EXHIBIT 10.2
EXECUTION COPY
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
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TABLE OF CONTENTS
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Page
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1. PURCHASE AND SALE OF SECURITIES......................................................... 1
1.1 AUTHORIZATION..................................................................... 1
1.2 SALE AND ISSUANCE OF CERTAIN SHARES OF SERIES A PREFERRED STOCK AND WARRANTS...... 1
2. CLOSING; DELIVERIES..................................................................... 2
2.1 THE CLOSING....................................................................... 2
2.2 DELIVERIES........................................................................ 2
2.3 CERTIFICATE OF DESIGNATION........................................................ 2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................... 2
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION..................................... 2
3.2 AUTHORIZATION; BINDING AGREEMENT.................................................. 2
3.3 GOVERNMENTAL AND OTHER CONSENTS; NO VIOLATION..................................... 3
3.4 CAPITALIZATION.................................................................... 3
3.5 FINANCIAL STATEMENTS AND REPORTS.................................................. 4
3.6 NO OPERATIONS; EXISTING FUNDED DEBT............................................... 4
3.7 CERTAIN SECURITIES LAW ISSUES..................................................... 4
3.8 DISCLOSURE........................................................................ 5
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.......................................... 5
4.1 ACCREDITED INVESTOR............................................................... 5
4.2 INVESTMENT INTENT................................................................. 5
4.3 NO CONFLICTS...................................................................... 5
4.4 CERTAIN SECURITIES LAW ISSUES..................................................... 5
4.5 AUTHORIZATION..................................................................... 5
4.6 BROKERS........................................................................... 5
5. CONDITIONS TO INVESTOR'S AND COMPANY'S OBLIGATIONS AT CLOSING........................... 6
5.1 NO INJUNCTION..................................................................... 6
5.2 QUALIFICATIONS; LEGAL INVESTMENT.................................................. 6
5.3 STOCKHOLDERS AGREEMENT............................................................ 6
5.4 CERTIFICATE OF DESIGNATION........................................................ 6
6. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING......................................... 6
6.1 REPRESENTATIONS AND WARRANTIES.................................................... 6
6.2 PERFORMANCE....................................................................... 6
6.3 MERGER............................................................................ 6
6.4 CLOSING DOCUMENTS................................................................. 7
6.5 OPINION OF COMPANY COUNSEL........................................................ 7
6.6 DELIVERIES........................................................................ 7
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING...................................... 7
7.1 REPRESENTATIONS AND WARRANTIES.................................................... 7
7.2 PERFORMANCE....................................................................... 7
7.3 CANCELLATION OF EXISTING DEBT..................................................... 7
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8. CONVERSION OF PURCHASED STOCK TO EXCHANGE NOTE.......................................... 8
8.1 GENERALLY......................................................................... 8
8.2 EXCHANGE NOTE AFFIRMATIVE COVENANTS............................................... 8
8.3 EXCHANGE NOTE NEGATIVE COVENANTS.................................................. 9
8.4 EXCHANGE NOTE EVENTS OF DEFAULT; REMEDIES......................................... 10
8.5 EXPENSES.......................................................................... 11
8.6 REMEDIES CUMULATIVE............................................................... 11
9. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES........................................... 11
9.1 RESTRICTIONS ON TRANSFERABILITY................................................... 11
9.2 TRANSFER RESTRICTIONS............................................................. 12
9.3 RESTRICTIVE LEGEND................................................................ 12
10. MISCELLANEOUS.......................................................................... 12
10.1 PROVISION OF INFORMATION......................................................... 12
10.2 SUCCESSORS AND ASSIGNS........................................................... 13
10.3 GOVERNING LAW.................................................................... 13
10.4 COUNTERPARTS..................................................................... 13
10.5 TITLES AND SUBTITLES............................................................. 13
10.6 NOTICES.......................................................................... 13
10.7 AMENDMENTS AND WAIVERS........................................................... 13
10.8 SEVERABILITY..................................................................... 14
10.9 ENTIRE AGREEMENT................................................................. 14
11. DEFINITIONS............................................................................ 14
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EXHIBITS
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EXHIBITS
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Exhibit A Form of Series A Certificate of Designation
Exhibit B Form of Warrant
Exhibit C Form of Stockholders Agreement and Subscription Agreement
Exhibit D Form of Opinion of Counsel to Company
Exhibit E Form of Exchange Note
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
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THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement")
is made as of the 11th day of June, 1997, by and among Leslie's Poolmart, Inc.,
a Delaware corporation (the "Company", which term includes the surviving company
with respect to the Merger (as defined below)) and Occidental Petroleum
Corporation, a Delaware corporation (the "Investor"). Certain of the
capitalized terms used in the Agreement are defined in Section 1 hereof.
R E C I T A L S
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WHEREAS, the Investor desires to purchase certain securities of the
Company on the terms and conditions set forth herein;
WHEREAS, the Company desires to sell to the Investor such securities
on the terms and conditions set forth herein;
WHEREAS, the Company and the Investor anticipate that prior to the
Closing (as defined below), Poolmart USA Inc. shall be merged into the Company
(the "Merger"), pursuant to the provisions of the Agreement and Plan of Merger
dated as of February 26, 1997 by and among Leslie's Poolmart, a California
corporation ("Leslie's California"), Poolmart USA Inc., and the Company (the
"Merger Agreement").
NOW, THEREFORE, in consideration of the foregoing recitals, the terms
and provisions set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
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1.1 AUTHORIZATION. The Company has authorized (i) the sale and
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issuance of up to Fifty Thousand (50,000) shares of its Series A Preferred
Stock, having the rights, privileges, preferences and restrictions as stated in
the Certificate of Designation, Preferences and Rights of Series A Exchangeable
Cumulative Redeemable Preferred Stock set forth as Exhibit A to this Agreement
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(the "Certificate of Designation") and (ii) the sale of warrants to purchase an
aggregate of Two Hundred Fifty-Two Thousand Nine Hundred Ninety-Six (252,996)
shares of its Common Stock, subject to adjustment as set forth in the warrant
certificate (the "Warrants"). Each Warrant will be evidenced by a warrant
certificate substantially in the form set forth as Exhibit B hereto.
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1.2 SALE AND ISSUANCE OF CERTAIN SHARES OF SERIES A PREFERRED
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STOCK AND WARRANTS.
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(a) Subject to the terms and conditions set forth in this
Agreement, the Investor shall purchase at the Closing (as defined below), and
the Company shall sell and issue to the Investor at the Closing (i) Twenty-Eight
Thousand (28,000) shares of Series A
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Preferred Stock (the "Purchased Stock") and (ii) Two Hundred Fifty-Two Thousand
Nine Hundred Ninety-Six (252,996) Warrants (the "Purchased Warrants").
(b) The aggregate purchase price for the Purchased Stock and
Purchased Warrants (the "Aggregate Purchase Price") shall be Twenty-Eight
Million Dollars ($28,000,000) comprised of Eighteen Million Dollars
($18,000,000) in cash (the "Cash Purchase Price") and the Occidental Notes.
2. CLOSING; DELIVERIES.
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2.1 THE CLOSING. Subject to the satisfaction or waiver of the
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conditions set forth in this Agreement, the closing (the "Closing") of the
purchase and sale of the Series A Preferred Stock shall take place at the
offices of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ on a date to which the Company and the Investor may agree (the
"Closing Date").
2.2 DELIVERIES. At the Closing, the Company shall deliver to
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the Investor certificates representing the numbers of shares of Purchased Stock
and the number of Warrants under this Agreement in exchange for delivery to the
Company from the Investor of the Occidental Notes and by wire transfer from the
Investor to the Company of the Cash Purchase Price, net of any offset with
respect to accrued but unpaid interest to the Closing Date with respect to the
Occidental Notes.
2.3 CERTIFICATE OF DESIGNATION. Prior to the Closing, the
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Company shall adopt and duly file with the Secretary of State of Delaware the
Certificate of Designation in the form set forth in Exhibit A to this Agreement.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
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represents and warrants to the Investor as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
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Company and its Subsidiaries is a duly organized and validly existing
corporation in good standing under the laws of the state of its incorporation,
with all requisite power and authority (corporate and other) to own, lease and
operate its properties and conduct its business and is duly qualified and in
good standing as a foreign corporation authorized to do business in each of the
jurisdictions in which the character of the properties owned or held under lease
by it or the nature of the business transacted by it makes such qualification
necessary, except where the failure to be so qualified would not have a material
adverse effect on the Company and its Subsidiaries, taken as a whole. The
Company has heretofore delivered to Investor accurate and complete copies of its
and its Subsidiaries certificates or articles of incorporation and bylaws, as in
effect on the date hereof. Neither the Company nor any of its Subsidiaries is in
violation of any of the provisions of their respective certificates or articles
of incorporation or bylaws.
3.2 AUTHORIZATION; BINDING AGREEMENT. The Company has all
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requisite corporate power and authority to execute and deliver this Agreement
and to
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consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Company's Board of Directors. This
Agreement has been duly and validly executed and delivered by the Company, and
constitutes a legal, valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by (a) bankruptcy, insolvency, reorganization, moratorium or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) general principles of equity (whether considered in an
action in equity or at law) which provide, among other things, that the remedies
of specific performance and injunctive and other forms of equitable relief are
subject to equitable defenses and to the discretion of the court before which
any proceedings therefor may be brought.
3.3 GOVERNMENTAL AND OTHER CONSENTS; NO VIOLATION. No consent,
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approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Authority or any other
Person is required on the part of the Company in connection with the Company's
valid execution, delivery or performance of this Agreement or the other
agreements referred to herein or the offer, sale or issuance of the Securities,
except as may be required under applicable state "blue sky" laws. The execution,
delivery and performance by the Company of this Agreement, the issuance of the
Purchased Stock, and the consummation of the other transactions contemplated
hereby, do not and will not (a) violate any provision of the Company's
Certificate of Incorporation or bylaws as currently in effect or (b) conflict
with, result in a breach of, or constitute (or, with the giving of notice or
lapse of time or both, would constitute) a default under, or require the
approval or consent of any Person, or give any Person any right of termination,
amendment, acceleration, repurchase or repayment, increased payments or
cancellation of, or result in the creation of a lien or other encumbrance on any
property or asset of the Company pursuant to, any contract of the Company,
except for (x) consents that have been obtained and are in full force and effect
and (y) consents that would not prevent or materially delay the performance by
the Company of its obligations hereunder and in the aggregate would, if not
obtained, fail to have a material adverse effect on the Company.
3.4 CAPITALIZATION. The authorized capital of the Company
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consists of: (i) Twelve Million (12,000,000) shares of common stock ("Common
Stock"), One Million Four Hundred Thirty-Three Thousand, Six Hundred and Forty-
Three (1,433,643) of which will be issued and outstanding on the Closing Date;
and (ii) Two Million (2,000,000) shares of Preferred Stock, of which Twenty-
Eight Thousand (28,000) shares of Series A Preferred Stock shall be issued and
outstanding immediately after the Closing Date. All of the outstanding shares of
Capital Stock of the Company and the Subsidiaries of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. All issued and outstanding shares of Capital Stock of the
Subsidiaries of the Company are owned by the Company or a Wholly-Owned
Subsidiary of the Company free and clear of all liens, charges, encumbrances,
claims and options of any nature. Except as contemplated by this Agreement, the
Merger Agreement, the Stockholders Agreement and Subscription Agreement among
the Company, the Investor and the other parties thereto dated as of even date
herewith (the "Stockholders Agreement") and agreements referred to herein and
therein,
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neither the Company nor any Subsidiary of the Company has granted any
outstanding warrant, subscription or other right, or entered into any agreement
or commitment which either (a) obligates the Company or any of its Subsidiaries
to issue, sell or transfer any shares of the Capital Stock of the Company or any
Subsidiary of the Company or (b) restricts the transfer of, or otherwise
encumbers, shares of the Company's Capital Stock.
3.5 FINANCIAL STATEMENTS AND REPORTS. All consolidated
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financial statements of Leslie's California and its Subsidiaries (including the
notes to such financial statements) included in Leslie's California's Annual
Report on Form 10-K for the year ended December 28, 1996 (the "Year End
Financial Statements") filed pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the unaudited financial statements of Leslie's
California and its Subsidiaries included in Leslie's California's Quarterly
Reports on Form 10-Q for the quarter ended March 29, 1997 (the "Interim
Financial Statements") filed pursuant to the Exchange Act (a) are in accordance
with the books and records of Leslie's California and its Subsidiaries, (b)
present fairly the consolidated financial position, results of operations,
changes in shareholders' equity, and cash flow (as applicable) of Leslie's
California and its Subsidiaries as of the respective dates and for the
respective periods indicated, except, in the case of the Interim Financial
Statements, for normal year-end audit adjustments, and (c) except for the
absence of footnotes in the Interim Financial Statements, have been prepared in
conformity with generally accepted accounting principles applies in all material
respects on a consistent basis through all the periods involved. Since the date
of the latest Interim Financial Statements, (i) Leslie's California and its
Subsidiaries have conducted their respective businesses only in the ordinary
course and consistent with past practice, (ii) there has been no material
adverse change in the business, assets, properties, operations, condition
(financial or otherwise) or prospects of Leslie's California, and (iii) since
the date of the latest Interim Financial Statements, neither Leslie's California
nor any of its Subsidiaries has incurred any liabilities or obligations (whether
absolute, accrued, fixed, contingent, liquidated, unliquidated or otherwise and
whether due or to become due) of any nature except in the ordinary course of its
business or as contemplated by the Proxy Statement or Offering Memorandum.
3.6 NO OPERATIONS; EXISTING FUNDED DEBT. Each of LPM Holdings,
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Inc. and Poolmart USA Inc. was formed in connection with the transactions
contemplated by the Merger Agreement. As of immediately prior to the
consummation of the transactions contemplated by the Merger Agreement, such
corporations had no operations and had incurred no Funded Debt.
3.7 CERTAIN SECURITIES LAW ISSUES. Assuming the accuracy of
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the Investor's representations and warranties in Section 4, the offer, sale and
issuance of the Purchased Stock and the Purchased Warrants are exempt from with
the registration or qualification provisions of the Securities Act, as amended
and any relevant state securities laws.
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3.8 DISCLOSURE. Neither the Proxy Statement nor the Offering
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Memorandum contains any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The Investor
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represents and warrants to the Company as follows:
4.1 ACCREDITED INVESTOR. The Investor is an "accredited
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investor" as defined by the SEC's Rule 501 under the Securities Act.
4.2 INVESTMENT INTENT. The Investor is acquiring the
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Securities for its own account or one of its affiliates, and not with a present
view to, or for sale in connection with any, distribution thereof.
4.3 NO CONFLICTS. The execution, delivery and performance by
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the Investor of this Agreement and the other agreements referred to herein, and
the consummation of the transactions contemplated hereby, do not and will not
(a) violate any provision of the Investor's Certificate of Incorporation or
Bylaws as currently in effect or (b) conflict with, result in a breach of, or
constitute (or, with the giving of notice or lapse of time or both, would
constitute) a default under, or, except for consents that have been obtained and
are in full force and effect, require the approval or consent of any Person
pursuant to, any contractual obligation of Investor.
4.4 CERTAIN SECURITIES LAW ISSUES. The Investor understands
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that the Securities are or will be "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the Securities Act only in certain limited circumstances.
4.5 AUTHORIZATION. All corporate action on the part of the
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Investor necessary for the authorization, execution, delivery and performance by
the Investor of this Agreement and the other agreements referred to in this
Agreement, the purchase of the shares of Purchased Stock and the Warrants, and
the performance of all of the Investor's obligations hereunder and thereunder
have been taken or will be taken prior to the Closing. This Agreement, when
executed and delivered by the Investor, will constitute a valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms, except as such enforceability may be limited by (a) bankruptcy,
insolvency, reorganization, moratorium or other laws, now or hereafter in
effect, relating to or limiting creditors' rights generally, and (b) general
principles of equity (whether considered in an action in equity or at law) which
provide, among other things, that the remedies of specific performance and
injunctive and other forms of equitable relief are subject to equitable defenses
and to the discretion of the court before which any proceedings therefor may be
brought.
4.6 BROKERS. The Investor has not dealt with, or incurred
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Liability for a fee to, any finder, broker, investment banker or financial
advisor in connection with any
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of the transactions contemplated by this Agreement or the negotiations looking
toward the consummation of such transactions.
5. CONDITIONS TO INVESTOR'S AND COMPANY'S OBLIGATIONS AT CLOSING.
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The obligations of the Investor to purchase and pay for the Securities and the
other obligations of the Investor under this Agreement, and the obligations of
the Company under this Agreement, are subject to the fulfillment at or prior to
the Closing of the following conditions:
5.1 NO INJUNCTION. There shall not be in effect any order,
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decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits consummation of the transactions contemplated hereby.
5.2 QUALIFICATIONS; LEGAL INVESTMENT. All authorizations,
--------------------------------
approvals, or permits, if any, of any Governmental Authority or any other Person
that are required in connection with the lawful sale and issuance of the shares
of the Purchased Stock and the consummation of the transactions contemplated by
this Agreement shall have been duly obtained and shall be effective on and as of
the Closing. No stop order or other order enjoining the sale of the shares of
the Securities shall have been issued and no proceedings for such purpose shall
be pending or, to the knowledge of the Company and the Investor, threatened by
the SEC, the California Commissioner of Corporations or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the shares of
the Securities shall be legally permitted by all laws and regulations to which
the Company and the Investor are subject.
5.3 STOCKHOLDERS AGREEMENT. The Investor and the other parties
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thereto shall have entered into the Stockholders Agreement in substantially the
form set forth as Exhibit C hereto.
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5.4 CERTIFICATE OF DESIGNATION. The Company shall have adopted
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and duly filed with the Secretary of State of Delaware the Certificate of
Designation in the form set forth in Exhibit A to this Agreement.
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6. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING6.
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6.1 REPRESENTATIONS AND WARRANTIES. On the date of the Closing,
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the representations and warranties of the Company contained in Section 3 shall
be true and correct in all respects with the same force and effect as though
such representations and warranties had been made at and as of the time of
Closing, except to the extent that any changes therein are specifically
contemplated by this Agreement.
6.2 PERFORMANCE. The Company shall have performed and complied
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with all agreements, obligations and conditions contained in this Agreement that
are required to be performed or complied with by it at or prior to the Closing.
6.3 MERGER. The Merger shall have been consummated.
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6.4 CLOSING DOCUMENTS. The Company shall have delivered to the
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Investor, unless waived in writing by the Investor:
(a) copies (certified by the Secretary of the Company) of
the resolutions duly adopted by the Board of Directors of the Company,
authorizing the execution, delivery and performance of this Agreement and the
other agreements contemplated hereby;
(b) a copy (certified by the Secretary of State of the
State of Delaware) of the Certificate of Incorporation as amended through the
date of the Closing and a copy (certified by the Secretary of the Company) of
the Company's Bylaws as amended through the date of the Closing; and
(c) such other documents relating to the transactions
contemplated by this Agreement as the Investor or the Investor's counsel may
reasonably request.
6.5 OPINION OF COMPANY COUNSEL. The Investor shall have
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received the opinion of ▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, counsel to the Company, in
the form set forth as Exhibit D hereto.
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6.6 PAYMENT OF ACCRUED INTEREST ON OCCIDENTAL NOTES. The
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Investor shall have received payment, in cash or by offset against the Cash
Purchase Price, of all accrued but unpaid interest to the Closing Date with
respect to the Occidental Notes.
7. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The
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obligations of the Company under this Agreement are subject to the fulfillment
at or prior to the Closing of the following conditions, any of which may be
waived in writing in whole or in part by the Company:
7.1 REPRESENTATIONS AND WARRANTIES. On the date of the
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Closing, the representations and warranties of the Investor contained in Section
4 shall be true and correct in all respects with the same force and effect as
though such representations and warranties had been made at and as of the time
of Closing, except to the extent that any changes therein are specifically
contemplated by this Agreement.
7.2 PERFORMANCE. The Investor shall have performed and
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complied with all agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by such Investor on
or before the Closing, including payment to the Company of the Purchase Price
set forth in Section 1.2 of this Agreement.
7.3 DELIVERY OF EXISTING DEBT. The Occidental Notes shall have
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been delivered to the Company by the Investor.
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8. CONVERSION OF PURCHASED STOCK TO EXCHANGE NOTE.
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8.1 GENERALLY. The Purchased Stock is exchangeable by the Company
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under certain terms and conditions set forth in the Certificate of Designation
into the Company's 10 7/8% Junior Subordinated Notes due June 11, 2007 (the
"Exchange Notes"). The Exchange Notes shall be subordinated to the Senior
Indebtedness on terms and conditions approved by the lenders with respect to the
Senior Bank Debt and a majority in interest of the holders of the Series A
Preferred Stock at the time of issuance of such Exchange Notes. The form of
Exchange Note (excluding the terms and conditions of such subordination, which
terms and conditions will be supplied upon receipt of the lenders approval
described in the preceding sentence) is attached hereto as Exhibit E hereto.
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8.2 EXCHANGE NOTE AFFIRMATIVE COVENANTS. So long as any principal or
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interest under the Exchange Notes is outstanding, the Company shall:
(a) punctually pay the interest and principal on the
Exchange Notes at the times and place and in the manner specified
herein;
(b) maintain adequate books and records in accordance with
generally accepted accounting principles consistently applied;
(c) provide to each holder of an Exchange Note all of the
following: (x) not later than 100 days after and as of the end of each
fiscal year, audited consolidated financial statements of the Company,
prepared by a nationally recognized firm of certified public
accountants, to include a balance sheet, income statement and
statements of cash flow and stockholders equity; and (y) not later
than 55 days after and as of the end of each fiscal quarter, unaudited
consolidated financial statements of the Company prepared by the
Company and certified by the Company's chief financial officer, to
include a balance sheet, income statement and statement of cash flow
together with a certificate in each case signed by an executive
officer of the Company certifying that the Company is not in default
under any provision of this Agreement, the Purchased Stock or the
Purchased Warrants;
(d) maintain, and cause each Subsidiary to maintain, all
licenses, permits, governmental approvals, rights, privileges and
franchises necessary for the conduct of their respective businesses;
conduct their respective businesses in an orderly and regular manner;
and comply with the provisions of all documents pursuant to which each
of them is organized or which govern their continued existence and
with the material requirements of all laws, rules, regulations and
orders of any governmental authority applicable to each of them or
their respective businesses;
(e) maintain and keep in force, and cause any Subsidiary to
maintain and keep in force, insurance of the types and in amounts
customarily
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carried in similar lines of business, including but not limited to
fire, extended coverage, public liability, property damage and
workers' compensation;
(f) pay and discharge when due, and cause each Subsidiary
to pay and discharge when due, any and all taxes, including federal
and state income taxes, except such as the Company may in good faith
contest or as to which a bona fide dispute may arise, provided
provision is made for eventual payment thereof in the event that it is
found that the same is an obligation of the Company or any Subsidiary;
(g) keep, and cause each Subsidiary to keep, all properties
useful or necessary to their business in good repair and condition,
subject to ordinary wear and tear, and from time to time make
necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and maintained;
and
(h) promptly provide each holder of an Exchange Note with
notice of any (i) Event of Default, (ii) Change of Control (as such
term is defined under the Indenture with respect to the Senior Notes)
or (iii) event of default under instruments or documents evidencing
Senior Indebtedness.
8.3 EXCHANGE NOTE NEGATIVE COVENANTS. So long as any principal or
--------------------------------
interest under the Exchange Notes is outstanding, the Company shall not, without
the consent of holders of a majority of the outstanding principal amount of
Exchange Notes:
(a) incur, or permit any of its Subsidiaries to incur, any
Funded Debt in a principal amount exceeding $5,000,000;
(b) enter into, or permit any Subsidiary to enter into, any
transaction with any Affiliate of the Company (an "Affiliate
Transaction"); provided, however, that the following shall not be
deemed to be Affiliate Transactions: (v) transaction fees payable to
LGP or ▇▇▇▇▇▇▇ Park Associates II, L.P. on or about the Preferred
Stock Issue Date pursuant to the Management Agreement, (w) payments to
LGP pursuant to the Management Agreement, (x) advances to directors,
officers or employees of the Company to provide for the payment of
reasonable expenses incurred by such persons in the performance of
such persons' responsibilities to the Company; (y) reasonable fees and
compensation paid to and indemnity provided on behalf of officers,
directors or employees of the Company as determined in good faith by
the Board of Directors and the Company's senior management, and (z)
transactions between or among the Company and/or its Subsidiaries;
(c) declare or pay any dividend or make any distribution on
account of any Capital Stock, either directly or indirectly, whether
in cash, obligations or other property (other than dividends or
distributions payable solely in Capital Stock) or (2) purchase, redeem
or otherwise acquire or retire
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for value any Capital Stock (other than as a result of (i) a
reclassification of any Capital Stock into another class or series of
Capital Stock , (ii) the exchange or conversion of one class or series
of Capital Stock for or into another class or series of Capital Stock;
provided, however, that the restrictions in this Section 8.3(c) shall
not apply to any purchase, redemption or other acquisition or
retirement for value contemplated by the Stockholders Agreement;
(d) enter into, or permit any of its Subsidiaries to enter
into, any employment contract;
(e) increase, or permit any of its Subsidiaries to
increase, in any material respect the benefits or compensation of any
of the executive officers of the Company; or
(f) make any substantial change in the character of its
principal business.
8.4 EXCHANGE NOTE EVENTS OF DEFAULT; REMEDIES. If one or more of the
-----------------------------------------
following events ("Events of Default") shall have occurred and be continuing:
(a) the Company (i) shall fail to pay when due any
principal of the Exchange Note or (ii) shall fail to pay within 5 days
after the due date thereof any interest due under the Exchange Note;
or
(b) the Company shall fail to observe or perform any of the
covenants set forth in Sections 8.2 or 8.3 hereof; or
(c) the Company shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any domestic or foreign
bankruptcy, insolvency or other similar law now or hereafter in
effect, or shall make a general assignment for the benefit of
creditors; or
(d) an involuntary case or other proceeding shall be
commenced against the Company seeking liquidation, reorganization or
other relief with respect to it or its debts under any domestic or
foreign bankruptcy, insolvency or other similar law now or hereafter
in effect, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days;
(e) the holders of at least Five Million Dollars
($5,000,000) in principal amount of the Senior Indebtedness shall
accelerate the maturity of such Senior Indebtedness prior to the
scheduled maturity date thereof as a result of an event of default
under the documents governing such Senior Indebtedness.
10
then, and in every such event, the holders of a majority of principal
amount of the Exchange Notes shall by written notice to the Company be entitled
to declare the unpaid principal amount of the Exchange Note, with the interest
accrued thereon, to be immediately due and payable.
8.5 EXPENSES. In case any one or more Events of Default shall have
--------
occurred and be continuing, unless such Events of Default shall have been
waived, the holders of the Exchange Notes may proceed to protect and enforce
their rights, subject to the rights of the holders of the Senior Indebtedness
and the related provisions of the Exchange Note regarding subordination. The
Company agrees to pay such holders all fees, costs and expenses of enforcing
their rights under or with respect to this Agreement, including without
limitation such reasonable fees, costs and expenses of attorneys and accountants
(whether or not litigation is commenced), and including, without limitation,
reasonable fees, costs and expenses of appeals.
8.6 REMEDIES CUMULATIVE. No right, power or remedy conferred upon
-------------------
the holders of the Exchange Notes shall be exclusive, and each such right, power
or remedy shall be cumulative and in addition to every other right, power or
remedy, whether conferred hereby or now or hereafter available at law or in
equity or by statute or otherwise.
9. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES
---------------------------------------------
9.1 RESTRICTIONS ON TRANSFERABILITY. The Securities shall not
-------------------------------
be sold, assigned, transferred or pledged except upon satisfaction of the
conditions specified in this Section 9. The Investor will cause any proposed
purchaser, assignee, transferee, or pledgee of the shares of Securities to agree
to take and hold such securities subject to the provisions and conditions of
this Section 9.
9.2 TRANSFER RESTRICTIONS. The Investor shall not sell,
----------------------
transfer, pledge or hypothecate the shares of Purchased Stock or the Exchange
Note in the absence of an effective registration statement for such securities
under the Securities Act of 1933, as amended, or an opinion of counsel delivered
to the Company that registration is not required under such Act. The Investor
shall not sell, transfer, pledge or hypothecate the shares of Purchased Stock or
the Exchange Note in the except in compliance with any applicable state
securities laws.
9.3 RESTRICTIVE LEGEND. Each certificate representing the
------------------
Purchased Stock and the Exchange Note shall be stamped or otherwise imprinted
with a legend in the following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
11
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR AN OPINION OF COUNSEL DELIVERED TO THE COMPANY THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
10. MISCELLANEOUS.
-------------
10.1 PROVISION OF INFORMATION. The Company covenants as follows:
------------------------
(a) The Company will promptly provide the holders of the
shares of Series A Preferred Stock with copies of all documents,
reports or other information provided to all holders of the Common
Stock.
(b) No later than the 45th day after each calendar quarter,
the Company will provide the holders of the shares of Series A
Preferred Stock with a certificate signed by an executive officer of
the Company (i) stating that such officer is familiar with the terms
of the Certificate of Designation and has made or caused to be made a
review of the transactions and conditions of the Company and that such
review has not disclosed the existence and such officer does not
otherwise have knowledge of any event which would permit the holders
of the shares of Series A Preferred Stock to elect additional Class A
Directors pursuant to paragraph f(iii) of the Certificate of
Designation and (ii) demonstrating in reasonable detail the Company's
compliance as of the end of the immediately preceding calendar quarter
with the Four Quarter Coverage Ratio and the Eight Quarter Coverage
Ratio (as such terms are defined in the Certificate of Designation).
10.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
----------------------
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of the Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or Liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
10.3 GOVERNING LAW. This Agreement shall be governed by and
-------------
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
10.4 COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.5 TITLES AND SUBTITLES. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
12
10.6 NOTICES. All notices, demands, or other communications under
-------
this Agreement shall be in writing and shall be delivered via confirmed
facsimile, overnight courier, by hand delivery or by certified mail, return
receipt requested, to the appropriate party at the address set forth on the
signature page of this Agreement (subject to change from time to time by written
notice to all other parties to this Agreement). All communications shall be
deemed served upon delivery of, or if mailed, upon the first to occur of receipt
or the expiration of three (3) Business Days after the deposit in the United
States Postal Service mail, postage prepaid and addressed to the address of
Company or the Investor at the address specified or, if transmitted via
facsimile, upon electronic confirmation of receipt; provided, however, that non-
-------- -------
receipt of any communication as the result of any change of address or facsimile
number of which the sending party was not notified or as the result of a refusal
to accept delivery shall be deemed receipt of such communication.
10.7 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and (i) so long as
the Investor is the sole holder of the shares of Series A Preferred Stock or the
Exchange Notes, the Investor, and (ii) at any time when the Investor is not the
sole holder of the shares of Series A Preferred Stock or the Exchange Notes, a
majority in interest of such holders, based on (x) the liquidation preference of
each outstanding share of Series A Preferred Stock or (y) the outstanding
principal amount under each Exchange Note, as applicable.
10.8 SEVERABILITY. If one or more provisions of this Agreement
------------
are held to be unenforceable under applicable law, such provision or provisions
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision or provisions were so excluded and shall be
enforceable in accordance with its terms.
10.9 ENTIRE AGREEMENT. This Agreement, the Schedules and Exhibits
----------------
hereto, and the other documents required to be delivered pursuant hereto
constitute the entire understanding and agreement between the parties with
regard to the specific subject matter hereof, and no party shall be liable or
bound by any representation, warranty, covenant or agreement except as
specifically set forth herein or therein. Any previous agreement (whether
written, oral or implied) among the parties relative to the specific subject
matter hereof is superseded by this Agreement.
11. DEFINITIONS.
-----------
The following terms have the following meanings when used in this
Agreement, unless the context expressly or by necessary implication otherwise
requires:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause
13
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of a majority or more of the voting securities of a Person
shall be deemed to be control.
"Affiliate Transaction" has the meaning set forth in Section
8.2(b).
"Aggregate Purchase Price" has the meaning set forth in Section
1.2(b).
"Agreement" has the meaning set forth in the preamble hereto.
"Board of Directors" shall mean, as to any corporation. the Board
of Directors of such corporation or a committee of such corporation having
authority to exercise, when the Board of Directors is not in session, the powers
of the Board of Directors (subject to any designated limitations) in the
management of the business and affairs of such corporation.
"Business Day" means each day other than a Saturday, Sunday or
other day on which commercial banks in Los Angeles, California are authorized or
required by law to close. Unless specifically referenced in this Agreement as a
Business Day, all references to "days" shall be to calendar days.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" of any Person shall mean the beneficial ownership
interests in said Person, including, without limitation, the capital stock of
any Person that is a corporation and the partnership interests (general and
limited) in any Person that is a partnership.
"Cash Purchase Price" has the meaning set forth in Section 1.1.
"Certificate of Designation" has the meaning set forth in Section
1.1.
"Certificate of Incorporation" means the Certificate of
Incorporation of the Company, including all amendments thereto, as in effect on
the date hereof.
"Closing" has the meaning set forth in Section 2.1.
"Closing Date" has the meaning set forth in Section 2.1.
"Common Stock" has the meaning set forth in Section 3.4.
"Credit Agreement" means credit agreement(s) to be entered into
by the Company and one or more lenders, and all amendments thereto, together
with the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or
14
any portion of the Indebtedness under such agreement(s) or any successor or
replacement agreement(s) and whether by the same or any other agent, lender or
group of lenders.
"Disqualified Capital Stock" means that portion of any Capital
Stock which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof, in any case, on or prior to the final maturity date of the Senior
Notes; provided, however, that the term "Disqualified Capital Stock" shall not
include the shares of Series A Preferred Stock.
"Exchange Act" has the meaning set forth in Section 3.5.
"Exchange Notes" has the meaning set forth in Section 8.1.
"Existing Indebtedness" means any indebtedness of the Company
(including without limitation Funded Debt) existing on the Exchange Date (as
such term is defined in the Certificate of Designation).
"Events of Default" has the meaning set forth in Section 8.3.
"Fiscal Year" shall mean the fiscal year of the Company, which
shall be the fifty-two (52) week period ending on the Saturday closest to
December 31 in each year.
"Funded Debt" means, with respect to any Person and as of any
date of determination, the principal amount of all debt for borrowed money;
provided, that Funded Debt shall in any event not include any Permitted
Indebtedness.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a significant segment
of the accounting profession, which are in effect as of the Closing Date.
"Governmental Authority" means any federal, territorial, state or
local governmental authority, quasi-governmental authority, instrumentality,
court, government or self-regulatory organization, commission, tribunal or
organization or any regulatory, administrative or other agency, or any political
or other subdivision, department or branch of any of the foregoing, in all such
cases whether domestic or foreign.
"Indebtedness" means with respect to any Person, without
duplication, (i) all Obligations of such Person for borrowed money, (ii) all
Obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (iii) all Capital Lease Obligations of such Person, (iv)
all Obligations of such Person issued or assumed as the deferred purchase price
of property, all conditional sale obligations and all Obligations under any
title retention agreement (but excluding trade accounts payable and other
accrued liabilities arising in the
15
ordinary course of business that are not overdue by 90 days or more or are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted), (v) all Obligations for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
Obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any lien on any property or asset of such Person, the
amount of such Obligation being deemed to be the lesser of the fair market value
of such property or asset or the amount of the Obligation so secured, (viii) all
Obligations under currency agreements and interest swap agreements of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if any. For
purposes hereof, the "maximum fixed repurchase price" of any Disqualified
Capital Stock which does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined, and if such price is based upon, or measured
by, the fair market value of such Disqualified Capital Stock, such fair market
value shall be determined reasonably and in good faith by the Board of Directors
of the issuer of such Disqualified Capital Stock.
"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Interim Financial Statements" has the meaning set forth in
Section 3.5.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Leslie's California" has the meaning set forth in the Recitals.
"LGP" means ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
"Liability" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person.
16
"Management Agreement" means that certain Management Agreement dated
as of the Closing Date by and between LGP and the Company, providing for certain
annual fees, expenses and reimbursements to be paid to LGP, as such Management
Agreement may be amended from time to time in accordance with the Stockholders
Agreement.
"Material Adverse Effect" means, with respect to any Person or
designated group of Persons, a change in, or effect on, or group of such changes
in or effects on, the operations, financial condition or results of operations,
prospects, assets or Liabilities of the Person or group of Persons, as the case
may be, taken as a whole, that results in a material adverse effect on, or a
material adverse change in, the operations, financial condition, results of
operations, prospects, assets or Liabilities of the Person or group of Persons,
as the case may be, taken as a whole, excluding adverse changes in the general
economy.
"Merger" has the meaning set forth in the Recitals.
"Merger Agreement" has the meaning set forth in the Recitals.
"Offering Memorandum" means the Offering Memorandum relating to
the offering by the Company of the Senior Notes.
"Occidental Notes" means $10 million principal amount of 8%
subordinated debentures issued by Leslie's California due 2001.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Exchange Notes;
(ii) Indebtedness under the Senior Notes;
(iii) Indebtedness incurred pursuant to a Credit Agreement(s)
in an aggregate principal amount at any time outstanding not to exceed the
greater of (a) $35.0 million and (b) the sum of 80% of the total accounts
receivable and 60% of the total inventory of the Company and its
Subsidiaries, less in each case the amount of any prepayments made with the
proceeds of an Asset Sale (as defined in the documentation with respect to
the Senior Notes) or assumed in connection with an Asset Sale (as defined
in the documentation with respect to the Senior Notes);
(iv) other Indebtedness of the Company and its Subsidiaries
outstanding on the Closing Date;
(v) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Subsidiaries and Interest Swap
Obligations of any Subsidiary of the Company covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
-------- -------
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness incurred in accordance with the Indenture
to the extent the notional principal amount of such
17
Interest Swap Obligation does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligation relates;
(vi) Indebtedness of a Subsidiary of the Company to the Company
or to a Wholly Owned Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Wholly Owned Subsidiary of the
Company, in each case subject to no Lien held by a Person other than the
Company or a Wholly Owned Subsidiary of the Company; provided that if as of
--------
any date any Person other than the Company or a Wholly Owned Subsidiary of
the Company owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Subsidiary of the Company, in each case subject to no Lien
held by a Person other than a Wholly Owned Subsidiary of the Company;
provided that if as of any date any Person other than a Wholly Owned
--------
Subsidiary of the Company owns or holds any such Indebtedness or any Person
other than a Wholly Owned Subsidiary of the Company holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business; provided, however,
-------- -------
that such Indebtedness is extinguished within two business days of
incurrence;
(ix) Indebtedness of the Company or any of its Subsidiaries
represented by letters of credit for the account of the Company or such
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness (as defined in the documentation
with respect to the Senior Notes);
(xi) Capital Lease Obligations and Purchase Money Indebtedness
(as defined in the documentation with respect to the Senior Notes) of the
Company or any of its Subsidiaries in an aggregate principal amount not to
exceed $5.0 million at any one time outstanding; and
(xii) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $10.0 million at any one time outstanding.
18
"Obligations" means all obligations for principal, premium, interest
and additional interest, penalties, fees, indemnifications, reimbursements,
damages and other liabilities payable under the documentation governing any
Indebtedness.
"Person" or "person," means any natural person, firm, corporation,
partnership, limited liability company, association, trust, Governmental
Authority or other entity.
"Proxy Statement" shall mean the proxy statement of Leslie's
California dated May 2, 1997 in connection with the transactions contemplated by
the Merger Agreement.
"Purchased Stock" has the meaning set forth in Section 1.2(a).
"Purchased Warrants" has the meaning set forth in Section 1.2(a).
"Securities" shall mean, collectively, the Purchased Stock and
the Purchased Warrants.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the SEC thereunder,
all as the same shall be in effect at the time.
"Senior Bank Debt" shall mean debt outstanding under the Credit
Agreement dated as of June 11, 1997 between the Company, the financial
institutions party thereto, and ▇▇▇▇▇ Fargo Bank, National Association as Agent
and Swingline Lender.
"Senior Indebtedness" shall mean, collectively, the Senior Bank Debt,
the Senior Notes, and any refinancings of either the Senior Bank Debt or the
Senior Notes.
"Senior Notes" shall mean $90 million in principal amount of the
Company's 10 3/8% Senior Notes due 2004.
"Series A Preferred Stock" shall mean the Series A Exchangeable
Cumulative Redeemable Preferred Stock, with the rights, preferences and
privileges set forth in the Certificate of Designation.
"Stockholders Agreement" has the meaning set forth in Section
3.4.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
19
"Warrants" has the meaning set forth in Section 1.1.
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such
Person of which all the outstanding voting securities (other than in the case of
a foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
"Year-End Financial Statements" has the meaning set forth in
Section 3.5.
20
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
THE COMPANY:
LESLIE'S POOLMART, INC.
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
THE INVESTOR:
OCCIDENTAL PETROLEUM CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Executive Vice President
Address: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
21
EXHIBIT A
LESLIE'S POOLMART, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF EXCHANGEABLE CUMULATIVE
REDEEMABLE PREFERRED STOCK, SERIES A
(Pursuant to Section 151(g) of the General Corporation
Law of the State of Delaware.)
Leslie's Poolmart, Inc., a corporation organized and existing under the
laws of the State of Delaware (hereinafter the "Company"), DOES HEREBY CERTIFY
THAT, pursuant to authority conferred upon the Board of Directors of the Company
(the "Board") by the Certificate of Incorporation of the Company, as amended
(the "Certificate of Incorporation"), the Board, pursuant to a unanimous written
consent dated as of June 11, 1997, adopted the following resolutions authorizing
the issuance of Exchangeable Cumulative Redeemable Preferred Stock, Series A of
the Company, which resolutions are still in full force and effect and are not in
conflict with any provisions of the Certificate of Incorporation or Bylaws of
the Company:
RESOLVED, that pursuant to authority vested in the Board by the Certificate
of Incorporation, the Board does hereby establish a series of preferred stock of
the Company from the Company's authorized class of Two Million (2,000,000)
shares of $.001 par value preferred shares, such series to consist of 50,000
shares, and does hereby fix and state the voting rights, designation, powers,
preferences and relative participating, optional or other special rights and the
qualifications, limitations or restrictions thereof, as follows:
(a) Designation.
-----------
The Preferred Stock created and authorized hereby shall be designated as
the "Exchangeable Cumulative Redeemable Preferred Stock, Series A" (hereinafter
called the "Series A Preferred Stock"). The number of shares of Series A
Preferred Stock shall be 50,000, and no more.
(b) Rank.
----
The Series A Preferred Stock shall, with respect to dividend distributions
and distributions upon the liquidation, winding up and dissolution of the
Company, rank senior to all classes of common stock of the Company, and to each
other class of Capital Stock of the Company the terms of which do not expressly
provide that it ranks senior to or on a parity with the Series A Preferred Stock
as to dividend distributions and distributions upon the liquidation, winding up
and dissolution of the Company (collectively referred to with the common stock
of the Company as "Junior Securities"). The Series A Preferred Stock shall, with
respect to dividend distributions and distributions upon the liquidation,
winding up and dissolution of the Company, rank on a parity with any class of
Capital Stock or series of preferred stock hereafter created which expressly
provides that it ranks on a parity with the Series A Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Company ("Parity Securities"); provided that any such Parity
Securities that were not issued in accordance with paragraph (f)(v)(A) hereof
shall be deemed to be Junior Securities and not Parity Securities. The Series A
Preferred Stock shall, with respect to
dividend distributions and distributions upon the liquidation, winding up and
dissolution of the Company, rank junior to each class of Capital Stock hereafter
issued in accordance with paragraph (f)(v)(A) hereof and which expressly
provides that it ranks senior to the Series A Preferred Stock as to dividend
distributions or distributions upon the liquidation, winding up and dissolution
of the Company ("Senior Securities").
(c) Dividends.
---------
(i) Beginning on the Issue Date, each Holder shall be entitled to
receive, when, as and if declared by the Board of Directors, out of funds
legally available therefor, distributions in the form of dividends on each whole
or fractional share of Series A Preferred Stock, at a rate per annum equal to
ten and seven-eighths percent (10 7/8%) of the Liquidation Preference per share
of the Series A Preferred Stock, payable quarterly. All dividends with respect
to each whole or fractional share of Series A Preferred Stock shall be
cumulative, whether or not earned or declared, on a daily basis from the Issue
Date with respect to such whole or fractional share, and shall be payable
quarterly in arrears on each Dividend Payment Date, commencing on the first
Dividend Payment Date after the Issue Date with respect to such whole or
fractional share; provided that if any dividend payable on any Dividend Payment
Date on or before the fifth anniversary of the Initial Preferred Stock Issue
Date is not declared and paid in full in cash on such Dividend Payment Date, the
amount payable as dividends on such Dividend Payment Date that is not paid in
cash on such Dividend Payment Date shall be paid by the Company on such date by
the issuance of additional fully paid and non-assessable shares (including
fractional shares, if applicable, or, at the Company's option, cash in lieu of
such fractional shares) of Series A Preferred Stock having an aggregate
Liquidation Preference equal to the amount of such dividends (rounded to the
nearest whole cent). The payment by the Company in such additional shares of
Series A Preferred Stock shall constitute full payment of such dividend.
Dividends payable on any Dividend Payment Date after the fifth anniversary of
the Preferred Stock Issue Date shall be paid only in cash. If any dividend (or
portion thereof) payable on any Dividend Payment Date after the fifth
anniversary of the Initial Preferred Stock Issue Date is not declared or paid in
full in cash on such Dividend Payment Date, the amount of such dividend that is
payable and that is not paid in cash on such date shall accrue interest at the
annual dividend rate plus 5% until declared and paid in full, compounded
quarterly. Each distribution in the form of a dividend shall be payable to the
Holders of Series A Preferred Stock of record as they appear on the stock books
of the Company on such record dates, not less than 10 nor more than 45 days
preceding the related Dividend Payment Date, as shall be fixed by the Board of
Directors. Dividends shall cease to accumulate in respect of shares of the
Series A Preferred Stock on the Exchange Date or on the date of their earlier
redemption unless the Company shall have failed to issue the appropriate
aggregate principal amount of Exchange Notes in respect of the Series A
Preferred Stock on the Exchange Date or shall have failed to pay the relevant
redemption price on the date fixed for redemption.
(ii) All dividends paid with respect to shares of the Series A
Preferred Stock pursuant to paragraph (c)(i) shall be paid pro rata to the
Holders thereof entitled thereto.
(iii) Dividends on account of arrears for any past Dividend
Period may be declared and paid at any time, without reference to any regular
Dividend Payment Date, together with all accrued and unpaid interest thereon, to
Holders of Series A Preferred Stock of record on such date, not more than 45
days prior to the payment thereof, as may be fixed by the Board of Directors.
2
(iv) Holders of shares of the Series A Preferred Stock shall be
entitled to receive the dividends provided for in paragraph (c)(i) hereof in
preference to and in priority over any dividends upon any of the Junior
Securities.
(v) Holders of shares of the Series A Preferred Stock shall be
entitled to receive the dividends provided for in paragraph (c)(i) hereof on a
pro rata basis with respect to any dividends upon any Parity Securities.
(vi) Dividends payable on shares of the Series A Preferred Stock for
any period less than a year shall be computed on the basis of a 360-day year of
twelve 30-day months. If any Dividend Payment Date occurs on a day that is not
a Business Day, any accrued dividends otherwise payable on such Dividend Payment
Date shall be paid on the next succeeding Business Day.
(d) Liquidation Preference.
----------------------
(i) Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the Holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid, out of the assets
of the Company available for distribution to its stockholders, $1,000 per share
of Series A Preferred Stock (the "Liquidation Preference"), plus an amount in
cash equal to accumulated and unpaid dividends thereon (and all accrued and
unpaid interest thereon) to the date fixed for liquidation, dissolution or
winding up (including an amount equal to a prorated dividend for the period from
the last Dividend Payment Date to the date fixed for liquidation, dissolution or
winding up) before any payment shall be made or any assets distributed to the
holders of any of the Junior Securities, including, without limitation, common
stock of the Company. Except as provided in the preceding sentence, Holders of
shares of Series A Preferred Stock shall not be entitled to any distribution in
the event of liquidation, dissolution or winding up of the affairs of the
Company. If the assets of the Company are not sufficient to pay in full the
liquidation payments payable to the Holders of outstanding shares of the Series
A Preferred Stock and all Parity Securities, then the holders of all such shares
shall share equally and ratably in such distribution of assets of the Company in
accordance with the amounts which would be payable on such distribution if the
amount to which the Holders of outstanding shares of Series A Preferred Stock
and the holders of outstanding shares of all Parity Securities are entitled were
paid in full.
(ii) For the purposes of this paragraph (d), neither the sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with or into one or more
corporations or other entities shall be deemed to be a liquidation, dissolution
or winding up of the affairs of the Company (unless such sale, conveyance,
exchange or transfer is in connection with a dissolution or winding up of the
business of the Company).
3
(e) Redemption.
----------
(i) Optional Redemption.
-------------------
(A) The Company may (subject to contractual and other
restrictions with respect thereto and the legal availability of funds
therefor), at the option of the Company, redeem at any time from any
source of funds legally available therefor, in whole or in part, in
the manner provided in paragraph (e)(iii) hereof, any or all of the
shares of the Series A Preferred Stock, at a redemption price equal to
(1) the Liquidation Preference per share multiplied by 101% plus (2)
an amount in cash equal to all accumulated and unpaid dividends per
share (and all accrued and unpaid interest thereon) (including an
amount in cash equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date) (the sum of (1) and (2) being denominated herein the
"Optional Redemption Price").
(B) In the event of a redemption pursuant to paragraph (e)(i)(A)
hereof of only a portion of the then outstanding shares of the Series
A Preferred Stock, the Company shall effect such redemption pro rata
according to the number of shares held by each Holder of Series A
Preferred Stock or by lot, as may be determined by the Company in its
sole discretion.
(ii) Mandatory Redemption. On each Mandatory Redemption Date, the
--------------------
Company shall redeem, subject to contractual and other restrictions thereupon,
from any source of funds legally available therefor, in the manner provided in
paragraph (e)(iii) hereof, a number of shares equal to one-third of the shares
of Series A Preferred outstanding on the First Mandatory Redemption Date,
rounded to the nearest whole share per holder, at a redemption price equal to
(1) 100% of the Liquidation Preference per share, plus (2) an amount in cash
equal to all accumulated and unpaid dividends per share (and all accrued and
unpaid interest thereon) (including an amount equal to a prorated dividend for
the period from the Dividend Payment Date immediately prior to each Mandatory
Redemption Date to the such Mandatory Redemption Date) (the sum of (1) and (2)
being denominated herein the "Mandatory Redemption Price").
(iii) Procedures for Redemption.
-------------------------
(A) At least 30 days and not more than 60 days prior to the date
fixed for any redemption of the Series A Preferred Stock, written
notice (the "Redemption Notice") shall be given by first-class mail,
postage prepaid, to each Holder of Series A Preferred Stock of record
on the record date fixed for such redemption of the Series A Preferred
Stock at such Holder's address as the same appears on the stock
register of the Company, provided that no failure to give such notice
nor any deficiency therein shall affect the validity of the procedure
for the redemption of any shares of Series A Preferred Stock to be
redeemed except as to the Holder or Holders to whom the Company has
failed to give said notice or except as to the Holder or Holders whose
notice was defective. The Redemption Notice shall state: (1) whether
the redemption is pursuant to paragraph (e)(i) or (e)(ii) hereof; (2)
the Optional Redemption Price or
4
the Mandatory Redemption Price, as the case may be; (3) whether all or
less than all the outstanding shares of the Series A Preferred Stock
are to be redeemed and the total number of shares of the Series A
Preferred Stock being redeemed; (4) the number of shares of Series A
Preferred Stock held, as of the appropriate record date, by the Holder
that the Company intends to redeem; (5) the date fixed for redemption;
(6) that the Holder is to surrender to the Company, at the place or
places where certificates for shares of Series A Preferred Stock are
to be surrendered for redemption, in the manner and at the price
designated, such Holder's certificate or certificates representing the
shares of Series A Preferred Stock to be redeemed; and (7) that
dividends on the shares of the Series A Preferred Stock to be redeemed
shall cease to accrue on such Redemption Date unless the Company
defaults in the payment of the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be.
(B) Each Holder of Series A Preferred Stock shall surrender the
certificate or certificates representing such shares of Series A
Preferred Stock to the Company in the manner and at the place
designated in the Redemption Notice, and on the Redemption Date the
full Optional Redemption Price or Mandatory Redemption Price, as the
case may be, for such shares shall be payable in cash to the Person
whose name appears on such certificate or certificates as the owner
thereof, and each surrendered certificate shall be canceled and
retired. In the event that less than all of the shares represented by
any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(C) Unless the Company defaults in the payment in full of the
applicable redemption price, dividends on the Series A Preferred Stock
called for redemption shall cease to accumulate on the Redemption
Date, and the Holders of such redemption shares shall cease to have
any further rights with respect thereto on the Redemption Date, other
than the right to receive the Optional Redemption Price or the
Mandatory Redemption Price, as the case may be, without interest.
(f) Voting Rights and Protective Provisions.
---------------------------------------
(i) Generally.
---------
The Holders of shares of the Series A Preferred Stock will not have
any voting rights except as set forth below or as otherwise from time to time
required by applicable law. In connection with any right to vote, each Holder
of Series A Preferred Stock will have one vote for each such share held. Any
shares of Series A Preferred Stock held by the Company or any Subsidiary of the
Company shall not have voting rights hereunder and shall not be counted in
determining the presence of a quorum or in calculating any percentage of shares
under this paragraph (f).
(ii) Right to Elect Class A Directors.
--------------------------------
The number of directors of the Company shall be as from time to time
fixed by, or determined in the manner provided in, the Certificate of
Incorporation and the Bylaws of the Company, provided, that subject to the
provisions of paragraph (f)(iii), a number of directors equal to
5
the smallest whole number of directors that will represent at least 20% of the
members of the Company's Board of Directors shall be designated as "Class A
Directors" and shall be elected by the Holders of a majority of the shares of
the Series A Preferred Stock then outstanding, voting as a separate class. The
holders of the Series A Preferred Stock, voting as a separate class, shall have
the exclusive right to remove without cause at any time and replace any Class A
Director by an affirmative vote of the Holders of a majority of the shares of
Series A Preferred Stock then outstanding.
(iii) Additional Class A Directors.
----------------------------
(A) If (i) the Coverage Ratio for any four consecutive Quarters
shall be less than 1.0:1.0 (a "Four Quarter Coverage Ratio Event"),
and (ii) the number of Class A Directors then represents less than 40%
of the members of the Company's Board of Directors, then, if such Four
Quarter Coverage Ratio Event has not been remedied prior thereto,
effective as of the thirtieth day after (x) the forty-fifth day after
the end of such four consecutive Quarters, or (y) such earlier date on
which the Company first publicly announces its results of operations
for the last such Quarter, upon written notice to the Company by the
Holders of at least 20% of the outstanding Series A Preferred Stock,
but without any action on the part of the Board of Directors, the
number of members of the Board of Directors shall be increased by the
smallest whole number that will result in at least 40% of the members
of the Company's Board of Directors being Class A Directors (assuming
that such directors are designated as "Class A Directors"), and all of
such additional directors shall be designated as additional "Class A
Directors."
(B) If (i) the Coverage Ratio for any eight consecutive Quarters
shall be less than 1.0:1.0 (a "Eight Quarter Coverage Ratio Event"),
and (ii) the number of Class A Directors then represents less than a
majority of the members of the Company's Board of Directors, then, if
such Eight Quarter Coverage Ratio Event has not been remedied prior
thereto, effective as of the thirtieth day after (x) the forty-fifth
day after the end of such eight consecutive Quarters, or (y) such
earlier date on which the Company first publicly announces its results
of operations for the last such Quarter, upon written notice to the
Company by the Holders of at least 20% of the outstanding Series A
Preferred Stock, but without any action on the part of the Board of
Directors, the number of members of the Board of Directors shall be
increased by the smallest whole number that will result in at least a
majority of the members of the Company's Board of Directors being
Class A Directors (assuming that such directors are designated as
"Class A Directors"), and all of such additional directors shall be
designated as additional "Class A Directors."
(C) If (i) the dividends on the Series A Preferred Stock shall be
in arrears and unpaid for four consecutive Quarters (a "Dividend
Event") and (ii) the number of Class A Directors then represents less
than a majority of the members of the Company's Board of Directors,
then, if such Dividend Event has not been remedied prior thereto,
effective as of the day immediately following the Dividend Payment
Date that resulted in such four consecutive quarter arrearage, upon
written notice to the Company by the Holders of at least 20% of the
outstanding Series A Preferred Stock, but without any
6
action on the part of the Board of Directors, the number of members of
the Board of Directors shall be increased by the smallest whole number
that will result in at least a majority of the members of the
Company's Board of Directors being Class A Directors (assuming that
such directors are designated as "Class A Directors"), and all of such
additional directors shall be designated as additional "Class A
Directors."
(D) If the Company fails to pay any portion of the Mandatory
Redemption Price of the Series A Preferred Stock on any Mandatory
Redemption Date (whether or not any contractual or other restrictions
apply to such redemption) pursuant to paragraph (e)(ii) hereof (a
"Redemption Event"), then, if such Redemption Event has not been
remedied prior thereto, effective as of the day immediately following
such Mandatory Redemption Date, upon written notice to the Company by
the Holders of at least 20% of the outstanding Series A Preferred
Stock, but without any action on the part of the Board of Directors,
all members of the Board of Directors shall thereafter be designated
as "Class A Directors."
(E) If an Insolvency Event occurs, then, effective immediately
upon the occurrence of such Insolvency Event, upon written notice to
the Company by the Holders of at least 20% of the outstanding Series A
Preferred Stock, but without any action on the part of the Board of
Directors, all members of the Board of Directors shall thereafter be
designated as "Class A Directors."
(F) Any event described in paragraph (f)(iii)(A), (B), (C) or (D)
above shall be deemed remedied at such time as such event ceases to be
in effect. Without limiting the foregoing, the events described in
paragraph (f)(iii)(A) and (B) may be cured by a contribution to
capital in the amount which, had it been added as if it were Net
Income to the amount of EBITDA for the relevant period, would have
resulted in a Coverage Ratio of at least one.
(G) Notwithstanding any of the provisions of paragraphs
(f)(iii)(A), (B), (C), (D), (E) or (F) above, the rights set forth
therein of the Holders of the issued and outstanding shares of the
Series A Preferred Stock to elect and remove Class A Directors
pursuant to a Special Voting Rights Date relating to a Four Quarter
Coverage Ratio Event or an Eight Quarter Coverage Ratio Event shall
terminate when Occidental Petroleum Corporation, a Delaware
corporation ("Occidental") ceases to own at least a majority of the
outstanding shares of Series A Preferred Stock.
(iv) Certain Procedures.
------------------
(A) If, during the interval between annual meetings of
stockholders for the election of directors, there is a vacancy or
vacancies in the Class A Directors (whether as a result of an increase
in the number of Class A Directors pursuant to paragraph (f)(iii)
hereof, a resignation, death or removal of a Class A Director or any
other reason), such vacancy or vacancies in the Class A Directors may,
subject to applicable law, be filled by a majority vote of the
remaining Class A Directors then in office, or by a sole remaining
Class A Director.
7
(B) If there is a vacancy or vacancies in the Class A Directors
(whether as a result of an increase in the number of Class A Directors
pursuant to paragraph (f)(iii) hereof, a resignation, death or removal
of a Class A Director or any other reason), the Chairman of the Board
of the Company or other authorized officer of the Company, if any,
may, and upon the written request of the Holders of record of at least
10% of the shares of Series A Preferred Stock then outstanding
addressed to the Secretary of the Company shall, call a special
meeting of the Holders of Series A Preferred Stock, for the purpose of
electing a Class A Director or Directors to fill such vacancy. If such
meeting is not called by the proper officer of the Company within 10
days after personal service of such written request upon the Secretary
of the Company, or within 10 days after mailing the same within the
United States by certified mail, addressed to the Secretary of the
Company at its principal executive offices, then the Holders of record
of at least 20% of the outstanding shares of the Series A Preferred
Stock may designate in writing one of their number to call such
meeting at the expense of the Company, and such meeting may be called
by the Person so designated upon the notice required for special
meetings of stockholders of the Company and shall be held at the place
for holding the annual meetings of stockholders or such other place in
the United States as shall be designated in such notice.
(C) At any meeting held for the purpose of electing directors at
which the Holders of Series A Preferred Stock shall have the right to
elect a Class A Director or Directors, the presence in person or by
proxy of the Holders of at least one-third of the then outstanding
shares of Series A Preferred Stock shall be required and be sufficient
to constitute a quorum of such class for the election of such Class A
Director or Directors. At any such meeting or adjournment thereof (1)
the absence of a quorum of the Holders of Series A Preferred Stock
shall not prevent the election of a director or directors other than
the Class A Director or Directors, and the absence of a quorum or
quorums of the holders of Capital Stock entitled to elect other
directors shall not prevent the election of the Class A Director or
Directors, and (2) in the absence of a quorum of the holders of any
class of stock entitled to vote for the election of directors, a
majority of the holders present in person or by proxy of such class
shall have the power to adjourn the meeting for the election of
directors which the holders of such class are entitled to elect, from
time to time without notice (except as required by law) other than
announcement at the meeting, until a quorum shall be present.
(D) Any Class A Director elected to fill a vacancy shall hold
office for the unexpired term in respect of which the vacancy occurred
and until his successor shall be elected and shall qualify or until
his earlier death, resignation or removal in the manner provided by
the Certificate of Incorporation and the Bylaws of the Company.
(E) Any action required or permitted to be taken at an annual or
special meeting of Holders of Series A Preferred Stock may be taken
without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken,
shall be signed by the Holders of outstanding Series A Preferred Stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all
shares entitled to
8
vote thereon were present and voted and shall be delivered to the
Company by delivery to its registered office in the State of Delaware
(by hand or by certified or registered mail, return receipt
requested), its principal place of business or an officer or agent of
the Company having custody of the book in which proceedings of
meetings of stockholders are recorded.
(F) Any written notice to be given to the Company by Holders of
Series A Preferred Stock may be given (1) by personal service of such
written notice upon the Secretary of the Company, (2) by registered or
certified mail, addressed to the Secretary of the Company at its
principal executive offices, or (3) by delivery to the Company's
registered office in the State of Delaware (by hand or by certified or
registered mail).
(v) Protective Provisions.
---------------------
So long as any shares of the Series A Preferred Stock are outstanding, the
Company shall not, without the affirmative vote or consent of Holders of at
least a majority of the outstanding shares of Series A Preferred Stock, voting
or consenting, as the case may be, separately as one class, given in person or
by proxy, either in writing or by resolution adopted at an annual or special
meeting:
(A) create, authorize or issue, or reclassify any authorized
stock of the Company into, or increase the authorized amount of, any
class or series of Senior Securities, Parity Securities, or Junior
Securities;
(B) amend, alter or repeal any provision of the Certificate of
Incorporation, as the same may be amended from time to time, so as to
affect adversely the relative rights, preferences, qualifications,
limitations or restrictions of the Series A Preferred Stock;
(C) permit any of its Subsidiaries to issue any equity
securities, or securities convertible into, or exercisable, redeemable
or exchangeable for, equity securities, to any Person other than the
Company or a wholly owned Subsidiary of the Company;
(D) prior to the exchange of Series A Preferred Stock for
Exchange Notes, amend or modify the terms of the Exchange Notes;
(E) incur, or permit any of its Subsidiaries to incur, any Funded
Debt in a principal amount exceeding $5,000,000;
(F) (1) declare or pay any dividend or make any distribution on
account of any Junior Securities or Parity Securities or any
securities convertible into, or exercisable, redeemable or
exchangeable for, Junior Securities or Parity Securities, either
directly or indirectly, whether in cash, obligations or shares of the
Company or other property (other than dividends or distributions
payable solely in Junior Securities or securities convertible into, or
exercisable, redeemable or exchangeable for, Junior Securities, the
issuance of which has been approved pursuant to paragraph (f)(v)(A)),
or (2) purchase, redeem or otherwise acquire or retire for value any
Junior Securities or
9
Parity Securities (other than as a result of (i) a reclassification of
Junior Securities into another class or series of Junior Securities,
(ii) a reclassification of Parity Securities into Junior Securities,
(iii) the exchange or conversion of one class or series of Junior
Securities for or into another class or series of Junior Securities,
or (iv) the exchange or conversion of one class or series of Parity
Securities for or into Junior Securities, in each case, subject to
obtaining any approval required pursuant to paragraph (f)(v)(A) or any
securities convertible into, or exercisable, redeemable or
exchangeable for, any Junior Securities or Parity Securities;
provided, however, that the restrictions in this paragraph (f)(v)(F)
shall not apply to any purchase, redemption or other acquisition or
retirement for value contemplated by the Stockholders Agreement;
(G) enter into, or permit any Subsidiary to enter into, any
transaction with any Affiliate of the Company (an "Affiliate
Transaction"); provided, however, that the following shall not be
deemed to be Affiliate Transactions: (v) transaction fees payable to
LGP or ▇▇▇▇▇▇▇ Park Associates II, L.P. on or about the Preferred
Stock Issue Date pursuant to the Management Agreement, (w) payments to
LGP pursuant to the Management Agreement, (x) advances to directors,
officers or employees of the Company to provide for the payment of
reasonable expenses incurred by such persons in the performance of
such persons' responsibilities to the Company; (y) reasonable fees and
compensation paid to and indemnity provided on behalf of officers,
directors or employees of the Company as determined in good faith by
the Board of Directors and the Company's senior management, and (z)
transactions between or among the Company and/or its Subsidiaries;
(H) enter into, or permit any of its Subsidiaries to enter into,
any employment contract; or
(I) increase, or permit any of its Subsidiaries to increase, in
any material respect the benefits or compensation of any of the
executive officers of the Company.
(vi) Additional Provisions.
---------------------
(1) The creation, authorization or issuance of any shares of Common Stock
or (2) any increase or decrease in the amount of authorized capital stock of any
class, including any preferred stock, shall not require the consent of Holders
of Series A Preferred Stock and shall not be deemed to materially affect
adversely the rights, preferences, privileges or voting rights of Holders of
shares of Series A Preferred Stock.
(g) Optional Exchange
-----------------
(i) Conditions.
----------
(A) The Company may, at its option on any Dividend Payment Date
(herein the "Exchange Date"), exchange all, but not less than all, of
the then outstanding shares of Series A Preferred Stock into the
Company's Exchange Notes if such exchange is then permitted by
applicable law. To exchange Series A Preferred Stock into
10
Exchange Notes, the Company shall send a written notice (the "Exchange
Notice") of exchange by mail to each Holder of shares of Series A
Preferred Stock, which notice shall state: (1) that the Company has
elected to exchange the shares of Series A Preferred Stock held by
such Holder into an Exchange Note pursuant to this paragraph (g); (2)
the Exchange Date, which shall be the next succeeding Dividend Payment
Date and shall not be less than 20 days following the date on which
the Exchange Notice is mailed; (3) that the Holder is to surrender to
the Company, at the place or places where certificates for shares of
Series A Preferred Stock are to be surrendered for exchange, in the
manner designated in the Exchange Notice, his certificate or
certificates representing the shares of Series A Preferred Stock to be
exchanged; (4) that dividends on the shares of Series A Preferred
Stock to be exchanged shall cease to accrue, and the Holders of such
shares shall cease to have any further rights with respect to such
shares (other than the right to receive Exchange Notes), on the
Exchange Date whether or not certificates for shares of Series A
Preferred Stock are surrendered for exchange on the Exchange Date
unless the Company shall default in the delivery of Exchange Notes;
and (5) that interest on the Exchange Notes shall accrue from the
Exchange Date whether or not certificates for shares of Series A
Preferred Stock are surrendered for exchange on the Exchange Date. On
the Exchange Date, if the conditions set forth in clauses (I) and (II)
below are satisfied and if the exchange is then permitted under
applicable law, the Company shall issue Exchange Notes in exchange for
the Series A Preferred Stock as provided in the next paragraph,
provided that on the Exchange Date, immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the
Exchange Notes) would exist under the Exchange Notes.
In the event that the issuance of the Exchange Notes is not
permitted on the Exchange Date set forth in the Exchange Notice, or
any of the conditions set forth in clauses (I) or (II) of the
preceding sentence are not satisfied on the Exchange Date set forth in
the Exchange Notice, the Exchange Date shall be deemed to be the first
business day thereafter, if any, upon which all of such conditions are
satisfied.
(B) Upon any exchange pursuant to paragraph (g)(i)(A), each
Holder of outstanding shares of Series A Preferred Stock shall be
entitled to receive an Exchange Note in a principal amount equal to
the sum of (1) the Liquidation Preference of such Holder's shares of
Series A Preferred Stock and (2) the amount of accumulated and unpaid
dividends, if any, thereon (and accrued and unpaid interest thereon);
provided that the Company may pay cash in lieu of issuing an Exchange
Note in a principal amount of less than $1,000.
(ii) Procedure for Exchange.
----------------------
(A) On or before the Exchange Date, each Holder of Series A
Preferred Stock shall surrender the certificate or certificates
representing such shares of Series A Preferred Stock, in the manner
and at the place designated in the Exchange Notice. The Company shall
cause the Exchange Notes to be executed on the Exchange Date and, upon
surrender in accordance with the Exchange Notice of the certificates
for any shares of Series A Preferred Stock so exchanged such shares
shall be exchanged by the
11
Company into Exchange Notes. The Company shall pay interest on the
Exchange Notes at the rate and on the dates specified therein from the
Exchange Date.
(B) Subject to the conditions set forth in paragraph (g)(i), if
notice has been mailed as aforesaid, and if before the Exchange Date
the Exchange Notes shall have been duly executed and delivered by the
Company to the Holders, then the rights of the Holders of shares of
the Series A Preferred Stock as stockholders of the Company shall
cease (except the right to receive Exchange Notes), and the Person or
Persons entitled to receive the Exchange Notes issuable upon exchange
shall be treated for all purposes as the registered Holder or Holders
of such Exchange Notes as of the date of exchange without any further
action of the Holders of Series A Preferred Stock.
(h) Conversion or Exchange.
----------------------
The Holders of shares of Series A Preferred Stock shall not have any
rights hereunder to convert such shares into or exchange such shares for shares
of any other class or classes or of any other series of any class or classes of
Capital Stock of the Company.
(i) Reissuance of Series A Preferred Stock.
--------------------------------------
Shares of Series A Preferred Stock that have been issued and
reacquired in any manner, including shares purchased or redeemed or exchanged,
shall (upon compliance with any applicable provisions of the laws of Delaware)
have the status of authorized but unissued shares of preferred stock of the
Company undesignated as to series and may be designated or redesignated and
issued or reissued, as the case may be, as part of any series of preferred stock
of the Company, provided that such shares may not in any event be reissued as
Series A Preferred Stock (other than in payment of dividends, if any, on Series
A Preferred Stock).
(j) Business Day.
------------
If any payment, redemption or exchange shall be required by the terms
hereof to be made on a day that is not a Business Day, such payment, redemption
or exchange shall be made on the immediately succeeding Business Day.
(k) Definitions.
-----------
As used in this Certificate, the following terms shall have the following
meanings (with terms defined in the singular having comparable meanings when
used in the plural and vice versa), unless the context otherwise requires:
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided
12
that beneficial ownership of a majority or more of the voting securities of a
Person shall be deemed to be control.
"Affiliate Transaction" has the meaning set forth in paragraph f(v)(H).
"Applicable Board Percentage" means the number of Class A Directors at any
time, pursuant to the provisions of paragraph (f) hereof, that the Holders of
the issued and outstanding shares of the Series A Preferred Stock, voting
separately as one class, shall have the exclusive right to elect and remove at
such time.
"Bankruptcy Code" means title 11 of the United States Code, as amended from
time to time.
"Board" or "Board of Directors" means the Board of Directors of the
Company.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Certificate of Incorporation" has the meaning set forth in the Recitals.
"Class A Director" or "Class A Directors" means any director or directors,
as the case may be, elected by the Holders of a majority of the outstanding
shares of Series A Preferred Stock pursuant to paragraph (f) hereof.
"Company" means Leslie's Poolmart, Inc., a Delaware corporation.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period, adjusted as follows (in
each case, without duplication, on a consolidated basis, in accordance with
GAAP, and to the extent deducted (in the case of "plus" items) or added (in the
case of "minus" items) in the calculation of such Consolidated Net Income): (i)
plus any extraordinary or nonrecurring loss of such Person during such period;
(ii) minus any extraordinary or nonrecurring gain of such Person during such
period; (iii) plus any loss due solely to fluctuations in currency values; (iv)
minus any gain due solely to fluctuations in currency values; (v) plus provision
for taxes based on income or profits of such Person and its Subsidiaries for
such period; (vi) plus consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (and including any amortization of deferred financing costs); (vii)
plus any noncash charges for such period (including LIFO charges); (viii) plus
depreciation, amortization (including amortization of goodwill and other
intangibles but excluding
13
amortization of prepaid cash expenses that were paid in a prior period) and
other noncash charges of such Person and its Subsidiaries for such period.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate Net Income of such Person and its Subsidiaries for such period, on
a consolidated basis, determined in accordance with GAAP (except as provided in
the definition of "Net Income"); provided that (i) the Net Income (but not loss)
of any Person that is not a Subsidiary or that is accounted for by the equity
method of accounting shall be included only to the extent of the amount of
dividends or distributions paid in cash to the referent Person or a Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (other than approvals already obtained
on the date of computation) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Coverage Ratio" means, as of the last day of any Quarter, and with respect
to any specified period prior to the end of such Quarter, (i) Consolidated
EBITDA for the specified period prior to the end of such Quarter divided by (ii)
Fixed Charges for the specified period prior to the end of such Quarter.
"Credit Agreement" means credit agreement(s) to be entered into by the
Company and one or more lenders, and all amendments thereto, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring all or any
portion of the Indebtedness under such agreement(s) or any successor or
replacement agreement(s) and whether by the same or any other agent, lender or
group of lenders.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof, in any case, on or prior
to the final maturity date of the Senior Notes; provided, however, that the term
"Disqualified Capital Stock" shall not include the shares of Series A Preferred
Stock.
"Dividend Event" has the meaning set forth in paragraph (f)(iii).
"Dividend Payment Date " means February 1, May 1, August 1 and November 1.
"Dividend Period" means the Initial Dividend Period and, thereafter, each
Quarterly Dividend Period.
14
"Eight Quarter Coverage Ratio Event" has the meaning set forth in paragraph
(f)(iii).
"Exchange Date" has the meaning set forth in paragraph (g)(i)(A).
"Exchange Notes" means the Company's 10 7/8% Junior Subordinated Notes due
June 11, 2007 in the form attached to the Preferred Stock and Warrant Purchase
Agreement.
"Exchange Notice" has the meaning set forth in paragraph (g)(i)(A).
"First Mandatory Redemption Date" means the date eight years and six months
after the Initial Preferred Stock Issue Date.
"Fixed Charges" means, with respect to any Person for any period, without
duplication, the sum of (i) the consolidated interest expense (excluding
amortization or write-off of debt issuance costs) of such Person and its
Subsidiaries for such period, to the extent such expense was deducted in
computing Consolidated Net Income for such Person for such period, whether paid
or accrued and (ii) any interest expense on Guaranteed Indebtedness of such
Person or one of its Subsidiaries or secured by a Lien on assets of such Person
or one of its Subsidiaries (whether or not such Guaranteed Indebtedness or Lien
is called upon) determined on a consolidated basis, and (iii) all dividend
payments payable (whether declared or not and whether paid in cash or in kind)
on any series of preferred stock of such Person during such period, in each
case, on a consolidated basis and in accordance with GAAP; provided, that with
--------
respect to the Company for the period from the Initial Preferred Stock Issue
Date to the end of the Quarter in which the first anniversary of the Initial
Preferred Stock Issue Date falls, Fixed Charges shall not include any dividend
payments on the shares of Series A Preferred Stock for such period. For
purposes of the foregoing clause (ii), interest expense attributable to any
Guaranteed Indebtedness by such Person or a Subsidiary of such Person shall be
deemed to be the interest expense of such Person to the extent such expense was
deducted in computing Consolidated Net Income of such Person.
"Four Quarter Coverage Ratio Event" has the meaning set forth in paragraph
(f)(iii).
"Funded Debt" means, with respect to any Person and as of any date of
determination, the principal amount of all debt for borrowed money; provided,
that Funded Debt shall in any event not include any Permitted Indebtedness.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect as of the Initial Preferred Stock Issue Date.
"Guaranteed Indebtedness" means, with respect to any Person, a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect. in any manner (including,
without limitation. letters of credit and reimbursement agreements in respect
thereof), of all or any part of any indebtedness of another Person.
15
"Holder" means a Person in whose name a share of Series A Preferred Stock
is registered on the stock ledger of the Company.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capital Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business that are not overdue by 90 days or
more or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted), (v) all Obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (vi) guarantees and other contingent obligations in respect of
Indebtedness referred to in clauses (i) through (v) above and clause (viii)
below, (vii) all Obligations of any other Person of the type referred to in
clauses (i) through (vi) which are secured by any lien on any property or asset
of such Person, the amount of such Obligation being deemed to be the lesser of
the fair market value of such property or asset or the amount of the Obligation
so secured, (viii) all Obligations under currency agreements and interest swap
agreements of such Person and (ix) all Disqualified Capital Stock issued by such
Person with the amount of Indebtedness represented by such Disqualified Capital
Stock being equal to the greater of its voluntary or involuntary liquidation
preference and its maximum fixed repurchase price, but excluding accrued
dividends, if any. For purposes hereof, the "maximum fixed repurchase price" of
any Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified Capital
Stock as if such Disqualified Capital Stock were purchased on any date on which
Indebtedness shall be required to be determined, and if such price is based
upon, or measured by, the fair market value of such Disqualified Capital Stock,
such fair market value shall be determined reasonably and in good faith by the
Board of Directors of the issuer of such Disqualified Capital Stock.
"Initial Dividend Period " means the dividend period commencing on the
Initial Preferred Stock Issue Date and ending on the day before the first
Dividend Payment Date to occur thereafter.
"Initial Preferred Stock Issue Date" means June 11, 1997.
"Insolvency Event" means any of the following: (i) there shall be commenced
against the Company an involuntary case seeking the liquidation or
reorganization of the Company under Chapter 7 or Chapter 11, respectively, of
the federal Bankruptcy Code, and the petition commencing the involuntary case or
proceeding remains undismissed and unstayed for a period of sixty (60) days,
(ii) the Company shall file a voluntary case seeking liquidation or
reorganization under Chapter 7 or Chapter 11, respectively, of the federal
Bankruptcy Code, or (iii) the Company shall make a general assignment for the
benefit of creditors.
"Issue Date" means, with respect to any whole or fractional share of Series
A Preferred Stock, the date upon which such whole or fractional share is issued
pursuant hereto.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to
16
time periodic payments calculated by applying either a floating or a fixed rate
of interest on a stated notional amount in exchange for periodic payments made
by such other Person calculated by applying a fixed or a floating rate of
interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Junior Securities" has the meaning set forth in paragraph (b).
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the Company's principal place of business, the City of New York
or at a place of payment are authorized by law, regulation or executive order to
remain closed. If a payment date is a Legal Holiday at a place of payment,
payment may be made at that place on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
"LGP" means ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Liquidation Preference" has the meaning set forth in paragraph (d).
"Management Agreement" means that certain Management Agreement dated as of
the Preferred Stock Issue Date by and between LGP and the Company, providing for
certain annual fees, expenses and reimbursements to be paid to LGP, as such
Management Agreement may be amended from time to time in accordance with the
Stockholders Agreement.
"Mandatory Redemption Date" means each of the following dates: (1) the date
eight years and six months after the Initial Preferred Stock Issue Date, (2) the
ninth anniversary of the Initial Preferred Stock Issue Date and (3) the tenth
anniversary of the Initial Preferred Stock Issue Date.
"Mandatory Redemption Price" has the meaning set forth in paragraph
(e)(ii).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person for such period, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends; provided,
however, that for purposes of paragraph (f)(iii)(F), contributions to capital
made in accordance with such paragraph (f)(iii)(F) shall be included in Net
Income to the extent of the amount so contributed and as provided in such
paragraph (f)(iii)(F).
"Obligations" means all obligations for principal, premium, interest and
additional interest, penalties, fees, indemnifications, reimbursements, damages
and other liabilities payable under the documentation governing any
Indebtedness.
"Occidental" means Occidental Petroleum Corporation, a Delaware
corporation.
"Optional Redemption Price" has the meaning set forth in paragraph (e)(i).
"Parity Securities" has the meaning set forth in paragraph (b).
17
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Exchange Notes;
(ii) Indebtedness under the Senior Notes;
(iii) Indebtedness incurred pursuant to a Credit Agreement(s)
in an aggregate principal amount at any time outstanding not to exceed the
greater of (a) $35.0 million and (b) the sum of 80% of the total accounts
receivable and 60% of the total inventory of the Company and its
Subsidiaries, less in each case the amount of any prepayments made with the
proceeds of an Asset Sale (as defined in the documentation with respect to
the Senior Notes) or assumed in connection with an Asset Sale (as defined
in the documentation with respect to the Senior Notes);
(iv) other Indebtedness of the Company and its Subsidiaries
outstanding on the Closing Date;
(v) Interest Swap Obligations of the Company covering
Indebtedness of the Company or any of its Subsidiaries and Interest Swap
Obligations of any Subsidiary of the Company covering Indebtedness of such
Subsidiary; provided, however, that such Interest Swap Obligations are
-------- -------
entered into to protect the Company and its Subsidiaries from fluctuations
in interest rates on Indebtedness incurred in accordance with the Indenture
to the extent the notional principal amount of such Interest Swap
Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(vi) Indebtedness of a Subsidiary of the Company to the Company
or to a Wholly Owned Subsidiary of the Company for so long as such
Indebtedness is held by the Company or a Wholly Owned Subsidiary of the
Company, in each case subject to no Lien held by a Person other than the
Company or a Wholly Owned Subsidiary of the Company; provided that if as of
--------
any date any Person other than the Company or a Wholly Owned Subsidiary of
the Company owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(vii) Indebtedness of the Company to a Wholly Owned
Subsidiary of the Company for so long as such Indebtedness is held by a
Wholly Owned Subsidiary of the Company, in each case subject to no Lien
held by a Person other than a Wholly Owned Subsidiary of the Company;
provided that if as of any date any Person other than a Wholly Owned
--------
Subsidiary of the Company owns or holds any such Indebtedness or any Person
other than a Wholly Owned Subsidiary of the Company holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the Company;
(viii) Indebtedness arising from the honoring by a bank or
other financial institution of a check, draft or similar instrument
inadvertently (except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business;
18
provided, however, that such Indebtedness is extinguished within two
-------- -------
business days of incurrence;
(ix) Indebtedness of the Company or any of its Subsidiaries
represented by letters of credit for the account of the Company or such
Subsidiary, as the case may be, in order to provide security for workers'
compensation claims, payment obligations in connection with self-insurance
or similar requirements in the ordinary course of business;
(x) Refinancing Indebtedness (as defined in the documentation
with respect to the Senior Notes);
(xi) Capital Lease Obligations and Purchase Money Indebtedness
(as defined in the documentation with respect to the Senior Notes) of the
Company or any of its Subsidiaries in an aggregate principal amount not to
exceed $5.0 million at any one time outstanding; and
(xii) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $10.0 million at any one time outstanding.
"Person" means any individual, corporation, partnership. joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization or government or agency or political subdivision
thereof (including any subdivision or ongoing business of any such entity or
substantially all of the assets of any such entity, subdivision or business).
"Preferred Stock and Warrant Purchase Agreement" means the Preferred Stock
and Warrant Purchase Agreement dated as of June 11, 1997 by and among the
Company and Occidental.
"Quarter" means the 13-week period ended on the Friday closest to December
31, March 31, June 30 or September 30 or such other quarterly period as the
Company may from time to time adopt in connection with a change in its fiscal
year approved by Holders of at least a majority of the outstanding shares of
Series A Preferred Stock.
"Quarterly Dividend Period" shall mean the quarterly period commencing on
each February 1, May 1, August 1, and November 1 and ending on the day before
the following Dividend Payment Date.
"Redemption Date" with respect to any shares of Series A Preferred Stock,
means the date on which such shares of Series A Preferred Stock are redeemed by
the Company in accordance with paragraph (e).
"Redemption Event" has the meaning set forth in paragraph (f)(iii).
"Redemption Notice" has the meaning set forth in paragraph (e)(iii).
"Senior Notes" shall mean $90 million in principal amount of the Company's
10 3/8% Senior Notes due 2004.
19
"Senior Securities" has the meaning set forth in paragraph (b).
"Series A Preferred Stock" has the meaning set forth in paragraph (a).
"Special Voting Rights Date" has the meaning set forth in paragraph
(f)(iii).
"Stockholders Agreement" means that certain Stockholders Agreement and
Subscription Agreement among Leslie's Poolmart, Inc., Green Equity Investors II,
L.P., ▇▇▇▇▇▇▇ Park Associates, Occidental Petroleum Corporation, and the
stockholders identified on Annex A thereto, as in effect on the Initial
Preferred Stock Issue Date.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Wholly Owned Subsidiary" of any Person means any Subsidiary of such Person
of which all the outstanding voting securities (other than in the case of a
foreign Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by such Person or any Wholly Owned Subsidiary of such Person.
20
IN WITNESS WHEREOF, Leslie's Poolmart, Inc. has caused this Certificate to
be executed by its Vice President and Assistant Secretary this 11th day of June,
1997.
LESLIE'S POOLMART, INC.
By:______________________________
21
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO DISTRIBUTION, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR AN OPINION OF COUNSEL DELIVERED TO THE COMPANY
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
LESLIE'S POOLMART, INC.
WARRANT
Dated June 11, 1997
WARRANTS TO PURCHASE COMMON STOCK
Certificate for 252,996 Warrants
ISSUED TO OCCIDENTAL PETROLEUM CORPORATION
("OCCIDENTAL")
----------
LESLIE'S POOLMART, INC., a Delaware corporation (the "Company"), hereby
-------
certifies that Occidental is the registered owner of the number of Warrants set
forth above.
Each Warrant entitles the persons who shall from time to time, of record or
beneficially, own any of the Warrants (collectively "Holders" and individually
"Holder") to purchase one (1) share (each such share being referred to herein as
a "Warrant Share" and all such shares being referred to herein, collectively, as
-------------
the "Warrant Shares"), as adjusted from time to time as provided in Section 7
--------------
hereof, of the Common Stock, $0.001 par value per share, of the Company (the
"Common Stock") at the exercise price of $0.01 (one cent) per Warrant Share (the
------------
"Exercise Price"), subject to the following terms and conditions.
--------------
1. REGISTRATION. The Company shall register each Warrant, upon records
------------
to be maintained by the Company for such purpose (such records being referred to
herein as the "Register"), in the name of the record holder of such Warrant from
--------
time to time. The Company may deem and treat the registered holder of each
Warrant as the absolute owner thereof for the purpose of any exercise thereof or
any distribution to the Holder thereof, and for all other purposes, and the
Company shall not be affected by any notice to the contrary.
2. TRANSFERS AND EXCHANGES.
-----------------------
(a) Registration; Issuance of New Warrant Certificates. The Company
--------------------------------------------------
shall reflect in the Register the transfer of any Warrant represented hereby
upon the surrender of this Warrant Certificate, with the Form of Assignment
attached as Annex A hereto duly completed and signed (and with a signature
guarantee for the transfer of any Warrants by a registered holder other than the
initial registered holder of this Warrant Certificate), to the Company at the
office of the Company set forth in Section 11 hereof. Upon any such registration
of transfer, a new Warrant Certificate, in substantially the form of this
Warrant Certificate, evidencing the Warrants so transferred shall be issued to
the transferee of such Warrants and a new Warrant Certificate, in substantially
the form of this Warrant Certificate, evidencing the remaining Warrants, if any,
not so transferred, shall be issued to the Holder. The Company shall at no time
close the Register against the transfer of any Warrant or Warrant Share in any
manner that materially interferes with the timely exercise of such Warrant.
(b) Warrants Exchangeable for Different Denominations. This Warrant
-------------------------------------------------
Certificate is exchangeable, upon the surrender hereof by the Holder at the
office of the Company set forth in Section 11 hereof, for new Warrant
Certificates, in substantially the form of this Warrant Certificate, evidencing
in the aggregate the right to purchase the number of Warrant Shares that may
then be purchased under this Warrant Certificate. Each such new Warrant
Certificate shall be dated the date of such exchange and represent the right to
purchase such number of Warrant Shares as shall be designated by the Holder at
the time of such surrender.
3. DURATION AND EXERCISE OF WARRANTS.
---------------------------------
(a) Subject to all the terms and conditions hereinafter set forth
(including, without limitation, the terms and conditions in Section 16), the
Warrants may be exercised by the Holder at any time from the date hereof until
5:00 p.m., Los Angeles time, on the tenth (10th) anniversary of the date hereof
(the "Expiration Time"). At the Expiration Time, each Warrant not exercised
---------------
prior thereto shall be and become void and of no value.
(b) Subject to the provisions of this Warrant Certificate, including
adjustments to the Exercise Price and to the number of Warrant Shares issuable
upon the exercise of each Warrant pursuant to Section 7 hereof, each holder of a
Warrant on or prior to the Expiration Time shall have the right to purchase from
the Company (and the Company shall be obligated to issue and sell to such holder
of a Warrant) at the Exercise Price one fully-paid Warrant Share, which shall be
nonassessable upon issuance.
(c) Subject to Sections 4, 9 and 10(a) hereof, upon (i) surrender of
this Warrant Certificate, together with the Form of Election to Purchase
attached as Annex B hereto (the "Form of Election to Purchase") duly completed
----------------------------
and signed, to the Company at the address provided in Section 11, and (ii)
payment of the Exercise Price, multiplied by the number of Warrant Shares then
issuable upon exercise of the Warrants being so exercised in immediately
available lawful money of the United States of America, the Company shall
promptly, but in any event within five (5) days of its receipt of the Form of
Election to Purchase, together with the
2
Warrant Certificate and receipt of payment of the Exercise Price, issue and
cause to be delivered to or upon the written order of the Holder, and in such
name or names as such Holder may designate (subject to Section 4 hereof), a
certificate for the Warrant Shares issued upon such exercise of such Warrants.
Any person so designated to be named in such certificate for such Warrant Shares
shall be deemed to have become the holder of record of such Warrant Shares as of
the Date of Election to Purchase such Warrants. The "Date of Election to
-------------------
Purchase" as to any Warrant means the date on which the Company shall have
--------
received (1) this Warrant Certificate, with the completed Form of Election to
Purchase and (2) payment of the Exercise Price for such Warrant.
(d) Any part of the Warrants evidenced by this Warrant Certificate
shall be exercisable from time to time. If fewer than all the Warrants
evidenced by this Warrant Certificate are exercised at any time, the Company, at
its expense, shall issue to the registered holder a new Warrant Certificate, in
substantially the form of this Warrant Certificate, for the remaining number of
Warrants evidenced by this Warrant Certificate.
4. PAYMENT OF TAXES.
----------------
(a) The Company shall pay all issuance and transfer taxes and charges
that may be imposed on the Company or on the Warrants or the Warrant Shares in
respect of the transfer of Warrants, or the issuance or delivery of the
Certificates for Warrant Shares or other Securities in respect of the Warrant
Shares upon the exercise or conversion of Warrants; provided, however, that the
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Company shall not be required to pay any such tax or other charge imposed in
respect of the transfer of Warrants, or the issuance or delivery of certificates
for Warrant Shares or other securities in respect of the Warrant Shares upon the
exercise of Warrants, to a person or entity other than a then-existing
registered holder of Warrants.
(b) Upon exercise of the Warrant in whole or in part, the Holder
shall be required to pay to the Company (by cashier's or certified check) an
amount equal to all applicable federal and state withholding taxes that may
become payable by reason of such exercise.
5. MUTILATED OR MISSING WARRANT CERTIFICATE. If this Warrant Certificate
----------------------------------------
shall be mutilated, lost, stolen or destroyed, upon request by the registered
holder of the Warrants, the Company shall issue, in exchange for and upon
cancellation of the mutilated Warrant Certificate, or in substitution for the
lost, stolen or destroyed Warrant Certificate, a new Warrant Certificate, in
substantially the form of this Warrant Certificate, of like tenor and
representing the equivalent number of Warrants, but, in the case of loss, theft
or destruction, only upon receipt of evidence satisfactory to the Company of
such loss, theft or destruction of this Warrant Certificate and, if requested by
the Company, indemnity also satisfactory to it.
6. RESERVATION AND ISSUANCE OF WARRANT SHARES.
------------------------------------------
(a) The Company shall at all times have authorized, and reserve and
keep available, exclusively for the purpose of enabling it to satisfy any
obligation to issue Warrant Shares upon the exercise of the Warrants, the number
of Warrant Shares deliverable upon
3
exercise of the Warrants. The Company shall take all corporate action necessary
to enable the Company to validly and legally issue, at the Exercise Price,
Warrant Shares that are fully paid and nonassessable.
(b) The Company covenants that all Warrant Shares will, upon issuance
in accordance with the terms of this Warrant Certificate, be (i) duly
authorized, validly issued, fully paid and nonassessable and (ii) free from all
taxes or other governmental charges with respect to the issuance thereof (not
including income taxes payable by the holders of Warrants being exercised in
respect of gains thereon) and from all liens, charges and security interests
created by the Company.
7. ADJUSTMENTS.
-----------
(a) If the Company shall at any time subdivide the outstanding shares
of Common Stock into a greater number of shares, or pay to holders of Common
Stock any dividend payable in shares of Common Stock, the number of Warrant
Shares in effect immediately prior to such subdivision or dividend shall be
proportionately increased, and conversely, if the outstanding shares of Common
Stock shall be combined into a smaller number of shares, the number of Warrant
Shares in effect immediately prior to such combination shall be proportionately
reduced; and, in either case the Exercise Price shall be adjusted
proportionately; provided, however, that the Exercise Price shall in all events
-------- -------
be no less than the par value of the Warrant Shares.
(b) If and to the extent the Company shall issue shares of Common
Stock upon the exercise of options issued under either the Company's 1997 Non-
Qualified Stock Option Plan (as to which 83,599 shares have been reserved for
issuance) or under the Company's 1997 Incentive Stock Option Plan (as to which
273,946 shares have been reserved for issuance), the number of Warrant Shares
shall be adjusted, effective on the date of each such issuance of Common Stock
under one of the aforesaid Plans, such that when the shares of Common Stock so
issued are added to the number of shares of Common Stock outstanding on the date
hereof (as such number may be reduced from time to time pursuant to the exercise
of the Call Option in respect of Call NQ Options and Call Option Shares, as
defined in the Stockholders and Subscription Agreement of even date herewith by
and among the Company, Occidental and the stockholders identified therein (the
"Stockholders Agreement")), the Warrant Shares shall represent fifteen percent
(15%) of all of such outstanding shares of Common Stock, rounded to the next
highest number of whole shares.
8. NO STOCK RIGHTS. The Holder of this Warrant Certificate, as such,
---------------
shall not be entitled to vote or be deemed the holder of Common Stock or any
other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the Holder of this Warrant Certificate, as such, the rights of a stockholder of
the Company or the right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, to exercise any preemptive right, to receive
notice of meetings or other actions affecting stockholders (except as provided
herein), or to receive dividends or subscription rights or otherwise, until the
Date of Election to Purchase Warrants shall have occurred.
4
9. FRACTIONAL WARRANTS AND FRACTIONAL WARRANT SHARES. The Company may,
-------------------------------------------------
but shall not be required to, issue fractional Warrant Shares. If any fraction
of a Warrant Share would, except for the provisions of this Section 9, be
issuable to the Holder of this Warrant Certificate upon exercise of any
Warrants, the Company may, at its election, pay to such Holder an amount in cash
equal to the amount by which (a) the Fair Market Value (determined pursuant to
the Stockholders Agreement) of one share of Common Stock exceeds (b) the
Exercise Price, multiplied by such fraction. The Holder of a Warrant
Certificate, by the acceptance of the Warrant Certificate, expressly waives the
right to receive any fractional Warrant Shares upon exercise of a Warrant. The
Holder of a Warrant Certificate shall be entitled to receive fractional Warrants
and fractional Warrant Shares at the election of the Company.
10. [Intentionally deleted.]
---------------------
11. NOTICES. All notices, requests, demands and other communications
-------
relating to this Warrant Certificate shall be in writing, including by
telecopier, telex, telegram or cable, addressed, if to the registered holder
hereof, to it at the address furnished by the registered holder to the Company,
and if to the Company, at its office at ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: President, or to such other address as any party
shall notify the other party in writing, and shall be effective, in the case of
written notice by mail, three days after placement into the mails (first class,
postage prepaid), and in the case of notice by telex, telecopier, telegram or
cable, on the same day as sent.
12. BINDING EFFECT. This Warrant Certificate shall be binding upon and
--------------
inure to the sole and exclusive benefit of the Company, its permitted successors
and permitted assigns, and the registered holder or holders from time to time of
the Warrants and the Warrant Shares.
13. SURVIVAL OF RIGHTS AND DUTIES. Unless earlier terminated or canceled
-----------------------------
in whole or in part pursuant to Section 16 of this Warrant Certificate, this
Warrant Certificate and unexercised Warrants represented hereby shall terminate
and be of no further force and effect on the earlier of the Expiration Time or
the date on which all the Warrants shall have been exercised, except that the
provisions of Sections 4, 6(b) and 10 of this Warrant Certificate shall continue
in full force and effect after any such termination or cancellation.
14. GOVERNING LAW. This Warrant Certificate shall be construed in
-------------
accordance with and governed by the internal laws of the State of Delaware
applicable to contracts executed and to be performed wholly within such state,
without regard to the principles of conflicts or choice of law.
15. MODIFICATION AND WAIVER. This Warrant Certificate and any term hereof
-----------------------
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the Holder and the Company against which enforcement of such
change, waiver, discharge or termination is sought.
16. REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE. If
---------------------------------------------------------------
any capital reorganization or reclassification of the capital stock of the
Company, any consolidation or
5
merger of the Company with another entity, or the sale of all or substantially
all of the Company's assets to another entity shall be effected in such a way
that holders of Common Stock shall be entitled to receive stock, securities,
cash or other assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the Holder shall
thereafter have the right to purchase and receive upon the basis and the terms
and conditions specified in this Warrant Certificate and in lieu of the shares
of Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, securities,
cash or other assets as may be issued or payable in such reorganization,
reclassification, consolidation, merger or sale with respect to or in exchange
for the number of shares of Common Stock purchasable and receivable upon the
exercise of the rights represented hereby had such rights been exercised
immediately prior thereto, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end and that
the provisions hereof (including without limitation provisions for adjustments
of the Exercise Price and of the number of shares of Common stock purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument, executed and mailed or delivered to the Holder at
the last address thereof appearing in the Register, the obligation to deliver to
such Holder such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such Holder may be entitled to purchase.
Notwithstanding the foregoing, in the event that, as a result of a transaction
described in this Section 16, a Change of Control (as defined in the
Stockholders Agreement) shall occur, then effective as of the date of
consummation of the Change of Control, this Warrant shall terminate and shall
represent only the right to receive, upon surrender and payment of the exercise
price therefor, the stock, securities, cash or other assets to which the holder
would have been entitled had this Warrant been exercised immediately prior to
consummation of such Change of Control.
17. NOTICES OF CERTAIN EVENTS. In case: (a) the Company shall authorize
-------------------------
the issuance to all holders of shares of Common Stock of rights, options or
warrants to subscribe for or purchase shares of Common Stock or of any other
subscription rights or warrants; (b) the Company shall authorize the
distribution to all holders of shares of Common Stock of assets, including cash,
evidences of its indebtedness or other securities; (c) of any consolidation or
merger to which the Company is a party and for which approval of any
stockholders of the Company is required, or of the conveyance or transfer of the
properties and assets of the Company substantially as an entirety, or of any
reclassification or change of Common Stock issuable upon exercise of the
Warrants, or of the commencement of a tender offer or exchange offer for shares
of Common Stock; (d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company; or (e) any event requiring an adjustment pursuant to
Section 7 hereof, then the Company shall cause to be given to the Holder at
least 10 business days prior to the applicable record date hereinafter
specified, or the date of the event in the case of events for which there is no
record date, notice stating (i) the date as of which the holders of record of
6
shares of Common Stock to be entitled to receive any such rights, options,
warrants or distribution are to be determined, or (ii) the initial expiration
date set forth in any tender offer or exchange offer for shares of Common Stock,
or (iii) the date on which any such consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange such shares for securities
or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up.
18. INFORMATION REGARDING ADJUSTMENTS. The Company shall keep a record of
---------------------------------
any adjustment to the Warrant Shares or the Exercise Price pursuant hereto,
together with a record as to the method of calculation and the facts upon which
such calculations are based. Such information shall be provided to the Holder
upon request. The Company will include such information in the notices given
pursuant to Section 17.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed under its corporate seal by its officers thereunto duly authorized as
of the date hereof, and the Holder has caused this Warrant Certificate to be
executed and delivered by its duly authorized representative.
LESLIE'S POOLMART, INC.
By: ________________________________________
Name:___________________________________
Title:__________________________________
OCCIDENTAL PETROLEUM CORPORATION
By: _________________________________________
Name:____________________________________
Title:___________________________________
___________________________________
7
ANNEX A
-------
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _________________________________ hereby sells, assigns and
transfers to each assignee set forth below all the rights of the undersigned in
and to the number of Warrants (as deemed in and evidenced by the foregoing
Warrant Certificate) set opposite the name of such assignee below and in and to
the foregoing Warrant Certificate with respect to such Warrants and the shares
of common stock, $.__ par value per share, of Leslie's Poolmart, Inc. issuable
upon exercise of such Warrants:
Name of Assignee Address Number of Warrants
------------------ ------- ------------------
If the aggregate number of such Warrants shall not constitute all the Warrants
evidenced by the foregoing Warrant Certificate, the undersigned requests that a
new Warrant Certificate evidencing the Warrants not so assigned be issued in the
name of and delivered to the undersigned.
Name of
Holder (Print):_________________________
Dated: _______________, ______ (By:)___________________________________
(Title:)________________________________
[SIGNATURE GUARANTEE] ATTEST:
(Not Required for Initial Registered
holder)
________________________________________
[Assistant] Secretary
8
ANNEX B
-------
FORM OF ELECTION TO PURCHASE
(To Be Executed by the Holder if the
Holder Desires to Exercise Warrants
Evidenced by the foregoing Warrant Certificate)
To Leslie's Poolmart, Inc.:
The undersigned hereby irrevocably elects to exercise _____________ Warrants (as
deemed in and evidenced by the foregoing Warrant Certificates) for, and to
purchase thereunder, ____________ shares of common stock, $______ par value per
share, of Leslie's Poolmart, Inc., issuable upon exercise of such Warrants and
delivery of $____________ in cash and any applicable taxes payable by the
undersigned pursuant to such Warrant Certificate.
The undersigned requests that certificates for such shares be issued in the name
of the following:
PLEASE INSERT SOCIAL SECURITY NUMBER OR
TAX IDENTIFICATION NUMBER
________________________________________
________________________________________
________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Warrants shall not constitute all the Warrants evidenced by
the foregoing Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name of
and delivered to the following:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated: ___________, _____ Name of Holder
(Print):________________________________
[SIGNATURE GUARANTEE] (By:)___________________________________
(Title:)
(Not Required for Initial Registered
Holder)
9
EXHIBIT C
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 THE SIGNATURE PAGES
TABLE OF CONTENTS
Page
----
1. REPRESENTATIONS AND WARRANTIES.......................................... 1
(a) Company Representations............................................. 1
(b) Stockholder Representations and Warranties.......................... 2
2. SUBSCRIPTION FOR COMMON STOCK; CALL OPTION.............................. 3
(a) Common Stock Subscription........................................... 3
(b) Call Option......................................................... 3
3. COMPLIANCE WITH SECURITIES LAW.......................................... 4
4. TRANSFERS OF SECURITIES................................................. 4
(a) Prohibition on Transfers............................................ 4
(b) Transfer Procedure; Right of First Refusal.......................... 4
(c) Transfers to Related Transferees.................................... 5
(d) Legend on Certificates.............................................. 6
(e) Transfers in Violation of this Agreement............................ 6
5. COMPANY CALL OPTION..................................................... 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............................................ 10
(d) Registration Procedures............................................. 11
(e) Indemnification..................................................... 14
(f) Holdback Amount..................................................... 16
(g) Assignment and Assumption........................................... 17
(h) Stock Option Plans.................................................. 17
7. DRAG-ALONG SALES AND TAG-ALONG SALES.................................... 17
(a) Drag-Along Sales.................................................... 17
(b) Optional Participation in Sales of Common Stock (Tag-Along Sales)... 18
(c) Obligations of Drag-Along Sellers................................... 19
8. TERMINATION AND LAPSE OF RIGHTS AND RESTRICTIONS; APPLICATIONS TO OTHER
STOCK AND ADJUSTMENTS................................................... 19
(a) Termination of Provisions........................................... 19
(b) Application......................................................... 19
9. ELECTION OF DIRECTORS................................................... 20
10. CERTAIN ADDITIONAL AGREEMENTS........................................... 20
(a) Right to Participate in Securities Issuances........................ 20
(b) Right to Participate in Equity Repurchases.......................... 21
(c) Affiliate Transactions.............................................. 21
(d) Change of Control Transactions...................................... 21
i
Page
----
(e) Information............................................................. 22
11. NOTICES................................................................. 22
12. GENERAL................................................................. 22
13. ADDITIONAL CLASS II STOCKHOLDERS........................................ 24
14. ARBITRATION............................................................. 24
(a) Scope............................................................... 24
(b) Deposition.......................................................... 24
(c) JAMS................................................................ 24
(d) Selection of Arbitrator............................................. 25
(e) Governing Law....................................................... 25
(f) Procedures.......................................................... 25
(g) Award............................................................... 25
15. DEFINITIONS............................................................. 25
ANNEX A COMMON STOCK CAPITAL STRUCTURE.......................................A-1
ANNEX B TERMS OF NQ OPTION PLAN..............................................B-1
ANNEX C TERMS OF INCENTIVE STOCK OPTION PLAN.................................C-1
ii
STOCKHOLDERS AGREEMENT
This Stockholders Agreement (this "AGREEMENT") is entered into as of June
___, 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 1,055,172 shares of
Common Stock, the HPA Group collectively retained 359,505 shares of Common
Stock, Occidental acquired 28,000 shares of Exchangeable Cumulative Redeemable
Preferred Stock, Series A of the Company (the "PREFERRED STOCK") and warrants
(the "WARRANTS") to purchase 252,996 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, together with such additional shares of Common
Stock, Options or securities exercisable for or convertible into Common Stock as
they may hereafter acquire, the "SECURITIES");
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereto agree as follows:
1. Representations and Warranties.
------------------------------
(a) Company Representations. The Company hereby represents and
-----------------------
warrants to the Class I and Class II Stockholders as follows:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has
full corporate power and authority to carry on its business as and where it
is now being conducted. The Company
has full corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by 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.
------------------------------------------
(i) Each Stockholder hereby severally and not jointly
represents and warrants that 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) Each Stockholder hereby severally and not jointly
represents and warrants that 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 hereby severally and
not jointly represents and warrants that (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
2
Options, the business and proposed capital structure of the Company and the
risks inherent therein; (B) has been given the opportunity to obtain any
additional information or documents, and to ask questions and receive
answers, from the officers and representatives of the Company to the extent
necessary to evaluate the risks and merits of an investment in the Company;
(C) has determined that the acquisition of Common Stock 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) Each of GEI, the HPA Group and each Class II Stockholder
hereby severally and not jointly represents and warrants that (A) the
Securities acquired by GEI, the HPA Group and each Class II Stockholder are
being acquired for such Stockholder's own account for investment, without
any present intention of selling or further distributing the same, (B) such
Stockholder acknowledges that the 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) such Stockholder acknowledges that the Company has
no obligation, except as set forth in Section 6 hereof, to register any of
the Securities.
(v) Each member of the HPA Group represents and warrants that
he or it is an accredited investor within the meaning of Regulation D under
the Act.
Each Stockholder acknowledges that the Company is relying upon the truth and
accuracy of the above representations to a material degree in effectuating the
transactions contemplated hereby.
2. Subscription for Common Stock; Call Option.
------------------------------------------
(a) Common Stock Subscription(a).Common Stock Subscription. Each
------------------------------------------------------
Class II Stockholder reflected as a purchaser of Common Stock on the signature
pages 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 or her name on Annex A hereto, at the purchase price of $14.50 per
-------------
share (collectively, the "Subscription Stock"). Each Purchaser severally agrees
-----
to make payment for the Subscription Stock 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 severally agrees that the
-----------
Company and certain other Stockholders shall have a call ("Call Option") in
respect of the 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 (collectively, "Callable Securities"). As to each holder of
Callable Securities, the Call Option shall apply only to (i) two-thirds of all
of such holder's 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
3
shall not otherwise apply to Subscription Stock, NQ Options or shares issued
upon the exercise thereof. Subscription Stock, NQ Options and shares issuable
upon the exercise thereof that are Callable Securities are respectively
hereinafter referred to as "Call Option Stock," "Call NQ Options" and "Call
Option Shares."
3. Notice of Transfer; Compliance with Securities Law. In addition to the
--------------------------------------------------
other applicable restrictions provided in this Agreement, each Stockholder
(other than Occidental) 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 other
than in respect of the Warrants or the Warrant Shares, 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 (or an
exemption therefrom), and the relevant state securities laws applicable to the
Stockholder's actions.
4. Transfers of Securities.
-----------------------
(a) Prohibition on Transfers. Each of the members of the HPA Group
------------------------
and each of the Class II Stockholders hereby agrees that such Stockholder will
not Transfer any Securities (or any interest therein) now or hereafter at any
time owned by such Stockholder, except for Transfers permitted pursuant to this
Section 4, Section 5 or Section 7 of this Agreement (each such Transfer being a
"PERMITTED TRANSFER").
(b) Transfer Procedure; Right of First Refusal. If any member of
------------------------------------------
the HPA Group or any of the Class II Stockholders 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) a Class II Stockholder, then GEI, Occidental and the HPA Group
shall be
4
entitled to be Electing Stockholders; or (ii) a member of the HPA
Group, then GEI, Occidental and the other members of the HPA Group shall be
entitled to be Electing Stockholders. Where more than one Electing Stockholder
desires to participate in a purchase pursuant to an Option Notice, such
Stockholders shall participate, pro rata based upon their respective Equity
--- ----
Ownership (but in the case of Occidental, Fully Diluted 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 (but in the case of
Occidental, Fully Diluted Ownership), it being understood that the Company may
elect to purchase up to all of the Securities and any remainder shall be
prorated as aforesaid. The Company and, if applicable, the Electing Stockholders
shall be severally obligated to purchase, and the Stockholder shall be obligated
to sell, the Securities covered by such Election Notice at the cash price and
terms indicated in the Bona Fide Offer, provided that the closing of the
purchase by the Electing Stockholder shall be held on a business day within 30
days after the giving of the Election Notice at 10:30 a.m., California time, at
the principal executive office of the Company, or at such other time and place
as may be mutually agreed to by the Stockholder, the Company and, if applicable,
the Electing Stockholders. If an Election Notice is not timely given by the
Company and/or one or more Electing Stockholders within the period specified
above after an Option Notice has been given, the Stockholder thereafter, at any
time within a period of four months from the giving of such Option Notice, may
Transfer all (but not less than all) of the Securities covered by such Option
Notice to the Outside Party at the cash price and terms contained in the Bona
Fide Offer; provided, however, that such Outside Party and such Securities
-------- -------
shall thereafter be subject to and bound by all of the provisions of this
Agreement as if such party were a Class II Stockholder except as otherwise
provided in Section 6(g) and, as a condition precedent to the completion of such
Transfer of Securities to such Outside Party, shall execute and deliver to the
Company a written consent to such effect in form and substance satisfactory to
the Company; and provided, further, however, that to the extent that the
Stockholder has not so Transferred such Securities to the Outside Party within
such four-month period, then such Securities thereafter shall continue to be
subject to all of the restrictions contained in this Agreement. Any election in
any instance by the Company or any Stockholder entitled to be Electing
Stockholders not to exercise its rights under this clause (b) shall not
constitute a waiver of such rights with respect to any other actual or proposed
Transfer of Securities.
(c) Transfers to Related Transferees. Notwithstanding anything to
--------------------------------
the contrary contained in clauses (a) and (b) of this Section 4, each member of
the HPA Group and Class II 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 applicable provisions of this Agreement, and (ii) give a duplicate
original of such consent to the Company. In the event of any Transfer by a
member of the HPA Group or any Class II 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 transferor
Stockholder, and such Related Transferee shall be deemed to be such transferor
Stockholder for the purposes of this Agreement. If the Related Transferee
acquired Securities from a Stockholder, such Related
5
Transferee shall be entitled to participate, collectively with the Stockholders
of the same group, in the registration rights provided for in Section 6 hereof.
There shall be no further Transfer of such Securities by a Related Transferee
except between and among such Related Transferee, the original Stockholder and
other Related Transferees, or except as otherwise permitted by this Agreement.
(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, to the extent
applicable:
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 APPLICABLE PROVISIONS OF THE STOCKHOLDERS
AGREEMENT DATED AS OF JUNE 11, 1997, A COPY OF WHICH IS ON FILE AT THE
OFFICES OF THE COMPANY.
Any stock certificate issued at any time in exchange or substitution for any
certificate bearing such legends (except a new certificate issued upon the
completion of a public offering) shall also bear such (or substantially
equivalent) legends, unless the Security represented by such certificate is no
longer subject to the provisions of this Agreement and, in the opinion of
counsel for the Company, the Security represented thereby need no longer be
subject to restrictions pursuant to the Act or applicable state securities law.
(e) Transfers in Violation of this Agreement. The Company shall not
----------------------------------------
be required to record on its books and records, or otherwise to recognize or
facilitate, any Transfer of Securities in violation of this Agreement, nor shall
the Company be required to issue any certificate for Securities Transferred in
violation of this Agreement.
6
5. Company "Call" Option.
---------------------
(a) Call Purchase Event and Purchase Price. Upon the termination
--------------------------------------
of a Class II Stockholder's employment with the Company or its subsidiaries for
any reason (including, without limitation, the voluntary termination, dismissal,
involuntary termination, Retirement, death or Permanent Disability of the
Stockholder) (a "CALL PURCHASE EVENT"), the Company, and to the extent the
Company elects not to do so and, in the case of the NQ Options, such purchase
may otherwise be made pursuant to the NQ Option Plan, GEI, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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 ("OTHER TERMINATION"), of a Class II Stockholder
holding Call NQ Options, the difference between the higher of (A) the cash
consideration per share paid in the Merger and (B) the Fair Market Value of
the underlying shares on the date of the Call Purchase Event, and the
exercise price of the Call NQ Option; or
(iii) in the case of voluntary termination by a Class II
Stockholder holding Call Option Stock, the purchase price therefor; or
(iv) in the case of Other Termination of a Class II
Stockholder holding Call Option Stock, the higher of the Fair Market Value
thereof on the date of the Call Purchase Event and the purchase price paid
by the holder therefor; or
(v) in the case of voluntary termination by a Class II
Stockholder holding Call Option Shares, an amount equal to the cash
consideration per share paid in the Merger; or
(vi) in the case of Other Termination of a Class II
Stockholder holding Call Option Shares, the higher of the Fair Market Value
of such shares on the date of the Call Purchase Event and the amount
payable pursuant to clause (v) above.
7
(b) Exercise of Call Option. In the event the Company and/or any
-----------------------
Class I Stockholder elects not to participate in the purchase of Callable
Securities pursuant to the Call Option, all remaining Purchasing Group
Stockholders desiring so to participate may do so, pro rata amongst such
--- ----
remaining Purchasing Group Stockholders based upon their respective Equity
Ownership in the Company, or in any other proportion as they may agree. The
closing for all purchases and sales of Callable Securities pursuant to this
Section 5 shall be at the principal executive offices of the Company at 10:30
a.m., California time, on the 60th day after the giving of the applicable
Purchase Notice. The purchase price for the purchase and sale of Callable
Securities shall be paid in cash, by certified or official bank check. The
Seller(s) of Callable Securities sold pursuant to this Section 5 shall cause
such Securities to be delivered to the Purchasing Group or the Company at the
relevant closing free and clear of all liens, charges or encumbrances of any
kind. Such Seller(s) shall take all actions as the Purchasing Group or the
Company shall request as necessary to vest in the members of the Purchasing
Group and/or the Company at such closing such Callable Securities, free and
clear of all liens, charges and encumbrances incurred, voluntarily or
involuntarily, by or through Seller(s).
6. Registration Rights.
-------------------
(a) Demand Registration Rights. At any time on or after January ▇▇,
---------------------------
▇▇▇▇, ▇▇▇▇ ▇▇ (▇) ▇▇▇, (▇▇) the HPA Group collectively, and (iii) Occidental
shall be entitled, respectively, to request a registration (a "DEMAND
REGISTRATION") of any of its Registrable Securities, and at such time as the
Company qualifies for registration of securities on Form S-3 or any successor
short-form, one additional registration that remains effective for a period of
at least 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 (x) the Company has determined in good faith that in view
of pending negotiations or other material developments regarding the Company not
otherwise required to be made public, disclosure of such information is not in
the best interest of the Company (in which case the delay
8
in filing a Demand Registration may not exceed 90 days); or (y) 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 120 days from the effectiveness of such primary public
offering, provided that the Company may not invoke the provision of clause (x)
for more than an aggregate of 180 days in any twelve-month period, and may not
invoke the delay in clause (y) 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 for no more than 90
days, provided that sales under such shelf registration shall in all events be
permitted for an aggregate of 180 days if requested by the Stockholder.
(b) Piggyback Registration Rights; Cutbacks. Each time the Company
---------------------------------------
proposes to register under the Act (other than registration (A) on Forms S-4 or
S-8 or any successor forms thereto, or (B) filed in connection with an exchange
offer) securities of the same class as any of the Registrable Securities, the
Company shall give written notice of such proposed registration (a "REGISTRATION
NOTICE") to each Class I Stockholder and Class II Stockholder at least 20 days
prior to the filing thereof. Each Registration Notice shall indicate that the
recipient has the right (subject to the provisions of this Section 6) to propose
that its Registrable Securities be included in such registration. Each Class I
Stockholder and Class II Stockholder shall have the right to propose that a
number of its Registrable Securities be included in such registration by written
notice given to the Company within fifteen (15) days after the giving of such
Registration Notice. Subject to the provisions of this Section 6, the Company
shall include all such Registrable Securities in such registration; provided,
--------
however, that:
-------
(i) if the registration is in whole or part an underwritten
primary registration on behalf of the Company (whether or not it is also in
part a Demand Registration or other secondary registration on behalf of any
Company securityholders) and the managing underwriters of such offering
determine that the aggregate amount of securities of the Company which all
Stockholders and all other Company securityholders pursuant to future
contractual rights to participate in such registration (such other Company
securityholders, "FUTURE PARTICIPANTS") propose to include in such
registration exceeds the maximum amount of securities that should be
included therein, the Company will include in such registration, first, the
-----
shares which the Company proposes to sell and second, securities to be sold
------
for the account of any Class I Stockholder and ▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") pro
---
rata among such Stockholders, and third, securities to be sold for the
---- -----
account of the Class II Stockholders, pro rata among the Class II
--- ----
Stockholders and fourth, the other securities to be sold for the account of
------
Future Participants, pro rata among such Future Participants, in each case
--- ----
on the basis of the relative Equity Ownership of the parties who have
requested that securities owned by them be so included (it being agreed and
understood, however, that such underwriters shall have the right to
eliminate entirely the participation in such registration of all
Stockholders and Future Participants);
(ii) if the registration is pursuant to an underwritten
Demand Registration and the managing underwriters determine that the
aggregate amount of securities which all Stockholders and all Future
Participants propose to include in such registration exceeds the maximum
amount of securities that should be included therein, the Company will
9
include in such registration, first, the securities to be sold for the
-----
account of the Class I Stockholders and ▇▇▇▇▇, pro rata among such
--- ----
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 Stockholder and
-----
▇▇▇▇▇, 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 be treated as an individual party to this Agreement
for such purpose and, if more than one Stockholder has or succeeds to such
rights, such Stockholders collectively shall exercise such rights and make
all determinations hereunder acting by majority-in-interests based upon
their respective ownership of Registrable Securities.
(c) Expenses of Registration. Whether or not any registration
------------------------
statement prepared and filed pursuant to Section 6(a) or (b) hereof is declared
effective by the SEC (except where a Demand Registration is terminated,
withdrawn or abandoned at the written request of a
10
Class I Stockholder solely due to market conditions), the Company shall pay all
expenses incident to the 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 the Company personnel or other general overhead expenses of the
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 (in each registration) and (J) fees
and out-of-pocket expenses of counsel for the 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 the Company (collectively, clauses (A) through (J), "REGISTRATION EXPENSES");
provided, however, that the Company shall not be required to pay, and each
-------- -------
Selling Stockholder shall pay, any discounts, commissions or fees of
underwriters, selling brokers and dealers relating to the distribution of the
Registrable Securities by it.
(d) Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Agreement, the 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
participating Stockholders, the Manager, if any, and their respective counsel to
make such investigation of the 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, the Company shall:
(i) keep such registration effective and current as required
by law for such period necessary to permit the participating Stockholders
to complete the distribution described in the registration statement
relating thereto, or for such period as may be agreed to in the
Underwriting Agreement;
(ii) prepare and file with the SEC such amendments, post-
effective amendments and supplements to such registration statement and the
prospectus used in connection therewith as may be necessary to comply with
the provisions of the Securities Act and the Underwriting Agreement and to
keep such registration statement effective and
11
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 participating Stockholders 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 participating
Stockholders and the Manager shall reasonably request, and do any and all
other acts and things which may be necessary or desirable to enable the
participating Stockholders 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 participating Stockholders 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 the
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 participating Stockholders and the Manager a reasonable number of
copies of a supplemented or amended prospectus such that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading), and (F) of the Company's
12
determination that the filing of a post-effective amendment to the
Registration Statement shall be necessary or appropriate. Each
participating 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 participating
Stockholders 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 the Company are then listed, if the listing of
such Registrable Securities is then permitted under the rules and
regulations of such exchange or the Nasdaq Stock Market, as applicable;
(vii) engage and provide a transfer agent for all Registrable
Securities covered by such registration statement not later than the
effective date of such registration statement;
(viii) whether or not the Underwriting Agreement is entered
into and whether or not any portion of the offering contemplated by such
registration statement is an underwritten offering or is made through a
placement or sales agent or any other entity, (A) make such representations
and warranties to the underwriters, if any, in form, substance and scope as
are customarily made in connection with an offering of common stock or
other equity securities pursuant to any appropriate agreement and/or to a
registration statement filed on the form applicable to such registration;
(B) obtain an opinion of counsel to the Company in customary form and
covering such matters, of the type customarily covered by such opinions, as
the Manager, if any, and as the Stockholder may 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
13
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 the
Company, and (E) undertake such obligations relating to expense
reimbursement, indemnification and contribution as are provided in this
Agreement;
(ix) permit the participating Stockholders to participate in
the preparation of such registration statement and include therein material
acceptable to the Company and its counsel, furnished to the Company in
writing which, in the reasonable judgment of the participating Stockholders
and their 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 participating Stockholders 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 the participating Stockholders
may reasonably request.
(e) Indemnification
---------------
(i) The Company shall indemnify and hold harmless each
Stockholder, each of its directors, officers and agents, each underwriter
(as defined in the Securities Act) of such Registrable Securities, if any,
and each person who controls (within the meaning of Section 15 of the
Securities Act) such Stockholder or any underwriter of the Registrable
Securities held by or issuable to such Stockholder, against all claims,
losses, expenses, damages and liabilities, joint or several, including any
of the foregoing incurred in settlement of any proceeding, commenced or
threatened, (or actions in respect thereto) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any prospectus, offering circular or other document (including any
related registration statement, notification or the like) incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Act 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,
14
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
the 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 the 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 the 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 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
15
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
herein 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
indemnification 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 such Stockholder from the sale of its Registrable
Securities pursuant to the registration rights granted to such 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
other 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
16
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) that includes such Class
I Stockholder, 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 provide to the Stockholders rights
equivalent to those under this Section 6 unless applicable law would permit free
resale of the Securities so received without registration in a public market.
(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.
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 (a "DRAG-ALONG SALE"), then upon the demand of
GEI, (i) in the case of Occidental and the Class II Stockholders, made at
any time after the Closing Date and (ii) in the case of the HPA Group, made
at any time after the fourth anniversary of the Closing Date (the HPA Group
and the Class II Stockholders being collectively referred to for this
purpose as "DRAG-ALONG SELLERS"), each Drag-Along Seller hereby agrees to
sell to such Third Party the same percentage of the total number of
Securities held by such Drag-Along Seller on the date of the Drag-Along
Notice, as the number of Securities GEI is selling in the Drag-Along Sale
bears to the total number of shares held by GEI as of the date of the Drag-
Along Notice (the "SALE PERCENTAGE"), at the same price and form of
consideration and on the same terms and conditions as GEI has agreed to
with such Third Party. If the Drag-Along Sale is in the form of a merger
transaction, the Drag-Along Seller agrees to vote his or her Securities in
favor of such merger and not to exercise any rights of appraisal or dissent
afforded under applicable law. The provisions of this Section 7 shall
17
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 and Warrants,
which Options and Warrants 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, Occidental and the Class II Stockholders and their
Related Transferees (each, 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 of the aggregate number of
shares of Common Stock then owned by GEI. GEI shall deliver or cause to be
delivered to each Tag-Along Seller a written notice (a "TRANSFER NOTICE")
of a proposed tag-along sale no later than 30 days prior to the proposed
closing thereof. Such notice shall make reference to the Tag-Along Sellers'
rights under this Section 7(b) and shall describe in reasonable detail (A)
the aggregate number of shares of Common Stock to be Transferred by GEI if
none of the HPA Group or Class II Stockholders participates, (B) the
aggregate number of shares of Common Stock then owned by GEI, (C) the
person or entity to whom or which such shares of Common Stock are proposed
to be Transferred, (D) the terms and conditions of the Transfer, including
the consideration to be paid therefor, (E) the maximum percentage of
18
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 new Transfer Notice.
(c) Obligations of Drag-Along Sellers. In connection with any Drag-
---------------------------------
Along Sale, Drag-Along Sellers shall not be required to make any representation
or warranty to the purchaser other than to the effect that they hold title to
the Securities they are selling in the Drag-Along Sale, free and clear of liens
and the like, and as to their right, power and authority to sell such
Securities. Except as to such representations, Drag-Along Sellers shall not be
liable beyond the net proceeds of the Drag-Along Sale for any other breach of
representations or warranties. In addition, unless expressly agreed to by a
Drag-Along Seller, no Drag-Along Seller shall be required to enter into any
covenant not to compete or similar agreement restricting their business
activities.
8. Termination and Lapse of Rights and Restrictions; Applications to
-----------------------------------------------------------------
Other Stock and Adjustments.
---------------------------
(a) Termination of Provisions. 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.
(b) Application. 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
19
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 (other than Occidental) 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 of ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇ 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 (K) 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 (J) 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 (K)
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 (other than
Occidental) 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.
The parties acknowledge that the provisions of the Preferred Stock could, under
the circumstances specified therein, entitle the holders thereof to elect all of
the Company's directors, making this Section 9 inoperative.
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 split or other pro rata distribution of securities to stockholders of
--- ----
the Company generally in which the HPA Group, ▇▇▇▇▇ and Occidental
participates on an equal basis, including any Related Transferees), the
members of the HPA Group, ▇▇▇▇▇ and Occidental 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
20
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, ▇▇▇▇▇ and
Occidental as to its intention so to issue equity, debt or related securities to
GEI, and in the event any member of the HPA Group, ▇▇▇▇▇ or Occidental 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 and ▇▇▇▇▇ 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 and ▇▇▇▇▇ as a whole and that notice, which shall
be binding upon all the HPA Group members and ▇▇▇▇▇ 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, ▇▇▇▇▇ and Occidental 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, 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.
21
(e) Information. The Company shall provide each Class I Stockholder
-----------
and ▇▇▇▇▇ with the following information, all of which each Class I Stockholder
and ▇▇▇▇▇ 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) Any information the Company provides generally to the
holders of its Common Stock; and
(iv) Such additional information about the Company as such
Class I Stockholder or ▇▇▇▇▇ 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 Class II
Stockholders as to any matter adversely affecting them if such adverse effect is
equal, on a proportionate basis, as to all such Class II 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, except Occidental, mutually consent to the
-----
resolution by binding arbitration of all claims or controversies ("CLAIMS")
arising out of or related to this Agreement; provided that such consent shall
not apply to any claim to which Occidental is a party. 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
24
did not initiate the claim. The parties agree that, except as provided in this
Agreement, the arbitration shall be in accordance with the AAA's then-current
arbitration procedures (if AAA is designated) or the then-current J.A.M.S.
arbitration rules (if J.A.M.S. is designated). The arbitration shall be
conducted by a 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. 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. If such a transcript is prepared, it shall
be the official transcript of the proceedings for all purposes. 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)
25
Term Section
-------------------------------- ---------------
Affiliate....................... 15(b)
Agreement....................... Introduction
Bona Fide Offer................. 4(b)
Business Day.................... 15(b)
Callable Securities............. 2(b)
Call Purchase Event............. 5(a)
Call Option..................... 2(b)
Change in Control............... 15(b)
Class I Stockholder............. Introduction
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)
26
Term Section
------------------------------------------ -------------
Related Transferee........................ 15(b)
Retirement................................ 15(b)
Rule 144.................................. 15(b)
Sale Percentage........................... 7(a)
SEC....................................... 15(b)
Securities................................ Introduction
Seller.................................... 5(a)
Subscription Stock........................ 2(a)
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 (or other event
requiring valuation) 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)
27
(including without limitation NASDAQ National Market System or the NASDAQ
"Small-Cap" Issues System), such fair market value shall be based upon the
closing price for such Common Stock on such exchange(s) on the date preceding
the Call Purchase Event (or other event requiring valuation).
"FULLY DILUTED OWNERSHIP" means, as to any Stockholder, his or its
aggregate ownership of all equity interests in the Company, including all
Options and all other securities exercisable, convertible or exchangeable for
Common Stock.
"IPO" means the completion of the first underwritten public offering of the
Company's shares of Common Stock registered under the Act after the date hereof
"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
Stockholders effecting a Demand Registration 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 (y) 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 held
by the Stockholders, 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.
Number of Purchase Price
Shares of of Subscription
Common Stock Stock
------------ ---------------
LESLIE'S POOLMART, INC.
By ____________________________________
Its ____________________________________
GREEN EQUITY INVESTORS II, L.P. 1,055,172
By: Grand Avenue Capital Partners, L.P.,
its sole general partner
By: Grand Avenue Capital Corporation,
its sole general partner
By:________________________________________
Name_______________________________________
Title______________________________________
OCCIDENTAL PETROLEUM CORPORATION
By ________________________________________
Name ______________________________________
Title _____________________________________
___________________________________________ 22,414
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
___________________________________________ 160,539
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________________________ 10,000
▇▇▇▇ ▇▇▇▇▇▇▇▇
___________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
30
Number of Purchase Price
Shares of of Subscription
Common Stock Stock
------------- ---------------
_____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇,
T.R.U.A. DTD 3/15/90
The ▇▇▇▇▇▇▇▇▇ Family Trust
_____________________________________ 14,768 $214,136
▇▇▇▇▇▇ ▇▇▇▇▇
_____________________________________ 4,198 $60,871
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
CLASS II STOCKHOLDERS
---------------------
(INCLUDING NO OPTIONHOLDERS)
-----------------------------
_____________________________________ 14,768 $214,136
▇▇▇▇▇▇ ▇▇▇▇▇
_____________________________________ 4,198 $60,871
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
_____________________________________
▇▇▇▇ ▇▇▇▇▇▇▇
_____________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇
_____________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇
_____________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
_____________________________________
▇▇▇▇ ▇▇▇▇▇▇
31
Number of Purchase Price
Shares of of Subscription
Common Stock Stock
------------ ---------------
______________________________________
▇▇▇▇ ▇▇▇
______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
32
ACKNOWLEDGMENT AND AGREEMENT OF SPOUSE
--------------------------------------
The undersigned, being the spouse of a Class II Stockholder, hereby agrees
to be bound by the provisions of this Agreement.
___________________________________
Name ______________________________
33
ANNEX A
COMMON STOCK
------------
CAPITAL STRUCTURE
-----------------
Fully
Diluted
Common
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 16,966
▇▇▇▇▇▇▇ ▇▇▇▇▇--Cash 2,000
Green Equity Investors II, L.P. 1,055,172
Occidental Warrants 316,092
Management Incentive Stock Options 273,946
Total 2,107,280
▇▇▇▇▇▇▇▇▇▇▇▇
▇-▇
▇▇▇▇▇ ▇
▇▇▇▇▇ ▇▇ ▇▇ 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 canceled option multiplied by (y) the
difference between $14.50 and such canceled 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
------------------------------------
Number of Shares....... 273,946
Exercise Price......... Fair Market Value (opening equity price)
Type of Options........ Incentive, ten-year options
Vesting................ One-third (1/3) on the first, second and third
anniversaries of the Closing Date, except in respect of
performance portion
Performance Portion.... Options equivalent to 71,647 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:
--------------------- --------------------------
$18 M.............. 1997 30...........March 31, 1998
$22M .............. 1998 30...........March 31, 1999
$26M .............. 1999 30...........March 31, 2000
Note: Vesting also occurs if the store opening target
----
is met in each prior year and the Company achieves 95%
of a year's EBITDA target and the sum of that year and
the following year's EBITDA equals 100% of the combined
targets. 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 Charge 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
EXHIBIT D
June 11, 1997
(▇▇▇) ▇▇▇-▇▇▇▇ C 35375-00004
Occidental Petroleum Corporation
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Re: Leslie's Poolmart, Inc.
Preferred Stock and Warrant Purchase Agreement
Ladies and Gentlemen:
We have acted as counsel for Leslie's Poolmart, Inc., a
Delaware corporation (the "Company"), in connection with the Preferred
Stock ad Warrant Purchase Agreement dated as of the date hereof (the
"Purchase Agreement"), by and among the Company and you (the "Purchaser").
This opinion is furnished to you pursuant to Section 6.5 of the Purchase
Agreement. All capitalized terms not otherwise defined herein shall have
the meanings ascribed to them in the Purchase Agreement or the other
Transaction Documents (as defined below), as the context may require.
In that connection, we have examined:
(i) an executed counterpart of the Purchase Agreement
(including, without limitation, the Exhibits thereto);
(ii) the Certificate of Designation, Preferences and Rights
of Series A Exchangeable Cumulative Redeemable
Preferred Stock of the Company in the form filed today
with the Secretary of State of the State of Delaware
(the "Certificate of Designation");
(iii) the Warrant of the Company of even date herewith (the
"Warrant");
(iv) the Certificate of Incorporation of the Company; and
(v) the Bylaws of the Company.
Occidental Petroleum Corporation
June____, 1997
Page 2
The Purchase Agreement, the Certificate of Designation and the Warrant
are collectively referred to herein as the "Transaction Documents."
We have assumed with your permission that:
(a) The signatures on all documents examined by us are genuine, all
documents submitted to us as originals are authentic and all documents submitted
to us as certified or reproduction copies conform to the originals;
(b) The Purchaser has all requisite power and authority to execute,
deliver and perform its obligations under each of the Transaction Documents to
which it is a party, the execution and delivery of such Transaction Documents
and the performance of such obligations has been duly authorized by all
necessary action on the part of the Purchaser, the Purchaser has duly executed
and delivered each of the Transaction Documents to which it is a party and such
Transaction Documents are its legal, valid and binding obligations, enforceable
against it in accordance with their respective terms;
(c) All parties to the Transaction Documents have filed all required
franchise tax returns, if any, and paid all required taxes, if any, under the
California Revenue & Taxation Code (see ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, 214 Cal. App. 3d 668
--------------------
(1989); White Dragon Productions, Inc. v. Performance Guarantees, Inc., 196 Cal.
--------------------------------------------------------------
App. 3d 163, 24 Cal. Rptr. 745 (1987); California Revenue and Taxation Code
Section 23301);
(d) All parties to the Transaction Documents are duly qualified in
California if required by Section 1750 of the California Financial Code or
Chapter 21 of the California General Corporation Law; and
(e) There are no agreements or understandings between or among
Company, the Purchaser or third parties that would expand, modify or otherwise
affect the terms of the Transaction Documents or the respective rights or
obligations of the parties thereunder, and each and all of the Transaction
Documents correctly and completely sets forth the intent of all parties thereto
(see Trident Center v. Connecticut General Life Insurance Company, 847 F.2d 564
----------------------------------------------------------------
(9th Cir. 1988)).
In rendering this opinion, we have made such inquiries and examined,
among other things, originals or copies, certified or otherwise identified to
our satisfaction, of such records, agreements, certificates, instruments and
other documents as we have considered necessary or appropriate for purposes of
this opinion. As to certain factual matters, we have relied upon certificates of
officers of Company or certificates obtained from public officials. In addition,
as to certain factual matters we have relied upon the representations and
warranties of the Company and, in connection with our opinion in paragraph 5
hereof, the Purchaser, set forth in the Purchase Agreement. We have not
independently verified any of the factual matters referred to above.
Based on the foregoing and in reliance thereon, and subject to the
assumptions, exceptions, qualifications and limitations set forth herein, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware.
Occidental Petroleum Corporation
June ___, 1997
Page 3
2. The Company has the requisite corporate power to execute, deliver
and perform its obligations under each of the Transaction Documents to which it
is a party. The execution and delivery of the Transaction Documents by the
Company and the performance of its obligations thereunder have been duly
authorized by all necessary corporate action (including any required stockholder
action).
3. The Company has been duly authorized to issue Twelve Million
(12,000,000) shares of common stock ("Common Stock") and Two Million (2,000,000)
shares of Preferred Stock ("Preferred Stock"). The Twenty-Eight Thousand
(28,000) shares of Series A Preferred Stock to be issued pursuant to the
Purchase Agreement have been duly authorized and, upon payment therefor by the
Purchaser in accordance with the Purchase Agreement, will be validly issued,
fully paid and non-assessable. The additional shares of Series A Preferred Stock
to be issued as dividends pursuant to paragraph (c) of the Certificate of
Designation have been duly authorized, and, if and when issued in accordance
with the Certificate of Designation, will be validly issued. The shares of
Common Stock issuable upon exercise of the Warrant are duly authorized and
reserved for issuance, and upon payment of the exercise price therefor will be
validly issued, fully paid and non-assessable. The Exchange Note has been duly
authorized.
4. Each of the Transaction Documents has been duly executed and
delivered by the Company, and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms.
5. The issuance and sale of the Series A Preferred Stock and the
Warrant are exempt from the registration requirements of Section 5 of the
Securities Act of 1933, as amended and, assuming that the Company timely files a
Form 25102(f) with the California Department of Corporations in connection with
the closing of the Purchase Agreement, the registration requirements of
applicable state "blue sky" laws.
The foregoing opinions are subject to the following exceptions,
qualifications and limitations:
A. We render no opinion herein as to matters involving the laws of
any jurisdiction other than the State of California, the United States of
America and the State of Delaware. Although we are not admitted to practice in
the State of Delaware, we are generally familiar with the Delaware General
Corporation Law as presently in effect and have made such inquiries as we
consider necessary to render the opinions contained above. This opinion is
limited to the effect of the present state of the laws of the State of
California, of the United States of America and to the limited extent set forth
above, the State of Delaware, and the facts as they presently exist. We assume
no obligation to revise or supplement this opinion in the event of future
changes in such laws or the interpretations thereof or such facts.
B. Our opinion set forth in paragraph 4 above as to the validity,
binding effect and enforceability of the Transaction Documents is subject to
limitations imposed by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally, including,
without limitation, the limitation, the effect of statutory or other laws
regarding fraudulent conveyances or transfers or preferential transfers or (ii)
general principles of equity, whether considered at law or at equity, and except
as rights to indemnity and contribution may be limited by federal or state
securities laws. The remedies of specific performance and injunctive and other
forms of equitable relief (whether sought in a proceeding at law or in equity)
are subject to
Occidental Petroleum Corporation
June ___, 1997
Page 4
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
C. Without limitation, we express no opinion (i) as to the ability
to obtain specific performance, injunctive relief or other equitable relief
(whether sought in a proceeding in equity or at law) as a remedy for
noncompliance with any provision of any Transaction Document, (ii) regarding the
rights or remedies available to any party for violations or breaches of any
provisions that are immaterial or for violations or breaches of any provisions
the enforcement of which a court determines would be unreasonable under the then
existing circumstances or would violate the implied covenant of good faith and
fair dealing, (iii) regarding the rights of remedies available to any party for
material violations or breaches that are the proximate result of actions taken
by any party other than the party against whom enforcement is sought, which
action such other party is not entitled to take pursuant to the relevant
agreement or instrument or applicable laws or which otherwise violates
applicable laws, and (iv) regarding the rights or remedies available to any
party insofar as such party may take discretionary action that is arbitrary,
unreasonable or capricious, or is not taken in good faith or in a commercially
reasonable manner, whether or not such action is permitted under the Transaction
Documents.
D. We express no opinion with respect to the legality, validity,
binding nature or enforceability of any provision of the Transaction Documents
to the effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to any other right or
remedy, that the election of some particular remedy does not preclude recourse
to one or more others or that failure to exercise or delay in exercising rights
or remedies will not operate as a waiver of any such right or remedy.
E. We express no opinion as to any provision of the Transaction
Documents requiring written amendments or waivers of such documents insofar as
it suggests that oral or other modifications, amendments or waivers could not be
effectively agreed upon by the parties or that the doctrine of promissory
estoppel might not apply.
This opinion is rendered to you in connection with the Transaction
Documents and may not be relied upon by any person other than you, or by you in
any other context, provided that you may provide this opinion (i) to your
independent auditors and attorneys, (ii) pursuant to order to legal process of
any court or governmental agency or (iii) in connection with any legal action to
which you are a party arising out of the transactions contemplated by the
Transaction Documents. This opinion may not be quoted without the prior written
consent of this Firm.
Very truly yours,
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
Exhibit E
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10 7/8% JUNIOR SUBORDINATED NOTE DUE 2007
$_________________ June 11, 2007
FOR VALUE RECEIVED, subject to the terms and conditions set forth
below, LESLIE'S POOLMART, INC., a Delaware corporation (the "Company"), whose
address is __________________, hereby promises to pay to the order of
__________________________________________________________________________ (the
"Holder"), whose address is ______________________________________________, the
principal sum of ____________________________ Thousand and no/100 Dollars
($__________), together with interest thereon at the rate of ten and seven-
eighths percent (10 7/8%) per annum or, if less, the maximum rate allowable
under applicable law, compounded quarterly, and payable in cash as set forth
below (as defined below). Payment of principal and interest shall be made in
lawful money of the United States of America. Payment of principal and interest
shall be made to the address of the Holder set forth above, or at such other
place as the Holder may from time to time designate in writing to the Company.
1. Amortization of Principal; Maturity Date. Subject to the provisions
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of Section 2 below, the Company shall repay the unpaid principal outstanding
balance in three equal installments of $_________________ on each of January 11,
2006, June 11, 2006, and June 11, 2007 (with June 11, 2007 being denominated
herein the "Maturity Date"). Subject to the provisions of Section 2 below, all
interest shall be payable quarterly in arrears.
2. Optional Redemption. The Company may redeem the Note at any time
-------------------
prior to the Maturity Date by payment of a redemption price to the Holder equal
to the sum of (i) the unpaid principal balance on this Note multiplied by 101%
plus (ii) all accrued but unpaid interest as of the date of such redemption (the
"Optional Redemption Price"). If the Company elects to redeem the Note pursuant
to this Section 2, the Company shall deliver to the Holder notice of such
election (the "Redemption Notice"). The Redemption Notice shall specify a
redemption date not more than ten (10) days after the date of the Redemption
Notice (the "Redemption Date").
3. [Intentionally Deleted].
-----------------------
4. Covenants; Events of Default; Acceleration. The Company shall comply
-------------------------------
with the covenants set forth in Section 8 of the Preferred Stock and Warrant
Purchase Agreement made as of the 11th day of June, 1997, by and among the
Company and Occidental Petroleum Corporation, a Delaware corporation (the "Stock
Purchase Agreement"). The term "Event of Default" as used herein shall have the
meaning ascribed to it in the Stock Purchase Agreement. At any time after the
occurrence and during the continuation of an Event of Default, interest shall
accrue on this Note at the rate of eleven and seven-eighths percent (11 7/8%)
per annum (the "Default Rate"). Upon and after the occurrence of any Event of
Default (whether such occurrence shall be voluntary or involuntary or come about
or be effected by operation of law or otherwise) and at any time so long as such
Event of Default shall be continuing, the Holder
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may, by notice to the Company, declare this Note, all interest hereon and all
other amounts payable hereunder, to be immediately due and payable, whereupon
this Note, all such interest and all such amounts shall become and be
immediately due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Company.
Unpaid principal and overdue interest on this Note shall continue to bear
interest after an Event of Default until all principal and interest due
hereunder has been paid in full. The Holder may enforce its rights hereunder by
an action at law, suit in equity or other appropriate proceeding, whether (to
the extent permitted by law) for the specific performance of any agreement
contained herein or for an injunction against the violation of any of the terms
or provisions hereof, or in aid of the exercise of any power granted herein or
by law.
5. Replacement. Upon receipt of the Company of evidence satisfactory to
-----------
it of the loss, theft, destruction or mutilation of this Note (provided that an
affidavit of the Holder will be satisfactory for such purpose), and of indemnity
satisfactory to it and upon surrender and cancellation of this Note, if
mutilated, the Company will make and deliver a new Note identical in form and
substance to this Note and any such lost, stolen, destroyed or mutilated Note
shall thereupon become void.
6. Cancellation. Upon payment in full of all principal and interest
------------
payable hereunder this Note shall be surrendered to the Company for
cancellation.
7. Amendment and Waiver. Any provision of this Note may be amended or
--------------------
waived by a written instrument signed by the Company and (i) if there is only
one Holder of any Exchange Notes, such Holder, and (ii) at any time when there
is more than one Holder of any Exchange Notes, a majority in interest of such
Holders, based on the outstanding principal amount under each Exchange Note. In
the event of any such amendment or waiver, such amendment or waiver shall be
effective but only in the specific instance and for the specific purpose for
which the amendment or waiver is made or given. No delay on the part of any
Holder in exercising any right thereunder shall operate as a waiver of such
right.
8. No Recourse Against Others. No recourse under or upon any obligation,
--------------------------
covenant or agreement of this Note, or for any claim based thereon or otherwise
in respect thereof, shall be had against any incorporator or against any past,
present or future stockholder, officer, employee or director, as such, of the
Company or of any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly agreed
that this Note and the obligations issued hereunder, are solely corporate
obligations, and that no such personal liability whatever shall attach to, or is
or shall be incurred by, the incorporators, stockholders, officers, employees or
directors, as such, of the Company, or of any successor corporation, or any of
them, under or by reason of this Note or implied therefrom, or for any claim
based thereon or in respect thereof, all such liability and any and all such
claims being hereby expressly waived and released as a condition of, and as
consideration for, the issue of this Note.
E-2
9. Notices. Any notice required or permitted hereunder shall be given in
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writing and shall be deemed given upon personal delivery or five days after
deposit in the United States mail, by registered or certified mail, postage
prepaid, addressed (i) if to the Company at the address set forth above and (ii)
if to the Holder at such Holder's address set forth above, or at such other
address as the Company or the Holder may designate by notice as provided herein.
10. Severability. If one or more provision of this Note shall be
------------
unenforceable, the remaining provisions of this Note shall not in any way be
effected or impaired thereby and shall continue in full force and effect.
11. Governing Law. This Note and the obligations of the Company hereunder
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shall be governed by and construed in accordance with the laws of the State of
Delaware.
LESLIE'S POOLMART, INC.
By:___________________________
Name:
Title:
E-3