<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1997
REGISTRATION NO. 333-24043
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
NEW PAMECO GEORGIA CORPORATION
(TO BE KNOWN AS PAMECO CORPORATION UPON EFFECTIVENESS)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 5075 51-0287654
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION
ORGANIZATION) NUMBER)
1000 CENTER PLACE THEODORE R. KALLGREN
NORCROSS, GEORGIA 30093 CHIEF FINANCIAL OFFICER
(770) 798-0700 1000 CENTER PLACE
(ADDRESS, INCLUDING ZIP CODE, AND NORCROSS, GEORGIA 30093
TELEPHONE NUMBER, (770) 798-0700
INCLUDING AREA CODE, OF REGISTRANT'S (NAME, ADDRESS, INCLUDING ZIP
PRINCIPAL EXECUTIVE OFFICES) CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR
SERVICE)
---------------
COPIES TO:
DAVID A. STOCKTON, ESQ. MARK C. SMITH, ESQ.
KILPATRICK STOCKTON LLP SKADDEN, ARPS, SLATE, MEAGHER &
1100 PEACHTREE STREET FLOM LLP
ATLANTA, GEORGIA 30309 919 THIRD AVENUE
(404) 815-6500 NEW YORK, NEW YORK 10022
(212) 735-3000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities on this Form are being offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933 check
the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Class A Common Stock,
$.01 par value........ 4,115,441 shares $15.00 $61,731,615 $18,706.55
</TABLE>
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(1) Of such shares, 3,536,872 were registered with the initial filing of this
Registration Statement and 578,569 are being registered pursuant to this
Amendment No. 1. Includes 536,797 shares that may be purchased pursuant to
the over-allotment option granted to the Underwriters.
(2) Estimated solely for the purpose of determining the registration fee in
accordance with Rule 457 under the Securities Act.
(3) Calculated pursuant to Rule 457(o) based upon an estimate of the maximum
aggregate offering price. Of such fee, $17,148.47 was paid at the time of
the initial filing of this Registration Statement and $1,558.08 has been
paid with this Amendment No. 1.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 1, 1997
PROSPECTUS
, 1997
3,578,644 SHARES
[LOGO OF PAMECO CORP APPEARS HERE]
CLASS A COMMON STOCK
Of the 3,578,644 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock"), of Pameco Corporation ("Pameco" or the "Company")
offered hereby (the "Offering"), 3,000,000 shares are being sold by Pameco and
578,644 shares are being sold by shareholders of the Company (the "Selling
Shareholders"). The Class A Common Stock entitles its holders to one vote per
share, whereas the Class B Common Stock, par value $0.01 per share (the "Class
B Common Stock" and together with the Class A Common Stock, the "Common
Stock"), generally entitles its holders to ten votes per share. The holders of
Class A Common Stock, voting as a separate class, are entitled to elect two of
the Company's directors. See "Description of Capital Stock." After consummation
of the Offering, a group of investment vehicles (the "Investor Group") managed
by Three Cities Research, Inc., a private investment firm ("TCR"), will have
approximately 87.0% of the combined voting power (on a fully diluted basis)
with respect to substantially all matters submitted for the vote of all
shareholders. Substantially all of the net proceeds to the Company from the
Offering will be used to repay outstanding indebtedness. The Company will not
receive any of the proceeds from the sale of shares by the Selling Shareholders
pursuant to the Offering. See "Principal and Selling Shareholders."
Prior to the Offering, there has been no public market for the Class A Common
Stock. It is currently estimated that the initial public offering price of the
Class A Common Stock offered pursuant to the Offering will be between $13.00
and $15.00 per share. For information relating to the factors to be considered
in determining the initial offering price to the public of the Class A Common
Stock, see "Underwriting."
Application will be made to list the Class A Common Stock on the New York
Stock Exchange under the symbol "PCN."
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
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<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(3)............... $ $ $ $
</TABLE>
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $ , which will be paid by the
Company.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days of the date hereof, to purchase up to 536,797 additional shares of
Class A Common Stock at the Price to the Public less Underwriting Discounts
and Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions, Proceeds to the Company and Proceeds to the Selling
Shareholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters when, as and if delivered to and accepted by the Underwriters
against payment therefor and subject to various prior conditions, including
their right to reject orders in whole or in part. It is expected that delivery
of share certificates representing the Class A Common Stock will be made in New
York, New York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO.
<PAGE>
[MAP OF THE CONTINENTAL UNITED STATES SHOWING THE LOCATION
OF EACH BRANCH AND DISTRIBUTION CENTER, AND THREE PICTURES SHOWING A
COMPANY WAREHOUSE, COMPANY DELIVERY TRUCKS AND A COMPANY BRANCH, TO BE INCLUDED]
----------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE
OFFERING, AND MAY BID FOR, AND PURCHASE, SHARES OF CLASS A COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, references herein to the
"Company" or "Pameco" prior to the consummation of the Reincorporation Merger
(as defined herein) mean Pameco Holdings, Inc., a Delaware corporation, and its
subsidiaries, and references to the "Company" or "Pameco" after consummation of
the Reincorporation Merger mean New Pameco Georgia Corporation, a Georgia
corporation, and its subsidiary, whose name will be changed to Pameco
Corporation upon consummation of the Reincorporation Merger. See "--Company
History and Recent Acquisitions." All numbers of shares, per share amounts and
related information in this Prospectus reflect a 1.25-for-one split of the
Common Stock effected as part of the Reincorporation Merger, which will be
effected prior to the Offering. See "Description of Capital Stock." References
herein to fiscal year 1997 mean the fiscal year ended February 28, 1997 and to
fiscal year 1996 mean the fiscal year ended February 29, 1996. Unless otherwise
indicated, the information contained in this Prospectus assumes no exercise of
the Underwriters' over-allotment option.
THE COMPANY
Pameco is one of the largest distributors of heating, ventilation and air
conditioning ("HVAC") systems and equipment and refrigeration products in the
United States, with predecessor corporations dating back to 1931. The Company
stocks more than 65,000 stock keeping units ("SKUs") to service more than
45,000 customers through a national network of 294 branches in 44 states and
Guam located in 76 of the top 100 standard metropolitan statistical areas
("SMSAs") in the country. The Company's products include a complete range of
central air conditioners, heat pumps, furnaces and parts and supplies for the
residential market, and condensing units, compressors, evaporators, valves,
walk-in coolers and ice machines for the commercial market. In fiscal 1997, the
Company's HVAC business generated approximately 57.0% of its revenues, while
the refrigeration business generated the balance. In fiscal 1997, Pameco
derived over 80.0% of its revenues from the repair and replacement market,
which is higher margin and less cyclical than the new construction market due
to end-users' needs for immediate service and expert technical advice. The new
construction market generated the balance of Pameco's revenues. Management
believes that Pameco is the only company in the United States which offers a
complete line of HVAC and refrigeration products on a significant scale on a
nationwide basis.
Pameco attributes its leadership position in the HVAC and refrigeration
distribution industries primarily to its operating philosophy. The Company
emphasizes personalized customer service and convenient "one-stop" shopping to
meet each customer's total needs at the local and national level. The Company's
technical service representatives, who provide customers with technical advice
in diagnosing problems and recommending solutions, are an essential element of
the Company's customer service. Pameco operates under a centralized management
structure and offers substantial incentive compensation to its executive
officers and division and branch managers. Additionally, the Company believes
that its size, its financial resources and its position as a national
distributor of HVAC and refrigeration products allow it to provide superior
customer service by offering immediate access to a complete product line of
equipment, parts and supplies through its 294 branches and six regional
distribution centers.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets through the acquisition of branches and the opening of
new branches, as well as through increasing sales and profitability at existing
branches. The Company began an active acquisition program in 1996 to capitalize
on consolidation opportunities presented by the substantial size and highly
fragmented ownership structure of the HVAC and refrigeration markets.
Management believes Pameco is well-positioned to take advantage of this
fragmentation given the Company's breadth of product offerings, its national
presence and its proven ability to
3
<PAGE>
acquire and integrate new branches, as demonstrated by its recent acquisitions.
The Company's acquisition strategy is to acquire profitable distribution
businesses with well-developed market positions and desirable supplier
franchises. The Company has focused and will continue to focus principally on
acquisitions in geographic areas not currently served by the Company, with the
goal of achieving greater geographic diversification and adding product lines,
customers and employees ("associates"). Pameco will also pursue opportunities
to strengthen its position in existing markets by acquiring new branches within
existing geographic markets.
For the fiscal year ended February 29, 1996, the Company's sales were $334.5
million compared to $378.7 million for the fiscal year ended February 28, 1997.
Same store sales increased 8.0% during this period. On a pro forma basis,
assuming the completion of the acquisition of 52 branches from Sid Harvey
Industries, Inc. ("Sid Harvey") and six branches from Chase Supply Company of
Chicago ("Chase") as of March 1, 1995, sales would have been $394.5 million and
$421.0 million for fiscal years ended February 29, 1996 and February 28, 1997,
respectively. Net income for the fiscal year ended February 29, 1996 was $5.5
million compared to $10.7 million for the fiscal year ended February 28, 1997.
On a pro forma basis, assuming the completion of the Sid Harvey and Chase
acquisitions as of March 1, 1995, net income would have been $5.4 million and
$10.6 million for the fiscal years ended February 29, 1996 and February 28,
1997, respectively.
THE INDUSTRY
Based upon an industry report, management estimates that sales in the
residential and light commercial heating and cooling equipment and commercial
refrigeration markets (excluding product markets in which the Company does not
compete) totaled approximately $8.1 billion and $2.8 billion, respectively, in
1996. The combined $10.9 billion industry includes equipment, parts and
supplies distributed by wholesalers and by original equipment manufacturers'
("OEMs") captive distribution arms, but excludes HVAC systems sold for use in
large commercial projects and refrigeration products sold in the residential
market. Companies engaging in the HVAC and refrigeration repair and replacement
markets sell their products primarily through local branches for their
customers' convenience and timely access to products. Management estimates that
there are 8,100 HVAC and refrigeration distributors in the United States
operating from approximately 11,000 locations nationwide. Management believes
that a significant percentage of these distributors are small, owner-operated
businesses operating in single geographic areas and providing a more limited
range of products and services. Based upon the industry report and the
Company's fiscal 1997 revenues, management estimates that Pameco's cumulative
U.S. market share in its industry sectors is between three and four percent and
that no independent distributor has a significantly greater share of this
combined market on a nationwide basis.
Given the fragmentation of the market, management believes that the HVAC and
refrigeration distribution industry is well-positioned for consolidation. In
particular, management believes that many of the smaller distributors in its
industry are finding it increasingly difficult to compete in the current market
because they generally lack the financial resources of larger entities and thus
are unable to offer broad product lines and multiple brands and may not possess
sophisticated inventory management and control systems necessary to operate
multiple branches effectively or the ability to invest significant resources in
the information technology necessary to improve inventory flow. In addition to
the trend toward consolidation, management believes other important trends
within the industry include: (i) an increased presence of large customer buying
groups, forcing a competitive bidding process, while creating opportunities to
sell to new and large national accounts; (ii) the increased importance of
immediate availability of products; (iii) the attempt by many of the smaller
distributors to identify exit strategies for their business and (iv) the
proliferation of products and parts.
4
<PAGE>
BUSINESS STRATEGY
The Company has invested considerable time and resources building its
national reputation and leveraging the goodwill of local branches that the
Company has developed or acquired. The Company has recently hired a new Chief
Executive Officer and four highly qualified senior managers in sales,
operations, logistics and management information systems to assist in the
implementation of the Company's operating strategy. The Company is pursuing the
following strategy to enhance growth and increase profitability:
Expansion by acquisition. The Company launched a targeted acquisition
strategy in 1996 as a consolidator in the HVAC and refrigeration distribution
industries. In the past 12 months, the Company has acquired 60 branches in 11
states, increasing its total number of branches by over 20.0%. Pameco is able
to maximize its return on investment in new branches and obtain incremental
revenues and operating income with minimal incremental administrative expenses,
due to economies of scale made possible by the Company's prior investment in
its sales, operations, logistics and management information systems
infrastructure. Further, by geographically diversifying its sources of revenue
management believes the Company is less susceptible to economic slowdowns or
adverse weather conditions which may occur in particular regions of the
country.
Emphasis on "one-stop" shopping and immediate product and service
availability. Management believes that Pameco provides added value to its
customers by providing superior customer service and immediate access to a
complete line of industry-recognized brand names and private label equipment,
parts and supplies from numerous manufacturers through its branches and
distribution centers. The Company stocks over 65,000 SKUs at its branches and
distribution centers and offers customers access to over two million SKUs. In
order to provide customers immediate access to products, the Company stocks
inventory representing over 75.0% of its sales at its branches. Pameco believes
its ability to provide immediate access to a wide range of products,
particularly in the refrigeration business, where equipment repair is often
time-sensitive, has helped the Company to establish a reputation as a "one-
stop" shop for HVAC and refrigeration products. In addition, Pameco provides
its customers with assistance in making intelligent purchases through the
Company's well-trained technical service representatives and counter personnel.
Management believes that its extensive product offerings and knowledgeable
associates help maintain an extensive and loyal customer base.
Pursue regional and national customers. The Company is focused on
opportunities to serve existing and prospective customers on a multi-regional
or national basis, which it believes represents a significant growth
opportunity. In particular, the Company believes that its nationwide coverage
and broad product lines enable it to provide multi-regional and national
accounts with consistent service, greater purchasing leverage, improved
inventory management and centralized billing. This strategy is designed to
complement the Company's established relationships with its local and regional
customers. Management believes the new ThermalZone(TM) private label line of
HVAC equipment and parts, which Pameco introduced in September 1996 and which
is currently available in 47 states, will further increase the Company's
national account opportunities. The Company believes that a nationally
available, standardized HVAC product line will provide large accounts with
greater consistency in price, availability and quality because these accounts
will be able to purchase one uniform product nationwide instead of purchasing a
number of different product lines from different suppliers.
Continued focus on higher margin repair and replacement market. The Company
continues to focus on the higher margin repair and replacement market, from
which Pameco derived over 80.0% of its revenues in fiscal 1997. The repair and
replacement market has increased substantially over the past ten years as a
result of the aging of the installed base of HVAC products, the introduction of
new energy-efficient models and the upgrading of many existing buildings and
homes to central heating and air-conditioning. This installed product base
represents a significant market in terms of recurring revenues, as customers
are continually replacing a percentage of the installed base of equipment each
year. In the refrigeration market, by focusing sales on products
5
<PAGE>
used for repairs, which typically cannot be postponed, the Company's revenues
tend to be less dependent upon national economic cycles.
Operating improvements through supply chain and cost structure
management. Pameco will continue to invest significant resources in its
management information systems. Management believes these systems will allow
the Company to achieve improvements in inventory control and cost management,
and, together with supply chain software to be acquired later this year, will
improve the Company's supply chain strategy, as decisions relating to
purchasing, inventory management and logistics will be more effectively
coordinated. All branches are equipped with computer systems that have the
ability to monitor inventory levels to ensure timely inventory orders and to
guard against unexpected stock shortages. Management believes that improved
distribution practices should reduce the Company's cost per SKU handled and,
over time, increase the Company's inventory turns and fill rate percentages.
Margin enhancement focus. The Company is currently implementing several
measures in an effort to enhance its margins and reduce transaction costs.
These measures include system-related pricing enhancements, such as pricing
discipline through the limitation of discounts at the point-of-sale, and
improved performance from underperforming branches through internal
benchmarking. Additionally, the Company believes it will realize efficiencies
in cost control through the Company's management information system and
logistics network, as well as through improved supply chain dynamics as
described in the immediately preceding paragraph.
COMPANY HISTORY AND RECENT ACQUISITIONS
Pameco is a Georgia corporation which was formed in March 1997 and which will
merge with Pameco Holdings, Inc., a Delaware corporation, and Pameco
Corporation, a Delaware corporation, immediately prior to the Offering (the
"Reincorporation Merger"). While predecessor corporations of the Company date
back to 1931, Pameco was formed in the early 1980s, when the Hillman Company
acquired a number of regional HVAC and refrigeration product distributors.
During the early and mid 1990s, the Company's management focused on controlling
costs and consolidating a decentralized business. In March 1996, in an effort
to refocus the Company on sales growth, Pameco hired a new Chief Executive
Officer with extensive experience in directing sales growth and acquisitions.
The Company's current senior management team is focused on enhancing the
financial performance of the Company, motivated in part by an equity-based
incentive compensation system, and has made significant progress in realigning
the structure and culture of the Company to accelerate growth. During the past
year, the Company has successfully completed the acquisition of 60 branches in
11 states.
In May 1996, Pameco purchased six branches and related assets from Chase. The
Chase branches had revenues in excess of $9.0 million for all of fiscal 1996
and derived approximately 59.0% of their aggregate revenues in fiscal 1996 from
the sale of refrigeration products, with the balance of revenues from the sale
of HVAC products. This acquisition gave the Company a significant presence in
the Chicago, Illinois and Gary, Indiana markets.
In November 1996, the Company acquired 52 branches located in seven
southeastern states from Sid Harvey. These branches had aggregate revenues in
excess of $51.8 million for the year ended December 31, 1996 and derived
significant revenues from the sale of both HVAC and refrigeration products.
In March 1997, the Company purchased the HVAC operations and related assets
of Bellows-Evans, Inc., a distributor of HVAC equipment in Birmingham, Alabama,
a new market for the Company. The acquired business had revenues in excess of
$3.0 million for the year ended May 31, 1996 and derived substantially all of
its revenues from the sale of HVAC products.
In April 1997, the Company purchased the HVAC operations and related assets
of Trigg Supply, Inc., a distributor of HVAC products in Ft. Worth, Texas. The
acquired business had revenues of approximately $1.3 million for the year ended
December 31, 1996 and derived all of its revenues from the sale of HVAC
products.
6
<PAGE>
The Company's executive offices are located at 1000 Center Place, Norcross,
Georgia 30093, and its telephone number is (770) 798-0700.
THE OFFERING
Type of security offered.... Class A Common Stock
Number of shares to be
sold:
By the Company................. 3,000,000
By the Selling Shareholders.... 578,644
Shares to be outstanding
after the Offering(1)(2)...
8,032,372 shares of Common Stock, consisting
of 4,048,526 shares of Class A Common Stock
and 3,983,846 shares of Class B Common Stock.
Use of proceeds.............
To repay existing indebtedness and repurchase
227,222 shares of Common Stock from certain
shareholders, including members of the
Investor Group. See "Use of Proceeds."
Voting rights............... The Class A Common Stock and the Class B
Common Stock will vote as a single class with
respect to all matters submitted to a vote of
the shareholders, with each share of Class A
Common Stock entitled to one vote and each
share of Class B Common Stock entitled to ten
votes, except that (i) the holders of the
Class A Common Stock will be entitled to
elect two directors and the holders of the
Class B Common Stock will be entitled to
elect all other directors; (ii) with respect
to any "going private" transaction between
the Company and a Principal Shareholder (as
defined herein), each share of Class A Common
Stock and Class B Common Stock will be
entitled to one vote and (iii) each class
will have such voting rights as otherwise
provided by law. Each share of Class B Common
Stock is convertible into one share of Class
A Common Stock at the option of the holder
thereof and is automatically convertible into
one share of Class A Common Stock upon
transfer to an unaffiliated party or upon the
date when the number of outstanding shares of
Class B Common Stock is less than ten percent
of all outstanding Common Stock.
Substantially all of the Class B Common Stock
is owned by the Investor Group. Each class of
Common Stock has identical rights, except
with respect to voting and conversion
privileges. See "Description of Capital
Stock" and "Principal and Selling
Shareholders."
Proposed New York Stock
Exchange symbol............
The Company intends to submit an application
to list the Class A Common Stock on the New
York Stock Exchange under the symbol "PCN."
See accompanying notes on the following page.
7
<PAGE>
(1) Excludes (i) 227,222 shares to be repurchased with a portion of the net
proceeds of the Offering; (ii) 978,467 shares of Class A Common Stock
reserved for issuance under the Employee Stock Option Plans pursuant to
which options to purchase 663,237 shares will be outstanding upon the
closing of the Offering; (iii) 50,000 shares of Class A Common Stock
reserved for issuance under the Non-Employee Directors Stock Option Plan
pursuant to which options to purchase 37,500 shares will be outstanding
upon the closing of the Offering and (iv) 9,375 shares of Class A Common
Stock reserved for issuance under an option grant to one of the non-
employee directors. See "Management--Stock Incentive Plans."
(2) Excludes 62,500 shares of Class B Common Stock subject to an option held by
Terfin International, Ltd. ("Terfin"). See "Certain Transactions."
RISK FACTORS
The Class A Common Stock offered hereby involves a high degree of risk. These
risks include, among others, the risk that (i) the Company will be unable to
identify, complete or successfully integrate the acquisition of a sufficient
number of businesses to implement successfully its growth strategy; (ii) the
Company will experience a decline in sales due to weather patterns or an
economic downturn; (iii) one or more of the Company's key suppliers will
terminate or limit their relationship with the Company, or will otherwise be
unable to furnish quality products on a timely basis, thereby damaging the
Company's relationship with its customers and (iv) certain of the Company's
competitors may have significantly greater financial resources than the
Company, thereby limiting the Company's ability to compete effectively. See
"Risk Factors."
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following table sets forth certain consolidated financial and other
operating data for the Company. This information should be read in conjunction
with the Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY 28 OR 29,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 300,140 $ 338,034 $ 323,152 $ 334,537 $378,658
Cost of products sold... 226,894 259,028 243,887 255,301 285,439
------------- ------------- ------------- ------------- -------------
Gross profit........... 73,246 79,006 79,265 79,236 93,219
Warehousing, selling and
administrative ex-
penses................. 66,709 71,113 70,467 69,405 81,250
Amortization of negative
goodwill............... (1,122) (1,224) (1,224) (1,224) (1,224)
Severance............... -- -- -- 1,230 --
Executive cash bonus.... -- -- -- -- 2,173
------------- ------------- ------------- ------------- -------------
Operating income........ 7,659 9,117 10,022 9,825 11,020
Interest expense, net... 3,570 4,593 4,818 4,732 3,923
Other income (expense).. (898) 770 189 (482) (1,533)
------------- ------------- ------------- ------------- -------------
Income before income
taxes.................. 3,191 5,294 5,393 4,611 5,564
Provision (benefit) for
income taxes(1)........ 4,550 585 575 (1,403) (5,592)
------------- ------------- ------------- ------------- -------------
Net income (loss)(1).... (1,359) 4,709 4,818 6,014 11,156
Redeemable preferred
stock dividends........ -- 621 547 520 424
------------- ------------- ------------- ------------- -------------
Net income (loss)
applicable to common
shareholders(2)........ $(1,359) $4,088 $4,271 $5,494 $10,732
============= ============= ============= ============= =============
Net income (loss) per
share(2)(3)............ $(0.21) $0.62 $0.65 $0.83 $1.71
============= ============= ============= ============= =============
Weighted average shares
outstanding(2)......... 6,598 6,598 6,598 6,598 6,258
============= ============= ============= ============= =============
PRO FORMA
(UNAUDITED)(4):
Interest expense, net... $1,588 $852
============= =============
Net income(1)........... $8,041 $13,220
============= =============
Net income per
share(5)............... $0.84 $1.44
============= =============
Weighted average shares
outstanding(5)......... 9,536 9,196
============= =============
OTHER OPERATING DATA:
Same branch sales growth
percentage(6).......... 0.7% 2.6% 4.7% 8.0%
Number of branches(7)... 265 245 241 262
Sales per associate(8).. $281,000 $295,000 $309,000 $ 312,000
</TABLE>
See accompanying notes on the following page.
9
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------
HISTORICAL PRO FORMA(3)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................... $ 145 $ 145
Total current assets.................................... 126,365 126,365
Total assets............................................ 149,369 149,369
Short-term debt:
Current portion of long-term debt..................... 375 375
Notes payable to affiliates........................... 14,100 --
-------- --------
Total short-term debt................................... 14,475 375
Long-term debt to affiliates ........................... 4,500 --
Long-term debt.......................................... 29,879 11,270
Total liabilities....................................... 134,738 97,529
Total shareholders' equity.............................. 14,631 51,840
</TABLE>
- --------------------
(1) The Company recorded a benefit for income taxes of approximately $1.4
million and $5.6 million for the years ended February 29, 1996 and February
28, 1997, respectively, resulting primarily from the Company reducing its
deferred income tax asset valuation allowance by $1.8 million and $6.5
million at February 29, 1996 and February 28, 1997, respectively, in
accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Reduction of the deferred
income tax asset valuation allowance was determined to be "more likely than
not." The "more likely than not" determination was based on the factors
described in Note 7 to the Consolidated Financial Statements. At February
28, 1997, the Company had a deferred income tax asset valuation allowance
of $1.8 million. Future changes to the deferred income tax asset valuation
allowance will be based on the criteria in SFAS No. 109.
(2) Computed on the basis described in Note 1 to the Consolidated Financial
Statements of Pameco.
(3) If the acquisitions of Sid Harvey and Chase had occurred on March 1, 1995,
the pro forma net income and net income per share would have been
approximately $5.4 million and $10.6 million and $0.82 and $1.69 for the
years ended February 29, 1996 and February 28, 1997, respectively. The pro
forma adjustments for the acquisitions are based upon available information
and certain assumptions that management believes are reasonable. The
adjustments to the historical data reflect the following: (i) general and
administrative costs were increased to reflect the incremental amount of
general and administrative costs Pameco estimates it would have incurred
over the applicable time period; (ii) interest expense assuming Pameco
financed the acquisitions at a rate of 7.3%--Pameco's weighted average
borrowing rate; (iii) amortization of the excess of cost over acquired net
assets; (iv) income taxes on the earnings of the acquirees have been
adjusted to reflect Pameco's effective tax rate and (v) the income tax
effect of such pro forma adjustments.
(4) The pro forma amounts give effect to the sale of 3,000,000 shares of Class
A Common Stock by Pameco at an assumed initial public offering price of
$14.00 per share and the application of the net proceeds therefrom to repay
approximately $37.2 million in short-term and long-term debt as if such
issuance had occurred at the beginning of the period, the related reduction
in interest expense and the repurchase of 227,222 shares of the Company's
common stock. See "Use of Proceeds." The pro forma amounts do not give
effect to the acquisitions of Sid Harvey and Chase as discussed in Note (2)
above.
(5) Pro forma net income per share was computed using the weighted average
number of common and common equivalent shares outstanding as described
above, and takes into account the reduction in interest expense from the
repayment of short-term and long-term debt of $37.2 million with proceeds
of the Offering as if such shares had been issued and repayment had
occurred at the beginning of the fiscal period, and the repurchase of
227,222 shares of the Company's common stock. Pro forma net income per
share does not give effect to the acquisitions of Sid Harvey and Chase as
discussed in Note (2) above. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalents issued at prices below the assumed Offering price per share
("cheap stock") during the 12 month period immediately preceding the
initial filing date of the Company's Registration Statement for its public
offering have been included as outstanding for all periods presented (using
the treasury stock method at the assumed initial public offering price).
(6) Same branch sales growth percentage was calculated based on sales for
locations open at least 24 consecutive months as of the end of each
reported period. The data for 1994 and 1995 is presented on a calendar year
basis, which is the only data available to the Company.
(7) The number of branches discloses the average number of branches open during
the period.
(8) Sales per associate have been calculated by dividing net sales by the
average number of associates employed during the period. The average number
of associates was determined by dividing the sum of the number of
associates at the end of each month in the period by the number of months
in the period.
10
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the federal securities laws. Actual results in the timing of
certain events could differ materially from those projected in the forward-
looking statements due to a number of factors, including those set forth below
and elsewhere in this Prospectus. Prospective purchasers of the shares of
Class A Common Stock offered hereby should consider carefully the specific
factors set forth below as well as the other information contained in this
Prospectus in evaluating an investment in the Class A Common Stock.
RISK ASSOCIATED WITH ACQUISITION STRATEGY
The Company acquired the assets of four businesses during the past year. The
Company's growth strategy contemplates additional acquisitions, and management
is continually evaluating acquisition opportunities. As a result, the
Company's future success is dependent, in part, upon whether it can identify,
finance and acquire suitable acquisition candidates on favorable terms and
then to integrate or manage such acquired businesses successfully.
Acquisitions involve special risks, including risks associated with
unanticipated problems, liabilities and contingencies, diversion of management
attention and possible adverse effects on earnings resulting from increased
goodwill amortization, potential increased interest costs, the issuance of
additional securities and difficulties relating to the integration of the
acquired businesses. There can be no assurance that the Company will be able
to identify and complete or successfully integrate the acquisition of a
sufficient number of businesses to implement successfully its growth strategy.
Further, there can be no assurance that future acquisitions will not have an
adverse effect upon the Company's operating results, particularly during
periods in which the operations of acquired businesses are being integrated
into the Company's operations. While management is continually evaluating
possible acquisitions, particularly in larger markets in which the Company
does not have a substantial presence, the Company has no present agreements,
commitments or understandings to acquire other businesses. Existing or future
competitors may also seek to compete with the Company for acquisition
candidates, which could have the effect of increasing the price for
acquisitions or reducing the number of suitable acquisition candidates. In
addition, such competitors may compete with the Company for start-up
locations, thereby limiting the number of attractive locations for expansion.
See "Prospectus Summary--Company History and Recent Acquisitions," "--
Substantial Competition" and "Business--Business Strategy."
In order to implement its acquisition strategy, the Company is likely to
require additional funding. Future acquisitions could be financed by incurring
additional indebtedness or by the issuance of additional equity securities,
which could result in dilution to the purchasers of the Class A Common Stock
offered hereby. See "--Potential Effect of Shares Eligible for Future Sale on
Price of Common Stock." In addition, significant acquisitions and the
financing thereof will generally require the consent of the Company's existing
lenders, and there can be no assurance that such consent will be granted. See
"Business--Competition."
SEASONALITY AND CYCLICALITY OF SALES
The Company's operating results vary significantly from quarter to quarter.
Sales typically increase during the warmer months beginning in April and peak
in the months of June, July and August. For the years ended February 29, 1996
and February 28, 1997, the Company recorded approximately 33.0% and 31.0%,
respectively, of its sales, and approximately 76.0% and 69.0%, respectively,
of its annual operating earnings (excluding the effect of non-recurring
charges) in the second fiscal quarter of each year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Selected Quarterly Operating Results." Sales of HVAC and refrigeration
equipment and replacement components are also affected by weather patterns
throughout the country. Warmer than normal summer temperatures or colder than
normal winter temperatures cause increased stress on cooling and heating
equipment. Increased stress on equipment produces higher failure rates and
therefore increased sales volume of replacement equipment. A dramatic shift in
weather patterns (such as an especially mild winter or cool summer) in a
particular region of the country could have a material adverse
11
<PAGE>
effect on the Company's business and results of operations. Further, end-users'
demand for HVAC and refrigeration products is cyclical, and a significant
percentage of the overall demand is related to new construction. This demand is
influenced by many of the same national and regional economic and demographic
factors which affect demand for durable consumer goods, including consumer
confidence, interest rates, availability of financing, regional population,
employment trends and general economic conditions. There can be no assurance
that the Company will not experience future declines in sales due to weather
patterns or an economic downturn or that such declines will not have a material
adverse effect on the Company's business and results of operations. See
"Business--The Industry."
DEPENDENCE ON SUPPLIER RELATIONSHIPS
Pameco has been granted distribution rights for certain product lines in
several of its geographic markets. The Company depends upon these distribution
rights for a substantial portion of its business. However, a significant
percentage of the Company's distribution arrangements with its suppliers are
oral. Further, many of these distribution rights may be terminated by the
supplier immediately or upon short notice. Certain of the Company's suppliers
compete with the Company for new construction business and there can be no
assurance that any or all suppliers will continue their current relationship
with the Company. The termination or limitation by any key supplier of its
relationship with the Company could have a material adverse effect on the
Company's business and results of operations. The Company also relies upon its
suppliers to provide quality products on a timely basis. See "--Substantial
Competition." The failure of a significant supplier to furnish quality products
on a timely basis for any reason could damage the Company's relationship with
its customers and have a material adverse effect on its business and results of
operations. See "Business--Suppliers and Customers."
SUBSTANTIAL COMPETITION
Both the HVAC and refrigeration businesses are highly fragmented and very
competitive. The Company's primary competitors include national and multi-
regional companies, regional competitors that operate in a small number of
states, OEMs and principally small, independent businesses with a limited
number of local branches. Certain of the Company's competitors may have
significantly greater financial resources than the Company. The primary areas
of competition in the HVAC and refrigeration businesses include breadth and
quality of product lines distributed, ability to fill orders promptly
(particularly in the refrigeration business), technical knowledge of sales
personnel, service and price. The Company believes that its ability to compete
effectively is dependent upon whether it can respond to the needs of its
customers through quality service and product availability. While home centers,
hardware stores and direct mail order companies do not currently compete to a
significant extent with the Company due to their limited ability to supply a
wide range of products and provide comparable expert technical advice, the
entrance of one or more of these companies into either of the Company's
businesses could have a material adverse effect on the Company's business and
results of operations. In the future, the Company may also face competition
from deregulated utility companies selling directly to their customers,
electrical/plumbing suppliers, organizations providing facility maintenance
services and others selling products directly to consumers via the Internet.
The entrance of any one or more of these types of entities into either of the
Company's markets could have a material adverse effect on the Company's
business and results of operations. See "Business--Competition."
INCREASED PRESENCE OF BUYING GROUPS; POTENTIAL REDUCTION OF MARGINS
Management believes that a portion of the Company's customer base has begun
to consolidate into regional and national firms and buying groups in order to
gain increased purchasing power and greater product consistency. This increased
buying power could create a competitive bidding process for the Company's
products, thereby reducing the Company's margins. A significant reduction in
the Company's margins could have a material adverse effect on the Company's
business and results of operations. See "Business--Competition."
12
<PAGE>
DEPENDENCE ON INFORMATION SYSTEMS
The Company believes that its computer systems are an integral part of its
business and growth strategies. The Company depends on its information systems
to process orders, manage inventory and accounts receivable collections,
purchase products, ship products among its branches on a timely basis,
maintain cost-effective operations and provide superior service to its
customers. The Company intends to purchase new supply chain software in fiscal
1998 in order to improve its inventory management. There can be no assurance
that a disruption in the operation of the Company's information systems,
including the failure of the new supply chain software to function properly,
will not occur. Any such disruption could have a material adverse effect on
the Company's business and results of operations. See "Business--Management
Information Systems."
PENDING LITIGATION
The Company is a defendant in a lawsuit filed by United Refrigeration, Inc.
("United"), a competitor of the Company, in which it is alleged that Pameco
tortiously interfered with United's contract to purchase Sid Harvey's
southeastern business operations. The Company believes that United's claims
lack merit and intends to defend itself vigorously in this litigation.
However, a significant judgment against the Company in favor of United could
have a material adverse effect on the Company's business and results of
operations. See "Business--Legal Proceedings."
DEPENDENCE ON KEY ASSOCIATES; NEED FOR ADDITIONAL ASSOCIATES
The Company's future performance depends to a significant degree upon the
continued contributions of members of the Company's key management. The loss
of the service of any key management associate could have a material adverse
effect on the Company's business and results of operations. The Company does
not have employment agreements with any of its key management associates
except for its Chief Executive Officer. See "Business--Associates" and
"Management."
The Company's management believes that Pameco's future success also depends
upon whether it can identify, attract, train and retain highly skilled
regional managers and technical service representatives to advise and assist
customers at its branches. Competition for such personnel is intense and there
can be no assurance that the Company will be successful in retaining its
existing regional managers and technical service representatives or attracting
and assimilating additional technical service representatives. The inability
of the Company to attract and retain such associates could have a material
adverse effect on the Company's business and results of operations.
POTENTIAL OBSOLESCENCE OF INVENTORY
At February 28, 1997, over 70.0% of the Company's assets (based on book
value) consisted of inventory held for sale. The obsolescence of a significant
amount of inventory due to changes in customer preferences or technological
improvements or the loss of a significant amount of inventory due to shrinkage
could have a material adverse effect on the Company's business and results of
operations.
RISKS OF BORROWING
Following the Offering, the Company will have substantial borrowings under
the Credit Facilities (as defined herein). In the future, the Company may
incur additional indebtedness under the Credit Facilities or under additional
facilities for working capital and to finance the acquisition of additional
branches. Leverage increases the risk to the Company of any variations in its
results of operations or any other factors affecting its cash flow or
liquidity. In addition, the Credit Facilities bear, and future indebtedness
may bear, interest at variable interest
13
<PAGE>
rates. Accordingly, increases in applicable interest rates may adversely
affect the Company's business and results of operations. See "Description of
Certain Indebtedness."
CONTROL OF THE COMPANY BY INVESTOR GROUP
Holders of the Class A Common Stock are entitled to one vote per share,
while holders of the Class B Common Stock are generally entitled to ten votes
per share. In addition, holders of the Class B Common Stock are entitled to
elect all but two of the Company's directors. Immediately after consummation
of the Offering, the Investor Group will beneficially own 97.2% of the
outstanding shares of Class B Common Stock, and, together with the executive
officers and directors of the Company as a group, will own in the aggregate
88.9% of the combined voting power (on a fully diluted basis).
Due to the Investor Group's ownership of substantially all the Class B
Common Stock, the Investor Group will, immediately after consummation of the
Offering, be able to elect a majority of the directors of the Company and
therefore control and direct the policies of the Board. In addition, the
Investor Group will be able to control the vote on almost all matters
submitted to a vote of the Company's shareholders, including most
extraordinary transactions such as mergers and sales of all or substantially
all of the Company's assets. Control by the Investor Group may also discourage
certain types of transactions involving an actual or potential change of
control of the Company, including transactions in which the holders of Class A
Common Stock might have received a premium for their shares over then
prevailing market prices.
Shares of Class B Common Stock will only convert to shares of Class A Common
Stock on election by the holder, transfer to a transferee who is not an
Affiliate (as herein defined) of the holder or on the date when the issued and
outstanding shares of Class B Common Stock constitute less than ten percent of
all issued and outstanding Common Stock. See "Description of Capital Stock--
Common Stock" and "Principal and Selling Shareholders."
ANTI-TAKEOVER CONSIDERATIONS; POTENTIAL EFFECT OF ISSUANCE OF PREFERRED STOCK
ON PRICE OF COMMON STOCK
The ownership positions of the Investor Group and the executive officers and
directors of the Company as a group, together with the anti-takeover effects
of certain provisions in the Company's Articles of Incorporation and Bylaws
and the Company's adoption of both the "fair price" and "business combinations
with interested stockholders" provisions of the Georgia Business Corporation
Code (the "Georgia Code"), may have the effect of delaying, deferring or
preventing a change of control of the Company, even if a change of control
were in the shareholders' best interests.
In addition, the Company's Board of Directors is authorized to establish the
rights, preferences and limitations of any or all shares of Preferred Stock
and to divide such shares into classes, with or without voting rights, as the
Board may determine. The issuance of Preferred Stock could decrease the amount
of earnings and assets available for distribution to holders of Common Stock
and could have the effect of making removal of management more difficult. In
certain circumstances, this could have the effect of decreasing the market
value of the Common Stock. See "Description of Capital Stock--Preferred Stock"
and "--Certain Provisions of Georgia Law and the Company's Articles of
Incorporation and Bylaws."
SIGNIFICANT GOVERNMENT REGULATIONS
HVAC and refrigeration systems are subject to various environmental statutes
and regulations, including but not limited to laws and regulations
implementing the Clean Air Act, relating to minimum energy efficiency
standards of HVAC systems and the production, servicing and disposal of
certain ozone-depleting refrigerants used in such systems. As the owner or
lessee of a significant amount of real property, the Company is subject to
14
<PAGE>
a number of environmental statutes and regulations and could under certain
circumstances be responsible for the acts or omissions of the prior owners or
lessees of such property. The Company is also subject to regulations concerning
the transport of hazardous materials, including regulations adopted pursuant to
the Motor Carrier Safety Act of 1990. The Company may become subject to
compliance with additional regulations, and there can be no assurance that the
regulatory environment in which the Company operates will not change
significantly in the future. See "Business--Government Regulations and
Environmental Matters."
ABSENCE OF PRIOR PUBLIC MARKET
Prior to the Offering, there has been no public market for the Company's
Class A Common Stock. The Company intends to apply for listing of the Class A
Common Stock on the New York Stock Exchange. Regardless of whether the Class A
Common Stock is listed on the New York Stock Exchange, there can be no
assurance as to the development or liquidity of any trading market for the
Class A Common Stock or that the purchasers of the Class A Common Stock will be
able to resell their shares at prices equal to or greater than the initial
public offering price. The initial public offering price of the Class A Common
Stock will be determined through negotiations with Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), The Robinson-Humphrey Company, Inc. ("Robinson-
Humphrey") and Schroder Wertheim & Co. Incorporated ("Schroder Wertheim")
(collectively, the "Representatives"). See "Underwriting" for the factors to be
considered in determining the initial public offering price of the shares of
Class A Common Stock.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Immediately after completion of the Offering, the Company will have 8,032,372
shares of Common Stock outstanding, of which the 3,578,644 shares sold pursuant
to the Offering will be freely tradable without restriction or further
registration under the Securities Act, except those shares acquired by
"affiliates" of the Company as that term is defined under the Securities Act.
Holders of the remaining shares will be eligible to sell such shares pursuant
to Rule 144 ("Rule 144") under the Securities Act at prescribed times and
subject to the manner of sale, volume, notice and information restrictions of
Rule 144. The Company, its officers, directors and certain other shareholders
including the Selling Shareholders, who collectively own 403,228 shares and
hold options to acquire an aggregate of 543,667 shares of Class A Common Stock
and who collectively own 3,983,846 shares of Class B Common Stock, have agreed
with the Underwriters, except with the prior written consent of DLJ and subject
to certain limited exceptions, not to offer, sell, pledge, contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of directly or indirectly any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock
or in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. Upon the expiration of such 180 day period,
such holders will, in general, be entitled to dispose of their shares, although
the shares of Common Stock held by affiliates of the Company will continue to
be subject to the restrictions of Rule 144. In addition, the Company may issue
shares of Class A Common Stock (and may consider filing a registration
statement with respect to such shares) in connection with potential future
business acquisitions and resales of such shares by the recipients. Shares so
registered could be sold in the public market. No predictions can be made as to
the effect, if any, that market sales of such shares or the availability of
such shares for sale will have on the market price for shares of Class A Common
Stock prevailing from time to time. Sales of substantial amounts of shares of
Class A Common Stock in the public market following the Offering could
adversely affect the market price of the Class A Common Stock and could impair
the Company's future ability to raise capital through an offering of equity
securities. See "Shares Eligible for Future Sale."
VOLATILITY OF MARKET PRICE
After completion of the Offering, the market price of the Class A Common
Stock could be subject to significant fluctuations due to variations in
quarterly operating results and other factors, such as changes in
15
<PAGE>
general conditions in the economy or the financial markets, natural disasters
or other developments affecting the Company or its competitors. In addition,
the securities markets have experienced significant price and volume
fluctuations from time to time in recent years. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to their operating performance, and these broad
fluctuations may adversely affect the market price of the Class A Common
Stock.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Class A Common Stock offered hereby will
experience immediate and substantial dilution in the net tangible book value
per share of Class A Common Stock from the initial public offering price.
Based on an assumed initial offering price of $14.00 per share, as of February
28, 1997, such dilution, on a pro forma basis, would have been equal to $7.70
per share with respect to shares purchased pursuant to the Offering. See
"Dilution."
ABSENCE OF DIVIDENDS
The Company intends to retain its earnings to finance its growth and for
general corporate purposes. Consequently, it does not anticipate paying any
cash dividends in the foreseeable future. In addition, the Credit Facilities,
which will remain in place following consummation of the Offering, contain,
and future financing agreements may contain, limitations on the payment of
cash dividends and other distributions of assets. See "Dividend Policy" and
"Description of Certain Indebtedness."
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $38.4 million ($45.4 million if the Underwriters' over-allotment
option is exercised in full) assuming an initial public offering price of
$14.00 per share and after deduction of the estimated underwriting discount
and other estimated offering expenses. The Company intends to use such net
proceeds to repay all outstanding indebtedness to certain members and
affiliates of the Investor Group, to repay approximately $18.6 million of the
outstanding balance of its $100.0 million revolving credit line (the "Working
Capital Facility"), and to repurchase 227,222 shares of Common Stock from
certain shareholders, including members of the Investor Group, for an
aggregate purchase price of approximately $1.2 million. The outstanding
balance of indebtedness to certain members and affiliates of the Investor
Group at February 28, 1997 was $18.6 million. See "Certain Transactions."
The indebtedness to be repaid to certain members and affiliates of the
Investor Group consists of two separate loans. The first, which bears interest
at the rate of 12.5%, matures on June 30, 1997, and was incurred in November
1996 for the purpose of redeeming all of the common and preferred stock of the
Company owned by a former shareholder. The Company expects the outstanding
balance of such indebtedness to be $6.6 million immediately prior to the
Offering. The other indebtedness to be repaid to certain members and
affiliates of the Investor Group bears interest at the prime rate (adjusted
daily) and matures at September 1, 2001, and November 1, 2001, and has a
current outstanding principal amount of $4.5 million. The Working Capital
Facility expires on November 22, 2001, unless extended, and bears interest at
LIBOR plus 2.25%. At February 28, 1997, this rate was equal to 7.69%. Upon
application of the net proceeds from the Offering, the Company expects to have
borrowings of approximately $48.0 million under the Credit Facilities and
approximately $44.0 million of unused and available credit. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Indebtedness."
The Company will not receive any of the proceeds from the sale of shares of
Class A Common Stock offered by the Selling Shareholders.
16
<PAGE>
DIVIDEND POLICY
The Company has not paid dividends on its Class A Common Stock, and the Board
of Directors intends to continue a policy of retaining earnings to finance the
Company's growth and for general corporate purposes and, therefore, does not
anticipate paying any such dividends in the foreseeable future. In addition,
the Company's Working Capital Facility contains, and future financing
arrangements may contain, a minimum net worth covenant and limitations on the
payment of any cash dividends or other distributions of assets, which covenants
and limitations could restrict the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
DILUTION
As of February 28, 1997, the net tangible book value of the Company was
approximately $12.4 million, or $2.44 per share of Common Stock. "Net tangible
book value per share" is defined as the book value of tangible assets of the
Company, less all liabilities (except the excess of acquired net assets over
cost), divided by the number of outstanding shares of Common Stock. After
giving effect to the Offering at an assumed initial public offering price of
$14.00 per share, net of offering expenses and the underwriting discount, and
the application of the net proceeds therefrom as described under "Use of
Proceeds", the pro forma net tangible book value of the Company at February 28,
1997, would have been approximately $49.7 million, or $6.30 per share. This
represents an immediate dilution of $7.70 per share to purchasers of shares in
the Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $14.00
Net tangible book value before the Offering................. $2.44
Increase per share attributable to new shareholders......... 3.86
-----
Pro forma net tangible book value per share after giving ef-
fect to the Offering......................................... 6.30
------
Dilution in net tangible book value per share to new share-
holders...................................................... $ 7.70
======
</TABLE>
The following table sets forth with respect to the existing shareholders and
the new shareholders in the Offering as of February 28, 1997, a comparison of
the number of shares of Common Stock acquired from the Company, the percentage
ownership of such shares, the total consideration paid, the percentage of total
cash consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
Existing shareholders(1).... 4,880,778 61.9% $ 1,905,000 4.3% $ 0.39
New shareholders............ 3,000,000 38.1 42,000,000 95.7 14.00
--------- ----- ----------- -----
Total................... 7,880,778 100.0% $43,905,000 100.0%
========= ===== =========== =====
</TABLE>
- ---------------------
(1) Shares are net of 1,477,222 shares of Class A Common Stock held by the
Company as treasury stock.
The foregoing table excludes (i) 227,222 shares to be repurchased with a
portion of the net proceeds of the Offering; (ii) 978,467 shares of Class A
Common Stock reserved for issuance under the Employee Stock Option Plans
pursuant to which options to purchase 663,237 shares will be outstanding upon
the closing of the Offering; (iii) 50,000 shares of Class A Common Stock
reserved for issuance under the Non-Employee Directors Stock Option Plan
pursuant to which options to purchase 37,500 shares will be outstanding upon
the closing of the Offering and (iv) 9,375 shares of Class A Common Stock
reserved for issuance under an option grant to one of the non-employee
directors. See "Management--Stock Incentive Plans." The table also excludes
62,500 shares of Class B Common Stock subject to an option held by Terfin. See
"Certain Transactions."
17
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt, long-term debt and
capitalization of the Company as of February 28, 1997 and as adjusted to give
pro forma effect to the Offering at an assumed initial public offering price
of $14.00 per share and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with the selected financial data and Consolidated Financial Statements of the
Company and the related notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1997
-----------------------------
HISTORICAL PRO FORMA
-------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
Short-term debt:
Current portion of capital lease obligations
and other debt............................... $ 375 $ 375
Notes payable to affiliates................... 14,100 --
------------- -------------
Total short-term debt....................... 14,475 375
Long-term notes payable to affiliates........... 4,500 --
Long-term debt and capital lease obligations.... 29,879 11,270
Shareholders' equity:
Preferred Stock, par value $1.00 per share,
25,000,000 shares authorized; no shares
issued and outstanding....................... -- --
Class A Common Stock, par value $0.01 per
share, 40,000,000 shares authorized;
6,358,000 shares issued and outstanding
(historical); 5,525,748 shares issued and
outstanding (pro forma)(1)................... 64 54
Class B Common Stock, par value $0.01 per
share, 20,000,000 shares authorized; no
shares issued and outstanding (historical);
3,983,846 shares issued and outstanding (pro
forma)(2).................................... -- 40
Additional paid-in capital.................... 1,841 40,221
Retained earnings............................. 23,226 23,226
------------- -------------
25,131 63,541
Less: treasury stock, at cost (1,250,000
shares and 1,477,222 shares of Class A Common
Stock, respectively)......................... (10,500) (11,701)
------------- -------------
Total shareholders' equity.................. 14,631 51,840
------------- -------------
Total capitalization including short-term
debt....................................... $ 63,485 $ 63,485
============= =============
</TABLE>
- ---------------------
(1) Does not include (i) 978,467 shares of Class A Common Stock reserved for
issuance under the Employee Stock Option Plans pursuant to which options
to purchase 663,237 shares will be outstanding upon the closing of the
Offering; (ii) 50,000 shares of Class A Common Stock reserved for issuance
under the Non-Employee Directors Stock Option Plan pursuant to which
options to purchase 37,500 shares will be outstanding upon the closing of
the Offering and (iii) 9,375 shares of Class A Common Stock reserved for
issuance under an option grant to one of the non-employee directors. See
"Management--Stock Incentive Plans."
(2) Does not include 62,500 shares of Class B Common Stock subject to an
option held by Terfin. See "Certain Transactions."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER OPERATING DATA
The following selected consolidated and other operating data of the Company
are qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements and Notes thereto and other financial data
included elsewhere in this Prospectus. The financial data set forth below for
each of the three years for the period ended February 29, 1997 have been
derived from the audited Consolidated Financial Statements of the Company
included elsewhere in this Prospectus. The financial data as of and for the
years ended February 28, 1993 and 1994 have been derived from audited
consolidated financial statements of the Company not included in this
Prospectus. These historical results are not necessarily indicative of the
results that may be expected in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 28 OR 29,
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND OTHER OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $ 300,140 $ 338,034 $ 323,152 $ 334,537 $378,658
Cost of products sold... 226,894 259,028 243,887 255,301 285,439
------------- ------------- ------------- ------------- -------------
Gross profit........... 73,246 79,006 79,265 79,236 93,219
Warehousing, selling and
administrative ex-
penses................. 66,709 71,113 70,467 69,405 81,250
Amortization of negative
goodwill............... (1,122) (1,224) (1,224) (1,224) (1,224)
Severance............... -- -- -- 1,230 --
Executive cash bonus.... -- -- -- -- 2,173
------------- ------------- ------------- ------------- -------------
Operating income........ 7,659 9,117 10,022 9,825 11,020
Interest expense, net... 3,570 4,593 4,818 4,732 3,923
Other income (expense).. (898) 770 189 (482) (1,533)
------------- ------------- ------------- ------------- -------------
Income before income
taxes.................. 3,191 5,294 5,393 4,611 5,564
Provision (benefit) for
income taxes(1)........ 4,550 585 575 (1,403) (5,592)
------------- ------------- ------------- ------------- -------------
Net income (loss)(1).... (1,359) 4,709 4,818 6,014 11,156
Redeemable preferred
stock
dividends.............. -- 621 547 520 424
------------- ------------- ------------- ------------- -------------
Net income (loss)
applicable to common
shareholders(2)........ $(1,359) $4,088 $4,271 $5,494 $10,732
============= ============= ============= ============= =============
Net income (loss) per
share(2)(3)............ $(0.21) $0.62 $0.65 $0.83 $1.71
============= ============= ============= ============= =============
Weighted average shares
outstanding(2)......... 6,598 6,598 6,598 6,598 6,258
============= ============= ============= ============= =============
PRO FORMA
(UNAUDITED)(4):
Interest expense, net... $1,588 $852
============= =============
Net income(1)........... $8,041 $13,220
============= =============
Net income per
share(5)............... $0.84 $1.44
============= =============
Weighted average shares
outstanding(5)......... 9,536 9,196
============= =============
OTHER OPERATING DATA:
Same branch sales growth
percentage(6).......... 0.7% 2.6% 4.7% 8.0%
Number of branches(7)... 265 245 241 262
Sales per associate(8).. $281,000 $295,000 $309,000 $ 312,000
</TABLE>
See accompanying notes on the following page.
19
<PAGE>
<TABLE>
<CAPTION>
FEBRUARY 28 OR 29,
---------------------------------------------
1993 1994 1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 258 $ 133 $ 120 $ 115 $ 145
Total current assets.... 114,281 120,008 121,583 113,637 126,365
Total assets............ 115,951 122,512 124,964 119,167 149,369
Long-term debt,
including current
portion................ 27,415 31,051 31,212 34,428 30,254
Debt to affiliates...... 17,500 13,500 13,500 7,500 18,600
Redeemable preferred
stock.................. 4,000 4,000 4,000 4,000 --
Total liabilities....... 116,310 118,783 116,964 105,673 134,738
Total shareholders'
equity (deficit)....... (359) 3,729 8,000 13,494 14,631
</TABLE>
- ---------------------
(1) The Company recorded a benefit for income taxes of approximately $1.4
million and $5.6 million for the years ended February 29, 1996 and
February 28, 1997, respectively, resulting primarily from the Company
reducing its deferred income tax asset valuation allowance by $1.8 million
and $6.5 million at February 29, 1996 and February 28, 1997, respectively,
in accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Reduction of the deferred
income tax asset valuation allowance was determined to be "more likely
than not." The "more likely than not" determination was based on the
factors described in Note 7 to the Consolidated Financial Statements. At
February 28, 1997, the Company had a deferred income tax asset valuation
allowance of $1.8 million. Future changes to the deferred income tax asset
valuation allowance will be based on the criteria in SFAS No. 109.
(2) Computed on the basis described in Note 1 to the Consolidated Financial
Statements of Pameco.
(3) If the acquisitions of Sid Harvey and Chase had occurred on March 1, 1995,
the pro forma net income and net income per share would have been
approximately $5.4 million and $10.6 million and $0.82 and $1.69 for the
years ended February 29, 1996 and February 28, 1997, respectively. The pro
forma adjustments for the acquisitions are based upon available
information and certain assumptions that management believes are
reasonable. The adjustments to the historical data reflect the following:
(i) general and administrative costs were increased to reflect the
incremental amount of general and administrative costs Pameco estimates it
would have incurred over the applicable time period; (ii) interest expense
assuming Pameco financed the acquisitions at a rate of 7.3%--Pameco's
weighted average borrowing rate; (iii) amortization of the excess of cost
over acquired net assets; (iv) income taxes on the earnings of the
acquirees have been adjusted to reflect Pameco's effective tax rate and;
(v) the income tax effect of such pro forma adjustments.
(4) The pro forma interest expense (net), net income, net income per share and
weighted average shares outstanding gives effect to the sale of 3,000,000
shares of Class A Common Stock by Pameco at an assumed initial public
offering price of $14.00 per share and the application of the net proceeds
therefrom to repay approximately $37.2 million in short-term and long-term
debt as if such issuance had occurred at the beginning of the period, the
related reduction in interest expense and the repurchase of 227,222 shares
of the Company's common stock. See "Use of Proceeds." The pro forma
amounts do not give effect to the acquisitions of Sid Harvey and Chase as
discussed in Note (2) above.
(5) Pro forma net income per share was computed using the weighted average
number of common and common equivalent shares outstanding as described
above, and takes into account the reduction in interest expense from the
repayment of short-term and long-term debt of $37.2 million with proceeds
of the Offering as if such shares had been issued and repayment had
occurred at the beginning of the fiscal period and the repurchase of
227,222 shares of the Company's common stock. Pro forma net income per
share does not give effect to the acquisitions of Sid Harvey and Chase as
discussed in Note (2) above. Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin No. 83, common stock and common stock
equivalents issued at prices below the assumed Offering price per share
("cheap stock") during the twelve month period immediately preceding the
initial filing date of the Company's Registration Statement for its public
offering have been included as outstanding for all periods presented
(using the treasury stock method at the assumed initial public offering
price).
(6) Same branch sales growth percentage was calculated based on sales for
locations open at least 24 consecutive months as of the end of each
reported period. The data for 1994 and 1995 is presented on a calendar
year basis, which is the only data available to the Company.
(7) The number of branches discloses the average number of branches open
during the period.
(8) Sales per associate have been calculated by dividing net sales by the
average number of associates employed during the period. The average
number of associates was determined by dividing the sum of the number of
associates at the end of each month in the period by the number of months
in the period.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this Prospectus.
GENERAL
Pameco is one of the largest distributors of HVAC and refrigeration products
in the United States, with predecessor corporations dating back to 1931. The
Company stocks more than 65,000 SKUs to service more than 45,000 customers
through a national network of 294 branches in 44 states and Guam located in 76
of the top 100 SMSAs in the country.
The Company derives its revenue primarily from two sources: (i) the sale of
HVAC parts and equipment and (ii) the sale of refrigeration parts and
equipment. In fiscal 1997, the Company's HVAC business generated approximately
57.0% of its revenues, while the refrigeration business generated the balance.
In fiscal 1997, the Company sold approximately 80.0% of its products to the
higher margin repair and replacement market with the remaining 20.0% of its
revenues generated from the new construction and installation market. Growth
in revenue is dependent on several factors, including the life cycle and
average use of HVAC and refrigeration equipment, the number of suitable
acquisition candidates, fluctuations in weather and general economic
conditions.
In March 1996, Pameco hired a new Chief Executive Officer with extensive
experience in directing sales growth and acquisitions. Since then, the Company
has achieved same store sales growth of 8.0% and has completed four
acquisitions pursuant to which it acquired 60 branches in 11 states.
The Company has historically financed its acquisitions, new branch openings
and capital expenditures through internally generated cash flow and borrowings
under the Credit Facilities. During the initial phase of an acquisition or new
branch opening, the Company typically incurs expenses related to installing or
converting information systems, training employees and other reconfiguring
activities. In addition, in larger acquisitions, such as the Sid Harvey
transaction, the Company may incur additional expenses in connection with the
closure of redundant branches. The Company has accounted for its acquisitions
under the purchase method of accounting.
SEASONALITY
The Company's operating results vary significantly from quarter to quarter.
Sales typically increase during the warmer months beginning in April and peak
in the months of June, July and August. For the years ended February 29, 1996
and February 28, 1997, the Company recorded approximately 33.0% and 31.0%,
respectively, of its sales, and approximately 76.0% and 69.0%, respectively,
of its annual operating earnings (excluding the effect of non-recurring
charges) in the second fiscal quarter of each year. See "--Selected Quarterly
Operating Results."
Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment start-ups. Warmer
than normal summer temperatures or colder than normal winter temperatures
cause increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.
21
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited consolidated financial data
for the eight fiscal quarters through February 28, 1997. This data has been
derived from the Consolidated Financial Statements of the Company and, in the
opinion of management, includes all adjustments necessary for a fair
presentation in accordance with generally accepted accounting principles. The
Company's revenues and operating results have historically fluctuated from
quarter to quarter, and the Company expects that they will continue to do so
in the future. These fluctuations have been caused by a number of factors,
including seasonal customer demand (principally due to the effects of
weather), general economic conditions in the Company's markets, the timing of
acquisitions and the effectiveness of integrating acquired businesses. The
Company's results of operations for a particular quarter are not necessarily
indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1997
------------------------------------- -------------------------------------
MAY 31, AUG. 31, NOV. 30, FEB. 29, MAY 31, AUG. 31, NOV. 30, FEB. 28,
1995 1995 1995 1996 1996 1996 1996 1997
------- -------- -------- -------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $80,160 $108,738 $78,828 $66,811 $94,327 $118,126 $84,686 $81,519
Cost of products sold.. 61,754 83,446 60,335 49,766 72,314 88,698 64,108 60,319
------- -------- ------- ------- ------- -------- ------- -------
Gross profit............ 18,406 25,292 18,493 17,045 22,013 29,428 20,578 21,200
Gross profit
percentage............ 23.0% 23.3% 23.5% 25.5% 23.3% 24.9% 24.3% 26.0%
Warehousing, selling
and administrative
expenses.............. $16,494 $16,888 $17,152 $17,647 $19,440 $20,336 $19,075 $21,175
Warehousing, selling
and administrative
expenses as a
percentage of net
sales................. 20.6% 15.5% 21.8% 26.4% 20.6% 17.2% 22.5% 26.0%
Severance.............. -- -- -- $1,230 -- -- -- --
Executive cash bonus... -- -- -- -- -- -- -- $2,173
Operating income
(loss)................. $1,912 $8,404 $1,341 $(1,832) $2,573 $9,092 $1,503 $(2,148)
</TABLE>
Gross profit percentage for all quarters of fiscal 1997 increased from the
comparable quarters in fiscal 1996 due to a shift to higher margin products
and less discounting at point-of-sale purchases. The increase in gross profit
percentage in the fourth quarter of both fiscal years is primarily due to
higher than anticipated rebates received on purchases from suppliers.
Warehousing, selling and administrative expenses as a percentage of net sales
increased in the fiscal quarters ending August 31, 1996 and November 30, 1996
as compared to the corresponding quarters in the previous year due to an
increase in freight costs and the addition of sales associates.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain consolidated historical operating
information for the Company, as a percentage of total sales, for the periods
indicated:
<TABLE>
<CAPTION>
YEARS ENDED
FEBRUARY 28 OR 29,
----------------------
1995 1996 1997
<S> <C> <C> <C>
Net sales............................................... 100.0% 100.0% 100.0%
Cost of products sold.................................. 75.5 76.3 75.4
------ ------ ------
Gross profit............................................ 24.5 23.7 24.6
Warehousing, selling and administrative expenses....... 21.4 20.4 21.2
Severance............................................... 0.0 0.4 0.0
Executive cash bonus.................................... 0.0 0.0 0.6
------ ------ ------
Operating income........................................ 3.1 2.9 2.8
Interest expense, net.................................. 1.5 1.4 1.0
Other income (expense)................................. 0.1 (0.1) (0.4)
------ ------ ------
Income before income taxes.............................. 1.7 1.4 1.4
Provision (benefit) for income taxes.................... 0.2 (0.4) (1.5)
------ ------ ------
Net income.............................................. 1.5% 1.8% 2.9%
====== ====== ======
</TABLE>
YEAR ENDED FEBRUARY 28, 1997 COMPARED TO YEAR ENDED FEBRUARY 29, 1996
Net Sales. Net sales during the year ended February 28, 1997 increased 13.2%
to $378.7 million from $334.5 million during the previous year. Excluding the
effect of acquisitions, net sales in the year ended February 28, 1997
increased 8.1% to $361.7 million from $334.5 million during the previous year.
All product lines shared in the sales increase.
Gross Profit. Gross profit during the year ended February 28, 1997 increased
17.6% to $93.2 million from $79.2 million during the previous year. Excluding
the effect of acquisitions, gross profit in the year ended February 28, 1997
increased 12.1% from the previous year. The gross profit percentage increased
to 24.6% during the year ended February 28, 1997 as compared to 23.7% during
the previous year. The increase was a combination of the aforementioned sales
increase, a shift in sales from lower margin lines to higher margin lines,
less discounting to customers at the point-of-sale and improved terms from
suppliers.
Warehousing, Selling and Administrative Expenses. Warehousing, selling and
administrative expenses during the year ended February 28, 1997 increased
18.4% to $82.2 million from $69.4 million in the previous year. Excluding the
effect of acquisitions, warehousing, selling and administrative expenses in
the year ended February 28, 1997 increased 11.8% from the previous year. In
1997, such expenses included a non-recurring charge of $2.2 million for a one-
time executive cash bonus. In 1996, such expenses included a charge of $1.2
million for severance related to the replacement of the former Chief Executive
Officer of the Company. Excluding the effect of acquisitions and the non-
recurring charges, warehousing, selling and administrative expenses in the
year ended February 28, 1997 increased 8.7% from the previous year. This
increase was primarily due to distribution and selling costs related to
increased sales. Salaries and wages also increased as the Company added to its
sales force. Excluding the effect of acquisitions, the Company employed, on
average, 53 additional associates in 1997 versus 1996.
23
<PAGE>
Operating Income. Operating income during the year ended February 28, 1997
increased 12.2% to $11.0 million from $9.8 million during the previous year.
Excluding the effect of acquisitions and the non-recurring charges discussed
above, operating income in the year ended February 28, 1997 increased 21.1%
from the previous year. This increase was primarily due to increased sales
volume at higher gross profit percentages.
Interest Expense. Interest expense during the year ended February 28, 1997
decreased to $3.9 million as compared to $4.7 million for the previous year.
The Company successfully completed a refinancing of its Credit Facilities,
including the addition of the Securitization Program (as defined below), in
early 1996, lowering the rate of interest that it pays on its debt. The
Securitization Program was recorded as a sale of assets; therefore,
approximately $30.5 million of accounts receivable and debt are not reflected
on the Company's balance sheet at February 28, 1997. The discount on the sale
of accounts receivable of $1.4 million for the year ended February 28, 1997
was recorded as other expense on the income statement. The Company also
refinanced its subordinated debt in early 1996, achieving lower rates of
interest in the process. The average rate of interest on all debt, including
the Securitization Program, for the year ended February 28, 1997 was 8.8% as
compared to 10.7% for the previous year.
Income Taxes. The Company recorded a benefit for income taxes for the year
ended February 28, 1997 of $5.6 million compared to a benefit of $1.4 million
during the previous year. The Company recorded a $6.5 million deferred income
tax asset in 1997 in addition to the $1.8 million deferred income tax asset
recorded in 1996 in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Realization of the deferred
income tax assets was determined to be "more likely than not." The "more
likely than not" determination was based on (i) improved operating performance
of the Company in fiscal 1997 and projected continued improvements in the
future as a result of efforts of the new senior management team; (ii) the
acquisition of Sid Harvey and other entities which are expected to add to
gross margins without a proportionate increase in warehousing, selling and
administrative expenses and (iii) other ongoing revenue enhancement and cost
reduction programs.
YEAR ENDED FEBRUARY 29, 1996 COMPARED TO YEAR ENDED FEBRUARY 28, 1995
Net Sales. Net sales during the year ended February 29, 1996 increased 3.5%
to $334.5 million from $323.2 million during the previous year. In 1996 the
Company completed the closure of its unprofitable branches and turned its
focus to increasing Company revenues. Net sales for branches that were open at
the beginning and end of both years increased 4.7%.
A net sales increase of 8.7% was generated in the HVAC equipment segment
which offset flat revenue growth in the refrigeration segment and a decline in
refrigerant revenues of 7.3%. Net sales of supplementary parts and components
increased 7.3% as the Company increased the level of this type of product
stocked at the branches in 1996.
Gross Profit. Gross profit during the year ended February 29, 1996 decreased
to $79.2 million from $79.3 million during the previous year. The shift of net
sales into a higher mix of HVAC equipment, which typically has lower gross
profit margins than refrigeration equipment, put pressure on gross profits.
The gross profit percentage declined to 23.7% during the year ended February
29, 1996 as compared to 24.5% during the previous year.
Warehousing, Selling and Administrative Expenses. Warehousing, selling and
administrative expenses during the year ended February 29, 1996 increased 0.2%
to $69.4 million from $69.2 million during the previous year. In 1996, such
expenses included a non-recurring charge of $1.2 million for severance related
to the replacement of the former Chief Executive Officer of the Company. Net
of the non-recurring charge, expenses decreased $1.1 million. The decrease was
primarily due to efficiencies realized through the consolidation of management
information systems and centralization of administrative functions completed
in May 1995.
24
<PAGE>
Operating Income. Operating income during the year ended February 29, 1996
decreased to $9.8 million from $10.0 million during the previous fiscal year.
In 1996, operating income included a non-recurring charge of $1.2 million as
discussed above. Excluding the effect of such charge, operating income
increased 10.3% to $11.1 million during fiscal 1996, and the Company's
operating margin increased to 3.3% as compared to 3.1% during the previous
year.
Interest Expense. Interest expense during the year ended February 29, 1996
decreased to $4.7 million from $4.8 million during the previous year. Average
borrowings declined by $2.2 million during that period. In March 1995, the
Company negotiated a reduction in the interest rate on the Credit Facilities
and achieved lower rates of interest to offset the 1.2% increase in the prime
rate during this period. The Credit Facilities were used to pay down some of
the higher rate subordinated debt.
Income Taxes. The Company recorded a benefit for income taxes for the year
ended February 29, 1996 of $1.4 million compared to a provision for income
taxes of $575,000 during the previous year. The Company recorded a $1.8
million deferred income tax asset in 1996 in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting For Income Taxes."
Realization of the deferred income tax asset was determined to be "more likely
than not." The "more likely than not" determination was based on improved
operations, projections of continued improvements in operating performance in
future years and the fact that the alternative minimum tax credit carryforward
(which was the only portion of the deferred income tax asset recognized in
1996) can be carried forward indefinitely.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs arise from seasonal working capital
requirements, capital expenditures, interest and principal payment obligations
and acquisitions. The Company has historically met its liquidity and capital
investment needs with internally generated funds and borrowings under its
Credit Facilities. For the year ended February 28, 1997, cash from operating
activities was $35.3 million compared to cash from operating activities of
$4.5 million for the year ended February 29, 1996. The increase in cash flows
from operating activities was primarily due to the sale of a substantial
portion of the Company's accounts receivable under the Securitization Program.
Net cash used in investing activities was $28.6 million for the year ended
February 28, 1997, compared to $1.2 million for the year ended February 29,
1996. The increase in cash used in investing activities was primarily due to
the acquisition of the net assets of Sid Harvey and Chase and (to a lesser
extent) increases in capital expenditures. For the year ended February 28,
1997, cash used in financing activities was $6.7 million ($3.3 million for the
year ended February 29, 1996), reflecting the net cash effect of the financing
required for the Sid Harvey and Chase acquisitions, as well as the redemption
of preferred stock held by Generale Frigorifique SA ("GFF") and the repurchase
of treasury stock. See "Certain Transactions."
The Company's working capital decreased to $34.1 million at February 28,
1997 from $62.4 million at February 29, 1996, due principally to the sale of
the Company's accounts receivable as part of the Securitization Program.
At February 28, 1997, the Company had senior borrowings of $60.3 million
under its $100 million Credit Facilities, of which $17.1 million was unused
and available. The Company's senior indebtedness consists of $29.8 million
under the Working Capital Facility and $30.5 million under the Securitization
Program (collectively, the "Credit Facilities"). The Securitization Program is
an off-balance sheet arrangement that provides for the transfer and sale of
accounts receivable to a special purpose corporation. The weighted average
interest rate on the Credit Facilities at February 28, 1997 was 7.3%. This
rate fluctuates with the commercial paper and LIBOR rates. The Credit
Facilities expire in November 2001 and have no principal payment requirements
prior to that date. The Company intends to repay a portion of the Working
Capital Facility with the net proceeds of the Offering. See "Use of Proceeds."
Following consummation of the Offering, the Company
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expects to have available approximately $44.0 million of unused credit under
its Credit Facilities. See "Description of Certain Indebtedness."
In addition to the Credit Facilities, at February 28, 1997 the Company had
$18.6 million of indebtedness to certain members and an affiliate of the
Investor Group, all of which will be repaid from the proceeds of the Offering.
See "Use of Proceeds."
The Company's capital expenditures, excluding acquisitions, for the year
ended February 28, 1997 were $2.1 million as compared to $1.4 million for the
year ended February 29, 1996. Such capital expenditures were primarily for
branch and distribution center leasehold improvements, forklifts and delivery
vehicles and computer equipment and software. Prior to fiscal 1997, the
Company limited capital expenses while it closed certain branches. The
increase in such expenditures reflects the necessary investments in fixed
assets to position the Company for its growth plans. Capital expenditures for
fiscal 1998 are expected to total approximately $2.6 million. Substantially
all of the increase over fiscal 1997 is due to the Company's planned
investment in supply chain software and capital expenditures for newly
acquired branches.
Management believes that, following the consummation of the Offering, the
Company will have adequate resources and liquidity to meet its borrowing
obligations, fund all required capital expenditures and pursue its business
strategy for existing operations. However, the Company may require additional
funding in order to pursue significant acquisition opportunities. Future
acquisitions may be financed by bank borrowings, public offerings or private
placements of equity or debt securities or a combination of the foregoing.
Such financings may require the consent of the Company's existing lenders.
There can be no assurance that the Company will be able to obtain such funds
to finance significant future acquisitions or that the consent of its lenders
to obtain such funding will be forthcoming. Acquisitions funded by the
issuance of equity securities could result in substantial equity dilution to
the Company's then existing shareholders.
INFLATION
The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the sales or operating results of the
Company. However, inflation in the future could affect the Company's operating
costs. Price changes from suppliers have historically been consistent with
inflation and have had little impact on the Company's profitability. The
Company has been able to pass supplier price increases on to its customers or,
in a case where the Company meets resistance from its customers on a price
increase, the Company has been successful in working with its suppliers to
reduce acquisition cost in order to maintain a reasonable margin on its sales.
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BUSINESS
OVERVIEW
Pameco is one of the largest distributors of HVAC systems and equipment and
refrigeration products in the United States, with predecessor corporations
dating back to 1931. The Company stocks more than 65,000 SKUs to service more
than 45,000 customers through a national network of 294 branches in 44 states
and Guam located in 76 of the top 100 SMSAs in the country. The Company's
products include a complete range of central air conditioners, heat pumps,
furnaces and parts and supplies for the residential market, and condensing
units, compressors, evaporators, valves, walk-in coolers and ice machines for
the commercial market. In fiscal 1997, the Company's HVAC business generated
approximately 57.0% of its revenues, while the refrigeration business
generated the balance. In fiscal 1997, Pameco derived over 80.0% of its
revenues from the repair and replacement market, which is higher margin and
less cyclical than the new construction market due to end-users' needs for
immediate service and expert technical advice. The new construction market
generated the balance of Pameco's revenues. Management believes that Pameco is
the only company in the United States which offers a complete line of HVAC and
refrigeration products on a significant scale on a nationwide basis.
Pameco attributes its leadership position in the HVAC and refrigeration
distribution industries primarily to its operating philosophy. The Company
emphasizes personalized customer service and convenient "one-stop" shopping to
meet each customer's total needs at the local and national level. The
Company's technical service representatives, who provide customers with
technical advice in diagnosing problems and recommending solutions, are an
essential element of the Company's customer service. Pameco operates under a
centralized management structure and offers substantial incentive compensation
to its executive officers and division and branch managers. Additionally, the
Company believes that its size, its financial resources and its position as a
national distributor of HVAC and refrigeration products allow it to provide
superior customer service by offering immediate access to a complete product
line of equipment, parts and supplies through its 294 branches and six
regional distribution centers.
The Company's strategic objective is to continue to grow profitably in both
existing and new markets through the acquisition of branches and the opening
of new branches, as well as through increasing sales and profitability at
existing branches. The Company began an active acquisition program in 1996 to
capitalize on consolidation opportunities presented by the substantial size
and highly fragmented ownership structure of the HVAC and refrigeration
markets. Management believes Pameco is well-positioned to take advantage of
this fragmentation given the Company's breadth of product offerings, its
national presence and its proven ability to acquire and integrate new
branches, as demonstrated by its recent acquisitions. The Company's
acquisition strategy is to acquire profitable distribution businesses with
well-developed market positions and desirable supplier franchises. The Company
has focused and will continue to focus principally on acquisitions in
geographic areas not currently served by the Company, with the goal of
achieving greater geographic diversification and adding product lines,
customers and associates. Pameco will also pursue opportunities to strengthen
its position in existing markets by acquiring new branches within existing
geographic markets.
THE INDUSTRY
Based upon an industry report, management estimates that sales in the
residential and light commercial heating and cooling equipment and commercial
refrigeration markets (excluding product markets in which the Company does not
compete) totaled approximately $8.1 billion and $2.8 billion, respectively, in
1996. The combined $10.9 billion industry includes equipment, parts and
supplies distributed by wholesalers and by OEMs' captive distribution arms,
but excludes HVAC systems sold for use in large commercial projects and
refrigeration products sold in the residential market. Companies engaging in
the HVAC and refrigeration repair and replacement markets sell their products
primarily through local branches for their customers' convenience and timely
access to products. Management estimates that there are 8,100 HVAC and
refrigeration distributors in the
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United States operating from approximately 11,000 locations nationwide.
Management believes that a significant percentage of these distributors are
small, owner-operated businesses operating in single geographic areas and
providing a more limited range of products and services. Based upon the
industry report and the Company's fiscal 1997 revenues, management estimates
that Pameco's cumulative U.S. market share in its industry sectors is between
three and four percent and that no independent distributor has a significantly
greater share of this combined market on a nationwide basis.
Given the fragmentation of the market, management believes that the HVAC and
refrigeration distribution industry is well-positioned for consolidation. In
particular, management believes that many of the smaller distributors in its
industry are finding it increasingly difficult to compete in the current
market because they generally lack the financial resources of larger entities
and thus are unable to offer broad product lines and multiple brands and may
not possess sophisticated inventory management and control systems necessary
to operate multiple branches effectively or the ability to invest significant
resources in the information technology necessary to improve inventory flow.
In addition to the trend toward consolidation, management believes other
important trends within the industry include: (i) an increased presence of
large customer buying groups, forcing a competitive bidding process, while
creating opportunities to sell to new and large national accounts; (ii) the
increased importance of immediate availability of products; (iii) the attempt
by many of the smaller distributors to identify exit strategies for their
business and (iv) the proliferation of products and parts.
HVAC and refrigeration systems share many of the same characteristics,
including related markets, similar service requirements, including the need
for immediate availability of parts and supplies, common parts (such as
compressors) and often the same customers. According to Pameco's customer
surveys, most of the Company's customers provide both HVAC and refrigeration
repair and replacement services. Both HVAC and refrigeration customers also
require expert technical assistance in diagnosing problems and conceiving
solutions.
HEATING, VENTILATION AND AIR CONDITIONING
Based upon an industry report, management estimates that sales in the
residential heating and cooling equipment industry totaled approximately $8.1
billion in 1996 (excluding product markets in which the Company does not
compete) and have been growing at an annual rate of approximately seven to
eight percent. This growth was driven primarily by accelerated replacement
demand, due to an aging stock of existing homes which have antiquated heating
and cooling systems, aftermarket growth stimulated by federal efficiency
standards, increasing export demand, improved pricing stability for energy
sources and increased demand for integrated comfort air conditioning systems.
The HVAC product distribution industry is highly fragmented. Management
estimates that there are approximately 5,300 HVAC distributors in the United
States operating from 7,600 locations, most of which are smaller, local
distributors. As a result of their smaller size, many of the local or regional
distributors generally lack the purchasing power of larger entities, may lack
the resources to offer broad product lines and multiple brands, may not
possess sophisticated inventory management and control systems necessary to
operate multiple branches effectively and may not be able to invest
significant resources in technology which is necessary to improve inventory
flow. Further, the Company believes that a majority of independent
distributors focus on a particular size or type of customer or a particular
product line. The Company believes that the growing recognition of the high
costs and operational inefficiencies associated with purchasing HVAC products
from these smaller distributors has increased market demand for alternative
methods of distribution. As one of the largest independent HVAC wholesalers,
and a leader in the movement toward industry consolidation, management
believes that Pameco is well positioned to take advantage of these trends.
Residential and light commercial HVAC products are sold to the repair and
replacement and new construction markets. The repair and replacement market
has increased substantially over the past ten years as a result of the aging
of the installed base of HVAC products, the introduction of new energy-
efficient models and
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the upgrading of many existing buildings and homes to central heating and air-
conditioning. The Company anticipates the repair and replacement market for
HVAC parts and equipment will continue to expand even further, as a large
number of heating and cooling products installed in the housing booms of the
1970s and 1980s become outdated or reach the end of their useful lives. The
typical service life for equipment such as that marketed by the Company ranges
from eight to 15 years, depending upon the type of equipment, the volatility
of local weather patterns and installation location. In addition, management
believes the growth of the repair and replacement market for HVAC products may
be spurred further by consumers' desire to replace older systems with more
technologically advanced, efficient models in order to conserve energy and
take advantage of the increasing number of utility companies offering
incentive programs to replace older equipment.
In certain markets, some manufacturers compete directly with wholesale
distributors for HVAC equipment sales. These manufacturers maintain their own
branches and a dedicated sales force to distribute HVAC equipment and parts
directly to contractors and service technicians. Manufacturer-owned branches
typically feature product offerings centered around the manufacturers'
equipment and target a particular customer base.
REFRIGERATION
Based upon an industry report, management estimates that the U.S. market for
commercial refrigeration products (excluding product markets in which the
Company does not compete) totaled approximately $2.8 billion in 1996. The same
report estimates that nationwide demand for commercial refrigeration equipment
will increase approximately five to six percent annually through the year
2001. Although the commercial refrigeration equipment industry is growing at a
slower rate than the HVAC market, refrigeration products generate higher
margins due to the frequent immediate need for repair and the technical
expertise required in this sector. The refrigeration equipment distribution
industry is a mature market, consisting of a large number of repeat purchases,
little product differentiation, limited technological innovation and heavy
reliance upon suppliers and distributors. Demand for commercial refrigeration
equipment derives from a variety of sources, including food and beverage
services and various medical storage operations.
Sales of new refrigeration equipment are typically made by OEMs through
their dedicated sales forces. Sales in the repair and replacement market are
typically made by wholesalers and distributors, which have the ability to
deliver a wide variety of products on an immediate basis. In certain
situations, OEMs have determined that independent distributors can better
service the needs of their small and local customer base. In these instances,
OEMs have worked with wholesalers to establish programs that enable
wholesalers to profitably address the needs of these customers. Other
manufacturers continue to maintain their own sales force.
While normal replacement of aging equipment and new commercial construction
activity principally determine the sales of new refrigeration equipment,
increased demand for refrigeration products could also be driven by end-users'
desire to replace equipment containing chlorofluorocarbons ("CFC"), remodeling
due to upgrades and the sale of new specialty applications. Regulations
established at the Montreal Protocol in 1992 required the phase-out of CFC
refrigerant products by 1995. Accordingly, management believes that a
significant portion of the installed commercial refrigeration systems in the
United States are CFC-based and will have to be replaced or retrofitted by
systems which use non-CFC refrigerants over the next two decades. Thus,
management believes demand for replacement parts and supplies should remain
strong for the near- to medium-term, regardless of economic conditions.
Repair, replacement and maintenance of refrigeration systems depends to a
large extent on their use and the systems' "mean time between failures"
("MTBF"). As a result of improvements in design and production, the MTBF for
many new models has been extended by one to two years. However, the large
installed base in the United States requires extensive service and repair.
Many of the systems currently in place were installed during the construction
booms of the 1970s and 1980s; consequently, these systems are not likely to be
completely replaced for some period. Instead, these systems will require
regularly scheduled maintenance and repair, where
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margins are higher. Unlike the demand for HVAC systems, which is seasonal in
nature, sales of refrigeration replacement parts and equipment tend not to be
influenced significantly by seasonal fluctuations, due to the perishable
nature of the goods being stored.
While the commercial refrigeration equipment market is expected to grow at a
five percent annual rate, the market for refrigerants is expected to remain
flat in volume terms and to decline in dollar terms, due to recent
environmental initiatives regarding the production and use of CFCs. See "--
Government Regulations and Environmental Matters." Nevertheless, as discussed
above, the broad decline in CFC-based product demand is expected to be
partially offset by an expansion of the market for non-chlorine based
fluorochemicals as manufacturers and customers replace older, CFC-based
equipment and refrigerants with new non-CFC alternatives.
BUSINESS STRATEGY
The Company has invested considerable time and resources building its
national reputation and leveraging the goodwill of local branches that the
Company has developed or acquired. The Company has recently hired a new Chief
Executive Officer and four highly qualified senior managers in sales,
operations, logistics and management information systems to assist in the
implementation of the Company's operating strategy. The Company is pursuing
the following strategy to enhance growth and increase profitability:
Expansion by acquisition. The Company launched a targeted acquisition
strategy in 1996 as a consolidator in the HVAC and refrigeration distribution
industries. In the past 12 months, the Company has acquired 60 branches in 11
states, increasing the total number of its branches by over 20.0%. Pameco is
able to maximize its return on investment in new branches and obtain
incremental revenues and operating income with minimal incremental
administrative expenses, due to economies of scale made possible by the
Company's prior investment in its sales, operations, logistics and management
information systems infrastructure. Further, by geographically diversifying
its sources of revenue, management believes the Company is less susceptible to
economic slowdowns or adverse weather conditions which may occur in particular
regions of the country.
The Company's specific consolidation strategy is to acquire profitable
distribution businesses with well-developed market positions and supplier
franchises. Acquisitions can generally be categorized as new market
acquisitions or fill-in acquisitions. New market acquisitions represent the
entry into new geographic markets for the Company or the addition of new
product lines, or both. Fill-in acquisitions generally represent new branches
within the Company's geographic markets. The Company has focused primarily on
new market acquisitions, with the goal of achieving greater geographic
diversification, adding product lines, increasing sales to the repair and
replacement market (which tends to be less cyclical than the new construction
market), adding customers and associates and developing additional
opportunities for fill-in acquisitions and new branch openings. In particular,
the Company intends to expand geographically within the top 100 SMSAs.
The Company believes acquisitions increase its earnings more effectively
than expansion by opening new branches due to the acquisition of existing
customers and trained associates. The Company believes it can increase the
sales, profitability and asset productivity of acquired branches by converting
them to its business model. Following consummation of acquisitions, the
Company generally begins to eliminate redundant product lines, conform
inventory practices to the Company's strategy, centralize administrative
functions and install the Company's management information systems. In this
regard, the Company's senior management has significant experience in
integrating acquired businesses into a nationwide business.
Emphasis on "one-stop" shopping and immediate product and service
availability. Management believes that Pameco provides added value to its
customers by providing superior customer service and immediate access to a
complete line of industry-recognized brand names and private label equipment,
parts and supplies from numerous manufacturers through its branches and
distribution centers. The Company stocks over 65,000 SKUs
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at its branches and distribution centers and offers customers access to over
two million SKUs. In order to provide customers immediate access to products,
the Company stocks inventory representing over 75.0% of its sales at its
branches. Pameco believes its ability to provide immediate access to a wide
range of products, particularly in the refrigeration business, where equipment
repair is often time-sensitive, has helped the Company to establish a
reputation as a "one-stop" shop for HVAC and refrigeration products. In
addition, Pameco provides its customers with assistance in making intelligent
purchases through the Company's well-trained technical service representatives
and counter personnel. Management believes that its extensive product
offerings and knowledgeable associates help maintain an extensive and loyal
customer base.
Pursue regional and national customers. The Company is focused on
opportunities to serve existing and prospective customers on a multi-regional
or national basis, which it believes represents a significant growth
opportunity. In particular, the Company believes that its nationwide coverage
and broad product lines enable it to provide multi-regional and national
accounts with consistent service, greater purchasing leverage, improved
inventory management and centralized billing. This strategy is designed to
complement the Company's established relationships with its local and regional
customers. Management believes the new ThermalZone(TM) private label line of
HVAC equipment and parts, which Pameco introduced in September 1996 and which
is currently available in 47 states, will further increase the Company's
national account opportunities. The Company believes that a nationally
available, standardized HVAC product line will provide large accounts with
greater consistency in price, availability and quality because these accounts
will be able to purchase one uniform product line nationwide instead of
purchasing a number of different product lines from different suppliers.
The Company has also focused on customer awareness as part of its operating
strategy to better serve customers at the local, regional and national levels.
By improving its knowledge of customer needs, the Company is better positioned
to anticipate product demands at specific times. Moreover, most customers
historically have not focused on consolidating their own purchasing efforts
until presented with specific proposals. By educating its customers on the
benefits of consolidation, Pameco has been able to expand the scope of many of
its accounts to a regional or national level. These initiatives, combined with
the Company's national sales capability, differentiate the Company from most
of its competitors, many of which are unprepared to service large regional or
national accounts.
Continued focus on higher margin repair and replacement market. The Company
continues to focus on the higher margin repair and replacement market, from
which Pameco derived over 80.0% of its revenues in fiscal 1997. The repair and
replacement market has increased substantially over the past ten years as a
result of the aging of the installed base of HVAC products, the introduction
of new energy-efficient models and the upgrading of many existing buildings
and homes to central heating and air-conditioning. This installed product base
represents a significant market in terms of recurring revenues, as customers
are continually replacing a percentage of the installed base of equipment each
year. In the refrigeration market, by focusing sales on products used for
repairs, which typically cannot be postponed, the Company's revenues tend to
be less dependent upon national economic cycles.
Operating improvements through supply chain and cost structure
management. Pameco will continue to invest significant resources in its
management information systems. Management believes these systems will allow
the Company to achieve improvements in inventory control and cost management,
and, together with supply chain software to be acquired later this year, will
improve the Company's supply chain strategy, as decisions relating to
purchasing, inventory management and logistics will be more effectively
coordinated. All branches are equipped with computer systems that have the
ability to monitor inventory levels to ensure timely inventory orders and to
guard against unexpected stock shortages. Management believes that improved
distribution practices should reduce the Company's cost per SKU handled and,
over time, increase the Company's inventory turns and fill rate percentages.
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Margin enhancement focus. The Company is currently implementing several
measures in an effort to enhance its margins and reduce transaction costs.
These measures include system-related pricing enhancements, such as pricing
discipline through the limitation of discounts at the point-of-sale, and
improved performance from underperforming branches through internal
benchmarking. Additionally, the Company believes it will realize efficiencies
in cost control through the Company's management information system and
logistics network, as well as through improved supply chain dynamics as
described in the immediately preceding paragraph.
PRODUCTS
HEATING, VENTILATION AND AIR CONDITIONING
Pameco generated approximately 57.0% of its revenues in fiscal 1997 from
distributing and wholesaling HVAC equipment, parts and supplies. The Company
distributes a complete range of central air conditioners, heat pumps,
combination gas and electric units, packaged terminal air conditioners and
gas, electric and oil furnaces for the residential and light commercial
markets. Pameco's HVAC systems are suitable for use in multi-family
residences, single family homes, hotels, hospitals, schools, stores and other
residential and light commercial buildings. The Company seeks to provide every
product a contractor generally would require in order to install or repair a
residential or light commercial HVAC system. In fiscal 1997, more than 80.0%
of the Company's HVAC revenues were derived from sales of replacement, repair
and maintenance parts and supplies. The Company also intends to expand sales
of its new ThermalZone(TM) private label line of HVAC equipment and parts,
which it introduced in September 1996. Management believes the ThermalZone(TM)
line will further increase national account opportunities, because it provides
large accounts with greater consistency in product, price, availability and
quality.
In fiscal 1997, the Company generated over 70.0% of its HVAC revenues from
sales of products to contractors working on residences. Due to the similarity
of heating and cooling systems for houses and small commercial enterprises,
such as convenience and other strip center stores, restaurants and selected
office buildings, the Company has been able to diversify its end-user base.
The Company currently faces little competition from home centers, hardware
stores or direct mail order catalogue businesses which cater to this market,
due to the extensive number of required parts, licensing requirements for
installers of HVAC equipment and the limited ability of these entities to
provide technical service assistance with more complex systems.
REFRIGERATION
Pameco generated approximately 43.0% of its revenues in fiscal 1997 from
selling parts, systems and supplies for use in commercial refrigeration
systems. Pameco offers all of the necessary components of a new system,
including condensing units, compressors, evaporators, valves, regulators,
tubing, copper pipes, walk-in coolers and refrigerant. The Company also
provides valuable technical advice to customers through its technical service
representatives. This expertise is especially important in the refrigeration
industry, where specialized knowledge is more significant to the customer. In
addition, products may spoil if repairs are not performed quickly and
properly.
More than 80.0% of the Company's refrigeration revenues in fiscal 1997 were
generated from repair and replacement applications. Slightly more than half of
the Company's revenues in this segment are generated from distribution of
replacement compressors for use by grocery stores, convenience stores,
restaurants and other similar commercial enterprises. Given the change in
refrigeration products, new technology and installed product obsolescence,
much of this demand results from replacement of existing systems, and
therefore it remains fairly constant. However, Pameco has also experienced
some additional growth in other segments, as grocery and convenience stores
remodel to address the phase-out of CFC-based refrigerant products mandated by
recent government regulations. See "--Government Regulations and Environmental
Matters."
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DISTRIBUTION CENTERS AND BRANCH OPERATIONS
The Company currently operates six regional distribution centers located in
Denver, Colorado; Houston, Texas; Louisville, Kentucky; Orlando, Florida;
Pennsauken, New Jersey and Stockton, California. The Louisville, Kentucky
center, which is located in close proximity to United Parcel Service's main
distribution hub, also serves as a national distribution center for slower
moving SKUs. The strategic location of these centers was determined based upon
an extensive analysis of sales and branch concentrations, transportation
routes, supplier locations and personnel considerations. The Company's
distribution centers contain an aggregate of 600,000 square feet of storage
space.
Substantially all of the Company's sales originate from its 294 branches,
which are located in 44 states and Guam. The following table lists the number
of branches within each region of the country and the major SMSAs served
within that region as of April 29, 1997:
<TABLE>
<CAPTION>
REGION MAJOR SMSAS BRANCHES
<S> <C> <C>
Southern................ Atlanta, Miami, Orlando, Tampa 107
Northcentral............ Boston, Chicago, Detroit, New York, Philadelphia, Washington, D.C. 72
Southwestern............ Austin, Houston, Phoenix, San Antonio 60
Western................. Honolulu, Los Angeles, San Francisco, Seattle 55
</TABLE>
Operations and distribution personnel monitor each distribution center and
branch's inventory levels and mix based upon historical and estimated sales
patterns and work closely with Pameco's sales personnel to determine which
types of products and corresponding brands are most likely to sell in a
particular area. Each branch typically maintains an inventory of between 3,000
and 6,000 of the most frequently purchased SKUs in that region of the country,
known in the industry as "A" items. In addition, the Company stocks up to
65,000 SKUs at its central or regional distribution centers, which can be
delivered on a next-day basis. Further, Pameco has access to over two million
slower moving or infrequently purchased SKUs which generally are not required
on an immediate basis.
Pameco manages its inventory to mirror the seasonal demand for its products.
Given the nature of HVAC systems, the sale and distribution of products tends
to be dependent upon seasonal conditions. Also, while a particular region may
have the need for both air conditioning and heating systems, the use of each
will vary dramatically by area of the country, with different failure rates
and average periods for repair. The stress that many of these systems undergo
during periods of temperature extremes and volatile weather causes failures
and leads to increased repair and replacements. In addition, the types of
heating used (gas, electric or oil) also varies considerably by region. The
Company caters to multiple systems across the country through its distribution
management systems.
Each branch is operated under the Pameco tradename, although many acquired
branches use the Pameco name in conjunction with their original name in order
to maintain customer relationships and local name recognition. Each branch has
between 3,000 and 20,000 square feet of space, with approximately 80% of that
space used for inventory storage. The remaining square footage is used to
merchandise the products distributed through the branch. The Company typically
locates its branches with convenient access to highways servicing a large
number of contractors and other suppliers.
SUPPLIERS AND CUSTOMERS
SUPPLIERS
The Company's size and stature in the HVAC and refrigeration industries, as
well as its strong and long-standing supplier relationships, enable the
Company to obtain favorable terms from its suppliers. Additionally,
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while suppliers have traditionally resisted granting distribution rights on a
national level, due to the Company's size and growth through recent
acquisitions, Pameco has recently been granted nationwide distribution rights
for certain product lines. Management believes that as the Company continues
to grow additional suppliers may grant the Company broader distribution
rights.
The Company believes that it has good relationships with its suppliers and
that these relationships have been strengthened by the Company's recent
acquisitions. However, a significant portion of the Company's distribution
arrangements with its suppliers are oral. Further, many of these distribution
rights may be terminated by the supplier immediately or upon short notice.
During fiscal 1997, the Company purchased approximately $305.0 million of
equipment for resale, of which approximately 59.0% was obtained from its top
five suppliers, while the 25 largest suppliers accounted for approximately
87.0% of total purchases. No single supplier accounted for more than 19.0% of
the Company's total purchases.
CUSTOMERS
The Company currently serves over 45,000 customers, with no single customer
accounting for more than two percent of the Company's total sales and with the
top ten customers representing less than seven percent of total sales in
fiscal 1997. Management believes that Pameco's close relationship with its
customers is as critical to its success as parts availability and competitive
pricing. Consequently, Pameco has gone to great lengths to maintain and
enhance these relationships. A customer survey conducted by Pameco in the
spring of 1996 identified the needs of the current customer base. Based on
this survey, in addition to parts availability and selection, customers ranked
trustworthiness, relationship with store staff and the staff's technical
knowledge as key determinants in where they conduct business. Price often may
be of secondary importance.
MARKETING AND SALES
Historically, Pameco had not employed a consistent marketing and sales
strategy. Since the spring of 1996, however, the Company has employed a
proactive approach to customer relationships in order to facilitate growth at
the local, regional and national level. Management believes this new approach
is responsible in part for the increase in revenues in fiscal 1997 over fiscal
1996. The Company's focused marketing and sales approach includes the
following strategies:
The Company attempts to build on its long-lasting relationships with
customers at the local and regional levels in order to expand existing
business relationships. The Company's national account sales personnel call on
the corporate headquarters of multi-regional and national firms that are
already customers on the local level. The Company believes this approach is
attractive to national accounts because it provides these customers with
simplified billing and pricing, while allowing their local representatives to
continue to receive a high level of service at the Company's local branches.
The Company recently began placing specific emphasis on expanding to a
national level its sales to large local and/or multi-branch customers that
have minimum annual purchases of $100,000, a segment representing
approximately 14.0% of Pameco's annual revenues, through development of the
Company's "Key Account" program. In calendar 1996, Key Accounts generated
$45.6 million of revenue for the Company. While these Key Accounts, such as
certain national supermarket chains, tend to place greater emphasis on
service, consistency and price considerations than do local customers, most
historically had not focused on consolidating their own purchasing efforts
until the Company presented them with specific proposals. The Company's
representatives market the benefits of consistent service, greater purchasing
leverage, improved inventory management and centralized billing through the
expansion of existing accounts. The Company believes that these initiatives,
combined with the Company's national sales capability, differentiate the
Company from most of its
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competitors, many of which do not have the national presence to service large
multi-regional and national accounts.
The Company believes that a nationally available standardized HVAC product
line provides an additional method for Pameco to target national accounts and
provide them with uniform price, availability and quality. As a result of the
Company's ThermalZone(TM) arrangement, management believes that Pameco is the
only independent distributor with effective national rights (in 47 states) to
sell a particular branded product of air conditioning equipment. Since its
introduction in September 1996, the Company has seen considerable volume in
ThermalZone(TM) products, with little reduction in sales of its other product
offerings. Management believes that this development, in conjunction with the
Company's recent branch acquisitions, solidifies Pameco's position as a
leading distributor in the HVAC industry. The Company is exploring
opportunities for a similar private label arrangement for refrigeration
products.
On the local level, the Company employs approximately 1,000 sales and
service-related associates in order to market and sell effectively to its
45,000 customers. Pameco supports these selling efforts with external
advertising and promotional expenditures of approximately $5.0 million per
year. For example, in March 1997, Pameco began a telemarketing program, which
includes pre-approved credit lines, promotional discounts and a follow-up
contact with existing and potential customers, to enhance its relationship
with its existing customers and attract new customers. The Company also
promotes its services at the local level primarily in telephone directories,
as well as by direct mail and advertising in newspapers and on local
television and radio. Each branch manager determines the frequency and type of
advertising in the local market. In addition to its principal marketing
methods, the Company is producing an Internet web page that is expected to
describe the Company's branches, product lines and equipment available for
sale and allow customers to order products without visiting a branch.
MANAGEMENT INFORMATION SYSTEMS
The Company's management information systems are instrumental in allowing
Pameco to lower costs, accelerate growth, increase market share and otherwise
position the Company as a leader in its HVAC and refrigeration businesses. The
Company's systems support its three main types of operations: headquarters,
distribution centers and branches. Each of these operations are linked
together through a combination of wide and local area networks.
Headquarters systems support the information processing needs of senior
management, the corporate office staff and regional managers, and provide
enterprise-wide consolidated information at the branch, regional, divisional
and Company levels. These systems include financial applications such as
general ledger, accounts payable, accounts receivable, inventory management
and materials management, as well as nonfinancial applications such as sales
and service support, pricing, telemarketing, electronic data interchange and
database. These systems generate daily operating control reports that provide
concise and timely measurement of key aspects of the business, enabling
management to achieve cost savings, deliver superior customer service and
manage the Company's operations centrally.
Distribution centers are connected to the Company's headquarters'
information systems through dedicated telephone lines and are on-line to key
applications systems such as materials management and inventory. Real-time
connectivity to this information enables each distribution center access to
the most timely management and control information for purchasing, inventory,
distribution, stock balancing, order fulfillment and other measurements of
performance.
Branches utilize a point-of-sale ("POS") system that operates on a local
area network in each facility. The POS system includes sales/order processing,
customer management, accounts receivable, inventory management, distribution
and pricing support. The POS system communicates daily with headquarters'
systems to transfer
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<PAGE>
customer, sales and inventory transactions and receive file and data updates
from headquarters and distribution centers.
To support the Company's acquisition strategy, the Company has developed a
methodology to facilitate the timely integration of acquired branches into its
MIS environment and communications network. For MIS, the acquisition process
begins with planning at the time the acquisition target is identified,
assessing and determining the requirements for conversion to the POS and other
financial systems. The result of this process is the timely, complete and
accurate conversion of the acquired branches' data, and the speedy
implementation of store/POS information systems and applications.
The Company intends to implement major improvements to its headquarters
systems and communications networks. The Company also intends to purchase new
supply chain software that will upgrade current inventory and materials
management software, provide greater connectivity with suppliers and
customers, and further automate inventory, warehouse and materials management
functions. Additionally, certain improvements in telecommunications are being
implemented that will enable faster and less expensive communications between
headquarters, distribution centers and branches. See "Risk Factors--Dependence
on Information Systems."
COMPETITION
The Company's business is highly competitive and fragmented. The Company
competes with a wide variety of traditional HVAC and refrigeration product
distributors in each of the Company's geographic markets. Most such
distributors are small enterprises maintaining between one and ten branches
and selling to customers in a limited geographic area. The Company also
competes to some extent with the manufacturers of HVAC and refrigeration
products, although management believes these manufacturers cannot compete
effectively with the broad product lines and additional services offered by
distributors, such as the Company. The primary factors of competition within
the Company's industries include breadth and quality of product lines
distributed, ability to fill orders promptly, technical knowledge of sales
personnel and, in certain product lines, service capability and price. In
general, the Company believes that national and multi-regional wholesalers,
such as the Company, enjoy substantial competitive advantages over small,
independent wholesalers that cannot afford to maintain Pameco's comprehensive
product offerings. The Company believes that its ability to compete
effectively is dependent upon its ability to respond to the needs of its
customers through quality service and product availability.
Management believes the Company's geographic diversity, service
capabilities, marketing focus, product availability and national scale compare
favorably to those of its significant competitors. However, competitive
pressures or other factors could cause the Company's products or services to
lose market acceptance or result in significant price erosion, all of which
would have a material adverse effect on the Company's business and results of
operations. See "Risk Factors--Substantial Competition."
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
The Company's operations are subject to federal, state and local laws and
regulations relating to the generation, storage, handling, emission,
transportation and discharge of materials into the environment. These include
laws and regulations implementing the Clean Air Act, relating to minimum
energy efficiency standards of HVAC systems and the production, servicing and
disposal of certain ozone depleting refrigerants used in such systems,
including those established at the Montreal Protocol in 1992 concerning the
phase-out of CFC-based refrigerants. Management believes that the Company is
in substantial compliance with all applicable federal, state and local
provisions relating to the protection of the environment. The Company is also
subject to regulations concerning the transport of hazardous materials,
including regulations adopted pursuant to the Motor Carrier Safety Act of
1990.
36
<PAGE>
HEADQUARTERS AND PROPERTIES
The Company's corporate headquarters are located in Norcross, Georgia and
are occupied pursuant to a lease that expires in July 2003. The Company
believes that its current office space is sufficient to meet its present needs
and does not anticipate any difficulty securing additional space, as needed,
on terms acceptable to the Company.
Pameco leases all six of its distribution centers pursuant to agreements
expiring from five to 15 years. See "--Distribution Centers and Branch
Operations." The Company operates 294 branches in 44 states and Guam. Pameco
owns five of its branches and leases the other 289. The Company's branch
leases have terms expiring from one to seven years, with its leases typically
having renewal options. Management believes that none of Pameco's leased
facilities, individually, is material to the Company's operations.
TRADEMARKS
The tradenames "Pameco," "ThermalZone" and "Gift of Warmth" and related
design logos are actively used and are significant to the Company's business.
All of these marks have been registered on the Principal Register of the
United States Patent and Trademark Office.
INSURANCE
Pameco currently maintains the types and amounts of insurance coverage that
it considers appropriate for a company in its business. While management
believes that the Company's insurance coverage is adequate, if the Company
were held liable for amounts exceeding the limits of its insurance coverage or
for claims outside of the scope of its insurance coverage, the Company's
business and results of operations could be materially and adversely affected.
ASSOCIATES
As of February 28, 1997, Pameco employed approximately 1,300 associates, 170
of whom were employed primarily in management and administration, 90 in
regional distribution centers and 1,040 in sales and field operations. Pameco
expects that it will increase the number of its associates as it opens
additional branches and otherwise expands its business. The Company's
associates are not subject to any material collective bargaining agreements,
and management believes that its relationship with its associates is good.
LEGAL PROCEEDINGS
On November 18, 1996, United, a competitor of the Company, filed suit
against Pameco in the United States District Court for the Eastern District of
Pennsylvania claiming that Pameco had tortiously interfered with United's
alleged contract to purchase Sid Harvey's southeastern business operations
(the "Southeastern Assets"). United asserted that beginning on or about August
23, 1996, it met with Sid Harvey and thereafter negotiated an agreement
(allegedly finalized on or about October 24, 1996) to purchase the
Southeastern Assets for approximately $26.0 million and that Pameco tortiously
interfered with this alleged contract by offering "substantial inducements" to
Sid Harvey and by itself purchasing the Southeastern Assets. In the
alternative, United claims that, should the agreement be deemed unenforceable,
Pameco tortiously interfered with United's prospective contractual relations
with Sid Harvey.
On February 18, 1997, United filed an amended complaint adding Sid Harvey as
a defendant. In the amended complaint, United claims that Sid Harvey (i)
breached its agreement to sell the Southeastern Assets to United; (ii)
committed fraud in the inducement of that alleged contract; (iii) negligently
misrepresented certain facts concerning the sale of the operations and Sid
Harvey's intention to carry out the sale of those assets
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<PAGE>
and (iv) was unjustly enriched by certain information obtained from United
during the United-Sid Harvey negotiations. Although the amended complaint does
not demand specified damages, it asserts that United should recover the "loss
of its bargain," which United estimates to be $11.4 million. Upon consummation
of the Southeastern Assets acquisition, Pameco agreed, based on certain
written representations made by Sid Harvey about the status of its discussions
with United, to indemnify Sid Harvey against all liabilities arising out of
any action filed by United in connection with the purchase of the Southeastern
Assets. The Company believes that United's claims lack merit and intends to
defend itself vigorously in this litigation.
On July 5, 1996, three former employees filed suit against Pameco and a
Company supervisor in the Superior Court of the State of California, County of
Stanislaus, alleging various tortious acts and that the Company maintained a
hostile work environment. The suit also asserts that in permitting the alleged
harassment of the plaintiffs by its supervisor, Pameco violated the California
Fair Employment Housing Act by failing to provide a harassment free work
place. The plaintiffs have cumulatively sought $1.8 million in damages,
including $1.5 million in punitive damages, from Pameco. The Company believes
that these claims lack merit and intends to defend itself vigorously in this
litigation.
In addition, the Company is, from time to time, a party to other litigation
arising in the normal course of its business. Management believes that none of
these actions, individually or in the aggregate, will have a material adverse
effect on the Company's business and results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Certain information regarding the directors and key employees of the Company
is set forth in the table below.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
James R. Balkcom, Jr. .. 52 Chairman of the Board
Gerald V. Gurbacki...... 51 Chief Executive Officer and Director
Charles A. Sorrentino... 52 President and Chief Operating Officer
Theodore R. Kallgren.... 35 Chief Financial Officer, Vice President and Secretary
Jeffrey S. Ruege........ 42 Vice President and General Manager--HVAC
J. Christopher van Ee... 44 Vice President and General Manager--Refrigeration
Mark L. Davison......... 37 Chief Information Officer
G. Thomas Braswell, 55 Director
Jr.....................
Michael H. Bulkin....... 58 Director
Earl Dolive............. 79 Director
H. Whitney Wagner....... 41 Director
Thomas G. Weld.......... 34 Director
</TABLE>
JAMES R. BALKCOM, JR. has been a Director of the Company since February 1996
and Chairman of the Board since May 1996. Mr. Balkcom also is self-employed
with J.R. Balkcom Associates, Inc., a strategic planning consulting firm.
Prior to joining Pameco, he served from 1976 until 1995 as Chairman, President
and CEO of Techsonic Industries, Inc., a manufacturer of consumer marine
electronics. Mr. Balkcom has been the Chairman of Techsonic Industries, Inc.
since December 1995.
GERALD V. GURBACKI has been Chief Executive Officer of the Company since
March 1996. He has also served as a director since March 1996. Prior to
joining Pameco, Mr. Gurbacki was President of National Linen Service, a
subsidiary of National Service Industries, from 1987 to October 1995. Prior to
serving as President, Mr. Gurbacki held several executive and managerial
positions with National Linen Service.
CHARLES A. SORRENTINO has been President and Chief Operating Officer of the
Company since June 1994. Prior to joining the Company, Mr. Sorrentino served
as a Senior Vice President of Nationwise Automotive Corp. from January 1993 to
October 1993. From 1983 to 1993, he was employed by PepsiCo as a Subsidiary
President and a Division Vice President. During his employment with PepsiCo,
Mr. Sorrentino also held a variety of other positions, including Region Vice
President. Prior to joining PepsiCo, Mr. Sorrentino was in the HVAC industry
for fourteen years with Sundstrand/Bristol Compressors.
THEODORE R. KALLGREN joined the Company in May 1988, and has been Vice
President and Chief Financial Officer of Pameco since March 1994. Mr. Kallgren
also served as Vice President of Finance of MLX Corp., an affiliate of the
Company ("MLX"), from March 1991 to March 1994, and as Secretary of MLX from
March 1994 to April 1997. Prior to joining Pameco, Mr. Kallgren was employed
by Ernst & Whinney from 1984 to 1988.
JEFFREY S. RUEGE joined the Company in March 1988, and has served as Vice
President and General Manager of HVAC Operations of Pameco since September
1996. Before assuming his current position, Mr. Ruege supervised the
development of sales, marketing, and key accounts. Prior to joining Pameco,
Mr. Ruege was employed by Rockwell International from 1979 to 1988.
39
<PAGE>
J. CHRISTOPHER VAN EE joined the Company in April 1991 as Vice President of
Materials and has served as Vice President and General Manager of
Refrigeration Operations of Pameco since September 1996. Before assuming his
current position, Mr. van Ee supervised the development of Pameco's materials
procurement and distribution systems. From 1976 to 1991, Mr. Van Ee had a
variety of professional experience in production and materials management,
including positions with Trimblehouse Corporation, Ford Motor Company, Mars
Inc. and Timex.
MARK L. DAVISON has been Chief Information Officer of the Company since July
1996. Prior to joining Pameco, Mr. Davison was employed as a senior manager
with International Systems Services, a strategic planning and information
technology consulting firm, from March 1996 to June 1996, and as the Vice
President-Information Systems of National Linen Service, an integrated textile
rental company from 1990 to 1996.
G. THOMAS BRASWELL, JR. has been a Director of the Company since October
1995. Mr. Braswell is currently Vice President of Information Systems for
Genuine Parts Company, a national distributor of automotive parts, a position
he has held since 1982. Mr. Braswell has been employed by Genuine Parts
Company for 31 years.
MICHAEL H. BULKIN has been a Director of the Company since February 1996.
From 1965 to 1993, Mr. Bulkin was a Principal and Director with McKinsey &
Company, Inc. Mr. Bulkin has served as an independent consultant since 1993.
EARL DOLIVE has been a Director of the Company since 1993. Mr. Dolive
retired as Vice-Chairman of Genuine Parts Company in 1989 after 52 years of
service. Mr. Dolive was President of the National Automotive Parts Association
(NAPA) in 1970 and 1971. Mr. Dolive is also a director of Aaron Rents and
Exide Corporation and Director Emeritus of Genuine Parts Company.
H. WHITNEY WAGNER has been a Director of the Company since 1993, and has
been a Managing Director of TCR since 1983. Mr. Wagner was employed as a
Corporate Banking Officer with Chemical Bank prior to joining TCR in 1983. Mr.
Wagner is also a director of MLX, Family Bargain Corporation and Garden Ridge
Corporation.
THOMAS G. WELD has been a Director of the Company since 1994, and is
currently employed by TCR as a Managing Director, a position he has held since
June 1993. Prior to joining TCR, Mr. Weld was employed by McKinsey & Company,
Inc. from 1989 to 1993. Mr. Weld is also a director of Family Bargain
Corporation.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of Messrs. Braswell, Dolive
and Wagner. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans and results of the audit engagement, approves
professional services provided by the independent public accountants, reviews
the independence of the independent public accountants, considers the range of
audit and non-audit fees and reviews the adequacy of the Company's internal
accounting controls.
Compensation Committee. The Compensation Committee consists of Messrs.
Bulkin, Dolive and Wagner. The Compensation Committee recommends compensation
for the Company's executive officers and administers the Company's Employee
Stock Option Plans.
Strategic Planning Committee. The Strategic Planning Committee consists of
Messrs. Balkcom, Braswell, Bulkin, Gurbacki and Weld. The Strategic Planning
Committee reviews and makes recommendations regarding the Company's stated
strategic objectives.
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<PAGE>
The Company may from time to time form other committees as circumstances
warrant. Such committees will have authority and responsibility as delegated
by the Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information regarding the annual
compensation for services in all capacities to the Company for the fiscal year
ended February 28, 1997, with respect to the Company's Chief Executive Officer
and each of the Company's four other most highly compensated executive
officers (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------------------------
LONG TERM
COMPENSATION AWARDS;
NAME AND SECURITIES UNDERLYING ALL OTHER
PRINCIPAL POSITION SALARY BONUS OPTIONS (#) COMPENSATION
<S> <C> <C> <C> <C>
Gerald V. Gurbacki...... $310,512 $1,250,000(1) 515,625 $369(2)
Chief Executive Officer
and Director
Charles A. Sorrentino... 187,200 313,298(1) 6,250 --
President and Chief
Operating Officer
Theodore R. Kallgren.... 121,385 187,411(1) 9,375 --
Chief Financial
Officer, Vice President
and Secretary
J. Christopher van Ee... 129,626 117,519(1) 3,125 --
Vice President and
General Manager--
Refrigeration
Jeffrey S. Ruege........ 122,714 174,326(1) 9,375 29(2)
Vice President and
General Manager--HVAC
</TABLE>
- ---------------------
(1) Includes bonuses granted pursuant to the Company's bonus plan and a one-
time special cash bonus, which accrued in fiscal 1997, although a
percentage of the bonus may not be paid until subsequent fiscal years. See
"--Bonus Plan" and "--Special Bonuses."
(2) Represents life insurance premiums paid by the Company.
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<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The following table summarizes certain information regarding stock options
to purchase Class A Common Stock issued to the Named Executive Officers during
fiscal 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------------
NUMBER OF POTENTIAL REALIZABLE VALUE AT
SECURITIES PERCENT OF TOTAL ASSUMED ANNUAL RATES OF
UNDERLYING OPTIONS GRANTED EXERCISE OR STOCK PRICE APPRECIATION
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION FOR OPTION TERM(1)
GRANTED FISCAL YEAR ($/SH) DATE ------------------------------
NAME ---------- ---------------- ----------- ---------- 5% 10%
<S> <C> <C> <C> <C> <C> <C>
Gerald V. Gurbacki...... 468,750(2) 80.3% $6.40 04/15/02 $4,357,305 $5,281,054
46,875(3) 8.0 6.40 05/05/02 437,535 532,452
Charles A. Sorrentino... 6,250(4) 1.1 8.00 08/04/01 46,626 57,420
Theodore R. Kallgren.... 9,375(4) 1.6 8.00 08/04/01 69,939 86,130
J. Christopher van Ee... 3,125(4) 0.5 8.00 08/04/01 23,313 28,710
Jeffrey S. Ruege........ 9,375(4) 1.6 8.00 08/04/01 69,939 86,130
</TABLE>
- ---------------------
(1) The dollar amounts under these columns represent the potential tangible
value, before income taxes, of each option assuming that the market price
of the Class A Common Stock appreciates in value from the fair market
value at the date of grant to the end of the option term at five percent
and ten percent annual rates and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Class A Common
Stock. All grants of options have been made with exercise prices equal to
the fair market value on the date of grant.
(2) Pursuant to the terms of his Employment Agreement, Mr. Gurbacki has been
granted options under one of the Employee Stock Option Plans to purchase
468,750 shares of Class A Common Stock at a price of $6.40 per share.
These options vest periodically beginning in April 1996 through March 1,
2001, although all of these options will vest immediately upon
consummation of the Offering.
(3) Mr. Gurbacki received a separate grant of options to purchase 46,875
shares of Class A Common Stock at a price of $6.40 per share. These
options vest periodically beginning in May 1996 through March 1999,
although all of these options will vest immediately upon consummation of
the Offering.
(4) Granted pursuant to the Employee Stock Option Plan. Options have a term of
five years and vest in one-third increments annually beginning August 5,
1996.
OPTIONS EXERCISED IN LAST FISCAL YEAR; FISCAL YEAR END OPTION VALUES
No options were exercised in the fiscal year ended February 28, 1997. The
following table summarizes certain information regarding year end option
values of the Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FEBRUARY 28, 1997 IN-THE-MONEY OPTIONS
(NO. OF SHARES) AT FEBRUARY 28, 1997
------------------------------------ -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Gerald V. Gurbacki...... 515,625(1) -- $3,918,750 $ --
Charles A. Sorrentino... 33,333 4,167 249,998 25,002
Theodore R. Kallgren.... 25,000 6,250 264,100 37,500
J. Christopher van Ee... 22,917 2,083 268,752 12,498
Jeffrey S. Ruege........ 25,000 6,250 276,350 37,500
</TABLE>
- ---------------------
(1) All of Mr. Gurbacki's options will become exercisable upon consummation of
the Offering.
42
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1997, the Compensation Committee consisted of Messrs. Balkcom,
Dolive and Wagner. In March 1997, Mr. Balkcom obtained a $600,000 loan from
the Company in connection with his purchase of an aggregate of 62,500 shares
of Common Stock at a purchase price of $9.60 per share. Mr. Wagner is a
Managing Director of TCR, an affiliate of the Company, which serves as the
Company's financial advisor. See "Certain Transactions." Commencing on March
24, 1997, Mr. Bulkin replaced Mr. Balkcom on the Compensation Committee.
COMPENSATION OF DIRECTORS
Each non-employee director, other than the directors employed by TCR,
receives an annual retainer of $10,000 as well as director's fees of $2,500
per board meeting or committee meeting attended in person, or $250 per meeting
in which they participate by telephone, and all Directors are reimbursed for
their out-of-pocket expenses incurred in connection with their service on the
Board of Directors. In addition, in fiscal 1997 the Company paid Mr. Balkcom
$50,000 to serve as the Chairman of the Board of Directors and recently agreed
to pay him $175,000 in fiscal 1998 in exchange for his agreement to devote
75.0% of his time to the Company's business. For a description of the non-cash
compensation to be paid to the non-employee Directors for their service on the
Board, see "--Stock Incentive Plans--Non-Employee Directors Stock Option
Plan." Mr. Gurbacki will receive no compensation for his service on the Board
of Directors other than reimbursement for his out-of-pocket expenses incurred
in connection with such service.
INDEMNIFICATION AGREEMENTS
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the
Indemnified Parties against certain liabilities arising out of their services
for the Company. The Indemnification Agreements require the Company (i) to
indemnify each Indemnified Party to the fullest extent permitted by law; (ii)
to provide coverage for each Indemnified Party under the Company's directors
and officers liability insurance policy and (iii) to advance certain expenses
incurred by an Indemnified Party. The Indemnification Agreements provide
limitations on the Indemnified Parties' rights to indemnification in certain
circumstances. To the extent that indemnification provisions contained in the
Indemnification Agreements purport to include indemnification for liabilities
arising under the Securities Act, the Company has been informed that in the
opinion of the Securities and Exchange Commission (the "Commission"), such
indemnification is contrary to public policy and therefore unenforceable.
EMPLOYMENT AGREEMENT
The Company entered into an employment agreement with Mr. Gurbacki as of
March 1, 1996. The employment agreement provides for a three-year term, which
is automatically extended for successive one-year terms unless either party
elects to terminate the agreement by giving written notice thereof to the
other party at least 180 days prior to the expiration of the then-current
term. The agreement provides for a base salary of $315,000 (subject to annual
review by the Board of Directors), a targeted annual bonus equal to 50% of
Mr. Gurbacki's annual salary, payable in shares of Class A Common Stock at the
discretion of the Board of Directors, and Company benefits of the type
generally provided to key executives. Effective March 1, 1997, Mr. Gurbacki's
annual base salary has been increased to $400,000 and his targeted annual
bonus for fiscal 1998 is $250,000. In addition, Mr. Gurbacki may participate
in the Company's health benefit plan, at his own expense, until age 65. The
Company can terminate Mr. Gurbacki for Cause (as defined in the employment
agreement) or for his inability to carry out his duties effectively. If
Mr. Gurbacki is terminated without Cause, then the Company must pay him
severance in an amount equal to his then current annual salary plus a pro rata
amount of his targeted bonus for the year in which he is terminated. If Mr.
Gurbacki is terminated due to a change in control
43
<PAGE>
of the Company, then he is entitled to severance in an amount equal to two
times his then current annual salary plus his targeted bonus for the year in
which he is terminated.
BONUS PLAN
The Company offers incentive bonuses to its executive officers, division
presidents, regional and branch managers and sales associates. These associates
may earn predetermined annual bonuses equal to a substantial percentage of
their base salary, based upon meeting certain performance goals with respect to
profitability, revenue growth and asset management. In fiscal 1997, the Company
accrued approximately $2.0 million for bonus payments to its associates
pursuant to its bonus plan. Management believes that this program assists the
Company in attracting, retaining and motivating associates with experience and
ability.
SPECIAL BONUSES
In February 1997, the Company declared and accrued a one-time special cash
bonus to 14 of its associates in order to reward these associates for their
past efforts on behalf of the Company. The amount of the bonus is equal to the
aggregate exercise price of the stock options previously granted to each such
associate, and the bonus is payable as each associate's options become
exercisable. The aggregate amount of the special bonuses is approximately $2.2
million.
STOCK INCENTIVE PLANS
The Company has adopted two separate but virtually identical Stock Option
Plans and entered into a separate agreement for the grant of stock options to
the Chief Executive Officer (collectively, the "Plans" or individually with
respect to the stock option plans, "Plan I" and "Plan II") for the purpose of
(i) attracting and retaining senior management personnel with ability and
initiative; (ii) providing incentives to those deemed important to the success
of the Company and (iii) associating the interests of these individuals with
the interests of the Company and its shareholders through opportunities for
increased ownership of Class A Common Stock. Although all material terms of the
Plans are set forth below, the summaries of the Plans set forth below are
qualified in their entirety by reference to the text of the Plans, which have
been filed as exhibits to the Registration Statement of which this Prospectus
is a part.
THE EMPLOYEE STOCK OPTION PLANS
Administration. Each Plan is administered by the Compensation Committee.
Eligibility. Each officer and other key employee of the Company, including an
employee who is a member of the Board, is eligible to participate in the Plans.
The Compensation Committee will select the individuals who will participate in
the Plans ("Participants"); provided, however that the Company's Chief
Executive Officer has the right to grant awards under Plan I involving up to
1,000 shares of Class A Common Stock, and shall have the same authority and
discretion as the Compensation Committee with respect to such options.
Stock Options. Options granted under the Plans may be incentive stock options
("ISOs") or nonqualified stock options. A stock option entitles a Participant
to purchase shares of Class A Common Stock from the Company at the option
price. Subject to certain exceptions, the option price must be paid upon
exercise in cash or cash equivalent. The option price will be fixed by the
Compensation Committee at the time the option is granted, but the price cannot
be less than the fair market value of a share of Class A Common Stock on the
date of grant in the case of an ISO. The exercise price of an ISO granted to
any Participant who is a Ten Percent Shareholder (as defined below) may not be
less than 110% of the fair market value of a share of Class A Common Stock on
the date of grant. A Participant is a Ten Percent Shareholder if he owns, or is
deemed to own, more than ten percent of the total combined voting power of all
classes of stock of the Company or a related
44
<PAGE>
entity. A Participant is deemed to own any voting stock owned (directly or
indirectly) by the Participant's spouse, brothers, sisters, ancestors and
lineal descendants. A Participant and such persons are also considered to own
proportionately any voting stock owned (directly or indirectly) by or for a
corporation, partnership, estate or trust of which the Participant or any such
person is a shareholder, partner or beneficiary. All options under Plan I
expire upon the earlier of (i) the date specified by the Compensation
Committee in any award agreement, which may not exceed five years from the
date of grant and (ii) the date of termination of the Participant's
employment. All options under Plan II expire upon the date specified by the
Compensation Committee in an award agreement, which may not exceed ten years
from the date of grant, except that options held by a Ten Percent Shareholder
may not be exercised after five years from the date of grant. If the
employment of a Participant under Plan II is terminated by the Company for
Cause (as defined in Plan II), all nonexercised options granted to the
Participant, whether vested or nonvested, shall be immediately forfeited to
the Company, and if such termination is voluntary or is by action of the
Company (except for Cause), then vested options then held which are then
exercisable shall continue to be exercisable until the earlier of one month
after the termination date or the expiration of such options, and all options
which are not then exercisable shall automatically terminate. Notwithstanding
the foregoing, upon the dissolution or liquidation of the Company, or a merger
or consolidation in which the Company is not the surviving corporation (unless
new options are substituted for the options granted hereunder or the options
granted hereunder are assumed by the surviving corporation), each outstanding
option under both Plans shall terminate, provided that each Participant shall,
in such event, have the right immediately prior to such dissolution or
liquidation, or merger or consolidation, to exercise his or her option in
whole or in part. No Participant may be granted ISOs (under all incentive
stock option plans of the Company) which are first exercisable in any calendar
year for stock having an aggregate fair market value (determined as of the
date the ISO was granted) that exceeds $100,000.
Share Authorization. All awards made under the Plans will be evidenced by
written agreements between the Company and the Participant. A maximum of
750,000 shares of Class A Common Stock may be issued under Plan I and a
maximum of 468,750 shares of Class A Common Stock may be issued under Plan II.
The share limitation and the terms of outstanding awards shall be adjusted, as
the Compensation Committee deems appropriate, in the event of a stock
dividend, stock split, combination, reclassification, recapitalization or
other similar event.
Nontransferability. Each option granted under the Plans is nontransferable
except (i) by will or by the laws of descent and distribution or (ii) under
Plan II for non-ISOs, if permitted under an Award Agreement (as defined
therein), to a member of a Participant's immediate family or to any trust,
partnership or similar vehicle for the benefit of such immediate family
member. During the lifetime of a Participant, options may only be exercised by
such Participant, other than in the case of the disability or incompetency of
a Participant.
Termination and Amendment. No option may be granted under Plan I after June
23, 2002, and under Plan II after April 1, 2006. The Compensation Committee
may amend or terminate each Plan at any time, but an amendment will not become
effective without shareholder approval if the amendment increases the number
of shares of Class A Common Stock which may be issued under the Plan, changes
the eligibility requirements or materially increases the benefits accruing to
Participants in the Plans.
If all the Investors (as defined in the Stockholders' Agreement dated March
19, 1992, among Pameco, the Investor Group, The Bank of Nova Scotia, Brian R.
Esher and certain employees of the Company, as amended (the "Stockholders'
Agreement") propose to sell all of their shares to a third party (other than
an affiliate) in an arms-length transaction, then the Investors may, at their
option, require Participants under the Plans to sell all, but not part, of the
shares owned by them to such third party on the same terms and conditions upon
which the Investors are selling their shares, subject to certain terms of the
Stockholders' Agreement. See "Certain Transactions."
In the event of the termination of a Participant's employment for any reason
(a "Termination Event"), such Participant shall be deemed to have offered for
sale to the Company all of the shares owned by such Participant
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at the time of such Termination Event. The Company shall have thirty (30) days
after the date of such Termination Event to provide such Participant with
written acceptance of such offer. The Company shall also have the right to
designate a third party to purchase shares which it would otherwise be
entitled to purchase, and such third party shall be entitled to purchase any
such shares on the same terms and conditions as the Company. The purchase
price for such shares under Plan I shall be, in the case of a vested share,
the Appraised Value of such share (as defined in the Plan), and in the case of
an unvested share, the lesser of the Base Price of such share (as defined in
the Plans) or the Appraised Value of such share. The Purchase Price for such
shares under Plan II shall be the Appraised Value (as defined in the Plan).
Outstanding Awards. Pursuant to the terms of his Employment Agreement, Mr.
Gurbacki has been granted Options under Plan II to purchase 468,750 shares of
Class A Common Stock at a price of $6.40 per share. These options vest
periodically beginning in March 1996 through March 1, 2001, although all of
these options will vest immediately upon consummation of the Offering. In
addition, in May 1996, Mr. Gurbacki received a separate grant of options to
purchase 46,875 shares of Class A Common Stock at a price of $6.40 per share.
These options vest periodically beginning in May 1996 through March 1999,
although all of these options will also vest immediately upon consummation of
the Offering. On August 5, 1996, Messrs. Kallgren, Ruege, Sorrentino and van
Ee received options to purchase 9,375, 9,375, 6,250 and 3,125 shares of Class
A Common Stock, respectively, under Plan I. These options vest in one-third
increments annually beginning on August 5, 1996, and are exercisable for a
period of five years from the date of grant at a price of $8.00 per share. In
addition, since March 1, 1996, the Company has granted options under Plan I to
14 other associates covering 32,250 shares of Class A Common Stock, at
exercise prices ranging from $8.00 to $9.60 per share.
Shareholder Rights. A Participant will have no rights as a shareholder with
respect to the shares subject to his or her option until the option is
exercised.
Federal Income Taxes. No income is recognized by a Participant at the time
an option is granted. If the option is an ISO, no income will be recognized
upon the Participant's exercise of the option. Income is recognized by a
Participant when he disposes of shares acquired under an ISO. The exercise of
a nonqualified stock option generally is a taxable event that requires the
Participant to recognize, as ordinary income, the difference between the
share's fair market value and the option price.
The Company will be entitled to claim a federal income tax deduction on
account of the exercise of a nonqualified option. The amount of the deduction
is equal to the ordinary income recognized by the Participant. The Company
will not be entitled to a federal income tax deduction on account of the grant
or the exercise of an ISO. The employer may claim a federal income tax
deduction on account of certain dispositions of Class A Common Stock acquired
upon the exercise of an ISO.
THE NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Administration and Eligibility. The Non-Employee Directors' Stock Option
Plan (the "Directors' Plan") is administered by the Compensation Committee.
Each director of the Company who is not an employee of the Company or any of
its subsidiaries and who does not own any of the outstanding capital stock of
the Company or have the right or option to acquire any such stock, other than
under the Directors' Plan (a "Qualifying Director"), is eligible to
participate in the Directors' Plan. Any person who is a Qualifying Director as
of the date of grant of an option under the Directors' Plan shall continue to
be a Qualifying Director notwithstanding that after such date such person no
longer meets the foregoing eligibility requirements.
Stock Options. Options granted under the Directors' Plan will be non-
qualified stock options. A stock option granted under the plan entitles an
eligible director to purchase shares of Class A Common Stock from the Company
at the option price. The option price must be paid upon exercise in cash or a
cash equivalent. The option price will be fixed by the Compensation Committee
at the time the option is granted, but the price cannot
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<PAGE>
be less than the fair market value of a share of Class A Common Stock on the
date of grant. All options granted under the plan shall be immediately vested,
and all options will expire upon the date specified in any award agreement by
the Compensation Committee, which may not exceed five years from the date of
grant. Notwithstanding the foregoing, upon the dissolution or liquidation of
the Company, or a merger or consolidation in which the Company is not the
surviving corporation (unless new options are substituted for the options
granted hereunder or the options granted hereunder are assumed by the
surviving corporation), each outstanding option shall terminate, provided that
each grantee shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation, to exercise his or her
option in whole or in part.
Share Authorization. All awards made under the Directors' Plan will be
evidenced by a written agreement between the Company and an eligible director.
A maximum of 62,500 shares of Class A Common Stock may be issued under the
Directors' Plan. The share limitation and the terms of outstanding awards
shall be adjusted, as the Compensation Committee deems appropriate, in the
event of a stock dividend, stock split, combination, reclassification,
recapitalization or other similar event.
Nontransferability. Any option granted under the Directors' Plan is
nontransferable except (i) by will or by the laws of descent and distribution
or (ii) if permitted under an Award Agreement (as defined therein), to a
member of a Participant's immediate family or to any trust, partnership or
similar vehicle for the benefit of such immediate family member. During the
lifetime of a grantee, options may only be exercised by such grantee, other
than in the case of the disability or incompetency of a grantee.
Termination and Amendment. No shares of Class A Common Stock will be awarded
under the Directors' Plan after June 1, 2006. The Directors' Plan provides
that the Compensation Committee may amend or terminate the Directors' Plan at
any time, but an amendment will not become effective without shareholder
approval if the amendment increases the number of shares subject to the plan,
materially increases the benefits accruing to grantees under the plan or
changes the eligibility requirements.
If all the Investors (as defined in the Stockholders' Agreement) propose to
sell all of their shares to a third party (other than an affiliate) in an
arms-length transaction, then the Investors may, at their option, require
Participants under the Plans to sell all, but not part, of the shares owned by
them to such third party on the same terms and conditions upon which the
Investors are selling their shares, subject to certain terms of the
Stockholders' Agreement. See "Certain Transactions."
Outstanding Awards. On May 20, 1996, Messrs. Balkcom, Braswell, Bulkin and
Dolive each received options to purchase 6,250 shares of Class A Common Stock.
These options were immediately exercisable for a period of five years from the
date of grant at a price of $6.40 per share. In addition, on January 28, 1997,
Messrs. Balkcom, Braswell, Bulkin and Dolive each received options to purchase
an additional 6,250 shares of Class A Common Stock. These options were
immediately exercisable for a period of five years from the date of grant at a
price of $9.60 per share. In addition, Mr. Dolive received an option to
purchase 9,375 shares of Class A Common Stock at a price of $6.40 per share on
December 6, 1995.
Federal Income Taxes. No income is recognized by an eligible director at the
time an option is granted. The exercise of a nonqualified stock option
generally is a taxable event that requires the eligible director to recognize,
as ordinary income, the difference between the share's fair market value and
option price. The Company will be entitled to a federal income tax deduction
on account of the exercise of a nonqualified option. The amount of the
deduction is equal to the ordinary income recognized by the eligible director.
THE STOCK PURCHASE PLAN
The Company has adopted a Stock Purchase Plan (the "Stock Purchase Plan")
under which qualified employees of Pameco and its subsidiaries have the right
to purchase shares of Class A Common Stock on a
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<PAGE>
quarterly basis through payroll deductions. The Stock Purchase Plan will
become effective on January 1, 1998, and will be administered by an
administrator appointed by the Company's Board of Directors. The price to be
paid for a share of Class A Common Stock under the plan is 85% of the Fair
Market Value (as defined in the Stock Purchase Plan) of a share of Class A
Common Stock. The amount of any participant's payroll deductions made pursuant
to the Stock Purchase Plan may not exceed ten percent of such participant's
total annual compensation and may not exceed $25,000 per year. A maximum of
500,000 shares of Class A Common Stock, including a maximum of 100,000 shares
in any calendar year, may be issued under the Stock Purchase Plan. The Stock
Purchase Plan may be terminated or amended by the Company's Board of
Directors; provided, however, that no such amendment shall (i) disqualify the
Stock Purchase Plan under Section 423 of the Internal Revenue Code;
(ii) increase the aggregate number of shares of Class A Common Stock which may
be purchased pursuant to the Stock Purchase Plan or (iii) change the
designation of corporations whose employees may participate in the Stock
Purchase Plan. Any amendment to the Stock Purchase Plan which would effect the
actions described in clauses (ii) or (iii) above must be approved by the
Company's shareholders.
The Stock Purchase Plan is intended to qualify under Sections 421 and 423 of
the Internal Revenue Code. In accordance therewith, no income will be
recognized by a participant when shares are acquired pursuant to the Stock
Purchase Plan. With certain exceptions, when a Participant disposes of such
shares, he or she will recognize a capital gain equal to the difference
between the acquisition price and the amount realized on such disposition. The
Company will not be allowed a deduction with respect to any shares transferred
to a participant pursuant to the Stock Purchase Plan.
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<PAGE>
CERTAIN TRANSACTIONS
In November 1996, the Company repurchased 1,250,000 shares of Class A Common
Stock and 4,000 shares of Preferred Stock held by GFF, a minority shareholder.
The purchase price for the Class A Common Stock was $8.40 per share ($10.5
million total), and the purchase price for the Preferred Stock was $1,000 per
share ($4.0 million total). The cumulative purchase price for the GFF shares
was financed by the Company's issuance of a $15.0 million subordinated note to
Terfin, an affiliate of one of the members of the Investor Group, of which
$9.1 million was outstanding as of April 29, 1997, and which will be repaid in
full with a portion of the net proceeds of the Offering. See "Use of
Proceeds." In connection with the issuance of the subordinated note to Terfin,
the Company granted Terfin an option to purchase up to 62,500 shares of Class
B Common Stock at a purchase price of $8.40 per share. This option is
currently exercisable and terminates two months after the Company's payment in
full of the subordinated note.
In March 1997, Mr. Balkcom, a director of the Company, purchased 62,500
shares of Class A Common Stock from the Company at a purchase price of $9.60
per share for an aggregate purchase price of $600,000, which was financed by
Mr. Balkcom's issuance of a $600,000 promissory note to the Company. The
promissory note bears interest at the applicable federal rate, is payable in
full on March 10, 2002, is secured by the Class A Common Stock purchased and
is a full recourse note. The applicable federal rate is based upon the yield
to maturity of outstanding marketable obligations of the United States of
similar maturities during the one month period ending on the fourteenth day of
the month preceding the month for which the rates are applicable. The Internal
Revenue Service publishes the applicable federal rates for each month in the
Internal Revenue Bulletin. The applicable federal rate for May 1997 is 6.68%.
In December 1996, Mr. Balkcom and his wife and daughters also purchased an
aggregate of 95,237 shares of Class A Common Stock from the Company at a
purchase price of $8.40 per share for an aggregate purchase price of $800,000.
In December 1996, Mr. Bulkin, a director of the Company, and his wife
purchased 12,500 shares of Class A Common Stock from the Company at a purchase
price of $8.40 per share for an aggregate purchase price of $105,000.
Pursuant to the terms of a letter agreement dated March 1, 1997, Pameco
engaged TCR as the Company's financial advisor. Pursuant to the agreement, TCR
will provide advisory services to the Company and make certain of its
employees available to advise the Company on financial matters. Under the
agreement, the Company pays TCR an annual fee of $50,000 and reimburses TCR
for its out-of-pocket expenses. The Company has also agreed to indemnify TCR
against liabilities arising out of TCR's engagement. Messrs. Wagner and Weld,
both of whom are directors of the Company, are each Managing Directors of TCR.
The letter agreement extends to February 2002, unless terminated by the
Company under certain circumstances.
The parties to the Stockholders' Agreement made certain agreements and gave
certain undertakings with respect to their holdings of shares in the Company.
These provisions include: (i) certain "tag along" and "drag along" rights with
respect to sales of the Investor Group's stock in the Company; (ii)
restrictions on the right of sale of certain employee-held shares and an
option in favor of the Company to purchase such employee-held shares on
termination of the employee's employment by the Company; (iii) certain
preemptive rights and rights of first refusal; (iv) the right of appointment
of a director of the Company by The Bank of Nova Scotia and (v) an irrevocable
proxy in favor of the Investor Group to vote all other parties' shares with
respect to elections to the Company's Board of Directors. All of the
provisions of the Stockholders' Agreement (other than those referred to in
(ii) above) terminate upon the effectiveness of the Registration Statement of
which this Prospectus is a part.
Pursuant to a letter agreement, the Investor Group and certain other
shareholders agreed to sell shares of Class A Common Stock to the Company so
that the Company could fulfill its obligations to issue shares under Plan I
upon the exercise of options granted thereunder. The purchase price for the
shares from these shareholders is the exercise price per share paid by the
option holder, with exercise prices ranging from $0.88 to $9.60 per share
(comprising an aggregate of $1.2 million). Upon completion of the distribution
of the shares of Class A Common Stock offered hereby, the Company will use a
portion of the net proceeds of the Offering to purchase all 227,222 shares of
Class A Common Stock still subject to the repurchase obligations under the
letter agreement for an aggregate purchase price of $1.2 million.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock by (i) each director of the Company; (ii) each
executive officer of the Company; (iii) all directors and executive officers
of the Company as a group; (iv) each person known to the Company to
beneficially own more than five percent of any class of the outstanding Common
Stock and (v) the Selling Shareholders. Unless otherwise indicated, all shares
are owned directly and the indicated person has sole voting and investment
power. The number of shares represents the whole number of shares beneficially
owned as of April 29, 1997. The applicable percentages prior to the Offering
include 227,222 shares intended to be repurchased by the Company. Such
percentages subsequent to the Offering do not include such shares.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK TOTAL
--------------------------------------------- --------------------- ----------------------
SHARES
BENEFICIALLY PERCENT SHARES
OWNED OWNED BENEFICIALLY SHARES PERCENT OF PERCENT OF
NAME OF PRIOR TO PRIOR TO SHARES TO OWNED AFTER BENEFICIALLY PERCENT VOTING SHARES
BENEFICIAL OWNER(1) OFFERING OFFERING BE SOLD(2) OFFERING OWNED OF CLASS POWER OUTSTANDING
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TCR Investors(3)(4)..... 578,644 11.0% -- -- 4,046,346 100.0% 90.9% 50.0%
Gerald V. Gurbacki(5)... 515,625 9.0 -- 515,625 -- * 1.1 6.1
James R. Balkcom,
Jr.(6)................. 170,235 3.2 -- 170,235 -- * * 2.1
Michael H. Bulkin(7).... 25,000 * -- 25,000 -- * * *
G. Thomas Braswell,
Jr.(8)................. 12,500 * -- 12,500 -- * * *
Earl Dolive(8).......... 18,750 * -- 18,750 -- * * *
Brian Esher(9).......... 503,103 9.6 503,103 -- -- * * *
Charles A.
Sorrentino(8).......... 33,333 * -- 33,333 -- * * *
Theodore R.
Kallgren(8)............ 25,000 * -- 25,000 -- * * *
Jeffrey S. Ruege(8)..... 25,000 * -- 25,000 -- * * *
J. Christopher van
Ee(8).................. 22,917 * -- 22,917 -- * * *
Mark L. Davison(8)...... 3,125 * -- 3,125 -- * * *
The Bank of Nova
Scotia(10)............. 75,541 1.4 75,541 -- -- * * *
All directors and
executive officers as a
group (ten persons).... 851,485 14.8 -- 851,485 -- * 1.9 10.0
</TABLE>
- ---------------------
(*) Represents less than one percent of the outstanding Class A Common Stock
or Class B Common Stock, as applicable.
(1) Unless otherwise indicated, the address of the persons named above is care
of Pameco Corporation, 1000 Center Place, Norcross, Georgia 30093.
(2) No shares of Class B Common Stock will be sold in the Offering.
(3) TCR has sole and irrevocable power to vote and dispose of 3,872,210 shares
of Class B Common Stock that are owned of record by the following
entities, which constitute the entire Investor Group: Terbem Limited
(1,644,223 shares--40.6% of the Class B Common Stock), Mitvest Limited
(219,918 shares--8.4% of the Class B Common Stock), Tinvest Limited
(939,663 shares--23.2% of the Class B Common Stock), Bobst Investment
Corp. (279,901 shares--6.9% of the Class B Common Stock) and TCR
International
Notes continued on the following page.
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<PAGE>
Partners, LP (788,505 shares--19.5% of the Class B Common Stock). Each
member of the Investor Group is an investment vehicle established for the
purpose of investing in securities of other enterprises in various parts of
the world, and the Investor Group acquired the shares of Class B Common
Stock as participants in an equity portfolio fund managed by TCR. Excludes
226,061 shares of Class A Common Stock owned by the Investor Group to be
repurchased by the Company with a portion of the net proceeds of the
Offering. See "Certain Transactions."
(4) Includes all 503,103 shares of Class A Common Stock beneficially owned by
Brian Esher and 75,541 of Class A Common Stock shares owned of record by
The Bank of Nova Scotia. Also includes all of the other outstanding shares
of Class B Common Stock, which are owned as follows: 55,818 shares of Class
B Common Stock owned of record by K Investment Partners LP, 34,111 shares
of Class B Common Stock owned of record by Klingenstein Charitable Partners
and 21,707 shares of Class B Common Stock owned of record by TG Partners.
TCR has voting power over these shares pursuant to the Stockholders'
Agreement. See "Certain Transactions." The applicable provisions of the
Stockholders' Agreement will terminate upon effectiveness of the
Registration Statement of which this Prospectus is a part. Includes
Terfin's option to purchase up to 62,500 shares of Class B Common Stock.
See "Certain Transactions."
(5) These shares include stock options to purchase 438,750 shares of Class A
Common Stock which Mr. Gurbacki may exercise upon completion of the
Offering.
(6) Includes 35,713 shares held by Mr. Balkcom's wife and 11,954 shares held by
his daughters. Mr. Balkcom disclaims beneficial ownership of the shares
owned by his wife and daughters.
(7) Includes 12,500 shares held in joint tenancy with Mr. Bulkin's wife and
12,500 stock options which are currently exercisable.
(8) Includes stock options which are exercisable within 60 days of April 29,
1997.
(9) Includes 149,375 shares held by the Esher Children's Trust. Excludes 1,161
shares to be repurchased by the Company with a portion of the net proceeds
of the Offering. Mr. Esher's address is 9185 Old Southwick Pass,
Alpharetta, Georgia 30202.
(10) The Bank of Nova Scotia's address is 600 Peachtree Street, NE, Suite 2700,
Atlanta, Georgia 30308.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 60,000,000 shares of
Class A Common Stock, par value $0.01 per share, 20,000,000 shares of Class B
Common Stock, par value $0.01 per share, and 5,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"). As of the date of
this Prospectus, there were 42 holders of record of Common Stock and 113
holders of options to acquire Class A Common Stock and one holder of options to
acquire Class B Common Stock. All outstanding shares of Common Stock are, and
the shares of Class A Common Stock offered hereby will be, upon payment
therefor, fully paid and nonassessable.
COMMON STOCK
The rights of holders of the Class A Common Stock and the Class B Common
Stock are identical in all respects except for voting rights and conversion
features.
Dividends. Subject to the rights of the holders of any class of Preferred
Stock, holders of record of shares of Common Stock on the record date fixed by
the Company's Board of Directors are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available for such
purpose. No dividends may be declared or paid in cash or property on any share
of either class of Common Stock, however, unless simultaneously the same
dividend is declared or paid on each share of the other class of Common Stock.
In the case of any stock dividend, holders of Class A Common Stock are entitled
to receive the same percentage dividend (payable in shares of Class A Common
Stock) as the holders of Class B Common Stock receive (payable in shares of
Class B Common Stock). The payment of dividends is currently restricted by the
terms of the Credit Facilities. See "Description of Certain Indebtedness."
Voting Rights. Holders of shares of Class A Common Stock and Class B Common
Stock vote as a single class on all matters submitted to a vote of the
shareholders, with each share of Class A Common Stock entitled to one vote and
each share of Class B Common Stock entitled to ten votes, except (i) for the
election of directors, (ii) with respect to any proposed "going private"
transaction (as defined below) between the Company and a Principal Shareholder
and (iii) as otherwise provided by law. In the election of directors, the
holders of Class A Common Stock, voting as a separate class, are entitled to
elect two of the Company's directors. The holders of Class B Common Stock,
voting as a separate class, are entitled to elect the remaining directors.
Holders of Common Stock are not entitled to cumulate votes in the election of
directors. A "Principal Shareholder" means any holder of record of Class B
Common Stock upon the date of this Prospectus.
The holders of Class A Common Stock and Class B Common Stock vote as a single
class with respect to any proposed "going private" transaction, with each share
of Class A Common Stock and Class B Common entitled to one vote per share. A
"going private" transaction is any "Rule 13e-3 Transaction", as such term is
defined in Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") between the Company and (i) a Principal
Shareholder, (ii) any Affiliate (as defined below) of a Principal Shareholder
or (iii) any group consisting of a Principal Shareholder or any Affiliate of a
Principal Shareholder. An Affiliate of a Principal Shareholder is (w) any
individual or entity who or that, directly or indirectly, controls, is
controlled by, or is under common control with, a Principal Shareholder, (x)
any corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which any Principal Shareholder is a partner or
is, directly or indirectly, the beneficial owner of ten percent or more of any
class of voting securities, (y) any trust or other estate in which a Principal
Shareholder has a substantial beneficial interest or (z) any individual or
entity that directly or indirectly owns any equity interest in a Principal
Shareholder.
Under Georgia law, the affirmative vote of the holders of a majority of the
outstanding shares of any class of stock is required to approve, among other
things, a change in the designations, rights, preferences or limitations of all
or part of the shares of such class of stock.
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<PAGE>
Liquidation Rights. Upon liquidation, dissolution or winding-up of the
Company, the holders of the Common Stock are entitled to share ratably in all
assets available for distribution after payment in full of creditors and
payment in full to any holders of Preferred Stock then outstanding of any
amount required to be paid under the terms of such Preferred Stock.
Other Provisions. Each share of Class B Common Stock is convertible, at the
option of its holder, into one share of Class A Common Stock at any time. Each
share of Class B Common Stock converts automatically and without the
requirement of any further action into one share of Class A Common Stock upon
its sale or other transfer to a party unaffiliated with a Principal
Shareholder, and each share of Class B Common Stock converts automatically and
without the requirement of any further action into one share of Class A Common
Stock from and after the first date on which the issued and outstanding shares
of Class B Common Stock constitute less than ten percent of the aggregate
number of issued and outstanding shares of Class A Common Stock and Class B
Common Stock. The holders of Common Stock are not entitled to preemptive or
subscription rights. No class of Common Stock may be subdivided, consolidated,
reclassified or otherwise changed unless concurrently the other class of Common
Stock is subdivided, consolidated, reclassified or otherwise changed in the
same proportion and in the same manner.
PREFERRED STOCK
The authorized and unissued capital stock of the Company includes 5,000,000
shares of Preferred Stock, par value $1.00 per share. The Board of Directors
generally has the power to issue shares of capital stock without shareholder
approval. The Board of Directors is authorized to establish the rights,
preferences and limitations of any or all shares of Preferred Stock and to
divide such shares into classes, with or without voting rights, as the Board
may determine. No shares of Preferred Stock are currently designated, and there
is no current plan to designate or issue any such securities. However, the
ability of the Board of Directors to issue shares of Preferred Stock could
impede or deter an unsolicited tender offer or takeover proposal regarding the
Company. Shares of capital stock also could be issued with such terms,
provisions and rights which would make a takeover of the Company more difficult
and, therefore, less likely to occur. In addition, the issuance of Preferred
Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock and could have the effect of making
removal of management more difficult. In certain circumstances, this could have
the effect of decreasing the market value of the Common Stock.
CERTAIN PROVISIONS OF GEORGIA LAW AND THE COMPANY'S ARTICLES OF INCORPORATION
AND BYLAWS
The following summary of all material provisions of Georgia law and the
Articles of Incorporation and Bylaws of the Company does not purport to be
complete and is subject to and qualified in its entirety by reference to
Georgia law and the text of the Articles of Incorporation and Bylaws of the
Company, which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. Certain provisions of Georgia law and the
Articles of Incorporation and Bylaws are described elsewhere in this
Prospectus.
ANTI-TAKEOVER PROTECTION
The Company has elected to be covered by two provisions of the Georgia Code
that restrict business combinations with interested shareholders. These
provisions do not apply to a Georgia corporation unless its bylaws specifically
make the statute applicable, and once adopted, such a bylaw may be repealed
only by the affirmative vote of at least two-thirds of the continuing directors
and a majority of the votes entitled to be cast by the voting shares of the
Company, other than shares beneficially owned by any interested shareholder
and, in some cases its associates and affiliates. This vote is in addition to
the requirement of the Company's Articles of Incorporation and Bylaws that
amendments to the Bylaws be approved by a majority of the Board of Directors
53
<PAGE>
or by the vote of at least two-thirds of the votes entitled to be cast on the
amendment by each voting group entitled to vote on the amendment.
Interested Stockholders Transactions. The "business combination with
interested stockholders" statute of the Georgia Code regulates business
combinations, such as mergers, consolidations, share exchanges and asset
purchases, where the acquired business has at least 100 shareholders residing
in Georgia and has its principal office in Georgia, as the Company does, and
where the acquiror is an "interested shareholder" of the corporation, unless
either (i) the transaction resulting in such acquiror becoming an "interested
shareholder" or the business combination received the approval of the
corporation's Board of Directors prior to the date on which the acquiror
became an interested shareholder or (ii) the acquiror became the owner of at
least 90% of the outstanding voting stock of the corporation (excluding shares
held by directors, officers and affiliates of the corporation and shares held
by certain other persons) in the same transaction in which the acquiror became
an interested shareholder or in certain approved subsequent transactions. For
purposes of this statute, an "interested shareholder" generally is any person
who directly or indirectly, alone or in concert with others, beneficially owns
or controls ten percent or more of the voting power of the outstanding voting
shares of the corporation. The statute prohibits business combinations with an
unapproved interested shareholder for a period of five years after the date on
which such person became an interested shareholder. The statute restricting
business combinations is broad in its scope and is designed to deter
unfriendly acquisitions. The restrictions contained in this statute do not
apply to any person who was an "interested shareholder" prior to the Company's
adoption of this statute (such as the Investor Group). By law, the repeal of
such a bylaw is only effective 18 months after the shareholder vote to effect
such repeal and does not apply to any business combination between the Company
and any person who became an interested shareholder prior to such repeal.
Fair Price Requirements. The "fair price" statute of the Georgia Code
prohibits certain business combinations between a Georgia business corporation
and an interested shareholder or its affiliate. The fair price statute would
permit the business combination to be effected if (i) certain "fair price"
criteria are satisfied; (ii) the business combination is unanimously approved
by the continuing directors; (iii) the business combination is recommended by
at least two-thirds of the continuing directors and approved by a majority of
the votes entitled to be cast by holders of voting shares, other than voting
shares beneficially owned by any interested shareholder or (iv) the interested
shareholder has been such for at least three years and has not increased his
ownership position in such three-year period by more than one percent in any
12-month period. The fair price statute is designed to deter unfriendly
acquisitions that do not satisfy the specified "fair price" requirement. In
general, the fair-price requirement provides that in a two-step acquisition
transaction, the interested shareholder must pay the shareholders in the
second step either the same amount of cash or the same amount and type of
consideration paid to acquire the corporation's shares in the first step. The
restrictions contained in this statute will not apply to any person who is a
shareholder prior to the consummation of the Offering (such as the Investor
Group).
ARTICLES OF INCORPORATION AND BYLAWS
Board of Directors; Removal; Filling Vacancies. The Articles of
Incorporation and Bylaws provide that, subject to any rights of holders of
Preferred Stock to elect additional directors under specified circumstances,
the Board of Directors will consist of seven directors, three of whom will be
independent. The number of directors may be increased or decreased by
resolution adopted by a majority of the Board of Directors. The shareholders
shall be entitled to vote on the election or removal of directors, with each
share entitled to one vote, although a director elected by a particular class
of Common Stock may only be removed by the holders of such class of Common
Stock. See "--Common Stock."
The Bylaws provide that, subject to any rights of the Preferred Stock, and
unless the Board of Directors otherwise determines, any vacancies will be
filled by the affirmative vote of a majority of the remaining directors, even
if less than a quorum. Accordingly, the Board of Directors could temporarily
prevent any shareholder from enlarging the Board of Directors and from filling
the new directorships with such shareholder's own nominees.
54
<PAGE>
A vacancy resulting from an increase in the number of directors also must be
filled by action of a majority of the entire Board of Directors.
Amendment. In general, the Articles of Incorporation may be amended by a
vote of two-thirds of the votes entitled to vote on the amendment at a
properly called shareholder meeting, although the Articles of Incorporation
may be amended to increase the number of authorized shares of Common Stock by
a majority of the votes entitled to be cast on the amendment by each voting
group entitled to vote on the amendment. Further, neither the Articles of
Incorporation nor the Bylaws may be amended to alter the voting provisions
with respect to the Class A Common Stock and the Class B Common Stock in any
manner that would adversely affect the voting rights of the holders of such
shares without the consent of a majority of the holders of the potentially
affected class of Common Stock voting as a single voting group. The Company's
Bylaws may be amended by a majority of the Board of Directors or by the vote
of the holders of at least two-thirds of the votes entitled to be cast on the
amendment by each voting group entitled to vote on the amendment.
Directors and Officers Indemnification. The Company's Articles of
Incorporation provide for indemnification of directors to the fullest extent
permitted by Georgia law and, to the extent permitted by such law, eliminate
or limit the personal liability of directors to the Company and its
shareholders for monetary damages for certain breaches of fiduciary duty and
the duty of care. Such indemnification may be available for liabilities
arising in connection with this Offering. Insofar as indemnification for
liabilities under the Securities Act may be permitted to directors, officers
or persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. Pursuant to its Articles of Incorporation, the
Company may indemnify its officers, employees, agents and other persons to the
fullest extent permitted by Georgia law. The Company's Bylaws obligate the
Company, under certain circumstances, to advance expenses to its directors and
officers in defending an action, suit or proceeding for which indemnification
may be sought. The Company has entered into Indemnification Agreements with
certain of its directors and officers. See "Management--Indemnification
Agreements."
The Company's Bylaws also provide that the Company shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, or who, while a director,
officer, employee or agent, is or was serving as a director, officer, trustee,
general partner, employee or agent of one of the Company's subsidiaries or, at
the request of the Company, of any other organization, against any liability
asserted against such person or incurred by such person in any such capacity,
where the Company would have the power to indemnify such person against such
liability under Georgia law. The Company intends to purchase and maintain such
insurance on behalf of all of its directors and executive officers.
Ability to Consider Other Constituencies. The Articles of Incorporation
permit the Board of Directors, in determining what is believed to be in the
best interests of the Company, to consider the interests of the employees,
customers, suppliers and creditors of the Company, the communities in which
offices or other establishments of the Company are located and all other
factors the directors consider pertinent, in addition to considering the
effects of any actions on the Company and its shareholders.
OTHER MATTERS
The transfer agent and registrar for the Company's Class A Common Stock is
SunTrust Bank, Atlanta, Georgia.
55
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
Set forth below is a description of all material terms of the Credit
Facilities, which will remain outstanding following consummation of the
Offering. The summaries set forth below are qualified in their entirety by
reference to the text of the agreements relating to the Credit Facilities,
which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
WORKING CAPITAL FACILITY
The Company has established the Working Capital Facility with General
Electric Capital Corporation (the "Lender") under which the Company may obtain
up to $100.0 million in loans and letters of credit subject to, among other
conditions, the Company's having adequate eligible inventory and unsold
accounts receivable to support such credit extensions and the absence of any
defaults. The Company's obligations under the Working Capital Facility are
secured by all of the inventory, equipment and other personal property of the
Company. The Working Capital Facility is provided under a credit agreement
between the Company and the Lender (the "Credit Agreement") which obligates the
Company, among other things, to comply with certain affirmative, negative and
financial covenants.
The Working Capital Facility terminates on November 21, 2001, and all
borrowings thereunder mature on that date, subject to earlier termination and
acceleration by the Lender upon the occurrence by any event of default
specified in the Credit Agreement. The Company may prepay in full all
borrowings under the Working Capital Facility and terminate the Working Capital
Facility at any time, but a prepayment fee may be owing by the Company to the
Lender if the Working Capital Facility is prepaid in full and terminated prior
to April 29, 1999, subject to certain exceptions.
The Company is obligated to pay a monthly unused line fee for the Working
Capital Facility. Borrowings under the Working Capital Facility bear interest
at a monthly-adjustable rate (based on LIBOR), plus a margin, which margin may
decrease depending upon the Company's financial performance for its most
recently completed fiscal period and is subject to increase during any default.
The Company may also fix the interest rate for periods of one to three months
as provided in the Credit Agreement.
At February 28, 1997, borrowings under the Working Capital Facility were
$29.8 million, and the interest rate was 7.69%.
ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In April 1996, the Company commenced an accounts receivable securitization
program (the "Securitization Program") that provides the Company with up to
$50.0 million of funding from the sale of trade accounts receivable generated
by the Company; however, the sum of its outstanding borrowings and letters of
credit under the Working Capital Facility, including outstanding fundings under
the Securitization Program, may not exceed $100.0 million at any one time.
In connection with the Securitization Program, the Company formed a special-
purpose, wholly-owned subsidiary, Pameco Securitization Corporation ("PSC"), to
serve as the purchaser of accounts receivable of the Company. The Company and
PSC, in turn, entered into a receivables purchase and servicing agreement (the
"Purchase Agreement") with Redwood Receivables Corporation (the "Purchaser")
and the Lender as operating agent, both of which are unaffiliated with the
Company.
Under the Securitization Program, PSC purchases from the Company and pools,
on at least a weekly basis, accounts receivable and related rights (the "Pool")
for a cash purchase price equal to the outstanding balance of such receivables
at the time of such sale (less PSC's anticipated financing costs and less the
amount of certain
56
<PAGE>
doubtful or delinquent accounts). The Purchaser, in turn, purchases each Pool
from PSC by investing cash in PSC, up to a maximum outstanding investment of
$50.0 million at any one time for all such purchases, which entitles the
Purchaser to an agreed upon investment yield (based on the Purchaser's cost of
funds plus a margin) and to the repayment of its investment if it ceases
purchasing additional Pools of receivables from PSC. PSC, in turn, uses the
proceeds of its sale of Pools to the Purchaser to finance its purchase of such
Pools from the Company as well as to make periodic loans to the Company. Daily
collections on the sold receivables are controlled and administered by the
Company acting as servicer for PSC and the Purchaser, and after reservation of
the Purchaser's accrued investment yield, are automatically reinvested and used
to pay for the purchase of new Pools of receivables from the Company. PSC is
obligated to pay a monthly unused facility fee to the Purchaser for the
Securitization Program.
As of February 28, 1997, the Purchaser's aggregate outstanding investment
under the Securitization Program was $30.5 million, and the interest rate was
6.89%.
The Purchase Agreement specifies several events of termination that would
permit the Purchaser to cease purchasing additional Pools of receivables from
PSC. The Purchase Agreement also specifies certain events of servicer
termination that would permit the Purchaser to take control of collections on
the sold receivables. Moreover, the Purchaser's obligation to continue to
purchase additional Pools of receivables terminates on November 21, 2001. PSC
may also terminate its sale of additional Pools of receivables to the Purchaser
on not less than 90 days' prior written notice to the Purchaser. Upon the
termination of Purchaser's purchase of additional Pools of receivables from
PSC, Purchaser's investment in the Pools will be repaid from future collections
on the sold receivables in such Pools.
If the Purchaser ceases purchasing additional Pools of receivables from PSC,
so that its outstanding investment was reduced by collections on previously
sold receivables, the Company expects that it would seek to borrow a sufficient
sum under its Working Capital Facility to permit PSC to repay all amounts owing
to the Purchaser with respect to its investment under the Securitization
Program. However, the occurrence of certain events of termination or events of
servicer termination under the Purchase Agreement may also constitute events of
default under the Working Capital Facility, which would permit the Lender to
withhold future loans to the Company. If the Company were not able to borrow
sufficient sums under the Working Capital Facility (or otherwise obtain the
funding necessary) to refinance the Purchaser's investment in the Pools of
receivables previously sold to it under the Securitization Program, then
control of collections on the receivables in such Pools could remain with the
Purchaser until it recovered its investment in such Pools.
57
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately after completion of the Offering, the Company will have 8,032,372
shares of Common Stock outstanding, of which the 3,578,644 shares of Class A
Common Stock sold pursuant to the Offering will be freely tradeable without
restriction or further registration under the Securities Act, except those
shares acquired by "affiliates" of the Company as that term is defined under
the Securities Act. Holders of the remaining shares will be eligible to sell
such shares pursuant to Rule 144 ("Rule 144") under the Securities Act at
prescribed times and subject to the manner of sale, volume, notice and
information restrictions of Rule 144.
The Company, its officers, directors and certain other shareholders including
the Selling Shareholders, who collectively own 403,228 shares and hold options
to acquire an aggregate of 543,667 shares of Class A Common Stock and who
collectively own 3,983,846 shares of Class B Common Stock, have agreed with the
Underwriters, except with the prior written consent of DLJ and subject to
certain limited exceptions, not to offer, sell, pledge, contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly any shares of Common Stock of the Company or any
securities convertible into or exercisable or exchangeable for Common Stock or
in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. Upon the expiration of such 180 day period,
such holders will in general be entitled to dispose of their shares, although
the shares of Common Stock held by affiliates of the Company will continue to
be subject to the restrictions of Rule 144.
In addition, the Company may issue shares of Class A Common Stock (and may
consider filing a registration statement with respect to such shares) in
connection with potential future business acquisitions and resales of such
shares by the recipients. Shares so registered could be sold in the public
market. No predictions can be made as to the effect, if any, that market sales
of such shares or the availability of such shares for sale will have on the
market price for shares of Class A Common Stock prevailing from time to time.
Sales of substantial amounts of shares of Common Stock in the public market
following the Offering could adversely affect the market price of the Class A
Common Stock and could impair the Company's future ability to raise capital
through an offering of equity securities.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the Underwriting Agreement,
a syndicate of underwriters named below (the "Underwriters"), for whom DLJ,
Robinson-Humphrey and Schroder Wertheim are acting as representatives, have
severally agreed to purchase from the Company and the Selling Shareholders an
aggregate of 3,578,644 shares of Class A Common Stock. The number of shares of
Class A Common Stock that each Underwriter has agreed to purchase is set forth
opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
The Robinson-Humphrey Company, Inc..............................
Schroder Wertheim & Co. Incorporated............................
---
Total.......................................................
===
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Class A Common
Stock offered hereby are subject to approval of certain legal matters by
counsel and to certain other conditions. If any of the shares of Class A Common
Stock are purchased by the Underwriters pursuant to the Underwriting Agreement,
all such shares (other than those covered by the over-allotment option
described below) must be so purchased. The offering price and underwriting
discounts and commissions per share for shares of Class A Common Stock offered
by the Company and the Selling Shareholders are identical.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect hereof.
The Representatives have advised the Company that the Underwriters propose to
offer the shares of Class A Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price, less a concession not
in excess of $ per share. The Underwriters may allow, and such dealers may
re-allow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers. After the Offering, the offering price and other
selling terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
aggregate of 536,797 additional shares of Class A Common Stock, at the initial
public offering price less underwriting discounts and commissions, solely to
cover over-allotments. Such option may be exercised at any time until 30 days
after the date of this Prospectus. To the extent that the Representatives
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of shares proportionate to such
Underwriter's initial commitment as indicated in the preceding tables.
The Company, its officers, directors and certain other shareholders,
including the Selling Shareholders, who collectively own 403,228 shares and
hold options to acquire an aggregate of 543,667 shares of Class A Common Stock
and who collectively own 3,983,846 shares of Class B Common Stock, have agreed
with the Underwriters, except with the prior written consent of DLJ and subject
to certain limited exceptions, not to offer, sell, pledge, contract to sell,
grant any option, right or warrant to purchase, or otherwise transfer or
dispose of directly or indirectly any shares of Common Stock of the Company or
any securities convertible into or exercisable or exchangeable for Common Stock
or in any other manner transfer all or a portion of the economic consequences
associated with the ownership of any Common Stock for a period of 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale."
59
<PAGE>
No action has been taken in any jurisdiction by the Company, the Selling
Shareholders or the Underwriters that would permit a public offering of the
Class A Common Stock offered pursuant to the Offering in any jurisdiction where
action for that purpose is required, other than the United States. The
distribution of this Prospectus and the offering or sale of the shares of Class
A Common Stock offered hereby in certain jurisdictions may be restricted by
law. Accordingly, the shares of Class A Common Stock offered hereby may not be
offered or sold, directly or indirectly, and neither this Prospectus nor any
other offering material or advertisements in connection with the Class A Common
Stock may be distributed or published, in or from any jurisdiction, except
under circumstances that will result in compliance with applicable rules and
regulations of any such jurisdiction. Such restrictions may be set out in
applicable Prospectus supplements. Persons into whose possession this
Prospectus comes are required by the Company, the Selling Shareholders and the
Underwriters to inform themselves about and to observe any applicable
restrictions. This Prospectus does not constitute an offer of, or an invitation
to subscribe for purchase of, any shares of Class A Common Stock and may not be
used for the purpose of an offer to, or solicitation by, anyone in any
jurisdiction or in any circumstances in which such offer or solicitation is not
authorized or is unlawful.
The Representatives have informed the Company that the Underwriters do not
expect sales to discretionary accounts to exceed five percent of the total
number of shares of Class A Common Stock offered by them and the sales to
discretionary accounts by the Representatives will be less than one percent of
the total number of shares of Class A Common Stock offered by them.
A portion of the shares offered hereby will be reserved for sale to certain
employees, suppliers and customers of the Company and its subsidiaries, and
other persons designated by the Company, and the number of shares offered to
the public hereby will be reduced to the extent those persons purchased such
shares. The price per share of the shares to be sold to these persons will be
the same as the price to the public in the Offering. The maximum investment of
any such person may be limited by the Company in its sole discretion. This
program will be administered by Robinson-Humphrey. The number of shares to be
sold under this program shall not exceed five percent of the number of shares
of Class A Common Stock offered in connection with the Offering.
Prior to the Offering, there has been no public market for the shares of
Class A Common Stock. The initial public offering price has been negotiated
among the Company, the Selling Shareholders and the Representatives. The
factors considered in determining the initial public offering price of the
Class A Common Stock, in addition to prevailing market conditions, were the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Class A Common
Stock. Specifically, the Underwriters may overallot the offering, creating a
syndicate short position. In addition, the Underwriters may bid for, and
purchase, shares of Class A Common Stock in the open market to cover syndicate
shorts or to stabilize the price of the Class A Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the Class A Common Stock in the Offering, if the syndicate repurchases
previously distributed Class A Common Stock in syndicate covering transactions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Class A Common Stock above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Representatives have informed the Company and the Selling Shareholders
that the Underwriters do not intend to confirm sales of shares of Class A
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
Pameco has applied to list the Class A Common Stock on The New York Stock
Exchange under the symbol "PCN."
60
<PAGE>
Each of DLJ and Robinson-Humphrey from time to time perform investment
banking and other financial services for the Company and its affiliates for
which DLJ and Robinson-Humphrey may receive advisory or transaction fees, as
applicable, plus out-of-pocket expenses, of the nature and in amounts customary
in the industry for such services.
EXPERTS
The consolidated financial statements and schedule of Pameco Corporation at
February 29, 1996 and February 28, 1997, and for each of the three years in the
period ended February 28, 1997 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing herein and in the Registration
Statement and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company by Kilpatrick Stockton LLP, Atlanta, Georgia, and
for the Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New
York.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act
with respect to the Class A Common Stock offered hereby. As used herein, the
term "Registration Statement" means the initial Registration Statement and any
and all amendments thereto. This Prospectus omits certain information contained
in said Registration Statement as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Class A
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto. Statements herein concerning the contents of
any contract or other document are not necessarily complete and in each
instance reference is made to such contract or other document filed with the
Commission as an exhibit to the Registration Statement. Although all material
terms of the respective statements are set forth with such statements, each
such statement is qualified in its entirety by such reference.
As a result of the Offering, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will file reports and other information with the Commission. Reports,
registration statements, proxy statements and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices
of the Commission: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661
and Seven World Trade Center, New York, New York 10048. Copies of such
materials can be obtained at prescribed rates from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
or at the Commission's web site at http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three
quarters of each fiscal year.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheets as of February 29, 1996 and
February 28, 1997.......................................................... F-3
Consolidated Statements of Income for the years ended
February 28, 1995, February 29, 1996 and February 28, 1997................. F-4
Consolidated Statements of Stockholders' Equity for the years ended
February 28, 1995, February 29, 1996 and February 28, 1997................. F-5
Consolidated Statements of Cash Flows for the years ended
February 28, 1995, February 29, 1996 and February 28, 1997................. F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
The following report is in the form that will be signed upon the restatement
of capital accounts pursuant to filing of the merger agreement described in
Note 10 to the consolidated financial statements.
ERNST & YOUNG LLP
May 1, 1997
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Pameco Corporation
We have audited the accompanying consolidated balance sheets of Pameco
Corporation (formerly Pameco Holdings, Inc.) as of February 29, 1996 and
February 28, 1997, and the related statements of income, shareholder's equity
and cash flows for each of the three years in the period ended February 28,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Pameco
Corporation at February 29, 1996 and February 28, 1997, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended February 28, 1997.
ERNST & YOUNG LLP
Atlanta, Georgia
April 2, 1997, except for Note 10 as to which the date is May , 1997
F-2
<PAGE>
PAMECO CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 115 $ 145
Accounts receivable, less allowance of $1,878 at
February 29, 1996
and $2,535 at February 28, 1997................... 36,273 17,811
Inventories........................................ 76,352 107,477
Prepaid expenses and other current assets.......... 897 932
-------- --------
Total current assets............................. 113,637 126,365
Property and equipment, net.......................... 3,333 5,647
Excess of cost over acquired net assets, net......... -- 8,411
Other assets......................................... 444 693
Deferred income tax assets........................... 1,753 8,253
-------- --------
Total assets..................................... $119,167 $149,369
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 32,660 $ 57,024
Accrued compensation and withholdings.............. 6,205 7,438
Other accrued liabilities and expenses............. 11,808 13,279
Notes payable to affiliate......................... -- 14,100
Current portion of capital lease obligations and
other debt......................................... 581 375
-------- --------
Total current liabilities........................ 51,254 92,216
Long-term liabilities:
Debt............................................... 33,438 29,800
Debt to affiliates................................. 7,500 4,500
Capital lease obligations.......................... 409 79
Warranty reserves and other........................ 1,625 1,920
-------- --------
Total long-term liabilities...................... 42,972 36,299
Excess of acquired net assets over cost, net......... 7,447 6,223
Preferred stock, $1 par value authorized 25,000
shares; 4,000 shares issued and outstanding
(Liquidation preference $1,000 per share)........... 4,000 --
Shareholders' equity:
Common stock, $.01 par value--authorized 13,750
shares; 6,250 and 6,358 shares issued and
outstanding at February 29, 1996 and
February 28, 1997, respectively................... 63 64
Capital in excess of par value..................... 937 1,841
Retained earnings.................................. 12,494 23,226
-------- --------
13,494 25,131
Less treasury stock at cost 1,250 shares........... -- (10,500)
-------- --------
Total shareholders' equity........................... 13,494 14,631
-------- --------
Total liabilities and shareholders' equity........... $119,167 $149,369
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $323,152 $334,537 $378,658
Costs and expenses:
Cost of products sold................ 243,887 255,301 285,439
Warehousing, selling, and
administrative expenses.............. 70,467 69,405 81,250
Severance............................ -- 1,230 --
Executive cash bonus................. -- -- 2,173
Amortization of excess of acquired
net assets over cost................. (1,224) (1,224) (1,224)
-------- -------- --------
313,130 324,712 367,638
-------- -------- --------
Operating earnings..................... 10,022 9,825 11,020
Other income (expense):
Interest expense, net................ (4,818) (4,732) (3,923)
Other income (expense)............... 189 (482) (1,533)
-------- -------- --------
Income before income taxes............. 5,393 4,611 5,564
Provision (benefit) for income taxes... 575 (1,403) (5,592)
-------- -------- --------
Net income............................. 4,818 6,014 11,156
Redeemable preferred stock dividends... 547 520 424
-------- -------- --------
Net income applicable to common
shareholders........................... $ 4,271 $ 5,494 $ 10,732
======== ======== ========
Net income per share................... $ .65 $ .83 $ 1.71
======== ======== ========
Weighted average number of common and
common equivalent shares outstanding.. 6,598 6,598 6,258
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON STOCK EXCESS OF TREASURY RETAINED
SHARE AMOUNT PAR VALUE STOCK EARNINGS TOTAL
------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 28,
1994.................... 10,000 $100 $ 900 $ -- $ 2,729 $ 3,729
Reverse common stock
split--
1 share for 2
shares............... (5,000) (50) 50 -- -- --
Common stock split--
1.25
shares for 1 share... 1,250 13 (13) -- -- --
------- ---- ------ -------- ------- -------
Balances at February 28,
1994.................... 6,250 63 937 -- 2,729 3,729
Net income............ -- -- -- -- 4,271 4,271
------- ---- ------ -------- ------- -------
Balances at February 28,
1995.................... 6,250 63 937 -- 7,000 8,000
Net income............ -- -- -- -- 5,494 5,494
------- ---- ------ -------- ------- -------
Balances at February 29,
1996.................... 6,250 63 937 -- 12,494 13,494
Purchase of 1,250
shares of
treasury stock....... (1,250) -- -- (10,500) -- (10,500)
Sale of 108 shares of
common
stock................ 108 1 904 -- -- 905
Net income............ -- -- -- -- 10,732 10,732
------- ---- ------ -------- ------- -------
Balances at February 28,
1997.................... 5,108 $ 64 $1,841 $(10,500) $23,226 $14,631
======= ==== ====== ======== ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE>
PAMECO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................. $ 4,271 $ 5,494 $ 10,732
Adjustments to reconcile net income to
net cash provided by operating
activities:
Amortization of excess of acquired
net assets over cost................ (1,224) (1,224) (1,224)
Depreciation and other amortization.. 735 994 1,425
Loss on sale of property and
equipment............................ 38 332 2
Deferred tax asset................... -- (1,753) (6,500)
Changes in operating assets and
liabilities net of assets acquired:
Accounts receivable................ 2,231 (3,271) 23,380
Inventories, prepaid expenses and
other assets....................... (3,977) 11,211 (16,294)
Accounts payable and accrued
liabilities........................ (756) (7,283) 23,806
-------- -------- --------
Net cash provided by operating
activities............................. 1,318 4,500 35,327
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and
equipment.............................. (779) (1,398) (2,128)
Proceeds from sale of property and
equipment.............................. 167 182 82
Business acquisitions.................. -- -- (26,560)
-------- -------- --------
Net cash used in investing activities.. (612) (1,216) (28,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on working capital
facility............................... 339,817 342,729 430,405
Repayments on working capital
facility............................... (340,169) (339,490) (434,045)
Issuance of notes to affiliate......... -- -- 22,500
Repayments on notes to affiliate....... -- -- (8,400)
Repayment on subordinated notes........ -- (6,000) (3,000)
Payments on capital lease obligations.. -- -- (520)
Payments on other debt................. (367) (528) (36)
Proceeds from issuance of common
stock.................................. -- -- 905
Redemption of preferred stock.......... -- -- (4,000)
Purchase of treasury stock............. -- -- (10,500)
-------- -------- --------
Net cash used in financing activities.. (719) (3,289) (6,691)
-------- -------- --------
Net (decrease) increase in cash and
cash equivalents....................... (13) (5) 30
Cash and cash equivalents at beginning
of year................................ 133 120 115
-------- -------- --------
Cash and cash equivalents at end of
year................................... $ 120 $ 115 $ 145
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES
Acquisition of equipment under capital
lease obligations...................... $ 880 $ 255 $ --
======== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Pameco
Corporation (formerly Pameco Holdings, Inc. and Pameco Corporation, both
Delaware corporations) and its wholly-owned subsidiary (collectively the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
DESCRIPTION OF BUSINESS
The Company is a nationwide wholesale distributor of heating, ventilation
and air conditioning ("HVAC") and refrigeration equipment, with approximately
294 branches located in 44 states and Guam. The principal components of the
Company's business are sales of heating, air conditioning, and refrigeration
parts and equipment to the commercial and residential markets.
The Company's operating results vary significantly from quarter to quarter.
Sales increase during the warmer months beginning in April and peak in the
months of June, July, and August. For the year ended February 28, 1997, the
Company's second fiscal quarter accounted for approximately 33% of its sales
and 69% of its annual operating earnings, before non-recurring charges.
Sales of HVAC and refrigeration equipment and replacement components are
also affected by weather patterns and seasonal equipment start-ups. Warmer
than normal summer temperatures or colder than normal winter temperatures
cause increased stress on cooling and heating equipment. Increased stress on
equipment produces higher failure rates and therefore increased sales volume
of replacement equipment. Start-up modes for inactive equipment also produce
higher failure rates and an increase in replacement business on a seasonal
basis. Management believes the Company's national branch coverage mitigates
much of the risk associated with regional or local weather patterns.
INITIAL PUBLIC OFFERING
In March 1997, the Company commenced plans to offer up to 3.0 million newly
issued shares of Class A Common Stock in an initial public offering ("IPO").
CASH EQUIVALENTS
For purposes of the accompanying statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
INVENTORIES
Inventories consist of finished goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
During 1997, approximately 72% of all inventory purchases were made from ten
primary vendors. To help ensure adequate future inventory supply sources, the
Company maintains supply relationships with numerous other vendors.
The Company provided reserves for excess and idle inventory aggregating $2.6
million and $3.7 million as of February 29, 1996 and February 28, 1997,
respectively.
F-7
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
PROPERTY AND EQUIPMENT
Properties are recorded at cost and include expenditures for additions and
major improvements. Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation is computed using the straight line
method over the estimated useful lives of the respective assets. The estimated
useful lives for property and equipment range from three to ten years.
EXCESS OF COST OVER ACQUIRED NET ASSETS
Excess of cost over acquired net assets is a result of business acquisitions
in fiscal 1997 of Chase Supply Company of Chicago ("Chase") and certain
branches from Sid Harvey Industries, Inc. ("Sid Harvey") and is being
amortized on a straight-line basis over 40 years. Accumulated amortization of
the excess of cost over acquired net assets was approximately $70,000 at
February 28, 1997.
EXCESS OF ACQUIRED NET ASSETS OVER COST
Excess of the acquired net assets over cost is being amortized on a
straight-line basis over 10 years. Accumulated amortization of the excess of
acquired net assets over cost was approximately $4.8 and $6.0 million at
February 29, 1996 and February 28, 1997, respectively.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results inevitably will differ from those
estimates, and such differences could be material to the financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1996 consolidated
financial statements to conform to the current year presentation.
CREDIT POLICY
The Company performs periodic credit evaluations of its customers' financial
condition and in some instances places liens on certain projects. Receivables
are generally due within 30 days. Credit losses have been within management's
expectations.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
RECENT PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which established
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used, as well as for long-lived assets and certain identifiable
F-8
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
RECENT PRONOUNCEMENTS (CONTINUED)
intangibles to be disposed of. The Company adopted the new Standard on March
1, 1996. The effect of adoption was not material.
Standards of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS 123") encourages companies to recognize expense for
stock-based awards based on their fair values on the date of grant. At a
minimum, SFAS 123 requires pro forma disclosures in the Company's 1996
financial statements. The Company has elected to follow Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25")
and related interpretations and provide the necessary disclosures required by
SFAS 123, rather than adopt the expense recognition provisions of this
Standard (see Note 6).
During the year ended February 28, 1997, the Company adopted Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" ("SFAS 125"). The
Company's asset securitization agreement (see Note 4) meets the requirements
of SFAS 125 to enable the Company to continue recognizing transfers of
receivables to a special-purpose entity as sales. As a result, the impact of
adoption on net income in 1997 was not material.
In February 1997, the Financial Accounting Standard Board issued Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128") which is
required to be adopted for the year ending February 28, 1998. At that time,
the Company will be required to change the method currently used to compute
earnings per share and restate prior periods. Under the new requirements for
calculating earnings per share, the dilutive effect of stock options will be
excluded. The impact is expected to result in an increase in primary earnings
per share for the years ended February 29, 1996 and February 28, 1997 of $.05
and $.11, respectively. The impact of SFAS 128 on the calculation of fully
diluted earnings per share for these years is not expected to be material.
EARNINGS PER SHARE
Historical earnings per share was computed using the requirements of
Accounting Principles Board Opinion No. 15 and SEC Staff Accounting Bulletin
No. 83.
Pursuant to SEC Staff Accounting Bulletin No. 83, common stock and common
stock equivalents issued at prices below the assumed initial public offering
price per share ("cheap stock") during the twelve month period immediately
preceding the initial filing date of the Company's Registration Statement for
its public offering have been included in historical earnings per share as if
outstanding for all periods presented (using the treasury stock method at the
assumed initial public offering price).
The amounts computed for primary and fully diluted historical net income per
share of common stock are the same in 1995, 1996, and 1997.
Retroactive restatement has been made to all disclosures of shares, weighted
average shares and net income per share disclosures for the one share for two
shares reverse Common Stock split effected on October 16, 1996 and the 1.25
shares for one share stock split effected on May , 1997 (see Note 10).
F-9
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the consolidated balance sheets for cash,
accounts receivable, and accounts payable approximate their fair values. The
fair values of the Company's debt approximate the reported amounts in the
consolidated balance sheets as their respective interest rates approximate the
market rates for similar debt instruments.
MANAGEMENT ADVISORY SERVICES
The Company receives certain advisory services from Three Cities Research,
Inc. Three Cities Research, Inc. is the investment advisor for certain
investors who owned 68% and 76% of the stock of the Company at February 29,
1996 and February 28, 1997, respectively. Three Cities Research, Inc. is paid
an annual fee of $50,000 for advisory services.
2. ACQUISITIONS
On May 2, 1996, the Company acquired Chase for approximately $3.2 million in
cash. Chase is a six branch wholesale distributor of refrigeration and HVAC
equipment and supplies in the greater Chicago area.
On November 22, 1996, the Company acquired certain assets of Sid Harvey for
$23.3 million in cash. The Sid Harvey acquisition consisted of 52 branches
which sell refrigeration and HVAC equipment and supplies throughout the
southeastern United States.
Both acquisitions were accounted for under the purchase method of
accounting. The results of operations of the acquired companies are included
in the consolidated statement of income as of the acquisition date. The assets
and liabilities of the acquired companies are included in the Company's
consolidated balance sheet based on a preliminary allocation of their
estimated fair values on the date of acquisition. The excess of cost over
acquired net assets of the businesses acquired has been recorded as an
intangible asset and amounted to $8,481,000 at the dates of acquisition. Such
amount will be amortized on a straight-line basis over 40 years.
Summary unaudited pro forma results of operations for the acquisitions of
the Sid Harvey and Chase branches are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales........................................... $ 394,460 $ 421,032
========== ==========
Net income applicable to common shareholders........ $ 5,404 $ 10,552
========== ==========
Net income per common share......................... $ .82 $ 1.69
========== ==========
Weighted average common and common equivalent shares
outstanding......................................... 6,598 6,258
========== ==========
</TABLE>
The above unaudited pro forma results of operations give effect to the
acquisitions as if they had occurred on March 1, 1995. The pro forma
adjustments for the acquisitions are based upon the available information and
F-10
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
2. ACQUISITIONS (CONTINUED)
certain assumptions that management believes are reasonable. The adjustments
to the historical data reflect the following: (i) general and administrative
costs were increased to reflect the incremental amount of costs the Company
estimates it would have incurred over the applicable time period; (ii)
interest expense assuming the Company financed the acquisition at a rate of
7.3%--the Company's weighted average borrowing rate; (iii) amortization of the
excess of cost over acquired net assets; (iv) income taxes on the earnings of
the acquirees have been adjusted to reflect the Company's effective tax rate;
and (v) the income tax effect of such pro forma adjustments.
These unaudited pro forma results of operations do not purport to represent
what the Company's actual results of operations would have been if the
acquisitions had occurred on March 1, 1995, and should not serve as a forecast
of the Company's operating results for any future periods. The pro forma
adjustments are based solely upon certain assumptions that management believes
are reasonable under the circumstances at this time. However, the full impact
of potential cost savings has not been reflected in the pro forma results
presented above, although there can be no assurances such cost savings will be
achieved. Subsequent adjustments are expected upon final determination of the
allocation of the purchase price.
On March 3, 1997, the Company acquired the assets of Bellows-Evans, Inc.
("Bellows"), for $300,000 in cash. Bellows is a distributor of HVAC equipment
in Birmingham, Alabama.
3. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Buildings and leasehold improvements.................. $ 341 $ 874
Machinery and equipment............................... 846 1,889
Furniture, office, and computer equipment............. 3,834 5,673
--------- ---------
5,021 8,436
Accumulated depreciation.............................. (1,688) (2,789)
--------- ---------
$ 3,333 $ 5,647
========= =========
</TABLE>
F-11
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
4. DEBT
The components of debt are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Working capital facility.............................. $33,430 $29,790
Junior subordinated notes............................. 5,000 4,500
Subordinated notes.................................... 2,500 --
Notes payable to affiliates........................... -- 14,100
Other................................................. 36 22
------- -------
40,966 48,412
Less current portion of debt.......................... (28) (14,112)
------- -------
$40,938 $34,300
======= =======
</TABLE>
On April 29, 1996, the Company entered into an asset securitization lending
arrangement (the "Securitization Program") with General Electric Capital
Corporation, Redwood Receivables Corporation ("Redwood"), and Pameco
Securitization Corporation ("PSC"). The capital commitment for the program was
$40 million and the borrowing rate was the Redwood Receivables Commercial
Paper rate plus 1.50%. At February 28, 1997, this rate was 6.89%. The
Securitization Program is an off-balance sheet arrangement that provides for
the transfer and sale of accounts receivable to a special-purpose wholly-owned
subsidiary that then sells the accounts receivable to Redwood, which issues
commercial paper on the Company's behalf. At February 28, 1997, $30.5 million
of accounts receivable have been sold under the Securitization Program, and
the sale has been reflected as a reduction of accounts receivable in the
Company's balance sheet. The discount of $1.4 million on the accounts
receivable sold has been recorded as other expense in the Company's statement
of income for the year ended February 28, 1997. The Company maintains an
allowance for doubtful accounts based upon the expected collectibility of all
trade accounts receivable, including accounts receivable sold by PSC. The
Company has agreed to continue to service accounts receivable transferred
under the Securitization Program. The Company has not accrued a liability for
such servicing as the Company believes such cost is not significant.
On January 24, 1997, the Company amended the Securitization Program to
increase the commitment to $50 million, increase the availability, and to
permit the transfer and sale of receivables generated by the branches acquired
from Sid Harvey. In accordance with the Securitization Program, if certain
conditions are met, the Company can incrementally reduce the rate of interest
down to Redwood's Commercial Paper rate plus 1.25%.
On April 29, 1996, the Company amended its existing collateral-based
revolving line of credit (the Working Capital Facility') to increase the
commitment to $30 million and to extend the expiration date to April 29, 2001.
Interest is computed using the 30-day LIBOR rate plus 2.25%, with an option
for the Company to fix up to five tranches of debt using the 60-day LIBOR or
90-day LIBOR rate plus 2.25%. At February 28, 1997, this rate was 7.69%.
On November 21, 1996, the Company amended the Working Capital Facility to
increase the commitment to $50 million and extend the expiration date of both
the Securitization Program and the Revolving Credit Line until November 21,
2001.
The junior subordinated notes and subordinated notes pay interest quarterly
at the prime rate and mature on September 1, 2001 and November 1, 2001,
respectively. During the year ended February 28, 1997, the Company repaid $3
million of such debt.
On November 7, 1996, the Company borrowed $15 million from Terfin
International, Ltd. ("Terfin"), an affiliate of a shareholder of the Company,
and in exchange issued a promissory note (the "Note"). The Note
F-12
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
4. DEBT--(CONTINUED)
pays interest at a rate of 12.5% per annum and is subordinate to the
Securitization Program and the Working Capital Facility. The maturity date on
the Note was December 31, 1996. On November 21, 1996, the Note was amended to
extend the maturity date to February 28, 1997. At the Company's option, the
maturity date of the Note may be further extended to June 30, 1997. On January
13, 1997, the Company repaid $900,000 of principal on the Note with the
proceeds from sales of common stock to certain members of the Board of
Directors. On February 28, 1997, the Company exercised its option to extend
the maturity of the Note to June 30, 1997.
The Note included the issuance of detachable stock purchase warrants to
purchase 62,500 shares of the Company's common stock at $8.40 per share, all
of which are currently vested. The warrants expire two months after repayment
of principal and interest related to the Note. The amount assigned to the
warrants and to the related debt discount was not material.
On November 21, 1996, the Company borrowed $7.5 million from Terfin. The
note accrued interest at a rate of 12.5% per annum and was subordinate to the
indebtedness under the Securitization Program and the Working Capital
Facility. The maturity date on the note was March 31, 1997. On February 3,
1997, the Company paid the entire principal and interest due on the note.
The Company's long-term debt facilities include restrictive covenants
regarding maintaining consolidated earnings before interest, taxes,
depreciation and amortization above a certain level, maintaining an interest
coverage ratio, fixed charge coverage ratio and minimum net worth above
certain levels. Management believes that the Company is in compliance with all
such covenants at February 28, 1997.
Aggregate maturities and other required reductions of debt for the next five
fiscal years are: 1998--$14.1 million; 1999--$-0-; 2000--$-0-; 2001--$-0-; and
2002--$34.3 million.
Interest paid was $4.6 million, $4.8 million and $3.0 million for the years
ended February 28, 1995, February 29, 1996 and February 28, 1997,
respectively.
5. PREFERRED STOCK
On November 14, 1996, the Company redeemed all outstanding shares of its
Preferred Stock for $4 million. Accrued dividends of $424,000 were paid during
the twelve months ended February 28, 1997.
6. SHAREHOLDERS' EQUITY
COMMON STOCK
On April 16, 1996, the Company's Board of Directors ratified the grants to
the Company's Chief Executive Officer ("CEO") of options to purchase 468,750
shares of common stock. In addition, on May 5, 1996, the Company granted its
CEO options to purchase an additional 46,875 shares of common stock. All such
stock options are exercisable at a price of $6.40 per option, vest over a five
year period and are subject to the Company's Common Stock attaining specified
prices before certain shares vest. At February 28, 1997, 94,532 stock options
were vested. However, any unvested stock options immediately vest upon the
consummation of an initial public offering of the Company's common stock.
On May 6, 1996, the Company adopted a stock option plan for outside
directors which provides for the granting of 62,500 stock options to outside
members of the Company's Board of Directors. All options under this plan vest
upon grant. At February 28, 1997, 50,000 options were outstanding under the
plan at prices ranging from $6.40 to $9.60 per option.
F-13
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
6. SHAREHOLDERS' EQUITY--(CONTINUED)
On October 16, 1996, the Company amended its certificate of incorporation to
increase the authorized common stock to 13,750,000 shares, retain the par
value of $.01 per share, and to provide for a one share for two share reverse
common stock split.
On November 14, 1996, the Company acquired 1,250,000 shares of its
outstanding common stock for $8.40 per share for an aggregate cost of $10.5
million.
On December 13, 1996, the Company issued 107,738 shares of common stock for
$8.40 per share for aggregate proceeds of $905,000.
On February 4, 1997, the Company amended its employee stock option plan (the
"Employee Plan") to increase the number of options under such plan from
437,500 to 750,000. The stock options, when issued, vest incrementally over a
three year period and expire five years from the date of grant. At February
28, 1997, 450,687 options were outstanding under the plan at prices ranging
from $.88 to $9.60. Certain shareholders of the Company have agreed to sell
the Company up to an additional 393,417 shares of Common Stock as certain
other stock options are exercised at an amount equal to the exercise price of
such options.
STOCK-BASED COMPENSATION
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the approximate fair value of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company's Employee Plan provides that 750,000 stock options may be
granted to key employees, including officers and directors, to purchase common
stock at fair market value. Certain stockholders of the Company have agreed to
sell to the Company an equal number of shares of Common Stock as these stock
options are exercised at an amount equal to the option price. The stock
options vest incrementally over a three year period and expire five years from
the date granted. Additionally, the Company has a stock option plan which
provides for the granting of 62,500 stock options to outside directors and a
separate grant of 515,625 stock options to the Company's CEO.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined
as if the Company had accounted for its employee stock options granted
subsequent to February 28, 1995 under the fair value method of that Statement.
The fair value of stock options granted during the years ended February 29,
1996 and February 28, 1997 was estimated on the date of grant using the Black-
Scholes option pricing model with the following assumptions: (i) no dividend
yield; (ii) expected volatility of .01%; (iii) risk-free interest rate ranging
from 5.52%--6.50%; and (iv) expected life ranging from 2 to 6 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
F-14
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
6. SHAREHOLDERS' EQUITY--(CONTINUED)
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands, except for earnings per
share information):
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
<S> <C> <C>
Pro forma net income................................ $5,987 $10,314
====== =======
Pro forma net income applicable to common
shareholders........................................ $5,467 $ 9,890
====== =======
Pro forma earnings per share applicable to common
shareholders........................................ $ .83 $ 1.58
====== =======
</TABLE>
Because SFAS 123 is applicable only to options granted subsequent to
February 28, 1995, its pro forma effect will not be fully reflected until
future years.
A summary of the status of the Company's stock option activity, and related
information for the years ended February 28, 1995, February 29, 1996, and
February 28, 1997 is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 1995 FEBRUARY 29, 1996 FEBRUARY 28, 1997
-------------------------- ------------------------- -------------------------
NUMBER WEIGHTED NUMBER WEIGHTED NUMBER WEIGHTED
OF AVERAGE EXERCISE OF AVERAGE EXERCISE OF AVERAGE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 344,229 $1.27 300,250 $2.39 349,125 $3.44
Granted............... 97,563 5.34 87,125 6.40 634,063 6.75
Exercised............. (9,583) 0.88 (30,417) 1.09 (4,083) 1.67
Canceled.............. (131,959) 1.75 (7,833) 5.19 (12,793) 4.03
-------- ------- -------
Outstanding at end of
year.................... 300,250 2.39 349,125 3.44 966,312 5.61
======== ======= =======
Exercisable at end of
year.................... 235,021 265,133 473,693
======== ======= =======
Options available for
future grant............ 127,667 48,375 305,230
======== ======= =======
Weighted average fair
value of options
granted during the
year................... $ 6.40 $ 6.75
======= =======
</TABLE>
The following table summarizes information about stock options outstanding
at February 28, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE FEBRUARY EXERCISE
RANGE OF EXERCISE PRICES FEBRUARY 28, 1997 LIFE PRICE 28, 1997 PRICE
- ------------------------ ----------------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.88--1.20.............. 161,251 .6 years $ .90 161,251 $ .90
4.80--6.40.............. 711,623 3.8 6.26 264,635 6.04
8.00--9.60.............. 93,438 4.7 8.74 47,807 9.04
------- -------
966,312 473,693
======= =======
</TABLE>
F-15
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets at February 29, 1996 and February
28, 1997 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Accounts receivable reserves....................... $ 878 $ 1,157
Inventory reserves................................. 2,884 2,895
Extended product warranties........................ 1,064 1,183
Other.............................................. 2,065 1,933
Alternative minimum tax credit..................... 3,418 2,896
------- -------
Total deferred income tax assets..................... 10,309 10,064
Valuation allowance for deferred income tax assets... (8,556) (1,811)
------- -------
Net deferred income tax assets....................... $ 1,753 $ 8,253
======= =======
</TABLE>
The cumulative alternative minimum tax credit generated in prior years was
approximately $3.4 million and $2.9 million at February 29, 1996 and February
28, 1997, respectively, and can be utilized to offset regular federal income
tax in future periods. A deferred income tax asset valuation allowance was
provided at February 29, 1996 and February 28, 1997 as management determined
that it was "more likely than not" that such deferred income tax assets would
not be realized in accordance with Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes."
The components of provision (benefit) for income taxes for the years ended
February 28, 1995, February 29, 1996 and February 28, 1997 are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal income taxes.................. $225 $ 70 $ 584
State, local, and foreign income and
franchise taxes....................... 350 280 324
---- ------- -------
575 350 908
Deferred:
Federal income taxes.................. -- (1,753) (6,500)
---- ------- -------
$575 $(1,403) $(5,592)
==== ======= =======
</TABLE>
F-16
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
7. INCOME TAXES (CONTINUED)
A reconciliation of the expected income tax expense at the statutory federal
rate to the Company's actual income tax provision (benefit) is as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Statutory expense....................... $ 1,834 $ 1,568 $ 1,893
State expense net of federal benefit.... 231 192 203
Change in valuation allowance........... (1,280) (2,735) (7,299)
Nondeductible items..................... (407) (381) (375)
Other, net.............................. 197 (47) (14)
------- ------- -------
$ 575 $(1,403) $(5,592)
======= ======= =======
</TABLE>
The Company paid approximately $528,000, $542,000 and $1,440,000 of income
taxes during the years ended February 28, 1995, February 29, 1996 and February
28, 1997, respectively.
8. COMMITMENTS AND CONTINGENCIES
CAPITAL LEASES
The Company leases certain computer equipment under long-term capital
leases. The cost of computer equipment under capital leases included in
property and equipment was $1,672,522 at February 29, 1996 and February 28,
1997.
Future minimum lease payments under capital leases at February 28, 1997 were
as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Years ending February
1998........................................................... $412
1999........................................................... 35
----
Total minimum lease payments..................................... 447
Less amounts representing interest............................... (5)
----
Present value of net minimum lease payments...................... 442
Current portion of capital leases................................ (363)
----
Total non-current portion of capital leases...................... $ 79
====
</TABLE>
Amortization of capital leases is included in depreciation expense on the
statements of income.
OPERATING LEASES
The Company leases office and warehouse facilities and equipment under
operating leases. Rental expense for the years ended February 28, 1995,
February 29, 1996 and February 28, 1997 approximated $9.5, $9.3 and $10.2
million, respectively. Future minimum lease commitments under these agreements
as of February 28, 1997 are as follows: 1998--$10.7 million; 1999--$6.3
million; 2000--$4.2 million; 2001--$4.1 million; 2002--$1.1 million, and
$648,000 thereafter.
F-17
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEGAL PROCEEDINGS (CONTINUED)
On November 18, 1996, United Refrigeration, Inc. ("United"), a competitor of
the Company, filed suit against Pameco in the United States District Court for
the Eastern District of Pennsylvania claiming that Pameco had tortiously
interfered with United's alleged contract to purchase Sid Harvey's
southeastern business operations (the "Southeastern Assets"). United asserted
that beginning on or about August 23, 1996, it met with Sid Harvey and
thereafter negotiated an agreement (allegedly finalized on or about October
24, 1996) to purchase the Southeastern Assets for approximately $26 million
and that Pameco tortiously interfered with this alleged contract by offering
"substantial inducements" to Sid Harvey and by itself purchasing the
Southeastern Assets. In the alternative, United claims that, should the
agreement be deemed unenforceable, Pameco tortiously interfered with United's
prospective contractual relations with Sid Harvey. On February 18, 1997,
United filed an amended complaint adding Sid Harvey as a defendant. In the
amended complaint, United claims that Sid Harvey (i) breached its agreement to
sell the Southeastern Assets to United; (ii) committed fraud in the inducement
of that alleged contract; (iii) negligently misrepresented certain facts
concerning the sale of the operations and Sid Harvey's intention to carry out
the sale of those assets and (iv) was unjustly enriched by certain information
obtained from United during the United/Sid Harvey negotiations.
Although the amended complaint does not demand specified damages, it asserts
that United should recover the "loss of its bargain," which United estimates
to be $11.4 million. Upon consummation of the Southeastern Assets acquisition,
Pameco agreed, based on certain written representations made by Sid Harvey
about the status of its discussions with United, to indemnify Sid Harvey
against all liabilities arising out of any action filed by United in
connection with the purchase of the Southeastern Assets.
On July 5, 1996, three former employees filed suit against Pameco and a
Company supervisor in the Superior Court of the State of California, County of
Stanislaus, alleging various tortious acts and that the Company maintained a
hostile work environment. The suit also asserts that in permitting the alleged
harassment of the plaintiffs by its supervisor that Pameco violated the
California Fair Employment Housing Act by failing to provide a harassment free
work place. The plaintiffs have cumulatively sought $1.8 million in damages,
including $1.5 million in punitive damages, from Pameco.
The Company is involved in other claims and legal proceedings which have
arisen in the ordinary course of its business. The Company intends to
vigorously defend all such claims and does not believe any such matters or the
actions described above will have a material adverse effect on the Company's
results of operations or financial condition.
9. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan which covers a majority of its
employees. The plan provides for voluntary employee contributions. Employer
contributions under plan provisions are discretionary. Pameco contributed
$58,000, $104,000 and $97,000 to the plan for the years ended February 28,
1995, February 29, 1996 and February 28, 1997, respectively.
F-18
<PAGE>
PAMECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEBRUARY 28, 1997
9. EMPLOYEE BENEFIT PLAN (CONTINUED)
On February 28, 1997, Pameco declared and accrued a cash bonus to certain
executives of approximately $2.2 million for prior service. Payment of such
bonus will occur over a three-year period ending February 29, 2000.
10. SUBSEQUENT EVENTS
The Company was formed in March 1997. On May , 1997, Pameco Holdings Inc.
("PHI") and Pameco Corporation, both Delaware corporations, were merged with
and into the Company, and in connection therewith the shareholders of PHI
received 1.25 shares of the Company's Class A Common Stock or Class B Common
Stock, as agreed upon among themselves, for each share of Class A Common Stock
and Class B Common Stock of PHI held by them immediately prior to the merger.
The Company's Class A Common Stock entitles its holder to one vote per share,
whereas the Class B Common Stock generally entitles its holder to ten votes
per share.
Prior to the IPO certain shareholders of the Company agreed to sell the
Company an equal number of shares of Common Stock as certain stock options
were exercised at an amount equal to the exercise price. After the completion
of the IPO the Company will repurchase all such shares of its Common Stock
from certain investors. Such shares will be retired upon acquisition. Upon
exercise of these stock options, the Company will issue its Common Stock for
such exercises.
F-19
<PAGE>
The following represents a selection of the product line distributed by the
Company:
[Pictures of products manufactured by Copeland, DuPont, Honeywell, Inter-City
Products and Manitowoc, logos for the following manufcturers: Ruud, Rheem, Heil,
White-Rodgers, Nu-Calgon, Scotsman, Thomas & Betts, Atco, MagneTek, Hart &
Cooley, Heatcraft, Inc., Johnson Controls, Owens/Corning, Sporlan Valve Company,
Allied Signal Chemicals, Mars, Superior Valve Company, Mueller Industries, Inc.,
Robinair, Tecumseh, Research Products Corporation, KMP and J.W. Harris, and the
logo for ThermalZone].
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES PERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITA-
TION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION
IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 17
Dilution................................................................. 17
Capitalization........................................................... 18
Selected Consolidated Financial and Other Operating Data ................ 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
Management............................................................... 39
Certain Transactions..................................................... 49
Principal and Selling Shareholders....................................... 50
Description of Capital Stock............................................. 52
Description of Certain Indebtedness...................................... 56
Shares Eligible for Future Sale.......................................... 58
Underwriting............................................................. 59
Experts.................................................................. 61
Legal Matters............................................................ 61
Available Information.................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
-----------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,578,644 SHARES
[LOGO OF PAMECO CORPORATION APPEARS HERE]
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of the fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the shares of
Class A Common Stock.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.............. $ 18,706
NASD Filing Fee.................................................. $ 6,673
NYSE listing fee................................................. $ 84,600
Printing and Mailing............................................. $ 120,000*
Accounting Fees and Expenses..................................... $ 200,000*
Blue Sky Fees and Expenses....................................... $ 5,000*
Counsel Fees and Expenses........................................ $ 200,000*
Miscellaneous.................................................... $ 15,021*
---------
Total.......................................................... $ 650,000*
=========
</TABLE>
- ---------------------
* Estimate
The Selling Shareholders will pay all underwriting discounts and commissions
and transfer taxes, if any, relating to the sale of the Selling Shareholders'
shares in the Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The underwriting agreement provides for indemnification by the Underwriters
of the Company and the Selling Shareholders and by the Company and the Selling
Shareholders of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act of 1933 (the "Securities Act"),
and affords certain rights of contribution with respect thereto.
As provided under Georgia law, the Company's Articles of Incorporation
provide that a director shall not be personally liable to the Company or its
shareholders for monetary damages for breach of duty of care or any other duty
owed to the Company as a director, except that such provisions shall not limit
the liability of a director (a) for any appropriation, in violation of his
duties, of any business opportunity of the Company; (b) for acts or omissions
which involve intentional misconduct or a knowing violation of law; (c) for
unlawful corporate distributions or (d) for any transactions from which the
director receives an improper benefit.
Under Article V of the Company's Bylaws, the Registrant is required to
indemnify its directors and officers to the fullest extent permitted by
Georgia law. The Georgia Business Corporation Code provides that a corporation
may indemnify its directors, officers and agents against judgments, fines,
penalties, amounts paid in settlement and expenses, including attorneys' fees,
resulting from various types of legal actions or proceedings if the actions of
the party being indemnified meet the standards of conduct specified therein.
Determinations concerning whether the applicable standard of conduct has been
met can be made by (a) a majority of the disinterested directors; (b) a
majority of a committee of disinterested directors; (c) independent legal
counsel or (d) an affirmative vote of a majority of shares held by the
disinterested shareholders. No indemnification may be made to or on behalf of
a corporate director, officer, employee or agent (i) in connection with a
proceeding by or in right of the Company in which such person was adjudged
liable to the Company or (ii) in connection with any other proceeding in which
said person was adjudged liable on the basis that personal benefit was
improperly received by him.
The Company has entered into Indemnification Agreements with certain of its
directors and officers (the "Indemnified Parties"). Under the terms of the
Indemnification Agreements, the Company is required to indemnify the
Indemnified Parties against certain liabilities arising out of their service
for the Company. The
II-1
<PAGE>
Indemnification Agreements require the Company (i) to indemnify each
Indemnified Party to the fullest extent permitted by law; (ii) to provide
coverage for each Indemnified Party under the Company's directors and officers
liability insurance policy and (iii) to advance certain expenses incurred by
an Indemnified Party. The Indemnification Agreements provide limitations on
the Indemnified Party's rights to indemnification in certain circumstances.
The Company's directors and officers are insured against losses arising from
any claim against them as such for wrongful acts or omissions, subject to
certain limitations.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant was incorporated in March 1997.
During the past three years, the following persons were issued Class A
Common Stock of the Registrant's predecessor on the date and for the
consideration referenced below:
<TABLE>
<CAPTION>
NAME NO. SHARES DATE OF ISSUANCE CONSIDERATION
---- ---------- ---------------- -------------
<S> <C> <C> <C>
*Robert Ellis ....................... 375 04/14/97 $ 330.00
*Gary Wadsworth ..................... 1,562 04/14/97 $ 1,375.00
*Jesus B. Pizarro ................... 5,000 04/10/97 $ 4,400.00
*Charles Sorrentino.................. 21,875 04/07/97 $140,000.00
*J. Christopher van Ee............... 19,031 04/07/97 $ 30,100.00
*Mark L. Davison .................... 1,875 04/04/97 $ 15,000.00
*Phil Filer ......................... 3,987 04/04/97 $ 19,140.00
*Don Kelly .......................... 22,916 04/04/97 $ 27,580.00
*James R. Balkcom, Jr. .............. 12,500 04/03/97 $100,000.00
*Theodore R. Kallgren ............... 17,312 04/03/97 $ 39,000.00
*Jeffrey S. Ruege ................... 19,997 04/03/97 $ 39,638.00
*Brian Silva ........................ 375 04/03/97 $ 330.00
*Walter Wilcox ...................... 6,250 04/03/97 $ 5,500.00
*Mark Graham ........................ 12,362 04/02/97 $ 44,620.00
*Tom Jacques ........................ 7,625 04/01/97 $ 41,350.00
*Mary McCulley ...................... 2,750 04/01/97 $ 13,200.00
*Jeffrey Ward ....................... 3,525 03/31/97 $ 15,110.00
*Paul Bois .......................... 14,375 03/27/97 $ 12,650.00
*Gerald V. Gurbacki ................. 76,875 03/20/97 $492,000.00
James R. Balkcom, Jr. .............. 62,500 03/10/97 $600,000.00
*James Giolas ....................... 5,000 03/10/97 $ 4,400.00
*Steve Pavlichek..................... 416 01/22/97 $ 2,664.00
*Patricia Fowler..................... 541 12/31/96 $ 1,394.00
Michael Bulkin and Rosemary E.
Bulkin, as joint tenants with the
right of survivorship............... 12,500 12/09/96 $105,000.00
James R. Balkcom, Jr. .............. 47,618 12/03/96 $399,997.50
Linda P. Balkcom.................... 35,713 11/28/96 $299,995.50
Mary Kathryn Balkcom................ 5,952 11/28/96 $ 50,001.00
Julie Balkcom Green................. 5,952 11/28/96 $ 50,001.00
*Ben Dacke........................... 3,125 07/09/96 $ 2,750.00
*Jill Lange.......................... 2,291 10/12/95 $ 8,551.00
*Thomas Totte........................ 6,250 08/01/95 $ 5,500.00
*Stuart Rogers....................... 21,875 04/14/95 $ 19,250.00
*James D. Askren, II ................ 9,582 12/07/94 $ 8,433.15
</TABLE>
- ---------------------
* Pursuant to the exercise of stock options.
II-2
<PAGE>
The sales to James Balkcom (except for shares issued to him on April 3,
1997), Michael and Rosemary Bulkin, Linda Balkcom, Mary Kathryn Balkcom and
Julie Balkcom Green were isolated private transactions not involving a public
offering and therefore were exempt from registration under Section 4(2) of the
Securities Act. The remaining sales were made pursuant to the exercise of
stock options under the Company's benefit plans, which transactions were
exempt from registration pursuant to Rule 701 promulgated under the Securities
Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ----------------------
<C> <S>
***1.1 Form of Underwriting Agreement
***3.1 Amended and Restated Articles of Incorporation of the Registrant
***3.2 Amended and Restated Bylaws of the Registrant
***3.3 Agreement and Plan of Merger by and among Pameco Holdings, Inc., a
Delaware corporation, Pameco Corporation, a Delaware corporation,
and the Registrant, dated April , 1997
**4.1 Form of Class A Common Stock Certificate of the Registrant
**5.1 Opinion of Kilpatrick Stockton LLP
*10.1 Asset Purchase Agreement between the Registrant and Sid Harvey
Industries, Inc., dated November 1, 1996
*10.2 Letter Agreement between the Registrant and Sid Harvey Industries,
Inc., dated November 1, 1996
*10.3 Agreement for Purchase and Sale of Certain Assets between the
Registrant and Chase Supply Company of Chicago, dated May 1, 1996
***10.4 Form of Indemnification Agreement between the Registrant and its
directors and officers
*10.5 Employee Stock Option Plan I
*10.6 Employee Stock Option Plan II
*10.7 Stock Option Agreement between the Registrant and Gerald V.
Gurbacki, dated May 6, 1996
*10.8 Non-Employee Directors Stock Option Plan
**10.9 Employee Stock Purchase Plan
*10.10 Credit Agreement among the Registrant, General Electric Capital
Corporation and the Lenders named therein, dated March 19, 1992
*10.11 Amendment Agreement No. 6 to Credit Agreement, dated April 29, 1996
*10.12 Pledge Agreement between the Registrant and General Electric Capital
Corporation dated
April 29, 1992
*10.13 Waiver and Seventh Amendment to Credit Agreement, dated November 1,
1996
*10.14 Eighth Amendment to Credit Agreement, dated January 24, 1997
*10.15 Waiver and Ninth Amendment to Credit Agreement, dated February ,
1997
*10.16 Receivables Purchase and Servicing Agreement among Pameco
Securitization Corporation, Redwood Receivables Corporation, the
Registrant and General Electric Capital Corporation, dated April 29,
1996
*10.17 Receivables Transfer Agreement between the Registrant and Pameco
Securitization Corporation, dated April 29, 1996
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
-------- ----------------------
<C> <S>
*10.18 Annex X to Receivables Transfer Agreement and Receivables Purchase
and Servicing Agreement, Definitions and Interpretations, dated
April 29, 1996
*10.19 Amendment No. 1 to Securitization Agreements among Pameco
Securitization Corporation, the Registrant, Redwood Receivables
Corporation and General Electric Capital Corporation, dated January
24, 1997
*10.20 Employment Agreement between the Registrant and Gerald V. Gurbacki,
dated March 1, 1996
*10.21 Letter Agreement between the Registrant and Three Cities Research,
Inc., dated March 1, 1997
*10.22 Agreement for Purchase of Shares of Pameco Holdings, Inc. between
the Registrant and Sofitam S.A., dated November 14, 1996
*10.23 Stockholders' Agreement among the Registrant, the Investor Group,
The Bank of Nova Scotia, Brian R. Esher and certain employees of the
Registrant, dated March 19, 1992, as amended
*11.1 Computation of Historical Net Income Per Share
*21.1 Subsidiaries of the Registrant
**23.1 Consent of Kilpatrick Stockton LLP (See Exhibit 5.1)
***23.2 Consent of Ernst & Young LLP
*24.1 Powers of Attorney (see Signature Page)
***27 Financial Data Schedule
</TABLE>
- ---------------------
*Previously filed
**To be filed by amendment
***Filed herewith
(b) Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
All other schedules are omitted as the required information is inapplicable
or is presented in the financial statements or related notes.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide the underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question as to
whether such indemnification by it is against public policy as expressed in
the Securities Act, and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY
OF ATLANTA, STATE OF GEORGIA, ON THE 29TH DAY OF APRIL, 1997.
New Pameco Georgia Corporation
/s/ Theodore R. Kallgren
By: _________________________________
THEODORE R. KALLGREN CHIEF
FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
ON THE 29TH DAY OF APRIL, 1997, IN THE CAPACITIES INDICATED.
SIGNATURE POSITION
Chief Executive Officer and Director
* (Principal Executive Officer)
- -------------------------------------
GERALD V. GURBACKI
Chief Financial Officer (Principal
/s/ Theodore R. Kallgren Financial and Accounting Officer)
- -------------------------------------
THEODORE R. KALLGREN
Chairman of the Board
*
- -------------------------------------
JAMES R. BALKCOM, JR.
Director
*
- -------------------------------------
G. THOMAS BRASWELL, JR.
Director
*
- -------------------------------------
MICHAEL H. BULKIN
Director
*
- -------------------------------------
EARL DOLIVE
II-6
<PAGE>
SIGNATURE POSITION
Director
*
- -------------------------------------
H. WHITNEY WAGNER
Director
*
- -------------------------------------
THOMAS G. WELD
* /s/ Theodore R. Kallgren
- -------------------------------------
THEODORE R. KALLGREN
Pursuant to power of attorney
previously filed
II-7
<PAGE>
SCHEDULE II
PAMECO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND NET OTHER AT END OF
OF YEAR EXPENSES DEDUCTIONS(2) ADDITIONS(3) YEAR
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts(1):
For the year ended
February 28, 1995.... $2,288 $1,743 $1,906 -- $2,125
For the year ended
February 29, 1996.... $2,125 $1,905 $2,152 -- $1,878
For the year ended
February 28, 1997.... $1,878 $1,792 $1,135 -- $2,535
Inventory reserves(1):
For the year ended
February 28, 1995.... $3,847 $454 $907 -- $3,394
For the year ended
February 29, 1996.... $3,394 $1,146 $1,583 -- $2,957
For the year ended
February 28, 1997.... $2,957 $767 $1,327 $1,795 $4,192
</TABLE>
- ---------------------
(1) Deducted from the related asset account.
(2) Relates to amounts charged off during the period.
(3) Relates to reserves established in connection with the purchase price
allocation related to the Sid Harvey acquisition.
<PAGE>
The following report is in the form that will be signed upon completion of the
restatement of capital accounts and the Merger described in the last
paragraph of Note 9 to the financial statements.
ERNST & YOUNG LLP
Atlanta, Georgia
March 26, 1997
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Pameco Corporation as
of February 28, 1995 and February 29, 1996, and for each of the three years in
the period ended February 29, 1996, and have issued our report thereon dated
April 26, 1996 (except for Note 8 as to which the date is May 2, 1996, and
except for the last paragraph of Note 9 as to which the date is ______, 1997),
included elsewhere in this Registration Statement. Our audits also included the
financial statement schedule listed in Item 16(a) of this Registration
Statement. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
April ______, 1997
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
-------- ---------------------- ----
<C> <S> <C>
***1.1 Form of Underwriting Agreement
***3.1 Amended and Restated Articles of Incorporation of the
Registrant
***3.2 Amended and Restated Bylaws of the Registrant
***3.3 Agreement and Plan of Merger by and among Pameco Holdings,
Inc., a Delaware corporation, Pameco Corporation, a Delaware
corporation, and the Registrant, dated April , 1997
**4.1 Form of Class A Common Stock Certificate of the Registrant
**5.1 Opinion of Kilpatrick Stockton LLP
*10.1 Asset Purchase Agreement between the Registrant and Sid
Harvey Industries, Inc., dated November 1, 1996
*10.2 Letter Agreement between the Registrant and Sid Harvey
Industries, Inc., dated November 1, 1996
*10.3 Agreement for Purchase and Sale of Certain Assets between the
Registrant and Chase Supply Company of Chicago, dated May 1,
1996
***10.4 Form of Indemnification Agreement between the Registrant and
its directors and officers
*10.5 Employee Stock Option Plan I
*10.6 Employee Stock Option Plan II
*10.7 Stock Option Agreement between the Registrant and Gerald V.
Gurbacki, dated May 6, 1996
*10.8 Non-Employee Directors Stock Option Plan
**10.9 Employee Stock Purchase Plan
*10.10 Credit Agreement among the Registrant, General Electric
Capital Corporation and the Lenders named therein, dated
March 19, 1992
*10.11 Amendment Agreement No. 6 to Credit Agreement, dated April
29, 1996
*10.12 Pledge Agreement between the Registrant and General Electric
Capital Corporation dated April 29, 1992
*10.13 Waiver and Seventh Amendment to Credit Agreement, dated
November 1, 1996
*10.14 Eighth Amendment to Credit Agreement, dated January 24, 1997
*10.15 Waiver and Ninth Amendment to Credit Agreement, dated
February , 1997
*10.16 Receivables Purchase and Servicing Agreement among Pameco
Securitization Corporation, Redwood Receivables Corporation,
the Registrant and General Electric Capital Corporation,
dated April 29, 1996
*10.17 Receivables Transfer Agreement between the Registrant and
Pameco Securitization Corporation, dated April 29, 1996
*10.18 Annex X to Receivables Transfer Agreement and Receivables
Purchase and Servicing Agreement, Definitions and
Interpretations, dated April 29, 1996
*10.19 Amendment No. 1 to Securitization Agreements among Pameco
Securitization Corporation, the Registrant, Redwood
Receivables Corporation and General Electric Capital
Corporation, dated January 24, 1997
*10.20 Employment Agreement between the Registrant and Gerald V.
Gurbacki, dated March 1, 1996
*10.21 Letter Agreement between the Registrant and Three Cities
Research, Inc., dated March 1, 1997
*10.22 Agreement for Purchase of Shares of Pameco Holdings, Inc.
between the Registrant and Sofitam S.A., dated November 14,
1996
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT PAGE
-------- ---------------------- ----
<C> <S> <C>
*10.23 Stockholders' Agreement among the Registrant, the Investor
Group, The Bank of Nova Scotia, Brian R. Esher and certain
employees of the Registrant, dated March 19, 1992, as amended
*11.1 Computation of Historical Net Income Per Share
*21.1 Subsidiaries of the Registrant
**23.1 Consent of Kilpatrick Stockton LLP (See Exhibit 5.1)
***23.2 Consent of Ernst & Young LLP
*24.1 Powers of Attorney (see Signature Page)
***27 Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed
** To be filed by amendment
*** Filed herewith
<PAGE>
EXHIBIT 1.1
__________ Shares
PAMECO CORPORATION
Class A Common Stock
UNDERWRITING AGREEMENT
May __, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
As representatives of the
several underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Dear Sirs:
Pameco Corporation, a Georgia corporation (the "Company"), and the
stockholders of the Company named in Schedule II hereto, (collectively, the
"Selling Stockholders"), severally propose to sell an aggregate of ___________
shares of Class A Common Stock, par value $0.01 per share, of the Company (the
"Firm Shares"), to the several underwriters named in Schedule I hereto (the
"Underwriters"). The Firm Shares consist of _________ shares to be issued and
sold by the Company and ___________ outstanding shares to be sold by the Selling
Stockholders. The Company also proposes to issue and sell to the several
Underwriters not more than _______ additional shares of Class A Common Stock,
par value $0.01 per share, of the Company (the "Additional Shares"), if
requested by the Underwriters as provided in Section 2 hereof. The Firm Shares
and the Additional
<PAGE>
Shares are herein collectively called the Shares. The shares of Class A Common
Stock, par value $0.01 per share, of the Company to be outstanding after giving
effect to the sales contemplated hereby are hereinafter referred to as the Class
A Common Stock. The Class A Common Stock and the Class B Common Stock, par
value $0.01 per share, of the Company are hereinafter collectively referred to
as the Common Stock. The Company and the Selling Stockholders are hereinafter
collectively called the Sellers.
1. Registration Statement and Prospectus. The Company has prepared
-------------------------------------
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively called the
"Act"), a registration statement on Form S-1 including a prospectus relating to
the Shares, which may be amended. The registration statement as amended at the
time when it becomes effective, including a registration statement (if any)
filed pursuant to Rule 462(b) under the Act increasing the size of the offering
registered under the Act and information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A or
Rule 434 under the Act, is hereinafter referred to as the Registration
Statement; and the Prospectus (including any prospectus subject to completion
and any term sheet meeting the requirements of Rule 434(b) under the Act, taken
together as the prospectus provided by the Company to meet the requirements of
Section 10(a) of the Act) in the respective forms first used to confirm sales of
Shares are hereinafter referred to as the Prospectus.
2. Agreements to Sell and Purchase. On the basis of the
-------------------------------
representations and warranties contained in this Agreement, and subject to its
terms and conditions, (i) the Company agrees to issue and sell ______________
Firm Shares, (ii) each Selling Stockholder agrees, severally and not jointly, to
sell the number of Firm Shares set forth opposite such Selling Stockholder's
name in Schedule II hereto and (iii) each Underwriter agrees, severally and not
jointly, to purchase from each Seller at a price per share of $______ (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) which
2
<PAGE>
bears the same proportion to the total number of Firm Shares to be sold by such
Seller as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, (i) the Company agrees to
issue and sell up to _________ Additional Shares and (ii) the Underwriters shall
have the right to purchase, severally and not jointly, up to an aggregate
_______ Additional Shares from the Company at the Purchase Price. Additional
Shares may be purchased solely for the purpose of covering over-allotments made
in connection with the offering of the Firm Shares. The Underwriters may
exercise their right to purchase Additional Shares in whole or in part from time
to time by giving written notice thereof to the Company within 30 days after the
date of this Agreement. You shall give any such notice on behalf of the
Underwriters and such notice shall specify the aggregate number of Additional
Shares to be purchased pursuant to such exercise and the date for payment and
delivery thereof. The date specified in any such notice shall be a business day
(i) no earlier than the Closing Date (as hereinafter defined), (ii) no later
than ten business days after such notice has been given and (iii) no earlier
than two business days after such notice has been given. If any Additional
Shares are to be purchased, each Underwriter, severally and not jointly, agrees
to purchase from the Company the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) which bears the
same proportion to the total number of Additional Shares to be purchased from
the Company as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I bears to the total number of Firm Shares.
The Sellers hereby agree, severally and not jointly, and the Company
hereby agrees, not to offer, sell, pledge, contract to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of directly or
indirectly any shares of common stock of the Company or any securities
convertible into or exercisable or exchangeable for common stock or in any other
manner transfer all or a portion of the economic conse-
3
<PAGE>
quences associated with the ownership of any common stock (regardless of whether
any of the foregoing transactions is to be settled by the delivery of the common
stock or such other securities, in cash or otherwise), except to the
Underwriters pursuant to this Agreement, for a period of 180 days after the date
of the Prospectus without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation, and the Company shall, concurrently with the
execution of this Agreement, deliver an agreement executed by (i) each of the
directors and officers of the Company and (ii) each stockholder listed on Annex
I hereto to the effect that such person will not engage in any of the foregoing
transactions with respect to any common stock or any securities convertible into
or exchangeable for common stock, in each case beneficially owned by such person
during such period. Notwithstanding the foregoing, during such 180 period (i)
the Company may grant stock options pursuant to the Company's existing stock
option plan, (ii) the Company may issue shares of common stock upon the exercise
of an option or warrant or the conversion of a security outstanding on the date
hereof and (iii) each of the Company's directors and officers and each
stockholder listed on Annex I may transfer common stock by way of off-market
transfers to those of their respective affiliates (as that term is defined in
Rule 144 under the Act) which agree in writing with the Underwriters to be bound
by the provisions of this paragraph.
3. Terms of Public Offering. The Sellers are advised by you that
------------------------
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
4. Delivery and Payment. Delivery to the Underwriters of and
--------------------
payment for the Firm Shares shall be made at 9:00 A.M., New York City time, on
May __, 1997 (the "Closing Date"), at such place as you shall designate. The
Closing Date and the location of delivery of and the form of payment for the
Firm Shares may be varied by agreement between you and the Sellers.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters
4
<PAGE>
shall be made at such place as you shall designate at 9:00 A.M., New York City
time, on the date specified in the applicable exercise notice given by you
pursuant to Section 2 (an "Option Closing Date"). Any such Option Closing Date
and the location of delivery of and the form of payment for such Additional
Shares may be varied by agreement between you and the Company.
Certificates for the Shares shall be registered in such names and
issued in such denominations as you shall request in writing not later than two
full business days prior to the Closing Date or an Option Closing Date, as the
case may be. Such certificates shall be made available to you for inspection
not later than 9:30 A.M., New York City time, on the business day next preceding
the Closing Date or an Option Closing Date, as the case may be. Certificates in
definitive form evidencing the Shares shall be delivered to you on the Closing
Date or an Option Closing Date, as the case may be, with any transfer taxes
thereon duly paid by the respective Sellers, for the respective accounts of the
several Underwriters, against payment to the Sellers of the Purchase Price
therefor by wire transfer of Federal or other funds immediately available in New
York City.
5. Agreements of the Company. The Company agrees with you:
-------------------------
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) when the Registration Statement has become effective and
when any post-effective amendment to it becomes effective, (ii) of any request
by the Commission for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information, (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction, or the initiation of any proceeding for
such purposes (iv) if the Company is required to file a registration statement
pursuant to Rule 462(b) under the Act increasing the size of the offering (a
"Rule 462(b) Registration Statement") after the effectiveness of this Agreement,
when the Rule 462(b) Registration Statement has become effective and (v) of the
happening of any event during the period referred to in paragraph (d) below
which makes any state-
5
<PAGE>
ment of a material fact made in the Registration Statement or the Prospectus
untrue or which requires the making of any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements therein
not misleading. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will use
its best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
(b) To furnish to you, without charge, 4 signed copies of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits, and to furnish to you and each Underwriter
designated by you such number of conformed copies of the Registration Statement
as so filed and of each amendment to it, without exhibits, as you may reasonably
request.
(c) To prepare the Registration Statement and the Prospectus in a form
approved by you and not to file any amendment or supplement to the Registration
Statement, whether before or after the time when it becomes effective, or to
make any amendment or supplement to the Prospectus including the issuance or
filings of any term sheet within the meaning of Rule 434 of which you shall not
previously have been advised or to which you shall reasonably object; and to
prepare and file with the Commission, promptly upon your reasonable request, any
amendment or supplement to the Registration Statement or the Prospectus
including the issuance or filings of any term sheet within the meaning of Rule
434 which may be necessary or advisable in connection with the distribution of
the Shares by you, and to use its best efforts to cause any such amendment to
the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M. New York City time on the business day next
succeeding the date of this Agreement, and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish to each Underwriter and dealer as many copies of the
Prospectus (and of any amendment or supplement to the Prospectus) as such
Underwriter or dealer may reasonably request.
6
<PAGE>
(e) If during the period specified in paragraph (d) any event shall
occur as a result of which, in the opinion of counsel for the Underwriters it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the Prospectus is
delivered to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with any law, forthwith to prepare and file
with the Commission an appropriate amendment or supplement to the Prospectus so
that the statements in the Prospectus, as so amended or supplemented, will not
in the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to such dealers as you shall specify, such number of copies
thereof as such Underwriter or dealers may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the Shares for offer and sale by the several Underwriters and
by dealers under the state securities or Blue Sky laws of such jurisdictions as
you may request, to continue such qualification in effect so long as required
for distribution of the Shares and to file such consents to service of process
or other documents as may be necessary in order to effect such registration or
qualification.
(g) To mail and make generally available to its stockholders as soon
as reasonably practicable an earnings statement covering a period of at least
twelve months after the effective date of the Registration Statement (but in no
event commencing later than 90 days after such date) which shall satisfy the
provisions of Section 11(a) of the Act, and to advise you in writing when such
statement has been so made available.
(h) During the period of five years after the date of this Agreement,
(i) to mail as soon as reasonably practicable after the end of each fiscal year
to the record holders of its Common Stock a financial report of the Company and
its subsidiaries on a consolidated basis (and a similar financial report of all
unconsolidated subsidiaries, if any), all such financial reports to include a
consolidated balance sheet, a consolidated
7
<PAGE>
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants, and (ii)
to mail and make generally available as soon as practicable after the end of
each quarterly period (except for the last quarterly period of each fiscal year)
to such holders, a consolidated balance sheet, a consolidated statement of
operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(i) During the period referred to in paragraph (h), to furnish to you
as soon as available a copy of each report or other publicly available
information of the Company mailed to the holders of Common Stock or filed with
the Commission and such other publicly available information concerning the
Company and its subsidiaries as you may reasonably request.
(j) If the Registration Statement at the time of the execution and
delivery of this Agreement does not cover all of the Shares, to file a Rule
462(b) Registration Statement with the Commission registering the Shares not so
covered in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the
date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
(k) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement
including (i) the fees, disbursements and expenses of the Company's counsel and
the Company's accountants in connection with the registration and delivery of
the Shares under the Act and all other fees or expenses in connection with the
preparation, printing, filing and distribution of the Registration
8
<PAGE>
Statement (including financial statements and exhibits), any preliminary
prospectus, the Prospectus and all amendments and supplements to any of the
foregoing prior to or during the period specified in paragraph (d), including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) all costs of printing or producing this
Agreement and any other documents in connection with the offering, purchase,
sale or delivery of the Shares, (iv) all expenses in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the several states and the cost of printing or
producing any Preliminary and Supplemental Blue Sky Memoranda in connection
therewith (including the filing fees and fees and disbursements of counsel for
the Underwriters in connection with such registration or qualification and
memoranda relating thereto), (v) the filing fees and disbursements of counsel
for the Underwriters in connection with the review and clearance of the offering
of the Shares by the National Association of Securities Dealers, Inc., (vi) all
fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Class A Common Stock and all
costs and expenses incident to the listing of the Shares on the New York Stock
Exchange and any other national securities exchanges and foreign stock exchanges
and, if applicable, the quotation of the Shares on the NASDAQ National Market,
(vii) the cost of printing certificates representing the Shares, (viii) the
costs and charges of any transfer agent, registrar or depositary, and (ix) and
all other costs and expenses incident to the performance of the obligations of
the Sellers hereunder for which provision is not otherwise made in this Section
3.
(l) To use its best efforts to list, subject to notice of issuance,
the Shares on the New York Stock Exchange and to maintain the listing of the
Shares on the New York Stock Exchange for a period of three years after the
effective date of the Registration Statement.
(m) To use its best efforts to do and perform all things required or
necessary to be done and
9
<PAGE>
performed under this Agreement by the Company prior to the Closing Date or any
Option Closing Date, as the case may be, and to satisfy all conditions precedent
to the delivery of the Shares.
6. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect, and no
proceedings for such purpose are pending before or threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will 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 not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable, will
comply in all material respects with the Act and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph (b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, and each Registration Statement filed
pursuant to Rule 462(b) under the Act, if any, complied when so filed in all
material respects with the Act and did not 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 the light of the circumstances
under which they
10
<PAGE>
were made, not misleading, except that the representations and warranties set
forth in this paragraph (c) do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and Pameco Securitization Corporation (the
"Subsidiary") has been duly incorporated, is validly existing as a corporation
in good standing under the laws of its jurisdiction of incorporation and has
the corporate power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign corporation authorized to do
business in each jurisdiction in which the nature of its business or its
ownership or leasing of property requires such qualification, except where the
failure to be so qualified would not have a material adverse effect on the
business, prospects, financial condition or results of operations of the Company
and the Subsidiary, taken as a whole. The Subsidiary is the only subsidiary of
the Company.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued
by the Company or the Subsidiary related to or entitling any person to purchase
or otherwise to acquire any shares of the capital stock of the Company or any of
its subsidiaries, except as otherwise disclosed in the Registration Statement.
All of the outstanding shares of capital stock of, or other ownership interests
in, the Subsidiary have been duly authorized and validly issued and are fully
paid and non-assessable, and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any nature.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights; and the Shares to be issued and sold by the
Company hereunder have been duly authorized and, when issued and delivered to
the Underwriters against payment therefor as provided
11
<PAGE>
by this Agreement, will be validly issued, fully paid and non-assessable, and
the issuance of such Shares will not be subject to any preemptive or similar
rights.
(g) The authorized capital stock of the Company, including the Common
Stock, conforms as to legal matters to the description thereof contained in the
Prospectus.
(h) Neither the Company nor the Subsidiary is in violation of its
respective charter, articles of incorporation or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan or credit agreement, mortgage, lease or other agreement or
instrument that is material to the Company and the Subsidiary, taken as a whole,
to which the Company or the Subsidiary is a party or by which it or the
Subsidiary or their respective property is bound.
(i) The execution, delivery and performance of this Agreement by the
Company, compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of or qualification with any
court, regulatory body, administrative agency or other governmental body (except
as such may be required under the securities or Blue Sky laws of the various
states) and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter, articles of incorporation or by-
laws of the Company or the Subsidiary or any indenture, loan or credit
agreement, mortgage, lease or other agreement or instrument to which it or the
Subsidiary is a party or by which it or any of its subsidiaries or their
respective property is bound, or violate or conflict with any laws, rules,
regulations, judgments, orders or decrees of any court, governmental agency or
body having jurisdiction over the Company, the Subsidiary or their respective
property, except those that would not have, singly or in the aggregate, a
material adverse effect on the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiary, taken as a whole or otherwise affect consummation of the
transactions contemplated hereby (each, a "Material Adverse Effect").
12
<PAGE>
(j) There are no legal or governmental proceedings pending or
threatened to which the Company or the Subsidiary is a party or to which any of
their respective property is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; nor are there
any statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(k) Neither the Company nor the Subsidiary has violated any foreign,
federal, state or local law or regulation relating to the protection of human
health and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("Environmental Laws"), nor any federal or state law
relating to discrimination in the hiring, promotion or pay of employees nor any
applicable federal or state wages and hours laws, nor any provisions of the
Employee Retirement Income Security Act of 1974 or the rules and regulations
promulgated thereunder, except for such violations which singly and in the
aggregate would not result in any material adverse change in the business,
prospects, financial condition or results of operation of the Company and the
Subsidiary, taken as a whole.
(l) Each of the Company and the Subsidiary has such permits, licenses,
franchises and autho
rizations of governmental or regulatory authorities
("permits"), including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease and operate its respective properties and
to conduct its business except where failure to have such permits would not
have, singly or in the aggregate, a Material Adverse Effect; each of the Company
and the Subsidiary is in compliance with the terms and conditions of all such
permits and no event has occurred which allows, or after notice or lapse of
time or both would allow, revocation or termination thereof or results or, after
notice or lapse of time or both, would result in any other impairment of the
rights of the holder of any such permit; such permits contain no restrictions
that are materially burdensome to the Company or the Subsidiary; except where
such failure to have, or comply with the terms or conditions of, such permits,
the occurrence
13
<PAGE>
of any such event or the presence of any such restriction would not have, singly
or in the aggregate, a Material Adverse Effect.
(m) There are no costs or liabilities known to the Company associated
with Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would have, singly or in the aggregate, a Material Adverse Effect on the
business, prospects, financial condition or results of operations of the
Company and the Subsidiary taken as a whole.
(n) This Agreement has been duly authorized, executed and
delivered by the Company.
(o) Except as otherwise set forth in the Prospectus or such as are not
material to the business, prospects, financial condition or results of operation
of the Company and its subsidiaries, taken as a whole, each of the Company and
the Subsidiary has good and marketable title, free and clear of all liens,
claims, encumbrances and restrictions except liens for taxes not yet due and
payable and as described in the Registration Statement, to all property and
assets described in the Registration Statement as being owned by it. All leases
to which the Company or the Subsidiary is a party are valid and binding and no
default has occurred or is continuing thereunder, which might result in any
material adverse change in the business, prospects, financial condition or
results of operation of the Company and the Subsidiary taken as a whole, and the
Company and the Subsidiary enjoy peaceful and undisturbed possession under all
such leases to which any of them is a party as lessee with such exceptions as do
not materially interfere with the use made thereof by the Company or the
Subsidiary.
(p) Each of the Company and the Subsidiary maintains reasonably
adequate insurance or has established reasonably adequate reserves to cover
usual business and other risks.
14
<PAGE>
(q) Ernst & Young LLP are independent public accountants with respect
to the Company and its subsidiaries as required by the Act.
(r) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and any
amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the
Company and its subsidiaries on the basis stated in the Registration Statement
at the respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any amendment or supplement thereto) is, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Company.
(s) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended.
(t) Except for the Registration Rights Agreement dated March 19, 1992
between the Company and certain banks and other institutions listed in Exhibit A
thereto (the "Existing Registration Rights Agreement"), there are no contracts,
agreements or understandings between the Company and any person granting such
person the right to require the Company to file a registration statement under
the Act with respect to any securities of the Company or to require the Company
to include any such securities of the Company in a registration statement filed
under the Act including (without limitation) with the Shares registered pursuant
to the Registration Statement.
(u) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there has not occurred any mate-
15
<PAGE>
rial adverse change or any development involving a prospective material adverse
change in the condition, financial or otherwise, or the earnings, business,
management or operations of the Company and the Subsidiary, taken as a whole,
(ii) there has not been any material adverse change or any development involving
a prospective material adverse change in the capital stock or in the long-term
debt of the Company or any of its subsidiaries and (iii) neither the Company nor
any of its subsidiaries has incurred any material liability or obligation,
direct or contingent.
(v) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(w) In the case of any term sheet and prospectus subject to completion
provided by the Company to the Underwriters for use in connection with the
offering and sale of the Shares pursuant to Rule 434 under the Act, such term
sheet and prospectus together are not materially different from the prospectus
included in the Registration Statement at the time of effectiveness or an
effective post-effective amendment thereto and such term sheet sets forth all
information material to investors with respect to the offering that is not
disclosed in the prospectus subject to completion or the confirmation.
(x) Each of the Company and the Subsidiary maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and any appropriate action is taken
with respect to any differences.
(y) All material tax returns required to be filed by the Company and
the Subsidiary in any jurisdiction have been filed, other than those filings
being contested in good faith, and all material taxes, includ-
16
<PAGE>
ing withholding taxes, penalties and interest, assessments, fees and other
charges due pursuant to such returns or pursuant to any assessment received by
the Company or the Subsidiary have been paid, other than those being contested
in good faith and for which adequate reserves have been provided.
(z) The Company has filed a registration statement pursuant to Section
12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
to register the Class A Common Stock, has filed an application to list the Class
A Common Stock on the New York Stock Exchange, and has received notification
that the listing has been approved, subject to notice of issuance.
7. Representations and Warranties of the Selling Stockholders. Each
----------------------------------------------------------
Selling Stockholder severally represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the registered and beneficial owner
of the Shares to be sold by such Selling Stockholder pursuant to this Agreement
and has, and on the Closing Date will have, good and clear title to such Shares,
free of all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
(b) Upon delivery of and payment for such Shares pursuant to this
Agreement, good and clear title to such Shares will pass to the Underwriters,
free of all restrictions on transfer, liens, encumbrances, security interests
and claims whatsoever.
(c) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority to enter into this Agreement and the
Custody Agreement between such Selling Stockholder and
__________________________________, as Custodian (a "Custody Agreement") and to
sell, assign, transfer and deliver such Shares in the manner provided herein and
therein, and this Agreement and such Custody Agreement have been duly
authorized, executed and delivered by such Selling Stockholder and each of this
Agreement and such Custody Agreement is a valid and binding agreement of such
Selling Stockholder enforceable in accordance with its terms, except (i) as may
be limited by bankruptcy,
17
<PAGE>
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally, (ii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought, and (iii) that
the enforceability of any rights to indemnity or contribution may be limited by
federal or state securities laws or by public policy.
(d) The power of attorney signed by such Selling Stockholder
appointing Gerald V. Gurbacki and Theodore R. Kallgren, or either one of them,
as his attorney-in-fact to the extent set forth therein with regard to the
transactions contemplated hereby and by the Registration Statement and the
Custody Agreement executed by such Selling Stockholder has been duly authorized,
executed and delivered by or on behalf of such Selling Stockholder and is a
valid and binding instrument of such Selling Stockholder enforceable in
accordance with its terms (except (i) as may be limited by bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally, (ii)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought, and (iii) that
the enforceability of any rights to indemnity or contribution may be limited by
federal or state securities laws or by public policy) and, pursuant to such
power of attorney, such Selling Stockholder has authorized Gerald V. Gurbacki
and Theodore R. Kallgren, or either one of them, to execute and deliver on his
behalf this Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver the Shares to be
sold by such Selling Stockholder pursuant to this Agreement.
(e) Such Selling Stockholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably be
expected to, cause or result in stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares
pursuant to the distri-
18
<PAGE>
bution contemplated by this Agreement, and other than as permitted by the Act,
the Selling Stockholder has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Shares.
(f) The execution, delivery and performance of this Agreement by such
Selling Stockholder, compliance by such Selling Stockholder with all the
provisions hereof and the consummation of the transactions contemplated hereby
will not require any consent, approval, authorization or other order of, or
qualification with, any court, regulatory body, administrative agency or other
governmental body (except as may be required under the Act, state securities
laws or Blue Sky laws) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under, organizational documents of
such Selling Stockholder, if not an individual, or any indenture, loan or
credit agreement, mortgage, lease or other agreement or instrument to which
such Selling Stockholder is a party or by which such Selling Stockholder or
property of such Selling Stockholder is bound, or violate or conflict with any
laws, rules, regulations, judgments, orders or decrees of any court,
governmental agency or body having jurisdiction over such Selling Stockholder or
property of such Selling Stockholder.
(g) Such parts of the Registration Statement under the caption
"Principal and Selling Shareholders" which specifically relate to such Selling
Stockholder do not, and will not on the Closing Date (and any Option Closing
Date), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of circumstances under which they were made, not misleading.
(h) At any time during the period described in paragraph 5(d) hereof,
if there is any change in the information referred to in paragraph 7(g) above,
such Selling Stockholder will immediately notify you of such change.
8. Indemnification. (a) The Company agrees to indemnify and hold
---------------
harmless each Underwriter, its directors, its officers and each person, if any,
who
19
<PAGE>
controls any Underwriter, from and against any and all losses, claims, damages,
liabilities and judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or the
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or any preliminary prospectus, or caused by
any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Underwriter furnished in writing
to the Company by or on behalf of such Underwriter through you expressly for use
therein; provided, however, that the foregoing indemnity agreement with respect
-----------------
to any preliminary prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages and liabilities
and judgments purchased Shares, or any director or officer of or any person
controlling such Underwriter, if a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended and supplemented) would have cured the defect giving rise to such
loss, claim, damage, liability or judgment.
(b) Each of the Selling Stockholders, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter, its directors, its
officers and each person, if any, who controls any Underwriter, from and against
any and all losses, claims, damages, liabilities and judgments caused by any
untrue statement or alleged untrue statement of a material fact contained in the
Registration Statement or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus, or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only with respect to claims, actions and
proceedings based on information
20
<PAGE>
relating to, or supplied by such Selling Stockholder. Notwithstanding the
foregoing, the aggregate liability of any Selling Stockholder pursuant to the
provisions of this paragraph (b) shall be limited to an amount equal to the
aggregate purchase price received by such Selling Stockholder from the sale of
such Selling Stockholder's Shares hereunder; provided, however, that the
-----------------
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages and liabilities and judgments purchased Shares, or
any director or officer of or any person controlling such Underwriter, if a copy
of the Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended and supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or judgment.
(c) In case any proceeding (including governmental investigation)
shall be brought against any Underwriter or any director or officer of or any
person controlling such Underwriter, based upon any preliminary prospectus, the
Registration Statement or the Prospectus or any amendment or supplement thereto
and with respect to which indemnity may be sought against the Company or any of
the Selling Stockholders, such Underwriter shall promptly notify the Company or
such Selling Stockholders, as applicable, in writing and the Company or such
Selling Stockholders, if applicable, shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such indemnified party and
payment of all fees and expenses. Any Underwriter or any director or officer of
or person controlling such Underwriter shall have the right to employ separate
counsel in any such proceeding and participate in the defense thereof, but the
fees and expenses of such counsel shall be at the expense of such Underwriter,
director, officer or controlling person unless (i) the employment of such
counsel has been specifically authorized in writing by the Company or such
Selling Stockholders, if applicable, (ii) the Company or such Selling
Stockholders, if applicable, shall have failed to assume the defense and employ
coun-
21
<PAGE>
sel or (iii) the named parties to any such proceeding (including any impleaded
parties) include both such Underwriter, director, officer or controlling person
and the Company or such Selling Stockholders, as the case may be, and such
Underwriter, director, officer or controlling person shall have been advised by
such counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the Company or the
Selling Stockholders, as the case may be, (in which case the Company or the
Selling Stockholders, as applicable, shall not have the right to assume the
defense of such proceeding on behalf of such Underwriter, director, officer or
controlling person). In any such case described in the immediately preceding
sentence, the Company and, if applicable, such Selling Stockholders shall not,
in connection with any one such proceeding or separate but substantially similar
or related proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all such
Underwriters, directors, officers and controlling persons. In any case where
any Underwriter, or any director or officer of, or person controlling such
Underwriter has the right to employ separate counsel at the Company's or any
Selling Stockholder's expense, such counsel shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation and all fees and expenses of
such counsel shall be reimbursed as they are incurred. The Company or, if
applicable, any such Selling Stockholder shall not be liable for any settlement
of any such action effected without the written consent of the Company or such
Selling Stockholder, as the case may be, but if settled with the written consent
of the Company or such Selling Stockholder, the Company or, if applicable, such
Selling Stockholder agrees to indemnify and hold harmless any Underwriter and
any director, officer and controlling person of such Underwriter from and
against any loss or liability by reason of such settlement. Notwithstanding the
immediately preceding sentence, if in any case where the fees and expenses of
counsel are at the expense of the indemnifying party and an indemnified party
shall have requested the indemnifying party to reimburse the indemnified party
for such fees and expenses of counsel as incurred, such indemnifying party
agrees that it shall also be liable for any settlement of any action effected
without its written
22
<PAGE>
consent if (i) such settlement is entered into more than ten business days after
the receipt by such indemnifying party of the aforesaid request for
reimbursement and (ii) such indemnifying party shall have failed to reimburse
the indemnified party in accordance with such request for reimbursement prior to
the date of such settlement. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such proceeding.
(d) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and any person controlling the Company and each Selling
Stockholder, its directors, its officers who sign the Registration Statement and
any person controlling the Selling Stockholder to the same extent as the
foregoing indemnity from the Sellers to each Underwriter but only with reference
to information relating to such Underwriter furnished in writing by or on behalf
of such Underwriter through you expressly for use in the Registration Statement,
the Prospectus or any preliminary prospectus. In case any proceeding shall be
brought against the Company, any such director, officer or any person
controlling the Company or any Selling Stockholder based on the Registration
Statement, the Prospectus or any preliminary prospectus and in respect of which
indemnity may be sought against any Underwriter, the Underwriter shall have the
rights and duties given to the Sellers (except that if any Seller shall have
assumed the defense thereof, such Underwriter shall not be required to do so,
but may employ separate counsel therein and participate in the defense thereof
but the fees and expenses of such counsel shall be at the expense of such
Underwriter), and the Company, any such directors and officers and any person
controlling the Company and each Selling Stockholder, its directors, its
officers who sign the Registration Statement and any person controlling the
Selling Stockholder shall have the rights and duties given to such Underwriter
by Section 8(c) hereof (except that if the Company, any Selling Stockholder, any
such
23
<PAGE>
directors or officers or any such controlling person shall have the right to
employ separate counsel at such Underwriter's expense pursuant to Section 8(c),
such counsel shall be designated by the Company).
(e) To the extent the indemnification provided for in this Section 8
is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Sellers and the Underwriters in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The relative
benefits received by the Sellers and the Underwriters shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Sellers, and the total underwriting
discounts and commissions received by the Underwriters, bear to the total price
to the public of the Shares, in each case as set forth in the table on the cover
page of the Prospectus. The relative fault of the Sellers and the Underwriters
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a material
fact relates to information supplied by the Company, the Selling Stockholders
or the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(f) The Sellers and the Underwriters agree that it would not be just
and equitable if contribution pursuant to Section 8(e) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of
24
<PAGE>
allocation which does not take account of the equitable considerations referred
to in the immediately preceding paragraph. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, liabilities or
judgments referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to Section 8(e) are several in proportion to the respective
number of Shares purchased by each of the Underwriters hereunder and not joint.
(g) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(h) In this Agreement, references to a person "controlling" another
person or a "controlling person" shall be deemed to be a reference to a person
who controls that other person within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act.
9. Conditions of Underwriters' Obligations. The several obligations
---------------------------------------
of the Underwriters to purchase the Firm Shares under this Agreement are subject
to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
25
<PAGE>
(b) The Registration Statement shall have become effective not later
than 5:00 P.M.(and in the case of a Registration Statement filed under Rule
462(b) of the Act, not later than 10:00 p.m.), New York City time, on the date
of this Agreement or at such later date and time as you may approve in writing,
and at the Closing Date no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending before or contemplated by
the Commission.
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have occurred any
change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and the Subsidiary, taken as a whole, (ii) there shall not have been
any change or any development involving a prospective change in the capital
stock or in the long-term debt of the Company or the Subsidiary and (iii)
neither the Company nor the Subsidiary shall have incurred any liability or
obligation, direct or contingent, the effect of which, in any such case
described in clause (i), (ii) or (iii), in your judgment, is material and
adverse and, in your judgment, makes it impracticable to market the Shares on
the terms and in the manner contemplated in the Prospectus.
(d) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Gerald V. Gurbacki and Theodore R. Kallgren, in
their respective capacities as the Chief Executive Officer and Chief Financial
Officer of the Company, confirming the matters set forth in paragraphs (a), (b)
and (c)(i) and (ii) of this Section 8.
(e) All the representations and warranties of the Selling Stockholders
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received a certificate to such effect, dated the Closing Date, from each
Selling Stockholder.
26
<PAGE>
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Kilpatrick Stockton LLP, counsel for the Company, substantially to the effect
that:
(i) Each of the Company and the Subsidiary has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation and has the corporate power and
authority required to carry on its business as it is currently being conducted
and as described in the Prospectus and to own, lease and operate its properties;
(ii) Each of the Company and the Subsidiary is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect;
(iii) all of the outstanding shares of capital stock of the
Subsidiary have been duly and validly authorized and issued and are fully paid
and non-assessable, and to such counsel's knowledge, based solely on a review of
stock records and minute books, are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any nature;
(iv) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights arising by operation of law, under the
articles of incorporation or by-laws of the Company or to the best of such
counsel's knowledge under any agreement to which the Company is a party;
(v) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will have been validly issued
and will be fully paid and non-assessable, and the issuance of such Shares is
not subject to any
27
<PAGE>
preemptive or similar rights arising by operation of law, under the articles of
incorporation or by-laws of the Company or to the best of such counsel's
knowledge under any agreement to which the Company is a party;
(vi) The Registration Statement has been declared effective under the
Act as of ___ [am/pm] and on ___, 1997, any required filing of the Prospectus
pursuant to Rule 424(b) has been made in the manner and within the time period
required by Rule 424(b), no stop order suspending the effectiveness of the
Registration Statement has been issued, and to the best of such counsel's
knowledge and information no proceedings for that purpose have been instituted
or are pending before or threatened by the Commission;
(vii) the statements under the captions "Description of Certain
Indebtedness", "Shares Eligible for Future Sale" and "Description of Capital
Stock" in the Prospectus and Item 14 of Part II of the Registration Statement
insofar as such statements constitute a summary of legal matters, documents or
legal proceedings referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings;
(viii) neither the Company nor the Subsidiary is in violation of its
respective charter or articles of incorporation or by-laws and, to the best of
such counsel's knowledge after due inquiry, neither the Company nor any of its
subsidiaries is in default in the performance of any obligation, agreement,
covenant or condition contained in any indenture, loan or credit agreement,
mortgage, lease or other agreement or instrument which, based upon a certificate
of two officers of the Company, is material to the Company and the Subsidiary
taken as a whole, or otherwise is described or referred to in the Registration
Statement or the Prospectus or filed as an exhibit to the Registration
Statement, to which the Company or the Subsidiary is a party or by which it or
the Subsidiary or their respective property is bound (collectively, "Material
Contracts");
(ix) the execution, delivery and performance of this Agreement by the
Company, compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not
28
<PAGE>
require any consent, approval, authorization or other order of or qualification
with, any federal, Georgia or Delaware court or governmental body or agency
(except such as may be required under the securities or Blue Sky laws of the
various states) and will not conflict with or constitute a breach of any of the
terms or provisions of, or a default under, the charter, articles of
incorporation, or by-laws of the Company or the Subsidiary, any Material
Contract or violate or conflict with any laws, rules or regulations that such
counsel knows to be applicable to the transactions contemplated by the
Agreement, or any judgments, orders or decrees known to such counsel of any
court, or any governmental agency or body having jurisdiction over the Company
or the Subsidiary or their respective property;
(x) after due inquiry, which includes formal docket searches of
federal and state courts in Georgia and Delaware only, does not include any
formal docket search, such counsel does not know of any legal or governmental
proceeding pending or threatened to which the Company or the Subsidiary is a
party or to which any of their respective property is subject that is required
to be described in the Registration Statement or the Prospectus and is not so
described, or of any statute, regulation, contract or other document which is
required to be described in the Registration Statement or the Prospectus or is
required to be filed as an exhibit to the Registration Statement that is not
described or filed as required;
(xi) to the best of such counsel's knowledge and belief, after due
inquiry, each of the Company and the Subsidiary is in compliance with all
federal and state laws, regulations and rulings applicable to it, the non-
compliance with which is likely to have a Material Adverse Effect.
(xii) the Company is not and, after giving effect to the offering
and sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is defined
in the Investment Company Act of 1940, as amended;
(xiii) to the best of such counsel's knowledge after due inquiry,
except for the Existing
29
<PAGE>
Registration Rights Agreement, there are no contracts, agreements or
understandings between the Company and any person granting such person the right
to require the Company to file a registration statement under the Act with
respect to any securities of the Company or to require the Company to include
any such securities of the Company in a registration statement filed under the
Act including (without limitation) with the Shares registered pursuant to the
Registration Statement.
(xiv) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial and statistical data and Schedule II included therein as to which no
opinion need be expressed) comply as to form in all material respects with the
Act, (B) such counsel has no reason to believe that (except for the financial
statements and other financial and statistical data and Schedule II as to which
such counsel need not express any belief) at the time the Registration Statement
became effective and on the date of this Agreement, the Registration Statement
and the prospectus included therein contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (C) such counsel
has no reason to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and Schedule II and other
financial and statistical data, as aforesaid) contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and
(xv) this Agreement has been duly authorized, executed and
delivered by the Company
In giving such opinion with respect to the matters covered by clause
(xiv) such counsel may state that their opinion and belief are based upon their
participation in the preparation of the Registration Statement and Prospectus
and any amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification except as
specified.
30
<PAGE>
The opinion of Kilpatrick Stockton LLP described in paragraph (f)
above shall be rendered to you at the request of the Company and shall so state
therein.
(g) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of King and Spalding, counsel for Bank of Nova Scotia, satisfactory to the
Underwriters, substantially to the effect that:
(i) the statements under the captions "Principal and Selling
Shareholders" in the Prospectus, to the extent such statements relate to Bank of
Nova Scotia and its interests in the Company, fairly present the information
called for therein;
(ii) the execution, delivery and performance of this Agreement by
Bank of Nova Scotia, compliance by Bank of Nova Scotia with all the provisions
hereof and the consummation of the transactions contemplated hereby by Bank of
Nova Scotia will not require any consent, approval, authorization or other order
of or qualification with, any federal, Georgia or Delaware court or governmental
body or agency, or any court or governmental body or agency of [Nova Scotia,
Canada] [its jurisdiction of organization] (except such as may be required under
the securities or Blue Sky laws of the various states) and will not conflict
with or constitute a breach of any of the terms or provisions of, or a default
under the organizational documents of Bank of Nova Scotia or, to the best of
such counsel's knowledge, any indenture, loan or credit agreement, mortgage,
lease or other agreement or other instrument to which Bank of Nova Scotia is a
party or by which Bank of Nova Scotia or its properties are bound or violate or
conflict with any laws, rules or regulations that such counsel knows to be
applicable to the transactions contemplated by this Agreement, or any judgments,
orders or decrees known to such counsel of any court, or any governmental agency
or body having jurisdiction over Bank of Nova Scotia or its property;
(iii) this Agreement has been duly authorized, executed and
delivered by Bank of Nova Scotia;
(iv) the Custody Agreement to which Bank of Nova Scotia is a party
has been duly authorized, exe-
31
<PAGE>
cuted and delivered by Bank of Nova Scotia and is a valid and binding agreement
of Bank of Nova Scotia enforceable in accordance with its terms;
(v) Bank of Nova Scotia has full legal right, power and authority,
and any approval required by law (other than any approval imposed by the
applicable state securities and Blue Sky laws) to sell, assign, transfer and
deliver the Shares to be sold by it in the manner provided in this Agreement and
such Custody Agreement;
(vi) upon transfer of the Shares by the Bank of Nova Scotia to the
Underwriters, the Underwriters will acquire such Shares free of all adverse
claims (within the meaning of the Uniform Commercial Code as in effect in the
State of [New York]). "Transfer" of the Shares to the Underwriters will occur
upon the making by DTC of appropriate entries transferring the Shares on its
books and records to the account of the Underwriters; and
(vii) the power of attorney signed by Bank of Nova Scotia appointing
Gerald V. Gurbacki and Theodore R. Kallgren, or either of them, as such Selling
Stockholder's attorney-in-fact to the extent set forth therein with regard to
the transactions contemplated hereby and by the Registration Statement has been
duly authorized, executed and delivered by or on behalf of Bank of Nova Scotia
and is a valid and binding instrument of Bank of Nova Scotia enforceable in
accordance with its terms, and pursuant to such power of attorney, Bank of Nova
Scotia has authorized Gerald V. Gurbacki and Theodore R. Kallgren, or either of
them, to execute and deliver on its behalf this Agreement and each other
document necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by it pursuant to this Agreement.
The opinion of King & Spalding described in paragraph (g) above shall
be rendered to you at the request of Bank of Nova Scotia and shall so state
therein.
(h) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of [ ]
32
<PAGE>
counsel for Brian R. Esher ("Esher"), satisfactory to the Underwriters,
substantially to the effect that:
(i) the statements under the captions "Principal and Selling
Shareholders" in the Prospectus, to the extent such statements relate to Esher
and his interests in the Company, fairly present the information called for
therein;
(ii) the execution, delivery and performance of this Agreement by
Esher, compliance by Esher with all the provisions hereof and the consummation
of the transactions contemplated hereby by Esher will not require any consent,
approval, authorization or other order of or qualification with, any federal,
Georgia or Delaware court or governmental body or agency (except such as may be
required under the securities or Blue Sky laws of the various states) or, to the
best of such counsel's knowledge, any indenture, loan or credit agreement,
mortgage, lease or other agreement or other instrument to which Esher is a party
or by which he or his properties are bound or violate or conflict with any laws,
rules or regulations that such counsel knows to be applicable to the
transactions contemplated by the Agreement, or any judgments, orders or decrees
known to such counsel of any court, or any governmental agency or body having
jurisdiction over Esher or his property;
(iii) this Agreement has been duly executed and delivered by
Esher;
(iv) the Custody Agreement to which Esher is a party has been duly
executed and delivered by Esher, and is a valid and binding agreement of Esher
enforceable in accordance with its terms;
(v) Esher has full legal right, power and authority, and any approval
required by law (other than any approval imposed by the applicable state
securities and Blue Sky laws) to sell, assign, transfer and deliver the Shares
to be sold by him in the manner provided in this Agreement and such Custody
Agreement;
(vi) upon transfer of the Shares by Esher to the Underwriters, the
Underwriters will acquire such Shares free of all adverse claims (within the
meaning of the Uniform Commercial Code as in effect in the State of
33
<PAGE>
[New York]). "Transfer" of the Shares to the Underwriters will occur upon the
making by DTC of appropriate entries transferring the Shares on its books and
records to the account of the Underwriters; and
(vii) the power of attorney signed by Esher appointing Gerald V.
Gurbacki and Theodore R. Kallgren, or either of them, as Esher's attorney-in-
fact to the extent set forth therein with regard to the transactions
contemplated hereby and by the Registration Statement has been duly executed
and delivered by Esher and is a valid and binding instrument of Esher
enforceable in accordance with its terms, and pursuant to such power of
attorney, Esher has authorized Gerald V. Gurbacki and Theodore R. Kallgren, or
either of them, to execute and deliver on his behalf this Agreement and each
other document necessary or desirable in connection with the transactions
contemplated hereby and to deliver the Shares to be sold by Esher pursuant to
this Agreement.
The opinion of counsel for Esher described in paragraph (h) above
shall be rendered to you at the request of Esher and shall so state therein.
(i) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of [ ] counsel for the Brian R. Esher Children's Trust (the "Esher
Trust"), satisfactory to the Underwriters, substantially to the effect that:
(i) the statements under the captions "Principal and Selling
Shareholders" in the Prospectus, to the extent such statements relate to the
Esher Trust and its interests in the Company, fairly present the information
called for therein;
(ii) the execution, delivery and performance of this Agreement by the
Esher Trust, compliance by the Esher Trust with all the provisions hereof and
the consummation of the transactions contemplated hereby by the Esher Trust will
not require any consent, approval, authorization or other order of or
qualification with, any federal, Georgia or Delaware court or governmental body
or agency [or any court or governmental body or agency of its jurisdiction of
organization] (except such as may be required under the securities or Blue Sky
laws
34
<PAGE>
of the various states) and will not conflict with or constitute a breach of any
of the terms or provisions of, or a default under the organizational documents
of the Esher Trust or, to the best of such counsel's knowledge, any indenture,
loan or credit agreement, mortgage, lease or other agreement or other instrument
to which the Esher Trust is a party or by which the Esher Trust or its
properties are bound or violate or conflict with any laws, rules or regulations
that such counsel knows to be applicable to the transactions contemplated by the
Agreement, or any judgments, orders or decrees known to such counsel of any
court, or any governmental agency or body having jurisdiction over the Esher
Trust or its property;
(iii) this Agreement has been duly authorized, executed and
delivered by the Esher Trust;
(iv) the Custody Agreement to which the Esher Trust is a party has
been duly authorized, executed and delivered by the Esher Trust, and is a valid
and binding agreement of the Esher Trust enforceable in accordance with its
terms;
(v) the Esher Trust has full legal right, power and authority, and
any approval required by law (other than any approval imposed by the applicable
state securities and Blue Sky laws) to sell, assign, transfer and deliver the
Shares to be sold by it in the manner provided in this Agreement and such
Custody Agreement;
(vi) upon transfer of the Shares by the Esher Trust to the
Underwriters, the Underwriters will acquire such Shares free of all adverse
claims (within the meaning of the Uniform Commercial Code as in effect in the
State of [New York]). "Transfer" of the Shares to the Underwriters will occur
upon the making by DTC of appropriate entries transferring the Shares on its
books and records to the account of the Underwriters; and
(vii) the power of attorney signed by the Esher Trust appointing
Gerald V. Gurbacki and Theodore R. Kallgren, or either of them, as its attorney-
in-fact to the extent set forth therein with regard to the transactions
contemplated hereby and by the Registration Statement has been duly authorized,
executed and delivered by or on behalf of the Esher Trust and is a valid and
binding instrument of the Esher Trust enforceable in
35
<PAGE>
accordance with its terms, and pursuant to such power of attorney, the Esher
Trust has authorized Gerald V. Gurbacki and Theodore R. Kallgren, or either of
them, to execute and deliver on its behalf this Agreement and each other
document necessary or desirable in connection with transactions contemplated
hereby and to deliver the Shares to be sold by the Esher Trust pursuant to this
Agreement.
The opinion of counsel for the Esher Trust described in paragraph (i)
above shall be rendered to you at the request of the Esher Trust and shall so
state therein.
(j) The Representatives shall have received an opinion, dated the
Closing Date, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, in form and substance reasonably satisfactory to the
Representatives.
(k) You shall have received on each of the date hereof and the Closing
Date a letter on and as of the date hereof or Closing Date as the case may be,
in form and substance satisfactory to you, from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial information contained
in the Registration Statement and the Prospectus.
(l) The merger of Pameco Holdings, Inc. and the Delaware corporation
previously known as Pameco Corporation into the Company, and the associated
recapitalization of the Company as described in the Prospectus, shall have been
consummated on terms and conditions reasonably satisfactory to the
Representatives.
(m) The Company and the Selling Stockholders shall not have failed at
or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company at
or prior to the Closing Date.
(n) The Company shall have delivered to you the agreements specified
in Section 2 hereof which
36
<PAGE>
agreements shall be in full force and effect on the Closing Date.
(o) The Shares shall have been duly listed, subject to notice of
issuance, on the New York Stock Exchange.
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
10. Effective Date of Agreement and Termination. This Agreement
-------------------------------------------
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Sellers if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or
development involving a prospective material adverse change in the condition,
financial or otherwise, of the Company and the Subsidiary, taken as a whole, or
the earnings, affairs, or business prospects of the Company and the Subsidiary,
taken as a whole, whether or not arising in the ordinary course of business,
which would, in your judgment, make it impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus, (ii) any outbreak or
escalation of hostilities or other national or international calamity or crisis
or change in economic conditions or in the financial markets of the United
States or elsewhere that, in your judgment, is material and adverse and would,
in your judgment, make it impracticable to market the Shares on the terms and in
the manner contemplated in the Prospectus, (iii) the suspension or material
limitation of trading in securities on the New York Stock Exchange, the American
Stock Exchange or the NASDAQ National Market System, (iv) the enactment,
publication, decree or other promulgation of any federal or state statute,
regulation, rule or order of any court or other
37
<PAGE>
governmental authority which in your opinion materially and adversely affects,
or will materially and adversely affect, the business or operations of the
Company or the Subsidiary, (v) the declaration of a banking moratorium by either
federal or New York State authorities or (vi) the taking of any action by any
federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase the
Firm Shares or Additional Shares, as the case may be, which it or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase is not more than one-tenth of the total number of Shares to be
purchased on such date by all Underwriters, each non-defaulting Underwriter
shall be obligated severally, in the proportion which the number of Firm Shares
set forth opposite its name in Schedule I bears to the total number of Firm
Shares which all the non-defaulting Underwriters, as the case may be, have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters, as the case may be, agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Firm Shares
--------
or Additional Shares, as the case may be, which any Underwriter has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares, with respect to
which such default occurs is more than one-tenth of the aggregate number of
Shares to be purchased on such date by all Underwriters and arrangements
satisfactory to you and the applicable Sellers for purchase of such Shares are
not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter and the
applicable Sellers. In any such case
38
<PAGE>
which does not result in termination of this Agreement, either you or the
Sellers shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or arrangements
may be effected. If, on an Option Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased on such date,
the non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase such Additional Shares or (ii) purchase not
less than the number of Additional Shares that such non-defaulting Underwriters
would have been obligated to purchase on such date in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of any such Underwriter
under this Agreement.
11. Agreements of the Selling Stockholders. Each Selling Stockholder
--------------------------------------
severally agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes with respect
to the Shares to be sold by such Selling Stockholder;
(b) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of such Selling Stockholder's obligations
under this Agreement including the fees, disbursements and expenses of the
Selling Stockholder's counsel; and
(c) To take all reasonable actions in cooperation with the Company and
the Underwriters to cause the Registration Statement to become effective at the
earliest possible time, to do and perform all things to be done and performed by
the Selling Stockholder under this Agreement prior to the Closing Date and to
the extent within its reasonable control satisfy all conditions precedent to
the delivery of the Shares pursuant to this Agreement.
39
<PAGE>
12. Miscellaneous. Notices given pursuant to any provision of this
-------------
Agreement shall be addressed as follows: (a) if to the Company, to Pameco
Corporation, 1000 Center Place, Norcross, Georgia 30093, Attention: Chief
Executive Officer, (b) if to the Selling Stockholders, to Messrs. Gerald V.
Gurbacki and Theodore R. Kallgren c/o Pameco Corporation, 1000 Center Place,
Norcross, Georgia 30093 and (c) if to any Underwriter or to you, to you c/o
Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, New York, New
York 10005, Attention: Syndicate Department, or in any case to such other
address as the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Selling Stockholders, the Company, its
officers and directors and of the several Underwriters set forth in or made
pursuant to this Agreement shall remain operative and in full force and effect,
and will survive delivery of and payment for the Shares, regardless of (i) any
investigation, or statement as to the results thereof, made by or on behalf of
any Underwriter, any officer or director or person controlling any Underwriter
or by or on behalf of the Sellers, the officers or directors of the Company or
any controlling person of the Sellers, (ii) acceptance of the Shares and payment
for them hereunder and (iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of the
Company as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Company agrees to reimburse the several
Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Sellers, the
Underwriters and their respective directors, officers and controlling persons
referred to herein and their respective successors and assigns, all as and to
the extent provided in this Agreement, and no other person shall acquire or have
any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include a purchaser of any
40
<PAGE>
of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
41
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
PAMECO CORPORATION
By_________________________
Title:
THE SELLING STOCKHOLDERS NAMED IN SCHEDULE II
HERETO
By_________________________
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By__________________________
42
<PAGE>
SCHEDULE I
----------
Number of Firm Shares
Underwriters to be Purchased
------------ ---------------------
Donaldson, Lufkin & Jenrette
Securities Corporation
The Robinson-Humphrey Company, Inc.
Schroder Wertheim & Co. Incorporated
_____________________
Total
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<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
Number of Firm
Name Shares Being Sold
---- -----------------
Brian R. Esher
Brian R. Esher Children's Trust
Bank of Nova Scotia
________________
Total
44
<PAGE>
ANNEX I
-------
Required Stockholder Lock-ups
-----------------------------
45
<PAGE>
May__, 1997
PAMECO CORPORATION
1000 Center Place
Norcross, Georgia 30093
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
As representatives of the
several underwriters
named in Schedule I to
the Underwriting Agreement
(as defined herein)
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
140 Broadway
New York, New York 10005
Ladies and Gentlemen:
The undersigned understands that Donaldson, Lufkin & Jenrette
Securities Corporation, The Robinson-Humphrey Company, Inc. and Schroder
Wertheim & Co. Incorporated, as Representatives (the "Representatives") of the
several underwriters (the "Underwriters"), propose to enter into an Underwriting
Agreement (the "Underwriting Agreement") with Pameco Corporation (the
"Company"), and certain selling stockholders providing for the public offering
by the Underwriters, including the Representatives, of Class A Common Stock, par
value $.01 per share of the Company (the "Initial Public Offering").
In consideration of the Underwriters' agreement to purchase and
undertake the Initial Public Offering of the Class A Common Stock and for other
good and valuable consideration, receipt of which is hereby acknowledged,
<PAGE>
PAMECO CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
April , 1997
Page 2
the undersigned agrees not to offer, sell, pledge, contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of
directly or indirectly any shares of any class of common stock of the Company
("Common Stock") or any securities convertible into or exercisable or
exchangeable for Common Stock or in any other manner transfer all or a portion
of the economic consequences associated with the ownership of any Common Stock,
(regardless of whether any of the foregoing transactions is to be settled by
the delivery of the Common Stock or such other securities, in cash or
otherwise), except to the Underwriters pursuant to this Agreement, for a period
of 180 days after the commencement of the Initial Public Offering without the
prior written consent of Donaldson, Lufkin & Jenrette Securities Corporation.
Notwithstanding the foregoing, during such 180 period, the undersigned may
transfer Common Stock by way of off-market transfers to those of its affiliates
(as that term is defined in Rule 144 under the Securities Act of 1933, as
amended) which agree in writing with the Underwriters to be bound by the
provisions of this letter agreement.
In addition, the undersigned agrees that the Company may, and that the
undersigned will, (i) with respect to any shares of Common Stock for which the
undersigned is the record holder, cause the transfer agent for the Company to
note stop transfer instructions with respect to such shares of Common Stock on
the transfer books and records of the Company and (ii) with respect to any
shares of Common Stock for which the undersigned is the beneficial holder but
not the record holder, cause the record holder of such shares of Common Stock to
cause the transfer agent for the Company to note stop transfer instructions with
respect to such shares of Common Stock on the transfer books and records of the
Company.
<PAGE>
PAMECO CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
April , 1997
Page 3
The undersigned hereby represents and warrants that the undersigned
has full power and authority to enter into this letter agreement, and that, upon
request, the undersigned will execute any additional documents necessary or
desirable in connection with the enforcement hereof. The obligations provided
herein shall survive the death or incapacity of the undersigned (if the
undersigned is an individual) and shall be binding upon the heirs, personal
representatives, successors, administrators and assigns of the undersigned.
Very truly yours,
----------------------------------------
(Signature)
- -----------------------------------
(Name - Please Type)
- -----------------------------------
- -----------------------------------
- -----------------------------------
(Address)
- -----------------------------------
Social Security or Taxpayer
Identification No.)
Number of shares owned Certificate numbers:
or subject to warrants,
options or convertible --------------------
securities:
<PAGE>
PAMECO CORPORATION
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
THE ROBINSON-HUMPHREY COMPANY, INC.
SCHRODER WERTHEIM & CO. INCORPORATED
April , 1997
Page 4
- ----------------------------------- ----------------------------------------
<PAGE>
Pameco Corporation
Initial Public Offering
Custody Agreement
-----------------
[Transfer Agent]
[Address]
Ladies and Gentlemen:
There are delivered to you herewith certificates representing shares
of Common Stock, par value $.01 per share ("Class A Common Stock"), of Pameco
Corporation, a Georgia corporation (the "Company"). The certificates
representing shares of Class A Common Stock delivered herewith, are sometimes
collectively referred to herein as the "Securities." Each of the Securities so
delivered is accompanied by a duly executed assignment form duly endorsed for
transfer and is in negotiable form bearing the signature of the undersigned,
which signature is guaranteed by a commercial bank or trust company having an
office or a correspondent in New York City, New York or by a member firm of the
New York, American or Pacific Stock Exchange if the assignment form is in the
name of anyone other than the undersigned. The Securities are to be held by you
as Custodian for the account of the undersigned and are to be disposed of by you
in accordance with this Custody Agreement (the "Custody Agreement").
If the undersigned is acting as a fiduciary, officer, partner or
----------------------------------------------------------------
agent, the undersigned has also delivered certified copies of the appropriate
- -----------------------------------------------------------------------------
instruments pursuant to which the undersigned is authorized to act hereunder.
- ----------------------------------------------------------------------------
The undersigned agrees to deliver to the Attorneys (as herein defined)
or to you such additional documentation as the Attorneys, or any of them, or the
Company or the Representatives (as herein defined) or you or any of their
respective counsel may request to effectuate or confirm compliance with any of
the provisions hereof or of the Underwriting Agreement (as herein defined), all
of the foregoing to be in form and substance satisfactory in all respects to
the Attorneys and you or such counsel.
Concurrently with the execution and delivery of this Custody
Agreement, the undersigned has executed a power of attorney (the "Power of
Attorney") to Gerald V. Gurbacki and Theodore R. Kallgren, individually (and
collectively, the "Attorneys"), authorizing the Attorneys, each with full power
and authority to act alone, including full power of substitution, to sell from
the number of Securities represented by the certificates deposited with
<PAGE>
you hereunder that number of Securities, and for that purpose to enter into and
perform an underwriting agreement (the "Underwriting Agreement") among the
Company, certain securityholders of the Company including the undersigned (the
"Selling Securityholders"), Donaldson, Lufkin & Jenrette Securities Corporation,
The Robinson-Humphrey Company, Inc. and Schroder Wertheim & Co. Incorporated as
the representatives (the "Representatives") of and on behalf of each of the
several underwriters to be named in the Underwriting Agreement (the
"Underwriters").
You are authorized and directed to hold the Securities deposited with
you hereunder in your custody, and on the Closing Date (as defined in the
Underwriting Agreement) or such other date, as provided to you in writing, and
as specified in the Underwriting Agreement, you shall (i) take all necessary
action to cause the Securities to be sold and transferred on the books of the
Company into such names as the Representatives, on behalf of the several
Underwriters, shall have instructed you and to surrender the certificates
representing the Securities to you, as transfer agent for the Securities, in
exchange for new certificates for shares of Class A Common Stock registered in
such names and in such denominations as the Representatives shall have
instructed you; (ii) deliver such new certificates to the Representatives, for
the accounts of the several Underwriters, against payment for such Securities at
the purchase price per share as provided to you in writing and as determined in
accordance with the Underwriting Agreement, and give receipt for such payment;
(iii) deposit the same to your account as Custodian, and draw upon such account
to pay such expenses, if any (the "Expenses"), as you may be instructed to pay
by the Attorneys, or any of them; (iv) when instructed by an Attorney to do so,
to transmit to the undersigned, within 24 hours of such instruction to you, the
balance, if any, of the amount received by you as payment for the Securities
after deducting the Expenses. Such balance is to be paid in the manner
requested by the undersigned at the end of the letter of transmittal returned to
you herewith or in such manner as you, in accordance with the terms hereof,
shall deem appropriate provided that if no instructions are given to you,
payment shall be made to the undersigned by check at the address to which the
letter of transmittal was sent. With such remittance you shall also return to
the undersigned new certificates representing the number of shares of Class A
Common Stock, if any, represented by the number of Securities deposited which
are in excess of the number of Securities sold by the undersigned to the
Underwriters.
If the Underwriting Agreement shall not have been entered into prior
to __________, 1997, then, upon the written request of the undersigned to you
(accompanied by written notice of termination of the Power of Attorney addressed
to each of the Attorneys, in your care) on or after that date, you are to return
to the undersigned the Securities deposited with you hereunder, together with
any stock powers delivered herewith.
2
<PAGE>
Under the terms of the Power of Attorney, the authority conferred
thereby is granted, made and conferred subject to and in consideration of the
interests of the Underwriters, the Company and the Selling Securityholders and,
prior to ____________, 1997, is irrevocable and not subject to termination by
the undersigned or by operation of law, whether by the death, incapacity,
termination, dissolution or liquidation of the undersigned or otherwise, and the
obligations of the undersigned pursuant to the Underwriting Agreement are
similarly not subject to termination and shall remain in full force and effect
until such date and, to the extent provided therein, after such date.
Accordingly, the certificates deposited with you hereunder and this Custody
Agreement and your authority hereunder are subject to the interests of the
several Underwriters, the Company and the other Selling Securityholders, and
this Custody Agreement and your authority hereunder are irrevocable and are not
subject to termination by the undersigned, by operation of law, whether by the
death or incapacity of the undersigned, the termination of any trust or estate,
the death or incapacity of one or more trustees, guardians, executors or
administrators under such trust or estate, the dissolution or liquidation of any
corporation or partnership or the occurrence of any other event. If the
undersigned should die or become incapacitated, if any trust or estate should be
terminated, if any corporation or partnership should be dissolved or
liquidated, or if any other such event should occur before the delivery of the
Securities to be sold by the undersigned under the Underwriting Agreement,
certificates for such Securities shall be delivered by you on behalf of the
undersigned in accordance with the terms and conditions of the Underwriting
Agreement and this Custody Agreement, and action taken by you pursuant to this
Custody Agreement shall be as valid as if such death or incapacity, termination,
dissolution, liquidation or other event had not occurred, regardless of whether
or not you or the Attorneys, or either of them, shall have received notice of
such death, incapacity, termination, dissolution, liquidation or other event.
________________ is authorized to instruct you on irregularities or
discrepancies in letters of transmittal and discrepancies in the form of
Securities and accompanying documents.
Until payment of the purchase price for the Securities has been made
to you by or for the account of the several Underwriters, the undersigned shall
remain the owner of the Securities and shall have the right to vote the
Securities and all other securities, if any, represented by the certificates
deposited with you hereunder and to receive all dividends and distributions
thereon.
You shall be entitled to act and rely upon any statement, request,
notice or instructions respecting this Custody Agreement given to you on behalf
of the undersigned, if the same shall have been made or given to you by the
undersigned, the Representatives, or by the Attorneys, or any of them and you
shall not be liable for
3
<PAGE>
any action taken or omitted upon any such statement, request, notice or
instrument; provided, however, that you shall not be entitled to act on any
-----------------
statement or notice to you with respect to the Closing Date under the
Underwriting Agreement, or with respect to the non-effectiveness or termination
of the Underwriting Agreement, or advising that the Underwriting Agreement has
not been executed and delivered, unless such statement or notice shall have been
confirmed in writing to you by the Representatives.
In taking any action requested or directed by the Representatives
under the terms of this Custody Agreement, you will be entitled to rely upon a
writing signed by an authorized employee of Donaldson, Lufkin & Jenrette
Securities Corporation.
It is understood that you assume no responsibility or liability to any
person other than to deal with the certificates deposited with you hereunder and
the proceeds from the sale of all or a portion of the securities represented
thereby in accordance with the provisions of this Custody Agreement, and the
undersigned agrees to indemnify and hold you harmless against any and all
claims, losses, liabilities, damages and expenses (including reasonable
attorneys fees) with respect to anything done by you in good faith in accordance
with the foregoing instructions. The provisions of this paragraph shall survive
the termination of this Custody Agreement.
The undersigned represents and warrants that:
(i) The undersigned is the lawful owner of the Securities to be sold
by the undersigned pursuant to the Underwriting Agreement and has, and on
the Closing Date referred to in Section 4 of the Underwriting Agreement
will have, good and clear title to such Securities, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(ii) The undersigned has, and on the Closing Date will have, full
legal right, power and authority to enter into the Underwriting Agreement
and this Agreement and to sell, assign, transfer and deliver such
Securities in the manner provided herein and therein, and the Underwriting
Agreement and this Agreement have been duly authorized, executed and
delivered by the undersigned and each of the Underwriting Agreement and
this Agreement is a valid and binding agreement of the undersigned,
enforceable in accordance with its terms, except as rights to indemnity and
contribution under Section 8 of the Underwriting Agreement may be limited
by applicable law.
(iii) The Power of Attorney signed by such Selling Securityholder
appointing Gerald V. Gurbacki and Theodore R. Kallgren, or any one of them,
as his or her attorney-in-fact to the extent set forth therein with regard
to the transac-
4
<PAGE>
tions contemplated by the Underwriting Agreement and by the Registration
Statement (as defined in the Underwriting Agreement) and this Agreement has
been duly authorized, executed and delivered by or on behalf of the
undersigned and is a valid and binding instrument of the undersigned
enforceable in accordance with its terms and, pursuant to the Power of
Attorney, the undersigned has authorized Gerald V. Gurbacki and Theodore R.
Kallgren or any one of them, to execute and deliver on his or her behalf
the Underwriting Agreement and any other document necessary or desirable in
connection with transactions contemplated hereby and to deliver the
Securities to be sold by the undersigned pursuant to the Underwriting
Agreement.
(iv) Such Selling Securityholder has not taken, and will not take,
directly or indirectly, any action designed to, or which might reasonably
be expected to, cause or result in stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale of
the Securities pursuant to the distribution contemplated by the
Underwriting Agreement, and other than as permitted by the Act (as defined
in the Underwriting Agreement), the Selling Securityholder has not
distributed and will not distribute any prospectus or other offering
material in connection with the offering and sale of the Securities.
The foregoing representations, warranties and agreements, as well as
those contained in the Power of Attorney and those contained in the Underwriting
Agreement, are made for the benefit of, and may be relied upon by, the other
Selling Securityholders, the Attorneys, the Company, Kilpatrick Stockton LLP,
the Underwriters and their representatives, agents and counsel, Skadden, Arps,
Slate, Meagher & Flom LLP, and the Custodian.
The Custody Agreement shall be governed by the laws of the State of
New York.
5
<PAGE>
Please acknowledge your acceptance hereof as Custodian, and receipt of
the certificate(s) and letter of transmittal deposited with you hereunder, by
executing and returning the enclosed copy hereof to the undersigned.
Dated: May ___, 1997
Print Name(s) and Address: Very truly yours,
__________________________ ______________________*
__________________________
__________________________ ______________________*
Signature(s)
Taxpayer I.D. #:_________
Telephone Number:
( )
_________________________
_________
*To be signed in exactly the same manner as the securities are registered.
-------
6
<PAGE>
Instruction: If you are an individual and are married, please have your spouse
- -----------
complete this form:
SPOUSAL CONSENT
---------------
I am the spouse of _____________________. On behalf of myself, my
heirs and legatees, I hereby join in and consent to the terms of the foregoing
Custody Agreement and agree to the sale of the shares of Class A Common Stock of
Pameco Corporation, registered in the name of my spouse or otherwise registered,
which my spouse proposes to sell pursuant to the Underwriting Agreement (as
defined therein).
Dated: May ___, 1997
_______________________________
(Signature of Spouse)
7
<PAGE>
Instruction: Complete each column as to certificates to be deposited with the
- -----------
Custodian.
CERTIFICATES DEPOSITED
----------------------
Number of Shares Maximum Number of
of Common Stock Shares of Common
Stock Represented by Stock To Be Sold
Cert. No. Each Certificate from Certificate*
- -------- ---------------- ----------------
Total __________________ _________________
* If no indication is made as to the certificates from which securities
to be sold shall be allocated, then selection will be made at the Custodian's
discretion. The Attorneys-in-Fact do not have the power to sell a greater
number of Securities than is listed in this column, although they may sell a
lesser number.
8
<PAGE>
Instruction: Indicate how you wish to receive payment for the securities sold
- -----------
to the Underwriters. Please note that if you are selling securities held by a
corporation or other association or in the name of a trust, payment will be made
only to the corporation or other association or trust. A wire transfer can be
made only to an account standing in exactly the same name as the person or
entity, including trusts, corporations or other associations, holding the
securities being sold.
MANNER OF PAYMENT
-----------------
I request that payment of the net proceeds from the sale of the shares
of Class A Common Stock of the Company to be sold by me pursuant to the
Underwriting Agreement be made in the following manner (CHECK ONE):
(____) CHECK made payable to:
- ---------------------------------------------------
to be sent to the following address:
- ---------------------------------------------------
- ---------------------------------------------------
phone (____) ---------------------------
Please send by (check one):
(____) First Class Mail
(____) Federal Express
Federal Express Account Number:
_____________________
(____) WIRE TRANSFER to the following account:
Account No.
---------------------------------
Bank
----------------------------------------
(Name)
----------------------------------------
(Address)
ABA No.
-------------------------------------
phone ( )
---- --------------------------------
(____) OTHER (please specify):
--------------------------------------------
--------------------------------------------
9
<PAGE>
CUSTODIAN'S ACKNOWLEDGEMENT AND RECEIPT
_________________ of ________________ as Custodian, acknowledges
acceptance of the duties of the Custodian under the foregoing Custody Agreement
and receipt of the certificates and letter of transmittal referred to therein.
Dated: , 1995
_______________________
By_____________________
Its____________________
DO NOT DETACH FROM CUSTODY AGREEMENT
------------------------------------
10
<PAGE>
Pameco Corporation
Initial Public Offering
Selling Stockholder's Irrevocable Power of Attorney
---------------------------------------------------
Gerald V. Gurbacki
Theodore R. Kallgren
c/o Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
Ladies and Gentlemen:
The undersigned, Pameco Corporation (the "Company") and certain other
holders of the Company's Class A Common Stock (such holders and the undersigned
being hereinafter sometimes collectively referred to as the "Selling
Stockholders"), propose to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Donaldson, Lufkin & Jenrette Securities
Corporation, The Robinson-Humphrey Company, Inc. and Schroder Wertheim & Co.
Incorporated as representatives (the "Representatives") of a group of
underwriters to be named in the Underwriting Agreement (the "Underwriters").
The Selling Stockholders propose to sell certain authorized and issued shares of
the Class A Common Stock, par value $.01 per share, of the Company (the "Class A
Common Stock") owned by them to the Underwriters pursuant to the Underwriting
Agreement. All terms not otherwise defined herein have the meanings given to
them in the Underwriting Agreement. The undersigned hereby irrevocably
constitutes and appoints Gerald V. Gurbacki and Theodore R. Kallgren, each with
full power and authority to act alone in any matter hereunder and with all power
of substitution, the true and lawful attorneys-in-fact (the "Attorneys") of the
undersigned with full power in the name of, for and on behalf of, the
undersigned with respect to all matters arising in connection with the sale of
Class A Common Stock by the undersigned including, but not limited to, the power
and authority to take any and all of the following actions:
(1) To sell and deliver to the several Underwriters up to the number
of shares of Class A Common Stock as set forth in Attachment No. 1 to the
letter of transmittal returned to you herewith (such total number of shares
as is finally determined by the Attorneys and set forth opposite the name
of the undersigned in Schedule II to the Underwriting Agreement are
hereinafter referred to as the "Securities"), such Securities to be
represented by certificates deposited by the undersigned pursuant to the
letter of transmittal, and the Custody Agreements (each, a "Custody
Agreement") between the undersigned
1
<PAGE>
and __________ of ____________, as Custodian (the "Custodian"), at a
purchase price per share to be paid by the Underwriters as the Attorneys,
or any one of them, in their sole discretion shall determine, but at the
same price per share at which the Company and all other Selling
Stockholders sell Class A Common Stock to the Underwriters and in no event
less than [$14] per share of Class A Common Stock and on such other terms
as are determined by the Attorneys;
(2) For the purpose of effecting such sale, to execute, deliver and
perform the Underwriting Agreement and in conjunction with the
Representatives and a committee of the Board of Directors of the Company to
determine the public offering price and the purchase price per share of
Class A Common Stock to be paid by the Underwriters as determined by the
Attorneys (subject to paragraph (1) above) and the other terms of sale in
accordance with the Underwriting Agreement, with full power to make such
amendments to the Underwriting Agreement as the Attorneys in their sole
discretion may deem advisable;
(3) (a) To give such orders and instructions to the Custodian as the
Attorneys may determine with respect to (i) the transfer on the books of
the Company of any shares of Class A Common Stock to be sold by the
undersigned to the Underwriters in order to effect such sale (including the
names in which new certificates for shares of Class A Common Stock are to
be issued and the denominations thereof), (ii) the delivery to or for the
account of the Underwriters of the certificates for the Securities against
receipt by the Custodian or its agent of the purchase price to be paid
therefor, (iii) the payment, out of the proceeds (net of underwriting
discounts) from the sale of the Securities by the undersigned to the
Underwriters, of any expense incurred in accordance with paragraph (5)
which is not payable by the Company, and (iv) the return to the undersigned
of new certificates representing the number of shares of Class A Common
Stock, if any, represented by certificates deposited with the Custodian
which are in excess of the number of shares of Class A Common Stock sold by
the undersigned to the Underwriters; and (b) to amend the Custody
Agreement and the Underwriting Agreement and any related documents in such
manner as the Attorneys may determine to be in the best interests of the
undersigned;
(4) On behalf of the undersigned, to make the representations and
warranties and enter into the agreements contained in the Underwriting
Agreement (including, without limitation, the restriction on sales or other
dispositions of shares of Class A Common Stock and securities convertible
into or exercisable or exchangeable for shares of Class A Common Stock by
the undersigned);
2
<PAGE>
(5) To incur any necessary or appropriate expense in connection with
the sale of the Securities;
(6) To approve on behalf of the undersigned any amendments to the
Registration Statement or the Prospectus;
(7) To retain legal counsel to represent the undersigned in
connection with any and all matters referred to herein (which counsel may,
but need not be, counsel for the Company);
(8) To make, execute, acknowledge and deliver all such other
contracts, stock powers, orders, receipts, notices, instructions,
certificates, letters and other writings, including, without limitation,
requests for the acceleration of the effectiveness of the Registration
Statement, and other communications to the Securities and Exchange
Commission (the "Commission"), and amendments to the Underwriting
Agreement, and in general to do all things and to take all actions which
the Attorneys, in their sole discretion, may consider necessary or proper
in connection with or to carry out the aforesaid sale of shares to the
Underwriters and the public offering thereof, as fully as could the
undersigned if personally present and acting;
(9) To make, acknowledge, verify and file on behalf of the
undersigned applications, consents to service of process and such other
undertakings or reports as may be required by law with state commissioners
or officers administering state securities laws;
(10) If necessary, to endorse (in blank or otherwise) on behalf of
the undersigned the certificate or certificates representing the
Securities, or a stock power or powers attached to such certificate or
certificates;
(11) To sell a number of shares of Class A Common Stock fewer than
that set forth in the Custody Agreement pursuant to the Underwriting
Agreement; and
(12) To sign such other underwriting documents and agreements as may
be necessary to consummate this transaction.
Each of the Attorneys is hereby empowered to determine in his or her
sole discretion the time or times when, purpose for and manner in which any
power herein conferred upon him or her shall be exercised, and the conditions,
provisions or covenants of any instrument or document which may be executed by
him or her pursuant hereto. The undersigned acknowledges that Gerald V.
Gurbacki is a director and officer of the Company and Theodore R. Kallgren is an
officer of the Company.
3
<PAGE>
The undersigned understands the obligations and agreements of the
undersigned set forth in the Underwriting Agreement will be on customary terms
and conditions applicable to selling stockholders in a public offering,
including as to indemnification of the Underwriters. All representations and
warranties of the Selling Stockholders in Section 7 of the Underwriting
Agreement are, with respect to the undersigned, and will be at the Closing Date
as determined in accordance with the Underwriting Agreement, true and correct
and will, as provided in the Underwriting Agreement, survive the termination of
the Underwriting Agreement and the delivery of and payment for the Securities.
Upon the execution and delivery of the Underwriting Agreement by the
Attorneys on behalf of the Selling Stockholders, the undersigned agrees to be
bound by and to perform each and every covenant and agreement therein of the
undersigned as a Selling Stockholder (including, without limitation, the
indemnification and contribution arrangements set forth in the Underwriting
Agreement).
This Power of Attorney and all authority conferred hereby are granted
and conferred subject to and in consideration of the interests of the several
Underwriters, the Company and the other Selling Stockholders who may become
parties to the Underwriting Agreement, and for the purposes of completing the
transactions contemplated by the Underwriting Agreement and this Power of
Attorney.
This Power of Attorney is an agency coupled with an interest and all
authority conferred hereby shall be irrevocable, and shall not be terminated by
any act of the undersigned or by operation of law, whether by the death or
incapacity of the undersigned (or either or any of them) or by the occurrence of
any other event or events (including, without limiting the foregoing, the
termination of any trust or estate for which the undersigned is acting as a
fiduciary or fiduciaries or the dissolution or liquidation of any corporation
or partnership). If after the execution hereof the undersigned (or either or
any of them) should die or become incapacitated, or if any trust or estate
should be terminated, or if any corporation or partnership should be dissolved
or liquidated, or if any other such event or events shall occur, before the
completion of the transactions contemplated by the Underwriting Agreement and
this Power of Attorney, certificates representing the Securities shall be
delivered by or on behalf of the undersigned in accordance with the terms and
conditions of the Underwriting Agreement and of the Custody Agreement executed
by the undersigned, and actions taken by the Attorneys or any one of them,
hereunder shall be as valid as if such death, incapacity, termination,
dissolution, liquidation or other event or events had not occurred, regardless
of whether or not the Custodian, Attorneys, Underwriters or any one of them,
shall have received notice of such death, incapacity, termination, dissolution,
liquidation or other event.
4
<PAGE>
Notwithstanding any of the foregoing provisions, if all of the
transactions contemplated by the Underwriting Agreement and this Power of
Attorney are not completed prior to ___________, 1997 then from and after such
date, the undersigned shall have the power, upon written notice to the
Attorneys, to terminate this Power of Attorney subject, however, to all lawful
action done or performed pursuant hereto prior to the receipt of actual notice.
The undersigned hereby represents, warrants and agrees with the
Company, Kilpatrick Stockton LLP, the Underwriters listed in the Underwriting
Agreement, Skadden, Arps, Slate, Meagher & Flom LLP and the other Selling
Stockholders that:
(i) The undersigned is the lawful owner of the Securities to be sold
by the undersigned pursuant to the Underwriting Agreement and has, and on
the Closing Date referred to in Section 4 of the Underwriting Agreement
will have, good and clear title to such Securities, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever.
(ii) Upon delivery of and payment for such Securities pursuant to the
Underwriting Agreement, good and clear title to such Securities will pass
to the Underwriters, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever.
(iii) The undersigned has, and on the Closing Date will have, full
legal right, power and authority to enter into the Underwriting Agreement
and the Custody Agreement and to sell, assign, transfer and deliver such
Securities in the manner provided herein and therein, and the Underwriting
Agreement and the Custody Agreement have been duly authorized, executed and
delivered by the undersigned and each of the Underwriting Agreement and the
Custody Agreement is a valid and binding agreement of the undersigned
enforceable in accordance with its terms, except as rights to indemnity and
contribution under Section 8 of the Underwriting Agreement may be limited
by applicable law.
(iv) This Power of Attorney signed by the undersigned appointing
Gerald V. Gurbacki and Theodore R. Kallgren or any one of them, as his or
her attorney-in-fact to the extent set forth herein with regard to the
transactions contemplated by the Underwriting Agreement and by the
Registration Statement and the Custody Agreement has been duly authorized,
executed and delivered by or on behalf of the undersigned and is a valid
and binding instrument of the undersigned enforceable in accordance with
its terms, and, pursuant to this Power of Attorney, the undersigned has
authorized Gerald V. Gurbacki and Theodore R. Kallgren or any one of them,
to execute and deliver on his or her behalf the Underwriting Agreement and
5
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any other document necessary or desirable in connection with transactions
contemplated hereby and to deliver the Securities to be sold by the
undersigned pursuant to the Underwriting Agreement.
(v) The undersigned has not taken, and will not take, directly or
indirectly, any action designed to, or which might reasonably be expected
to, cause or result in stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of the Securities
pursuant to the distribution contemplated by the Underwriting Agreement,
and other than as permitted by the Act, the undersigned has not distributed
and will not distribute any prospectus or other offering material in
connection with the offering and sale of the Securities.
(vi) The execution, delivery and performance of the Underwriting
Agreement by the undersigned, compliance by the undersigned with all the
provisions hereof and the consummation of the transactions contemplated
thereby will not require any consent, approval, authorization or other
order of any court, or governmental agency or body (except as such may be
required under the securities laws or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, organizational documents of the
undersigned, if not an individual, or any indenture, loan or credit
agreement, mortgage, lease or other agreement or instrument to which the
undersigned is a party or by which the undersigned or property of the
undersigned is bound, or violate or conflict with any laws, rules,
regulations, judgements, orders or decrees of any court or any governmental
agency or body having jurisdiction over the undersigned or property of the
undersigned.
(vii) Such parts of the Registration Statement, comprised of the
table and notes thereto under the caption "Principal and Selling
Shareholders" which specifically relate to the undersigned do not, and will
not on the Closing Date (and Option Closing Date, if applicable), contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(viii) At any time during the Prospectus Delivery Period described in
Section 5(d) of the Underwriting Agreement, if there is any change in the
information referred to in (vii) above, the undersigned will immediately
notify you, the Company and the Representatives of such change.
(ix) Certificates in negotiable form for all Securities to be sold by
the undersigned under the Underwriting Agreement
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have been placed in custody with the Custodian for the purpose of effecting
delivery under the Underwriting Agreement.
(x) Except as noted by the undersigned in Attachment A hereto, the
undersigned is not affiliated with, or a person associated with, a member
of the National Association of Securities Dealers, Inc.
The Attorneys, and any of them, shall be entitled to act and rely upon
any representation, warranty, agreement, statement, request, notice or
instruction respecting this Power of Attorney given by the undersigned, not only
as to the authorization, validity and effectiveness thereof, but also as to the
truth and acceptability of any information therein contained; provided, however,
that any statement or notice to the Attorneys with respect to the date of
delivery under the Underwriting Agreement or with respect to the non-
effectiveness or termination of the Underwriting Agreement, or advice that the
Underwriting Agreement has not been executed and delivered, shall have been
confirmed in writing to the Attorneys by the Representatives. In acting
hereunder, the Attorneys may also rely on the representations, warranties and
agreements of the undersigned made in the Underwriting Agreement executed by the
Attorneys on behalf of the undersigned and in the Custody Agreement executed by
the undersigned.
The foregoing representations, warranties and agreements, as well as
those contained in the Underwriting Agreement, are made for the benefit of, and
may be relied upon by, the other Selling Stockholders, the Attorneys, the
Company, Kilpatrick Stockton LLP, the Underwriters, Skadden, Arps, Slate,
Meagher & Flom LLP and the Custodian and their representatives, agents and
counsel.
It is understood that the Attorneys assume no responsibility or
liability to any person other than to deal with the certificates for shares of
Class A Common Stock deposited with the Custodian pursuant to the Custody
Agreement and the proceeds from the sale of shares of Class A Common Stock
represented thereby in accordance with the provisions hereof. The Attorneys (in
such capacity) make no representations with respect to and shall have no
responsibility for the Registration Statement or the Prospectus or, except as
herein expressly provided, for any aspect of the offering of Class A Common
Stock, and the Attorneys shall not be liable for any error of judgment or for
any act done or omitted or for any mistake of fact or law except for the
Attorneys' own gross negligence or bad faith. The undersigned agrees to
indemnify the attorneys for and to hold the Attorneys, jointly and severally,
free from and harmless against any and all loss, claim, damage, liability or
expense incurred by or on behalf of the Attorneys, or any of them, arising out
of or in connection with acting as attorneys under this Power of Attorney, as
well as the cost and expense of defending against any claim of liability
hereunder, and not due to the Attorneys' own gross negligence or bad faith. The
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undersigned agrees that the Attorneys may consult with counsel of their choice
(which may but need not be counsel for the Company) and the Attorneys shall have
full and complete authorization and protection for any action taken or suffered
by the Attorneys, or any of them hereunder, in good faith and in accordance with
the opinion of such counsel.
It is understood that the Attorneys shall serve entirely without
compensation.
This Power of Attorney shall be governed by the laws of the State of
New York.
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Witness the due execution of the foregoing Power of Attorney as of the
date written below.
DATED: May __, 1997
Very truly yours,
Print Name and Address
of Selling Stockholder(s)
and Name and Title of
Person signing as Agent or __________________________*
Fiduciary:
_____________________________ __________________________*
Signature(s)
_____________________________
_____________________________
_____________________________
Telephone: ( ) ___________
______________________
*To be signed in exactly the same manner as the shares are registered.
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<PAGE>
TRUSTEE ACKNOWLEDGEMENT
State of ____________________________)
) ss.
County of ___________________________)
On this the ___ day of _____________, 199_, before me,
______________________, the undersigned Notary Public, personally appeared
___________________________.
[ ] personally known to me
[ ] proved to me on the basis of satisfactory evidence to be the person(s) who
executed the within instrument as Trustee on behalf of the Trust therein
named, and acknowledged that he or she subscribed his or her name thereto
as Trustee.
WITNESS my hand and official seal.
__________________________
Notary's Signature
INDIVIDUAL ACKNOWLEDGEMENT
--------------------------
State of ____________________________)
) ss.
County of ___________________________)
On this the ___ day of _____________, 199_, before me,
______________________, the undersigned Notary Public, personally appeared
___________________________.
[ ] personally known to me
[ ] proved to me on the basis of satisfactory evidence to be the person(s) who
executed the within instrument, and acknowledged that he or she subscribed
his or her name thereto.
WITNESS my hand and official seal.
__________________________
Notary's Signature
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Instruction: If you are an individual and are married, please have your spouse
- -----------
complete this form:
SPOUSAL CONSENT
---------------
I am the spouse of _____________________. On behalf of myself, my
heirs and legatees, I hereby join in and consent to the terms of the foregoing
Power of Attorney and agree to the sale of the shares of Class A Common Stock of
Pameco Corporation, registered in the name of my spouse or otherwise registered,
which my spouse proposes to sell pursuant to the Underwriting Agreement (as
defined therein).
Dated: May ___, 1997
_____________________________
(Signature of Spouse)
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Attachment A
NASD Matters: Shareholder Questionnaire
---------------------------------------
The National Association of Securities Dealers, Inc. ("NASD") uses the following
definitions;
"Member" includes a broker or dealer or any individual partnership,
------
corporation, or other legal entity admitted to membership in the NASD or
any officer or partner of such a member, or the executive representative of
such a member or the substitute for such representative.
"Person associated with a member" includes every sole proprietor, partner,
-------------------------------
officer, director, or branch manager of any member, or any natural person
occupying a similar status or performing similar functions, or any natural
person engaged in the investment banking or securities business who is
directly or indirectly controlling or controlled by such member, whether or
not such person is registered or exempt from registration with the NASD.
"Affiliate of a member" includes any person or entity that controls, is
---------------------
controlled by or is under common control with an NASD member.
For the purpose of these definitions, control includes, but is not
limited to any person who beneficially owns, directly or indirectly, ten
percent or more of the outstanding voting securities of a corporation or
the distributable profits or losses of a partnership. Common control shall
be presumed if a person or company owns ten percent or more of the
outstanding voting securities of a corporation or the distribute profits or
losses of a partnership of both the member and the company, or if a person
having the power to direct or cause the direction of the management or
policies of the member or the company also has such power with regard to
the other entity.
Please describe any affiliation or association that you have with any NASD
member.
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EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
NEW PAMECO GEORGIA CORPORATION
NEW PAMECO GEORGIA CORPORATION, a corporation organized and existing
under the laws of the State of Georgia (the "Corporation"), hereby certifies as
follows:
1. These Amended and Restated Articles of Incorporation amend and
restate the Corporation's original Articles of Incorporation filed with the
Secretary of State on March 24, 1997, and the amendments contained herein
require shareholder approval.
2. Each of the amendments contained in these Amended and Restated
Articles of Incorporation was unanimously approved on April 23, 1997, by the
Corporation's Board of Directors and shareholders in accordance with the
provisions of Section 14-2-1003 of the Georgia Business Corporation Code (the
"Code").
3. These Amended and Restated Articles of Incorporation shall become
effective upon the execution of that certain Underwriting Agreement among the
Corporation, certain shareholders of the Corporation's parent company,
Donaldson, Lufkin & Jenrette Securities Corporation, The Robinson-Humphrey
Company, Inc., and Schroder Wertheim & Co. Incorporated, proposed to be entered
into in connection with the Corporation's initial public offering of its
securities; provided, that if such Agreement has not been executed by the close
of business on July 31, 1997, then these Amended and Restated Articles of
Incorporation shall terminate and be of no further force nor effect.
4. The text of the Articles of Incorporation is hereby amended and
restated to read as hereinafter set forth in full:
I
The name of the Corporation is New Pameco Georgia Corporation.
II
The street address and county of the Corporation's registered office
shall be 1000 Center Place, Norcross, Gwinnett County, Georgia 30093. The
registered agent of the Corporation at that office shall be Mary McCulley.
<PAGE>
III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Code.
IV
The mailing address of the Corporation's initial principal office is
1000 Center Place, Norcross, Georgia 30092.
V
5.1 CAPITALIZATION.
(A) The Corporation shall have authority to issue 60,000,000 shares of
common stock, of which 40,000,000 shares shall be Class A Common Stock, par
value $0.01 per share (the "Class A Common Stock"), and 20,000,000 shares shall
be Class B Common Stock, par value $0.01 per share (the "Class B Common Stock",
and together with the Class A Common Stock, the "Common Stock"), and 5,000,000
shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock").
Except as otherwise provided herein, all shares of Common Stock shall be
identical, and shall entitle the holders thereof to the same rights and
preferences, all dividends declared and all assets of the Corporation upon
dissolution, subject to the rights and preferences, if any, of the holders of
the Preferred Stock to such dividends and assets upon dissolution pursuant to
applicable law and the resolution or resolutions of the Board of Directors
providing for the issue of one or more series of Preferred Stock.
(B) The Board of Directors is hereby expressly authorized to issue, at
any time and from time to time, shares of Preferred Stock in one or more series.
The number of shares within any such series shall be designated by the Board of
Directors in one or more resolutions, and the shares of each series so
designated shall have such preferences with respect to the Common Stock and
other series of Preferred Stock, and such other rights, qualifications,
restrictions or limitations with respect to voting, dividends, conversion,
exchange, redemption and any other matters, as may be set forth in one or more
resolutions adopted by the Board of Directors. If and to the extent required by
law, Articles of Amendment setting forth any such designations, preferences,
rights, qualifications, restrictions or limitations shall be filed with the
Georgia Secretary of State prior to the issuance of any shares of such series.
The authority of the Board of Directors with respect to the establishment of
each series of Preferred Stock shall include, without limiting the generality of
the foregoing, determination of the following matters which may vary between
series:
(i) the distinctive designation of that series and the number of shares
constituting that series, which number may be increased (except where otherwise
provided by the Board of Directors in creating such series) or decreased (but
not below the number of shares of such series then outstanding) from time to
time;
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(ii) the dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payments of dividends on shares of that series;
(iii) whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(iv) whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions for adjustment
of the conversion rate in such events as the Board of Directors shall determine;
(v) whether the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date or dates upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at different
redemption dates;
(vi) whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(vii) the rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that series;
and
(viii) any other relative preferences, rights, restrictions or
limitations of that series, including but not limited to any obligations of the
Corporation to repurchase shares of that series upon specified events.
5.2 VOTING RIGHTS.
(A) Except as otherwise provided in SECTIONS 5.2 and 10.2 or as otherwise
required by law, the holders of Class A Common Stock shall be entitled to one
vote per share on all matters permitted or required to be voted on by the
Corporation's shareholders and the holders of Class B Common Stock shall be
entitled to ten votes per share on all matters permitted or required to be voted
on by the Corporation's shareholders. Except as specified in SECTION 5.2(B) or
as otherwise required by law, the Class A Common Stock and the Class B Common
Stock (i) shall vote as a single class on all matters presented for a vote of
the shareholders of the Corporation and (ii) shall not have cumulative voting
rights (whether voting as separate voting groups or as a single voting group).
The holders of the Preferred Stock shall have voting rights only to the extent,
if any, provided by the Board of Directors pursuant to SECTION 5.1(B) or as
otherwise required by law.
(B) (i) The holders of the shares of Class A Common Stock acting as a
separate voting group are entitled to elect, with each share having one vote,
two members of the Corporation's Board of Directors. The holders of the shares
of the Class B Common Stock acting
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as a separate voting group, with each holder entitled to one vote per share, are
entitled to elect the remaining members of the Corporation's Board of Directors.
(ii) At any shareholders meeting, with respect to which notice of such
purpose has been given, the shareholders may remove any director from office,
with or without cause, by a majority vote of the shares entitled to vote for the
election of directors; provided, however, that directors elected by a particular
voting group may be removed, with or without cause, only by a majority vote of
the shareholders in that voting group.
(C) The holders of the shares of Class A Common Stock and Class B Common
Stock shall vote as a single voting group on, and the holders of Class A Common
Stock and the holders of Class B Common Stock shall each be entitled to one vote
per share with respect to, any Going Private Transaction (as defined below).
For purposes of these Amended and Restated Articles of Incorporation, a Going
Private Transaction means any transaction between the Corporation and (i) any
holder of record of Class B Common Stock immediately following the consummation
of the Corporation's sale of Class A Common Stock to the Underwriters (the
"Initial Public Offering") in the manner described in the Form S-1 Registration
Statement (No. 333-24043) filed by the Corporation with the Securities and
Exchange Commission (collectively, the "Principal Shareholders", and
individually, a "Principal Shareholder"), (ii) any Affiliate of any Principal
Shareholder (as such term is defined below), or (iii) any group including as a
member a Principal Shareholder or any Affiliate of a Principal Shareholder, that
is a "Rule 13e-3 Transaction," as such term is defined in Rule 13e-3(a)(3), 17
C.F.R. (S) 240.13e-3, as amended, provided that the term "affiliate" as used in
Rule 13e-3(a)(3)(i) shall be deemed to include an "Affiliate of a Principal
Shareholder," as such term is defined below. For purposes hereof, the term
"Affiliate of a Principal Shareholder" shall mean (i) any individual or entity
who or that, directly or indirectly, controls, is controlled by, or is under
common control with a Principal Shareholder, (ii) any corporation or
organization (other than the Corporation or a majority-owned subsidiary of the
Corporation) of which any Principal Shareholder is a partner or is, directly or
indirectly, the beneficial owner of ten percent or more of any class of voting
securities, (iii) any trust or other estate in which a Principal Shareholder has
a substantial beneficial interest or (iv) any individual or entity that directly
or indirectly owns any equity interest in a Principal Shareholder.
(D) In the event that all issued and outstanding shares of the Class B
Common Stock shall be converted into shares of the Class A Common Stock in
accordance with the provisions of SECTION 5.3 of these Amended and Restated
Articles of Incorporation or otherwise cease to be outstanding (the effective
date of the conversion, retirement or other event resulting in the last share of
Class B Common Stock ceasing to be outstanding shall be referred to herein as
the "Final Class B Date"), such that there shall not be any issued and
outstanding shares of the Class B Common Stock, then with respect to each matter
submitted to a vote of the Corporation's shareholders after the Final Class B
Date (including, without limitation, the election of any directors) the holders
of the Class A Common Stock voting as a class shall be entitled to determine
such matter, with each issued and outstanding share of Class A Common Stock
entitled to one vote.
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<PAGE>
5.3 CONVERSION.
(A) The Class A Common Stock shall not be convertible into shares of Class
B Common Stock or any other securities of the Corporation.
(B) Each share of Class B Common Stock shall be convertible, at the option
of its holder, into one (1) fully paid and non-assessable share of Class A
Common Stock.
(C) Each share of Class B Common Stock shall convert automatically and
without further action into one (1) fully paid and non-assessable share of Class
A Common Stock (i) upon the transfer of such share, whether by sale, assignment,
gift, bequest, appointment, operation of law or otherwise, except in the case of
a transfer of Class B Common Stock to an Affiliate of any Principal Shareholder,
or (ii) from and after the first date on which the issued and outstanding shares
of Class B Common Stock constitute less than ten percent (10%) of the aggregate
number of issued and outstanding shares of Class A Common Stock and Class B
Common Stock. Upon any transfer by a Principal Shareholder of shares of Class B
Common Stock to an Affiliate of such Principal Shareholder, such transferee
shall notify the Corporation and provide the Corporation with such information
as the Corporation may reasonably request to enable it to determine whether the
transferee is an Affiliate of a Principal Shareholder. In the event of any
dispute as to the status of the transferee, a majority of the entire Board of
Directors shall, in good faith, decide such status and such decision shall be
final.
(D) The conversion rights, if any, of shares of the Preferred Stock shall
be as provided by the Board of Directors pursuant to SECTION 5.1(B).
(E) The Corporation shall at all times reserve and keep available, solely
for the purpose of issuance upon conversion, such number of shares of Class A
Common Stock (or other securities) as may be issuable upon the conversion of all
outstanding shares of Class B Common Stock and Preferred Stock, if applicable.
5.4 CONVERSION PROCEDURE.
(A) (i) Each voluntary conversion of shares of Class B Common Stock or
Preferred Stock, if applicable, into shares of Class A Common Stock pursuant to
SECTION 5.3(B), shall be effected by the surrender of the certificate or
certificates representing the shares to be converted, duly endorsed in blank or
accompanied by proper instruments of transfer, at the principal office of the
Corporation or, at the Corporation's election, at the office of the
Corporation's designated transfer agent at any time during normal business
hours, together with a written notice by the holder thereof stating that such
holder desires to convert such shares, or a stated number of shares, represented
by such certificate or certificates into Class A Common Stock.
(ii) Such conversion shall be deemed to have been effected on the date
on which such certificate or certificates have been surrendered and such notice
has been received,
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<PAGE>
and at such time the rights of the holder of the converted Class B Common Stock
or Preferred Stock, if applicable, as such holder shall cease and the person or
persons in whose name or names the certificate or certificates for shares of
Class A Common Stock are to be issued upon such conversion shall be deemed to
have become the holder or holders of record of the shares of Class A Common
Stock represented thereby. Promptly after such surrender and the receipt of such
written notice, the Corporation will issue and deliver in accordance with the
surrendering holder's instructions (a) the certificate or certificates for the
Class A Common Stock issuable upon such conversion and (b) a certificate
representing any Class B Common Stock or Preferred Stock, if applicable, which
was represented by the certificate or certificates delivered to the Corporation
in connection with such conversion, but which was not converted.
(B) (i) Promptly upon the occurrence of an event causing the automatic
conversion of shares of Class B Common Stock into shares of Class A Common Stock
pursuant to SECTION 5.3(C), the holder of such shares shall surrender the
certificate or certificates therefor, duly endorsed in blank or accompanied by
proper instruments of transfer, at the office of the Corporation, or of any
transfer agent for the Class A Common Stock, and shall give written notice to
the Corporation, at such office: (a) stating that the shares are being converted
pursuant to SECTION 5.3(C), (b) specifying the event giving rise to such
conversion, (c) identifying the number of shares of Class B Common Stock being
converted, and (d) setting out the name or names (with addresses) and
denominations in which the certificate or certificates for shares of Class A
Common Stock shall be issued and shall include instructions for delivery
thereof. Delivery of such notice together with the certificates representing
the shares of Class B Common Stock shall obligate the Corporation to issue such
shares of Class A Common Stock, subject to SECTION 5.3(C). Thereupon, the
Corporation or its transfer agent shall promptly issue and deliver at such
stated address to such holder or to the transferee of such shares of Class B
Common Stock a certificate or certificates for the number of shares of Class A
Common Stock to which such holder or transferee is entitled, registered in the
name of such holder, the designee of such holder or transferee as specified in
such notice.
(ii) To the extent permitted by law, conversion pursuant to an event
giving rise to automatic conversion of shares of Class B Common Stock pursuant
to SECTION 5.3(C) shall be deemed to have been effected as of the date on which
such event occurred (such time being referred to herein as the "Conversion
Time"). The Person (as defined below) entitled to receive the shares of Class A
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Class A Common Stock at and as of the
Conversion Time, and the right of such Person as the holder of shares of Class B
Common Stock shall cease and terminate as of the Conversion Time, in each case
without regard to any failure by the holder to deliver the certificates or the
notice required by SECTION 5.4(B)(I). For purposes of these Amended and
Restated Articles of Incorporation, the term "Person" shall mean any individual,
corporation, limited liability company, partnership, joint venture, association,
joint stock company, trust, unincorporated association or government or any
agency or political subdivision thereof.
(C) The issuance of certificates for shares of Class A Common Stock upon
voluntary or automatic conversion pursuant to SECTION 5.3 shall be made without
charge to the holders of
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<PAGE>
such shares for any issuance tax in respect thereof or other cost incurred by
the Corporation in connection with such conversion and the related issuance of
Class A Common Stock.
(D) The Corporation shall not close its books against the transfer of Class
B Common Stock or Preferred Stock, if applicable, or of Class A Common Stock
issued or issuable upon conversion of Class B Common Stock in any manner which
would interfere with the timely conversion thereof.
5.5 DIVIDENDS; DISTRIBUTIONS.
(A) Holders of the Common Stock shall be entitled to share ratably as a
single class (i.e., an equal amount of cash or property for each share of Common
Stock) in all dividends and other distributions of cash, property or shares of
capital stock of the Corporation (other than stock dividends of Common Stock),
other securities of the Corporation or any other Person or any other right or
property as may be declared thereon by the Board of Directors from time to time
out of assets or funds of the Corporation legally available therefor.
(B) Dividends or other distributions payable in capital stock of the
Corporation, including distributions pursuant to stock splits or divisions of
capital stock of the Corporation, may be paid in shares of Common Stock, but
shares of Class A Common Stock may be paid only to holders of Class A Common
Stock, and shares of Class B Common Stock may be paid only to holders of Class B
Common Stock, and the same number of such shares shall be paid in respect of
each outstanding share of Common Stock.
(C) If the Corporation in any manner subdivides, combines or reclassifies
the outstanding shares of one class of Common Stock, the outstanding shares of
the other class of Common Stock shall be proportionately subdivided, combined or
reclassified so that the number of shares of each of the classes of Common Stock
outstanding immediately following such subdivision, combination or
reclassification shall bear the same relationship to the number of shares of
such classes outstanding immediately prior to such combination, subdivision or
reclassification.
5.7 LIQUIDATION; DISSOLUTION. In the event of any dissolution,
liquidation or winding up of the affairs of the Corporation, whether voluntary
or involuntary, after payment or provision for payment of the debts and other
liabilities of the Corporation, and the payment of any liquidation preference
with respect to any other class of capital stock of the Corporation which has a
liquidation preference over the Common Stock, the remaining assets and funds of
the Corporation shall be divided among and paid ratably to the holders of Common
Stock as a single class (i.e., an equal amount of assets for each share of
Common Stock).
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VI
6.1 BOARD OF DIRECTORS. The business and affairs of the Corporation shall
be managed by or under the direction of the Board of Directors, which shall
consist of seven directors. The number of directors may be increased or
decreased from time to time by resolution adopted by the affirmative vote of a
majority of the Board of Directors then in office, provided that a quorum is
present; provided, further, that the number of directors shall not be less than
five (5). In no case shall a decrease in the number of directors shorten the
term of any incumbent director.
6.2 NO SHAREHOLDER ACTION BY CONSENT. After the Initial Public Offering,
(i) any action required or permitted to be taken by the holders of the Class A
Common Stock as a separate voting group or by the holders of the Class A Common
Stock and the Class B Common Stock acting as a single voting group must be
effected at a duly called annual or special meeting of shareholders of the
Corporation and may not be effected by any consent in writing by such
shareholders, and (ii) any action required or permitted to be taken by the
holders of Class B Common Stock as a separate voting group at any meeting of the
shareholders of the Corporation may be taken without a meeting, provided that
such action or actions are taken by persons who would be entitled to vote at a
meeting shares having voting power to cast not less than the minimum number of
votes that would be necessary to authorize or take the action or actions at a
meeting at which all holders of Class B Common Stock entitled to vote were
present and voted. The action or actions must be evidenced by one or more
written consents describing the action or actions taken, signed by holders
entitled to take action or actions without a meeting and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
No written consent signed pursuant to this SECTION 6.2 shall be valid unless (A)
the consenting holders of Class B Common Stock have been furnished the same
material that would have been required to be sent to shareholders in a notice of
a meeting in which the proposed action or actions would have been submitted to
the shareholders for action; or (B) the written consent contains an express
waiver of the right to receive the material otherwise required to be furnished.
If action is taken by less than all of the holders of Class B Common Stock
entitled to vote on the action, all voting holders of Class B Common Stock on
the record date who did not participate in taking the action shall be given
written notice of the action, together with the material described in clause (A)
above, not more than ten (10) days after the taking of action without a meeting.
VII
(A) No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of his duty of
care or other duty as a director, provided that this provision shall not
eliminate or limit the liability of a director: (i) for any appropriation, in
violation of his duties, of any business opportunity of the Corporation; (ii)
for acts or omissions which involve intentional misconduct or a knowing
violation of law; (iii) for the types of liability set forth in Section 14-2-832
or any successor of the Code; or (iv) for any transaction from which the
director received an improper personal benefit. If at any time the Code shall
have been amended to authorize the further elimination or limitation of the
liability of a director, then the
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liability of each director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Code, as so amended, without further action
by the shareholders, unless the provisions of the Code, as amended, require
further action by the shareholders.
(B) Any repeal or modification of the foregoing provisions of this ARTICLE
VII or the adoption of a provision inconsistent with this ARTICLE VII shall not
adversely affect the elimination or limitation of liability or alleged liability
pursuant hereto of any director of the Corporation for or with respect to any
alleged act or omission of the director occurring prior to such repeal or
modification, or adoption of an inconsistent provision.
VIII
In discharging the duties of their respective positions and in determining
what is believed to be in the best interests of the Corporation, the Board of
Directors, committees of the Board of Directors and individual directors, in
addition to considering the effects of any action on the Corporation or the
shareholders, may consider the interests of the employees, customers, suppliers,
and creditors of the Corporation and its subsidiaries, the communities in which
offices or other establishments of the Corporation and its subsidiaries are
located, and all other factors the directors consider pertinent.
IX
The Corporation may, to the fullest extent permitted by the laws of the
State of Georgia, as amended and in effect from time to time, indemnify its
directors, officers, employees and agents and all other persons whom it may
choose to indemnify.
X
10.1 RIGHT TO AMEND ARTICLES OF INCORPORATION. Except as provided in
SECTION 10.2 below, the Corporation reserves the right to amend, alter, change
or repeal any provision contained in these Amended and Restated Articles of
Incorporation in the manner now or hereafter prescribed by the Code, and all
rights conferred upon the shareholders herein are granted subject to this
reservation; provided, however, that except as described below, these Articles
of Incorporation may only be amended, altered, changed or repealed by a vote of
at least 66 2/3% of the votes entitled to be cast on the amendment by each
voting group entitled to vote on the amendment; provided, further, that any
increase in the number of authorized shares of common stock (without alteration
of any other rights of the holders thereof) may be authorized and approved by a
majority of the votes entitled to be cast on the amendment by each voting group
entitled to vote on the amendment.
10.2 CLASS A AND CLASS B VOTING POWER. Neither the Articles of
Incorporation nor the Bylaws of the Corporation shall hereafter be amended to
change, modify or limit the voting provisions with respect to Class A Common
Stock or Class B Common Stock in any manner that would adversely affect the
voting rights of the holders of Class A Common Stock or Class B Common Stock set
forth in SECTION 5.2 hereof, without the consent of a majority of the holders of
the potentially affected class of Common Stock voting as a single voting group
with each such
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share entitled to one vote; provided, however, that upon the occurrence of the
Final Class B Date, these provisions shall be deemed to be automatically
eliminated.
10.3 RIGHT TO AMEND BYLAWS. Except as otherwise provided in SECTION
10.2, the Bylaws of the Corporation may be adopted, amended or repealed by a
majority vote of the entire Board of Directors of the Corporation or by the
holders of at least 66 2/3% of the votes entitled to be cast on the amendment by
each voting group entitled to vote on the amendment.
IN WITNESS WHEREOF, the Corporation has caused these Amended and Restated
Articles of Incorporation to be executed as of this ____ day of
________________, 1997.
NEW PAMECO GEORGIA CORPORATION
By:_________________________________
Name:___________________________
Title:__________________________
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
NEW PAMECO GEORGIA CORPORATION
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The Corporation shall maintain at all
times a registered office in the State of Georgia and a registered agent at that
office.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Georgia as the business
of the Corporation may require or make desirable.
ARTICLE II
SHAREHOLDERS MEETINGS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
the Corporation for the election of directors and for the transaction of such
other business as may be brought before the meeting shall be held at the
principal office of the Corporation or at such other place in the United States,
on such date and at such time as may be determined by the Board of Directors.
SECTION 2. SPECIAL MEETINGS. (a) Special meetings of shareholders of
one or more classes or series of the Corporation's shares shall be called by the
Chief Executive Officer or the Secretary when so directed by the Chairman or by
a majority of the entire Board of Directors. Special meetings of shareholders
may not be demanded or called by the shareholders at any time when the
Corporation has more than 100 shareholders, except upon the demand of holders of
all shares entitled to vote on each issue to be considered at a proposed special
meeting of shareholders. The business that may be transacted at any special
meeting of shareholders shall be limited to that proposed in the notice of the
special meeting given in accordance with SECTION 3 (including related or
incidental matters that may be necessary or appropriate to effectuate the
proposed business).
(b) The time, date and place of any special shareholders meeting shall
be determined by the Board of Directors and shall be set forth in the notice of
meeting.
SECTION 3. NOTICE OF MEETINGS. (a) Unless otherwise required by law
or specified in the Articles of Incorporation or these Bylaws, written notice of
every meeting of shareholders, stating the place, date and hour of the meeting,
shall be given, in a manner
<PAGE>
permitted by applicable law, to each shareholder of
record entitled to vote at such meeting not less than 10 nor more than 60 days
prior to the date of the meeting.
(b) A shareholder may waive any notice required by the Georgia
Business Corporation Code (the "Code"), the Articles of Incorporation, or these
Bylaws, before or after the date and time of the matter to which the notice
relates, by delivering to the Corporation a written waiver of notice signed by
the shareholder entitled to the notice. In addition, a shareholder's attendance
at a meeting shall be (i) a waiver of objection to lack of notice or defective
notice of the meeting unless the shareholder at the beginning of the meeting
objects to holding the meeting or transacting business at the meeting; and (ii)
a waiver of objection to consideration of a particular matter at the meeting
that is not within the purpose stated in the meeting notice, unless the
shareholder objects to considering the matter when it is presented. Except as
otherwise required by the Code, neither the purpose of nor the business
transacted at the meeting need be specified in any waiver.
SECTION 4. QUORUM. At all meetings of shareholders, any Voting Group
(as defined below) entitled to vote on a matter may take action on the matter
only if a quorum of that Voting Group exists at the meeting, and if a quorum
exists, the Voting Group may take action on the matter notwithstanding the
absence of a quorum of any other Voting Group that may be entitled to vote
separately on the matter. Unless the Articles of Incorporation, these Bylaws or
the Code provides otherwise, the presence (in person or by proxy) of shares
representing a majority of votes entitled to be cast on a matter by a Voting
Group shall constitute a quorum of the Voting Group with regard to that matter.
Once a share is present at any meeting other than solely to object to holding
the meeting or transacting business at the meeting, the share shall be deemed
present for quorum purposes for the remainder of the meeting and for any
adjournments of that meeting, unless a new record date for the adjourned meeting
is or must be set pursuant to ARTICLE VI, SECTION 4(A) of these Bylaws. If a
quorum is not present at any meeting of the shareholders, the holders of a
majority of the shares present (in person or represented by proxy) and entitled
to vote thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting.
SECTION 5. VOTING. (a) Unless otherwise provided by law, the
Articles of Incorporation, or board resolutions setting forth the preferences
and other rights, restrictions or limitations of any class or series of
preferred stock, each outstanding share, regardless of class or series, shall be
entitled to one vote on each matter voted on at a shareholders meeting, and each
class or series of the Corporation's shares entitled to vote generally on a
matter shall for that purpose be considered a single voting group (a "Voting
Group"). Unless the Articles of Incorporation, these Bylaws, a resolution of
the Board of Directors or applicable law require a different vote, action on a
matter presented for consideration at a meeting where a quorum is present, shall
be approved as follows: (a) directors shall be elected by a majority of the
votes
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cast by the shares entitled to vote in the election at a meeting at which
a quorum is present; and (b) all other matters shall be approved if the votes
cast within the applicable Voting Group favoring the action exceed the votes
cast opposing the action, unless the Articles of Incorporation, a provision of
these Bylaws that has been adopted pursuant to Section 14-2-1021 of the Code (or
any successor provision), or applicable law requires a greater number of
affirmative votes. If either the Articles of Incorporation or the Code requires
separate voting by two or more Voting Groups on a matter, action on that matter
is taken only when voted upon by each such Voting Group separately.
(b) A shareholder may vote his shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment form. An appointment of a proxy is valid for eleven months unless a
shorter or longer period is expressly provided in the appointment form.
SECTION 6. SHAREHOLDER PROPOSALS. (a) No shareholder proposal or
resolution (each a "Shareholder Proposal"), whether purporting to be binding or
non-binding on the Corporation or its Board of Directors, shall be considered at
any annual or special meeting of the shareholders unless:
(i) If such Shareholder Proposal relates solely to the nomination and
election of directors, it satisfies the requirements of ARTICLE
III, SECTION 3; or
(ii) With respect to any Shareholder Proposal to be considered at a
special shareholders meeting called pursuant to ARTICLE II,
SECTION 2(A), the shareholder(s) proposing to make such
Shareholder Proposal provided the information set forth in SECTION
6(B) below to the Board of Directors within 14 days after the date
of the notice calling such special shareholders meeting (or if
less than 21 days notice of the meeting is given to shareholders,
such information was delivered to the Chief Executive Officer not
later than the close of the seventh day following the date on
which the notice of the shareholders' meeting was mailed); or
(iii) With respect to any Shareholder Proposal to be considered at
any annual meeting of shareholders, other than as described in
clause (i) hereof, the shareholder(s) proposing to make such
Shareholder Proposal provided the information set forth in SECTION
6(B) below to the Board of Directors not less than 50 nor more
than 75 days prior to the annual meeting at which they wish the
Shareholder Proposal to be considered.
For the purposes of determining whether information was provided at the times or
within the specified periods, the date of the applicable meeting shall be as set
forth in the notice of meeting given by the Corporation, and such times and
periods will be determined without regard to any postponements, deferrals or
adjournments of such meeting to a later date.
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(b) The following information must be provided to the Board of
Directors, within or at the times specified in SECTION 6(A) above, in order for
the Shareholder Proposal to be considered at the applicable shareholders
meeting:
(i) The Shareholder Proposal, as it will be proposed, in full text and
in writing;
(ii) The purpose(s) for which the Shareholder Proposal is desired and
the specific meeting at which such proposal is proposed to be
considered;
(iii) The name(s), address(es), and number of shares held of record
by the shareholder(s) making such Shareholder Proposal (or owned
beneficially and represented by a nominee certificate on file with
the Corporation);
(iv) The number of shares that have been solicited with regard to the
Shareholder Proposal and the number of shares the holders of which
have agreed (in writing or otherwise) to vote in any specific
fashion on said Shareholder Proposal; and
(v) A written statement by said shareholder(s) that they intend to
continue ownership of such voting shares through the date of the
meeting at which said Shareholder Proposal is proposed to be
considered.
(c) Failure to fully comply with the provisions of this SECTION 6
shall bar discussion of and voting on the Shareholder Proposal at the applicable
annual or special shareholders meeting. Any Shareholder Proposal that does not
comply with the requirements of this SECTION 6 shall be disregarded by the
Chairman of the meeting, and any votes cast in support of the Shareholder
Proposal, unless the Shareholder Proposal has been validly submitted by another
shareholder, shall be disregarded by the chairman of such meeting.
(d) The provisions of this SECTION 6 shall be read in accordance with
and so as not to conflict with the rules and regulations promulgated by the
Securities and Exchange Commission and any stock exchange or quotation system
upon which the Corporation's shares are traded. Nothing in these Bylaws shall
be deemed to require the consideration at any meeting of shareholders of any
Shareholder Proposal that, pursuant to law, the Corporation may refuse to permit
consideration thereof.
SECTION 7. LIST OF SHAREHOLDERS; INSPECTION OF RECORDS. (a) The
Corporation shall keep at its registered office or principal place of business,
or at the office of its transfer agent or registrar, a record of its
shareholders, giving their names and addresses and the number, class and series,
if any, of the shares held by each.
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(b) Shareholders are entitled to inspect the corporate records as and
to the extent provided by the Code; provided, however, that only shareholders
owning more than two percent (2%) of the outstanding shares of any class of the
Corporation's stock shall be entitled to inspect (1) the minutes from any board,
board committee or shareholders meeting (including any records of action taken
thereby without a meeting); (2) the accounting records of the Corporation; or
(3) any record of the shareholders of the Corporation.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Except as otherwise provided by any legal
agreement among shareholders, the property, affairs and business of the
Corporation shall be managed and directed by its Board of Directors, which may
exercise all powers of the Corporation and do all lawful acts and things which
are not (by law, by any legal agreement among shareholders, by the Articles of
Incorporation or by these Bylaws) directed or required to be exercised or done
by the shareholders.
SECTION 2. NUMBER, ELECTION AND TERM. (a) The number of directors
which shall constitute the whole board shall be not less than five nor more than
fifteen, the number thereof to be determined from time to time by resolution of
the Board of Directors; provided, however, that the number of directors
constituting the entire board shall be seven (7) until otherwise changed by the
Board of Directors. No decrease in the number of directors shall have the
effect of shortening the term of an incumbent director. Except as hereinafter
provided with respect to filling vacancies on the board, the directors shall be
elected by the shareholders as provided in ARTICLE 5.2(B)(I) of the Articles of
Incorporation and ARTICLE II hereof, and each director elected shall hold office
until his successor is elected and qualified or until his earlier resignation,
removal from office, or death. Directors shall be natural persons who have
attained the age of 21 years, but need not be residents of the State of Georgia
or shareholders of the Corporation. The board, from time to time, may designate
persons to act as advisory directors.
SECTION 3. NOMINATIONS. (a) If any shareholder intends to nominate
or cause to be nominated any candidate for election to the Board of Directors
(other than any candidate to be sponsored by and proposed at the instance of the
management), such shareholder shall notify the Chief Executive Officer by first
class registered mail sent not less than 50 nor more than 75 days before the
scheduled meeting of the shareholders at which directors will be elected.
However, if less than 21 days notice of the meeting is given to shareholders,
such nomination shall be delivered or mailed to the Chief Executive Officer not
later than the close of the seventh day following the date on which the notice
of the shareholders' meeting was mailed. Such notification shall contain the
following information with respect to each nominee, to the extent known to the
shareholder giving such notification:
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(i) Name, address and principal present occupation;
(ii) To the knowledge of the shareholder who proposed to make such
nomination, the total number of shares that may be voted for such
proposed nominee;
(iii) The names and address of the shareholders who propose to make
such nomination, and the number of shares of the Corporation owned
by each of such shareholders; and
(iv) The following additional information with respect to each
nominee: age, past employment, education, beneficial ownership of
shares in the Corporation, past and present financial standing,
criminal history (including any convictions, indictments or
settlements thereof), involvement in any past or pending
litigation or administrative proceedings (including threatened
involvement), relationship to and agreements (whether or not in
writing) with the shareholder(s) (and their relatives,
subsidiaries and affiliates) intending to make such nomination,
past and present relationships or dealings with the Corporation or
any of its subsidiaries, affiliates, directors, officers or
agents, plans or ideas for managing the affairs of the Corporation
(including, without limitation, any termination of employees, any
sales of corporate assets, any proposed merger, business
combination or recapitalization involving the Corporation, and any
proposed dissolution or liquidation of the Corporation), and all
additional information relating to such person that would be
required to be disclosed, or otherwise required, pursuant to
Sections 13 or 14 of the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder (the
"Exchange Act"), in connection with any acquisition of shares by
such nominee or in connection with the solicitation of proxies by
such nominee for his election as a director, regardless of the
applicability of such provisions of the Exchange Act.
(b) Any nominations not in accordance with the provisions of this
SECTION 3 may be disregarded by the chairman of the meeting, and upon
instruction by the chairman, votes cast for each such nominee shall be
disregarded. In the event, however, that a person should be nominated by more
than one shareholder, and if one such nomination complies with the provisions of
this SECTION 3, such nomination shall be honored, and all shares voted for such
nominee shall be counted.
SECTION 4. VACANCIES. (a) Subject to SUBSECTION 4(B), vacancies,
including vacancies resulting from any increase in the number of directors and
vacancies resulting from removal from office by the shareholders, may be filled
only by the Board of Directors or by a majority of the directors then in office
(if the directors remaining in office constitute less than
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a quorum), and a director so chosen shall hold office until the next annual
election and until his successor is duly elected and qualified, unless sooner
displaced; provided, however, that if there are no directors in office, then
vacancies shall be filled through election by the shareholders.
(b) If any vacant office described in SUBSECTION 4(A) was held by a
director elected by a particular Voting Group, only the remaining directors
elected by that Voting Group shall be entitled to fill the vacancy; provided,
however, that if the vacant office was held by a director elected by a
particular Voting Group and there is no remaining director elected by that
---
Voting Group, the other remaining directors or director (elected by another
Voting Group or Groups) may fill the vacancy.
SECTION 5. MEETINGS AND NOTICE. (a) The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Georgia. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by resolution of the board. Special meetings of the board may be
called by the Chairman or by any two directors upon two day's notice given in a
manner permitted by law. Such notice shall state a reasonable time, date and
place of meeting, but the purpose need not be stated therein. Unless otherwise
provided by law, the Articles of Incorporation or these Bylaws, directors may
participate in a meeting of the board, or any committee thereof, by means of
conference telephone or similar communications equipment whereby all persons
participating in the meeting can hear each other. Participation in the meeting
shall constitute presence in person.
(b) A director may waive any notice required by the Code, the
Articles of Incorporation, or these Bylaws before or after the date and time of
the matter to which the notice relates, by a written waiver signed by the
director and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records. Attendance by a director at a meeting shall
constitute waiver of notice of the meeting, except where a director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
SECTION 6. QUORUM. At all meetings of the board a majority of
directors shall constitute a quorum for the action of business, and the act of a
majority of the directors present at any meeting at which there is a quorum
shall be the act of the board, except as may be otherwise specifically provided
by law, by the Articles of Incorporation, by these Bylaws or by contract. If a
quorum shall not be present at any meeting of the board, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
SECTION 7. CONSENT OF DIRECTORS. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting
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of the Board of Directors or of any committee thereof may be taken without a
meeting if the action is evidenced by one or more written consents describing
the action taken and signed by each director or committee member, and the
writing or writings are delivered to the Corporation for inclusion in the
minutes for filing with the corporate records. Such consent shall have the same
force and effect as a unanimous vote of the board or committee, as the case may
be.
SECTION 8. COMMITTEES. The Board of Directors may by resolution
create one or more committees and appoint one or more members of the Board of
Directors to serve on them. The board may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of such committee. Any such committee, to the extent provided in the
resolution, shall have and may exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Corporation,
subject to limitations imposed by law or the Articles of Incorporation. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. A majority of
each committee may determine its action and may fix the time and place of its
meetings, unless otherwise provided by the Board of Directors. Each committee
shall keep regular minutes of its meetings and report the same to the Board of
Directors when required.
SECTION 9. REMOVAL OF DIRECTORS. At any shareholders meeting, with
respect to which notice of such purpose has been given, the shareholders may
remove any director from office, with or without cause, by a majority vote of
the shares entitled to vote for the election of directors; provided that
directors elected by a particular Voting Group may be removed, with or without
cause, only by a majority vote of the shareholders in that Voting Group.
SECTION 10. COMPENSATION OF DIRECTORS. Directors shall be entitled to
such compensation for their services as directors or members of any committee of
the board as shall be fixed from time to time by resolution adopted by the
board, and shall also be entitled to reimbursement for any reasonable expenses
incurred in attending any meeting of the board or any such committee.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen
by the Board of Directors and shall be a Chairman, a Chief Executive Officer, a
President and a Secretary. The Board of Directors may also choose one or more
Vice Presidents (including Executive Vice Presidents, Senior Vice Presidents,
Assistant Vice Presidents, and the like), one or more Assistant Secretaries, a
Treasurer and one or more Assistant Treasurers. Any number of offices may be
held by the same person. The Board of Directors may appoint such other officers
and agents as it shall deem necessary.
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SECTION 2. COMPENSATION. The salaries of all officers and agents of
the Corporation shall be fixed by the Board of Directors or a committee or
officer appointed by the board.
SECTION 3. TERM OF OFFICE. Unless otherwise provided by resolution of
the Board of Directors, the principal officers shall be chosen annually by the
Board of Directors at the first meeting of the board following the annual
meeting of shareholders of the Corporation, or as soon thereafter as is
conveniently possible. Subordinate officers may be elected from time to time.
Each officer shall serve until his successor shall have been chosen and
qualified, or until his death, resignation or removal.
SECTION 4. REMOVAL. Any officer may be removed from office at any
time, with or without cause, by the Board of Directors whenever in its judgment
the best interests of the Corporation will be served thereby.
SECTION 5. VACANCIES. Any vacancy in an office, existing for any
reason, may be filled by the Board of Directors.
SECTION 6. POWERS AND DUTIES. Except as otherwise provided by law,
the Articles of Incorporation or these Bylaws, or as hereinafter provided, the
officers of the Corporation shall each have such powers and duties as from time
to time may be conferred by the Board of Directors.
(a) Chairman. The Chairman shall preside as chairman at all meetings
--------
of the Board of Directors and of the shareholders, and shall have such other
authority and duties as the Board of Directors or these Bylaws shall provide.
(b) Chief Executive Officer. The Chief Executive Officer shall, in
-----------------------
the absence of the Chairman, preside as chairman at all meetings of
shareholders, and shall have general and active management of the business of
the Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. The Chief Executive Officer shall have the
authority to select and appoint employees and agents of the Corporation, and
shall, in the absence or disability of the Chairman of the Board, perform the
duties and exercise the powers of the Chairman of the Board. The Chief
Executive Officer shall perform any other duties and have any other authority as
may be delegated from time to time by the Board of Directors, and shall be
subject to the limitations fixed from time to time by the Board of Directors.
(c) President. The President shall be the chief operating officer of
---------
the Corporation. He shall, under the direction of the Chief Executive Officer,
supervise the management of the day-to-day business of the Corporation. The
President shall perform any
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other duties and have any other authority as may be delegated from time to time
by the Board of Directors or the Chief Executive Officer.
(d) Vice Presidents. The Vice President (if there be one) shall, in
---------------
the absence or disability of the President, or at the direction of the
President, perform the duties and exercise the powers of the President, whether
the duties and powers are specified in these Bylaws or otherwise. If the
Corporation has more than one Vice President, the one designated by the Board of
Directors or the Chief Executive Officer (in that order of precedence) shall act
in the event of the absence or disability of the President. Vice Presidents
shall perform any other duties and have any other authority as from time to time
may be delegated by the Board of Directors, the Chief Executive Officer or the
President.
(e) Secretary. The Secretary shall attend all meetings of the Board
---------
of Directors and all meetings of the shareholders and record all the proceedings
of such meetings in a book to be kept for that purpose and shall perform like
duties for the standing committees of the board when required. He or a designee
shall give, or cause to be given, notice of all meetings of the shareholders,
and shall perform such other duties as may be prescribed by the Board of
Directors or Chief Executive Officer, under whose supervision he shall be. He
shall have custody of the corporate seal of the Corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the Corporation and to
attest to affixing by his signature.
(f) Bonds and Sureties. If required by the Board of Directors, any
------------------
officer or employee shall give the Corporation a bond in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors for the
faithful performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
(g) Signatures. The signature of any officer, employee or agent upon
----------
any document of the Corporation may be made by facsimile or machine signature
under such limitations and circumstances as the Board of Directors or any
appropriate committee of the Board of Directors may provide from time to time.
SECTION 7. VOTING SECURITIES OF CORPORATION. Unless otherwise
provided by the Board of Directors, the Chairman, and in his absence, the Chief
Executive Officer, shall have full power and authority on behalf of the
Corporation to attend and to act and vote at any meetings of security holders of
corporations in which the Corporation may hold securities, and at such meetings
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities which the Corporation might have possessed and
exercised if it
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had been present. The Board of Directors by resolution from time to time may
confer like powers upon any other person or persons.
ARTICLE V
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The
Corporation shall indemnify and hold harmless any person (an "Indemnified
Person") who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action or suit by or in
the right of the Corporation) by reason of the fact that he is or was a director
or officer of the Corporation, against expenses (including, but not limited to,
attorneys' fees and disbursements, court costs and expert witness fees), and
against any judgments, fines, and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful; provided, in any case, that no indemnification shall be made in
respect of expenses, judgments, fines and amounts paid in settlement
attributable to circumstances as to which, under applicable provisions of the
Code as in effect from time to time, such indemnification may not be authorized
by action of the Board of Directors, the shareholders or otherwise.
SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS FOR DERIVATIVE
ACTIONS. The Corporation shall indemnify and hold harmless any Indemnified
Person who is or was a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by or in the right of the
Corporation, by reason of the fact that he is or was a director or officer of
the Corporation, against expenses (including, but not limited to, attorneys'
fees and disbursements, court costs and expert witness fees) actually and
reasonably incurred by him in connection with such action, suit or proceeding,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation. No indemnification shall be
made pursuant to this SECTION 2 for any claim, issue or matter as to which an
Indemnified Person shall have been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
Corporation, or for amounts paid in settlement to the Corporation, unless and
only to the extent that the court in which such action or suit was brought or
other court of competent jurisdiction shall determine upon application that such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper.
SECTION 3. INDEMNIFICATION OF EMPLOYEES AND AGENTS. The Board of
Directors shall have the power to cause the Corporation to provide to any person
who is or was an employee or agent of the Corporation all or any part of the
right to indemnification and other rights of the type provided under SECTIONS 1,
2, 6 and 12 of this ARTICLE V (subject to the conditions, limitations,
obligations and other provisions specified herein), upon a resolution to that
effect identifying such employee or agent (by position or name) and specifying
the particular
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rights provided, which may be different for each employee or agent identified.
Each employee or agent of the Corporation so identified shall be an "Indemnified
Person" for purposes of the provisions of this ARTICLE V.
SECTION 4. SUBSIDIARIES AND OTHER ORGANIZATIONS. The Board of
Directors shall have the power to cause the Corporation to provide to any person
who is or was a director, officer, employee or agent of the Corporation who also
is or was a director, officer, trustee, partner, employee or agent of a
Subsidiary, or is or was serving at the Corporation's request in such a position
with any other organization, all or any part of the right to indemnification and
other rights of the type provided under SECTIONS 1, 2, 6 and 12 of this ARTICLE
V (subject to the conditions, limitations, obligations and other provisions
specified herein), with respect to service by such person in such position with
a Subsidiary or other organization, upon a resolution identifying such person,
the Subsidiary or other organization involved (by name or other classification),
and the particular rights provided, which may be different for each person so
identified. Each person so identified shall be an "Indemnified Person" for
purposes of the provisions of this ARTICLE V. As used in these Bylaws,
"Subsidiary" shall mean (i) another corporation, joint venture, trust,
partnership or unincorporated business association more than 20% of the voting
capital stock or other voting equity interest of which was, at or after the time
of the circumstances giving rise to such action, suit or proceeding, owned,
directly or indirectly, by the Corporation; or (ii) a nonprofit corporation that
receives its principal financial support from the Corporation or its
Subsidiaries.
SECTION 5. DETERMINATION. Notwithstanding any judgment, order,
settlement, conviction or plea in any action, suit or proceeding of the kind
referred to in SECTIONS 1 and 2 of this ARTICLE V, an Indemnified Person shall
be entitled to indemnification as provided in such SECTIONS 1 and 2 if a
determination that such Indemnified Person is entitled to such indemnification
shall be made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who are not at the time parties to the proceeding; or
(ii) if a quorum cannot be obtained under (i) above, by majority vote of a
committee duly designated by the Board of Directors (in which designation
interested directors may participate), consisting solely of two or more
directors who are not at the time parties to the proceeding; or (iii) in a
written opinion by special legal counsel selected as required by Section 14-2-
855(b)(3) of the Code or any successor provision. To the extent that an
Indemnified Person has been successful on the merits or otherwise in defense of
any action, suit or proceeding of the kind referred to in SECTIONS 1 and 2 of
this ARTICLE V, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
SECTION 6. ADVANCES. Expenses (including, but not limited to,
attorneys' fees and disbursements, court costs, and expert witness fees)
incurred by an Indemnified Person in defending any action, suit or proceeding of
the kind described in SECTIONS 1 and 2 hereof (or in SECTION 4 hereof if
applicable to such Indemnified Person) shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as set forth
herein. The Corporation shall promptly pay the amount of such expenses to the
Indemnified Person, but in no
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event later than ten days following the Indemnified Person's delivery to the
Corporation of a written request for an advance pursuant to this SECTION 6,
together with a reasonable accounting of such expenses; provided, however, that
the Indemnified Person shall furnish the Corporation a written affirmation of
his good faith belief that he has met the standard of conduct set forth in the
Code and a written undertaking and agreement, executed personally or on his
behalf, to repay to the Corporation any advances made pursuant to this SECTION 6
if it shall be ultimately determined that the Indemnified Person is not entitled
to be indemnified by the Corporation for such amounts. The Corporation shall
make the advances contemplated by this SECTION 6 regardless of the Indemnified
Person's financial ability to make repayment. Any advances and undertakings to
repay pursuant to this SECTION 6 shall be unsecured and interest-free.
SECTION 7. NON-EXCLUSIVITY. Subject to any applicable limitation
imposed by the Code or the Articles of Incorporation, the indemnification and
advancement of expenses provided by or granted pursuant to this ARTICLE V shall
not be exclusive of any other rights to which a person seeking indemnification
or advancement of expenses may be entitled under any bylaw, resolution or
agreement specifically or in general terms approved or ratified by the
affirmative vote of holders of a majority of the shares entitled to be cast
thereon.
SECTION 8. INSURANCE. The Corporation shall have the power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or who, while a
director, officer, employee, or agent of the Corporation, is or was serving as a
director, officer, trustee, general partner, employee or agent of a Subsidiary
or, at the request of the Corporation, of any other organization, against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
ARTICLE V.
SECTION 9. NOTICE. If any expenses or other amounts are paid by way
of indemnification, otherwise than by court order or action by the shareholders
or by an insurance carrier pursuant to insurance maintained by the Corporation,
the Corporation shall, not later than the next annual meeting of shareholders,
unless such meeting is held within three months from the date of such payment,
and in any event within 15 months from the date of such payment, send by first
class mail to its shareholders of record at the time entitled to vote for the
election of directors a statement specifying the persons paid, the amount paid
and the nature and status at the time of such payment of the litigation or
threatened litigation.
SECTION 10. SECURITY. The Corporation may designate certain of its
assets as collateral, provide self-insurance or otherwise secure its obligations
under this ARTICLE V, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this ARTICLE V, as the Board of Directors deems appropriate.
SECTION 11. AMENDMENT. Any amendment to this ARTICLE V that limits
or otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to claims,
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actions, suits or proceedings based on actions, events or omissions
(collectively, "Post Amendment Events") occurring after such amendment and after
delivery of notice of such amendment to the Indemnified Person so affected. Any
Indemnified Person shall, as to any claim, action, suit or proceeding based on
actions, events or omissions occurring prior to the date of receipt of such
notice, be entitled to the right of indemnification, advancement of expenses and
other rights under this ARTICLE V to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
SECTION 11 cannot be altered, amended or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
SECTION 12. AGREEMENTS. In addition to the rights provided in this
ARTICLE V, the Corporation shall have the power, upon authorization by the Board
of Directors, to enter into an agreement or agreements providing to any person
who is or was a director, officer, employee or agent of the Corporation
indemnification rights substantially similar to, or greater than, those provided
in this ARTICLE V.
SECTION 13. CONTINUING BENEFITS. The indemnification and advancement
of expenses provided by or granted pursuant to this ARTICLE V shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
SECTION 14. SUCCESSORS. For purposes of this ARTICLE V, the terms
"the Corporation" or "this corporation" shall include any corporation, limited
liability company, joint venture, trust, partnership or unincorporated business
association that is the successor to all or substantially all of the business or
assets of this corporation, as a result of merger, consolidation, sale,
liquidation or otherwise, and any such successor shall be liable to the persons
indemnified under this ARTICLE V on the same terms and conditions and to the
same extent as this corporation.
SECTION 15. SEVERABILITY. Each of the sections of this ARTICLE V,
and each of the clauses set forth herein, shall be deemed separate and
independent, and should any part of any such section or clause be declared
invalid or unenforceable by any court of competent jurisdiction, such invalidity
or unenforceability shall in no way render invalid or unenforceable any other
part thereof or any other separate section or clause of this ARTICLE V that is
not declared invalid or unenforceable.
SECTION 16. ADDITIONAL INDEMNIFICATION. In addition to the specific
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and officers to the full extent permitted by action of the Board
of Directors without shareholder approval under the Code or other laws of the
State of Georgia as in effect from time to time.
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ARTICLE VI
CERTIFICATES OF STOCK
SECTION 1. FORM OF CERTIFICATE. Every holder of record of fully-paid
shares in the Corporation shall be entitled to have a certificate in such form
as the Board of Directors may from time to time prescribe.
SECTION 2. LOST CERTIFICATES. The Corporation may issue a new
certificate in place of any certificate theretofore issued by the Corporation
and alleged to have been lost, stolen or destroyed, upon the making of an
affidavit, in form and substance satisfactory to the Corporation, of that fact
by the person claiming the certificate to be lost, stolen or destroyed. The
Corporation may, in its discretion and as a condition precedent to the issuance
thereof, together with such other conditions precedent that it may reasonably
require, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 3. TRANSFERS. (a) Transfers of capital shares of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his duly authorized attorney, or with a transfer clerk or
transfer agent appointed as provided in SECTION 5 of this ARTICLE VI, and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon.
(b) Except as otherwise provided by law or as provided elsewhere
herein, the Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends, and
to vote as such owner, and for all other purposes, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of any other person, whether or not it shall have express or other
notice thereof.
(c) Capital shares may be transferred by delivery of the certificates
thereof, accompanied either by an assignment in writing on the back of the
certificates or by separate written power of attorney to sell, assign and
transfer the same, signed by the record holder thereof, or by his duly
authorized attorney-in-fact, and accompanied by such evidence that all such
signatures are genuine, as the Corporation, at its option, may request, but no
transfer shall affect the right of the Corporation to pay any dividend upon the
stock to the holder of record as the holder in fact thereof for all purposes,
and no transfer shall be valid, except between the parties thereto, until such
transfer shall have been made upon the books of the Corporation as herein
provided.
(d) The board may, from time to time, make such additional rules and
regulations as it may deem expedient, not inconsistent with these Bylaws or the
Articles of
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Incorporation concerning the issue, transfer and registration of certificates
for shares of the Corporation, and nothing contained herein shall limit or waive
any rights of the Corporation with respect to such matters under applicable law
or any subscriptions or other agreement by which the Corporation is bound.
SECTION 4. RECORD DATE. (a) In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or to express any consent or demand
with respect to any corporate action, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a record date, which shall not be more than 70 days and, in case of
a meeting of shareholders, not less than 10 days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
(b) If no record date is fixed as provided in SECTION 4(A), then the
record date for any determination of shareholders that may be proper or required
by law shall be, as appropriate, the date on which notice of a shareholders'
meeting is mailed, the date on which the Board of Directors adopts a resolution
declaring a dividend or authorizing a distribution, or the date on which any
other action is taken that requires a determination of shareholders.
SECTION 5. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint one or more transfer agents or one or more transfer clerks and one or
more registrars, and may require all certificates of shares to bear the
signature or signatures of any of them.
ARTICLE VII
BUSINESS COMBINATIONS
SECTION 1. BUSINESS COMBINATIONS. All of the requirements of
Sections 14-2-1110 et seq. and 14-2-1131 et seq. of the Code (and any successor
-- --- -- ---
provisions) shall be applicable to the Corporation.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DISTRIBUTION. Distributions upon shares of the
Corporation, subject to the provisions, if any, of the Articles of
Incorporation, or any lawful agreement among shareholders, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
Distributions may be paid in cash or in property, subject to applicable
provisions of the Articles of Incorporation. Before payment of any
distribution, there may be set aside out of any funds of the Corporation
available for distribution such sum or sums as the board from time to time, in
its sole and absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing distributions, or for repairing or maintaining
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any property of the Corporation, or for such other purpose as the board shall
deem conducive to the interest of the Corporation, and the board may modify or
abolish any such reserve in its sole and absolute discretion.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 3. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal" and "Georgia." The seal may be used by causing it or a facsimile thereof
to be impressed, affixed or reproduced.
SECTION 4. SAVINGS CLAUSE. To the extent these Bylaws conflict with
any provision of any state or federal law as such laws may be amended from time
to time, these Bylaws shall be construed so as not to conflict with said law,
and any discretionary actions made hereunder shall be made in accordance with
applicable law.
ARTICLE IX
AMENDMENTS
SECTION 1. AMENDMENTS. Except as otherwise provided in SECTION 10.2
of the Articles of Incorporation, these Amended and Restated Bylaws of the
Corporation may be altered, amended or repealed, and new bylaws may be adopted
by a majority vote of the entire Board of Directors of the Corporation or by the
holders of at least 66-2/3% of the shares entitled to vote on the amendment by
each Voting Group entitled to vote on the amendment.
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EXHIBIT 3.3
AGREEMENT AND PLAN OF MERGER
OF
PAMECO CORPORATION
(A DELAWARE CORPORATION)
AND
PAMECO HOLDINGS, INC.
(A DELAWARE CORPORATION)
WITH AND INTO
PAMECO CORPORATION
(A GEORGIA CORPORATION)
THIS AGREEMENT AND PLAN OF MERGER is made and entered into this _________
day of April, 1997, by and among PAMECO HOLDINGS, INC., a Delaware corporation
("HOLDINGS"), PAMECO CORPORATION, a Delaware corporation ("OLD PAMECO"), and NEW
PAMECO GEORGIA CORPORATION, a Georgia corporation ("NEW PAMECO"). Holdings, Old
Pameco and New Pameco are hereinafter sometimes referred to collectively as the
"CONSTITUENT CORPORATIONS"; Holdings and Old Pameco are sometimes referred to
collectively as the "TERMINATING CORPORATIONS"; and New Pameco is sometimes
referred to as the "SURVIVING CORPORATION."
WHEREAS, Holdings is a business corporation of the State of Delaware with
its registered office therein located at 1013 Centre Road, City of Wilmington,
County of New Castle; and
WHEREAS, Old Pameco is a business corporation of the State of Delaware
with its registered office therein located at 1209 Orange Street, City of
Wilmington, County of New Castle; and
WHEREAS, New Pameco is a business corporation of the State of Georgia
with its registered office therein located at 1000 Center Place, City of
Norcross, County of Gwinnett; and
WHEREAS, the Board of Directors of each of the Terminating Corporations
has adopted resolutions approving the merger of Holdings and Old Pameco with and
into New Pameco in accordance with the terms and conditions of this Agreement
and Plan of Merger and directed the respective officers to submit the matter to
a vote of Holdings' and Old Pameco's shareholders, all of whom were provided
with a copy of this Agreement and Plan of Merger; and
WHEREAS, Old Pameco has authorized capital stock consisting of 100 shares
of Common Stock, par value $0.01 per share ("OLD PAMECO COMMON STOCK"), and 900
shares of Preferred Stock, par value $0.01 per share ("OLD PAMECO PREFERRED
STOCK"). At the close of business on April 1, 1997, 100 shares of Old Pameco
Common Stock were issued and outstanding and held by Holdings, all of which were
entitled to vote on and have approved this Agreement and Plan of Merger. The
voting rights and designations of all such shares are more specifically set
forth in Old Pameco's Certificate of Incorporation; and
<PAGE>
WHEREAS, Holdings has authorized capital stock consisting of 11,000,000
shares of Common Stock, par value $0.01 per share, of which 5,500,000 shares
have been designated as Class A Common Stock ("HOLDINGS CLASS A COMMON STOCK"),
and 5,500,000 shares have been designated as Class B Common Stock ("HOLDINGS
CLASS B COMMON STOCK", and together with Holdings Class A Common Stock,
"HOLDINGS COMMON STOCK"), and 25,000 shares of Preferred Stock, par value $1.00
per share ("HOLDINGS PREFERRED STOCK"). At the close of business on April 1,
1997, 4,197,685 shares of Holdings Common Stock were issued and outstanding,
including 2,710,885 shares of Holdings Class A Common Stock. All of the
outstanding shares of Holdings Class A Common Stock were entitled to vote on and
have approved this Agreement and Plan of Merger and 2,650,119 of such shares
were voted in favor of this Agreement and Plan of Merger. The voting rights and
designations of all such shares are more specifically set forth in Holdings'
Certificate of Incorporation; and
WHEREAS, New Pameco has authorized capital stock consisting of 60,000,000
shares of Common Stock, par value $0.01 per share, of which 40,000,000 shares
have been designated as Class A Common Stock ("NEW PAMECO CLASS A COMMON
STOCK"), and 20,000,000 shares have been designated as Class B Common Stock (
"NEW PAMECO CLASS B COMMON STOCK", and together with the New Pameco Class A
Common Stock, "NEW PAMECO COMMON STOCK"), and 5,000,000 shares of Preferred
Stock, par value $1.00 per share ("NEW PAMECO PREFERRED STOCK"). At the close
of business on April 1, 1997, 100 shares of New Pameco Class A Common Stock were
issued and outstanding and held by Holdings. All such shares of outstanding New
Pameco Common Stock were entitled to vote on and approved this Agreement and
Plan of Merger. The voting rights and designations of all such shares are more
specifically set forth in New Pameco's Articles of Incorporation; and
WHEREAS, Section 252 of the Delaware General Corporation Law (the "DGCL")
and Section 14-2-1107 of the Georgia Business Corporation Code (the "GBCC")
permit a merger of business corporations of the State of Delaware with and into
a business corporation of the State of Georgia; and
WHEREAS, the Constituent Corporations deem it advisable and to the
advantage, welfare, and best interests of the Constituent Corporations and their
respective shareholders to merge Old Pameco and Holdings with and into New
Pameco; and
WHEREAS, the parties hereto desire that Old Pameco merge with and into
New Pameco in a reincorporation merger pursuant to Section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "IRC"), and that New Pameco shall
continue as the Surviving Corporation in such merger, upon the terms and subject
to the conditions set forth herein and in accordance with the laws of the State
of Georgia and the laws of the State of Delaware, and that the holder of shares
of Old Pameco Common Stock receive shares of New Pameco Common Stock; and
WHEREAS, the parties hereto desire that immediately following the
reincorporation merger described above, that Holdings merge with and into New
Pameco pursuant to
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Section 368(a)(1)(A) of the IRC and that New Pameco shall continue as the
Surviving Corporation in such merger, upon the terms and subject to the
conditions set forth herein in accordance with the laws of the State of Georgia
and the laws of State of Delaware, and that the holders of shares of Holdings
Common Stock receive shares of New Pameco Common Stock;
NOW THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement and
Plan of Merger, Old Pameco and Holdings shall be merged (individually a "MERGER"
and collectively the "MERGERS") with and into New Pameco in accordance with the
DGCL and the GBCC, the separate existence of Old Pameco and Holdings shall cease
and New Pameco shall be the Surviving Corporation and continue its corporate
existence under the laws of the State of Georgia. The Surviving Corporation
shall possess all of the rights, privileges, immunities, powers and franchises
of a public as well as of a private nature, and shall be subject to all of the
restrictions, disabilities and duties, of each of the Constituent Corporations;
and all and singular rights, privileges, immunities, powers and franchises of
each of the Constituent Corporations, and all property, real, personal and
mixed, and all debts due to each of the Constituent Corporations, on whatever
account, including subscriptions to shares, and all other things in action or
belonging to each of the Constituent Corporations shall be vested in the
Surviving Corporation resulting from the Merger; and all property, rights,
privileges, immunities, powers and franchises, and each and every interest,
shall thereafter be the property of the Surviving Corporation as it was of the
Constituent Corporations and the title to any real estate, vested by deed or
otherwise, in each of the Constituent Corporations, shall not revert or in any
way be impaired by reason of the Merger. All rights of creditors and all liens
upon any property of each of the Constituent Corporations shall be preserved
unimpaired and all debts, liabilities and duties of the respective Constituent
Corporations shall thereafter attach to the Surviving Corporation and may be
enforced against the Surviving Corporation to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it. Any action or
proceeding, whether civil, criminal or administrative, pending by or against
each Constituent Corporation shall be prosecuted as if the Merger had not taken
place, or the Surviving Corporation may be substituted as a party in such action
or proceeding in place of each of the Constituent Corporations.
1.2 EFFECTIVE TIME OF THE MERGERS. The Merger of Holdings into New
Pameco shall become effective (the "EFFECTIVE TIME OF THE HOLDINGS MERGER")
immediately prior to the execution and delivery of that certain Underwriting
Agreement among New Pameco, the underwriters named therein and certain selling
shareholders relating to New Pameco's sale of shares of Class A Common Stock as
described in that certain Form S-1 Registration Statement filed with the
Securities and Exchange Commission by New Pameco on March 27, 1997 (No.
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333-24043), as it may be amended from time to time (the "REGISTRATION
STATEMENT"), and the Merger of Old Pameco into New Pameco shall become effective
immediately prior to the Effective Time of the Holdings Merger (the "EFFECTIVE
TIME OF THE OLD PAMECO MERGER"); provided, however, that if the Mergers have not
occurred by the close of business on July 31, 1997, then this Agreement and Plan
of Merger shall terminate and be of no further force nor effect.
1.3 CORPORATE ACTIONS. The Board of Directors and the proper officers
of the Constituent Corporations are hereby authorized, empowered, and directed
to do any and all acts and things, and to make, execute, deliver, file, and
record any and all instruments, papers, and documents which shall be or become
necessary, proper, or convenient to carry out or put into effect any of the
provisions of this Agreement and Plan of Merger.
ARTICLE II
NAME, ARTICLES OF INCORPORATION, BYLAWS,
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
2.1 NAME OF SURVIVING CORPORATION. The name of the Surviving
Corporation shall be "Pameco Corporation."
2.2 ARTICLES OF INCORPORATION. The Articles of Incorporation of New
Pameco shall be the Articles of Incorporation of the Surviving Corporation after
the Effective Time of the Old Pameco Merger and after the Effective Time of the
Holdings Merger until amended thereafter as provided therein or by law.
2.3 BYLAWS. The Bylaws of New Pameco shall be the Bylaws of the
Surviving Corporation after the Effective Time of the Old Pameco Merger and
after the Effective Time of the Holdings Merger until amended thereafter as
provided therein or by law.
2.4 DIRECTORS AND OFFICERS. The directors and officers of New Pameco at
the Effective Time of the Old Pameco Merger shall be the directors and officers,
respectively, of the Surviving Corporation after the Effective Time of the Old
Pameco Merger and after the Effective Time of the Holdings Merger until
expiration of their current terms as such, or prior resignation, removal or
death, subject to the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE III
CONVERSION AND EXCHANGE OF STOCK
3.1 CONVERSION. (a) At the Effective Time of the Old Pameco Merger,
each share of Old Pameco Common Stock issued and outstanding immediately prior
to the Effective Time of the Old Pameco Merger shall, by virtue of the Merger
and without any action on the part of the
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holder thereof, be converted into the right to receive 1.25 validly issued,
fully paid and non-assessable shares of New Pameco Class A Common Stock.
(b) At the Effective Time of the Holdings Merger, each of the
following shall be deemed to occur simultaneously:
(i) Each holder of shares of Holdings Class A Common Stock and Class
B Common Stock issued and outstanding immediately prior to the Effective
Time of the Holdings Merger shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into the right
to receive the number of validly issued, fully paid and non-assessable
shares of New Pameco Common Stock (by class) indicated on SCHEDULE 1 to
this Agreement and Plan of Merger.
(ii) New Pameco shall assume all the rights and obligations of
Holdings under the Holdings stock option plans and grants (the "PLANS").
The outstanding options and grants assumed by New Pameco shall be
exercisable upon the same terms and conditions as under the Plans and the
option agreements relating thereto immediately prior to the Effective
Time of the Holdings Merger; provided, however, that except as set forth
below, upon the exercise of such options, shares of New Pameco Class A
Common Stock shall be issuable in lieu of shares of Holdings Common
Stock; provided, further, that upon the exercise of that certain option
granted to Terfin International, Ltd., to purchase 50,000 shares of
Holdings Common Stock, shares of New Pameco Class B Common Stock shall be
issuable in lieu thereof. The number of shares of New Pameco Class A or
Class B Common Stock issuable upon the exercise of each such outstanding
option shall be at the rate of 1.25 shares of such New Pameco Class A or
Class B Common Stock for one (1) share of Holdings Class A or Class B
Common Stock, respectively, issuable upon the exercise of an option
immediately prior to the Effective Time of the Holdings Merger, and the
option price for each share of New Pameco Common Stock shall be equal to
eighty percent (80%) of the option price in effect immediately prior to
the Effective Time of the Holdings Merger. All options issued pursuant
to the Plans after the Effective Time of the Holdings Merger shall
entitle the holders thereof to purchase shares of New Pameco Class A
Common Stock.
(iii) Each share of New Pameco Class A Common Stock issued and
outstanding immediately prior to the Effective Time of the Holdings
Merger and held by Holdings shall be canceled without any consideration
being issued or paid therefor.
(c) No script or fractional share certificates of New Pameco Common
Stock shall be issued in connection with the Mergers. In lieu of any fractional
interest, there shall be paid in cash an amount equal to the number of shares of
New Pameco Common Stock represented by such fraction multiplied by the price to
the public of shares of New Pameco Class A Common Stock sold pursuant to the
offering described in the Registration Statement, which amount shall be
delivered to the holder of such fractional interest upon delivery of the share
certificates to be received in connection with the Mergers.
5
<PAGE>
3.2 EXCHANGE.
(a) After the Effective Time of the Old Pameco Merger, each
certificate theretofore representing issued and outstanding shares of Old
Pameco Common Stock shall represent the right to the number of whole
shares of New Pameco Class A Common Stock issuable in the Merger.
(b) After the Effective Time of the Holdings Merger, each
certificate theretofore representing issued and outstanding shares of
Holdings Class A or Class B Common Stock, as the case may be, shall
represent the right to receive the number of whole shares of New Pameco
Class A or Class B Common Stock, respectively, issuable in the Merger as
set forth on SCHEDULE 1 hereto.
(c) At any time on or after the Effective Time of the Holdings
Merger, any holder of certificates theretofore evidencing ownership of
shares of Holdings Class A or Class B Common Stock shall be entitled,
upon surrender of such certificates to the transfer agent of the
Surviving Corporation, to receive in exchange therefor one or more new
stock certificates evidencing ownership of the number of shares of New
Pameco Class A or Class B Common Stock, into which such Holdings Common
Stock shall have been converted in the Mergers. New Pameco shall make
available to such transfer agent certificates evidencing ownership of
such number of shares of New Pameco Class A and Class B Common Stock as
are required to effect such exchange.
ARTICLE IV
EMPLOYEE BENEFIT AND COMPENSATION PLANS
AND EMPLOYMENT AGREEMENTS
4.1 ASSUMPTION. At the Effective Time of the Old Pameco Merger and the
Effective Time of the Holdings Merger, respectively, each employee benefit plan,
incentive compensation plan and employment agreement to which each Terminating
Corporation is then a party shall be assumed by, and continue to be the plan or
agreement of, the Surviving Corporation.
4.2 CONVERSION. To the extent any employee benefit plan, incentive
compensation plan or employment agreement of the Terminating Corporations
provides for the issuance or purchase of, or otherwise relates to, Old Pameco
Common Stock or Holdings Common Stock, after the Effective Time of the Old
Pameco Merger and the Effective Time of the Holdings Merger, respectively, such
plan or agreement shall be deemed to provide for the issuance or purchase of, or
otherwise relate to, New Pameco Class A Common Stock at the rate of: (i) 1.25
shares of New Pameco Class A Common Stock for one (1) share of Old Pameco Common
Stock and (ii) 1.25 shares of New Pameco Class A Common Stock for one (1) share
of Holdings Common Stock; and the price payable thereunder or therefor (if any)
with respect to each share shall be equal to eighty percent (80%) of the price
in effect immediately prior thereto.
6
<PAGE>
ARTICLE V
SERVICE OF PROCESS
The Surviving Corporation does hereby agree that it may be served with
process in the State of Delaware in any proceeding for enforcement of any
obligation of the Terminating Corporations, as well as for enforcement of any
obligation of the Surviving Corporation arising from the Mergers, including any
suit or other proceeding to enforce the right of any stockholder of the
Terminating Corporations as and when determined in appraisal proceedings
pursuant to the provisions of Section 262 of the DGCL; and does hereby
irrevocably appoint the Secretary of State of the State of Delaware as its agent
to accept service of process in any such suit or other proceedings; and does
hereby specify the following address without the State of Delaware to which a
copy of such process shall be mailed by the Secretary of State of the State of
Delaware:
Pameco Corporation
1000 Center Place
Norcross, Georgia 30093
ARTICLE VI
GENERAL
6.1 FURTHER ACTIONS. If, at any time after the Effective Time of the
Holdings Merger, the Surviving Corporation shall consider or be advised that any
acts are necessary or desirable (i) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation, title to and possession of any property
or right of the Terminating Corporations or the Surviving Corporation, as the
case may be, acquired or to be acquired by reason of, or as a result of the
Mergers, or (ii) otherwise to carry out the purposes of this Agreement and Plan
of Merger, each of the Terminating Corporations and their respective officers
and directors shall be deemed to have hereby granted to the Surviving
Corporation an irrevocable power of attorney to make, execute, deliver, file and
record any and all instruments, papers and documents necessary to vest, perfect,
or confirm title to, and the possession of, such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement
and Plan of Merger, and the proper officers and directors of the Surviving
Corporation are hereby fully authorized in the name of the Terminating
Corporations or the Surviving Corporation or otherwise to take any and all such
actions.
6.2 TERMINATION AND ABANDONMENT. At any time prior to the consummation
of the Mergers, this Agreement and Plan of Merger may be terminated and the
Mergers abandoned by the Board of Directors of each of the Terminating
Corporations; provided, however, that after the Effective Time of the Old Pameco
Merger, Holdings may not terminate this Agreement and Plan of Merger.
7
<PAGE>
6.3 AMENDMENT. This Agreement and Plan of Merger may be amended at any
time prior to the Effective Time of the Old Pameco Merger with the consent of
the Boards of Directors of the Constituent Corporations; provided, however, that
this Agreement and Plan of Merger, after it has been adopted by the stockholders
of the Terminating Corporations, may not be amended in any manner which, in the
judgment of the Boards of Directors of the Terminating Corporations, would have
a material adverse effect on the rights of such stockholders or in any manner
not permitted under applicable law; provided, further, that the Boards of
Directors of the Constituent Corporations shall have the power, without
stockholder approval, to adjust the ratio of shares of New Pameco Common Stock
to be received by the holders of Holdings Common Stock in the Mergers.
6.4 HEADINGS. The headings set forth herein are inserted for
convenience of reference only and are not intended to be part of, or to affect
the meaning or interpretation of, this Agreement and Plan of Merger.
6.5 COUNTERPARTS. This Agreement and Plan of Merger may be executed in
two or more counterparts, each of which shall constitute an original, and all of
which, when taken together, shall constitute one and the same instrument.
6.6 GOVERNING LAW. This Agreement and Plan of Merger shall be governed
and construed in accordance with the laws of the State of Georgia, except to the
extent the laws of the State of Delaware shall mandatorily apply to the Mergers.
8
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf by its duly authorized officers, all as of the day
and year first above written.
Pameco Holdings, Inc.,
a Delaware corporation
By:_________________________________
Name:____________________________
Title: _________________________
Pameco Corporation,
a Delaware corporation
By:_________________________________
Name:____________________________
Title: _________________________
New Pameco Georgia Corporation,
a Georgia corporation
By:_________________________________
Name:____________________________
Title:___________________________
9
<PAGE>
SCHEDULE 1
----------
TO
AGREEMENT AND PLAN OF MERGER
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
NUMBER OF SHARES OF NEW PAMECO COMMON STOCK
NAME OF SHAREHOLDER HOLDINGS COMMON STOCK OWNED TO BE RECEIVED/1/
- -----------------------------------------------------------------------------------------------
CLASS A CLASS B CLASS A CLASS B
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TCR International Partners, L.P. 687,538 - - 859,422.5
- -----------------------------------------------------------------------------------------------
Terbem Limited 482,304 951,379 - 1,792,103.75
- -----------------------------------------------------------------------------------------------
Tinvest Limited 431,609 387,731 - 1,024,175.00
- -----------------------------------------------------------------------------------------------
Mitvest Limited 191,759 - - 239,698.75
- -----------------------------------------------------------------------------------------------
Bobst Investment Group 244,060 - - 305,075.00
- -----------------------------------------------------------------------------------------------
K Investment Partners, L.P. 48,671 - - 60,838.75
- -----------------------------------------------------------------------------------------------
Klingenstein Charitable Partners 29,704 - - 37,130.00
- -----------------------------------------------------------------------------------------------
TG Partners 18,967 - - 23,708.75
- -----------------------------------------------------------------------------------------------
James Balkcom, Jr. 50,000 38,095 110,118.75 -
- -----------------------------------------------------------------------------------------------
Linda P. Balkcom - 28,571 35,713.75 -
- -----------------------------------------------------------------------------------------------
Julie Balkcom Green - 4,762 5,952.50 -
- -----------------------------------------------------------------------------------------------
Mary Kathryn Balkcom - 4,762 5,952.50 -
- -----------------------------------------------------------------------------------------------
Michael E. Bulkin & Rosemary H. Bulkin - 10,000 12,500.00 -
- -----------------------------------------------------------------------------------------------
Gerald V. Gurbacki - 61,500 76,875.00 -
- -----------------------------------------------------------------------------------------------
James D. Askren II 7,666 - 9,582.50 -
- -----------------------------------------------------------------------------------------------
B. Stuart Rogers 17,500 - 21,875.00 -
- -----------------------------------------------------------------------------------------------
Thomas L. Totte 5,000 - 6,250.00 -
- -----------------------------------------------------------------------------------------------
Jill A. Lange 1,833 - 2,291.25 -
- -----------------------------------------------------------------------------------------------
Ben A.H. Dacke 2,500 - 3,125.00 -
- -----------------------------------------------------------------------------------------------
Patricia M. Fowler 433 - 541.25 -
- -----------------------------------------------------------------------------------------------
Stephen J. Pavlichek 333 - 416.25 -
- -----------------------------------------------------------------------------------------------
Brian R. Esher 284,455 - 355,568.75 -
- -----------------------------------------------------------------------------------------------
Brian R. Esher Children's Trust 119,500 - 149,375.00 -
- -----------------------------------------------------------------------------------------------
The Bank of Nova Scotia 60,433 - 75,541.25 -
- -----------------------------------------------------------------------------------------------
James Giolas 4,000 - 5,000.00 -
- -----------------------------------------------------------------------------------------------
Paul Bois 11,500 - 14,375.00 -
- -----------------------------------------------------------------------------------------------
Jeffrey Ward 2,820 - 3,525.00 -
- -----------------------------------------------------------------------------------------------
Thomas Jacques 6,100 - 7,625.00 -
- -----------------------------------------------------------------------------------------------
Mary McCulley 2,200 - 2,750.00 -
- -----------------------------------------------------------------------------------------------
Total 2,710,885 1,486,800 904,953.75 4,342,152.50
- -----------------------------------------------------------------------------------------------
</TABLE>
/1/ The number of shares to be received is based on a ratio of 1.25 shares of
New Pameco Common Stock per share of Holdings Common Stock. Pursuant to
Section 6.3 of the Agreement and Plan of Merger, this ratio may be adjusted
by the Boards of Directors of the Constituent Corporations. No script or
fractional share certificates will be issued in connection with the
Mergers. Cash shall be paid in lieu of fractional interests as described in
the Agreement and Plan of Merger.
10
<PAGE>
EXHIBIT 10.4
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made this 23rd day of April 1997, by and between NEW
PAMECO GEORGIA CORPORATION, a Georgia corporation (the "CORPORATION"), and
_________________ (the "INDEMNIFIED PARTY").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Indemnified Party currently serves as a director or
officer, or both, of the Corporation, and in such capacity is performing a
valuable service; and
WHEREAS, the Indemnified Party also currently serves as a director or
officer of the Corporation's sole shareholder, Pameco Holdings, Inc. ("PHI");
and
WHEREAS, it has been proposed that PHI merge with and into the
Corporation; and
WHEREAS, pursuant to the Corporation's Articles of Incorporation, as
amended to date (the "ARTICLES"), the Corporation may indemnify its directors
and officers to the fullest extent authorized by applicable law; and
WHEREAS, Section 14-2-850 et. seq. of the Georgia Business Corporation
Code, as amended to date (the "STATE STATUTE"), provides the statutory basis for
the indemnification of directors and officers of a Georgia corporation; and
WHEREAS, Article V of the Corporation's Bylaws (the "BYLAWS")
specifically authorizes the Corporation to enter into agreements with the
Corporation's directors and officers providing for the indemnification of such
directors and officers to the fullest extent permitted by law; and
WHEREAS, in accordance with Section 14-2-858 of the State Statute and
Article V of the Bylaws, the Corporation may purchase a policy, or policies, of
directors and officers liability insurance ("D&O INSURANCE") covering certain
liabilities which may be incurred by its directors, officers and other persons
in the performance of their services for the Corporation; and
WHEREAS, in order to induce the Indemnified Party to continue to
serve, the Corporation has determined and agreed to enter into this Agreement
with the Indemnified Party;
NOW, THEREFORE, in consideration of Indemnified Party's continued
service on behalf of the Corporation after the date hereof, the parties hereto
agree as follows:
1. INDEMNITY. The Corporation hereby agrees to hold harmless and indemnify
---------
the Indemnified Party to the fullest extent authorized or permitted by the
provisions of the State Statute (other than Sections 14-2-856 and 14-2-
857(a)(2)) with respect to the indemnification of directors and officers, or by
any amendment thereof or other statutory provision authorizing or permitting
such indemnification which is adopted after the date hereof.
<PAGE>
2. MAINTENANCE OF INSURANCE AND SELF INSURANCE. (a) Subject only to the
-------------------------------------------
provisions of SECTION 2(b), the Corporation hereby agrees that, for so long as
the Indemnified Party shall continue to serve on behalf of the Corporation (or
shall continue at the request of the Corporation to serve as a director,
officer, employee or agent of another corporation, partnership, limited
liability company, joint venture, trust, employee benefit plan or other
enterprise) and thereafter so long as the Indemnified Party shall be subject to
any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, and
whether formal or informal, by reason of the fact that the Indemnified Party
served on behalf of the Corporation (or served in any of said other capacities),
the Corporation will purchase and maintain in effect for the benefit of the
Indemnified Party one or more valid, binding and enforceable policies of D&O
Insurance.
(b) The Corporation shall not be required to maintain said policy or
policies of D&O Insurance in effect if such insurance is not reasonably
available or if, in the reasonable business judgment of the Board of Directors,
either (i) the premium cost for such insurance is substantially disproportionate
to the amount of coverage or (ii) the coverage provided by such insurance is so
limited by exclusions that there is insufficient benefit to the Indemnified
Party from such insurance
3. ADDITIONAL INDEMNITY. Subject only to the exclusions set forth in
--------------------
SECTION 4 hereof, the Corporation hereby further agrees to hold harmless and
indemnify Indemnified Party against any and all expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by Indemnified Party in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of the
Corporation) to which Indemnified Party is, was or at any time becomes a party,
or is threatened to be made a party, by reason of the fact that Indemnified
Party (a) is, was or at any time becomes a director, officer, employee or agent
of the Corporation, (b) is or was serving or at any time serves at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, limited liability company, joint venture, trust or
other enterprise, or (c) served as a director, officer, employee or agent of
PHI, or PHI's other subsidiary, Pameco Corporation, a Delaware corporation.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to SECTIONS
-----------------------------------
1 or 3 hereof shall be paid by the Corporation:
(a) In respect of expenses, judgments, fines and settlement amounts to
the extent attributable to remuneration paid or other financial benefit provided
to Indemnified Party by the Corporation if it shall be determined by a final
judgment or other final adjudication that such remuneration or financial benefit
was paid or provided in violation of Indemnified Party's duties and obligations
to the Corporation;
(b) On account of any suit in which judgment is rendered against
Indemnified Party for an accounting of profits, made from the purchase or sale
by Indemnified Party of
<PAGE>
securities of the Corporation, pursuant to the provisions of Section 16(b) of
the Securities Exchange Act of 1934, as amended, or similar provisions of any
federal, state or local statutory law, or on account of any payment by
Indemnified Party to the Corporation in respect of any claim for such
accounting;
(c) On account of Indemnified Party's conduct if it shall be determined
by a final judgment or other final adjudication to have been knowingly
fraudulent, deliberately dishonest, or grossly negligent, or to have constituted
valid willful misconduct; or
(d) If a final decision by a court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
5. CONTRIBUTION. (a) If the indemnification provided in SECTIONS 1 or 3
------------
is unavailable and may not be paid to the Indemnified Party for any reason
(other than pursuant to SECTIONS 4(a), (b), and (c)), then in respect of any
threatened, pending or completed action, suit or proceeding in which the
Corporation is jointly liable with the Indemnified Party (or would be if joined
in such action, suit or proceeding), the Corporation shall contribute to the
amount of expenses, judgments, fines, penalties and settlements paid or payable
by the Indemnified Party in such proportion as is appropriate to reflect (i) the
relative benefits received by the Corporation on the one hand and the
Indemnified Party on the other from the transaction from which such action, suit
or proceeding arose, and (ii) the relative fault of the Corporation on the one
hand and of the Indemnified Party on the other in connection with the events
which resulted in such expenses, judgments, fines, penalties or settlement
amounts, as well as any other relevant equitable considerations. The relative
fault of the Corporation on the one hand and of the Indemnified Party on the
other shall be determined by reference to, among other things, the parties'
relative intent, knowledge, access to information, and opportunity to correct or
prevent the circumstances resulting in such expenses, judgments, fines,
penalties or settlement amounts. The Corporation agrees that it would not be
just and equitable if contribution pursuant to this SECTION 5 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
(b) The determination as to the amount of the contribution, if any,
shall be made by: (i) a court of competent jurisdiction upon the application
of both the Indemnified Party and the Corporation (if an action or suit had been
brought in, and final determination had been rendered by, such court); (ii) the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding; or (iii) regular outside
counsel of the Corporation, if a quorum is not obtainable for purposes of clause
(ii) above, or, even if obtainable, a quorum of disinterested directors so
directs.
6. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
---------------------------
Corporation contained herein shall continue during the period the Indemnified
Party is a director, officer, employee or agent of the Corporation (or is
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, limited liability company, joint
venture, trust, employee benefit plan or other enterprise), and shall continue
thereafter for so
<PAGE>
long as the Indemnified Party shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that the
Indemnified Party was serving in any such capacity on behalf of the Corporation.
7. ADVANCEMENT OF EXPENSES. Expenses (including attorneys' fees),
-----------------------
judgments, fines, penalties and amounts paid in settlement actually and
reasonably incurred by the Indemnified Party with respect to any action, suit or
proceeding referred to in SECTIONS 1 or 3 shall be advanced by the Corporation
prior to the time of the disposition of such action, suit or proceeding promptly
upon the receipt of a (a) written affirmation from the Indemnified Party of his
good faith belief that he is entitled to be indemnified by the Corporation for
such expenses, judgments, fines, penalties or amounts paid in settlement under
the provisions of the State Statute, the Charter, this Agreement or otherwise,
and (b) written undertaking to return promptly any amounts advanced hereunder if
it shall ultimately be determined that the Indemnified Party is not entitled to
indemnification from the Corporation for such amounts under the provisions of
the State Statute, this Agreement or otherwise.
8. NOTIFICATION AND DEFENSE OF CLAIM. Promptly after receipt by the
---------------------------------
Indemnified Party of notice of the commencement of any action, suit or
proceeding, the Indemnified Party will, if a claim in respect thereof is to be
made against the Corporation under this Agreement, notify the Corporation of the
commencement thereof, but the failure to notify the Corporation will not relieve
it from any liability which it may have to the Indemnified Party otherwise than
under this Agreement. With respect to any such action, suit or proceeding as to
which the Indemnified Party so notifies the Corporation:
(a) The Corporation will be entitled to participate at its own expense;
(b) Except as otherwise provided below, the Corporation may assume the
defense thereof, with counsel satisfactory to the Indemnified Party. After
notice from the Corporation to the Indemnified Party of its election to assume
such defense, the Corporation will not be liable to the Indemnified Party under
this Agreement for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof, other than reasonable
costs of investigation or as otherwise provided below. The Indemnified Party
shall have the right to employ its own counsel in such action, suit or
proceeding, but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the expense
of the Indemnified Party unless (i) the employment of counsel by the Indemnified
Party has been authorized by the Corporation, (ii) counsel to the Indemnified
Party shall have reasonably concluded that there may be a conflict of interest
between the Corporation and the Indemnified Party in the conduct of the defense
of such action and has advised the Indemnified Party in writing that such a
conflict of interest exists, or (iii) the Corporation shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and expenses of counsel for the Indemnified Party shall be at the
expense of the Corporation. The Corporation shall not be entitled to assume the
defense of any action, suit or proceeding brought by or on behalf of
<PAGE>
the Corporation or as to which the Indemnified Party shall have made the
conclusion provided for in clause (ii) above; and
(c) The Corporation shall have no obligation to indemnify the
Indemnified Party under this Agreement for any amounts paid in settlement of any
action or claim effected without the Corporation's prior written consent. The
Corporation shall not settle any action or claim in any manner which would
impose any penalty or limitation on the Indemnified Party without the
Indemnified Party's prior written consent. Neither the Corporation nor the
Indemnified Party will unreasonably withhold their consent to any proposed
settlement.
9. REPAYMENT OF EXPENSES. The Indemnified Party agrees to reimburse the
---------------------
Corporation for all reasonable expenses, judgments, fines, penalties and amounts
paid in settlement paid by the Corporation in defending any civil, criminal,
administrative or investigative action, suit or proceeding against the
Indemnified Party or advanced by the Corporation to the Indemnified Party in
such event, but only to the extent that it shall be ultimately determined that
the Indemnified Party is not entitled to be indemnified by the Corporation for
such expenses, judgments, fines, penalties or amounts paid in settlement under
the provisions of the State Statute, the Bylaws, this Agreement or otherwise.
10. ENFORCEMENT. (a) The Corporation expressly confirms and agrees that
-----------
it has entered into this Agreement and assumed the obligations imposed on it
hereby in order to induce the Indemnified Party to continue to serve on behalf
of the Corporation, and acknowledges that the Indemnified Party is relying upon
this Agreement in continuing to serve in such capacity.
(b) If the Indemnified Party is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, then the Corporation shall reimburse the Indemnified Party for all of
the Indemnified Party's reasonable fees and expenses in bringing and pursuing
such action.
11. SEVERABILITY. Each of the provisions of this Agreement is a separate
------------
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable in whole or in part for any
reason, such invalidity or unenforceability shall not affect the validity or
enforceability of the other provisions hereof.
12. GOVERNING LAW; SUCCESSORS; AMENDMENT AND TERMINATION.
----------------------------------------------------
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Georgia, without regard to its
conflicts of laws rules.
(b) This Agreement shall be binding upon the Indemnified Party, his
heirs, personal representative and assigns and the Corporation, and its
successors and assigns, and inure to the benefit of and be enforceable by the
Indemnified Party, his heirs, personal representatives and assigns and the
Corporation, and its successors and assigns.
<PAGE>
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in a writing signed by both parties hereto.
13. NO DUPLICATION OF PAYMENTS. The Corporation shall not be liable under
--------------------------
this Agreement to make any payment to the extent the Indemnified Party has
otherwise actually received payment (under any insurance policy, bylaw provision
or otherwise) of the amounts otherwise indemnifiable hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
CORPORATION:
NEW PAMECO GEORGIA CORPORATION
By:_____________________________
Chairman of the Board
INDEMNIFIED PARTY:
________________________________
<PAGE>
EXHIBIT 11.1
PAMECO CORPORATION
COMPUTATION OF HISTORICAL NET INCOME PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
FEBRUARY 29, FEBRUARY 28,
1996 1997
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Primary and fully diluted:
Weighted average common stock and common stock equiv-
alents outstanding during the period................ 6,250 5,910
Effect of common stock equivalents issued subsequent
to March 26, 1996 computed in accordance with the
treasury stock method as required by the SEC(1)..... 348 348
------ -------
Total............................................ 6,598 6,258
====== =======
Net income........................................... $5,494 $10,732
====== =======
Historical net income per share of common stock(1)... $ 0.83 $ 1.71
====== =======
</TABLE>
- ---------------------
(1) Pursuant to SEC Staff Accounting Bulletin No. 83, common stock equivalents
issued at prices below the assumed initial public offering price per share
("cheap stock") during the twelve month period immediately preceding the
initial filing date of the Company's Registration Statement for its
initial public offering have been included in historical earnings per
share as if outstanding for all periods presented (using the treasury
stock method at the assumed initial public offering price).
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated April 22, 1997 (except for Note 10 as to which
the date is May , 1997), in the Registration Statement (Form S-1 No. 333-
24043) and related Prospectus of Pameco Corporation for the registration of
3,578,644 shares of its Class A Common Stock.
Ernst & Young LLP
Atlanta, Georgia
May , 1997
- ---------------------
The foregoing consent is in the form that will be signed upon the restatement
of capital accounts pursuant to filing of the merger agreement described in
Note 10 to the consolidated financial statements.
Ernst & Young LLP
Atlanta, Georgia
May 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PAMECO
CORPORATION AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 145
<SECURITIES> 0
<RECEIVABLES> 20,346
<ALLOWANCES> 2,535
<INVENTORY> 107,477
<CURRENT-ASSETS> 126,365
<PP&E> 8,436
<DEPRECIATION> 2,789
<TOTAL-ASSETS> 149,369
<CURRENT-LIABILITIES> 92,216
<BONDS> 34,379
0
0
<COMMON> 64
<OTHER-SE> 14,567
<TOTAL-LIABILITY-AND-EQUITY> 149,369
<SALES> 378,658
<TOTAL-REVENUES> 0
<CGS> 285,439
<TOTAL-COSTS> 367,638
<OTHER-EXPENSES> 1,533
<LOSS-PROVISION> 1,792
<INTEREST-EXPENSE> 3,923
<INCOME-PRETAX> 5,564
<INCOME-TAX> (5,592)
<INCOME-CONTINUING> 11,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,156
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
</TABLE>
