EXHIBIT 16
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of February 26,
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1997 by and among LESLIE'S POOLMART, a California corporation ("Leslie's
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California"), LPM HOLDINGS, INC., a Delaware corporation and wholly owned
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subsidiary of Leslie's California ("Leslie's Delaware"), and POOLMART USA INC.,
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a Delaware corporation ("Poolmart").
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RECITALS
The respective boards of directors of Leslie's California and Leslie's
Delaware deem it advisable for the mutual benefit of Leslie's California and
Leslie's Delaware and their shareholders and stockholder, respectively, that
Leslie's California be merged with and into Leslie's Delaware (the
"Reincorporation Merger") upon the terms and subject to the conditions set forth
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in the Agreement of Merger substantially in the form attached hereto as Exhibit
A (the "Reincorporation Merger Agreement") and in accordance with the General
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Corporation Law of the State of California (the "California Law") and the
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Delaware General Corporation Law (the "Delaware Law"). The board of directors
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and sole stockholder of Leslie's Delaware have approved and adopted the
Reincorporation Merger Agreement. The board of directors of Leslie's California
has approved the Reincorporation Merger Agreement and has resolved to recommend
to the shareholders of Leslie's California to vote to approve the principal
terms of the Reincorporation Merger Agreement.
The respective boards of directors of Leslie's Delaware and Poolmart deem
it advisable for the mutual benefit of Leslie's Delaware and Poolmart, and their
stockholder and stockholders, respectively, that Poolmart be merged with and
into Leslie's Delaware (the "Recapitalization Merger") upon the terms and
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subject to the conditions set forth herein and in accordance with the Delaware
Law. The board of directors and sole stockholder of Leslie's Delaware have
approved and adopted this Agreement. The board of directors and sole
stockholder of Poolmart have approved and adopted this Agreement. The board of
directors of Leslie's California has approved this Agreement and has resolved to
recommend to the shareholders of Leslie's California to vote to approve the
principal terms of this Agreement in conjunction with their approval of the
principal terms of the Reincorporation Merger Agreement and the Reincorporation
Merger. The Reincorporation Merger and the Recapitalization Merger are
sometimes collectively referred to herein as the "Merger Transaction."
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In consideration of the mutual covenants, agreements, representations and
warranties contained herein, and for the purpose of setting forth certain terms
and conditions of the Recapitalization Merger, and the mode of carrying the same
into effect, Leslie's Delaware, Leslie's California and Poolmart hereby agree as
follows:
ARTICLE 1
MERGER AND ORGANIZATION
The Recapitalization Merger. Poolmart shall be merged with and into
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Leslie's Delaware as soon as practicable following the execution of this
Agreement, upon the terms and subject to the conditions hereinafter set forth,
as permitted by and in accordance with the Delaware
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Law. Leslie's Delaware and Poolmart are herein sometimes referred to as the
"Constituent Corporations." Leslie's Delaware shall be the surviving corporation
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following the effectiveness of the Recapitalization Merger (sometimes referred
to herein as the "Surviving Corporation").
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Section 1.2 Effect of Recapitalization Merger. The parties agree to the
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following provisions with respect to the Recapitalization Merger:
(a) Name of Surviving Corporation. The name of the Surviving
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Corporation shall from and after the Effective Date (as hereinafter
defined) be and continue to be "Leslie's Poolmart, Inc." until changed in
accordance with applicable law.
(b) Certificate of Incorporation. The certificate of incorporation
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of Leslie's Delaware as in effect immediately prior to the Effective Date
shall from and after the Effective Date be and continue to be the
certificate of incorporation of the Surviving Corporation until changed or
amended in accordance with the provisions of applicable law.
(c) Bylaws. The bylaws of Leslie's Delaware as in effect immediately
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prior to the Effective Date shall from and after the Effective Date be and
continue to be the bylaws of the Surviving Corporation until changed or
amended in accordance with the provisions of applicable law.
(d) Corporate Organization. On the Effective Date, the separate
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corporate existence of Poolmart shall cease, and Leslie's Delaware as the
surviving corporation and successor and shall succeed to Poolmart in the
manner of and as more fully set forth in Section 259 of the Delaware Law.
(e) Directors and Officers. The directors of Leslie's Delaware
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immediately prior to the Effective Date will be the initial directors of
the Surviving Corporation, and the officers of Leslie's Delaware
immediately prior to the Effective Date will be the initial officers of the
Surviving Corporation, in each case until their successors are elected and
qualified. However, it is expected that immediately after the Effective
Date, all of the directors of the Surviving Corporation other than ▇▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ will resign.
(f) Filing of Certificate of Merger. If this Agreement is not
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terminated pursuant to Article 7 hereof, as soon as practicable after all
conditions to the Recapitalization Merger set forth in Article 6 hereof
shall have been satisfied or waived, Leslie's Delaware and Poolmart shall
cause the Certificate of Merger attached hereto as Exhibit B ("Certificate
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of Merger") to be executed and acknowledged and, as required by the
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Delaware Law, filed with the Secretary of State of the State of Delaware as
provided in the Delaware Law. The Recapitalization Merger shall be
consummated and the closing of the transactions contemplated by this
Agreement (the "Closing") shall occur immediately upon the filing of the
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Certificate of Merger with the Secretary of State of the State of Delaware
(the date and time of such filing and Closing being referred to herein as
the "Effective Date"). The Recapitalization Merger shall occur immediately
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following the effective time of the Reincorporation Merger. The Closing
shall take place at the offices of Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other place
as the parties may mutually agree.
(g) Further Assurances. If at any time after the Effective Date, the
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Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments or
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assurances or any other acts or things are necessary, desirable or proper
(i) to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, its right, title or interest in, to or under any of the
rights, properties or assets of the Constituent Corporations acquired or to
be acquired as a result of the Recapitalization Merger, or (ii) otherwise
to carry out the purposes of this Agreement, the Surviving Corporation and
its proper officers and directors or their designees shall be authorized to
execute and deliver, in the name and on behalf of the Constituent
Corporations, all such deeds, bills of sale, assignments and assurances and
do, in the name and on behalf of the Constituent Corporations, all such
other acts and things necessary, desirable or proper to vest, perfect or
confirm its right, title or interest in, to or under any of the rights,
properties or assets of the Constituent Corporations acquired or to be
acquired as a result of the Recapitalization Merger and otherwise to carry
out the purposes of this Agreement.
ARTICLE 2
CONVERSION OF SECURITIES ON THE EFFECTIVE DATE
Conversion of Securities of Leslie's Delaware and Poolmart. At the
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Effective Date, pursuant to this Agreement and by virtue of the Recapitalization
Merger and without any action on the part of Leslie's Delaware, Poolmart or the
holders of any of the following securities:
(a) Each share of common stock, par value $.001 per share, of
Leslie's Delaware ("Leslie's Common Stock") (shares of Leslie's Common
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Stock being hereinafter collectively referred to as "Leslie's Shares" and
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individually as a "Leslie's Share") issued and outstanding immediately
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prior to the Effective Date (other than any Leslie's Shares to be cancelled
pursuant to Section 2.1(b) and each Leslie's Share to remain outstanding
pursuant to Section 2.1(c)) shall be cancelled and shall be converted
automatically into the right to receive an amount equal to $14.50 in cash,
without interest (the "Cash Merger Consideration"), payable to the holder
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thereof upon surrender of the certificate formerly representing such Other
Common Stock in the manner provided in Section 2.2; the Leslie's Shares
being converted into the right to receive the Cash Merger Consideration are
hereinafter referred to as "Other Common Stock";
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(b) Each Leslie's Share held in the treasury of Leslie's Delaware
and each Leslie's Share owned by Poolmart, if any, immediately prior to the
Effective Date shall be cancelled without any conversion thereof and no
payment or distribution shall be made with respect thereto;
(c) 160,539 Leslie's Shares registered in the name of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, 166,552 Leslie's Shares registered in the name of ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ TR UA dated March 15, 1990 The ▇▇▇▇▇▇▇▇▇
Family Trust, 10,000 Leslie's Shares registered in the name of ▇▇▇▇
▇▇▇▇▇▇▇▇ and 22,414 Leslie's Shares registered in the name of ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ (such persons are collectively referred to herein as the
"Continuing Stockholders" and such shares are collectively referred to
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herein as the "Continuing Shares") shall not be converted, exchanged or
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cancelled as provided above but shall remain outstanding as required by the
letter addressed from ▇▇▇▇▇▇▇ Park Associates II, L.P. ("▇▇▇▇▇▇▇") to the
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board of directors of Leslie's California dated February 19, 1997
referenced in Section 3.5; and
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(d) Each share of Poolmart Common Stock (as hereinafter defined)
that is issued and outstanding immediately prior to the Effective Date
shall be converted into one newly issued, fully paid and nonassessable
share of Leslie's Common Stock (the "Share Exchange Ratio").
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(e) If between the date of this Agreement and the Effective Date the
number of outstanding shares of Leslie's Common Stock or of the common
stock of Leslie's California (which common stock will automatically be
converted into Leslie's Common Stock upon the effectiveness of the
Reincorporation Merger) ("California Common Stock") shall have been changed
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into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split-up,
combination, exchange of shares or the like other than pursuant to the
Reincorporation Merger, the amount of the Cash Merger Consideration and the
Share Exchange Ratio shall be correspondingly adjusted.
Section 2.2 Payment of Cash for Other Common Stock.
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(a) On the Effective Date, the Surviving Corporation shall
irrevocably deposit or cause to be deposited with a bank or trust company to be
designated by the Surviving Corporation which is organized and doing business
under the laws of the United States or any state thereof and has a combined
capital and surplus of at least $100,000,000 (the "Disbursing Agent"), as agent
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for the holders of shares of Other Common Stock, cash in the aggregate amount
required with respect to the conversion of shares of Other Common Stock at the
Effective Date pursuant to Section 2.1(a) hereof. Pending distribution pursuant
to Section 2.2(b) hereof of the cash deposited with the Disbursing Agent, such
cash shall be held in trust for the benefit of the holders of Other Common Stock
and the fund shall not be used for any other purposes, and the Surviving
Corporation may direct the Disbursing Agent to invest such cash, provided that
such investments (i) shall be obligations of or guaranteed by the United States
of America, in commercial paper obligations receiving the highest rating from
either ▇▇▇▇▇'▇ Investors Services, Inc. or Standard & Poor's Corporation, or in
certificates of deposit, bank repurchase agreements or bankers acceptances of
domestic commercial banks with capital exceeding $250,000,000 (collectively
"Permitted Investments") or in money market funds which are invested solely in
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Permitted Investments and (ii) shall have maturities that will not prevent or
delay payments to be made pursuant to Section 2.2(b) hereof. Each holder of a
certificate or certificates representing shares of Other Common Stock cancelled
and extinguished on the Effective Date pursuant to Section 2.1(a) hereof may
thereafter surrender such certificate or certificates to the Disbursing Agent,
as agent for such holder of shares of Other Common Stock, to effect the exchange
of such certificate or certificates on such holder's behalf for a period ending
one year after the Effective Date.
(b) After surrender to the Disbursing Agent of any certificate which
prior to the Effective Date shall have represented any shares of Other Common
Stock, the Disbursing Agent shall promptly distribute to the person in whose
name such certificate shall have been registered, a check representing the
amount of cash into which such shares of Other Common Stock shall have been
converted at the Effective Date pursuant to Section 2.1(a) hereof. Until so
surrendered and exchanged, each such certificate shall, after the Effective
Date, be deemed to represent only the right to receive such cash, and until such
surrender and exchange, no cash shall be paid to the holder of such outstanding
certificate in respect thereof. The Surviving Corporation shall promptly after
the Effective Date cause to be distributed to such holders appropriate materials
to facilitate such surrender.
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(c) If any cash deposited with the Disbursing Agent for purposes of
payment in exchange for shares of Other Common Stock remains unclaimed following
the expiration of one year after the Effective Date, such cash shall be
delivered to the Surviving Corporation by the Disbursing Agent, and thereafter
the Disbursing Agent shall not be liable to any persons claiming any amount of
such cash, and the surrender and exchange shall be effected directly with the
Surviving Corporation (subject to applicable abandoned property, escheat and
similar laws). No interest shall accrue or be payable with respect to any
amounts which any such holder shall be so entitled to receive. The Surviving
Corporation or the Disbursing Agent shall be authorized to pay the cash
attributable to any certificate theretofore issued which has been lost or
destroyed, upon receipt of satisfactory evidence of ownership of the shares of
Other Common Stock represented thereby and of appropriate indemnification.
(d) If payment is to be made to a person other than the person in
whose name a surrendered certificate, which prior to the Effective Date shall
have represented any shares of Other Common Stock, is registered, it shall be a
condition to such payment that the certificate so surrendered shall be endorsed
or shall otherwise be in proper form for transfer, and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of such payment in a name other than that of the registered holder of the
certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Disbursing Agent that such tax either has been paid
or is not payable .
(e) From and after the Effective Date, the holders of shares of
Other Common Stock outstanding immediately prior to the Effective Date shall
cease to have any rights with respect to such shares of Other Common Stock
except as otherwise provided herein or by law.
(f) After the Effective Date, there shall be no transfers on the
stock transfer books of the Surviving Corporation of any shares of Other Common
Stock which were outstanding immediately prior to the Effective Date. If, after
the Effective Date, certificates for shares of Other Common Stock are presented
to the Surviving Corporation, they shall be cancelled and promptly exchanged for
cash as provided in this Section 2.2.
Section 2.3 Exchange of Stock Certificates. Immediately after the
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Effective Date, the Surviving Corporation shall deliver to the record holder of
the certificate which immediately prior to the Effective Date represented all
the outstanding shares of Poolmart Common Stock that were converted into the
right to receive shares of Leslie's Common Stock in accordance with Section
2.1(d), in exchange for such certificate, duly endorsed in blank, a share
certificate, registered in the name of such record holder, representing the
number of shares of Leslie's Common Stock to which such record holder is so
entitled by virtue of Section 2.1(d). Such certificate will bear a legend
restricting the transferability of such shares of Leslie's Common Stock to the
extent contemplated by the Stockholders Agreement referred to in Section 6.3(e),
which restrictions include restrictions designed to assure the Surviving
Corporation that these shares will not be offered or sold in contravention of
any federal or state securities laws.
ARTICLE 3
ADDITIONAL AGREEMENTS IN CONNECTION WITH
THE MERGER TRANSACTION
Section 3.1 Shareholders' Approval. Leslie's California shall take all
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actions reasonably necessary in accordance with applicable law and its articles
of incorporation and bylaws to convene
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a meeting of its shareholders as soon as reasonably practicable for the purpose
of considering and approving the principal terms of the Reincorporation Merger
Agreement, this Agreement and the Merger Transaction (the "Special Meeting"). In
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connection with the Special Meeting, the board of directors of Leslie's
California shall recommend that the shareholders of Leslie's California vote to
approve the principal terms of the Reincorporation Merger Agreement, this
Agreement and the Merger Transaction.
Proxy Materials and Schedule 13E-3.
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(a) In connection with the Special Meeting, Leslie's California
shall prepare and file a preliminary proxy statement relating to the
transactions contemplated by the Reincorporation Merger Agreement, this
Agreement and the Merger Transaction (the "Preliminary Proxy Statement") with
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the Securities and Exchange Commission (the "SEC") and shall use its reasonable
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best efforts to respond to the comments of the SEC and to cause a definitive
proxy statement to be mailed to Leslie's California's shareholders (the
"Definitive Proxy Statement"), all as soon as reasonably practicable; provided,
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that prior to the filing of each of the Preliminary Proxy Statement and the
Definitive Proxy Statement, Leslie's California shall consult with Poolmart with
respect to such filings and shall afford Poolmart reasonable opportunity to
comment thereon. Poolmart shall provide Leslie's California with any information
for inclusion in the Preliminary Proxy Statement and the Definitive Proxy
Statement which may be required under applicable law and which is reasonably
requested by Leslie's California. Leslie's California shall promptly notify
Poolmart of the receipt of the comments of the SEC and of any request from the
SEC for amendments or supplements to the Preliminary Proxy Statement or the
Definitive Proxy Statement or for additional information, and will promptly
supply Poolmart with copies of all correspondence between Leslie's California or
its representatives, on the one hand, and the SEC or members of its staff, on
the other hand, with respect to the Preliminary Proxy Statement, the Definitive
Proxy Statement or the Merger Transaction. If at any time prior to the Special
Meeting any event should occur which is required by applicable law to be set
forth in an amendment of, or a supplement to, the Definitive Proxy Statement,
Leslie's California will promptly inform Poolmart. In such case, Leslie's
California, with the cooperation of Poolmart, will, upon learning of such event,
promptly prepare and mail such amendment or supplement; provided, that prior to
such mailing, Leslie's California shall consult with Poolmart with respect to
such amendment or supplement and shall afford Poolmart reasonable opportunity to
comment thereon. Leslie's California will notify Poolmart at least 24 hours
prior to the mailing of the Definitive Proxy Statement, or any amendment or
supplement thereto, to the shareholders of Leslie's California.
(b) Leslie's California shall prepare and file concurrently with the
filing of the Preliminary Proxy Statement, a Statement on Schedule 13E-3
("Schedule 13E-3") with the SEC. If at any time prior to the Special Meeting
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any event should occur which is required by applicable law to be set forth in an
amendment of, or supplement to, the Schedule 13E-3, Leslie's California shall
file such amendments or supplements.
Section 3.3 Termination of Leslie's California Stock Option Plans. Leslie's
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California shall (i) take all steps necessary to cause Leslie's California's
1990 Stock Option Plan and Leslie's California's 1992 Directors' Stock Incentive
Plan (collectively, the "Stock Option Plans") to be terminated on or prior to
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the Effective Date and (ii) if not otherwise terminated by their terms upon the
effectiveness of the Recapitalization Merger, obtain at the earliest practicable
date and prior to the Effective Date the written consent of each holder of an
issued and outstanding stock option issued pursuant to the Stock Option Plans as
well as the written consent of each holder of all other options to purchase
California Common Stock not granted under the Stock Option Plans
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(collectively, the "Stock Options") to the cancellation of such holders' Stock
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Options (irrespective of their exercise price and whether or not then currently
exercisable) to take effect on the Effective Date. On the Effective Date, the
Surviving Corporation shall pay each holder of Stock Options, to the extent such
Stock Options have not been previously exercised or cancelled, (x) cash in an
amount equal to the product of (i) the difference between $14.50 and the
exercise price of such Stock Options, multiplied by (ii) the number of shares of
Leslie's Common Stock subject to such Stock Options, less, (y) the amount of all
applicable withholding taxes; provided, that those holders of Stock Options that
have agreed to accept options to purchase common stock of the Surviving
Corporation shall not receive any cash payment with respect to cancelled Stock
Options. From and after the effective time of the Reincorporation Merger, "Stock
Option Plans" and "Stock Options" shall refer to the Stock Option Plans and
Stock Options as the same shall have been assumed by Leslie's Delaware pursuant
to the Reincorporation Merger.
Section 3.4 Reasonable Best Efforts. Upon the terms and subject to the
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conditions herein provided, and subject to the fiduciary duties of the board of
directors of Leslie's California, as it, or a special committee thereof that has
been established to, among other things, consider the Reincorporation Merger
Agreement, this Agreement and the Merger Transaction (the "Special Committee"),
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may be advised in writing by counsel, each party hereto shall use its reasonable
best efforts to take, or cause to be taken, all reasonable action and to do, or
cause to be done and to assist and cooperate with the other parties hereto in
doing, all things necessary, proper or advisable under applicable laws and
regulations and their respective articles or certificates of incorporation and
bylaws to consummate and make effective, as soon as reasonably practicable, the
transactions contemplated by the Reincorporation Merger Agreement or this
Agreement, subject, however, to the requisite vote of shareholders of Leslie's
California. Such actions shall include, without limitation, using its reasonable
best efforts to (a) obtain all consents, amendments to or waivers from other
parties under the terms of all leases and other agreements between Leslie's
California and such parties required as a result of the transactions
contemplated by the Reincorporation Merger Agreement or this Agreement, if any,
(b) obtain all necessary consents, approvals and authorizations as are required
to be obtained under any federal or state law or regulation, (c) defend any
lawsuits or other legal proceedings, whether judicial or administrative and
whether brought derivatively or on behalf of third parties (including
governmental agencies or officials), challenging the Reincorporation Merger
Agreement or this Agreement, or the consummation of the transactions
contemplated thereby or hereby and (d) effect all necessary registrations and
filings, including but not limited to any filings required under the ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), and submissions of
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information requested by governmental authorities. Upon the terms and subject
to the conditions hereof, and subject to the fiduciary duties of the board of
directors of Leslie's California, as it, or the Special Committee, may be
advised in writing by counsel, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all reasonable actions
and to do, or cause to be done, all things necessary to satisfy the other
conditions of Closing set forth herein.
Section 3.5 Financing. Poolmart shall use its reasonable best efforts to
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obtain the financing on terms and conditions satisfactory to it to (a) effect
the Merger Transaction, (b) refinance outstanding debt of the Surviving
Corporation (c) provide adequate ongoing working capital to the Surviving
Corporation and (d) pay the expenses related to the Merger Transaction and
obtaining the financing and refinancing (the "Financing"). Leslie's California
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shall use its reasonable best efforts to cooperate with and assist Poolmart in
obtaining the Financing. The parties acknowledge that the following letters
regarding the Financing have been delivered to the Special Committee: Occidental
Petroleum Corporation, dated December 27, 1996; BT Securities Corporation, dated
February 4, 1997; ▇▇▇▇▇▇▇ Park Associates II, L.P., dated February 19, 1997;
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▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P., dated February 20, 1997; and BT Commercial
Corporation, dated February 21, 1997 (collectively, the "Financing Letters").
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Section 3.6 Conduct of Business by Leslie's California Pending the
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Recapitalization Merger. Leslie's California covenants and agrees that, prior to
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the Effective Date, unless Poolmart shall otherwise agree in writing and except
as contemplated by the Reincorporation Merger Agreement or this Agreement:
(a) the business of Leslie's California and its subsidiaries shall
be conducted only in the ordinary and usual course and consistent with past
practice; Leslie's California and its subsidiaries shall not, without the
prior written consent of Poolmart, (i) except in the ordinary course of its
business, enter into any agreement which would be material to the condition
(financial or otherwise), results of operations, properties, assets,
liabilities or business of Leslie's California, (ii) purchase, sell or
encumber (or enter into any agreement to purchase, sell or encumber), or
enter into a merger or consolidation which would affect, any material
properties or assets of Leslie's California, or (iii) except in the
ordinary course of its business, enter into any other agreement or
arrangement involving payments in excess of $100,000 in the aggregate with
respect to the business or operations of Leslie's California;
(b) Leslie's California shall not (i) amend its articles of
incorporation or bylaws or the articles or certificates of incorporation or
bylaws of any of its subsidiaries, (ii) change the number of authorized or
outstanding shares of its capital stock (except for shares of California
Common Stock issued upon the exercise of Stock Options outstanding on the
date hereof), or (iii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of any of its
shares of capital stock;
(c) neither Leslie's California nor any of its subsidiaries shall
(i) issue, grant, sell, pledge or transfer or agree or propose to issue,
grant, sell, pledge or transfer any shares of capital stock, stock options,
warrants, securities or rights of any kind or rights to acquire any such
shares, securities or rights of Leslie's California, any of its
subsidiaries or any successor thereto (except for shares of California
Common Stock issued upon the exercise of Stock Options outstanding on the
date hereof), (ii) incur any indebtedness (other than borrowings under
Leslie's California's existing credit facilities incurred to finance
current operations in the ordinary course of business and short term
indebtedness to trade creditors incurred in the ordinary course of
business), (iii) acquire directly or indirectly by redemption or otherwise
any shares of the capital stock of Leslie's California of any class or any
options, warrants or other rights to purchase any such shares, or (iv)
enter into or modify any contract, agreement, commitment or arrangement
with respect to any of the foregoing;
(d) Leslie's California and its subsidiaries shall use their
reasonable best efforts to conduct their relations with employees,
including termination and hiring practices, and their employee benefit
plans only in the ordinary and usual course and consistent with the past
practices and policies of Leslie's California, shall not amend, or enter
into any additional, employment agreements with officers or directors of
Leslie's California, shall make no increases in employee compensation or
benefits (including severance arrangements) except regularly scheduled
periodic increases and customary bonuses for the fiscal year ended December
28, 1996 under Leslie's California's existing bonus plan, and shall not
enter into any employment or termination agreements or other material
arrangements relating to employment benefits;
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(e) each of Leslie's California and its subsidiaries shall use its
reasonable best efforts to keep in place its current insurance policies
which are material (either individually or in the aggregate); and
notwithstanding such efforts, if any such policy is cancelled, Leslie's
California shall use its reasonable best efforts to replace such policy or
policies;
(f) neither Leslie's California nor its subsidiaries shall assume,
guarantee, endorse or otherwise become responsible for the obligations of
any other individual, firm or corporation, except in the ordinary and usual
course of its business;
(g) except in the ordinary and usual course of business, neither
Leslie's California nor its subsidiaries shall make any investment of a
capital nature either by purchase of stock or securities, contributions to
capital, property transfers or otherwise, or by the purchase of any
property or assets of any individual, firm or corporation, or otherwise
enter into any material transaction;
(h) neither Leslie's California nor any of its subsidiaries shall
make any material tax election or settle or compromise any material
federal, state, local or foreign income tax liability;
(i) neither Leslie's California nor any of its subsidiaries shall
make any change in its accounting principles or methods except insofar as
may be required by a change in generally accepted accounting principles;
and
(j) neither Leslie's California nor any of its subsidiaries shall
enter into an agreement or otherwise agree to do any of the things
described in clauses (a) through (i) or anything which, to Leslie's
California's best knowledge at the time of such action, would make any
representation or warranty of Leslie's California in this Agreement untrue
or incorrect in any material respect as of the date hereof and as of the
Effective Date, as if made on such date, except to the extent such
representations and warranties expressly relate to a specific date (in
which case such representations and warranties shall be true and correct as
of such date).
Section 3.7 Leslie's California's Notification of Certain Matters.
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Leslie's California shall, promptly upon obtaining knowledge of any of the
following occurring subsequent to the date of this Agreement and prior to the
Effective Date, notify Poolmart of: (a) any material claims, actions,
proceedings, tax audits or investigations commenced or, to its knowledge,
threatened, involving or affecting Leslie's California or any of its
subsidiaries or any of their properties or assets, or, to its knowledge, against
any employee, consultant, director, officer or shareholder of Leslie's
California or any of its subsidiaries, in his, her or its capacity as such, (b)
any notice of, or other communication relating to, a default or event which,
with notice or lapse of time or both, would become a default, received by
Leslie's California or any of its subsidiaries, under any agreement, lease,
indenture or instrument to which Leslie's California or any of its subsidiaries
is a party or is subject where such a default would have a material adverse
effect on Leslie's California and its subsidiaries, taken as a whole, (c) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by the Reincorporation Merger Agreement or this Agreement, and (d)
any material adverse change in the condition (financial or otherwise), results
of operations, properties, assets, liabilities or business of Leslie's
California and its subsidiaries, taken as a whole, or the occurrence of an event
known to Leslie's California which, so far as reasonably can be foreseen at the
time of its occurrence, could result in any such change.
9
Section 3.8 Access to Leslie's California's Books and Records. Upon
-------------------------------------------------
reasonable notice, Leslie's California shall afford Poolmart and its
representatives and representatives of all prospective sources of Financing
reasonable access during normal business hours to the properties, books and
records of Leslie's California and its subsidiaries and such additional
information concerning the business and properties of Leslie's California and
its subsidiaries as Poolmart and its representatives may reasonably request,
including the permission of Leslie's California for Poolmart to contact key
suppliers and customers of Leslie's California. Unless and until Leslie's
California otherwise agrees, Poolmart will, and will cause their
representatives, and will obtain appropriate undertakings from the
representatives of all prospective sources of Financing to, hold in confidence
all confidential information and not use any confidential information except in
connection with the transactions contemplated hereby and the Financing, until
such time as (i) such information is otherwise publicly available or (ii) as it
is advised by counsel that any such information or document is required by law
to be disclosed, provided that in such event it shall promptly notify Leslie's
California of such requirement and cooperate in any effort Leslie's California
makes to seek a reasonable protective order to limit the disclosure and use of
such information. In the event of the termination of this Agreement, Poolmart
will, and will cause its representatives and the representatives of all
prospective sources of Financing to, either, at Leslie's California's option,
(a) deliver to Leslie's California all documents, work papers and other
material, and all copies thereof, obtained by it or on its behalf from Leslie's
California as a result of this Agreement or in connection herewith, whether so
obtained before or after the execution hereof, or (b) destroy all such
documents, work papers and other material, and all copies thereof, and deliver
an appropriate certificate of such destruction to Leslie's California; provided,
that in each case Poolmart may retain a single set of copies for file purposes.
Section 3.9 Acquisition Proposals. Leslie's California shall, and shall
---------------------
use its reasonable best efforts to cause each of its officers, directors or
affiliates to, notify Poolmart promptly of any direct or indirect contact by any
corporation, partnership, person or other entity or group concerning any tender
or exchange offer, proposal for a merger or consolidation or other business
combination involving Leslie's California or any of its subsidiaries or
divisions, or any proposal or offer (in each case, whether or not in writing and
whether or not communicated to the shareholders of Leslie's California
generally) to acquire in any manner, directly or indirectly, a substantial
equity interest in, or a substantial portion of the assets of, Leslie's
California or any of its subsidiaries or divisions, other than pursuant to the
transactions contemplated by this Agreement (an "Acquisition Proposal") and
--------------------
shall promptly provide Poolmart with a summary of all material terms and
conditions of such Acquisition Proposal. In addition, Leslie's California shall
give Poolmart not less than three business days' written notice prior to
providing any confidential information to any person (other than Poolmart,
prospective sources of the Financing and their respective representatives)
concerning the business and properties of Leslie's California or affording any
other person access to the properties, books or records of Leslie's California
in connection with any Acquisition Proposal. Leslie's California shall not, nor
shall it permit any of its officers, directors, affiliates, representatives or
agents to, directly or indirectly, (i) take any action to solicit, initiate or,
subject to the rights of Leslie's California to provide confidential information
as provided in the immediately preceding sentence, knowingly encourage any
Acquisition Proposal, or (ii) participate in any negotiations with respect to an
Acquisition Proposal, except that Leslie's California or any such persons may
participate in such negotiations with respect to any unsolicited Acquisition
Proposal from a third party to the extent that the board of directors of
Leslie's California or the Special Committee concludes (A) that such Acquisition
Proposal is superior to the Merger Transaction and (B) based upon the advice of
counsel, that such negotiations are necessary to discharge its fiduciary duty
under applicable law.
10
Section 3.10 Financial Statements; Communications with Governmental
------------------------------------------------------
Authorities. Leslie's California shall deliver to Poolmart, as soon as
-----------
practicable (a) Leslie's California's financial statements for the year ended
December 28, 1996 (which statements may be unaudited), and (b) copies of all
filings and submissions by Leslie's California with, and all written and
material oral communications to, and all written and material oral
communications from, the SEC and each other federal, state and local government
agency with respect to the transactions and events contemplated by the
Reincorporation Merger Agreement or this Agreement. Leslie's California shall
deliver to Poolmart, as soon as available but in no event later than March 31,
1997, Leslie's California's audited financial statements for the year ended
December 28, 1996; such audited financial statements (a) shall be in accordance
with the books and records of Leslie's California and its subsidiaries, (b)
shall 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 for the year ended December 28, 1996, and (c)
shall have been prepared in conformity with generally accepted accounting
principles applied in all material respects on a consistent basis through the
year ended December 28, 1996.
ARTICLE 4A
REPRESENTATIONS AND WARRANTIES OF LESLIE'S CALIFORNIA
Except as disclosed in writing to Poolmart by Leslie's California, Leslie's
California represents and warrants to Poolmart as follows:
Section 4A.1 Organization and Good Standing. Each of Leslie's California
------------------------------
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 Leslie's California and its subsidiaries, taken as a whole.
Leslie's California has heretofore delivered to Poolmart accurate and complete
copies of its and its subsidiaries' certificates or articles of incorporation
and bylaws, as currently in effect.
Section 4A.2 Authorization; Binding Agreement. Leslie's California has
--------------------------------
all requisite corporate power and authority to execute and deliver the
Reincorporation Merger Agreement and this Agreement and to consummate the
transactions contemplated thereby and hereby. The execution and delivery of the
Reincorporation Merger Agreement and this Agreement and the consummation of the
transactions contemplated thereby and hereby have been duly and validly
authorized by Leslie's California's board of directors and, except for the
approval of the principal terms of the Reincorporation Merger Agreement, this
Agreement and the Merger Transaction by the shareholders of Leslie's California
in accordance with the California Law and the articles of incorporation and
bylaws of Leslie's California, no other corporate proceedings on the part of
Leslie's California are necessary to authorize the Reincorporation Merger
Agreement, this Agreement and the transactions contemplated thereby or hereby.
The Reincorporation Merger Agreement and this Agreement have been duly and
validly executed and delivered by Leslie's California, and subject to the
requisite approval of the shareholders of Leslie's California, constitute legal,
valid and binding agreements of Leslie's California, enforceable against
Leslie's California in accordance with their respective terms, except as such
enforceability may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other laws, now or hereafter in
11
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.
Section 4A.3 Capitalization. The authorized capital stock of Leslie's
--------------
California consists of 40,000,000 shares of California Common Stock, and
1,000,000 shares of Preferred Stock ("California Preferred Stock"). As of the
--------------------------
date hereof, 6,550,966 shares of California Common Stock and no shares of
California Preferred Stock were outstanding. As of the date hereof, 988,185
shares of California Common Stock were reserved for issuance upon exercise of
outstanding Stock Options. All of the outstanding shares of capital stock of
Leslie's California and the subsidiaries of Leslie's California 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 Leslie's California are owned by Leslie's California or a
wholly-owned subsidiary of Leslie's California free and clear of all liens,
charges, encumbrances, claims and options of any nature. Except as contemplated
by the Reincorporation Merger Agreement and this Agreement and except for the
Stock Options, neither Leslie's California nor any subsidiary of Leslie's
California has granted any outstanding option, warrant, subscription or other
right, or entered into any agreement or commitment which either (a) obligates
Leslie's California or any of its subsidiaries to issue, sell or transfer any
shares of the capital stock of Leslie's California or any subsidiary of Leslie's
California or (b) restricts the transfer of, or otherwise encumbers, shares of
California Common Stock.
Section 4A.4 Financial Statements. All consolidated 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 30, 1995 (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 quarters ended March 30, June 29, and September 28, 1996 (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 applied in all material
respects on a consistent basis through all the periods involved. Leslie's
California has no material liabilities that are required by generally accepted
accounting principles to be disclosed on a balance sheet other than (i) those
disclosed in the Year End Financial Statements or the Interim Financial
Statements, and (ii) those arising in the ordinary course of business since
September 28, 1996.
Section 4A.5 Absence of Certain Changes or Events. Since September 28,
------------------------------------
1996, (a) there has not been any change or any development which has had, or, to
Leslie's California's knowledge, would be likely to have, a material adverse
effect on Leslie's California and its subsidiaries, taken as a whole, except for
changes generally affecting the market for securities of publicly traded
companies and changes in general economic conditions, (b) there has not been any
damage, destruction or loss, whether covered by insurance or not, having a
material adverse effect upon Leslie's California and its subsidiaries, taken as
a whole, (c) Leslie's California and its subsidiaries have conducted their
respective businesses only in the ordinary course, (d) Leslie's
12
California and its subsidiaries have not entered into any material transactions
other than as approved by the board of directors of Leslie's California or as
expressly permitted by this Agreement, (e) Leslie's California has not changed
its accounting principles or methods except insofar as may be required by a
change in generally accepted accounting principles, (f) Leslie's California has
not declared, paid or set aside for payment any dividends, and (g) except for
customary periodic salary increases, automatic annual option grants to directors
of Leslie's California, and other increases expressly approved by the Chief
Executive Officer of Leslie's California, there have not been any changes in
executive compensation levels or in the manner in which other employees of
Leslie's California are compensated or the supplemental benefits provided to
such employees.
Section 4A.6 SEC Reports and Other Documents. Each registration
-------------------------------
statement, proxy statement or report filed with the SEC and not withdrawn by
Leslie's California since January 1, 1994 did not, on the date of effectiveness
in the case of such registration statements, or on the date of filing in the
case of such reports, or on the date of mailing in the case of such proxy
statements, contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Since January 1, 1994, Leslie's California has filed all reports
required to be filed by it with the SEC and all such reports complied as to form
in all material respects with the applicable requirements of law. All financial
statements and schedules included in the documents referred to in the preceding
sentence were prepared in accordance with generally accepted accounting
principles (except for the absence of footnotes in the Interim Financial
Statements included in such documents), applied in all material respects on a
consistent basis except as noted therein, and fairly present the information
purported to be shown therein.
Section 4A.7 Governmental and Other Consents and Approvals. Subject to
---------------------------------------------
the approval of the Reincorporation Merger Agreement, this Agreement and the
Merger Transaction by the shareholders of Leslie's California, to Leslie's
California's knowledge, no consent, waiver, approval, license or authorization
of or designation, declaration or filing with any governmental agency or
authority or other public persons or entities in the United States is required
in connection with the execution or delivery by Leslie's California of the
Reincorporation Merger Agreement or this Agreement or the consummation by
Leslie's California of the transactions contemplated thereby or hereby, other
than (a) filings in the States of California and Delaware in accordance with the
California Law and the Delaware Law, respectively, (b) filings required under
the HSR Act, (c) filings required under the Exchange Act and (d) such other
consents, waivers, approvals, licenses or authorizations, the failure of which
to be obtained will not have a material adverse effect on Leslie's California
and its subsidiaries, taken as a whole, or on the ability of Leslie's California
to consummate the transactions contemplated thereby or hereby.
Section 4A.8 No Violation. The execution and delivery of the
------------
Reincorporation Merger Agreement and this Agreement, the filing by Leslie's
California of a certificate of ownership in connection with the Reincorporation
Merger in the States of California and Delaware in accordance with the
California Law and the Delaware Law, respectively, the consummation by Leslie's
California of the transactions contemplated thereby or hereby, or compliance by
Leslie's California with any of the provisions thereof or hereof, will not:
(a) violate any provision of the charter documents of Leslie's
California or any of its subsidiaries;
(b) cause Leslie's California to violate in any material respect (i)
any statute or law or any judgment, decree, order, regulation or rule of
any court or governmental
13
authority applicable to Leslie's California or any of its subsidiaries or
any of their respective properties or (ii) the award of any arbitrator or
panel of arbitrators;
(c) cause the acceleration of the maturity of any material debt or
obligation of Leslie's California or any of its subsidiaries; or
(d) violate, or be in conflict with, or constitute a material
default under, or permit the termination of, or, except as contemplated by
the Reincorporation Merger Agreement or this Agreement, require the consent
of any person under, or result in the creation of any material lien upon
any property of Leslie's California or any of its subsidiaries under, any
agreement, indenture, lease or instrument to which Leslie's California or
any of its subsidiaries is a party or by which Leslie's California or any
of its subsidiaries (or their respective properties) may be bound, which
individually or in the aggregate would have a material adverse effect on
Leslie's California and its subsidiaries, taken as a whole.
Leslie's California is not in material noncompliance or default (without
giving effect to any grace or cure period or notice requirement) under any
agreement, indenture or instrument creating or evidencing indebtedness for
borrowed money or under any capital lease or under any agreement pursuant to
which any of its securities were sold. Leslie's California has valid leasehold
interests in all material real and personal property held under lease and is not
in default of any of its material obligations under any lease or sublease
establishing such leasehold interests, except in those instances in which such
default, individually or in the aggregate, would not materially and adversely
affect Leslie's California and its subsidiaries taken as a whole.
Section 4A.9 Litigation. There is no legal action, suit, arbitration or
----------
other legal, administrative or other governmental investigation, inquiry or
proceeding (whether federal, state, local or foreign) pending or, to the
knowledge of Leslie's California, threatened against or affecting Leslie's
California or any of its properties, assets, business, franchises or
governmental approvals before any court or governmental department, commission,
board, bureau, agency, instrumentality or arbitrator, which, individually or in
the aggregate, could reasonably be expected (a) to have a material adverse
effect upon Leslie's California and its subsidiaries, taken as a whole, or (b)
to materially and adversely affect the ability of Leslie's California to carry
out, or prevent or make unduly burdensome, the Merger Transaction or the
transactions contemplated by the Reincorporation Merger Agreement or this
Agreement.
Section 4A.10 Governmental Approvals; Compliance with Law. Leslie's
-------------------------------------------
California possesses from the appropriate agency, commission, board or
governmental authority, whether federal, state or local, all licenses, permits,
authorizations, approvals, franchises and rights ("Government Approvals") that
--------------------
are necessary for Leslie's California to engage in the business currently
conducted by it, except in those instances in which failure to possess
Government Approvals, individually or in the aggregate, would not materially and
adversely affect Leslie's California and its subsidiaries, taken as a whole; to
the knowledge of Leslie's California, all Government Approvals possessed by
Leslie's California have been validly issued, are in full force and effect and
Leslie's California has no reason to believe such Government Approvals are
subject to revocation, cancellation, suspension or termination. Leslie's
California is in compliance with all applicable federal, state and local laws,
statutes, ordinances, rules and regulations, except in those instances in which
non-compliance, individually or in the aggregate, would not materially and
adversely affect Leslie's California and its subsidiaries, taken as a whole.
14
Section 4A.11 Brokers and Finders. Except for (i) ▇▇▇▇▇▇, Read Co. Inc.
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("▇▇▇▇▇▇ Read"), which has been engaged, pursuant to an engagement letter dated
-----------
December 17, 1996, a true and complete copy of which has been delivered to
Poolmart, to provide advice to the board of directors of Leslie's California
with respect to whether the consideration to be received by the holders of Other
Common Stock who are not Continuing Stockholders (the "Public Stockholders") is
-------------------
fair to the Public Stockholders from a financial point of view, and (ii)
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ Securities Corporation ("DLJ") which has been
---
engaged by Leslie's California and the Special Committee to provide financial
advisory services to the Special Committee pursuant to an engagement letter
dated December 17, 1996, a true and complete copy of which has been delivered to
Poolmart, no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger Transaction or
in connection with any transaction involving Leslie's California based upon
arrangements made by or on behalf of Leslie's California.
Section 4A.12 Fairness Opinions and Approval by Special Committee. On or
---------------------------------------------------
prior to the date hereof, the Special Committee approved the terms of the
Reincorporation Merger Agreement and this Agreement and received written
opinions from ▇▇▇▇▇▇ Read and DLJ as of such date, substantially to the effect
that, from a financial point of view, the consideration to be received by the
Public Stockholders in the Merger Transaction is fair to the Public Stockholders
(which opinions shall be updated on the date the Definitive Proxy Statement is
mailed to Leslie's California's shareholders), a true and complete copy of which
opinions have been or will promptly be delivered to Poolmart.
Section 4A.13 Proxy and Schedule 13E-3 Information. The information
------------------------------------
contained in the Definitive Proxy Statement and the Schedule 13E-3, or any
amendment or supplement thereto, or any other documents filed with the SEC by
Leslie's California in connection with the Merger Transaction, shall, with
respect to the Definitive Proxy Statement at the time the Definitive Proxy
Statement is mailed and at the time of the Special Meeting, and, with respect to
the Schedule 13E-3 and such other documents, at the time of filing with the SEC
and at the time of such Special Meeting, not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that Leslie's
California makes no representation or warranty, with respect to any information
contained in the Definitive Proxy Statement, the Schedule 13E-3 or any such
other document, which was furnished to Leslie's California by Poolmart.
Section 4A.14 Taxes. All Returns (as hereinafter defined) required to be
-----
filed by or with respect to Leslie's California and Tax Affiliates (as
hereinafter defined) have been properly and accurately prepared in all material
respects and filed on a timely basis. With respect to taxable periods for which
the statute of limitations on the assessment of Tax (as hereinafter defined)
remains open, the United States federal income tax Returns that have been
examined by the Internal Revenue Service ("IRS"), and any other Returns that
---
currently are the subject of an examination, or with respect to which notice of
a pending or threatened examination has been received, or for which an
examination has been conducted but not finally settled with all Taxes in dispute
paid, have been disclosed in writing to Poolmart. There are no deficiencies for
Taxes that have been proposed, asserted or assessed against Leslie's California
or Tax Affiliates that remain unpaid. No material liability for Taxes has been
incurred by Leslie's California or Tax Affiliates since September 28, 1996 other
than in the ordinary course of their business. No director, officer or employee
of Leslie's California or any of its subsidiaries having responsibility for Tax
matters has reason to believe that any Tax authority has a valid basis to claim
or assess any additional Tax with respect to Leslie's California or any Tax
Affiliate in amounts materially in excess of the amounts shown on the balance
sheet dated September 28, 1996 for the period ending on such date
15
and amounts incurred in the ordinary course of business since that date. Neither
Leslie's California nor any of its subsidiaries is party to a closing agreement
or similar agreement with any Tax authority or is required to include in income
any material adjustment pursuant to Sections 263A or 481 of the Internal Revenue
Code of 1986, as amended (the "Code"), or comparable state or local tax law. The
----
transactions contemplated by this Agreement will not give rise to an "excess
parachute payment" within the meaning of Section 280G of the Code. As used in
this Section 4A.14, the term "Tax" or "Taxes" means (i) all federal, state,
--- -----
local, foreign and other net income, gross income, gross receipts, franchise,
sales, use, withholding, employment, property or other taxes, fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (ii) any liability
for payment of amounts described in clause (i) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
or other similar group for any period, or otherwise through operation of law and
(iii) any liability for the payment of amounts described in clauses (i) or (ii)
as a result of any tax sharing, tax indemnity or tax allocation agreement or any
other express or implied agreement to indemnify any other person; the term
"Returns" means all returns, declarations, reports, statements and other
-------
documents required to be filed in respect of Taxes; and the term "Tax Affiliate"
-------------
means any subsidiaries of Leslie's California and any individual or entity for
whose Taxes Leslie's California or any of its subsidiaries is or could be held
liable (whether by reason of being a member of an affiliated, consolidated,
combined, unitary, or other similar group for Tax purposes, by reason of being a
successor, by agreement, or otherwise) (but only with respect to the Taxes and
taxable periods(s) or portions thereof with respect to which Leslie's California
or such subsidiaries is or could be held liable for such Taxes).
Section 4A.15 Employee Benefits. A list of all employee benefit plans
-----------------
(within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), which are maintained or contributed to by
-----
Leslie's California or any of Leslie's California's subsidiaries (the "Company
-------
Benefit Plans") has been disclosed in writing to Poolmart. Leslie's California
-------------
has provided to Poolmart (i) true and complete copies of all Company Benefit
Plans; (ii) the most recent annual actuarial evaluation, if any, prepared for
each Company Benefit Plan; (iii) the two most recent annual reports (series
5500), if any, required under ERISA with respect to each Company Benefit Plan,
including audited financial statements; (iv) the most recent determination
letter received from the IRS, if any, for each Company Benefit Plan, and (v) the
most recent Summary Plan Description, if any, required under ERISA with respect
to each Company Benefit Plan. Except as disclosed in writing to Poolmart, (i)
with respect to each Company Benefit Plan that is intended to be qualified under
Section 401(a) of the Code and is maintained by Leslie's California or any of
Leslie's California's subsidiaries for any of their employees, (x) Leslie's
California or such subsidiary has obtained a favorable determination letter from
the IRS and nothing has happened since such letter that would adversely affect
the tax qualification of such plan and (y) such plan has been operated in
compliance with ERISA and in accordance with the provisions of, and the rules
and regulations covering, such plan except where the failure to so comply does
not individually or in the aggregate, have a material adverse effect upon
Leslie's California and its subsidiaries, taken as a whole, (ii) with respect to
each Company Benefit Plan, Leslie's California and Leslie's California's
subsidiaries are not, and to Leslie's California's knowledge no other person is,
engaged in a transaction prohibited by Section 4975 of the Code or Section 406
of ERISA which could result in a liability to Leslie's California and Leslie's
California's subsidiaries which would individually or in the aggregate, have a
material adverse effect upon Leslie's California and its subsidiaries, taken as
a whole, (iii) each Company Benefit Plan which is subject to Part III of
Subtitle B of Title I of ERISA or Section 412 of the Code has been maintained in
compliance with the minimum funding standards of ERISA and the Code, and no
reportable event, within the meaning of Section 4043 of ERISA has occurred with
respect to any Company Benefit Plan which is subject to Title IV of ERISA,
other than reportable
16
events with respect to which notice has been waived by the Pension Benefit
Guaranty Corporation or which would not, individually or in the aggregate, have
a material adverse effect upon Leslie's California and its subsidiaries, taken
as a whole, and (iv) no benefit is provided pursuant to a welfare benefit plan
(as defined in ERISA Section 3(1)) to a former employee of Leslie's California
or any Leslie's California subsidiaries other than for continuation health
coverage benefits provided under Code Section 4980B.
Section 4A.16 Environmental Matters. Except as disclosed in filings with
---------------------
the SEC under the Exchange Act since January 1, 1994, to the knowledge of
Leslie's California, (i) neither Leslie's California nor any of its subsidiaries
has generated, used, transported, treated, stored, released or disposed of, or
has permitted anyone else to generate, use, transport, treat, store, release or
dispose of any Hazardous Substance (as hereinafter defined), in violation of any
Laws (as hereinafter defined), (ii) there has not been any generation, use,
transportation, treatment, storage, release or disposal of any Hazardous
Substance in connection with the conduct of the business of Leslie's California
or any of its subsidiaries or the use of any property or facility of Leslie's
California or any of its subsidiaries which has created or could reasonably be
expected to create any material liability under any Laws that would require
reporting to or notification of any federal or state governmental agency or
authority, (iii) no asbestos or polychlorinated biphenyl is contained in or
located at any facility of Leslie's California or any of its subsidiaries, and
(iv) any Hazardous Substance handled or dealt with in any way in connection with
the businesses of Leslie's California and its subsidiaries, whether before or
during Leslie's California's ownership, has been and is being handled or dealt
with in all material respects in compliance with applicable Laws; excepting,
however, in each case any acts or omissions referred to in any of the preceding
clauses (i) through (iv) to the extent that such acts or omissions, taken in the
aggregate, would not have a material adverse effect on Leslie's California and
its subsidiaries, taken as a whole. As used in this Section 4A.16, the term
"Hazardous Substance" means substances that are defined or listed in, or
--------------------
otherwise classified pursuant to, any applicable Laws as "hazardous substances,"
"hazardous materials," "hazardous wastes" or "toxic substances," or any other
formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitibility, corrosivity, reactivity,
carcinogenicity, reproductive toxicity or "EP toxicity," and petroleum and
drilling fluids, produced waters and other wastes associated with the
exploration, development, or production of crude oil, natural gas or geothermal
energy. As used in this Section 4A.16, the term "Laws" means any constitutional
----
provision, statute or other law, rule, regulation, or published interpretation
of any thereof and any decree, injunction, judgment, order, ruling, or writ.
Notwithstanding this Article 4A, neither Leslie's California nor any of its
officers, directors, employees or representatives shall have any liability to
Poolmart, nor shall Poolmart have any claim for damages, whether under this
Agreement or otherwise, as a result of any breach of any of the representations
or warranties contained in this Article 4A. For the avoidance of doubt, the
parties agree that the preceding sentence shall not affect the rights of
Poolmart under Section 6.3(a).
17
ARTICLE 4B
REPRESENTATIONS AND WARRANTIES OF LESLIE'S DELAWARE
Except as disclosed in writing to Poolmart by Leslie's California, Leslie's
Delaware hereby represents and warrants to Poolmart as follows:
Section 4B.1 Organization and Good Standing. Leslie's Delaware is a duly
------------------------------
organized and validly existing corporation in good standing under the laws of
the state of Delaware. Leslie's Delaware has heretofore delivered to Poolmart
accurate and complete copies of its certificate of incorporation and bylaws as
currently in effect.
Section 4B.2 Authorization; Binding Agreement. Leslie's Delaware has
--------------------------------
all requisite corporate power and authority to execute and deliver the
Reincorporation Merger Agreement and this Agreement and to consummate the
transactions contemplated thereby and hereby. The execution and delivery of the
Reincorporation Merger Agreement and this Agreement and the consummation of the
transactions contemplated thereby and hereby have been duly and validly
authorized by Leslie's Delaware's board of directors, and the Reincorporation
Merger Agreement and this Agreement have been adopted by the sole stockholder of
Leslie's Delaware in accordance with the Delaware Law and its certificate of
incorporation and bylaws. No other corporate proceedings on the part of
Leslie's Delaware are necessary to authorize the Reincorporation Merger
Agreement and this Agreement and the transactions contemplated thereby and
hereby. The Reincorporation Merger Agreement and this Agreement have been duly
and validly executed and delivered by Leslie's Delaware and constitute legal,
valid and binding agreements of Leslie's Delaware, enforceable against Leslie's
Delaware in accordance with their 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.
Section 4B.3 Capitalization. The authorized capital stock of Leslie's
--------------
Delaware consists of 5,000,000 shares of Leslie's Common Stock, and 2,000,000
shares of preferred stock, par value $.001 per share ("Delaware Preferred
------------------
Stock"). As of the date hereof, 10,000 shares of Leslie's Common Stock and no
-----
shares of Delaware Preferred Stock were outstanding. All of the outstanding
shares of capital stock of Leslie's Delaware are owned by Leslie's California
and have been duly authorized and validly issued and are fully paid and
nonassessable and free of preemptive rights. Except as contemplated by the
Reincorporation Merger Agreement and this Agreement, Leslie's Delaware has not
granted any outstanding option, warrant, subscription or other right, or entered
into any agreement or commitment which either (a) obligates Leslie's Delaware to
issue, sell or transfer any shares of the capital stock of Leslie's Delaware or
(b) restricts the transfer of, or otherwise encumbers, shares of Leslie's Common
Stock. Prior to the Effective Date, the certificate of incorporation of
Leslie's Delaware shall be amended to increase the authorized number of shares
of Leslie's Common Stock to the number of shares necessary to carry out the
terms of the Reincorporation Merger Agreement.
Section 4B.4 No Violation. The execution and delivery of the
------------
Reincorporation Merger Agreement and this Agreement, the filing by Leslie's
Delaware of both a certificate of ownership and merger in connection with the
Reincorporation Merger and the Certificate of Merger in
18
connection with the Recapitalization Merger in the State of Delaware in
accordance with the Delaware Law, the consummation by Leslie's Delaware of the
transactions contemplated thereby or hereby, or compliance by Leslie's Delaware
with any of the provisions thereof or hereof, will not:
(a) violate any provision of the charter documents of Leslie's
Delaware or any of its subsidiaries;
(b) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority applicable to
Leslie's Delaware or any of its properties;
(c) cause the acceleration of the maturity of any debt or obligation
of Leslie's Delaware; or
(d) violate, or be in conflict with, or constitute a default under, or
permit the termination of, or, except as contemplated by the Reincorporation
Merger Agreement or this Agreement, require the consent of any person under, or
result in the creation of any material lien upon any property of Leslie's
Delaware under, any agreement, indenture, lease or instrument to which Leslie's
Delaware is a party or by which Leslie's Delaware (or its properties) may be
bound, which in the aggregate would have a material adverse effect on Leslie's
Delaware.
Leslie's Delaware is not in material default (without giving effect to any
grace or cure period or notice requirement) under any agreement for borrowed
money or under any agreement pursuant to which any of its securities were sold.
Section 4B.5 Governmental and Other Consents and Approvals. To the
---------------------------------------------
knowledge of Leslie's Delaware, no consent, waiver, approval, license or
authorization of or designation, declaration or filing with any governmental
agency or authority or other public persons or entities in the United States is
required in connection with the execution or delivery by Leslie's Delaware of
the Reincorporation Merger Agreement or this Agreement or the consummation by
Leslie's Delaware of the transactions contemplated thereby or hereby, other than
(a) filings in the States of California and Delaware in accordance with the
California Law and the Delaware Law, respectively, (b) filings required under
the HSR Act, (c) filings required under the Exchange Act, and (d) such other
consents, waivers, approvals, licenses or authorizations, the failure of which
to be obtained will not have a material adverse effect on Leslie's Delaware or
on the ability of Leslie's Delaware to consummate the transactions contemplated
hereby.
Section 4B.6 No Prior Activities. Leslie's Delaware has not incurred, and
-------------------
will not incur, directly or through any subsidiary, any liabilities or
obligations, except those incurred in connection with its organization or with
the negotiation of the Reincorporation Merger Agreement or this Agreement.
Except as contemplated by the Reincorporation Merger Agreement, this Agreement
and the Financing Letters, Leslie's Delaware has not engaged in any business
activities of any type or kind whatsoever, or entered into any agreements or
arrangements with any person or entity, or become subject to or bound by any
obligation or undertaking.
Section 4B.7 Litigation. There is no legal action, suit, arbitration or
----------
other legal, administrative or other governmental investigation, inquiry or
proceeding (whether federal, state, local or foreign) pending or, to the
knowledge of Leslie's Delaware, threatened against or affecting Leslie's
Delaware or any of its properties, assets, business, franchises or governmental
approvals
19
before any court or governmental department, commission, board, bureau, agency,
instrumentality or arbitrator, which, individually or in the aggregate, could
reasonably be expected (a) to have a material adverse effect upon Leslie's
Delaware or (b) to materially and adversely affect the ability of Leslie's
Delaware to carry out, or prevent or make unduly burdensome, the Merger
Transaction or the transactions contemplated by the Reincorporation Merger
Agreement or this Agreement.
Notwithstanding this Article 4B, neither Leslie's Delaware nor any of its
officers, directors, employees or representatives shall have any liability to
Poolmart, nor shall Poolmart have any claim for damages, whether under this
Agreement or otherwise, as a result of any breach of any of the representations
or warranties contained in this Article 4B. For the avoidance of doubt, the
parties agree that the preceding sentence shall not affect the rights of
Poolmart under Section 6.3(a).
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF POOLMART
Except as disclosed in writing by Poolmart to Leslie's California and
Leslie's Delaware immediately prior to their execution and delivery of this
Agreement, Poolmart hereby represents and warrants to Leslie's California and
Leslie's Delaware as follows:
Section 5.1 Organization and Good Standing. Poolmart is a duly organized
------------------------------
and validly existing corporation in good standing under the laws of the state of
Delaware. Poolmart has heretofore delivered to Leslie's California accurate and
complete copies of its certificate of incorporation and bylaws as currently in
effect. Poolmart does not own or have any subsidiary or own or hold any capital
stock, security or investment in any other person or entity, other than bank
accounts, certificates of deposit, money market or similar short-term
investments.
Section 5.2 Authorization; Binding Agreement. Poolmart has all
--------------------------------
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the Recapitalization Merger and the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the Recapitalization Merger and the transactions contemplated hereby have been
duly and validly authorized by its board of directors, and this Agreement has
been adopted by the sole stockholder of Poolmart in accordance with Delaware Law
and its certificate of incorporation and bylaws. No other corporate proceedings
on the part of Poolmart are necessary to authorize this Agreement, the
Recapitalization Merger and the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by Poolmart and
constitutes a legal, valid and binding agreement of Poolmart, enforceable
against Poolmart in accordance with its terms except as such enforceability may
be limited by (a) bankruptcy, insolvency, reorganization, moratorium or other
similar 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.
Section 5.3 Capitalization. The authorized capital stock of Poolmart
--------------
consists of a single class of 1,000 shares of common stock, par value $.001 per
share, (which class of stock is herein called "Poolmart Common Stock"). Prior
---------------------
to the Effective Date the certificate of incorporation of Poolmart shall be
amended to increase the authorized number of shares of
20
Poolmart Common Stock to 1,055,172, all of which will be outstanding immediately
prior to the Effective Date. All of the shares of Poolmart Common Stock
outstanding on the Effective Date (i) will have been duly authorized and will
be, validly issued, fully paid and nonassessable and free of preemptive rights,
and (ii) will be beneficially owned, by Green Equity Investors II, L.P. Poolmart
has not granted any outstanding option, warrant, subscription or other right, or
entered into any agreement or commitment which either (a) obligates Poolmart to
issue, sell, repurchase or transfer any shares of the capital stock of Poolmart
or (b) restricts the transfer of, or otherwise encumbers, shares of Poolmart
Common Stock. Poolmart has no treasury stock.
Section 5.4 No Violation. Neither the execution and delivery of this
------------
Agreement, the filing of the Certificate of Merger or the consummation by
Poolmart of the transactions contemplated hereby and thereby, nor compliance by
Poolmart with any of the provisions hereof or thereof, will:
(a) violate any provision of the charter documents of Poolmart;
(b) violate any statute or law or any judgment, decree, order,
regulation or rule of any court or governmental authority applicable to
Poolmart or any of its properties;
(c) cause the acceleration of the maturity of any debt or obligation
of Poolmart; or
(d) violate, or be in conflict with, or constitute a default under, or
permit the termination of, or except as contemplated by this Agreement, require
the consent of any person under, or result in the creation of any lien upon any
property of Poolmart under, any agreement, indenture, lease or instrument to
which Poolmart is a party or by which Poolmart (or its properties) may be bound,
which in the aggregate would have a material adverse effect on Poolmart.
Poolmart is not in material default (without giving effect to any grace or
cure period or notice requirement) under any agreement for borrowed money or
under any agreement pursuant to which any of its securities were sold.
Section 5.5 Governmental and Other Consents and Approvals. To the
---------------------------------------------
knowledge of Poolmart, no consent, waiver, approval, license or authorization of
or designation, declaration or filing with any governmental agency or authority
or other public persons or entities in the United States is required in
connection with the execution or delivery by Poolmart of this Agreement or the
consummation by Poolmart of the Recapitalization Merger or the transactions
contemplated hereby, other than (a) filings in the State of Delaware in
accordance with the Delaware Law, (b) filings required under the HSR Act, (c)
filings required under the Exchange Act and (d) such other consents, waivers,
approvals, licenses or authorizations, the failure of which to be obtained will
not have a material adverse effect on Poolmart or on the ability of Poolmart to
consummate the transactions contemplated hereby.
Section 5.6 Proxy and Schedule 13E-3 Information. The information
------------------------------------
furnished to Leslie's California by Poolmart specifically for inclusion in the
Definitive Proxy Statement and the Schedule 13E-3, or any amendment or
supplement thereto, or specifically for inclusion in any other documents filed
with the SEC by Leslie's California in connection with the Merger Transaction,
shall, with respect to the Definitive Proxy Statement at the time the Definitive
Proxy Statement is mailed and at the time of the Special Meeting, and, with
respect to the Schedule 13E-3 and such other documents, at the time of filing
with the SEC and at the time of such Special Meeting, not contain any untrue
statement of a material fact or omit to state a material fact required
21
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 5.7 Financing Letters. If the funds were provided pursuant to or
-----------------
as described in the Financing Letters, there would be sufficient financing to
satisfy the condition set forth in Section 6.3(c) hereof.
Section 5.8 Brokers and Finders. Except to the extent contemplated by the
-------------------
Financing Letters, Poolmart has not engaged any broker, finder or investment
banker which engagement would require the payment of any brokerage, finder's or
other fees by Leslie's California or Leslie's Delaware in connection with the
transaction contemplated hereby.
Section 5.9 No Prior Activities. Poolmart has not incurred, and will not
-------------------
incur, directly or through any subsidiary, any liabilities or obligations,
except those incurred in connection with its organization or with the
negotiation of this Agreement and the Financing. Except as contemplated by this
Agreement and the Financing Letters, Poolmart has not engaged in any business
activities of any type or kind whatsoever, or entered into any agreements or
arrangements with any person or entity, or become subject to or bound by any
obligation or undertaking.
Section 5.10 Litigation. There is no legal action, suit, arbitration or
----------
other legal, administrative or other governmental investigation, inquiry or
proceeding (whether federal, state, local or foreign) pending or, to the
knowledge of Poolmart, threatened against or affecting Poolmart or any of its
properties, assets, business, franchises or governmental approvals before any
court or governmental department, commission, board, bureau, agency,
instrumentality or arbitrator, which, individually or in the aggregate, could
reasonably be expected (a) to have a material adverse effect upon Poolmart or
(b) to materially and adversely affect the ability of Poolmart to carry out, or
prevent or make unduly burdensome, the Recapitalization Merger or the
transactions contemplated by this Agreement.
ARTICLE 6
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect the
---------------------------------------------------
Recapitalization Merger. The respective obligations of each party to effect the
-----------------------
Recapitalization Merger shall be subject to the satisfaction at or prior to the
Effective Date of the following conditions:
(a) Shareholder Approval. This Agreement, the Reincorporation Merger
--------------------
Agreement and the Merger Transaction shall have been approved at or prior
to the Effective Date by the holders of a majority of (i) the outstanding
shares of California Common Stock entitled to vote thereon and (ii) the
shares of California Common Stock voting thereon and owned by persons other
than persons who, upon consummation of the Recapitalization Merger, will be
the Continuing Stockholders;
(b) Litigation. No action, suit or proceeding shall be pending before
----------
any court or governmental body in which an unfavorable judgment or decree
would prevent or substantially delay the consummation of the
Reincorporation Merger or the Recapitalization Merger, cause either such
transaction to be rescinded or, with respect to any litigation in
connection with the Reincorporation Merger or the Recapitalization Merger,
result in an award of damages that would have a material adverse effect on
the
22
condition (financial or otherwise), results of operations, properties,
assets, liabilities, business or prospects of Leslie's California and its
subsidiaries, taken as a whole;
(c) Consents. Leslie's California and Poolmart shall have been
--------
furnished with evidence satisfactory to them of the timely consent or
approval of, or notice to, each governmental authority or other person or
entity whose consent or approval, or to whom notice, is required in
connection with the execution or delivery by Leslie's California, Leslie's
Delaware or Poolmart of the Reincorporation Merger Agreement or this
Agreement or consummation of the transactions contemplated thereby or
hereby;
(d) HSR Act. Any applicable waiting period under the HSR Act shall
-------
have expired or early termination shall have been granted;
(e) Fairness Opinions. The fairness opinions delivered by ▇▇▇▇▇▇ Read
-----------------
and DLJ pursuant to Section 4A.12 hereof shall not have been withdrawn or
materially and adversely modified; and
(f) Effectiveness of Reincorporation Merger. The Reincorporation
---------------------------------------
Merger shall have become effective in accordance with the California Law
and the Delaware Law.
Section 6.2 Conditions to Obligation of Leslie's California and Leslie's
------------------------------------------------------------
Delaware to Effect the Recapitalization Merger. The obligations of Leslie's
----------------------------------------------
California and Leslie's Delaware to effect the Reincorporation Merger and the
obligations of Leslie's Delaware to effect the Recapitalization Merger shall be
subject to the satisfaction at or prior to the Effective Date of the following
additional conditions, unless waived by Leslie's California or, after the
effective time of the Reincorporation Merger, Leslie's Delaware:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Poolmart set forth in Article 5 hereof shall be true and
correct in all material respects as
23
of the date of this Agreement and as of the Effective Date as though made
on and as of the Effective Date, except as otherwise contemplated by this
Agreement, and Leslie's Delaware shall have received a certificate from
Poolmart signed by its President and a Vice President to that effect; and
(b) Performance of Obligations of Poolmart. Poolmart shall have
--------------------------------------
performed in all material respects all obligations required to be performed
by it under this Agreement prior to the Effective Date, and Leslie's
Delaware shall have received a certificate from Poolmart signed by its
President and a Vice President to that effect.
Section 6.3 Conditions to Obligations of Poolmart to Effect the
---------------------------------------------------
Recapitalization Merger. The obligations of Poolmart to effect the
-----------------------
Recapitalization Merger shall be subject to the satisfaction at or prior to the
Effective Date of the following additional conditions, unless waived by
Poolmart:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Leslie's California set forth in Article 4A hereof and of
Leslie's Delaware set forth in Article 4B hereof shall be true and correct
in all material respects as of the date of this Agreement and, except as
contemplated by the Reincorporation Merger or as otherwise contemplated by
this Agreement, as of the Effective Date as though all of such
representations were made on and as of the Effective Date by Leslie's
Delaware, and Poolmart shall have received certificates of Leslie's
California and Leslie's Delaware signed by the President and a Vice
President of Leslie's California and Leslie's Delaware, respectively, to
that effect;
(b) Performance of Obligations of Leslie's California and Leslie's
--------------------------------------------------------------
Delaware. Each of Leslie's California and Leslie's Delaware shall have
--------
performed in all material respects all obligations required to be performed
by it under this Agreement prior to the Effective Date, and Poolmart shall
have received certificates of Leslie's California and Leslie's Delaware
signed by the President and a Vice President of Leslie's California and
Leslie's Delaware, respectively, to that effect;
(c) Financing. Poolmart shall have obtained the Financing pursuant to
---------
Section 3.5;
(d) Dissenters' Rights. The aggregate number of shares of California
------------------
Common Stock on the effective time of the Reincorporation Merger, the
holders of which have demanded purchase of their shares from Leslie's
Delaware in accordance with the provisions of Chapter 13 of the California
Law, shall not equal 5% or more of the shares of California Common Stock
outstanding as of the record date for the Special Meeting;
(e) Environmental Due Diligence. Poolmart shall have completed its
---------------------------
environmental due diligence and shall be reasonably satisfied with the
results of such due diligence; provided, however, that this condition shall
be deemed to have been satisfied in full by March 31, 1997 unless prior
thereto Poolmart shall have delivered a written
24
notice to Leslie's California specifying in reasonable detail the respects
in which it has not been satisfied;
(f) Audited Financial Statements. When Leslie's California's
----------------------------
audited financial statements for the fiscal year ended December 28, 1996
have been prepared, a copy thereof shall have been delivered to Poolmart;
(g) Accounting Treatment. The Definitive Proxy Statement shall
--------------------
contain a statement to the effect that the Recapitalization Merger shall be
treated as a recapitalization for accounting purposes and the Securities
and Exchange Commission shall not have disapproved such statement in the
Definitive Proxy Statement; and
(h) Certification of Non-U.S. Real Property Holding Corporation
-----------------------------------------------------------
Status. Poolmart shall have received from Leslie's California and Leslie's
Delaware a certification described in Treasury Regulation Section 1.1445-
2(c)(3), in form and substance reasonably acceptable to Poolmart, to the
effect that neither Leslie's Delaware nor Leslie's California was a U.S.
real property holding corporation during the period specified in Section
897(c)(1)(ii) of the Code, and shall have been provided evidence reasonably
satisfactory to Poolmart of compliance with the terms of Treasury
Regulation Section 1.897-2(h) with respect to such certificate.
ARTICLE 7
TERMINATION; NON-SURVIVAL OF REPRESENTATIONS,
WARRANTIES AND COVENANTS; WAIVER AND AMENDMENT
Section 7.1 Termination. This Agreement may be terminated, and the
-----------
Recapitalization Merger abandoned, at any time prior to the Effective Date, by:
(a) mutual written consents of the boards of directors of the
Constituent Corporations;
(b) any of the parties, by written notice to the other parties, if the
Recapitalization Merger shall not have been consummated by June 30, 1997;
provided, however, that the right to terminate this Agreement under this
clause (b) shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Date to occur on or before this date; provided
further, however, that the passage of such period shall be tolled (and the
date for such consummation shall be correspondingly extended) for any part
thereof (but not exceeding 60 days in the aggregate) during which any party
shall be subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Reincorporation
Merger or the Recapitalization Merger or the calling or holding of the
Special Meeting;
(c) Poolmart, by written notice to Leslie's California, if prior to
the Special Meeting the board of directors of Leslie's California or the
Special Committee (i) shall withdraw or modify in any manner adverse to
Poolmart its approval or recommendation of this Agreement, the
Reincorporation Merger Agreement, the Recapitalization Merger or the
Reincorporation Merger, (ii) shall approve or recommend any Acquisition
Proposal
25
by a party other than Poolmart, or (iii) shall resolve to take any
of the actions specified in clause (i) or (ii);
(d) Poolmart, by written notice to Leslie's California, if after the
date hereof there shall have been a material adverse change in the
condition (financial or otherwise), results of operations, properties,
assets, liabilities or business of Leslie's California and its
subsidiaries, taken as a whole, whether by reason of operations in the
ordinary course of business, changes in general economic conditions, or
otherwise;
(e) Leslie's California, by written notice to Poolmart, if the board
of directors of Leslie's California or the Special Committee, in its good
faith exercise of its business judgment (based on the written advice of
counsel), has determined that the board of directors of Leslie's California
continuing to recommend to the shareholders the approval of this Agreement
or the Reincorporation Merger Agreement would be reasonably likely to be a
breach of the fiduciary duties of the board of directors of Leslie's
California to the shareholders of Leslie's California under California law;
(f) Leslie's California or Poolmart, by written notice to the other,
if upon a vote at the Special Meeting, any approval of the shareholders of
Leslie's California necessary to consummate the Reincorporation Merger or
the Recapitalization Merger and the transactions contemplated thereby or
hereby shall not have been obtained, or by Poolmart if the vote at such
Special Meeting does not satisfy the condition in Section 6.1(a) and such
condition is not waived by Leslie's California;
(g) any of the parties, by written notice, if any court of competent
jurisdiction or other governmental entity shall have issued an order,
decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Reincorporation Merger or the
Recapitalization Merger and such order, decree, ruling or other action
shall have become final and nonappealable;
(h) Poolmart, in the event that there shall have been a material
breach of Section 3.9.; or
(i) Poolmart, if Leslie's California shall have failed to hold the
Special Meeting by June 16, 1997 and either of the following shall have
occurred prior to such date: (A) any corporation (including Leslie's
California or any of its subsidiaries or affiliates), partnership, person,
other entity or "group" (as referred to in Section 13(d)(3) of the Exchange
Act) other than Poolmart or any of its affiliates (collectively, "Third
-----
Persons") shall have become the beneficial owner (as defined in Rule 13d-3
-------
promulgated under the Exchange Act) of more than 15% of the outstanding
California Common Stock; or (B) any Third Person shall have made, proposed,
communicated or disclosed in a manner which is or becomes known by
stockholders beneficially owning at least 5% of the outstanding California
Common Stock or by any director or officer of Leslie's California an
intention to make a bona fide Acquisition Proposal, unless in the case of
the condition in clause (B) Leslie's California is able to sustain the
burden of showing that the failure to hold the Special Meeting was caused
primarily by factors other than knowledge of such intention to make an
Acquisition Proposal.
26
Any action to be taken to terminate this Agreement under this Section shall
be taken by, or pursuant to authority granted by, the Boards of Directors of
Leslie's California or Poolmart as applicable. After the effectiveness of the
Reincorporation Merger, all references in this Section 7.1 to "Leslie's
California" shall be deemed to be a reference to Leslie's Delaware.
Section 7.2 Non-Survival of Representations, Warranties and Covenants.
---------------------------------------------------------
The respective representations and warranties of Leslie's California, Leslie's
Delaware and Poolmart contained herein or in any certificate delivered pursuant
hereto shall expire with, and be terminated and extinguished upon, consummation
of the Recapitalization Merger, and thereafter none of Leslie's California,
Leslie's Delaware or Poolmart or any officer, director or principal thereof
shall be under any liability whatsoever with respect to any such representation
or warranty. This Section 7.2 shall have no effect upon any other obligation of
the parties hereto, whether to be performed before or after the consummation of
the Recapitalization Merger.
Section 7.3 Amendment. This Agreement may not be amended except by an
---------
instrument in writing signed on behalf of each of the parties hereto; provided,
however, that (i) after approval of this Agreement by the shareholders of
Leslie's California, no amendment may be made which reduces the amount or
changes the form of consideration to be received in the Recapitalization Merger
or otherwise changes or effects any change which would adversely affect either
the shareholders of Leslie's California prior to the effectiveness of the
Reincorporation Merger or the stockholders of Leslie's Delaware immediately
after such effectiveness without the further approval of the shareholders of
Leslie's California, and (ii) after the Effective Date, no amendment may be made
to the indemnification and insurance provisions contained in Section 8.3.
Section 7.4 Waiver. At any time prior to the Effective Date, whether
------
before or after the Special Meeting, any party hereto, by action taken by its
board of directors, may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto or (ii) subject to the
proviso contained in Section 7.3, waive compliance with any of the agreements of
any other party or with any conditions (other than those appearing in Section
6.1(a), (e) or (f)) to its own obligations. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if (i) set
forth in an instrument in writing signed on behalf of such party by a duly
authorized officer, and (ii) if signed by Poolmart.
Section 7.5 Effect of Termination. In the event of the termination of
---------------------
this Agreement under Section 7.1, this Agreement shall thereafter become void
and have no effect and no party hereto shall have any liability to any other
party hereto or its shareholders or directors or officers in respect thereof,
except that the provisions of Section 3.8 (with respect to documents and
confidential information), Section 7.6 (with respect to a break fee under
certain circumstances), Section 8.3 (with respect to indemnification), and
Section 8.12 (with respect to expenses) shall survive any such termination if
such obligations arose at or before the time of such termination.
Section 7.6 Additional Payments in Respect of Certain Terminations. In
------------------------------------------------------
the event that (i) this Agreement is terminated by Leslie's California pursuant
to Section 7.1(e) or (f); or (ii) this Agreement is terminated by Poolmart
pursuant to Section 7.1(c), (f), (h) or (i), then in addition to the expense
reimbursement provided for in Section 8.12, Leslie's California or Leslie's
Delaware (assuming the Reincorporation Merger has occurred) shall promptly (and
in any event within five business days of written notice that such amount is
due) pay to ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P., in immediately available funds, the
amount of $1,750,000 as a termination fee. In addition, in the event that
within twelve months of any termination described in the immediately preceding
sentence Leslie's California or Leslie's Delaware, as the case may be,
consummates a transaction
27
that falls within the definition of an Acquisition Proposal, Leslie's California
or Leslie's Delaware, as the case may be, shall promptly and in no event later
than five business days after the closing of such transaction, pay to ▇▇▇▇▇▇▇
▇▇▇▇▇ & Partners, L.P., in immediately available funds, an additional $750,000.
ARTICLE 8
GENERAL AGREEMENTS
Section 8.1 Notice. All notices, requests and other communications to any
------
party shall be in writing (including telecopy or similar writing) and shall be
given,
(a) If to Poolmart:
c/o Hancock Park Associates II, L.P.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇ ▇. Annick
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Paul, Hastings, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
28
(b) If to Leslie's California or Leslie's Delaware, to:
Leslie's Poolmart
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇▇ White & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
or to such other address or telecopier number as such party may hereafter
specify for the purpose of notice to the other parties. Any such notice,
request or other communication shall be deemed to have been given and received
on the day on which it is delivered or telecopied (or, if such day is not a
business day in California or if the notice or other communication is not
telecopied during business hours, at the place of receipt, on the next following
business day); provided that if notice or other communication is given by
telecopy, such notice or communication shall also be given by certified mail or
by overnight courier.
Section 8.2 Entire Agreement. This Agreement (including the documents and
----------------
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
Section 8.3 Indemnification.
---------------
(a) Indemnification by the Surviving Corporation. It is understood and
--------------------------------------------
agreed that Leslie's California may, to the fullest extent permitted under
applicable law, indemnify and hold harmless, and after the effective time of the
Reincorporation Merger, Leslie's Delaware may, and after the Effective Date the
Surviving Corporation shall, indemnify and hold harmless, to the fullest extent
permitted under applicable law (and Leslie's California, Leslie's Delaware and
the Surviving Corporation, as the case may be, will advance expenses to the full
extent so permitted), each present and former director and officer of Leslie's
California or any of its subsidiaries and each director and officer of Leslie's
Delaware upon the effectiveness of the Reincorporation Merger, and their
respective heirs and personal and legal representatives (collectively the
"Indemnified Parties"), against any costs or expenses (including attorneys'
--------------------
fees), judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any pending, threatened or completed claim,
action, suit, proceeding or investigation (whether civil, criminal,
administrative or investigative) arising out of or pertaining to this Agreement
or the Reincorporation Merger Agreement or the approval and consummation of the
transactions contemplated hereby and thereby in his or her capacity as such or
in any other capacity on behalf of a subsidiary, joint venture or any other
entity in which he or she served at the request of Leslie's California or
Leslie's Delaware, and in the event of any such claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Date), (i)
Leslie's California may prior to the effective time of the Reincorporation
Merger and thereafter Leslie's Delaware may prior to the Effective Date, and
after the Effective Date the Surviving Corporation shall, pay the reasonable
fees and expenses of counsel selected by the Indemnified Parties, which counsel
shall be reasonably
29
satisfactory to Leslie's California, Leslie's Delaware or the Surviving
Corporation, as the case may be, promptly after statements therefor are received
and (ii) Leslie's California, Leslie's Delaware and the Surviving Corporation
will cooperate in the defense of any such matter; provided, however, that none
of Leslie's California, Leslie's Delaware or the Surviving Corporation shall be
liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld) and provided further that none of Leslie's
California, Leslie's Delaware or the Surviving Corporation shall have any
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, after exhaustion of all avenues of
appeal, that such Indemnified Party is not entitled to indemnification hereunder
(it being agreed, however, that none of Leslie's California, Leslie's Delaware
or the Surviving Corporation shall challenge a determination by any court which
is favorable to an Indemnified Party).
(b) Notice; Undertaking; Representations. Any Indemnified Party wishing to
------------------------------------
claim indemnification under this Section 8.3 upon learning of any such claim,
action, suit, proceeding or investigation, shall notify the indemnifying party
thereof and shall, if required by applicable law, deliver to the indemnifying
party an undertaking to repay any amounts advanced pursuant hereto when and if a
court of competent jurisdiction shall ultimately determine, after exhaustion of
all avenues of appeal, that such Indemnified Party is not entitled to
indemnification hereunder. The Indemnified Parties shall as a group retain only
one law firm pursuant to this Section 8.3 to represent them with respect to any
such matter unless there is, in the opinion of counsel to the Indemnified
Parties, a conflict on any significant issue between the positions of any two or
more Indemnified Parties, in which case the Indemnified Parties may retain, at
the expense of Leslie's California, Leslie's Delaware or the Surviving
Corporation, as the case may be, but in each such case subject to the terms of
the undertaking referred to in this Section 8.3(b) such number of additional
counsel as are necessary to eliminate all conflicts of the type referred to
above.
(c) Assumption by Successors. In the event Leslie's Delaware or the
------------------------
Surviving Corporation or any of their respective successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) liquidates, dissolves or transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provisions shall be made so that the successors and assigns of Leslie's Delaware
or the Surviving Corporation, as the case may be, assume the obligations set
forth in this Section 8.3 to the maximum extent permitted under the laws of such
person's jurisdiction of incorporation, if such person is a corporation, or
under other applicable law.
(d) Survival; Third-Party Rights. The terms of this Section 8.3 shall
----------------------------
survive the consummation of the Recapitalization Merger at the Effective Date
and shall continue without time limit. This Section 8.3 is intended to be for
the benefit of, and to grant third-party rights to, the Indemnified Parties
whether or not parties to this Agreement, and each of the Indemnified Parties
shall be entitled to enforce the covenants contained herein.
(e) Adverse Amendments. Subject to applicable law, the certificate of
------------------
incorporation and bylaws of the Surviving Corporation shall not be amended in a
manner which adversely affects the rights of the Indemnified Parties under this
Section 8.3.
(f) Directors' and Officers' Liability Insurance. For a period of eighteen
--------------------------------------------
months after the Effective Date, the Surviving Corporation shall use its
reasonable commercial efforts to maintain in effect the current policies of
directors' and officers' liability insurance maintained
30
by Leslie's California (provided that the Surviving Corporation may substitute
therefor policies of at least the same amounts and comparable coverage
containing terms and conditions which are comparable thereto; provided further
that such policies may have higher deductibles than the current policy) with
respect to claims arising from fact or events which occurred at or before the
Effective Date; provided, however, that the Surviving Corporation shall not be
obligated to make annual premium payments for such insurance to the extent such
premiums exceed 150% of the premiums paid as of the date of this Agreement by
Leslie's California for such insurance but in such event shall use reasonable
commercial efforts to provide the maximum coverage available at 150% of such
premiums. Notwithstanding anything to the contrary contained elsewhere in this
Agreement, the Surviving Corporation's and Leslie's Delaware's agreement set
forth in Section 8.3(a) shall be limited to cover claims only to the extent that
those claims are not covered, paid and extinguished pursuant to Leslie's
California's directors' and officers' insurance policies (or any substitute
policies permitted by this Section 8.3(f)).
Section 8.4 Parties in Interest. Except as otherwise provided in Section
-------------------
8.3 and, with respect to ▇▇▇▇▇▇▇, in Section 8.12, and, with respect to ▇▇▇▇▇▇▇
▇▇▇▇▇ & Partners, L.P., in Section 7.6, this Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.5 Material Events. At all times prior to the Effective Date,
---------------
each party shall promptly notify the other party or parties in writing of the
occurrence of any event of which it obtains knowledge which will or may
reasonably be expected to result in a failure to satisfy any of the conditions
specified in Article 6 hereof.
Section 8.6 Publicity. The written release to the public by any party of
---------
any information relating to the Recapitalization Merger shall be approved in
advance by the other parties, which approval shall not be unreasonably withheld
or delayed.
Section 8.7 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.8 Interpretation. As used herein, "knowledge" of Leslie's
-------------- ---------
California or Leslie's Delaware shall mean actual knowledge of the officers of
Leslie's California or Leslie's Delaware, as the case may be, and "knowledge" of
Poolmart shall mean the actual knowledge of its officers or actual knowledge of
any partner, managing director or employee of ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Partners, L.P.
("LGP"). Any agreement or consent given or made by LGP shall be considered to be
---
an agreement or consent, as the case may be, of Poolmart.
Section 8.9 Subsidiaries. When a reference is made in this Agreement to
------------
subsidiaries of Leslie's California, the word "subsidiaries" means any
------------
corporation more than 50% of whose outstanding voting securities are directly or
indirectly owned by Leslie's California.
Section 8.10 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto and, without limitation, shall be binding upon and
inure to the benefit of Leslie's Delaware as the successor to Leslie's
California by reason of the Reincorporation Merger.
Section 8.11 Governing Law. This Agreement shall be governed in all
-------------
respects, including validity, interpretation and effect, by the internal laws of
the State of California, without giving effect to the principles of conflict of
laws thereof, except (i) the laws of the state
31
of incorporation of a party shall govern its internal corporate affairs, and
(ii) to the extent that the Delaware Law would govern the validity,
interpretation and effect of this Agreement and the legal effect of the
Recapitalization Merger in the absence of this Section 8.11.
Section 8.12 Costs and Expenses.
------------------
(a) Subject to Section 8.12(b) and (c), all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses.
(b) Leslie's California hereby agrees to pay, or reimburse ▇▇▇▇▇▇▇ for, as
incurred, all Expenses (as hereinafter defined) incurred by or on behalf of
▇▇▇▇▇▇▇ arising out of, in connection with or related to this Agreement, the
Reincorporation Merger Agreement, the Recapitalization Merger and the
Reincorporation Merger and the transactions contemplated herein and therein;
provided, that Leslie's California shall not be obligated to pay or reimburse
▇▇▇▇▇▇▇ in excess of $1,000,000 in the aggregate.
(c) If the Recapitalization Merger is not consummated in accordance with
this Agreement, Leslie's California hereby agrees to reimburse Poolmart for all
Expenses incurred by or on behalf of Poolmart arising out of, in connection with
or related to this Agreement, the Reincorporation Agreement, the
Recapitalization Merger and the Reincorporation Merger and the transactions
contemplated herein and therein; provided, that Leslie's California shall not be
obligated to pay or reimburse Poolmart in excess of $750,000 in the aggregate;
and provided further, that Leslie's California shall not be required to pay or
reimburse Poolmart for Expenses if either (x) Poolmart fails in any material
respect to perform any of its material obligations under this Agreement and has
not cured such non-performance within 20 days after Poolmart has received
written notice from Leslie's California specifying the nature of such non-
performance, or (y) Poolmart has materially breached any of the material
representations or warranties made by it in Article 5, such breach occurred with
the knowledge of Poolmart, and such breach is not cured (if the same is
susceptible of being cured) within 20 days after Poolmart has received written
notice from Leslie's California specifying the nature of such breach.
(d) For purposes of Section 8.12(b) and (c), "Expenses" means all
--------
reasonable out-of-pocket expenses actually incurred by or on behalf of ▇▇▇▇▇▇▇
or Poolmart, as the case may be, supported by invoices, including, without
limitation, fees and expenses of accountants, financial advisors, attorneys,
consultants and appraisers engaged by Poolmart or ▇▇▇▇▇▇▇, as the case may be,
or any person providing or proposing to provide Financing for the
Recapitalization Merger as well as commitment and other fees, charges and
expenses of any such person; provided, that "Expenses" shall not include
compensation paid or payable to any individual who is an officer or director of
Leslie's California.
Section 8.13 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
[SIGNATURE PAGE FOLLOWS]
32
IN WITNESS WHEREOF, the parties have executed this Agreement by their
duly authorized officers as of the date first above written.
LPM HOLDINGS, INC.
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President
LESLIE'S POOLMART
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
----------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President and
Chief Executive Officer
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Vice President, General
Counsel and Secretary
POOLMART USA INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------
Title: President
----------
33
EXHIBIT A
AGREEMENT OF MERGER
AGREEMENT OF MERGER (this "Merger Agreement") made and entered into this
----------------
_____ day of February, 1997 by and between LESLIE'S POOLMART a California
corporation ("Leslie's California"), and LPM HOLDINGS, INC., a Delaware
-------------------
corporation ("Leslie's Delaware");
-----------------
WITNESSETH:
WHEREAS, Leslie's Delaware is a corporation duly organized and existing
under the laws of the State of Delaware;
WHEREAS, Leslie's California is a corporation duly organized and existing
under the laws of the State of California;
WHEREAS, on the date of this Merger Agreement, Leslie's Delaware has
authority to issue 5,000,000 shares of Common Stock, par value $.001 per share
(which class of shares is herein called the "Delaware Common Stock") of which
---------------------
10,000 shares are issued and outstanding and owned by Leslie's California, and
2,000,000 shares of Preferred Stock, par value $.001 per share, of which no
shares are issued and outstanding; and prior to the Effective Date, the
authorized number of shares of Delaware Common Stock will be increased to
12,000,000;
WHEREAS, on the date of this Merger Agreement, Leslie's California has
authority to issue 40,000,000 shares of Common Stock, (the "California Common
-----------------
Stock") of which 6,550,966 shares are issued and outstanding, and 1,000,000
-----
shares of Preferred Stock, of which no shares are issued and outstanding;
WHEREAS, the respective boards of directors of Leslie's Delaware and
Leslie's California have determined that, for the purpose of effecting the
reincorporation of Leslie's California in the State of Delaware, it is advisable
and to the advantage of said two corporations and their shareholders and sole
stockholder, respectively, that Leslie's California merge with and into Leslie's
Delaware upon the terms and conditions herein provided; and
WHEREAS, the respective boards of directors of Leslie's Delaware and
Leslie's California have approved this Merger Agreement and the board of
directors of Leslie's California and Leslie's Delaware have directed that this
Merger Agreement be submitted to a vote of their shareholders and sole
stockholder, respectively;
NOW, THEREFORE, in consideration of the mutual agreements and covenants set
forth herein, Leslie's California and Leslie's Delaware hereby agree to merge as
follows:
(1) Merger. Leslie's California shall be merged with and into
Leslie's Delaware, and Leslie's Delaware shall survive the merger
("Merger"), effective upon
------
A-1
the date when this Merger Agreement is made effective in accordance with
applicable law (the "Effective Date").
--------------
(2) Directors and Officers and Governing Documents. The directors
and officers of Leslie's Delaware shall be the same upon the Effective Date
as they are immediately prior thereto. The certificate of incorporation of
Leslie's Delaware, as amended and in effect on the Effective Date, shall
continue to be the certificate of incorporation of Leslie's Delaware as the
surviving corporation without change or amendment until further amended in
accordance with the provisions thereof and applicable laws, except that on
the Effective Date Article I of said certificate of incorporation shall be
amended to read in its entirety as follows: "The name of this Corporation
shall be: Leslie's Poolmart, Inc." The bylaws of Leslie's Delaware, as
amended and in effect on the Effective Date, shall continue to be the
bylaws of Leslie's Delaware as the surviving corporation without change or
amendment until further amended in accordance with the provisions thereof
and applicable laws.
(3) Succession. On the Effective Date, Leslie's Delaware shall
succeed to Leslie's California in the manner of and as more fully set forth
in Section 259 of the General Corporation Law of the State of Delaware and
Section 1107 of the General Corporation Law of the State of California.
(4) Further Assurances. From time to time, as and when required by
Leslie's Delaware or by its successors and assigns, there shall be executed
and delivered on behalf of Leslie's California such deeds and other
instruments, and there shall be taken or caused to be taken by it such
further and other action, as shall be appropriate or necessary in order to
vest, perfect or confirm, of record or otherwise, in Leslie's Delaware the
title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Leslie's
California, and otherwise to carry out the purposes of this Merger
Agreement, and the officers and directors of Leslie's Delaware are fully
authorized in the name and on behalf of Leslie's California or otherwise to
take any and all such action and to execute and deliver any and all such
deeds and other instruments.
(5) Common Stock of Leslie's California. Upon the Effective Date, by
virtue of the Merger and without any action on the part of the holder
thereof, each share of the California Common Stock outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Delaware Common Stock.
(6) Stock Certificates. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of
California Common Stock shall for all purposes evidence ownership of and
represent the shares of Delaware Common Stock into which the shares of
California Common Stock represented by such certificates have been
converted as herein provided. The registered owner on the books and records
of Leslie's Delaware or its transfer agent of any such outstanding stock
certificate shall, until such certificate shall have been surrendered for
transfer or otherwise accounted for to Leslie's Delaware or its transfer
agent, have and be entitled to exercise any voting and other rights with
respect to and
A-2
to receive any dividend and other distributions upon the shares of Delaware
Common Stock evidenced by such outstanding certificate as above provided.
(7) Stock Options. Forthwith upon the Effective Date, each (i)
outstanding option to purchase shares of California Common Stock granted
under the Leslie's California 1990 Stock Option Plan and the Leslie's
California 1992 Directors' Stock Incentive Plan (collectively, the "Plans")
-----
and (ii) outstanding option to purchase California Common Stock not granted
under the Plans, shall be converted into and become an option to purchase
the same number of shares of Delaware Common Stock at the same option price
per share as in effect on the Effective Date and, in the case of options
granted under the Plans (collectively, the "Plan Options"), upon the same
------------
terms and subject to the same conditions as set forth in the Plans, and, in
the case of all options not granted under the Plans (collectively, the
"Non-Plan Options"), upon the same terms and subject to the same conditions
----------------
as set forth in the agreements or instruments that govern the Non-Plan
Options. A number of shares of Delaware Common Stock shall be reserved for
purposes of the Plans equal to the number of shares of California Common
Stock so reserved as of the Effective Date. As of the Effective Date,
Leslie's Delaware hereby assumes all obligations of Leslie's California
under the Plans, the outstanding Plan Options or portions thereof granted
pursuant to the Plans and all Non-Plan Options.
(8) Other Employee Benefit Plans. As of the Effective Date, Leslie's
Delaware hereby assumes all obligations of Leslie's California under any
and all employee benefit plans in effect as of said date or with respect to
which employee rights or accrued benefits are outstanding as of said date.
(9) Common Stock of Leslie's Delaware. Forthwith upon the Effective
Date, the 10,000 shares of Delaware Common Stock presently issued and
outstanding in the name of Leslie's California shall be cancelled and
retired and resume the status of authorized and unissued shares of Delaware
Common Stock, and no shares of Delaware Common Stock or other securities of
Leslie's Delaware shall be issued in respect thereof.
(10) Covenants of Leslie's Delaware. Leslie's Delaware covenants and
agrees that it will, on or before the Effective Date:
(a) Qualify to do business as a foreign corporation in the
State of California, and in connection therewith irrevocably appoint
an agent for service of process as required under the provisions of
Section 2105 of the California Corporations Code.
(b) File any and all documents with the California Franchise
Tax Board necessary to the assumption by Leslie's Delaware of all of
the franchise tax liabilities of Leslie's California.
(11) Book Entries. As of the Effective Date, entries shall be made
upon the books of Leslie's Delaware in accordance with the following:
A-3
(a) The assets and liabilities of Leslie's California shall be
recorded at the amounts at which they were carried on the books of
Leslie's California immediately prior to the Effective Date, with
appropriate adjustments to reflect the retirement of the 10,000 shares
of Delaware Common Stock presently issued and outstanding.
(b) There shall be credited to the common stock account of
Leslie's Delaware the aggregate amount of the par value of all shares
of Delaware Common Stock resulting from the conversion of the
outstanding California Common Stock pursuant to the Merger.
(c) There shall be credited to the capital surplus account of
Leslie's Delaware the aggregate of the amounts shown in the common
stock and capital surplus accounts of Leslie's California immediately
prior to the Effective Date, less the amount credited to the common
stock account of Leslie's Delaware pursuant to Paragraph (b) above.
(d) There shall be credited to the retained earnings account of
Leslie's Delaware an amount equal to that carried in the retained
earnings account of Leslie's California immediately prior to the
Effective Date.
(12) Amendment. At any time before or after approval and adoption by
the shareholders of Leslie's California, this Merger Agreement may be
amended in any manner (except that Paragraph (5) may not be amended without
the approval of the shareholders of Leslie's California), as may be
determined in the judgment of the respective boards of directors of
Leslie's Delaware and Leslie's California to be necessary, desirable or
expedient in order to clarify the intention of the parties hereto or to
effect or facilitate the purposes and intent of this Merger Agreement.
(13) Abandonment. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger may be abandoned by the board of
directors of either Leslie's California or Leslie's Delaware with the
approval of the board of directors of the other corporation,
notwithstanding approval of this Merger Agreement by the stockholders of
Leslie's Delaware or the shareholders of Leslie's California or both.
(4) Counterparts. In order to facilitate the filing and recording of
this Merger Agreement, the same may be executed in any number of
counterparts, each of which shall be deemed to be an original.
[SIGNATURE PAGE FOLLOWS]
A-4
IN WITNESS WHEREOF, this Merger Agreement, having first been duly
approved by resolution of the boards of directors of Leslie's California and
Leslie's Delaware, is hereby executed on behalf of each said two corporations
by their respective officers thereunto duly authorized.
LPM HOLDINGS, INC.,
a Delaware corporation
By:______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President
By: _____________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Secretary
LESLIE'S POOLMART
a California corporation
By:______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,
President and Chief
Executive Officer
By:______________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Secretary
A-5
CERTIFICATE OF THE SECRETARY OF LPM HOLDINGS, INC.
I, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary of LPM HOLDINGS, INC., a Delaware
corporation, ("Leslie's Delaware"), do hereby certify, as such Secretary, in
accordance with the General Corporation Law of the State of Delaware, that the
Agreement of Merger to which this Certificate is attached, after having been
first duly adopted and executed by Leslie's Delaware and Leslie's Poolmart, a
California corporation, was duly submitted to the sole stockholder of Leslie's
Delaware at a special meeting of stockholders called for the purpose of acting
on said Agreement of Merger, notice of the time, place and purpose of said
meeting having been waived by the sole stockholder of Leslie's Delaware, and
that at said meeting the Agreement of Merger was considered and a vote taken for
its adoption or rejection and that at said meeting all of the outstanding stock
of Leslie's Delaware entitled to vote thereon was voted for the adoption of said
Agreement of Merger and that thereby said Agreement of Merger was at said
meeting duly adopted as the act of the stockholders of Leslie's Delaware and as
the agreement and act of Leslie's Delaware.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
______ day of ___________________, 1997.
________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Secretary
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CERTIFICATE OF THE SECRETARY OF LESLIE'S POOLMART
I, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Secretary of LESLIE'S POOLMART, a California
corporation ("Leslie's California"), do hereby certify, as such Secretary, in
accordance with the General Corporation Law of the State of Delaware, that the
Agreement of Merger to which this Certificate is attached, after having been
first duly adopted and executed by Leslie's California and LPM Holdings, Inc., a
Delaware corporation, was duly submitted to the shareholders at a meeting of
shareholders called for the purpose of acting on said Agreement of Merger after
due notice of the time, place and purpose of said meeting was mailed to each
holder of Common Stock of Leslie's California at his, her or its address as it
appears on the records of Leslie's California in the manner provided under the
provisions of Section 601 of the California Corporations Code and that at said
meeting the Agreement of Merger was considered and a vote taken for its adoption
or rejection and that at said meeting a majority of the outstanding Common Stock
of Leslie's California entitled to vote thereon was voted for the adoption of
said Agreement of Merger and that thereby said Agreement of Merger was at said
meeting duly adopted as the act of the shareholders of Leslie's California and
as the agreement and act of Leslie's California.
IN WITNESS WHEREOF, the undersigned has executed this certificate this
_____ day of ______________________, 1997.
________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Secretary
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EXHIBIT B
---------
CERTIFICATE OF MERGER
OF
POOLMART USA INC.
INTO
LESLIE'S POOLMART, INC.
(Pursuant to 8 Del. C. (S) 251)
LESLIE'S POOLMART, INC., a Delaware corporation, hereby certifies
that:
1. The name and state of incorporation of each of the constituent
corporations are:
(a) Poolmart USA Inc., a Delaware corporation; and
(b) Leslie's Poolmart, Inc., a Delaware corporation.
2. An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the provisions of Section 251 of the General Corporation Law of
the State of Delaware.
3. The surviving corporation shall be Leslie's Poolmart, Inc.
4. The Certificate of Incorporation of Leslie's Poolmart, Inc., as
in effect on the date on which the merger is effective, shall be the Certificate
of Incorporation of Leslie's Poolmart, Inc. as the surviving corporation without
change or amendment until further amended in accordance with the provisions
thereof and applicable law.
5. The executed Agreement and Plan of Merger is on file at the
principal place of business of Leslie's Poolmart, Inc. located at:
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
6. A copy of the Agreement and Plan of Merger will be furnished by
Leslie's Poolmart, Inc., on request and without cost, to any stockholder of any
of the constituent corporations.
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IN WITNESS WHEREOF, LESLIE'S POOLMART, INC. has caused this
certificate to be executed by a duly authorized officer as of this ___ day of
__________, 1997.
LESLIE'S POOLMART, INC.,
a Delaware corporation
By: _____________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
President and Chief
Executive Officer
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