EXHIBIT 18 TO 13E-3/A
STOCKHOLDERS AGREEMENT
AND
SUBSCRIPTION AGREEMENT
AMONG
LESLIE'S POOLMART, INC.
GREEN EQUITY INVESTORS II, L.P.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
THE TRUSTEES OF THE ▇▇▇▇▇▇▇▇▇ FAMILY TRUST
OCCIDENTAL PETROLEUM CORPORATION
AND
THE STOCKHOLDERS IDENTIFIED ON ANNEX A HERETO
TABLE OF CONTENTS
Page
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1. Representations and Warranties.................................................. 1
(a) Company Representations..................................................... 1
(b) Stockholder Representations and Warranties.................................. 2
2. Subscription for Common Stock; Call Option...................................... 3
(a) Common Stock Subscription................................................... 3
(b) Call Option................................................................. 3
3. Compliance with Securities Law.................................................. 4
4. Transfers of Securities......................................................... 4
(a) Prohibition on Transfers.................................................... 4
(b) Transfer Procedure; Right of First Refusal.................................. 4
(c) Transfers to Related Transferees............................................ 5
(d) Legend on Certificates...................................................... 6
(e) Transfers in Violation of this Agreement.................................... 7
5. Company Call Option............................................................. 7
(a) Call Purchase Event and Purchase Price...................................... 7
(b) Exercise of Call Option..................................................... 8
6. Registration Rights............................................................. 8
(a) Demand Registration Rights.................................................. 8
(b) Piggyback Registration Rights; Cutbacks..................................... 9
(c) Expenses of Registration.................................................... 11
(d) Registration Procedures..................................................... 12
(e) Indemnification............................................................. 15
(f) Holdback Amount............................................................. 17
(g) Assignment and Assumption................................................... 17
(h) Stock Option Plans.......................................................... 18
7. Drag-Along Sales and Tag-Along Sales........................................... 18
(a) Drag-Along Sales............................................................ 18
(b) Optional Participation in Sales of Common Stock (Tag-Along Sales)........... 19
(c) Obligations of Drag-Along Sellers........................................... 20
8. Termination and Lapse of Rights and Restrictions; Applications to Other
Stock and Adjustments........................................................... 20
9. Election of Directors........................................................... 20
10. Certain Additional Agreements................................................... 21
(a) Right to Participate in Securities Issuances................................ 21
(b) Right to Participate in Equity Repurchases.................................. 21
(c) Affiliate Transactions...................................................... 22
(d) Change of Control Transactions.............................................. 22
(e) Information................................................................. 22
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Page
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11. Notices........................................................................ 23
12. General........................................................................ 23
13. Additional Class II Stockholders............................................... 25
14. Arbitration.................................................................... 25
(a) Scope...................................................................... 25
(b) Deposition................................................................. 25
(c) JAMS....................................................................... 25
(d) Selection of Arbitrator.................................................... 25
(e) Governing Law.............................................................. 25
(f) Procedures................................................................. 26
(g) Award...................................................................... 26
15. Definitions.................................................................... 26
ANNEX A CAPITAL STRUCTURE.......................................................... ▇-▇
▇▇▇▇▇ ▇ ▇▇▇▇▇ ▇▇ ▇▇ OPTION PLAN.................................................... B-1
ANNEX C TERMS OF INCENTIVE STOCK OPTION PLAN....................................... C-1
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STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT") is entered into as of
____________, 1997, by and among (i) Leslie's Poolmart, Inc., a Delaware
corporation (the "COMPANY"), (ii) Green Equity Investors II, L.P., a Delaware
limited partnership ("GEI"), (iii) ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, T.R.U.A. DTD 3/15/90
The ▇▇▇▇▇▇▇▇▇ Family Trust (collectively referred to as the "HPA GROUP") and
(iv) Occidental Petroleum Corporation, a Delaware corporation ("OCCIDENTAL," and
together with GEI and the HPA Group, the "CLASS I STOCKHOLDERS") and the
individual stockholders named on the signature pages hereto (the "CLASS II
STOCKHOLDERS").
WHEREAS, on the date hereof the Company has consummated a merger (the
"MERGER") with Poolmart USA Inc., a Delaware corporation ("POOLMART"), pursuant
to which certain of the outstanding shares of common stock of the Company, $.001
par value per share (which authorized class of stock is hereinafter called
"COMMON STOCK"), remained outstanding and the shares of capital stock of
Poolmart were converted into capital stock of the Company; and
WHEREAS, concurrently with the Merger, GEI acquired ______ shares of Common
Stock, the HPA Group collectively retained _______ shares of Common Stock,
Occidental acquired ______ shares of Exchangeable Cumulative Redeemable
Preferred Stock, Series A of the Company (the "PREFERRED STOCK") and warrants
(the "WARRANTS") to purchase ________ shares of Common Stock, subject to
adjustment (the "WARRANT SHARES") certain of the Class II Stockholders are
subscribing for Common Stock and certain of the Class II Stockholders will
acquire certain nonqualified options and incentive stock options, as described
on Annex B and Annex C, respectively (collectively, the "OPTIONS" and the Common
Stock issuable upon exercise thereof, the "OPTION SHARES"); and
WHEREAS, the Company and the Class I and Class II Stockholders
(collectively, the "STOCKHOLDERS") desire to enter into certain agreements
concerning their holdings of Common Stock, Warrants, Warrant Shares, Options and
Option Shares (collectively, the "SECURITIES");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Representations and Warranties.
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(a) Company Representations. The Company hereby represents and
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warrants to the Class I and Class II Stockholders as follows:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, has full
corporate power and authority to carry on its business as and where it is
now being conducted. The Company has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and
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the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company. This
Agreement constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement
of creditors' rights generally and general principles of equity (regardless
of whether enforceability is considered in a proceeding at law or in
equity).
(ii) Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, will violate or
conflict with (A) any provision of the Certificate of Incorporation or
Bylaws of the Company, or (B) any agreement, indenture, undertaking,
permit, license or other instrument to which the Company is a party or by
which it or any of its properties may be bound or affected, other than such
violations and conflicts which are not reasonably likely to (1) prevent or
materially delay consummation of the transactions contemplated by this
Agreement or (2) prevent the Company from performing its obligations under
this Agreement.
(iii) The Company has no outstanding capital stock or securities
convertible into or exchangeable or exercisable for any shares of its
capital stock, nor any outstanding rights to subscribe for or to purchase,
or any options for the purchase of, or any agreement providing for the
issuance (contingent or otherwise) of any shares of its capital stock or
any securities convertible into or exchangeable or exercisable for any
shares of its capital stock, other than the Preferred Stock and the
Securities .
(b) Stockholder Representations and Warranties. Each Stockholder
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hereby severally represents and warrants as follows:
(i) If it is an entity, it is a corporation, limited partnership,
trust or other entity duly organized and validly existing under the laws of
its state of organization.
(ii) It has full power and authority and, in the case of an
individual, legal and fiduciary capacity to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereby.
This Agreement constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its
terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and general principles of equity
(regardless of whether enforceability is considered in a proceeding at law
or in equity).
(iii) Each of the Class II Stockholders (A) as a result of his
relationship with the Company and experience in financial matters, is able
to evaluate the acquisition of Common Stock and Options, the business and
proposed capital structure of the Company and the risks inherent therein;
(B) has been given the opportunity to obtain any additional information or
documents, and to ask questions and receive answers, from the officers and
representatives of the Company to the extent necessary to evaluate the
risks
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and merits of an investment in the Company; (C) has determined that
the acquisition of Common Stock and Options is consistent both in nature
and amount, with his overall investment program and financial condition,
and that his financial condition is such that he can afford to bear the
economic risk of holding unregistered Securities for which there is no
market and acknowledges that he may suffer a complete loss of such
investment.
(iv) (A) the Securities acquired by him are being acquired for
his own account for investment, without any present intention of selling or
further distributing the same, (B) acknowledges that that no liquid trading
market currently exists or is expected to exist in the foreseeable future
and as a result, such Stockholder may be unable to sell any of the
Securities for an indefinite period of time and (C) acknowledges that the
Company has no obligation, except as set forth in Section 6 hereof, to
register any of the Securities.
(v) Each member of the HPA Group represents and warrants that he
or it is an accredited investor within the meaning of Regulation D under
the Act.
Each Stockholder acknowledges that the Company is relying upon the truth and
accuracy of the above representations to a material degree in effectuating the
transactions contemplated hereby.
2. Subscription for Common Stock; Call Option.
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(a) Common Stock Subscription. Each Class II Stockholder reflected
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as a purchaser of Common Stock on Annex A hereto (a "PURCHASER") severally
agrees to purchase, and the Company agrees to sell to such Purchaser, the number
of shares of Common Stock set forth opposite his name on Annex A hereto, at the
purchase price shown thereon. Each Purchaser severally agrees to make payment
for the Subscription Shares by delivery to the Company of a certified check or
wire transfer in the amount of the purchase price therefore.
(b) Call Option. Each Class II Stockholder agrees that the Company
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and certain other Stockholders shall have a call ("Call Option") in respect of
certain shares of Common Stock acquired pursuant to Section 2(a) above
("SUBSCRIPTION STOCK"), as well as in respect of the Non-Qualified Options
described on Annex B hereto (the "NQ OPTIONS") and shares issued upon the
exercise thereof. As to each holder of Subscription Stock, of an NQ Option or
of shares issued upon the exercise thereof, the Call Option shall apply only to
(i) two-thirds of all of such holder's shares of Subscription Stock, NQ Options
and shares issued upon exercise of such NQ Options (collectively, "Callable
Securities") if the Call Option is exercised before the first anniversary of the
date hereof, and (ii) one-third of the holder's Callable Securities of each
category if the Call Option is exercised on or after the first anniversary of
the date hereof but before the second anniversary of the date hereof. Except as
expressly provided in this Section 2(b), the Call Option shall not otherwise
apply to Subscription Stock, NQ Options or shares issued upon the exercise
thereof. Subscription Stock, NQ Options and shares issuable upon the exercise
thereof that are Callable Securities are respectively hereinafter referred to as
"Call Option Stock," "Call NQ Options" and "Call Option Shares."
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3. Notice of Transfer; Compliance with Securities Law. In addition to
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the other applicable restrictions provided in this Agreement, each Stockholder
agrees that prior to effecting any Transfer of any Securities (other than a
Transfer to the Company) such Stockholder will give not less than 15 days'
advance written notice to the Company describing the manner of such proposed
Transfer. Each Stockholder further agrees that he or it will not effect such
proposed Transfer until either (A) such Stockholder has provided to the Company,
if so requested by the Company, an opinion of counsel reasonably satisfactory in
form and substance to the Company that such proposed Transfer is exempt from
registration under the Act and any applicable state securities laws, or (B) a
registration statement under the Act covering such proposed Transfer has been
filed by the Company and become effective under the Act and compliance with
applicable state securities laws has been effected and in each case, the
Company's independent public accountants have advised the Company that it is not
reasonably likely that such Transfer will necessitate a new basis for accounting
for the Company. Each Stockholder also agrees that he or it will not Transfer
any Securities except in compliance with the registration requirements of the
Act, the rules and regulations of the SEC thereunder, the relevant state
securities laws applicable to the Stockholder's actions, and the applicable
terms of this Agreement. The restrictions in this Section 3 shall remain in
effect until, in the opinion of counsel for the Company, Securities held by the
Stockholder are no longer subject to restrictions pursuant to the Act or
applicable state securities law.
4. Transfers of Securities.
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(a) Prohibition on Transfers. Each of the members of the HPA
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Group, Occidental and each of the Class II Stockholders hereby agrees that such
Stockholder will not Transfer any Securities (or any interest therein) now or
hereafter at any time owned by such Stockholder, except for Transfers permitted
pursuant to this Section 4, Section 5 or Section 7 of this Agreement (each such
Transfer being a "PERMITTED TRANSFER").
(b) Transfer Procedure; Right of First Refusal. If any member of
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the HPA Group, Occidental or any of the Class II Stockholders hereby shall have
received a bona fide arm's-length written offer (a "BONA FIDE OFFER") which such
Stockholder desires to accept from an independent party unrelated to such
Stockholder (the "OUTSIDE PARTY") for the purchase of Securities for
consideration consisting entirely of cash (it being understood that no sale for
any other consideration would be a Permitted Transfer), then such Stockholder
shall give a notice in writing (the "OPTION NOTICE") to each Class I Stockholder
and the Company setting forth such desire, which notice shall set forth at least
the name and address of the Outside Party and the price and terms of the Bona
Fide Offer and be accompanied by a copy of the Bona Fide Offer. Upon the giving
of such Option Notice, the Company, and to the extent the Company elects not to
do so, the respective Stockholders set forth in the following sentence (each an
"ELECTING STOCKHOLDER") shall have an option to purchase all, but not less than
all, of the Securities specified in the Option Notice, such option to be
exercised within 30 days after the giving of such Option Notice by giving a
counter-notice (the "ELECTION NOTICE") to the Stockholder. If the Stockholder
sending an Option Notice is (i) Occidental or a Class II Stockholder, then GEI
and the HPA Group shall be entitled to be Electing Stockholders; or (ii) a
member of the HPA Group, then GEI and the other members of the HPA Group shall
be entitled to be Electing
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Stockholders. Where more than one Electing Stockholder desires to participate in
a purchase pursuant to an Option Notice, such Stockholders shall participate,
pro rata based upon their respective Equity Ownership in the Company, with the
portion attributable to Stockholders declining to be Electing Stockholders being
redistributed to the remaining Stockholders pro rata based upon their respective
Equity Ownership in the Company, it being understood that the Company may elect
to purchase up to all of the Securities and any remainder shall be prorated as
aforesaid. The Company and, if applicable, the Electing Stockholders shall be
severally obligated to purchase, and the Stockholder shall be obligated to sell,
the Securities covered by such Election Notice at the cash price and terms
indicated in the Bona Fide Offer, provided that the closing of the purchase by
the Electing Stockholder shall be held on a business day within 30 days after
the giving of the Election Notice at 10:30 a.m., California time, at the
principal executive office of the Company, or at such other time and place as
may be mutually agreed to by the Stockholder, the Company and, if applicable,
the Electing Stockholders. If an Election Notice is not timely given by the
Company and/or one or more Electing Stockholders within the period specified
above after an Option Notice has been given, the Stockholder thereafter, at any
time within a period of four months from the giving of such Option Notice, may
Transfer all (but not less than all) of the Securities covered by such Option
Notice to the Outside Party at the cash price and terms contained in the Bona
Fide Offer; provided, however, that such Outside Party and such Securities shall
thereafter be subject to and bound by all of the provisions of this Agreement as
if such party were a Class II Stockholder except as otherwise provided in
Section 6(g) and, as a condition precedent to the completion of such Transfer of
Securities to such Outside Party, shall execute and deliver to the Company a
written consent to such effect in form and substance satisfactory to the
Company; and provided, further, however, that to the extent that the Stockholder
has not so Transferred such Securities to the Outside Party within such four-
month period, then such Securities thereafter shall continue to be subject to
all of the restrictions contained in this Agreement. Any election in any
instance by the Company or any Stockholder entitled to be Electing Stockholders
not to exercise its rights under this clause (b) shall not constitute a waiver
of such rights with respect to any other actual or proposed Transfer of
Securities.
(c) Transfers to Related Transferees. Notwithstanding anything to
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the contrary contained in clauses (a) and (b) of this Section 4, any Stockholder
may Transfer Securities to a Related Transferee provided that such Related
Transferee shall first (i) execute a written consent in form and substance
satisfactory to the Company to be bound by all of the provisions of this
Agreement, and (ii) give a duplicate original of such consent to the Company.
In the event of any Transfer by a Stockholder to a Related Transferee of all or
any part of his or its Securities (or in the event of any subsequent Transfer by
any such Related Transferee to another Related Transferee of the Stockholder),
such Related Transferee shall receive and hold such Securities subject to the
terms of this Agreement and the rights and obligations hereunder of a
Stockholder as though such Securities were still owned by the Stockholder, and
such Related Transferee shall be deemed the Stockholder for the purposes of this
Agreement. If the Related Transferee acquired Securities from a Stockholder,
such Related Transferee shall be entitled to participate, collectively with the
Stockholders of the same group, in the registration rights provided for in
Section 6 hereof. There shall be no further Transfer of such Securities by a
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Related Transferee except between and among such Related Transferee, the
original Stockholder and other Related Transferees, or except as otherwise
permitted by this Agreement.
(d) Legend on Certificates. Each certificate of the Company issued
----------------------
to represent any of the Securities shall bear the following (or substantially
equivalent) legends on the face or reverse side thereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES
LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT PURSUANT TO (I) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE
UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION
FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW,
RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144, PROVIDED AN
OPINION OF COUNSEL IS FURNISHED TO THE COMPANY, IN FORM AND SUBSTANCE
REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND/OR APPLICABLE STATE
SECURITIES LAW IS AVAILABLE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS SUCH
TRANSFER COMPLIES WITH THE PROVISIONS OF THE STOCKHOLDERS AGREEMENT DATED
AS OF _____________, 1997, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
COMPANY.
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon the
completion of a public offering) shall also bear such (or substantially
equivalent) legends, unless the Security represented by such certificate is no
longer subject to the provisions of this Agreement and, in the opinion of
counsel for the Company, the Security represented thereby need no longer be
subject to restrictions pursuant to the Act or applicable state securities law.
(e) Transfers in Violation of this Agreement. The Company shall
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not be required to record on its books and records, or otherwise to recognize or
facilitate, any Transfer of Securities in violation of this Agreement, nor shall
the Company be required to issue any certificate for Securities Transferred in
violation of this Agreement.
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5. Company "Call" Option.
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(a) Call Purchase Event and Purchase Price. Upon the termination
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of a Class II Stockholder's employment with the Company or its subsidiaries for
any reason (including, without limitation, the voluntary termination, dismissal,
involuntary termination, Retirement, death or Permanent Disability of the
Stockholder) (a "CALL PURCHASE EVENT"), the Company, and to the extent the
Company elects not to do so and, in the case of the NQ Options, such purchase
may otherwise be made pursuant to the NQ Option Plan, GEI, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ (or any Related Transferee of the latter) (collectively
the "PURCHASING GROUP") may, collectively and pro rata based upon their
respective Equity Ownership in the Company, exercise the Call Option by written
notice (a "PURCHASE NOTICE") delivered to the Class II Stockholder within 90
days after such Call Purchase Event, elect to purchase, and, upon the giving of
such notice, the Company, and if applicable, the Purchasing Group shall be
severally obligated to purchase and the Class II Stockholder (and the Related
Transferees, if any, of the Class II Stockholder) (in each case, the "SELLER")
shall be obligated to sell all, or any lesser portion indicated in the Purchase
Notice, of the Callable Securities owned at the time of the Call Purchase Event
by the Seller, for consideration calculated as to each share of Call Option
Stock and each Call Option Share or Call NQ Option, as the case may be, as
follows:
(i) in the case of voluntary termination by a Class II
Stockholder holding Call NQ Options, an amount equal to the difference
between the cash consideration per share paid in the Merger and the
exercise price of the Call NQ Option; or
(ii) in the case of any other termination (including without
limitation dismissal, involuntary termination, death, Retirement or
Permanent Disability of a Class II Stockholder holding Option Shares)
("OTHER TERMINATION"), of a Class II Stockholder holding Call NQ Options,
the difference between the higher of (A) the cash consideration per share
paid in the Merger and (B) the Fair Market Value of the underlying shares
on the date of the Call Purchase Event, and the exercise price of the Call
NQ Option; or
(iii) in the case of voluntary termination by a Class II
Stockholder holding Call Option Stock, the purchase price therefor; or
(iv) in the case of Other Termination of a Class II Stockholder
holding Call Option Stock, the higher of the Fair Market Value thereof on
the date of the Call Purchase Event and the purchase price paid by the
holder therefor; or
(v) in the case of voluntary termination by a Class II
Stockholder holding Call Option Shares, an amount equal to the cash
consideration per share paid in the Merger; or
(vi) in the case of Other Termination of a Class II Stockholder
holding Call Option Shares, the higher of the Fair Market Value of such
shares on the date of the Call Purchase Event and the amount payable
pursuant to clause (v) above.
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(b) Exercise of Call Option. In the event the Company and/or any
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Class I Stockholder elects not to participate in the purchase of Callable
Securities pursuant to the Call Option, all remaining Purchasing Group
Stockholders desiring so to participate may do so, pro rata amongst such
remaining Purchasing Group Stockholders based upon their respective Equity
Ownership in the Company, or in any other proportion as they may agree. The
closing for all purchases and sales of Callable Securities pursuant to this
Section 5 shall be at the principal executive offices of the Company at 10:30
a.m., California time, on the 60th day after the giving of the applicable
Purchase Notice. The purchase price for the purchase and sale of Callable
Securities shall be paid in cash, by certified or official bank check. The
Seller(s) of Callable Securities sold pursuant to this Section 5 shall cause
such Securities to be delivered to the Purchasing Group or the Company at the
relevant closing free and clear of all liens, charges or encumbrances of any
kind. Such Seller(s) shall take all actions as the Purchasing Group or the
Company shall request as necessary to vest in the members of the Purchasing
Group and/or the Company at such closing such Callable Securities, free and
clear of all liens, charges and encumbrances incurred, voluntarily or
involuntarily, by or through Seller(s).
6. Registration Rights.
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(a) Demand Registration Rights. At any time on or after January
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31, 1998, each of (i) GEI, (ii) the HPA Group collectively, and (iii) Occidental
shall be entitled, respectively, to request a registration (a "DEMAND
REGISTRATION") of no less than 50% of its Registrable Securities held by such
Class I Stockholder, and at such time as the Company qualifies for registration
of securities on Form S-3 or any successor short-form, one additional
registration for a period not to exceed 180 days on such form. In such event,
the Company shall:
(i) as soon as reasonably practicable, and at its expense as set
forth in Section 6 hereof, effect such registration and all such
qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of the Class
I Stockholder's Registrable Securities as are specified in such request on
the form specified in such request covering the Registrable Securities;
(ii) use its best efforts to cause such registration to become
and remain effective, as soon as practicable after receipt of the request
of the Class I Stockholder, for the period necessary to effectuate the
distribution contemplated by the Class I Stockholder; and
(iii) at the request of the Class I Stockholder or the Manager,
enter into and perform its obligations under an underwriting or purchase
agreement (the "UNDERWRITING AGREEMENT") in customary form for secondary
offerings of common stock, and otherwise reasonably acceptable to the
parties, with the Manager (acting for itself and/or a group of syndicate of
underwriters) and the Class I Stockholder.
Notwithstanding the foregoing, the Company shall be entitled to delay any such
Demand Registration if (i) the Company has determined in good faith that in view
of pending negotiations or other material developments regarding the Company not
otherwise required to be made public, disclosure of such information is not in
the best interest of the Company (in which case the delay
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in filing a Demand Registration may not exceed 90 days); (ii) the Company has
initiated discussions with an underwriter regarding the sale of securities of
the same class or convertible into the same class as the Registrable Securities
in a registered primary public offering, in which case the Demand Registration
may be delayed for up to 180 days from the effectiveness of such primary public
offering, provided that the Company may not invoke the provision of clause (i)
for more than an aggregate of 120 days in any twelve-month period, and may not
invoke the delay in clause (ii) more than once in any such period. In addition,
to the extent a Demand Registration is a "shelf" registration, the Company may
interrupt such registration for the reasons set forth above, provided that sales
under such shelf registration shall in all events be permitted for an aggregate
of 180 days if requested.
(b) Piggyback Registration Rights; Cutbacks. Each time the Company
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proposes to register under the Act (other than registration (A) on Forms S-4 or
S-8 or any successor forms thereto, or (B) filed in connection with an exchange
offer) securities of the same class as any of the Registrable Securities, the
Company shall give written notice of such proposed registration (a "REGISTRATION
NOTICE") to each Class I Stockholder and Class II Stockholder at least 20 days
prior to the filing thereof. Each Registration Notice shall indicate that the
recipient has the right (subject to the provisions of this Section 6) to propose
that its Registrable Securities be included in such registration. Each Class I
Stockholder and Class II Stockholder shall have the right to propose that a
number of its Registrable Securities be included in such registration by written
notice given to the Company within fifteen (15) days after the giving of such
Registration Notice. Subject to the provisions of this Section 6, the Company
shall include all such Registrable Securities in such registration; provided,
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however, that:
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(i) if the registration is in whole or part an underwritten
primary registration on behalf of the Company (whether or not it is also in
part a Demand Registration or other secondary registration on behalf of any
Company securityholders) and the managing underwriters of such offering
determine that the aggregate amount of securities of the Company which all
Stockholders and all other Company securityholders pursuant to future
contractual rights to participate in such registration (such other Company
securityholders, "FUTURE PARTICIPANTS") propose to include in such
registration exceeds the maximum amount of securities that should be
included therein, the Company will include in such registration, first, the
-----
shares which the Company proposes to sell and second, securities to be sold
------
for the account of any Class I Stockholder pro rata among the Class I
--- ----
Stockholders, and third, securities to be sold for the account of the Class
-----
II Stockholders, pro rata among the Class II Stockholders and fourth, the
--- ----
other securities to be sold for the account of Future Participants, pro
---
rata among such Future Participants, in each case on the basis of the
----
relative Equity Ownership of the parties who have requested that securities
owned by them be so included (it being agreed and understood, however, that
such underwriters shall have the right to eliminate entirely the
participation in such registration of all Stockholders and Future
Participants);
9
(ii) if the registration is pursuant to an underwritten Demand
Registration and the managing underwriters determine that the aggregate
amount of securities which all Stockholders and all Future Participants
propose to include in such registration exceeds the maximum amount of
securities that should be included therein, the Company will include in
such registration, first, the securities to be sold for the account of the
-----
Class I Stockholders, pro rata among the Class I Stockholders, second,
--- ---- ------
securities to be sold for the account of the Company, if any, third,
-----
securities to be sold for the account of the Class II Stockholders, pro
---
rata among the Class II Stockholders and fourth, securities to be sold for
---- ------
the account of the Future Participants electing to include securities in
such registration, pro rata among such Future Participants, in each case,
--- ----
on the basis of their relative Equity Ownership (it being agreed and
understood, however, that such underwriters shall have the right to
eliminate entirely the participation therein of the Company and all such
Future Participants not entitled to demand inclusion of securities in such
registration);
(iii) if the registration is pursuant to an underwritten
secondary registration other than as described in clause (ii) above on
behalf of Future Participants and the managing underwriters determine that
the aggregate amount of securities which all Future Participants and
Stockholders propose to include in such registration exceeds the maximum
number of securities that should be included therein, the Company will
include in such registration first, the securities to be sold for the
-----
account of the Future Participants, pro rata among the Future Participants,
--- ----
second, securities to be sold for the account of the Company, if any,
------
third, securities to be sold for the account of the Class I Stockholders,
-----
pro rata among such Stockholders and fourth, securities to be sold for the
--- ---- ------
account of the Class II Stockholders, in each case, on the basis of their
relative Equity Ownership (it being agreed and understood, however, that
such underwriters shall have the right to eliminate the participation
therein of the Company and the Stockholders entirely unless, on the date of
such secondary registration, any Class I Stockholder electing to
participate in such registration shall not theretofore have completed one
Demand Registration in which all of the Registrable Securities it sought to
include were sold, in which case any such Class I Stockholder may convert
such registration into one governed by clause (ii) above);
(iv) in the event that, as a result of the provisions of Section
6(b)(i) or (ii), a group of Stockholders which has exercised its right to
request a Demand Registration is unable to register all of the Registrable
Securities as to which the request was made, such Stockholder shall not be
considered to have utilized a Demand Registration under Section 6(a); and.
(v) in exercising the rights of Stockholders in respect of
Registrable Securities in this Section 6, Stockholders comprising the
holders of the Demand Registrations enumerated in clauses (i) through (iii)
of Section 6(a) shall, if more than one Stockholder has or succeeds to such
rights, exercise such rights and make all determinations hereunder acting
by majority-in-interests based upon their respective ownership of
Registrable Securities.
10
(c) Expenses of Registration. Whether or not any registration
------------------------
statement prepared and filed pursuant to Section 6(a) or (b) hereof is declared
effective by the SEC (except where a Demand Registration is terminated,
withdrawn or abandoned at the written request of a Class I Stockholder solely
due to market conditions), the Company shall pay all expenses incident to
Company's performance of or compliance with the registration requirements of
this Agreement, including, without limitation, the following: (A) all SEC
registration and filing fees and expenses; (B) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of Registrable Securities; (C) any and all
expenses incident to its performance of, or compliance with, this Agreement,
including, without limitation, any allocation of salaries and expenses of
Company personnel or other general overhead expenses of Company, or other
expenses for the preparation of historical and pro forma financial statements;
(D) fees and expenses incurred in connection with the listing of Registrable
Securities on each securities exchange or the NASDAQ Stock Market, as
applicable, on which securities of the same class are then listed; (E) all
transfer and/or exchange agent and registrar fees; (F) fees and expenses in
connection with the qualification of the Registrable Securities under securities
or "blue sky" laws including reasonable fees and disbursements of counsel for
the underwriters in connection therewith; (G) mailing and printing expenses
relating to the registration and distribution of Registrable Securities; (H)
messenger and delivery expenses relating to the registration and distribution of
Registrable Securities; (I) fees and out-of-pocket expenses of a single counsel
for the selling Stockholders and (J) fees and out-of-pocket expenses of counsel
for Company and its independent certified public accountants (including the
expenses of any audit, review and/or "cold comfort" letters) and other persons,
including special experts, retained by Company (collectively, clauses (A)
through (J), "REGISTRATION EXPENSES"); Provided, however, that company shall not
-----------------
be required to pay, and the stockholder shall pay, any discounts, commissions or
fees of underwriters, selling brokers and dealers relating to the distribution
of the Registrable Securities.
(d) Registration Procedures. In the case of each registration
-----------------------
effected by Company pursuant to this Agreement, Company shall keep the
participating Stockholders advised in writing as to the initiation of each
registration and as to the completion thereof. The Company shall (i) permit the
Stockholder, the Manager, if any, and their respective counsel to make such
investigation of Company as they may reasonably request, (ii) furnish to the
participating Stockholders, the Manager and their respective counsel drafts of
the registration statement and all amendments thereto, all prospectuses and
supplements thereof prior to filing with the SEC and consider their comments and
suggestions with respect to such documents, and (iii) not file any such
registration statement, amendment, prospectus or supplement to which the
participating Stockholders or the Manager shall reasonably object. At its
expense, Company shall:
(i) keep such registration effective and current as required by
law for such period necessary to permit the Stockholder to complete the
distribution described in the registration statement relating thereto, or
for such period as may be agreed to in the Underwriting Agreement;
11
(ii) prepare and file with the SEC such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply with
the provisions of the Securities Act and the Underwriting Agreement and to
keep such registration statement effective and current as required by law
for that period of time specified above, in each case exclusive of any
period during which the prospectus used in connection with such
registration shall not comply with the requirements of Section 10 of the
Securities Act, and respond as promptly as practicable to any comments
received from the SEC with respect to such registration statement or any
amendment thereto;
(iii) furnish such number of copies of the registration
statement, each amendment thereto, each preliminary prospectus,
prospectuses, supplements and incorporated documents and other documents
incident thereto as the Stockholder or the Manager from time to time may
reasonably request;
(iv) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under the securities or
"blue sky" laws of such jurisdictions as the Stockholder and the Manager
shall reasonably request, and do any and all other acts and things which
may be necessary or desirable to enable the Stockholder and the Manager to
consummate the offering and disposition of Registrable Securities in such
jurisdictions; provided, however, that the Company shall not, by virtue of
--------- -------
this Agreement, be required to qualify generally to do business as a
foreign corporation, subject itself to taxation, or consent to general
service of process, in any jurisdiction wherein it would not, but for the
requirements of this clause (iv), be obligated to be qualified;
(v) notify the Stockholder and the Manager promptly and, if
requested by any such person, confirm such notification in writing, (A)
when a prospectus or any prospectus supplement has been filed with the SEC,
and, with respect to a registration statement or any post-effective
amendment thereto, when the same has been declared effective by the SEC,
(B) of any request by the SEC for amendments or supplements to a
registration statement or related prospectus, or for additional
information, (C) of the issuance by the SEC of any stop order or the
initiation of any proceedings for such or a similar purpose (and the
Company shall make every reasonable effort to obtain the withdrawal of any
such order at the earliest practicable time), (D) of the receipt by Company
of any notification with respect to the suspension of the qualification of
any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose (and the
Company shall make every reasonable effort to obtain the withdrawal of any
such suspension at the earliest practicable time), (E) of the occurrence of
any event with requires the making of any changes to a registration
statement or related prospectus so that such documents shall not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading
(and the Company shall promptly prepare and furnish to the Stockholder and
the Manager a reasonable number of copies of a supplemented or
12
amended prospectus such that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading), and (F) of
the Company's determination that the filing of a post-effective amendment
to the Registration Statement shall be necessary or appropriate. Each
Stockholder agrees that it shall, as expeditiously as possible, notify the
Company at any time when a prospectus relating to a registration statement
covering such Stockholder's Registrable Securities is required to be
delivered under the Securities Act, of the happening of any event of the
kind described in this clause (v) as a result of any information provided
by such Stockholder in writing expressly for inclusion in such prospectus
included in such registration statement and, at the request of the Company,
promptly prepare and furnish to it such information as may be necessary so
that, after incorporation into a supplement or amendment of such prospectus
as thereafter delivered to the purchasers of such securities, the
information so provided by the Stockholder shall not include an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the
light of the circumstances under which they were made, not misleading. Each
Stockholder shall be deemed to have agreed by acquisition of such
Registrable Securities that upon the receipt of any notice from the Company
of the occurrence of any event of the kind described in clause (E) of this
clause (v), such Stockholder shall forthwith discontinue its offer and
disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Stockholder shall
have received copies of a supplemented or amended prospectus which is no
longer defective as contemplated by clause (E) of this clause (v) and, if
so directed by the Company, shall deliver to the Company, at the Company's
expense, all copies (other than permanent file copies) of the defective
prospectus covering such Registrable Securities which are then in such
Stockholder's possession;
(vi) use its best efforts to cause all such Registrable
Securities covered by such registration statement to be listed on each
securities exchange or the Nasdaq Stock Market, as applicable, on which
similar securities issued by Company are then listed, if the listing of
such Registrable Securities is then permitted under the rules and
regulations of such exchange or the Nasdaq Stock Market, as applicable;
(vii) engage and provide a transfer agent for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement;
(viii) whether or not the Underwriting Agreement is entered into
and whether or not any portion of the offering contemplated by such
registration statement is an underwritten offering or is made through a
placement or sales agent or any other entity, (A) make such representations
and warranties to the underwriters, if any, in form, substance and scope as
are customarily made in connection with an offering of common stock or
other equity securities pursuant to any appropriate agreement and/or to a
13
registration statement filed on the form applicable to such registration;
(B) obtain an opinion of counsel to the Company in customary form and
covering such matters, of the type customarily covered by such opinions, as
the Manager, if any, and as the Stockholder may reasonably request; (C)
obtain a "cold comfort" letter or letters from the independent certified
public accountants of Company addressed to the underwriters, if any,
thereof, dated (i) the effective date of such registration statement and
(ii) the date of the closing under the underwriting agreement relating
thereto, such letter or letters to be in customary form and covering such
matters of the type customarily covered, from time to time, by letters of
such type and such other financial matters as the Manager, if any, may
reasonably request; (D) deliver such documents and certificates, including
officers' certificates, as may be reasonably requested by the underwriters,
if any, therefor and the Manager, if any, thereof to evidence the accuracy
of the representations and warranties made pursuant to clause (A) above and
the compliance with or satisfaction of any agreements or conditions
contained in the underwriting agreement or other agreement entered into by
Company, and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in this
Agreement;
(ix) permit the Stockholder to participate in the preparation of
such registration statement and include therein material acceptable to the
Company and its counsel, furnished to Company in writing which, in the
reasonable judgment of the Stockholder and its counsel, is required to be
included therein;
(x) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement by the SEC or
any state securities authority as promptly as possible; and
(xi) cooperate with the Stockholder to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and enable certificates for such Registrable
Securities to be issued for such number of shares of Company Common Stock
and registered in such names as Stockholder may reasonably request.
(e) Indemnification.
---------------
(i) The Company shall indemnify and hold harmless each
Stockholder, each of its directors, officers and agents, each underwriter
(as defined in the Securities Act) of such Registrable Securities, if any,
and each person who controls (within the meaning of Section 15 of the
Securities Act) such Stockholder or any underwriter of the Registrable
Securities held by or issuable to such Stockholder, against all claims,
losses, expenses, damages and liabilities, joint or several, including any
of the foregoing incurred in settlement of any proceeding, commenced or
threatened, (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be
14
stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation promulgated under
the Act or any state securities law applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, and shall reimburse each Stockholder, each of its directors,
officers and agents, each such underwriter and each person who controls
such Stockholder or any such underwriter for any reasonable legal and any
other expenses incurred in connection with investigating, defending or
settling any such claim, loss, damage, liability or action, provided,
--------
however, that the Company shall not be liable in any such case to the
-------
extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by such Stockholder or such underwriter
specifically for use therein. The indemnity provided by this Section 6(e)
shall be in addition to any liability which Company may otherwise have.
(ii) Each Stockholder shall indemnify and hold harmless Company,
each of its directors and officers, each underwriter, if any, and each
person who controls Company or any of the underwriters within the meaning
of the Act, against all claims, losses, expenses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Company or underwriters for
any reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information pertaining to such Stockholder, which is furnished in
writing to Company by such Stockholder specifically for use therein.
(iii) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an Indemnified Party (as
defined below) in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then Company and the
Stockholder shall contribute to the amount paid or payable as a result of
such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative fault of
Company on the one hand and the Stockholder on the other in connection with
the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one
hand or the Stockholder on the other and such person's relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company agrees that it would not be just and
equitable if contribution pursuant to this Section 6(e) were determined by
pro
---
15
rata allocation or by any other method of allocation which does not
---
take account of the equitable considerations referred to above in this
Section 6(e). The amount paid or payable by a party as a result of the
losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 6(e) shall include any legal or other
expenses reasonably incurred by such party in connection with investigating
or defending any such action or claim. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. No person shall be required to
contribute to any settlement effected without its consent, which consent
shall not be unreasonably withheld. If, however, indemnification is
available under this Section 6, the indemnifying parties shall indemnify
each indemnified party to the fullest extent provided here without regard
to the relative fault of such indemnifying party or indemnified party or
any other equitable considerations.
(iv) Each party entitled to indemnification under this Section
6(e) (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided
that counsel for the Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, unless the Indemnified
Party in its reasonable judgment determines that joint representation by
counsel for the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnifying Party and the
Indemnified Party in the conduct of the defense of such action, in which
case the Indemnified Party shall be entitled to be represented by separate
counsel selected by it, the reasonable fees and expenses of which shall be
borne by the Indemnifying Party, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations hereunder, unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with
the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation.
(v) Notwithstanding the foregoing, to the extent that the
provisions on indemnification of the underwriters and their controlling
persons contained in the Underwriting Agreement in connection with an
underwritten public offering are in conflict with the foregoing provisions,
the provisions in the Underwriting Agreement shall control as to
indemnification of the underwriters and their controlling persons in the
public offering.
(vi) Notwithstanding the foregoing, in no event shall any
Stockholder be liable under this Section 6(e) for an amount exceeding the
net proceeds received by
16
Stockholder from the sale of its Registrable Securities pursuant to
the registration rights granted to Stockholder hereunder.
(f) Holdback Amount. Each Stockholder agrees that in the event of an
---------------
underwritten public offering of Registrable Securities for the account of
any Stockholder, such Stockholder and any Related Transferee thereof will
not, without the written consent of the underwriters, offer for public
sale (other than as part of such underwritten public offering) any
Securities during the ten (10) days prior to and such number of days (not
to exceed 180 days in the case of an initial public offering and 90 days
in all other cases) after the effective date of the registration statement
in connection with such public offering as the underwriters may reasonably
request in writing.
(g) Assignment and Assumption. For avoidance of doubt, the parties
-------------------------
acknowledge that each Stockholder may assign its rights under this Section
6 as an incident to any permitted Transfer of Securities held by it to the
Transferee of such Securities, and if the Stockholder retains any
Securities, the rights under this Section 6 shall remain applicable to the
retained Securities. If Securities are acquired from a Class I
Stockholder, such Securities shall be entitled to participate in any
Demand Registration as a member of the group enumerated in clauses (i)
through (iii) of Section 6(a), without thereby increasing the aggregate
number of Demand Registrations the Company may be required to effect. Each
Stockholder shall promptly notify the Company in writing of each such
assignment of rights, and the assignee shall execute such documentation as
the Company may reasonably request to evidence its agreement to be bound
by this Section 6. Registration rights shall not be assignable to any
purchaser of Securities sold under Rule 144 or in any public securities
sale. If the Company effects a business combination in which Stockholders
receive securities of another issuer and such securities cannot be resold
by the Stockholders without registration under the Securities Act, as a
condition to the consummation of such business combination, the Company
shall cause such issuer to assume the Company's obligations under this
Section 6.
(h) Stock Option Plans. After the IPO, the Company shall use its
------------------
reasonable efforts to register, on Form S-8 or any similar or successor
form, the Securities underlying the ISOs and NQ Options so as to permit
the Stockholders to dispose of Common Stock issuable upon the exercise
thereof pursuant to Rule 144.
7. Drag-Along Sales and Tag-Along Sales.
------------------------------------
(a) Drag-Along Sales.
----------------
(i) Notwithstanding any other provision hereof, if GEI agrees to
sell Securities held by it pursuant to a transaction in which more than 75%
of the then-outstanding Common Stock of the Company will be sold to or
acquired by a Third Party (either of such sales, a "DRAG-ALONG SALE"), then
upon the demand of GEI, (i) in the case of Occidental and the Class II
Stockholders, made at any time after the Closing Date and (ii) in the case
of the HPA Group, made at any time after the fourth anniversary of the
Closing Date (the HPA Group and the Class II Stockholders being
collectively referred to for this purpose as "DRAG-ALONG SELLERS"), each
Drag-Along Seller hereby agrees to sell
17
to such Third Party the same percentage of the total number of securities
held by such Drag-Along Seller on the date of the Drag-Along Notice, as the
number of Securities GEI is selling in the Drag-Along Sale bears to the
total number of shares held by GEI as of the date of the Drag-Along Notice
(the "SALE PERCENTAGE"), at the same price and form of consideration and on
the same terms and conditions as GEI has agreed to with such Third Party.
If the Drag-Along Sale is in the form of a merger transaction, the Drag-
Along Seller agrees to vote his or her securities in favor of such merger
and not to exercise any rights of appraisal or dissent afforded under
applicable law. The provisions of this Section 7 shall apply regardless of
the form of consideration received in the Drag-Along Sale. For purposes of
Drag-Along Sales, the number of shares owned by each Drag-Along Seller
shall include all shares underlying Options, which Options will be
exercised by the Drag-Along Sellers immediately prior to and contingent
upon consummation of the Drag-Along Sale.
(ii) Prior to making any Drag-Along Sale, if GEI elects to
exercise the option described in this Section 7, GEI shall provide the
Drag-Along Seller to whom this Section 7 then applies with written notice
(the "DRAG-ALONG NOTICE") not more than 60 nor less than 15 days prior to
the proposed date of the drag-along sale (the "DRAG-ALONG SALE DATE"). The
Drag-Along Notice shall set forth: (i) a general description of the
transaction and the proposed amount and form of consideration to be paid
per share offered by the Third Party; (ii) the aggregate number of
Securities held by GEI as of the date that the Drag-Along notice is first
given to a Drag-Along Seller; (iii) the Sale Percentage; and (iv) the Drag-
Along Sale Date.
(iii) On the Drag-Along Sale Date, each Drag-Along Seller shall
deliver a certificate or certificates for the Sale Percentage of its
Securities, duly endorsed for transfer with signatures guaranteed, to such
Third Party in the manner and at the address indicated in the Drag-Along
Notice against delivery of the purchase price therefor; provided, however,
that in the event the Company has possession of any such certificates
pursuant to this Agreement, upon the written request of the Drag-Along
Seller at least five (5) business days in advance of-the Drag-Along Sale
Date, the Company shall deliver such certificates to the purchaser at the
time and in the manner described above.
(b) Optional Participation in Sales of Common Stock (Tag-Along
----------------------------------------------------------
Sales).
------
(i) If GEI shall at any time desire to Transfer shares of Common
Stock to a third party, other than ratably to its partners, then each of
the HPA Group and the Class II Stockholders and their Related Transferees
(collectively, a "TAG-ALONG SELLER") shall be entitled, to participate pro
---
rata in such transfer at the same price and on the same terms and
----
conditions applicable to GEI, based upon their respective Fully Diluted
Ownership in the Company.
(ii) Each Tag-Along Seller shall have the right to Transfer up to
a percentage of the number of shares specified in the Transfer Notice
delivered pursuant to the following sentence by the aggregate number of
shares of Common Stock then owned
18
by GEI. GEI shall deliver or cause to be delivered to each Tag-Along Seller
a written notice (a "TRANSFER NOTICE") of a proposed tag-along sale no
later than 30 days prior to the proposed closing thereof. Such notice shall
make reference to the Tag-Along Sellers' rights under this Section 7(b) and
shall describe in reasonable detail (A) the aggregate number of shares of
Common Stock to be Transferred by GEI if none of the HPA Group or Class II
Stockholders participates, (B) the aggregate number of shares of Common
Stock then owned by GEI, (C) the person or entity to whom or which such
shares of Common Stock are proposed to be Transferred, (D) the terms and
conditions of the Transfer, including the consideration to be paid
therefor, (E) the maximum percentage of its shares such Tag-Along Seller is
entitled to include in the Transfer and (F) the proposed date, time and
location of the closing of the Transfer. Each Stockholder receiving a
Transfer Notice shall exercise its right to participate in a Transfer of
Common Stock pursuant to this Section 7 by delivering to GEI a written
notice (a "TAG-ALONG NOTICE") stating its election to do so and specifying
the number of shares (which shall not exceed the number of shares
determined for such Tag-Along Seller in the Transfer Notice) of Common
Stock held by it to be Transferred no later than fifteen days after receipt
of the Transfer Notice. Failure to provide a Tag-Along Notice within such
fifteen-day period shall be deemed to constitute an election by such
Stockholder not to exercise its rights pursuant to this Section 7, and GEI
shall have 90 days following the expiration of such fifteen-day period in
which to Transfer the number of shares equal to the difference between the
number set forth in the Transfer Notice and the aggregate number of shares
as to which GEI has received a Tag-Along Notice, on terms not more
favorable to GEI than those set forth in the Transfer Notice.
(iii) Each Tag-Along Seller shall be required to deliver at such
closing the certificate or certificates representing the shares to be
Transferred, duly endorsed for transfer, and shall be entitled to receive
the net proceeds allocable to the Transfer thereof, after deduction of such
Tag-Along Seller's proportionate share of the expenses of Transfer, which
share shall not exceed an amount proportionate to the amount of such
expenses allocated to GEI. If, at the end of the 90-day period following
the expiration of such fifteen-day period, GEI has not completed the
Transfer of shares of Common Stock, GEI may not sell the shares of Common
Stock without again fully providing a Transfer Notice.
(c) Obligations of Drag-Along Sellers. In connection with any Drag-
---------------------------------
Along Sale,Drag-Along Sellers shall not be required to make any representation
or warranty to the purchaser other than to the effect that they hold title to
the Securities they are selling in the Drag-Along Sale, free and clear of liens
and the like, and as to their right, power and authority to sell such
Securities. Except as to such representations, Drag-Along Sellers shall not be
liable beyond thenet proceeds of the Drag-Along Sale for any other breach of
representations or warranties. In addition, unless expressly agreed to by a
Drag-Along Seller, no Drag-Along Seller shall be required to enter into any
covenant not to compete or similar agreement restricting their business
activities.
19
8. Termination and Lapse of Rights and Restrictions; Applications to
-----------------------------------------------------------------
Other Stock and Adjustments. The provisions of Sections 4, 5, 7, 9 and 10 shall
---------------------------
lapse and be of no further effect immediately following the earlier to occur of
a Change in Control or an IPO. In the event any capital stock of the Company or
any other corporation shall be distributed on, with respect to, or in exchange
for Securities as a stock dividend, stock split, reverse stock split,
reclassification or recapitalization, or in connection with any merger or
reorganization, the restrictions, rights and options and prices set forth herein
shall apply with respect to such other capital stock to the same extent as they
are, or would have been applicable, to the Securities on or with respect to
which such other capital stock was distributed and shall continue to apply to
the Securities or such other securities outstanding thereafter, in each case
with such adjustments as are necessary or appropriate.
9. Election of Directors. So long as such individuals respectively own
----------------------
the requisite amount of Common Stock set forth herein, each of the other
Stockholders agrees to vote his or its Common Stock, and to cause his Related
Transferees to vote their Common Stock, in favor of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇" AND "▇▇▇▇▇▇▇▇▇") in all elections of the
directors of the company, whether by meeting or action in writing. such
agreement to vote shall be effective as to each such individual so long as such
individual continues to own (directly or, in the case of ▇▇. ▇▇▇▇▇▇▇▇▇, through
a family trust and in either case, through Related Transferees after the date
hereof) at least two-thirds of the Common Stock owned by him on the date hereof.
Such agreement to vote shall cease to be effective upon the first to occur of:
(i) Such individual ceasing to own (directly or indirectly, as aforesaid) in
excess of one-third of the Common Stock owned by him on the date hereof and (ii)
a Disproportionate Sale after which such individual and his Related Transferees
own less than two-thirds of the Common Stock owned by him and such Related
Transferees on the date hereof. A "DISPROPORTIONATE SALE" as to either
individual occurs on the date of a Transfer of Common Stock as a result of which
the Common Stock owned by such individual and Related Transferees has decreased
by a percentage that is greater, by at least five percent (5%), than the
corresponding decrease in ownership of Common Stock of GEI to date. Each of the
stockholders further agrees that he or it shall vote its Common Stock, and cause
its Related Transferees to vote their Common Stock, in all elections of
directors of the Company, whether by meeting or action in writing, in favor of
all nominees for the board of directors proposed by GEI. For purposes of this
Section 9 and the effectiveness of the voting agreements herein, ownership of
Common Stock shall be calculated based upon the Fully Diluted Ownership of the
individual and his Related Transferees, in the aggregate; provided, however,
that to the extent any of the Options included in the Fully Diluted Ownership of
an individual should fail to vest, the calculation as to such individual's
ownership of Common Stock shall thereafter be made as if the aggregate Common
Stock owned by such individual on the date hereof had not included such Options.
10. Certain Additional Agreements.
-----------------------------
(a) Right to Participate in Securities Issuances. If the Company
--------------------------------------------
shall issue, sell or distribute to GEI or any of its Affiliates any equity or
debt securities of the Company, or any option, warrant, or right to acquire, or
any security convertible into or exchangeable for, any of the foregoing (other
than pursuant to an underwritten public offering, a stock dividend, stock
20
split or other pro rata distribution of securities to stockholders of the
--- ----
Company generally in which the HPA Group participates on an equal basis,
including any Related Transferees), the members of the HPA Group shall be
entitled, provided that they collectively maintain two-thirds (2/3) of the
Fully Diluted Ownership held by them on the date hereof, to participate in such
issuance, sale or distribution, at the same price and on the same terms and
conditions applicable to GEI, pro rata, based upon their respective Fully
--- ----
Diluted Ownership in the Company. The Company shall provide at least twenty
(20) days' prior notice to the members of the HPA Group as to its intention so
to issue equity, debt or related securities to GEI, and in the event any member
of the HPA Group fails to respond within such twenty-day period, such member
shall be deemed to have waived his or its right so to participate in the
issuance of securities. The members of the HPA Group may determine amongst
themselves that to the extent any member does not desire to participate, other
members may increase their participation, provided that the aggregate
participation does not exceed that offered to the HPA Group as a whole and that
notice, which shall be binding upon all the HPA Group members and as to which
GEI shall have no duty to inquire, shall be given to GEI within such 20-day
period as to the aggregate number of securities being subscribed for. The
parties acknowledge that time is of the essence as to this Section 10(a).
(b) Right to Participate in Equity Repurchases. The Company and GEI
------------------------------------------
agree that the Company will not purchase any Securities from GEI or any of its
Affiliates unless the Company offers to simultaneously purchase a
proportionately equal number of Securities of the same class from each member of
the HPA Group at the same price and on the same terms and conditions applicable
to GEI and its Affiliates, based upon their respective Fully Diluted Ownership.
(c) Affiliate Transactions. No material transaction or series or
----------------------
related transactions (including any issuance of securities, profits interests,
stock appreciation rights, or similar rights or interests of the Company)
between the Company and GEI or any of its Affiliates involving value in excess
of $1,000,000 may be consummated unless approved (i) if one of ▇▇▇▇▇▇▇▇ or
▇▇▇▇▇▇▇▇▇ then holds at least one-third of his Fully Diluted Ownership as of the
date hereof, by such individual, and otherwise by a majority of the
disinterested directors of the Company, or (ii) by the board of directors of the
Company after it is presented with a fairness opinion of a nationally recognized
investment bank to the effect that the transaction is fair to the Company and
its stockholders. Notwithstanding the foregoing, other than the Management
Agreement of even date herewith between the Company and ▇▇▇▇▇▇▇ ▇▇▇▇▇ &
Partners, L.P. (the "Management Agreement"), GEI and its Affiliates will not
enter into any consulting, management or similar agreement or arrangement with
the Company or increase the fees provided for in the Management Agreement as of
the date hereof, except that such fees may be proportionately increased provided
such increase is calculated on the same basis (1.6% of invested capital) as the
fee currently provided for therein and such increase reflects further investment
by GEI consistent with the terms of this Section 10.
(d) Change of Control Transactions. Each of GEI, ▇▇▇▇▇▇▇▇ and
------------------------------
▇▇▇▇▇▇▇▇▇ agrees that no such Stockholder shall, without the prior consent
of the other two Stockholders, pursue, advocate or enter into an agreement in
respect of any recapitalization, reclassification,
21
share exchange, reorganization, merger, consolidation or similar transaction
involving the Company unless all holders of Common Stock of the Company will
be treated identically in such transaction, but ratably in proportion to their
respective Equity Ownership.
(e) Information. The Company shall provide each Class I Stockholder
-----------
with the following information, all of which each Class I Stockholder agrees
to hold in confidence:
(i) For each fiscal quarter of the Company, as and when
submitted to Green, unaudited consolidated financial statements of the
Company (consisting of balance sheet and statements of operations,
stockholders' equity and cash flows for such fiscal quarter, in the form
submitted to GEI;
(ii) For each fiscal year of the Company, as and when submitted
to Green, audited financial statements of the Company for such fiscal year,
certified by the Company's independent certified public accounting firm, in
the form submitted to GEI;
(iii) Such additional information about the Company as such
Class I Stockholder may reasonably request from time to time.
11. Notices. All notices or other communications under this Agreement
-------
shall be given in writing and shall be deemed duly given and received on the
third full business day following the day of the mailing thereof by registered
or certified mail or the next Business Day if sent by overnight courier or
when delivered personally or sent by facsimile transmission as follows:
(a) if to the Company, at its principal executive offices at the time
of the giving of such notice, or at such other place as the Company shall have
designated by notice as herein provided to the Purchaser;
(b) if to a Class I Stockholder, at its principal executive offices at
the time of the giving of such notice, or at such other place as such
Stockholder shall have designated by notice as herein provided to the Company.
(c) if to any Class II Stockholder, at his address as it appears on
Annex A or at such other place as he shall have designated by notice as herein
provided to the Company.
12. General.
-------
(a) This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof and may not be modified or amended
except by a written agreement signed by each of the Company and the Class I
Stockholders and, to the extent their interests are affected, by the Class II
Stockholders, provided, however, that Class II Stockholders having a majority of
-------- -------
Equity Ownership as amongst such Stockholders may bind all of such Stockholders
as to any matter adversely affecting them if such adverse effect is equal, on a
proportionate basis, as to all such Stockholders and the consent of each
adversely affected Class II Stockholder shall otherwise be required.
22
(b) No waiver of any breach or default hereunder shall be considered
valid unless in writing, and no such waiver shall be deemed a waiver of any
subsequent breach or default of the same or similar nature.
(c) Except as otherwise expressly provided herein, this Agreement
shall be binding upon and inure to the benefit of each of the Company, the
Stockholders and their respective heirs, personal representatives, successors
and assigns; provided, however, that nothing contained herein shall be construed
-------- -------
as granting any Stockholder the right to Transfer any of the Securities except
in accordance with this Agreement and any Transferee shall hold such Securities
having only those rights and being subject to the restrictions provided for in
this Agreement.
(d) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
(e) Each Class II Stockholder agrees that nothing herein shall be
deemed to create any implication concerning the adequacy of his services to the
company, or shall be construed as an agreement by the Company, express or
implied, to employ him or contract for his services, to restrict the right of
the Company to discharge him or cease contracting for his services or to modify,
extend or otherwise affect in any manner whatsoever, the terms of any employment
agreement or contract for services which may exist between him and the Company
or its subsidiaries. Each Class II Stockholder represents that he has been
advised, to the extent he deemed necessary, by legal counsel and tax advisors of
his choice in connection with this Agreement. Each Class II Stockholder further
represents that, if he is married, his spouse has executed and delivered to the
Company the Acknowledgment and Agreement of Spouse set forth at the end of this
Agreement.
(f) In the event any day upon which a sale, notice or other matter is
required to occur hereunder is not a Business Day, such matter shall be deferred
until the next Business Day.
(g) The section headings contained herein are for the purposes of
convenience only and are not intended to define or limit the contents of such
sections. The masculine pronoun shall be deemed to include and incorporate the
feminine pronoun.
(h) Each party hereto shall cooperate and shall take such further
action and shall execute and deliver such further documents as may be reasonably
requested by any other party in order to carry out the provisions and purposes
of this Agreement.
(i) Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
23
(j) This Agreement may be executed in one or more counterparts, all of
which taken together shall be deemed one original.
(k) Due to the fact the securities of the Company cannot be readily
purchased or sold in the open market, and for other reasons, the parties will be
irreparably damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the terms, covenants
and/or conditions of this Agreement by any of the parties hereto, the other
parties shall, subject to Section 13, in addition to all other remedies, be
entitled to a temporary and/or permanent injunction, without showing any actual
damage or that monetary damages would not provide an adequate remedy, and/or a
decree for specific performance, in accordance with the provisions hereof. Each
Stockholder hereby irrevocably and unconditionally consents to the jurisdiction
of any California State court or federal court of the United States sitting in
the State of California in any action or proceeding relating to this Agreement
and consents to service of process in connection therewith by the delivery of
notice to such Stockholder's address set forth in this Agreement.
(l) This Agreement shall be deemed to be a contract under the laws of
the State of Delaware and for all purposes shall be construed and enforced in
accordance with the internal laws of such state without regard to the principles
of conflicts of law.
13. Additional Class II Stockholders. Prior to issuing any Options,
--------------------------------
Common Stock or other right exercisable for or convertible into Common Stock,
and as a condition to the receipt thereof, the Company shall require the
recipient to execute and deliver a duplicate counterpart of this Agreement, and
such recipient shall become a Class II Stockholder for all purposes hereof.
14. Arbitration.
-----------
(a) Scope. The parties mutually consent to the resolution by binding
-----
arbitration of all claims or controversies ("CLAIMS") arising out of or related
to this agreement. notwithstanding the foregoing, the parties may have recourse
to the courts for injunctive or equitable relief in respect of matters arising
out of or relating to this Agreement.
(b) Deposition. Each party to a dispute shall have the right to
----------
take the deposition of up to two individuals and any expert witness designated
by each other party. Each party also shall have the right to make requests
for production of documents to any party. The subpoena right specified below
shall be applicable to discovery pursuant to this paragraph. Additional
discovery may be had only where the arbitrator selected pursuant to this Section
14 so orders, upon a showing of reasonable and substantial need. At least 30
days before the arbitration, the parties must exchange lists of witnesses,
including any expert, and copies of all exhibits intended to be used at the
arbitration. Each party shall have the right to subpoena witnesses and documents
for the arbitration.
(c) JAMS. The Arbitration will be held under the auspices of either
----
the American Arbitration Association ("AAA") or Judicial Arbitration &
Mediation Services, Inc. ("J.A.M.S"), with the designation of the sponsoring
organization to be made by the party who did not initiate the claim. The
parties agree that, except as provided in this Agreement, the
24
arbitration shall be in accordance with the AAA's then-current arbitration
procedures (if AAA is designated) or the then-current J.A.M.S arbitration rules
(if j.a.m.s is designated). the arbitration shall be conducted by a single
arbitrator selected from the AAA large complex case panel (the "Arbitrator").
The arbitration shall take place in Los Angeles, California.
(d) Selection of Arbitrator. If the parties to the dispute cannot
------------------------
agree upon the selection of the arbitrator within 30 days from the day the
matter is submitted to arbitration, then, on application of any party, the
arbitrator shall be designated by the sponsoring organization.
(e) Governing Law. The Arbitrator shall apply the substantive law
--------------
(and the law of remedies, if applicable) of the state of Delaware. The
Arbitrator shall be without jurisdiction to apply any different substantive law,
or law of remedies. The Arbitrator, and not any federal, state, or local court
or agency, shall have exclusive authority to resolve any dispute relating to the
interpretation, applicability, enforceability or formation of this Agreement,
including but not limited to any claim that all or any part of this Agreement is
void or voidable. The arbitration shall be final and binding upon the parties,
except as provided in this Agreement.
(f) Procedures. The Arbitrator shall have jurisdiction to hear and
-----------
rule on pre-hearing disputes and are authorized to hold pre-hearing conferences
by telephone or in person, as the Arbitrator deems necessary. The Arbitrator
shall have the authority to entertain a motion to dismiss and/or a motion for
summary judgment by any party and shall apply the standards governing such
motions under the Federal Rules of Civil Procedure. If such a transcript is
prepared, it shall be the official transcript of the proceedings for all
purposes. Such proceedings shall be concluded within 180 days of the
commencement of the arbitration, as evidenced by the rendering of the award
described below. Any party to a dispute, at its expense, may arrange for and
pay the cost of a court reporter to provide a stenographic record of
proceedings. Any party to a dispute, upon request at the close of hearing,
shall be given leave to file a post-hearing brief. The time for filing such a
brief shall be set by the Arbitrator.
(g) Award. The Arbitrator shall render an award and opinion
------
outlining in reasonable detail the findings of fact and conclusions of law upon
which the award is based. The award of the Arbitrator shall be final, binding
and conclusive on the parties. If the Company is a party to the dispute, the
Company shall bear the fees and costs of the Arbitrator. If Company is not a
party to the dispute, the parties to the dispute shall equally share the fees
and costs of the Arbitrator. Each party shall pay for its own costs and
attorneys' fees.
15. Definitions. As used in this Agreement, unless the context requires
------------
otherwise, the capitalized terms described in this Section 15 shall have the
meanings indicated herein.
(a) Each of the following capitalized terms shall have the meaning
ascribed to such term in the section of this Agreement indicated:
Term Section
------------------------------- -------
Act............................ 15(b)
Affiliate...................... 15(b)
25
Term Section
------------------------------- ------------
Agreement...................... Introduction
Bona Fide Offer................ 4(b)
Business Day................... 15(b)
Callable Securities............ 2(b)
Call Purchase Event............ 5(a)
Call Option.................... 2(b)
Change in Control.............. 15(b)
Class I Stockholder............ Introduction
Class II Stockholder........... Introduction
Common Stock................... Recitals
Company........................ Introduction
Control........................ 13(b)
Demand Registration............ 6(a)
Demand Seller.................. 6(b)
Disproportionate Disposition... 9
Drag-Along Notice.............. 7(b)
Drag-Along Sale................ 7(a)
Drag-Along Sale Date........... 7(b)
Drag-Along Seller.............. 15(b)
Electing Stockholder........... 4(b)
Equity Ownership............... 15(b)
Fair Market Value.............. 15(b)
Fully Diluted Ownership........ 15(b)
Future Stockholder............. 6(b)
Future Participants............ 6(a)
GEI............................ Introduction
GEI Distribution............... 12
Stockholder.................... 6(a)
IPO............................ 15(b)
Living Trust................... 15(b)
Manager........................ 15(b)
NQ Option...................... 2(b)
Option Notice.................. 4(b)
Other Termination.............. 5(a)
Outside Party.................. 4(b)
Permanent Disability........... 15(b)
Permitted Transfer............. 4(a)
Purchase Notice................ 5(a)
Purchaser...................... 2(b)
Purchasing Group............... 5(a)
Registrable Securities......... 15(b)
Registration Notice............ 6(a)
Related Transferee............. 15(b)
26
Term Section
-------------------------------- ------------
Retirement..................... 15(b)
Rule 144....................... 15(b)
Sale Percentage................ 7(a)
SEC............................ 15(b)
Securities..................... Introduction
Seller......................... 5(a)
Subscription Stock............. 2(b)
Tag-Along Notice............... 7(e)
Tag-Along Seller............... 7(d)
Third Party.................... 7(a)
Transfer....................... 15(b)
Transfer Notice................ 7(e)
(b) Each of the following capitalized terms shall have the meanings
indicated in this clause (b):
"ACT" means the Securities Act of 1933, as amended from time to time.
"AFFILIATE" has the meaning set forth in Rule 405 under the Act.
"BUSINESS DAY" means a day on which banks are open for business in the
State of California.
"CHANGE IN CONTROL" means any of (i) a sale or other disposition by the
Company of all or substantially all of the assets of the Company and its
subsidiaries, taken as a whole, or (ii) a merger or consolidation of the Company
if, immediately following such merger or consolidation, there is not Control of
the surviving entity of such merger or consolidation, or (iii) a sale of capital
stock of the Company (by any holder thereof or by the Company) if, immediately
following such sale, there is not Control of the Company.
"CONTROL" means that the holders of the capital stock of the Company
immediately following the Merger (including the Class I Stockholders) hold, in
the aggregate, directly and indirectly, the power to elect a majority of the
directors of the Company that are not elected pursuant to the provisions of the
Preferred Stock (or, as the case may be, the surviving entity of a merger or
consolidation of the Company).
"EQUITY OWNERSHIP" means the relative interests of the holders of the
Company's outstanding Common Stock as of the date of determination.
"FAIR MARKET VALUE" of Securities means the fair market value of Securities
as determined as of the time of the Call Purchase Event by the Company's Board
of Directors in the exercise of its reasonable discretion; provided, however,
-------- ------
that in the event that the Common Stock is traded publicly on any national
securities exchanges) (including without limitation NASDAQ
27
National Market System or the NASDAQ "Small-Cap" Issues System), such fair
market value shall be based upon the closing price for such Common Stock on such
exchange(s) on the date preceding the Call Purchase Event.
"FULLY DILUTED OWNERSHIP" means, as to any Stockholder, his or its
aggregate ownership of all equity interests in the Company, including all
Options and all other securities excercisable convertible or exchangeable for
Common Stock.
"IPO" means the completion of the first underwritten public offering of the
Company's shares of Common Stock registered under the Act.
"LIVING TRUST" means a revocable living trust established by the Purchaser
for estate planning purposes and pursuant to which no one other than the
Purchaser and/or the Purchaser's spouse is the beneficiary during the
Purchaser's lifetime.
"MANAGER" means the investment banking firm or firms designated by the
Stockholder as the managing underwriter(s) of an offering registered pursuant to
this Agreement, which firm or firms shall be the existing investment bankers for
or other nationally recognized investment bankers reasonably acceptable to the
Company.
"PERMANENT DISABILITY" of a Class II Stockholder means that (i) the Class
II Stockholder becomes physically or mentally incapacitated or disabled so that
he is unable to perform for the Company substantially the same services as he
performed prior to incurring such incapacity or disability, and (ii) such
incapacity or disability continues for a period of 120 days, whether or not
consecutive, over a period of six consecutive months; provided, however, that
-------- -------
(x) the Company, at its option and expense, shall be entitled to retain a
physician to confirm the existence of such incapacity or disability, and the
determination of such physician shall be binding upon the Company and the Class
II Stockholder.
"REGISTRABLE SECURITIES" means the Common Stock and the Warrant Shares,
subject to adjustment pursuant to Section 8 hereof.
"RELATED TRANSFEREE" means (i) in the case of any individual, any of the
Stockholder's spouse, adult lineal descendants, adult spouses of such lineal
descendants, a Living Trust, trusts solely for the benefit of the Stockholder's
spouse or the Stockholder's minor or adult lineal descendants, and (in the event
of the Stockholder's death) the Stockholder's personal representatives (in their
capacities as such), estate or named beneficiaries and (ii) in the case of a
business organization, any individual or other business organization controlled
by or under common control with such business organization, as such terms are
defined within the meaning of Rule 405 under the Act.
"RETIREMENT" means retirement pursuant to the Company's standard retirement
policy in effect from time to time but in no event prior to the age of 65,
unless pursuant to a specific determination by the Board of Directors of the
Company.
28
"RULE 144" means Rule 144 under the Act, as amended from time to time, or
any successor or similar rule.
"SEC" means the Securities and Exchange Commission.
"TRANSFER," used as a noun, means any sale, pledge, gift, bequest,
transfer, assignment or any other encumbrance or disposition, whether direct or
indirect, conditional or unconditional. "TRANSFER," used as a verb, means to
make a Transfer.
29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
first date written above.
LESLIE'S POOLMART, INC.
By _______________________________________________
Its_______________________________________________
GREEN EQUITY INVESTORS II, L.P.
By: Grand Avenue Capital Partners, L.P.,
its sole general partner
By: Grand Avenue Capital Corporation,
its sole general partner
By: ______________________________________________
Name _____________________________________________
Title ____________________________________________
__________________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
__________________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
__________________________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
__________________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
T.R.U.A. DTD 3/15/90 The ▇▇▇▇▇▇▇▇▇ Family Trust
OCCIDENTAL PETROLEUM CORPORATION
By _______________________________________________
Name _____________________________________________
Title ____________________________________________
30
ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE
--------------------------------------
The undersigned, being the spouse of a Purchaser listed on Annex A hereto,
hereby agrees to be bound by the provisions of this Agreement and consents to
the Purchaser's subscription for the Common Stock pursuant hereto.
_________________________________________
Name ____________________________________
31
ANNEX A
CAPITAL STRUCTURE
-----------------
Fully
Diluted
Shares
-------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 160,539
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 166,552
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 22,414
▇▇▇▇ ▇▇▇▇▇▇▇▇ 10,000
---------
Total Stock Remaining Outstanding 359,505
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 4,976
▇▇▇▇▇▇ ▇▇▇▇▇ 52,761
Other Management 25,862
---------
Total Options 83,599
▇▇▇▇▇▇ ▇▇▇▇▇--Cash 14,768
Other Management Cash 4,198
Green Equity Investors II, L.P. 1,055,172
Occidental Warrants 316,092
Management Incentive Stock Options 273,946
Total 2,107,280
=========
A-1
ANNEX B
TERMS OF NQ OPTION PLAN
-----------------------
Number of Shares............. 83,599 total. The number of shares covered by
each individual grant will be the quotient of
(i) the product of (x) the number of shares
subject to the corresponding cancelled option
multiplied by (y) the difference between
$14.50 and such cancelled option's exercise
price, divided by (ii) $9.50. In the case of
Messrs. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇, the foregoing
formula results in the issuance of options for
a maximum of 4,976 and 52,761 shares,
respectively, with the balance to be allocated
to management as heretofore agreed.
Exercise Price............... $5.00
Type of Options.............. Non-Qualified, ten-year options
Termination
of Employment................ A portion of options and shares are subject to
repurchase upon termination of employment
prior to the second anniversary of the Closing
Date as set forth in the Agreement, all other
NQ Options remain exercisable notwithstanding
employment status of optionee
Adjustment................... The number of shares subject to NQ Options,
and the exercise price, will be
proportionately adjusted for each subdivision
and combination of Company common stock.
Acceleration................. NQ Options will accelerate and may be cashed
out upon the occurrence of a Change of
Control. In a cash-out situation, Class I
Optionholders will be treated as Class I
Stockholders and Class II Optionholders will
be treated as Class II Stockholders.
B-1
ANNEX C
TERMS OF INCENTIVE STOCK OPTION PLAN
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Number of Shares............. 13% of the Company's fully-diluted Common
Stock on the Closing Date
Exercise Price............... Fair Market Value (opening equity price)
Type of Options.............. Incentive, ten-year options
Vesting...................... One-third (w) on the first, second and third
anniversaries of the Closing Date, except in
respect of performance portion
Performance Portion.......... Options equivalent to 3.4% of the fully-
diluted Common Stock outstanding on the
Closing Date vest upon achievement (assuming
continued employment) of performance targets
as follows:
EBITDA for Year Ended: Number of Stores Opened by:
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$18M............. 1997 30...........March 31, 1998
$22M............. 1998 30...........March 31, 1999
$26M............. 1999 30...........March 31, 2000
Note: Vesting also occurs if the store
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opening target is met in each prior year and
the Company achieves 95% of a year's EBITDA
target and the sum of that year and the
following year's EBITDA equals 100% of the
combined targets. EBITDA means the
Consolidated Net Income of the Company (i)
plus (minus) any extraordinary or nonrecurring
gain (loss); (ii) plus (minus) any gain (loss)
due solely to fluctuations in currency values;
(iii) plus provision for taxes; (iv) plus
consolidated interest expense, whether paid or
accrued and whether or not capitalized (and
including any amortization of deferred
financing costs); (v) plus any noncash charges
for such period (including LIFO charges); (vi)
plus depreciation, amortization (including
amortization of goodwill and other intangibles
but excluding amortization of prepaid cash
expenses that were paid in a prior period) and
other noncash charges.
C-1
Termination of
Employment................... Vested options may be exercised for 90 days
post-termination; unvested options are
forfeited and become eligible for future grant
at Fair Market Value
Adjustment................... The number of shares subject to Options, and
the exercise price, will be proportionately
adjusted for each subdivision and combination
of Company common stock
Acceleration................. ISO Options will accelerate and may be cashed
out upon the occurrence of a Change of
Control. In a cash-out situation, Class I
Optionholders will be treated as Class I
Stockholders and Class II Optionholders will
be treated as Class II Stockholders.
C-2