth in the introduction hereto.
----------------
"Swingline Loan" has the meaning set forth in Section 2.1(b) hereof.
-------------- --------------
"Swingline Note" has the meaning set forth in Section 2.1(b) hereof.
-------------- --------------
"Tangible Net Worth" means, as of any date of determination, the aggregate
------------------
of total stockholders' equity plus the principal amount of outstanding
----
Subordinated Exchange Indebtedness, if any, plus the principal amount of
----
outstanding Indebtedness permitted under Section 6.3(f) hereof, if any, plus
-------------- ----
paid in capital represented by the Preferred Stock to the extent not subject to
mandatory redemption earlier than one year after the Line Maturity Date, plus
----
the Redemption Amount, less the aggregate of any treasury stock, any intangible
----
assets, and the amount by which any obligations due from stockholders,
employees, and/or affiliates exceed TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($250,000) in the aggregate.
"Taxes" has the meaning set forth in Section 2.10(a) hereof.
----- ---------------
-17-
"Total Commitments" means the aggregate of the Commitments of all Lenders.
-----------------
"UCC" means the Uniform Commercial Code as in effect in the State of
---
California or any other jurisdiction, as relevant, in which Collateral is
located.
"▇▇▇▇▇ Fargo" has the meaning set forth in the introduction hereto.
-----------
SECTION 1.2. CERTAIN RULES OF CONSTRUCTION.
(a) HEADINGS. Headings in this Credit Agreement and each of the other Loan
--------
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
(b) FISCAL QUARTER ENDING DATES. Whenever reference is made herein to the
---------------------------
end of or last day of any fiscal quarter of Borrower, such reference shall be to
the Saturday closest to the last day of the month of March, June, September or
December, as the case may be, falling within such fiscal quarter.
ARTICLE II
----------
THE CREDITS
-----------
SECTION 2.1. LINE OF CREDIT.
(a) LINE OF CREDIT.
--------------
(i) Subject to the terms and conditions of this Credit Agreement, each
Lender hereby severally agrees, on a pro rata basis, to make advances to
Borrower from time to time up to the Line Maturity Date not to exceed at any
time the aggregate principal amount of the sum of (A) THIRTY-FIVE MILLION AND
NO/100 DOLLARS ($35,000,000), minus (B) the aggregate undrawn face amount of
-----
Letters of Credit outstanding at such time, minus (C) the aggregate principal
-----
amount of Swingline Loans outstanding at such time (the "Line of Credit"). The
--------------
proceeds of advances under the Line of Credit shall be used to refinance
Borrower's Indebtedness under the 1997 Predecessor Credit Agreement, for the
working capital requirements of Borrower and its Subsidiaries and to finance
capital expenditures permitted hereunder. Borrower's obligation to repay
advances under the Line of Credit shall be evidenced by promissory notes
substantially in the form of Exhibit 2.1(a) attached hereto (the "Line of Credit
-------------- --------------
Notes"), all terms of which are incorporated herein by this reference.
-----
Outstanding advances under the 1997 Predecessor Credit Agreement shall be deemed
outstanding under the Line of Credit; provided, however, that each LIBOR Rate
-------- -------
Loan (defined in the 1997 Predecessor Credit Agreement) outstanding on the
Closing Date shall continue to bear interest hereunder at the rate applicable
thereto under the 1997 Predecessor Credit Agreement until the end of the
Interest Period, as such term is defined in the 1997 Predecessor Credit
Agreement, applicable thereto under the 1997 Predecessor Credit Agreement.
-18-
(ii) Borrower may from time to time during the term of the Line of
Credit borrow, partially or wholly repay and reborrow advances under the Line of
Credit, subject to all the limitations, terms and conditions contained herein;
provided, however, that the total outstanding borrowings under the Line of
-------- -------
Credit shall not at any time exceed the maximum principal amount available
thereunder, as set forth above. If the total outstanding borrowings hereunder
shall at any time exceed the principal amount stated above, Borrower shall
immediately repay to Agent for the benefit of the Lenders such excess amount.
The unpaid principal balance of advances under the Line of Credit at any time
shall be the total of the amounts advanced by the Lenders thereunder less the
----
amount of principal payments made by or for Borrower on such advances, which
balance may be endorsed from time to time by the Lenders on the schedules
attached to the Line of Credit Notes held by them. The outstanding principal
balance under the Line of Credit shall be due and payable in full on the Line
Maturity Date.
(b) SWINGLINE LOANS.
---------------
(i) Subject to the terms and conditions of this Credit Agreement,
the Swingline Lender may, in its sole discretion, make a portion of the Total
Commitments available to Borrower by making swingline loans (individually, a
"Swingline Loan"; collectively, the "Swingline Loans") to Borrower from time to
--------------- ---------------
time to the Line Termination Date in accordance with the procedures set forth in
this Section 2.1 in an aggregate principal amount at any one time outstanding
-----------
not to exceed FIVE MILLION AND NO/100 DOLLARS ($5,000,000), notwithstanding that
such Swingline Loans, when aggregated with advances under the Line of Credit
made by ▇▇▇▇▇ Fargo in its capacity as a Lender, may exceed ▇▇▇▇▇ Fargo's
Commitment. Borrower's obligation to repay Swingline Loans shall be evidenced
by a promissory note substantially ion the form of Exhibit 2.1(b)(i) attached
-----------------
hereto (the "Swingline Note"), all terms of which are incorporated by this
--------------
reference.
(ii) So long as the Swingline Lender, in its sole discretion, elects
to make Swingline Loans, Borrower may from time to time during the term of the
Line of Credit borrow, partially or wholly repay, and reborrow Swingline Loans,
subject to all the limitations, terms and conditions contained herein; provided,
--------
however, that at no time shall the sum of the aggregate principal amount of all
-------
outstanding Swingline Loans, plus the aggregate principal amount of all
----
outstanding advances under the Line of Credit plus the aggregate undrawn face
----
amount of outstanding Letters of Credit exceed the Total Commitments. The
unpaid principal balance of the Swingline Loans at any time shall be the total
of the amount of Swingline Loans made by the Swingline Lender less the amount of
----
principal payments made by Borrower on Swingline Loans, which balance may be
endorsed from time to time by the Swingline Lender on the schedule attached to
the Swingline Note. The outstanding principal amount of each Swingline Loan
shall be due and payable in full on the maturity date therefor specified in the
applicable Notice of Swingline Borrowing, which shall be a date not more than
seven (7) days after the date of such Swingline Loan, and the outstanding
principal balance of all Swingline Loans shall in any event be due and payable
in full on the Line Maturity Date.
(iii) Borrower shall provide Agent (with a copy to the Swingline
Lender) irrevocable written notice (which notice may be delivered telephonically
and confirmed by
-19-
facsimile on the same day) in the form of Exhibit 2.1(b)(iii) attached hereto (a
-------------------
"Notice of Swingline Borrowing") of any Swingline Loan requested hereunder
-----------------------------
(which notice must be received by the Swingline Lender and the Agent before 2:30
p.m. (San Francisco time) on the requested borrowing date) specifying (A) the
principal amount of the requested Swingline Loan,(B) the requested proposed date
of borrowing of such Swingline Loan, which shall be a Business Day and (C) the
maturity date for such Swingline Loan, which shall be a date not later than
seven (7) days after the date of borrowing of such Swingline Loan. Upon receipt
of a Notice of Swingline Borrowing, the Swingline Lender will immediately
confirm with Agent (by telephone or in writing) that Agent has received a copy
of such Notice of Swingline Borrowing from Borrower and, if not, the Swingline
Lender will provide Agent with a copy thereof. Unless the Swingline Lender has
received notice before 3:00 p.m. (San Francisco time) on the proposed date of
borrowing of such Swingline Loan from Agent (x) directing the Swingline Lender
not to make the requested Swingline Loan as a result of the limitations set
forth in Section 2.1(b)(ii) hereof or (y) that one or more of the conditions
------------------
specified in Article IV are not then satisfied, then, subject to the terms and
conditions hereof, the Swingline Lender will, in the event that the Swingline
Lender so elects, in its sole discretion, by the close of business in San
Francisco on the proposed date of borrowing specified in such Notice of
Swingline Borrowing, make the amount of such requested Swingline Loan available
to Agent for the account of Borrower at Agent's Payment Office in funds
immediately available to Agent. The proceeds of such Swingline Loan will then
be made available to Borrower by Agent in the manner specified for proceeds of
advances under the Line of Credit in Section 2.7(a) hereof. Each borrowing of
--------------
Swingline Loans shall be in an aggregate principal amount equal to $100,000 or
an integral multiple of $50,000 in excess thereof, unless otherwise agreed by
the Swingline Lender. Agent shall promptly notify each Lender of the date of
borrowing, principal amount and maturity of each Swingline Loan advanced by the
Swingline Lender.
(iv) If any Swingline Loan shall remain outstanding during the
existence of a Default or Event of Default and the Swingline Lender shall, in
its sole discretion, notify Agent that the Swingline Lender desires that such
Swingline Loan to be converted into advances under the Line of Credit, then
Agent shall be deemed to have received a Notice of Borrowing from the Borrower
pursuant to Section 2.2 hereof requesting that Prime Rate Loans, in the
------------------
aggregate amount of such Swingline Loan, under the Line of Credit be made on the
first Business Day after the date of such notice from the Swingline Lender, and
the Lenders, rateably in accordance with their Proportionate Shares, shall make
such advances comprising such Prime Rate Loans notwithstanding Borrower's
failure to satisfy the conditions contained in Article IV hereof, and
notwithstanding any limitations on minimum or integral borrowing amounts
contained herein, and the Lenders shall follow the procedures set forth in
Section 2.7(a) hereof in making such advances; provided, that if a borrowing
-------------- --------
under the Line of Credit becomes, as determined by Agent, legally impracticable,
and if the Swingline Lender so requests, each Lender agrees that in lieu of
making Prime Rate Loans as described in this subsection 2.1(b)(iv), such Lender
---------------------
shall automatically be deemed to have purchased a participation from the
Swingline Lender in the applicable Swingline Loans in an amount equal to such
Lender's Proportionate Share of such Swingline Loans. The proceeds of such
Prime Rate Loans, or participation purchases, shall be applied to repay such
Swingline Loans. If any Lender so notified fails to make available to Agent for
the account of the Swingline Lender the amount of such Lender's Proportionate
Share of the amount of such Prime
-20-
Rate Loans or participations, as applicable, by no later than 12:00 noon (San
Francisco time) on the date due, then interest shall accrue on such Lender's
obligation to make such payment, from such date to the date such Lender makes
such payment, at a rate per annum equal to the Federal Funds Rate in effect from
time to time during such period. A copy of each notice given by Agent to the
Lenders pursuant to this subsection 2.1(b)(iv) with respect to the making of
--------------------
Prime Rate Loans under the Line of Credit, or the purchases of participations,
shall be promptly delivered by Agent to Borrower. Each Lender's obligation in
accordance with this Credit Agreement to make the Prime Rate Loans under the
Line of Credit, or purchase participations, as contemplated by this
subsection 2.1(b)(iv), shall be absolute, irrevocable, and unconditional and
---------------------
shall not be affected by any circumstance, including (i) any set-off,
counterclaim, recoupment, defense or other right which such Lender may have
against the Swingline Lender, Borrower or any other Person for any reason
whatsoever, (ii) the occurrence of continuance of a Default, an Event of Default
or any material adverse change in the financial condition of Borrower or any
Subsidiary of Borrower, or (iii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
(v) If Agent or the Swingline Lender is required at any time to
return to Borrower, or to a trustee, receiver, liquidator, custodian, or any
official in any proceeding referred to in Section 7.1(h) hereof, any portion of
--------------
the payments made by Borrower to Agent for the account of the Swingline Lender,
or any interest thereon, each Lender shall, on demand of Agent or the Swingline
Lender, forthwith return to Agent or the Swingline Lender the amount of its
Proportionate Share of any amounts so returned by Agent or the Swingline Lender,
plus interest thereon from the date such demand is made to Agent or the
Swingline Lender at a rate per annum equal to the Federal Funds Rate in effect
from time to time.
(c) FEES.
----
(i) Upfront Commitment Fee. Borrower shall pay to Agent, for the
----------------------
ratable account of the Lenders based on their respective Proportionate Shares,
an upfront commitment fee in the aggregate amount of $218,750, payable on the
Closing Date.
(ii) Non-Use Fee. Borrower shall pay to Agent, for the ratable
-----------
account of the Lenders based on their respective Proportionate Shares, a fee
equal to one-half of one percent (0.5%) per annum of the difference between (i)
the Total Commitments, and (ii) the average daily outstanding principal balance
of the Line of Credit during each fiscal quarter (including the outstanding
undrawn face amount of Letters of Credit issued under the Line of Credit but
excluding the outstanding principal balance of any Swingline Loans), which fee
shall be due and payable thirty (30) days after the end of such fiscal quarter.
(d) LETTER OF CREDIT SUBFEATURE. (i) As a subfeature under the Line of
---------------------------
Credit, Agent agrees from time to time up to thirty (30) days prior to the Line
Maturity Date, to issue sight commercial or standby letters of credit on behalf
of all of the Lenders and for the account of Borrower (each, a "Letter of
---------
Credit" and collectively, the "Letters of Credit"); provided, however, that the
------ ----------------- -------- -------
form and substance of each Letter of Credit shall be subject to approval by
Agent, in its reasonable discretion; and provided further, however, that the
---------------- -------
aggregate undrawn amount of all
-21-
outstanding Letters of Credit shall not at any time exceed THREE MILLION AND
NO/100 DOLLARS ($3,000,000). Each Letter of Credit shall be issued for a term
not to
-22-
exceed three hundred sixty-five (365) days, as designated by Borrower; provided,
--------
however, that no Letter of Credit shall have an expiration date subsequent to
-------
the Line Maturity Date. The undrawn amount of all Letters of Credit shall be
reserved under the Line of Credit and shall not be available for advances
thereunder. Each Letter of Credit shall be subject to the additional terms and
conditions of the Letter of Credit Agreement and related documents, if any,
required by Agent in connection with the issuance thereof (each, a "Letter of
---------
Credit Agreement" and collectively, "Letter of Credit Agreements"). Each draft
---------------- ---------------------------
paid by Agent under a Letter of Credit shall be deemed an advance under the Line
of Credit comprising a Prime Rate Loan and shall be repaid by Borrower in
accordance with the terms and conditions of this Credit Agreement applicable to
such advances; provided, however, that if the Line of Credit is not available,
-------- -------
for any reason whatsoever, at the time any draft is paid by Agent, then the full
amount of such draft shall be immediately due and payable, together with
interest thereon, from the date such amount is paid by Agent to the date such
amount is fully paid by Borrower, at the variable rate of interest applicable to
Prime Rate Loans. In such event, Borrower agrees that Agent, at Agent's sole
discretion, may debit Borrower's deposit account with Agent for the amount of
any such draft. Outstanding Letters of Credit issued in connection with the
1997 Credit Agreement shall be deemed outstanding Letters of Credit under the
Line of Credit.
(ii) The Lenders hereby irrevocably appoint Agent as their agent, and
hereby authorize and direct Agent for and on their behalf, to issue Letters of
Credit and to honor drafts presented under Letters of Credit in accordance with
the terms thereof. The interest of each Lender in each Letter of Credit shall
be the percentage designated as its Proportionate Share in Schedule I hereto of
----------
the total amount of all Letters of Credit. If there are insufficient funds
under the Line of Credit to pay any draft under a Letter of Credit, or if
Borrower otherwise fails to reimburse Agent for the full amount of any draft
paid under any Letter of Credit pursuant to the terms of the Letter of Credit
Agreement applicable thereto, each Lender shall, immediately on demand by Agent,
pay to Agent, ratably according to such Lender's Proportionate Share in such
Letter of Credit, the unreimbursed amount of such draft and all other sums then
due under such Letter of Credit Agreement. Each such payment by a Lender shall
be made in immediately available funds at Agent's Office on the date Agent
demands such payment, and shall bear interest from the date such amount is paid
by Agent to the date such amount is fully paid by such Lender at rates equal to
(A) the Federal Funds Rate during the period from the date such payment is due
through the third Business Day thereafter, and (B) thereafter, the Prime Rate in
effect from time to time.
SECTION 2.2. NOTICE OF BORROWING UNDER LINE OF CREDIT.
Borrower, through one of its Authorized Representatives, shall request
each advance under the Line of Credit by giving Agent irrevocable written notice
or telephonic notice (confirmed promptly in writing), in the form of Exhibit 2.2
-----------
attached hereto (each, a "Notice of Borrowing"), which specifies, among other
-------------------
things:
(a) the principal amount of the requested advance under the Line of
Credit;
(b) the proposed date of borrowing, which shall be a Business Day;
-23-
(c) the interest rate option applicable to such borrowing (which, for a
LIBOR interest selection, shall be subject to the minimum dollar
requirement set forth in Section 2.3(a)(i) hereof); and
-----------------
(d) if the amounts advanced will bear interest determined in relation to
LIBOR, the length of the Interest Period applicable thereto.
Each such Notice of Borrowing must be received by Agent not later than 9:00 a.m.
(i) on the same day as the date of borrowing if interest will be determined in
relation to the Prime Rate, and (ii) at least three (3) Business Days prior to
the date of borrowing if interest will be determined in relation to LIBOR.
Agent shall promptly notify each Lender of the contents of each Notice of
Borrowing and of the amount of the advance to be made by such Lender.
SECTION 2.3. INTEREST/FEES.
(a) INTEREST. (i) Line of Credit. The outstanding principal amount of
-------- --------------
each advance under the Line of Credit shall bear interest until paid in full in
accordance with the following interest rate options, as designated by Borrower:
(A) at a fluctuating rate per annum equal to the Prime Rate in effect
from time to time plus the Applicable Prime Rate Margin, or
----
(B) at a fixed rate per annum equal to LIBOR determined for a related
Interest Period plus the Applicable LIBO Rate Margin; provided, however,
---- -------- -------
that each LIBOR interest selection must be for an amount of FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($500,000) or an integral multiple of ONE
HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess thereof.
(ii) Swingline Loans. The outstanding principal amount of each
---------------
Swingline Loan shall bear interest until paid in full at a fluctuating rate per
annum equal to the Prime Rate in effect from time to time plus the Applicable
----
Prime Rate Margin.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Accrued unpaid interest on the outstanding
principal amount of each advance under the Line of Credit shall be paid on the
First Business day of each calendar month and on the date such advance shall be
paid in full. Accrued unpaid interest on the outstanding principal amount of
each Swingline Loan shall be paid on the maturity date therefor or such earlier
date on which such Swingline Loan shall be paid in full.
(c) LETTER OF CREDIT FEES.
---------------------
(i) Commercial Letter of Credit Fees. Borrower shall pay to Agent,
--------------------------------
for Agent's own account, non-refundable fees upon the issuance or amendment of
each commercial letter of credit and upon the payment by Agent of each draft
under any commercial letter of credit
-24-
determined in accordance with Agent's standard fees and charges in effect at the
time any commercial letter of credit is issued or amended or any draft is paid.
(ii) Standby Letter of Credit Fees. Borrower shall pay to Agent, for
-----------------------------
Agent's own account, non-refundable fees upon the issuance or amendment of each
standby letter of credit and upon the payment by Agent of each draft under any
standby letter of credit determined in accordance with Agent's standard fees and
charges in effect at the time any standby letter of credit is issued or amended
or any draft is paid.
(d) AGENT'S FEE. Borrower shall pay to Agent, for Agent's own account,
-----------
non-refundable agent's fees in the amounts and at the time set forth in the
Agent's Fee Letter.
SECTION 2.4. CONVERSION OF INTEREST RATE OPTIONS
(a) ELECTION. (i) At any time any portion of advances under the Line of
--------
Credit bears interest determined in relation to the Prime Rate, Borrower may
convert all or any portion thereof so that it bears interest determined in
relation to LIBOR for an Interest Period designated by Borrower, and (ii) at any
time any portion of advances under the Line of Credit bears interest determined
in relation to LIBOR, Borrower may convert all or a portion thereof at the end
of the Interest Period applicable thereto so that it bears interest determined
in relation to the Prime Rate or in relation to LIBOR for a new Interest Period
designated by Borrower; provided, however, that Borrower may not so convert or
-------- -------
continue any advance under the Line of Credit if the effect thereof would be to
cause the outstanding principal amount of any LIBO Rate Loan to be an amount
other than FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) or an integral
multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess
thereof. If Borrower has not made the required interest rate conversion or
continuation election prior to the last day of any Interest Period (or if the
proviso in the foregoing sentence prohibits such conversion or continuation),
Borrower shall be deemed to have made a Prime Rate interest selection for the
amounts that were subject thereto.
(b) NOTICE TO AGENT. Borrower, through one of its Authorized
---------------
Representatives, shall request each interest rate conversion or continuation by
giving Agent irrevocable written notice or telephonic notice (confirmed promptly
in writing), in the form of Exhibit 2.4 attached hereto (a "Notice of Conversion
----------- --------------------
or Continuation"), which specifies, among other things:
---------------
(i) in the case of conversion or continuation in respect of any LIBO
Rate Loan, the Interest Period for such LIBO Rate Loan to which
such Notice of Conversion or Continuation applies;
(ii) the principal amount of advances under the Line of Credit that
are the subject of such conversion or continuation;
(iii) the proposed date of such conversion or continuation, which
shall be a Business Day;
-25-
(iv) and if such Notice pertains to a LIBOR interest selection, the
length of the applicable Interest Period.
Any such Notice of Conversion or Continuation must be received by Agent not
later than 9:00 a.m. (i) on the same day as the effective date of any Prime Rate
interest selection, and (ii) at least three (3) Business Days prior to the
effective date of any LIBOR interest selection. Agent shall promptly notify
each Lender of the contents of each such Notice of Conversion or Continuation,
or if timely notice is not received from Borrower prior to the last day of any
Interest Period of the automatic conversion of the amounts subject thereto to
the Prime Rate interest option.
SECTION 2.5. OTHER PAYMENT TERMS.
(a) AUTOMATIC DEBIT. Agent shall, and Borrower hereby authorizes Agent to,
---------------
debit any demand deposit account of Borrower with Agent for all payments of
principal, interest, and fees as they become due on any of the Credits. Should,
for any reason whatsoever, the funds in any such demand deposit account be
insufficient to pay all such amounts when due, Borrower shall immediately upon
demand remit to Agent the full amount of any such deficiency.
(b) PLACE AND MANNER. Borrower shall make all payments due to each Lender
----------------
Party under the Loan Documents by payment to Agent at Agent's Office, for the
account of such Lender Party, in lawful money of the United States and in same
day or immediately available funds not later than 12:00 noon on the date due.
Agent shall promptly disburse to each Lender Party at such Lender Party's
Applicable Lending Office each such payment received by Agent for such Lender
Party.
(c) DATE. Whenever any payment due hereunder shall fall due on a day other
----
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall be included in the computation of interest
or fees, as the case may be.
(d) INTEREST ON OVERDUE AMOUNTS. From and after the maturity date of any
---------------------------
Credit, or such earlier date as all principal owing under any Credit becomes due
and payable by acceleration or otherwise, the outstanding principal balance
thereof shall bear interest until paid in full at an increased rate per annum
(computed on the basis of a 360-day year, actual days elapsed) equal to four
percent (4%) above the rate of interest from time to time applicable to such
Credit, which shall be payable on demand by Agent and otherwise on the date of
payment of such principal.
(e) APPLICATION OF PAYMENTS. All payments under the Loan Documents
-----------------------
(including prepayments) shall be applied first to unpaid fees, costs, and
expenses then due and payable under this Credit Agreement and the other Loan
Documents, second to accrued interest then due and payable under the Loan
Documents, and finally to reduce the principal amount of outstanding Credits.
All payments credited to principal outstanding under the Line of Credit shall be
applied first, to the outstanding principal balance of the Line of Credit which
bears interest determined in relation to the Prime Rate, if any, and second, to
the outstanding principal balance of the Line of Credit which bears interest
determined in relation to LIBOR, with such payments applied to the
-26-
oldest Interest Period first. If an Event of Default has occurred and is
continuing or if Borrower fails to direct application, Agent shall apply such
payments as determined by it in its discretion.
(f) FAILURE TO PAY AGENT. Unless Agent shall have received notice from
--------------------
Borrower at least one (1) Business Day prior to the date on which any payment is
due to the Lenders or the Swingline Lender, as the case may be, hereunder that
Borrower will not make such payment in full, Agent may assume that Borrower has
made such payment in full to Agent on such date and Agent may, in reliance upon
such assumption, cause to be distributed to each Lender or the Swingline Lender,
as the case may be, on such due date an amount equal to the amount then due such
Lender or the Swingline Lender. If and to the extent Borrower shall not have
made such payment in full to Agent, such Lender or the Swingline Lender, as the
case may be, shall repay to Agent forthwith on demand such amount distributed to
such Lender Party together with interest thereon, for each day from the date
such amount is distributed to such Lender Party until the date such Lender Party
repays such amount to Agent, at the Federal Funds Rate. A certificate of Agent
submitted to any Lender or the Swingline Lender, as the case may be, with
respect to any amounts owing by such Lender Party under this Section 2.5(f)
--------------
shall be presumptive evidence of such amounts.
SECTION 2.6. PREPAYMENT.
(a) PRIME RATE. Borrower may prepay principal on any portion of any Credit
----------
that bears interest determined in relation to the Prime Rate at any time, in any
amount, and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of any Credit that
-----
bears interest determined in relation to LIBOR at any time and in the minimum
amount of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00) or an integral
multiple of ONE HUNDRED THOUSAND AND NO/100 DOLLARS ($100,000) in excess
thereof; provided, however, that if the outstanding principal balance of such
-------- -------
portion of any such Credit is less than said amount, the minimum prepayment
amount shall be the entire outstanding principal balance thereof. In
consideration of the Lenders providing this prepayment option to Borrower, or if
any such portion of any such Credit shall become due and payable at any time
prior to the last day of the Interest Period applicable thereto by acceleration
or otherwise, Borrower shall make such payments as are provided for in Section
-------
2.11 hereof.
----
SECTION 2.7. FUNDING.
(a) LENDER FUNDING AND DISBURSEMENT. Each Lender shall, before 11:00 a.m.
-------------------------------
on the date of each borrowing under the Line of Credit make available to Agent
at Agent's Office, in same day or immediately available funds, such Lender's
Proportionate Share thereof. After Agent's receipt of such funds and upon
fulfillment of the applicable conditions set forth in Article IV hereof, Agent
----------
will promptly disburse such funds in same day or immediately available funds to
Borrower. Unless otherwise directed by Borrower in writing, Agent shall
disburse the proceeds of each borrowing to Borrower by deposit to any demand
deposit account maintained by Borrower with Agent.
-27-
(b) LENDER FAILURE TO FUND. Unless Agent shall have received notice from a
----------------------
Lender on or prior to the date of any borrowing under any Credit that such
Lender will not make available to Agent such Lender's Proportionate Share
thereof, Agent may assume that such Lender has made such portion available to
Agent on the date of such borrowing in accordance with Section 2.7(a) hereof,
--------------
and Agent may, in reliance upon such assumption, make available to Borrower (or
otherwise disburse) on such date a corresponding amount. If any Lender does not
make the amount of its Proportionate Share of any borrowing available to Agent
on the date of such borrowing, such Lender shall pay to Agent, on demand,
interest which shall accrue on such amount until made available to Agent at
rates equal to (i) the daily Federal Funds Rate during the period from the date
of such borrowing through the third Business Day thereafter, and (ii)
thereafter, the Prime Rate in effect from time to time. A certificate of Agent
submitted to any Lender with respect to any amounts owing under this Section
-------
2.7(b) shall be presumptive evidence of such amounts. If any Lender's
------
Proportionate Share of any borrowing is not in fact made available to Agent by
such Lender within three (3) Business Days after the date of such borrowing,
Borrower shall pay to Agent, on demand, an amount equal to such Proportionate
Share together with interest thereon, for each day from the date such amount was
made available to Borrower until the date such amount is repaid to Agent, at the
rate of interest then applicable thereto.
(c) LENDERS' OBLIGATIONS SEVERAL. The obligation of each Lender hereunder
----------------------------
is several. The failure of any Lender to make available its Proportionate Share
of any borrowing under the Line of Credit shall not relieve any other Lender of
its obligation hereunder to do so on the date requested, but no Lender shall be
responsible for the failure of any other Lender to make available the
Proportionate Share to be funded by such other Lender.
SECTION 2.8. PRO RATA TREATMENT.
(a) BORROWINGS UNDER LINE OF CREDIT. Except as otherwise provided herein,
-------------------------------
(i) each extension of credit under the Line of Credit shall be made or shared
among the Lenders pro rata according to their respective Proportionate Shares in
such Credit, and (ii) each payment of principal of and interest or fees on a
Credit shall be made or shared among the Lenders pro rata according to the
respective unpaid principal amounts of such Credit held by such Lenders.
(b) SHARING OF PAYMENTS, ETC. If any Lender Party shall obtain any payment
-------------------------
(whether voluntary, involuntary, through the exercise of any right of setoff, or
otherwise) on account of a Credit in excess of its ratable share of payments on
account of such Credit obtained by all Lender Parties entitled to such payments,
such Party Lender shall forthwith purchase from the other Lender Parties
sufficient participations in such Credit as shall be necessary to cause the
purchasing Lender Party's interest in the Credit to be equivalent to the excess
payment received; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from such purchasing Lender Party, such purchase
shall be rescinded and each other Lender Party shall repay to the purchasing
Lender Party the purchase price to the extent of such recovery together with an
amount equal to such other Lender Party's ratable share (according to the
proportion of (i) the amount of such other Lender Party's required repayment to
(ii) the total amount so recovered from the purchasing Lender Party) of any
interest or other amount paid or payable by the purchasing Lender Party in
respect of the total amount so recovered. Borrower agrees that any Lender Party
-28-
so purchasing a participation from another Lender Party pursuant to this Section
-------
2.8(b) may, to the fullest extent permitted by law, exercise all its rights
------
-29-
of payment (including the right of setoff) with respect to such participation as
fully as if such Lender Party were the direct creditor of Borrower in the amount
of such participation.
SECTION 2.9. CHANGE OF CIRCUMSTANCES.
(a) INABILITY TO DETERMINE RATE. If Agent at any time shall determine that
---------------------------
for any reason adequate and reasonable means do not exist for ascertaining
LIBOR, or the Majority Lenders shall determine at any time, by virtue of
circumstances that affect the LIBOR market generally, such as, but not limited
to, insufficient trading to establish rates that are reasonably indicative of
actual funding costs, that LIBOR does not accurately reflect the cost to Lenders
of making or maintaining LIBOR interest rates hereunder, then Agent shall
promptly give notice thereof to Borrower and each Lender. If such notice is
given and until such notice has been withdrawn by Agent, then (i) no new LIBOR
option may be selected by Borrower, and (ii) any portion of the outstanding
principal balance hereof which bears interest determined in relation to LIBOR,
subsequent to the end of the Interest Period applicable thereto, shall bear
interest determined in relation to the Prime Rate.
(b) ILLEGALITY. If any law, treaty, rule, regulation or determination of a
----------
court or governmental authority adopted or enacted after the date hereof or any
change therein or in the interpretation or application thereof (each, a "Change
------
in Law") shall make it unlawful for any Lender (i) to make LIBOR options
------
available hereunder, or (ii) to maintain interest rates based on LIBOR, then, in
the former event, any obligation of the Lenders to make available such unlawful
LIBOR options shall immediately be cancelled, and in the latter event, any such
unlawful LIBOR-based interest rates then outstanding shall be converted, at
Agent's option, so that interest on the portion of the outstanding principal
balance subject thereto is determined in relation to the Prime Rate; provided,
--------
however, that if any such Change in Law shall permit any LIBOR-based interest
-------
rates to remain in effect until the expiration of the Interest Period applicable
thereto, then such permitted LIBOR-based interest rates shall continue in effect
until the expiration of such Interest Period. Upon the occurrence of any of the
foregoing events, Borrower shall pay to each Lender immediately upon demand such
amounts as such Lender shall set forth in a certificate (which certificate shall
show in reasonable detail the calculation of such amounts) as being necessary to
compensate such Lender for any fines, fees, charges, penalties, or other costs
incurred or payable by such Lender as a result thereof and which are reasonably
attributable to any LIBOR options made available to Borrower hereunder, and any
reasonable allocation made by such Lender among its operations shall be
conclusive and binding upon Borrower.
(c) CHARGES: CHANGE IN LAW. If any Change in Law or compliance by any
-----------------------
Lender with any request or directive (whether or not having the force of law)
from any central bank or other governmental authority shall:
(i) subject any Lender to any tax, duty, or other charge with
respect to any LIBOR options, or change the basis of taxation of payments
by Borrower to any Lender of principal, interest, fees, or any other amount
payable hereunder (except for changes in the rate of tax on the overall net
income of any Lender); or
-30-
(ii) impose, modify, or hold applicable any reserve, special
deposit, compulsory loan, or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or loans
by, or any other acquisition of funds by any Lender that is not included in
determining the applicable interest rate; or
(iii) impose on any Lender any other materially adverse
condition;
and the result of any of the foregoing is to increase the cost to such Lender of
making, renewing, or maintaining any LIBOR options hereunder and/or to reduce
any amount receivable by such Lender in connection therewith, then in any such
case, Borrower shall pay to such Lender immediately upon demand such amounts as
may be necessary to compensate such Lender for any additional costs incurred by
such Lender and/or reductions in amounts received by such Lender which are
attributable to such LIBOR options. In determining which costs incurred by such
Lender and/or reductions in amounts received by such Lender are attributable to
any LIBOR options made available to Borrower hereunder, any reasonable
allocation made by such Lender among its operations set forth in a certificate
of an officer of such Lender (which certificate shall show in reasonable detail
the calculation of such allocation) shall be conclusive and binding upon
Borrower.
SECTION 2.10. TAXES ON PAYMENTS.
(a) PAYMENTS FREE OF TAXES. All payments made by Borrower under the Loan
----------------------
Documents shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental Authority
(except net income, franchise or withholding taxes imposed on any Lender Party)
(with all such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions and withholdings being hereinafter referred to herein as "Taxes").
-----
If any Taxes are required to be withheld from any amounts payable to any Lender
Party under the Loan Documents, the amounts so payable to such Lender Party
shall be increased by such amount as such Lender Party shall set forth in a
certificate of an officer of such Lender Party (which certificate shall show in
reasonable detail the calculation of such amounts) as being necessary to yield
to such Lender Party (after payment of all Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in the Loan
Documents. Whenever any Taxes are payable by Borrower, as promptly as possible
thereafter, Borrower shall send to Agent for its own account or for the account
of such other Lender Party, as the case may be, a certified copy of an original
official receipt received by Borrower showing payment thereof. If Borrower
fails to pay any Taxes when due to the appropriate taxing authority or fails to
remit to Agent the required receipts or other required documentary evidence,
Borrower shall indemnify the Lender Parties for any incremental taxes, interest
or penalties that may become payable by any Lender Party as a result of any such
failure. The agreements in this Section 2.10(a) shall survive the termination
---------------
of this Credit Agreement.
(b) WITHHOLDING EXEMPTION CERTIFICATES. Each Lender agrees that it will
----------------------------------
deliver to Borrower and Agent, upon the reasonable request of Borrower or Agent,
either (i) a statement that
-31-
it is incorporated under the laws of the United States of America or a state
thereof, or (ii) if it is not so incorporated, two duly completed copies of
United States Internal Revenue Service Form 1001 or 4224 or successor applicable
form, as the case may be, certifying in each case that such Lender is entitled
to receive payments under this Credit Agreement without deduction or withholding
of any United States federal income taxes.
SECTION 2.11. FUNDING LOSS INDEMNIFICATION.
(a) If Borrower shall (i) repay or prepay any portion of a LIBO Rate
Loan on any day other than the last day of the Interest Period therefor (whether
an optional prepayment, a mandatory prepayment, a payment upon acceleration, or
otherwise), (ii) fail to borrow any LIBO Rate Loan on the date specified
therefor in a Notice of Borrowing that has been delivered to Agent (whether as a
result of the failure to satisfy any applicable conditions or otherwise), or
(iii) fail to convert advances into or continue advances as a LIBO Rate Loan in
accordance with a Notice of Conversion or Continuation delivered to Agent
(whether as a result of the failure to satisfy any applicable conditions or
otherwise), then Borrower shall pay to Agent, for the account of the Lenders,
immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of such prepayment or failure through
the month in which the Interest Period for such LIBO Rate Loan matures (or would
have matured), calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each
---------
month on the amount so prepaid, or not borrowed, converted to or continued
as a LIBO Rate Loan, as the case may be, at the interest rate applicable to
such amount had it remained outstanding until the last day of the Interest
Period applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount so
prepaid, or not borrowed, converted to or continued as a LIBO Rate Loan, as
the case may be, for the remaining term of such Interest Period at LIBOR in
effect on the date of such prepayment (or specified in the applicable
Notice of Borrowing or Notice of Conversion or Continuation as the date of
borrowing, conversion or continuation of such LIBO Rate Loan) plus the
----
Applicable LIBO Rate Margin used in the determination described in clause
(i) for new loans made for such term and in a principal amount equal to
such amount.
(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by LIBOR used in (ii) above.
Borrower acknowledges that any such prepayment or failure to borrow, convert or
continue, as the case may be, will result in the Lenders incurring additional
costs, expenses, and/or liabilities, and that it is difficult to ascertain the
full extent of such costs, expenses, and/or liabilities. Borrower, therefore,
agrees to pay the above-described prepayment fee and agrees that said amount
represents a reasonable estimate of the prepayment costs, expenses, and/or
liabilities of the Lenders incurred as a result of any such prepayment or
failure.
-32-
(b) If Borrower fails to pay any amount payable under this Section
-------
2.11 when due, such amount shall thereafter bear interest until paid at a rate
----
per annum of four percent (4%) above the Prime Rate in effect from time to time
(computed on the basis of a 360-day year, actual days elapsed).
(c) The agreements in this Section 2.11 shall survive the termination
------------
of this Credit Agreement.
SECTION 2.12. AUTHORIZED REPRESENTATIVES. On the Closing Date, and from
time to time subsequent thereto at Borrower's option, Borrower shall deliver to
Agent a written notice in the form of Exhibit 2.12 attached hereto, which
------------
designates by name each of Borrower's Authorized Representatives and includes
each of their respective specimen signatures (each, a "Notice of Authorized
--------------------
Representatives"). Agent shall be entitled to rely conclusively on the
---------------
authority of each officer or employee designated as an Authorized Representative
in the most current Notice of Authorized Representatives delivered by Borrower
to Agent, to request borrowings and select interest rate options hereunder, and
to give to Agent such other notices as are specified herein as being made
through one of Borrower's Authorized Representatives, until such time as
Borrower has delivered to Agent, and Agent has actual receipt of, a new written
Notice of Authorized Representatives. Agent shall have no duty or obligation to
Borrower to verify the authenticity of any signature appearing on any Notice of
Borrowing, Notice of Conversion or Continuation, or any other written notice
from an Authorized Representative or to verify the authenticity of any person
purporting to be an Authorized Representative giving any telephonic notice
permitted hereby.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to the Lender
Parties.
SECTION 3.1. LEGAL STATUS. Borrower is a corporation duly organized and
existing and in good standing under the laws of the State of Delaware, and is
qualified or licensed to do business, and is in good standing as a foreign
corporation, if applicable, in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower. There are no Subsidiaries of
Borrower, other than Sandy's Pool Supply, a California corporation and Leslie's
Pool Brite, Inc., a California corporation. Borrower owns 100% of the stock of
each such Subsidiary. Each Loan Party other than Borrower is duly organized and
existing and in good standing under the laws of the state of its incorporation
and is qualified or licensed to do business, and is in good standing in all
jurisdictions in which such qualification or licensing is required or in which
the failure to so qualify or to be so licensed could have a material adverse
effect on such Loan Party.
SECTION 3.2. AUTHORIZATION AND VALIDITY. This Credit Agreement, the
Notes, and each other Loan Document have been duly authorized, and upon their
execution and delivery in accordance with the provisions hereof will constitute
legal, valid, and binding
-33-
agreements and obligations of Borrower or other Loan Party thereto, enforceable
in accordance with their respective terms; except as the enforceability thereof
may be affected by bankruptcy, insolvency, or similar laws affecting the
enforcement of creditors' rights generally, and except as the availability of
certain equitable remedies may be limited by certain equitable principles of
general applicability.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance by
Borrower and each other Loan Party of each of the Loan Documents do not violate
any provision of any law or regulation, or contravene any provision of such Loan
Party's articles or certificate of incorporation or by-laws or, to the best of
the knowledge of Borrower's senior management result in a breach of or
constitute a default under any contract, obligation, indenture or other
instrument to which Borrower is a party or by which Borrower or any other Loan
Party may be bound.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings before any governmental authority, arbitrator, court or
administrative agency which could reasonably be expected to have a material
adverse effect upon the financial condition or operation of Borrower or any
Subsidiary of Borrower other than those disclosed by Borrower to Agent in
writing prior to the date hereof.
SECTION 3.5. FINANCIAL STATEMENTS. The audited financial statements of
Borrower and each Subsidiary of Borrower dated December 31, 1996, heretofore
delivered by Borrower to Agent present fairly in all material respects the
consolidated financial condition of Borrower and each such Subsidiary; reflect
all liabilities of Borrower and each such Subsidiary that are required to be
reflected or reserved against under generally accepted accounting principles;
and have been prepared in accordance with generally accepted accounting
principles consistently applied. Since the date of such financial statements
there has been no material adverse change in the financial condition of Borrower
or any such Subsidiary, nor has Borrower or any such Subsidiary mortgaged,
pledged or granted a security interest or encumbered any assets or properties
except as disclosed by Borrower to Agent in writing prior to the date hereof or
as permitted by this Credit Agreement.
SECTION 3.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its or any of its Subsidiaries' income tax payable
with respect to any year prior to 1996.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract, or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Credit Agreement or any other Loan Document to any
other obligation of Borrower.
SECTION 3.8. PERMITS, FRANCHISES. Borrower and each Subsidiary of
Borrower possess, and will hereafter possess, all permits, memberships,
franchises, contracts and licenses
-34-
required and all trademark rights, trade names, trade name rights, patents,
patent rights and fictitious name rights necessary to enable each of them to
conduct the business in
-35-
which each is now engaged without conflict with the rights of others, except
where the failure so to possess such rights or property would not have a
material adverse effect upon Borrower or any such Subsidiary.
SECTION 3.9. ERISA. Borrower and each Subsidiary of Borrower are in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended from time to time
("ERISA"); Borrower and each such Subsidiary have not violated in any material
-------
respect any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower or any such Subsidiary (each,
a "Plan"); no Reportable Event as defined in ERISA has occurred and is
----
continuing with respect to any Plan initiated by Borrower or any such
Subsidiary; Borrower and each Subsidiary of Borrower have met their minimum
funding requirements under ERISA with respect to each Plan; and each Plan will
be able to fulfill its benefit obligations as they come due in accordance with
the Plan documents and under generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. Borrower and each Subsidiary of Borrower
are not in default on any obligation for borrowed money, any purchase money
obligation, or any other material lease, commitment, contract, instrument, or
obligation.
SECTION 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Agent in writing prior to the date hereof, to the best of Borrower's knowledge,
Borrower and each Subsidiary of Borrower are in compliance in all material
respects with all applicable environmental, hazardous waste, health, and safety
statutes and regulations governing their operations and/or properties, including
without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), the Superfund Amendments and Reauthorization Act
of 1986 (▇▇▇▇), the Federal Resource Conservation and Recovery Act of 1976, the
Federal Toxic Substances Control Act, and the California Health and Safety Code.
To the best of Borrower's knowledge, none of the operations of Borrower or any
Subsidiary of Borrower are the subject of any federal or state investigation
evaluating whether any remedial action involving a material expenditure is
needed to respond to a release of any toxic or hazardous waste or substance into
the environment. To the best of Borrower's knowledge, neither Borrower nor any
such Subsidiary have any material contingent liability in connection with any
release of any toxic or hazardous waste or substance into the environment.
SECTION 3.12. MARGIN REGULATIONS. Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying "margin stock"
(within the meaning of Regulations G or U of the Board of Governors of the
Federal Reserve System of the United States). No part of the proceeds of the
Credits will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock.
SECTION 3.13. SOLVENCY. Each Loan Party is Solvent after giving effect to
the transactions contemplated by the Loan Documents and the Capitalization
Transactions.
SECTION 3.14. EFFECT OF CAPITALIZATION MERGERS. The merger of Leslie's
Poolmart, a California corporation, with and into Borrower pursuant to the
-36-
Reincorporation Merger Agreement was properly consummated in compliance
therewith and under the laws of the States of Delaware and California and any
other applicable jurisdiction, and Borrower is the surviving corporation of such
merger; and upon consummation of the Capitalization Merger pursuant to the
Capitalization Merger Agreement, such merger shall have been properly
consummated in compliance therewith and under the laws of the State of Delaware
and any other applicable jurisdiction, and Borrower shall be the surviving
corporation of such merger.
ARTICLE IV
----------
CONDITIONS
----------
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Lender Parties to grant any initial extension of the Credits is subject to the
fulfillment to Agent's satisfaction of all of the following conditions:
(a) APPROVAL OF AGENT. All legal matters incidental to the granting of
-----------------
each of the Credits shall be reasonably satisfactory to Agent.
(b) FEES AND EXPENSES. Borrower shall have paid (i) all fees then due in
-----------------
accordance with Section 2.1 hereof, (ii) all invoiced costs and expenses then
-----------
due in accordance with Section 9.4 hereof and (iii) all fees, expenses and other
-----------
amounts then payable under the 1997 Credit Agreement (subject, however, to the
last sentence of Section 2.1(a) hereof).
--------------
(c) LOAN DOCUMENTS. Agent shall have received the following Loan Documents
--------------
in each case in form and substance satisfactory to Agent: the Notes, the
Collateral Documents and the Guarantor Documents, duly executed by each of the
respective parties thereto.
(d) DOCUMENTS AND ACTIONS RELATING TO COLLATERAL. Agent shall have
--------------------------------------------
received the following, in form and substance satisfactory to it:
(i) evidence that all filings, registrations and recordings have
been made in the appropriate governmental offices, and all other action has been
taken, which shall be necessary to create, for the benefit of the Lender
Parties, a perfected first priority Lien on the Collateral subject only to
Permitted Liens, and filing of completed UCC-1 financing statements and the
filing of the Security Agreements, in each case in the appropriate governmental
offices;
(ii) evidence that the Liens on the Collateral granted for the
benefit of the Lender Parties, are subject only to Permitted Liens, including
the results of searches conducted in the UCC filing records in each of the
governmental offices in which UCC-1 financing statements shall have been filed;
(iii) the certificates representing the pledged shares referred to in
the Pledge Agreements and undated stock powers for such certificates executed in
blank.
-37-
(e) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS. Agent shall have received
----------------------------------------
the following, in form and substance satisfactory to it:
(i) evidence of completion to the satisfaction of Agent of such
investigations, reviews and audits with respect to Borrower and the Guarantors
and their respective operations as Agent may deem appropriate;
(ii) evidence that all (A) authorizations or approvals of any
Governmental Authority and (B) approvals or consents of any other Person,
required in connection with the Capitalization Transactions or the execution,
delivery and performance of the Capitalization Transactions Documents or the
Loan Documents shall have been obtained;
(iii) the financial statements referred to in Section 3.5 hereof;
-----------
(iv) copies of all shareholders agreements or voting agreements
entered into among the shareholders of Borrower;
(v) a certificate of Borrower, dated the Closing Date, stating that
(1) the representations and warranties of Borrower and the other Loan Parties
contained in Article III hereof and in the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate as
though made on and as of such date, (2) on and as of the Closing Date, no
Default shall have occurred and be continuing or shall result from the initial
borrowing, and (C) each of the conditions precedent to consummation of the
Capitalization Transactions contained in the Capitalization Transactions
Documents have been fulfilled as of the date thereof;
(f) CORPORATE AND ADDITIONAL DOCUMENTATION. Agent shall have received the
--------------------------------------
following, in form and substance satisfactory to it:
(i) certified corporate resolutions of the Borrower and each
Guarantor duly authorizing the Borrower's and such Guarantor's entry into
and performance of the Loan Documents to which it is party;
(ii) certified copies of the certificate of incorporation and bylaws
or partnership agreement, as the case may be, of each of the Borrower and
each Guarantor that is not a natural person;
(iii) an incumbency certificate for Borrower and each Guarantor,
certifying the names and titles of each officer of such Loan Party that is
duly authorized to act on behalf of such Loan Party in entering into and
performing the Loan Documents to which such Loan Party is party;
(iv) a Notice of Authorized Representatives as in effect on the
Closing Date; and
(v) such other documents as Agent and the Lenders may require under
any other section of this Credit Agreement or any other Loan Document.
-38-
(g) INSURANCE. Borrower shall have delivered to Agent evidence
---------
satisfactory to Agent of insurance coverage, together with appropriate
endorsements thereto, on the Collateral and on all of Borrower's and each
Subsidiary's property, covering risks, in amounts, issued by companies and in
form and substance reasonably satisfactory to Agent, and where required by
Agent, with loss payable endorsements in favor of Agent, and which in each case
is otherwise in compliance with the requirements of this Credit Agreement and
the other Loan Documents as of the Closing Date.
(h) LEGAL OPINIONS. The Agent shall have received the opinions of (i)
--------------
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to Borrower and its Subsidiaries and to the
Guarantors and (ii) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, General Counsel of Borrower, in each case
dated the Closing Date, in a form acceptable to Agent and as to such matters as
Agent may reasonably request.
(i) CAPITALIZATION TRANSACTIONS. (A) Agent shall have received true and
---------------------------
complete copies of all Capitalization Transactions Documents, which shall be in
form and substance satisfactory to Agent; (B) all conditions to consummation of
the Capitalization Transactions shall have been fulfilled and not waived by
Borrower without the prior consent of Agent; and (C) each of the Capitalization
Transactions shall have been consummated.
(j) 1997 PREDECESSOR CREDIT AGREEMENT. No letters of credit issued under
---------------------------------
the 1997 Predecessor Credit Agreement shall remain outstanding, and not more
than THIRTY-FIVE MILLION AND NO/100 DOLLARS ($35,000,000) in principal amount of
loans under the 1997 Predecessor Credit Agreement shall remain outstanding.
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
the Lender Parties to extend any of the Credits requested by Borrower hereunder,
including the initial such extension, shall be subject to the fulfillment to
Agent's satisfaction of each of the following conditions:
(a) COMPLIANCE. The representations and warranties contained herein and in
----------
the other Loan Documents shall be true in all material respects (unless
qualified by a materiality standard within any such representation or warranty,
in which case such representation and warranty shall be true in all respects) on
and as of the date of the signing of this Credit Agreement and (other than those
representations and warranties that are, by their terms, made only on and as of
a specific date) on the date of each extension of credit by the Lender Parties
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default, and no condition, event or act which with the giving of notice
or the passage of time or both would constitute such an Event of Default, shall
have occurred and be continuing or shall exist.
(b) FINANCIAL CONDITION. There shall have been no material adverse change,
-------------------
as determined by Agent, in the financial condition or business of Borrower or
the Borrower and
-39-
its Subsidiaries, taken as a whole, nor any material decline, as determined by
Agent, in the market value of the Collateral, taken as a whole.
(c) ADDITIONAL DOCUMENTATION. Agent shall have received all additional
------------------------
documents which may reasonably be required in connection with such extension of
the Credits.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as any of the Credits remain available or
any liabilities of Borrower or any other Loan Party to the Lender Parties under
any of the Loan Documents remain outstanding, and until payment in full of all
obligations of Borrower and other Loan Parties subject hereto and thereto,
Borrower shall:
SECTION 5.1. PUNCTUAL PAYMENTS. Punctually pay or cause to be paid the
interest and principal on each of the Loan Documents requiring any such payments
at the times and place and in the manner specified therein, and any fees or
other liabilities due under any of the Loan Documents at the times and place and
in the manner specified therein, and immediately upon demand by Agent, the
amount by which the outstanding principal balance of any of the Credits is at
any time in excess of any limitation on borrowings hereunder.
SECTION 5.2. ACCOUNTING RECORDS. Maintain, and cause each Subsidiary of
Borrower to maintain, adequate books and records in accordance with generally
accepted accounting principles consistently applied, and permit any
representative of Agent, at any reasonable time, to inspect, audit and examine
such books and records, to make copies of the same, and to inspect the
properties of Borrower and each such Subsidiary.
SECTION 5.3. FINANCIAL STATEMENTS. Provide to Agent all of the following,
in form and detail satisfactory to Agent:
(a) not later than 90 days after and as of the end of each fiscal year of
Borrower, audited consolidated and unaudited consolidating financial statements
of Borrower and each Subsidiary of Borrower, including a Balance Sheet, Income
Statement and Statement of Cash Flow, prepared in accordance with GAAP, and the
report thereon of a Certified Public Accountant acceptable to Agent;
(b) not later than 45 days after and as of the end of each fiscal quarter
of Borrower, unaudited consolidated and consolidating financial statements of
Borrower and each Subsidiary of Borrower, including a Balance Sheet, Income
Statement and Statement of Cash Flow, prepared by Borrower in accordance with
GAAP;
(c) contemporaneously with each annual and quarterly financial statement of
Borrower and each Subsidiary required hereby, a certificate of the president or
chief financial officer of Borrower that to the best of such officer's
knowledge, the financial statements delivered pursuant
-40-
thereto fairly present the financial condition and results of operations of
Borrower and its Subsidiaries and that there exists no Event of Default nor any
condition, act or event which with the giving of notice or the passage of time
or both would constitute an Event of Default;
(d) from time to time such other information as Agent or any other Lender
Party may reasonably request.
SECTION 5.4. COMPLIANCE. Maintain, and cause each Subsidiary of Borrower
to maintain, all licenses, permits, governmental approvals, rights, privileges,
and franchises necessary for the conduct of their business; conduct their
business in an orderly and regular manner; and comply with the provisions of all
documents pursuant to which each of them is organized and/or which govern their
continued existence and with the requirements of all laws, rules, regulations,
and orders of any governmental authority applicable to each of them or their
business.
SECTION 5.5. INSURANCE. Maintain and keep in force, and cause each
Subsidiary of Borrower to maintain and keep in force, insurance of the types and
in amounts customarily carried in similar lines of business, including but not
limited to fire, extended coverage, public liability, property damage, and
workers' compensation, carried with companies and in amounts reasonably
satisfactory to Agent, and deliver to Agent from time to time at Agent's request
schedules setting forth all insurance then in effect; provided, however, that
-------- -------
(a) with respect to Borrower's and each such Subsidiary's commercial liability
insurance, Borrower and each such Subsidiary may maintain deductibles which do
not exceed, in the aggregate, FIVE HUNDRED THOUSAND AND NO/100 ($500,000) per
occurrence, (b) Borrower and each such Subsidiary may self-insure for workers'
compensation upon disclosure by Borrower to Agent in writing, so long as such
self-insurance program is instituted and maintained in compliance with all
applicable laws, rules, and regulations, and (c) with respect to Borrower's and
each such Subsidiary's fire and property damage insurance, Borrower and each
Subsidiary may maintain deductibles which do not exceed, in the aggregate, five
percent (5%) of their combined net current assets per occurrence.
SECTION 5.6. FACILITIES. Keep, and cause each Subsidiary of Borrower to
keep, all properties useful or necessary to their business in good repair and
condition, subject to ordinary wear and tear.
SECTION 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due, and
cause each Subsidiary of Borrower to pay and discharge when due (in each case
except to the extent otherwise permitted under the Loan Documents), any and all
indebtedness, obligations, assessments, and taxes, both real or personal and
including federal and state income taxes, except such as Borrower or any such
Subsidiary may in good faith contest or as to which a bona fide dispute may
arise, provided provision is made to the reasonable satisfaction of Agent for
eventual payment thereof in the event that it is found that the same is an
obligation of Borrower or any such Subsidiary.
-41-
SECTION 5.8. LITIGATION. Promptly give notice in writing to Agent of any
litigation pending or threatened against Borrower or any Subsidiary of Borrower
in respect of
-42-
any claim or alleged claim seeking damages in excess of ONE MILLION AND NO/100
DOLLARS ($1,000,000).
SECTION 5.9. FINANCIAL CONDITION. Maintain the financial condition of
Borrower and its Subsidiaries on a consolidated basis, as follows (in accordance
with GAAP, except to the extent modified by the following defined terms):
(a) Tangible Net Worth not less than the amounts shown below, determined as
of the end of each corresponding fiscal quarter:
Month of Fiscal Quarter End Amount
--------------------------- ------
June, 1997 $62,600,000
September, 1997 $68,100,000
December, 1997 $62,100,000
March, 1998 $54,100,000
June, 1998 $63,100,000
September, 1998 $70,100,000
December, 1998 $63,600,000
March, 1999 $54,600,000
June, 1999 $67,100,000
September, 1999 $75,100,000
December, 1999 $68,600,000
March, 2000 $58,100,000
June, 2000 $72,100,000
September, 2000 $81,600,000
December, 2000 $74,100,000
March, 2001 $62,600,000
June, 2001 $78,100,000
September, 2001 $89,100,000
December, 2001 or any month thereafter $81,100,000
(b) Funded Debt Ratio not greater than the ratio set forth below,
determined as of the end of the corresponding fiscal quarter:
Month of Fiscal Quarter End Ratio
--------------------------- -----
June, 1997 8.55:1.00
September, 1997 5.90:1.00
December, 1997 7.30:1.00
March, 1998 8.90:1.00
June, 1998 6.15:1.00
September, 1998 4.95:1.00
December, 1998 6.00:1.00
March, 1999 7.30:1.00
-43-
June, 1999 5.05:1.00
September, 1999 4.15:1.00
December, 1999 5.10:1.00
March, 2000 6.25:1.00
June, 2000 4.35:1.00
September, 2000 4.05:1.00
December, 2000 4.90:1.00
March, 2001 5.60:1.00
June, 2001 4.25:1.00
September, 2001 3.85:1.00
December, 2001 or any month thereafter 4.80:1.00
(c) EBITDA Coverage Ratio not less than the ratio set forth below,
determined as of the end of the corresponding fiscal quarter:
Month of Fiscal Quarter End Ratio
--------------------------- -----
June, 1997 2.75:1.00
September, 1997 2.45:1.00
December, 1997 1.70:1.00
March, 1998 1.20:1.00
June, 1998 1.30:1.00
September, 1998 1.50:1.00
December, 1998 1.45:1.00
March, 1999 1.30:1.00
June, 1999 1.55:1.00
September, 1999 1.75:1.00
December, 1999 1.70:1.00
March, 2000 1.55:1.00
June, 2000 or any month thereafter 1.75:1.00
SECTION 5.10. NOTICE TO AGENT.
(a) NOTICE TO AGENT. Promptly (but in no event more than five (5) Business
---------------
Days after Borrower learns of the occurrence of each such event or matter) give
written notice to Agent in reasonable detail of: (a) the occurrence of any
Event of Default, or any condition, event, or act which with the giving of
notice or the passage of time or both would constitute such an Event of Default;
(b) any change in the name or the legal structure of Borrower or any Subsidiary
of Borrower; (c) the occurrence and nature of any Reportable Event or Prohibited
Transaction, each as defined in ERISA, or any material funding deficiency with
respect to any Plan; (d) any termination or cancellation of any material
insurance policy which Borrower or any Subsidiary of Borrower is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting Borrower's
or any such Subsidiary's property in excess of an aggregate of ONE MILLION AND
NO/100 DOLLARS ($1,000,000); (e) any assessment or adjustment of Borrower's or
any of its Subsidiaries' income
-44-
tax payable with respect to any year; or (f) the incurrence by Borrower and its
Subsidiaries of self-insured workers' compensation claims in an aggregate amount
in excess
-45-
of ONE MILLION AND NO/100 DOLLARS ($1,000,000.00) in any period of twelve (12)
consecutive calendar months.
(b) NOTICES UNDER PREFERRED STOCK, SUBORDINATED EXCHANGE INDEBTEDNESS AND
---------------------------------------------------------------------
BOND INDENTURE. Promptly (upon delivery by Borrower of any such notice or
--------------
certificate and in no event more than seven (7) Business Days after receipt by
Borrower of any such notice or certificate) provide a copy of any material
notice or certificate delivered to or by Borrower under the Bond Indenture or
under the Preferred Stock Purchase Agreement or otherwise in respect of the
Preferred Stock, including, without limitation, (i) any notice or certificate
delivered under Section 3.01, 3.02, 3.03, 4.03, 4.08(c), 4.16, 4.17, 6.01, 6.02,
6.04, 7.08, 8.01, 8.02, 8.04, 10.04 or 10.05 of the Bond Indenture or in respect
of any amendment, supplement or other modification of the Bond Indenture or the
terms of the Bonds; (ii) any notice or certificate in respect of any redemption
of any Preferred Stock; (iii) any notice or certificate in respect of any
default or event of default under any Subordinated Exchange Indebtedness; or
(iv) any conversion notice by Borrower pursuant to Section (g)(i)(A) of the
Preferred Stock Designation Certificate in respect of a contemplated exercise of
Borrower's right to convert Preferred Stock into subordinated Indebtedness,
provided that notice of proposed delivery of such a conversion notice shall be
--------
provided to Agent at least sixty (60) days prior to the contemplated conversion.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as any of the Credits remain
available or any liabilities of Borrower or any other Loan Party to the Lender
Parties under any of the Loan Documents remain outstanding, and until payment in
full of all obligations of Borrower and the other Loan Parties subject hereto
and thereto, Borrower will not:
SECTION 6.1. USE OF FUNDS. Use any of the proceeds of any of the Credits
except for the purposes stated in Article II hereof.
----------
SECTION 6.2. CAPITAL EXPENDITURES. Make, nor permit any Subsidiary of
Borrower to make, any additional investment in fixed assets except to the extent
not in excess of an aggregate of (a) NINE MILLION FIVE HUNDRED AND NO/100
DOLLARS ($9,500,000) during each of Borrower's fiscal year 1997 and 1998, (b)
TEN MILLION AND NO/100 DOLLARS ($10,000,000) during Borrower's fiscal year 1999
and (c) TEN MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($10,500,000)
during Borrower's fiscal year 2000 or any fiscal year thereafter. For the
purposes of calculating compliance with this Section 6.2, the investments in
-----------
fixed assets by Borrower and each of its Subsidiaries will be combined.
SECTION 6.3. OTHER INDEBTEDNESS. Create, incur, assume, or permit to
exist, nor permit any Subsidiary to create, incur, assume, or permit to exist,
any Indebtedness, in each case whether secured or unsecured, matured or
unmatured, liquidated or unliquidated, joint or several, except for (a)
Indebtedness of Borrower or any Subsidiary of Borrower to the Lender Parties
under the Loan Documents and any Permitted Hedge Agreement, (b) Indebtedness
incurred
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by Borrower hereafter to finance the acquisition by Borrower of real estate or
other fixed assets for use in the on-going operations of Borrower, provided (i)
--------
that such Indebtedness is secured only by the real estate or other assets
financed thereby, and that such investments in real estate or other assets are
permitted under Section 6.2 hereof and (ii) that the aggregate amount of such
-----------
Indebtedness outstanding at any time shall not exceed FIVE MILLION AND NO/100
DOLLARS ($5,000,000); (c) Indebtedness incurred by Borrower under the Bonds,
provided that the principal amount of the Bonds shall not exceed in the
--------
aggregate the initial amount of NINETY MILLION AND NO/100 DOLLARS ($90,000,000)
and shall not be increased above such amount or any lesser outstanding principal
amount thereof following any repayment of principal in respect of the Bonds; (d)
Subordinated Exchange Indebtedness, if any; and (e) Indebtedness arising under
Capital Leases entered into by Borrower or any of its Subsidiaries in the
ordinary course of business, provided that the aggregate amount of such
--------
Indebtedness outstanding at any time shall not exceed FIVE MILLION AND NO/100
DOLLARS ($5,000,000); and (f) Indebtedness incurred by Borrower (exclusive of
Subordinated Exchange Indebtedness) in an aggregate amount not to exceed FIVE
MILLION AND NO/100 DOLLARS ($5,000,000), which Indebtedness is subordinated to
the obligations of Borrower owing to the Lender Parties hereunder on terms and
conditions, including repayment terms and subordination provisions, acceptable
to Agent; and (g) Indebtedness of any Subsidiary of Borrower to Borrower
incurred in the ordinary course of business.
SECTION 6.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate, nor permit any Subsidiary of Borrower to merge into or consolidate,
with any corporation or other entity; provided that Borrower may merge with
--------
Poolmart USA Inc., with Borrower being the surviving corporation, in connection
with the Capitalization Transactions as provided in the Capitalization Merger
Agreement; make any substantial change in the nature of Borrower's or any it its
Subsidiaries' business; acquire, nor permit any such Subsidiary to acquire, all
or substantially all of the assets of any corporation or other entity, except
for acquisitions which do not exceed TWO MILLION FIVE HUNDRED THOUSAND AND
NO/100 DOLLARS ($2,500,000) in the aggregate during any fiscal year for Borrower
and each such Subsidiary combined; nor sell, lease, transfer or otherwise
dispose of, nor permit any Subsidiary of Borrower to sell, lease, transfer or
otherwise dispose of, all or a substantial part of Borrower's assets on a
consolidated basis, except for (y) sales of inventory and equipment in the
ordinary course of business, and (z) the merger of any Subsidiary of Borrower
into Borrower.
SECTION 6.5. GUARANTIES. Guaranty or become liable, nor permit any such
Subsidiary of Borrower to guaranty or become liable, in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate, nor permit any such Subsidiary to
pledge or hypothecate, any assets as security for, any liabilities or
obligations of any other person or entity, except for (a) any of the foregoing
in favor of the Lender Parties in respect of obligations under the Loan
Documents and Permitted Hedge Agreements, and (b) unsecured guaranties by
Borrower of Indebtedness of any such Subsidiary incurred in the ordinary course
of business and (c) unsecured guaranties by Borrower of any such Subsidiary's
obligations under any lease entered into in the ordinary course of business.
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SECTION 6.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity (other than loans or advances to, or
investments in a Subsidiary of Borrower on the date of this Credit Agreement),
nor permit Subsidiary of Borrower to make any loans or advances to or
investments in any person or entity, except for (i) loans by Borrower to
employees which do not exceed TWO HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($250,000) in the aggregate at any time and (ii) trade credit extended to
customers of Borrower and its Subsidiaries in the ordinary course of business.
SECTION 6.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock, or any other property on Borrower's Capital
Stock now or hereafter outstanding; nor redeem, retire, repurchase, or otherwise
acquire any shares of any class of Borrower's Capital Stock now or hereafter
outstanding; provided, however, that (a) each Subsidiary of Borrower may pay
-------- -------
cash dividends or distributions to Borrower and (b) Borrower (i) may pay
dividends payable on the Preferred Stock in the form of additional shares of
Preferred Stock, (ii) may, so long as no Default or Event of Default shall have
occurred or be continuing or would result therefrom, pay dividends payable on
the shares of Preferred Stock with (x) the net proceeds of a sale for cash
(other than to a Subsidiary of Borrower) of shares of Capital Stock of Borrower
or (y) the net proceeds of any capital contribution to Borrower, (iii) may, so
long as no Default or Event of Default shall have occurred or be continuing or
would result therefrom, repurchase Capital Stock of Borrower or options,
warrants or other securities exercisable or convertible into Capital Stock of
Borrower from employees and directors of Borrower or any of its Subsidiaries or
their authorized representatives upon the death, disability or termination of
employment or directorship of such employees or directors, in an aggregate
amount not to exceed FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) in any
calendar year and TWO MILLION AND NO/100 DOLLARS ($2,000,000) in the aggregate
plus, in the case of any such repurchase of Capital Stock, the amount of net
cash proceeds received by Borrower from the resale of repurchased Capital Stock
to officers or directors or Borrower and its Subsidiaries; and (v) may declare
and pay dividends on its Capital Stock other than the Preferred Stock in the
form of additional shares of such Capital Stock.
SECTION 6.8. PLEDGE OF ASSETS. Mortgage, pledge, grant, or permit to
exist, nor permit any Subsidiary of Borrower to mortgage, pledge, grant, or
permit to exist, any Lien upon any assets of any kind, now owned or hereafter
acquired, except for the following:
(a) Liens for the benefit of the Lender Parties securing the
obligations under the Loan Documents or any Permitted Hedge Agreement;
(b) Liens against Borrower's real property existing as of, and
disclosed to Agent in writing prior to the date hereof;
(c) Liens granted lenders providing acquisition financing for real
property and other fixed assets acquired by Borrower hereafter to secure debt to
such lenders permitted under Section 6.3(b) hereof, provided that such
-------------- --------
investments are also permitted under Section 6.2 hereof and that such debt is
-----------
secured only by the real estate financed thereby;
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(d) Liens for taxes, assessments or governmental charges or claims (i)
not delinquent or (ii) contested in good faith by appropriate proceedings and as
to which Borrower or its Subsidiaries shall have set aside on their books such
reserves as may be required pursuant to GAAP;
(e) statutory and contractual Liens of landlords and Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other
Liens imposed by law incurred in the ordinary course of business for sums not
yet delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP, shall have been
made in respect thereof;
(f) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security or to secure the performance of tenders, statutory
obligations, surety and appeal bonds and other similar obligations;
(g) Liens securing judgments not giving rise to an Event of Default so
long as such Lien is adequately bonded and any appropriate legal proceedings
which may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceedings may be
initiated shall not have expired;
(h) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of Borrower or any of
its Subsidiaries;
(i) any interest or title of a lessor under any Capital Lease;
provided that such Liens do not extend to any property or assets which are not
--------
leased property subject to such Capital Lease; and
(j) Liens securing Indebtedness of a Person or any of its Subsidiaries
existing at the time that, to the extent otherwise permitted under this Credit
Agreement, such Person becomes a Subsidiary of Borrower or merges or
consolidates with Borrower or any of its Subsidiaries or is assumed in
connection with the acquisition of assets from such Person and in each case not
incurred in connection with, or in anticipation or contemplation of, such
acquisition, merger or consolidation ("Acquired Indebtedness"); provided that
--------
(i) such Liens secured such Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of
Borrower and were not granted in connection with, or in anticipation of, the
incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of Borrower
and (ii) such Liens do not extend to or cover any property or assets of Borrower
or any of its Subsidiaries other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of Borrower or a Subsidiary of Borrower and are no more favorable
to the lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by Borrower or a Subsidiary of
Borrower.
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SECTION 6.9. INTEREST IN SUBSIDIARIES. Sell, transfer, encumber, or
otherwise dispose of any interest in any Subsidiary, except for the merger of
any Subsidiary into Borrower as permitted under Section 6.4 hereof.
-----------
SECTION 6.10. FISCAL YEAR; ACCOUNTING CHANGES. Change, nor permit any
Subsidiary of Borrower to change, its fiscal year; nor make any material change
in accounting treatment or reporting practices except as permitted by GAAP.
SECTION 6.11. BOND PAYMENTS. Make any payment in respect of principal of,
or premium on, the Bonds (including, without limitation, any purchase or
redemption of or sinking fund or other payment in respect of principal on any
portion of the Bonds) except for redemption payments to the extent that both (i)
any such payment is made solely (x) with the net proceeds of issuance of common
stock of Borrower or (y) with the net proceeds of the sale of any assets of
Borrower to the extent that such sale is made with the consent of the Majority
Lenders or all the Lenders, as the case may be as required by Section 9.2
-----------
hereof, without such proceeds being applied toward payment of the Credits and
permanent reduction of the Commitments and (ii) at the time of any such payment
no Event of Default exists, no Event of Default would result after giving effect
to such payment and no condition or event exists which with the giving of notice
or the passage of time or both would constitute such an Event of Default.
SECTION 6.12. CONVERSION OF PREFERRED STOCK; SUBORDINATED EXCHANGE
INDEBTEDNESS PAYMENTS. (a) Convert any Preferred Stock into Indebtedness as
contemplated by Section (g) of the Preferred Stock Designation Certificate
unless (i) such Indebtedness is subordinated to Indebtedness under the Loan
Documents on terms and pursuant to documentation in each case satisfactory to
the Majority Lenders in their sole and absolute discretion (any such
subordinated Indebtedness being the "Subordinated Exchange Indebtedness") and
----------------------------------
(ii) at the time of any such conversion no Event of Default exists, no Event of
Default would result after giving effect to such conversion and no condition or
event exists which with the giving of notice or the passage of time or both
would constitute such an Event of Default; or (b) without limiting the
subordination provisions applicable under the terms of the Subordinated Exchange
Indebtedness, make any payment in respect of principal of, or premium on, any
Subordinated Exchange Indebtedness (including, without limitation, any purchase
or redemption of or sinking fund or other payment in respect of principal on any
portion of the Subordinated Exchange Indebtedness).
SECTION 6.13. MODIFICATION OF CAPITALIZATION TRANSACTIONS DOCUMENTS. Enter
into or agree or consent to any material amendment or other modification of, or
material waiver under or departure from the terms of, any Capitalization
Transactions Document unless Agent shall have approved such amendment,
modification, waiver or departure in writing with the consent of the Majority
Lenders.
SECTION 6.14. BORROWING BASE EXCESS. On the date on which financial
statements in respect of any fiscal quarter of Borrower are delivered pursuant
to Section 5.3(b) hereof, permit the total of (i) the aggregate principal amount
--------------
of outstanding advances under the Line of Credit (including any such advances
arising pursuant to Section 2.1 (d) hereof as a result
---------------
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of payment of a draft by the Agent under the Letter of Credit) plus (ii) the
aggregate amount of the undrawn face amount of all outstanding Letters of Credit
and all unpaid reimbursement and other obligations in respect of Letters of
Credit (other than any such obligation that has been converted into an advance
under the Line of Credit pursuant to Section 2.1(d) hereof) to exceed the amount
--------------
of the Borrowing Base as in effect on such date.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
SECTION 7.1. EVENTS OF DEFAULT DEFINED. The occurrence of any of the
following shall constitute an "Event of Default" under this Credit Agreement:
(a) Borrower shall fail to pay within five (5) days of the date when due
any principal, interest, fees, or other amounts payable under any of the Loan
Documents.
(b) Any financial statement or certificate furnished to Agent in connection
with this Credit Agreement or any representation or warranty made by Borrower or
any other Loan Party hereunder or under the other Loan Documents shall prove to
be false, incorrect or incomplete in any material respect when furnished or
made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained in Section 6.3, 6.4, 6.7, 6.8, 6.9, 6.11,
----------- --- --- --- --- ----
6.12, 6.13 or 6.14 hereof.
---- ---- ----
(d) Any default in the performance of or compliance with any obligation,
agreement, or other provision contained herein (other than those referred to in
subsections (a), (b) and (c) above), and with respect to any such default which
by its nature can be cured, such default shall continue for a period of twenty
(20) days from the date of its occurrence; provided, however, that in the case
-------- -------
of a default which by its nature can be cured under any of the following
sections of this Credit Agreement, such default shall continue for a period of
twenty (20) days from the date Borrower receives written notice from Agent of
the existence of such default: Section 5.2 with respect to the maintenance of
-----------
adequate books and records; Section 5.3 with respect to Agent's satisfaction
-----------
with financial statements furnished to Agent; Section 5.5 with respect to the
-----------
maintenance of insurance satisfactory to Agent; Section 5.6; and Section 5.7
----------- -----------
with respect to the failure to make provision to the satisfaction of Agent for
payment of the obligations described therein.
(e) Any default in the payment or performance of any Indebtedness, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower or any Subsidiary of
Borrower has incurred any Indebtedness to any person or entity, including any
Lender Party; provided, however, that such Indebtedness is in excess of FIVE
-------- -------
HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) in the aggregate for all such
defaults by Borrower and each such Subsidiary combined, and any cure period
applicable to such Indebtedness has expired and such default has not been cured
or waived; provided further, however, that an Event of Default shall not be
---------------- -------
deemed to exist
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under this Paragraph (c) in the case of a default under the terms of such
Indebtedness if Borrower or any such Subsidiary, as the case may be, is in good
faith contesting the existence of such default and provision is made to the
reasonable satisfaction of Agent for eventual payment thereof in the event that
it is found that the same is an obligation of Borrower or any such Subsidiary.
(f) Any default by any Loan Party in the performance of any obligation, or
any defined event of default, under any of the Loan Documents other than this
Credit Agreement (other than those covered by subsections (a), (b), and (c)
above), and with respect to any such default which by its nature can be cured,
such default shall have continued for a period of twenty (20) days from the date
of its occurrence.
(g) The filing of a notice of judgment lien against Borrower or any
Subsidiary of Borrower or the recording of any abstract of judgment against
Borrower or any such Subsidiary in any county in which Borrower or any such
Subsidiary has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower or any such Subsidiary or the entry of a judgment against
Borrower or any such Subsidiary; provided, however, that such judgments,
-------- -------
judgment liens, levies, writs, executions, and other process involve debts of or
claims against Borrower or any such Subsidiary in excess of ONE MILLION AND
NO/100 DOLLARS ($1,000,000) in the aggregate, and within forty-five (45) days
after an officer of Borrower or of any such Subsidiary learns of the creation
thereof, or at least five (5) days prior to the date on which any assets could
be lawfully sold in satisfaction thereof, such debts and claims are not
satisfied or stayed pending appeal and insured against in a manner reasonably
satisfactory to Agent.
(h) Any Loan Party shall not be Solvent, or shall suffer or consent to or
apply for the appointment of a receiver, trustee, custodian, or liquidator of
itself or any of its property, or shall generally fail to pay its debts as they
become due, or shall make a general assignment for the benefit of creditors; any
Loan Party shall file a voluntary petition in bankruptcy, or seeking
reorganization, in order to effect a plan or other arrangement with creditors or
any other relief under the Bankruptcy Code, or under any state or federal law
granting relief to debtors, whether now or hereafter in effect; or any
involuntary petition or proceeding pursuant to the Bankruptcy Code or any other
applicable state or federal law relating to bankruptcy, reorganization or other
relief for debtors is filed or commenced against any Loan Party, or any Loan
Party shall file an answer admitting the jurisdiction of the court and the
material allegations of any involuntary petition; or any Loan Party shall be
adjudicated a bankrupt, or an order for relief shall be entered by any court of
competent jurisdiction under the Bankruptcy Code or any other applicable state
or federal law relating to bankruptcy, reorganization or other relief for
debtors; provided, however, that in the case of any involuntary petition or
-------- -------
involuntary proceeding pursuant to the Bankruptcy Code or pursuant to any other
applicable state or federal law relating to bankruptcy, reorganization, or other
relief for debtors, any Loan Party as the case may be, fail to oppose such
proceeding or such proceeding is not dismissed within sixty (60) days of its
commencement.
(i) The dissolution or liquidation of any Loan Party (except for the merger
of any Subsidiary into Borrower in accordance with this Credit Agreement); or
any Loan Party, or any
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of their directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of any Loan Party.
(j) Any Change in Control.
(k) Any of the Collateral Documents or Guaranties after delivery thereof
shall for any reason be revoked or invalidated, or otherwise not be in full
force and effect, or any Loan Party shall contest in any manner the validity or
enforceability thereof, or any Loan Party thereto shall deny that it has any
further liability or obligation thereunder; or any of the Collateral Documents
for any reason, except to the extent permitted by the terms thereof, shall not
create a valid and perfected first priority Lien, subject only to Permitted
Liens, in any of the Collateral purported to be covered thereby for the benefit
of the Lender Parties.
SECTION 7.2. REMEDIES. If an Event of Default shall occur and shall not
have been cured in accordance with this Credit Agreement, (a) any indebtedness
of Borrower under any of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Agent's option, with the consent of Majority Lenders
or upon instructions from the Majority Lenders, upon notice by Agent to Borrower
become immediately due and payable without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by
Borrower, provided, however, that in the event of an actual or deemed entry of
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an order for relief in respect of Borrower in any proceeding by or against
Borrower referred to in Section 7.1(h) hereof, all indebtedness of Borrower
--------------
under any of the Loan Documents, any term thereof to the contrary
notwithstanding, shall automatically become immediately due and payable without
presentment, demand, protest or notice of any kind, all of which are hereby
expressly waived by Borrower; (b) the obligation, if any, of the Lender Parties
to permit further borrowing hereunder, any term hereunder to the contrary
notwithstanding, shall at Agent's option, with the consent of the Majority
Lenders or upon instructions from the Majority Lenders, upon notice by Agent to
Borrower immediately cease and terminate; provided, however, that in the event
-------- -------
of an actual or deemed entry of an order for relief in respect of Borrower in
any proceeding by or against Borrower referred to in Section 7.1(h) hereof, any
--------------
such obligation of the Lender Parties, any term hereof to the contrary
notwithstanding, shall automatically cease and terminate without notice of any
kind, which is hereby expressly waived by Borrower; and (c) Agent shall have all
rights, powers, and remedies available to it or the Lender Parties under each of
the Loan Documents, or accorded by law, including without limitation, the right
to resort to any or all security for any of the Credits and to exercise any or
all of the rights of a beneficiary or secured party pursuant to applicable law.
All rights, powers, and remedies of Agent in connection with each of the Loan
Documents may be exercised at any time by Agent and from time to time after the
occurrence of an Event of Default, are cumulative and not exclusive, and shall
be in addition to any other rights, powers or remedies provided to it or the
Lender Parties by law or equity. Immediately after taking any action under this
Section 7.2, Agent shall notify each Lender of such action.
-----------
Borrower acknowledges that even though an Event of Default as defined above
may not exist hereunder or under any of the other Loan Documents as a result of
the fact that a cure period may not have expired, the Lenders nevertheless shall
remain entitled under Section 4.2(a) of this Credit Agreement to decline to make
--------------
any extension of credit during such cure period.
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ARTICLE VIII
------------
THE AGENT
---------
SECTION 8.1. AUTHORIZATION AND ACTION. Each Lender and the Swingline
Lender hereby irrevocably appoints ▇▇▇▇▇ Fargo as Agent and authorizes Agent to
act as its agent under the Loan Documents, and to take such actions on such
Lender Party's behalf and to exercise such powers and perform such duties under
the Loan Documents as are expressly delegated to Agent by the terms thereof,
together with such other powers as are reasonably incidental thereto. Agent
shall have no duties or responsibilities except those expressly set forth in the
Loan Documents, and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into any Loan Document or otherwise
exist against Agent. Anything to the contrary contained herein notwithstanding,
Agent shall not be required to take any action which is contrary to any Loan
Document or applicable law. Neither Agent nor any other Lender Party shall be
responsible to any other Lender Party for any recitals, statements,
representations, or warranties made by Borrower contained in any Loan Document,
for the value, validity, effectiveness, genuineness, enforceability, or
sufficiency of any Loan Document or the Collateral or for any failure by
Borrower to perform its respective obligations hereunder or thereunder. Agent
may employ agents and attorneys-in-fact and shall not be responsible to any
Lender Party for the negligence or misconduct of any such agents or attorneys-
in-fact selected by it with reasonable care. Neither Agent nor any of its
directors, officers, employees, or agents shall be responsible to any Lender
Party for any action taken or omitted to be taken by it or them under any Loan
Document or in connection therewith, except for its or their own gross
negligence or wilful misconduct. Except as otherwise provided under this Credit
Agreement, Agent shall take such action with respect to the Loan Documents as
shall be directed by the Majority Lenders.
SECTION 8.2. RELIANCE BY AGENT. Agent shall be entitled to rely upon any
certificate, notice, or other document (including any cable, telegram, telecopy,
or telex) or conversation believed by it in good faith to be genuine and correct
and to have been signed, sent, or made by or on behalf of the proper person or
persons, and upon advice and statements of legal counsel (including counsel to
any Loan Party), independent accountants, and other experts selected by Agent
with reasonable care. As to any matters not expressly provided for by this
Credit Agreement, Agent shall not be required to take any action or exercise any
discretion, but shall be required to act or to refrain from acting upon
instructions of the Majority Lenders and shall in all cases be fully protected
by the Lenders and the Swingline Lender in acting, or in refraining from acting,
hereunder or under any other Loan Document in accordance with the instructions
of the Majority Lenders, and such instructions of the Majority Lenders and any
action taken or failure to act pursuant thereto shall be binding on all of the
Lenders and the Swingline Lender.
SECTION 8.3. DEFAULTS. Agent shall not be deemed to have knowledge or
notice of the occurrence of a Default unless Agent has received a notice from a
Lender, the Swingline Lender or Borrower referring to this Credit Agreement,
describing such Default and expressly stating that such notice is a "notice of
default". If Agent receives such notice of the occurrence of a Default, Agent
shall promptly give notice thereof to the Lenders and the Swingline Lender.
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Agent thereupon shall take such action with respect to such Default as shall be
reasonably directed by the Majority Lenders; provided, however, that unless and
-------- -------
until Agent shall have received such directions, Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall deem advisable in the best interests of the Lender
Parties.
SECTION 8.4. INDEMNIFICATION. Without limiting the obligations of
Borrower hereunder, each Lender agrees to indemnify Agent, ratably in accordance
with its Proportionate Shares, for any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses, or disbursements
of any kind or nature whatsoever which may at any time (including at any time
following payment of such obligations) be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Credit Agreement or
any documents contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or thereof or of any such other documents or any action taken or
omitted by Agent under or in connection herewith or therewith; provided,
--------
however, that no Lender shall be liable for any of the foregoing to the extent
-------
they arise from Agent's gross negligence or willful misconduct. Without
limiting the foregoing, each Lender agrees to reimburse Agent promptly on demand
for its ratable share of any amounts payable but not paid by Borrower under
Section 9.4 hereof. Agent shall be fully justified in refusing to take or to
-----------
continue to take any action hereunder unless it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by Agent by reason of taking or continuing to take any such
action. The agreements in this Section 8.4 shall survive the payment of
-----------
Borrower's obligations hereunder.
SECTION 8.5. NON-RELIANCE ON AGENT. Each Lender and the Swingline Lender
represents that it has, independently and without reliance on Agent or any other
Lender Party, and based on such documents and information as such Lender Party
has deemed appropriate, made its own appraisal of and investigation into the
financial condition and affairs of Borrower and decision to enter into this
Credit Agreement. Each Lender and the Swingline Lender agrees that such Lender
Party will, independently and without reliance upon Agent or any other Lender
Party, and based on such documents and information as it shall deem appropriate
at the time, continue to make its own appraisals and decisions in taking or not
taking action under this Credit Agreement. Each Lender and the Swingline Lender
acknowledges that Agent has not made any representation or warranty to it with
respect to the financial condition or affairs of Borrower, any Loan Document, or
any Collateral, and that no act by Agent hereafter, including any review of any
of such matters, shall be deemed to constitute any such representation or
warranty by Agent to any Lender Party. Neither Agent nor any other Lender Party
shall be required to keep informed as to the performance or observance by
Borrower of the obligations under this Credit Agreement or any other document
referred to or provided for herein or to make inquiry of, or to inspect the
properties or books of Borrower. Except for notices, reports, and other
documents and information expressly required to be furnished to the Lender
Parties by Agent hereunder, neither Agent nor any other Lender Party shall have
any duty or responsibility to provide any Lender Party with any credit or other
information concerning Borrower, which may come into the possession of Agent or
such other Lender Party, or any of its or their affiliates.
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SECTION 8.6. SUCCESSOR AGENT. Subject to the appointment and acceptance
of a successor Agent as provided below, Agent may resign at any time by giving
thirty (30) days' written notice thereof to the Lenders and Swingline Lender,
and Agent may be removed at any time with or without cause by the Majority
Lenders. Upon any such resignation or removal, the Majority Lenders shall have
the right to appoint a successor Agent. If no successor Agent shall have been
appointed by the Majority Lenders and shall have accepted such appointment
within thirty (30) days after the retiring Agent's giving of notice of
resignation or the Majority Lenders' removal of the retiring Agent, then the
retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which
shall be a bank having a combined capital, surplus and retained earnings of not
less than FIVE HUNDRED MILLION AND NO/100 U.S. DOLLARS ($500,000,000). Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation or removal hereunder as Agent, the provisions of
this Article VIII shall continue in effect for its benefit in respect of any
------------
actions taken or omitted to be taken by it while it was acting as Agent.
SECTION 8.7. EXECUTION OF LOAN DOCUMENTS. Agent hereby is authorized by
the Swingline Lender and the Lenders to execute, deliver, and perform each of
the Loan Documents to which Agent is or is intended to be a party and each such
Lender Party agrees to be bound by all of the agreements of Agent contained in
the Loan Documents.
SECTION 8.8. AGENT IN ITS INDIVIDUAL CAPACITY. Agent and its affiliates
may make loans to, accept deposits from, own securities of, and generally engage
in any kind of business with Borrower, as though Agent were not Agent hereunder,
without any duty to give notice thereof or account therefor to any Lender Party.
▇▇▇▇▇ Fargo as a Lender shall have the same rights and powers under this Credit
Agreement and the other Loan Documents as any other Lender and may exercise the
same as though it were not Agent, and the terms "Lender" or "Lenders" shall
include ▇▇▇▇▇ Fargo in each such capacity.
ARTICLE IX
----------
MISCELLANEOUS
-------------
SECTION 9.1. NO WAIVER. No delay, failure, or discontinuance of any
Lender Party in exercising any right, power, or remedy under any of the Loan
Documents shall affect or operate as a waiver of such right, power, or remedy;
nor shall any single or partial exercise of any such right, power, or remedy
preclude, waive, or otherwise affect any other or further exercise thereof or
the exercise of any other right, power, or remedy.
SECTION 9.2. WAIVERS; AMENDMENTS. Any term, covenant, agreement, or
condition of this Credit Agreement or any other Loan Document may be amended or
waived if such amendment or waiver is in writing and is signed by the Majority
Lenders (or by Agent with written consent of the Majority Lenders), Borrower,
and any other party thereto; provided,
--------
-56-
however, that any amendment, waiver, or consent which affects the rights or
-------
duties of Agent must be in writing and be signed also by Agent; and provided
--------
further, however, that any
------- -------
-57-
amendment, waiver, or consent which effects any of the following changes must be
in writing and signed by all Lenders (or by Agent with the written consent of
all Lenders):
(a) increases the maximum principal amount available under the Line of
Credit;
(b) extends the maturity date of any Credit;
(c) reduces the principal of, or interest (including default rate
interest) on, any Credit or any fees or other amounts payable for the
account of the Lenders hereunder;
(d) postpones or conditions any date fixed for any payment of the
principal of, or interest on, any Credit or any fees or other amounts
payable for the account of the Lenders hereunder;
(e) waives or amends this Section 9.2;
-----------
(f) amends the definition of Majority Lenders or any provision of this
Credit Agreement requiring approval of the Majority Lenders or some
other specified amount of Lenders;
(g) results in a release of any material part of the Collateral other than
as permitted in the Loan Documents; or
(h) increases or decreases the Proportionate Share of any Lender in the
Total Commitments (other than through an assignment under Section 9.5
-----------
hereof).
Unless otherwise specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 9.3. NOTICES. All notices, requests, and demands which any party
is required or may desire to give to any other party under any provision of this
Credit Agreement must be in writing, addressed to Agent, the Swingline Lender
and each Lender at its address or telecopy number set forth as the "Address for
Notices" for Agent, the Swingline Lender or such Lender in Schedule I attached
----------
hereto, and addressed to Borrower at the following address or telecopy number:
LESLIE'S POOLMART, INC.
Corporate Headquarters
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Chief Financial Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
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or to such other address or telecopy number as any party may designate by
written notice to all other parties. Each such notice, request, and demand
shall be deemed given or made as follows: (a) if sent by hand delivery or
courier service, upon delivery; (b) if sent by mail, upon the
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earlier of the date of receipt or three (3) days after deposit in the U.S. mail,
first class and postage prepaid; and (c) if sent by telecopy, upon receipt.
SECTION 9.4. COSTS, EXPENSES, AND ATTORNEYS' FEES. Borrower shall pay
immediately upon demand the full amount of all out-of-pocket costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Agent's in-house counsel), incurred by Agent and/or the other
Lender Parties in connection with (a) the negotiation and preparation of this
Credit Agreement and each other of the Loan Documents, and the preparation of
amendments and waivers hereto and thereto, (b) the enforcement of the Lender
Parties' rights and/or the collection of any amounts which become due to Agent
and/or the Lender Parties under any of the Loan Documents, and (c) the
prosecution or defense of any action in any way related to any of the Loan
Documents, including without limitation any action for declaratory relief.
SECTION 9.5. SUCCESSORS AND ASSIGNS.
(a) BINDING EFFECT. The Loan Documents shall be binding upon and inure to
--------------
the benefit of Borrower, the Lender Parties, all future holders of the Notes and
their respective successors and permitted assigns, except that Borrower may not
assign or transfer any of its rights or obligations under any Loan Document
without the prior written consent of Agent and each Lender. All references in
this Credit Agreement to any person or entity shall be deemed to include all
successors and assigns of such person or entity.
(b) PARTICIPATIONS. Subject to the prior receipt of the written consent of
--------------
Agent (which may be granted or withheld in Agent's sole and absolute
discretion), any Lender Party may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("Participants") participating interests in any Credit
------------
owing to such Lender Party, any Note held by such Lender Party, or any other
interest of such Lender Party under this Credit Agreement and the other Loan
Documents. In the event of any such sale by a Lender Party of a participating
interest to a Participant, (i) such Lender Party's obligations under this Credit
Agreement to the other parties to this Credit Agreement shall remain unchanged,
(ii) such Lender Party shall remain solely responsible for the performance
thereof, (iii) such Lender Party shall remain the holder of any such Note for
all purposes under this Credit Agreement, and (iv) Borrower and Agent shall
continue to deal solely and directly with such Lender Party in connection with
such Lender Party's rights and obligations under this Credit Agreement.
Participants shall have no rights under this Credit Agreement or any other Loan
Document except as provided below. No Lender Party shall sell any participating
interest under which the Participant shall have any rights to vote on any
amendment or waiver of this Credit Agreement or any other Loan Document or
consent to, or instruct such Lender Party as to, any voting or consent rights of
such Lender Party under this Credit Agreement; provided, however, that any
-------- -------
agreement pursuant to which any Lender Party sells a participating interest to a
Participant may require the selling Lender Party to obtain the consent of such
Participant in order for such Lender Party to agree in writing to any amendment
of a type specified in the further proviso to Section 9.2 hereof. No agreement
-----------
pursuant to which any Lender Party sells a
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participating interest to a Participant other than a Lender may permit the
participant to transfer, pledge, assign, sell participations in, or otherwise
encumber its
-61-
participating interest. Borrower agrees that any Lender Party which has
transferred all or part of its interests in the Credits to one or more
Participants shall, notwithstanding any such transfer, be entitled to the full
benefits accorded such Lender Party under Sections 2.9 and 2.11 hereof, as if
such Lender Party had not made such transfer.
(c) ASSIGNMENTS. Subject to the prior receipt of the written consent of
-----------
Agent (which may be granted or withheld in Agent's sole and absolute
discretion), any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time, sell and assign to any Lender, any
affiliate of a Lender or any other bank or financial institution (individually,
an "Assignee") all or any portion of its rights and obligations under this
--------
Credit Agreement and the other Loan Documents (such a sale and assignment to be
referred to herein as an "Assignment") pursuant to an Assignment and Assumption
----------
Agreement in the form of Exhibit 9.5 attached hereto (an "Assignment
----------- ----------
Agreement"), executed by each Assignee and such assignor Lender (an "Assignor")
--------
and delivered to Agent for its acceptance and recording in the Register;
provided, however, that:
-------- -------
(i) each Assignment shall be in a minimum amount of THREE
MILLION AND NO/100 DOLLARS ($3,000,000); and
(ii) without the written consent of Borrower, which consent shall
not be unreasonably withheld, no Lender may make any Assignment to any
Assignee which is not, immediately prior to such Assignment, a Lender
hereunder or an affiliate thereof.
Upon the execution, delivery, acceptance, and recording of each Assignment
Agreement, from and after the effective date set forth therein, (A) each
Assignee thereunder shall be a Lender hereunder with a Proportionate Share as
set forth in Section 1 of such Assignment Agreement and shall have the rights,
duties and obligations of such a Lender under this Credit Agreement and the
other Loan Documents, and (B) the Assignor thereunder shall be a Lender with a
Proportionate Share as set forth in Section 1 of such Assignment Agreement, or,
if the Proportionate Share of the Assignor has been reduced to 0%, the Assignor
shall cease to be a Lender; provided, however, that each Assignor shall
-------- -------
nevertheless be entitled to the indemnification rights contained in Section 9.14
------------
hereof for any events, acts or omissions occurring before the effective date of
its Assignment. Each Assignment Agreement shall be deemed to amend Schedule I
----------
hereto to the extent necessary to reflect the addition of each Assignee and the
resulting adjustment of Proportionate Shares arising from the purchase by each
Assignee of all or a portion of the rights and obligations of an Assignor under
this Credit Agreement and the other Loan Documents. On or prior to the
effective date of any Assignment, Borrower, at its own expense, shall execute
and deliver to Agent, in exchange for the surrendered Note of the Assignor
thereunder, a new Note to the order of the Assignee thereunder (with each new
Note to be in an amount equal to the commitment assumed by such Assignee) and,
if the Assignor has retained a commitment hereunder, a new Note to the order of
the Assignor (with the new Note to be in an amount equal to the commitment
retained by the Assignor), and otherwise in the form of the Note replaced
thereby. Any Note surrendered by the Assignor shall be returned by Agent to
Borrower marked "Exchanged".
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(d) REGISTER. Agent shall maintain at Agent's Office a copy of each
--------
Assignment Agreement delivered to and accepted by Agent and a register (the
"Register") for the recordation of the names and addresses of the Lenders and
---------
the Proportionate Shares of each Lender from time to time. The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and Borrower, Agent, and the Lenders may treat each entity whose name is
recorded in the Register as a Lender hereunder for all purposes of this Credit
Agreement. The Register shall be available for inspection by Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) REGISTRATION. Upon its receipt of an Assignment Agreement executed by
------------
an Assignor and an Assignee (and, in the case of an Assignee that is not then a
Lender or an affiliate of a Lender, by Borrower and Agent) together with payment
by such Assignee to Agent of a registration and processing fee of THREE THOUSAND
AND NO/100 DOLLARS ($3,000), Agent shall (i) promptly accept such Assignment
Agreement, and (ii) on the effective date of such Assignment record the
information contained therein in the Register and give notice of such acceptance
and recordation to the Lenders and Borrower. Agent may, from time to time at
its election, prepare and deliver to the Lenders and Borrower a revised Schedule
--------
I reflecting the names, addresses and respective Proportionate Shares of all
-
Lenders then parties hereto.
(f) CONFIDENTIALITY. Without limitation, Agent and the Lender Parties may
---------------
disclose the Loan Documents, and any financial or other information relating to
Borrower, to each other or to any potential Participant or Assignee.
SECTION 9.6. SETOFF. In addition to any rights and remedies of the Lender
Parties provided by law, each Lender Party shall have the right, with the prior
consent of Agent but without prior notice to Borrower, any such notice being
expressly waived by Borrower to the extent permitted by applicable law, upon the
occurrence and during the continuance of an Event of Default, to set-off and
apply against any indebtedness, whether matured or unmatured, of Borrower to
such Lender Party, any amount owing from such Lender Party to Borrower, at or at
any time after, the happening of any of the above mentioned events, and as
security for such indebtedness, Borrower hereby grants to each Lender Party a
continuing security interest in any and all deposits, accounts or moneys of
Borrower then or thereafter maintained with such Lender Party, subject in each
case to Section 2.8(b) hereof. The aforesaid right of set-off may be exercised
--------------
by such Lender Party against Borrower or against any trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receiver or
execution, judgment or attachment creditor of Borrower or against anyone else
claiming through or against Borrower or such trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receiver, or execution,
judgment or attachment creditor, notwithstanding the fact that such right of
set-off shall not have been exercised by such Lender Party prior to the
occurrence of an Event of Default. Each Lender Party agrees promptly to notify
Borrower after any such set-off and application made by such Lender Party,
provided that the failure to give such notice shall not affect the validity of
such set-off and application.
SECTION 9.7. ENTIRE AGREEMENT, AMENDMENT. This Credit Agreement and each
other of the Loan Documents constitute the entire agreement among Borrower and
the Lender
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Parties with respect to the Credits and supersede all prior negotiations,
communications, discussions, and correspondence concerning the subject matter
hereof. This Credit Agreement may be amended or modified only by a written
instrument executed by each party hereto.
SECTION 9.8. NO THIRD PARTY BENEFICIARIES. This Credit Agreement is made
and entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or entity
shall be a third party beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Credit Agreement or any other of the
Loan Documents to which it is not a party.
SECTION 9.9. TIME. Time is of the essence of each and every provision of
this Credit Agreement and each other of the Loan Documents.
SECTION 9.10. SEVERABILITY OF PROVISIONS. If any provision of this Credit
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Credit Agreement.
SECTION 9.11. GOVERNING LAW. This Credit Agreement shall be governed by
and construed in accordance with the laws of the State of California, except to
the extent that Lender Parties have greater rights or remedies under federal
law, whether as national banks or otherwise, in which case such choice of
California law shall not be deemed to deprive Agent or the other Lender Parties
of such rights and remedies as may be available under federal law.
SECTION 9.12. WAIVER OF RIGHT TO TRIAL BY JURY. WITHOUT LIMITING THE
APPLICATION OF SECTION 9.17 HEREOF, EACH PARTY TO THIS CREDIT AGREEMENT HEREBY
------------
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (I) ARISING UNDER THE LOAN DOCUMENTS, INCLUDING, WITHOUT
LIMITATION, ANY PRESENT OR FUTURE MODIFICATION THEREOF, OR (II) IN ANY WAY
CONNECTED WITH OR RELATED TO OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO
OR ANY OF THEM WITH RESPECT TO THE LOAN DOCUMENTS (AS NOW OR HEREAFTER MODIFIED)
OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE, EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS CREDIT AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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SECTION 9.13. ANCILLARY DOCUMENTS. In the event of an express conflict
between the terms of this Credit Agreement and any of the other Loan Documents,
this Credit Agreement shall prevail (but the more detailed description of
collateral in any security agreement executed in connection herewith shall not
be deemed in conflict with the more general description of collateral in this
Credit Agreement).
SECTION 9.14. INDEMNIFICATION. To the fullest extent permitted by law,
Borrower shall indemnify, defend, and hold harmless each of the Lender Parties
and their respective officers, directors, employees, successors, and assigns in
respect of any and all claims, actions, suits, or other proceedings in any and
all losses, costs, expenses, liabilities, fines, penalties, interest, and
damages, whether or not arising out of any claim, action, suit, or other
proceeding, and including reasonable counsel and accountant's fees and expenses
and all other reasonable costs and expenses of investigation, defense, or
settlement of claims and amounts paid in settlement (collectively, "Damages")
-------
incurred by, imposed on or borne by the Lender Parties or such other parties
resulting from or arising out of this Credit Agreement, or any other Loan
Document, the Capitalization Transactions or Agent's consent to Borrower
entering into any Capitalization Transactions Document or consummation of any
transaction contemplated thereby or in connection with the Capitalization
Transactions; provided that Borrower shall not be required to indemnify, defend,
--------
and hold harmless the Lender Parties or any other party pursuant to this Section
-------
9.14 for any Damages that are the direct result of a material breach of this
----
Credit Agreement by the Lender Parties or such party or are caused by the gross
negligence or willful misconduct of the Lender Parties or such party.
SECTION 9.15. LEGAL ADVICE. Each party hereto has received independent
legal advice from its attorneys with respect to the advisability of executing
this Credit Agreement and the meaning of the provisions hereof. The provisions
of this Credit Agreement shall be construed as to their fair meaning and shall
not be construed for or against any party based upon any attribution to such
party as the source of the language in question.
SECTION 9.16. COUNTERPARTS. This Credit Agreement may be executed in any
number of identical counterparts, any set of which signed by all the parties
hereto shall be deemed to constitute a complete, executed original for all
purposes.
SECTION 9.17. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party hereto, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Credit Agreement. A "Dispute" shall mean any action,
-------
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, this Credit Agreement
and each other Loan Document required hereby or now or hereafter delivered to
any Lender Party in connection herewith, or any past, present or future
extensions of credit and other activities, transactions, or obligations of any
kind related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the exercise
of any self-help, ancillary, or other remedies pursuant to any of the Loan
Documents.
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Any party may by summary proceedings bring an action in court to compel
arbitration of a Dispute. Any party who fails or refuses to submit to
arbitration following a lawful demand by any other party shall bear all costs
and expenses incurred by such other party in compelling arbitration of any
Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
---
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the AAA Commercial Arbitration Rules. All Disputes submitted to
arbitration shall be resolved in accordance with the Federal Arbitration Act
(Title 9 of the United States Code), notwithstanding any conflicting choice of
law provision in any of the Documents. The arbitration shall be conducted at a
location in California selected by the AAA or other administrator. If there is
any inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an
arbitration may be entered in any court having jurisdiction; provided, however,
that nothing contained herein shall be deemed to be a waiver by any party that
is a bank of the protections afforded to it under 12 U.S.C. (S)91 or any similar
applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP, AND FORECLOSURE. No
-----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment, or the appointment of a receiver, from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise in the substantive law
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the State of California, (ii) may grant
any remedy or relief that a court of the State of California could order or
grant within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
costs and fees, to impose sanctions, and to take such other actions as they deem
necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the California Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is FIVE MILLION AND NO/100
DOLLARS ($5,000,000) or less shall be decided by a single arbitrator who shall
not render an award of greater than FIVE MILLION AND NO/100 DOLLARS ($5,000,000)
(including damages, costs, fees, and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
FIVE MILLION AND NO/100 DOLLARS ($5,000,000). Any Dispute in which the amount
in controversy exceeds FIVE MILLION AND NO/100 DOLLARS ($5,000,000) shall be
decided
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by majority vote of a panel of three arbitrators; provided, however, that all
-------- -------
three arbitrators must actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Anything herein to the contrary notwithstanding, in
---------------
any arbitration in which the amount in controversy exceeds TWENTY-FIVE MILLION
AND NO/100 DOLLARS ($25,000,000), the arbitrators shall be required to make
specific, written
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findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported by
substantial evidence or which is based on legal error, (ii) an award shall not
be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the State of California, and (iii) the parties shall have in
addition to the grounds referred to in the Federal Arbitration Act for vacating,
modifying, or correcting an award the right to judicial review of (x) whether
the findings of fact rendered by the arbitrators are supported by substantial
evidence, and (y) whether the conclusions of law are erroneous under the
substantive law of the State of California. Judgment confirming an award in
such a proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the State of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Anything herein to the
--------------------------------------------
contrary notwithstanding, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien, or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens, and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgement upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. The AAA, the arbitrators and the parties shall take all
-------------
action required to conclude any arbitration proceeding within 180 days of the
filing of the Dispute with the AAA. No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the ordinary course
of its business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one
agreement for arbitration by or between the parties potentially applies to a
Dispute, the arbitration provision most directly related to the Loan Documents
or the subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan Documents
or any relationship between the parties.
SECTION 9.18. CANCELLATION OF PRIOR AGREEMENT. As of the Closing Date,
this Credit Agreement shall cancel and supersede the 1997 Predecessor Credit
Agreement and no prepayment penalty shall be assessed thereunder as a result of
the refinancing pursuant to this Credit Agreement of Indebtedness outstanding
under the 1997 Predecessor Credit Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Credit Agreement to
be executed as of the day and year first written above.
LESLIE'S POOLMART, INC. ▇▇▇▇▇ FARGO BANK,
A DELAWARE CORPORATION NATIONAL ASSOCIATION,
AS AGENT, AS SWINGLINE LENDER
AND AS LENDER
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
By: -------------------- By: ---------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Chief Financial Officer and Vice President
Executive Vice President
SCHEDULE I
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1. LENDERS: PROPORTIONATE SHARES; COMMITMENTS:
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▇▇▇▇▇ FARGO BANK,
NATIONAL ASSOCIATION,
as Lender and Swingline Lender 100%; $35,000,000
Applicable Lending Office:
▇▇▇▇▇ Fargo Bank,
National Association
Commercial Banking ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Address for Notices:
▇▇▇▇▇ Fargo Bank,
National Association
Commercial Banking ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
Wiring Instructions:
▇▇▇▇▇ Fargo Bank,
National Association
San Francisco, CA
ABA No. ▇▇▇▇▇▇▇▇▇
Account: 4629051160
Attn: Agency Department, Destination SR #703
2. AGENT'S OFFICE:
--------------
▇▇▇▇▇ Fargo Bank,
National Association
Agency Department
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
---------------------------------------------------------
THIS SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT (this
"Agreement") is entered into as of the 11th day of June, 1997, by and between
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▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION ("▇▇▇▇▇ Fargo"), acting in its capacity
-----------
as agent on behalf of the financial institutions signatory as lenders (the
"Lenders") and swingline lender (the "Swingline Lender") to that certain Credit
-------- ----------------
Agreement dated as of June 11, 1997 (as it may be amended or supplemented from
time to time, the "Credit Agreement"), and any successor to ▇▇▇▇▇ Fargo as agent
----------------
thereunder (in such capacity, "Secured Party"; together with the Lenders and the
-------------
Swingline Lender being the "Lender Parties") and LESLIE'S POOLMART, INC., a
--------------
Delaware corporation ("Debtor"), in light of the following facts:
------
WHEREAS, Debtor, on the one hand, and the Lender Parties, on the other
hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Debtor"), to which Debtor is successor by merger, under a Third Amended and
Restated Credit Agreement dated as of January 29, 1997 among Predecessor Debtor,
the lenders parties thereto and ▇▇▇▇▇ Fargo, as agent (the "1997 Predecessor
----------------
Credit Agreement").
----------------
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral (as defined below)
as security for Debtor's obligations under the Credit Agreement and under the
Notes (as defined in the Credit Agreement);
WHEREAS, Predecessor Debtor and ▇▇▇▇▇ Fargo heretofore executed that
certain Security Agreement, dated as of October 1, 1994 (as amended and restated
by that certain Amended and Restated Continuing Security Agreement dated as of
January 29, 1997, the "Original Security Agreement") to provide security for the
---------------------------
obligations under the 1997 Predecessor Credit Agreement, which are being
refinanced under the Credit Agreement; and
WHEREAS, this Agreement is intended to amend and restate the Original
Security Agreement in its entirety to provide security for the obligations under
the Credit Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby amend and restate the
Original Security Agreement in its entirety, and hereby agree as follows:
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including, without limitation,
all securities, investment property, guaranties, warranties, indemnity
agreements, insurance policies, and other agreements pertaining to the foregoing
or, if applicable, the property described therein, and in all goods returned by
Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
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whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
---------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
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together with (a) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from any
such sale, lease, collection, exchange or other disposition of any of the
foregoing, (b) all
-2-
Rights to Payment, including without limitation returned premiums, with respect
to any insurance relating to any of the Collateral or proceeds thereof, and (c)
all Rights to Payment with respect to any cause of action affecting or relating
to any of the Collateral or proceeds thereof (hereinafter called "Proceeds").
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2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Credit Agreement; and (b) all obligations of
Debtor and rights in respect thereof of Secured Party, on behalf of the Lender
Parties, under this Agreement and the other Loan Documents (as defined in the
Credit Agreement); (collectively, the "Secured Obligations"). The word
-------------------
"Indebtedness" is used herein in its most comprehensive sense and includes any
-------------
and all advances, debts, obligations and liabilities of Debtor heretofore, now
or hereafter made, incurred or created, whether voluntary or involuntary and
however arising, whether due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined, and whether Debtor may be liable
individually or jointly, or whether recovery upon such Indebtedness may be or
hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of the
Collateral and Proceeds; (b) Debtor has the right to grant a security interest
in the Collateral and Proceeds; (c) all Collateral and Proceeds are genuine,
free from liens, adverse claims, setoffs, default, prepayment, defenses and
conditions precedent of any kind or character, except as heretofore disclosed to
Secured Party in writing and except for Permitted Liens (as defined in the
Credit Agreement); (d) all statements contained herein are true and complete;
(e) no financing statement covering any of the Collateral or Proceeds, and
naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without limitation, any Equipment that
Debtor may deem to be surplus, has been or shall be consented to
-3-
or acquiesced in by Secured Party, except as permitted under Section 6(b)(vi)
----------------
herein or as otherwise specifically set forth in writing by Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured
hereby when due; (ii) to indemnify Secured Party against all losses, claims,
demands, liabilities and expenses of every kind caused by property subject
hereto; (iii) to pay all costs and expenses, including reasonable attorneys'
fees, incurred by Secured Party in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Secured Party to exercise its powers; (v) to execute and deliver such
documents as Secured Party deems necessary to create, perfect and continue the
security interests contemplated hereby (including, without limitation, in
respect of the Trademark Collateral); (vi) not to change its chief executive
office or the places where Debtor keeps any of the Collateral or Debtor's
records concerning the Collateral and Proceeds without first giving Secured
Party 60 calendar days' written notice of the address to which Debtor is moving
same and (vi) (A) to use its best efforts to deliver to Secured Party a
landlord's consent in substantially the form of Exhibit A hereto, or such other
---------
form as shall be reasonably satisfactory to Secured Party, for each of Debtor's
distribution centers identified on Schedule 2 hereto executed by the landlord of
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each such distribution center, and (B) after the date hereof, not to locate any
distribution center of Debtor on leased premises (including any listed in
Section 1 of Schedule 2 hereto after Borrower shall have exercised its best
efforts as described in the foregoing clause (A) and been unable to deliver a
landlord's consent as contemplated therein) unless the landlord of such premises
shall have executed and delivered to Secured Party a landlord's consent in
substantially the form of Exhibit A hereto or such other form as shall be
---------
reasonably satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
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however, that the foregoing restriction shall not
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-4-
apply to (Y) the sale of Inventory to buyers in the ordinary course of Debtor's
business, and (Z) the sale or other disposition of Equipment so long as (1) no
Event of Default has occurred and is continuing, (2) Borrower is receiving fair
value therefor, and (3) such Equipment is no longer integral to the operation of
Debtor's business; (vii) not to rent, lease, or charter Equipment without
Secured Party's prior written consent; provided, however, that the foregoing
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restriction shall not apply to the rental, lease or charter of Equipment so long
as (1) no Event of Default has occurred and is continuing, and (2) such
Equipment is no longer integral to the operation of Debtor's business; (viii) to
furnish reports to Secured Party of all acquisitions, returns, sales and other
dispositions of Inventory in such form and detail and at such times as Secured
Party may require; (ix) to permit Secured Party to inspect the Collateral at any
time; (x) to keep, in accordance with generally accepted accounting principles,
complete and accurate records regarding all Collateral and Proceeds, and to
permit Secured Party to inspect the same and make copies thereof at any
reasonable time; (xi) if requested by Secured Party, to receive and use
reasonable diligence to collect Rights to Payment and Proceeds, in trust and as
the property of Secured Party, and to immediately endorse as appropriate and
deliver such Rights to Payment and Proceeds to Secured Party daily in the exact
form in which they are received together with a collection report in form
satisfactory to Secured Party; (xii) not to commingle Rights to Payment,
Proceeds or collections thereunder with other property; (xiii) to give only
normal allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or Proceeds; (xiv) on demand, to deliver
to Secured Party returned property resulting from, or payment equal to, such
allowances or credits on any Collateral or Proceeds or to execute such documents
and do such other things as Secured Party may reasonably request for the purpose
of perfecting, preserving and enforcing its security interest in such returned
property; (xv) from time to time, when requested by Secured Party, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Secured Party all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof; (xvi) in the event that Secured Party elects to receive payments of
Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Secured
Party in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xvii) to provide any
service and do any other acts which may be necessary to maintain, preserve and
protect all Collateral and, as appropriate and applicable, to keep all
Collateral in good and saleable condition and repair, to deal with the
Collateral in accordance with the standards and practices adhered to generally
by users, manufacturers and owners of like property, and to keep all Collateral
and Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and
-5-
acquittances and compromise disputes in connection therewith; (d) to release
security; (e) to resort to security in any order; (f) to prepare, execute, file,
record or deliver notes, assignments, schedules, designation statements,
financing statements, continuation statements, termination statements,
statements of assignment, applications for registration or like papers to
perfect, preserve or release Secured Party's interest in the Collateral and
Proceeds; (g) to receive, open and read mail addressed to Debtor; (h) to take
cash, instruments for the payment of money and other property to which Secured
Party is entitled; (i) to verify facts concerning the Collateral and Proceeds by
inquiry of obligors thereon, or otherwise, in its own name or a fictitious name;
(j) to endorse, collect, deliver and receive payment under instruments for the
payment of money constituting or relating to Proceeds; (k) to prepare, adjust,
execute, deliver and receive payment under insurance claims, and to collect and
receive payment of and endorse any instrument in payment of loss or returned
premiums or any other insurance refund or return, and to apply such amounts
received by Secured Party, at Secured Party's sole option, toward repayment of
the Secured Obligations or replacement of the Collateral; (l) to exercise all
rights, powers and remedies which Debtor would have, but for this Agreement,
with respect to all Collateral and Proceeds subject hereto; (m) to enter onto
Debtor's premises in inspecting the Collateral; (n) to make withdrawals from and
to close deposit accounts or other accounts with any financial institution,
wherever located, into which Proceeds may have been deposited, and to apply
funds so withdrawn to payment of the Secured Obligations; (o) to preserve or
release the interest evidenced by chattel paper to which Secured Party is
entitled hereunder and to endorse and deliver evidences of title incidental
thereto; and (p) to do all acts and things and execute all documents in the name
of Debtor or otherwise, deemed by Secured Party as necessary, proper and
convenient in connection with the preservation, perfection or enforcement of its
rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
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Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
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10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare immediately due and payable all or any Indebtedness secured
hereby and to terminate any commitments to make loans or otherwise extend credit
to Debtor. Secured Party shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Secured Party. All rights, powers, privileges and remedies of Secured Party
shall be cumulative. No delay, failure or discontinuance of Secured Party in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Secured Party of any default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is agreed that
public or private sales, for cash or on credit, to a wholesaler or retailer or
investor, or user of property of the types subject to this Agreement, or public
auction, are all commercially reasonable since differences in the sales prices
generally realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party
-7-
toward the payment of the Secured Obligations in such order of application as
Secured Party may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
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rate that ▇▇▇▇▇ Fargo from time to time establishes and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations, the release or substitution
of Collateral or Proceeds or any other security for the Secured Obligations, and
the release of any guarantors; provided, however, that in each instance, Secured
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Party believes in good faith that the action in question is commercially
reasonable in that it does not unreasonably increase the risk of nonpayment of
the Indebtedness to which the action applies. Until all Secured Obligations
shall have been indefeasibly paid in cash and performed in full, Debtor shall
not have any right of subrogation or contribution vis a vis any other person or
entity obligated to Secured Party and/or the other Lender Parties in connection
with the Credit Agreement or any other Loan Document, and Debtor hereby waives
any benefit of or right to participate in any of the Collateral or Proceeds or
any other security now or hereafter held by Secured Party.
-8-
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
Debtor warrants that its chief executive office is located at the
following address:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
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locations of leased premises on which Debtor's distribution centers are located
are also set forth in Schedule 2.
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[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
LESLIE'S POOLMART, INC., A DELAWARE
CORPORATION
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
By: ---------------------------
Title: Chief Financial Officer and
Executive Vice President
▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
By: ---------------------------
Title: Vice President
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SCHEDULE 1
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Trademark Collateral
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SCHEDULE 2
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
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EXHIBIT A
TO SECOND AMENDED AND RESTATED CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
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See attached.
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▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
THIS STOCK PLEDGE AGREEMENT (this "Agreement"), dated as of June 11, 1997
is executed by LESLIE'S POOLMART, INC., a Delaware Corporation ("Debtor"), in
favor of ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION ("▇▇▇▇▇ Fargo"), acting in its
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capacity as agent on behalf of the financial institutions signatory as lenders
(the "Lenders") and swingline lender (the "Swingline Lender") to that certain
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Credit Agreement dated as of June 11, 1997 (as it may be amended or
supplemented from time to time, the "Credit Agreement"), and any successor to
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▇▇▇▇▇ Fargo as agent thereunder (in such capacity, "Agent"; together with the
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Lenders and the Swingline Lender being the "Lender Parties"), in light of the
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following facts:
WHEREAS, Debtor, on the one hand, and the Lender Parties, on the other
hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
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Debtor"), to which Debtor is successor by merger, under a Third Amended and
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Restated Credit Agreement dated as of January 29, 1997 among Predecessor Debtor,
the lenders parties thereto and ▇▇▇▇▇ Fargo, as agent (the "1997 Predecessor
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Credit Agreement");
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WHEREAS, Debtor has agreed to grant to Agent for the benefit of the
Lender Parties, a security interest in the Collateral and Proceeds (each as
defined below) as security for Debtor's obligations under the Credit Agreement,
the Notes and the other Loan Documents (each as defined in the Credit
Agreement);
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. Debtor hereby assigns, transfers to and
pledges with Agent, for the ratable benefit of Lenders and Agent, the shares of
stock described on Schedule 1 hereto issued by the Debtor's subsidiaries named
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therein (collectively called "Collateral"), together with whatever is receivable
or received when any of the Collateral or proceeds thereof are sold, collected,
exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation, (a) all rights to payment, including
returned premiums, with respect to any insurance relating to any of the
foregoing, (b) all rights to payment with respect to any cause of action
affecting or relating to any of the foregoing, and (c) all stock rights, rights
to subscribe, stock splits, liquidating dividends, cash dividends, dividends
paid in stock, new securities or other property of any kind which Debtor is or
may hereafter be entitled to receive on account of any securities pledged
hereunder, including without limitation, stock received by Debtor due to stock
splits or dividends paid in
stock or sums paid upon or in respect of any securities pledged hereunder upon
the liquidation or dissolution of the issuer thereof (hereinafter called
"Proceeds"), and in the event that Debtor receives any such Proceeds, Debtor
will hold the same in trust on behalf of and for the benefit of Agent and will
immediately deliver all such Proceeds to Agent in the exact form received, with
the endorsement of Debtor if necessary and/or appropriate undated stock powers
duly executed in blank, to be held by Agent as a part of the Collateral, subject
to all terms hereof.
2. OBLIGATIONS SECURED. The obligations secured hereby are the payment
and performance of: (a) all present and future Indebtedness of Debtor to the
Lender Parties under the Credit Agreement; and (b) all obligations of Debtor and
rights of Agent, on behalf of the Lender Parties, in respect thereof under this
Agreement and the other Loan Documents (as defined in the Credit Agreement);
(collectively, the "Secured Obligations"). The word "Indebtedness" is used
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herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Debtor heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Debtor may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter become
unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor represents and
warrants to Agent that: (a) Debtor is the owner and has possession or control
of the Collateral and Proceeds; (b) Debtor has the right to pledge the
Collateral and Proceeds; (c) all Collateral and Proceeds are genuine, free from
liens, adverse claims, setoffs, default, prepayment, defenses and conditions
precedent of any kind or character, except as heretofore disclosed to Agent in
writing; (d) all statements contained herein and, where applicable, in the
Collateral, are true and complete; (e) no financing statement covering any of
the Collateral or Proceeds, and naming any secured party other than Agent, is on
file in any public office; (f) none of the Collateral and Proceeds pledged
pursuant to this Agreement constitutes "margin stock" as defined under
Regulation U promulgated by the Board of Governors of the Federal Reserve; (g)
all of the shares of capital stock described on Schedule 1 hereto and
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represented by the certificates delivered to Agent as provided in subsection
5(b)(x) hereof (i) are duly and validly issued, and are fully paid and non-
assessable, and (ii) constitute 100% of the issued and outstanding shares of
capital stock of each issuer thereof; and (h) specifically with respect to
Collateral and Proceeds consisting of securities, instruments, chattel paper,
documents, contracts, insurance policies or any like property, (i) all persons
appearing to be obligated thereon have authority and capacity to contract and
are bound as they appear to be, and (ii) the same comply with applicable laws
concerning form, content and manner of preparation and execution.
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5. COVENANTS OF DEBTOR.
(a) Debtor Agrees in General: (i) to pay all Secured Obligations when
due; (ii) to indemnify Agent and the other Lender Parties against all losses,
claims, demands, liabilities and expenses of every kind caused by property
subject hereto; (iii) to pay all costs and expenses, including reasonable
attorneys' fees, incurred by Agent in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Agent to exercise its powers; (v) to execute and deliver such documents
as Agent deems necessary to create, perfect and continue the security interests
contemplated hereby; and (vi) not to change its chief executive office or the
place where Debtor keeps any of the Collateral or Debtor's records concerning
the Collateral and Proceeds without first giving Agent written notice of the
address to which Debtor is moving same.
(b) Debtor Agrees with Regard to the Collateral and Proceeds: (i) not
to permit any lien on the Collateral or Proceeds, except in favor of Agent; (ii)
not to sell, hypothecate or otherwise dispose of any of the Collateral or
Proceeds, or any interest therein, without the prior written consent of Agent;
(iii) to keep, in accordance with generally accepted accounting principles,
complete and accurate records regarding all Collateral and Proceeds, and to
permit Agent to inspect the same and make copies thereof at any reasonable time;
(iv) if requested by Agent, to receive and use reasonable diligence to collect
Proceeds, in trust and as the property of Agent, and to immediately endorse as
appropriate and deliver such Proceeds to Agent in the exact form in which they
are received; (v) not to commingle Collateral or Proceeds, or collections
thereunder, with other property; (vi) in the event Agent elects to receive
payments of Proceeds hereunder, to pay all expenses incurred by Agent in
connection therewith, including expenses of accounting, correspondence,
collection efforts, filing, recording, record keeping and expenses incidental
thereto; (vii) to provide any service and do any other acts which may be
necessary to keep all Collateral and Proceeds free and clear of all defenses,
rights of offset and counterclaims; (viii) where the Collateral or Proceeds
consists of securities and so long as no Event of Default exists, to vote said
securities and to give consents, waivers and ratifications with respect thereto,
provided that no vote shall be cast or consent, waiver or ratification given or
action taken which would impair Agent's interests in the Collateral and Proceeds
or be inconsistent with or violate any provisions of this Agreement; and (ix)
upon the execution of this Agreement, to deliver to or for the account of Agent
the certificates representing the shares of capital stock described on Schedule
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1 hereto, which shall be in suitable form for transfer by delivery, or shall be
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accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance satisfactory to Agent.
6. POWERS OF AGENT. Debtor appoints Agent its true attorney in fact to
perform any of the following powers, which are coupled with an interest, are
irrevocable until termination of this Agreement and may be exercised from time
to time by Agent's officers and employees, or any of them, whether or not
Debtor is in default: (a) to perform any obligation
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of Debtor hereunder in Debtor's name or otherwise; (b) to notify any person
obligated on any security, instrument or other document subject to this
Agreement of Agent's rights hereunder; (c) to collect by legal proceedings or
otherwise all dividends, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral or Proceeds; (d) to enter into any
extension, reorganization, deposit, merger or consolidation agreement, or any
other agreement relating to or affecting the Collateral or Proceeds, and in
connection therewith to deposit or surrender control of the Collateral and
Proceeds, to accept other property in exchange for the Collateral and Proceeds,
and to do and perform such acts and things as Agent may deem proper, with any
money or property received in exchange for the Collateral or Proceeds, at
Agent's discretion, to be applied to the Secured Obligations or held by Agent
under this Agreement; (e) to make any compromise or settlement Agent deems
desirable or proper in respect of the Collateral and Proceeds; (f) to insure,
process and preserve the Collateral and Proceeds; (g) to exercise all rights,
powers and remedies which Debtor would have, but for this Agreement, under all
Collateral and Proceeds subject hereto; and (h) to do all acts and things and
execute all documents in the name of Debtor or otherwise, deemed by Agent as
necessary, proper and convenient in connection with the preservation, perfection
or enforcement of its rights hereunder. To effect the purposes of this Agreement
or otherwise upon instructions of Debtor, Agent may cause any Collateral and/or
Proceeds to be transferred to Agent's name or the name of Agent's nominee. If an
Event of Default has occurred and is continuing, any or all Collateral and/or
Proceeds consisting of securities may be registered, without notice, in the name
of Agent or its nominee, and thereafter Agent or its nominee may exercise,
without notice, all voting and corporate rights at any meeting of the
shareholders of the issuer thereof, any and all rights of conversion, exchange
or subscription, or any other rights, privileges or options pertaining to such
Collateral and/or Proceeds, all as if it were the absolute owner thereof. The
foregoing shall include, without limitation, the right of Agent or its nominee
to exchange, at its discretion, any and all Collateral and/or Proceeds upon the
merger, consolidation, reorganization, recapitalization or other readjustment of
the issuer thereof, or upon the exercise by the issuer thereof or Agent of any
right, privilege or option pertaining to any shares of the Collateral and/or
Proceeds, and in connection therewith, the right to deposit and deliver any and
all of the Collateral and/or Proceeds with any committee, depository, transfer
agent, registrar or other designated agency upon such terms and conditions as
Agent may determine. All of the foregoing rights, privileges or options may be
exercised without liability on the part of Agent or its nominee except to
account for property actually received by Agent. Agent shall have no duty to
exercise any of the foregoing, or any other rights, privileges or options with
respect to the Collateral or Proceeds and shall not be responsible for any
failure to do so or delay in so doing.
7. CASH COLLATERAL ACCOUNT. Any money received by Agent in respect of
the Collateral may be deposited, at Agent's option, into a non-interest bearing
cash collateral account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
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8. AGENT'S CARE AND DELIVERY OF COLLATERAL. Agent's obligation with
respect to Collateral and Proceeds in its possession shall be strictly limited
to the duty to exercise reasonable care in the custody and preservation of such
Collateral and Proceeds, and such duty shall not include any obligation to
ascertain or to initiate any action with respect to or to inform Debtor of
maturity dates, conversion, call, or exchange rights, or offers to purchase the
Collateral or Proceeds, or any similar matters, notwithstanding Agent's
knowledge of the same. Agent shall have no duty to take any steps necessary to
preserve the rights of Debtor against prior parties, or to initiate any action
to protect against the possibility of a decline in the market value of the
Collateral or Proceeds. Agent shall not be obligated to take any action with
respect to the Collateral or Proceeds requested by Debtor unless such request is
made in writing and Agent determines, in its sole discretion, that the requested
action would not unreasonably jeopardize the value of the Collateral and
Proceeds as security for the Secured Obligations. Agent may at any time deliver
the Collateral and Proceeds, or any part thereof, to Debtor, and the receipt
thereof by Debtor shall be a complete and full acquittance for the Collateral
and Proceeds so delivered, and Agent shall thereafter be discharged from any
liability or responsibility therefor.
9. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS. Debtor
agrees to pay, prior to delinquency, all insurance premiums, taxes, charges,
liens and assessments against the Collateral and Proceeds, and upon the failure
of Debtor to do so, Agent, at its option, may pay any of them and shall be the
sole judge of the legality or validity thereof and the amount necessary to
discharge the same. Any such payments made by Agent shall be obligations of
Debtor, due and payable immediately upon demand, together with interest at a
rate determined in accordance with the provisions of Section 13 hereof, and
shall be secured by the Collateral and Proceeds, subject to all terms and
conditions of this Agreement.
10. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: a. any Event of Default
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(as such term is defined in the Credit Agreement); b. any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; c. Debtor shall fail to observe or perform any
obligation or agreement contained herein; d. any attachment or like levy on any
property of Debtor; and e. Agent, in good faith, believes any or all of the
Collateral and/or Proceeds to be in danger of misuse, dissipation, commingling,
loss, theft, damage or destruction, or otherwise in jeopardy or unsatisfactory
in character or value.
11. REMEDIES. Upon the occurrence of any Event of Default, Agent shall
have the right to declare immediately due and payable all or any Secured
Obligations and to terminate any commitments to make loans or otherwise extend
credit to Debtor. Agent shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on Collateral and to
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instruct such persons to deliver all Collateral and/or Proceeds directly to
Agent. All rights, powers, privileges and remedies of Agent shall be cumulative.
No delay, failure or discontinuance of Agent in exercising any right, power,
privilege or remedy hereunder shall affect or operate as a waiver of such right,
power, privilege or remedy; nor shall any single or partial exercise of any such
right, power, privilege or remedy preclude, waive or otherwise affect any other
or further exercise thereof or the exercise of any other right, power, privilege
or remedy. Any waiver, permit, consent or approval of any kind by Agent of any
default hereunder, or any such waiver of any provisions or conditions hereof,
must be in writing and shall be effective only to the extent set forth in
writing. While an Event of Default exists: (a) Agent may appropriate the
Collateral and apply all Proceeds toward repayment of the Secured Obligations in
such order of application as Agent may from time to time elect or, at Agent's
sole option, place any Proceeds in the cash collateral account; (b) at Agent's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Agent at a reasonably convenient place
designated by Agent; (c) all voting rights of Debtor in respect of securities
constituting Collateral and all rights of Debtor to receive any Proceeds shall
terminate, and all of such rights shall vest in Secured Party; and (d) if Debtor
receives any Proceeds, Debtor shall hold such Proceeds in trust for Agent and
the other Lender Parties and promptly deliver to Agent all such Proceeds in the
form received by Debtor together with all necessary endorsements, assignments or
other instruments of conveyance or transfer with respect to all or any of such
Proceeds. It is agreed that public or private sales, for cash or on credit, to a
wholesaler or retailer or investor, or user of property of the types subject to
this Agreement, or public auction, are all commercially reasonable since
differences in the sales prices generally realized in the different kinds of
sales are ordinarily offset by the differences in the costs and credit risks of
such sales. For any Collateral or Proceeds consisting of securities, Agent shall
have no obligation to delay a sale of any portion thereof for the period of time
necessary to permit the issuer thereof to register such securities for public
sale under any applicable state or Federal law, even if the issuer thereof would
agree to do so. Debtor recognizes that Agent may be unable to make a public sale
of any or all of the Collateral or Proceeds, by reason of prohibitions contained
in applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonably sale.
12. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all or
any part of the Secured Obligations, Agent may transfer all or any part of the
Collateral or Proceeds and shall be fully discharged thereafter from all
liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Agent hereunder with respect to any of the foregoing so transferred; but with
respect to any Collateral or Proceeds not so transferred, Agent shall retain all
rights, powers, privileges and remedies herein given. Any proceeds of any
disposition of the Collateral or Proceeds, or any part thereof, may be applied
by Agent to the payment of expenses incurred by Agent in connection with the
foregoing, including reasonable attorneys' fees, and the balance
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of such proceeds may be applied by Agent toward the payment of the Secured
Obligations in such order of application as Agent may from time to time elect.
13. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Agent
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Agent's in-house counsel), incurred by
Agent in exercising any right, power, privilege or remedy conferred by this
Agreement or in the enforcement thereof, including any of the foregoing incurred
in connection with any workout or restructuring of the Secured Obligations or
any bankruptcy proceeding relating to Debtor or the valuation of the Collateral
and/or Proceeds, including without limitation, the seeking of relief from or
modification of the automatic stay or the negotiation and drafting of a cash
collateral order. All of the foregoing shall be paid by Debtor with interest at
a rate per annum equal to the greater of ten percent (10%) or Agent's Prime Rate
in effect from time to time, as defined in the Credit Agreement.
14. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have been
indefeasibly paid in cash and performed in full, the power of sale and all other
rights, powers, privileges and remedies granted to Agent hereunder shall
continue to exist and may be exercised by Agent at any time and from time to
time irrespective of the fact that the Secured Obligations or any part thereof
may have become barred by any statute of limitations, or that the personal
liability of Debtor may have ceased, unless such liability shall have ceased due
to the indefeasible payment in cash and performance in full of all Secured
Obligations.
15. MISCELLANEOUS. Presentment, protest, notice of protest, notice of
dishonor and notice of nonpayment are waived with respect to any Proceeds to
which Agent is entitled hereunder; any right to direct the application of
payments or security for any of the Secured Obligations and any right to require
proceedings against others or to require exhaustion of security are waived; and
consent to extensions, forbearances or alterations of the terms of any of the
Secured Obligations, the release or substitution of security, and the release of
guarantors is given; provided however, that in each instance Agent believes in
good faith that the action in question is commercially reasonable in that it
does not unreasonably increase the risk of nonpayment of the Secured Obligations
to which the action applies. Until all Secured Obligations shall have been
indefeasibly paid in cash and performed in full, Debtor shall have no right of
subrogation or contribution, and Debtor hereby waives any benefit of or any
right to participate in any of the Collateral or Proceeds or any other security
now or hereafter held by Agent.
16. NOTICES. All notices or demands of any kind which Agent may be
required or desires to serve upon Debtor under the terms of this Agreement shall
be served upon Debtor as provided in the Credit Agreement.
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17. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement shall
be held to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
Debtor warrants that its residence or chief executive office is located at
the following address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
[Signature page follows.]
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IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first
set forth above.
LESLIE'S POOLMART, INC., a
Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Chief Financial Officer and
Executive Vice President
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Schedule 1
to the Stock Pledge Agreement
PLEDGED SHARES
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SWINGLINE NOTE
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$5,000,000.00 Los Angeles, California
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June 11, 1997
1. PROMISE TO REPAY. FOR VALUE RECEIVED, LESLIE'S POOLMART, INC., a
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Delaware corporation ("Maker"), promises to pay to ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION ("Bank"), or order, the principal sum of Five Million Dollars
($5,000,000.00) or such lesser amount as shall equal the outstanding amount of
the obligations owing to Bank as Swingline Lender under the Line of Credit as
described in Section 2.1(b) of that certain Credit Agreement, dated as of June
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11, 1997 (as it may be amended or otherwise modified from time to time, the
"Credit Agreement"), entered into between Maker, on the one hand, and, on the
other hand, Bank, the other financial institutions from time to time parties
thereto as lenders, and ▇▇▇▇▇ Fargo Bank, National Association, as agent
("Agent").
2. DEFINED TERMS. Any and all initially capitalized terms used
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herein shall have the meaning ascribed thereto in the Credit Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated or where the context hereof otherwise requires (such
as the first sentence of Section 1 hereof), the inclusive meaning represented by
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the phrase "and/or". This Swingline Note (as it may be amended or otherwise
modified from time to time, this "Note") is the promissory note defined in the
Credit Agreement as the "Swingline Note" and is subject to, and entitled to the
benefits of, the terms and provisions of the Credit Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST. Maker hereby promises to
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make payments of principal and interest with respect to the loans evidenced
hereby at the rates and times, and in the amounts, and in all other respects in
the manner, as provided in the Credit Agreement.
4. PREPAYMENTS. Maker may prepay the principal balance due under
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this Note, in whole or in part, only in accordance with the provisions of the
Credit Agreement.
5. APPLICATION OF PAYMENTS. All payments (including prepayments)
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made hereunder shall be applied as set forth in the Credit Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and interest due
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hereunder are payable to Agent at Agent's Office (or such other office as may be
designated from time to time by Agent to Maker in writing), for the account of
Bank, in lawful money of the United States and in same day or immediately
available funds not later than 12:00 noon on the date due.
7. RECORDS. Bank shall record the date and amount of each loan
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made, each conversion to a different interest rate and each relevant Interest
Period, if applicable, the amount of principal and interest due and payable from
time to time hereunder, each payment thereof and the resulting unpaid principal
balance hereof, in the Bank's internal records, and any such recordation shall
be rebuttable presumptive evidence of the accuracy of the information so
recorded; provided, however, that Bank's failure to so to record shall not limit
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or otherwise affect the obligations of Maker hereunder and under the Credit
Agreement to repay the principal and interest under the Line of Credit.
8. ACCELERATION AND WAIVERS. The Credit Agreement provides, among
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other things, for acceleration (which in certain cases shall be automatic) of
the maturity hereof upon the occurrence of certain stated events, in each case,
without presentment, protest, demand, notice of dishonor, notice of nonpayment,
notice of maturity, notice of intent to accelerate, notice of acceleration,
presentment for the purpose of accelerating maturity, and diligence in
collection, all of which hereby are expressly waived.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE LIENS
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GRANTED TO BANK (OR AGENT ON BEHALF OF BANK) PURSUANT TO THE TERMS OF THE
SECURITY AGREEMENT AND ANY AND ALL OTHER DOCUMENTS, AGREEMENTS, OR INSTRUMENTS
EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
10. INCORPORATION. ALL OF THE COVENANTS, CONDITIONS, WARRANTIES,
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REPRESENTATIONS, AND AGREEMENTS CONTAINED IN THE CREDIT AGREEMENT OR IN ANY
OTHER AGREEMENT BETWEEN MAKER AND BANK WHICH IS EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT OR THIS NOTE, OR IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER OR UNDER THE CREDIT AGREEMENT, ARE HEREBY INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF.
11. ATTORNEYS' FEES. In the event it should become necessary to
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employ counsel to collect or enforce this Note, Maker agrees to pay the
reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Credit Agreement.
12. AMENDMENTS. This Note may not be changed, modified, amended, or
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terminated except by a writing duly executed by Maker and the then holder hereof
in accordance with the terms and conditions of the Credit Agreement.
13. HEADINGS. Section headings used in this Note are solely for
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convenience of reference, shall not constitute a part of this Note for any other
purpose, and shall not affect the construction of this Note.
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14. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN
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THE STATE OF CALIFORNIA AND THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
LESLIE'S POOLMART, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
______________________________
Title: Chief Financial Officer and
Executive Vice President
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CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of June 11, 1997, is
executed by SANDY'S POOL SUPPLY, INC. ("Guarantor"), in favor of the Lenders
from time to time parties to the Credit Agreement referred to below (each
individually, a "Lender" and, collectively, the "Lenders"), and ▇▇▇▇▇ FARGO
BANK, NATIONAL ASSOCIATION, as swingline lender thereunder (the "Swingline
Lender") and ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION, as agent for the Lenders
and Swingline Lender (in such capacity, "Agent"; together with the Lenders and
Swingline Lender being the "Lender Parties").
RECITALS
--------
A. Pursuant to that certain Credit Agreement dated as of June 11, 1997,
among Leslie's Poolmart, Inc., a Delaware corporation ("Borrower"), the Lenders,
Swingline Lender and Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"; terms defined therein and not otherwise defined
herein being used herein as therein defined), the Lender Parties have agreed to
make available to Borrower certain credit facilities, upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The availability of the credit facilities under the Credit Agreement is
subject, among other conditions, to the execution and delivery by Guarantor of
this Guaranty.
C. Guarantor is a wholly owned Subsidiary of Borrower. Guarantor shall
receive substantial direct and indirect benefits from the making of loans and
other financial accommodations to Borrower under the Credit Agreement, in the
form, among others, of Borrower's financing of the working capital needs of
Guarantor with proceeds of the credit facilities made available to Borrower
under the Credit Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor hereby agrees as follows:
1. GUARANTY; CERTAIN DEFINITIONS. Guarantor hereby unconditionally
guaranties and promises to pay to Agent, each Lender and the Swingline Lender,
or their order, punctually when due, whether at stated maturity, by acceleration
or otherwise, and otherwise on demand, in lawful money of the United States of
America and in immediately
available funds, any Indebtedness of Borrower to any such Lender Party, whether
or not evidenced by a promissory note or notes, as defined in or arising under
the Credit Agreement or any document, instrument or agreement delivered by
Borrower to any Lender Party pursuant to the Credit Agreement or otherwise in
connection with any of the foregoing (the Credit Agreement and such documents,
instruments and agreements, as amended, modified or supplemented from time to
time, collectively being the "Loan Documents"; and all such Indebtedness of
Borrower being the "Guarantied Obligations"). The term "Indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Borrower may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
2. MAXIMUM LIABILITY; CONTINUING GUARANTY; OBLIGATION UNDER OTHER
GUARANTIES. (a) The liability of Guarantor under this Guaranty shall not
exceed at any one time the Maximum Amount, as hereinafter defined, in effect at
such time for principal, plus all interest thereon and costs and expenses
pertaining to the enforcement of this Guaranty or the collection of the
Indebtedness of Borrower to any Lender Party. Notwithstanding the foregoing,
any Lender Party may permit the Guarantied Obligations to exceed Guarantor's
maximum liability hereunder. The "Maximum Amount" on any date of determination
shall mean the greater of (i) the net benefits realized by Guarantor as of such
date from the proceeds of the Credits under the Credit Agreement made available
from time to time by Borrower or any Subsidiary of Borrower to Guarantor and
(ii) the greater of (A) 95% of the Adjusted Net Assets of Guarantor on the date
of delivery hereof and (B) 95% of the Adjusted Net Assets of Guarantor on such
date of determination. "Adjusted Net Assets" of Guarantor on any date of
determination means the lesser of (x) the amount by which the fair value of the
property of Guarantor exceeds the total amount of liabilities, including,
without limitation, disputed, contingent and unliquidated liabilities, but
excluding liabilities under this Guaranty, of Guarantor on such date and (y) the
amount by which the present fair salable value of the property of Guarantor on
such date exceeds the amount that will be required to pay the probable liability
of Guarantor on its debts, excluding debt in respect of this Guaranty, as they
become absolute and matured.
(b) This is a continuing guaranty and all rights, powers and remedies
hereunder shall apply to all past, present and future Indebtedness under the
Loan Documents, including that arising under successive transactions which shall
either continue the Indebtedness under the Loan Documents, increase or decrease
it, or from time to time create new Indebtedness in addition to or to refinance
Indebtedness under the Loan Documents in whole or in part, and after all or any
prior such Indebtedness has been satisfied, and notwithstanding the incapacity,
dissolution, liquidation or bankruptcy of Borrower or Guarantor or any other
event or proceeding affecting Borrower or Guarantor. The obligations of
Guarantor hereunder shall be
2
in addition to any obligations of Guarantor under any other guaranties of any
liabilities or obligations of Borrower or any other persons heretofore or
hereafter given to any Lender Party; and this Guaranty shall not affect or
invalidate any such other guaranties.
3. GUARANTY OF PAYMENT IN ACCORDANCE WITH LOAN DOCUMENTS; OBLIGATIONS
INDEPENDENT; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT
OF LIABILITY. Guarantor guaranties that the Guarantied Obligations will be paid
when due strictly in accordance with the terms of the Loan Documents. The
obligations hereunder independent of the obligations of Borrower, and a separate
action or actions may be brought and prosecuted against Guarantor whether action
is brought against Borrower or any other person, or whether Borrower or any
other person is joined in any such action or actions. Guarantor acknowledges
that there are no conditions precedent to the effectiveness of this Guaranty,
and that this Guaranty is in full force and effect and is binding on Guarantor
as of the date written above, regardless of whether the Lender Parties obtain
collateral or any guaranties from others or take any other action contemplated
by Guarantor. Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof, and
Guarantor agrees that any payment of any Indebtedness or other act which shall
toll any statute of limitations applicable thereto shall similarly operate to
toll such statute of limitations applicable to Guarantor's liability hereunder.
The liability of Guarantor hereunder shall be reinstated and revived and the
rights of the Lender Parties shall continue if and to the extent for any reason
any amount at any time paid on account of any Indebtedness guarantied hereby is
rescinded or must be otherwise restored by any Lender Party, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been paid. The determination as to whether any amount so
paid must be rescinded or restored shall be made by any Lender Party in its sole
discretion; provided however, that if any Lender Party chooses to contest any
such matter at the request of Guarantor, Guarantor agrees to indemnify and hold
such Lender Party harmless from and against all costs and expenses, including
reasonable attorneys' fees, expended or incurred by such Lender Party in
connection therewith, including without limitation, in any litigation with
respect thereto.
4. AUTHORIZATIONS. Guarantor authorizes the Lender Parties, without
notice to or demand on Guarantor, and without affecting Guarantor's liability
hereunder, from time to time to: (a) alter, compromise, renew, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the Guarantied Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Guarantied Obligations or any portion thereof,
and exchange, enforce, waive and release any such security; (c) apply such
security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as the Lender Parties in their discretion
may determine; (d) release or substitute any one or more of the endorsers or any
other guarantors of the Guarantied Obligations, or any part thereof, or any
party thereto; and
3
(e) apply payments received from Borrower to any Indebtedness of Borrower to any
Lender Party, in such order as such Lender Party shall determine in its sole
discretion, whether or not any such Indebtedness is covered by this Guaranty,
and Guarantor hereby waives any provision of law regarding application of
payments which specifies otherwise. Any Lender Party may without notice assign
this Guaranty in whole or in part. Upon any Lender Party's request, Guarantor
agrees to provide to such Lender Party copies of Guarantor's financial
statements.
5. REPRESENTATIONS AND WARRANTIES; COVENANTS OF GUARANTOR. Guarantor
represents and warrants to the Lender Parties that: (a) this Guaranty is
executed at Borrower's request; (b) the execution, delivery and performance by
Guarantor of this Guaranty and each other document, instrument or agreement
executed and delivered by Guarantor in connection with the Credit Agreement has
been duly authorized are within Guarantor's corporate power and authority, have
been duly authorized by all necessary corporate action and do not and will not
violate any law, regulation, order of contractual provision applicable to
Guarantor or its property; (b) this Guaranty and each other document, instrument
and agreement executed and delivered by Guarantor in connection with the Credit
Agreement constitute the legal, valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms; (c)
Guarantor shall not, without Agent's prior written consent, sell, lease, assign,
encumber, hypothecate, transfer or otherwise dispose of all or a substantial or
material part of Guarantor's assets other than in the ordinary course of
business; (d) neither Agent nor any other Lender Party has made any
representation to Guarantor as to the creditworthiness of Borrower; (e)
Guarantor is, and after giving effect hereto (treating the Maximum Amount,
calculated under each of the alternative formulations therefor in Section 2(a)
hereof, as a noncontingent liability of Guarantor) shall be, Solvent; (f)
Guarantor acknowledges that it will receive substantial benefit from the Credits
to be provided under the Credit Agreement, in the form, among others, of
Borrower's financing of the working capital needs of Guarantor with proceeds of
such credit facilities, and Guarantor accordingly acknowledges that is has
received fair and adequate consideration for its execution, delivery and
performance of this Guaranty; and (g) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Guarantor further
agrees that neither Agent nor any other Lender Party shall have any obligation
to disclose to Guarantor any information or material about Borrower which is
acquired by any Lender Party in any manner.
6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require any
Lender Party to: (i) proceed against Borrower or any other person; (ii) proceed
against or exhaust any security held from Borrower or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or otherwise
comply with the provisions of Section 9504 of the California Uniform Commercial
Code; (iv) pursue any other remedy in Agent's or any other Lender
4
Party's power; or (v) make any presentments or demands for performance, or give
any notices of nonperformance, protests, notices of protest or notices of
dishonor in connection with any obligations or evidences of indebtedness held by
any Lender Party as security or which constitute in whole or in part the
Indebtedness guarantied hereunder, or in connection with the creation of new or
additional Indebtedness.
(b) Guarantor waives any defense based upon or arising by reason of: (i)
any disability or other defense of Borrower or any other person; (ii) the
cessation or limitation from any cause whatsoever, other than indefeasible
payment in full, of the Indebtedness of Borrower or any other person; (iii) any
lack of authority of any officer, director, partner, agent or any other person
acting or purporting to act on behalf of Borrower if a corporation, partnership
or other type of entity, or any defect in the formation of any such Borrower;
(iv) the application by Borrower of the proceeds of any Indebtedness for
purposes other than the purposes represented by Borrower to, or intended or
understood by any Lender Party or Guarantor; (v) any act or omission by any
Lender Party which directly or indirectly results in or aids the discharge of
Borrower or any Indebtedness by operation of law or otherwise; or (vi) any
modification of any Indebtedness, in any form whatsoever, including without
limitation any modification made after revocation hereof to any Indebtedness
incurred prior to such revocation, and including without limitation the renewal,
extension, acceleration or other change in time for payment of, or other change
in the terms of, the Guarantied Obligations or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Indebtedness of
Borrower to the Lender Parties under the Loan Documents shall have been
indefeasibly paid in full, Guarantor shall have no right of subrogation.
Guarantor waives all rights and defenses or may have arising out of (A) any
election of remedies by any Lender Party, even though that election of remedies,
such as a non-judicial foreclosure with respect to any security for any portion
of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's
rights to proceed against Borrower for reimbursement, or (B) any loss of rights
Guarantor may suffer by reason of any rights, powers or remedies of Borrower in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrower's Indebtedness, whether by operation of Sections 726 or
580d of the Code of Civil Procedure as from time to time amended, or otherwise.
Until all Indebtedness of Borrower to the Lender Parties under the Loan
Documents shall have been indefeasibly paid in full, Guarantor further waives
any right to enforce any remedy which any Lender Party now has or may hereafter
have against Borrower or any other person, and waives any benefit of, or any
right to participate in, any security now or hereafter held by any Lender Party.
7. GUARANTOR'S UNDERSTANDINGS WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences, and that under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any of said waivers is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted by
law.
5
8. LENDER PARTIES' RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN
POSSESSION OF AGENT AND LENDERS. In addition to all liens upon, and rights of
setoff against the monies, securities or other property of or given to any
Lender Party by law, each Lender Party shall have a lien upon and a right of
setoff against all monies, securities and other property of Guarantor now or
hereafter in the possession of Guarantor on deposit with such Lender Party,
whether held in a general or special account or deposit or for safekeeping or
otherwise, and every such lien and right of setoff may be exercised without
demand upon or notice to Guarantor. No lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of any Lender Party, or by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing, and every right of setoff and lien shall continue in full
force and effect until such right of setoff or lien is specifically waived or
released by an instrument in writing executed by such Lender Party.
9. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Without limiting
provisions in the Loan Documents restricting Borrower's ability to incur
indebtedness, any Indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the Indebtedness of Borrower to the Lender Parties under
the Loan Documents. Such Indebtedness of Borrower to Guarantor is assigned to
the Lender Parties as security for this Guaranty and the Guarantied Obligations
and, if Agent requests, shall be collected and received by Guarantor as trustee
for the Lender Parties and paid over to Agent on account of the Indebtedness of
Borrower to the Lender Parties but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty. Any
notes or other instruments now or hereafter evidencing such Indebtedness of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and, if Agent so requests, shall be delivered to Agent. Guarantor
will, and Agent is hereby authorized, in the name of Guarantor from time to time
to execute and file financing statements and continuation statements and execute
such other documents and take such other actions as Agent deems necessary or
appropriate to perfect, preserve and enforce the rights of any Lender Party
hereunder.
10. DISCLOSURE OF INFORMATION. Guarantor acknowledges that the Lender
Parties have the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, any Indebtedness of
Borrower to any Lender Party under the Loan Documents and any obligations with
respect thereto, including this Guaranty. In connection therewith, the Lender
Parties may disclose all documents and information which any Lender Party now
has or hereafter acquires relating to Guarantor and this Guaranty, whether
furnished by Borrower, Guarantor or otherwise. Guarantor further agrees that
the Lender Parties may disclose such documents and information to Borrower.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Agent and
each other Lender Party immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside
6
counsel fees and all allocated costs of such Lender Party's in-house counsel),
incurred by such Lender Party in connection with the enforcement of this
Guaranty and any other document, instrument or agreement executed and delivered
by Guarantor in connection with the Credit Agreement, including any of the
foregoing incurred in connection with any workout or bankruptcy proceeding
relating to Guarantor, and/or the collection of any of the Indebtedness of
Borrower to any Lender Party. All of the foregoing shall be paid by Guarantor
with interest at a rate per annum equal to the greater of ten percent (10%) or
Agent's Prime Rate in effect from time to time, as defined in the Credit
Agreement.
12. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Guaranty shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
13. SUBMISSION TO JURISDICTION. GUARANTOR HEREBY (A) SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL
COURTS OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY
OTHER DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED AND DELIVERED BY GUARANTOR IN
CONNECTION WITH THE CREDIT AGREEMENT, (B) AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, (C)
IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW) ANY
OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION
ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, AND (IV) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
14. WAIVER OF JURY TRIAL. GUARANTOR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF
OR RELATING TO THIS GUARANTY OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED AND DELIVERED BY GUARANTOR IN CONNECTION WITH THE CREDIT AGREEMENT OR
ANY OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
7
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND ANY SUCH DOCUMENT, INSTRUMENT
OR AGREEMENT. A COPY OF THIS SECTION 14 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY
COURT.
[Signature page follows.]
8
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty as
of the date first written above.
SANDY'S POOL SUPPLY, INC.
BY: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
--------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chief Executive Officer,
President, Chief Financial
Officer and Secretary
9
CONTINUING SECURITY AGREEMENT
-----------------------------
THIS CONTINUING SECURITY AGREEMENT (this "Agreement") is entered into
---------
as of the 11 day of June, 1997, by and between ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION ("▇▇▇▇▇ Fargo"), acting in its capacity as agent on behalf of the
-----------
financial institutions signatory as lenders (the "Lenders") and swingline lender
-------
(the "Swingline Lender") to that certain Credit Agreement dated as of June 11,
----------------
1997 (as it may be amended or supplemented from time to time, the "Credit
------
Agreement"), and any successor to ▇▇▇▇▇ Fargo as agent thereunder (in such
---------
capacity, "Secured Party"; together with the Lenders and the Swingline Lender
-------------
being the "Lender Parties") and SANDY'S POOL SUPPLY, INC., a California
--------------
corporation ("Debtor"), in light of the following facts:
------
WHEREAS, Leslie's Poolmart, Inc., a Delaware corporation and parent
company of Debtor (the "Borrower"), on the one hand, and the Lender Parties, on
the other hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Borrower"), to which Borrower is successor by merger, under a Third Amended and
--------
Restated Credit Agreement dated as of January 29, 1997 among Predecessor
Borrower, the lenders parties thereto and ▇▇▇▇▇ Fargo, as agent;
WHEREAS, Debtor has executed and delivered that certain Continuing
Guaranty dated as of June 11, 1997 in favor of Secured Party and the other
Lender Parties (the "Guaranty") pursuant to which Debtor has agreed to guaranty
Borrower's obligations under the Credit Agreement and the other Loan Documents
(as defined in the Credit Agreement).
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral and Proceeds (each
as defined below) as security for Debtor's obligations under the Guaranty;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair or
otherwise or from any other source whatsoever), including, without limitation,
all securities, investment property, guaranties, warranties, indemnity
agreements, insurance policies, and other agreements pertaining to the foregoing
or, if applicable, the property described therein, and in all goods returned by
Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
----------
whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
---------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
----------
together with (i) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from
-2-
any such sale, lease, collection, exchange or other disposition of any of the
foregoing, (ii) all Rights to Payment, including without limitation returned
premiums, with respect to any insurance relating to any of the Collateral or
proceeds thereof, and (iii) all Rights to Payment with respect to any cause of
action affecting or relating to any of the Collateral or proceeds thereof
(hereinafter called "Proceeds").
--------
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Guaranty; and (b) all obligations of Debtor and
rights in respect thereof of Secured Party, on behalf of the Lender Parties,
under this Agreement and the other Loan Documents; (collectively, the "Secured
-------
Obligations"). The word "Indebtedness" is used herein in its most comprehensive
----------- ------------
sense and includes any and all advances, debts, obligations and liabilities of
Debtor heretofore, now or hereafter made, incurred or created, whether voluntary
or involuntary and however arising, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Debtor may be liable individually or jointly, or whether recovery upon such
Indebtedness may be or hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of
the Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except as heretofore
disclosed to Secured Party in writing and except for Permitted Liens (as defined
in the Credit Agreement); (d) all statements contained herein are true and
complete; (e) no financing statement covering any of the Collateral or Proceeds,
and naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without
-3-
limitation, any Equipment that Debtor may deem to be surplus, has been or shall
be consented to or acquiesced in by Secured Party, except as permitted under
Section 6(b)(vi) herein or as otherwise specifically set forth in writing by
----------------
Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured
hereby when due; (ii) to indemnify Secured Party against all losses, claims,
demands, liabilities and expenses of every kind caused by property subject
hereto; (iii) to pay all costs and expenses, including reasonable attorneys'
fees, incurred by Secured Party in the perfection, preservation, realization,
enforcement and exercise of its rights, powers and remedies hereunder; (iv) to
permit Secured Party to exercise its powers; (v) to execute and deliver such
documents as Secured Party deems necessary to create, perfect and continue the
security interests contemplated hereby (including, without limitation, in
respect of the Trademark Collateral); (vi) not to change its chief executive
office or the places where Debtor keeps any of the Collateral or Debtor's
records concerning the Collateral and Proceeds without first giving Secured
Party 60 calendar days' written notice of the address to which Debtor is moving
same; and (vii) not to locate any distribution center of Debtor on leased
premises unless the landlord of such premises shall have executed and delivered
to Secured Party a landlord's consent in substantially the form of Exhibit A
---------
hereto or such other form as shall be reasonably satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
--------
however, that the foregoing restriction shall not apply to (Y) the sale of
------
Inventory to buyers in the ordinary course of Debtor's business, and (Z) the
sale or other disposition of Equipment so long as (1) no Event of Default has
occurred and is continuing, (2) Borrower is receiving fair value therefor, and
(3) such Equipment is no longer integral to the operation of Debtor's business;
(vii) not to rent, lease, or charter Equipment
-4-
without Secured Party's prior written consent; provided, however, that the
-------- -------
foregoing restriction shall not apply to the rental, lease or charter of
Equipment so long as (1) no Event of Default has occurred and is continuing, and
(2) such Equipment is no longer integral to the operation of Debtor's business;
(viii) to furnish reports to Secured Party of all acquisitions, returns, sales
and other dispositions of Inventory in such form and detail and at such times as
Secured Party may require; (ix) to permit Secured Party to inspect the
Collateral at any time; (x) to keep, in accordance with generally accepted
accounting principles, complete and accurate records regarding all Collateral
and Proceeds, and to permit Secured Party to inspect the same and make copies
thereof at any reasonable time; (xi) if requested by Secured Party, to receive
and use reasonable diligence to collect Rights to Payment and Proceeds, in trust
and as the property of Secured Party, and to immediately endorse as appropriate
and deliver such Rights to Payment and Proceeds to Secured Party daily in the
exact form in which they are received together with a collection report in form
satisfactory to Secured Party; (xii) not to commingle Rights to Payment,
Proceeds or collections thereunder with other property; (xiii) to give only
normal allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or Proceeds; (xiv) on demand, to deliver
to Secured Party returned property resulting from, or payment equal to, such
allowances or credits on any Collateral or Proceeds or to execute such documents
and do such other things as Secured Party may reasonably request for the purpose
of perfecting, preserving and enforcing its security interest in such returned
property; (xv) from time to time, when requested by Secured Party, to prepare
and deliver a schedule of all Collateral and Proceeds subject to this Agreement
and to assign in writing and deliver to Secured Party all accounts, contracts,
leases and other chattel paper, instruments, documents and other evidences
thereof; (xvi) in the event that Secured Party elects to receive payments of
Rights to Payment or Proceeds hereunder, to pay all expenses incurred by Secured
Party in connection therewith, including expenses of accounting, correspondence,
collection efforts, reporting to account or contract debtors, filing, recording,
record keeping and expenses incidental thereto; and (xvii) to provide any
service and do any other acts which may be necessary to maintain, preserve and
protect all Collateral and, as appropriate and applicable, to keep all
Collateral in good and saleable condition and repair, to deal with the
Collateral in accordance with the standards and practices adhered to generally
by users, manufacturers and owners of like property, and to keep all Collateral
and Proceeds free and clear of all defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release security; (e) to resort to security in any
order; (f) to prepare, execute, file, record or deliver notes, assignments,
schedules, designation statements, financing statements, continuation
statements,
-5-
termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Secured Party's
interest in the Collateral and Proceeds; (g) to receive, open and read mail
addressed to Debtor; (h) to take cash, instruments for the payment of money and
other property to which Secured Party is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Secured
Party, at Secured Party's sole option, toward repayment of the Secured
Obligations or replacement of the Collateral; (l) to exercise all rights, powers
and remedies which Debtor would have, but for this Agreement, with respect to
all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises
in inspecting the Collateral; (n) to make withdrawals from and to close deposit
accounts or other accounts with any financial institution, wherever located,
into which Proceeds may have been deposited, and to apply funds so withdrawn to
payment of the Secured Obligations; (o) to preserve or release the interest
evidenced by chattel paper to which Secured Party is entitled hereunder and to
endorse and deliver evidences of title incidental thereto; and (p) to do all
acts and things and execute all documents in the name of Debtor or otherwise,
deemed by Secured Party as necessary, proper and convenient in connection with
the preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
----------
Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare
-6-
immediately due and payable all or any Indebtedness secured hereby. Secured
Party shall have all other rights, powers, privileges and remedies granted to a
secured party upon default under the California Uniform Commercial Code or
otherwise provided by law, including without limitation, the right to contact
all persons obligated to Debtor on any Collateral or Proceeds and to instruct
such persons to deliver all Collateral and/or Proceeds directly to Secured
Party. All rights, powers, privileges and remedies of Secured Party shall be
cumulative. No delay, failure or discontinuance of Secured Party in exercising
any right, power, privilege or remedy hereunder shall affect or operate as a
waiver of such right, power, privilege or remedy; nor shall any single or
partial exercise of any such right, power, privilege or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of any
other right, power, privilege or remedy. Any waiver, permit, consent or approval
of any kind by Secured Party of any default hereunder, or any such waiver of any
provisions or conditions hereof, must be in writing and shall be effective only
to the extent set forth in writing. It is agreed that public or private sales,
for cash or on credit, to a wholesaler or retailer or investor, or user of
property of the types subject to this Agreement, or public auction, are all
commercially reasonable since differences in the sales prices generally realized
in the different kinds of sales are ordinarily offset by the differences in the
costs and credit risks of such sales.
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party toward
the payment of the Secured Obligations in such order of application as Secured
Party may from time to time elect.
-7-
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and/or Borrower's obligations under the Credit Agreement and
the other Loan Documents and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
----------
rate that ▇▇▇▇▇ Fargo from time to time establishes and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations and/or of Borrower's
obligations under the Credit Agreement and the other Loan Documents, the release
or substitution of Collateral or Proceeds or any other security for the Secured
Obligations or for Borrower's obligations under the Credit Agreement and the
other Loan Documents, and the release of any guarantors; provided, however, that
-------- -------
in each instance, Secured Party believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Secured Obligations shall have been indefeasibly paid in cash and performed
in full, Debtor shall not have any right of subrogation or contribution vis a
vis any other person or entity obligated to Secured Party and/or the other
Lender Parties in connection with the Credit Agreement or any other Loan
Document, and Debtor hereby waives any benefit of or right to participate in any
of the Collateral or Proceeds or any other security now or hereafter held by
Secured Party.
-8-
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
Debtor warrants that its chief executive office is located at the
following address:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
----------
locations of leased premises on which Debtor's distribution centers, if any, are
located are also set forth in Schedule 2.
----------
[Remainder of page intentionally left blank]
-9-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
SANDY'S POOL SUPPLY, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-----------------------------
Title: President
-----------------------------
▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------
Title: Vice President
-----------------------------
-10-
SCHEDULE 1
TO CONTINUING SECURITY AGREEMENT
Trademark Collateral
--------------------
-11-
SCHEDULE 2
TO CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
------------------------------------------------
None.
-12-
EXHIBIT A
TO CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
------------------------
See attached.
-13-
CONTINUING SECURITY AGREEMENT
-----------------------------
THIS CONTINUING SECURITY AGREEMENT (this "Agreement") is entered into
---------
as of the 11 day of June, 1997, by and between ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION ("▇▇▇▇▇ Fargo"), acting in its capacity as agent on behalf of the
-----------
financial institutions signatory as lenders (the "Lenders") and swingline lender
-------
(the "Swingline Lender") to that certain Credit Agreement dated as of June 11,
----------------
1997 (as it may be amended or supplemented from time to time, the "Credit
------
Agreement"), and any successor to ▇▇▇▇▇ Fargo as agent thereunder (in such
---------
capacity, "Secured Party"; together with the Lenders and the Swingline Lender
-------------
being the "Lender Parties") and LESLIE'S POOL BRITE, INC., a California
--------------
corporation ("Debtor"), in light of the following facts:
---------
WHEREAS, Leslie's Poolmart, Inc., a Delaware corporation and parent
company of Debtor (the "Borrower"), on the one hand, and the Lender Parties, on
the other hand, have entered into the Credit Agreement;
WHEREAS, the Credit Agreement provides for the refinancing of the
obligations of Leslie's Poolmart, a California corporation ("Predecessor
-----------
Borrower"), to which Borrower is successor by merger, under a Third Amended and
--------
Restated Credit Agreement dated as of January 29, 1997 among Predecessor
Borrower, the lenders parties thereto and ▇▇▇▇▇ Fargo, as agent;
WHEREAS, Debtor has executed and delivered that certain Continuing
Guaranty dated as of June 11, 1997 in favor of Secured Party and the other
Lender Parties (the "Guaranty") pursuant to which Debtor has agreed to guaranty
Borrower's obligations under the Credit Agreement and the other Loan Documents
(as defined in the Credit Agreement).
WHEREAS, Debtor has agreed to grant to Secured Party, for the benefit
of the Lender Parties, a security interest in the Collateral and Proceeds (each
as defined below) as security for Debtor's obligations under the Guaranty;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
conditions, representations, and warranties hereinafter set forth, and for other
good and valuable consideration, the parties hereto hereby agree as follows:
1. GRANT OF SECURITY INTEREST. For valuable consideration, Debtor
hereby grants and transfers to Secured Party a security interest in all of
Debtor's interest in the following:
(a) all accounts, deposit accounts, accounts receivable, chattel
paper, instruments, documents and general intangibles, now existing or at any
time hereafter, and prior to the termination hereof, arising (whether arising
from the sale, lease or other disposition of Inventory (as defined below) or
from performance of contracts for service, manufacture, construction, repair
or otherwise or from any other source whatsoever), including, without
limitation, all securities, investment property, guaranties, warranties,
indemnity agreements, insurance policies, and other agreements pertaining to the
foregoing or, if applicable, the property described therein, and in all goods
returned by Debtor's customers (collectively called "Rights to Payment");
-----------------
(b) all trademarks, service marks, trade names, trade name rights
and all other proprietary labels or marks, all applications for registration of
any of the foregoing and all licenses relating to any of the foregoing and all
income and royalties relating thereto (including, without limitation, such
marks, names, applications and licenses as are listed in Schedule 1 hereto)
----------
whether now owned or hereafter acquired and whether registered or unregistered,
and wherever registered, and all rights arising therefrom and pertaining thereto
and all reissues, extensions and renewals thereof (collectively called the
"Trademark Collateral");
--------------------
(c) all inventory, goods held for sale or lease or to be furnished
under contracts for service, goods so leased or furnished, raw materials,
component parts, work in process or materials used or consumed in Debtor's
business, and all warehouse receipts, bills of lading and other documents
evidencing goods owned or acquired by Debtor, and all goods covered thereby, now
or at any time hereafter, and prior to the termination hereof, owned or acquired
by Debtor, wherever located, and all products thereof, whether in the possession
of Debtor, warehousemen, bailees or any other person and whether located at
Debtor's places of business or elsewhere (collectively called "Inventory");
---------
(d) all goods, tools, machinery, furnishings, furniture and other
equipment and fixtures, now or at any time hereafter, and prior to the
termination hereof, owned or acquired by Debtor, wherever located, whether in
the possession of Debtor or any other person and whether located on Debtor's
property or elsewhere, and all improvements, replacements, accessions and
additions thereto (collectively called "Equipment," and together with all Rights
---------
to Payment, Trademark Collateral and Inventory referred to herein collectively
as the "Collateral");
----------
together with (i) whatever is receivable or received when any of the Collateral
or proceeds thereof are sold, leased, collected, exchanged or otherwise disposed
of, whether such disposition is voluntary or involuntary, including without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles and Rights to Payment of any kind now or hereafter arising from any
such sale, lease, collection, exchange or other disposition of any of the
foregoing, (ii) all Rights to Payment, including without limitation returned
premiums, with respect to any insurance relating to any of the Collateral or
proceeds thereof, and (iii) all Rights to Payment with respect to any cause of
action affecting or relating to any of the Collateral or proceeds thereof
(hereinafter called "Proceeds").
--------
2. OBLIGATIONS SECURED. The obligations secured hereby are the
payment and performance of: (a) all present and future Indebtedness of Debtor
to the Lender Parties under the Guaranty; and (b) all obligations of Debtor and
rights in respect thereof of Secured Party, on behalf of the Lender Parties,
under this Agreement and the other Loan Documents; (collectively, the "Secured
-------
Obligations"). The word "Indebtedness" is used herein in its most comprehensive
----------- ------------
sense
-2-
and includes any and all advances, debts, obligations and liabilities of Debtor
heretofore, now or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Debtor may
be liable individually or jointly, or whether recovery upon such Indebtedness
may be or hereafter become unenforceable.
3. TERMINATION. This Agreement will terminate upon the indefeasible
payment in cash and performance in full of the Secured Obligations.
4. OBLIGATIONS OF SECURED PARTY. Secured Party has no obligation to
make any loans hereunder. Any money received by Secured Party in respect of the
Collateral and Proceeds may be deposited, at Secured Party's option, into a non-
interest bearing account over which Debtor shall have no control, and the same
shall, for all purposes, be deemed Collateral hereunder.
5. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants to
Secured Party that: (a) Debtor is the owner and has possession or control of
the Collateral and Proceeds; (b) Debtor has the right to grant a security
interest in the Collateral and Proceeds; (c) all Collateral and Proceeds are
genuine, free from liens, adverse claims, setoffs, default, prepayment, defenses
and conditions precedent of any kind or character, except as heretofore
disclosed to Secured Party in writing and except for Permitted Liens (as defined
in the Credit Agreement); (d) all statements contained herein are true and
complete; (e) no financing statement covering any of the Collateral or Proceeds,
and naming any secured party other than Secured Party, is on file in any public
office; (f) all persons appearing to be obligated on Rights to Payment and
Proceeds have authority and capacity to contract and are bound as they appear to
be; (g) all property subject to chattel paper has been properly registered and
filed in compliance with law and to perfect the interest of Debtor in such
property; (h) all Rights to Payment and Proceeds comply with all applicable laws
concerning form, content and manner of preparation and execution, including
where applicable Federal Reserve Regulation Z and any State consumer credit
laws; and (i) Debtor is not in the business of selling goods of the kind
included within Equipment subject to this Agreement, and Debtor acknowledges
that no sale of Equipment, including without limitation, any Equipment that
Debtor may deem to be surplus, has been or shall be consented to or acquiesced
in by Secured Party, except as permitted under Section 6(b)(vi) herein or as
----------------
otherwise specifically set forth in writing by Secured Party.
6. COVENANTS OF DEBTOR.
(a) DEBTOR AGREES IN GENERAL: (i) to pay Indebtedness secured hereby
when due; (ii) to indemnify Secured Party against all losses, claims, demands,
liabilities and expenses of every kind caused by property subject hereto; (iii)
to pay all costs and expenses, including reasonable attorneys' fees, incurred by
Secured Party in the perfection, preservation, realization, enforcement and
exercise of its rights, powers and remedies hereunder; (iv) to permit Secured
Party to exercise its powers; (v) to execute and deliver such documents as
Secured Party deems necessary to create, perfect and continue the security
interests contemplated hereby (including,
-3-
without limitation, in respect of the Trademark Collateral); (vi) not to change
its chief executive office or the places where Debtor keeps any of the
Collateral or Debtor's records concerning the Collateral and Proceeds without
first giving Secured Party 60 calendar days' written notice of the address to
which Debtor is moving same; and (vii) not to locate any distribution center of
Debtor on leased premises unless the landlord of such premises shall have
executed and delivered to Secured Party a landlord's consent in substantially
the form of Exhibit A hereto or such other form as shall be reasonably
---------
satisfactory to Secured Party.
(b) DEBTOR AGREES WITH REGARD TO THE COLLATERAL AND PROCEEDS: (i)
to insure Inventory and Equipment, and, where applicable, Rights to Payment,
with Secured Party as loss payee, in form and amounts, under agreements, against
risks and liabilities, and with insurance companies satisfactory to Secured
Party; (ii) to operate Equipment in accordance with all applicable statutes,
rules and regulations relating to the use and control thereof, and not to use
any Equipment or Inventory for any unlawful purpose or in any way that would
void any insurance required to be carried in connection therewith; (iii) not to
remove any Equipment or Inventory from Debtor's premises without Secured Party's
prior written consent and upon such terms and conditions as Secured Party may
require, except for deliveries of Inventory to buyers in the ordinary course of
Debtor's business and except for Equipment or Inventory which consists of mobile
goods as defined in the California Uniform Commercial Code, in which case Debtor
agrees not to remove or permit the removal of such Equipment or Inventory from
its state of domicile for a period in excess of 30 calendar days; (iv) not to
permit any lien on the Collateral or Proceeds, except in favor of Secured Party
and Permitted Liens; (v) to pay when due all license fees, registration fees and
other charges in connection with Equipment; (vi) not to sell, hypothecate,
license or otherwise dispose of any of the Collateral or Proceeds, or any
interest therein without Secured Party's prior written consent; provided,
--------
however, that the foregoing restriction shall not apply to (Y) the sale of
-------
Inventory to buyers in the ordinary course of Debtor's business, and (Z) the
sale or other disposition of Equipment so long as (1) no Event of Default has
occurred and is continuing, (2) Borrower is receiving fair value therefor, and
(3) such Equipment is no longer integral to the operation of Debtor's business;
(vii) not to rent, lease, or charter Equipment without Secured Party's prior
written consent; provided, however, that the foregoing restriction shall not
-------- -------
apply to the rental, lease or charter of Equipment so long as (1) no Event of
Default has occurred and is continuing, and (2) such Equipment is no longer
integral to the operation of Debtor's business; (viii) to furnish reports to
Secured Party of all acquisitions, returns, sales and other dispositions of
Inventory in such form and detail and at such times as Secured Party may
require; (ix) to permit Secured Party to inspect the Collateral at any time; (x)
to keep, in accordance with generally accepted accounting principles, complete
and accurate records regarding all Collateral and Proceeds, and to permit
Secured Party to inspect the same and make copies thereof at any reasonable
time; (xi) if requested by Secured Party, to receive and use reasonable
diligence to collect Rights to Payment and Proceeds, in trust and as the
property of Secured Party, and to immediately endorse as appropriate and deliver
such Rights to Payment and Proceeds to Secured Party daily in the exact form in
which they are received together with a collection report in form satisfactory
to Secured Party; (xii) not to commingle Rights to Payment, Proceeds or
collections thereunder with other property; (xiii) to give only normal
allowances and credits and to advise Secured Party thereof immediately in
writing if they affect any Collateral or
-4-
Proceeds; (xiv) on demand, to deliver to Secured Party returned property
resulting from, or payment equal to, such allowances or credits on any
Collateral or Proceeds or to execute such documents and do such other things as
Secured Party may reasonably request for the purpose of perfecting, preserving
and enforcing its security interest in such returned property; (xv) from time to
time, when requested by Secured Party, to prepare and deliver a schedule of all
Collateral and Proceeds subject to this Agreement and to assign in writing and
deliver to Secured Party all accounts, contracts, leases and other chattel
paper, instruments, documents and other evidences thereof; (xvi) in the event
that Secured Party elects to receive payments of Rights to Payment or Proceeds
hereunder, to pay all expenses incurred by Secured Party in connection
therewith, including expenses of accounting, correspondence, collection efforts,
reporting to account or contract debtors, filing, recording, record keeping and
expenses incidental thereto; and (xvii) to provide any service and do any other
acts which may be necessary to maintain, preserve and protect all Collateral
and, as appropriate and applicable, to keep all Collateral in good and saleable
condition and repair, to deal with the Collateral in accordance with the
standards and practices adhered to generally by users, manufacturers and owners
of like property, and to keep all Collateral and Proceeds free and clear of all
defenses, rights of offset and counterclaims.
7. POWERS OF SECURED PARTY. Debtor appoints Secured Party its true
attorney in fact to perform any of the following powers, which are coupled with
an interest, are irrevocable until termination of this Agreement and may be
exercised from time to time by Secured Party's officers and employees, or any of
them, whether or not Debtor is in default: (a) to perform any obligation of
Debtor hereunder in Debtor's name or otherwise; (b) to give notice of Secured
Party's rights in the Collateral and Proceeds, to enforce the same and make
extension agreements with respect thereto; (c) to release persons liable on
Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release security; (e) to resort to security in any
order; (f) to prepare, execute, file, record or deliver notes, assignments,
schedules, designation statements, financing statements, continuation
statements, termination statements, statements of assignment, applications for
registration or like papers to perfect, preserve or release Secured Party's
interest in the Collateral and Proceeds; (g) to receive, open and read mail
addressed to Debtor; (h) to take cash, instruments for the payment of money and
other property to which Secured Party is entitled; (i) to verify facts
concerning the Collateral and Proceeds by inquiry of obligors thereon, or
otherwise, in its own name or a fictitious name; (j) to endorse, collect,
deliver and receive payment under instruments for the payment of money
constituting or relating to Proceeds; (k) to prepare, adjust, execute, deliver
and receive payment under insurance claims, and to collect and receive payment
of and endorse any instrument in payment of loss or returned premiums or any
other insurance refund or return, and to apply such amounts received by Secured
Party, at Secured Party's sole option, toward repayment of the Secured
Obligations or replacement of the Collateral; (l) to exercise all rights, powers
and remedies which Debtor would have, but for this Agreement, with respect to
all Collateral and Proceeds subject hereto; (m) to enter onto Debtor's premises
in inspecting the Collateral; (n) to make withdrawals from and to close deposit
accounts or other accounts with any financial institution, wherever located,
into which Proceeds may have been deposited, and to apply funds so withdrawn to
payment of the Secured Obligations; (o) to preserve or release the interest
evidenced by chattel paper to which Secured Party is entitled hereunder and
-5-
to endorse and deliver evidences of title incidental thereto; and (p) to do all
acts and things and execute all documents in the name of Debtor or otherwise,
deemed by Secured Party as necessary, proper and convenient in connection with
the preservation, perfection or enforcement of its rights hereunder.
8. PAYMENT OF PREMIUMS, TAXES, CHARGES, LIENS AND ASSESSMENTS.
Debtor agrees to pay, prior to delinquency, all insurance premiums, taxes,
charges, liens and assessments against the Collateral and Proceeds, and upon the
failure of Debtor to do so, Secured Party at its option may pay any of them and
shall be the sole judge of the legality or validity thereof and the amount
necessary to discharge the same. Any such payments made by Secured Party shall
be obligations of Debtor to Secured Party, due and payable immediately upon
demand, together with interest at a rate determined in accordance with the
provisions of Section 12 herein, and shall be secured by the Collateral and
----------
Proceeds, subject to all terms and conditions of this Agreement.
9. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement: (a) any Event of Default
----------------
(as such term is defined in the Credit Agreement); (b) any representation or
warranty made by Debtor herein shall prove to be incorrect in any material
respect when made or deemed made; (c) Debtor shall fail to observe or perform
any obligation or agreement contained herein; (d) any attachment or like levy on
any property of Debtor; and (e) Secured Party, in good faith, believes any or
all of the Collateral and/or Proceeds to be in danger of misuse, dissipation,
commingling, loss, theft, damage or destruction, or otherwise in jeopardy or
unsatisfactory in character or value.
10. REMEDIES. Upon the occurrence of any Event of Default, Secured
Party shall have the right (upon the request or with the consent of the Majority
Lenders) to declare immediately due and payable all or any Indebtedness secured
hereby. Secured Party shall have all other rights, powers, privileges and
remedies granted to a secured party upon default under the California Uniform
Commercial Code or otherwise provided by law, including without limitation, the
right to contact all persons obligated to Debtor on any Collateral or Proceeds
and to instruct such persons to deliver all Collateral and/or Proceeds directly
to Secured Party. All rights, powers, privileges and remedies of Secured Party
shall be cumulative. No delay, failure or discontinuance of Secured Party in
exercising any right, power, privilege or remedy hereunder shall affect or
operate as a waiver of such right, power, privilege or remedy; nor shall any
single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. Any waiver, permit,
consent or approval of any kind by Secured Party of any default hereunder, or
any such waiver of any provisions or conditions hereof, must be in writing and
shall be effective only to the extent set forth in writing. It is agreed that
public or private sales, for cash or on credit, to a wholesaler or retailer or
investor, or user of property of the types subject to this Agreement, or public
auction, are all commercially reasonable since differences in the sales prices
generally realized in the different kinds of sales are ordinarily offset by the
differences in the costs and credit risks of such sales.
-6-
While an Event of Default exists: (a) Debtor will deliver to Secured
Party, from time to time, as requested by Secured Party, current lists of all
Collateral and Proceeds; (b) Debtor will not dispose of any of the Collateral or
Proceeds except on terms approved by Secured Party; (c) at Secured Party's
request, Debtor will assemble and deliver all Collateral and Proceeds, and books
and records pertaining thereto, to Secured Party at a reasonably convenient
place designated by Secured Party; and (d) Secured Party may, without notice to
Debtor, enter onto Debtor's premises and take possession of the Collateral. For
the avoidance of doubt, with respect to any sale by Secured Party of any
Collateral subject to this Agreement, Debtor hereby expressly grants to Secured
Party the right to sell such Collateral using any or all of Debtor's trademarks,
trade names, trade name rights and/or proprietary labels or marks.
11. DISPOSITION OF COLLATERAL AND PROCEEDS. Upon the transfer of all
or any part of the Secured Obligations, Secured Party may transfer all or any
part of the Collateral or Proceeds and shall be fully discharged thereafter from
all liability and responsibility with respect to any of the foregoing so
transferred, and the transferee shall be vested with all rights and powers of
Secured Party hereunder with respect to any of the foregoing so transferred; but
with respect to any Collateral or Proceeds not so transferred Secured Party
shall retain all rights, powers, privileges and remedies herein given. Any
proceeds of any disposition of any of the Collateral or Proceeds, or any part
thereof, may be applied by Secured Party to the payment of expenses incurred by
Secured Party in connection with the foregoing, including reasonable attorneys'
fees, and the balance of such proceeds may be applied by Secured Party toward
the payment of the Secured Obligations in such order of application as Secured
Party may from time to time elect.
12. COSTS, EXPENSES AND ATTORNEYS' FEES. Debtor shall pay to Secured
Party immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of Secured Party's in-house
counsel), incurred by Secured Party in exercising any right, power, privilege or
remedy conferred by this Agreement or in the enforcement thereof, including any
of the foregoing incurred in connection with any workout or restructuring of the
Secured Obligations and/or Borrower's obligations under the Credit Agreement and
the other Loan Documents and any bankruptcy proceeding relating to Debtor or the
valuation of the Collateral and/or Proceeds, including without limitation, the
seeking of relief from or modification of the automatic stay or the negotiation
and drafting of a cash collateral order. All of the foregoing shall be paid by
Debtor with interest at a rate per annum equal to the greater of ten percent
(10%) or the Prime Rate in effect from time to time. The "Prime Rate" is a base
----------
rate that ▇▇▇▇▇ Fargo from time to time establishes and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
13. STATUTE OF LIMITATIONS. Until all Secured Obligations shall have
been indefeasibly paid in cash and performed in full, the power of sale and all
other rights, powers, privileges and remedies granted to Secured Party hereunder
shall continue to exist and may be exercised by Secured Party at any time and
from time to time irrespective of the fact that the Secured Obligations or any
part thereof may have become barred by any statute of limitations, or that the
-7-
personal liability of Debtor may have ceased, unless such liability shall have
ceased due to the indefeasible payment in cash and performance in full of the
Secured Obligations.
14. MISCELLANEOUS. (a) Debtor hereby waives any right (i) to require
Secured Party to make any presentment or demand, or give any notice of
nonpayment or nonperformance, protest, notice of protest or notice of dishonor
hereunder, (ii) to direct the application of payments or security for any
Secured Obligations, or indebtedness of customers of Debtor, or (iii) to require
proceedings against others or to require marshalling of assets or exhaustion of
security; and (b) Debtor hereby consents to extensions, forbearances or
alterations of the terms of the Secured Obligations and/or of Borrower's
obligations under the Credit Agreement and the other Loan Documents, the release
or substitution of Collateral or Proceeds or any other security for the Secured
Obligations or for Borrower's obligations under the Credit Agreement and the
other Loan Documents, and the release of any guarantors; provided, however, that
-------- -------
in each instance, Secured Party believes in good faith that the action in
question is commercially reasonable in that it does not unreasonably increase
the risk of nonpayment of the Indebtedness to which the action applies. Until
all Secured Obligations shall have been indefeasibly paid in cash and performed
in full, Debtor shall not have any right of subrogation or contribution vis a
vis any other person or entity obligated to Secured Party and/or the other
Lender Parties in connection with the Credit Agreement or any other Loan
Document, and Debtor hereby waives any benefit of or right to participate in any
of the Collateral or Proceeds or any other security now or hereafter held by
Secured Party.
15. NOTICES. All notices, requests and demands required under this
Agreement must be in writing, addressed to Secured Party at the address
specified in any other loan documents entered into between Debtor, on the one
hand, and Secured Party and/or the other Lender Parties, on the other hand, and
to Debtor at the address of its chief executive office specified below or to
such other address as any party may designate by written notice to each other
party, and shall be deemed to have been given or made as follows: (a) if
personally delivered, upon delivery; (b) if sent by mail, upon the earlier of
the date of receipt or 3 days after deposit in the U.S. mail, first class and
postage prepaid; and (c) if sent by telecopy, upon receipt.
16. GOVERNING LAW; SUCCESSORS, ASSIGNS. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, and shall be binding upon and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors and assigns of the
parties.
17. SEVERABILITY OF PROVISIONS. If any provision of this Agreement
shall be held to be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in any number of
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
-8-
Debtor warrants that its chief executive office is located at the
following address:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Debtor warrants that the Collateral (except goods in transit) is
located or domiciled at the addresses listed in Schedule 2 hereto and that the
----------
locations of leased premises on which Debtor's distribution centers, if any, are
located are also set forth in Schedule 2.
----------
[Remainder of page intentionally left blank]
-9-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
POOL BRITE, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------
Title: Secretary
--------------------------
▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION, AS AGENT
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------
Title: Vice President
--------------------------
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SCHEDULE 1
TO CONTINUING SECURITY AGREEMENT
Trademark Collateral
--------------------
-11-
SCHEDULE 2
TO CONTINUING SECURITY AGREEMENT
Locations of Collateral and Distribution Centers
------------------------------------------------
None.
-12-
EXHIBIT A
TO CONTINUING SECURITY AGREEMENT
Form of Landlord Consent
------------------------
See attached.
-13-
CONTINUING GUARANTY
THIS CONTINUING GUARANTY (this "Guaranty"), dated as of June 11, 1997, is
--
executed by LESLIE'S POOL BRITE, INC. ("Guarantor"), in favor of the Lenders
from time to time parties to the Credit Agreement referred to below (each
individually, a "Lender" and, collectively, the "Lenders"), and ▇▇▇▇▇ FARGO
BANK, NATIONAL ASSOCIATION, as swingline lender thereunder (the "Swingline
Lender") and ▇▇▇▇▇ FARGO BANK, NATIONAL ASSOCIATION, as agent for the Lenders
and Swingline Lender (in such capacity, "Agent"; together with the Lenders and
Swingline Lender being the "Lender Parties").
RECITALS
--------
A. Pursuant to that certain Credit Agreement dated as of June 11, 1997,
--
among Leslie's Poolmart, Inc., a Delaware corporation ("Borrower"), the Lenders,
Swingline Lender and Agent (as amended, modified or supplemented from time to
time, the "Credit Agreement"; terms defined therein and not otherwise defined
herein being used herein as therein defined), the Lender Parties have agreed to
make available to Borrower certain credit facilities, upon the terms and subject
to the conditions set forth in the Credit Agreement.
B. The availability of the credit facilities under the Credit Agreement is
subject, among other conditions, to the execution and delivery by Guarantor of
this Guaranty.
C. Guarantor is a wholly owned Subsidiary of Borrower. Guarantor shall
receive substantial direct and indirect benefits from the making of loans and
other financial accommodations to Borrower under the Credit Agreement, in the
form, among others, of Borrower's financing of the working capital needs of
Guarantor with proceeds of the credit facilities made available to Borrower
under the Credit Agreement .
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above recitals and for other
valuable consideration, the receipt and sufficiency of which Guarantor hereby
acknowledges, Guarantor hereby agrees as follows:
1. GUARANTY; CERTAIN DEFINITIONS. Guarantor hereby unconditionally
guaranties and promises to pay to Agent, each Lender and the Swingline Lender,
or their order, punctually when due, whether at stated maturity, by acceleration
or otherwise, and otherwise on demand, in lawful money of the United States of
America and in immediately
available funds, any Indebtedness of Borrower to any such Lender Party, whether
or not evidenced by a promissory note or notes, as defined in or arising under
the Credit Agreement or any document, instrument or agreement delivered by
Borrower to any Lender Party pursuant to the Credit Agreement or otherwise in
connection with any of the foregoing (the Credit Agreement and such documents,
instruments and agreements, as amended, modified or supplemented from time to
time, collectively being the "Loan Documents"; and all such Indebtedness of
Borrower being the "Guarantied Obligations"). The term "Indebtedness" is used
herein in its most comprehensive sense and includes any and all advances, debts,
obligations and liabilities of Borrower heretofore, now or hereafter made,
incurred or created, whether voluntary or involuntary and however arising,
whether due or not due, absolute or contingent, liquidated or unliquidated,
determined or undetermined, and whether Borrower may be liable individually or
jointly, or whether recovery upon such Indebtedness may be or hereafter becomes
unenforceable.
2. MAXIMUM LIABILITY; CONTINUING GUARANTY; OBLIGATION UNDER OTHER
GUARANTIES. (a) The liability of Guarantor under this Guaranty shall not
exceed at any one time the Maximum Amount, as hereinafter defined, in effect at
such time for principal, plus all interest thereon and costs and expenses
pertaining to the enforcement of this Guaranty or the collection of the
Indebtedness of Borrower to any Lender Party. Notwithstanding the foregoing,
any Lender Party may permit the Guarantied Obligations to exceed Guarantor's
maximum liability hereunder. The "Maximum Amount" on any date of determination
shall mean the greater of (i) the net benefits realized by Guarantor as of such
date from the proceeds of the Credits under the Credit Agreement made available
from time to time by Borrower or any Subsidiary of Borrower to Guarantor and
(ii) the greater of (A) 95% of the Adjusted Net Assets of Guarantor on the date
of delivery hereof and (B) 95% of the Adjusted Net Assets of Guarantor on such
date of determination. "Adjusted Net Assets" of Guarantor on any date of
determination means the lesser of (x) the amount by which the fair value of the
property of Guarantor exceeds the total amount of liabilities, including,
without limitation, disputed, contingent and unliquidated liabilities, but
excluding liabilities under this Guaranty, of Guarantor on such date and (y) the
amount by which the present fair salable value of the property of Guarantor on
such date exceeds the amount that will be required to pay the probable liability
of Guarantor on its debts, excluding debt in respect of this Guaranty, as they
become absolute and matured.
(b) This is a continuing guaranty and all rights, powers and remedies
hereunder shall apply to all past, present and future Indebtedness under the
Loan Documents, including that arising under successive transactions which shall
either continue the Indebtedness under the Loan Documents, increase or decrease
it, or from time to time create new Indebtedness in addition to or to refinance
Indebtedness under the Loan Documents in whole or in part, and after all or any
prior such Indebtedness has been satisfied, and notwithstanding the incapacity,
dissolution, liquidation or bankruptcy of Borrower or Guarantor or any other
event or proceeding affecting Borrower or Guarantor. The obligations of
Guarantor hereunder shall be
2
in addition to any obligations of Guarantor under any other guaranties of any
liabilities or obligations of Borrower or any other persons heretofore or
hereafter given to any Lender Party; and this Guaranty shall not affect or
invalidate any such other guaranties.
3. GUARANTY OF PAYMENT IN ACCORDANCE WITH LOAN DOCUMENTS; OBLIGATIONS
INDEPENDENT; SEPARATE ACTIONS; WAIVER OF STATUTE OF LIMITATIONS; REINSTATEMENT
OF LIABILITY. Guarantor guaranties that the Guarantied Obligations will be paid
when due strictly in accordance with the terms of the Loan Documents. The
obligations hereunder independent of the obligations of Borrower, and a separate
action or actions may be brought and prosecuted against Guarantor whether action
is brought against Borrower or any other person, or whether Borrower or any
other person is joined in any such action or actions. Guarantor acknowledges
that there are no conditions precedent to the effectiveness of this Guaranty,
and that this Guaranty is in full force and effect and is binding on Guarantor
as of the date written above, regardless of whether the Lender Parties obtain
collateral or any guaranties from others or take any other action contemplated
by Guarantor. Guarantor waives the benefit of any statute of limitations
affecting Guarantor's liability hereunder or the enforcement thereof, and
Guarantor agrees that any payment of any Indebtedness or other act which shall
toll any statute of limitations applicable thereto shall similarly operate to
toll such statute of limitations applicable to Guarantor's liability hereunder.
The liability of Guarantor hereunder shall be reinstated and revived and the
rights of the Lender Parties shall continue if and to the extent for any reason
any amount at any time paid on account of any Indebtedness guarantied hereby is
rescinded or must be otherwise restored by any Lender Party, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been paid. The determination as to whether any amount so
paid must be rescinded or restored shall be made by any Lender Party in its sole
discretion; provided however, that if any Lender Party chooses to contest any
such matter at the request of Guarantor, Guarantor agrees to indemnify and hold
such Lender Party harmless from and against all costs and expenses, including
reasonable attorneys' fees, expended or incurred by such Lender Party in
connection therewith, including without limitation, in any litigation with
respect thereto.
4. AUTHORIZATIONS. Guarantor authorizes the Lender Parties, without
notice to or demand on Guarantor, and without affecting Guarantor's liability
hereunder, from time to time to: (a) alter, compromise, renew, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of the Guarantied Obligations or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty or the Guarantied Obligations or any portion thereof,
and exchange, enforce, waive and release any such security; (c) apply such
security and direct the order or manner of sale thereof, including without
limitation, a non-judicial sale permitted by the terms of the controlling
security agreement or deed of trust, as the Lender Parties in their discretion
may determine; (d) release or substitute any one or more of the endorsers or any
other guarantors of the Guarantied Obligations, or any part thereof, or any
party thereto; and
3
(e) apply payments received from Borrower to any Indebtedness of Borrower to any
Lender Party, in such order as such Lender Party shall determine in its sole
discretion, whether or not any such Indebtedness is covered by this Guaranty,
and Guarantor hereby waives any provision of law regarding application of
payments which specifies otherwise. Any Lender Party may without notice assign
this Guaranty in whole or in part. Upon any Lender Party's request, Guarantor
agrees to provide to such Lender Party copies of Guarantor's financial
statements.
5. REPRESENTATIONS AND WARRANTIES; COVENANTS OF GUARANTOR. Guarantor
represents and warrants to the Lender Parties that: (a) this Guaranty is
executed at Borrower's request; (b) the execution, delivery and performance by
Guarantor of this Guaranty and each other document, instrument or agreement
executed and delivered by Guarantor in connection with the Credit Agreement has
been duly authorized are within Guarantor's corporate power and authority, have
been duly authorized by all necessary corporate action and do not and will not
violate any law, regulation, order of contractual provision applicable to
Guarantor or its property; (b) this Guaranty and each other document, instrument
and agreement executed and delivered by Guarantor in connection with the Credit
Agreement constitute the legal, valid and binding obligations of Guarantor,
enforceable against Guarantor in accordance with their respective terms; (c)
Guarantor shall not, without Agent's prior written consent, sell, lease, assign,
encumber, hypothecate, transfer or otherwise dispose of all or a substantial or
material part of Guarantor's assets other than in the ordinary course of
business; (d) neither Agent nor any other Lender Party has made any
representation to Guarantor as to the creditworthiness of Borrower; (e)
Guarantor is, and after giving effect hereto (treating the Maximum Amount,
calculated under each of the alternative formulations therefor in Section 2(a)
hereof, as a noncontingent liability of Guarantor) shall be, Solvent; (f)
Guarantor acknowledges that it will receive substantial benefit from the Credits
to be provided under the Credit Agreement, in the form, among others, of
Borrower's financing of the working capital needs of Guarantor with proceeds of
such credit facilities, and Guarantor accordingly acknowledges that is has
received fair and adequate consideration for its execution, delivery and
performance of this Guaranty; and (g) Guarantor has established adequate means
of obtaining from Borrower on a continuing basis financial and other information
pertaining to Borrower's financial condition. Guarantor agrees to keep
adequately informed from such means of any facts, events or circumstances which
might in any way affect Guarantor's risks hereunder, and Guarantor further
agrees that neither Agent nor any other Lender Party shall have any obligation
to disclose to Guarantor any information or material about Borrower which is
acquired by any Lender Party in any manner.
6. GUARANTOR'S WAIVERS. (a) Guarantor waives any right to require any
Lender Party to: (i) proceed against Borrower or any other person; (ii) proceed
against or exhaust any security held from Borrower or any other person; (iii)
give notice of the terms, time and place of any public or private sale of
personal property security held from Borrower or any other person, or otherwise
comply with the provisions of Section 9504 of the California Uniform Commercial
Code; (iv) pursue any other remedy in Agent's or any other Lender
4
Party's power; or (v) make any presentments or demands for performance, or give
any notices of nonperformance, protests, notices of protest or notices of
dishonor in connection with any obligations or evidences of indebtedness held by
any Lender Party as security or which constitute in whole or in part the
Indebtedness guarantied hereunder, or in connection with the creation of new or
additional Indebtedness.
(b) Guarantor waives any defense based upon or arising by reason of: (i)
any disability or other defense of Borrower or any other person; (ii) the
cessation or limitation from any cause whatsoever, other than indefeasible
payment in full, of the Indebtedness of Borrower or any other person; (iii) any
lack of authority of any officer, director, partner, agent or any other person
acting or purporting to act on behalf of Borrower if a corporation, partnership
or other type of entity, or any defect in the formation of any such Borrower;
(iv) the application by Borrower of the proceeds of any Indebtedness for
purposes other than the purposes represented by Borrower to, or intended or
understood by any Lender Party or Guarantor; (v) any act or omission by any
Lender Party which directly or indirectly results in or aids the discharge of
Borrower or any Indebtedness by operation of law or otherwise; or (vi) any
modification of any Indebtedness, in any form whatsoever, including without
limitation any modification made after revocation hereof to any Indebtedness
incurred prior to such revocation, and including without limitation the renewal,
extension, acceleration or other change in time for payment of, or other change
in the terms of, the Guarantied Obligations or any portion thereof, including
increase or decrease of the rate of interest thereon. Until all Indebtedness of
Borrower to the Lender Parties under the Loan Documents shall have been
indefeasibly paid in full, Guarantor shall have no right of subrogation.
Guarantor waives all rights and defenses or may have arising out of (A) any
election of remedies by any Lender Party, even though that election of remedies,
such as a non-judicial foreclosure with respect to any security for any portion
of the Indebtedness, destroys Guarantor's rights of subrogation or Guarantor's
rights to proceed against Borrower for reimbursement, or (B) any loss of rights
Guarantor may suffer by reason of any rights, powers or remedies of Borrower in
connection with any anti-deficiency laws or any other laws limiting, qualifying
or discharging Borrower's Indebtedness, whether by operation of Sections 726 or
580d of the Code of Civil Procedure as from time to time amended, or otherwise.
Until all Indebtedness of Borrower to the Lender Parties under the Loan
Documents shall have been indefeasibly paid in full, Guarantor further waives
any right to enforce any remedy which any Lender Party now has or may hereafter
have against Borrower or any other person, and waives any benefit of, or any
right to participate in, any security now or hereafter held by any Lender Party.
7. GUARANTOR'S UNDERSTANDINGS WITH RESPECT TO WAIVERS. Guarantor warrants
and agrees that each of the waivers set forth above is made with Guarantor's
full knowledge of its significance and consequences, and that under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any of said waivers is determined to be contrary to any applicable law
or public policy, such waiver shall be effective only to the extent permitted by
law.
5
8. LENDER PARTIES' RIGHTS WITH RESPECT TO GUARANTOR'S PROPERTY IN
POSSESSION OF AGENT AND LENDERS. In addition to all liens upon, and rights of
setoff against the monies, securities or other property of or given to any
Lender Party by law, each Lender Party shall have a lien upon and a right of
setoff against all monies, securities and other property of Guarantor now or
hereafter in the possession of Guarantor on deposit with such Lender Party,
whether held in a general or special account or deposit or for safekeeping or
otherwise, and every such lien and right of setoff may be exercised without
demand upon or notice to Guarantor. No lien or right of setoff shall be deemed
to have been waived by any act or conduct on the part of any Lender Party, or by
any neglect to exercise such right of setoff or to enforce such lien, or by any
delay in so doing, and every right of setoff and lien shall continue in full
force and effect until such right of setoff or lien is specifically waived or
released by an instrument in writing executed by such Lender Party.
9. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Without limiting
provisions in the Loan Documents restricting Borrower's ability to incur
indebtedness, any Indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the Indebtedness of Borrower to the Lender Parties under
the Loan Documents. Such Indebtedness of Borrower to Guarantor is assigned to
the Lender Parties as security for this Guaranty and the Guarantied Obligations
and, if Agent requests, shall be collected and received by Guarantor as trustee
for the Lender Parties and paid over to Agent on account of the Indebtedness of
Borrower to the Lender Parties but without reducing or affecting in any manner
the liability of Guarantor under the other provisions of this Guaranty. Any
notes or other instruments now or hereafter evidencing such Indebtedness of
Borrower to Guarantor shall be marked with a legend that the same are subject to
this Guaranty and, if Agent so requests, shall be delivered to Agent. Guarantor
will, and Agent is hereby authorized, in the name of Guarantor from time to time
to execute and file financing statements and continuation statements and execute
such other documents and take such other actions as Agent deems necessary or
appropriate to perfect, preserve and enforce the rights of any Lender Party
hereunder.
10. DISCLOSURE OF INFORMATION. Guarantor acknowledges that the Lender
Parties have the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, any Indebtedness of
Borrower to any Lender Party under the Loan Documents and any obligations with
respect thereto, including this Guaranty. In connection therewith, the Lender
Parties may disclose all documents and information which any Lender Party now
has or hereafter acquires relating to Guarantor and this Guaranty, whether
furnished by Borrower, Guarantor or otherwise. Guarantor further agrees that
the Lender Parties may disclose such documents and information to Borrower.
11. COSTS, EXPENSES AND ATTORNEYS' FEES. Guarantor shall pay to Agent and
each other Lender Party immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees (to
include outside
6
counsel fees and all allocated costs of such Lender Party's in-house counsel),
incurred by such Lender Party in connection with the enforcement of this
Guaranty and any other document, instrument or agreement executed and delivered
by Guarantor in connection with the Credit Agreement, including any of the
foregoing incurred in connection with any workout or bankruptcy proceeding
relating to Guarantor, and/or the collection of any of the Indebtedness of
Borrower to any Lender Party. All of the foregoing shall be paid by Guarantor
with interest at a rate per annum equal to the greater of ten percent (10%) or
Agent's Prime Rate in effect from time to time, as defined in the Credit
Agreement.
12. SUCCESSORS, ASSIGNS; GOVERNING LAW. This Guaranty shall be binding
upon and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties, and shall be governed by
and construed in accordance with the laws of the State of California.
13. SUBMISSION TO JURISDICTION. GUARANTOR HEREBY (A) SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF CALIFORNIA AND THE FEDERAL
COURTS OF THE UNITED STATES SITTING IN THE STATE OF CALIFORNIA FOR THE PURPOSE
OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY
OTHER DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED AND DELIVERED BY GUARANTOR IN
CONNECTION WITH THE CREDIT AGREEMENT, (B) AGREES THAT ALL CLAIMS IN RESPECT OF
ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH COURTS, (C)
IRREVOCABLY WAIVES (TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW) ANY
OBJECTION WHICH IT NOW OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN ANY OF THE FOREGOING COURTS, AND ANY OBJECTION
ON THE GROUND THAT ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, AND (IV) AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PERMITTED BY LAW.
14. WAIVER OF JURY TRIAL. GUARANTOR, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING, COUNTERCLAIM OR OTHER LITIGATION IN ANY WAY ARISING OUT OF
OR RELATING TO THIS GUARANTY OR ANY OTHER DOCUMENT, INSTRUMENT OR AGREEMENT
EXECUTED AND DELIVERED BY GUARANTOR IN CONNECTION WITH THE CREDIT AGREEMENT OR
ANY OF THE TRANSACTIONS OR EVENTS REFERENCED HEREIN OR THEREIN OR CONTEMPLATED
HEREBY OR THEREBY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR
OTHERWISE. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
7
SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY AND ANY SUCH DOCUMENT, INSTRUMENT
OR AGREEMENT. A COPY OF THIS SECTION 14 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND THE CONSENT TO TRIAL BY
COURT.
[Signature page follows.]
8
IN WITNESS WHEREOF, the undersigned Guarantor has executed this Guaranty
as of the date first written above.
LESLIE'S POOL BRITE, INC.
BY: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Secretary
9
LINE OF CREDIT NOTE
-------------------
$35,000,000.00 Los Angeles, California
-------------
June 11, 1997
1. PROMISE TO REPAY. FOR VALUE RECEIVED, LESLIE'S POOLMART, INC., a
----------------
Delaware corporation ("Maker"), promises to pay to ▇▇▇▇▇ FARGO BANK, NATIONAL
ASSOCIATION ("Bank"), or order, the principal sum of Thirty Five Million and
00/100 Dollars ($35,000,000.00) or such lesser amount as shall equal the
outstanding amount of the obligations owing to Bank under the Line of Credit as
described in Section 2.1(a) of that certain Credit Agreement, dated as of June
--------------
11, 1997 (as it may be amended or otherwise modified from time to time, the
"Credit Agreement"), entered into between Maker, on the one hand, and, on the
other hand, Bank, the other financial institutions from time to time parties
thereto as lenders or swingline lender, and ▇▇▇▇▇ Fargo Bank, National
Association, as agent ("Agent").
2. DEFINED TERMS. Any and all initially capitalized terms used
-------------
herein shall have the meaning ascribed thereto in the Credit Agreement, unless
specifically defined herein. The term "or" as used in this Note has, except
where otherwise indicated or where the context hereof otherwise requires (such
as the first sentence of Section 1 hereof), the inclusive meaning represented by
---------
the phrase "and/or". This Line of Credit Note (as it may be amended or
otherwise modified from time to time, this "Note") is one of the promissory
notes defined in the Credit Agreement as the "Line of Credit Notes" and is
subject to, and entitled to the benefits of, the terms and provisions of the
Credit Agreement.
3. PAYMENTS OF PRINCIPAL AND INTEREST. Maker hereby promises to
----------------------------------
make payments of principal and interest with respect to the loans evidenced
hereby at the rates and times, and in the amounts, and in all other respects in
the manner, as provided in the Credit Agreement.
4. PREPAYMENTS. Maker may prepay the principal balance due under
-----------
this Note, in whole or in part, only in accordance with the provisions of the
Credit Agreement.
5. APPLICATION OF PAYMENTS. All payments (including prepayments)
-----------------------
made hereunder shall be applied as set forth in the Credit Agreement.
6. TIME AND PLACE OF PAYMENTS. All principal and interest due
--------------------------
hereunder are payable to Agent at Agent's Office (or such other office as may be
designated from time to time by Agent to Maker in writing), for the account of
Bank, in lawful money of the United States and in same day or immediately
available funds not later than 12:00 noon on the date due.
7. RECORDS. Bank shall record the date and amount of each loan made,
-------
each conversion to a different interest rate, each relevant Interest Period, the
amount of principal and interest due and payable from time to time hereunder,
each payment thereof and the resulting unpaid principal balance hereof, in the
Bank's internal records, and any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded; provided,
--------
however, that Bank's failure to so to record shall not limit or otherwise affect
-------
the obligations of Maker hereunder and under the Credit Agreement to repay the
principal and interest under the Line of Credit.
8. ACCELERATION AND WAIVERS. The Credit Agreement provides, among
------------------------
other things, for acceleration (which in certain cases shall be automatic) of
the maturity hereof upon the occurrence of certain stated events, in each case,
without presentment, protest, demand, notice of dishonor, notice of nonpayment,
notice of maturity, notice of intent to accelerate, notice of acceleration,
presentment for the purpose of accelerating maturity, and diligence in
collection, all of which hereby are expressly waived.
9. SECURITY. THIS NOTE IS SECURED BY, AMONG OTHER THINGS, THE LIENS
--------
GRANTED TO BANK (OR AGENT ON BEHALF OF BANK) PURSUANT TO THE TERMS OF THE
SECURITY AGREEMENT AND ANY AND ALL OTHER DOCUMENTS, AGREEMENTS, OR INSTRUMENTS
EXECUTED OR DELIVERED IN CONNECTION THEREWITH.
10. INCORPORATION. ALL OF THE COVENANTS, CONDITIONS, WARRANTIES,
-------------
REPRESENTATIONS, AND AGREEMENTS CONTAINED IN THE CREDIT AGREEMENT OR IN ANY
OTHER AGREEMENT BETWEEN MAKER AND BANK WHICH IS EXECUTED IN CONNECTION WITH THE
CREDIT AGREEMENT OR THIS NOTE, OR IN CONNECTION WITH THE TRANSACTIONS
CONTEMPLATED HEREUNDER OR UNDER THE CREDIT AGREEMENT, ARE HEREBY INCORPORATED
HEREIN BY THIS REFERENCE AND MADE A PART HEREOF.
11. ATTORNEYS' FEES. In the event it should become necessary to
---------------
employ counsel to collect or enforce this Note, Maker agrees to pay the
reasonable attorneys' fees and costs of the holder hereof, irrespective of
whether suit is brought, to the extent and as provided in the Credit Agreement.
12. AMENDMENTS. This Note may not be changed, modified, amended, or
----------
terminated except by a writing duly executed by Maker and the then holder hereof
in accordance with the terms and conditions of the Credit Agreement.
13. HEADINGS. Section headings used in this Note are solely for
--------
convenience of reference, shall not constitute a part of this Note for any other
purpose, and shall not affect the construction of this Note.
-2-
14. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN
-------------
THE STATE OF CALIFORNIA AND THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT HEREOF, AND THE RIGHTS OF THE PARTIES HERETO
SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA.
LESLIE'S POOLMART, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
Title: Chief Financial Officer
------------------------
Executive Vice President
------------------------
and Secretary
------------------------
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